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

                                   FORM 10-QSB

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

               For the quarterly period ended: September 30, 2000

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

           For the transition period from ___________ to ___________.

                         Commission File Number: 0-28815

                     FIRST LITCHFIELD FINANCIAL CORPORATION
                     --------------------------------------
        (Exact name of small business issuer as specified in its charter)


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

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

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


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

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

         Yes [ X ]         No  [    ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 1,514,931 shares of Common Stock, par
value $.01 per share, were outstanding at October 27, 2000.

Transitional Small Business Disclosure Format (check one):

Yes [   ]      No  [ X ]


<PAGE>

                     FIRST LITCHFIELD FINANCIAL CORPORATION

                                   FORM 10-QSB

                                      INDEX

<TABLE>
<CAPTION>
                                                                                     Page

Part I - Consolidated Financial Information

        Item 1 - Financial Statements
        <S>                                                                          <C>
              Consolidated Balance Sheets - September 30, 2000 (unaudited) and
                  December 31, 1999. . . . . . . . . . . . . . . . . . . . . . . . .  2

              Consolidated Statements of Income (unaudited) - Three months and
                  nine months ended September 30, 2000 and 1999. . . . . . . . . . .  3

              Consolidated Statements of Comprehensive Income (unaudited) -Three
                  months and nine months ended September 30, 2000 and 1999. . . . . . 4

              Consolidated Statements of Cash Flows (unaudited) -  Nine months
                 ended September 30, 2000 and 1999   . . . . . . . . .. . . . . . . . 5

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

        Item 2 - Management's Discussion and Analysis of Financial Condition
          and Results of  Operations . . . . . . . . . . . . . . . . . . . . . .. . . 8

Part II - Other Information

        1.  Legal Proceedings   . . . . . . . . . . . . . . . . . . . . . . . . . . . None

        2.  Changes in Securities and Use of Proceeds . . . . . . . . . . . . . . . . None

        3.  Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . None

        4.  Submission of Matters to a Vote of Security Holders . . . . . . . . . . . None

        5.  Other Information  . . . . . . . . . . . . . . . . . . . . . . . . . . .  17

        6.  Exhibits and Reports on Form 8-K  . . . . . . . . . . . . . . . . . . . . 17

Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>

<PAGE>


FIRST LITCHFIELD FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                               September 30,        December 31,
                                                                                   2000                 1999
                                                                              --------------       -------------
                                                                               (Unaudited)
ASSETS
<S>                                                                           <C>                  <C>
   Cash and due from banks                                                    $    7,924,517       $  12,800,196
                                                                              --------------       -------------
                                              CASH AND CASH EQUIVALENTS            7,924,517          12,800,196
                                                                              --------------       -------------
   Securities:
     Available for sale securities:
       US Treasuries and other securities (amortized cost $29,461,158-2000        28,992,270          23,663,850
            and $24,491,689-1999)
       Mortgage-backed securities (amortized cost $22,039,588-2000
        and $19,279,026-1999)                                                     21,807,018          19,036,632
     Held to maturity securities:
       Mortgage-backed securities (market value $2,789,144-2000
        and $4,147,716-1999)                                                       2,796,785           4,188,851
                                                                              --------------       -------------
                                                       TOTAL SECURITIES           53,596,073          46,889,333
                                                                              --------------       -------------

   Federal Home Loan Bank stock, at cost                                           2,389,800           2,100,000
   Federal Reserve Bank stock, at cost                                                81,850              81,850
   Loans Receivable:
     Real estate-residential mortgage                                            118,866,498         115,392,170
     Real estate-commercial mortgage                                              22,250,610          19,821,940
     Real estate-construction                                                      7,709,249           7,090,241
     Commercial                                                                    8,583,263           8,063,552
     Installment                                                                  34,443,110          33,114,855
     Other                                                                           123,008             123,370
                                                                              --------------       -------------
                                                            TOTAL LOANS          191,975,738         183,606,128
     Net deferred loan origination costs                                           1,407,963           1,217,288
     Allowance for loan losses                                                    (1,016,491)         (1,014,522)
                                                                              --------------       --------------
                                                              NET LOANS          192,367,210         183,808,894
                                                                              --------------       -------------

Deferred taxes                                                                       227,750             378,450
Bank premises and equipment, net                                                   2,896,838           3,017,976
Foreclosed real estate                                                               300,000                  --
Accrued interest receivable                                                        1,811,271           1,455,363
Other assets                                                                       5,895,989           5,441,728
                                                                              --------------       -------------

                                                           TOTAL ASSETS       $  267,491,298       $ 255,973,790
                                                                              ==============       =============

LIABILITIES
   Deposits:
     Noninterest bearing:
        Demand                                                                $   36,058,137       $  33,990,059
     Interest bearing:
        Savings                                                                   36,328,333          36,556,699
        Money market                                                              43,424,337          44,111,008
        Time certificates of deposit in denominations of $100,000 or more         17,920,700          16,802,864
        Other time certificates of deposit                                        69,990,651          65,772,152
                                                                              --------------       -------------
                                                         TOTAL DEPOSITS          203,722,158         197,232,782
                                                                              --------------       -------------

   Federal Home Loan Bank advances                                                45,415,000          41,730,000
   Collateralized borrowings                                                         960,927             830,227
   Accrued expenses and other liabilities                                          1,211,302           1,254,572
                                                                              --------------       -------------
                                                      TOTAL LIABILITIES          251,309,387         241,047,581
                                                                              --------------       -------------
   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 - 2000,  2,500,000  shares - 1999
     Issued - 1,597,350 shares, outstanding - 1,514,931 shares - 2000 and
     Issued - 1,567,353 shares, outstanding, 1,484,934 shares - 1999                  15,973               15,674
   Capital surplus                                                                11,150,626           10,933,465
   Retained earnings                                                               6,144,614            5,324,445
   Less: Treasury stock at cost-82,419 shares                                       (701,061)            (701,061)
   Accumulated other comprehensive loss-net unrealized loss
     on available for sale securities (net of taxes)                                (428,241)            (646,314)
                                                                              ---------------      ---------------
                                             TOTAL SHAREHOLDERS' EQUITY           16,181,911           14,926,209
                                                                              --------------       ---------------
                             TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $  267,491,298       $  255,973,790
                                                                              ==============       ===============
</TABLE>

See Notes to Consolidated Financial Statements.

