##### Table of Contents

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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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(Mark One)

|x | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------

For the quarterly period ended June 30, 2006



| ̈ | Transaction report under Section 13 or 15(d) of the Exchange Act
|- | ----------------------------------------------------------------

For the transition period from  to

Commission file number 333-120068



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PARTNERS FINANCIAL CORPORATION

(Exact Name of Small Businesses Issuer as Specified in Its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 20-1566911                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

1575 Pine Ridge Road, Suite 15

Naples, Florida 34109

(Address of Principal Executive Offices)

(239) 434-2069

(Issuers Telephone Number, Including Area Code)



(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)



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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 ̈

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 the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date;



|                                       |  |                               
|-------------------------------------- |  | ------------------------------
|Common stock, par value $.01 per share |  | 1,500,000 shares              
|(class)                                |  | Outstanding at August 14, 2006

Transitional Small Business Format (Check
One):    YES ̈NO  x



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

INDEX



|                                                                                                                  |  |      
|----------------------------------------------------------------------------------------------------------------- |  | -----
|                                                                                                                  |  | Page 
|PART I. FINANCIAL INFORMATION                                                                                     |  |      
|                                                                                                                  | 
|Item 1. Financial Statements                                                                                      |  |      
|                                                                                                                  | 
|Condensed Consolidated Balance Sheets - At June 30, 2006 (unaudited) and at March 31, 2006                        |  | 2    
|                                                                                                                  | 
|Condensed Consolidated Statement of Operations  Three Months Ended June 30, 2006 and 2005 (unaudited)            |  | 3    
|                                                                                                                  | 
|Condensed Consolidated Statements of Stockholders Equity - Three Months Ended June 30, 2006 and 2005 (unaudited) |  | 4    
|                                                                                                                  | 
|Condensed Consolidated Statements of Cash Flows - Three Months Ended June 30, 2006 and 2005 (unaudited)           |  | 5    
|                                                                                                                  | 
|Notes to Condensed Consolidated Financial Statements (unaudited)                                                  |  | 6-7  
|                                                                                                                  | 
|Review by Independent Registered Public Accounting Firm                                                           |  | 8    
|                                                                                                                  | 
|Report of Independent Registered Public Accounting Firm                                                           |  | 9    
|                                                                                                                  | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                     |  | 10-13
|                                                                                                                  | 
|Item 3. Controls and Procedures                                                                                   |  | 14   
|                                                                                                                  | 
|PART II. OTHER INFORMATION                                                                                        |  |      
|                                                                                                                  | 
|Item 1. Legal Proceedings                                                                                         |  | 14   
|                                                                                                                  | 
|Item 6. Exhibits                                                                                                  |  | 14   
|                                                                                                                  | 
|SIGNATURES                                                                                                        |  | 15   



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

($ in thousands, except per share data)



