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

                                    FORM 10-Q

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

                 For the Quarterly period ended: March 31, 2008

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

           For the transition period from ___________ to ___________.

                         Commission File Number: 0-28815

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

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

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

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

Indicate  by check  mark  whether  the  Registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the past 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

                                Yes [X]    No [ ]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, 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:  2,368,100  shares of Common
Stock, par value $.01 per share, were outstanding at May 14, 2008.

                                        1

<PAGE>

                     FIRST LITCHFIELD FINANCIAL CORPORATION
                                    FORM 10-Q
                                      INDEX

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

       Item 1 - Financial Statements

       Consolidated Balance Sheets - March 31, 2008 and December 31, 2007
       (unaudited) .............................................................        3

       Consolidated Statements of Income - Three months ended
       March 31, 2008 and 2007 (unaudited) .....................................        4

       Consolidated Statements of Comprehensive Income - Three months ended
       March 31, 2008 and 2007 (unaudited) .....................................        5

       Consolidated Statements of Cash Flows - Three months ended
       March 31, 2008 and 2007 (unaudited) .....................................        6

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

       Item 2 - Management's Discussion and Analysis of Financial Condition
       and Results of Operations ...............................................       17

       Item 3 - Quantitative and Qualitative Disclosures about Market Risk [not
       applicable] .............................................................       26

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

Part II - Other Information

       Item 1 - Legal Proceedings ..............................................       26

       Item 1A - Risk Factors [not applicable] .................................       27

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

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

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

       Item 5 - Other Information ..............................................       27

       Item 6 - Exhibits .......................................................       28

Signatures .....................................................................       29
</TABLE>

                                        2

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)

<TABLE>
<CAPTION>
                                                                        March 31,      December 31,
                                                                          2008             2007
                                                                     --------------   --------------
<S>                                                                  <C>              <C>
ASSETS
   Cash and due from banks                                           $   15,434,786   $   10,876,445
   Interest - bearing accounts and due from banks                         1,807,354       10,620,749
                                                                     --------------   --------------
                                         CASH AND CASH EQUIVALENTS       17,242,140       21,497,194
                                                                     --------------   --------------
   Securities:
      Available for sale securities, at fair value                      154,905,951      128,979,548
      Held to maturity securities (fair value $33,271-2008 and
         $33,712-2007)                                                       33,622           34,185
                                                                     --------------   --------------
                                                  TOTAL SECURITIES      154,939,573      129,013,733
                                                                     --------------   --------------

   Federal Home Loan Bank stock, at cost                                  5,360,700        5,067,400
   Federal Reserve Bank stock, at cost                                      225,850          225,850
   Other restricted stock, at cost                                           95,000           95,000

   Loan and lease receivables, net of allowance for loan and
      lease losses of $2,195,493 -2008, $2,151,622 -2007
                                              NET LOANS AND LEASES      331,348,065      327,475,371
   Premises and equipment, net                                            7,636,789        7,758,761
   Deferred income taxes                                                  1,843,478        1,327,535
   Accrued interest receivable                                            2,702,314        2,609,606
   Cash surrender value of insurance                                     10,118,283       10,020,540
   Other assets                                                           2,513,412        2,562,638
                                                                     --------------   --------------

                                                      TOTAL ASSETS   $  534,025,604   $  507,653,629
                                                                     ==============   ==============
LIABILITIES
   Deposits:
      Noninterest bearing                                            $   66,257,150   $   70,564,267
      Interest bearing                                                  275,314,561      265,053,397
                                                                     --------------   --------------
                                                    TOTAL DEPOSITS      341,571,711      335,617,664

   Federal Home Loan Bank advances                                       91,500,000       91,500,000
   Repurchase agreements with financial institutions                     46,550,000       21,550,000
   Repurchase agreements with customers                                   9,595,575       14,142,773
   Junior subordinated debt issued by unconsolidated trust               10,104,000       10,104,000
   Collateralized borrowings                                              1,415,230        1,699,336
   Capital lease obligation                                               1,079,155        1,083,567
   Accrued expenses and other liabilities                                 4,716,813        3,593,677
                                                                     --------------   --------------

                                                 TOTAL LIABILITIES      506,532,484      479,291,017
                                                                     --------------   --------------
   Minority interest                                                         50,000           50,000
   Commitments and contingencies                                                 --               --
SHAREHOLDERS' EQUITY
   Preferred stock $.00001 par value; 1,000,000 shares authorized,
      no shares outstanding                                                      --               --
   Common stock $.01 par value
      Authorized - 5,000,000 shares
      2008 - Issued - 2,504,729 shares, outstanding -
         2,371,700 shares
      2007 - Issued - 2,501,229 shares, outstanding -
         2,368,200 shares                                                    25,013           25,012
   Capital surplus                                                       27,860,370       27,858,841
   Retained earnings                                                      2,753,625        2,623,110
   Less: Treasury stock at cost- 133,029 shares                            (926,964)        (926,964)
   Accumulated other comprehensive loss, net of taxes                    (2,268,924)      (1,267,387)
                                                                     --------------   --------------
                                        TOTAL SHAREHOLDERS' EQUITY       27,443,120       28,312,612
                                                                     --------------   --------------

                        TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $  534,025,604   $  507,653,629
                                                                     ==============   ==============
</TABLE>

See Notes to Consolidated Financial Statements.

                                        3

<PAGE>

FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended March 31,                                                          2008            2007
                                                                                 -------------   -------------
<S>                                                                              <C>             <C>
INTEREST AND DIVIDEND INCOME
   Interest and fees on loans and leases                                         $   5,527,083   $   4,943,848
                                                                                 -------------   -------------
   Interest and dividends on securities:
      Mortgage-backed securities                                                       673,328         680,984
      US Treasury and other securities                                                 501,942         557,773
      State and municipal securities                                                   336,419         338,394
      Corporate bonds and other securities                                             118,621         185,195
                                                                                 -------------   -------------
         Total interest on securities                                                1,630,310       1,762,346
   Other interest income                                                                99,043         170,635
                                                                                 -------------   -------------
                                         TOTAL INTEREST AND DIVIDEND INCOME          7,256,436       6,876,829
                                                                                 -------------   -------------
INTEREST EXPENSE
   Interest on deposits:
      Savings                                                                          189,676         179,289
      Money market                                                                     456,767         498,583
      Time certificates of deposit                                                   1,452,676       1,715,731
                                                                                 -------------   -------------
                                                 TOTAL INTEREST ON DEPOSITS          2,099,119       2,393,603
   Interest on Federal Home Loan Bank advances                                       1,007,798         681,699
   Interest on repurchase agreements                                                   338,420         407,391
   Interest on subordinated debt                                                       189,948         197,621
   Interest on collateralized borrowings                                                29,424              --
   Interest on capital lease obligation                                                 14,338          14,565
                                                                                 -------------   -------------
                                                     TOTAL INTEREST EXPENSE          3,679,047       3,694,879
                                                                                 -------------   -------------
                                                        NET INTEREST INCOME          3,577,389       3,181,950
PROVISION FOR LOAN AND LEASE LOSSES                                                     75,000         105,000
                                                                                 -------------   -------------
                                        NET INTEREST INCOME AFTER PROVISION
                                                  FOR LOAN AND LEASE LOSSES          3,502,389       3,076,950
                                                                                 -------------   -------------
NONINTEREST INCOME
   Banking service charges and fees                                                    345,179         311,232
   Trust                                                                               339,524         329,589
   Gains (losses) on available for sale securities                                      11,942         (14,350)
   Other                                                                               159,377         168,101
                                                                                 -------------   -------------
                                                   TOTAL NONINTEREST INCOME            856,022         794,572
                                                                                 -------------   -------------
NONINTEREST EXPENSE
   Salaries                                                                          1,597,635       1,603,815
   Employee benefits                                                                   441,749         426,948
   Net occupancy                                                                       311,826         275,058
   Equipment                                                                           159,614         168,521
   Legal fees                                                                           62,952          44,725
   Directors fees                                                                       50,100          56,175
   Computer services                                                                   272,973         261,158
   Supplies                                                                             45,504          42,793
   Commissions, services and fees                                                      116,242          85,516
   Postage                                                                              40,203          41,946
   Advertising                                                                         137,015          64,014
   Other                                                                               563,230         386,237
                                                                                 -------------   -------------
                                                  TOTAL NONINTEREST EXPENSE          3,799,043       3,456,906
                                                                                 -------------   -------------

