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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB



|x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------

For the fiscal year ended: March 31, 2006



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------

For the transition period from                      to

Commission File
Number: 333-120068

PARTNERS FINANCIAL CORPORATION

(Name of small business issuer in its charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Florida                                                       |  | 20-1566911                         
|(State or other jurisdictionof incorporation or organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|1575 Pine Ridge Road #15 Naples, Florida                      |  | 34109                              
|(Address of principal executive offices)                      |  | (Zip Code)                         

(239) 434-2069

(Issuers telephone number)

Securities registered under Section 12(b) of the
Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: None

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes:  x    No: ̈

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. ̈

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes: ̈No:  x

State issuers revenue for its most recent
fiscal year: $970,000

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed at $10.00 per
share, the price at which the common equity was sold, was $11,050,000, as of June 19, 2006.

State the number of shares
outstanding of each of the issuers classes of common equity, as of the latest practicable date: As of June 19, 2006: 1,500,000 shares of common stock, par value $0.01 per share were issued and outstanding.

Transitional Small Business Disclosure Format:    Yes: ̈No:  x



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TABLE OF CONTENTS



|           |  |                                                                                                                  |  |     
|---------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                  |  | Page
|PART I.    |  |                                                                                                                  |  |     
|           |  |                                                                                                                 
|Item 1.    |  | Description of Business                                                                                          |  | 3   
|           |  |                                                                                                                 
|Item 2.    |  | Description of Property                                                                                          |  | 13  
|           |  |                                                                                                                 
|Item 3.    |  | Legal Proceedings                                                                                                |  | 13  
|           |  |                                                                                                                 
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                              |  | 13  
|           |  |                                                                                                                 
|PART II.   |  |                                                                                                                  |  |     
|           |  |                                                                                                                 
|Item 5.    |  | Market for Common Equity and Related Stockholders Matters                                                        |  | 14  
|           |  |                                                                                                                 
|Item 6.    |  | Managements Discussion and Analysis                                                                             |  | 15  
|           |  |                                                                                                                 
|Item 7.    |  | Financial Statements                                                                                             |  | 25  
|           |  |                                                                                                                 
|Item 8.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             |  | 49  
|           |  |                                                                                                                 
|Item 8A.   |  | Controls and Procedures                                                                                          |  | 49  
|           |  |                                                                                                                 
|Item 8B.   |  | Other Information                                                                                                |  | 49  
|           |  |                                                                                                                 
|PART III.  |  |                                                                                                                  |  |     
|           |  |                                                                                                                 
|Item 9.    |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16 (a) of the Exchange Act |  | 49  
|           |  |                                                                                                                 
|Item 10.   |  | Executive Compensation                                                                                           |  | 52  
|           |  |                                                                                                                 
|Item 11.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters                  |  | 53  
|           |  |                                                                                                                 
|Item 12.   |  | Certain Relationships and Related Transactions                                                                   |  | 54  
|           |  |                                                                                                                 
|Item 13.   |  | Exhibits                                                                                                         |  | 56  
|           |  |                                                                                                                 
|Item 14.   |  | Principal Accountant Fees and Services                                                                           |  | 56  
|           | 
|SIGNATURES |  | 57                                                                                                              



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PART I

SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION



|ITEM 1. | DESCRIPTION OF BUSINESS
|------- | -----------------------

Forward-Looking Statements

Some of the statements in this Form 10-KSB discuss future expectations. There may also be statements regarding projections of
results of operations or financial condition or state other forward-looking information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially
from those contemplated by the statements. We based the forward-looking information on various factors and numerous assumptions, which may or may not turn out to be correct.

Important factors that may cause actual results to differ from those contemplated by forward-looking statements include, for example:



| |  |  | The success or failure of our efforts to implement our business strategy;
| | - |  | -------------------------------------------------------------------------



| |  |  | The effect of changing economic conditions, both nationally and in our local community;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Changes in government regulations, tax and interest rates applicable to our business and similar matters and
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to attract and retain quality employees.
| | - |  | ----------------------------------------------------

We
do not promise to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements other than material changes to such information.

General

Partners Financial Corporation (the
Holding Company) was incorporated in the State of Florida on February 11, 2004 to serve as the holding company for Partners Bank (the Bank), a federal savings bank then in organization (collectively the
Company). The Bank commenced operations on August 24, 2005. Since that time, the Holding Companys only business activity has been the operation of the Bank. Prior to the Bank opening on August 24, 2005, the operation of
the Holding Company related solely to raising capital for the Bank and completing the Bank organization process. The Bank offers a variety of community banking services to individual and business customers through its banking office located in
Naples, Florida. The deposits in the Bank are insured by the Federal Deposit Insurance Corporation (FDIC). The Company has adopted a fiscal year end of March 31.

The Bank focuses on community banking in Collier County Florida. The Bank seeks to provide its community with a strong, committed local savings bank to
handle customers needs. The Bank is committed to serving its local customers and believes it is well positioned to assist local customers through its proposed network of local branches and strong, committed staff and lending officers. It is
the goal of the Bank to service customers with the attention of a local community bank and the technical and banking product sophistication of a major bank.

The Bank focuses its operations on generating funds through the solicitation of money market and other variable rate deposit products, and the origination of high credit quality residential and commercial real estate
loans. The Bank has wholesale mortgage operations which originates and sells residential mortgages of various credit quality levels, including loans known as sub-prime loans (sub-prime loans are not originated to be held in the portfolio). This
operation brings the Bank additional lending opportunities, such as permanent residential loans, which are sold in the secondary mortgage market, thereby providing the Bank with both fee income and cross-selling opportunities. The Banks
lending activities also include the origination of commercial business loans and consumer loans.



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At March 31, 2006, we had total assets of $48.7 million, deposits of $34.9 million and
stockholders equity of $13.8 million.

Our executive offices are located at 1575 Pine Ridge Road, #15 , Naples, Florida 34109;
our telephone number is (239) 434-2069; our internet address is http://www.partnersbank.net.

Market Area and Competition

The principal markets of Partners Bank are the city of Naples and Collier County, Florida. To a lesser extent, we have identified the southern region of
Lee County as a target market.

According to the Collier County Economic Development Council, Collier County is expected to grow from
317,000 in 2005 to 374,000 by the year 2010 for a growth rate of 18%. In neighboring markets, Lee County is projected to grow from 524,000 to 593,000 or 14%. Southwest Florida which consists of Lee, Collier, Charlotte, Henry and Glades counties will
grow to 1.2 million in population or 14.1%.

The median age in Collier County is 44 and Hispanics represents the second highest
percent of the population by race at 19.6%. The average household income in Collier Count is $69,806. The median price home is $505,000. Leisure and hospitality, education and health services and construction make up 42% of the labor force in
Collier County.

Collier County had, as of September 30, 2005 total bank deposits of $10.4 billion representing approximately 34
banks. Many of these banks are affiliated with large national or regional banks. Competition among financial institutions in our primary service area is intense. There are currently nine commercial banks headquartered in Collier County. While, there
are no savings associations headquartered in Naples, savings associations and credit unions are located in nearby communities. In addition, there are 117 bank and thrift offices in Collier County. We believe that we will be able to effectively
compete in our market, because of our banking philosophy, which places emphasis on customer service, friendly and personable employee attitudes, and the development of banking products that address the primary needs of our customer base. Our
directors and management will also actively represent us in local community events and functions.

Financial institutions primarily compete
with one another for deposits. In turn, a banks deposit base directly affects such banks loan activities and general growth opportunities. Primary methods of competition include interest rates on deposits and loans, service charges on
deposit accounts and the availability of unique financial services products. We compete with financial institutions which have much greater financial resources than we have, and which may be able to offer more services, unique services and possibly
better terms to their customers. We, however, believe that we will be able to attract sufficient deposits to enable us to compete effectively with other area financial institutions.

We also are in competition with existing area financial institutions other than commercial banks and savings and loan associations, including insurance
companies, consumer finance companies, brokerage houses, credit unions and other business entities which have recently been targeting traditional banking markets. Due to the projected growth of our market area, we anticipate that additional
competition will result from new entrants to the market.

We offer a full range of interest bearing and non-interest bearing deposit
accounts, including commercial and consumer checking accounts, money market accounts and individual retirement accounts, regular interest bearing savings accounts and certificates of deposit with a range of maturity date options. Our sources of
deposits are residents, businesses and employees of businesses within our market area, obtained through the personal solicitation of our officers and directors, direct mail solicitation and advertisements published in the local media. We pay
competitive interest rates on time and savings deposits. In addition, we have implemented a service charge fee schedule competitive with other financial institutions in our market area covering such matters as maintenance fees on checking accounts,
per item processing fees on checking accounts and returned check charges.



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Loan Portfolio

We consider the maintenance of a well underwritten and diversified loan portfolio as a prudent and profitable method of employing funds raised through deposits that are available for investment. Our objective is to
maintain a high quality, diversified loan portfolio consisting of mortgage, consumer and commercial loans. The Bank does not originate any sub-prime loans for its portfolio due to the high risk involved in these types of loans. Loans to serve lower
income customers will be made either directly or with a loan consortium to meet the low/moderate income needs in the community.

Our
borrowers are generally located within Collier County, our primary trade area. Our secondary trade area is defined as the portion of southern Lee County that is adjacent to Collier County. Customers with needs outside of these areas may also be
accommodated. Participations from banks in areas and markets that the President, Senior Lender or Board members are familiar with are also considered on a case-by-case basis.

The Board of Directors has established a loan policy which will provide our lending officers with the discretion necessary to accomplish our loan
objectives, while assuring compliance with all banking regulations.

Residential Mortgage Loans

We offer mortgage loan programs to provide financing for the acquisition or construction of single-family, owner-occupied primary residences, as well as
for vacation homes. All loans are structured with an amortization schedule not exceeding 30 years. These loans will be held in our loan portfolio or sold in the secondary market, in order to generate fee income. We offer construction loans to
achieve short-term usage of funds and to create fee income. Construction loans also create opportunities for permanent residential mortgages for sale in the secondary market. Construction loans are made to provide short-term financing for the
construction of such properties, while permanent loans are structured to provide long-term financing to the owners of such properties.

Normally, the loan to value ratio of each conventional mortgage will not exceed 85%. We will also participate with private mortgage insurance companies for the purpose of providing loans with a loan to value ratio of up to 97%.

We will participate in community mortgage programs which are established for the benefit of residents of low to moderate income neighborhoods within
the our service areas.

Commercial Loans

We provide commercial loans to the business community to provide funds for such purposes as financing business equipment and acquiring commercial real estate. Our emphasis is on loans secured by commercial real estate, rather than the
riskier loans on receivables or business inventories. Commercial loans may be either short term (one year or less) or intermediate term in nature and may be secured, unsecured or partially secured. Maturities of loans are structured in relation to
the economic purpose of the loan, conforming to the anticipated source of repayment. Fixed rate loans are the exception, and in most instances interest rates float and are tied to prime rate (Wall Street Journal) or other published indices with
adjustment periods not to exceed five years. The basis upon which we will set the rate over prime will be based upon the risk of the loan, and the interest rates being offered in our primary service area. We attempt to place interest rate floors and
include pre-payment penalties whenever possible.

Term loans are those having an anticipated final maturity of more than one year from the
initial funding date. Generally, commercial term loans extending more than 24 months are made pursuant to formal written loan agreements with the borrower. Amortization schedules on term loans secured by collateral other than real estate typically
reflect a complete pay out within seven years of the funding date. Loans secured by commercial real estate generally amortize over 20-25 years, with five to seven year balloons. 15-year term loans may also be made based on cash flow, collateral or
lease terms.



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Demand notes may occasionally be utilized in connection with certain secured commercial loan transactions
where the nature of the transaction suggests that such structure is clearly preferable; however, term notes will be utilized as a matter of routine. Demand loans will normally be secured with readily marketable collateral.

We also consider the following types of loans, subject to the resources available to adequately monitor and service such loans:



| |  |  | Real estate development loans secured by first liens on the property where we are also providing construction and/or permanent financing.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Term loans secured by machinery and equipment (terms of such loans will be consistent with the purpose, cash flow capacity, and economic life of collateral); and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Credit lines for short-term working capital requirements.
| | - |  | ---------------------------------------------------------

All credit lines are subject to an annual review and will generally carry a requirement for a 30 consecutive day (minimum) annual out-of-debt period.

Consumer Loans

Consumer loans are provided to individuals for household, family and personal expenditures. Generally, small
consumer loans have a maturity of not longer than five years. The primary type of consumer lending is for the financing of boats, recreational vehicles, and automobiles, home improvements and education. Loans to purchase more expensive boats or
recreational vehicles are made on more flexible terms based on down payments, credit worthiness and the competitive environment. Equity lines generally have a 10-year maturity. We have established a loan policy that provides specific guidance for
the required terms of our underwriting credit criteria for each type of loan. We also may make some unsecured loans, as well as loans secured by second mortgages on real estate and other collateral.

Loan Loss Allowance

The Bank maintains a majority of
its loan portfolio in real estate secured loans requiring reserve ratios appropriate for the risk associated with the real estate market in our market. Based upon our underwriting standards and historical annual market value appreciation, real
estate loans generally carry a lower reserve than those carried for unsecured loans and consumer loans, because of the inherent risk factors in these portfolios. Construction loans with third-party take-outs carry a higher reserve than portfolio
loans. In general, we consider unsecured and consumer loans to be the riskiest, because of the lack of easily marketable collateral. Commercial loans secured by property other than real estate are less risky, but commercial real estate loans carry
even less risk due to lenders ability to liquidate real estate collateral. Similarly, residential real estate loans present the least risk because of both the marketability of the collateral and the borrowers propensity to make payments
on their loans to retain and preserve their residences.

The Banks Board of Directors monitors the loan portfolio at least quarterly
in order to evaluate the adequacy of the allowance for loan losses. In addition to reviews by regulatory agencies, the Bank engages the services of outside consultants to assist in the evaluation of credit quality and loan administration. Credit
quality reviews will begin in fiscal 2007. These professionals complement our internal system, which identifies potential problem credits as early as possible, categorizes the credits as to risk and includes a reporting process to monitor the
progress of the credits.

The allowance for loan losses is established through a provision for loan losses charged to expenses. Loans are
charged off against the allowance when management believes the collectibility of principal is unlikely. The monthly provision for loan losses is based on managements judgment, after considering known and inherent risks in the portfolio, our
past loss experience, adverse situations that may affect the borrowers ability to repay, assumed values of the underlying collateral securing the loans, the current and prospective financial condition of the borrower, and the prevailing and
anticipated economic condition of the local market. For the year ended March 31, 2006 no loans were charged off against the allowance for loan losses.



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Deposit Generation

We compete aggressively for deposits in the Collier county market. Among our product offerings are online personal and business banking, checking accounts, overdraft protection, cash management services, safe deposit
boxes, travelers checks, direct deposit of payroll and social security checks, wire transfers, telephone banking and automatic drafts. We believe these accounts and products are profitable when considering the entire potential customer
relationship.

We also offer certificates of deposit promotions designed to attract customers that we intend to cross-sell other services,
including loan products. Our goal is to attract customers who will become permanent customers due to more responsive, more personalized, and faster service. We also seek to garner as much zero interest or low cost deposits as possible.

We offer a tiered money market/savings product whereby the Bank pays higher rates on higher deposit balances. We believe this deposit vehicle allows
the Bank to compete with money market mutual funds.

Investments

The Bank, as a federally chartered savings association, has authority to invest in various types of liquid assets, including United States Treasury
obligations, securities of federal agencies, certificates of deposit of federally insured banks and savings associations, bankers acceptances and federal funds. Subject to various restrictions, the Bank also may invest a portion of its assets
in commercial paper, corporate debt securities, and mutual funds whose assets conform to the investments that a federally chartered savings association is otherwise authorized to make directly. The Bank also is required to maintain a minimum level
of liquid assets, which is determined quarterly based on the amount of the Banks short-term obligations.

We enter into Federal Funds
transactions with our principal correspondent banks and primarily act as a net seller of such funds. The sale of Federal Funds amount to a short-term loan from us to another bank, usually overnight. At March 31, 2006, Federal Funds sold
comprised 32.2% of our total assets. At March 31, 2006, we had $8.8 million in securities available for sale.

Asset/Liability Management

It is our objective to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the
framework of established cash management, loan, investment, borrowing and capital policies. Designated Bank officers are responsible for monitoring policies and procedures that are designed to ensure acceptable composition of the asset/liability
mix, stability and leverage of all sources of funds while adhering to prudent banking practices. It is the overall philosophy of management to support asset growth primarily through growth of core deposits, which include deposits of all categories
made by individuals, partnerships and corporations.

Our asset/liability mix is monitored on a daily basis with a monthly report reflecting
interest-sensitive assets and interest-sensitive liabilities being prepared and presented to the Banks Board of Directors. The objective of this policy is to control interest-sensitive assets and liabilities so as to minimize the impact of
substantial movements in interest rates on our earnings.

Monetary Policies

The results of our operations are affected by credit policies of monetary authorities, particularly the Federal Reserve Board. The instruments of monetary
policy employed by the Federal Reserve include open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements of member bank deposits. In the view of changing
conditions in the national economy and in the money markets, as well as the effect of action by monetary and fiscal authorities, including the Federal Reserve, no accurate prediction can be made as to possible future changes in interest rates,
deposit levels, loan demand or our business and earnings.



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Employees

As of March 31, 2006, we employed 20 full-time persons, including three executive officers. Employees are hired as needed to meet company-wide personnel demands.

Supervision and Regulation

General

The Bank is a federal savings bank and its deposits are insured by the FDIC through the FDICs Deposit Insurance Fund (DIF). The Bank is
subject to extensive regulation, supervision, and examination by the Office of Thrift Supervision (OTS) as its primary federal regulator. It also is subject to regulation, supervision, and examination as to certain matters by the FDIC
and the Board of Governors of the Federal Reserve System (Federal Reserve Board).

The Bank must file reports with the OTS
concerning its activities and financial condition, and it must obtain regulatory approval before engaging in certain transactions, such as mergers with or acquisitions of other depository institutions, opening or acquiring branches, or establishing
or acquiring subsidiary companies. The OTS also conducts periodic examinations of the Bank to assess its compliance with various regulatory requirements. This regulation, supervision, and examination is intended primarily for the protection of DIF
and the depositors of the Bank. The OTS has significant discretion in the exercise of its supervisory and enforcement authority, including the setting of policies regarding the classification of assets and the establishment of adequate loan loss
reserves for regulatory purposes.

The Holding Company as a savings and loan holding company, is subject to regulation, supervision, and
examination by the OTS, and is subject to the rules and regulations of the Securities and Exchange Commission (SEC) under federal securities laws.

The following is a summary of certain laws and regulations that are applicable to the Holding Company and the Bank. This summary is not a complete description of such laws and regulations, nor does it encompass all
such laws and regulations. Any change in the laws and regulations applicable to us or in the policies of the various regulatory authorities could have a material impact on our operations and our shareholders.

The Holding Company

We are required to
file periodic reports with the SEC and the OTS. We also are required to file such other reports, keep such books and records, and be subject to such examination as the OTS prescribes. We are permitted to engage in any activity that a bank
holding company may engage in as being so closely related to banking or to managing or controlling banks as to be a proper incident thereto, unless the OTS prohibits or limits such activity, and any activity that a financial holding company may
engage in as being financial in nature or incidental to such financial activity or as being complementary to a financial activity and not posing undue risk. We also may engage in limited additional activities that support the operations of a savings
bank. In the event that the Bank were to fail to retain its status as a qualified thrift lender (as described more fully below), we would be required to register with the Federal Reserve Board as a bank holding company and would be subject to all
statutes and regulations, including capital requirements and restrictions on permissible activities, as if we were a bank holding company.

The Bank

Capital Requirements. OTS regulations require that savings associations maintain (i) core capital in an
amount not less than 4% of adjusted total assets (the leverage ratio), (ii) tangible capital in an amount not less than 1.5% of adjusted total assets (the tangible capital ratio), (iii) risk-based capital in
an amount not less than 8% of risk-weighted assets (the risk-based ratio), and (iv) Tier 1 capital in an amount not less than 6.00% of risk-weighted assets.