                                       2
<PAGE>

FIRST LITCHFIELD FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

<TABLE>
<CAPTION>
                                                          Three Months                       Nine Months
                                                       Ended September 30,                Ended September 30,
                                                      2000             1999             2000               1999
                                                 -------------    --------------    -------------    --------------
INTEREST AND DIVIDEND INCOME
<S>                                              <C>              <C>               <C>              <C>
   Interest and fees on loans                    $   3,853,751    $    3,344,152    $  11,161,247    $    9,369,903
   Interest and dividends on securities:
      Mortgage-backed                                  429,017           350,679        1,185,691         1,135,075
      US Treasury and other                            515,606           421,105        1,466,407         1,193,715
   Deposits with banks                                     932                 5            1,038                16
   Other interest income                                    --               217               --            11,811
                                                 -------------    --------------    -------------    --------------
                          TOTAL INTEREST INCOME      4,799,306         4,116,158       13,814,383        11,710,520
                                                 -------------    --------------    -------------    --------------

INTEREST EXPENSE
   Interest on deposits:
      Savings                                          134,107           130,210          388,798           383,279
      Money market                                     423,186           366,345        1,206,331         1,075,641
      Time certificates of deposit in
          denominations $100,000 or more               216,169           147,713          612,322           459,729
      Other time certificates of deposit             1,034,236           820,639        2,899,488         2,523,081
                                                 -------------    --------------    -------------    --------------
                     TOTAL INTEREST ON DEPOSITS      1,807,698         1,464,907        5,106,939         4,441,730
   Interest on Federal Home Loan Bank advances         724,475           402,003        1,971,685           778,366
   Interest on borrowed money                               --                --               --               743
                                                 -------------    --------------    -------------    --------------
                         TOTAL INTEREST EXPENSE      2,532,173         1,866,910        7,078,624         5,220,839
                                                 -------------    --------------    -------------    --------------
                            NET INTEREST INCOME      2,267,133         2,249,248        6,735,759         6,489,681
PROVISION FOR LOAN LOSSES                               45,000            30,000          135,000            90,000
                                                 -------------    --------------    -------------    --------------
                      NET INTEREST INCOME AFTER
                      PROVISION FOR LOAN LOSSES      2,222,133         2,219,248        6,600,759         6,399,681
                                                 -------------    --------------    -------------    --------------
NONINTEREST INCOME
   Banking service charges and fees                    160,287           123,805          460,584           350,725
   Trust                                               210,000           178,500          630,000           535,500
   Other                                                86,770            43,199          276,344           173,532
                                                 -------------    --------------    -------------    --------------
                       TOTAL NONINTEREST INCOME        457,057           345,504        1,366,928         1,059,757
                                                 -------------    --------------    -------------    --------------
NONINTEREST EXPENSE
   Salaries                                            817,844           730,899        2,401,384         2,100,645
   Employee benefits                                   223,047           185,682          662,852           536,598
   Net occupancy                                       110,942           126,802          337,490           362,102
   Equipment                                           122,089           115,455          360,643           316,088
   Legal fees                                           33,391            41,045          168,524            90,503
   Directors fees                                       46,476            33,310          120,680           107,185
   Computer services                                   190,377           168,922          548,830           535,506
   Supplies                                             40,670            53,686          127,162           156,994
   Commissions, services and fees                       56,317            60,668          189,446           182,685
   Postage                                              32,902            23,670           83,724            81,127
   Advertising                                          56,670            64,930          155,394           170,257
   OREO & non-performing loan expenses-net               5,003               647            6,608             3,463
   Other                                               278,038           241,419          837,670           814,436
                                                 -------------    --------------    -------------    --------------
                     TOTAL NONINTEREST EXPENSES      2,013,766         1,847,135        6,000,407         5,457,589
                                                 -------------    --------------    -------------    --------------

                     INCOME BEFORE INCOME TAXES        665,424           717,617        1,967,280         2,001,849
PROVISION FOR INCOME TAXES                             234,978           233,826          692,632           641,219
                                                 -------------    --------------    -------------    --------------
                                     NET INCOME  $     430,446    $      483,791    $   1,274,648    $    1,360,630
                                                 =============    ==============    =============    ==============

INCOME PER SHARE
                     BASIC NET INCOME PER SHARE  $        0.28    $         0.33    $        0.84    $         0.92
                                                 =============    ==============    =============    ==============
                   DILUTED NET INCOME PER SHARE  $        0.28    $         0.31    $        0.83    $         0.88
                                                 =============    ==============    =============    ==============

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

See Notes to Consolidated Financial Statements.

                                       3
<PAGE>


FIRST LITCHFIELD FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


<TABLE>
<CAPTION>

Three months ended September 30, (Unaudited)                       2000                 1999
                                                              ----------------     ---------------
<S>                                                           <C>                  <C>
Net income                                                    $        430,446     $     483,791
Unrealized holding gains (losses) on securities:
       Unrealized holding gains (losses) arising during
        the period, net of taxes                                       249,068          (205,807)
                                                              ----------------     ---------------

Comprehensive income                                          $        679,514     $     277,984
                                                              ================     ===============

Nine months ended September 30, (Unaudited)                        2000                  1999
                                                              ----------------     ---------------

Net income                                                    $      1,274,648     $   1,360,630
Unrealized holding gains (losses) on securities:
       Unrealized holding gains (losses) arising during
        the period, net of taxes                                       218,074          (526,355)
                                                              ----------------     ---------------

Comprehensive income                                          $      1,492,722     $     834,275
                                                              ================     ===============
</TABLE>

See Notes to Consolidated Financial Statements.