|                                                                                             |  |               |        |   |               |   |        |  
|-------------------------------------------------------------------------------------------- |  | ------------- | ------ | - | ------------- | - | ------ | -
|                                                                                             |  | June 30, 2006 |        |   | March 31,2006 |  
|                                                                                             |  | (unaudited)   |        |   |               |  
|ASSETS                                                                                       |  |               |        |   |               |   |        |  
|Cash and due from banks                                                                      |  | $             | 444    |   |               | $ | 99     |  
|Federal funds sold                                                                           |  |               |       |   |               |   | 15,670 |  
|Interest-bearing deposits with banks                                                         |  |               | 25     |   |               |   | 24     |  
|                                                                                             |  |               |        |   |               |   |        |  
|Total cash and cash equivalents                                                              |  |               | 469    |   |               |   | 15,793 |  
|Securities available for sale, at fair value                                                 |  |               | 10,196 |   |               |   | 8,793  |  
|                                                                                             |  |              
|Loans held for sale                                                                          |  |               | 7,102  |   |               |   | 265    |  
|Loans, net of allowance for loan losses of $256 and $198                                     |  |               | 30,855 |   |               |   | 21,876 |  
|Premises and equipment, net                                                                  |  |               | 1,207  |   |               |   | 889    |  
|Federal Home Loan Bank of Atlanta Stock, at cost                                             |  |               | 48     |   |               |   | 48     |  
|Accrued interest receivable                                                                  |  |               | 194    |   |               |   | 132    |  
|Deferred income taxes                                                                        |  |               | 787    |   |               |   | 620    |  
|Other assets                                                                                 |  |               | 222    |   |               |   | 277    |  
|                                                                                             |  |               |        |   |               |   |        |  
|Total assets                                                                                 |  | $             | 51,080 |   |               | $ | 48,693 |  
|                                                                                             |  |               |        |   |               |   |        |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                         |  |               |        |   |               |   |        |  
|Liabilities                                                                                  |  |               |        |   |               |   |        |  
|Deposits:                                                                                    |  |               |        |   |               |   |        |  
|Non-interest bearing demand deposits                                                         |  | $             | 3,878  |   |               | $ | 5,029  |  
|Savings, NOW, money-market deposits                                                          |  |               | 21,394 |   |               |   | 26,533 |  
|Time deposits                                                                                |  |               | 3,853  |   |               |   | 3,329  |  
|                                                                                             |  |               |        |   |               |   |        |  
|Total Deposits                                                                               |  |               | 29,125 |   |               |   | 34,891 |  
|Federal funds purchased                                                                      |  |               | 704    |   |               |   |       |  
|Securities sold under agreements to repurchase                                               |  |               | 7,000  |   |               |   |       |  
|Other borrowings                                                                             |  |               | 651    |   |               |   |       |  
|Accrued interest payable and other liabilities                                               |  |               | 114    |   |               |   | 37     |  
|                                                                                             |  |               |        |   |               |   |        |  
|Total liabilities                                                                            |  |               | 37,594 |   |               |   | 34,928 |  
|                                                                                             |  |               |        |   |               |   |        |  
|Commitments and contingencies                                                                |  |               |        |   |               |   |        |  
|                                                                                             |  |              
|Stockholders Equity                                                                         |  |               |        |   |               |   |        |  
|Preferred stock, no par value; 1,000,000 shares authorized, no shares issued and outstanding |  |               |       |   |               |   |       |  
|Common stock, $.01 par value; 9,000,000 shares authorized, 1,500,000 issued and outstanding  |  |               | 15     |   |               |   | 15     |  
|Additional paid-in capital                                                                   |  |               | 14,783 |   |               |   | 14,783 |  
|Accumulated deficit                                                                          |  |               | (1,150 | ) |               |   | (964   | )
|Accumulated other comprehensive loss                                                         |  |               | (162   | ) |               |   | (69    | )
|                                                                                             |  |               |        |   |               |   |        |  
|Total stockholders equity                                                                   |  |               | 13,486 |   |               |   | 13,765 |  
|                                                                                             |  |               |        |   |               |   |        |  
|Total liabilities and stockholders equity                                                   |  | $             | 51,080 |   |               | $ | 48,693 |  
|                                                                                             |  |               |        |   |               |   |        |  

See Accompanying Notes to Condensed Consolidated Financial Statements.



2



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Condensed Consolidated Statements of Operations (Unaudited)

($ in thousands, except per share data)



