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: September 30, 2007

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

           For the transition period from ___________ to ___________.

                         Commission File Number: 0-28815

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

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

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

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

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

                               Yes [X]     No [_]

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

  Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [X]

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

                               Yes [_]     No [X]

Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,251,085 shares of Common
Stock, par value $.01 per share, were outstanding at November 7, 2007.


                                       1
<PAGE>


                     FIRST LITCHFIELD FINANCIAL CORPORATION
                                    FORM 10-Q
                                      INDEX

                                                                            Page
                                                                            ----

Part I - Financial Information

Item 1 - Financial Statements

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

       Consolidated Statements of Income - Three and nine months ended
       September 30, 2007 and 2006 (unaudited)                                 4

       Consolidated Statements of Comprehensive Income - Three and nine
       months ended September 30, 2007 and 2006 (unaudited)                    5

       Consolidated Statements of Cash Flows - Nine months ended
       September 30, 2007 and 2006 (unaudited)                                 6

       Notes to Consolidated Financial Statements (unaudited)                  7

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

       Item 3 - Quantitative and Qualitative Disclosures about Market Risk    27

       Item 4 - Controls and Procedures                                       27

Part II - Other Information

       Item 1 - Legal Proceedings                                             27

       Item 1A - Risk Factors                                                 28

       Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds   28

       Item 3 - Defaults Upon Senior Securities                               28

       Item 4 - Submission of Matters to a Vote of Security Holders           28

       Item 5 - Other Information                                             28

       Item 6 - Exhibits                                                      29

Signatures                                                                    30


                                       2
<PAGE>


                         PART 1 - FINANCIAL INFORMATION

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

FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)

<TABLE>
<CAPTION>
                                                                                    September 30,       December 31,
                                                                                        2007                 2006
                                                                                   -------------        -------------
<S>                                                                                <C>                  <C>
ASSETS
    Cash and due from banks                                                        $   7,829,346        $  21,501,240
    Interest - bearing due from banks                                                          -            7,696,397
                                                                                   -------------        -------------
                                              CASH AND CASH EQUIVALENTS                7,829,346           29,197,637
                                                                                   -------------        -------------
    Securities:
     Available for sale securities, at fair value                                    125,233,996          147,780,275
     Held to maturity securities (fair value $35,082-2007 and $39,974-2006)               35,531               40,516
                                                                                   -------------        -------------
                                                       TOTAL SECURITIES              125,269,527          147,820,791
                                                                                   -------------        -------------

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

   Loans held for sale                                                                   160,000            1,042,183

   Loan and lease receivables, net of allowance for loan and lease
                 losses of  $2,116,707 -2007, $2,106,100 -2006
                                                   NET LOANS AND LEASES              313,467,987          293,900,025

   Premises and equipment, net                                                         7,740,613            7,440,316
   Deferred income taxes                                                               1,946,743            2,173,033
   Accrued interest receivable                                                         2,787,233            2,598,726
   Cash surrender value of insurance                                                   9,922,127            9,636,461
   Other assets                                                                        2,935,246            2,673,935
                                                                                   -------------        -------------

                                                           TOTAL ASSETS            $ 476,993,272        $ 501,232,357
                                                                                   =============        =============

LIABILITIES
   Deposits:
     Noninterest bearing                                                           $  66,107,646        $  68,501,750
     Interest bearing                                                                260,385,738          264,927,124
                                                                                   -------------        -------------
                                                         TOTAL DEPOSITS              326,493,384          333,428,874
                                                                                   -------------        -------------

   Federal Home Loan Bank advances                                                    70,036,000           67,000,000
   Repurchase agreements with financial institutions                                  28,550,000           47,200,000
   Repurchase agreements with customers                                                9,422,783           12,206,023
   Junior subordinated debt issued by unconsolidated trusts                           10,104,000           10,104,000
   Capital lease obligation                                                            1,087,922            1,100,644
   Accrued expenses and other liabilities                                              3,892,953            3,936,622
                                                                                   -------------        -------------

                                                      TOTAL LIABILITIES              449,587,042          474,976,163
                                                                                   -------------        -------------
   Minority interest                                                                      50,000               50,000
   Commitments and contingencies                                                               -                    -

SHAREHOLDERS' EQUITY

   Preferred stock $.00001 par value; 1,000,000 shares authorized, no shares
   outstanding Common stock $.01 par value
     Authorized - 5,000,000 shares
     2007 - Issued - 2,377,780 shares, outstanding - 2,259,348 shares
     2006 - Issued - 2,372,434 shares, outstanding - 2,254,002 shares                     23,778               23,724
   Capital surplus                                                                    25,905,174           25,840,623
   Retained earnings                                                                   4,599,379            3,953,216
   Less: Treasury stock at cost- 118,432 shares                                         (794,756)            (794,756)
   Accumulated other comprehensive loss, net of taxes                                 (2,377,345)          (2,816,613)
                                                                                   -------------        -------------
                                             TOTAL SHAREHOLDERS' EQUITY               27,356,230           26,206,194
                                                                                   -------------        -------------

                             TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY            $ 476,993,272        $ 501,232,357
                                                                                   =============        =============
</TABLE>

See Notes to Consolidated Financial Statements.


                                       3
<PAGE>


FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

<TABLE>
<CAPTION>
                                                          Three Months Ended September 30,       Nine Months Ended September 30,
                                                              2007               2006               2007                2006
                                                          ------------       ------------       ------------       ------------
<S>                                                       <C>                <C>                <C>                <C>
INTEREST AND DIVIDEND INCOME
   Interest and fees on loans and leases                  $  5,310,171       $  4,593,334       $ 15,475,294       $ 12,499,654

   Interest and dividends on securities:
      Mortgage-backed                                          629,956            860,908          1,964,187          2,552,789
      US Treasury and other                                    531,737            768,500          1,630,486          2,208,251
      State & municipal securities                             339,347            339,953          1,016,157          1,077,220
      Corporate bonds & other securities                       102,842            187,013            473,168            462,047
   Other interest income                                       168,062             26,016            367,511             37,891
                                                          ------------       ------------       ------------       ------------
             TOTAL INTEREST AND DIVIDEND INCOME              7,082,115          6,775,724         20,926,803         18,837,852
                                                          ------------       ------------       ------------       ------------