                                    4

<PAGE>


FIRST LITCHFIELD FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)

<TABLE>
<CAPTION>
                                                                       Nine Months Ended September 30,
                                                                          2000                1999
                                                                      --------------     -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                   <C>                <C>
Net income                                                            $    1,274,648     $   1,360,630
Adjustments to reconcile net income to net cash
  provided by operating activities:
       Amortization and accretion of premiums and discounts
          on investment securities, net                                      (76,614)           52,649
       Provision for loan losses                                             135,000            90,000
       Depreciation and amortization                                         282,819           287,591
       Loss on sale of foreclosed real estate                                     --             3,463
       Loans originated for sale                                                  --          (542,550)
       Proceeds from sales of loans held for sale                                 --           922,150
       Loss on disposals of bank premises and equipment                           --               546
       Increase in accrued interest receivable                              (355,908)         (198,626)
       Increase in other assets                                             (210,542)         (372,869)
       Increase in net deferred loan origination costs                      (190,675)         (770,597)
       (Decrease) increase in accrued expenses and other
           liabilities                                                       (46,270)          265,778
                                                                      --------------     -------------

           Net cash provided by operating activities                         812,458         1,098,165
                                                                      --------------     -------------

CASH FLOWS FROM INVESTING ACTIVITIES

Available  for  sale  mortgage-backed securities:
       Proceeds from maturities and principal payments                     3,019,057         6,206,309
       Purchases                                                          (5,702,436)       (3,994,548)
Available for sale US Treasury and other investment securities:
       Proceeds from maturity                                              1,000,000         2,000,000
       Purchases                                                          (5,961,570)       (8,998,813)
Held to maturity mortgage-backed securities:
       Proceeds from maturities and principal payments                     1,383,597         2,437,143
Purchase of Federal Home Loan Bank Stock                                    (289,800)         (537,600)
Net increase in loans                                                     (8,907,236)      (25,040,306)
Purchase of bank premises and equipment                                     (161,681)       (1,139,043)
Proceeds from sale of bank premises and equipment                                 --               169
Increase in cash surrender value of Bank owned
   life insurance                                                           (139,125)               --
                                                                      --------------     -------------
       Net cash used in investing activities                             (15,759,194)      (29,066,689)
                                                                      --------------     --------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in savings, money market and
  demand deposits                                                          1,153,041         5,004,370
Net increase (decrease) in certificates of deposit                         5,336,335        (6,000,135)
Net increase in borrowings under Federal Home
  Loan  Bank advances                                                      3,685,000        28,964,000
Net increase in collateralized borrowings                                    130,700           242,739
Proceeds from exercise of stock options                                      217,460           118,206
Dividends paid on common stock                                              (451,479)         (423,341)
                                                                      --------------     --------------
       Net cash provided by financing activities                          10,071,057        27,905,839
                                                                      --------------     -------------
       Net decrease in cash and cash equivalents                          (4,875,679)          (62,685)

CASH AND CASH EQUIVALENTS, at beginning of period                         12,800,196         8,756,166
                                                                      --------------     -------------

CASH AND CASH EQUIVALENTS, at end of period                           $    7,924,517     $   8,693,481
                                                                      ==============     =============

SUPPLEMENTAL INFORMATION

Cash paid during the period for:

       Interest on deposits and borrowings                            $    7,152,908     $   5,089,771
                                                                      ==============     =============
       Income taxes                                                   $      446,952     $     689,656
                                                                      ==============     =============
Net cash investing and financing activities:

       Transfer of loans to other real estate owned                   $      300,000     $          --
                                                                      ==============     =============
       Transfer of loans to repossessed assets                        $      104,595     $          --
                                                                      ==============     =============
</TABLE>

See Notes to Consolidated Financial Statements.


                                       5
<PAGE>


FIRST LITCHFIELD FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  The  consolidated  balance  sheet at December 31, 1999 has been derived from
    the audited  financial  statements at that date, but does not include all of
    the  information  and footnotes  required by generally  accepted  accounting
    principles for complete financial statements.

2.  The accompanying  unaudited  consolidated  financial  statements and related
    notes  have been  prepared  pursuant  to the rules  and  regulations  of the
    Securities and Exchange  Commission.  Accordingly,  certain  information and
    footnote  disclosures  normally included in financial statements prepared in
    accordance with generally accepted  accounting  principles have been omitted
    pursuant  to  such  rules  and  regulations.   The  accompanying   financial
    statements and related notes should be read in conjunction  with the audited
    financial  statements  of  First  Litchfield   Financial   Corporation  (the
    "Company") and notes thereto for the fiscal year ended December 31, 1999.

    These  financial  statements  reflect,  in the  opinion of  Management,  all
    adjustments,  consisting of normal  recurring  adjustments,  necessary for a
    fair presentation of the Company's financial position and the results of its
    operations  and its cash flows for the  periods  presented.  The  results of
    operations  for the three and nine months ended  September  30, 2000 are not
    necessarily indicative of the results of operations that may be expected for
    all of 2000.

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

    The following is information  about the  computation of net income per share
    for the three and nine month periods ended  September 30, 2000 and 1999. The
    1999 information has been restated to give  retroactive  effect to all stock
    dividends and stock splits for the periods presented.

    For the Three Months Ended September 30, 2000

<TABLE>
<CAPTION>
                                                   Net                        Per Share
                                                  Income        Shares         Amount
                                                 --------      ---------      ---------
    Basic Net Income Per Share
<S>                                              <C>           <C>            <C>
      Income available to common shareholders    $430,446      1,514,931      $   .28

    Effect of Dilutive Securities
      Options Outstanding                              --             --

    Diluted Net Income Per Share
      Income available to common shareholders
                                                 --------      ---------      -------
      plus assumed conversions                   $430,446      1,514,931      $   .28
                                                 ========      =========      =======
</TABLE>

                                       6
<PAGE>

<TABLE>
<CAPTION>

    For the Three Months Ended September 30, 1999
                                                              Net                                       Per Share
                                                            Income               Shares                   Amount
                                                           --------            ---------                ---------
    Basic Net Income Per Share
<S>                                                        <C>                  <C>                     <C>
      Income available to common shareholders              $483,791            1,484,934                $     .33

    Effect of Dilutive Securities
      Options Outstanding                                       --                65,462

    Diluted Net Income Per Share
      Income available to common shareholders
                                                           --------            ---------                ---------
      plus assumed conversions                             $483,791            1,550,396                $     .31
                                                           ========            =========                =========

    For the Nine Months Ended September 30, 2000
                                                              Net                                       Per Share
                                                            Income               Shares                   Amount
                                                           --------            ----------               ---------
    Basic Net Income Per Share
      Income available to common shareholders            $1,274,648            1,509,339                $    .84

    Effect of Dilutive Securities
      Options Outstanding                                       --                28,923

