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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 September 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 October 1, 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 September 30, 2006 (unaudited) and at March 31, 2006                      |  | 2    
|                                                                                                                    | 
|Condensed Consolidated Statement of Operations Three and Six Months Ended September 30, 2006 and 2005 (unaudited)  |  | 3    
|                                                                                                                    | 
|Condensed Consolidated Statements of Stockholders Equity -Six Months Ended September 30, 2006 and 2005 (unaudited) |  | 4    
|                                                                                                                    | 
|Condensed Consolidated Statements of Cash Flows -Six Months Ended September 30, 2006 and 2005 (unaudited)           |  | 5    
|                                                                                                                    | 
|Notes to Condensed Consolidated Financial Statements (unaudited)                                                    |  | 6-8  
|                                                                                                                    | 
|Review by Independent Registered Public Accounting Firm                                                             |  | 9    
|                                                                                                                    | 
|Report of Independent Registered Public Accounting Firm                                                             |  | 10   
|                                                                                                                    | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                       |  | 11-17
|                                                                                                                    | 
|Item 3. Controls and Procedures                                                                                     |  | 17   
|                                                                                                                    | 
|PART II. OTHER INFORMATION                                                                                          |  |      
|                                                                                                                    | 
|Item 1. Legal Proceedings                                                                                           |  | 18   
|                                                                                                                    | 
|Item 4. Submission of Matters to a Vote of Security Holders                                                         |  | 18   
|                                                                                                                    | 
|Item 6. Exhibits                                                                                                    |  | 19   
|                                                                                                                    | 
|SIGNATURES                                                                                                          |  | 20   



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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)



|                                                                                             |  |                   |        |   |               |   |        |  
|-------------------------------------------------------------------------------------------- |  | ----------------- | ------ | - | ------------- | - | ------ | -
|                                                                                             |  | September 30,2006 |        |   | March 31,2006 |  
|                                                                                             |  | (unaudited)       |        |   |               |  
|ASSETS                                                                                       |  |                   |        |   |               |   |        |  
|Cash and due from banks                                                                      |  | $                 | 445    |   |               | $ | 99     |  
|Federal funds sold                                                                           |  |                   | 1,308  |   |               |   | 15,670 |  
|Interest-bearing deposits with banks                                                         |  |                   | 26     |   |               |   | 24     |  
|                                                                                             |  |                   |        |   |               |   |        |  
|Total cash and cash equivalents                                                              |  |                   | 1,779  |   |               |   | 15,793 |  
|                                                                                             |  |                  
|Securities available for sale, at fair value                                                 |  |                   | 9,955  |   |               |   | 8,793  |  
|                                                                                             |  |                  
|Loans held for sale                                                                          |  |                   | 2,242  |   |               |   | 265    |  
|Loans, net of allowance for loan losses of $276 and $198                                     |  |                   | 33,908 |   |               |   | 21,876 |  
|Premises and equipment, net                                                                  |  |                   | 2,430  |   |               |   | 889    |  
|Federal Home Loan Bank of Atlanta Stock, at cost                                             |  |                   | 48     |   |               |   | 48     |  
|Accrued interest receivable                                                                  |  |                   | 203    |   |               |   | 132    |  
|Deferred income taxes                                                                        |  |                   | 873    |   |               |   | 620    |  
|Other assets                                                                                 |  |                   | 243    |   |               |   | 277    |  
|                                                                                             |  |                   |        |   |               |   |        |  
|Total assets                                                                                 |  | $                 | 51,681 |   |               | $ | 48,693 |  
|                                                                                             |  |                   |        |   |               |   |        |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                         |  |                   |        |   |               |   |        |  
|Liabilities                                                                                  |  |                   |        |   |               |   |        |  
|Deposits:                                                                                    |  |                   |        |   |               |   |        |  
|Non-interest bearing demand deposits                                                         |  | $                 | 3,907  |   |               | $ | 5,029  |  
|Savings, NOW, money-market deposits                                                          |  |                   | 19,884 |   |               |   | 26,533 |  
|Time deposits                                                                                |  |                   | 14,302 |   |               |   | 3,329  |  
|                                                                                             |  |                   |        |   |               |   |        |  
|Total Deposits                                                                               |  |                   | 38,093 |   |               |   | 34,891 |  
|                                                                                             |  |                  
|Other borrowings                                                                             |  |                   | 49     |   |               |   |       |  
|Accrued interest payable and other liabilities                                               |  |                   | 196    |   |               |   | 37     |  
|                                                                                             |  |                   |        |   |               |   |        |  
|Total liabilities                                                                            |  |                   | 38,338 |   |               |   | 34,928 |  
|                                                                                             |  |                   |        |   |               |   |        |  
|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                                                                          |  |                   | (1,360 | ) |               |   | (964   | )
|Accumulated other comprehensive loss                                                         |  |                   | (95    | ) |               |   | (69    | )
|                                                                                             |  |                   |        |   |               |   |        |  
|Total stockholders equity                                                                   |  |                   | 13,343 |   |               |   | 13,765 |  
|                                                                                             |  |                   |        |   |               |   |        |  
|Total liabilities and stockholders equity                                                   |  | $                 | 51,681 |   |               | $ | 48,693 |  
|                                                                                             |  |                   |        |   |               |   |        |  

See Accompanying Notes to Condensed Consolidated Financial Statements.