INTEREST EXPENSE
   Interest on deposits:
      Savings                                                  237,267            167,442            567,347            217,078
      Money market                                             627,841            633,707          1,677,674          1,295,217
      Time certificates of deposit in denominations
          $100,000 or more                                     624,448            450,914          2,187,079            943,658
      Other time certificates of deposit                       905,497            743,088          2,638,809          1,990,109
                                                          ------------       ------------       ------------       ------------
                     TOTAL INTEREST ON DEPOSITS              2,395,053          1,995,151          7,070,909          4,446,062
   Interest on Federal Home Loan Bank advances                 786,727            658,756          2,313,874          1,980,636
    Interest on repurchase agreements                          347,706            741,643          1,081,193          2,291,254
   Interest on subordinated debt                               200,582            203,195            596,478            481,100
   Interest on capital lease obligation                         14,453                  -             43,528                  -
                                                          ------------       ------------       ------------       ------------
                         TOTAL INTEREST EXPENSE              3,744,521          3,598,745         11,105,982          9,199,052
                                                          ------------       ------------       ------------       ------------
                            NET INTEREST INCOME              3,337,594          3,176,979          9,820,821          9,638,800
PROVISION FOR LOAN  AND LEASE LOSSES                                 -            105,000            105,000            315,000
                                                          ------------       ------------       ------------       ------------
                      NET INTEREST INCOME AFTER
                         PROVISION FOR LOAN AND
                                LEASE LOSSES                 3,337,594          3,071,979          9,715,821          9,323,800
                                                          ------------       ------------       ------------       ------------
NONINTEREST INCOME
   Banking service charges and fees                            337,469            333,691            984,135            892,114
   Trust                                                       350,071            273,944          1,020,307            815,816
    Gains (losses) on the sales of available
      for sale securities                                       33,982                  -             19,632            (17,633)
   Other                                                       168,779            128,129            487,598            417,439
                                                          ------------       ------------       ------------       ------------
                       TOTAL NONINTEREST INCOME                890,301            735,764          2,511,672          2,107,736
                                                          ------------       ------------       ------------       ------------
NONINTEREST EXPENSE
   Salaries                                                  1,511,962          1,395,681          4,646,686          3,955,687
   Employee benefits                                           383,699            333,825          1,192,766          1,063,746
   Net occupancy                                               306,956            245,627            843,869            701,882
   Equipment                                                   131,883            140,557            467,938            375,637
   Legal fees                                                   24,128             48,327            155,379            195,169
   Directors fees                                               50,275             41,025            158,728            115,375
   Computer services                                           211,226            241,925            668,597            717,429
   Supplies                                                     42,988             46,931            127,567            130,441
   Commissions, services and fees                               88,120            110,811            318,374            371,962
   Postage                                                      33,898             35,517            101,012            107,526
   Advertising                                                  98,540            163,482            268,456            496,210
   Other                                                       497,011            427,043          1,340,318          1,379,468
                                                          ------------       ------------       ------------       ------------
                     TOTAL NONINTEREST EXPENSES              3,380,686          3,230,751         10,289,690          9,610,532
                                                          ------------       ------------       ------------       ------------
                     INCOME BEFORE INCOME TAXES                847,209            576,992          1,937,803          1,821,004
PROVISION FOR INCOME TAXES                                     169,373             76,594            275,307            221,803
                                                          ------------       ------------       ------------       ------------
                                     NET INCOME           $    677,836       $    500,398       $  1,662,496       $  1,599,201
                                                          ============       ============       ============       ============
INCOME PER SHARE
                     BASIC NET INCOME PER SHARE           $       0.30       $       0.22       $       0.74       $       0.71
                                                          ============       ============       ============       ============
                   DILUTED NET INCOME PER SHARE           $       0.30       $       0.22       $       0.74       $       0.71
                                                          ============       ============       ============       ============

   Dividends Per Share                                    $       0.15       $       0.15       $       0.45       $       0.45
                                                          ============       ============       ============       ============
</TABLE>


                                       4
<PAGE>


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

<TABLE>
<CAPTION>
Three months ended September 30,                                        2007             2006
                                                                     ----------       ----------
<S>                                                                  <C>              <C>
Net income                                                           $  677,836       $  500,398
Unrealized holding gains on securities:
       Unrealized holding gains arising during the period, net        1,236,452        2,537,453
                                                                     ----------       ----------

Comprehensive income                                                 $1,914,288       $3,037,851
                                                                     ==========       ==========
</TABLE>

<TABLE>
<CAPTION>
Nine months ended September 30,                                         2007              2006
                                                                     ----------       ----------
<S>                                                                  <C>              <C>
Net income                                                           $1,662,496       $1,599,201
Unrealized holding gains on securities:
       Unrealized holding gains arising during the period, net          439,268          252,322
                                                                     ----------       ----------

Comprehensive income                                                 $2,101,764       $1,851,523
                                                                     ==========       ==========
</TABLE>

See Notes to Consolidated Financial Statements.


                                       5
<PAGE>


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

<TABLE>
<CAPTION>
                                                                             Nine Months Ended September 30,
                                                                                2007                2006
                                                                            ------------        ------------
<S>                                                                         <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                  $  1,662,496        $  1,599,201
Adjustments to reconcile net income to net cash provided by (used in)
  operating activities:
       Amortization and accretion of premiums and discounts
          on investment securities, net                                          135,456             158,615
       Provision for loan and lease losses                                       105,000             315,000
       Depreciation and amortization                                             557,804             353,888
       (Gains) losses on sales of available for sale securities                  (19,632)             17,633
       Loans originated for sale                                              (4,911,000)                 --
       Proceeds from sale of loans held for sale                               5,818,499                  --
       Gains on sales of loans held for sale                                     (25,316)             (2,620)
       Gain on sale of repossessed assets                                             --                (159)
       Loss (gain) on disposal of premises and equipment                             888                (100)
       (Increase) decrease in accrued interest receivable                        188,507            (666,774)
       Increase in other assets                                                 (179,294)         (1,119,936)
       Increase in cash surrender value of insurance                            (285,666)           (254,586)
       Increase in deferred loan origination costs                               (29,781)            (36,822)
       Decrease in accrued expenses and other liabilities                        (45,370)         (3,712,964)
                                                                            ------------        ------------

           Net cash provided by (used in) operating activities                 2,595,577          (3,349,624)
                                                                            ------------        ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
       Proceeds from maturities and principal payments                         7,800,193          10,907,294
       Purchases                                                              (1,000,000)        (10,862,401)
       Proceeds from sales                                                    16,295,820           2,706,878
Held to maturity mortgage-backed securities:
       Proceeds from maturities and principal payments                             4,985               5,682
Purchase of restricted stock                                                     (15,000)            (30,000)
Purchase of Federal Home Loan Bank stock                                        (180,700)                 --
Redemption of Federal Home Loan Bank stock                                        10,500                  --
Investment in First Litchfield Statutory Trust II                                     --             (93,000)
Proceeds from the sale of loans                                                       --             427,620
Net increase in loans and leases                                             (19,725,198)        (37,078,861)
Purchase of loans                                                                     --          (3,472,995)
Proceeds from the sale of repossessed assets                                          --              15,160
Purchase of premises and equipment                                              (858,989)         (1,425,902)
Proceeds from sale bank premises and equipment                                        --                 100
Purchases of bank owned life insurance                                                --             (24,750)
                                                                            ------------        ------------

       Net cash provided by (used in) investing activities                     2,331,611         (38,925,175)
                                                                            ------------        ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in savings, money market and
  demand deposits                                                             13,255,898          (2,045,201)
Net (decrease) increase in certificates of deposit                           (20,191,388)         52,370,253
Proceeds from Federal Home Loan Bank advances                                 90,000,000          24,000,000
Repayments on Federal Home Loan Bank advances                                (86,500,000)        (14,500,000)
Net decrease in Federal Home Loan Bank overnight borrowings                     (464,000)        (13,166,000)
Net decrease in repurchase agreements with financial institutions            (18,650,000)         (6,500,000)
Net decrease in repurchase agreements with customers                          (2,783,240)         (1,263,593)
Principal repayments on capital lease obligation                                 (12,722)                 --
Proceeds from the exercise of stock options                                       44,107             138,197
Proceeds from issuance of subordinated debt                                           --           3,093,000
Dividends paid on common stock                                                (1,014,632)           (961,901)
Tax benefit of stock options exercised                                            20,498                  --
                                                                            ------------        ------------

       Net cash (used in) provided by financing activities                   (26,295,479)         41,164,755
                                                                            ------------        ------------

       Net decrease in cash and cash equivalents                             (21,368,291)         (1,110,044)
CASH AND CASH EQUIVALENTS, at beginning of period                             29,197,637          18,711,537
                                                                            ------------        ------------

CASH AND CASH EQUIVALENTS, at end of period                                 $  7,829,346        $ 17,601,493
                                                                            ============        ============
SUPPLEMENTAL INFORMATION Cash paid during the period for:
       Interest on deposits and borrowings                                  $ 11,201,056        $  9,121,761
                                                                            ============        ============
       Income taxes                                                         $        500        $    900,400
                                                                            ============        ============
Non-cash investing and financing activities:
       Accrued dividends declared                                           $    338,902        $    321,268
                                                                            ============        ============
       Treasury stock contributed to the ESOP                               $         --        $     67,592
                                                                            ============        ============
       Transfer of loans to repossessed assets                              $     82,017        $     19,160
                                                                            ============        ============
</TABLE>

See Notes to Consolidated Financial Statements.