    Diluted Net Income Per Share
      Income available to common shareholders
                                                         ----------            ----------               ---------
      plus assumed conversions                           $1,274,648            1,538,262                $    .83
                                                         ==========            ==========               =========


    For the Nine Months Ended September 30, 1999

                                                            Net                                         Per Share
                                                          Income                 Shares                   Amount
                                                         --------              ----------               ---------

    Basic Net Income Per Share
      Income available to common shareholders           $1,360,630              1,483,554                $     .92

    Effect of Dilutive Securities
      Options Outstanding                                      --                  64,522

    Diluted Net Income Per Share
      Income available to common shareholders
                                                         ----------            ----------               ---------
      plus assumed conversions                           $1,360,630             1,548,076               $     .88
                                                         ==========            ==========               =========
</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
                                                                                               September 30, 2000
                                                                                ---------------------------------------------------
                                                                                 Before-Tax        Tax (Expense)     Net-of-Tax
                                                                                   Amount             Benefit          Amount
                                                                                ---------------------------------------------------
<S>                                                                             <C>                  <C>             <C>
Unrealized holding gains arising during the period                              $    407,976         $(158,908)      $  249,068
Less: reclassification adjustment for amounts recognized in net income                    --                --               --
                                                                                ------------         ----------      ----------

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

                                                                                                  September 30, 1999
                                                                                ---------------------------------------------------
                                                                                 Before-Tax          Tax (Expense)   Net-of-Tax
                                                                                   Amount               Benefit        Amount
                                                                                ---------------------------------------------------

Unrealized holding losses arising during the period                             $ (340,860)          $   135,053     $ (205,807)
Less: reclassification adjustment for amounts recognized in net income                  --                   --              --
                                                                                ----------           -----------     ----------
Unrealized holding loss on available for sale securities, net of taxes          $ (340,860)          $   135,053     $ (205,807)
                                                                                ==========           ===========     ==========

                                                                                                  Nine Months Ended
                                                                                                  September 30, 2000
                                                                                ---------------------------------------------------
                                                                                 Before-Tax          Tax (Expense)   Net-of-Tax
                                                                                   Amount               Benefit        Amount
                                                                                ---------------------------------------------------

Unrealized holding gains arising during the period                              $  368,775           $  (150,701)    $  218,074
Less: reclassification adjustment for amounts recognized in net income                  --                    --            --
                                                                                ----------           -----------     ----------
Unrealized holding gain on available for sale securities, net of taxes          $  368,775           $  (150,701)    $  218,074
                                                                                ==========           ===========     ==========

                                                                                                  September 30, 1999
                                                                                ---------------------------------------------------
                                                                                 Before-Tax          Tax (Expense)   Net-of-Tax
                                                                                   Amount               Benefit        Amount
                                                                                ---------------------------------------------------

Unrealized holding losses arising during the period                             $ (868,382)          $   342,027     $ (526,355)
Less: reclassification adjustment for amounts recognized in net income                  --                    --             --
                                                                                ----------           -----------     ----------
Unrealized holding loss on available for sale securities, net of taxes          $ (868,382)          $   342,027     $ (526,355)
                                                                                ==========           ===========     ===========
</TABLE>

                                       7
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

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 (OCC.) The First National Bank of Litchfield
is the Company's  only  subsidiary  and only source of income.  The Bank has two
subsidiaries,  Lincoln Corporation and Litchfield Mortgage Service  Corporation,
which are  Connecticut  corporations.  The purpose of 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 the
Litchfield  Mortgage  Service  Corporation  is to  act as a  passive  investment
company in accordance with Connecticut law.

Both the Company and the Bank are headquartered in Litchfield, CT. The Bank is a
full-service  commercial bank serving both individuals and businesses  generally
within Litchfield County Connecticut. Deposits are insured up to specific limits
of the Federal Deposit Insurance Act by the Bank Insurance Fund (BIF),  which is
administered  by the Federal Deposit  Insurance  Corporation  (the "FDIC").  The
Bank's lending  activities  include loans secured by residential  and commercial
mortgages.  Other  loan  products  include  consumer  and  business  installment
lending,  as well as other  secured  and  nonsecured  lending.  The Bank has six
banking  locations located in the towns of Torrington,  Litchfield,  Washington,
Marble Dale,  Goshen and  Roxbury,  Connecticut.  In 1975,  the Bank was granted
Trust powers by the OCC. The Bank's Trust  Department  provides trust  fiduciary
services to individuals, nonprofit organizations and commercial customers.

As of September 30, 2000,  the Company had total assets of  $267,491,298,  which
was  an  increase  of   $11,517,508   or  4.5%  from  year-end  1999  assets  of
$255,973,790. The growth in assets was in the securities and loan portfolios.

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

FINANCIAL CONDITION

Total  assets  as of  September  30,  2000  were  $267,491,298  an  increase  of
$11,517,508 or 4.5% from year-end 1999 assets of $255,973,790.

Cash and cash equivalents decreased by $4,875,679 or 38.1% during the first nine
months of 2000. This decrease occurred during the first quarter of the year, and
was the result of lower  requirements  for cash and liquid funds after providing
for  greater  liquidity  as  part  of  the  Bank's  preparation  for  Year  2000
contingency planning at the end of 1999.

Growth in assets was  experienced  in both the loan and  securities  portfolios.
Total  securities as of September 30, 2000 aggregated  $53,596,073,  which is an
increase of $6,706,740  or 14.3% from the year-end 1999 level.  First and second
quarter  purchases of US Government  Treasury  securities  and agency bonds were
made in an effort to improve  liquidity  as well as to increase the yield on the
portfolio.  Net loans totaled $192,367,210 as of September 30, 2000, an increase
of  $8,558,316

                                       8
<PAGE>


or 4.7% over the balance at December 31, 1999.  Growth was experienced in nearly
all loan portfolios.  The largest increase was in the residential and commercial
mortgage portfolios, which increased $3,474,328 and $2,428,670 respectively from
the year-end 1999 balances.  Construction mortgages totaled $7,709,249, which is
an  increase  of  $619,008  or 8.7% over the year end  balance.  Commercial  and
installment  loans  increased  by  $519,711  or 6.4%  and  $1,328,255  or  4.0%,
respectively. The increased loan demand continues to be the result of the strong
local  economy,  the Bank's  competitively  priced loan  products and the Bank's
reputation for excellent customer service.

