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, 2009

[_]   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 has submitted  electronically  and
posted on its corporate Web site, if any, every  Interactive  Data File required
to be submitted  and posted  pursuant to Rule 405 of  Regulation  S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).

                                 Yes [_] No [_]


Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, a  non-accelerated  filer or a smaller  reporting company as
defined in Rule 12b-2 of the Exchange Act. (Check one):

Large  accelerated  filer [_]  Accelerated  filer  [_]Non-accelerated  filer [_]
Smaller reporting company [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 stock,  as of the latest  practicable  date:  2,356,875  shares of Common
Stock, par value $.01 per share, were outstanding at August 10, 2009.

                                       1
<PAGE>

                     FIRST LITCHFIELD FINANCIAL CORPORATION
                                    FORM 10-Q
                                      INDEX

                                                                            Page
                                                                            ----
Part I - Financial Information

        Item 1 - Financial Statements

        Consolidated Balance Sheets - June 30, 2009 and December 31, 2008
        (unaudited) ...........................................................3

        Consolidated Statements of Income - Three and Six months ended
        June 30, 2009 and 2008 (unaudited) ....................................4

        Consolidated Statements of Changes in Shareholders' Equity - Six
        months ended June 30, 2009 and 2008 (unaudited) .......................5

        Consolidated Statements of Cash Flows - Six months ended
        June 30, 2009 and 2008 (unaudited) ....................................6

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

        Item 2 - Management's Discussion and Analysis of Financial Condition
        and Results of Operations ............................................31

        Item 4 - Controls and Procedures .....................................46

Part II - Other Information

        Item 1 - Legal Proceedings ...........................................46

        Item 2 - Unregistered Sales of Equity Securities and
        Use of Proceeds [not applicable] .....................................46

        Item 3 - Defaults Upon Senior Securities [not applicable] ............46

        Item 4 - Submission of Matters to a Vote of Security Holders .........46

        Item 5 - Other Information ...........................................48

        Item 6 - Exhibits ....................................................49

Signatures ...................................................................51

                                       2
<PAGE>

PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)                                                                June 30,        December 31,
                                                                                                         2009             2008
                                                                                                     -------------    -------------
<S>                                                                                                      <C>                    <C>
ASSETS
      Cash and due from banks                                                                        $  34,855,338    $   9,238,320
      Interest - bearing accounts due from banks                                                         7,648,928              463
                                                                                                     -------------    -------------
                                                                         CASH AND CASH EQUIVALENTS      42,504,266        9,238,783
                                                                                                     -------------    -------------
      Securities:
          Available for sale securities, at fair value                                                  83,987,109      113,486,201
          Held to maturity securities (fair value $16,103-2009 and $16,553-2008)                            15,602           16,550
                                                                                                     -------------    -------------
                                                                                  TOTAL SECURITIES      84,002,711      113,502,751
                                                                                                     -------------    -------------

      Federal Home Loan Bank stock, at cost                                                              5,427,600        5,427,600
      Federal Reserve Bank stock, at cost                                                                  225,850          225,850
      Other restricted stock, at cost                                                                      105,000          100,000
      Loans held for sale                                                                               13,728,284        1,013,216

      Loan and lease receivables, net of allowance for loan and lease
          losses of  $4,029,790 -2009, $3,698,820-2008
                                                                              NET LOANS AND LEASES     378,792,440      366,392,079
      Premises and equipment, net                                                                        7,171,167        7,370,252
      Deferred income taxes                                                                              5,021,166        5,082,957
      Accrued interest receivable                                                                        1,927,445        2,262,918
      Cash surrender value of life insurance                                                            10,610,856       10,416,651
      Due from broker for security sales                                                                        --        9,590,823
      Other assets                                                                                       1,501,694        1,633,727
                                                                                                     -------------    -------------

                                                                                      TOTAL ASSETS   $ 551,018,479    $ 532,257,607
                                                                                                     =============    =============
LIABILITIES
      Deposits:
          Noninterest bearing                                                                        $  72,638,038    $  69,548,261
          Interest bearing                                                                             304,512,562      273,778,363
                                                                                                     -------------    -------------
                                                                                    TOTAL DEPOSITS     377,150,600      343,326,624

      Federal Home Loan Bank advances                                                                   80,000,000       81,608,000
      Repurchase agreements with financial institutions                                                 22,500,000       26,450,000
      Repurchase agreements with customers                                                              18,939,133       18,222,571
      Junior subordinated debt issued by unconsolidated trust                                           10,104,000       10,104,000
      Collateralized borrowings                                                                          1,118,720        1,375,550
      Capital lease obligation                                                                           1,056,198        1,065,563
      Due to broker for security purchases                                                                      --       12,994,945
      Accrued expenses and other liabilities                                                             7,340,897        4,643,090
                                                                                                     -------------    -------------

                                                                                 TOTAL LIABILITIES     518,209,548      499,790,343
                                                                                                     -------------    -------------

EQUITY
SHAREHOLDERS' EQUITY
      Preferred stock $.00001 par value; 1,000,000 shares authorized, 10,000 shares                             --               --
        outstanding as of 6/30/09 and 12/31/08
      Common stock $.01 par value
          Authorized - 5,000,000 shares
          2009 - Issued - 2,506,622 shares, outstanding - 2,356,875 shares
          2008 - Issued - 2,506,622 shares, outstanding - 2,356,875 shares                                  25,042           25,038
      Additional paid-in capital                                                                        37,922,451       37,892,831
      Accumulated deficit                                                                               (1,529,138)      (3,325,920)
      Less: Treasury stock at cost- 149,747 as of 6/30/09 and 12/31/08                                  (1,154,062)      (1,154,062)
      Accumulated other comprehensive loss, net of taxes                                                (2,561,864)      (1,024,498)
                                                                                                     -------------    -------------
                                                       TOTAL FIRST LITCHFIELD FINANCIAL CORPORATION
                                                                               SHAREHOLDERS' EQUITY     32,702,429       32,413,389
                                                                                                     -------------    -------------
NONCONTROLLING INTERESTS                                                                                   106,502           53,875
                                                                                                     -------------    -------------
                                                                                       TOTAL EQUITY     32,808,931       32,467,264
                                                                                                     -------------    -------------

                                                         TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $ 551,018,479    $ 532,257,607
                                                                                                     =============    =============
</TABLE>

See Notes to Consolidated Financial Statements.

                                                                   3
<PAGE>
<TABLE>
<CAPTION>

FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
                                                                       Three Months Ended                 Six Months Ended
                                                                            June 30,                           June 30,
                                                                     2009              2008             2009              2008
                                                                --------------    --------------   --------------    --------------
<S>                                                                    <C>               <C>              <C>               <C>
INTEREST AND DIVIDEND INCOME
     Interest and fees on loans and leases                      $    5,499,776    $    5,304,303   $   10,889,493    $   10,814,168
                                                                --------------    --------------   --------------    --------------

     Interest and dividends on securities:
           Mortgage-backed securities                                  688,193           982,061        1,387,709         1,655,389
           US Treasury and other securities                             99,174           426,684          274,546           928,626
           State and municipal securities                              212,905           289,966          426,187           626,385
           Trust Preferred and other securities                         34,041           101,155          102,545           219,776
                                                                --------------    --------------   --------------    --------------
                Total interest on securities                         1,034,313         1,799,866        2,190,987         3,430,176
                                                                --------------    --------------   --------------    --------------
     Other interest income                                               5,627            68,343           20,465           167,386
                                                                --------------    --------------   --------------    --------------
                           TOTAL INTEREST AND DIVIDEND INCOME        6,539,716         7,172,512       13,100,945        14,411,730
                                                                --------------    --------------   --------------    --------------

INTEREST EXPENSE
     Interest on deposits:
           Savings                                                      78,361           116,210          189,858           305,886
           Money market                                                191,934           365,400          472,106           822,167
           Time certificates of deposit                                950,216         1,393,292        1,836,147         2,845,968
                                                                --------------    --------------   --------------    --------------
                                   TOTAL INTEREST ON DEPOSITS        1,220,511         1,874,902        2,498,111         3,974,021
     Interest on Federal Home Loan Bank advances                       887,866         1,014,625        1,765,174         2,022,423
     Interest on repurchase agreements                                 259,663           410,817          554,876           749,237
     Interest on subordinated debt                                     136,379           125,813          238,003           315,761
     Interest on collateralized borrowings                              20,332            25,379           43,151            54,803
     Interest on capital lease obligation                               14,037            14,279           28,135            28,617
                                                                --------------    --------------   --------------    --------------
                                       TOTAL INTEREST EXPENSE        2,538,788         3,465,815        5,127,450         7,144,862
                                                                --------------    --------------   --------------    --------------
                                          NET INTEREST INCOME        4,000,928         3,706,697        7,973,495         7,266,868
PROVISION FOR LOAN AND LEASE LOSSES                                    517,589           137,000          787,589           212,000
                                                                --------------    --------------   --------------    --------------
                          NET INTEREST INCOME AFTER PROVISION
                                    FOR LOAN AND LEASE LOSSES        3,483,339         3,569,697        7,185,906         7,054,868
                                                                --------------    --------------   --------------    --------------
NONINTEREST INCOME
     Banking service charges and fees                                  389,301           380,741          752,488           725,920
     Trust                                                             275,483           333,569          547,539           673,093
     Gains on available for sale securities                            321,074            20,899          321,074            32,841
     Increase in cash surrender value of life insurance                 97,491            99,833          194,205           197,576
     Gains on the sale of loans                                         17,379             6,231           60,440            10,302
     Other                                                             129,744            98,193          168,772           172,974
                                                                --------------    --------------   --------------    --------------
                                     TOTAL NONINTEREST INCOME        1,230,472           939,466        2,044,518         1,812,706
                                                                --------------    --------------   --------------    --------------
NONINTEREST EXPENSE
     Salaries                                                        1,625,898         1,719,704        3,189,040         3,317,339
     Employee benefits                                                 432,187           450,090          909,947           891,839
     Net occupancy                                                     304,275           292,397          629,525           604,223
     Equipment                                                         149,122           154,770          296,518           314,384
     Legal fees                                                        125,930            54,668          241,793           117,620
     Directors fees                                                     47,225            50,200           93,975           100,300
     Computer services                                                 286,082           214,114          578,227           487,087
     Supplies                                                           36,525            44,925           73,674            90,429
     Commissions, services and fees                                    121,467           127,796          252,552           244,038
     Postage                                                            38,140            33,417           75,010            73,620
     Advertising                                                       197,567           157,355          313,041           294,370
     FDIC assessments                                                  516,238            51,040          719,226            92,349
     Other                                                             559,513           473,243        1,090,520           995,164
                                                                --------------    --------------   --------------    --------------
                                    TOTAL NONINTEREST EXPENSE        4,440,169         3,823,719        8,463,048         7,622,762
                                                                --------------    --------------   --------------    --------------
                                   INCOME BEFORE INCOME TAXES          273,642           685,444          767,376         1,244,812
(BENEFIT) PROVISION FOR INCOME TAXES                                    (5,357)           68,996           64,557           129,841
                                                                --------------    --------------   --------------    --------------
                   NET INCOME BEFORE NONCONTROLLING INTERESTS          278,999           616,448          702,819         1,114,971
                                    NET INCOME ATTIBUTABLE TO
                                     NONCONTROLLING INTERESTS          (32,487)               --          (52,627)               --
                                                                --------------    --------------   --------------    --------------
                                                   NET INCOME   $      246,512    $      616,448   $      650,192    $    1,114,971
                  DIVIDENDS AND ACCRETION ON PREFERRED SHARES          137,606                --          275,036                --
                                                                --------------    --------------   --------------    --------------
                  NET INCOME AVAILABLE TO COMMON SHAREHOLDERS   $      108,906    $      616,448   $      375,156    $    1,114,971
                                                                ==============    ==============   ==============    ==============
INCOME PER SHARE
                            BASIC NET INCOME PER COMMON SHARE   $         0.05    $         0.26   $         0.16    $         0.47
                                                                ==============    ==============   ==============    ==============
                          DILUTED NET INCOME PER COMMON SHARE   $         0.05    $         0.26   $         0.16    $         0.47
                                                                ==============    ==============   ==============    ==============
DIVIDENDS PER SHARE                                             $         0.05    $         0.15   $         0.10    $         0.30
                                                                ==============    ==============   ==============    ==============
</TABLE>

 See Notes to Consolidated Financial Statements.

                                                                4
<PAGE>

FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
                                                                                 Retained                Accumulated
                                   Non-                            Additional    Earnings                   Other         Total
                               controlling Preferred   Common       Paid-In   (Accumulated    Treasury  Comprehensive  Shareholders'
                                Interests    Stock      Stock       Capital      Deficit)      Stock         Loss         Equity
                                ---------  ---------  ----------  -----------  -----------  ------------  -----------  ------------
<S>                             <C>        <C>        <C>         <C>          <C>          <C>           <C>          <C>
Six months ended June 30, 2008
Balance, December 31, 2007      $  50,000  $      --  $   25,012  $27,858,841  $ 2,623,110  $   (926,964) $(1,267,387) $ 28,362,612
Adoption of EITF 06-4 as of
 January 1, 2008                       --         --          --           --      (12,272)           --           --       (12,272)
Comprehensive income (loss):
Net income                             --         --          --           --    1,114,971            --                  1,114,971
Other comprehensive loss, net
 of taxes:
    Net unrealized holding
          loss on available
          for sale securities          --         --          --           --           --            --   (2,867,053)   (2,867,053)
    Net actuarial loss and
          prior service cost
          for pension benefits                                                                               (316,372)     (316,372)
                                                                                                                       ------------
Other comprehensive loss                                                                                                 (3,183,425)
                                                                                                                       ------------
Total comprehensive loss                                                                                                 (2,068,454)
Cash dividends declared: $0.30
 per share                             --         --          --           --     (710,409)           --           --      (710,409)
Purchase of treasury shares            --         --          --           --           --      (186,052)          --      (186,052)
Stock options exercised -
 1,893 shares                                                 19       20,463                                                20,482
Tax benefit on stock options
 exercised                                                              2,025                                                 2,025
Restricted stock grants and
 expense                               --         --           2        3,822           --            --           --         3,824
                                ---------  ---------  ----------  -----------  -----------  ------------  -----------  ------------
Balance, June 30, 2008          $  50,000  $      --  $   25,033  $27,885,151  $ 3,015,400  $ (1,113,016) $(4,450,812) $ 25,411,756
                                =========  =========  ==========  ===========  ===========  ============  ===========  ============

Six months ended June 30, 2009
Balance, December 31, 2008      $  53,875  $      --  $   25,038  $37,892,831  $(3,325,920) $ (1,154,062) $(1,024,498) $ 32,467,264
Comprehensive income (loss):
Net income (loss)                  52,627         --          --           --      650,192            --           --       702,819
Other comprehensive income
 (loss), net of taxes:
    Net unrealized holding
          loss on available
          for sale securities          --         --          --           --           --            --      (23,127)      (23,127)
    Net unrealized holding
          gain on cash flow
          hedges                                                                                              107,287       107,287
    Net actuarial gain and
          prior service cost
          for pension benefits         --         --          --           --           --            --       35,787        35,787
                                                                                                                       ------------
Other comprehensive income                                                                                                  119,947
                                                                                                                       ------------
Total comprehensive income                                                                                                  822,766
Cumulative effect of adopting
  FSP FAS 115-2 and FAS 124-2
  (net of $853,767 tax
  effect)                              --         --          --           --    1,657,313            --   (1,657,313)           --
Cash dividends declared: $0.10
 per share                                        --          --           --     (235,687)           --           --      (235,687)
Restricted stock grants and
 expense                               --         --           4        4,584           --            --           --         4,588
Preferred stock dividends                                                         (250,000)                                (250,000)
Accretion of discount on
 preferred stock                       --         --          --       25,036      (25,036)           --           --            --
                                ---------  ---------  ----------  -----------  -----------  ------------  -----------  ------------
Balance, June 30, 2009          $ 106,502  $      --  $   25,042  $37,922,451  $(1,529,138) $(1,154,062)  $(2,561,864) $ 32,808,931
                                =========  =========  ==========  ===========  ===========  ============  ===========  ============
</TABLE>

See Notes to Consolidated Financial Statements.