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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 EndedSeptember 30, |           |   | Six Months EndedSeptember 30, |        
|                                                                 |  | 2006                            |           |   | 2005                          |         |   | 2006 |           |   | 2005 |        
|Interest income:                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Loans                                                            |  | $                               | 785       |   |                               | 13      |   |      | 1,344     |   |      | 13      |  
|Investment Securities                                            |  |                                 | 131       |   |                               | 1       |   |      | 267       |   |      | 1       |  
|Other interest-earning assets                                    |  |                                 | 6         |   |                               | 47      |   |      | 64        |   |      | 47      |  
|                                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Total interest income                                            |  |                                 | 922       |   |                               | 61      |   |      | 1,675     |   |      | 61      |  
|                                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Interest expense:                                                |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Deposits                                                         |  |                                 | 366       |   |                               | 7       |   |      | 658       |   |      | 7       |  
|Borrowings                                                       |  |                                 | 82        |   |                               |        |   |      | 91        |   |      |        |  
|                                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Total interest expense                                           |  |                                 | 448       |   |                               | 7       |   |      | 749       |   |      | 7       |  
|                                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Net interest income                                              |  |                                 | 474       |   |                               | 54      |   |      | 926       |   |      | 54      |  
|Provision for loan losses                                        |  |                                 | 20        |   |                               | 38      |   |      | 78        |   |      | 38      |  
|                                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Net interest income after provision for loan losses              |  |                                 | 454       |   |                               | 16      |   |      | 848       |   |      | 16      |  
|                                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Noninterest income:                                              |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Gain on sale of loans held for sale                              |  |                                 | 145       |   |                               |        |   |      | 189       |   |      |        |  
|Service charges on deposit accounts                              |  |                                 | 3         |   |                               |        |   |      | 8         |   |      |        |  
|Secondary market fees                                            |  |                                 | 20        |   |                               |        |   |      | 25        |   |      |        |  
|Other service charges and fees                                   |  |                                 | 2         |   |                               |        |   |      | 3         |   |      |        |  
|                                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Total noninterest income                                         |  |                                 | 170       |   |                               |        |   |      | 225       |   |      |        |  
|                                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Noninterest expenses:                                            |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Salaries and employee benefits                                   |  |                                 | 522       |   |                               | 128     |   |      | 910       |   |      | 128     |  
|Occupancy and equipment                                          |  |                                 | 171       |   |                               | 22      |   |      | 295       |   |      | 22      |  
|Advertising                                                      |  |                                 | 39        |   |                               | 13      |   |      | 75        |   |      | 13      |  
|Data processing and system expenses                              |  |                                 | 63        |   |                               | 9       |   |      | 110       |   |      | 9       |  
|Professional fees                                                |  |                                 | 47        |   |                               | 3       |   |      | 111       |   |      | 3       |  
|Stationary and supplies                                          |  |                                 | 56        |   |                               | 6       |   |      | 78        |   |      | 6       |  
|Telephone                                                        |  |                                 | 14        |   |                               | 3       |   |      | 26        |   |      | 3       |  
|Insurance                                                        |  |                                 | 5         |   |                               | 2       |   |      | 10        |   |      | 2       |  
|Preopening and organizational expense                            |  |                                 |          |   |                               | 182     |   |      |          |   |      | 505     |  
|Other                                                            |  |                                 | 43        |   |                               | 7       |   |      | 92        |   |      | 7       |  
|                                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Total noninterest expenses                                       |  |                                 | 960       |   |                               | 375     |   |      | 1,707     |   |      | 698     |  
|                                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Loss before income taxes                                         |  |                                 | (336      | ) |                               | (359    | ) |      | (634      | ) |      | (682    | )
|Income tax benefit                                               |  |                                 | 126       |   |                               | 336     |   |      | 238       |   |      | 336     |  
|                                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Net Loss                                                         |  | $                               | (210      | ) |                               | (23     | ) |      | (396      | ) |      | (346    | )
|                                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Net loss per share, basic and diluted                            |  | $                               | (0.14     | ) |                               | (0.03   | ) |      | (0.26     | ) |      | (0.88   | )
|                                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|Weighted-average number of shares outstanding, basic and diluted |  |                                 | 1,500,000 |   |                               | 692,935 |   |      | 1,500,000 |   |      | 394,262 |  
|                                                                 |  |                                 |           |   |                               |         |   |      |           |   |      |         |  
|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 Stockholders Equity