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Core capital generally includes common stockholders equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, minority interests in the equity accounts of consolidated subsidiaries, less intangible assets (other than certain nonwithdrawable accounts and qualifying supervisory goodwill).
An amount equal to 90% of the fair market value of readily marketable purchased mortgage servicing rights (PMSRs) and purchased credit card relationships (subject to certain conditions) also is included. Tangible capital
generally is defined in the same manner as core capital. For purposes of the risk-based capital requirement, supplementary capital may be included in an amount up to 100% of core capital. Supplementary capital includes, among other
items, perpetual preferred stock not counted as core capital, limited life preferred stock, subordinated debt, up to 45% of net unrealized gains on readily marketable equity securities held for sale, and general loan and lease loss allowances up to
1.25% of risk-weighted assets less certain deductions. At March 31, 2006, the Bank had a leverage ratio of 20.63%, a tangible capital ratio of 20.63%, a risk-based capital ratio of 42.14% and a tier 1 capital ratio of 41.33%.

Capital requirements higher than the generally applicable minimum requirement may be established for a particular savings association if the OTS
determines that the institutions capital was or may become inadequate in view of its particular circumstances.

Prompt
Corrective Action. The federal banking agencies have established by regulation, for each capital measure, the levels at which an insured institution is well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, and the agencies are required to take prompt corrective action with respect to insured institutions that fall below various of these capital standards. The degree of intervention mandated by federal
legislation is tied to an insured institutions capital category, with increasing scrutiny and more stringent restrictions being imposed as an institutions capital declines. Any insured institution that falls below minimum capital
standards must submit a capital restoration plan. An undercapitalized association also is generally prohibited from increasing its average total assets, making acquisitions, establishing any branches, or engaging in any new line of business, except
in accordance with an accepted capital restoration plan or with the approval of the OTS. An institution is not permitted to pay dividends if, as the result of the payment, it would become undercapitalized, and an undercapitalized institution is
prohibited altogether from paying dividends without the prior approval of the OTS. In addition, the OTS may take any other action that it determines will better carry out the purpose of prompt corrective action initiatives. At March 31, 2006,
the Bank was classified as a well capitalized savings association.

The OTS capital regulations also require a thrift
institution to deduct a component of capital based on its interest rate risk when calculating its total capital for purposes of determining its minimum risk-based capital requirement. The OTS, however, has deferred implementation of this provision.
Nevertheless, the OTS has issued guidelines regarding the management of interest rate risk. The OTS requires thrift institutions to establish and maintain board of directors approved limits on ratios involving the net present value of the
institutions existing assets, liabilities and off-balance sheet contracts (referred to as net portfolio value or NPV). Financial simulations must be performed that calculate the NPV ratios (NPV divided by the present value of
assets) under interest rate shock scenarios of plus or minus 100, 200 and 300 basis points. The Banks level of interest rate risk is determined based primarily on the change of its NPV in the event of an interest rate shock of 200 basis
points.

The OTS also requires management to assess the risks and returns associated with complex securities and financial derivatives.
Before taking a significant position in any such instrument, the analysis must reflect the effect of the proposed transaction on the interest rate risk profile of the institution, including the expected change in the institutions NPV (net
portfolio value) as a result of parallel shifts in the yield curve of plus or minus 100, 200 and 300 basis points. Complex securities and financial derivative transactions may require analysis of a wider range of scenarios. In general, the use of
financial derivatives or complex securities with high price sensitivity should be limited to transaction strategies that lower an institutions interest rate risk, as measured by the sensitivity of the NPV to change in interest rates.



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The following table sets forth the Banks NPV as of March 31, 2006, the most recent date the
Banks NPV was calculated by the OTS.



|                         |  |                     |        |              |                             |      |               |  |    |           |  |       |                       |  |       
|------------------------ |  | ------------------- | ------ | ------------ | --------------------------- | ---- | ------------- |  | -- | --------- |  | ----- | --------------------- |  | ------
|                         |  | Net Portfolio Value |        |              | NPV as % ofPortfolio Assets
|                         |  | Amount              |        | DollarChange |                             |      | PercentChange |  |    | NPV Ratio |  |       | Change inBasis Points
|                         |  | (Dollars in 000s)  
|Change in Interest Rates |  |                     |       
|+300 bp                  |  | $                   | 10,046 |              | $                           | (945 | )             |  | -8 | %         |  | 21.13 | %                     |  | -161bp
|+200 bp                  |  |                     | 10,761 |              |                             | (589 | )             |  | -5 | %         |  | 21.76 | %                     |  | -98bp 
|+100 bp                  |  |                     | 11,078 |              |                             | (273 | )             |  | -2 | %         |  | 22.30 | %                     |  | -44bp 
|0                        |  |                     | 11,351 |              |                             |     |               |  |   |           |  | 22.74 | %                     |  |      
|-100 bp                  |  |                     | 11,532 |              |                             | 181  |               |  | 2  | %         |  | 23.01 | %                     |  | +27bp 
|-200 bp                  |  |                     | 11,536 |              |                             | 185  |               |  | 2  | %         |  | 23.00 | %                     |  | +27bp 

Liquidity.The Bank is required to maintain sufficient liquidity to
ensure its safe and sound operation. As required by recent legislation, the OTS deleted its requirement that federal savings associations maintain a certain minimum level of liquid assets. Instead, adequate liquidity is assessed by the OTS on a
case-by-case basis by reviewing such factors as the institutions overall asset/liability structure, market conditions, competition and the nature of the institutions activities. The OTS considers an institutions liquidity ratio as
well as safety and soundness issues in assessing whether an institution has sufficient liquidity. The Bank has ample liquidity to meet its outstanding loan commitments and deposit redemptions.

Qualified Thrift Lender Requirement.The Bank is deemed to be a qualified thrift lender (QTL) as long as its
qualified thrift investments continue to equal or exceed 65% of its portfolio assets on a monthly average basis in nine out of every 12 months or it qualifies as a domestic building and loan association under the
Internal Revenue Code. Qualified thrift investments generally consist of (i) various housing related loans and investments (such as residential construction and mortgage loans, home improvement loans, mobile home loans, home equity loans and
mortgage-backed securities), (ii) certain obligations of the FDIC, (iii) shares of stock issued by any Federal Home Loan Bank (FHLB), and (iv) loans for educational purposes, loans to small businesses and loans made
through credit cards or credit card accounts. In addition, the following assets may be categorized as qualified thrift investments in an amount not to exceed 20% in the aggregate of portfolio assets: (i) 50% of the dollar amount of residential
mortgage loans originated and sold within 90 days of origination; (ii) investments in securities of a service corporation that derives at least 80% of its income from residential housing finance; (iii) 200% of loans and investments
made to acquire, develop or construct starter homes or homes in credit needy areas (subject to certain conditions); (iv) loans for the purchase or construction of churches, schools, nursing homes and hospitals; (v) consumer loans, other
than loans for educational purposes, loans to small businesses and loans made through credit cards or credit card accounts; and (vi) shares of stock issued by Freddie Mac or Fannie Mae. For purposes of the QTL test, the term portfolio
assets means the savings associations total assets minus goodwill and other intangible assets, the value of property used by the savings association to conduct its business, and liquid assets held by the savings association in an amount
up to 20% of its total assets.

OTS regulations provide that any savings association that fails to meet the definition of a QTL must either
convert to a national bank charter or limit its future investments and activities (including branching and payment of dividends) to those permitted for both savings associations and national banks. In order for the Bank to exercise the powers
granted to federal savings associations and maintain full access to FHLB advances, the Bank must meet the definition of a QTL. The Bank currently qualifies as a QTL.

Loans to One Borrower Limitations.The Home Owners Loan Act (HOLA) generally requires savings associations to comply with the loans to one borrower limitations applicable to
national banks. National banks generally may make loans to a single borrower in amounts up to 15% of their unimpaired capital and surplus,



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plus an additional 10% of capital and surplus for loans secured by readily marketable collateral. The HOLA provides exceptions under which a savings
association may make loans to one borrower in excess of the generally applicable national bank limits.

Capital
Distributions.An OTS rule imposes limitations on all capital distributions by savings associations (including dividends, stock repurchases and cash-out mergers).

Insurance of Deposits. The deposits in the Bank are insured up to $100,000 per insured depositor (as determined by law and regulation)
by the FDIC and are backed by the full faith and credit of the United States government. Individual Retirement Accounts are insured up to $250,000. The amount of deposit insurance is adjusted every 5 years to account for inflation, beginning in
2010. The deposits in the Bank are insured under the DIF.

Assessments.The Bank is subject to quarterly payments on
semiannual insurance premium assessments for its FDIC deposit insurance. In 2006, Congress amended the Federal Deposit Insurance Act to authorize the FDIC to charge premiums in order to maintain the DIF within a specified range of a percentage of
insured deposits. The amount of premiums has not been set under the amended law.

Safety and Soundness Standards. The
Bank is subject to certain standards designed to maintain the safety and soundness of individual banks and the banking system. The OTS has prescribed safety and soundness guidelines relating to (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate exposure; (v) asset growth and quality; (vi) earnings; and (vii) compensation and benefit standards for officers, directors,
employees and principal. A federal savings association not meeting one or more of the safety and soundness guidelines may be required to file a compliance plan with the OTS.

Federal Reserve System. Under Federal Reserve Board regulations, the Bank is required to maintain non-interest-earning reserves
against its transaction accounts (primarily NOW and regular checking accounts). The Federal Reserve Board regulations require that a reserve of 3% must be maintained against aggregate transaction accounts up to $42.8 million and 10% against any
transaction accounts in excess of that amount. The first $5.5 million of otherwise reservable balances are exempted from the reserve requirements. The Bank is in compliance with the foregoing requirements. Because required reserves must be
maintained in the form of vault cash, a non-interest-bearing account at a Federal Reserve Bank or a pass-through account as defined by the Federal Reserve Board, the effect of this reserve requirement is to reduce the Banks interest-earning
assets.

Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank System (the FHLB
System). The FHLB System consists of 12 regional FHLBs and provides a central credit facility primarily for member institutions. The Bank, as a member of FHLB of Atlanta, is required to acquire and hold shares of capital stock in the
FHLB of Atlanta in an amount equal to the greater of: 1.0% of the aggregate principal amount of its unpaid residential mortgage loans, home purchase contracts and similar obligations at the beginning of each year; 5% of its FHLB of Atlanta advances
outstanding; or 0.3% of its total assets. At March 31, 2006, the Bank was in compliance with this requirement and owned $48,000 of FHLB of Atlanta common stock.

Transactions with Affiliates. Transactions between the Bank and its affiliate are governed by sections 23A and 23B of the Federal Reserve Act and corresponding regulations of the Federal Reserve
Board and the OTS. Generally, sections 23A and 23B are intended to protect insured depository institutions from suffering losses arising from transactions with non-insured affiliates, by limiting the extent to which a bank or its subsidiaries may
engage in covered transactions with any one affiliate and with all affiliates of the bank in the aggregate, and requiring that such transactions be on terms that are consistent with safe and sound banking practices.

Privacy Policy. Under the Gramm-Leach-Bliley Act (GLB Act), all financial institutions, including the Bank, are required to
adopt privacy policies, restrict the sharing of nonpublic customer data with nonaffiliated



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parties at the customers request, and establish procedures and practices to protect customer data from unauthorized access. The Bank has developed such
policies and procedures and believes it is in compliance with all privacy provisions of the GLB Act.

Anti-Money Laundering.
Under Title III of the USA PATRIOT Act, also known as the International Money Laundering Abatement and Anti-Terrorism Financing Act of 2001, all financial institutions, including the Bank, are required to take certain measures to identify their
customers, prevent money laundering, monitor certain customer transactions and report suspicious activity to U.S. law enforcement agencies, and scrutinize or prohibit altogether certain transactions of special concern. Financial institutions also
are required to respond to requests for information from federal banking regulatory agencies and law enforcement agencies concerning their customers and their transactions. Information-sharing among financial institutions concerning terrorist or
money laundering activities is encouraged by an exemption provided from the privacy provisions of the GLB Act and other laws. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any
application submitted by the financial institution under the Bank Merger Act, which applies to the Bank.

Corporate
Governance. The Sarbanes-Oxley Act (SOA), addresses, among other issues, director and officer responsibilities for proper corporate governance of publicly traded companies, including the establishment of audit committees,
certification of financial statements, auditor independence and accounting standards, executive compensation, insider loans, whistleblower protection, and enhanced and timely disclosure of corporate information. In general, SOA is intended to allow
stockholders to monitor more effectively the performance of publicly traded companies and their management. For example, the chief executive officer and the chief financial officer of the Company are required to certify that the Companys
quarterly and annual reports do not contain any untrue statement of a material fact. The federal banking regulators, including the OTS, have adopted generally similar requirements concerning the certification of financial statements.

On December 4, 2003, the Fair and Accurate Credit Transactions Act of 2003 (FACT) was signed into law. FACT includes many provisions
concerning national credit reporting standards, and permits consumers, including the customers of the Bank, to opt out of information sharing among affiliated companies for marketing purposes. FACT also requires financial institutions, including
savings banks, to notify their customers if they report negative information about them to credit bureaus or if the credit that is granted to them is on less favorable terms than are generally available. Depository institutions, including savings
banks, also must comply with guidelines to be established by their federal banking regulators to help detect identity theft.

Recent
Accounting Pronouncements.In December 2003, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a
Transfer. This SOP requires acquired impaired loans for which it is probable that the investor will be unable to collect all contractually required payments receivable to be recorded at the present value of amounts expected to be received. The SOP
also prohibits carrying over or creation of valuation allowances in the initial accounting for these loans. The SOP was effective for loans acquired in fiscal years beginning after December 15, 2004. The adoption of this SOP did not impact the
Companys financial position or results of operations.

In December 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 123 (Revised), Share-Based Payment (SFAS No. 123(R)). This Statement replaces SFAS No. 123, Accounting for Stock-Based Compensation, as amended by
SFAS 148, Accounting for Stock-Based Compensation Transition and Disclosure (collectively SFAS No. 123), and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees
(APB No. 25). SFAS No. 123(R) clarifies and expands SFAS No. 123s guidance in several areas, including measuring fair value, classifying an award as equity or as a liability, accounting for nonsubstantive vesting
provisions, and attributing compensation cost to reporting periods. Under the provisions of SFAS No. 123(R), the alternative to use APB No. 25s intrinsic value method of accounting that was provided in SFAS No. 123, as



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originally issued, is eliminated. At March 31, 2006, the Company had no stock compensation plans. At such time that any stock compensation plans are
enacted, the Company will begin expensing the fair value of any future grants of stock awards.

In May 2005, the FASB issued SFAS 154,
Accounting Changes and Error Corrections, which replaces APB Opinion No. 20, Accounting Changes, and SFAS 3, Reporting Accounting Changes in Interim Financial Statements an Amendment of APB Opinion No. 28. SFAS 154 changes the requirements
for the accounting and reporting of a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

On February 16, 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Instruments (SFAS 155), which permits, but does not require,
fair value accounting for any hybrid financial instrument that contains an embedded derivative that would otherwise require bifurcation in accordance with SFAS 133. The statement also subjects beneficial interests issued by securitization vehicles
to the requirements of SFAS 133. The statement is effective as of January 1, 2007, with earlier adoption permitted. The adoption of SFAS No. 155 will not have a material impact on the Companys results of operations or financial
condition.

On March 17, 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of FASB
Statement No. 140 (SFAS 156), which permits, but does not require, an entity to account for one or more classes of servicing rights (i.e., mortgage servicing rights, or MSRs) at fair value, with the changes in fair value recorded in the
Consolidated Statement of Operations. . The statement is effective as of the beginning of an entitys first fiscal year that begins after September 15, 2006 with earlier adoption permitted. The adoption of SFAS No. 156 will not
have a material impact on the Companys results of operations or financial condition.



|ITEM 2. | DESCRIPTION OF PROPERTY
|------- | -----------------------

The Banks current
main office is a store front located in a strip retail shopping center. The Bank expects to use this location as a branch office after the new main office facility is completed. The Bank is currently negotiating a lease agreement for a new branch
which will replace the store front location in fiscal 2008. This new branch will be leased from a company owned by various directors. At this time, it is anticipated that the existing store front will continue to be used for loan and or deposit
operations.

The Bank also intends to operate an office from a site at 3021 Airport-Pulling Road, Naples Florida. Initially, this facility
will be a branch office operated out of a 1,584 square foot modular unit. We currently anticipate opening this temporary branch office in the second quarter of fiscal 2007. We have contracted to purchase 12,000 square feet of an office condominium
on this same site. When it is ready for occupancy, during the fourth quarter of fiscal 2007, we will seek regulatory approval to designate this facility as the Banks home office. At that time, we also intend to relocate the Holding
Companys headquarters to this site.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

There are no material legal
proceedings pending to which we are a party or to which any of our properties are subject. We are not aware of any material proceedings being contemplated by any governmental authority, nor are we aware of any material proceedings, pending or
contemplated, in which any director, officer, affiliate or any principal security holder of 10% or more of the common stock of the Holding Companys, or any associate of the foregoing is a party.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth fiscal quarter of 2006.



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|ITEM 5. | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
|------- | ---------------------------------------------------------

No market exists for the common shares of the Holding Company. It is not anticipated that an active public market will develop for the common shares of the Holding Company because, at this time, we do not intend to seek a listing for our
common stock on a national securities exchange or to qualify such common stock for quotation on the National Association of Securities Dealers Automated Quotation System. No dividends were paid on the Holding Company common stock. As of
June 10, 2006, the Holding Company common stock was held by approximately 245 shareholders.

Our ability to pay dividends, should we
elect to do so, depends largely upon the ability of the Bank to declare and pay dividends. Future dividends will depend primarily upon the Banks earnings, financial condition, and need for funds, as well as governmental policies and
regulations applicable to the Holding Company and the Bank, which limit the amount that may be paid as dividends.

During the initial
common stock offering period in 2005, 1,500,000 shares were included in units with a unit consisting of one share of common stock and one purchase warrant. The price per unit was $10. A total of 1,500,000 units were sold during this initial offering
period for total proceeds of $14,798,000, net of offering costs of $202,000. Each warrant entitles the holder thereof to purchase one share of additional common stock for $10 per share during the 36 month period following the commencement of banking
operations. All warrants issued pursuant to the offering will expire on August 24, 2008 or the board may call the warrants at any time after August 24, 2006. At the discretion of the board of directors the expiration date may be extended
an additional six months to February 24, 2009.



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|ITEM 6. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The information contained in this section should be read in conjunction with our consolidated financial statements and related notes contained
elsewhere in this annual report on Form 10-KSB under the caption Financial Statements.