|                                                                 |  |                    |           |   |              |   |        |  
|---------------------------------------------------------------- |  | ------------------ | --------- | - | ------------ | - | ------ | -
|                                                                 |  | Three months ended |          
|                                                                 |  | June 30,2006       |           |   | June 30,2005 |  
|Interest income:                                                 |  |                    |           |   |              |   |        |  
|Loans                                                            |  | $                  | 559       |   |              | $ |       |  
|Investment securities                                            |  |                    | 136       |   |              |   |       |  
|Other interest-earning assets                                    |  |                    | 58        |   |              |   |       |  
|                                                                 |  |                    |           |   |              |   |        |  
|Total interest income                                            |  |                    | 753       |   |              |   |       |  
|Interest expense:                                                |  |                    |           |   |              |   |        |  
|Deposits                                                         |  |                    | 292       |   |              |   |       |  
|Borrowings                                                       |  |                    | 9         |   |              |   |       |  
|                                                                 |  |                    |           |   |              |   |        |  
|Total interest expense                                           |  |                    | 301       |   |              |   |       |  
|                                                                 |  |                    |           |   |              |   |        |  
|Net interest income                                              |  |                    | 452       |   |              |   |       |  
|Provision for loan losses                                        |  |                    | 58        |   |              |   |       |  
|                                                                 |  |                    |           |   |              |   |        |  
|Net interest income after provision for loan losses              |  |                    | 394       |   |              |   |       |  
|                                                                 |  |                    |           |   |              |   |        |  
|Noninterest income:                                              |  |                    |           |   |              |   |        |  
|Gain on sale of loans held for sale                              |  |                    | 44        |   |              |   |       |  
|Service charges on deposit accounts                              |  |                    | 5         |   |              |   |       |  
|Secondary market fees                                            |  |                    | 5         |   |              |   |       |  
|Other service charges and fees                                   |  |                    | 1         |   |              |   |       |  
|                                                                 |  |                    |           |   |              |   |        |  
|Total noninterest income                                         |  |                    | 55        |   |              |   |       |  
|                                                                 |  |                    |           |   |              |   |        |  
|Noninterest expenses:                                            |  |                    |           |   |              |   |        |  
|Salaries and employee benefits                                   |  |                    | 388       |   |              |   |       |  
|Occupancy and equipment                                          |  |                    | 124       |   |              |   |       |  
|Data processing and systems expenses                             |  |                    | 61        |   |              |   |       |  
|Advertising                                                      |  |                    | 36        |   |              |   |       |  
|Professional fees                                                |  |                    | 64        |   |              |   |       |  
|Stationary and supplies                                          |  |                    | 22        |   |              |   |       |  
|Preopening and organizational expenses                           |  |                    |          |   |              |   | 323    |  
|Other                                                            |  |                    | 52        |   |              |   |       |  
|                                                                 |  |                    |           |   |              |   |        |  
|Total noninterest expenses                                       |  |                    | 747       |   |              |   | 323    |  
|                                                                 |  |                    |           |   |              |   |        |  
|Loss before income tax benefit                                   |  |                    | (298      | ) |              |   | (323   | )
|Income tax benefit                                               |  |                    | (112      | ) |              |   |       |  
|                                                                 |  |                    |           |   |              |   |        |  
|Net loss                                                         |  | $                  | (186      | ) |              | $ | (323   | )
|                                                                 |  |                    |           |   |              |   |        |  
|Net loss per share, basic and diluted                            |  | $                  | (0.12     | ) |              | $ | (3.50  | )
|                                                                 |  |                    |           |   |              |   |        |  
|Weighted-average number of shares outstanding, basic and diluted |  |                    | 1,500,000 |   |              |   | 92,308 |  
|                                                                 |  |                    |           |   |              |   |        |  
|Dividends per share                                              |  | $                  |          |   |              | $ |       |  
|                                                                 |  |                    |           |   |              |   |        |  

See Accompanying Notes to Condensed Consolidated Financial Statements.



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Condensed Consolidated Statements of Changes in
Stockholders Equity

Three months ended June 30, 2006 and 2005

(dollars in thousands, except share data)



|                                                                                 |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |      |   |  |   |        |  
|-------------------------------------------------------------------------------- |  | --------------- | ---- | - | ------------ | - | ------------------------ |  | ------------------ | ------ |  | --------------------------------- | ------ | - | ------------------------ | - | ---- | - |  | - | ------ | -
|                                                                                 |  | Preferred Stock |      |   | Common Stock |   | AdditionalPaid-InCapital |  | AccumulatedDeficit |        |  | AccumulatedOtherComprehensiveLoss |        |   | TotalStockholdersEquity |  
|Balance at March 31, 2005                                                        |  | $               | 235  |   |              | $ |                         |  | $                  |       |  | $                                 | (228   | ) |                          | $ |     |   |  | $ | 7      |  
|Net loss (unaudited)                                                             |  |                 |     |   |              |   |                         |  |                    |       |  |                                   | (323   | ) |                          |   |     |   |  |   | (323   | )
|Redemption of preferred stock (unaudited)                                        |  |                 | (235 | ) |              |   |                         |  |                    |       |  |                                   |       |   |                          |   |     |   |  |   | (235   | )
|Issuance of common stock, (150,000 shares) (unaudited)                           |  |                 |     |   |              |   | 2                        |  |                    | 1,498  |  |                                   |       |   |                          |   |     |   |  |   | 1,500  |  
|                                                                                 |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |      |   |  |   |        |  
|Balance at June 30, 2005 (unaudited)                                             |  | $               |     |   |              | $ | 2                        |  | $                  | 1,498  |  | $                                 | (551   | ) |                          | $ |     |   |  | $ | 949    |  
|                                                                                 |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |      |   |  |   |        |  
|Balance at March 31, 2006                                                        |  | $               |     |   |              | $ | 15                       |  | $                  | 14,783 |  | $                                 | (964   | ) |                          | $ | (69  | ) |  | $ | 13,765 |  
|Comprehensive loss:                                                              |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |      |   |  |   |        |  
|Net loss (unaudited)                                                             |  |                 |     |   |              |   |                         |  |                    |       |  |                                   | (186   | ) |                          |   |     |   |  |   | (186   | )
|Unrealized loss on securities available for sale, net of tax benefit (unaudited) |  |                 |     |   |              |   |                         |  |                    |       |  |                                   |       |   |                          |   | (93  | ) |  |   | (93    | )
|                                                                                 |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |      |   |  |   |        |  
|Comprehensive loss (unaudited)                                                   |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |      |   |  |   | (279   | )
|                                                                                 |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |      |   |  |   |        |  
|Balance at June 30, 2006 (unaudited)                                             |  | $               |     |   |              | $ | 15                       |  | $                  | 14,783 |  | $                                 | (1,150 | ) |                          | $ | (162 | ) |  | $ | 13,486 |  
|                                                                                 |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |      |   |  |   |        |  