Six months ended September 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)                                                                           |  |                 |     |   |              |   |                         |  |                    |       |  |                                   | (346   | ) |                          |   |    |   |  |   | (346   | )
|Redemption of preferred stock (unaudited)                                                      |  |                 | (235 | ) |              |   |                         |  |                    |       |  |                                   |       |   |                          |   |    |   |  |   | (235   | )
|Issuance of common stock net of issuance costs, (150,000 shares) (unaudited)                   |  |                 |     |   |              |   | 15                       |  |                    | 14,850 |  |                                   |       |   |                          |   |    |   |  |   | 14,865 |  
|                                                                                               |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |     |   |  |   |        |  
|Balance at September 30, 2005 (unaudited)                                                      |  | $               |     |   |              | $ | 15                       |  | $                  | 14,850 |  | $                                 | (574   | ) |                          | $ |    |   |  | $ | 14,291 |  
|                                                                                               |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |     |   |  |   |        |  
|Balance at March 31, 2006                                                                      |  | $               |     |   |              | $ | 15                       |  | $                  | 14,783 |  | $                                 | (964   | ) |                          | $ | (69 | ) |  | $ | 13,765 |  
|                                                                                               |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |     |   |  |   |        |  
|Comprehensive loss:                                                                            |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |     |   |  |   |        |  
|Net loss (unaudited)                                                                           |  |                 |     |   |              |   |                         |  |                    |       |  |                                   | (396   | ) |                          |   |    |   |  |   | (396   | )
|Net change in Unrealized loss on securities available for sale, net of tax benefit (unaudited) |  |                 |     |   |              |   |                         |  |                    |       |  |                                   |       |   |                          |   | (26 | ) |  |   | (26    | )
|                                                                                               |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |     |   |  |   |        |  
|Comprehensive loss (unaudited)                                                                 |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |     |   |  |   | (422   | )
|                                                                                               |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |     |   |  |   |        |  
|Balance at September 30, 2006 (unaudited)                                                      |  | $               |     |   |              | $ | 15                       |  | $                  | 14,783 |  | $                                 | (1,360 | ) |                          | $ | (95 | ) |  | $ | 13,343 |  
|                                                                                               |  |                 |      |   |              |   |                          |  |                    |        |  |                                   |        |   |                          |   |     |   |  |   |        |  

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)