SELECTED FINANCIAL DATA

At March 31, or for the Years then Ended

(in thousands, except per share figures)



|                                                                                              |  |      |           |    |      |   |           |   
|--------------------------------------------------------------------------------------------- |  | ---- | --------- | -- | ---- | - | --------- | --
|At Year End:                                                                                  |  | 2006 |           |    | 2005 |  
|Cash and cash equivalents                                                                     |  | $    | 15,793    |    |      | $ | 32        |   
|Securities available for sale                                                                 |  |      | 8,793     |    |      |   |          |   
|Loans, net                                                                                    |  |      | 21,876    |    |      |   |          |   
|All other assets                                                                              |  |      | 2,231     |    |      |   | 380       |   
|                                                                                              |  |      |           |    |      |   |           |   
|Total assets                                                                                  |  | $    | 48,693    |    |      | $ | 412       |   
|                                                                                              |  |      |           |    |      |   |           |   
|Deposits                                                                                      |  |      | 34,891    |    |      |   |          |   
|All other liabilities                                                                         |  |      | 37        |    |      |   | 405       |   
|Stockholders equity                                                                          |  |      | 13,765    |    |      |   | 7         |   
|                                                                                              |  |      |           |    |      |   |           |   
|Total liabilities and stockholders equity                                                    |  | $    | 48,693    |    |      | $ | 412       |   
|                                                                                              |  |      |           |    |      |   |           |   
|Total interest income                                                                         |  |      | 931       |    |      |   |          |   
|Total interest expense                                                                        |  |      | 287       |    |      |   |          |   
|                                                                                              |  |      |           |    |      |   |           |   
|Net interest income                                                                           |  |      | 644       |    |      |   |          |   
|Provision for loan losses                                                                     |  |      | 198       |    |      |   |          |   
|                                                                                              |  |      |           |    |      |   |           |   
|Net interest income after provision for loan losses                                           |  |      | 446       |    |      |   |          |   
|Noninterest income                                                                            |  |      | 39        |    |      |   |          |   
|Noninterest expenses                                                                          |  |      | 1,799     |    |      |   | 228       |   
|                                                                                              |  |      |           |    |      |   |           |   
|Loss before income tax benefit                                                                |  |      | (1,314    | )  |      |   | (228      | ) 
|Income tax benefit                                                                            |  |      | (578      | )  |      |   |          |   
|                                                                                              |  |      |           |    |      |   |           |   
|Net loss                                                                                      |  | $    | (736      | )  |      | $ | (228      | ) 
|                                                                                              |  |      |           |    |      |   |           |   
|Net loss per share, basic and diluted                                                         |  | $    | (0.59     | )  |      | $ |          |   
|                                                                                              |  |      |           |    |      |   |           |   
|Ratios and Other Data:                                                                        |  |      |           |    |      |   |           |   
|Return on average assets                                                                      |  |      | (4.35     | )% |      |   | (242.55   | )%
|Return on average equity                                                                      |  |      | (8.78     | )% |      |   | (1,266.67 | )%
|Average equity to average assets                                                              |  |      | 49.59     | %  |      |   | 19.15     | % 
|Interest-rate spread during the period                                                        |  |      | 2.18      | %  |      |   |          | % 
|Net interest margin                                                                           |  |      | 4.08      | %  |      |   |          | % 
|Dividend Payout Rate                                                                          |  |      |          |    |      |   |          |   
|Ratio of average interest-earning assets to average interest-bearing liabilities              |  |      | 2.05      |    |      |   |          |   
|Nonperforming loans and foreclosed real estate as a percentage of total assets at end of year |  |      |          |    |      |   |          |   
|Allowance for loan losses as a percentage of total loans at end of year                       |  |      | 0.90      | %  |      |   |          | % 
|Total number of banking offices                                                               |  |      | 1         |    |      |   |          |   
|Total shares outstanding at end of year                                                       |  |      | 1,500,000 |    |      |   |          |   
|Book value per share at end of year                                                           |  | $    | 9.18      |    |      | $ |          |   



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MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

March 31, 2006 and 2005
and the Years then Ended

General

Partners Financial Corporation (the Holding Company) was incorporated in the State of Florida on February 11, 2004 to serve as the holding company for Partners Bank (the Bank), a federal savings bank then in
organization (collectively the Company). The Bank commenced operations on August 24, 2005. Since that time, the Holding Companys only business activity has been the operation of the Bank. Prior to the Bank opening on
August 24, 2005, the operation of the Holding Company related solely to raising capital for the Bank and completing the Bank organization process. The Bank offers a variety of community banking services to individual and business customers
through its banking office located in Naples, Florida. The deposits in the Bank are insured by the FDIC. The Company has adopted a fiscal year end of March 31.

Financial condition for the years ended March 31, 2006 and 2005

The Bank commenced
operations August 24, 2005 and March 31, 2006 marked the completion of our first full seven months of operations. At March 31, 2006 total assets were $48.7 million, net loans were $21.9 million and total deposits were $34.9 million.
At March 31, 2005, while the Company was still in the organizational stage, total assets were $412,000.

The Company had unrealized
losses of $111,000 on its securities available-for-sale portfolio at March 31, 2006. The amortized cost of this portfolio was $8.9 million at that date. The Companys investment securities portfolio is comprised of eight
mortgage-backed securities. The Companys securities available-for-sale portfolio increased by $8.8 million during the year ended in 2005 due to the purchase of mortgage-backed securities available-for-sale offset by the repayment of
principal on mortgage-backed securities. None of these securities was deemed to have any fundamental issues that would lead the Company to believe that they were other than temporarily impaired. The unrealized losses are considered temporary as they
reflect fair values at March 31, 2006, are subject to change daily as interest rates fluctuate and the Company has the intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair
value.

The Companys stockholders equity was $13.8 million, at March 31, 2006. This is comprised of proceeds received
from the issuance of common stock, accumulated net losses and net unrealized losses on securities available for sale. During the year ended March 31, 2006 the Company sold 1,500,000 units consisting of shares of its common stock and warrants
for gross proceeds of $15,000,000. The Company incurred approximately $202,000 of expenses related to the offering which were offset against the gross proceeds.

Loan Portfolio Composition

The following table sets forth the composition of the loan portfolio at (dollars in
thousands):



|                                      |  |                   |        |   |           |       |  
|------------------------------------- |  | ----------------- | ------ | - | --------- | ----- | -
|                                      |  | At March 31, 2006 |       
|                                      |  | Amount            |        |   | % ofTotal |      
|Commercial real estate                |  | $                 | 11,201 |   |           | 50.8  | %
|Residential real estate               |  |                   | 8,049  |   |           | 36.5  |  
|Commercial                            |  |                   | 334    |   |           | 1.5   |  
|Consumer                              |  |                   | 1,310  |   |           | 5.9   |  
|Home equity loans and lines of credit |  |                   | 1,161  |   |           | 5.3   |  
|                                      |  |                   |        |   |           |       |  
|Total loans                           |  |                   | 22,055 |   |           | 100.0 | %
|                                      |  |                   |        |   |           |       |  
|Add (subtract):                       |  |                   |        |   |           |       |  
|Deferred loan costs net               |  |                   | 19     |   |           |       |  
|Allowance for loan losses             |  |                   | (198   | ) |           |       |  
|                                      |  |                   |        |   |           |       |  
|Loans, net                            |  | $                 | 21,876 |   |           |       |  
|                                      |  |                   |        |   |           |       |  



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Critical Accounting Policies

Our financial condition and results of operations are sensitive to accounting measurements and estimates of matters that are inherently uncertain. When applying accounting policies in areas that are subjective in
nature, management uses its best judgment to arrive at the carrying value of certain assets. The most critical accounting policy we apply relates to the valuation of the loan portfolio.

A variety of estimates impact carrying value of the loan portfolio including the calculation of the allowance for loan losses, valuation of underlying
collateral, the timing of loan charge-offs and the amount and amortization of loan fees and deferred origination costs.

The allowance for
loan losses is the most difficult and subjective judgment. The allowance is established and maintained at a level we believe is adequate to cover losses resulting from the inability of borrowers to make required payments on loans. Estimates for loan
losses are arrived at by analyzing risks associated with specific loans and the loan portfolio, current trends in delinquencies and charge-offs, the views of our regulators, changes in the size and composition of the loan portfolio and peer
comparisons. The analysis also requires consideration of the economic climate and direction, change in the interest rate environment, which may impact a borrowers ability to pay, legislation impacting the banking industry and economic
conditions specific to our service area. Because the calculation of the allowance for loan losses relies on estimates and judgments relating to inherently uncertain events, results may differ from our estimates.

The allowance for loan losses is also discussed as part of Results of Operations and in Note 1 to the consolidated financial statements.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

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.
These financial instruments are commitments to extend credit, unused lines of credit and undisbursed loans and may involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheet. The
contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.

The Companys
exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, unused lines of credit and undisbursed loans is represented by the contractual amount of those instruments. The
Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the
commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customers credit worthiness on a case-by-case basis. The amount of
collateral obtained by the Company if any upon extension of credit is based on managements credit evaluation of the counterparty.

Unused lines of credit and commitments to extend credit typically result in loans with a market interest rate when funded.

A
summary of the Companys financial instruments with off-balance sheet risk at March 31, 2006 follows (in thousands):



|                                             |  |                |       
|-------------------------------------------- |  | -------------- | ------
|                                             |  | ContractAmount
|Commitments to extend credit                 |  | $              | 12,824
|                                             |  |                |       
|Unused lines of credit and undisbursed loans |  | $              | 7,588 
|                                             |  |                |       



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Management believes that the Company has adequate resources to fund all of its commitments and that
substantially all its existing commitments will be funded during the next twelve months.

Results of Operations for the years ended March 31, 2006
and 2005

The Companys operating results depend primarily on its net interest income, which is the difference between interest
income on interest-earning assets (primarily loans and investment securities) and interest expense on interest-bearing liabilities (primarily deposits and borrowings). The Companys operating results are also affected by its other income
(primarily gain on sale of loans and service charges) and its operating expenses (primarily salaries and administrative costs).

The Bank
commenced operations on August 24, 2005. Since the Company had not yet achieved the asset size to operate profitably, the operating results at March 31, 2006 or for the years ended March 31, 2006 and 2005 are not indicative of future
operating results. The net loss for the fiscal year ended March 31, 2006 totaled $736,000 or $0.59 per weighted average share.

The
following table sets forth certain information relating to the Companys average interest-bearing assets and interest-bearing liabilities and reflects the average yield on assets and the average cost of liabilities for the periods indicated. It
also sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income from interest-earning assets and the resultant average yield; (ii) the total dollar amount of interest expense on
interest-bearing liabilities and the resultant average costs; (iii) net interest/dividend income; (iv) interest rate spread; (v) net interest margin (dollars in thousands).



|                                                                                 |  |                           |        |                      |   |                   |  |      |  
|-------------------------------------------------------------------------------- |  | ------------------------- | ------ | -------------------- | - | ----------------- |  | ---- | -
|                                                                                 |  | Year ended March 31, 2006 |       
|                                                                                 |  | AverageBalance            |        | InterestandDividends |   | AverageYield/Cost | 
|Interest-earning assets:                                                         |  |                           |        |                      |   |                   |  |      |  
|Loans                                                                            |  | $                         | 7,686  |                      | $ | 583               |  | 7.59 | %
|Investment securities                                                            |  |                           | 3,077  |                      |   | 150               |  | 4.87 |  
|Interest bearing deposits and fed funds sold                                     |  |                           | 5,024  |                      |   | 198               |  | 3.93 |  
|                                                                                 |  |                           |        |                      |   |                   |  |      |  
|Total interest-earning assets                                                    |  |                           | 15,787 |                      |   | 931               |  | 5.89 |  
|                                                                                 |  |                           |        |                      |   |                   |  |      |  
|Noninterest-earning assets                                                       |  |                           | 1,121  |                      |   |                   |  |      |  
|                                                                                 |  |                           |        |                      |   |                   |  |      |  
|Total assets                                                                     |  | $                         | 16,908 |                      |   |                   |  |      |  
|                                                                                 |  |                           |        |                      |   |                   |  |      |  
|Interest-bearing liabilities:                                                    |  |                           |        |                      |   |                   |  |      |  
|Money market and NOW deposits                                                    |  |                           | 3,490  |                      |   | 103               |  | 2.95 |  
|Savings                                                                          |  |                           | 3,168  |                      |   | 140               |  | 4.42 |  
|Time deposits                                                                    |  |                           | 938    |                      |   | 38                |  | 4.04 |  
|                                                                                 |  |                           |        |                      |   |                   |  |      |  
|Total interest-bearing deposits                                                  |  |                           | 7,596  |                      |   | 281               |  | 3.69 |  
|Other borrowings                                                                 |  |                           | 116    |                      |   | 6                 |  | 5.17 |  
|                                                                                 |  |                           |        |                      |   |                   |  |      |  
|Total interest bearing liabilities                                               |  |                           | 7,712  |                      |   | 287               |  | 3.71 |  
|                                                                                 |  |                           |        |                      |   |                   |  |      |  
|Noninterest-bearing liabilities                                                  |  |                           | 812    |                      |   |                   |  |      |  
|Total Liabilities                                                                |  |                           | 8,524  |                      |   |                   |  |      |  
|Stockholders equity                                                             |  |                           | 8,384  |                      |   |                   |  |      |  
|                                                                                 |  |                           |        |                      |   |                   |  |      |  
|Total liabilities and stockholders equity                                       |  | $                         | 16,908 |                      |   |                   |  |      |  
|                                                                                 |  |                           |        |                      |   |                   |  |      |  
|Net interest income                                                              |  |                           |        |                      | $ | 644               |  |      |  
|                                                                                 |  |                           |        |                      |   |                   |  |      |  
|Interest-rate spread (1)                                                         |  |                           |        |                      |   |                   |  | 2.18 | %
|                                                                                 |  |                           |        |                      |   |                   |  |      |  
|Net interest margin (2)                                                          |  |                           |        |                      |   |                   |  | 4.08 | %
|                                                                                 |  |                           |        |                      |   |                   |  |      |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                           | 2.05   |                      |   |                   |  |      |  
|                                                                                 |  |                           |        |                      |   |                   |  |      |  

---

|(1) | Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Net interest margin is net interest income divided by average interest-earning assets.
|--- | --------------------------------------------------------------------------------------



18



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##### Table of Contents

Net interest income totaled $644,000 for year ended March 31, 2006. The net interest margin and
average interest rate spread for the same period were 4.08% and 2.18% respectively. The disparity between the two ratios is attributable to the high ratio of interest earning assets to interest bearing liabilities due to the effects of the $11.0
million capital investment in the Bank. As the Bank grows, this disparity will be significantly reduced. The Company is asset sensitive, with assets repricing more quickly than liabilities in response to changes in interest rates. As a result, the
Companys net interest margin tends to widen in a rising rate environment.

Provision and Allowance for Loan Losses

The allowance for loan losses is an estimated amount that management believes will be adequate to absorb losses inherent in the loan portfolio based on
evaluations of its collectibility. The evaluations take into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, specific problem loans and current anticipated economic conditions that may
affect the borrowers ability to pay. Management also considers the results of internal and independent external credit reviews (external credit reviews will begin in fiscal 2007).

The allowance for loan losses is established through a provision for loan losses charged against operations. Loans are charged against the allowance when
management believes that the collectibility of the principal is unlikely. While management uses the best information available to estimate probable losses on loans, future additions to the allowance may be necessary based on changes in economic
conditions. At March 31, 2006 the allowance for loan losses amounted to $198,000 or 0.90% of outstanding loans.

An analysis of the
Banks allowance for loan losses is furnished in the following table (in thousands);



|                                            |  |                         |       |                         |   |  
|------------------------------------------- |  | ----------------------- | ----- | ----------------------- | - | -
|                                            |  | Year EndedMarch 31,2006 |       | Year EndedMarch 31,2005
|Balance at beginning of period              |  | $                       |      |                         | $ | 
|Charge-offs                                 |  |                         |      |                         |   | 
|Recoveries                                  |  |                         |      |                         |   | 
|Provision charged to operations             |  |                         | 198   |                         |   | 
|                                            |  |                         |       |                         |   |  
|Balance at end of period                    |  | $                       | 198   |                         | $ | 
|                                            |  |                         |       |                         |   |  
|Average loans outstanding during the period |  | $                       | 7,686 |                         | $ | 
|                                            |  |                         |       |                         |   |  

At March 31, 2006 the allowance was allocated as follows (dollars in thousands):



|                                      |  |        |     |                                   |       |  
|------------------------------------- |  | ------ | --- | --------------------------------- | ----- | -
|                                      |  | Amount |     | % ofLoans inCategoryto TotalLoans |      
|Commercial real estate                |  | $      | 129 |                                   | 50.8  | %
|Residential Real Estate               |  |        | 53  |                                   | 36.5  |  
|Commercial                            |  |        | 4   |                                   | 1.5   |  
|Consumer                              |  |        | 6   |                                   | 5.9   |  
|Home equity loans and lines of credit |  |        | 6   |                                   | 5.3   |  
|                                      |  |        |     |                                   |       |  
|Total                                 |  | $      | 198 |                                   | 100.0 | %
|                                      |  |        |     |                                   |       |  

Noninterest Income

The primary sources of noninterest income are fees related to loans which are closed in the name of a third party (secondary market fees) and gains on the sale of loan held for sale. Other sources of noninterest
income include debit card, ATM card, check printing, safe deposit, wire transfer and official check fees. Noninterest



19



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##### Table of Contents

income was primarily gains of the sales of loans held for sale and secondary market fees. Gains on loans held for sale totaled $15,000 and secondary market
fees were $13,000. The Banks mortgage origination department was still in its organizational stages until the end of fiscal 2006. It is anticipated that income from this area will show significant increases beginning in early fiscal 2007.

Non-Interest Expense

Non-interest expense for the years ended March 31, 2006 and 2005, totaled $1.8 million and $228,000, respectively. As a percent of total average assets, non-interest expense amounted to 10.6% for fiscal 2006. Preopening expenses,
related to the organization of the Bank were $515,000 in 2006 and $228,000 in 2005.

The components of non-interest expense for the years
indicated are set forth below (in thousands):



|                                       |  |                      |       |      |   |    
|-------------------------------------- |  | -------------------- | ----- | ---- | - | ---
|                                       |  | Year ended March 31,
|                                       |  | 2006                 |       | 2005
|Salaries and benefits                  |  | $                    | 630   |      | $ |   
|Occupancy and equipment                |  |                      | 155   |      |   |   
|Data processing                        |  |                      | 67    |      |   |   
|Advertising                            |  |                      | 85    |      |   |   
|Professional fees                      |  |                      | 176   |      |   |   
|Stationary and supplies                |  |                      | 43    |      |   |   
|Preopening and organizational expenses |  |                      | 515   |      |   | 228
|Other expenses                         |  |                      | 128   |      |   |   
|                                       |  |                      |       |      |   |    
|Total non-interest expense             |  | $                    | 1,799 |      | $ | 228
|                                       |  |                      |       |      |   |    

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise during the ordinary course of business. Liquidity is primarily needed to meet
the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, scheduled amortization and prepayments of loan principal and mortgage-backed securities and
funds provided by our operations. Our ability to maintain and expand our deposit base and borrowing capabilities is an important source of liquidity.

The Companys primary source of cash during the year ended March 31, 2006, was deposit inflows of $34.9 million and net proceeds from the issuance of common stock of $14.8 million. Most of the growth in
deposits accounts can be attributable to a saving account promotion that the Bank ran during the fourth quarter of fiscal 2006. This promotion attracted total deposits of approximately $19.0 million at an average rate of 4.45%. The rate on this
product is locked for one year from the date the account is opened. Cash was used primarily to originate loans, net of principal repayments, of $22.1 million and for the purchase of $9.4 in securities available for sale.

We closely monitor and maintain appropriate levels of interest earning assets and interest bearing liabilities so that maturities of assets are such that
adequate funds are provided to meet customer withdrawals and loan demand.

The Bank is required to maintain sufficient liquidity to ensure
its safe and sound operation. Adequate liquidity is assessed by the OTS on a case-by-case basis by reviewing such factors as the institutions overall asset/liability structure, market conditions, competition and the nature of the
institutions activities. The OTS considers an institutions liquidity ratio as well as safety and soundness issues in assessing whether an institution has sufficient liquidity. The Bank has ample liquidity to meet its outstanding loan
commitments.



20



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##### Table of Contents

Quantitative measures established by bank regulations to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). As of
March 31, 2006, the Bank meets all capital adequacy requirements to which it is subject.

As of March 31, 2006, the most recent
notification from the regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Banks category.

The Banks actual capital amounts and ratios at March 31, 2006 are also presented in the table below (dollars in thousands).



|                                            |  |               |        |        |       |   |                              |   |        |                                                                |      |   |  |   |       |  |       |  
|------------------------------------------- |  | ------------- | ------ | ------ | ----- | - | ---------------------------- | - | ------ | -------------------------------------------------------------- | ---- | - |  | - | ----- |  | ----- | -
|                                            |  | Actual Amount |        | %      |       |   | For CapitalAdequacy Purposes |   |        | To be Well Capitalizedunder Prompt CorrectiveAction Provisions |     
|                                            |  |               |        | Amount |       | % |                              |   | Amount |                                                                | %    |  
|Total capital (to risk weighted assets)     |  | $             | 10,256 |        | 42.14 | % |                              | $ | 1,947  |                                                                | 8.00 | % |  | $ | 2,434 |  | 10.00 | %
|Core capital (to adjusted total assets)     |  |               | 10,058 |        | 20.63 | % |                              |   | 1,950  |                                                                | 4.00 | % |  |   | 2,437 |  | 5.00  | %
|Tangible capital (to adjusted total assets) |  |               | 10,058 |        | 20.63 | % |                              |   | 731    |                                                                | 1.50 | % |  |   | N/A   |  | N/A   |  
|Tier 1 Capital (to risk weighted assets)    |  | $             | 10,058 |        | 41.33 | % |                              |   | N/A    |                                                                | N/A  |   |  | $ | 1,460 |  | 6.00  | %

Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates. We do not engage in trading or hedging activities and do not invest in interest-rate derivatives or enter into interest-rate swaps. Our
market risk arises primarily from interest-rate risk inherent in our lending and deposit taking activities. To that end, we actively monitor and manage our interest-rate risk exposure. The measurement of market risk associated with financial
instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of financial instruments, which reflect changes in
market prices and rates, can be found in Note 8 of Notes to Consolidated Financial Statements.