                                       6
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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

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

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

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

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

<TABLE>
<CAPTION>

                                                           Three Months Ended
                                                           September 30, 2007
                                                  -----------------------------------
                                                   Net                        Per Share
                                                  Income          Shares       Amount
                                                  ------          ------       ------
<S>                                             <C>             <C>             <C>
Basic Net Income Per Share
  Income available to common shareholders       $ 677,836       2,259,021       $ .30
                                                                                =====

Effect of Dilutive Securities
  Options Outstanding                                  --           2,253

Diluted Net Income Per Share
  Income available to common shareholders       ---------       ---------
  plus assumed conversions                      $ 677,836       2,261,274       $ .30
                                                =========       =========       =====
</TABLE>

<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                           September 30, 2006
                                                  -----------------------------------
                                                   Net                        Per Share
                                                  Income          Shares       Amount
                                                  ------          ------       ------
<S>                                             <C>             <C>             <C>
Basic Net Income Per Share
  Income available to common shareholders       $ 500,398       2,250,099       $ .22
                                                                                =====

Effect of Dilutive Securities
  Options Outstanding                                  --          10,189

Diluted Net Income Per Share
  Income available to common shareholders       ---------       ---------
  plus assumed conversions                      $ 500,398       2,260,288       $ .22
                                                =========       =========       =====
</TABLE>


                                       7
<PAGE>


<TABLE>
<CAPTION>
                                                            Nine Months Ended
                                                            September 30, 2007
                                                  -------------------------------------
                                                    Net                         Per Share
                                                  Income           Shares        Amount
                                                  ------           ------        ------
<S>                                             <C>               <C>             <C>
Basic Net Income Per Share
  Income available to common shareholders       $1,662,496        2,257,633       $ .74
                                                                                  =====
Effect of Dilutive Securities
  Options Outstanding                                   --            3,574

Diluted Net Income Per Share
  Income available to common shareholders       ----------       ----------
  plus assumed conversions                      $1,662,496        2,261,207       $ .74
                                                ==========       ==========       =====
</TABLE>

<TABLE>
<CAPTION>
                                                           Nine Months Ended
                                                           September 30, 2006
                                                  -------------------------------------
                                                   Net                          Per Share
                                                  Income           Shares        Amount
                                                  ------           ------        ------
<S>                                             <C>               <C>             <C>

Basic Net Income Per Share
  Income available to common shareholders       $1,599,201        2,246,049       $ .71
                                                                                  =====

Effect of Dilutive Securities
  Options Outstanding                                   --           11,524

Diluted Net Income Per Share
  Income available to common shareholders       ----------       ----------
  plus assumed conversions                      $1,599,201        2,257,573       $ .71
                                                ==========       ==========       =====
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                            Three Months Ended
                                                                                            September 30, 2007
                                                                              -------------------------------------------------
                                                                               Before-Tax           Tax              Net-of-Tax
                                                                                 Amount            Effect              Amount
                                                                              -----------        -----------        -----------
<S>                                                                           <C>                <C>                <C>
Unrealized holding gains arising during the period                            $ 1,907,394        $  (648,514)       $ 1,258,880
Add:  reclassification adjustment for amounts recognized in net income            (33,982)            11,554            (22,428)
                                                                              -----------        -----------        -----------

Unrealized holding gains on available for sale securities, net of taxes       $ 1,873,412        $  (636,960)       $ 1,236,452
                                                                              ===========        ===========        ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                           Three Months Ended
                                                                                           September 30, 2006
                                                                              ------------------------------------------------
                                                                              Before-Tax            Tax             Net-of-Tax
                                                                                Amount             Effect             Amount
                                                                              -----------       -----------        -----------
<S>                                                                           <C>               <C>                <C>
Unrealized holding gains arising during the period                            $ 3,844,625       $(1,301,177)       $ 2,537,453
Add:  reclassification adjustment for amounts recognized in net income                 --                --                 --
                                                                              -----------       -----------        -----------

Unrealized holding gains on available for sale securities, net of taxes       $ 3,844,625       $(1,301,177)       $ 2,537,453
                                                                              ===========       ===========        ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                           Nine Months Ended
                                                                                           September 30, 2007
                                                                              -------------------------------------------
                                                                              Before-Tax         Tax           Net-of-Tax
                                                                                Amount          Effect            Amount
                                                                              ---------        ---------        ---------
<S>                                                                           <C>              <C>              <C>
Unrealized holding gains arising during the period                            $ 685,190        $(232,965)       $ 452,225
Add:  reclassification adjustment for amounts recognized in net income          (19,632)           6,675          (12,957)
                                                                              ---------        ---------        ---------

Unrealized holding gains on available for sale securities, net of taxes       $ 665,558        $(226,290)       $ 439,268
                                                                              =========        =========        =========
</TABLE>



                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                                          Nine Months Ended
                                                                                          September 30, 2006
                                                                              ------------------------------------------
                                                                             Before-Tax                        Net-of-Tax
                                                                               Amount           Taxes            Amount
                                                                              ---------       ---------        ---------
<S>                                                                           <C>             <C>              <C>
Unrealized holding gains arising during the period                            $ 364,673       $(123,989)       $ 240,684
Add: reclassification adjustment for amounts recognized in net income            17,633          (5,995)          11,638
                                                                              ---------       ---------        ---------

Unrealized holding gains on available for sale securities, net of taxes       $ 382,306       $(129,984)       $ 252,322
                                                                              =========       =========        =========
</TABLE>

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

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

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

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

     Components of net periodic benefit cost for the nine months ended September
     30:

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

     Service cost                          $      --        $      --
     Interest cost                           138,126          144,871
     Expected return on plan assets         (150,186)        (161,147)
     Amortization of unrealized loss          50,856           52,365
                                           ---------        ---------
     Net periodic benefit cost             $  38,796        $  36,089
                                           =========        =========

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



                                       9
<PAGE>

                                              As Reported         As Revised
                                              -----------        -----------

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

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

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

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

               Line of Credit          536,000 @ 5.59%
               due 7/18/08           4,500,000 @ 3.27%
               due 10/2/09           6,000,000 @ 4.50%
               due 6/24/10           5,000,000 @ 4.15%
               due 5/29/12           5,000,000 @ 4.32%
               due 9/04/12           5,000,000 @ 4.38%
               due 5/02/14           7,000,000 @ 4.59%, callable 5/2/10
               due 8/20/14           7,000,000 @ 4.99%, callable 8/20/09
               due 5/05/16          10,000,000 @ 4.53%, callable 11/7/07
               due 3/23/17          10,000,000 @ 4.29%, callable 3/23/09
               due 7/20/17          10,000,000 @ 4.29%, callable 1/22/08
                                  ------------
                     Total        $ 70,036,000
                                  ============

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

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


                                       10
<PAGE>


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

<TABLE>
<CAPTION>
                                                                     For the three months ended September 30,
                                                                      2007                               2006
                                                           --------------------------         --------------------------
<S>                                                        <C>                    <C>         <C>                    <C>
Provision for income taxes at statutory Federal rate       $ 288,051               34%        $ 196,177               34%
Increase (decrease) resulting from:
   Tax exempt income                                        (149,518)             (18)         (139,074)             (24)
   Nondeductible interest expense                             15,555                2            14,307                2
   Other                                                      15,285                2             5,184                1
                                                           ---------        ---------         ---------        ---------
Provision for income taxes                                 $ 169,373               20%        $  76,594               13%
                                                           =========        =========         =========        =========
</TABLE>

<TABLE>
<CAPTION>
                                                                     For the nine months ended September 30,
                                                                     2007                                2006
                                                           --------------------------         --------------------------
<S>                                                        <C>                    <C>         <C>                    <C>
Provision for income taxes at statutory Federal rate       $ 658,853               34%        $ 619,141               34%
Increase (decrease) resulting from:
   Tax exempt income                                        (444,728)             (23)         (453,763)             (25)
   Nondeductible interest expense                             45,370                2            40,532                2
   Other                                                      15,812                1            15,893                1
                                                           ---------        ---------         ---------        ---------
Provision for income taxes                                 $ 275,307               14%        $ 221,803               12%
                                                           =========        =========         =========        =========
</TABLE>