|                                                                                                                         |  |                   |         |   |                   |   |        |  
|------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------- | - | ----------------- | - | ------ | -
|                                                                                                                         |  | Six months ended  |        
|                                                                                                                         |  | September 30,2006 |         |   | September 30,2005 |  
|Cash flows from operating activities:                                                                                    |  |                   |         |   |                   |   |        |  
|Net loss                                                                                                                 |  | $                 | (396    | ) |                   | $ | (346   | )
|Adjustments to reconcile net loss to net cash used in operating activities:                                              |  |                   |         |   |                   |   |        |  
|Depreciation and amortization                                                                                            |  |                   | 120     |   |                   |   | 8      |  
|Provision for loan losses                                                                                                |  |                   | 78      |   |                   |   | 38     |  
|Deferred income tax benefit                                                                                              |  |                   | (238    | ) |                   |   | (336   | )
|Accretion of premiums and discounts on securities available for sale                                                     |  |                   | (7      | ) |                   |   |       |  
|Amortization of loan fees and costs, net                                                                                 |  |                   | (10     | ) |                   |   |       |  
|Loans originated for sale                                                                                                |  |                   | (23,059 | ) |                   |   |       |  
|Gain on sale of loans held for sale                                                                                      |  |                   | (189    | ) |                   |   |       |  
|Proceeds from sales of loans held for sale                                                                               |  |                   | 21,271  |   |                   |   |       |  
|Increase in accrued interest receivable                                                                                  |  |                   | (71     | ) |                   |   | (31    | )
|(Increase) decrease in other assets                                                                                      |  |                   | 34      |   |                   |   | (264   | )
|Increase in accrued interest payable and other liabilities                                                               |  |                   | 159     |   |                   |   | 8      |  
|                                                                                                                         |  |                   |         |   |                   |   |        |  
|Net cash used in operating activities                                                                                    |  |                   | (2,308  | ) |                   |   | (923   | )
|                                                                                                                         |  |                   |         |   |                   |   |        |  
|Cash flows from investing activities:                                                                                    |  |                   |         |   |                   |   |        |  
|Net increase in loans                                                                                                    |  |                   | (12,100 | ) |                   |   | (4,752 | )
|Purchase of securities available for sale                                                                                |  |                   | (1,984  | ) |                   |   | (4,007 | )
|Proceeds from principal repayments on securities available for sale                                                      |  |                   | 788     |   |                   |   |       |  
|Purchase of premises and equipment                                                                                       |  |                   | (1,661  | ) |                   |   | (377   | )
|                                                                                                                         |  |                   |         |   |                   |   |        |  
|Net cash used in investing activities                                                                                    |  |                   | (14,957 | ) |                   |   | (9,136 | )
|                                                                                                                         |  |                   |         |   |                   |   |        |  
|Cash flows from financing activities:                                                                                    |  |                   |         |   |                   |   |        |  
|Increase in deposits                                                                                                     |  |                   | 3,202   |   |                   |   | 6,021  |  
|Increase in other borrowings                                                                                             |  |                   | 49      |   |                   |   |       |  
|Proceeds from issuance of common stock                                                                                   |  |                   |        |   |                   |   | 14,928 |  
|Redemption of preferred stock                                                                                            |  |                   |        |   |                   |   | (235   | )
|Repayment of note payable                                                                                                |  |                   |        |   |                   |   | (401   | )
|                                                                                                                         |  |                   |         |   |                   |   |        |  
|Net cash provided by financing activities                                                                                |  |                   | 3,251   |   |                   |   | 20,313 |  
|                                                                                                                         |  |                   |         |   |                   |   |        |  
|Net increase (decrease) in cash and cash equivalents                                                                     |  |                   | (14,014 | ) |                   |   | 10,254 |  
|Cash and cash equivalents at beginning of period                                                                         |  |                   | 15,793  |   |                   |   | 32     |  
|                                                                                                                         |  |                   |         |   |                   |   |        |  
|Cash and cash equivalents at end of period                                                                               |  | $                 | 1,779   |   |                   | $ | 10,286 |  
|                                                                                                                         |  |                   |         |   |                   |   |        |  
|Supplemental disclosure of cash flow information- Cash paid during the period for:                                       |  |                   |         |   |                   |   |        |  
|Interest                                                                                                                 |  | $                 | 644     |   |                   | $ | 2      |  
|                                                                                                                         |  |                   |         |   |                   |   |        |  
|Income taxes                                                                                                             |  | $                 |        |   |                   | $ |       |  
|                                                                                                                         |  |                   |         |   |                   |   |        |  
|Noncash transactions:                                                                                                    |  |                   |         |   |                   |   |        |  
|Accumulated other comprehensive loss, net change in unrealized loss on securities available for sale, net of tax benefit |  | $                 | (26     | ) |                   | $ |       |  
|                                                                                                                         |  |                   |         |   |                   |   |        |  

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 September 30, 2006 and the results of operations for the three and six month periods ended September 30, 2006 and 2005 and cash flows for the six month periods ended September 30, 2006 and 2005. The results of
operations for the three and six month periods ended September 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 consolidated 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 six months ended September 30, 2006 and 2005. Also, at September 30, 2006 and 2005, 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 EndedSeptember 30, |     | Six Months EndedSeptember 30,
|                          |  | 2006                            |     | 2005                          |    | 2006 |     | 2005
|Beginning balance         |  | $                               | 256 |                               |   |      | 198 |      |  
|Charge-offs               |  |                                 |    |                               |   |      |    |      |  
|Provision for loan losses |  |                                 | 20  |                               | 38 |      | 78  |      | 38
|                          |  |                                 |     |                               |    |      |     |      |   
|Ending balance            |  | $                               | 276 |                               | 38 |      | 276 |      | 38
|                          |  |                                 |     |                               |    |      |     |      |   



|(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)



6



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##### Table of Contents

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 September 30, 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)     |  | $            | 10,005 |        | 28.04 | % |                              | $ | 2,854  |                                                                | 8.00 | % |  | $ | 3,568 |  | 10.00 | %
|Tier 1 Capital (to risk weighted assets)    |  | $            | 9,729  |        | 27.27 | % |                              |   | N/A    |                                                                | N/A  |   |  |   | 2,141 |  | 6.00  | %
|Core capital (to adjusted total assets)     |  | $            | 9,729  |        | 18.81 | % |                              | $ | 2,069  |                                                                | 4.00 | % |  | $ | 2,586 |  | 5.00  | %
|Tangible capital (to adjusted total assets) |  | $            | 9,729  |        | 18.81 | % |                              | $ | 776    |                                                                | 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 and six months then ended September 30, 2005, were approximately $182,000 and $505,000, respectively. 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 Ended September 30, 2005 |     |   | Six Months EndedSeptember 30,2005 |  
|Preopening and organizational expenses:                               |  |                                       |     |   |                                   |   |     |  
|Payroll Expense                                                       |  | $                                     | 128 |   |                                   | $ | 349 |  
|Professional fees                                                     |  |                                       | 74  |   |                                   |   | 94  |  
|Occupancy                                                             |  |                                       | 19  |   |                                   |   | 45  |  
|Supplies                                                              |  |                                       | 5   |   |                                   |   | 18  |  
|Marketing and design                                                  |  |                                       | 14  |   |                                   |   | 17  |  
|Telephone                                                             |  |                                       | 7   |   |                                   |   | 14  |  
|Air/fuel and mileage                                                  |  |                                       | 9   |   |                                   |   | 10  |  
|Meal and entertainment                                                |  |                                       | 2   |   |                                   |   | 9   |  
|Interest expense                                                      |  |                                       | 2   |   |                                   |   | 5   |  
|Lodging                                                               |  |                                       |    |   |                                   |   | 2   |  
|Insurance                                                             |  |                                       | 1   |   |                                   |   | 2   |  
|Other                                                                 |  |                                       | 6   |   |                                   |   | 25  |  
|Less: Interest earned on escrowed proceeds from common stock offering |  |                                       | (85 | ) |                                   |   | (85 | )
|                                                                      |  |                                       |     |   |                                   |   |     |  
|Total preopening and organizational expenses                          |  | $                                     | 182 |   |                                   | $ | 505 |  
|                                                                      |  |                                       |     |   |                                   |   |     |  