See Accompanying Notes to Condensed Consolidated Financial Statements.



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows(unaudited)

(in thousands)



|                                                                                                           |  |                    |         |   |              |   |       |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ------------ | - | ----- | -
|                                                                                                           |  | Three months ended |        
|                                                                                                           |  | June 30,2006       |         |   | June 30,2005 |  
|Cash flows from operating activities:                                                                      |  |                    |         |   |              |   |       |  
|Net loss                                                                                                   |  | $                  | (186    | ) |              | $ | (323  | )
|Adjustments to reconcile net loss to net cash used in operating activities:                                |  |                    |         |   |              |   |       |  
|Depreciation and amortization                                                                              |  |                    | 26      |   |              |   |      |  
|Provision for loan losses                                                                                  |  |                    | 58      |   |              |   |      |  
|Deferred income tax benefit                                                                                |  |                    | (112    | ) |              |   |      |  
|Accretion of premiums and discounts on securities available for sale                                       |  |                    | (4      | ) |              |   |      |  
|Amortization of loan fees and costs, net                                                                   |  |                    | (4      | ) |              |   |      |  
|Loans originated for sale                                                                                  |  |                    | (12,256 | ) |              |   |      |  
|Gain on sale of loans held for sale                                                                        |  |                    | (44     | ) |              |   |      |  
|Proceeds from sales of loans held for sale                                                                 |  |                    | 5,463   |   |              |   |      |  
|Increase in accrued interest receivable                                                                    |  |                    | (62     | ) |              |   |      |  
|(Increase) decrease in other assets                                                                        |  |                    | 55      |   |              |   | (76   | )
|Increase (decrease) in accrued interest payable and other liabilities                                      |  |                    | 77      |   |              |   | (4    | )
|                                                                                                           |  |                    |         |   |              |   |       |  
|Net cash used in operating activities                                                                      |  |                    | (6,989  | ) |              |   | (403  | )
|                                                                                                           |  |                    |         |   |              |   |       |  
|Cash flows from investing activities:                                                                      |  |                    |         |   |              |   |       |  
|Net increase in loans                                                                                      |  |                    | (9,033  | ) |              |   |      |  
|Purchase of securities available for sale                                                                  |  |                    | (1,984  | ) |              |   |      |  
|Proceeds from principal repayments on securities available for sale                                        |  |                    | 437     |   |              |   |      |  
|Purchase of premises and equipment                                                                         |  |                    | (344    | ) |              |   | (327  | )
|                                                                                                           |  |                    |         |   |              |   |       |  
|Net cash used in investing activities                                                                      |  |                    | (10,924 | ) |              |   | (327  | )
|                                                                                                           |  |                    |         |   |              |   |       |  
|Cash flows from financing activities:                                                                      |  |                    |         |   |              |   |       |  
|Decrease in deposits                                                                                       |  |                    | (5,766  | ) |              |   |      |  
|Increase in federal funds purchased                                                                        |  |                    | 704     |   |              |   |      |  
|Increase in securities sold under agreements to repurchase                                                 |  |                    | 7,000   |   |              |   |      |  
|Increase in other borrowings                                                                               |  |                    | 651     |   |              |   |      |  
|Proceeds from issuance of common stock                                                                     |  |                    |        |   |              |   | 1,500 |  
|Redemption of preferred stock                                                                              |  |                    |        |   |              |   | (235  | )
|Repayment of note payable                                                                                  |  |                    |        |   |              |   | (401  | )
|Payment of common stock offering costs                                                                     |  |                    |        |   |              |   | (19   | )
|                                                                                                           |  |                    |         |   |              |   |       |  
|Net cash provided by financing activities                                                                  |  |                    | 2,589   |   |              |   | 845   |  
|                                                                                                           |  |                    |         |   |              |   |       |  
|Net increase (decrease) in cash and cash equivalents                                                       |  |                    | (15,324 | ) |              |   | 115   |  
|Cash and cash equivalents at beginning of period                                                           |  |                    | 15,793  |   |              |   | 32    |  
|                                                                                                           |  |                    |         |   |              |   |       |  
|Cash and cash equivalents at end of period                                                                 |  | $                  | 469     |   |              | $ | 147   |  
|                                                                                                           |  |                    |         |   |              |   |       |  
|Supplemental disclosure of cash flow information- Cash paid during the period for:                         |  |                    |         |   |              |   |       |  
|Interest                                                                                                   |  | $                  | 293     |   |              | $ | 6     |  
|                                                                                                           |  |                    |         |   |              |   |       |  
|Income taxes                                                                                               |  | $                  |        |   |              | $ |      |  
|                                                                                                           |  |                    |         |   |              |   |       |  
|Noncash transactions:                                                                                      |  |                    |         |   |              |   |       |  
|Accumulated other comprehensive loss, unrealized loss on securities available for sale, net of tax benefit |  | $                  | (93     | ) |              | $ |      |  
|                                                                                                           |  |                    |         |   |              |   |       |  