Total  liabilities  increased by  $10,261,806 or 4.3% from December 31, 1999, of
which  63.2% or  $6,489,376  resulted  from an increase  in  deposits.  Deposits
totaled  $203,722,158  as of September  30, 2000  compared to the year-end  1999
balance  of  $197,232,782.  Increases  occurred  in  demand  deposits  and  time
certificates of deposit. Total demand deposits were $36,058,137 at September 30,
2000,  an increase of  $2,068,078  or 6.1% from the December 31, 1999 balance of
$33,990,059.  New  accounts  resulting  from the  consolidation  of banks in the
Corporation's market area is the cause of this increase.

Total time  certificates  of deposit  increased by 6.7% and 6.4%,  respectively,
since  year-end 1999.  Other time  certificates  of deposit were  $69,990,651 at
September  30, 2000,  an increase of  $4,218,499,  or 6.4% from the December 31,
1999 balance of $65,772,152.  Shorter term time certificates of deposits offered
at competitive  rates caused the growth in these deposits.  This increase offset
slight decreases in money market and savings deposits.

As of September 30, 2000,  Federal Home Loan Bank advances  totaled  $45,415,000
which  was an  increase  of  $3,685,000  or 8.8%  from the year end  balance  of
$41,730,000.  This  increase was used to supplement  deposit  growth to fund the
growth of earning assets.

RESULTS OF OPERATIONS

THREE MONTHS ENDED  SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED  SEPTEMBER
30, 1999

Summary

Net income for the third quarter of 2000 totaled  $430,446 which is a decline of
$53,345 or 11.0% from third quarter 1999 earnings of $483,791.  Quarterly  basic
and fully  diluted net income per share for 2000 were both $.28 compared to $.33
and $.31, respectively, for the same period in 1999.

Net Interest Income

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

                                                2000           1999
                                             ----------     ----------

Interest and dividend income                 $4,799,306     $4,116,158
Tax-equivalent adjustments                       14,908          7,012
Interest expense                              2,532,173      1,866,910
                                             ----------     ----------

Net interest income - tax equivalent basis   $2,282,041     $2,256,260
                                             ==========     ==========

                                       9
<PAGE>

The following table presents the Company's average balance sheets (computed on a
daily basis), net interest income, and interest rates for the three months ended
September  30, 2000 and 1999.  Average  loans  outstanding  include  nonaccruing
loans.  Interest income is presented on a tax-equivalent  basis which reflects a
federal tax rate of 34% for all periods presented.

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

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

Total interest earning assets              249,555,000        4,814,214         7.72%

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

Total Average Assets                   $   265,519,000
                                       ===============


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

Total interest bearing liabilities         212,250,000        2,532,173         4.77%

Demand deposits                             36,351,000
Other liabilities                              914,000
Shareholders' Equity                        16,004,000
                                       ---------------

Total liabilities and equity           $   265,519,000
                                       ===============

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

<CAPTION>

                                               Three months ended September 30,  1999
                                         ---------------------------------------------------
                                                                 Interest
                                              Average            Earned/           Yield/
                                              Balance             Paid              Rate
                                          ---------------      -----------         -------
Assets
<S>                                       <C>                  <C>                   <C>
Interest Earning Assets:
Loans                                     $   173,439,000      $  3,351,164          7.73%
Investment Securities                          50,999,000           771,800          6.05%
Other interest earning assets                      17,000               206          4.85%
                                          ---------------      ------------

Total interest earning assets                 224,455,000         4,123,170          7.35%

Allowance for loan losses                      (1,082,000)
Cash and due from banks                         7,011,000
Bank premises and equipment                     2,905,000
Net unrealized gain/loss on
  securities                                        3,000
Foreclosed real estate                                  0
Other assets                                    4,832,000
                                          ---------------

Total Average Assets                      $   238,124,000
                                          ===============


Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
Savings deposits                          $    36,557,000      $    130,210          1.42%
Money Market deposits                          44,749,000           366,345          3.27%
Time deposits                                  79,214,000           968,352          4.89%
Borrowed funds                                 29,110,000           402,003          5.52%
                                          ---------------      ------------

Total interest bearing liabilities            189,630,000         1,866,910          3.94%

Demand deposits                                32,590,000
Other liabilities                               1,152,000
Shareholders' Equity                           14,752,000
                                          ---------------

Total liabilities and equity              $   238,124,000
                                          ===============

Net interest income - tax
  equivalent basis                                             $  2,256,260
                                                               ============
Net interest spread                                                                  3.41%
Net interest margin                                                                  4.02%
</TABLE>

RATE/VOLUME ANALYSIS

                                                     Three months ended
                                                 9/30/00 Compared to 9/30/99
                                                  Increase (Decrease) Due to
                                            ------------------------------------
                                             Volume         Rate          Total
                                            --------       ------      ---------
Interest earned on:
Loans                                       $364,861     $ 152,634     $517,495
Investment securities                        108,156        65,599      173,755
Other interest income                           (103)         (103)        (206)
                                            ---------    ----------    --------
Total interest earning assets                472,914       218,130      691,044

Interest paid on:
Deposits                                      84,301       258,490      342,791
Borrowed money                               218,765       103,707      322,472
                                            ---------    ----------    --------
Total interest bearing liabilities           303,066       362,197      665,263

Increase (decrease) in net interest income  $169,848     $(144,067)    $ 25,781
                                            =========    ==========    ========

                                       10
<PAGE>

Of the $25,781 increase in the net interest income (on a tax equivalent  basis),
a decrease of $144,067 resulted from interest rate fluctuations  during 2000 and
an  increase of $169,848 is  attributed  to  increases  in the volume of average
interest earning assets and interest bearing liabilities.