Our primary objective in managing
interest-rate risk is to minimize the adverse impact of changes in interest rates on our net interest income and capital, while adjusting our asset-liability structure to obtain the maximum yield-cost spread on that structure. We rely primarily on
our asset-liability structure to control interest-rate risk. See the section below titled Asset-Liability Structure. However, a sudden and substantial increase in interest rates may adversely impact our earnings, to the extent that the interest
rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis.

We use modeling
techniques to simulate changes in net interest income under various rate scenarios. Important elements of these techniques include the mix of floating versus fixed-rate assets and liabilities, and the scheduled, as well as expected, repricing and
maturing volumes and rates of the existing balance sheet.

AssetLiability Structure

As part of our asset and liability structure we emphasize establishing and implementing internal asset-liability decision processes, as well as
communications and control procedures to aid in managing our operations. We believe these processes and procedures provide us with better capital planning, asset mix and volume controls, loan-pricing guidelines, and deposit interest-rate guidelines
which should result in tighter controls and less exposure to interest-rate risk.



21



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The matching of assets and liabilities may be analyzed by examining the extent to which such assets and
liabilities are interest-rate sensitive and by monitoring an institutions interest rate sensitivity gap. An asset or liability is said to be interest-rate sensitive within a specific time period if it will mature or
reprice within that time period. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. The gap ratio is computed as rate
sensitive assets/rate sensitive liabilities. A gap ratio of 1.0 represents perfect matching. A gap is considered positive when the amount of interest-rate sensitive assets exceeds interest-rate sensitive liabilities. A gap is considered negative
when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets. During a period of rising interest rates, a negative gap would adversely affect net interest income, while a positive gap would result in an increase in
net interest income. During a period of falling interest rates, a negative gap would result in an increase in net interest income, while a positive gap would adversely affect net interest income.

In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on the results of operations, we monitor
asset and liability management policies to better match the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities. Such policies have consisted primarily of: (i) emphasizing the origination of
adjustable-rate loans; (ii) building a stable core deposit base; and (iii) maintaining a significant portion of liquid assets (cash and short-term securities).

The following table sets forth certain information relating to our interest-earning assets and interest-bearing liabilities at March 31, 2006 that are estimated to mature or are scheduled to reprice within the
period shown (dollars in thousands):



|                                           |  |                   |        |   |                               |   |       |                                |  |   |               |   |  |       |        |   |  |   |       
|------------------------------------------ |  | ----------------- | ------ | - | ----------------------------- | - | ----- | ------------------------------ |  | - | ------------- | - |  | ----- | ------ | - |  | - | ------
|                                           |  | Less than oneyear |        |   | More thanone yearto fiveyears |   |       | More thanfive yearsto tenyears |  |   | Over tenyears |   |  | Total
|Loans (1):                                 |  |                   |        |   |                               |   |       |                                |  |   |               |   |  |       |        |   |  |   |       
|Variable rate                              |  | $                 | 16,332 |   |                               | $ | 1,907 |                                |  | $ | 1,000         |   |  | $     | 410    |   |  | $ | 19,649
|Fixed rate                                 |  |                   | 460    |   |                               |   | 1,946 |                                |  |   |              |   |  |       |       |   |  |   | 2,406 
|                                           |  |                   |        |   |                               |   |       |                                |  |   |               |   |  |       |        |   |  |   |       
|Total loans                                |  |                   | 16,792 |   |                               |   | 3,853 |                                |  |   | 1,000         |   |  |       | 410    |   |  |   | 22,055
|Securities available for sale              |  |                   |       |   |                               |   | 1,884 |                                |  |   | 1,802         |   |  |       | 5,107  |   |  |   | 8,793 
|Federal funds sold                         |  |                   | 15,670 |   |                               |   |      |                                |  |   |              |   |  |       |       |   |  |   | 15,670
|Interest bearing due from banks            |  |                   | 24     |   |                               |   |      |                                |  |   |              |   |  |       |       |   |  |   | 24    
|Federal Home Loan Bank of Atlanta stock    |  |                   |       |   |                               |   |      |                                |  |   |              |   |  |       | 48     |   |  |   | 48    
|                                           |  |                   |        |   |                               |   |       |                                |  |   |               |   |  |       |        |   |  |   |       
|Total rate-sensitive assets                |  |                   | 32,486 |   |                               |   | 5,737 |                                |  |   | 2,802         |   |  |       | 5,565  |   |  |   | 46,590
|                                           |  |                   |        |   |                               |   |       |                                |  |   |               |   |  |       |        |   |  |   |       
|Deposit accounts:                          |  |                   |        |   |                               |   |       |                                |  |   |               |   |  |       |        |   |  |   |       
|Savings, NOW and money market deposits (2) |  |                   | 26,533 |   |                               |   |      |                                |  |   |              |   |  |       |       |   |  |   | 26,533
|Time deposits (2)                          |  |                   | 3,329  |   |                               |   |      |                                |  |   |              |   |  |       |       |   |  |   | 3,329 
|                                           |  |                   |        |   |                               |   |       |                                |  |   |               |   |  |       |        |   |  |   |       
|Total rate-sensitive liabilities           |  |                   | 29,862 |   |                               |   |      |                                |  |   |              |   |  |       |       |   |  |   | 29,862
|                                           |  |                   |        |   |                               |   |       |                                |  |   |               |   |  |       |        |   |  |   |       
|GAP repricing differences                  |  | $                 | 2,624  |   |                               | $ | 5,737 |                                |  | $ | 2,802         |   |  | $     | 5,565  |   |  | $ | 16,728
|                                           |  |                   |        |   |                               |   |       |                                |  |   |               |   |  |       |        |   |  |   |       
|Cumulative GAP                             |  | $                 | 2,624  |   |                               | $ | 8,361 |                                |  | $ | 11,163        |   |  | $     | 16,728 |   |  |   |       
|                                           |  |                   |        |   |                               |   |       |                                |  |   |               |   |  |       |        |   |  |   |       
|Cumulative GAP/total assets                |  |                   | 5.39   | % |                               |   | 17.17 | %                              |  |   | 22.93         | % |  |       | 34.35  | % |  |   |       

---

|(1) | Adjustable-rate loans are included in the period in which the interest rates are next scheduled to adjust rather than in the period in which the loans mature. Fixed-rate loans are
scheduled, including repayment, according to their maturities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Money-market, NOW, and savings deposits are regarded as ready accessible withdrawable accounts. Time deposits are scheduled through the maturity dates.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

The following table reflects the contractual principal repayments by period of the loan portfolio at
March 31, 2006 (in thousands):



|                       |  |                       |        |                        |   |            |  |          |     |                             |   |       |  |   |       |  |   |       
|---------------------- |  | --------------------- | ------ | ---------------------- | - | ---------- |  | -------- | --- | --------------------------- | - | ----- |  | - | ----- |  | - | ------
|Years Ending March 31, |  | CommercialReal Estate |        | ResidentialReal Estate |   | Commercial |  | Consumer |     | HomeequityandLines ofCredit |   | Total
|Due within one year    |  | $                     | 3,490  |                        | $ | 2,881      |  | $        | 26  |                             | $ | 1,151 |  | $ | 21    |  | $ | 7,569 
|One to five years      |  |                       | 7,314  |                        |   | 2,430      |  |          | 269 |                             |   | 159   |  |   |      |  |   | 10,172
|Five to ten years      |  |                       | 266    |                        |   |           |  |          | 39  |                             |   |      |  |   | 1,140 |  |   | 1,445 
|Over ten years         |  |                       | 131    |                        |   | 2,738      |  |          |    |                             |   |      |  |   |      |  |   | 2,869 
|                       |  |                       |        |                        |   |            |  |          |     |                             |   |       |  |   |       |  |   |       
|Total                  |  | $                     | 11,201 |                        | $ | 8,049      |  | $        | 334 |                             | $ | 1,310 |  | $ | 1,161 |  | $ | 22,055
|                       |  |                       |        |                        |   |            |  |          |     |                             |   |       |  |   |       |  |   |       

Of the $14.5 million of loans due after March 31, 2007, 13.0% of such loans have
fixed-interest rates and 87.0% have adjustable interest rates.

Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of loans is substantially less than their average contractual terms due to prepayments. In addition, due-on-sale clauses on loans generally give us the right to declare a conventional loan immediately due
and payable in the event, among other things, that the borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase, however, when current mortgage loan rates are
substantially higher than rates on existing mortgage loans and, conversely, decrease when rates on existing mortgages are substantially higher than current mortgage loan rates.

Investments

The Bank, as a
federally chartered savings association, has authority to invest in various types of liquid assets, including United States Treasury obligations, securities of federal agencies, certificates of deposit of federally insured banks and savings
associations, bankers acceptances and federal funds. Subject to various restrictions, the Bank also may invest a portion of its assets in commercial paper, corporate debt securities, and mutual funds whose assets conform to the investments
that a federally chartered savings association is otherwise authorized to make directly.

The Companys investments securities
portfolio consisted of eight mortgage backed securities, classified as available for sale and with a fair market value of $8,793,000 and with a yield of 5.06% at March 31, 2006.

The following table sets forth the maturity and yield on the Banks investment securities portfolio at March 31, 2006(dollars in thousands).



|                           |  |                        |   |       |                               |   |        |                               |       |  |                 |        |  |       |       |  |        |   |       |   |       |  |      |  
|-------------------------- |  | ---------------------- | - | ----- | ----------------------------- | - | ------ | ----------------------------- | ----- |  | --------------- | ------ |  | ----- | ----- |  | ------ | - | ----- | - | ----- |  | ---- | -
|                           |  | At March 31, 2006      |  
|                           |  | Within One Year        |   |       | After One ButWithinFive Years |   |        | After Five ButWithinTen Years |       |  | After Ten Years |       
|                           |  | Amount                 |   | Yield |                               |   | Amount |                               | Yield |  |                 | Amount |  | Yield |       |  | Amount |   | Yield |  
|                           |  | (Dollars in thousands) |  
|                           |  |                        |   |       |                               |   |        |                               |       |  |                 |        |  |       |       |  |        |   |       |   |       |  |      |  
|Mortgage-backed securities |  | $                      |  |       |                              | % |        | $                             | 1,884 |  | 4.66            | %      |  | $     | 1,802 |  | 4.70   | % |       | $ | 5,107 |  | 5.33 | %
|                           |  |                        |   |       |                               |   |        |                               |       |  |                 |        |  |       |       |  |        |   |       |   |       |  |      |  

Deposit and Other Source of Funds

General.In addition to deposits, the sources of funds available for lending and other business purposes include loan repayments. Loan
repayments are a relatively stable source of funds, while deposit inflows and outflows are influenced significantly by general interest rates and money-market conditions. Borrowings may be used on a short-term basis to compensate for reductions in
other sources, such as deposits at less than projected levels.



23



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Deposits. Deposits are attracted principally from our primary geographic market area of
Collier County Florida. We offer a variety of deposit instruments including demand deposit accounts, NOW accounts, money- market accounts, regular savings accounts, term certificate accounts and retirement savings plans (such as IRA accounts).
Certificate of deposit rates are set to encourage longer maturities as cost and market conditions will allow. Deposit account terms vary, with the primary differences being the minimum balance required, the time period the funds must remain on
deposit and the interest rate. We set the deposit interest rates weekly based on a review of deposit flows for the previous week, a survey of rates among competitors and other financial institutions in Florida.

The following table shows the distribution of, and certain other information relating to, our deposit accounts by type (dollars in thousands):



|                              |  |                   |        |              |       |  
|----------------------------- |  | ----------------- | ------ | ------------ | ----- | -
|                              |  | At March 31, 2006 |       
|                              |  | Amount            |        | % ofDeposits |      
|Noninterest-bearing deposits  |  | $                 | 5,029  |              | 14.4  | %
|Savings                       |  |                   | 19,740 |              | 56.6  |  
|NOW and money market deposits |  |                   | 6,793  |              | 19.5  |  
|                              |  |                   |        |              |       |  
|Subtotal                      |  |                   | 31,562 |              | 90.5  |  
|                              |  |                   |        |              |       |  
|Certificate of deposits:      |  |                   |        |              |       |  
|3.00%  3.99%                 |  |                   | 283    |              | 0.8   |  
|4.00%  4.99%                 |  |                   | 3,046  |              | 8.7   |  
|                              |  |                   |        |              |       |  
|Total certificates of deposit |  |                   | 3,329  |              | 9.5   |  
|                              |  |                   |        |              |       |  
|Total deposits                |  | $                 | 34,891 |              | 100.0 | %
|                              |  |                   |        |              |       |  

The following table shows the average amount outstanding and the average rate paid on each of the
following deposit account categories during the period indicated (dollars in thousands).



|                                |  |                           |       |             |      |  
|------------------------------- |  | ------------------------- | ----- | ----------- | ---- | -
|                                |  | Year ended March 31, 2006 |      
|                                |  | Averagebalance            |       | AverageRate |     
|NOW accounts                    |  | $                         | 1,638 |             | 2.91 | %
|Money market accounts           |  |                           | 1,852 |             | 2.98 |  
|Savings accounts                |  |                           | 3,168 |             | 4.42 |  
|Certificates of Deposit         |  |                           | 938   |             | 4.04 |  
|                                |  |                           |       |             |      |  
|Total interest bearing deposits |  | $                         | 7,596 |             | 3.69 | %
|                                |  |                           |       |             |      |  

Maturity information regarding the Banks jumbo certificates ($100,000 and over) is shown
below.



|                                        |  |                  |      
|--------------------------------------- |  | ---------------- | -----
|                                        |  | At March 31,2006
|                                        |  | (in thousands)  
|Due three months or less                |  | $                |     
|Due three months to one year            |  |                  | 1,684
|Due over one years                      |  |                  |     
|                                        |  |                  |      
|Total time deposits of $100,000 or more |  | $                | 1,684
|                                        |  |                  |      



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##### Table of Contents

|ITEM 7. | FINANCIAL STATEMENTS
|------- | --------------------

INDEX TO FINANCIAL STATEMENTS



|                                                           |  |     
|---------------------------------------------------------- |  | ----
|                                                           |  | Page
|                                                           | 
|Report of Independent Registered Public Accounting Firm    |  | 27  
|                                                           | 
|Consolidated Balance Sheets                                |  | 28  
|                                                           | 
|Consolidated Statements of Operations                      |  | 29  
|                                                           | 
|Consolidated Statements of Changes in Stockholders Equity |  | 30  
|                                                           | 
|Consolidated Statements of Cash Flows                      |  | 31  
|                                                           | 
|Notes to Consolidated Financial Statements                 |  | 32  



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Naples, Florida

Audited Consolidated
Financial Statements

At March 31, 2006 and 2005 and for the Years Then Ended

(Together with Report of Independent Registered Public Accounting Firm)



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

Partners Financial Corporation

Naples, Florida:

We have audited the accompanying consolidated balance sheets of Partners Financial Corporation and Subsidiary (the Company) as of March 31, 2006 and 2005, and the related consolidated statements of operations, changes in
stockholders equity, and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of March 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

HACKER, JOHNSON & SMITH PA

Tampa, Florida

June 16, 2006



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Balance Sheets

(dollars in thousands, except per share data)



|                                                                                                        |  |           |        |   |      |   |      |  
|------------------------------------------------------------------------------------------------------- |  | --------- | ------ | - | ---- | - | ---- | -
|                                                                                                        |  | March 31, |       
|                                                                                                        |  | 2006      |        |   | 2005 |  
|ASSETS                                                                                                  |  |           |        |   |      |   |      |  
|Cash and due from banks                                                                                 |  | $         | 99     |   |      | $ | 32   |  
|Federal funds sold                                                                                      |  |           | 15,670 |   |      |   |     |  
|Interest-bearing deposits with banks                                                                    |  |           | 24     |   |      |   |     |  
|                                                                                                        |  |           |        |   |      |   |      |  
|Total cash and cash equivalents                                                                         |  |           | 15,793 |   |      |   | 32   |  
|                                                                                                        |  |          
|Securities available for sale, at fair value                                                            |  |           | 8,793  |   |      |   |     |  
|                                                                                                        |  |          
|Loans held for sale                                                                                     |  |           | 265    |   |      |   |     |  
|Loans, net of allowance for loan losses of $198                                                         |  |           | 21,876 |   |      |   |     |  
|Premises and equipment, net                                                                             |  |           | 889    |   |      |   | 289  |  
|Federal Home Loan Bank of Atlanta Stock, at cost                                                        |  |           | 48     |   |      |   |     |  
|Prepaid common stock offering costs                                                                     |  |           |       |   |      |   | 63   |  
|Accrued interest receivable                                                                             |  |           | 132    |   |      |   |     |  
|Deferred income taxes                                                                                   |  |           | 620    |   |      |   |     |  
|Other assets                                                                                            |  |           | 277    |   |      |   | 28   |  
|                                                                                                        |  |           |        |   |      |   |      |  
|Total assets                                                                                            |  | $         | 48,693 |   |      | $ | 412  |  
|                                                                                                        |  |           |        |   |      |   |      |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                    |  |           |        |   |      |   |      |  
|Liabilities                                                                                             |  |           |        |   |      |   |      |  
|Deposits:                                                                                               |  |           |        |   |      |   |      |  
|Non-interest bearing demand deposits                                                                    |  | $         | 5,029  |   |      | $ |     |  
|Savings, NOW, money-market deposits                                                                     |  |           | 26,533 |   |      |   |     |  
|Time deposits                                                                                           |  |           | 3,329  |   |      |   |     |  
|                                                                                                        |  |           |        |   |      |   |      |  
|Total Deposits                                                                                          |  |           | 34,891 |   |      |   |     |  
|Note payable                                                                                            |  |           |       |   |      |   | 401  |  
|Accrued interest payable and other liabilities                                                          |  |           | 37     |   |      |   | 4    |  
|                                                                                                        |  |           |        |   |      |   |      |  
|Total liabilities                                                                                       |  |           | 34,928 |   |      |   | 405  |  
|                                                                                                        |  |           |        |   |      |   |      |  
|Commitments and contingencies (Notes 4, 7 and 9)                                                        |  |           |        |   |      |   |      |  
|                                                                                                        |  |          
|Stockholders Equity                                                                                    |  |           |        |   |      |   |      |  
|Preferred stock, no par value; 1,000,000 shares authorized, 2,350 shares issued and outstanding in 2005 |  |           |       |   |      |   | 235  |  
|Common stock, $.01 par value; 9,000,000 shares authorized, 1,500,000 issued and outstanding in 2006     |  |           | 15     |   |      |   |     |  
|Additional paid-in capital                                                                              |  |           | 14,783 |   |      |   |     |  
|Accumulated deficit                                                                                     |  |           | (964   | ) |      |   | (228 | )
|Accumulated other comprehensive loss                                                                    |  |           | (69    | ) |      |   |     |  
|                                                                                                        |  |           |        |   |      |   |      |  
|Total stockholders equity                                                                              |  |           | 13,765 |   |      |   | 7    |  
|                                                                                                        |  |           |        |   |      |   |      |  
|Total liabilities and stockholders equity                                                              |  | $         | 48,693 |   |      | $ | 412  |  
|                                                                                                        |  |           |        |   |      |   |      |  

See Accompanying Notes to Consolidated Financial Statements.