                                                             5
<PAGE>
<TABLE>
<CAPTION>

FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)                                                June 30,
                                                                                           2009              2008
                                                                                        ------------    ------------
<S>                                                                                     <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                              $    650,192    $  1,114,971
Adjustments to reconcile net income to net cash provided by operating activities:
                Net income attributable to non-controlling interest                           52,627              --
                Amortization (accretion) amortization of discounts and premiums
                  on investment securities, net                                              150,252         (78,435)
                Provision for loan and lease losses                                          787,589         212,000
                Depreciation and amortization                                                350,456         372,100
                Gains on sale of available for sale securities                              (321,074)        (32,841)
                Loss on sale of foreclosed real estate                                        55,640              --
                Losses on sales of repossessed assets                                        185,865          11,937
                Loans originated for sale                                                 (9,008,409)     (1,515,000)
                Proceeds from sales of loans held for sale                                 9,359,065       1,525,302
                Gains on sales of loans held for sale                                        (60,440)        (10,302)
                (Gain) losses on disposals of bank premises and equipment                     (3,300)          2,188
                Stock based compensation                                                       4,588           3,824
                Decrease in accrued interest receivable                                      335,473         135,025
                (Increase) decrease in other assets                                         (118,893)        296,593
                Increase in cash surrender value of life insurance                          (194,205)       (197,576)
                Increase in deferred loan origination costs                                  (60,013)        (63,759)
                Increase (decrease) in accrued expenses and other liabilities                159,130        (135,161)
                                                                                        ------------    ------------
                    Net cash provided by operating activities                              2,324,543       1,640,866
                                                                                        ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
                Proceeds from maturities and principal payments                           45,966,023      18,721,350
                Purchases                                                                (50,785,340)    (52,095,778)
                Proceeds from sales                                                       31,050,068       5,930,151
Held to maturity mortgage-backed securities:
                Proceeds from maturities and principal payments                                  948           2,009
Purchase of restricted stock                                                                  (5,000)         (5,000)
Purchase of Federal Home Loan Bank stock                                                          --        (302,600)
Net increase in loans and leases                                                         (28,832,328)    (10,046,774)
Purchase of bank premises and equipment                                                     (151,371)       (110,754)
Proceeds from sale of bank premises and equipment                                              3,300              --
Proceeds from sale of foreclosed real estate                                                 419,360              --
Proceeds from sales of repossessed assets                                                     56,676         154,064
                                                                                        ------------    ------------
                Net cash provided by (used in) investing activities                       (2,277,664)    (37,753,332)
                                                                                        ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in savings, money market and demand deposits                                  1,750,359         414,916
Net increase in certificates of deposit                                                   32,073,617       8,724,955
Net (decrease) increase in Federal Home Loan Bank overnight borrowings                    (1,608,000)      4,262,000
Net (decrease) increase in repurchase agreements with financial institutions              (3,950,000)     28,000,000
Net increase (decrease) in repurchase agreements with customers                              716,562      (1,524,959)
Net decrease in collateralized borrowings                                                   (256,830)       (297,015)
Principal repayments on capital lease obligation                                              (9,365)         (8,883)
Purchase of treasury shares                                                                       --        (186,052)
Proceeds from the exercise of stock options                                                       --          20,482
Tax benefit of stock options exercised                                                            --           2,025
Dividends paid on common stock                                                              (497,740)       (710,966)
                                                                                        ------------    ------------
                Net cash provided by financing activities                                 28,218,603      38,696,503
                                                                                        ------------    ------------
                Net decrease in cash and cash equivalents                                 28,265,482       2,584,037
CASH AND CASH EQUIVALENTS, at beginning of period                                          9,238,783      21,497,194
                                                                                        ------------    ------------
CASH AND CASH EQUIVALENTS, at end of period                                             $ 37,504,265    $ 24,081,231
                                                                                        ============    ============
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
                Interest on deposits and borrowings                                     $  5,127,218    $  7,144,394
                                                                                        ============    ============
                Income taxes                                                            $      1,000    $      1,000
                                                                                        ============    ============
Noncash investing and financing activities:
                Accrued dividends declared                                              $    367,844    $    354,672
                                                                                        ============    ============
                Transfer of loans  to repossessed assets                                $     90,423    $    132,001
                                                                                        ============    ============
                Transfer of loans to foreclosed real estate                             $    475,000    $         --
                                                                                        ============    ============
                Increase in leases and other liabilities for
                equipment payable related to financed leases                            $  2,767,508    $         --
                                                                                        ============    ============
                Increase in mortgage servicing assets, net of amortization              $     99,808    $     16,723
                                                                                        ============    ============
                Increase in liabilities and decrease in retained earnings for
                adoption of EITF 06-4                                                   $         --    $     12,272
                                                                                        ============    ============
                Change in other liabilities related to the unfunded pension liability   $     54,223    $    479,352
                                                                                        ============    ============
                Gross unrealized holding losses on available for sale securities        $  2,884,630    $    690,223
                                                                                        ============    ============
                Transfer of loans to loans held for sale                                $ 13,005,284    $         --
                                                                                        ============    ============
See Notes to Consolidated Financial Statements.
</TABLE>

                                                       6
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.  The  consolidated  balance  sheet at December  31, 2008 of First  Litchfield
    Financial  Corporation  (the  "Company")  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.
    Certain  2008  amounts  have  been  reclassified  to  conform  with the 2009
    presentation. Such reclassifications had no effect on net income.

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, 2008.

    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,  2009  are not
    necessarily indicative of the results of operations that may be expected for
    all of 2009.

    During the first quarter of 2009, the Company entered into two interest rate
    swap agreements to hedge certain  interest rate exposures.  The Company does
    not use derivatives for speculative purposes.  The Company applies Statement
    of  Financial   Accounting  Standards  ("SFAS")  No.  133,  "Accounting  for
    Derivative  Instruments  and Hedging  Activities,"  ("SFAS 133") as amended,
    which  establishes   accounting  and  reporting   standards  for  derivative
    instruments  and  hedging  activities.  SFAS 133  requires  the  Company  to
    recognize  all   derivatives   as  either  assets  or   liabilities  in  its
    Consolidated  Balance Sheets and to measure those instruments at fair value.
    The estimated fair value is based primarily on projected future swap rates.

    The  Company  applies  cash flow hedge  accounting  to  interest  rate swaps
    designated as hedges of the  variability  of future cash flows from floating
    rate  liabilities  due to the  benchmark  interest  rate.  The Company  uses
    regression  analysis  to perform an ongoing  prospective  and  retrospective
    assessment  of these  hedging  relationships.  Changes  in the fair value of
    these  interest  rate swaps are  recorded to "net  holding gain on cash flow
    hedges" as a component of  accumulated  other  comprehensive  income  (loss)
    ("OCI") in Shareholders'  equity, to the extent they are effective.  Amounts
    recorded  to  accumulated  other   comprehensive   income  (loss)  are  then
    reclassified  to interest  expense as interest  on the hedged  borrowing  is
    recognized.  Any  ineffective  portion  of the change in fair value of these
    instruments is recorded to interest expense.

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  equivalents 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.  Income  available  to common
    shareholders  has been reduced by  preferred  share  dividends  and discount
    accretion  related to the Company`s  participation  in TARP Capital Purchase
    program. For the three and six month periods ended June 30, 2009 this amount
    totaled $108,906 and $375,156, respectively.

                                       7
<PAGE>

    The following is information  about the  computation of net income per share
    for the three and six month periods ended June 30, 2009 and 2008.
<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                          June 30, 2009
                                               ------------------------------------
                                                   Net                    Per Share
                                                 Income       Shares       Amount
                                               ----------   ----------   ----------
<S>                                            <C>           <C>         <C>
Basic Net Income Per Share
     Income available to common shareholders   $  108,906    2,356,875   $     0.05
                                                                         ==========
Effect of Dilutive Securities
     Options Outstanding                               --           --
Diluted Net Income Per Share
     Income available to common shareholders
                                               ----------   ----------
     plus assumed conversions                  $  108,906    2,356,875   $     0.05
                                               ==========   ==========   ==========
<CAPTION>
                                                        Three Months Ended
                                                          June 30, 2008
                                               ------------------------------------
                                                   Net                    Per Share
                                                 Income       Shares       Amount
                                               ----------   ----------   ----------
<S>                                            <C>           <C>         <C>
Basic Net Income Per Share
     Income available to common shareholders   $  616,448    2,366,459   $     0.26
                                                                         ==========
Effect of Dilutive Securities
     Options Outstanding                               --          668
Diluted Net Income Per Share
     Income available to common shareholders
                                               ----------   ----------
     plus assumed conversions                  $  616,448    2,367,127   $     0.26
                                               ==========   ==========   ==========
<CAPTION>
                                                        Six Months Ended
                                                          June 30, 2009
                                               ------------------------------------
                                                   Net                    Per Share
                                                 Income       Shares       Amount
                                               ----------   ----------   ----------
<S>                                            <C>           <C>         <C>
Basic Net Income Per Share
     Income available to common shareholders   $  375,156    2,356,875   $     0.16
                                                                         ==========
Effect of Dilutive Securities
     Options Outstanding                               --           --
Diluted Net Income Per Share
     Income available to common shareholders
                                               ----------   ----------
     plus assumed conversions                  $  375,156    2,356,875   $     0.16
                                               ==========   ==========   ==========
<CAPTION>
                                                        Six Months Ended
                                                          June 30, 2008
                                               ------------------------------------
                                                   Net                    Per Share
                                                 Income       Shares       Amount
                                               ----------   ----------   ----------
<S>                                            <C>           <C>         <C>
Basic Net Income Per Share
     Income available to common shareholders   $1,114,971    2,368,223   $     0.47
                                                                         ==========
Effect of Dilutive Securities
     Options Outstanding                               --          804
Diluted Net Income Per Share
     Income available to common shareholders
                                               ----------   ----------
     plus assumed conversions                  $1,114,971    2,369,027   $     0.47
                                               ==========   ==========   ==========
</TABLE>

                                       8
<PAGE>

4.   Other  comprehensive  income  (loss),  which is  comprised of the change in
     unrealized gains and losses on available for sale securities, net cash flow
     hedges, as well as net pension gain, is as follows:
<TABLE>
<CAPTION>
                                                                                       Three Months Ended
                                                                                          June 30, 2009
                                                                           --------------------------------------------
                                                                            Before-Tax         Tax          Net-of-Tax
                                                                              Amount          Effect          Amount
                                                                           ------------    ------------    ------------
<S>                                                                            <C>              <C>            <C>
Unrealized holding gain arising during the period                          $    415,892    $   (141,403)   $    274,489
Less:  reclassification adjustment for gain recognized in net income           (321,074)        109,165        (211,909)
                                                                           ------------    ------------    ------------

Unrealized holding gain on available for sale securities, net of taxes           94,818         (32,238)         62,580
Net cash flow hedges, net of taxes                                              442,274        (150,375)        291,899
Net pension gain, net of taxes                                                  130,233         (44,278)         85,955
                                                                           ------------    ------------    ------------
Total other comprehensive income, net of taxes                             $    667,325    $   (226,891)   $    440,434
                                                                           ============    ============    ============
<CAPTION>
                                                                                       Three Months Ended
                                                                                          June 30, 2008
                                                                           --------------------------------------------
                                                                            Before-Tax         Tax          Net-of-Tax
                                                                              Amount          Effect          Amount
                                                                           ------------    ------------    ------------
<S>                                                                            <C>              <C>            <C>
Unrealized holding losses arising during the period                        $ (3,164,397)   $  1,075,895    $ (2,088,502)
Add:  reclassification adjustment for gain recognized in net income             (20,899)          7,106         (13,793)
                                                                           ------------    ------------    ------------

Unrealized holding losses on available for sale securities, net of taxes     (3,185,296)      1,083,001      (2,102,295)
Net pension loss, net of taxes                                                 (120,596)         41,003         (79,593)
                                                                           ------------    ------------    ------------
Total other comprehensive loss, net of taxes                               $ (3,305,892)   $  1,124,003    $ (2,181,889)
                                                                           ============    ============    ============
<CAPTION>
                                                                                         Six Months Ended
                                                                                          June 30, 2009
                                                                           --------------------------------------------
                                                                            Before-Tax         Tax          Net-of-Tax
                                                                              Amount          Effect          Amount
                                                                           ------------    ------------    ------------
<S>                                                                            <C>              <C>            <C>
Unrealized holding gain arising during the period                          $    286,033    $    (97,251)   $    188,782
Less:  reclassification adjustment for gain recognized in net income           (321,074)        109,165        (211,909)
                                                                           ------------    ------------    ------------

Unrealized holding losses on available for sale securities, net of taxes        (35,041)         11,914         (23,127)
Net cash flow hedges, net of taxes                                              162,556         (55,269)        107,287
Net pension gain, net of taxes                                                   54,223         (18,436)         35,787
                                                                           ------------    ------------    ------------
Total other comprehensive income, net of taxes                             $    181,738    $    (61,791)   $    119,947
                                                                           ============    ============    ============
<CAPTION>
                                                                                         Six Months Ended
                                                                                          June 30, 2008
                                                                           --------------------------------------------
                                                                            Before-Tax         Tax          Net-of-Tax
                                                                              Amount          Effect          Amount
                                                                           ------------    ------------    ------------
<S>                                                                            <C>              <C>            <C>
Unrealized holding losses arising during the period                        $ (4,311,178)   $  1,465,800    $ (2,845,378)
Add:  reclassification adjustment for gain recognized in net income             (32,841)         11,166         (21,675)
                                                                           ------------    ------------    ------------

Unrealized holding losses on available for sale securities, net of taxes     (4,344,019)      1,476,966      (2,867,053)
Net pension loss, net of taxes                                                 (479,352)        162,980        (316,372)
                                                                           ------------    ------------    ------------
Total other comprehensive loss, net of taxes                               $ (4,823,371)   $  1,639,946    $ (3,183,425)
                                                                           ============    ============    ============
</TABLE>

5.   The  Company's  subsidiary,  The First  National  Bank of  Litchfield  (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.  During the first quarter of 2005,  the Bank's pension plan was
     curtailed.  Prior to the Plan's curtailment,  the Bank's funding policy was

                                       9
<PAGE>

     to contribute  amounts to the plan  sufficient to meet the minimum  funding
     requirements set forth in ERISA,  plus such additional  amounts as the Bank
     determined to be appropriate  from time to time. The actuarial  information
     has been calculated using the projected unit credit method.

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

                                                2009        2008
                                              --------    --------
            Service cost                      $     --    $     --
            Interest cost                       42,700      46,306
            Expected return on plan assets     (43,104)    (50,363)
            Amortization of unrealized loss     19,523      14,812
                                              --------    --------
            Net periodic benefit cost         $ 19,119    $ 10,755
                                              ========    ========

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

                                                2009         2008
                                             ---------    ---------
           Service cost                      $      --    $      --
           Interest cost                        85,400       92,613
           Expected return on plan assets      (86,208)    (100,727)
           Amortization of unrealized loss      39,046       29,625
                                             ---------    ---------
           Net periodic benefit cost         $  38,238    $  21,511
                                             =========    =========

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.  The  Company  views its  investment  in the  FHLBB  stock as a
     long-term  investment.  Accordingly,  when evaluating for  impairment,  the
     value is determined based on the ultimate  recovery of the par value rather
     than recognizing  temporary declines in value. The determination of whether
     a decline affects the ultimate  recovery is influenced by criteria such as:
     1) the  significance  of the decline in net assets of the FHLBB as compared
     to the capital stock amount and length of time a decline has persisted;  2)
     impact of  legislative  and  regulatory  changes on the  FHLBB;  and 3) the
     liquidity  position of the FHLBB. The FHLBB announced in February 2009 that
     it would  suspend  its  dividend  for the first  quarter of 2009,  and will
     likely not pay any dividends  for the remainder of 2009,  and will continue
     its moratorium on excess stock repurchases  announced in December 2008. The
     FHLBB  noted  their  primary  concern  related  to the impact of other than
     temporary   impairment   ("OTTI")   charges   recorded  on  private   label
     mortgage-backed securities (MBS) as of December 31, 2008.

     While the FHLBB  announced  that it remained  adequately  capitalized as of
     December  31, 2008 in its February  announcement,  the Company is unable to
     determine if the potential  additional charges to earnings will change this
     regulatory  capital  classification.  The Company does not believe that its
     investment in the FHLBB is impaired as of this date. However, this estimate
     could change in the near term as a result of any of the  following  events:
     1) additional significant impairment losses are incurred on the MBS causing
     a significant  decline in the FHLBB's  regulatory  capital  status;  2) the
     economic losses  resulting from credit  deterioration  on the MBS increases
     significantly; and 3) capital preservation strategies being utilized by the
     FHLBB become ineffective.

                                       10
<PAGE>

     Federal Home Loan Bank advances as of June 30, 2009 are as follows:

         due    10/02/2009          6,000,000  @    4.50%
         due    11/30/2009          5,000,000  @    3.95%
         due     6/24/2010          5,000,000  @    4.15%
         due    11/02/2010         10,000,000  @    4.45%
         due     5/29/2012          5,000,000  @    4.32%
         due     5/02/2014          7,000,000  @    4.59% , callable 5/3/2010
         due     8/20/2014          7,000,000  @    4.25% , callable 8/20/2009
         due     5/05/2016         10,000,000  @    4.53% , callable 8/5/2009
         due     3/23/2017         10,000,000  @    4.29% , callable 9/23/2009
         due     7/20/2017         10,000,000  @    4.29% , callable 7/20/2009
         due    11/20/2017          5,000,000  @    4.29% , callable 11/19/2012
                                -------------
                     Total      $  80,000,000
                                =============

     As of June 30, 2009, the Bank had borrowings  under  repurchase  agreements
     with financial  institutions  totaling  $22,500,000.  This amount  includes
     borrowings:

         due     3/12/2013         12,500,000  @    3.19% , callable 3/12/2013
         due     5/23/2013         10,000,000  @    3.64% , callable 5/23/2011
                                -------------
                     Total      $  22,500,000
                                =============

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,
                                                       -------------------------------------------------
                                                                 2009                     2008
                                                       ----------------------     ----------------------
<S>                                                    <C>                 <C>    <C>                 <C>
Provision for income taxes at statutory Federal rate   $  93,038           34%    $ 233,052           34%
Increase (decrease) resulting from:
              Tax exempt income                         (107,910)         (39)     (180,877)         (27)
              Nondeductible interest expense               5,948            2        11,551            2
              Other                                        3,567            1         5,270            1
                                                       ---------    ---------     ---------    ---------
(Benefit) Provision for income taxes                   $  (5,357)          (2)%   $  68,996           10%
                                                       =========    =========     =========    =========
<CAPTION>
                                                               For the six months ended June 30,
                                                       -------------------------------------------------
                                                                 2009                     2008
                                                       ----------------------     ----------------------
<S>                                                    <C>                 <C>    <C>                 <C>
Provision for income taxes at statutory Federal rate   $ 260,908           34%    $ 423,236           34%
Increase (decrease) resulting from:
              Tax exempt income                         (215,859)         (28)     (329,721)         (26)
              Nondeductible interest expense              12,508            1        25,784            2
              Other                                        7,000            1        10,542            1
                                                       ---------    ---------     ---------    ---------
Provision for income taxes                             $  64,557            8%    $ 129,841           11%
                                                       =========    =========     =========    =========
</TABLE>

                                       11
<PAGE>

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,  2009 and  December  31, 2008 are as
     follows:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE                                                         June 30, 2009
                                                   ---------------------------------------------------------------
                                                                       Gross           Gross
                                                    Amortized       Unrealized       Unrealized          Fair
                                                       Cost            Gains           Losses            Value
                                                   -------------   -------------    -------------    -------------
<S>                                                   <C>                 <C>            <C>            <C>
Debt Securities:
      U.S. Treasury Securities                         3,090,833          66,316               --    $   3,157,149
      U.S. Government Agency securities                4,202,232          26,528               --        4,228,760
      State and Municipal Obligations                 19,924,546          39,644         (825,706)      19,138,484
      Trust Preferred Securities (1)                   2,993,836              --       (2,028,156)         965,680
                                                   -------------   -------------    -------------    -------------
                                                      30,211,447         132,488       (2,853,862)      27,490,073
                                                   -------------   -------------    -------------    -------------
Mortgage-Backed Securities:
      GNMA                                               489,836           8,242             (138)         497,940
      FNMA                                            29,657,179         284,355          (13,033)      29,928,501
      FHLMC                                           23,875,049         152,951           (2,658)      24,025,342
                                                   -------------   -------------    -------------    -------------
                                                      54,022,064         445,548          (15,829)      54,451,783
                                                   -------------   -------------    -------------    -------------

Marketable Equity Securities                           2,060,192              --          (14,939)       2,045,253
                                                   -------------   -------------    -------------    -------------