(continued)



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited) continued



|(6) | Share-based compensation
|--- | ------------------------

Effective April 1,
2006 the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment(SFAS 123R). Under SFAS 123R compensation cost recognized will include the compensation cost for all share-based
payments granted subsequent to March 31, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). As of September 30, 2006 no options have been granted.

On August 21, 2006, the Company established an incentive stock option plan (the Incentive Plan) for directors, officers and employees of
the Company and reserved 225,000 shares of common stock for the plan. The exercise price of the stock options will be the fair market value of the common stock on the date of the grant. The options must be exercised within ten years from the date of
the grant and will vest as shall be determined by the Board and stated in the Award Agreement. As of September 30, 2006 no options have been granted and there were 225,000 options available for future grant.



8



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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 September 30, 2006, and for the three and six-month periods ended September 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.



9



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

Partners Financial Corporation

Naples, Florida:

We have reviewed the accompanying condensed consolidated balance sheet of Partners Financial Corporation and Subsidiary (the Company) as of September 30, 2006 and the related condensed consolidated statements of operations
for the three and six month periods ended September 30, 2006 and 2005 and the related condensed consolidated statements of stockholders equity and cashflows for the six months ended September 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                
|October 19, 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 September 30, 2006, we had total assets of $51.7 million, deposits of $38.1 million and stockholders equity of $13.3 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.

Some of the statements in this Form 10-QSB discuss future expectations. Those
statements re 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.

Liquidity and Capital Resources

The Companys primary source of cash during the six months
ended September 30, 2006 was $6.3 million in brokered deposits (purchased out of market deposits). Cash was used primarily to: originate loans and loans held for sale, net of principal repayments totaling $14.1 million; fund a net decrease in
core deposits of $3.1 million and purchase securities available for sale of $2.0 million. During the period the Company also relied on $15.8 million in existing liquidity to meet its funding needs. The decrease in core deposits during the current
period and the subsequent reliance on short term borrowings and brokered deposits can be attributable to seasonality in the Naples market. The Banks second office, the modular unit at the Companys future main office site opened
August 7, 2006 and management anticipates that with the opening of the temporary modular unit, the return of seasonal residents and with competitive products, 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.

(continued)



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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

Off-Balance Sheet Arrangements, Continued

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 September 30, 2006 follows (in thousands):



|                                             |  |                 |       
|-------------------------------------------- |  | --------------- | ------
|                                             |  | Contract Amount
|Commitments to extend credit                 |  | $               | 165   
|                                             |  |                 |       
|Unused lines of credit and undisbursed loans |  | $               | 10,906
|                                             |  |                 |       

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 September 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 September 30, 2006 or for the three month periods ended September 30, 2006 and 2005 are not indicative of future
operating results. The net loss for the three months ended September 30, 2006 was $210,000 or $0.14 per share. This compares to a net loss of $23,000 or $0.03 per share for the three months ended September 30, 2005 during which time the
Company was still primarily in the organizational stage.

Interest Income and Expense. Net interest income before provision
for loan losses totaled $474,000 for three-months ended September 30, 2006. The net interest margin and average interest rate spread for the same period were 3.76% and 2.47% 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.

(continued)



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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 September 30, 2006 and 2005 (continued)

The provision for loan losses is charged to operations to bring the total
allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Company, industry standards, the amount of nonperforming loans, general economic conditions, particularly
as they relate to the Companys market areas, and other factors related to the collectibility of the Companys loan portfolio. The provision for loan losses was $20,000 for the three months ended September 30, 2006 compared to $38,000
for the comparable period in 2005. Management believes the balance in the allowance for loan losses of $276,000 at September 30, 2006 is adequate.