                                                 INCOME BEFORE INCOME TAXES            559,368         414,616
PROVISION FOR INCOME TAXES                                                              60,845          11,722
                                                                                 -------------   -------------
                                                                 NET INCOME      $     498,523   $     402,894
                                                                                 =============   =============
INCOME PER SHARE
                                                 BASIC NET INCOME PER SHARE      $        0.21   $        0.17
                                                                                 =============   =============
                                               DILUTED NET INCOME PER SHARE      $        0.21   $        0.17
                                                                                 =============   =============
DIVIDENDS PER SHARE                                                              $        0.15   $        0.15
                                                                                 =============   =============
</TABLE>

See Notes to Consolidated Financial Statements.

                                        4

<PAGE>

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

<TABLE>
<CAPTION>
Three months ended March 31,                                                          2008            2007
                                                                                 -------------   -------------
<S>                                                                              <C>             <C>
   Net income                                                                    $     498,523   $     402,894

   Other comprehensive(loss) income net of taxes
      Unrealized holding (losses) gains on available for sale securities
         arising during the period, net of taxes                                      (764,757)        434,406
      Net actuarial loss for pension benefits, net of taxes                           (236,780)             --
                                                                                 -------------   -------------
   Total other comprehensive (loss) income                                          (1,001,537)        434,406
                                                                                 -------------   -------------

Total comprehensive (loss) income                                                $    (503,014)  $     837,300
                                                                                 =============   =============
</TABLE>

See Notes to Consolidated Financial Statements.

                                        5

<PAGE>

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

<TABLE>
<CAPTION>
Three months ended March 31,                                                          2008            2007
                                                                                 -------------   -------------
<S>                                                                              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                       $     498,523   $     402,894
Adjustments to reconcile net income to net cash provided by (used in)
   operating activities:
              (Accretion) amortization of discounts and premiums on investment
                 securities, net                                                       (24,676)         50,980
              Provision for loan losses                                                 75,000         105,000
              Depreciation and amortization                                            188,905         173,263
              (Gains) losses on available for sale securities                          (11,942)         14,350
              Loss on sale of repossessed assets                                         5,030              --
              Loans originated for sale                                               (505,000)     (1,126,000)
              Proceeds from sales of loans held for sale                               509,071       1,635,732
              Gains on sales of loans held for sale                                     (4,071)         (6,549)
              Stock based compensation                                                   1,530              --
              Increase in accrued interest receivable                                  (92,708)        (57,757)
              Decrease (increase) in other assets                                       30,079        (593,700)
              Increase in cash surrender value of insurance                            (97,743)        (99,000)
              (Increase) decrease in deferred loan origination costs                   (30,414)          6,624
              Increase (decrease) in accrued expenses and other liabilities            751,601        (967,770)
                                                                                  ------------   -------------
                 Net cash provided by (used in) operating activities                 1,293,185        (461,933)
                                                                                  ------------   -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
              Proceeds from maturities and principal payments                       14,272,834       2,709,781
              Purchases                                                            (42,586,928)             --
              Proceeds from sales                                                    1,265,587       4,985,650
Held to maturity mortgage-backed securities:
              Proceeds from principal payments                                             563           2,658
Purchase of restricted stock                                                          (293,300)       (109,400)
Redemption of restricted stock                                                              --          10,500
Net increase in loans and leases                                                    (3,978,796)     (7,190,335)
Purchase of premises and equipment                                                     (66,933)       (201,600)
Proceeds from sale of repossessed assets                                                75,633              --
                                                                                 -------------   -------------
              Net cash (used in) provided by investing activities                  (31,311,340)        207,254
                                                                                 -------------   -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in savings, money market and demand deposits                (2,559,969)     14,831,787
Net increase (decrease) in certificates of deposit                                   8,514,016      (5,068,834)
Net decrease in short term Federal Home Loan Bank advances                                  --      (1,000,000)
Proceeds from Federal Home Loan Bank advances                                               --      20,000,000
Repayments on Federal Home Loan Bank advances                                               --     (15,000,000)
Net increase (decrease) in repurchase agreements with financial institutions        25,000,000     (18,650,000)
Net decrease in repurchase agreements with customers                                (4,547,198)     (2,090,575)
Net decrease in collateralized borrowings                                             (284,106)             --
Principal payments on capital lease obligation                                          (4,412)         (4,185)
Proceeds from the exercise of stock options                                                 --          28,706

Tax benefit of stock options exercised                                                      --          14,399
Dividends paid on common stock                                                        (355,230)       (338,100)
                                                                                 -------------   -------------
              Net cash provided by (used in) financing activities                   25,763,101      (7,276,802)
                                                                                 -------------   -------------
              Net decrease in cash and cash equivalents                             (4,255,054)     (7,531,481)
CASH AND CASH EQUIVALENTS, at beginning of period                                   21,497,194      29,197,637
                                                                                 -------------   -------------
CASH AND CASH EQUIVALENTS, at end of period                                      $  17,242,140   $  21,666,156
                                                                                 =============   =============
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
              Interest on deposits and borrowings                                $   3,527,280   $   3,773,391
                                                                                 =============   =============
              Income taxes                                                       $       1,000   $         500
                                                                                 =============   =============
Non cash investing and financing activities:
              Accrued dividends declared                                         $     355,736   $     337,869
                                                                                 =============   =============
              Transfer of loans to repossessed assets                            $      61,516   $      62,631
                                                                                 =============   =============
              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                                              $     358,757   $          --
                                                                                 =============   =============
</TABLE>

See Notes to Consolidated Financial Statements.

                                        6

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.    The  consolidated  balance sheet at December 31, 2007 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.

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, 2007.

      These  financial  statements  reflect,  in the opinion of Management,  all
      adjustments,  consisting of only normal recurring  adjustments,  necessary
      for a fair  presentation  of the  Company's  financial  position  and  the
      results of its  operations  and its cash flows for the periods  presented.
      The results of  operations  for the three  months ended March 31, 2008 are
      not  necessarily  indicative  of the  results  of  operations  that may be
      expected for all of 2008.

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.

      The following is information about the computation of net income per share
      for the  three  month  periods  ended  March 31,  2008 and 2007.  The 2007
      information  has been  restated  to give  retroactive  effect to all stock
      dividends.