Total available for sale securities                $  86,293,703   $     578,036    $  (2,884,630)   $  83,987,109
                                                   =============   =============    =============    =============
     (1)  Net  of  other-than-temporary   impairment  writedowns  recognized  in
     earnings,  other than such noncredit-related  amounts reclassified on April
     1, 2009 in accordance with the adoption of FSP FAS 115-2 and FAS 124-2.
<CAPTION>
                                                                         December 31, 2008
                                                   ---------------------------------------------------------------
                                                                       Gross           Gross
                                                    Amortized       Unrealized       Unrealized          Fair
                                                       Cost            Gains           Losses            Value
                                                   -------------   -------------    -------------    -------------
<S>                                                   <C>                 <C>            <C>            <C>
Debt Securities:
      U.S. Treasury securities                     $   3,110,574   $     107,876    $          --    $   3,218,450
      U.S. Government Agency securities               26,500,000          65,763           (3,386)      26,562,377
      State and Municipal Obligations                 19,931,000          77,501         (376,069)      19,632,432
      Trust Preferred Securities (2)                     493,615              --               --          493,615
                                                   -------------   -------------    -------------    -------------
                                                      50,035,189         251,140         (379,455)      49,906,874
                                                   -------------   -------------    -------------    -------------
Mortgage-Backed Securities:
      GNMA                                             9,495,917              12           (8,094)       9,487,835
      FNMA                                            35,675,421         467,875         (263,567)      35,879,729
      FHLMC                                           14,994,269         210,723           (9,228)      15,195,764
                                                   -------------   -------------    -------------    -------------
                                                      60,165,607         678,610         (280,889)      60,563,328
                                                   -------------   -------------    -------------    -------------

Marketable Equity Securities                           3,045,878              --          (29,879)       3,015,999
                                                   -------------   -------------    -------------    -------------

Total available for sale securities                $ 113,246,674   $     929,750    $    (690,223)   $ 113,486,201
                                                   =============   =============    =============    =============
     (2)  Net  of  other-than-temporary   impairment  writedowns  recognized  in
     earnings.
<CAPTION>
HELD TO MATURITY                                                          June 30, 2009
                                                   ---------------------------------------------------------------
                                                                       Gross           Gross
                                                    Amortized       Unrealized       Unrealized          Fair
                                                       Cost            Gains           Losses            Value
                                                   -------------   -------------    -------------    -------------
<S>                                                   <C>                 <C>            <C>            <C>

Mortgage-Backed Securities:
      GNMA                                         $      15,602   $         501    $          --    $      16,103
                                                   =============   =============    =============    =============
<CAPTION>
                                                                         December 31, 2008
                                                   ---------------------------------------------------------------
                                                                       Gross           Gross
                                                    Amortized       Unrealized       Unrealized          Fair
                                                       Cost            Gains           Losses            Value
                                                   -------------   -------------    -------------    -------------
<S>                                                   <C>                 <C>            <C>            <C>
Mortgage-Backed Securities:
      GNMA                                         $      16,550   $           3    $          --    $      16,553
                                                   =============   =============    =============    =============
</TABLE>

                                       12
<PAGE>

The Company adopted the provisions of FASB Staff Position  ("FSP") FAS 115-2 and
FAS 124-2,  "Recognition and Presentation of Other-Than-Temporary  Impairments,"
("FSP 115-2 and 124-2") for the interim  period ended June 30,  2009,  which was
applied to existing and new debt  securities  held by the Company as of April 1,
2009. For those debt securities for which the fair value of the security is less
than its  amortized  cost and the Company does not intend to sell such  security
and it is more  likely  than  not  that it will  not be  required  to sell  such
security  prior to the  recovery  of its  amortized  cost  basis less any credit
losses,  FSP FAS 115-2 and FAS 124-2  requires that the credit  component of the
other-than-temporary impairment losses be recognized as a loss in earnings while
the  noncredit  component is  recognized  in other  comprehensive  loss,  net of
related taxes.  As a result of the adoption of FSP FAS 115-2 and FAS 124-2,  the
Company  reclassified  the  noncredit  component  of  the   other-than-temporary
impairment   loss   previously   recognized   in  earnings   during  2008.   The
reclassification  was reflected as a cumulative  effect adjustment of $1,657,313
($2,511,080  before  taxes)  that  increased  retained  earnings  and  increased
accumulated  other  comprehensive  loss.  The amortized cost basis of these debt
securities  for which  other-than-temporary  impairment  losses were  recognized
during 2008 were  adjusted  by the amount of the  cumulative  effect  adjustment
before taxes.

The following table presents the Bank's  securities' gross unrealized losses and
fair value, aggregated by the length of time the individual securities have been
in a continuous unrealized loss position at June 30, 2009:

<TABLE>
<CAPTION>
                                          Less than 12 Months          12 Months or More                Total
                                       -------------------------   -------------------------   -------------------------
                                          Fair       Unrealized       Fair       Unrealized       Fair        Unrealized
                                          Value        Losses         Value        Losses         Value         Losses
                                       -------------------------   -------------------------   -------------------------
<S>                                      <C>              <C>        <C>             <C>        <C>              <C>
Investment Securities
   State & Municipal obligations         4,751,386        70,469     8,183,190       755,237    12,934,576       825,706
   Trust Preferred Securities (1)               --            --       965,680     2,028,156       965,680     2,028,156
                                       -----------   -----------   -----------   -----------   -----------   -----------
                                         4,751,386        70,469     9,148,870     2,783,393    13,900,256     2,853,862
                                       -----------   -----------   -----------   -----------   -----------   -----------
Mortgage-Backed Securities
   GNMA                                         --            --        87,940           138        87,940           138
   FNMA                                     24,122            86     3,728,105        12,947     3,752,227        13,033
   FHLMC                                 3,579,313         1,549       126,705         1,109     3,706,018         2,658
                                       -----------   -----------   -----------   -----------   -----------   -----------
                                         3,603,435         1,635     3,942,750        14,194     7,546,185        15,829
                                       -----------   -----------   -----------   -----------   -----------   -----------

Marketable Equity Securities                    --            --     1,985,061        14,939     1,985,061        14,939

                                       -----------   -----------   -----------   -----------   -----------   -----------
Total                                  $ 8,354,821   $    72,104   $15,076,681   $ 2,812,526   $23,431,502   $ 2,884,630
                                       ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>

(1) Net of  other-than-temporary  impairment  writedowns recognized in earnings,
other  than  such  noncredit-related  amounts  reclassified  on April 1, 2009 in
accordance with the adoption of FSP FAS 115-2 and FAS 124-2.

The following table presents the Bank's  securities' gross unrealized losses and
fair value, aggregated by the length of time the individual securities have been
in a continuous unrealized loss position at December 31, 2008:

<TABLE>
<CAPTION>
                                          Less than 12 Months         12 Months or More                 Total
                                       -------------------------   -------------------------   -------------------------
                                          Fair       Unrealized       Fair       Unrealized       Fair       Unrealized
                                          Value        Losses         Value        Losses         Value        Losses
                                       -------------------------   -------------------------   -------------------------
<S>                                      <C>             <C>         <C>              <C>       <C>              <C>
Investment Securities
   U.S. Government Agency securities   $ 7,996,614   $     3,386   $        --   $        --   $ 7,996,614   $     3,386
   State & Municipal obligations         8,804,717       303,267     2,574,433        72,802    11,379,150       376,069
                                       -----------   -----------   -----------   -----------   -----------   -----------
                                        16,801,331       306,653     2,574,433        72,802    19,375,764       379,455
                                       -----------   -----------   -----------   -----------   -----------   -----------
Mortgage-Backed Securities
   GNMA                                         --            --       465,643         8,094       465,643         8,094
   FNMA                                 10,067,156       112,219     4,209,833       151,348    14,276,989       263,567
   FHLMC                                        --            --     1,351,769         9,228     1,351,769         9,228
                                       -----------   -----------   -----------   -----------   -----------   -----------
                                        10,067,156       112,219     6,027,245       168,670    16,094,401       280,889
                                       -----------   -----------   -----------   -----------   -----------   -----------

Marketable Equity Securities                    --            --     1,970,122        29,879     1,970,122        29,879

                                       -----------   -----------   -----------   -----------   -----------   -----------
Total                                  $26,868,487   $   418,872   $10,571,800   $   271,351   $37,440,287   $   690,223
                                       ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>

                                       13
<PAGE>

     At June 30, 2009,  twenty-eight  securities have unrealized losses. At June
     30, 2009, gross unrealized holding losses on available for sale and held to
     maturity securities totaled  $2,884,630.  Of the securities with unrealized
     losses,  there  were  nineteen  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 $2,812,526 at June 30, 2009.
     The following  summarizes by investment  security  type,  the basis for the
     conclusion that the applicable  investment  securities within the Company's
     available for sale  portfolio were not  other-than-temporarily  impaired at
     June 30, 2009.

     Management conducts a formal review of investment securities on a quarterly
     basis for the presence of other-than-temporary impairment ("OTTI"). For the
     second quarter of 2009, the Company  adopted FSP SFAS 115-2 and SFAS 124-2,
     issued by the FASB on April 9, 2009.  Management  assesses  whether OTTI is
     present when the fair value of a debt  security is less than its  amortized
     cost basis at the balance sheet date. Under these circumstances as required
     by the new FSP,  OTTI is  considered  to have  occurred  (1) if the Company
     intends to sell the security;  (2) if it is "more likely than not" that the
     Company  will be  required  to sell the  security  before  recovery  of its
     amortized  cost basis;  or (3) the present  value of expected cash flows is
     not sufficient to recover the entire amortized cost basis. The "more likely
     than not" criteria is a lower  threshold than the "probable"  criteria used
     under previous guidance.

     The FSP requires that  credit-related  OTTI is recognized in earnings while
     non-credit related OTTI on securities not expected to be sold is recognized
     in OCI.  Non-credit  related  OTTI is  caused by other  factors,  including
     illiquidity.  For securities  classified as held-to-maturity  ("HTM"),  the
     amount  of  OTTI  recognized  in OCI  is  accreted  to the  credit-adjusted
     expected  cash  flow  amounts  of  the  securities   over  future  periods.
     Non-credit related OTTI recognized in earnings previous to April 1, 2009 is
     reclassified  from  retained  earnings to  accumulated  OCI as a cumulative
     effect  adjustment.  The Company  adopted this FSP effective April 1, 2009.
     The adoption of this FSP resulted in the  reclassification  of  $2,511,080,
     ($1,657,313,  net of tax) of  non-credit  related  OTTI  to OCI  which  had
     previously been recognized as a loss in earnings.

     Management's OTTI evaluation  process also follows the guidance of SFAS No.
     115,  "Accounting for Certain  Investments in Debt and Equity  Securities",
     Emerging Issues Task Force ("EITF") 99-20,  "Recognition of Interest Income
     and   Impairment  on  Purchased  and  Retained   Beneficial   Interests  in
     Securitized Financial Assets", and FSP No. EITF 99-20-1, "Amendments to the
     Impairment  and  Interest  Income  Measurement  Guidance  of EITF Issue No.
     99-20" ("FSP EITF  99-20-1").  This  guidance  requires the Company to take
     into consideration current market conditions, fair value in relationship to
     cost, extent and nature of change in fair value,  issuer rating changes and
     trends,  volatility of earnings,  current  analysts'  evaluations,  and all
     available  information  relevant to the  collectability of debt securities.
     The Company is also  required  to  consider  its ability and intent to hold
     investments  until a recovery of fair  value,  which may be  maturity,  and
     other  factors when  evaluating  the  existence  of OTTI in its  securities
     portfolio. FSP EITF 99-20-1 was issued on January 12, 2009 and is effective
     for reporting  periods ending after December 15, 2008. This FSP amends EITF
     99-20 by eliminating the requirement  that a holder's best estimate of cash
     flows be based upon those that a market participant would use. Instead, the
     FSP requires that OTTI be  recognized  as a realized loss through  earnings
     when there has been an adverse  change in the holder's  expected cash flows
     such that it is "probable" that the full amount will not be received.  This
     requirement is consistent with the impairment model in SFAS 115.

     In addition,  the disclosure and related discussion of unrealized losses is
     presented pursuant to FSP FAS 115-1 and FAS 124-1, and EITF Issue No. 03-1,
     "The Meaning of  Other-Than-Temporary  Impairment  and Its  Application  to
     Certain  Investments"  ("EITF 03-1").  FSP FAS 115-1 and FAS 124-1 replaces
     certain  impairment   evaluation  guidance  of  EITF  03-1;  however,   the
     disclosure  requirements of EITF 03-1 remain in effect.  This FSP addresses
     the determination of when an investment is considered impaired, whether the
     impairment is considered to be other-than-temporary, and the measurement of
     an  impairment   loss.  The  FSP  also  supersedes  EITF  Topic  No.  D-44,

                                       14
<PAGE>

     "Recognition of Other-Than-Temporary  Impairment upon the Planned Sale of a
     Security  Whose Cost Exceeds Fair Value",  and clarifies that an impairment
     loss  should be  recognized  no later  than when the  impairment  is deemed
     other-than-temporary,  even if a decision to sell an impaired  security has
     not been made.

     For the three and six  months  ended June 30,  2009,  the  Company  did not
     recognize any OTTI charges.

     For all security types discussed below where no OTTI is considered to exist
     at June 30, 2009,  management applied the criteria of FSP FAS 115-2 and FAS
     124-1  to  each  investment  individually.   That  is,  for  each  security
     evaluated,  management  concluded  that  it does  not  intend  to sell  the
     security  and it is not  more  likely  than  not  that  management  will be
     required to sell the security  before  recovery of its amortized cost basis
     and as such OTTI was not recognized as a loss in earnings.

     The following  summarizes,  by investment  security type, the basis for the
     conclusion that the applicable  investment  securities within the Company's
     available for sale  portfolio were not  other-than-temporarily  impaired at
     June 30, 2009:

     U.S.  Government Agency Securities - There were no unrealized losses in the
     Company's investment in these securities as of June 30, 2009. This compares
     to unrealized losses of $3,386 at December 31, 2008.

     State and Municipal  Obligations - The  unrealized  losses on the Company's
     investment in state and municipal  obligations  increased  from $376,069 at
     December 31, 2008 to $825,706 at June 30, 2009.  There were no OTTI charges
     for these  securities  during the second quarter of 2009.  These securities
     are primarily  insured AA and A rated general  obligation bonds with stable
     ratings  The  increase  in  the  unrealized   loss  at  June  30,  2009  is
     attributable to concerns about municipal credit, lack of bank participation
     in this  market and  downgrades  of the  monoline  insurers as well as some
     perceived lack of credibility of the credit rating agencies. As of June 30,
     2009, all securities are performing,  the Company is receiving all interest
     and principal  payments as contractually  agreed,  and all these securities
     are  rated  as  investment  grade.  The  Company  does not  consider  these
     investments to be other-than-temporarily impaired at June 30, 2009.

     Trust Preferred  Securities - As of June 30, 2009 the unrealized  losses on
     the Company's  investment in trust preferred securities totaled $2,028,156.
     As of June 30, 2009, this portfolio consisted of two pooled trust preferred
     securities  with a  carrying  value of  $2,993,836  and a  market  value of
     $965,680.  These securities are in the form of mezzanine  classes which are
     comprised of bank and  insurance  collateral.  During the first  quarter of
     2009,  both  securities were downgraded to a rating of Ca indicating a more
     severe  deterioration in the  creditworthiness of the underlying issuers of
     these securities.  As a result,  the Company recorded OTTI losses effective
     as of December 31,  2008.  Management  evaluated  current  credit  ratings,
     credit  support and stress  testing for future  defaults.  Management  also
     reviewed  analytics  provided  by the  trustee,  reports  from  third-party
     sources  and  internal  documents.  As  previously  indicated,  the Company
     adopted the  provisions  of FSP FAS 115-2 and FAS 124-2,  and in connection
     therewith determined that other-than-temporary impairments at April 1, 2009
     consisted of $1,881,573  related to credit losses and $2,511,080 related to
     other factors. There were no other-than-temporary impairments for the three
     months ended June 30, 2009.

     The unrealized  losses on the Company's  trust  preferred  securities  were
     caused by a lack of  liquidity  and  uncertainties  facing the  banking and
     insurance  industries.  During the second  quarter the Company was notified
     that one of the securities will not be remitting interest payments and that
     the going forward,  would be receiving payments,  "in kind." As a result of
     this, the Company has discontinued  interest  accruals on this security and
     an impairment  loss has been recorded on this security as discussed  above.
     Based on the aforementioned valuation analysis to determine expected credit
     losses prepared on both of these  securities,  management  expects to fully
     recover  amortized  cost of each  security.  However,  additional  interest
     deferrals  and /or defaults  could  result in future  other than  temporary
     impairment  charges.  Because  the  Company  does  not  intend  to sell the

                                       15
<PAGE>

     investments  and it is not more likely  than not that the  Company  will be
     required to sell the  investments  before  recovery of their amortized cost
     bases,  which  may  be  maturity,  the  Company  does  not  consider  these
     investments to be other-than-temporarily impaired at June 30, 2009.

     Mortgage-backed  securities  -  The  unrealized  losses  on  the  Company's
     investment  in  mortgage-backed   securities  decreased  from  $280,889  at
     December 31, 2008 to $15,829 at June 30,  2009.  There were no OTTI charges
     for the  six  months  ended  June  30,  2009.  These  securities  are  U.S.
     Government  Agency or sponsored  agency  securities  secured by residential
     properties. The contractual cash flows for these investments are performing
     as expected. Management believes the increase in fair value is attributable
     to  investor's  perception  of  improvement  in credit and liquidity in the
     marketplace.  The Company  expects to collect all principal and interest on
     these  securities.  Because  the  Company  does not  intend  to sell  these
     investments  and it is not more likely  than not that the  Company  will be
     required  to sell these  investments  until a recovery of  amortized  cost,
     which may be at maturity,  the Company does not consider these  investments
     to be other-than-temporarily impaired at June 30, 2009.

     Equity  securities - The unrealized  losses on the Company's  investment in
     four marketable  equity  securities  totaled $14,939,  which was a decrease
     from the  unrealized  losses of $29,879 as of December 31, 2008. As of June
     30, 2009,  this portfolio  consists of a marketable  investment fund with a
     fair value of $1,985,061, a money market fund with a fair value of $60,190,
     and perpetual  preferred stock of government  sponsored  enterprises  which
     have been written  down to a fair value of $2.  Given the small  unrealized
     loss remaining in this segment of the portfolio,  and the Company's ability
     and  intent  to  hold  the  investments  for a  reasonable  period  of time
     sufficient  for a forecasted  recovery of amortized  cost, the Company does
     not consider  these  investments to be  other-than-temporarily  impaired at
     June 30, 2009.