Tax  equivalent  net  interest  income for the third  quarter of 2000  increased
$25,781 or 1.1% from third quarter of 1999. The increase in net interest  income
is due to the higher levels of earning  assets over last year.  Average  earning
assets for the third  quarter of 2000 were $250 million  which is an increase of
$25  million  from the  average  earning  assets for the third  quarter of 1999.
Offsetting  much of the  increase  resulting  from the  higher  level of earning
assets was a lower net interest  margin  experienced  in 2000.  The net interest
margin for the third quarter of 2000 was 3.66%,  36 basis points lower than that
for the same quarter of the previous  year.  The cause of the decline in the net
interest margin continues to be due to funding costs increasing at a faster rate
than interest on earning assets.  Since the third quarter of 1999, funding costs
rose 83 basis points from 3.94% to 4.77%.  Earning assets yields  however,  rose
only 37 basis points, from 7.35% to 7.72%. This is due to the higher balances of
borrowed funds which may change  frequently due to market  conditions,  and rate
competition  for  deposits,  while many fixed rate loan  products do not reprice
when market conditions change.

Provision for Loan Losses

The provision for loan losses for the third quarter of the year totaled $45,000,
an  increase  of  $15,000  from the third  quarter  of 1999.  The  increase  was
necessitated by the increase in net loan chargeoffs during 2000.

During the third  quarter of 2000,  the  Company  recorded  net  charge-offs  of
$61,825  compared to net  charge-offs  of $791 for the same period in 1999.  The
increase in net charge-offs  relates primarily to increases in the consumer loan
portfolio.  Loans  charged  off during the third  quarter of 2000  included  net
charge-offs  of $29,134 in  installment  loans made  through the  indirect  loan
program.  Also during the third quarter the Bank had net  charge-offs of $24,108
and $8,583 in the mortgage and credit card portfolios.

Noninterest Income

Noninterest income totaled $457,057 for the quarter ended September 30, 2000, an
increase of $111,553  or 32.3% from the  $345,504  earned for the same period in
1999.  Banking service charges and fees have increased by $36,482 or 29.5%. This
increase was caused by increases in fees from overdrafts,  ATMs and debit cards.
Trust fees  increased by $31,500 or 17.6%  resulting from higher levels of trust
assets  and fee  increases.  Third  quarter  other  noninterest  income  totaled
$86,770,  an increase of $43,571 from 1999. The increase was caused primarily by
income  relating to  increases  in the cash  surrender  value of bank owned life
insurance.  Also  contributing to the increase in other  noninterest  income was
increased safe deposit rental income.

Noninterest Expense

For the three  months ended  September  30, 2000,  noninterest  expense  totaled
$2,013,766,  an increase  of $166,631 or 9.0% from the same period of 1999.  The
primary cause of this increase was salary and benefits costs which  increased by
$124,310  due mostly to  additional  staffing  as well as group  insurance  rate
increases.

                                       11
<PAGE>

Costs for external  computer  services totaled $190,377 for the third quarter of
2000,  which was an increase of $21,455 or 12.7% from the third quarter of 1999.
This increase is due to increased  costs for such services  rendered  during the
quarter.  Other noninterest expenses totaled $278,038,  which was an increase of
$36,619 due to increased costs for insurance,  regulatory assessments,  computer
consulting,  software and contributions.  Costs for supplies, commissions, legal
fees and advertising decreased for the third quarter of 2000.

Income Taxes

The  provision  for income taxes for the three month period ended  September 30,
2000 totaled  $234,978  which was similar to the  provision of $233,826 from the
same period in 1999.  Although  taxable income was higher for 1999, the historic
renovation  tax credit  taken in 1999  resulted  in a lower  third  quarter  tax
expense for 1999 as compared to the third quarter of 2000.

RESULTS OF  OPERATIONS - NINE MONTHS ENDED  SEPTEMBER  30, 2000 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1999

Summary

Net income for the Company for the nine months ended  September 30, 2000 totaled
$1,274,648,  a decrease  of $85,982 or 6.3% from 1999  earnings  of  $1,360,630.
Basic and diluted  net income per share for the nine month  period were $.84 and
$.83 per share respectively.  These results are lower than the basic and diluted
net income per share amounts of $.92 and $.88 per share  respectively,  reported
for the first nine months of 1999.

Net Interest Income

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

                                                     2000             1999
                                                 -------------   --------------

 Interest and dividend income                    $  13,814,383   $  11,710,520
 Tax-equivalent adjustments                             46,660          17,238
 Interest expense                                    7,078,624       5,220,839
                                                 -------------   -------------

 Net interest income - tax equivalent basis      $   6,782,419   $   6,506,919
                                                 =============   =============

The following table presents the Company's average balance sheets (computed on a
daily basis),  net interest income, and interest rates for the nine months ended
September  30, 2000 and 1999.  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.

                                       12
<PAGE>

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

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

Total interest earning assets              244,447,000       13,861,043           7.56%

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

Total Average Assets                   $   259,467,000
                                       ===============


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

Total interest bearing liabilities         207,458,000        7,078,624           4.55%

Demand deposits                             35,483,000
Other liabilities                              990,000
Shareholders' Equity                        15,536,000
                                       ---------------

Total liabilities and equity           $   259,467,000
                                       ===============

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

<CAPTION>

                                               Nine months ended September 30,  1999
                                         ---------------------------------------------------
                                                                Interest
                                             Average            Earned/           Yield/
                                             Balance             Paid              Rate
                                         ---------------      -----------         ------
Assets
Interest Earning Assets:
<S>                                      <C>                  <C>                   <C>
Loans                                    $   164,035,000      $  9,387,141          7.63%
Investment Securities                         51,468,000         2,328,806          6.03%
Other interest earning assets                    330,000            11,811          4.77%
                                         ---------------      ------------

Total interest earning assets                215,833,000        11,727,758          7.24%

Allowance for loan losses                     (1,054,000)
Cash and due from banks                        5,943,000
Bank premises and equipment                    2,539,000
Net unrealized gain/loss on
  securities                                     (49,000)
Foreclosed real estate                                 0
Other assets                                   3,586,000
                                         ---------------

Total Average Assets                         226,798,000
                                         ===============


Liabilities and Shareholder's Equity
Interest Bearing Liabilities:
Savings deposits                         $    35,673,000      $    383,279          1.43%
Money Market deposits                         43,925,000         1,075,641          3.27%
Time deposits                                 80,418,000         2,982,810          4.95%
Borrowed funds                                19,280,000           779,109          5.39%
                                         ---------------      ------------

Total interest bearing liabilities           179,296,000         5,220,839          3.88%