See Accompanying Notes to Condensed Consolidated Financial Statements.



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements
(unaudited)



|(1) | Description of business and basis of presentation
|--- | -------------------------------------------------

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 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 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.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary to present fairly the
financial position at June 30, 2006 and the results of operations and cash flows for the three month periods ended June 30, 2006 and 2005. The results of operations for the three month period ended June 30, 2006 are not necessarily
indicative of the results to be expected for the year ending March 31, 2007.

Estimates. The preparation of the condensed
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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



|(2) | Loan impairment and loan losses
|--- | -------------------------------

The Company had no
impaired loans during the three months ended June 30, 2006. Also, at June 30, 2006, the Company had no nonaccrual loans or loans which were over ninety days past due but still accruing interest.

The activity in the allowance for loan losses follows (in thousands):



|                          |  |                                 |    
|------------------------- |  | ------------------------------- | ---
|                          |  | Three months endedJune 30, 2006
|Beginning balance         |  | $                               | 198
|Provision for loan losses |  |                                 | 58 
|                          |  |                                 |    
|Ending balance            |  | $                               | 256
|                          |  |                                 |    



|(3) | 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.

(continued)



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited) continued



|(4) | Regulatory capital
|--- | ------------------

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.

The Banks actual capital amounts and ratios at June 30, 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)     |  | $             | 10,164 |        | 30.42 | % |                              | $ | 2,673  |                                                                | 8.00 | % |  | $ | 3,342 |  | 10.00 | %
|Tier 1 Capital (to risk weighted assets)    |  | $             | 9,908  |        | 29.65 | % |                              |   | N/A    |                                                                | N/A  |   |  | $ | 2,005 |  | 6.00  | %
|Core capital (to adjusted total assets)     |  | $             | 9,908  |        | 19.35 | % |                              | $ | 2,048  |                                                                | 4.00 | % |  | $ | 2,560 |  | 5.00  | %
|Tangible capital (to adjusted total assets) |  | $             | 9,908  |        | 19.35 | % |                              | $ | 768    |                                                                | 1.50 | % |  |   | N/A   |  | N/A   |  

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.



|(5) | Preopening and Organizational Costs
|--- | -----------------------------------