<TABLE>
<CAPTION>
                                                          Three Months Ended
                                                            March 31, 2008
                                                ------------------------------------
                                                    Net                    Per Share
                                                   Income       Shares       Amount
                                                -----------   ----------   ---------
<S>                                             <C>           <C>          <C>
Basic Net Income Per Share
   Income available to common shareholders      $   498,523    2,369,989   $    0.21
                                                                           =========
Effect of Dilutive Securities
   Options Outstanding                                   --          939
Diluted Net Income Per Share
                                                -----------   ----------
   Income available to common shareholders
      plus assumed conversions                  $   498,523    2,370,928   $    0.21
                                                ===========   ==========   =========
</TABLE>

<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                           March 31, 2007
                                                ------------------------------------
                                                    Net                    Per Share
                                                   Income       Shares       Amount
                                                -----------   ----------   ---------
<S>                                             <C>           <C>          <C>
Basic Net Income Per Share
   Income available to common shareholders      $   402,894    2,368,687   $    0.17
                                                                           =========
Effect of Dilutive Securities
   Options Outstanding                                   --        5,196
Diluted Net Income Per Share
                                                -----------   ----------
   Income available to common shareholders
      plus assumed conversions                  $   402,894    2,373,883   $    0.17
                                                ===========   ==========   =========
</TABLE>

                                        7

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                      Three Months Ended
                                                                                        March 31, 2008
                                                                           -----------------------------------------
                                                                             Before-Tax        Tax       Net-of-Tax
                                                                               Amount        Effect        Amount
                                                                           -------------   ----------   ------------
<S>                                                                        <C>             <C>          <C>
Unrealized holding losses arising during the period                        $  (1,146,781)  $  389,905   $   (756,876)
Add: reclassification adjustment for amounts recognized in net income            (11,942)       4,061         (7,881)
                                                                           -------------   ----------   ------------

Unrealized holding losses on available for sale securities, net of taxes      (1,158,723)     393,966       (764,757)
Net pension loss, net of taxes                                                  (358,757)     121,977       (236,780)
                                                                           -------------   ----------   ------------
Total other comprehensive loss, net of taxes                               $  (1,517,480)  $  515,943   $ (1,001,537)
                                                                           =============   ==========   ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                       Three Months Ended
                                                                                         March 31, 2007
                                                                           -----------------------------------------
                                                                             Before-Tax        Tax       Net-of-Tax
                                                                               Amount        Effect        Amount
                                                                           -------------   ----------   ------------
<S>                                                                        <C>             <C>          <C>
Unrealized holding gains arising during the period                         $     643,841   $ (218,906)  $    424,935
Add: reclassification adjustment for amounts recognized in net income             14,350       (4,879)         9,471
                                                                           -------------   ----------   ------------

Unrealized holding gains on available for sale securities, net of taxes    $     658,191   $ (223,785)  $    434,406
                                                                           =============   ==========   ============
</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.  The Bank's  funding  policy was to contribute  amounts to the
      Plan sufficient to meet the minimum funding  requirements set forth in the
      Employee  Retirement  Income  Security Act of 1974,  plus such  additional
      amounts as the Bank may determine to be appropriate from time to time. The
      actuarial  information has been calculated using the projected unit credit
      method.  The increase in net  actuarial  pension loss is due to changes in
      market  value  since the year end  December  31,  2007.  During  the first
      quarter of 2005, the Bank's pension plan was curtailed as the Bank's Board
      of Directors  approved the  cessation of benefit  accruals  under the Plan
      effective April 30, 2005. Because of this action, commencing with the Plan
      year beginning November 15, 2005, no further contributions will be made by
      the Bank.

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

                                                           2008         2007
                                                        ----------   ----------
      Service cost                                      $       --   $       --
      Interest cost                                         46,306       46,042
      Expected return on plan assets                       (50,363)     (50,062)
      Amortization of unrealized loss                       14,812       16,952
                                                        ----------   ----------
      Net periodic benefit cost                         $   10,755   $   12,932
                                                        ==========   ==========

                                        8

<PAGE>

6.    The  Bank is a  member  of the  Federal  Home  Loan  Bank of  Boston  (the
      "FHLBB").  As a member of the FHLBB,  the Bank has access to a preapproved
      line of credit of up to 2% of its total  assets and the capacity to borrow
      up to 30% of its total assets.  In accordance  with an agreement  with the
      FHLBB, the Bank is required to maintain qualified  collateral,  as defined
      in the  FHLBB  Statement  of  Products  Policy,  free and  clear of liens,
      pledges and encumbrances  for the advances.  FHLBB stock and certain loans
      which aggregate  approximately 100% of the outstanding advance are used as
      collateral.  Federal  Home Loan Bank  advances as of March 31, 2008 are as
      follows:

          due    7/18/2008    4,500,000   @  3.27%
          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    9/04/2012    5,000,000   @  4.38%
          due   11/02/2012    2,000,000   @  4.70%
          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 5/5/2008
          due    3/23/2017   10,000,000   @  4.29% , callable 3/23/2009
          due    7/20/2017   10,000,000   @  4.29% , callable 4/22/2008
          due   11/20/2017    5,000,000   @  4.29% , callable 11/19/2012
                             ----------
                     Total   91,500,000
                             ==========

      As of March 31, 2008, the Bank had borrowings under repurchase agreements
      with financial institutions totaling $46,550,000. This amount includes
      borrowings:

          due    4/26/2008    7,000,000   @  4.19%
          due    6/12/2008    4,600,000   @  3.08%
          due    6/12/2008    4,700,000   @  3.08%
          due    6/12/2008    1,700,000   @  3.08%
          due    6/12/2008    1,500,000   @  3.08%
          due    7/28/2008    5,000,000   @  3.25%
          due    7/31/2008    5,000,000   @  3.27%
          due    2/25/2009    4,550,000   @  3.20%
          due    3/12/2013   12,500,000   @  3.19% , callable 3/12/2011
                             ----------
                     Total   46,550,000
                             ==========

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

For the three months ended March 31,

<TABLE>
<CAPTION>
                                                               2008                    2007
                                                               ----                    ----
<S>                                                    <C>             <C>     <C>             <C>
Provision for income taxes at statutory Federal rate   $   190,185      34%    $   140,969      34%
Increase (decrease) resulting from:
   Tax exempt income                                      (148,844)    (27)       (149,349)    (36)
   Nondeductible interest expense                           14,233       3          14,832       4
   Other                                                     5,271       1           5,270       1
                                                       -----------     ---     -----------     ---
Provision for income taxes                             $    60,845      11%    $    11,722       3%
                                                       ===========     ===     ===========     ===
</TABLE>

                                        9

<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 March 31, 2008 and  December 31, 2007 are
      as follows:

AVAILABLE FOR SALE

<TABLE>
<CAPTION>
                                                            March 31, 2008
                                       ---------------------------------------------------------
                                                          Gross         Gross
                                         Amortized     Unrealized    Unrealized         Fair
                                            Cost          Gains        Losses          Value
                                       -------------   ----------   ------------   -------------
<S>                                    <C>             <C>          <C>            <C>
Debt Securities:
   U.S. Treasury securities            $   4,005,925   $  109,387   $         --   $   4,115,312
   U.S. Government Agency securities      23,000,000           --        (70,124)     22,929,876
   State and Municipal Obligations        29,936,315      352,582       (801,127)     29,487,770
   Corporate and Other Bonds               4,899,018           --     (1,344,018)      3,555,000
                                       -------------   ----------   ------------   -------------
                                          61,841,258      461,969     (2,215,269)     60,087,958
                                       -------------   ----------   ------------   -------------
Mortgage-Backed Securities:
   GNMA                                      623,585           --        (14,376)        609,209
   FNMA                                   63,841,245      365,636       (694,881)     63,512,000
   FHLMC                                  16,832,981       92,962       (215,727)     16,710,216
                                       -------------   ----------   ------------   -------------
                                          81,297,811      458,598       (924,984)     80,831,425
                                       -------------   ----------   ------------   -------------