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

AVAILABLE FOR SALE

<TABLE>
<CAPTION>
                                                                     September 30, 2007
                                           -----------------------------------------------------------------------
                                                                 Gross               Gross
                                             Amortized        Unrealized           Unrealized             Fair
                                               Cost              Gains               Losses               Value
                                           ------------       ------------        ------------        ------------
<S>                                        <C>                <C>                 <C>                 <C>
Debt Securities:
   U.S. Treasury securities                $  4,008,155       $     31,112        $     (2,236)       $  4,037,031
   U.S. Government Agency securities         30,992,581                  -            (693,023)         30,299,558
   State and Municipal Obligations           31,190,475            254,513            (118,396)         31,326,592
   Corporate and Other Bonds                  3,000,000                  -             (15,000)          2,985,000
                                           ------------       ------------        ------------        ------------
                                             69,191,211            285,625            (828,655)         68,648,181
                                           ------------       ------------        ------------        ------------

Mortgage-Backed Securities:
   GNMA                                         749,756                301             (15,325)            734,732
   FNMA                                      41,915,644             48,985          (1,455,307)         40,509,322
   FHLMC                                     12,826,841             17,573            (442,896)         12,401,518
                                           ------------       ------------        ------------        ------------
                                             55,492,241             66,859          (1,913,528)         53,645,572
                                           ------------       ------------        ------------        ------------

Marketable Equity Securities                  3,000,000                  -             (59,757)          2,940,243
                                           ------------       ------------        ------------        ------------

Total available for sale securities        $127,683,452       $    352,484        $ (2,801,940)       $125,233,996
                                           ============       ============        ============        ============
</TABLE>


                                       11
<PAGE>


AVAILABLE FOR SALE

<TABLE>
<CAPTION>
                                                                      December 31, 2006
                                           -----------------------------------------------------------------------
                                                                 Gross               Gross
                                             Amortized         Unrealized         Unrealized             Fair
                                               Cost              Gains              Losses               Value
                                           ------------       ------------        ------------        ------------
<S>                                        <C>              <C>                   <C>                 <C>
Debt Securities:
   U.S. Treasury securities                $  4,011,499     $            -        $    (19,624)       $  3,991,875
   U.S. Government Agency securities         38,991,992                  -          (1,190,389)         37,801,603
   State and Municipal obligations           31,193,318            381,930             (43,720)         31,531,528
   Corporate and Other bonds                 11,274,073             67,326             (14,649)         11,326,750
                                           ------------       ------------        ------------        ------------

                                             85,470,882            449,256          (1,268,382)         84,651,756
                                           ------------       ------------        ------------        ------------
   Mortgage-Backed Securities:
   GNMA                                       1,060,592                  -             (18,763)          1,041,829
   FNMA                                      47,084,763             78,779          (1,790,692)         45,372,850
   FHLMC                                     15,279,052             33,758            (546,682)         14,766,128
                                           ------------       ------------        ------------        ------------
                                             63,424,407            112,537          (2,356,137)         61,180,807
                                           ------------       ------------        ------------        ------------

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

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

HELD TO MATURITY

<TABLE>
<CAPTION>
                                                     September 30, 2007
                                  --------------------------------------------------------
                                                   Gross            Gross
                                 Amortized       Unrealized       Unrealized        Fair
                                   Cost            Gains            Losses          Value
                                  -------       ------------        -------        -------
<S>                               <C>           <C>                 <C>            <C>
Mortgage-Backed Securities:
GNMA                              $35,531       $           -       $  (449)       $35,082
                                  =======       =============       =======        =======
</TABLE>

HELD TO MATURITY

<TABLE>
<CAPTION>
                                                       December 31, 2006
                                  --------------------------------------------------------
                                                   Gross             Gross
                                 Amortized       Unrealized        Unrealized        Fair
                                   Cost            Gains             Losses          Value
                                  -------       ------------        -------        -------
<S>                               <C>           <C>                 <C>            <C>
Mortgage-Backed Securities:
GNMA                              $40,516       $           -       $  (542)       $39,974
                                  =======       =============       =======        =======
</TABLE>

     At September 30, 2007, gross unrealized holding losses on available for
     sale and held to maturity securities totaled $2,802,389. Of the securities
     with unrealized losses, there were forty-two securities that have been in a
     continuous unrealized loss position for a period of twelve months or more.
     The unrealized losses on these securities totaled $2,646,121 at September
     30, 2007. Management does not believe that any of the unrealized losses are
     other than temporary as they relate primarily to debt and mortgage-backed
     securities issued by U.S. Government and U.S. Government sponsored
     agencies, and are due to changes in the interest rate environment. The
     Company has both the intent and the ability to hold these securities until
     maturity or until the fair value fully recovers. In addition, Management
     considers the issuers of the securities to be financially sound and that
     the Company will receive all contractual principal and interest related to
     these investments. As a result, it is anticipated that these unrealized
     losses will not have a negative impact on future earnings or a permanent
     effect on capital. However, Management periodically evaluates investment
     alternatives to properly manage the overall balance sheet. The timing of
     sales and reinvestments is based on various factors, including Management's
     evaluation of interest rate risks and liquidity needs.


                                       12
<PAGE>


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

<TABLE>
<CAPTION>
                                                    2007                 2006
                                              -------------        -------------
<S>                                           <C>                  <C>
Real estate--residential mortgage             $ 186,140,491        $ 177,082,143
Real estate--commercial mortgage                 51,242,475           53,318,351
Real estate--construction                        32,253,853           30,605,787
Commercial                                       29,621,375           26,949,985
Leases                                            9,164,280                    -
Installment                                       6,505,785            7,167,980
Other                                                60,963              171,752
                                              -------------        -------------
                 TOTAL LOANS AND LEASES         314,989,222          295,295,998
Net deferred loan origination costs                 404,958              375,177
Premiums on purchased loans                         190,514              334,950
Allowance for loan and lease losses              (2,116,707)          (2,106,100)
                                              -------------        -------------
                 NET LOANS AND LEASES         $ 313,467,987        $ 293,900,025
                                              =============        =============
</TABLE>

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

<TABLE>
<CAPTION>
                                                           2007                2006
                                                       ------------       ------------
<S>                                                    <C>                <C>
Noninterest bearing:
    Demand                                             $ 66,107,646       $ 68,501,750
                                                       ------------       ------------
Interest bearing:
    Savings                                              58,006,287         45,304,667
    Money market                                         74,028,317         71,079,935
    Time certificates of deposit in
      denominations of $100,000 or more                  50,028,696         72,781,087
    Other time certificates of deposit                   78,322,438         75,761,435
                                                       ------------       ------------
         Total Interest bearing deposits                260,385,738        264,927,124
                                                       ------------       ------------
                                  TOTAL DEPOSITS       $326,493,384       $333,428,874
                                                       ============       ============
</TABLE>

     Included in deposits as of September 30, 2007 and December 31, 2006 are
     approximately $2,721,000 and $25,323,000, respectively, of brokered
     deposits which have varying maturities through September 2008.