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Operations

(dollars in thousands, except per share data)



|                                                                 |  |                      |           |   |      |   |      |  
|---------------------------------------------------------------- |  | -------------------- | --------- | - | ---- | - | ---- | -
|                                                                 |  | Year Ended March 31, |          
|                                                                 |  | 2006                 |           |   | 2005 |  
|Interest income:                                                 |  |                      |           |   |      |   |      |  
|Loans                                                            |  | $                    | 583       |   |      | $ |     |  
|Investment securities                                            |  |                      | 150       |   |      |   |     |  
|Other interest-earning assets                                    |  |                      | 198       |   |      |   |     |  
|                                                                 |  |                      |           |   |      |   |      |  
|Total interest income                                            |  |                      | 931       |   |      |   |     |  
|Interest expense:                                                |  |                      |           |   |      |   |      |  
|Deposits                                                         |  |                      | 281       |   |      |   |     |  
|Borrowings                                                       |  |                      | 6         |   |      |   |     |  
|                                                                 |  |                      |           |   |      |   |      |  
|Total interest expense                                           |  |                      | 287       |   |      |   |     |  
|                                                                 |  |                      |           |   |      |   |      |  
|Net interest income                                              |  |                      | 644       |   |      |   |     |  
|Provision for loan losses                                        |  |                      | 198       |   |      |   |     |  
|                                                                 |  |                      |           |   |      |   |      |  
|Net interest income after provision for loan losses              |  |                      | 446       |   |      |   |     |  
|                                                                 |  |                      |           |   |      |   |      |  
|Noninterest income:                                              |  |                      |           |   |      |   |      |  
|Gain on sale of loans held for sale                              |  |                      | 15        |   |      |   |     |  
|Service charges on deposit accounts                              |  |                      | 3         |   |      |   |     |  
|Secondary market fees                                            |  |                      | 13        |   |      |   |     |  
|Other service charges and fees                                   |  |                      | 8         |   |      |   |     |  
|                                                                 |  |                      |           |   |      |   |      |  
|Total noninterest income                                         |  |                      | 39        |   |      |   |     |  
|                                                                 |  |                      |           |   |      |   |      |  
|Noninterest expenses:                                            |  |                      |           |   |      |   |      |  
|Salaries and employee benefits                                   |  |                      | 630       |   |      |   |     |  
|Occupancy and equipment                                          |  |                      | 155       |   |      |   |     |  
|Data processing and systems expenses                             |  |                      | 67        |   |      |   |     |  
|Advertising                                                      |  |                      | 85        |   |      |   |     |  
|Professional fees                                                |  |                      | 176       |   |      |   |     |  
|Stationary and supplies                                          |  |                      | 43        |   |      |   |     |  
|Preopening and organizational expenses                           |  |                      | 515       |   |      |   | 228  |  
|Other                                                            |  |                      | 128       |   |      |   |     |  
|                                                                 |  |                      |           |   |      |   |      |  
|Total noninterest expenses                                       |  |                      | 1,799     |   |      |   | 228  |  
|                                                                 |  |                      |           |   |      |   |      |  
|Loss before income tax benefit                                   |  |                      | (1,314    | ) |      |   | (228 | )
|Income tax benefit                                               |  |                      | (578      | ) |      |   |     |  
|                                                                 |  |                      |           |   |      |   |      |  
|Net loss                                                         |  | $                    | (736      | ) |      | $ | (228 | )
|                                                                 |  |                      |           |   |      |   |      |  
|Net loss per share, basic and diluted                            |  | $                    | (0.59     | ) |      | $ |     |  
|                                                                 |  |                      |           |   |      |   |      |  
|Weighted-average number of shares outstanding, basic and diluted |  |                      | 1,255,091 |   |      |   |     |  
|                                                                 |  |                      |           |   |      |   |      |  

See Accompanying Notes to Consolidated Financial Statements.



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders
Equity

Years Ended March 31, 2006 and 2005

(dollars in thousands, except share data)



|                                                                                  |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |      |   |                          |   |     |   |  |   |        |  
|--------------------------------------------------------------------------------- |  | --------------- | ---- | - | ------------ | - | ------------------------ |  | ------------------ | ------ |  | --------------------------------- | ---- | - | ------------------------ | - | --- | - |  | - | ------ | -
|                                                                                  |  | Preferred Stock |      |   | Common Stock |   | AdditionalPaid-InCapital |  | AccumulatedDeficit |        |  | AccumulatedOtherComprehensiveLoss |      |   | TotalStockholdersEquity |  
|Balance at March 31, 2004                                                         |  | $               |     |   |              | $ |                         |  | $                  |       |  | $                                 |     |   |                          | $ |    |   |  | $ |       |  
|Net loss accumulated during the development stage                                 |  |                 |     |   |              |   |                         |  |                    |       |  |                                   | (228 | ) |                          |   |    |   |  |   | (228   | )
|Issuance of preferred stock                                                       |  |                 | 235  |   |              |   |                         |  |                    |       |  |                                   |     |   |                          |   |    |   |  |   | 235    |  
|                                                                                  |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |      |   |                          |   |     |   |  |   |        |  
|Balance at March 31, 2005                                                         |  |                 | 235  |   |              |   |                         |  |                    |       |  |                                   | (228 | ) |                          |   |    |   |  |   | 7      |  
|                                                                                  |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |      |   |                          |   |     |   |  |   |        |  
|Comprehensive loss:                                                               |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |      |   |                          |   |     |   |  |   |        |  
|Net loss                                                                          |  |                 |     |   |              |   |                         |  |                    |       |  |                                   | (736 | ) |                          |   |    |   |  |   | (736   | )
|Unrealized loss on securities available for sale, net of tax benefit              |  |                 |     |   |              |   |                         |  |                    |       |  |                                   |     |   |                          |   | (69 | ) |  |   | (69    | )
|                                                                                  |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |      |   |                          |   |     |   |  |   |        |  
|Comprehensive loss                                                                |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |      |   |                          |   |     |   |  |   | (805   | )
|                                                                                  |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |      |   |                          |   |     |   |  |   |        |  
|Redemption of preferred stock                                                     |  |                 | (235 | ) |              |   |                         |  |                    |       |  |                                   |     |   |                          |   |    |   |  |   | (235   | )
|Issuance of common stock, net of stock issuance costs of $202; (1,500,000 shares) |  |                 |     |   |              |   | 15                       |  |                    | 14,783 |  |                                   |     |   |                          |   |    |   |  |   | 14,798 |  
|                                                                                  |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |      |   |                          |   |     |   |  |   |        |  
|Balance at March 31, 2006                                                         |  | $               |     |   |              | $ | 15                       |  | $                  | 14,783 |  | $                                 | (964 | ) |                          | $ | (69 | ) |  | $ | 13,765 |  
|                                                                                  |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |      |   |                          |   |     |   |  |   |        |  

See Accompanying Notes to Consolidated Financial Statements.



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

(in thousands)



|                                                                                                           |  |                      |         |   |      |   |      |  
|---------------------------------------------------------------------------------------------------------- |  | -------------------- | ------- | - | ---- | - | ---- | -
|                                                                                                           |  | Year Ended March 31, |        
|                                                                                                           |  | 2006                 |         |   | 2005 |  
|Cash flows from operating activities:                                                                      |  |                      |         |   |      |   |      |  
|Net loss                                                                                                   |  | $                    | (736    | ) |      | $ | (228 | )
|Adjustments to reconcile net loss to net cash used in operating activities:                                |  |                      |         |   |      |   |      |  
|Depreciation and amortization                                                                              |  |                      | 60      |   |      |   |     |  
|Provision for loan losses                                                                                  |  |                      | 198     |   |      |   |     |  
|Deferred income tax benefit                                                                                |  |                      | (578    | ) |      |   |     |  
|Accretion of premiums and discounts on securities available for sale                                       |  |                      | (3      | ) |      |   |     |  
|Amortization of loan fees and costs, net                                                                   |  |                      | (2      | ) |      |   |     |  
|Loans originated for sale                                                                                  |  |                      | (1,220  | ) |      |   |     |  
|Gain on sale of loans held for sale                                                                        |  |                      | (15     | ) |      |   |     |  
|Proceeds from sales of loans held for sale                                                                 |  |                      | 970     |   |      |   |     |  
|Increase in accrued interest receivable                                                                    |  |                      | (132    | ) |      |   |     |  
|Increase in other assets                                                                                   |  |                      | (249    | ) |      |   | (28  | )
|Increase in accrued interest payable and other liabilities                                                 |  |                      | 33      |   |      |   | 4    |  
|                                                                                                           |  |                      |         |   |      |   |      |  
|Net cash used in operating activities                                                                      |  |                      | (1,674  | ) |      |   | (252 | )
|                                                                                                           |  |                      |         |   |      |   |      |  
|Cash flows from investing activities:                                                                      |  |                      |         |   |      |   |      |  
|Net increase in loans                                                                                      |  |                      | (22,072 | ) |      |   |     |  
|Purchase of securities available for sale                                                                  |  |                      | (9,352  | ) |      |   |     |  
|Proceeds from principal repayments on securities available for sale                                        |  |                      | 451     |   |      |   |     |  
|Purchase of Federal Home Loan Bank stock                                                                   |  |                      | (48     | ) |      |   |     |  
|Purchase of premises and equipment                                                                         |  |                      | (660    | ) |      |   | (289 | )
|                                                                                                           |  |                      |         |   |      |   |      |  
|Net cash used in investing activities                                                                      |  |                      | (31,681 | ) |      |   | (289 | )
|                                                                                                           |  |                      |         |   |      |   |      |  
|Cash flows from financing activities:                                                                      |  |                      |         |   |      |   |      |  
|Net increase in deposits                                                                                   |  |                      | 34,891  |   |      |   |     |  
|Proceeds from issuance of common stock                                                                     |  |                      | 15,000  |   |      |   |     |  
|Proceeds from issuance of preferred stock                                                                  |  |                      |        |   |      |   | 105  |  
|Redemption of preferred stock                                                                              |  |                      | (235    | ) |      |   |     |  
|Proceeds from note payable                                                                                 |  |                      |        |   |      |   | 401  |  
|Repayment of note payable                                                                                  |  |                      | (401    | ) |      |   |     |  
|Payment of common stock offering costs                                                                     |  |                      | (139    | ) |      |   | (63  | )
|Proceeds received from organizers                                                                          |  |                      |        |   |      |   | 130  |  
|                                                                                                           |  |                      |         |   |      |   |      |  
|Net cash provided by financing activities                                                                  |  |                      | 49,116  |   |      |   | 573  |  
|                                                                                                           |  |                      |         |   |      |   |      |  
|Net increase in cash and cash equivalents                                                                  |  |                      | 15,761  |   |      |   | 32   |  
|Cash and cash equivalents at beginning of year                                                             |  |                      | 32      |   |      |   |     |  
|                                                                                                           |  |                      |         |   |      |   |      |  
|Cash and cash equivalents at end of year                                                                   |  | $                    | 15,793  |   |      | $ | 32   |  
|                                                                                                           |  |                      |         |   |      |   |      |  
|Supplemental disclosure of cash flow informationCash paid during the year for:                            |  |                      |         |   |      |   |      |  
|Interest                                                                                                   |  | $                    | 266     |   |      | $ |     |  
|                                                                                                           |  |                      |         |   |      |   |      |  
|Income taxes                                                                                               |  | $                    |        |   |      | $ |     |  
|                                                                                                           |  |                      |         |   |      |   |      |  
|Noncash transactions:                                                                                      |  |                      |         |   |      |   |      |  
|Accumulated other comprehensive loss, unrealized loss on securities available for sale, net of tax benefit |  | $                    | (69     | ) |      | $ |     |  
|                                                                                                           |  |                      |         |   |      |   |      |  
|Transfer of due to organizers to preferred stock                                                           |  | $                    |        |   |      | $ | 130  |  
|                                                                                                           |  |                      |         |   |      |   |      |  

See Accompanying Notes to Consolidated Financial Statements.



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

At March 31, 2006 and 2005 and for the Years Then Ended



|(1) | Summary of Significant Accounting Policies
|--- | ------------------------------------------

Organization. Partners Financial Corporation (the Holding Company) was incorporated in the State of Florida on February 11, 2004 to serve as the holding company for Partners Bank (the Bank), a
federal savings bank then in organization (collectively The Company). The Bank commenced operations on August 24, 2005. Since such time, the Holding Companys only business activity is the operation of the Bank. Prior to the
Bank opening on August 24, 2005, the operation of the Holding Company related solely to raising capital for the Bank and completing the Bank organization process. The Company has adopted a fiscal year end of March 31.

The Bank offers a variety of community banking services to individual and business customers through its banking office located in Naples, Florida. The
Banks primary business activity is attracting deposits from the general public and using the proceeds for investments and loan originations. The deposits in the Bank are insured by the Federal Deposit Insurance Corporation. The Bank is subject
to competition from other financial institutions. The Bank is subject to the regulations of certain federal agencies, including its primary federal regulator, the Office of Thrift Supervision (OTS) and undergoes periodic examinations by
those regulatory authorities.

Basis of Presentation.The accompanying consolidated financial statements include the accounts
of the Holding Company and the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.

The
following is a description of the significant accounting policies and practices followed by the Company, which conform to U.S. generally accepted accounting principles and prevailing practices within the banking industry.

Estimates.The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents. For
purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks, interest-bearing deposits with banks and federal funds sold, all with maturities of less than ninety days.

Banks are required to maintain cash reserves in the form of vault cash or in a noninterest-earning account with the Federal Reserve Bank or in
noninterest-earning accounts with other qualified banks based on the balances of their transaction deposit accounts. The Banks reserve requirement at March 31, 2006 was met by its cash on hand.

Securities. The Company may classify its securities as either trading, held to maturity or available for sale. Trading securities are held
principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in earnings. Held-to-maturity securities are those which the Company has the positive intent and ability to hold to
maturity and are reported at amortized cost. Available-for-sale securities consist of securities not classified as trading securities nor as held-to-maturity securities. Unrealized holding gains and losses, net of tax, on available-for-sale
securities are excluded from earnings (loss) and reported in other comprehensive loss. Gains and losses on the sale of available-for-sale securities are recorded on the trade date and are determined using the specific-identification method. Premiums
and discounts on securities available for sale are recognized in interest income using the interest method over the period to maturity.



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



Loans Held For Sale.Mortgage loans originated which are intended for sale in
the secondary market are carried at the lower of book value or estimated fair value in the aggregate. Net unrealized losses are recognized through a valuation allowance by charges to operations. At March 31, 2006 the fair value of loans held
for sale exceeded book value in the aggregate.

Loans. Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs.

Loan origination fees are deferred and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan.

The accrual of interest on loans is discontinued at the time the loan is ninety days delinquent unless the loan is well collateralized and
in process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery
method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for
loan losses charged to operations. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectibility of
the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard or special mention. For such loans 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 is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical industry loss
experience adjusted for qualitative factors.

A loan is considered impaired when, based on current information and events, it is probable
that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status,
collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the
borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and commercial real estate loans by either the present value of
expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Company does not separately identify individual consumer, home equity, lines of credit and residential loans for impairment disclosures.

Premises and Equipment. Land is stated at cost. Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense are computed using the
straight-line method over the estimated useful life of each type of asset or lease term if shorter.

Transfer of Financial
Assets. Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company,
(2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred
assets through an agreement to repurchase them before their maturity.

Income Taxes. Deferred income tax assets and
liabilities are recorded to reflect the tax consequences on future years of temporary differences between revenues and expenses reported for financial statement and those reported for income tax purposes. Deferred tax assets and liabilities are
measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The Company recognized a deferred tax benefit and deferred tax asset during the year
ended March 31, 2006, because management believes it is more likely than not it will utilize the deferred tax asset to offset income tax liabilities generated in future periods.

Off-Balance-Sheet Financial Instruments.In the ordinary course of business the Company has entered into off-balance-sheet financial
instruments consisting of commitments to extend credit, unused lines of credit and undisbursed loans. Such financial instruments are recorded in the consolidated financial statements when they are funded.

Advertising. The Company expenses all media advertising as incurred.

Fair Values of Financial Instruments. The fair value of a financial instrument is the current amount that would be exchanged between
willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Companys various financial instruments. In cases where
quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future
cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from fair value disclosure requirements. Accordingly, the
aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following methods and assumptions were used by the Company in estimating fair values of financial instruments:

Cash and Cash Equivalents. The carrying amounts of cash and cash equivalents approximates their fair value.

Securities available for sale.Fair values for these securities are based on bid quotations from securities dealers.



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



Loans Held for Sale.Fair values of loans held for sale are based on
commitments on hand from investors or prevailing market prices.

Loans.For variable-rate loans that reprice
frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for certain fixed-rate mortgage (e.g. one-to-four family residential), commercial real estate and commercial loans are estimated using
discounted cash flow analyses using the OTS pricing model.

Federal Home Loan Bank of Atlanta Stock.The
carrying amount approximates fair value.

Accrued Interest Receivable. The carrying amount approximates fair
value.

Deposits. The fair values disclosed for demand, savings, NOW and money-market deposits are, by
definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate time deposits are estimated using discounted cash flow analysis using the OTS pricing model.

Note Payable.The fair value of the note payable was its carrying value.

Off-Balance-Sheet Instruments. Fair values for off-balance-sheet lending commitments are based on fees currently charged to
enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standing.

Loss Per Share.Loss per share of common stock has been computed on the basis of the weighted-average number of shares of common stock outstanding. Outstanding common stock warrants are not considered
dilutive securities due to the net loss incurred by the Company.

Comprehensive income (loss).Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net earnings (loss). Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale
securities, are reported as a separate component of the equity section of the consolidated balance sheet, such items, along with net earnings (loss), are components of comprehensive income (loss).

Recent Accounting Pronouncements. In December 2003, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. This SOP requires acquired impaired loans for which it is probable that the investor will be unable to
collect all contractually required payments receivable to be recorded at the present value of amounts expected to be received. The SOP also prohibits carrying over or creation of valuation allowances in the initial accounting for these loans. The
SOP was effective for loans acquired in fiscal years beginning after December 15, 2004. The adoption of this SOP did not impact the Companys financial position or results of operations.

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 123 (Revised), Share-Based Payment (SFAS No. 123(R)). This Statement replaces SFAS No. 123, Accounting for Stock-Based Compensation as amended by SFAS 148, Accounting for Stock-Based Compensation
Transition and Disclosure (collectively SFAS No. 123), and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). SFAS No. 123(R)
clarifies and expands SFAS No. 123s guidance in several areas, including measuring fair value, classifying an award as equity or as a liability, accounting for nonsubstantive vesting provisions, and attributing compensation cost to
reporting periods. Under the provisions of SFAS No. 123(R), the alternative to use APB No. 25s intrinsic value method of accounting



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



that was provided in SFAS No. 123, as originally issued, is eliminated. At March 31, 2006, the Company had no stock compensation plans. At such
time that any stock compensation plans are enacted, the Company will begin expensing the fair value of any future grants of stock awards.

In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections, which replaces APB Opinion No. 20, Accounting Changes, and SFAS 3, Reporting Accounting Changes in Interim Financial Statements an
Amendment of APB Opinion No. 28. SFAS 154 changes the requirements for the accounting and reporting of a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005.

On February 16, 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid
Instruments (SFAS 155), which permits, but does not require, fair value accounting for any hybrid financial instrument that contains an embedded derivative that would otherwise require bifurcation in accordance with SFAS 133. The statement also
subjects beneficial interests issued by securitization vehicles to the requirements of SFAS 133. The statement is effective as of January 1, 2007, with earlier adoption permitted. The adoption of SFAS No. 155 will not have a material
impact on the Companys results of operations or financial condition.

On March 17, 2006, the FASB issued SFAS
No. 156, Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140 (SFAS 156), which permits, but does not require, an entity to account for one or more classes of servicing rights (i.e., mortgage servicing
rights, or MSRs) at fair value, with the changes in fair value recorded in the Consolidated Statement of Operations. The statement is effective as of the beginning of an entitys first fiscal year that begins after September 15, 2006 with
earlier adoption permitted. The adoption of SFAS No. 156 will not have a material impact on the Companys results of operations or financial condition.

Reclassifications. Certain amounts in 2005 have been reclassified to conform to the 2006 presentation.



|(2) | Securities available for sale
|--- | -----------------------------

Securities have been
classified as to managements intent. The carrying amount of securities and their fair values are summarized as follows (in thousands):



|                           |  |               |       |                      |   |                       |     |           |   |      
|-------------------------- |  | ------------- | ----- | -------------------- | - | --------------------- | --- | --------- | - | -----
|                           |  | AmortizedCost |       | GrossUnrealizedGains |   | GrossUnrealizedLosses |     | FairValue
|March 31, 2006             |  |               |       |                      |   |                       |     |           |   |      
|Mortgage-backed securities |  | $             | 8,904 |                      |  |                       | 111 |           | $ | 8,793
|                           |  |               |       |                      |   |                       |     |           |   |      

The scheduled maturities of securities at March 31, 2006 are as follows (in thousands):



|                                  |  |               |       |           |   |      
|--------------------------------- |  | ------------- | ----- | --------- | - | -----
|                                  |  | AmortizedCost |       | FairValue
|After one year before five years  |  | $             | 1,907 |           | $ | 1,884
|After five years before ten years |  |               | 1,839 |           |   | 1,802
|After ten years                   |  |               | 5,158 |           |   | 5,107
|                                  |  |               |       |           |   |      
|                                  |  | $             | 8,904 |           | $ | 8,793
|                                  |  |               |       |           |   |      



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



The Company did not sell any securities during the year ended March 31, 2006.