Noninterest Income. Noninterest income for the quarter ended September 30, 2006 was primarily gains of the sales of loans held for sale of $145,000 and secondary market fees which totaled $20,000.
The Companys mortgage origination department was still in its organizational stages until the end of fiscal 2006. The impact, if any, on gains on the sales of loans held for sale and on secondary market fees due to the current slow-down in the
local real-estate market has yet to be determined. Service charges on deposit accounts and other service charges and fees totaled $5,000 for the three month period ended September 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 September 30, 2006 and 2005, totaled $960,000 and $375,000, respectively. Salaries and employee benefits of $522,000 and occupancy expenses of $171,000 comprised the largest portions of
noninterest expense during the three month period ended September 30, 2006. Salaries and employee benefits included $81,000 in commissions on mortgages originated for resale or for the secondary market and business development. Occupancy
expense included approximately $60,000 in depreciation expense related to improvements on the Banks modular unit. These improvements total approximately $180,000 and will be depreciated over a six month period. 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 $375,000 for the
three month period ended September 30, 2005 were comprised of $182,000 of preopening expenses, related to the organization of the Bank. (See note 5 to the Notes to Consolidated Financial Statements) The remainder was for the
first five weeks of operations for the Bank.

Results of Operations for the six-month periods ended September 30, 2006 and 2005

The net loss for the six months ended September 30, 2006 was $396,000 or $0.26 per share. This compares to a net loss of $346,000
or $0.88 per share for the six months ended September 30, 2005 during which time the Company was still primarily in the organizational stage.

Interest Income and Expense. Net interest income before provision for loan losses totaled $926,000 for the six months ended September 30, 2006. The net interest margin and average interest rate spread for the same period
were 3.95% and 2.58% 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.

(continued)



13



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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 six-month periods
ended September 30, 2006 and 2005 (continued)

The provision for loan losses is charged to operations to bring the total allowance
to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Company, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they
relate to the Companys market areas, and other factors related to the collectibility of the Companys loan portfolio. The provision for loan losses was $78,000 for the six months ended September 30, 2006 compared to $38,000 for the
comparable period in 2005. Management believes the balance in the allowance for loan losses of $276,000 at September 30, 2006 is adequate.

Noninterest Income. Noninterest income for the six months ended September 30, 2006 was primarily gains of the sales of loans held for sale of $189,000 and secondary market fees which totaled $25,000. The Companys
mortgage origination department was still in its organizational stages until the end of fiscal 2006. The impact, if any, on gains on the sales of loans held for sale and on secondary market fees due to the current slow-down in the local real-estate
market has yet to be determined. Service charges on deposit accounts and other service charges and fees totaled $11,000 for the six month period ended September 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 six months ended September 30, 2006 and 2005, totaled $1,707,000 and $698,000, respectively. Salaries and employee benefits of $910,000 and occupancy expenses of $295,000 comprised the largest portions of noninterest expense during the six
month period ended September 30, 2006. Salaries and employee benefits included $100,000 in commissions on mortgages originated for resale or for the secondary market and business development. Occupancy expense included approximately $60,000 in
depreciation expense related to improvements on the Banks modular unit. These improvements total approximately $180,000 and will be depreciated over a six month period. 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 for the six month period ended September 30, 2005 were
comprised of $505,000 of preopening expenses, related to the organization of the Bank. (See note 5 to the Notes to Consolidated Financial Statements) The remainder was for the first five weeks of operations for the Bank.



14



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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