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

<TABLE>
<CAPTION>
                                                                           Three Months Ended
                                                                           September 30, 2007
                                                            -------------------------------------------------
                                                             Community                            Consolidated
                                                              Banking            Leasing             Total
                                                            -----------        -----------        -----------
<S>                                                         <C>                <C>                <C>
Net interest income                                         $ 3,259,082        $    78,512        $ 3,337,594
Provision for credit losses                                     (18,203)            18,203                 --
                                                            -----------        -----------        -----------

Net interest income after provision for credit losses         3,277,285             60,309          3,337,594
Noninterest income                                              890,301                  -            890,301
Noninterest expense                                           3,306,044             74,642          3,380,686
                                                            -----------        -----------        -----------

Income (loss) before income taxes                               861,542            (14,333)           847,209
Income tax provision (benefit)                                  211,090            (41,717)           169,373
                                                            -----------        -----------        -----------

Net income                                                  $   650,452        $    27,384        $   677,836
                                                            ===========        ===========        ===========
</TABLE>


                                       13
<PAGE>

<TABLE>
<CAPTION>
                                                                            Nine Months Ended
                                                                           September 30, 2007
                                                            ---------------------------------------------------
                                                             Community                             Consolidated
                                                              Banking            Leasing               Total
                                                            ------------       ------------        ------------
<S>                                                         <C>                <C>                 <C>
Net interest income                                         $  9,663,820       $    157,001        $  9,820,821
Provision for credit losses                                       36,268             68,732             105,000
                                                            ------------       ------------        ------------
Net interest income after provision for credit losses          9,627,552             88,269           9,715,821
Noninterest income                                             2,511,672                  -           2,511,672
Noninterest expense                                           10,047,504            242,186          10,289,690
                                                            ------------       ------------        ------------

Income (loss) before income taxes                              2,091,720           (153,917)          1,937,803
Income tax provision (benefit)                                   364,911            (89,604)            275,307
                                                            ------------       ------------        ------------
Net income (loss)                                           $  1,726,809       $    (64,313)       $  1,662,496
                                                            ============       ============        ============

Total assets as of September 30, 2007                       $467,492,051       $  9,501,221        $476,993,272
                                                            ============       ============        ============
</TABLE>

12.  Recent Accounting Pronouncements

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

     In February 2007, the FASB issued SFAS No.159, THE FAIR VALUE OPTION FOR
     FINANCIAL ASSETS AND FINANCIAL LIABILITIES - INCLUDING AN AMENDMENT OF
     FASB STATEMENT NO. 155 (SFAS 159). SFAS 159 provides companies with an
     option to report selected financial assets and liabilities at fair value.
     SFAS 159 is effective for us beginning January 1, 2008. Management is
     evaluating the impact of the adoption of SFAS 159 on the Company's
     financial position and results of operations.

     In September 2006, the FASB issued SFAS No.158, EMPLOYERS' ACCOUNTING FOR
     DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS - AN AMENDMENT OF
     FASB STATEMENTS NO. 87, 88, 106 AND 132(R) (SFAS 158). SFAS 158 requires an
     employer to recognize the overfunded or underfunded status of a defined
     benefit postretirement plan as an asset or a liability in its balance sheet
     and to recognize changes in that funded status in the year in which the
     changes occur through accumulated other comprehensive income. The Company
     adopted the recognition provisions of this standard effective December 31,
     2006. SFAS 158 also requires an employer to measure the funded status of a
     plan as of the employer's year-end reporting date. The Company's
     non-contributory pension plan was frozen in May of 2005. The measurement
     date provisions of SFAS 158 are effective for the Company for the year
     ending December 31, 2008. Management does not expect the adoption of the
     measurement date provisions of SFAS 158 to have a material impact on the
     Company's financial position or results of operations.

     In June 2006, the FASB issued FASB Interpretation (FIN) No. 48, ACCOUNTING
     FOR UNCERTAINTY IN INCOME TAXES - AN INTERPRETATION OF FASB STATEMENT NO.
     109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income
     taxes recognized in an entity's financial statements and provides

                                       14
<PAGE>

     guidance on the recognition, de-recognition and measurement of benefits
     related to an entity's uncertain income tax positions. The Company adopted
     FIN 48 effective January 1, 2007; prior to that date, the Company
     recognized liabilities for uncertain tax positions when disallowance was
     probable and the related amount was estimable. The adoption of FIN 48 had
     no impact to the Company's financial statements. If such amounts are
     recorded in future periods, the Company will present any related interest
     and penalties as part of the provision for income taxes.

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

GENERAL

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

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

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

As of September 30, 2007, the Company had total assets of $476,993,272, which
was a decrease of approximately $24.2 million or 4.8% from year-end 2006 total
assets of $501,232,357. The decrease in assets resulted mainly from decreases in
cash and due from banks and decreases within the securities


                                       15
<PAGE>

portfolio. The decrease in assets enabled the Company to decrease its level of
wholesale funding throughout the first nine months of the year.

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

FINANCIAL CONDITION

Total assets as of September 30, 2007 were $476,993,272, a decrease of
$24,239,085 or 4.8% from year-end 2006 total assets of $501,232,357.

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

Consistent with Management's intent to improve the yield on earning assets by
shifting the mix of earning assets from the securities portfolio into the higher
yielding loan and lease portfolio, net loans and leases increased $19,567,962
over the year-end 2006 amount. Net loans and leases as of September 30, 2007
were $313,467,987, as compared to the year-end 2006 level of $293,900,025.
Growth during the first nine months of 2007 was primarily in residential
mortgage loans and in leases. The residential mortgage loan portfolio totaled
$186,140,491, which was an increase of $9,058,348 from year-end 2006. Growth in
these mortgage products was primarily in fixed rate loans. Commercial mortgage
loans totaled $51,242,475, a decrease of 3.9% over their year-end balance and
were 16.3% of total loans. During 2007, the Bank added a new product, leases, to
the loan portfolio. First Litchfield Leasing Corporation, a newly operational
subsidiary of the Bank, offers equipment financing opportunities through middle
market equipment leasing, in amounts ranging from $150,000 to $1,500,000.
Management believes the addition of the leasing products complements the Bank's
commercial lending product line. Lease receivables were $9,164,280 at September
30, 2007.

As of September 30, 2007, the securities portfolio totaled $125,269,527, which
is a 15.3% decrease from the year-end 2006 balance. The decrease in the
portfolio resulted from sales of securities during the first quarter of 2007 as
well as from principal payments received on mortgage-backed securities. In an
effort to reposition the Company's balance sheet in order to maximize earning
asset yield, Management has utilized the cash flows from these payments to fund
loan growth.

Cash and cash equivalents totaled $7,829,346, which is a decrease of
$21,368,291, or 73.2% from year-end 2006. This decrease was due to funds
temporarily invested in interest bearing correspondent bank balances at year-end
as a result of the balance sheet restructuring in December of 2006. As of
September 30, 2007 and December 31, 2006, there were no investments in Federal
Funds Sold.

Total liabilities were $449,587,042 as of September 30, 2007, which was a
decrease of $25,389,121 from total liabilities of $474,976,163 as of year-end
2006. Total deposits decreased by $6,935,490, or 2.1% from their year-end
levels. There were no brokered certificates of deposit with financial
institutions outstanding as of September 30, 2007, which was a decrease from the
December 31, 2006 level of $22,500,000. With the exception of time certificates
of deposit, all interest bearing categories of retail deposits increased over
their respective year-end levels. This increase is attributed to the Bank's


                                       16
<PAGE>

expansion due to its new branches opened during 2006 as well as to an increasing
emphasis on commercial and small business accounts. Demand deposits as of
September 30, 2007 totaled $66,107,646 which was a decrease of $2,394,104, or
3.5%. Savings deposits increased $12,701,620, due to higher municipal NOW
deposits and increased Health Savings accounts. Money market deposits increased
by $2,948,382, or 4.1%, due to growth in the relationship money market deposit
product and higher balances in deposits held for the Bank's trust customers.

As of September 30, 2007, repurchase agreements with customers totaled
$9,422,783, which was a decrease of $2,783,240 from the year-end 2006 balance.
Because these accounts represent overnight investments by commercial and
municipal cash management customers, fluctuations in the balances of these
accounts are reflective of the temporary nature of these funds. During the first
nine months of 2007, advances under Federal Home Loan Bank borrowings increased
by $3,036,000 while repurchase agreements with financial institutions decreased
by $18,650,000. The de-leveraging strategy, deposit growth and the decrease in
the investment portfolio, enabled the Company to reduce the net wholesale
borrowing level by $15,614,000 and overall wholesale funding, including brokered
certificate of deposit with financial institutions, by $22,500,000. Management
considers interest rate levels, the yield curve and the Company's current and
future liquidity needs in determining the funding structures utilized by the
Bank.