Money Market mutual fund                   6,061,507           --             --       6,061,507
Marketable Equity Securities               8,030,000           --       (104,939)      7,925,061
                                       -------------   ----------   ------------   -------------

Total available for sale securities    $ 157,230,576   $  920,567   $ (3,245,192)  $ 154,905,951
                                       =============   ==========   ============   =============
</TABLE>

<TABLE>
<CAPTION>
                                                          December 31, 2007
                                       ---------------------------------------------------------
                                                          Gross         Gross
                                         Amortized     Unrealized    Unrealized         Fair
                                            Cost          Gains        Losses          Value
                                       -------------   ----------   ------------   -------------
<S>                                    <C>             <C>          <C>            <C>
Debt Securities:
   U.S. Treasury securities            $   4,007,040   $   62,179   $         --   $   4,069,219
   U.S. Government Agency securities      30,992,780        8,895       (106,435)     30,895,240
   State and Municipal Obligations        31,190,175      364,035        (49,871)     31,504,339
   Corporate and Other Bonds               4,898,731           --       (445,731)      4,453,000
                                       -------------   ----------   ------------   -------------
                                          71,088,726      435,109       (602,037)     70,921,798
                                       -------------   ----------   ------------   -------------
Mortgage-Backed Securities:
   GNMA                                      674,447           --        (16,521)        657,926
   FNMA                                   40,041,144      221,704       (996,597)     39,266,251
   FHLMC                                  12,311,134       61,541       (295,091)     12,077,584
                                       -------------   ----------   ------------   -------------
                                          53,026,725      283,245     (1,308,209)     52,001,761
                                       -------------   ----------   ------------   -------------

Marketable Equity Securities               6,030,000       54,000        (28,011)      6,055,989
                                       -------------   ----------   ------------   -------------

Total available for sale securities    $ 130,145,451   $  772,354   $ (1,938,257)  $ 128,979,548
                                       =============   ==========   ============   =============
</TABLE>

HELD TO MATURITY

<TABLE>
<CAPTION>
                                                             March 31, 2008
                                       ---------------------------------------------------------
                                                          Gross        Gross
                                         Amortized     Unrealized    Unrealized         Fair
                                            Cost          Gains        Losses          Value
                                       -------------   ----------   ------------   -------------
<S>                                    <C>             <C>          <C>            <C>
Mortgage-Backed Securities:
   GNMA                                $      33,622   $       --   $       (351)  $      33,271
                                       =============   ==========   ============   =============
</TABLE>

<TABLE>
<CAPTION>
                                                          December 31, 2007
                                       ---------------------------------------------------------
                                                          Gross        Gross
                                         Amortized     Unrealized    Unrealized         Fair
                                            Cost          Gains        Losses          Value
                                       -------------   ----------   ------------   -------------
<S>                                    <C>             <C>          <C>            <C>
Mortgage-Backed Securities:
   GNMA                                $      34,185   $       --   $       (473)  $      33,712
                                       =============   ==========   ============   =============
</TABLE>

                                       10

<PAGE>

      At March 31, 2008, gross  unrealized  holding losses on available for sale
      and held to maturity securities totaled $3,245,192. Of the securities with
      unrealized losses,  there were thirty-four  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 $932,151 at March 31,
      2008.  Management  does not believe that any of the unrealized  losses are
      other than temporary as they relate primarily to debt and  mortgage-backed
      securities  issued  by  U.S.  Government  and  U.S.  Government  sponsored
      agencies,  and  are  due to  changes  in the  interest  rate  environment.
      Unrealized  holding  losses in  Corporate  and other bonds are due to both
      changes in interest  rates as well as lack of  liquidity  currently in the
      financial  markets.  Management  believes  these  unrealized  losses to be
      temporary  until such time as those markets have  stabilized.  The Company
      has both  the  intent  and the  ability  to hold  these  securities  until
      maturity or until the fair value fully recovers.  In addition,  Management
      considers the issuers of the securities to be  financially  sound and that
      the Company will receive all contractual principal and interest related to
      these  investments.  As a result,  it is anticipated that these unrealized
      losses will not have a negative  impact on future  earnings or a permanent
      effect on capital.  However,  Management periodically evaluates investment
      alternatives to properly  manage the overall balance sheet.  The timing of
      sales  and   reinvestments   is  based  on  various   factors,   including
      Management's evaluation of interest rate risks and liquidity needs.

9.    A summary of the Bank's  loan and lease  portfolio  at March 31,  2008 and
      December 31, 2007 is as follows:

                                                       2008            2007
                                                       ----            ----
Real estate--residential mortgage                 $ 190,079,272   $ 189,556,668
Real estate--commercial mortgage                     52,051,194      55,752,240
Real estate--construction                            32,864,179      34,808,984
Commercial Loans                                     36,610,082      33,641,679
Commercial Leases (net of unearned discount
   of $1,882,716 and $1,264,980)                     14,971,618       8,634,199
Installment                                           6,216,078       6,519,812
Other                                                   139,078          99,357
                                                  -------------   -------------
                         TOTAL LOANS AND LEASES     332,931,501     329,012,939
Net deferred loan origination costs                     476,085         445,671
Premiums on purchased loans                             135,972         168,383
Allowance for loan and lease losses                  (2,195,493)     (2,151,622)
                                                  -------------   -------------
                           NET LOANS AND LEASES   $ 331,348,065   $ 327,475,371
                                                  =============   =============

                                       11

<PAGE>

10.   A summary of the Bank's  deposits at March 31, 2008 and  December 31, 2007
      is as follows:

                                                       2008           2007
                                                  -------------   -------------
Noninterest bearing:
   Demand                                         $  66,257,150   $  70,564,267
                                                  -------------   -------------
Interest bearing:
   Savings                                           55,462,768      56,344,878
   Money market                                      81,367,964      78,738,706
   Time certificates of deposit in
      denominations of $100,000 or more              56,080,836      52,345,036
   Other time certificates of deposit                82,402,993      77,624,777
                                                  -------------   -------------
   Total Interest bearing deposits                  275,314,561     265,053,397
                                                  -------------   -------------
                                 TOTAL DEPOSITS   $ 341,571,711   $ 335,617,664
                                                  =============   =============

      Included  in  deposits  as of March 31,  2008 and  December  31,  2007 are
      approximately  $14,649,000  and  $6,538,000,   respectively,  of  brokered
      deposits which have varying maturities through December 2008.

11.   During 2007 the Company approved a restricted stock plan ("the 2007 Plan")
      for senior management.  As of December 31, 2007 no restricted stock awards
      had been  granted.  On  February  15,  2008,  the  Company  granted  3,500
      restricted  stock awards to senior  management  from the 2007 Plan.  These
      awards  vest  ratably  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 measured 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.
      Compensation expense related to these awards for the first quarter of 2008
      was $1,530.

      A summary of  restricted  shares under the 2007 Plan as of March 31, 2008,
      and changes  during the three months then ended,  (shares in thousands) is
      presented below:

                                                               Weighted Average
                                                               Grant Date Fair
                                                      Shares        Value
                                                      ------        -----

      Nonvested at January 1, 2008                        --                 --
         Granted                                       3,500   $          13.11
         Vested                                           --                 --
         Forfeited                                        --                 --
                                                      ------   ----------------

      Nonvested at March 31, 2008                      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 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

                                       12

<PAGE>

      of the Company as of and for the  quarters  ended March 31, 2008 and 2007.
      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.