The following  table  presents a roll-forward  of the balance of  credit-related
impairment  losses on debt  securities held at June 30, 2009 for which a portion
of the  other-than-temporary  impairment was  recognized in other  comprehensive
loss:

<TABLE>
<CAPTION>
<S>                                                                            <C>
Balance at April 1, 2009                                                        $       --
Credit component of other-than-temporary impairment not reclassified to other
 comprehensive loss in conjunction with the cumulative effect adjustment         1,881,573
Additions for credit component for which other-than-temporary impairment was
 not previously recognized                                                              --
                                                                                ----------
Balance at June 30, 2009                                                        $1,881,573
                                                                                ==========
</TABLE>

As of June 30, 2009, debt securities with other-than-temporary impairment losses
related to credit and were  recognized  in earnings  consisted  of pooled  trust
preferred  securities.  In  accordance  with FSP FAS  115-2 and FAS  124-2,  the
Company  estimated the portion of loss attributable to credit using a discounted
cash flow model.  Significant inputs for the Trust Preferred Securities included
estimated cash flows and prospective deferrals, defaults and recoveries based on
the underlying seniority status and subordination  structure of the pooled trust
preferred  debt  tranche at the time of  measurement.  The  valuations  of trust
preferred  securities  were  based  upon FAS 157-4  using  cash  flow  analysis.
Contractual  cash  flows and a market  rate of return  were used to derive  fair
value for each of these  securities.  Factors  that  affected the market rate of
return  included  (1) any  uncertainty  about the  amount and timing of the cash
flows, (2) the credit risk, (3) liquidity of the instrument,  and (4) observable
yields from  trading  data and  bid/ask  indications.  Credit  risk  spreads and
liquidity  premiums  were  analyzed  to derive the  appropriate  discount  rate.
Prospective  deferral,  default and recovery estimates  affecting projected cash
flows were based on an analysis of the  underlying  financial  condition  of the
individual issuers, with consideration of the issuers's capital adequacy, credit
quality, lending concentrations and other factors.  Assumptions for deferral and
constant default rates were 100% for nonperforming in 2011, from 2% to 4.85% for

                                       16
<PAGE>

nonperforming  during 2010, 3.5% for 2011 and 1% for performing  after 2011. The
assumptions  for collateral  conditional  default rates ranged from 0% to 4% and
severity  of  defaults  assumptions  ranged  from  80% to 95%.  Assumptions  for
internal  rates of return were L+70,  10%,  12%, 15% 17% and 20% and  prepayment
assumptions were from 0% to 2%.

All cash flow  estimates  were based on the  securities'  tranche  structure and
contractual  rate and  maturity  terms.  The Company  utilized the services of a
third-party  vendor  to  obtain  information  about  the  structure  in order to
determine how the underlying  collateral  cash flows will be distributed to each
security issued from the structure. The present value of the expected cash flows
were  compared  to  the  Company's  holdings  to  determine  the  credit-related
impairment loss.


The  amortized  cost and  fair  value of debt  securities  at June 30,  2009 and
December 31, 2008, by contractual  maturity,  are shown below. Actual maturities
of mortgage-backed securities may differ from contractual maturities because the
mortgages  underlying  the  securities  may be called or prepaid with or without
call or prepayment penalties.  Because mortgage-backed securities are not due at
a single maturity date, they are not included in the maturity  categories in the
following maturity summary.

<TABLE>
<CAPTION>
                                                             June 30, 2009
                                        ----------------------------------------------------------
                                        Available-for-Sale Securities  Held-to-Maturity Securities
                                        -----------------------------  ---------------------------
                                          Amortized        Fair         Amortized         Fair
                                             Cost          Value           Cost           Value
                                         ------------   ------------   ------------   ------------
<S>                                      <C>            <C>            <C>            <C>
Due in one year or less                  $    998,825   $  1,013,711   $         --   $         --
Due after one year through five years       2,237,008      2,288,622             --             --
Due after five years through ten years      6,653,702      6,702,453             --             --
Due after ten years                        20,321,912     17,485,287             --             --
                                         ------------   ------------   ------------   ------------
                                           30,211,447     27,490,073             --             --
Mortgage-backed securities                 54,022,064     54,451,783         15,602         16,103
                                         ------------   ------------   ------------   ------------
   TOTAL DEBT SECURITIES                 $ 84,233,511   $ 81,941,856   $     15,602   $     16,103
                                         ============   ============   ============   ============
<CAPTION>
                                                             December 31, 2008
                                        ----------------------------------------------------------
                                        Available-for-Sale Securities  Held-to-Maturity Securities
                                        -----------------------------  ---------------------------
                                          Amortized        Fair         Amortized         Fair
                                             Cost          Value           Cost           Value
                                         ------------   ------------   ------------   ------------
<S>                                      <C>            <C>            <C>            <C>
Due in one year or less                  $         --   $         --   $         --   $         --
Due after one year through five years      25,110,576     25,272,025             --             --
Due after five years through ten years      6,403,590      6,443,810             --             --
Due after ten years                        18,521,023     18,191,039             --             --
                                         ------------   ------------   ------------   ------------
                                           50,035,189     49,906,874             --             --
Mortgage-backed securities                 60,165,607     60,563,328         16,550         16,553
                                         ------------   ------------   ------------   ------------
   TOTAL DEBT SECURITIES                 $110,200,796   $110,470,202   $     16,550   $     16,553
                                         ============   ============   ============   ============
</TABLE>

                                       17
<PAGE>

9.   A summary  of the  Bank's  loan and lease  portfolio  at June 30,  2009 and
     December 31, 2008 is as follows:
<TABLE>
<CAPTION>
                                                                         2009             2008
                                                                   -------------    -------------
<S>                                                                <C>              <C>
Real estate--residential mortgage                                  $ 175,853,528    $ 192,561,108
Real estate--commercial mortgage                                      77,756,069       67,454,925
Real estate--construction                                             40,286,979       38,153,503
Commercial Loans                                                      50,662,915       46,249,689
Commercial Leases (net of unearned
  discount of $3,999,055-2009, $2,501,895-2008)                       32,300,923       19,785,870
Installment                                                            5,218,229        5,113,400
Other                                                                     66,850          128,574
                                                                   -------------    -------------
                                          TOTAL LOANS AND LEASES     382,145,493      369,447,069
Net deferred loan origination costs                                      622,255          562,242
Premiums on purchased loans                                               54,482           81,588
Allowance for loan and lease losses                                   (4,029,790)      (3,698,820)
                                                                   -------------    -------------
                                            NET LOANS AND LEASES   $ 378,792,440    $ 366,392,079
                                                                   =============    =============
</TABLE>

     Changes in the  allowance  for loan and lease  losses for the three  months
     ended June 30, 2009 and 2008 are as shown below:

                                                         2009            2008
                                                    -----------     -----------

Balance at March 31,                                $ 3,593,824     $ 2,195,493

Provision for loan and lease losses                     517,589         137,000
Loans and leases charged off                           (228,822)       (116,005)
Recoveries of loans and leases charged off              147,199          17,090
                                                    -----------     -----------

Balance at the end of the period                    $ 4,029,790     $ 2,233,578
                                                    ===========     ===========

     Changes in the allowance for loan and lease losses for the six months ended
     June 30, 2009 and 2008 are as shown below:

                                                         2009            2008
                                                    -----------     -----------

Balance at beginning of the year                    $ 3,698,820     $ 2,151,622

Provision for loan and lease losses                     787,589         212,000
Loans and leases charged off                           (648,947)       (152,265)
Recoveries of loans and leases charged off              192,328          22,221
                                                    -----------     -----------

Balance at the end of the period                    $ 4,029,790     $ 2,233,578
                                                    ===========     ===========

     The  following  information  relates to impaired  loans and  leases,  which
     include all nonaccrual loans and leases and other loans and leases past due
     90 days or more, and all restructured  loans and leases,  as of and for the
     six months ended June 30, 2009 and December 31, 2008.
<TABLE>
<CAPTION>
                                                                                  2009         2008
                                                                               ----------   ----------
<S>                                                                            <C>          <C>
Loans and leases receivable for which there is a related allowance for loan
   and lease losses                                                            $2,601,363   $6,225,481
                                                                               ==========   ==========

Loans and leases receivable for which there is no related allowance for loan
   and lease losses                                                            $7,459,970   $2,657,655
                                                                               ==========   ==========

Allowance for loan and lease losses related to impaired loans and leases       $1,035,823   $  939,066
                                                                               ==========   ==========
</TABLE>

                                       18
<PAGE>

10.  A summary of the Bank's  deposits at June 30, 2009 and December 31, 2008 is
     as follows:

                                                        2009           2008
                                                    ------------   ------------
Noninterest bearing:
       Demand                                       $ 72,638,038   $ 69,548,261
                                                    ------------   ------------
Interest bearing:
       Savings                                        63,894,720     58,582,376
       Money market                                   86,433,364     93,085,126
       Time certificates of deposit in
         denominations of $100,000 or more            73,933,818     41,003,855
       Other time certificates of deposit             80,250,660     81,107,006
                                                    ------------   ------------
       Total Interest bearing deposits               304,512,562    273,778,363
                                                    ------------   ------------
                                   TOTAL DEPOSITS   $377,150,600   $343,326,624
                                                    ============   ============

     Included  in  deposits  as of June  30,  2009  and  December  31,  2008 are
     approximately  $27,241,000  and  $15,902,000,   respectively,  of  brokered
     deposits which have varying  maturities  through December 2010 and December
     2009, respectively.

11.  During 2007, the Company approved a restricted stock plan (the "2007 Plan")
     for senior  management.  On February 15, 2008,  the Company  granted  3,500
     restricted  stock  awards to senior  management  from the 2007 Plan.  These
     awards  vest over a  five-year  period,  or earlier  if the senior  manager
     ceases to be a senior manager for any reason other than cause, for example,
     retirement. The holders of these awards participate fully in the rewards of
     stock ownership of the Company,  including voting and dividend rights.  The
     senior  managers are not required to pay any  consideration  to the Company
     for the restricted stock awards. The Company measures the fair value of the
     awards  based on the  average  of the high price and low price at which the
     Company's  common stock traded on the date of the grant.  For the three and
     six  months  ended  June 30,  2009,  $2,294  and  $4,588  respectively  was
     recognized as  compensation  expense under the 2007 Plan. At June 30, 2009,
     unrecognized  compensation  cost of  $32,885  related  to these  awards  is
     expected to vest over a weighted average period of 4 years.

     A summary of  unvested  shares as of and for the six months  ended June 30,
     2009, is as follows:

                                                      Weighted Average
                                            Shares       Grant Date
                                        (in thousands)   Fair Value
                                         ---------------------------
           Unvested at January 1, 2009          3,500   $      13.11
                         Granted                   --             --
                         Vested                    --             --
                         Forfeited                 --             --
                                         ------------   ------------
           Unvested at June 30, 2009            3,500   $      13.11
                                         ============   ============

12.  The Company has two operating  segments for purposes of reporting  business
     line results:  Community Banking and Leasing. The Community Banking segment
     is defined as all the  operating  results of the Company and the Bank.  The
     Leasing  segment  is defined as the  results  of First  Litchfield  Leasing
     Corporation.  Because First Litchfield Leasing  Corporation is a relatively
     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 the  Company as of and for the three and six months  ended June 30, 2009
     and 2008,  respectively.  The Company uses an internal  reporting system to
     generate  information by operating  segment.  Estimates and allocations are
     used for noninterest  expenses and income taxes. The Company uses a matched
     maturity  funding concept to allocate  interest expense to First Litchfield
     Leasing  Corporation.  The matched  maturity  funding concept  utilizes the
     origination  date and the maturity  date of the lease to assign an interest
     expense to each lease.

                                       19
<PAGE>
<TABLE>
<CAPTION>
                                                             Three Months Ended
                                                               June 30, 2009
                                      ---------------------------------------------------------------

                                        Community                       Elimination     Consolidated
                                         Banking          Leasing         Entries           Total
                                      -------------    -------------   -------------    -------------
<S>                                   <C>              <C>             <C>              <C>

Net interest income                   $   3,618,328    $     382,600   $          --    $   4,000,928
Provision for credit losses                 463,872           53,717              --          517,589
                                      -------------    -------------   -------------    -------------

Net interest income after provision       3,154,456          328,883              --        3,483,339
Noninterest income                        1,227,566            2,906              --        1,230,472
Noninterest expense                       4,351,583           88,586              --        4,440,169
                                      -------------    -------------   -------------    -------------

Income before income taxes                   30,439          243,203              --          273,642
Income tax provision                        (86,125)          80,768              --           (5,357)
                                      -------------    -------------   -------------    -------------

Net income                            $     116,564    $     162,435   $          --    $     278,999
                                      =============    =============   =============    =============

Total assets as of June 30, 2009      $ 516,202,885    $  35,017,544   $    (201,950)   $ 551,018,479
                                      =============    =============   =============    =============

<CAPTION>
                                                             Three Months Ended
                                                               June 30, 2008
                                      ---------------------------------------------------------------

                                        Community                       Elimination     Consolidated
                                         Banking          Leasing         Entries           Total
                                      -------------    -------------   -------------    -------------
<S>                                   <C>              <C>             <C>              <C>
Net interest income                   $   3,545,669    $     161,028   $          --    $   3,706,697
Provision for credit losses                 117,330           19,670              --          137,000
                                      -------------    -------------   -------------    -------------

Net interest income after provision       3,428,339          141,358              --        3,569,697
Noninterest income                          939,466               --              --          939,466
Noninterest expense                       3,740,585           83,134              --        3,823,719
                                      -------------    -------------   -------------    -------------

Income before income taxes                  627,220           58,224              --          685,444
Income tax provision                         51,124           17,872              --           68,996
                                      -------------    -------------   -------------    -------------

Net income                            $     576,096    $      40,352   $          --    $     616,448
                                      =============    =============   =============    =============

Total assets as of June 30, 2008      $ 527,445,033    $  17,386,586   $    (201,927)   $ 544,629,692
                                      =============    =============   =============    =============
</TABLE>

                                       20
<PAGE>
<TABLE>
<CAPTION>
                                                           Six Months Ended
                                                            June 30, 2009
                                      -----------------------------------------------------------
                                       Community                     Elimination     Consolidated
                                        Banking         Leasing        Entries           Total
                                      ------------    ------------   ------------    ------------
<S>                                  <C>             <C>            <C>             <C>
Net interest income                   $  7,317,899    $    655,596   $         --    $  7,973,495
Provision for credit losses                697,446          90,143             --         787,589
                                      ------------    ------------   ------------    ------------

Net interest income after provision      6,620,453         565,453             --       7,185,906
Noninterest income                       2,041,612           2,906             --       2,044,518
Noninterest expense                      8,287,527         175,521             --       8,463,048
                                      ------------    ------------   ------------    ------------

Income before income taxes                 374,538         392,838             --         767,376
Income tax (benefit) provision             (65,144)        129,701             --          64,557
                                      ------------    ------------   ------------    ------------

Net income                            $    439,682    $    263,137   $         --    $    702,819
                                      ============    ============   ============    ============

Total assets as of June 30, 2009      $516,202,885    $ 35,017,544   $   (201,950)   $551,018,479
                                      ============    ============   ============    ============
<CAPTION>
                                                           Six Months Ended
                                                            June 30, 2008
                                      -----------------------------------------------------------
                                       Community                     Elimination     Consolidated
                                        Banking         Leasing        Entries           Total
                                      ------------    ------------   ------------    ------------
<S>                                  <C>             <C>            <C>             <C>

Net interest income                   $  6,972,726    $    294,142   $         --    $  7,266,868
Provision for credit losses                160,317          51,683             --         212,000
                                      ------------    ------------   ------------    ------------

Net interest income after provision      6,812,409         242,459             --       7,054,868
Noninterest income                       1,812,706              --             --       1,812,706
Noninterest expense                      7,446,968         175,794             --       7,622,762
                                      ------------    ------------   ------------    ------------

Income before income taxes               1,178,147          66,665             --       1,244,812
Income tax provision                       109,764          20,077             --         129,841
                                      ------------    ------------   ------------    ------------

Net income                            $  1,068,383    $     46,588   $         --    $  1,114,971
                                      ============    ============   ============    ============

Total assets as of June 30, 2008      $527,445,033    $ 17,386,586   $   (201,927)   $544,629,692
                                      ============    ============   ============    ============
</TABLE>

13.  Effective  January 1, 2008,  the Company  adopted  Statement  of  Financial
     Accounting  Standards  ("SFAS") No. 157, "Fair Value  Measurements"  ("SFAS
     157") which  provides a framework for measuring and  disclosing  fair value
     under  generally  accepted   accounting   principles.   SFAS  157  requires
     disclosures  about the fair value of assets and  liabilities  recognized in
     the balance sheet in periods subsequent to initial recognition, whether the
     measurements are made on a recurring basis (for example, available-for-sale
     investment  securities) or on a nonrecurring  basis (for example,  impaired
     loans).

     In February  2008,  the FASB issued FSP No. 157-2,  Effective  Date of FASB
     Statement No. 157 ("FSP 157-2"),  which permits a one-year deferral for the
     implementation  of SFAS No.  157 with  regard to  nonfinancial  assets  and
     liabilities  that are not  recognized  or  disclosed  at fair  value in the
     financial  statements  on a  recurring  basis.  Effective  January 1, 2009,
     Company adopted FSP 157-2,  "Effective Date of FASB Statement No. 157," for
     non-financial assets and non-financial liabilities.

     Effective  April 1, 2009,  the Company  adopted FSP No. 157-4  "Determining
     Fair Value When the Volume and Level of Activity for the Asset or Liability
     Have  Significantly  Decreased and  Identifying  Transactions  That Are Not
     Orderly."

                                       21
<PAGE>

     SFAS 157 defines  fair value as the  exchange  price that would be received
     for an  asset or paid to  transfer  a  liability  (an  exit  price)  in the
     principal  or most  advantageous  market for the asset or  liability  in an
     orderly  transaction  between market  participants on the measurement date.
     SFAS 157 also  establishes a fair value  hierarchy which requires an entity
     to  maximize  the  use  of  observable  inputs  and  minimize  the  use  of
     unobservable inputs when measuring fair value. The standard describes three
     levels of inputs that may be used to measure fair value:

Level 1   Quoted prices in active markets for identical  assets or  liabilities.
          Level 1 assets include debt and equity  securities  that are traded in
          an active exchange market, as well as U.S. Treasury  securities,  that
          are highly liquid and are actively traded in over-the-counter markets.

Level 2   Observable  inputs other than Level 1 prices such as quoted prices for
          similar assets or  liabilities;  quoted prices in markets that are not
          active;  or other inputs that are observable or can be corroborated by
          observable  market data for  substantially the full term of the assets
          or liabilities. Level 2 assets and liabilities include debt securities
          with   quoted   prices   that  are   traded   less   frequently   than
          exchange-traded  instruments whose value is determined using a pricing
          model with inputs that are  observable in the market or can be derived
          principally  from or  corroborated  by  observable  market data.  This
          category   generally   includes  other  U.S.   Government  and  agency
          mortgage-backed and debt securities,  state and municipal obligations,
          and equity  securities  quoted in markets  that are not  active.  Also
          included are interest rate swaps certain collateral-dependent impaired
          loans and foreclosed property.