RESULTS OF OPERATIONS

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

Summary

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

Net income for the third calendar quarter of 2007 totaled $677,836, which is an
increase of $177,438 or 35.5% from third quarter 2006 earnings of $500,398.
Quarterly basic and diluted net income per share for the third quarter of 2007
were both $.30 per share, compared to $.22 per basic and diluted share for the
same period in 2006.

Net Interest Income

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

<TABLE>
<CAPTION>
                                                    2007                2006
                                                 -----------        -----------
<S>                                              <C>                <C>
Interest and dividend income                     $ 7,082,115        $ 6,775,724
Tax-equivalent adjustments                           152,617            153,926
Interest expense                                  (3,744,521)        (3,598,745)
                                                 -----------        -----------

Net interest income (tax equivalent basis)       $ 3,490,211        $ 3,330,905
                                                 ===========        ===========
</TABLE>


                                       17
<PAGE>


The following table presents the Company's average balance sheets (computed on a
daily basis), net interest income, and interest rates for the three months ended
September 30, 2007 and 2006. Average loans outstanding include nonaccruing
loans. Interest income is presented on a tax-equivalent basis which reflects a
federal tax rate of 34% for all periods presented.

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

<TABLE>
<CAPTION>
                                            Three Months Ended September 30, 2007       Three Months Ended September 30, 2006
                                            -----------------------------------         ---------------------------------------
                                                             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                         $ 311,290,000      $5,311,346     6.82%     $ 277,853,000      $4,593,675             6.61%
Investment securities                      135,343,000       1,755,324     5.19%       190,844,000       2,309,959             4.84%
Other interest earning assets               15,006,000         168,062     4.48%         2,957,000          26,016             3.52%
                                         -------------      ----------               -------------      ----------

Total interest earning assets              461,639,000       7,234,732     6.27%       471,654,000       6,929,650             5.88%
                                                            ----------     ----                         ----------     ------------
Allowance for loan  and
  lease losses                              (2,125,000)                                 (1,977,000)
Cash and due from banks                     11,650,000                                  16,955,000
Bank premises and equipment                  7,867,000                                   5,129,000
Net unrealized loss on
  securities                                (3,721,000)                                 (6,261,000)
Other assets                                17,878,000                                  17,716,000
                                         -------------                               -------------

Total Average Assets                     $ 493,188,000                               $ 503,216,000
                                         =============                               =============

Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
Savings deposits                         $  60,801,000         237,267     1.56%     $  55,708,000         167,442             1.20%
Money Market deposits                       79,767,000         627,841     3.15%        77,004,000         633,707             3.29%
Time deposits                              133,759,000       1,529,945     4.58%       124,308,000       1,194,002             3.84%
Borrowed funds                             119,082,000       1,349,468     4.53%       154,159,000       1,603,594             4.16%
                                         -------------      ----------               -------------      ----------

Total interest bearing liabilities         393,409,000       3,744,521     3.81%       411,179,000       3,598,745             3.50%
                                                            ----------     ----                         ----------     ------------

Demand deposits                             68,565,000                                  65,267,000
Other liabilities                            4,844,000                                   1,488,000
Shareholders' Equity                        26,370,000                                  25,282,000
                                         -------------                               -------------

Total liabilities and equity             $ 493,188,000                               $ 503,216,000
                                         =============                               =============

Net interest income                                         $3,490,211                                  $3,330,905
                                                            ==========                                  ==========
Net interest spread                                                        2.46%                                               2.38%
Net interest margin                                                        3.02%                                               2.82%
</TABLE>

RATE/VOLUME ANALYSIS

<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                     9/30/07 Compared to 9/30/06
                                                     Increase (Decrease) Due to
                                               ---------------------------------------
                                                 Volume         Rate            Total
                                               ---------      ---------      ---------
<S>                                            <C>            <C>            <C>
Interest earned on
Loans and leases                               $ 566,792      $ 150,879      $ 717,671
Investment securities                           (710,337)       155,702       (554,635)
Other interest income                            133,128          8,918        142,046
                                               ---------      ---------      ---------
Total interest earning assets                    (10,417)       315,499        305,082
                                               ---------      ---------      ---------

Interest paid on:

Deposits                                         140,222        259,680        399,902
Borrowed funds                                  (388,299)       134,174       (254,126)
                                               ---------      ---------      ---------
Total interest bearing liabilities              (248,077)       393,854        145,776
                                               ---------      ---------      ---------

Increase (decrease) in net interest income     $ 237,660      $ (78,355)     $ 159,306
                                               =========      =========      =========
</TABLE>


                                       18
<PAGE>


Tax-equivalent net interest income for the third quarter of 2007 increased
$159,306 or 4.8% from the third quarter of 2006. Of the increase in the net
interest income, $237,660 was due mainly to income attributable to the decreased
volume on earning assets and associated interest bearing liabilities. During the
period increases in loans were funded through cash flows from the investment
portfolio. These cash flows not only allowed the growth of the loan portfolio
but enabled Management to decrease borrowed funds. The decrease in overall
funding liabilities contributed $248,077 to net interest income. This increase
was offset somewhat by the overall increase in the cost of funds.

Average earning assets for the third quarter of 2007 totaled $462 million, an
overall decrease of $10 million from the third quarter of 2006. Average loans
and leases increased by $33 million or 12%. The increase in earning assets
resulted in additional tax equivalent interest income of $305,082. The funding
of this growth was through deposits and cash flows from the investment
portfolio. This funding also enabled the decrease in borrowed money and which
offset the increase in interest expense caused by increased funding costs.

The net interest margin for the third quarter of 2007 was 3.02%, an increase of
20 basis points from the third quarter of 2006. Demand deposits totaled 17.4% of
deposits and borrowed money funding for the third quarter of 2007 as compared to
15.9% for same quarter in 2006. The net interest spread for the third quarter of
2007 increased from 2.38% to 2.46% from the third quarter of 2006 reflecting
that the yield on earning assets increased at a faster rate than the cost of
funds. Funding costs totaled 3.81% for the third quarter of 2007, an increase of
31 basis points compared to funding costs of 3.5% for the third quarter of 2006.
In comparison, the yield on earning assets for the third quarter of 2007 totaled
6.27%, which was an increase of 39 basis points over the earning asset yield for
the third quarter of 2006. The flattened yield curve experienced over the last
two years continues to challenge the efforts to improve return on earning asset
growth, however the Company's ability to shift earning assets from lower
yielding securities to higher yielding loans as well as to pay off high cost
wholesale funding has improved the net interest margin.

Provisions for Loan and Lease Losses

No provision for loan and lease losses was warranted for the third quarter of
2007. The provision for loan and lease losses is determined quarterly and
assessed along with the adequacy of the loan and lease loss allowance.
Specifically, this decision was based on the current review of the portfolio and
its underlying collateral, as well as current market and economic conditions.
(See page 25 for a discussion of the Allowance for Loan and Lease Losses.)

During the third quarter of 2007, the Company recorded net charge-offs of $6,313
compared to net charge-offs of $46,815 for the same period in 2006. The decrease
in charge-offs from the prior year, is not considered by Management to be
indicative of any trend. The decrease in charge-off activity is primarily
associated with timing of charge-offs associated with consumer automobile loans
purchased during 2006.