<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                             March 31, 2008
                                       -----------------------------------------------------------
                                         Community                     Elimination   Consolidated
                                          Banking         Leasing        Entries         Total
                                          -------         -------        -------         -----
<S>                                    <C>             <C>            <C>            <C>
Net interest income                    $   3,444,275   $    133,114   $         --   $   3,577,389
Provision for credit losses                   42,987         32,013             --          75,000
                                       -------------   ------------   ------------   -------------

Net interest income after provision        3,401,288        101,101             --       3,502,389
Noninterest income                           856,022             --             --         856,022
Noninterest expense                        3,706,383         92,660             --       3,799,043
                                       -------------   ------------   ------------   -------------

Income before income taxes                   550,927          8,441             --         559,368
Income tax provision                          58,640          2,205             --          60,845
                                       -------------   ------------   ------------   -------------

Net income                             $     492,287   $      6,236   $         --   $     498,523
                                       =============   ============   ============   =============

Total assets as of March 31, 2008      $ 556,409,543   $ 14,865,306   $(37,249,245)  $ 534,025,604
                                       =============   ============   ============   =============
</TABLE>

<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                              March 31, 2007
                                       -----------------------------------------------------------
                                         Community                     Elimination    Consolidated
                                          Banking        Leasing         Entries         Total
                                       -------------   ------------   ------------   -------------
<S>                                    <C>             <C>            <C>            <C>
Net interest income                    $   3,146,434   $     35,516   $         --   $   3,181,950
Provision for credit losses                   76,654         28,346             --         105,000
                                       -------------   ------------   ------------   -------------

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

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

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

Total assets as of March 31, 2007      $ 490,230,317   $  4,093,438   $   (499,171)  $ 493,824,584
                                       =============   ============   ============   =============
</TABLE>

12.   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).

                                       13

<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, corporate and other bonds, and equity
            securities quoted in markets that are not active. Also included are
            certain collateral-dependant impaired loans.

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, and
            certain collateral-dependant impaired loans.

                Fair Value Measurements at March 31, 2008, Using

<TABLE>
<CAPTION>
                                                                       Significant
                                                   Quoted Prices in       Other       Significant
                                       March        Active Markets      Observable    Unobservable
                                     31, 2008       for Identical         Inputs         Inputs
                                       Total       Assets (Level 1)      (Level 2)      (Level 3)
                                   -------------   ----------------   -------------   ------------
<S>                                <C>             <C>                <C>             <C>
Assets:
   Available for sale securities   $ 154,905,951   $      4,115,312   $ 150,790,639   $        --
                                   =============   ================   =============   ============
</TABLE>

      U.S. Treasury securities, with a carrying value of $4,115,312 at March 31,
      2008,  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,  other  corporate
      bonds,  and certain equity  securities are measured on a recurring  basis,
      using Level 2 inputs  observable  market data on similar  securities.  The
      carrying value of these  securities  totaled  $150,790,639 as of March 31,
      2008.

      Loans which are deemed to be impaired are primarily valued at the lower of
      the current value,  present value of future cash flows or, the fair values
      of the underlying  collateral of the impaired  loan.  Such fair values are
      obtained using independent  appraisals,  which the Company considers to be
      level 2 inputs.  If such appraisal  amounts are  subsequently  adjusted by
      management,  such fair values may then be considered to be Level 3 inputs.
      Collateral dependant impaired loans were insignificant at March 31, 2008.

      The Company has no  liabilities  carried at fair value or measured at fair
      value on a nonrecurring basis.

                                       14

<PAGE>

      Also in February 2008, the FASB issued FSP FAS 157-1,  Application of FASB
      Statement  No.  157  to  FASB  Statement  No.  13  and  Other   Accounting
      Pronouncements  That Address Fair Value Measurements for Purposes of Lease
      Classification  or Measurement  under  Statement 13," which clarified that
      Statement 157 does not apply to Statement 13, "Accounting for Leases," and
      other  pronouncements that address fair value measurements for purposes of
      lease classification or measurement. The scope exception does not apply to
      assets acquired and liabilities assumed in a business combination that are
      required  to be  measured at fair value  under  Statement  141,  "Business
      Combinations,"  regardless  of whether  those assets and  liabilities  are
      related to leases.

      On February 12, 2008,  the FASB issued Staff  Position  157-2 which defers
      the effective  date of Statement 157 for certain  nonfinancial  assets and
      liabilities to fiscal years  beginning  after November 15, 2008. All other
      provisions of Statement 157 are effective for fiscal years beginning after
      November 15, 2007 and interim periods within those fiscal years.

      The Company  adopted the provisions of Statement 157 for the quarter ended
      March 31,  2008  except  for those  nonfinancial  assets  and  liabilities
      subject to  deferral  as a result of Staff  Position  157-2.  There was no
      impact on the March 31,  2008  consolidated  financial  statements  of the
      Company as a result of the adoption of Statement 157.

13.   In September  2006, the FASB ratified  Emerging Issues Task Force ("EITF")
      Issue No. 06-4,  "Accounting for Deferred  Compensation and Postretirement
      Benefits   Associated  with   Endorsement   Split-Dollar   Life  Insurance
      Arrangements"  ("EITF  06-4"),  and in March 2007,  the FASB ratified EITF
      Issue No. 06-10,  "Accounting for Collateral Assignment  Split-Dollar Life
      Insurance  Arrangements"  ("EITF  06-10").  EITF  06-4  requires  deferred
      compensation  or  postretirement  benefit  aspects of an  endorsement-type
      split-dollar life insurance arrangement to be recognized as a liability by
      the employer and states the obligation is not  effectively  settled by the
      purchase of a life  insurance  policy.  The liability for future  benefits
      should be recognized based on the substantive agreement with the employee,
      which may be either to  provide a future  death  benefit or to pay for the
      future  cost  of the  life  insurance.  EITF  06-10  provides  recognition
      guidance for  postretirement  benefit  liabilities  related to  collateral
      assignment   split-dollar   life  insurance   arrangements,   as  well  as
      recognition  and  measurement of the associated  asset on the basis of the
      terms  of  the   collateral   assignment   split-dollar   life   insurance
      arrangement.  EITF 06-4 and EITF  06-10 are  effective  for  fiscal  years
      beginning after December 15, 2007. The adoption of EITF 06-4 or EITF 06-10
      did not have a material impact on its financial statements.

14.   Recent Accounting Pronouncements

      In February  2007, the FASB issued SFAS No, 159, The Fair Value Option for
      Financial  Assets and  Financial  Liabilities  - Including an Amendment of
      FASB Statement No, 115  (Statement  159) which permits an entity to choose
      to measure certain  financial  instruments and certain other items at fair
      value, on an instrument-by-instrument basis. Once an entity has elected to
      record  eligible items at fair value,  the decision is irrevocable and the
      entity  should report  unrealized  gains and losses on items for which the
      fair value option has been elected in earnings. Statement 159 is effective
      for fiscal years beginning after November 15, 2007. At the effective date,
      an entity may elect the fair value option for eligible items that exist at
      that date with the effect of the first  measurement to fair value reported
      as a  cumulative-effect  adjustment  to the  opening  balance of  retained
      earnings.  There was no impact on the consolidated financial statements of
      the Company as a result of the adoption of Statement  159 during the first
      quarter of 2008 since the Company  has not  elected the fair value  option
      for any eligible items, as defined in Statement 159.