Preopening and
organizational costs, for the three months then ended June 30, 2005, were approximately $323,000. 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 (in thousands):



|                                             |  |                                 |    
|-------------------------------------------- |  | ------------------------------- | ---
|                                             |  | Three months endedJune 30, 2005
|Preopening and organizational expenses:      |  |                                 |    
|Payroll Expense                              |  | $                               | 221
|Professional fees                            |  |                                 | 20 
|Occupancy                                    |  |                                 | 26 
|Supplies                                     |  |                                 | 13 
|Marketing and design                         |  |                                 | 3  
|Telephone                                    |  |                                 | 7  
|Air/fuel and mileage                         |  |                                 | 1  
|Meal and entertainment                       |  |                                 | 7  
|Interest expense                             |  |                                 | 3  
|Lodging                                      |  |                                 | 2  
|Insurance                                    |  |                                 | 1  
|Other                                        |  |                                 | 19 
|                                             |  |                                 |    
|Total preopening and organizational expenses |  | $                               | 323
|                                             |  |                                 |    

(continued)



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Review by Independent Registered Public Accounting Firm

Hacker, Johnson & Smith PA, the Companys independent registered public accounting firm, have made a limited review of the financial
data as of June 30, 2006, and for the three-month periods ended June 30, 2006 and 2005 presented in this document, in accordance with standards established by the Public Company Accounting Oversight Board.

Their report furnished pursuant to Article 10 of Regulation S-X is included herein.



8



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

Partners Financial Corporation

Naples, Florida:

We have reviewed the accompanying interim
condensed consolidated balance sheet of Partners Financial Corporation and Subsidiary (the Company) as of June 30, 2006 and the related interim condensed consolidated statements of operations, stockholders equity and cash
flows for the three-month periods ended June 30, 2006 and 2005. These interim condensed financial statements are the responsibility of the Companys management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical
procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective
of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim condensed consolidated financial statements for them to be in conformity with U.S. generally accepted accounting
principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the
consolidated balance sheet of the Company as of March 31, 2006, and the related consolidated statements of operations, stockholders equity and cash flows for the year then ended (not presented herein); and in our report dated
June 16, 2006, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2006, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from which it has been derived.



|                              
|------------------------------
|/s/ Hacker, Johnson & Smith PA
|                              
|HACKER, JOHNSON & SMITH PA    
|Tampa, Florida                
|July 28, 2006                 



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Item 2. Managements Discussion and Analysis

of Financial Condition and Results of Operations

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, savings and
other variable rate deposit products, and the origination of high credit quality residential and commercial real estate loans. The Bank has a wholesale mortgage operation which originates and sells residential mortgages of various credit quality
levels, including loans known as sub-prime loans (sub-prime loans not being originated to be held in the portfolio). This operation also 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.

At June 30, 2006, we had total assets of $51.1 million, deposits of $29.1 million and stockholders equity of $13.5 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.

Liquidity and Capital Resources

The Company relied on $15.8 million in existing liquidity and $8.4 million in short-term borrowings to meet its funding needs during the three months
ended June 30, 2006. Cash was used primarily to: originate loans, net of principal repayments totaling $9.0 million; fund loans held for sale net of proceeds from sales of $6.8 million; fund a net decrease in deposits of $5.8 million and
purchase securities available for sale of $2.0 million. The decrease in deposits during the current period and the subsequent reliance on short term borrowings can be attributable to seasonality in the Naples market as well as a reduction in
advertising and promotion of deposit products. In an effort to maximize the impact of product advertising management elected to defer expenditures in this area, until the Banks second office, the modular unit at the Companys future main
office site opens August 7, 2007. Management anticipates that with the opening of the temporary modular unit and with competitive products that we will be able to fund future liquidity need primarily through deposit generation.

Off-Balance Sheet Arrangements

The Company is a
party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. 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 condensed consolidated balance sheet. The contract amounts of these instruments reflect the extent of involvement the Company has in these financial
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.



10



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Item 2. Managements Discussion and Analysis

of Financial Condition and Results of Operations

Comparison of June 30, 2006 and
March 31, 2006

Off-Balance Sheet Arrangements, Continued

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 June, 2006 follows (in thousands):



|                                             |  |                |      
|-------------------------------------------- |  | -------------- | -----
|                                             |  | ContractAmount
|Commitments to extend credit                 |  | $              | 2,625
|                                             |  |                |      
|Unused lines of credit and undisbursed loans |  | $              | 5,209
|                                             |  |                |      

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

Results of Operations for the three-month periods ended June 30, 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 other 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 June 30, 2006 or for the three month periods ended June 30, 2006 and 2005 are not indicative of future operating
results. The net loss for the three month ended 2006 was $186,000 or $0.12 per share. This compares to a net loss of $323,000 or $3.50 per share for the three months ended June 30, 2005 during which time the Company was still in the
organizational stage.