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 September 30, |       
|                                                                 |  | 2006                             |        |                      | 2005 |                  
|                                                                 |  | AverageBalance                   |        | InterestandDividends |      | AverageYield/Cost |  |      | AverageBalance |  | InterestandDividends |       | AverageYield/Cost |  
|                                                                 |  | ($ in thousands)                 |       
|Interest-earning assets:                                         |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Loans                                                            |  | $                                | 39,467 |                      |      | 785               |  | 7.89 | %              |  | $                    | 742   |                   |   | 13 |  | 6.95 | %
|Investment securities                                            |  |                                  | 10,127 |                      |      | 131               |  | 5.13 |                |  |                      | 84    |                   |   | 1  |  | 4.72 |  
|Other interest-earning assets (1)                                |  |                                  | 465    |                      |      | 6                 |  | 5.12 |                |  |                      | 4,870 |                   |   | 47 |  | 3.83 |  
|                                                                 |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Total interest-earning assets                                    |  |                                  | 50,059 |                      |      | 922               |  | 7.31 |                |  |                      | 5,696 |                   |   | 61 |  | 4.25 |  
|                                                                 |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Noninterest-earning assets                                       |  |                                  | 3,408  |                      |      |                   |  |      |                |  |                      | 1,325 |                   |   |    |  |      |  
|                                                                 |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Total assets                                                     |  | $                                | 53,467 |                      |      |                   |  |      |                |  | $                    | 7,021 |                   |   |    |  |      |  
|                                                                 |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Interest-bearing liabilities:                                    |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Savings, MMDA, NOW                                               |  |                                  | 19,763 |                      |      | 215               |  | 4.32 |                |  |                      | 1,240 |                   |   | 7  |  | 2.24 |  
|Time deposits                                                    |  |                                  | 11,288 |                      |      | 151               |  | 5.31 |                |  |                      |      |                   |   |   |  |     |  
|                                                                 |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Total interest-bearing deposits                                  |  |                                  | 31,051 |                      |      | 366               |  | 4.68 |                |  |                      | 1,240 |                   |   | 7  |  | 2.24 |  
|Borrowings (2)                                                   |  |                                  | 5,668  |                      |      | 82                |  | 5.74 |                |  |                      |      |                   |   |   |  |     |  
|                                                                 |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Total interest bearing liabilities                               |  |                                  | 36,719 |                      |      | 448               |  | 4.84 |                |  |                      | 1,240 |                   |   | 7  |  | 2.24 |  
|                                                                 |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Noninterest-bearing liabilities                                  |  |                                  | 3,295  |                      |      |                   |  |      |                |  |                      | 387   |                   |   |    |  |      |  
|                                                                 |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Total liabilities                                                |  |                                  | 40,014 |                      |      |                   |  |      |                |  |                      | 1,627 |                   |   |    |  |      |  
|Stockholders equity                                             |  |                                  | 13,453 |                      |      |                   |  |      |                |  |                      | 5,394 |                   |   |    |  |      |  
|                                                                 |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Total liabilities and stockholders equity                       |  | $                                | 53,467 |                      |      |                   |  |      |                |  | $                    | 7,021 |                   |   |    |  |      |  
|                                                                 |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Net interest income                                              |  |                                  |        |                      | $    | 474               |  |      |                |  |                      |       |                   | $ | 54 |  |      |  
|                                                                 |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Interest-rate spread (3)                                         |  |                                  |        |                      |      |                   |  | 2.47 | %              |  |                      |       |                   |   |    |  | 2.01 | %
|                                                                 |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Net interest-margin (4)                                          |  |                                  |        |                      |      |                   |  | 3.76 | %              |  |                      |       |                   |   |    |  | 3.76 | %
|                                                                 |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Ratio of interest-earning assets to interest-bearing liabilities |  |                                  | 1.36   |                      |      |                   |  |      |                |  |                      | 4.59  |                   |   |    |  |      |  
|                                                                 |  |                                  |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  

---

|(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.
|--- | -------------------------------------------------------------------------------------------------



15



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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

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 periods shown.



|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|---------------------------------------------------------------- |  | ------------------------------ | ------ | -------------------- | ---- | ----------------- |  | ---- | -------------- |  | -------------------- | ----- | ----------------- | - | -- |  | ---- | -
|                                                                 |  | Six Months Ended September 30, |       
|                                                                 |  | 2006                           |        |                      | 2005 |                  
|                                                                 |  | AverageBalance                 |        | InterestandDividends |      | AverageYield/Cost |  |      | AverageBalance |  | InterestandDividends |       | AverageYield/Cost |  
|                                                                 |  | ($ in thousands)               |       
|Interest-earning assets:                                         |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Loans                                                            |  | $                              | 33,951 |                      |      | 1,344             |  | 7.90 | %              |  | $                    | 373   |                   |   | 13 |  | 6.95 | %
|Investment securities                                            |  |                                | 10,292 |                      |      | 267               |  | 5.17 |                |  |                      | 42    |                   |   | 1  |  | 4.75 |  
|Other interest-earning assets (1)                                |  |                                | 2,525  |                      |      | 64                |  | 5.05 |                |  |                      | 2,450 |                   |   | 47 |  | 3.83 |  
|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Total interest-earning assets                                    |  |                                | 46,768 |                      |      | 1,675             |  | 7.14 |                |  |                      | 2,865 |                   |   | 61 |  | 4.25 |  
|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Noninterest-earning assets                                       |  |                                | 2,862  |                      |      |                   |  |      |                |  |                      | 1,020 |                   |   |    |  |      |  
|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Total assets                                                     |  | $                              | 49,630 |                      |      |                   |  |      |                |  | $                    | 3,885 |                   |   |    |  |      |  
|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Interest-bearing liabilities:                                    |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Savings, MMDA, NOW                                               |  |                                | 22,082 |                      |      | 468               |  | 4.23 |                |  |                      | 623   |                   |   | 7  |  | 2.24 |  
|Time deposits                                                    |  |                                | 7,466  |                      |      | 190               |  | 5.08 |                |  |                      |      |                   |   |   |  |     |  
|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Total interest-bearing deposits                                  |  |                                | 29,548 |                      |      | 658               |  | 4.44 |                |  |                      | 623   |                   |   | 7  |  | 2.24 |  
|Borrowings (2)                                                   |  |                                | 3,242  |                      |      | 91                |  | 5.60 |                |  |                      |      |                   |   |   |  |     |  
|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Total interest bearing liabilities                               |  |                                | 32,790 |                      |      | 749               |  | 4.56 |                |  |                      | 623   |                   |   | 7  |  | 2.24 |  
|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Noninterest-bearing liabilities                                  |  |                                | 3,290  |                      |      |                   |  |      |                |  |                      | 326   |                   |   |    |  |      |  
|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Total liabilities                                                |  |                                | 36,080 |                      |      |                   |  |      |                |  |                      | 949   |                   |   |    |  |      |  
|Stockholders equity                                             |  |                                | 13,550 |                      |      |                   |  |      |                |  |                      | 2,936 |                   |   |    |  |      |  
|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Total liabilities and stockholders equity                       |  | $                              | 49,630 |                      |      |                   |  |      |                |  | $                    | 3,885 |                   |   |    |  |      |  
|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Net interest income                                              |  |                                |        |                      | $    | 926               |  |      |                |  |                      |       |                   | $ | 54 |  |      |  
|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Interest-rate spread (3)                                         |  |                                |        |                      |      |                   |  | 2.58 | %              |  |                      |       |                   |   |    |  | 2.01 | %
|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Net interest-margin (4)                                          |  |                                |        |                      |      |                   |  | 3.95 | %              |  |                      |       |                   |   |    |  | 3.76 | %
|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  
|Ratio of interest-earning assets to interest-bearing liabilities |  |                                | 1.43   |                      |      |                   |  |      |                |  |                      | 4.60  |                   |   |    |  |      |  
|                                                                 |  |                                |        |                      |      |                   |  |      |                |  |                      |       |                   |   |    |  |      |  