Level 3   Unobservable inputs that are supported by little or no market activity
          and  that  are  significant  to  the  fair  value  of  the  assets  or
          liabilities.   Level  3  assets  and  liabilities   include  financial
          instruments whose value is determined using pricing models, discounted
          cash flow methodologies, or similar techniques, as well as instruments
          for  which  the  determination  of  fair  value  requires  significant
          management  judgment or estimation.  For example,  this category could
          include certain private equity investments, trust preferred securities
          and certain collateral-dependent impaired loans.

     The following table details the financial  instruments  that are carried at
     fair value and  measured at fair value on a recurring  basis as of June 30,
     2009 and December 31, 2008 and  indicates  the fair value  hierarchy of the
     valuation techniques utilized by the Company to determine fair value:

                 Fair Value Measurements at June 30, 2009, Using
<TABLE>
<CAPTION>
                                    Quoted Prices in                                          Significant
                                          June       Active Markets for  Significant Other    Unobservable
                                        30, 2009      Identical Assets   Observable Inputs       Inputs
                                          Total           (Level 1)          (Level 2)         (Level 3)
                                     ---------------   ---------------    ---------------   ---------------
<S>                                  <C>               <C>                <C>               <C>
Assets:
     Available for sale securities   $    83,987,109   $     5,142,210    $    77,879,219   $       965,680
                                     ===============   ===============    ===============   ===============
     Interest rate swaps             $       162,556   $            --    $       162,556   $            --
                                     ===============   ===============    ===============   ===============
<CAPTION>
               Fair Value Measurements at December 31, 2008, Using

                                    Quoted Prices in                                          Significant
                                        December     Active Markets for  Significant Other    Unobservable
                                        31, 2008      Identical Assets   Observable Inputs       Inputs
                                          Total           (Level 1)          (Level 2)         (Level 3)
                                     ---------------   ---------------    ---------------   ---------------
<S>                                  <C>               <C>                <C>               <C>
Assets:
     Available for sale securities   $   113,486,201   $     5,188,571    $   108,297,630   $            --
                                     ===============   ===============    ===============   ===============
</TABLE>

                                       22
<PAGE>

     As of June 30, 2009 and December 31, 2008, U.S. Treasury securities and one
     equity  security,  with  carrying  values  of  $5,142,210  and  $5,188,571,
     respectively,  are the only  assets  whose fair  values are  measured  on a
     recurring basis using Level 1 inputs (active market quotes).

     The fair values of U. S. Government and agency mortgaged backed  securities
     and debt securities,  State and Municipal  obligations,  and certain equity
     securities  are  measured  on a  recurring  basis,  using Level 2 inputs of
     observable  market  data on  similar  securities.  As of June 30,  2009 and
     December  31,  2008,  the  carrying  values  of  these  securities  totaled
     $77,879,219 and $108,297,630, respectively.

     The fair value of the Bank's interest rate swap derivative  instruments are
     determined based on inputs that are readily  available in public markets or
     can be derived  from  information  available  in publicly  quoted  markets.
     Therefore, the Bank has categorized these derivative instruments as Level 2
     within the fair value hierarchy.

     Securities measured at fair value in Level 3 include certain collateralized
     debt  obligations that are backed by trust preferred  securities  issued by
     banks,  thrifts and  insurance  companies.  Management  determined  that an
     orderly and active market for these  securities and similar  securities did
     not exist based on a significant  reduction in trading  volume and widening
     spreads relative to historical levels.

     The  following  table shows a  reconciliation  of the  beginning and ending
     balances for Level 3 assets:
<TABLE>
<CAPTION>
                                                                              Six Months
                                                                          Ended June 30, 2009
                                                                          -------------------
<S>                                                                              <C>
Balance at beginning of period                                              $            --
Increase in fair value of securities included in other comprehensive loss           472,065
Transfers to/from level 3                                                           493,615

                                                                            ---------------
Balance at end of period                                                    $       965,680
                                                                            ===============
</TABLE>

     The  following  tables  detail the assets and  liabilities  carried at fair
     value and  measured  at fair value on a  nonrecurring  basis as of June 30,
     2009 and December  31, 2008 and  indicate  the fair value  hierarchy of the
     valuation techniques utilized by the Company to determine the fair value:
<TABLE>
<CAPTION>
                                                                          June 30, 2009
                                       ------------------------------------------------------------------------------------
                                                             Quoted Prices in        Significant           Significant
                                            Balance          Active Markets for       Observable          Unobservable
                                             as of           Identical Assets           Inputs               Inputs
                                         June 30, 2009          (Level 1)             (Level 2)             (Level 3)
                                       -------------------  -------------------   -------------------  --------------------
<S>                                    <C>                  <C>                   <C>                  <C>
Financial assets held at fair value
  Impaired Loans (1)                   $         8,857,514  $                --   $           441,065  $          8,416,449
                                       ===================  ===================   ===================  ====================

(1) Represents  carrying value and related write-downs for which adjustments are
based on the appraised value.
<CAPTION>

                                                                       December 31, 2008
                                       ------------------------------------------------------------------------------------
                                                             Quoted Prices in        Significant           Significant
                                            Balance          Active Markets for       Observable          Unobservable
                                             as of           Identical Assets           Inputs               Inputs
                                       December 31, 2008        (Level 1)             (Level 2)             (Level 3)
                                       -------------------  -------------------   -------------------  --------------------
<S>                                    <C>                  <C>                   <C>                  <C>
Financial assets held at fair value
  Impaired Loans (1)                   $         3,271,452  $                --   $           694,650  $          2,576,802
                                       ===================  ===================   ===================  ====================
</TABLE>

(1) Represents  carrying value and related write-downs for which adjustments are
based on the appraised value.

                                       23
<PAGE>

     The Company  has no other  assets or  liabilities  carried at fair value or
     measured at fair value on a non recurring basis.

     SFAS No. 107 requires  disclosure of fair value information about financial
     instruments,  whether  or not  recognized  in the  statement  of  financial
     condition, for which it is practicable to estimate that value. SFAS No. 107
     excludes certain  financial  instruments from its disclosure  requirements.
     Accordingly,  the aggregate  fair value amounts  presented do not represent
     the underlying value of the Company.

     In April 2009,  the FASB issued Staff  Position No. FAS 107-1 and APB 28-1,
     "Interim  Disclosures  about Fair Value of  Financial  Instruments,"  ("FSP
     107-1 and APB 28-1"). This FSP amends FASB Statement No. 107,  "Disclosures
     about Fair Value of Financial  Instruments," to require  disclosures  about
     fair value  instruments  for interim  reporting  periods of publicly traded
     companies as well as in annual financial  statements.  This FSP also amends
     APB  Opinion  No. 28,  "Interim  Financial  Reporting,"  to  require  those
     disclosures  in  summarized  financial  information  at  interim  reporting
     periods.  Effective  April 1, 2009,  the Bank adopted FSP No. 107-1 and APB
     28-1. See the following table for disclosure of the information required by
     this FSP.

     The  estimated  fair value  amounts for June 30, 2009 and December 31, 2008
     have been  measured  as of the end of the  respective  periods and have not
     been  reevaluated  or updated for  purposes of these  financial  statements
     subsequent to those respective dates. As such, the estimated fair values of
     these financial  instruments  subsequent to the respective  reporting dates
     may be different than amounts reported at period-end.

     Cash and Due From Banks,  Federal Funds Sold,  Interest Income  Receivable,
     Accrued  Interest  Payable,   Collateralized   Borrowings,  and  Short-term
     Borrowings:  These assets and liabilities  are  short-term,  and therefore,
     book  value  is a  reasonable  estimate  of  fair  value.  These  financial
     instruments are not carried at fair value on a recurring basis.

     Federal  Home  Loan  Bank  Stock,  Federal  Reserve  Bank  Stock  and Other
     Restricted  Stock: Such stock is estimated to equal the carrying value, due
     to the historical  experience  that these stocks are redeemed at par. These
     financial instruments are not carried at fair value on a recurring basis.

     Available for Sale and Held to Maturity Securities: Where quoted prices are
     available in an active market,  securities are classified within Level 1 of
     the  valuation   hierarchy.   Level  1  securities  include  U.S.  Treasury
     securities that are traded in an active exchange  market.  If quoted prices
     are not  available,  then fair values are estimated by using pricing models
     (i.e.,  matrix  pricing)  or  quoted  prices  of  securities  with  similar
     characteristics  and  are  classified  within  Level  2  of  the  valuation
     hierarchy.  Examples of such instruments include U.S. Government agency and
     sponsored  agency bonds,  mortgage-backed  and debt  securities,  state and
     municipal  obligations,  and  equity  securities  in  markets  that are not
     active, and certain collateral dependent loans. Securities measured at fair
     value in Level 3 include certain  collateralized  debt obligations that are
     backed by trust preferred securities issued by banks, thrifts and insurance
     companies.  Management  determined  that an orderly  and active  market for
     these  securities  and  similar   securities  did  not  exist  based  on  a
     significant  reduction in trading volume and widening  spreads  relative to
     historical levels. Available for sale securities are recorded at fair value
     on a recurring basis, and held to maturity securities are only disclosed at
     fair value.

     Loans:  For  variable  rate  loans  which  reprice  frequently  and have no
     significant  change  in  credit  risk,  carrying  values  are a  reasonable
     estimate  of fair  values,  adjusted  for  credit  losses  inherent  in the
     portfolios.  The fair value of fixed rate loans is estimated by discounting
     the future  cash  flows  using the year end rates,  estimated  using  local
     market data, at which similar loans would be made to borrowers with similar
     credit ratings and for the same remaining  maturities,  adjusted for credit
     losses inherent in the portfolios. Loans are generally not recorded at fair
     value on a recurring basis. However,  from time to time,  nonrecurring fair

                                       24
<PAGE>

     value  adjustments to  collateral-dependent  impaired loans are recorded to
     reflect partial write-downs based on the observable market price or current
     appraised value of collateral.

     Loans held for sale:  Loans held for sale are required to be carried at the
     lower of cost or fair value.  Under SFAS 157,  market value is to represent
     fair value.  As of June 30, 2009, the Company had $13,728,284 of loans held
     for sale,  which  represented  first  mortgages  committed  and  subject to
     settlement  shortly  after the end of the  period.  Due to the  short  term
     nature of loans  committed for sale,  the carrying value  approximates  the
     market price.

     Interest rate swap derivatives:  The fair value of the Bank's interest rate
     swap derivative instruments are determined based on inputs that are readily
     available in public markets or can be derived from information available in
     publicly  quoted  markets.   Therefore,  the  Bank  has  categorized  these
     derivative instruments as Level 2 within the fair value hierarchy described
     in Note 13.

     Deposits:  The fair  value of demand  deposits,  savings  and money  market
     deposits is the amount  payable on demand at the reporting  date.  The fair
     value of  certificates of deposit is estimated using a discounted cash flow
     calculation  that  applies  interest  rates  currently  being  offered  for
     deposits  of  similar  remaining  maturities  to a schedule  of  aggregated
     expected  maturities  on such  deposits.  Deposits are not recorded at fair
     value on a recurring basis.

     Long-term  debt:  The fair value of  long-term  debt is  estimated  using a
     discounted cash flow  calculation  that applies current  interest rates for
     borrowings  of  similar  maturity  to a  schedule  of  maturities  of  such
     advances.  Long-term  debt is not  recorded  at fair  value on a  recurring
     basis.

     Off-balance-sheet  instruments:  Fair values for off-balance-sheet  lending
     commitments  are based on fees  currently  charged  to enter  into  similar
     agreements,  taking into account the remaining  terms of the agreements and
     the counterparties' credit standings. Off-balance sheet instruments are not
     recorded at fair value on a recurring basis.


                                       25
<PAGE>

     The recorded  book  balances  and  estimated  fair values of the  Company's
     financial  instruments  at June  30,  2009  and  December  31,  2008 are as
     follows:
<TABLE>
<CAPTION>
                                              June 30, 2009               December 31, 2008
                                       ---------------------------   ---------------------------
                                           Book        Estimated        Book         Estimated
                                           Value       Fair Value       Value        Fair Value
                                       ---------------------------   ---------------------------
<S>                                      <C>            <C>           <C>            <C>
Financial Assets:
Cash and due from banks                $ 42,504,266     42,504,266   $  9,238,783      9,238,783
Available for sale securities            83,987,109     83,987,109    113,486,201    113,486,201
Held to maturity securities                  15,602         16,103         16,550         16,553
Federal Home Loan Bank Stock              5,427,600      5,427,600      5,427,600      5,427,600
Federal Reserve Bank Stock                  225,850        225,850        225,850        225,850
Other restricted stock                      105,000        105,000        100,000        100,000
Loans held for sale                      13,728,284     13,728,284      1,013,216      1,013,216
Loans and leases, net                   378,792,440    406,502,141    366,392,079    365,191,872
Accrued interest receivable               1,927,445      1,927,445      2,262,918      2,262,918
Interest rate swaps                         162,556        162,556             --             --

Financial Liabilities:
Savings deposits                         63,894,720     63,894,720     58,582,376     58,582,376
Money market and demand deposits        159,071,402    159,071,402    162,633,387    162,633,387
Time certificates of deposit            154,184,478    155,339,429    122,110,861    122,607,975
Federal Home Loan Bank advances          80,000,000     82,910,379     81,608,000     86,044,755
Repurchase agreements with
   financial institutions                22,500,000     22,761,323     26,450,000     26,316,528
Repurchase agreements with customers     18,939,133     18,939,133     18,222,571     18,222,571
Subordinated debt                        10,104,000     10,104,000     10,104,000     10,104,000
Accrued interest payable                    612,061        612,061        611,829        611,829
Collateralized borrowings                 1,118,720      1,118,720      1,375,550      1,375,550
</TABLE>

     Loan and lease  commitments,  rate lock  derivative  commitments  and other
     commitments,  on which the committed interest rate is less than the current
     market rate are insignificant at June 30, 2009 and December 31, 2008.

14.  Interest Rate Swaps and Derivative Instruments

     The Company manages its interest rate risk by using derivative  instruments
     in the form of interest rate swaps designed to reduce interest rate risk by
     effectively  converting  a portion  of  floating  rate debt into fixed rate
     debt.  This action reduces the Company's risk of incurring  higher interest
     costs in periods of rising interest rates. On February 2, 2009, the Company
     entered into two interest  rate swap  agreements  through March of 2014 and
     2019,  respectively;  however,  the  settlements  under the swaps commenced
     March 30, 2009.  Payments  under the swap  agreements  will continue on the
     30th of each quarter end. The Company is  accounting  for the interest rate
     swap  agreements  as  effective  cash flow hedges.  The notional  principal
     amounts of these swaps were  $6,800,000  and  $3,000,000  and the  variable
     interest  rate  amounts on related debt were  swapped for  effective  fixed
     rates of 5.79% and 4.86%, respectively.  These swaps are designated as cash
     flow hedges and qualify for hedge  accounting  treatment under SFAS No 133,
     "Accounting  for Derivative  Instruments and Hedging  Activities"  (SFAS No
     133).

     In accordance  with SFAS No 133, the Company's  derivative  instruments are
     recorded  as assets or  liabilities  at fair  value.  Changes in fair value
     derivatives  that have been  designated as cash flow hedges are included in
     "Unrealized  gains  (losses) on cash flow  hedges" as a component  of other
     comprehensive  income to the extent of the  effectiveness  of such  hedging
     instruments.  Any  ineffective  portion  of the change in fair value of the
     designated  hedging  instruments  would  be  included  in the  Consolidated
     Statements of Income in interest  (income)  expense.  No such adjustment to
     income to reflect hedge  ineffectiveness on cash flow hedges was recognized
     during  the six  months  ended  June  30,  2009,  and  Management  does not

                                       26
<PAGE>

     anticipate the recognition of any such adjustment to income  throughout the
     terms of the  swaps.  Gains and losses are  reclassified  from  accumulated
     other comprehensive income to the Consolidated  Statements of Income in the
     period the hedged transaction affects earnings.

     Amounts  reported in  accumulated  other  comprehensive  income  related to
     derivatives will be reclassified to interest  expense as interest  payments
     are  made  on  the   Company's   variable-rate   debt.   Amounts  in  other
     comprehensive  income will be reclassified  into interest  expense over the
     term of the swap agreements to achieve the fixed rate on the debt.

     Over the next twelve  months,  the  Company  estimates  that an  additional
     $194,491 will be reclassified as an increase to interest expense.

     The gross  carrying  values of the interest  rate  contracts as of June 30,
     2009 were  $162,556 and were  recorded in other assets on the  Consolidated
     Balance  Sheets  (see Notes 4 and 13).  For the six  months  ended June 30,
     2009,  the amount of income  recognized on the  effective  portion of these
     interest rate contracts in accumulated  other  comprehensive  income on the
     condensed  Consolidated Balance Sheets was $107,287.  For the quarter ended
     June 30,  2009,  there  were no losses on the  effective  portion  of these
     interest rate contracts  reclassified from accumulated other  comprehensive
     loss into  interest  expense of the  Consolidated  Statement  of  Financial
     Condition.    These    interest   rate   swap    agreements    contain   no
     credit-risk-related  contingency features.  Associated with these swaps, as
     of June 30, 2009, the Company was required to post  collateral  with a fair
     value  totaling  $300,000  to cover the  estimated  peak  exposure of these
     swaps. No additional collateral is or will be required to be posted.

15.  Recent Accounting Pronouncements

     In December 2007, the FASB issued SFAS No. 160,  "Noncontrolling  Interests
     in Consolidated  Financial  Statements - an amendment of ARB No. 51" ("SFAS
     160"). SFAS 160 establishes new accounting and reporting  standards for the
     noncontrolling  interest in a subsidiary and for the  deconsolidation  of a
     subsidiary.  Before this statement,  limited guidance existed for reporting
     noncontrolling  interests (minority  interest).  As a result,  diversity in
     practice  existed.  In some  cases  minority  interest  was  reported  as a
     liability  and in others it was reported in the mezzanine  section  between
     liabilities and equity. Specifically,  SFAS 160 requires the recognition of
     a noncontrolling interest (minority interest) as equity in the consolidated
     financials  statement and separate from the parent's equity.  The amount of
     net income  attributable  to the  noncontrolling  interest  is  included in
     consolidated  net  income  on the face of the  income  statement.  SFAS 160
     clarifies  that  changes in a parent's  ownership  interest in a subsidiary
     that do not result in deconsolidation are equity transactions if the parent
     retains its controlling  financial  interest.  In addition,  this statement
     requires  that a  parent  recognize  gain  or  loss  in net  income  when a
     subsidiary is deconsolidated. Such gain or loss is to be measured using the
     fair value of the noncontrolling  equity investment on the  deconsolidation
     date. SFAS 160 also includes expanded disclosure requirements regarding the
     interests of the parent and its noncontrolling interests.  Earlier adoption
     was  prohibited.  The Company adopted SFAS 160 beginning on January 1, 2009
     and with  the  adoption,  presented  $74,015  as  equity  in the  Company's
     consolidated  financial  statements  and modified the  presentation  of the
     Company's  financial  statements as of March 31, 2009 and December 31, 2008
     and going forward.