Management evaluates securities for other than temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns
warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and the near term prospects of the issuer, and (3) the intent and
ability of the Company to retain its investment of the issuer for a period of time sufficient to allow for any anticipated recovery.

At
March 31, 2006, the Companys eight mortgage-backed securities had a loss position for less than one year. Unrealized losses are the result of interest rate levels differing from those existing at the time of purchase of the securities,
and, as to mortgage-backed securities, actual and estimated prepayment speeds. The Company has the ability to hold these securities until the temporary loss is recovered or maturity and has no intent of selling these securities at this time. These
unrealized losses are considered temporary as they reflect fair values at March 31, 2006 and are subject to change daily as interest rates fluctuate. Factors considered in determining whether a loss is temporary include the length of time and
extent to which fair value has been below cost; the financial condition and near term prospects of the issuer; and the Companys ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery.



|(3) | Loans
|--- | -----

The components of loans are as follows (in
thousands):



|                                      |  |                  |        |  
|------------------------------------- |  | ---------------- | ------ | -
|                                      |  | At March 31,2006 |       
|Commercial real estate                |  | $                | 11,201 |  
|Residential real estate               |  |                  | 8,049  |  
|Commercial                            |  |                  | 334    |  
|Consumer                              |  |                  | 1,310  |  
|Home equity loans and lines of credit |  |                  | 1,161  |  
|                                      |  |                  |        |  
|                                      |  |                  | 22,055 |  
|Add (subtract):                       |  |                  |        |  
|Deferred loan costs, net              |  |                  | 19     |  
|Allowance for loan losses             |  |                  | (198   | )
|                                      |  |                  |        |  
|Loans, net                            |  | $                | 21,876 |  
|                                      |  |                  |        |  

An analysis of the change in the allowance for loan losses follows (in thousands):



|                          |  |                         |    
|------------------------- |  | ----------------------- | ---
|                          |  | Year EndedMarch 31,2006
|Beginning balance         |  | $                       |   
|Provision for loan losses |  |                         | 198
|                          |  |                         |    
|Ending balance            |  | $                       | 198
|                          |  |                         |    

The Company had no impaired loans in 2006. Also, at March 31, 2006, the Company had no
nonaccrual loans or loans which were over ninety days past due but still accruing interest.



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



|(4) | Premises and Equipment
|--- | ----------------------

A summary of premises and
equipment follows (in thousands):



|                                               |  |              |     |   |      |   |    
|---------------------------------------------- |  | ------------ | --- | - | ---- | - | ---
|                                               |  | At March 31,
|                                               |  | 2006         |     |   | 2005
|Land                                           |  | $            | 98  |   |      | $ | 98 
|Building and improvements                      |  |              | 376 |   |      |   | 16 
|Leasehold improvements                         |  |              | 124 |   |      |   |   
|Furniture, fixtures and equipment              |  |              | 351 |   |      |   | 175
|                                               |  |              |     |   |      |   |    
|Total, at cost                                 |  |              | 949 |   |      |   | 289
|Less accumulated depreciation and amortization |  |              | (60 | ) |      |   |   
|                                               |  |              |     |   |      |   |    
|Premises and equipment, net                    |  | $            | 889 |   |      | $ | 289
|                                               |  |              |     |   |      |   |    

The Bank leases certain offices under operating lease agreements. Rental expense for the years
ended March 31, 2006 and 2005 was $63,000 and $28,000, respectively. Scheduled minimum rental payments under the operating lease agreements for succeeding years are as follows (in thousands):



|           |  |   |      
|---------- |  | - | -----
|2007       |  | $ | 237  
|2008       |  |   | 247  
|2009       |  |   | 254  
|2010       |  |   | 262  
|2011       |  |   | 208  
|Thereafter |  |   | 259  
|           |  |   |      
|           |  | $ | 1,467
|           |  |   |      

The Company has entered into a purchase agreement dated October 19, 2004 to purchase a parcel
of land for $1,014,000 for which it has paid a $96,000 deposit. The Company expects to close on the purchase of this property in the first quarter of fiscal 2007. The Company expects to construct, on this land, the main office of the Bank and an
office for the Holding Company. The Company estimates the total cost to construct the main office, including land, to be approximately $4,207,000.

The Banks current main office is a store front located in a strip retail shopping center. The lease is for $7,660 a month and expires in December 2010 with a five year renewal option. The Bank expects to use this location as a branch
office after the new main office facility is completed. The Bank is currently negotiating a lease agreement for a new branch which will replace the store front location in fiscal 2008. At this time, it is anticipated that the existing store front
will continue to be used for loan and or deposit operations.

In addition, the Holding Company has entered into leases on two future branch
locations. Both locations are in the Banks primary market area. The first lease is for $4,922 a month, expires October 2012, and includes one three year option. The second lease is for $5,000 a month, expires March 2013 and include one seven
year option. Pending regulatory approval the Company expects to open these offices in the fourth quarter of fiscal 2007.



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



Certain Relationships and Related Transactions

As described below, certain directors of the Company have provided business services in connection with preparing the Banks offices and the
Companys headquarters for operation.

Mission Square Office

The Banks initial main office is a storefront located in a strip retail shopping center at 1575 Pine Ridge Road, Naples, Florida. The Holding Company also uses this office as its headquarters. Upon
selecting this site, the Company utilized the services of businesses owned and/or controlled by directors James E. Boughton and John M. DeAngelis to perform work on the site. Director Boughtons architectural firm provided interior
engineering and design services at a cost of $4,700. After this engineering work was completed, director DeAngelis company provided general contractor services for obtaining permits from Collier County and subcontracted the required electrical
and plumbing work, including adding electrical outlets, relocating overhead lighting, and moving and adding sprinklers. As part of these services, an employee of director DeAngelis company provided on-site supervisory services for five weeks.
The costs of the subcontractors were passed through directly to the Company, and director DeAngelis firm charged the Company $8,149 in management fees. The total amount paid to director DeAngelis firm, including amounts paid to
subcontractors, was $42,875. These transactions were approved by the disinterested members of the Companys and the Banks Boards of Directors.

Airport Road Office

Temporary Facility. In fiscal 2007, the Bank will begin operating an office from a site at 3021
Airport-Pulling Road, Naples, Florida. Initially, this facility will be a branch office operated out of a 1,584 square foot modular unit. This unit required extensive exterior modifications for it to meet the City of Naples municipal code, and
the Company paid director Boughtons firm $4,365 to ensure that the facility met the applicable building codes. Director DeAngelis is a principal in DeAngelis Diamond Construction, Inc., which is acting as the general contractor for all
modifications. DeAngelis Diamond has a contract to complete the facility suitable for occupancy for a management fee of $26,330. This temporary facility is owned by the Bank and can be used in future locations. These transactions were approved by
the disinterested members of the Companys and the Banks Boards of Directors.

Permanent Facility. The Company has
contracted to purchase an office condominium on this same site. When it is ready for occupancy, the Company will seek regulatory approval to designate this facility as the Banks home office. At that time, the Company also intends to relocate
the Holding Companys headquarters to this site.

The Bank is expected to purchase a unit of approximately 7,200 square feet at an
estimated cost of $2.5 million. The Holding Company is expected to purchase a unit of approximately 4,800 square feet at an estimated cost of $1.7 million. Since the construction prices, including the build-out of the offices, are based on the
developers actual costs, the final, actual amounts may differ from these current estimates.

The developer of this office condominium
project is Dorsett Associates, LLC. Director DeAngelis owns a 5.26% interest in Dorsett Associates. In addition, director DeAngelis father owns 19.74%, and a business partner of director DeAngelis owns 5.26%, of the developer. Therefore,
director DeAngelis and individuals closely related to him have a 30.26% interest in the developer.



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



Director Boughtons firm has contracted with Dorsett Associates, LLC to provide architectural
and design services for the development, of which approximately $107,000 will be included in the total amount the Company will pay to the developer.

Furthermore, DeAngelis Diamond Construction, Inc. is acting as general contractor on the condominium building. Pursuant to the terms of the contract with the developer, the Company has no right to select the architect
or the contractor; such decisions are in the sole discretion of the developer. These transactions are, or will be, between the directors business associates and the developer, and the Company will not make any payments to the developer until
after construction is completed. However, the Company will indirectly be involved in payments to related parties of our directors because the Companys cost is based on the developers actual costs. For this reason, the transactions have
been fully disclosed to the Boards, and the disclosures will be updated when the terms of the developers agreements have been finalized. With knowledge of these facts, the disinterested members of the Boards have approved the purchase contract
with Dorsett Associates, LLC.

Goodlette Road Office

This freestanding branch office will be located approximately 300 yards west of the Mission Square office, in an out parcel of a neighboring shopping center known as Magnolia Square (on the northeast corner of
Goodlette Frank Road and Pine Ridge Road, Naples, Florida). The Bank will relocate its Mission Square office to this location when construction is complete and any regulatory requirements are satisfied. The Bank intends to lease 4,000 square feet
for a branch office. The Bank has not yet finalized the lease terms or negotiated a lease agreement on this facility.

A limited liability
company (Lessor Company) owned by directors of the Company will construct and own the building and will lease space to the Bank. The rate of the lease will he determined by an independent lease appraisal. That appraisal and the lease
will be subject to regulatory review. Directors Jack J. Crifasi, Jr. and James E. Boughton are the managing members of the Lessor Company, and the other members are directors Jerome J. Bushman, Howard F. Crossman, Jr., Sam F. Hamra, Samuel J. Saad,
Jr. and David R. White, and director John V. Hoey, IIIs spouse. These nine members each own one-ninth of the equity interests in the Lessor Company.

This office location and lease/ownership relationship has been discussed in detail by the Boards and approved in concept. Prior to entering the lease, the disinterested directors of the Bank (Steven M. Watt, James S.
Weaver and John G. Wolf) will review, discuss and approve the lease. The directors with ownership interests in the Lessor Company as well as director DeAngelis will not participate in those discussions and will abstain from any votes related to the
lease.

In addition, it is expected that the businesses associated with directors DeAngelis and Boughton will provide services to the
Lessor Company. Mr. DeAgelis firm may be selected by the Company as the projects contractor and Mr. Boughtons firm may be selected as the projects architect.



|(5) | Deposits
|--- | --------

The aggregate amount of time deposits
with a minimum denomination of $100,000 was approximately $1.7 million at March 31, 2006.

Total time deposits of $3,329,000 at
March 31, 2006 are scheduled to mature during the year ended March 31, 2007.



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



At March 31, 2006, total deposits of executive officers, directors and their affiliates were
approximately $3.3 million.



|(6) | Note Payable
|--- | ------------

On October 11, 2004, the Company
obtained a $300,000 line of credit from the Independent Bankers Bank of Florida, Lake Mary, Florida. The line bore interest at the prime rate minus one percent. It was unsecured, but guaranteed by the Companys Organizers. On
November 15, 2004 the line was increased to $500,000. At March 31, 2005 the balance of the line outstanding was approximately $401,000. This note payable was paid-off in May, 2005.



|(7) | Off-Balance Sheet Financial Instruments
|--- | ---------------------------------------

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. These financial instruments are commitments to extend credit, unused lines of credit and
undisbursed loans and may involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheet. The contract amounts of these instruments reflect the extent of involvement the Company has in these
financial instruments.

The Companys exposure to credit loss in the event of nonperformance by the other party to the financial
instrument for commitments to extend credit, unused lines of credit and undisbursed loans is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet
instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Company evaluates each customers credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on
managements credit evaluation of the counterparty.

Commitments to extend credit, unused lines of credit and undisbursed loans
typically result in loans with a market interest rate when funded. A summary of the amounts of the Companys financial instruments with off balance sheet risk at March 31, 2006 follows (in thousands):



|                                             |  |                |       
|-------------------------------------------- |  | -------------- | ------
|                                             |  | ContractAmount
|Commitments to extend credit                 |  | $              | 12,824
|                                             |  |                |       
|Unused lines of credit and undisbursed loans |  | $              | 7,588 
|                                             |  |                |       



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



|(8) | Fair Value of Financial Instruments
|--- | -----------------------------------

The estimated
fair values of the Companys financial instruments were as follows (in thousands):



|                                        |  |                |        |                     |   |                |  |                     |     |  |   |    
|--------------------------------------- |  | -------------- | ------ | ------------------- | - | -------------- |  | ------------------- | --- |  | - | ---
|                                        |  | March 31, 2006 |        | March 31, 2005     
|                                        |  | CarryingAmount |        | EstimatedFair Value |   | CarryingAmount |  | EstimatedFair Value
|Financial Assets:                       |  |                |        |                     |   |                |  |                     |     |  |   |    
|Cash and cash equivalents               |  | $              | 15,793 |                     | $ | 15,793         |  | $                   | 32  |  | $ | 32 
|Securities available for sale           |  |                | 8,793  |                     |   | 8,793          |  |                     |    |  |   |   
|Loans held for sale                     |  |                | 265    |                     |   | 267            |  |                     |    |  |   |   
|Loans, net                              |  |                | 21,876 |                     |   | 21,984         |  |                     |    |  |   |   
|Federal Home Loan Bank of Atlanta stock |  |                | 48     |                     |   | 48             |  |                     |    |  |   |   
|Accrued interest receivable             |  |                | 132    |                     |   | 132            |  |                     |    |  |   |   
|Financial Liabilities:                  |  |                |        |                     |   |                |  |                     |     |  |   |    
|Deposits                                |  |                | 34,891 |                     |   | 34,777         |  |                     |    |  |   |   
|Note payable                            |  |                |       |                     |   |               |  |                     | 401 |  |   | 401
|Off-Balance sheet financial instruments |  |                |       |                     |   |               |  |                     |    |  |   |   



|(9) | Credit Risk
|--- | -----------

The Company grants the majority of its
loans to borrowers throughout the Collier County, Florida area. Although the Company has a diversified loan portfolio, a significant portion of its borrowers ability to honor their contracts is dependent upon the economy in Collier County,
Florida.



|(10) | Income Taxes
|---- | ------------

Income tax benefit consisted of the
following (in thousands):



|                   |  |                      |     |      |   |  
|------------------ |  | -------------------- | --- | ---- | - | -
|                   |  | Year Ended March 31,
|                   |  | 2006                 |     | 2005
|Deferred:          |  |                      |     |      |   |  
|Federal            |  | $                    | 494 |      | $ | 
|State              |  |                      | 84  |      |   | 
|                   |  |                      |     |      |   |  
|Income tax benefit |  | $                    | 578 |      | $ | 
|                   |  |                      |     |      |   |  

The reasons for the differences between the statutory Federal income tax rate and the effective
tax rate are summarized as follows (dollars in thousands):



|                                        |  |                      |     |                |      |   |        |   |     |                |  |       |  
|--------------------------------------- |  | -------------------- | --- | -------------- | ---- | - | ------ | - | --- | -------------- |  | ----- | -
|                                        |  | Year Ended March 31, |    
|                                        |  | 2006                 |     |                | 2005 |  
|                                        |  | Amount               |     | % ofPretaxLoss |      |   | Amount |   |     | % ofPretaxLoss | 
|Income tax benefit at statutory rate    |  | $                    | 447 |                | 34.0 | % |        | $ | 78  |                |  | 34.0  | %
|Increase (decrease) resulting from:     |  |                      |     |                |      |   |        |   |     |                |  |       |  
|State taxes, net of federal tax benefit |  |                      | 46  |                | 3.5  |   |        |   | 7   |                |  | 3.1   |  
|Valuation allowance                     |  |                      |    |                |     |   |        |   | (85 | )              |  | (37.1 | )
|Reversal of valuation allowance         |  |                      | 85  |                | 6.5  |   |        |   |    |                |  |      |  
|                                        |  |                      |     |                |      |   |        |   |     |                |  |       |  
|Income tax benefit                      |  | $                    | 578 |                | 44.0 | % |        | $ |    |                |  |      | %
|                                        |  |                      |     |                |      |   |        |   |     |                |  |       |  



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



The tax effects of temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities are presented below (in thousands):



|                                                   |  |                  |     |  
|-------------------------------------------------- |  | ---------------- | --- | -
|                                                   |  | At March 31,2006 |    
|Deferred tax assets:                               |  |                  |     |  
|Net operating loss carryforwards                   |  | $                | 353 |  
|Organizational and preopening costs                |  |                  | 297 |  
|Allowance for loan losses                          |  |                  | 7   |  
|Unrealized losses on securities available for sale |  |                  | 42  |  
|                                                   |  |                  |     |  
|Deferred tax assets                                |  |                  | 699 |  
|                                                   |  |                  |     |  
|Deferred tax liabilities:                          |  |                  |     |  
|Accrual to cash conversion                         |  |                  | (63 | )
|Deferred loan costs                                |  |                  | (8  | )
|Depreciation                                       |  |                  | (8  | )
|                                                   |  |                  |     |  
|Deferred tax liabilities                           |  |                  | (79 | )
|                                                   |  |                  |     |  
|Deferred tax asset                                 |  | $                | 620 |  
|                                                   |  |                  |     |  

At March 31, 2006, the Company has approximately $932,000 of a net operating carryforward
available to offset future taxable income. This carryforward will expire in 2025.



|(11) | Sale of Common Shares and Warrants
|---- | ----------------------------------

The Company has
sold 1,500,000 shares of its common stock to the public. A warrant was attached to each share sold. Each warrant entitles the holder thereof to purchase one additional share of common stock at $10. All warrants issued pursuant to the offering expire
August 24, 2008 or the board may call the warrants at any time after August 24, 2006. At the discretion of the board of directors this date may be extended an additional six months to February 24, 2009.

The Company has proposed the adoption of a stock option plan for its employees and directors at its annual meeting to be held in August 2006.



|(12) | Preferred Stock
|---- | ---------------

The Organizers of the Company
initially contributed $130,000 to the Company for organizational expenses. On October 14, 2004, the Company extinguished its $130,000 in debts due to its Organizers in exchange for 1,300 shares of its Class A Preferred Stock, no par value
(Preferred Stock). From January through April 2005, the Company sold an additional 1,050 shares of the Preferred Stock to the Organizers for $105,000. In May 2005, the Company redeemed $235,000 of Preferred Stock which represented all
outstanding shares of this class.



|(13) | Regulatory Matters
|---- | ------------------

The Bank is required to
maintain sufficient liquidity to ensure its safe and sound operation. The OTS considers an institutions liquidity ratio as well as safety and soundness issues in assessing whether an institution has sufficient liquidity. The Bank has ample
liquidity to meet its outstanding loan commitments.



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



The Bank is subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Banks and Companys
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the regulations) and risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). As of March 31, 2006, the Bank meets all capital
adequacy requirements to which it is subject.

As of March 31, 2006, the most recent notification from the regulators categorized the
Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in
the table. There are no conditions or events since that notification that management believes have changed the Banks category. The Banks actual capital amounts and ratios at March 31, 2006 are also presented in the table below
(dollars in thousands).



|                                            |  |              |        |        |       |   |                              |   |        |                                                                |      |   |  |   |       |  |       |  
|------------------------------------------- |  | ------------ | ------ | ------ | ----- | - | ---------------------------- | - | ------ | -------------------------------------------------------------- | ---- | - |  | - | ----- |  | ----- | -
|                                            |  | ActualAmount |        | %      |       |   | For CapitalAdequacy Purposes |   |        | To be Well Capitalizedunder Prompt CorrectiveAction Provisions |     
|                                            |  |              |        | Amount |       | % |                              |   | Amount |                                                                | %    |  
|Total capital (to risk weighted assets)     |  | $            | 10,256 |        | 42.14 | % |                              | $ | 1,947  |                                                                | 8.00 | % |  | $ | 2,434 |  | 10.00 | %
|Core capital (to adjusted total assets)     |  |              | 10,058 |        | 20.63 | % |                              |   | 1,950  |                                                                | 4.00 | % |  |   | 2,437 |  | 5.00  | %
|Tangible capital (to adjusted total assets) |  |              | 10,058 |        | 20.63 | % |                              |   | 731    |                                                                | 1.50 | % |  |   | N/A   |  | N/A   |  
|Tier 1 Capital (to risk weighted assets)    |  |              | 10,058 |        | 41.33 | % |                              |   | N/A    |                                                                | N/A  |   |  |   | 1,460 |  | 6.00  | %

The Bank is subject to certain restrictions on the amount of dividends that it may declare and
distribute to the Holding Company without prior regulatory approval.