Demand deposits                               32,142,000
Other liabilities                                702,000
Shareholders' Equity                          14,658,000
                                         ---------------

Total liabilities and equity             $   226,798,000
                                         ===============

Net interest income - tax
   equivalent basis                                           $  6,506,919
                                                              ============
Net interest spread                                                                 3.36%
Net interest margin                                                                 4.02%
</TABLE>

RATE/VOLUME ANALYSIS

<TABLE>
<CAPTION>
                                                        Nine months ended
                                                   9/30/00 Compared to 9/30/99
                                                    Increase (Decrease) Due to
                                            --------------------------------------------
                                             Volume           Rate              Total
                                            --------         ------          -----------
Interest earned on:
<S>                                        <C>             <C>               <C>
Loans                                      $1,484,962      $  335,804        $1,820,766
Investment securities                         173,543         150,787           324,330
Other interest income                          (5,906)         (5,905)          (11,811)
                                           ----------      ----------        ----------
Total interest earning assets               1,652,599         480,686         2,133,285

Interest paid on:
Deposits                                      191,756         473,453           665,209
Borrowed money                              1,012,572         180,004         1,192,576
                                           ----------      ----------        ----------
Total interest bearing liabilities          1,204,328         653,457         1,857,785

Increase in net interest income            $  448,271      $ (172,771)       $  275,500
                                           ==========      ===========       ==========
</TABLE>

Of the $275,500 increase in the net interest income (on a tax equivalent basis),
a decrease of $172,771 resulted from interest rate fluctuations  during 2000 and
an  increase of $448,271 is  attributed  to  increases  in the volume of average
interest earning assets and interest bearing liabilities.

                                       13
<PAGE>

Tax  equivalent  net interest  income for the first six months of 2000 increased
$275,500 or 4.2% from the same  period in 1999.  The  increase  in net  interest
income is due to the higher  levels of earning  assets  over last year.  Average
earning assets for the nine months ended September 30, 2000 totaled $244 million
which is an increase of $28 million from average  earning assets of $216 million
for the nine months ended  September 30, 1999. The effect of the increased level
of earning  assets  offset the  negative  effect of interest  rate  fluctuations
during the year. The net interest  margin was 3.70% for the first nine months of
2000.  This margin has  decreased 32 basis points from the 4.02% for the similar
period of 1999. The higher interest rate environment experienced during 2000 has
decreased the net interest margin by increasing funding costs,  especially costs
for borrowed  money.  The yield on earning  assets is 32 basis points above that
for the nine months  ended  September  30,  1999,  while the cost of funds is 67
basis points higher. Intense rate competition with other institutions as well as
fixed rate  products  have  caused the yield on earning  assets to increase at a
much  slower  pace than  increases  in interest  rates.  On the other hand,  the
funding  liabilities of the Company are now comprised of a significant amount of
borrowed funds which adjust rapidly to interest rate changes. Deposit costs have
also increased,  though not as rapidly as the cost for borrowed  funds.  Deposit
interest  rate  increases  have been  caused by  intense  rate  competition  for
deposits locally as well as overall increases in the market rate environment.

Provision for Loan Losses

The  provision  for loan  losses for the first nine  months of the year  totaled
$135,000,  an increase of $45,000 from the first nine months of 1999.  Growth in
net chargeoffs,  particularly in the consumer installment loans, was the primary
reason for the increased provision.  The provision for loan losses is determined
quarterly and assessed along with the adequacy of the loan loss reserve.

During the first three quarters of 2000, the Company recorded net charge-offs of
$133,031  compared to net  charge-offs of $3,263 for the first three quarters of
1999.  The  increase  in net  charge-offs  for the first nine months of 2000 was
caused by credit losses in the mortgage loan  portfolio and in the consumer loan
portfolio, particularly in installment and credit card loans.

Noninterest Income

Year to date  noninterest  income for the nine months ended  September  30, 2000
totaled $1,366,928,  an increase of $307,171 or 29.0% from the $1,059,757 earned
for the same period in 1999.  Banking service charges and fees have increased by
$109,859  or 31.3%  due to  increases  in fees from  overdrafts,  ATMs and debit
cards.  Fees from trust  services  increased by $94,500 or 17.6%.  Fee increases
effective  in 2000 as well as  growth  in  trust  assets  have  resulted  in the
additional  income.  Other  noninterest  income  totaled  $276,344,   increasing
$102,812 over income of $173,532 earned through  September 30, 1999. Income from
increases in the cash surrender value of bank-owned life insurance  purchased in
1999 is the primary cause of this increase.  This  additional  income has offset
the decrease in income from lower  levels of mutual fund sales.  Income from the
sale of mutual  funds  amounted  to  $68,689,  which  represented  a decrease of
$55,957 from the same period in 1999.

                                       14
<PAGE>


Noninterest Expense

For the nine months ended  September 30, 2000,  nine month  noninterest  expense
totaled  $6,000,407,  an increase of 9.95% and $542,818  from the same period of
1999.  Most of this increase is  attributed  to salary and benefits  costs which
increased  by a total of $426,993  due to salary  adjustments  and  additions to
staff.

Legal  fees for the first  nine  months  of 2000  totaled  $168,524  which is an
increase  of 86% from the first nine months of 1999.  The  increase in such fees
resulted  from  services  during the first and second  quarters  relating to the
Company's  filing of  registration  statements  with the Securities and Exchange
Commission to register its securities, and to fees associated with the Company's
disclosure  and  reporting  responsibilities  as an SEC  reporting  company.  In
addition,  legal fees  relating  to the Bank's  collection  efforts and to legal
matters  involving  the Bank's  trust  function  contributed  to such  increase.
Equipment costs for the nine months ended September 30, 2000, resulting from the
Bank's continued  investment in technology,  increased $44,555 or 14.1% from the
same period in 1999.  Offsetting  some of these increases are decreases in costs
for supplies, advertising and other net occupancy expenses.

Income Taxes

The  provision  for  income  taxes for the  first  nine  months of 2000  totaled
$692,632,  an increase of $51,413 from the same period in 1999. Although taxable
income for the first nine  months of 2000 is lower than that for the same period
in 1999,  1999  taxes  incorporated  an  investment  tax  credit  related to the
renovation  of the  building  housing  the  executive  offices.  This tax credit
reduced income tax expense for 1999.