     In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, "Determining
     Whether  Instruments  Granted  in  Share-Based  Payment   Transactions  Are
     Participating  Securities." This FSP addresses whether  instruments granted
     in share-based payment  transactions are participating  securities prior to
     vesting and,  therefore,  need to be included in the earnings allocation in
     computing  earnings per share (EPS) under the two-class method described in
     paragraphs 60 and 61 of FASB  Statement No. 128,  Earnings per Share.  This
     FSP is effective for financial statements issued for fiscal years beginning
     after  December  15, 2008,  and interim  periods  within  those years.  All
     prior-period   EPS  data  presented   shall  be  adjusted   retrospectively
     (including  interim  financial  statements,   summaries  of  earnings,  and

                                       27
<PAGE>

     selected  financial data) to conform with the provisions of this FSP. Early
     application was not permitted.  The Company adopted the FSP for the quarter
     ended March 31, 2009;  the adoption of this FSP did not have a  significant
     effect on the Company's financial statements.

     In March 2008, the FASB issued SFAS No. 161,  "Disclosures about Derivative
     Instruments  and Hedging  Activities -- an amendment of FASB  Statement No.
     133" ("SFAS No. 161"). SFAS No. 161 requires enhanced disclosures about how
     and why an entity uses derivative  instruments,  how derivative instruments
     and related items are  accounted for under SFAS No. 133 and how  derivative
     instruments and related hedged items affect an entity's financial position,
     financial  performance  and cash flows.  The Company  adopted this standard
     January 1, 2009. SFAS No. 161 enhanced disclosures,  as required under SFAS
     No. 161, are included in the Company's  financial  statements  for June 30,
     2009.

     In January  2009,  the FASB issued FASB Staff  Position  No. EITF  99-20-1,
     "Amendments to the Impairment  Guidance of EITF Issue No. 99-20," ("FSP No.
     EITF  99-20-1"),  which  amends the  impairment  guidance in EITF Issue No.
     99-20,   "Recognition  of  Interest  Income  and  Impairment  on  Purchased
     Beneficial Interests and Beneficial Interests that Continue to be Held by a
     Transferor in Securitized  Financial  Assets," ("EITF No. 99-20").  The FSP
     revises EITF 99-20's impairment  guidance for beneficial  interests to make
     it consistent with the requirements of FASB Statement No. 115,  "Accounting
     for Certain  Investments in Debt and Equity  Securities,"  ("SFAS No. 115")
     for determining  whether an impairment of other debt and equity  securities
     has occurred. The impairment model in SFAS No. 115 enables greater judgment
     to be exercised in  determining  whether an OTTI loss needs to be recorded.
     The  impairment  model  previously  provided  for  in  EITF  99-20  limited
     management's use of judgment in applying the impairment model. FSP EITF No.
     99-20-1 was  effective as of January 1, 2009.  The adoption of FSP No. EITF
     No.  99-20-1 did not have a material  impact on the Company's  consolidated
     financial statements.

     In April 2009, the FASB issued Staff  Position No. FAS 157-4,  "Determining
     Fair Value When the Volume and Level of Activity for the Asset or Liability
     Have  Significantly  Decreased and  Identifying  Transactions  That Are Not
     Orderly,"  ("FSP 157-4").  This FSP addresses  concerns that FASB Statement
     No.  157,  Fair Value  Measurements,  emphasized  the use of an  observable
     market  transaction even when that transaction may not have been orderly or
     the  market  for that  transaction  may not have  been  active.  FSP  157-4
     provides  additional guidance on: (a) determining when the volume and level
     of activity for the asset or liability  has  significantly  decreased;  (b)
     identifying  circumstances  in which a transaction is not orderly;  and (c)
     understanding the fair value measurement  implications of both (a) and (b).
     The effective date of disclosures  for this new standard is for interim and
     annual  reporting  periods ending after June 15, 2009,  with early adoption
     permitted  for periods  ending  after March 15,  2009,  only if this FSP is
     adopted at the same time as FSP No. FAS 115-2 and FAS 124-2 and FSP No. FAS
     107-1 and APB 28-1.  The Company  adopted  FSP 157-4 on April 1, 2009.  The
     adoption  of FSP 157-4  did not have a  material  impact  on the  Company's
     consolidated financial statements. See Notes 8 and 13 for disclosure.

     In April 2009,  the FASB issued Staff Position No. FAS 115-2 and FAS 124-2,
     "Recognition and Presentation of  Other-Than-Temporary  Impairments," ("FSP
     115-2 and 124-2"). This FSP amends the OTTI guidance for debt securities to
     make the guidance  more  operational  and to improve the  presentation  and
     disclosure of OTTI in the financial statements. The most significant change
     the FSP brings is a revision to the amount of other-than-temporary  loss of
     a debt security recorded in earnings. The effective date of disclosures for
     this new standard is for interim and annual reporting  periods ending after
     June 15, 2009, with early adoption permitted for periods ending after March
     15, 2009, only if this FSP is adopted at the same time as FSP No. FAS 157-4
     and FSP No. FAS 107-1 and APB 28-1.  The Company  adopted the provisions of
     FSP SFAS 115-2 and SFAS 124-2 on April 1, 2009.  Adoption of FSP SFAS 115-2
     and SFAS 124-2 resulted in the reclassification of $2,511,080  ($1,657,313,
     net of tax)

                                       28
<PAGE>

     of non-credit  related OTTI to OCI which had previously  been recognized in
     earnings and is disclosed in Note 8 - Investment Securities.

     In April  2009,  the FASB issued  Staff  Position  No.  107-1 and APB 28-1,
     "Interim  Disclosures  about Fair Value of  Financial  Instruments,"  ("FSP
     107-1"  and  "APB  28-1").   This  FSP  amends  FASB   Statement  No.  107,
     "Disclosures  about  Fair  Value  of  Financial  Instruments,"  to  require
     disclosures about fair value of financial instruments for interim reporting
     periods  of  publicly  traded  companies  as  well as in  annual  financial
     statements.  This FSP also amends APB Opinion  No. 28,  "Interim  Financial
     Reporting,"   to  require  those   disclosures   in  summarized   financial
     information at interim reporting periods. The effective date of disclosures
     for this new standard is for interim and annual  reporting  periods  ending
     after June 15, 2009, with early adoption permitted for periods ending after
     March 15, 2009, only if this FSP is adopted at the same time as FSP No. FAS
     115-2 and FAS 124-2 and FSP No. FAS 157-4.  The  Company  adopted  this new
     standard as of April 1, 2009. See Note 13 for disclosure.

     In May 2009, the FASB issued SFAS No. 165,  "Subsequent  Events" ("SFAS No.
     165"),  which sets forth the  circumstances  under  which an entity  should
     recognize events occurring after the balance sheet date and the disclosures
     that should be made. Also, this statement  requires  disclosure of the date
     through  which the entity  has  evaluated  subsequent  events  (for  public
     companies,  and other  companies  that  expect to widely  distribute  their
     financial  statements,  this  date  is  the  date  of  financial  statement
     issuance,  and for nonpublic  companies,  the date the financial statements
     are available to be issued).  The effective  date is for interim and annual
     periods ending after June 15, 2009. The Company adopted SFAS No. 165 during
     the second quarter of 2009, and the adoption did not have a material effect
     on its consolidated financial statements.

     In June 2009,  the FASB issued FASB  Statement  No.  166,  "Accounting  for
     Transfers of Financial  Assets - an amendment of FASB  Statement  No. 140,"
     (FASB 166) The  objective of this  Statement  is to improve the  relevance,
     representational  faithfulness, and comparability of the information that a
     reporting  entity provides in its financial  statements about a transfer of
     financial  assets;  the  effects of a transfer on its  financial  position,
     financial  performance,  and  cash  flows;  and a  transferor's  continuing
     involvement, if any, in transferred financial assets. Additionally,  on and
     after the  effective  date,  the  concept of a  qualifying  special-purpose
     entity is no longer relevant for accounting purposes.  Therefore,  formerly
     qualifying  special-purpose  entities (as defined under previous accounting
     standards) should be evaluated for  consolidation by reporting  entities on
     and  after  the   effective   date  in  accordance   with  the   applicable
     consolidation  guidance.  If evaluation  on the  effective  date results in
     consolidation,  the reporting  entity should apply the transition  guidance
     provided in the pronouncement that requires  consolidation.  This Statement
     must be applied as of the beginning of each reporting entity's first annual
     reporting  period that begins after November 15, 2009, for interim  periods
     within  that  first  annual  reporting  period and for  interim  and annual
     reporting  periods  thereafter.  Earlier  application is  prohibited.  This
     Statement must be applied to transfers  occurring on or after the effective
     date.  The  adoption of this  standard  is not  expected to have a material
     impact on the Company's consolidated financial statements.

     In June 2009, the FASB issued FASB Statement No. 168, "The FASB  Accounting
     Standards  Codification and the Hierarchy of Generally Accepted  Accounting
     Principles--a  replacement  of FASB Statement No. 162," (FASB 168) to allow
     the  FASB  Codification  to be the  single  source  of  authoritative  U.S.
     accounting and reporting  standards,  other than the guidance issued by the
     Securities and Exchange Commission.  The effective date of this standard is
     for interim and annual  reporting  periods ending after September 15, 2009.
     The  adoption  of this  standard  will not have a  material  impact  on the
     Company's consolidated financial statements.

                                       29
<PAGE>

16.  Subsequent Events

     The Company has evaluated  events or transactions  that occurred after June
     30,  2009 and  through  the time the  financial  statements  were issued on
     August 19, 2009 for  potential  recognition  or  disclosure  in the interim
     financial statements.  There are no subsequent events requiring recognition
     or disclosure in the financial statements.





                                       30
<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  Corporation  ("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 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  unsecured  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.

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

FINANCIAL CONDITION

Total assets as of June 30, 2009 were $551,018,479,  an increase of $18,760,872,
or 3.52% from year-end 2008 total assets of $532,257,607.

Net loans and  leases  increased  $12,400,361  or 3.38% over the  year-end  2008
amount. Net loans and leases as of June 30, 2009 were $378,792,440,  as compared
to the  year-end  2008  level  of  $366,392,079.  Consistent  with  Management's
strategy to migrate to a more profitable loan  composition,  commercial loan and
lease  growth was  strong  during the  second  quarter of 2009.  Leases,  net of
unearned  income,  were  $32,300,923 at June 30, 2009,  which was an increase of
$12,515,053 or 63.25% from the year-end 2008 balance of $19,785,870.  The growth
in the  leasing  portfolio  is in  relatively  short-term  equipment  financing.

                                       31
<PAGE>

Commercial mortgages totaled $77,756,069 at June 30, 2009, which was an increase
of $10,301,144 or 15.27% from year-end 2008. Growth in commercial  mortgages has
been in fixed and variable rate products to commercial  customers located in our
traditional and contiguous markets.  Construction  mortgages totaled $40,286,979
as compared to the year-end  balance of  $38,153,503.  Growth in this  portfolio
during the second quarter was in commercial  construction loans. The residential
mortgage  loan  portfolio  totaled   $175,853,528,   which  was  a  decrease  of
$16,707,580  from year-end 2008. The majority of this decrease was  attributable
to the sale of  residential  mortgage  loans in the secondary  market which will
settle in the  third  quarter.  This  sale was  transacted  for the  purpose  of
strengthening  the  Company's  balance  sheet in terms of interest rate risk and
liquidity.

As of June 30, 2009, the securities portfolio totaled  $84,002,711,  as compared
to the year-end  2008 balance of  $113,502,751.  The decrease in the  investment
portfolio  is due to calls in agency  bonds as well as sales of mortgage  backed
securities.  During the first six months of 2009,  approximately  $26 million in
U.S.  Government  agency  bonds were  called.  These  bonds were  replaced  with
mortgage-backed securities with characteristics of shorter duration and improved
liquidity.  In the second quarter the Company sold  approximately $20 million in
twenty and thirty year fixed rate  mortgage  backed  securities.  Similar to the
aforementioned sale of residential mortgages,  the sale was also for the purpose
of strengthening the balance sheet in terms of interest rate risk and liquidity.

At year-end 2008, the due from broker for security sales totaled $9,590,823,  as
a result of a  security  traded  before  December  31,  2008 with  proceeds  not
received  until January  2009.  There were no similar  transactions  at June 30,
2009.

Cash and cash  equivalents  totaled  $42,504,266,  as compared to the balance of
$9,238,783 at year-end  2008.  Cash and cash  equivalents  is comprised of vault
cash,  Federal  funds  sold,  balances  at  correspondent  banks and the Federal
Reserve Bank. The increase in cash and cash equivalents is due to the funds from
the investment sales and calls held in correspondent banks.

Total  liabilities were  $518,209,548 as of June 30, 2009, which was an increase
of $18,419,205 from total liabilities of $499,790,343 as of year-end 2008. Total
deposits  increased by $33,823,976,  or 9.85% from their year-end  levels.  Time
certificates of deposit totaled  $154,184,478 as of June 30, 2009,  which was an
increase of 26.27%,  or  $32,073,617  from year-end  2008.  The increase in time
deposits is  reflective of the  customer's  desire for yield and the shifting of
money market  deposits into short term  certificates  of deposit.  Additionally,
growth has also been in the Bank's CDARs  deposits,  which  provide FDIC deposit
insurance,  beyond the $250,000 limit.  Savings deposits totaled  $63,894,720 at
June 30,  2009 which was an increase of 9.07% from the  year-end  2008  balance.
Growth in savings deposits has been in traditional  savings,  health savings and
municipal NOW accounts. Money market deposits decreased by $6,651,762, or 7.15%,
as a result of customers seeking higher rates as well to lock in those rates via
certificates of deposit.

As of June 30, 2009,  repurchase  agreements with customers totaled $18,939,133,
which was an increase of 3.94% from the year-end  2008  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. As of June 30, 2009, advances
under Federal Home Loan Bank borrowings and repurchase agreements with financial
institutions decreased by $1,608,000 and $3,950,000,  respectively. Increases in
the loan  portfolio  were  funded by deposit  growth and by the  liquidity  from
investment  sales,  which  enabled  Management  to reduce the  overall  level of
wholesale borrowings.

                                       32
<PAGE>

RESULTS OF OPERATIONS- THREE MONTHS ENDED JUNE 30, 2009 COMPARED TO THREE MONTHS
ENDED JUNE 30, 2008

Summary

Net income  available  to common  shareholders  for the  second  quarter of 2009
totaled  $108,906  versus net income of $616,448 for the second quarter of 2008.
Basic and  diluted  net income per common  share for the second  quarter of 2009
were both $.05,  compared to basic and diluted  income per share of $.26 for the
second  quarter  of  2008.  The  decrease  in net  income  available  to  common
shareholders  is due primarily to increases in the provision for loans and lease
losses and other noninterest expenses. Additionally contributing to the decrease
is the dividend payable and accretion on preferred shares.

Net Interest Income

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

Net  interest  income  on a  fully  tax-equivalent  basis  is  comprised  of the
following for the three months ended June 30,

                                           2009           2008
                                       -----------    -----------
      Interest and dividend income     $ 6,539,716    $ 7,172,512
      Tax-equivalent adjustments (1)       104,265        205,124
      Interest expense                  (2,538,788)    (3,465,815)
                                       -----------    -----------
      Net interest income              $ 4,105,193    $ 3,911,821
                                       ===========    ===========

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

                                       33
<PAGE>

The following table presents on a tax-equivalent  basis,  the Company's  average
balance sheet amounts (computed on a daily basis), net interest income, interest
rates,  interest  spread and net interest margin for the three months ended June
30, 2009 and 2008. Average loans outstanding include nonaccruing loans.

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

<TABLE>
<CAPTION>
                                            Three months ended June 30, 2009                Three months ended June 30, 2008
                                       -------------------------------------------    -------------------------------------------
                                                        Interest                                        Interest
                                         Average         Earned/        Yield/           Average         Earned/         Yield/
                                         Balance          Paid           Rate            Balance          Paid            Rate
                                       ------------    ------------   ------------    ------------    ------------   ------------
<S>                                    <C>             <C>                    <C>     <C>             <C>                    <C>
Assets
Interest Earning Assets:
Loans and leases                       $398,438,000    $  5,503,089           5.52%   $338,109,000    $  5,307,802           6.28%
Investment securities                   117,863,000       1,135,265           3.85%    162,975,000       2,042,869           5.01%
Other interest earning assets             7,640,000           5,627           0.29%      5,098,000          26,965           2.12%
                                       ------------    ------------                   ------------    ------------

Total interest earning assets           523,941,000       6,643,981           5.07%    506,182,000       7,377,636           5.83%
                                       ------------    ------------   ------------    ------------    ------------   ------------

Allowance for loan and
  lease losses                           (3,603,000)                                    (2,157,000)
Cash and due from banks                   8,722,000                                     11,508,000
Premises and equipment                    7,223,000                                      7,592,000
Net unrealized gains on
  securities                             (2,248,000)                                    (2,791,000)
Foreclosed real estate                      460,000                                             --
Other assets                             19,091,000                                     16,734,000
                                       ------------                                   ------------

Total Average Assets                   $553,586,000                                   $537,068,000
                                       ============                                   ============

Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
Savings deposits                       $ 61,884,000          78,361           0.51%   $ 54,314,000         116,210           0.86%
Money Market deposits                    85,642,000         191,934           0.90%     80,431,000         365,400           1.82%
Time deposits                           147,264,000         950,216           2.58%    139,872,000       1,393,292           3.98%
Borrowed funds                          146,551,000       1,318,277           3.60%    162,373,000       1,590,913           3.92%
                                       ------------    ------------                   ------------    ------------

Total interest bearing liabilities      441,341,000       2,538,788           2.30%    436,990,000       3,465,815           3.17%
                                       ------------    ------------   ------------    ------------    ------------   ------------

Demand deposits                          71,795,000                                     67,354,000
Other liabilities                         7,279,000                                      5,312,000
Shareholders' Equity                     33,171,000                                     27,412,000
                                       ------------                                   ------------

Total liabilities and equity           $553,586,000                                   $537,068,000
                                       ============                                   ============

Net interest income                                    $  4,105,193                                   $  3,911,821
                                                       ============                                   ============
Net interest spread                                                           2.77%                                          2.66%
                                                                      ============                                   ============
Net interest margin                                                           3.13%                                          3.09%
                                                                      ============                                   ============
</TABLE>

                                       34
<PAGE>

RATE/VOLUME ANALYSIS

The following table, which is presented on a tax-equivalent  basis, reflects the
changes  for the three  months  ended June 30,  2009 when  compared to the three
months  ended June 30,  2008 in net  interest  income  arising  from  changes in
interest  rates and from asset and liability  volume mix. The change in interest
attributable  to both rate and volume has been  allocated  to the changes in the
rate and the volume on a pro rata basis.