                                       15

<PAGE>

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

      In December 2007, the Financial  Accounting  Standards  Board (the "FASB")
      issued SFAS No. 141(R),  "Business  Combinations,"  ("SFAS  141(R)") which
      replaces SFAS 141. SFAS 141(R) establishes principles and requirements for
      how an acquirer in a business  combination  recognizes and measures in its
      financial  statements the identifiable  assets  acquired,  the liabilities
      assumed,  and any controlling  interest;  recognizes and measures goodwill
      acquired in the business  combination  or a gain from a bargain  purchase;
      and  determines  what  information  to  disclose  to  enable  users of the
      financial  statements to evaluate the nature and financial  effects of the
      business  combination.  FAS 141(R) is effective  for  acquisitions  by the
      Company  taking  place on or after  January 1,  2009.  Early  adoption  is
      prohibited. Accordingly, a calendar year-end company is required to record
      and disclose business combinations  following existing accounting guidance
      until  January 1, 2009.  The Company will assess the impact of SFAS 141(R)
      if and when a future acquisition occurs.

      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  exists.  In  some  cases  minority  interest  is  reported  as a
      liability  and in others it is 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 statements and separate from the parent's equity.
      The amount of net income attributable to the noncontrolling  interest will
      be  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 will 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.  SFAS 160 is  effective  for the  Company  on  January 1, 2009.
      Earlier  adoption is prohibited.  The Company is currently  evaluating the
      impact,  if any,  the  adoption  of SFAS  160 will  have on its  financial
      position, results of operations and cash flows.

                                       16

<PAGE>

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

GENERAL

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

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

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

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

FINANCIAL CONDITION

Total assets as of March 31, 2008 were $534,025,604, an increase of $26,371,975,
or 5.19% from year-end 2007 total assets of $507,653,629.

Net loans and leases  increased  $3,872,694  over the year-end 2007 amount.  Net
loans and leases as of March 31,  2008 were  $331,348,065,  as  compared  to the
year-end  2007  level  of  $327,475,371.   First  quarter  2008  growth  was  in
residential mortgage loans, and commercial loans and in leases.

                                       17

<PAGE>

Consistent  with  Management's  strategy  to migrate to a more  profitable  loan
composition,  commercial  loan and lease  growth  was  strong  during  the first
quarter of 2008. Leases,  net of unearned income,  were $14,971,618 at March 31,
2008,  which was an increase of  $6,337,419  from the  year-end  2007 balance of
$8,634,199. First Litchfield Leasing Corporation is an operational subsidiary of
the Bank, which offers equipment financing  opportunities  through middle market
equipment  leasing,  in amounts ranging from $150,000 to $1,500,000.  Commercial
loans totaled  $36,610,082,  which is an increase of  $2,968,403,  from year-end
2007.  Growth in  commercial  loans has been in both lines of credit and in term
financing and continues to be a result of the sales  development  and commercial
calling  initiatives  for traditional  and contiguous  markets.  The residential
mortgage loan portfolio totaled $190,079,272,  which was an increase of $522,604
from year-end 2007.

As of March 31, 2008, the securities portfolio totaled $154,939,573,  which is a
20.1% increase from the year-end 2007 balance.  This increase is the result of a
leverage strategy executed during the first quarter of 2008, whereby $25,000,000
of fixed rate mortgage backed securities were purchased and funded by borrowings
from repurchase  agreements.  This transaction was effected to take advantage of
the  steepening   yield  curve  with  the  result  of  improving  the  Company's
profitability with little credit or interest rate risk.

Cash  and  cash  equivalents  totaled  $17,242,140,   which  is  a  decrease  of
$4,255,054,  or 19.79% from  year-end  2007.  During the first  quarter of 2008,
funds temporarily  invested in interest bearing  correspondent  bank balances at
year-end were reinvested in overnight  institutional  funds for better yield. As
of March 31, 2008 and December 31, 2007,  there were no  investments  in Federal
Funds Sold.

Total  liabilities were $506,532,484 as of March 31, 2008, which was an increase
of $27,241,467 from total liabilities of $479,291,017 as of year-end 2007. Total
deposits  increased by  $5,954,047,  or 1.8% from their year-end  levels.  Money
market deposits increased by $2,629,258,  or 3.4% as a result of higher balances
held for the Bank's  trust  customers.  Time  certificates  of  deposit  totaled
$138,483,829 as of March 31, 2008,  which was an increase of 6.6%, or $8,514,016
from year-end 2007.

As of March 31, 2008,  repurchase  agreements with customers totaled $9,595,575,
which was a decrease of $4,547,198 from the year-end 2007 balance. Because these
accounts  represent  overnight  investments  by commercial  and  municipal  cash
management  customers,  fluctuations  in the  balances  of  these  accounts  are
reflective of the temporary  nature of these funds.  During the first quarter of
2008,  advances under Federal Home Loan Bank borrowings remained at a balance of
$91,500,000,  while repurchase agreements with financial  institutions increased
by  $25,000,000  as a result of the first quarter  leverage  strategy  discussed
above.

RESULTS OF OPERATIONS

Summary

Net income for the Company for the first quarter of 2008 totaled $498,523. These
earnings  are $95,629 or 23.7%  above  earnings  for the first  quarter of 2007,
which totaled $402,894. Basic and diluted income per share for the first quarter
of 2008 were both $.21,  compared to basic and diluted  income per share of $.17
for the first  quarter of 2007.  The increase in net income is due  primarily to
the  increase  in  interest  income  and fees on  loans  and  leases  as well as
increased  noninterest  income.  For the first  quarter  of 2008,  the return on
average  equity for the Company  totaled  6.91%  compared to 5.90% for the first
quarter of 2007.

                                       18

<PAGE>

Net Interest Income

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

Net  interest  income  on a  fully  tax-equivalent  basis  is  comprised  of the
following for the three months ended March 31,

                                            2008               2007
                                        -------------    --------------
      Interest and dividend income      $   7,256,436    $    6,876,829
      Tax-equivalent adjustments (1)          153,604           152,815
      Interest expense                     (3,679,047)       (3,694,879)
                                        -------------    --------------
      Net interest income               $   3,730,993    $    3,334,765
                                        -------------    --------------

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

                                       19

<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 March
31, 2008 and 2007. Average loans outstanding include nonaccruing loans.

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;

INTEREST RATES AND INTEREST DIFFERENTIAL

<TABLE>
<CAPTION>
                                              Three months ended March 31, 2008           Three months ended March 31, 2007
                                          ----------------------------------------   ------------------------------------------
                                                             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                          $  334,537,000   $  5,528,611      6.61%   $   298,993,000   $   4,944,583      6.61%
Investment Securities                        145,219,000      1,834,637      5.05%       154,106,000       1,914,426      4.97%
Other interest earning assets                  6,302,000         46,792      2.97%        12,538,000         170,635      5.44%
                                          --------------   ------------              ---------------   -------------

Total interest earning assets                486,058,000      7,410,040      6.10%       465,637,000       7,029,644      6.04%
                                          --------------   ------------    ------    ---------------   -------------    ------
Allowance for loan and
   lease losses                               (2,173,000)                                 (2,131,000)
Cash and due from banks                       11,346,000                                  17,922,000
Premises and equipment                         7,726,000                                   7,282,000
Net unrealized losses on
   securities                                   (673,000)                                 (2,883,000)
Other assets                                  15,978,000                                  17,258,000
                                          --------------                             ---------------

Total Average Assets                      $  518,262,000                             $   503,085,000
                                          ==============                             ===============

Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
Savings deposits                          $   58,398,000        189,676      1.30%   $    54,681,000         179,289      1.31%
Money Market deposits                         82,963,000        456,767      2.20%        73,166,000         498,583      2.73%
Time deposits                                134,172,000      1,452,676      4.33%       149,319,000       1,715,731      4.60%
Borrowed funds                               144,321,000      1,579,928      4.38%       127,166,000       1,301,276      4.09%
                                          --------------   ------------              ---------------   -------------

Total interest bearing liabilities           419,854,000      3,679,047      3.51%       404,332,000       3,694,879      3.66%
                                                           ------------    ------                      -------------    ------

Demand deposits                               64,714,000                                  67,355,000
Other liabilities                              4,834,000                                   4,063,000
Shareholders' Equity                          28,860,000                                  27,335,000
                                          --------------                             ---------------

Total liabilities and equity              $  518,262,000                             $   503,085,000
                                          ==============                             ===============

Net interest income                                        $  3,730,993                                $   3,334,765
                                                           ============                                =============
Net interest spread                                                          2.59%                                        2.38%
                                                                           ======                                       ======
Net interest margin                                                          3.07%                                        2.86%
                                                                           ======                                       ======
</TABLE>

                                       20

<PAGE>

RATE/VOLUME ANALYSIS

The following table, which is presented on a tax-equivalent basis, reflects the
changes for the three months ended March 31, 2008 when compared to the three
months ended March 31, 2007 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.

<TABLE>
<CAPTION>
                                                            3/31/08 Compared to 3/31/07
                                                            Increase (Decrease) Due to
                                                            --------------------------

                                                       Volume         Rate            Total
                                                       ------         ----            -----
<S>                                                  <C>          <C>              <C>
Interest earned on:
Loans and leases                                     $  587,408   $     (3,380)    $  584,028
Investment securities                                  (111,849)        32,060        (79,789)
Other interest earning assets                           (64,716)       (59,127)      (123,843)
                                                     ----------   ------------     ----------
Total interest earning assets                           410,843        (30,447)       380,396
                                                     ----------   ------------     ----------

Interest paid on:
Deposits                                                (14,023)      (280,461)      (294,484)
Borrowed money                                          183,622         95,030        278,652
                                                     ----------   ------------     ----------
Total interest bearing liabilities                      169,599       (185,431)       (15,832)
                                                     ----------   ------------     ----------

Increase in net interest income                      $  241,244   $    154,984     $  396,228
                                                     ==========   ============     ==========
</TABLE>

Tax-equivalent  net  interest  income  for the  first  quarter  of 2008  totaled
$3,730,993,  an increase of $396,228,  or 11.9% from the first  quarter of 2007.
Both the increase in the volume of earning assets as well as increased  interest
rate  spread  caused  the  improvement  in net  interest  income.  The effect of
increased volume of earning assets over interest bearing  liabilities  increased
net interest income by $241,244. Also, the Company was able to decrease its cost
of deposit  interest  to a greater  degree than the  interest  earned on earning
assets which resulted in $154,984 in additional net interest income.

Average earning assets for the first quarter of 2008 totaled $486,058,000, which
was  $20,421,000  or 4.4%  greater  than  average  earning  assets for the first
quarter of 2007 which totaled  $465,637,000.  This  increase in earning  assets,
specifically in loans, net of increased volume of interest bearing  liabilities,
contributed  to an  additional  $241,244 in net interest  income.  For the first
quarter of 2008,  loans were 68.8% of earning  assets  compared to 64.2% for the
first quarter of 2007,  which  contributed  to a more  profitable mix of earning
assets.

The net interest  spread  increased by 21 basis points from the first quarter of
2007.  Funding  costs  decreased  by 15 basis  points while the yield on earning
assets  increased by 6 basis points.  The significant  drop in interest rates by
the Federal Open Market Committee of the Federal Reserve (the "FOMC") during the
first quarter allowed management to similarly adjust its deposit rates. Although
yields on  earning  assets  are  subject to  similar  declines,  the  structural
repricing  intervals  for many  earning  assets  will not occur until later this
year.  Also,  many  interest  earning  assets are  priced  off of longer  market
indices,  which were not as dramatically impacted by the FOMC decreases.  Retail
deposits  is  the  primary  source  of  the  Company's   funding  and  therefore
competition  for these  deposits  remains the biggest threat to the net interest
margin.

                                       21

<PAGE>

Provision for Loan and Lease Losses

The  provision  for loan and lease losses for the first  quarter of 2008 totaled
$75,000, which is a decrease of $30,000 from the provision for the first quarter
of 2007.  The provision  for loan and lease losses is  determined  quarterly and
assessed  along  with the  adequacy  of the loan and lease  loss  reserve.  (See
discussion of the Allowance for Loan and Lease Losses.)

During the first  quarter of 2008,  the  Company  recorded  net  charge-offs  of
$31,129 compared to first quarter 2007 net charge-offs of $49,667. The change in
the level of charge-offs from 2007 to 2008 is not considered by Management to be
indicative of any trend. For both quarters the charge-off  activity is primarily
attributable  to consumer  automobile  loans which the Bank purchased in 2006 as
well as other consumer loans.

Noninterest Income

Noninterest  income for the first quarter of 2008 totaled  $856,022,  increasing
$61,450,  or 7.73% from the first quarter 2007 income of $794,572.  Trust income
totaled  $339,524,  which  represented  40% of noninterest  income and increased
$9,935,  or 3.0% from the first quarter of 2007.  This increase is the result of
an increased  volume of  investments  under  management and in spite of weakened
economic and market  conditions.  Also, first quarter 2007 trust income included
$29,000 in  nonrecurring  estate  settlement  fees.  Income from banking service
charges and fees  increased  by $33,947,  or 10.91%,  from the first  quarter of
2007.  This  increase  is due  primarily  to higher  levels of  deposit  service
charges,  cash management,  and master money interchange fees. Other noninterest
income totaled $159,377, which was a decrease of $8,724, or 5.19% from the first
quarter of 2007.  This increase is mostly  related to a decrease in revenue from
the Bank's retail investment  products.  Management  attributes this decrease to
the current volatility in the market.

During  the  first  quarter  of 2008,  sales  of  available  for sale  municipal
securities were sold for the purpose of shortening the duration of the portfolio
as well as to insure acceptable market bond ratings.  These sales resulted in an
aggregate  gain of  $11,942.  During  the first  quarter  of 2007,  sales in the
investment  portfolio were made to enhance yield and resulted in losses totaling
$14,350.

Noninterest Expense

First quarter 2008 noninterest expense totaled $3,799,043,  increasing 9.90%, or
$342,137 from the first quarter 2007 expense of $3,456,906.  Advertising expense
totaled $137,015, which was an increase of $73,001, or 114.04% increase from the
first  quarter of 2007.  This  increase  is due  primarily  to the Bank's  image
campaign which was launched during the fourth quarter of 2007 as well as product
and publicity  promotions.  Occupancy  costs  reflect  increases due to a larger
branch network and its related maintenance costs. Commissions, services and fees
expense totaled  $116,242  compared to 2007 costs of $85,516.  The increase from
the prior year relates  primarily to  strategic  services  related to the wealth
management and retail areas.  The increase in legal fees of $18,227,  which is a
result of increased costs for loan collections, as well as for advice related to
corporate activities.

Other noninterest expenses totaled $563,230 which is an increase of $176,993, or
45.82% from the first quarter of 2007.  The majority of the increase is a result
of  higher  2008  costs  for exam and audit  fees as they  relate to  regulatory
reporting compliance,  and internal audit initiatives.  Also contributing to the
increase  were  costs for  placement  fees for key  personnel  during  the first
quarter of 2008.