LIQUIDITY

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

The Bank is a member of the Federal Home Loan Bank system which provides  credit
to its  member  banks.  This  enhances  the  liquidity  position  of the Bank by
providing a source of  available  overnight  as well as  short-term  borrowings.
Additionally,  federal  funds and the sale of  mortgage  loans in the  secondary
market are available to fund short-term cash needs.

As of September 30, 2000, the Company had  $29,642,463 in loan  commitments  and
credit lines outstanding.  Since some commitments are expected to expire without
being drawn upon, the total  commitment  amount  therefore does not  necessarily
represent all future cash  requirements.  The funding of these  commitments  are
anticipated  to  be  through  deposits,  loan  and  security  amortizations  and
maturities. Management is confident that the Company has sufficient liquidity to
meet its present and foreseeable needs.

                                       15
<PAGE>

CAPITAL

At September 30, 2000, total  shareholders'  equity was $16,181,911  compared to
$14,926,209  at December 31, 1999.  From a regulatory  perspective,  the capital
ratios of the Company and the Bank places each entity in the  "well-capitalized"
categories  under  applicable  regulations.  The various  capital  ratios of the
Company and the Bank are as follows as of September 30, 2000.


                                      Minimum
                                     Regulatory
                                   Capital Levels    The Company     The Bank
                                   --------------    -----------     --------
TIER 1:

  Leverage capital ratio                 4%              6.26%         6.14%

  Risk-based capital ratio               4%              9.93%         9.89%

  Total risk-based capital ratio         8%             10.53%        10.50%


ALLOWANCE FOR LOAN LOSSES

Changes in the  allowance  for loan losses for the periods  ended  September 30,
2000 and 1999 are shown below:

                                            Nine months ended September 30,
                                                 2000              1999
                                            -------------     ------------

Balance at beginning of the year            $   1,014,522     $  1,013,949
Provision for loan losses                         135,000           90,000
Loans charged off                                (206,023)          (6,126)
Recoveries of loans previously charged off         72,992            2,863
                                            -------------     ------------

Balance at end of period                    $   1,016,491     $  1,100,686
                                            =============     ============

The following table  summarizes the Bank's OREO, past due and nonaccrual  loans,
and nonperforming assets as of September 30, 2000 and December 31, 1999.

<TABLE>
<CAPTION>
                                           September 30, 2000      December 31, 1999
                                           ------------------      -----------------
<S>                                        <C>                     <C>
Nonaccrual loans                           $          768,509      $       1,394,305

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

Total nonperforming assets                 $        1,068,509      $       1,394,305
                                           ==================      =================

Loans past due in excess of 90 days and
  accruing interest                        $          142,331      $          33,441
                                           ==================      =================
</TABLE>

Potential Problem Loans

As of September  30, 2000,  there were no potential  problem loans not disclosed
above which cause  management  to have serious  doubts as to the ability of such
borrowers to comply with their present loan repayment terms.

FORWARD-LOOKING STATEMENTS

This Quarterly Report and future filings made by the Company with the Securities
and Exchange  Commission,  as well as other filings,  reports and press releases
made or  issued  by the  Company  and the  Bank,  and  oral  statements  made by
executive  officers  of  the  Company  and  Bank,  may  include  forward-looking
statements  relating  to  such  matters  as (a)  assumptions  concerning  future
economic and business  conditions and their effect on the economy in general and
on the  markets  in

                                       16
<PAGE>


which the Company and the Bank do business,  and (b)  expectations for increased
revenues and earnings for the Company and Bank  through  growth  resulting  from
acquisitions, attractions of new deposit and loan customers and the introduction
of new products  and  services.  For those  statements,  the Company  claims the
protection of the safe harbor for Forward  Looking  Statements  contained in the
Private Securities Litigation Reform Act of 1995.

The Company  notes that a variety of factors  could cause the actual  results or
experience  to  differ   materially  from  the  anticipated   results  or  other
expectations described or implied by such forward-looking  statements. The risks
and uncertainties that may affect the operations,  performance,  development and
results of the Company's and Bank's business include the following: (a) the risk
of adverse changes in business  conditions in the banking industry generally and
in the  specific  markets  in  which  the  Bank  operates:  (b)  changes  in the
legislative and regulatory  environment  that negatively  impact the Company and
Bank through increased operating expenses;  (c) increased competition from other
financial  and  nonfinancial  institutions;  (d)  the  impact  of  technological
advances;  and (e)  other  risks  detailed  from  time to time in the  Company's
filings with the Securities and Exchange Commission. The Company and Bank do not
undertake  any  obligation  to update or revise any  forward-looking  statements
subsequent to the date on which they are made.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings - Not applicable

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

Item 2.  Changes in Securities and Use of Proceeds - Not applicable

Item 3.  Defaults Upon Senior Securities - Not applicable

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

Item 5. Other Information

The State of Connecticut  enacted tax law changes in May 1998,  allowing for the
formation of a passive investment company ("PIC") by financial institutions. The
law permits financial institutions to contribute certain intangible investments,
such as mortgage  assets,  to its PIC to achieve  certain tax benefits.  The law
exempts  PICs from state  income  taxation  in  Connecticut,  and  exempts  from
inclusion  in  Connecticut  taxable  income the  dividends  paid from a PIC to a
related financial  institution.  The First National Bank of Litchfield qualifies
as a  financial  institution  under the  statute,  and  incorporated  Litchfield
Mortgage Service Corporation ("LMSC") to qualify as a PIC. LMSC was incorporated
during the third quarter of 2000 and began operations  during the fourth quarter
of 2000.  The Bank's  operation  of a PIC  subsidiary  is expected to reduce its
Connecticut  tax  liability.  LMSC is a  wholly-owned  subsidiary  of The  First
National Bank of Litchfield.

Item 6. Exhibits and Reports on Form 8-K

        a.   Exhibits

             Exhibit 27 - Financial Data Schedule


                                       17
<PAGE>

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

Dated:   November 13, 2000         FIRST LITCHFIELD FINANCIAL CORPORATION


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



Dated:  November 13, 2000          By: /s/ Carroll A. Pereira
                                       -------------------------------------
                                         Carroll A. Pereira, Treasurer
                                         (Principal Accounting Officer)



                                       18