                                            06/30/09 Compared to 06/30/08
                                             Increase (Decrease) Due to
                                             --------------------------

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

Interest earned on:
Loans and leases                     $   879,059    $  (683,772)   $   195,287
Investment securities                   (494,173)      (413,431)      (907,604)
Other interest earning assets              9,199        (30,537)       (21,338)
                                     -----------    -----------    -----------
Total interest earning assets            394,085     (1,127,740)      (733,655)
                                     -----------    -----------    -----------

Interest paid on:
Deposits                                 129,202       (783,593)      (654,391)
Borrowed money                          (148,123)      (124,513)      (272,636)
                                     -----------    -----------    -----------
Total interest bearing liabilities       (18,921)      (908,106)      (927,027)
                                     -----------    -----------    -----------

Increase in net interest income      $   413,006    $  (219,634)   $   193,372
                                     ===========    ===========    ===========

Tax-equivalent  net  interest  income  for the second  quarter  of 2009  totaled
$4,105,193,  an increase of $193,372,  or 4.94% from the second quarter of 2008.
Both the increase in the volume of earning assets as well as increased  interest
margin  contributed  to the  improvement in net interest  income.  The effect of
increased volume of earning assets over  interest-bearing  liabilities increased
net interest  income by $413,006.  Also,  the interest  earned on earning assets
decreased  more than funding costs which  resulted in a $219,634  decline in net
interest income.

Average  earning  assets for the second  quarter of 2009  totaled  $523,941,000,
which was $17,759,000 or 3.51% higher than average earning assets for the second
quarter of 2008 which totaled  $506,182,000.  This  increase in earning  assets,
contributed  to an  additional  $394,085 in interest  income.  Average loans and
leases increased by $60,329,000,  or 17.84%, while average investments decreased
by  $45,112,000  or 27.68%.  The  increase in loans and leases came from organic
growth  in  commercial  leasing  and  mortgage  lending.  The  decrease  in  the
securities  portfolio is the result of the strategy to change the mix of earning
assets  from  investments  to loans.  The mix of  earning  assets for the second
quarter of 2009 was 76% loans to 22% investments  versus the second quarter 2008
mix of 67% loans to 32% investments.

The tax equivalent net interest margin improved 4 basis points from 3.09% in the
second  quarter of 2008 to 3.13% for the second  quarter of 2009.  Funding costs
decreased by 87 basis points while the tax  equivalent  yield on earning  assets
decreased by 76 basis points.  The continued low interest rate  environment  has
allowed  management to decrease its deposit  rates over the last year.  Although
yields  on  earning   assets  have  been  subject  to  similar   declines,   the
aforementioned  strategy to shift to a more profitable mix of earning assets has
offset some of this  decline.  Additionally,  many  interest-earning  assets are
priced off of longer market indices,  which are not as dramatically  impacted by
decreases in short term rates.  Retail  deposits  are the primary  source of the
Company's funding; therefore, competition for these deposits remains the biggest
threat to the net interest margin.

                                       35
<PAGE>

Provision for Loan and Lease Losses

The provision  for loan and lease losses for the second  quarter of 2009 totaled
$517,589,  which is an increase of $380,589 from the second quarter of 2008. The
provision  for  loan and  lease  losses  is  determined  quarterly  based on the
calculation of the allowance for loan and lease losses.  (See  discussion of the
Allowance for Loan and Lease Losses.)

During the second  quarter of 2009,  the Company  recorded  net  charge-offs  of
$81,623  compared to second  quarter 2008 net  charge-offs  of $98,915.  In both
periods the charge-off  activity was primarily from the consumer automobile loan
portfolio, which the Bank purchased in 2006.

Noninterest Income

Noninterest  income for the second  quarter of 2009 totaled  $1,230,472,  versus
second quarter 2008 noninterest income of $939,466.  The increase in noninterest
income is primarily  attributable  to gains from the sale of available  for sale
securities.

Trust income totaled  $275,483,  compared to second quarter 2008 trust income of
$333,569.  The decline from second quarter 2008 levels is due to market declines
of assets  under  management.  Income  from  banking  service  charges  and fees
increased by $8,560, or 2.25%, from the second quarter of 2008. This increase is
due primarily to higher levels of deposit service  charges,  wire transfer,  and
master money interchange fees.

During the second quarter of 2009 the Company  originated  and sold  residential
mortgages  in the  secondary  market  which  resulted in gains on sales of loans
totaling $17,379 compared to similar sales transacted  during the second quarter
of 2008 which resulted in gains totaling $6,231.

Other noninterest income totaled $129,744,  which was an increase of $31,551, or
32.13%  from the  second  quarter  of 2008.  The  increase  was due to  mortgage
servicing income recorded during the second quarter.

During  the  second  quarter  the  Company  sold  approximately  $20  million of
available for sale  securities.  These  securities were sold with the purpose of
reducing  interest rate risk and  increasing  liquidity.  The sales  resulted in
gains  totaling  $321,074.  Gains on securities  for the second  quarter of 2008
totaled $20,899.

Noninterest Expense

Second quarter 2009 noninterest expense totaled  $4,440,169,  increasing 16.12%,
or $616,450 from the second quarter 2008 expense of $3,823,719.  The majority of
the increase is the result of FDIC  insurance  premium  increases as well as the
special  assessment by the FDIC of approximately  $260,000.  This assessment was
expensed entirely in the second quarter.  Increases in noninterest  expenses are
also reflected in legal,  computer  services,  advertising,  consulting fees and
expenses  for the  management  of  foreclosed  properties.  The  impact of these
increases  was mitigated by cost  containment  efforts for salaries and employee
benefits.

Other noninterest  expenses totaled $559,513 which is an increase of $86,270, or
18.23% from the second quarter of 2008. The majority of the increase is a result
of higher 2009 costs for exam and audit fees, software and telephone expenses.

Income Taxes

The second quarter 2009 income tax benefit totaled $ 5,357,  which is a decrease
of $74,353 or 107.76% from the second quarter of 2008 provision of $68,996.  The
effective  tax rate for the second  quarter of 2009 was (2)% as  compared to 10%

                                       36
<PAGE>

for the  second  quarter  of 2008.  The  lower  tax rate is due to an  increased
proportion of tax-exempt to taxable income in 2009.


RESULTS OF  OPERATIONS-  SIX MONTHS  ENDED JUNE 30, 2009  COMPARED TO SIX MONTHS
ENDED JUNE 30, 2008

Summary

Net income  available to common  shareholders  for the six months ended June 30,
2009 totaled $375,156 versus  $1,114,971 for the six months ended June 30, 2008.
Basic and diluted net income per common  share for the six months ended June 30,
2009 were both $.16,  compared to basic and diluted income per share of $.47 for
the six months  ended June 30,  2008.  The  decrease in net income  available to
common shareholders is due primarily to increases in the provision for loans and
lease losses and other noninterest  expenses.  Additionally  contributing to the
decrease is the dividend payable and accretion on preferred shares.

Net Interest Income

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

Net  interest  income  on a  fully  tax-equivalent  basis  is  comprised  of the
following for the six months ended June 30,

                                           2009            2008
                                       ------------    ------------
      Interest and dividend income     $ 13,100,945    $ 14,411,730
      Tax-equivalent adjustments (1)        208,063         358,728
      Interest expense                   (5,127,450)     (7,144,862)
                                       ------------    ------------
      Net interest income              $  8,181,558    $  7,625,596
                                       ============    ============

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

                                       37
<PAGE>

The following table presents on a tax-equivalent  basis,  the Company's  average
balance sheet amounts (computed on a daily basis), net interest income, interest
rates, interest spread and net interest margin for the six months ended June 30,
2009 and 2008. Average loans outstanding include nonaccruing loans.

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

<TABLE>
<CAPTION>
                                              Six months ended June 30, 2009                  Six months ended June 30, 2008
                                       -------------------------------------------    --------------------------------------------
                                                         Interest                                       Interest
                                          Average         Earned/        Yield/          Average         Earned/        Yield/
                                          Balance          Paid           Rate           Balance          Paid           Rate
                                       ------------    ------------   ------------    ------------    ------------    ------------
<S>                                    <C>             <C>                    <C>     <C>             <C>                     <C>
Assets
Interest Earning Assets:
Loans and leases                       $389,040,000    $ 10,896,227           5.60%   $336,323,000    $ 10,819,194            6.45%
Investment securities                   117,693,000       2,392,316           4.07%    154,097,000       3,877,507            5.03%
Other interest earning assets             6,063,000          20,465           0.68%      5,700,000          73,757            2.59%
                                       ------------    ------------                    ------------   ------------
Total interest earning assets           512,796,000      13,309,008           5.19%    496,120,000      14,770,458            5.96%
                                       ------------    ------------   ------------    ------------    ------------    ------------

Allowance for loan and
  lease losses                           (3,663,000)                                     (2,165,000)
Cash and due from banks                  11,144,000                                      11,427,000
Premises and equipment                    7,278,000                                       7,659,000
Net unrealized loss on
  securities                             (1,252,000)                                     (1,732,000)
Foreclosed real estate                      230,000
Other assets                             19,739,000                                      16,356,000
                                       ------------                                    ------------

Total Average Assets                   $546,272,000                                    $527,665,000
                                       ============                                    ============

Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
Savings deposits                       $ 62,883,000         189,858           0.60%    $ 56,356,000        305,886            1.09%
Money Market deposits                    87,284,000         472,106           1.08%      81,697,000        822,167            2.01%
Time deposits                           140,197,000       1,836,147           2.62%     137,022,000      2,845,968            4.15%
Borrowed funds                          145,215,000       2,629,339           3.62%     153,347,000      3,170,841            4.14%
                                       ------------    ------------                    ------------   ------------

Total interest bearing liabilities      435,579,000       5,127,450           2.35%     428,422,000      7,144,862            3.34%
                                       ------------    ------------   ------------    ------------    ------------    ------------

Demand deposits                          70,089,000                                      66,034,000
Other liabilities                         7,683,000                                       5,073,000
Shareholders' Equity                     32,921,000                                      28,136,000
                                       ------------                                    ------------

Total liabilities and equity           $546,272,000                                    $527,665,000
                                       ============                                    ============

Net interest income                                    $  8,181,558                                   $  7,625,596
                                                       ============                                   ============
Net interest spread                                                           2.84%                                           2.62%
                                                                      ============                                    ============
Net interest margin                                                           3.19%                                           3.07%
                                                                      ============                                    ============

</TABLE>

                                       38
<PAGE>

RATE/VOLUME ANALYSIS

The following table, which is presented on a tax-equivalent  basis, reflects the
changes for the six months  ended June 30, 2009 when  compared to the six months
ended June 30, 2008 in net  interest  income  arising  from  changes in interest
rates  and  from  asset  and  liability  volume  mix.  The  change  in  interest
attributable  to both rate and volume has been  allocated  to the changes in the
rate and the volume on a pro rata basis.

                                            06/30/09 Compared to 06/30/08
                                             Increase (Decrease) Due to
                                             --------------------------

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

Interest earned on:
Loans and leases                     $ 1,575,674    $(1,498,641)   $    77,033
Investment securities                   (818,949)      (666,242)    (1,485,191)
Other interest earning assets              4,421        (57,713)       (53,292)
                                     -----------    -----------    -----------
Total interest earning assets            761,146     (2,222,596)    (1,461,450)
                                     -----------    -----------    -----------

Interest paid on:
Deposits                                 210,087     (1,685,997)    (1,475,910)
Borrowed money                          (161,899)      (379,603)      (541,502)
                                     -----------    -----------    -----------
Total interest bearing liabilities        48,188     (2,065,600)    (2,017,412)
                                     -----------    -----------    -----------

Increase in net interest income      $   712,958    $  (156,996)   $   555,962
                                     ===========    ===========    ===========

Tax-equivalent  net  interest  income  for the six months  ended  June 30,  2009
totaled $8,181,558,  an increase of $555,962, or 7.29% from the six months ended
June 30,  2008.  Both the  increase  in the volume of earning  assets as well as
increased interest margin contributed to the improvement in net interest income.
The  effect  of  increased  volume  of  earning  assets  over   interest-bearing
liabilities  increased net interest  income by $712,958.  Offsetting  that,  the
Company  was not able to  decrease  its cost of  deposit  interest  to a greater
degree than the interest  earned on earning  assets which resulted in a $156,996
decline in net interest income.

Average  earning  assets  for  the  six  months  ended  June  30,  2009  totaled
$512,796,000,  which was $16,676,000 or 3.36% higher than average earning assets
for the six months ended June 30, 2008 which totaled $496,120,000. This increase
in earning assets,  both in loans and  investments,  net of increased  volume of
interest  bearing  liabilities,  contributed  to an  additional  $712,958 in net
interest income.  Average loans and leases increased by $52,717,000,  or 15.67%,
while average  investments  decreased by $36,404,000 or 23.62%.  The increase in
loans and leases came from  organic  growth in  commercial  leasing and mortgage
lending.  The decrease in the securities portfolio is the result of the strategy
to change  the mix of  earning  assets  from  investments  to loans.  The mix of
earning  assets  for the six  months  ended  June 30,  2009 was 76% loans to 23%
investments  versus the six months  ended June 30,  2008 mix of 68% loans to 31%
investments.

The tax  equivalent net interest  margin  improved 12 basis points from 3.07% in
the six months  ended June 30,  2008 to 3.19% for the six months  ended June 30,
2009.  Funding costs decreased by 99 basis points while the tax equivalent yield
on earning assets decreased by 77 basis points.  The continued low interest rate
environment  has allowed  management to decrease its deposit rates over the last
year.  Although yields on earning assets have been subject to similar  declines,
the aforementioned  strategy to shift to a more profitable mix of earning assets
has offset some of this decline. Additionally,  many interest-earning assets are
priced off of longer market indices,  which are not as dramatically  impacted by
decreases in short term rates.  Retail  deposits  are the primary  source of the
Company's funding; therefore, competition for these deposits remains the biggest
threat to the net interest margin.

                                       39
<PAGE>

Provision for Loan and Lease Losses

The  provision  for loan and lease losses for the six months ended June 30, 2009
totaled  $787,589,  which is an increase of $575,589  from the six months  ended
June 30, 2008.  The provision for loan and lease losses is determined  quarterly
based on the  calculation  of the  allowance  for loan and  lease  losses.  (See
discussion of the Allowance for Loan and Lease Losses.)

During the six months ended June 30, 2009, the Company  recorded net charge-offs
of $456,619  compared to six month 2008 net charge-offs of $130,044.  The change
in the  level of  charge-offs  from  2008 to 2009 is due to a  residential  loan
charge-off and higher levels of charge-off activity from the consumer automobile
loan  portfolio,  which the Bank  purchased in 2006.  The change in the level of
charge-offs  from 2008 to 2009 is considered by Management to be reflective of a
weakening consumer credit environment.

Noninterest Income

Noninterest  income for the six months ended June 30, 2009  totaled  $2,044,518,
versus six months  ended June 30, 2008  noninterest  income of  $1,812,706.  The
increase in noninterest income is primarily attributable to gains from the sales
of available for sale securities and residential mortgages.

Trust income  totaled  $547,539,  compared to the six months ended June 30, 2008
trust income of $673,093. The decline from six months ended June 30, 2008 levels
is due to market  declines  of assets  under  management.  Income  from  banking
service  charges and fees  increased by $26,568,  or 3.66%,  from the six months
ended June 30, 2008.  This increase is due primarily to higher levels of deposit
service charges, wire transfer, and master money interchange fees.

During the first six months of 2009 the Company  originated and sold residential
mortgages  in the  secondary  market  which  resulted in gains on sales of loans
totaling  $60,440  compared  to similar  sales  transacted  during the first six
months of 2008 which resulted in gains totaling $10,302.

Other noninterest income totaled $168,772,  as compared to $172,974 from the six
months ended June 30, 2008.

During the second quarter of 2009 the Company sold over $20 million of available
for sale securities. The purpose of this sale was to decrease interest rate risk
and improve liquidity in the balance sheet. The gains from these sales comprised
most of the $321,074 gain shown in the 2009 year to date results.

Noninterest Expense

The six months  ended June 30,  2009  noninterest  expense  totaled  $8,463,048,
increasing  $840,286,  or 11.02% from the six months ended June 30, 2008 expense
of  $7,622,762.  Increases in  noninterest  expenses are reflected in regulatory
assessments,   legal,  computer  services,  advertising  and  expenses  for  the
management  of  foreclosed  properties.  The  largest  of  these  increases  was
regulatory  assessments which totaled $719,226 for the first six months of 2009.
This expense has increased $626,877 over the 2008 costs due to increase premiums
and the special assessment for the second quarter. The impact of these increases
was mitigated by cost containment efforts for salaries, equipment and supplies.

Other noninterest  expenses totaled  $1,090,520 which is an increase of $95,356,
or 9.58% from the six months ended June 30,  2008.  The majority of the increase
is a result of higher 2009 costs for exam and audit fees which  totaled  $94,290
above six months ended June 30, 2008 costs.  Other  increases  in this  category
were software and telephone  expense.  Offsetting  these  increases were reduced
expenses for insurance, contributions, directors fees, seminars and travel.

                                       40
<PAGE>

Income Taxes

The six months ended June 30, 2009  provision for income taxes totaled  $64,557,
which is a decrease of $65,284 or 50.28% from the six months ended June 30, 2008
provision of $129,841.  The effective tax rate for the six months ended June 30,
2009 was 8% as compared to 11% for the six months ended June 30, 2008. The lower
tax rate is due to decreased taxable income in 2009.


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, 2009, the Company had $151,482,011 in loan commitments and credit
lines outstanding. Because some commitments are expected to expire without being
drawn upon,  the total  commitment  amount does not  necessarily  represent  all
future cash requirements.  The funding of these commitments is anticipated to be
met through deposits, loan and security amortizations and maturities. Management
believes liquidity is adequate to meet its present and foreseeable needs.