Interest Income and Expense. Net interest income before provision for loan losses totaled $452,000 for
quarter ended June 30, 2006. The net interest margin and average interest rate spread for the same period were 4.17% and 2.76% 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 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.

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 June 30, 2006, the allowance for loan losses totaled $256,000 or 0.82% of outstanding loans. The provision for loan losses
was $58,000 for the three months ended June 30, 2006.

(continued)



11



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Item 2. Managements Discussion and Analysis

of Financial Condition and Results of Operations

Results of Operations for the three-month
periods ended June 30, 2006 and 2005 (continued)

Noninterest Income. Noninterest income for the quarter ended
June 30, 2006 was primarily gains of the sales of loans held for sale and secondary market fees which totaled $49,000. The Company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 steady increases during fiscal 2007. Service charges on deposit accounts and other service charges and fees totaled $6,000 for the three month period ended June 30, 2006. Heavy competition for
deposit accounts within the Companys primary market area significantly limits the service charges that can be generated.

Noninterest Expenses. Non-interest expense for the three months ended June 30, 2006 and 2005, totaled $747,000 and $323,000, respectively. Salaries and employee benefits of $388,000 and occupancy expenses of $124,000
comprised the largest portions of noninterest expense during the three month period ended June 30, 2006. Based on the Companys plan of early growth over early profitability, it is anticipated that noninterest expense will increase at a
rate greater than that its ability to increase revenue generation, during the remainder of fiscal 2007. Noninterest expenses of $323,000 for the three month period ended June 30, 2005 were comprised entirely of preopening expenses, related to
the organization of the Bank. (See note 5 to the Notes to Consolidated Financial Statements)

(continued)



12



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Item 2. Managements Discussion and Analysis

of Financial Condition and Results of Operations

Results of Operations for the three-month
periods ended June 30, 2006 and 2005 (continued)

The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (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; and (v) net interest margin. Yields and costs were derived by dividing annualized income or expense by the average balance of assets or liabilities,
respectively, for the period shown. (in thousands)



|                                                                 |  |                                  |        |                      |   |                   |  |      |  
|---------------------------------------------------------------- |  | -------------------------------- | ------ | -------------------- | - | ----------------- |  | ---- | -
|                                                                 |  | Three Months Ended June 30, 2006 |       
|                                                                 |  | AverageBalance                   |        | InterestandDividends |   | AverageYield/Cost | 
|                                                                 |  | ($ in thousands)                 |       
|Interest-earning assets:                                         |  |                                  |        |                      |   |                   |  |      |  
|Loans                                                            |  | $                                | 28,376 |                      |   | 559               |  | 7.90 | %
|Investment securities                                            |  |                                  | 10,459 |                      |   | 136               |  | 5.22 |  
|Other interest-earning assets (1)                                |  |                                  | 4,607  |                      |   | 58                |  | 5.05 |  
|                                                                 |  |                                  |        |                      |   |                   |  |      |  
|Total interest-earning assets                                    |  |                                  | 43,442 |                      |   | 753               |  | 6.95 |  
|                                                                 |  |                                  |        |                      |   |                   |  |      |  
|Noninterest-earning assets                                       |  |                                  | 2,309  |                      |   |                   |  |      |  
|                                                                 |  |                                  |        |                      |   |                   |  |      |  
|Total assets                                                     |  | $                                | 45,751 |                      |   |                   |  |      |  
|                                                                 |  |                                  |        |                      |   |                   |  |      |  
|Interest-bearing liabilities:                                    |  |                                  |        |                      |   |                   |  |      |  
|Savings, MMDA, NOW                                               |  |                                  | 24,426 |                      |   | 252               |  | 4.14 |  
|Time deposits                                                    |  |                                  | 3,602  |                      |   | 40                |  | 4.45 |  
|                                                                 |  |                                  |        |                      |   |                   |  |      |  
|Total interest bearing deposits                                  |  |                                  | 28,028 |                      |   | 292               |  | 4.18 |  
|Borrowings (2)                                                   |  |                                  | 791    |                      |   | 9                 |  | 4.56 |  
|                                                                 |  |                                  |        |                      |   |                   |  |      |  
|Total interest-bearing liabilities                               |  |                                  | 28,819 |                      |   | 301               |  | 4.19 |  
|                                                                 |  |                                  |        |                      |   |                   |  |      |  
|Noninterest-bearing liabilities                                  |  |                                  | 3,290  |                      |   |                   |  |      |  
|                                                                 |  |                                  |        |                      |   |                   |  |      |  
|Total liabilities                                                |  |                                  | 32,109 |                      |   |                   |  |      |  
|Stockholders equity                                             |  |                                  | 13,642 |                      |   |                   |  |      |  
|                                                                 |  |                                  |        |                      |   |                   |  |      |  
|Total liabilities and stockholders equity                       |  | $                                | 45,751 |                      |   |                   |  |      |  
|                                                                 |  |                                  |        |                      |   |                   |  |      |  
|Net interest income                                              |  |                                  |        |                      | $ | 452               |  |      |  
|                                                                 |  |                                  |        |                      |   |                   |  |      |  
|Interest-rate spread (3)                                         |  |                                  |        |                      |   |                   |  | 2.76 | %
|Net interest-earning assets, net margin (4)                      |  |                                  |        |                      |   |                   |  | 4.17 | %
|Ratio of interest-earning assets to interest-bearing liabilities |  |                                  | 1.51   |                      |   |                   |  |      |  