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



|(14) | Holding Company Financial Information
|---- | -------------------------------------

The Holding
Companys financial information as of March 31, 2006 and 2005 and the years then ended follows (in thousands):

Condensed
Balance Sheets



|                                           |  |              |        |      |   |    
|------------------------------------------ |  | ------------ | ------ | ---- | - | ---
|                                           |  | At March 31,
|                                           |  | 2006         |        | 2005
|Assets                                     |  |              |        |      |   |    
|Cash                                       |  | $            | 3,758  |      | $ | 32 
|Premises and equipment, net                |  |              |       |      |   | 289
|Investment in Subsidiary                   |  |              | 9,988  |      |   |   
|Prepaid common stock offering costs        |  |              |       |      |   | 63 
|Other assets                               |  |              | 19     |      |   | 28 
|                                           |  |              |        |      |   |    
|Total assets                               |  | $            | 13,765 |      | $ | 412
|                                           |  |              |        |      |   |    
|Liabilities and Stockholders Equity       |  |              |        |      |   |    
|Note Payable                               |  | $            |       |      | $ | 401
|Other liabilities                          |  |              |       |      |   | 4  
|                                           |  |              |        |      |   |    
|Total Liabilities                          |  |              |       |      |   | 405
|Stockholders equity                       |  |              | 13,765 |      |   | 7  
|                                           |  |              |        |      |   |    
|Total liabilities and stockholders equity |  | $            | 13,765 |      | $ | 412
|                                           |  |              |        |      |   |    

Condensed Statements of Operations



|                   |  |                      |      |   |      |   |      |  
|------------------ |  | -------------------- | ---- | - | ---- | - | ---- | -
|                   |  | Year Ended March 31, |     
|                   |  | 2006                 |      |   | 2005 |  
|Expenses           |  | $                    | (22  | ) |      | $ | (228 | )
|Loss of Subsidiary |  |                      | (714 | ) |      |   |     |  
|                   |  |                      |      |   |      |   |      |  
|Net loss           |  | $                    | (736 | ) |      | $ | (228 | )
|                   |  |                      |      |   |      |   |      |  



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45



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



Condensed Statements of Cash Flows

(in thousands)



|                                                                                                                              |  |                      |         |   |      |   |      |  
|----------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ------- | - | ---- | - | ---- | -
|                                                                                                                              |  | Year Ended March 31, |        
|                                                                                                                              |  | 2006                 |         |   | 2005 |  
|Cash flows from operating activities:                                                                                         |  |                      |         |   |      |   |      |  
|Net loss                                                                                                                      |  | $                    | (736    | ) |      | $ | (228 | )
|Adjustments to reconcile net loss to net cash used in operating activities:                                                   |  |                      |         |   |      |   |      |  
|Decrease (increase) in other assets                                                                                           |  |                      | 9       |   |      |   | (28  | )
|(Decrease) increase in other liabilities                                                                                      |  |                      | (4      | ) |      |   | 4    |  
|Equity in undistributed loss of Subsidiary                                                                                    |  |                      | 714     |   |      |   |     |  
|                                                                                                                              |  |                      |         |   |      |   |      |  
|Net cash used in operating activities                                                                                         |  |                      | (17     | ) |      |   | (252 | )
|                                                                                                                              |  |                      |         |   |      |   |      |  
|Cash flows from investing activities:                                                                                         |  |                      |         |   |      |   |      |  
|Purchase of premises and equipment                                                                                            |  |                      |        |   |      |   | (289 | )
|Investment in Subsidiary                                                                                                      |  |                      | (10,482 | ) |      |   |     |  
|                                                                                                                              |  |                      |         |   |      |   |      |  
|Net cash used in investing activities                                                                                         |  |                      | (10,482 | ) |      |   | (289 | )
|                                                                                                                              |  |                      |         |   |      |   |      |  
|Cash flows from financing activities                                                                                          |  |                      |         |   |      |   |      |  
|Proceeds received from organizers                                                                                             |  |                      |        |   |      |   | 130  |  
|Proceeds from issuance of preferred stock                                                                                     |  |                      |        |   |      |   | 105  |  
|(Repayment) Proceeds from note payable                                                                                        |  |                      | (401    | ) |      |   | 401  |  
|Proceeds from issuance of common stock                                                                                        |  |                      | 15,000  |   |      |   |     |  
|Redemption of preferred stock                                                                                                 |  |                      | (235    | ) |      |   |     |  
|Payment of common stock offering costs                                                                                        |  |                      | (139    | ) |      |   | (63  | )
|                                                                                                                              |  |                      |         |   |      |   |      |  
|Net cash provided by financing activities                                                                                     |  |                      | 14,225  |   |      |   | 573  |  
|                                                                                                                              |  |                      |         |   |      |   |      |  
|Net increase in cash and cash equivalents                                                                                     |  |                      | 3,726   |   |      |   | 32   |  
|Cash at beginning of the year                                                                                                 |  |                      | 32      |   |      |   |     |  
|                                                                                                                              |  |                      |         |   |      |   |      |  
|Cash at end of year                                                                                                           |  | $                    | 3,758   |   |      | $ | 32   |  
|                                                                                                                              |  |                      |         |   |      |   |      |  
|Noncash transactions:                                                                                                         |  |                      |         |   |      |   |      |  
|Transfer of premise and equipment to subsidiary                                                                               |  | $                    | 289     |   |      | $ |     |  
|                                                                                                                              |  |                      |         |   |      |   |      |  
|Accumulated other comprehensive loss, unrealized loss on securities available for sale held by subsidiary, net of tax benefit |  | $                    | (69     | ) |      | $ |     |  
|                                                                                                                              |  |                      |         |   |      |   |      |  
|Transfer of due to organizers to preferred stock                                                                              |  | $                    |        |   |      | $ | 130  |  
|                                                                                                                              |  |                      |         |   |      |   |      |  



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



|(15) | Preopening and Organizational Costs
|---- | -----------------------------------

Preopening and
organizational costs were approximately $743,000 before income tax benefit. Prior to the commencement of banking operations, all costs had been charged to expense as incurred. The following table details the components of preopening and
organizational expenses for the years then ended March 31, 2006 and 2005 (in thousands):



|                                                                      |  |                      |     |   |      |   |    
|--------------------------------------------------------------------- |  | -------------------- | --- | - | ---- | - | ---
|                                                                      |  | Year ended March 31,
|                                                                      |  | 2006                 |     |   | 2005
|Preopening and organizational expenses:                               |  |                      |     |   |      |   |    
|Payroll Expense                                                       |  | $                    | 349 |   |      | $ | 79 
|Professional fees                                                     |  |                      | 84  |   |      |   | 9  
|Occupancy                                                             |  |                      | 45  |   |      |   | 28 
|Consulting                                                            |  |                      | 20  |   |      |   | 53 
|Supplies                                                              |  |                      | 18  |   |      |   | 3  
|Marketing and design                                                  |  |                      | 17  |   |      |   | 4  
|Telephone                                                             |  |                      | 14  |   |      |   | 4  
|Air/fuel and mileage                                                  |  |                      | 10  |   |      |   | 7  
|Meal and entertainment                                                |  |                      | 9   |   |      |   | 6  
|Interest expense                                                      |  |                      | 5   |   |      |   | 3  
|Lodging                                                               |  |                      | 2   |   |      |   | 3  
|Insurance                                                             |  |                      | 2   |   |      |   | 4  
|Professional development                                              |  |                      |    |   |      |   | 3  
|Application fees                                                      |  |                      |    |   |      |   | 15 
|Other                                                                 |  |                      | 25  |   |      |   | 7  
|Less: Interest earned on escrowed proceeds from common stock offering |  |                      | (85 | ) |      |   |   
|                                                                      |  |                      |     |   |      |   |    
|Total preopening and organizational expenses                          |  | $                    | 515 |   |      | $ | 228
|                                                                      |  |                      |     |   |      |   |    



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47



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements



|(16) | Selected Quarterly Results
|---- | --------------------------

Selected quarterly
results of operations for the four quarters ended March 31, 2006 and 2005 are as follows (in thousands, except per share amounts):



|                                                    |  |               |       |   |              |   |       |               |  |   |              |   |  |   |       |  
|--------------------------------------------------- |  | ------------- | ----- | - | ------------ | - | ----- | ------------- |  | - | ------------ | - |  | - | ----- | -
|                                                    |  | 2006          |      
|                                                    |  | FourthQuarter |       |   | ThirdQuarter |   |       | SecondQuarter |  |   | FirstQuarter |  
|Interest income                                     |  | $             | 575   |   |              | $ | 295   |               |  | $ | 61           |   |  | $ |      |  
|Interest expense                                    |  |               | 226   |   |              |   | 54    |               |  |   | 7            |   |  |   |      |  
|                                                    |  |               |       |   |              |   |       |               |  |   |              |   |  |   |       |  
|Net interest income                                 |  |               | 349   |   |              |   | 241   |               |  |   | 54           |   |  |   |      |  
|Provision for loan losses                           |  |               | 78    |   |              |   | 82    |               |  |   | 38           |   |  |   |      |  
|                                                    |  |               |       |   |              |   |       |               |  |   |              |   |  |   |       |  
|Net interest income after provision for loan losses |  |               | 271   |   |              |   | 159   |               |  |   | 16           |   |  |   |      |  
|Noninterest income                                  |  |               | 26    |   |              |   | 13    |               |  |   |             |   |  |   |      |  
|Noninterest expense                                 |  |               | 621   |   |              |   | 480   |               |  |   | 375          |   |  |   | 323   |  
|                                                    |  |               |       |   |              |   |       |               |  |   |              |   |  |   |       |  
|Loss before income taxes                            |  |               | (324  | ) |              |   | (308  | )             |  |   | (359         | ) |  |   | (323  | )
|Income tax benefit                                  |  |               | (121  | ) |              |   | (121  | )             |  |   | (336         | ) |  |   |      |  
|                                                    |  |               |       |   |              |   |       |               |  |   |              |   |  |   |       |  
|Net loss                                            |  | $             | (203  | ) |              | $ | (187  | )             |  | $ | (23          | ) |  | $ | (323  | )
|                                                    |  |               |       |   |              |   |       |               |  |   |              |   |  |   |       |  
|Net loss per share, basic and diluted               |  | $             | (0.14 | ) |              | $ | (0.12 | )             |  | $ | (0.03        | ) |  | $ | (3.50 | )
|                                                    |  |               |       |   |              |   |       |               |  |   |              |   |  |   |       |  
|                                                    | 
|                                                    |  | 2005          |      
|                                                    |  | FourthQuarter |       |   | ThirdQuarter |   |       | SecondQuarter |  |   | FirstQuarter |  
|Interest income                                     |  | $             |      |   |              | $ |      |               |  | $ |             |   |  | $ |      |  
|Interest expense                                    |  |               |      |   |              |   |      |               |  |   |             |   |  |   |      |  
|                                                    |  |               |       |   |              |   |       |               |  |   |              |   |  |   |       |  
|Net interest income                                 |  |               |      |   |              |   |      |               |  |   |             |   |  |   |      |  
|Provision for loan losses                           |  |               |      |   |              |   |      |               |  |   |             |   |  |   |      |  
|                                                    |  |               |       |   |              |   |       |               |  |   |              |   |  |   |       |  
|Net interest income after provision for loan losses |  |               |      |   |              |   |      |               |  |   |             |   |  |   |      |  
|Noninterest income                                  |  |               |      |   |              |   |      |               |  |   |             |   |  |   |      |  
|Noninterest expense                                 |  |               | (107  | ) |              |   | (64   | )             |  |   | (57          | ) |  |   |      |  
|                                                    |  |               |       |   |              |   |       |               |  |   |              |   |  |   |       |  
|Loss before income taxes                            |  |               | (107  | ) |              |   | (64   | )             |  |   | (57          | ) |  |   |      |  
|Income tax benefit                                  |  |               |      |   |              |   |      |               |  |   |             |   |  |   |      |  
|                                                    |  |               |       |   |              |   |       |               |  |   |              |   |  |   |       |  
|Net loss                                            |  | $             | (107  | ) |              | $ | (64   | )             |  | $ | (57          | ) |  | $ |      |  
|                                                    |  |               |       |   |              |   |       |               |  |   |              |   |  |   |       |  
|Net loss per share, basic and diluted               |  | $             |      |   |              | $ |      |               |  | $ |             |   |  | $ |      |  
|                                                    |  |               |       |   |              |   |       |               |  |   |              |   |  |   |       |  



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##### Table of Contents

|ITEM 8. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

No change in accountants took place during the fiscal year covered by this report.



|ITEM 8A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of Disclosure Controls
and Procedures

The Companys management including the Chief Executive Officer and the Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Companys disclosure controls and procedures as defined in rule 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the Exchange Act) as of
March 31, 2006. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective in ensuring that information required to be disclosed by
the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.

Changes in Internal Controls

The Company made
no changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the Chief Executive Officer and Chief Financial Officer of the Company.



|ITEM 8B. | OTHER INFORMATION
|-------- | -----------------

The Company filed one Form 8-K,
during the fourth quarter of fiscal 2006. The Form 8-K dated March 22, 2006 announced the resignation of David Huber from the Holding Company board of directors.

PART III



|ITEM 9. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
|------- | ----------------------------------------------------------------------------------------------------------------

Listed below are our executive officers and members of our board of directors, their ages as of March 31, 2006 and their positions with the Company.
Except for Mr. Sabatini, who was elected to the board in October 2005, each has been a director of the Holding Company since its inception in 2004.



|                        |  |     |  |                                                  
|----------------------- |  | --- |  | -------------------------------------------------
|Name                    |  | Age |  | Position                                         
|James E. Boughton       |  | 54  |  | Director                                         
|Jerome J. Bushman       |  | 64  |  | Director                                         
|Jack J. Crifasi, Jr.    |  | 58  |  | Director                                         
|Howard F. Crossman, Jr. |  | 62  |  | Director                                         
|John M. DeAngelis       |  | 37  |  | Director                                         
|Charles T. DeBilio      |  | 43  |  | Senior Vice President and Chief Financial Officer
|Sam F. Hamra            |  | 74  |  | Director                                         
|John V. Hoey, III       |  | 59  |  | Vice Chairman of the board of directors          
|Samuel J. Saad, Jr.     |  | 57  |  | Director                                         
|Frank C. Sabatini       |  | 74  |  | Director                                         
|Steven M. Watt          |  | 55  |  | Director                                         
|James S. Weaver         |  | 62  |  | President, Chief Executive Officer               
|David R. White          |  | 59  |  | Director                                         
|John G. Wolf            |  | 60  |  | Chairman of the board of directors               
|Donald J. York          |  | 70  |  | Executive Vice President                         



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James E. Boughton has been the owner and President of Boughton Architects, Inc. in Naples, Florida since
1992 and received a Bachelor of Architecture degree from Kent State University in 1976.

Jerome J. Bushman is the founder of Bushmans,
Inc., an agricultural firm, and The Bushman Group, a private venture firm specializing in manufacturing and finance. He also is the President and Chairman of the Board of First Southeastern Banc Group, Inc. of Minnesota in Harmony, Minnesota, which
is the holding company for First Southeast Bank in Harmony and Canton State Bank in Canton, Minnesota.

Jack J. Crifasi, Jr., is the
President of Crifasi Enterprises, Inc., a real estate development company in Naples, Florida. He is also a Florida licensed real estate broker and the President of Crifasi Real Estate, Inc., also in Naples. In addition, Mr. Crifasi is involved
as a director, shareholder or manager of several other companies. Mr. Crifasi received a Bachelor of Arts degree from Southern Illinois University in 1971.

Howard F. Crossman, Jr. is a Certified Public Account and the owner of Howard F Crossman CPA PA, a firm located in Naples, Florida. He is a retired partner of KPMG, LLP where he worked for over 34 years.
Mr. Crossman received a Bachelor of Science degree in accounting from the University of Connecticut.

John M. DeAngelis is currently
the Vice President and part owner of DeAngelis Diamond Construction, Inc., a general contracting and construction management firm in Naples, Florida. He is a general contractor licensed by the State of Florida. Mr. DeAngelis is also involved in
the management and ownership of several. real estate development and property management companies located in Naples. He is a graduate of the University of Florida School of Building Construction.

Charles T. DeBilio is Chief Financial Officer of both the Holding Company and Partners Bank. He is a certified management accountant and a graduate of
the University of South Florida. Before joining the Company and the Bank, he held the position of Chief Accounting Officer of Bancshares of Florida, Inc. in Naples, Florida.

Sam F. Hamra is an attorney practicing in the state of Missouri. He is also the Chairman and Chief Executive Officer of Hamra Enterprises, which includes
Wendys of Missouri, Inc. (23 Wendys Restaurants); Chicago Bread, LLC. (27 Panera Bread Cafés); Boston Bread, LLC. (14 Panera Bread Cafés); SJH Inns, LP (2 Hotels); and Jade Properties, LLC (a real estate investment
company). Mr. Hamra received a Bachelor of Science degree in Business Administration and a law degree from the University of Missouri. He is a community leader who served on the Board of Directors of Missouri State Bank from 1999 to 2003.
Previous to that, he served on the Board of Directors of Landmark Bancshares Corporation, Landmark Bank of Southwest Missouri, and Union Planters Bank of Southwest Missouri.

John V. Hoey, III, is a former managing partner of Lawrence, ODonnell, Marcus LLP, a member of the New York Stock Exchange. He was with this
company from 1981 until his retirement in 1997.

Samuel J. Saad, Jr. is the former owner of Sam Saad & Associates, a
manufacturers representative firm located in Omaha, Nebraska, from which he retired in 2000. He currently lives in Naples, Florida. Mr. Saad received a Bachelor of Science degree in business administration from the University of Denver.
He has a limited partnership interest in BH Equities, LLC, a real estate investment company.

Frank C. Sabatini began his professional
career as a lawyer. He purchased Capital City Bank of Topeka, Kansas, in 1979. He served as Chairman of the bank for many years and served as President and CEO for several years prior to his sons assuming the Chairman position. Frank now
serves on the Board of the bank and is President of the holding company. The Sabatini family continues to own 100% of Capital City Bank. During the last 16 years, Frank has been active in the ownership of six de novo banks, three in Kansas City, one
in Atlanta, one in Flagstaff, and one in Santa Fe. He served on each Board of Directors, except for the Atlanta bank. All the de novo banks have been sold except Flagstaff and Santa Fe, where his son continues as a director. He continues to serve as
a director of the holding company in Santa Fe. Frank and a partner own and operate 28 Pizza Huts in Kentucky.



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Steven M. Watt has been the President and owner of Gulfshore Homes, a real estate and construction
company located in Bonita Springs, Florida, since 1994. He holds a Bachelor of Science degree from Ithaca College.

James S. Weaver is the
Chief Executive Officer and President of both Partners Financial Corporation and Partners Bank and has over 36 years of experience exclusively in the banking industry. From 2002 until 2003, Mr. Weaver was the President and Chief Executive
Officer of Marine National Bank in Naples, Florida and President of its parent holding company Marine Bancshares, Inc. After leaving this company upon its sale, he took time to evaluate his professional options and then joined Partners Financial
Corporation in August 2004. He was also the President and Chief Executive Officer of Village Banc of Naples and Naples Area President of its successor, Harris Trust/Bank of Montreal, from 1997 to 2001, when he resigned to join Marine National Bank.
Since 1968, Mr. Weaver has held numerous senior executive officer positions at banks throughout Florida and South Carolina.

David R.
White served as President of White Tire Distributors, Inc. in Roanoke, Virginia, from 1972 until 2000, when the business was sold. Since 2000, he has been a principal in two companies that lease the commercial property on which the business
operates. From 1997 to 1998, he was the regional director of Central Fidelity Bank in Virginia. Mr. White received a Bachelor of Arts degree in economics from Emory & Henry University in Emory, Virginia.

John G. Wolf served as a member of the Board of Directors of Citizens Community Bancorp, Inc. from 1997 to 2001. While at Citizens Community Bancorp,
Inc., he served as Assistant Treasurer, Chairman of the Audit Committee and Chairman of the Strategic Planning Committee. He is a passive investor in commercial real estate projects in Lee and Collier Counties, Florida. He is a former director of
the Florida Sports Shooting Association and a former member of the Governors Council on Sports and Fitness. Mr. Wolf is a practicing dentist in Naples, Florida. Mr. Wolf received a Bachelor of Science degree and a Doctorate of Dental
Surgery from Temple University.