CAPITAL

Shareholders'  equity  totaled  $32,808,931 as of June 30, 2009 as compared with
$32,467,264 as of December 31, 2008. The increase in shareholders' equity is due
to 2009  net  income  as well as to the  Company's  other  comprehensive  income
charges  related to the recognition of the unfunded  pension  liability and cash
flow  hedges,  offset  by  unrealized  holding  losses  on  available  for  sale
securities and common and preferred  dividends.  From a regulatory  perspective,
the  capital  ratios  of the  Company  and the Bank  place  each  entity  in the
"well-capitalized" categories under applicable regulations. During the third and
fourth  quarters  of 2008 the Company  increased  its  investment  in the Bank's
equity by a total of $4,000,000.  During the first and second  quarters of 2009,
the Company  increased  its  investment  in the Bank's  equity by an  additional
$5,500,000. These actions were executed to insure the Bank maintained capital at
levels considered to be  well-capitalized  by the federal banking agency capital
adequacy guidelines.

                                       41
<PAGE>

The various capital ratios of the Company and the Bank are as follows as of June
30, 2009:

                                       Well-Capitalized
                                        Capital Levels    The Company   The Bank
                                        --------------    -----------   --------
TIER 1:
      Leverage capital ratio                 5.00%            7.57%       7.27%

      Risk-based capital ratio               6.00%           10.73%      10.30%

      Total risk-based capital ratio        10.00%           11.77%      11.34%

Included in the  Company's  capital used to  determine  these ratios at June 30,
2009 is $9.8 million  related to the Company's  investment  in First  Litchfield
Statutory Trust I and First Litchfield  Statutory Trust II, which is recorded as
subordinated  debt in the Company's balance sheets at June 30, 2009 and December
31, 2008,  respectively.  Trust  preferred  securities are currently  considered
regulatory  capital for purposes of  determining  the  Company's  Tier I capital
ratios.  On March 1, 2005, the Board of Governors of the Federal Reserve System,
which is the Company's  banking  regulator,  approved final rules that allow for
the  continued  inclusion  of  outstanding  and  prospective  issuances of trust
preferred securities in regulatory capital subject to new, stricter limitations.
The Company has until March 31, 2011,  (previously  March 31, 2009), to meet the
new  limitations.  Management  does not  believe  these  final rules will have a
significant   impact  on  the  Company.   On  December  12,  2008,  the  Company
participated in the United States  Department of the Treasury's  Troubled Assets
Relief Program  ("TARP")  Capital  Purchase  Program ("CPP".) CPP (also known as
TARP capital),  and issued $10,000,000 of cumulative  perpetual  preferred stock
with a common  stock  warrant  attached  to the U. S.  Treasury.  The  Company's
purpose in  participating in the TARP CPP was to insure that the Company and the
Bank  maintained  its  well-capitalized  status  given  the  uncertain  economic
environment.

On December  12, 2008,  under the TARP CPP,  the Company  sold 10,000  shares of
senior preferred stock to the U.S.  Treasury,  having a liquidation amount equal
to  $1,000  per  share,  or  $10,000,000.  Although  the  Company  is  currently
well-capitalized under regulatory guidelines, the Board of Directors believed it
was advisable to take advantage of the TARP CPP to raise  additional  capital to
ensure that during these  uncertain  times,  the Company is  well-positioned  to
support the Company's existing  operations as well as anticipated future growth.
Additional information concerning the TARP CPP is included in the Company's 2008
Form  10-K/A  Amendment  Number  One,  as  filed  with the  Securities  Exchange
Commission on April 23, 2009.

The  Company  expects  that it (and the  banking  industry  as a  whole)  may be
required by market  forces  and/or  regulation  to operate  with higher  capital
ratios than in the recent past. In addition,  as the cumulative dividend rate on
the senior  preferred  stock issued in the TARP CPP  increases  from 5% to 9% in
2013,  the Company will incur  increased  capital costs if the senior  preferred
stock is not  redeemed  at or prior to that  time.  Therefore,  in  addition  to
maintaining  higher levels of capital,  the Company's  capital  structure may be
subject  to  greater  variation  over  the  next few  years  than has been  true
historically.


CRITICAL ACCOUNTING POLICIES

In the ordinary course of business,  the Bank has made a number of estimates and
assumptions  relating  to the  reported  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 Bank utilizes a loan and lease review and rating  process  which  classifies
loans and leases according to the Bank's uniform  classification system in order
to identify  potential  problem  loans and leases at an early  stage,  alleviate
weaknesses in the Bank's lending policies, oversee the individual loan and lease
rating system and ensure compliance with the Bank's underwriting, documentation,
compliance  and  administrative  policies.  Loans and  leases  included  in this
process  are  considered  by  management  as being in need of special  attention
because of some deficiency related to the credit or documentation, but which are

                                       42
<PAGE>

still considered  collectible and performing.  Such attention is intended to act
as a preventative measure and thereby avoid more serious problems in the future.


ALLOWANCE FOR LOAN AND LEASE LOSSES:

The  allowance  for loan and lease  losses  consists of specific,  general,  and
unallocated components.  The specific component relates to loans and leases that
are  classified  as  impaired.  For  impaired  loans and leases 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-impaired  loans and leases
and is based on historical loss experience adjusted for qualitative  factors. An
unallocated  component is  maintained to cover  uncertainties  that could affect
management's  estimate or probable  losses.  The  unallocated  component  of the
allowance  reflects  the  margin  of  imprecision  inherent  in  the  underlying
assumptions.

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 impaired loans
and leases,  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.

There were no material changes in loan or lease  concentrations or loan or lease
quality that had a significant effect on the allowance for loan and lease losses
calculation at June 30, 2009. 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, 2009,  the allowance for loan and lease losses was equivalent to 46%
of total  non-performing  assets as  compared  with 66% of total  non-performing
assets at December 31, 2008. As of June 30, 2009,  non-performing  assets, loans
and leases were  $8,733,972  and  represented  2.29% of total loans,  leases and
OREO.  As of  December  31,  2008,  non-performing  assets  and loans and leases
totaled  $5,639,735 and represented  1.53% of total loans,  leases and OREO. The
ratio of the  allowance for such loan and lease losses to total loans and leases
at June 30, 2009 and  December  31, 2008 was 1.05% and 1.00%  respectively.  The
ratio of the  allowance  for loan and  lease  losses  to  non-performing  assets
increased  over the first six months of 2009 due to increases  to the  allowance
resulting  from  commercial  loan growth and  increases to general  allocations.
Although the Company did experience an increase in non-performing  assets during
the first six months of the year,  the increase in those  non-performing  assets
were  comprised  of  collateral-based  loans  which did not  require a  specific
allocation of the allowance  for loan and lease losses and,  therefore,  did not
result in  additional  allowance.  Changes in the  allowance  for loan and lease
losses for the three and six month  periods  ended June 30, 2009 and 2008 are as
shown below:

                                       43
<PAGE>

For the three months ended June 30,              2009           2008
                                             -----------    -----------

Balance as of March 31,                      $ 3,593,824    $ 2,195,493

Provision for loan and lease losses              517,589        137,000
Loans and leases charged off                    (228,822)      (116,005)
Recoveries of loans and leases charged off       147,199         17,090
                                             -----------    -----------

Balance as of June 30,                       $ 4,029,790    $ 2,233,578
                                             ===========    ===========



For the six months ended June 30,                2009           2008
                                             -----------    -----------

Balance at beginning of the year             $ 3,698,820    $ 2,151,622

Provision for loan and lease losses              787,589        212,000
Loans and leases charged off                    (648,947)      (152,265)
Recoveries of loans and leases charged off       192,328         22,221
                                             -----------    -----------

Balance as of June 30,                       $ 4,029,790    $ 2,233,578
                                             ===========    ===========

The following table summarizes the Bank's Other Real Estate Owned ("OREO"), past
due  in  excess  of  90  days  and  non-accrual  loans  and  leases,  and  total
nonperforming assets as of June 30, 2009 and December 31, 2008.

                                              June 30, 2009    December 31, 2008
                                           -----------------   -----------------

Nonaccrual loans and leases                $       8,733,972   $       5,639,735

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

Total nonperforming assets                 $       8,733,972   $       5,639,735
                                           =================   =================

Loans and leases past due in excess of 90
  days and accruing interest               $              --   $          19,603
                                           =================   =================


POTENTIAL PROBLEM LOANS

As of June 30, 2009,  there were four loans  totaling $1.3 million which are not
disclosed above which cause  management to have concern as to the ability of the
borrowers to comply with the present loan repayment  terms.  The Bank's carrying
value of these loans  totaled  $1.3  million at June 30,  2009.  These loans are
still accruing interest but are classified as impaired. Although these loans are
currently performing, Management views them as having potential and well-defined
weaknesses that could jeopardize the liquidation of the debt.


OTHER THAN TEMPORARY  IMPAIRMENT:  The Company's investment securities portfolio
is  comprised  of  available-for-sale  and  held-to-maturity   investments.  The
available-for-sale  portfolio  is  carried at  estimated  fair  value,  with any
unrealized  gains  or  losses,  net of  taxes,  reported  as  accumulated  other
comprehensive  income  or loss in  shareholders'  equity.  The  held-to-maturity
portfolio is carried at amortized cost. Management determines the classification
of a security at the time of its purchase.

The Company conducts a periodic review of our investment securities portfolio to
determine if the value of any security has declined  below its cost or amortized
cost,  and whether  such  decline is  other-than-temporary.  If such  decline is
deemed  other-than-temporary,  the  security is written down to a new cost basis
and  the  resulting  loss  is  reported  within   non-interest   income  in  the
consolidated statement of income.

                                       44
<PAGE>

Significant  judgment is involved in determining when a decline in fair value is
other-than-temporary.  The factors considered by Management include, but are not
limited to:

     o    Whether the  Company  intends to sell the  security  and whether it is
          more  likely  than not that the  Company  will be required to sell the
          security before the recovery of its amortized cost basis, which may be
          maturity;
     o    The  length of time and the  extent  to which the fair  value has been
          less than the amortized cost basis;
     o    Adverse conditions  specifically related to the security,  an industry
          or a geographic area;
     o    The  historical  and  implied  volatility  of the  fair  value  of the
          security;
     o    The payment  structure of the debt security and the  likelihood of the
          issuer being able to make payment that increase in the future;
     o    Failure of the issuer of the  security to make  scheduled  interest or
          principal payments;
     o    Any changes to the rating of the security by a rating agency;
     o    Recoveries  or  additional  declines in fair value  subsequent  to the
          balance sheet date.

     Adverse  changes  in the  factors  used by  management  to  determine  if a
     security is OTTI could lead to additional  impairment  charges.  Conditions
     affecting a security  that the Company  determined  to be  temporary  could
     become other than temporary and warrant an impairment charge. Additionally,
     a security that had no apparent risk could be affected by a sudden or acute
     market condition and necessitate an impairment charge. During the third and
     fourth  quarters  of  2008,  the  Company  recorded  OTTI  losses  totaling
     $9,422,650  related to the Company's  investments in Freddie Mac and Fannie
     Mae preferred  stock/auction  rate securities  holding such stock,  and two
     pooled trust  preferred  securities.  There have been no OTTI losses during
     2009.  The Company  adopted the provisions of FSP SFAS 115-2 and SFAS 124-2
     during the  second  quarter  of 2009.  Adoption  of FSP SFAS 115-2 and SFAS
     124-2 resulted in the  reclassification of $2,511,080  ($1,657,313,  net of
     tax) of non-credit related OTTI to OCI which had previously been recognized
     as a loss in earnings and is disclosed in Note 8 - Investment Securities.


OFF-BALANCE SHEET ARRANGEMENTS

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

At June 30,  2009,  there  have been no  significant  changes  in the  Company's
off-balance sheet arrangements from December 31, 2008.


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

                                       45
<PAGE>

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 operations.


ITEM 4.  CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures 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.  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's  management,
under  the  supervision  and  with  the  participation  of the  Company's  Chief
Executive  Officer and the Company's  Chief  Financial  Officer,  carried out an
evaluation  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 the Company's disclosure
controls and procedures were effective.

There were no changes in the Company's internal control over financial reporting
that occurred  during the Company's  second  quarter of 2009 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) is the subject of
any material  pending legal  proceedings  other than routine  litigation that is
incidental to its business.

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.

                                       46
<PAGE>

The Annual Meeting of Shareholders of the Company was held on Wednesday, May 20,
2009. The results of such meeting are as follows:

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

     The vote for re-electing  each of the three Directors listed below to serve
     for a term of three years was as follows:

<TABLE>
<CAPTION>
                                                                                            Withholding
                                                                             For             Authority
                                                                        ---------------  -----------------
<S>                                                                           <C>                   <C>
    Joseph J. Greco          Number of Shares:                                1,722,357             84,234
                                                                        ---------------  -----------------
                             Percentage of Shares Voted:                          94.04%              4.60%
                                                                        ---------------  -----------------
                             Percentage of Shares Entitled to Vote:               73.08%              3.57%
                                                                        ---------------  -----------------
<CAPTION>
                                                                                            Withholding
                                                                             For             Authority
                                                                        ---------------  -----------------
<S>                                                                           <C>                   <C>
    Perley H. Grimes, Jr.    Number of Shares:                                1,718,073             88,518
                                                                        ---------------  -----------------
                             Percentage of Shares Voted:                          93.81%              4.83%
                                                                        ---------------  -----------------
                             Percentage of Shares Entitled to Vote:               72.90%              3.76%
                                                                        ---------------  -----------------
<CAPTION>
                                                                                            Withholding
                                                                             For             Authority
                                                                        ---------------  -----------------
<S>                                                                           <C>                   <C>

    Gregory S. Oneglia       Number of Shares:                                1,723,811             82,780
                                                                        ---------------  -----------------
                             Percentage of Shares Voted:                          94.12%              4.52%
                                                                        ---------------  -----------------
                             Percentage of Shares Entitled to Vote:               73.14%              3.51%
                                                                        ---------------  -----------------
</TABLE>

     Continuing as Directors  with terms to expire at the 2010 Annual Meeting of
     Shareholders  are: George M. Madsen,  Alan B. Magary,  William J. Sweetman,
     and Patricia D. Werner. Continuing as Directors with terms to expire at the
     2011  Annual  Meeting  of  Shareholders  are:  Patrick J.  Boland,  John A.
     Brighenti, Richard E. Pugh, and H. Ray Underwood, Jr.

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            "AGAINST
                    APPROVAL"         APPROVAL"         "ABSTAIN"
                ----------------   ---------------    ------------

                       1,789,887            14,383          27,223
                ----------------   ---------------    ------------
                     Number             Number           Number

                           75.94%             0.61%           1.16%
                ----------------   ---------------    ------------
                         (Percent of shares entitled to vote)

                           97.73%             0.79%           1.49%
                ----------------   ---------------    ------------
                  (Percent of shares actually voted at the meeting)


                                       47
<PAGE>

3.   Approval of Compensation of Named Executive Officers
     ----------------------------------------------------

     Votes cast "For,"  "Against,"  and "Abstain" on the proposal to approve the
     resolution  regarding the  compensation of the named executive  officers in
     the Summary  Compensation  Table of the Company's  Proxy  Statement for the
     2009  Annual  Meeting  of  Shareholders,  as  described  in  the  Executive
     Compensation  Tables  and the  related  disclosure  contained  in the Proxy
     Statement were as follows:


                      "FOR            "AGAINST
                    APPROVAL"         APPROVAL"         "ABSTAIN"
                ----------------   ---------------    ------------

                       1,558,186           165,628         107,679
                ----------------   ---------------    ------------
                     Number             Number           Number

                           66.11%             7.03%           4.57%
                ----------------   ---------------    ------------
                         (Percent of shares entitled to vote)

                           85.08%             9.04%           5.88%
                ----------------   ---------------    ------------
                  (Percent of shares actually voted at the meeting)


Item 5.  Other Information.   None

                                       48
<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.

3.1.1        Certificate of Designations for the Fixed Rate Cumulative Perpetual
             Preferred  Stock,  Series A, filed  December  9,  2008.  Exhibit is
             incorporated  by reference to Exhibit 3.1 to the Company's  Current
             Report  on Form  8-K as  filed  with the  Securities  and  Exchange
             Commission on December 18, 2008.

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.

4.1          Amended  and  Restated  Declaration  of Trust  of First  Litchfield
             Statutory  Trust I. Exhibit is incorporated by reference to Exhibit
             10.52 set forth in the  Company's  Quarterly  Report on Form 10-QSB
             for the quarter  ended June 30,  2003 as filed with the  Securities
             and Exchange Commission on August 13, 2003.

4.2          Indenture  for the  Company's  Floating  Rate  Junior  Subordinated
             Deferrable Interest Debentures due 2033. Exhibit is incorporated by
             reference  to Exhibit  10.53 set forth in the  Company's  Quarterly
             report on Form 10-QSB for the quarter  ended June 30, 2003 as filed
             with the Securities and Exchange Commission on August 13, 2003.

4.3          Indenture dated June 16, 2006,  between First Litchfield  Financial
             Corporation,  as issuer, and Wilmington Trust Company, as indenture
             trustee. Exhibit is incorporated by reference to Exhibit 4.1 to the
             Company's  Registration  Statement  on Form 8-K/A as filed with the
             Securities and Exchange Commission on June 30, 2006.

4.4          Guarantee  Agreement  dated  as of June  16,  2006,  between  First
             Litchfield  Financial  Corporation,  and Wilmington  Trust Company.
             Exhibit  is  incorporated  by  reference  to  Exhibit  4.2  to  the
             Company's  Registration  Statement  on Form 8-K/A as filed with the
             Securities and Exchange Commission on June 30, 2006.

4.5          Form of  Junior  Subordinated  Note.  Exhibit  is  incorporated  by
             reference to Exhibit 4.3 to the Company's Registration Statement on
             Form 8-K/A as filed with the Securities and Exchange  Commission on
             June 30, 2006.

4.6          Warrant to purchase  Common Stock dated December 12, 2008.  Exhibit
             is  incorporated  by  reference  to  Exhibit  4.1 to the  Company's
             Current  Report  on Form  8-K as  filed  with  the  Securities  and
             Exchange Commission on December 18, 2008.

                                       49
<PAGE>

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, 2008 as filed with
             the Securities and Exchange Commission on April 15, 2009.

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.





                                       50
<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 19, 2009                     FIRST LITCHFIELD FINANCIAL
                                           CORPORATION


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



Dated: August 19, 2009                     By:  /s/ Carroll A. Pereira
                                               -----------------------
                                               Carroll A. Pereira
                                               Principal Financial and
                                               Accounting Officer



                                       51