                                       22

<PAGE>

Income Taxes

The first quarter 2008 provision for income taxes totaled  $60,845,  which is an
increase of $49,123 or 419.07% from the first  quarter of 2007.  The increase in
income  tax  expense in the first  quarter  of 2008 is due to a higher  level of
taxable  income.  Pretax  income  totaled  $559,368 in the first quarter of 2008
which was 34.9%  higher than that for the first  quarter of 2007.  Additionally,
the  Company's  effective  tax  rate of 11% for the  first  quarter  of 2008 was
considerably  higher than the  effective tax rate of 3% for the first quarter of
2007. The increase in the effective tax rate is due to a  proportionately  lower
level of non-taxable income from both state and municipal investments as well as
that from bank owned life insurance.

LIQUIDITY

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

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

As of March 31,  2008,  the Company had  $125,137,211  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

At March 31,  2008,  total  shareholders'  equity was  $27,443,120  compared  to
$28,312,612  at December 31, 2007.  From a regulatory  perspective,  the capital
ratios of the Company  and the Bank place each entity in the  "well-capitalized"
categories  under  applicable  regulations.  On  September  20, 2007 the Company
approved a stock  repurchase  program to acquire in the next twelve months up to
an aggregate of 30,000 shares of the Company's  outstanding  Common Stock. There
were no shares repurchased by the Company during the first quarter of 2008.

The  various  capital  ratios of the  Company  and the Bank are as follows as of
March 31, 2008:

<TABLE>
<CAPTION>
                                           Regulatory
Minimum                                  Capital Levels    The Company    The Bank
                                         --------------    -----------    --------
<S>                                      <C>               <C>            <C>
TIER 1:
  Leverage capital ratio                              4%          7.62%       7.02%
  Risk-based capital ratio                            4%         11.43%      10.52%
  Total risk-based capital ratio                      8%         12.07%      11.16%
</TABLE>

                                       23

<PAGE>

ALLOWANCE FOR LOAN AND LEASE LOSSES AND CRITICAL ACCOUNTING POLICIES

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

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

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

There were no material  changes in loan or lease  concentration or loan or lease
quality that had a significant effect on the allowance for loan and lease losses
calculation  at March 31, 2008. 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 March 31, 2008, the allowance for loan and lease losses was equivalent to 75%
of total  non-performing  assets as  compared  with 73% of total  non-performing
assets at December 31, 2007.  As of March 31,  2008,  non-performing  assets and
loans and  leases  were  $2,927,715  and  represented  0.88% of total  loans and
leases.  As of December  31,  2007,  non-performing  assets and loans and leases
totaled $2,962,185 and represented 0.90% of total loans and leases. The ratio of
the  allowance for such loan and lease losses to total loans and leases at March
31, 2008 and December 31, 2007 was 0.66%.

                                       24

<PAGE>

Changes in the allowance for loan and lease losses for the three months  periods
ended March 31, 2008 and 2007 are as shown below:

<TABLE>
<CAPTION>
For the three months ended March 31,                          2008              2007
                                                         --------------   -----------------
<S>                                                      <C>              <C>
Balance at beginning of the year                         $    2,151,622   $       2,106,100

Provision for loan and lease losses                              75,000             105,000
Loans and leases charged off                                    (36,260)            (51,140)
Recoveries of loans and leases previously charged-off             5,131               1,473
                                                         --------------   -----------------

Balance as of March 31,                                  $    2,195,493   $       2,161,433
                                                         ==============   =================
</TABLE>

The following table summarizes the Bank's Other Real Estate Owned ("OREO"), past
due and non-accrual loans and leases, and total nonperforming assets as of March
31, 2008 and December 31, 2007.

<TABLE>
<CAPTION>
                                                         March 31, 2008   December 31, 2007
                                                         --------------   -----------------
<S>                                                      <C>              <C>
Nonaccrual loans and leases                              $    2,916,897   $       2,959,074

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

Total nonperforming assets                               $    2,916,897   $       2,959,074
                                                         ==============   =================

Loans and leases past due in excess of 90 days and
   accruing interest                                     $       10,818   $           3,111
                                                         ==============   =================
</TABLE>

POTENTIAL PROBLEM LOANS

As of March 31,  2008,  there  were no  potential  problem  loans or leases  not
disclosed above, which cause Management to have serious doubts as to the ability
of such borrowers to comply with their present loan or lease repayment terms.

OFF BALANCE SHEET ARRANGEMENTS

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

At March 31,  2008,  there have been no  significant  changes  in the  Company's
off-balance sheet arrangements from December 31, 2007.

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

                                       25

<PAGE>

rather than historical or current facts and, therefore, are inherently uncertain
and subject to risk. For those statements,  the Company claims the protection of
the  safe  harbor  for  forward-looking  statements  contained  in  the  Private
Securities Litigation Reform Act of 1995.

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

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

[Not required for smaller reporting company.]

ITEM 4 T. CONTROLS AND PROCEDURES

The Company  maintains  disclosure  controls and procedures that are designed to
ensure that information  required to be disclosed in the Company's  Exchange Act
report is recorded,  processed,  summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and  communicated  to the Company's  management,  including its Chief  Executive
Officer and Chief Financial Officer,  as appropriate,  to allow timely decisions
regarding  required  disclosure.  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  that 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  first quarter of 2008 that has  materially
affected,  or is reasonably likely to materially  affect, the Company's internal
control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

                                       26

<PAGE>

Item 1A. Risk Factors.  Not applicable

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On September 20, 2007 the Company approved a stock repurchase program to acquire
in the next twelve  months up to an aggregate of 30,000  shares of the Company's
outstanding Common Stock. Shares purchased pursuant to the repurchase program in
the first quarter of 2008, are shown below.

                      Issuer Purchases of Equity Securities

<TABLE>
<CAPTION>
                               (a)                  (b)                 (c)                      (d)
                                                                   Total number of       Maximum number (or
                                                                  shares (or units)   approximate dollar value)
                                                                  purchased as part   of shares (or units) that
                          Total number of      Average price         of publicly        may yet be purchased
                         shares (or units)   paid per share (or    announced plans       under the plans or
         Period             purchased             unit)             or programs              programs
----------------------   -----------------   ------------------   -----------------   -------------------------
<S>                      <C>                 <C>                  <C>                 <C>
  January 1-31, 2008                    --   $               --                  --               30,000 shares
                         -----------------   ------------------   -----------------   -------------------------
  February 1-29, 2008                   --                   --                  --               30,000 shares
                         -----------------   ------------------   -----------------   -------------------------
    March 1-31, 2008                    --                   --                  --               30,000 shares
                         -----------------   ------------------   -----------------   -------------------------
         Total                          --   $               --                  --               30,000 shares
                         =================   ==================   =================   =========================
</TABLE>

Item 3. Defaults Upon Senior Securities.   None

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

Item 5. Other Information.   None

                                       27

<PAGE>

Item 6. Exhibits

                                  EXHIBIT INDEX
Exhibit
  No.     Exhibit
-------   -------

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

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

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

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

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

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

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

                                       28

<PAGE>

                                   SIGNATURES

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

Dated: May 14, 2008                      FIRST LITCHFIELD FINANCIAL
                                         CORPORATION

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

Dated: May 14, 2008                         By: /s/ Carroll A. Pereira
                                              ------------------------
                                                Carroll A. Pereira
                                                Principal Financial and
                                                Accounting Officer

                                       29