---

|(1) | Includes interest-earning deposits, federal funds sold and Federal Home Loan Bank stock.
|--- | ----------------------------------------------------------------------------------------

|(2) | Includes Federal funds purchased, securities sold under agreement to repurchase and other borrowings.
|--- | -----------------------------------------------------------------------------------------------------

|(3) | Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Net interest margin is annualized net interest income divided by average interest-earning assets.
|--- | -------------------------------------------------------------------------------------------------

Selected Financial Ratios

The following table shows selected ratios for the periods ended or at the
dates indicated:



|                                                 |  |                                |    |  |                         |    |  |                                |   
|------------------------------------------------ |  | ------------------------------ | -- |  | ----------------------- | -- |  | ------------------------------ | --
|                                                 |  | Three MonthsEndedJune 30, 2006 |    |  | Year EndedMarch 31,2006 |    |  | Three MonthsEndedJune 30, 2005 |   
|Average equity as a percentage of average assets |  | 29.82                          | %  |  | 49.59                   | %  |  | 70.29                          | % 
|Total equity to total assets at end of period    |  | 26.4                           | %  |  | 28.27                   | %  |  | 100.00                         | % 
|Return on average assets (1)                     |  | (1.63                          | )% |  | (4.35                   | )% |  | (190.59                        | )%
|Return on average equity (1)                     |  | (5.47                          | )% |  | (8.78                   | )% |  | (271.13                        | )%
|Noninterest expense to average assets (1)        |  | 6.55                           | %  |  | 10.64                   | %  |  | 188.82                         | % 

---

|(1) | Annualized for the three months ended June 30, 2006 and 2005.
|--- | -------------------------------------------------------------



13



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Item 3. Controls and Procedures



|a. | Evaluation of e controls and procedures. The Companys management, including the Chief Executive Officer and 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) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of June 30, 2006. Based upon 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 the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|b. | Changes in internal controls. The Company made no significant changes in its internal controls over financial reporting that occurred in the most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the Companys internal controls over financial reporting.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There are no material pending legal proceedings to which the Holding Company or the Bank is a
party or to which any of their respective properties is subject.

Item 6. 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.



|              |  |                                                                         
|------------- |  | ------------------------------------------------------------------------
|ExhibitNumber |  | 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)
|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.                   



14



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.



|                      |  |                                |  |                                          
|--------------------- |  | ------------------------------ |  | -----------------------------------------
|                      |  | PARTNERS FINANCIAL CORPORATION
|                      |  | (Registrant)                  
|                      |  |                               
|Date: August 14, 2006 |  | By:                            |  | /s/ James S. Weaver                      
|                      |  |                                |  | James S. Weaver, President and           
|                      |  |                                |  | Chief Executive Officer                  
|                      |  |                               
|Date: August 14, 2006 |  | By:                            |  | /s/ Charles T. DeBilio                   
|                      |  |                                |  | Charles T. DeBilio, Senior Vice President
|                      |  |                                |  | and Chief Financial Officer              



15



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##### Table of Contents

Index to Exhibits



|              |  |                                                                                                                                              
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                       
|31.1          |  | Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act                                         
|              | 
|31.2          |  | Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act                                         
|              | 
|32.1          |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
|              | 
|32.2          |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002