Donald J. York is Executive Vice President of both the Holding Company and Partners Bank; he also serves
as the Senior Credit Officer of the Bank. He brings many years of banking experience to the Company. He is the former Vice Chairman of the Board and a director of Bank of Naples and was their founding President and Chief Executive Officer. He is
active in the Naples community and has served on the Boards of several civic and charitable organizations, including Leadership Collier Foundation, Collier County School Board, Cleveland Clinic Hospital Naples, Collier County 4-H Foundation and the
North Naples Rotary Club.

Code of Ethics

The Board of Directors has adopted a code of ethics that applies to all employees, officers and directors.

Any person can obtain a printed copy of the code of ethics, without charge, by contacting the Company at the following address:

Partners Financial Corporation

1575 pine Ridge Road

#15

Naples, Florida 34109

Attn: Jetta F. Russell

Audit Committee Matters

The Company has a standing Audit Committee. Howard F. Crossman, Jr., John V. Hoey, III, Samuel J. Saad, Jr., and John G. Wolf serve as the Companys
Audit Committee. The Board of Directors has determined that Mr. Howard F. Crossman, Jr. qualifies as an audit committee financial expert under rules promulgated by the Securities and Exchange Commission.



51



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##### Table of Contents

|ITEM 10. | EXECUTIVE COMPENSATION
|-------- | ----------------------

Executive Officers

Summary Compensation. The following table sets forth information concerning the compensation of the President and Chief Executive Officer and each of
our named executive officers for the years ended March 31, 2006 and 2005.

Summary Compensation Table



|                                                  |  |      |  |                     |         |       |                        |                          |  |   |                       |     |                                 |   |             |   |                       |   |  |   |       |    
|------------------------------------------------- |  | ---- |  | ------------------- | ------- | ----- | ---------------------- | ------------------------ |  | - | --------------------- | --- | ------------------------------- | - | ----------- | - | --------------------- | - |  | - | ----- | ---
|                                                  |  |      |  | Annual Compensation |         |       | Long-Term Compensation |                          |  |  
|                                                  |  |      |  |                     |         |       |                        |                          |  |   | Awards                |     | Payouts                         |   |             |  
|Name and Principal Positions                      |  | Year |  | Salary              |         | Bonus |                        | Other AnnualCompensation |  |   | RestrictedStockAwards |     | SecuritiesUnderlyingOptions (#) |   | LTIPPayouts |   | All OtherCompensation |  
|James S. Weaver                                   |  | 2006 |  | $                   | 130,000 |       | $                      |                         |  | $ | 4,900                 | (a) |                                 |  |             |  |                       |  |  | $ | 7,166 | (c)
|President and Chief Executive Officer             |  | 2005 |  |                     | 8,750   |       |                        |                         |  |   | 53,336                | (b) |                                 |  |             |  |                       |  |  |   |      |    
|                                                  |  |      |  |                     |         |       |                        |                         
|Donald J. York                                    |  | 2006 |  |                     | 110,000 |       |                        |                         |  |   |                      |     |                                 |  |             |  |                       |  |  |   | 8,702 | (c)
|Executive Vice President and Chief Credit Officer |  | 2005 |  |                     |        |       |                        |                         |  |   |                      |     |                                 |  |             |  |                       |  |  |   |      |    
|                                                  |  |      |  |                     |         |       |                        |                         
|Charles T. DeBilio                                |  | 2006 |  |                     | 93,754  |       |                        | 5,000                    |  |   |                      |     |                                 |  |             |  |                       |  |  |   | 6,988 | (c)
|Senior Vice President and Chief Financial Officer |  | 2005 |  | $                   | 42,504  |       | $                      |                         |  | $ | 1,771                 | (b) |                                 |  |             |  |                       |  |  | $ | 3,119 | (c)

---

|(a) | Auto allowance (no country club dues were paid during fiscal 2006)
|--- | ------------------------------------------------------------------

|(b) | Consulting fees
|--- | ---------------

|(c) | Includes company-paid portion of medical, dental, long-term disability and life insurance
|--- | -----------------------------------------------------------------------------------------

Employment agreement with James S. Weaver

The Bank has entered into an employment agreement
with James S. Weaver to serve as its President and Chief Executive Officer, effective as of March 23, 2005 (the Agreement). The Agreement is for a term of two years. Mr. Weaver receives annual base compensation of $130,000,
which could be increased after one year after review by the Board. Mr. Weaver is eligible to receive an annual cash bonus of up to 20% of his annual base salary after a Board determination of the Banks and his performance. Pursuant to the
Agreement, he will also be granted options for 30,000 shares of the Common Stock, subject to the approval of the shareholders of the 2006 Stock Incentive Plan at this annual meeting. The Bank pays Mr. Weaver $500 per month to reimburse him for
country club dues and a $700 per month auto allowance. He receives a term life insurance policy at a cost not to exceed $300 per month and participates in group benefit plans available to all employees of the Bank.



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|ITEM 11. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|-------- | --------------------------------------------------------------

The following table sets forth certain information with respect to the beneficial ownership as of June 30, 2006 for each person or group (as defined in Section 13(d)(3) of the Exchange Act) who owns more
than 5% of the outstanding Common Stock of the Company. The table also includes ownership information of the Companys director nominees and executive officers and by all director nominees and executive officers as a group.



|                                                            |  |                                           |  |                      |  |                                |  
|----------------------------------------------------------- |  | ----------------------------------------- |  | -------------------- |  | ------------------------------ | -
|Beneficial Owner                                            |  | Amount andNature ofBeneficialOwnership(a) |  | Right to Acquire (b) |  | Percent of BeneficialOwnership |  
|James E. Boughton (c)                                       |  | 20,000                                    |  | 20,000               |  | 1.33                           | %
|Jerome J. Bushman                                           |  | 35,000                                    |  | 35,000               |  | 2.33                           | %
|Jack J. Crifasi, Jr.                                        |  | 20,000                                    |  | 20,000               |  | 1.33                           | %
|Howard F. Crossman, Jr. (c)                                 |  | 20,000                                    |  | 20,000               |  | 1.33                           | %
|John M. DeAngelis                                           |  | 20,000                                    |  | 20,000               |  | 1.33                           | %
|Charles T. DeBilio                                          |  |                                          |  |                     |  |                               |  
|Sam F. Hamra                                                |  | 30,000                                    |  | 30,000               |  | 2.33                           | %
|John V. Hoey, III                                           |  | 40,000                                    |  | 40,000               |  | 2.67                           | %
|Samuel J. Saad, Jr.                                         |  | 30,000                                    |  | 30,000               |  | 2.00                           | %
|Frank C. Sabatini                                           |  | 40,000                                    |  | 40,000               |  | 2.67                           | %
|Steven M. Watt                                              |  | 20,000                                    |  | 20,000               |  | 1.33                           | %
|James S. Weaver (c)                                         |  | 10,000                                    |  | 10,000               |  | 0.67                           | %
|David R. White                                              |  | 30,000                                    |  | 30,000               |  | 2.00                           | %
|John G. Wolf (d)                                            |  | 50,000                                    |  | 50,000               |  | 3.33                           | %
|Donald J. York                                              |  | 5,000                                     |  | 5,000                |  | 0.33                           | %
|All directors and executive officers as a group (15 people) |  | 370,000                                   |  | 370,000              |  | 24.67                          | %

---

|(a) | Based on the stock records of the Company and information provided by the respective beneficial owners, unless otherwise indicated. Beneficial ownership is direct except as
otherwise indicated by footnote. In accordance with Rule 13d-3 of the Exchange Act, a person is deemed to be the beneficial owner of a security if he or she has or shares voting power or investment power with respect to such
security or has the right to acquire such ownership within 60 days pursuant to options, warrants, rights, conversion privileges or similar obligations. Unless otherwise indicated, shares beneficially owned are held with sole voting and
dispositive power. Does not include the right to acquire shares through the exercise of warrants that are listed in a separate column.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Warrants issued in connection with the Company offering in August 2005.
|--- | -----------------------------------------------------------------------

|(c) | Shares and rights held in joint tenancy with his wife.
|--- | ------------------------------------------------------

|(d) | Includes 5,000 shares held of record in the name of Dr. Wolfs wife, over which he shares dispositive power.
|--- | ------------------------------------------------------------------------------------------------------------

Changes in Control

At March 31, 2006,
the Company was not aware of any arrangements that may result in a change in control of it.

Securities Authorized for Issuance under Equity
Compensation Plans

The Company currently does not have any equity compensation plans in effect. The Company will present a stock
incentive plan for shareholder approval at the 2006 annual meeting of shareholders.



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|ITEM 12. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------

Certain
Relationships and Related Transactions

As described below, certain directors of the Company have provided business services in
connection with preparing the Banks offices and the Companys headquarters for operation.

Mission Square Office

The Banks initial main office is a storefront located in a strip retail shopping center at 1575 Pine Ridge Road, Naples, Florida. The Holding
Company also uses this office as its headquarters. Upon selecting this site, the Company utilized the services of businesses owned and/or controlled by directors James E. Boughton and John M. DeAngelis to perform work on the site. Director
Boughtons architectural firm provided interior engineering and design services at a cost of $4,700. After this engineering work was completed, director DeAngelis company provided general contractor services for obtaining permits from
Collier County and subcontracted the required electrical and plumbing work, including adding electrical outlets, relocating overhead lighting, and moving and adding sprinklers. As part of these services, an employee of director DeAngelis
company provided on-site supervisory services for five weeks. The costs of the subcontractors were passed through directly to the Company, and director DeAngelis firm charged the Company $8,149 in management fees. The total amount paid to
director DeAngelis firm, including amounts paid to subcontractors, was $42,875. These transactions were approved by the disinterested members of the Companys and the Banks Boards of Directors.

Airport Road Office

Temporary Facility. In
fiscal 2007, the Bank will begin operating an office from a site at 3021 Airport-Pulling Road, Naples, Florida. Initially, this facility will be a branch office operated out of a 1,584 square foot modular unit. This unit required extensive exterior
modifications for it to meet the City of Naples municipal code, and the Company paid director Boughtons firm $4,365 to ensure that the facility met the applicable building codes. Director DeAngelis is a principal in DeAngelis Diamond
Construction, Inc., which is acting as the general contractor for all modifications. DeAngelis Diamond has a contract to complete the facility suitable for occupancy for a management fee of $26,330. This temporary facility is owned by the Bank and
can be used in future locations. These transactions were approved by the disinterested members of the Companys and the Banks Boards of Directors.

Permanent Facility. The Company has contracted to purchase an office condominium on this same site. When it is ready for occupancy, the Company will seek regulatory approval to designate this facility as the
Banks home office. At that time, the Company also intends to relocate the Holding Companys headquarters to this site.

The Bank
is expected to purchase a unit of approximately 7,200 square feet at an estimated cost of $2.5 million. The Holding Company is expected to purchase a unit of approximately 4,800 square feet at an estimated cost of $1.7 million. Since the
construction prices, including the build-out of the offices, are based on the developers actual costs, the final, actual amounts may differ from these current estimates.

The developer of this office condominium project is Dorsett Associates, LLC. Director DeAngelis owns a 5.26% interest in Dorsett Associates. In addition,
director DeAngelis father owns 19.74%, and a business partner of director DeAngelis owns 5.26%, of the developer. Therefore, director DeAngelis and individuals closely related to him have a 30.26% interest in the developer.

Director Boughtons firm has contracted with Dorsett Associates, LLC to provide architectural and design services for the development, of which
approximately $107,000 will be included in the total amount the Company will pay to the developer.



54



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##### Table of Contents

Furthermore, DeAngelis Diamond Construction, Inc. is acting as general contractor on the condominium
building. Pursuant to the terms of the contract with the developer, the Company has no right to select the architect or the contractor; such decisions are in the sole discretion of the developer. These transactions are, or will be, between the
directors business associates and the developer, and the Company will not make any payments to the developer until after construction is completed. However, the Company will indirectly be involved in payments to related parties of our
directors because the Companys cost is based on the developers actual costs. For this reason, the transactions have been fully disclosed to the Boards, and the disclosures will be updated when the terms of the developers agreements
have been finalized. With knowledge of these facts, the disinterested members of the Boards have approved the purchase contract with Dorsett Associates, LLC.

Goodlette Road Office

This freestanding branch office will be located approximately 300 yards west of the Mission Square
office, in an out parcel of a neighboring shopping center known as Magnolia Square (on the northeast corner of Goodlette Frank Road and Pine Ridge Road, Naples, Florida). The Bank will relocate its Mission Square office to this location when
construction is complete and any regulatory requirements are satisfied. The Bank intends to lease 4,000 square feet for a branch office. The Bank has not yet finalized the lease terms or negotiated a lease agreement on this facility.

A limited liability company (Lessor Company) owned by directors of the Company will construct and own the building and will lease space to
the Bank. The rate of the lease will be determined by an independent lease appraisal. That appraisal and the lease will be subject to regulatory review. Directors Jack J. Crifasi, Jr., and James E. Boughton are the managing members of the Lessor
Company, and the other members are directors Jerome J. Bushman, Howard F. Crossman, Jr., Sam F. Hamra, Samuel J. Saad, Jr., and David R. White, and director John V. Hoey, IIIs spouse. These nine members each own one-ninth of the
equity interests in the Lessor Company.

This office location and lease/ownership relationship has been discussed in detail by the Boards
and approved in concept. Prior to entering the lease, the disinterested directors of the Bank (Steven M. Watt, James S. Weaver and John G. Wolf) will review, discuss and approve the lease. The directors with ownership interests in the Lessor Company
as well as director DeAngelis will not participate in those discussions and will abstain from any votes related to the lease.

In addition,
it is expected that the businesses associated with directors DeAngelis and Boughton will provide services to the Lessor Company. Mr. DeAngelis firm may be selected by the Company as the projects contractor, and
Mr. Boughtons firm may be selected as the projects architect.



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##### Table of Contents

|ITEM 13. | EXHIBITS
|-------- | --------

The following exhibits are filed with
this report. The Exhibits denominated with an (a) were filed with the Companys Form SB-2 which was filed with the Securities and Exchange Committee on October 29, 2004, the Exhibit denominated with a (b) was filed with the
Companys Pre-Effective Amendment Number four to Form SB-2 which was filed with the Securities and Exchange Commission on March 16, 2005, the Exhibit denominated with a (c) was filed with the Companys 10-QSB for the quarterly
period ended September 30, 2005 which was filed with the Securities and Exchange Commission on November 14, 2005.



|               |  |                                                                         
|-------------- |  | ------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibit                                                  
|3.1            |  | Articles of Incorporation (a)                                           
|               | 
|3.2            |  | Bylaws (a)                                                              
|               | 
|4.1            |  | Specimen Common Stock Certificate (a)                                   
|               | 
|4.2            |  | 2004 Warrant Planincluded in Prospectus as Appendix A (b)              
|               | 
|10.1           |  | Sales Contract for Main Office (a)                                      
|               | 
|10.2           |  | Employment Agreement of James S. Weaver, dated as of March 23, 2005. (c)
|               | 
|21.1           |  | Subsidiaries of the Registrant                                          
|               | 
|31.1           |  | Section 302 Certification of Chief Executive Officer.                   
|               | 
|31.2           |  | Section 302 Certification of Chief Financial Officer.                   
|               | 
|32.1           |  | Section 906 Certification of Chief Executive Officer.                   
|               | 
|32.2           |  | Section 906 Certification of Chief Financial Officer.                   



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES.
|-------- | ---------------------------------------

The
following table presents fees for professional services rendered by HACKER, JOHNSON & SMITH PA for the audit of the Companys annual financial statements for the years ended March 31, 2006 and 2005 and fees billed for other
services rendered during those periods.



|               |  |             |        |             |   |      
|-------------- |  | ----------- | ------ | ----------- | - | -----
|               |  | Fiscal 2006 |        | Fiscal 2005
|Audit Fees (1) |  | $           | 23,500 |             | $ | 8,500
|Tax Fees (2)   |  |             | 3,000  |             |   |     
|               |  |             |        |             |   |      
|Total          |  | $           | 26,500 |             | $ | 8,500
|               |  |             |        |             |   |      

---

|(1) | Includes professional services rendered for the audit of the Companys annual financial statements and the review of financial statements included in Forms 10-QSB, including
out-of-pocket expenses.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Tax Fees include the following: preparation of state and federal tax returns and assistance with calculating estimated tax payments.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

Prior to any new engagement representing a permissible audit or non-audit activity, approval of the Board is required. All audit and non-audit services
performed by Hacker, Johnston during fiscal 2006 were pre-approved and none of the engagements pre-approved by the Board during fiscal 2006 made use of the de minimis exception to pre-approval contained in the applicable rules of the Securities and
Exchange Commission.



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##### Table of Contents

SIGNATURES

In accordance with Section 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.

Partners Financial Corporation



|                     |  |  |  |     |  |                        |  |                        
|-------------------- |  |  |  | --- |  | ---------------------- |  | -----------------------
|                     |  |  | 
|Dated: June 29, 2006 |  |  |  | By: |  | /s/    JAMES S. WEAVER
|                     |  |  |  |     |  |                        |  | James S. Weaver        
|                     |  |  |  |     |  |                        |  | Chief Executive Officer



|                     |  |  |  |     |  |                           |  |                             
|-------------------- |  |  |  | --- |  | ------------------------- |  | ----------------------------
|                     |  |  | 
|Dated: June 29, 2006 |  |  |  | By: |  | /s/    CHARLES T.
DEBILIO
|                     |  |  |  |     |  |                           |  | Charles T. DeBilio          
|                     |  |  |  |     |  |                           |  | Principal Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-KSB has been
signed by the following persons in the capacities and as of the dates indicated:



|                                                              |  |                   
|------------------------------------------------------------- |  | ------------------
|Signatures                                                    |  | Dates             
|                                                              | 
|/s/    JAMES
BOUGHTON James Boughton, Director                |  | June 29, 2006 Date
|                                                              | 
|/s/    JEROME J.
BUSHMAN Jerome J. Bushman, Director          |  | June 29, 2006 Date
|                                                              | 
|/s/    JACK J. CRIFASI
JR. Jack J. Crifasi, Jr., Director     |  | June 29, 2006 Date
|                                                              | 
|/s/    HOWARD F. CROSSMAN,
JR. Howard Crossman, Jr., Director |  | June 29, 2006 Date
|                                                              | 
|/s/    JOHN M.
DEANGELIS John M. DeAngelis, Director          |  | June 29, 2006 Date
|                                                              | 
|/s/    SAM F.
HAMRA Sam F. Hamra, Director                    |  | June 29, 2006 Date
|                                                              | 
|/s/    JOHN V.
HOEY John V. Hoey, Director                    |  | June 29, 2006 Date
|                                                              | 
|/s/    FRANK C.
SABATINI Frank C. Sabatini, Director          |  | June 29, 2006 Date
|                                                              | 
|/s/    SAMUEL J. SAAD,
JR. Samuel J. Saad, Jr., Director      |  | June 29, 2006 Date



57



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##### Table of Contents

|                                                                    |  |                   
|------------------------------------------------------------------- |  | ------------------
|Signatures                                                          |  | Dates             
|                                                                    | 
|/s/    STEVEN M.
WATT Steven M. Watt, Director                      |  | June 29, 2006 Date
|                                                                    | 
|/s/    JAMES S.
WEAVER James S. Weaver, Director, President and CEO |  | June 29, 2006 Date
|                                                                    | 
|/s/    DAVID R.
WHITE David R. White, Director                      |  | June 29, 2006 Date
|                                                                    | 
|/s/    JOHN G.
WOLF John G. Wolf, Chairman of the Board             |  | June 29, 2006 Date



58



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##### Table of Contents

Exhibit Index



|     |  |                                                                         
|---- |  | ------------------------------------------------------------------------
|3.1  |  | Articles of Incorporation (a)                                           
|     | 
|3.2  |  | Bylaws (a)                                                              
|     | 
|4.1  |  | Specimen Common Stock Certificate (a)                                   
|     | 
|4.2  |  | 2004 Warrant Planincluded in Prospectus as Appendix A (b)              
|     | 
|10.1 |  | Sales Contract for Main Office (a)                                      
|     | 
|10.2 |  | Employment Agreement of James S. Weaver, dated as of March 23, 2005. (c)
|     | 
|21.1 |  | Subsidiaries of the Registrant                                          
|     | 
|31.1 |  | Section 302 Certification of Chief Executive Officer.                   
|     | 
|31.2 |  | Section 302 Certification of Chief Financial Officer.                   
|     | 
|32.1 |  | Section 906 Certification of Chief Executive Officer.                   
|     | 
|32.2 |  | Section 906 Certification of Chief Financial Officer.                   



59