Noninterest Income

Noninterest income for the third quarter of 2007 totaled $890,301, an increase
of $154,537, or 21.0% from the $735,764 earned for the third quarter of 2006,
due to increases in trust income and banking service charges and fees. Banking
service charges and fees for the third quarter of 2007 totaled $337,469, an
increase of $3,778, or 1.1% from fees earned for the third quarter of 2006. This
increase was due to increased fees from deposit overdrafts and uncollected
funds, interchange fees and non-customer ATM fees. Trust fees totaled $350,071,
which was $76,127, or 27.8% above the third quarter 2006 level. The increase in
trust fees is due to higher levels of asset management fees. Other noninterest


                                       19
<PAGE>

income totaled $168,779, an increase of $40,650 or 31.7% from the third quarter
of 2006. The additional income is primarily the result of increased income from
the increases in the cash surrender value of bank owned life insurance. Sales of
available for sale securities during the third quarter of 2007 were effectuated
for the purpose of increasing future income on the portfolio as well as
decreasing the interest rate risk. These sales resulted in a gain of $33,982 for
the quarter. There was no similar transaction for the third quarter of 2006.

Noninterest Expense

For the three months ended September 30, 2007, noninterest expense totaled
$3,380,686, an increase of $149,935, or 4.6% from the similar period in 2006.
Much of this increase is related to the increase in salaries. Salaries and
benefits expense increased by $166,155, due mostly to staffing for the branch
facilities opened during 2006, as well as key management personnel added during
the last year. Occupancy and equipment costs reflect increases due to the new
branch facilities. Offsetting the increased salaries, benefits and occupancy
costs were decreases in the cost of computer services, advertising and legal
fees from the prior year. Computer services expense totaled $211,226, which was
a decrease of $30,699, or 12.7% from third quarter 2006 expenses. This decrease
was the result of the Bank's change in core processor providers made early in
2007. Advertising expense totaled $98,540, which was a $64,942, or 39.7%
decrease from the third quarter of 2006. Costs related to the previous year's
branch opening and deposit promotions are reflected in higher 2006 costs. Legal
fees for the third quarter of 2007 totaled $24,128, which was a decrease of
$24,199 from the third quarter of 2006. Commissions, services and fees expenses
totaled $88,120 which is a decrease of $22,691, or 20.5% from the third quarter
of 2006. Other noninterest expense totaled $497,011 for the quarter, which was
$69,968, or 16.4% above 2006 costs. The majority of the increase is a result of
increases in general insurance, contributions, telephone and software expenses.

Income Taxes

For the three month period ended September 30, 2007, the provision for income
taxes totaled $169,373, which is an increase of 121.1% from the same period in
2006. This increase is due to the level of pretax income which was up by 46.8%
from the third quarter of 2006. The effective tax rate for the third quarter of
2007 was 20%, as compared to the third quarter 2006 effective tax rate of 13%.

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 2006

Summary

Net income for the Company for the nine months ended September 30, 2007 totaled
$1,662,496, increasing $63,295, or 4.0% from 2006 earnings of $1,599,201. Basic
and diluted net income per share for the nine month period ended September 30,
2007 were $0.74 per share, compared to $0.71 for basic and diluted net income
per share for the nine month period ended September 30, 2006.


                                       20
<PAGE>


Net Interest Income

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

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

Interest and dividend income                   $ 20,926,803      $ 18,837,852
Tax-equivalent adjustments                          457,927           494,956
Interest expense                                (11,105,982)       (9,199,052)
                                               ------------      ------------

Net interest income (tax equivalent basis)     $ 10,278,748      $ 10,133,756
                                               ============      ============

The following table presents the Company's average balance sheets (computed on a
daily basis), net interest income, and interest rates for the nine months ended
September 30, 2007 and 2006. Average loans outstanding include nonaccruing
loans. Interest income is presented on a tax-equivalent basis which reflects a
federal tax rate of 34% for all periods presented.

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

<TABLE>
<CAPTION>
                                           Nine Months Ended September 30, 2007          Nine Months Ended September 30, 2006
                                         ----------------------------------------      ---------------------------------------
                                                             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                         $ 305,842,000      $15,477,967     6.75%     $ 259,127,000      $ 12,500,751     6.43%
Investment Securities                      145,397,000        5,539,252     5.08%       190,902,000         6,794,166     4.75%
Other interest earning assets               10,096,000          367,511     4.85%         1,767,000            37,891     2.86%
                                         -------------      -----------               -------------      ------------

Total interest earning assets              461,335,000       21,384,730     6.18%       451,796,000        19,332,808     5.71%
                                                            -----------     ----                         ------------     ----

Allowance for loan and
  lease losses                              (2,131,000)                                  (1,895,000)
Cash and due from banks                     13,464,000                                   15,015,000
Bank premises and equipment                  7,655,000                                    4,765,000
Net unrealized loss on
  securities                                (3,129,000)                                  (5,721,000)
Other assets                                17,350,000                                   16,998,000
                                         -------------                                -------------

Total Average Assets                     $ 494,544,000                                $ 480,958,000
                                         =============                                =============

Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
Savings deposits                         $  55,325,000          567,347     1.37%     $  49,338,000           217,078     0.59%
Money Market deposits                       75,971,000        1,677,674     2.94%        75,070,000         1,295,217     2.30%
Time deposits                              139,763,000        4,825,888     4.60%       107,322,000         2,933,767     3.64%
Borrowed funds                             123,518,000        4,035,073     4.36%       157,961,000         4,752,990     4.01%
                                         -------------      -----------               -------------      ------------

Total interest bearing liabilities         394,577,000       11,105,982     3.75%       389,691,000         9,199,052     3.15%
                                                            -----------     ----                         ------------     ----

Demand deposits                             68,661,000                                   64,073,000
Other liabilities                            4,672,000                                    1,756,000
Shareholders' Equity                        26,634,000                                   25,438,000
                                         -------------                                -------------

Total liabilities and equity             $ 494,544,000                                $ 480,958,000
                                         =============                                =============

Net interest income                                         $10,278,748                                  $ 10,133,756
                                                            ===========                                  ============
Net interest spread                                                         2.43%                                         2.56%
Net interest margin                                                         2.97%                                         2.99%
</TABLE>


                                       21
<PAGE>

RATE/VOLUME ANALYSIS

<TABLE>
<CAPTION>
                                                          Nine Months Ended
                                                       9/30/07 Compared to 9/30/06
                                                       Increase (Decrease) Due to
                                              ---------------------------------------------
                                                Volume            Rate             Total
                                              -----------      -----------      -----------
<S>                                           <C>              <C>              <C>
Interest earned on:
Loans and leases                              $ 2,340,503      $   636,713      $ 2,977,216
Investment securities                          (1,707,590)         452,676       (1,254,914)
Other interest income                             287,128           42,492          329,620
                                              -----------      -----------      -----------
Total interest earning assets                     920,041        1,131,881        2,051,922
                                              -----------      -----------      -----------

Interest paid on:
Deposits                                          841,587        1,783,260        2,624,847
Borrowed money                                 (1,100,128)         382,211         (717,917)
                                              -----------      -----------      -----------
Total interest bearing liabilities               (258,541)       2,165,471        1,906,930
                                              -----------      -----------      -----------

Increase (decrease)in net interest income     $ 1,178,582      $(1,033,590)     $   144,992
                                              ===========      ===========      ===========
</TABLE>

Tax equivalent net interest income for the first nine months of 2007 totaled
$10,278,748, which was an increase of $144,992 or 1.4% from the same period in
2006. Changes in the volume of earning assets and interest bearing liabilities
contributed $1,178,582 in increased net interest income, while changes in rates
resulted in a net decrease of $1,033,590 in net interest income.

Average earning assets for the first nine months of 2007 increased by $10
million, or 2.1%. Earning asset growth was in the loan and lease portfolio which
increased by $47 million or 18.0% over the previous year. The increase in
earning assets was funded by deposit growth and cash flow reinvestment from the
investment portfolio.

The increase in net interest income is reflective of the more profitable
realignment of earning assets and the subsequent reduction of wholesale funding.
This increase is offset however by the erosion of the net interest margin. The
net interest margin (net interest income divided by average earning assets) was
2.97% for the nine-month period ended September 30, 2007. The net interest
margin decreased 2 basis points from the margin of 2.99% for the nine months
ended September 30, 2006. The continuation of the flat and inverted yield curve
is the cause of the decline in net interest margin. Over the past year, funding
costs have increased 60 basis points, from 3.15% to 3.75%. However, the
tax-equivalent yield on earning assets has only increased 47 basis points for
the same period. It is anticipated that continued emphasis on deposit growth and
cost efficient funding should help to protect earnings from further margin
erosion.

Provisions for Loan and Lease Losses

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


                                       22
<PAGE>

During the first nine months of 2007, the Company recorded net charge-offs of
$94,393 compared to net recoveries of $46,449 for the nine months of 2006. The
net charge-offs for 2007 relate mostly to losses from a pool of sub-prime
consumer automobile loans which the Company purchased in 2006.

Noninterest Income

Year to date noninterest income as of September 30, 2007 totaled $2,511,672, up
$403,936, or 19.2%, from noninterest income from the same period in 2006.
Banking service charges and fees totaled $984,135, increasing $92,021, or 10.3%,
from the previous year. The increase in service charge income is due to
increased fee income from deposit overdraft and uncollected fees, credit card
interchange income and non-customer ATM fees. Trust fee income totaled
$1,020,307 which represents an increase of $204,491, or 25.1%, from the first
nine months of 2006. This increase is due to fees from investment management
services. The Company's team of trust officers and investment professionals
offers an attractive array of investment management and wealth management
services for high net worth individuals. Other noninterest income totaled
$487,598 which is an increase of $70,159, or 16.8%, from the first nine months
of 2006. This increase is due mostly to increased income from revenue from the
Company's retail investment products. The Company recorded gains on the sales of
available for sale securities of $19,632 during the first nine months of 2007
and losses on the sales of available for sale securities of $17,633 during the
first nine months of 2006. These sales were made for the purpose of reducing
interest rate risk and positioning earning assets for future profitability.

Noninterest Expense

Nine-month noninterest expense as of September 30, 2007 totaled $10,289,690, and
represented an increase of $679,158, or 7.1%, from the same period of 2006.
Staffing, occupancy and equipment costs, particularly as they relate the three
new branches opened during 2006, contributed to these increases. Decreases in
advertising costs were reflective of 2006 branch promotions.

Other noninterest expenses totaled $1,340,318 which was a decrease of $39,150
from the first nine months of 2006. The majority of the decrease is a result of
lower 2007 costs for exam and audit fees as they relate to regulatory reporting
and the Company's plans for implementing Sarbanes Oxley initiatives. Also
contributing to the decrease were costs for computer software and technology
consulting which are anticipated to be reduced in 2007 due to the change in the
core processor.

Income Taxes

The provision for income taxes for the first nine months of 2007 totaled
$275,307, an increase of $53,504, or 24.1% from the same period in 2006. The
increase in income tax expense in the first nine months of 2007 is due to higher
taxable income levels due primarily to higher pretax earnings. The effective tax
rate for the first nine months of 2007 was 14%, compared to 12% for the first
nine months of 2006.

LIQUIDITY

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


                                       23
<PAGE>

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 September 30, 2007, the Company had $114,326,979 in loan and lease
commitments and credit lines outstanding. Because some commitments are expected
to expire without being drawn upon, the total commitment amount does not
necessarily represent all future cash requirements. The funding of these
commitments are anticipated to be met through deposits, loan and security
paydowns and maturities. Management believes liquidity is adequate to meet its
present and foreseeable needs.

CAPITAL

At September 30, 2007, total shareholders' equity was $27,356,230 compared to
$26,206,194 at December 31, 2006. From a regulatory perspective, the capital
ratios of the Company and the Bank place each entity in the "well-capitalized"
categories under applicable regulations. 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.
Pursuant to the repurchase program, on October 4, 2007, the Company purchased
8,263 shares of Company Common Stock at a price of $16.00 per share, for an
aggregate price of $132,208. The stock repurchase did not have a material effect
on the capital ratios of the Bank or the Company.

The various capital ratios of the Company and the Bank are as follows as of
September 30, 2007:

                                      Minimum
                                    Regulatory
                                   Capital Levels    The Company     The Bank
                                   --------------    -----------     --------

TIER 1:
  Leverage capital ratio                4%              8.01%          7.34%

  Risk-based capital ratio              4%             12.77%         11.71%

  Total risk-based capital ratio        8%             13.45%         12.40%

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


                                       24
<PAGE>

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 September 30, 2007. In addition, there were no material changes
in the estimation methods and assumptions used in the Company's allowance for
loan and lease losses calculation, and there were no material reallocations of
the allowance among different parts of the loan or lease portfolio.

At September 30, 2007, the allowance for loan and lease losses was equivalent to
114% of total non-performing assets as compared with 140% of total
non-performing assets at December 31, 2006. As of September 30, 2007,
non-performing assets were $1,858,313 and represented 0.59% of total loans and
leases. Similarly, as of December 31, 2006, non-performing assets totaled
$1,504,551 and represented 0.51% of total loans and leases. The ratio of the
allowance for such loan and lease losses to total loans and leases at September
30, 2007 and December 31, 2006 was 0.67% and 0.71%, respectively.

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

                                         For the nine months ended September 30,
                                                  2007             2006
                                              -----------      -----------


Balance at beginning of the year              $ 2,106,100      $ 1,759,611
Provision for loan and lease losses               105,000          315,000
Loans charged-off                                (107,087)         (67,339)
Recoveries of loans previously charged-off         12,694           20,890
                                              -----------      -----------

Balance at end of period                      $ 2,116,707      $ 2,028,162
                                              ===========      ===========


                                       25
<PAGE>

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

<TABLE>
<CAPTION>
                                                    September 30, 2007  December 31, 2006
                                                         ----------         ----------
<S>                                                      <C>                <C>
Nonaccrual loans and leases                              $1,858,313         $1,504,551

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

Total nonperforming assets                               $1,858,313         $1,504,551
                                                         ==========         ==========

Loans and leases past due in excess of 90 days and
  accruing interest                                      $   14,990         $      343
                                                         ==========         ==========
</TABLE>

POTENTIAL PROBLEM LOANS

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

OFF BALANCE SHEET ARRANGEMENTS

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

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

FORWARD-LOOKING STATEMENTS

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

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


                                       26
<PAGE>

to time in the Company's filings with the Securities and Exchange Commission.
Such developments could have an adverse impact on the Company and the Bank's
financial position and results of operation.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
report is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's Management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-15(e). In designing and evaluating the
disclosure controls and procedures, Management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and Management
necessarily was required to apply its judgment in evaluating the cost-benefit of
possible controls and procedures.

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

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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


                                       27
<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,
are shown below.

                      Issuer Purchases of Equity Securities
    --------------------------------------------------------------------
                                                 (c)               (d)
                                            Total number     Maximum number
                                              of shares      (or approximate
                                             (or units)       dollar value)
                        (a)                   purchased         of shares
                       Total       (b)       as part of      (or units) that
                     number of   Average      publicly         may yet be
                    shares (or  price paid    announced      purchased under
                      units)    per share       plans         the plans or
    Period           purchased  (or unit)    or programs        programs
    ------           ---------  ---------    -----------        --------

July 31, 2007            --        --            --               --
August 31, 2007          --        --            --               --
September 30, 2007       --        --            --           30,000*
       Total             --        --            --           30,000 shares

*On October 4, 2007, the Company purchased 8,263 shares, with an average price
of $16.00 per share. Accordingly, the total number of shares purchased pursuant
to the Plan announced on September 20, 2007 is 8,263 and the maximum number of
shares which may yet be purchased under such Plan is 21,737 shares.

Item 3.  Defaults Upon Senior Securities.   Not applicable

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

Item 5.  Other Information. Not applicable


                                       28
<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.


                                       29
<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: November 14, 2007              FIRST LITCHFIELD FINANCIAL
                                      CORPORATION

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

Dated: November 14, 2007              By: /s/ Carroll A. Pereira
                                      --------------------------
                                      Carroll A. Pereira
                                      Principal Financial and
                                      Accounting Officer


                                       30