---

|(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.
|--- | -------------------------------------------------------------------------------------------------



16



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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

Selected Financial Ratios

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



|                                                 |  |                                  |    |  |                         |    |  |                                  |   
|------------------------------------------------ |  | -------------------------------- | -- |  | ----------------------- | -- |  | -------------------------------- | --
|                                                 |  | Six MonthsEndedSeptember 30,2006 |    |  | Year EndedMarch 31,2006 |    |  | Six MonthsEndedSeptember 30,2005 |   
|Average equity as a percentage of average assets |  | 27.30                            | %  |  | 49.59                   | %  |  | 75.57                            | % 
|Total equity to total assets at end of period    |  | 25.82                            | %  |  | 28.27                   | %  |  | 70.32                            | % 
|Return on average assets (1)                     |  | (1.59                            | )% |  | (4.35                   | )% |  | (17.76                           | )%
|Return on average equity (1)                     |  | (5.83                            | )% |  | (8.78                   | )% |  | (23.51                           | )%
|Noninterest expense to average assets (1)        |  | 6.86                             | %  |  | 10.64                   | %  |  | 35.83                            | % 

---

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

Item 3. Controls and Procedures



|a. | Evaluation of 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 September 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.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

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 4. Submission of Matters to a Vote of Security Holders

On August 21, 2006 Partners Financial Corporations held
its Annual Meeting of Shareholders. At this Annual Meeting, the following proposals were considered and acted upon:

PROPOSAL I. To elect 13
directors:



|                     |  |           |  |         
|-------------------- |  | --------- |  | --------
|                     |  | For       |  | Withheld
|James E. Boughton    |  | 1,014,450 |  | 0       
|Jerome J. Bushman    |  | 1,014,450 |  | 0       
|Jack J. Crifasi, Jr. |  | 1,014,450 |  | 0       
|Howard F. Crossman   |  | 1,014,450 |  | 0       
|John M. DeAngelis    |  | 939,600   |  | 74,850  
|Sam F. Hamra         |  | 939,600   |  | 74,850  
|John V. Hoey III     |  | 1,014,450 |  | 0       
|Samuel J. Saad, Jr.  |  | 1,014,450 |  | 0       
|Frank C. Sabatini    |  | 1,014,450 |  | 0       
|Steven M. Watt       |  | 1,011,950 |  | 2,500   
|James S. Weaver      |  | 1,014,450 |  | 0       
|David R. White       |  | 1,014,450 |  | 0       
|John G. Wolf,        |  | 1,014,450 |  | 0       

PROPOSAL II. To ratify the 2006 Stock Incentive Plan:



|        |  |         |  |         |  |                
|------- |  | ------- |  | ------- |  | ---------------
|For     |  | Against |  | Abstain |  | Broker Non-vote
|960,950 |  | 30,500  |  | 1,000   |  | 22,000         

PROPOSAL III. The ratification of the appointment of Hacker, Johnson & Smith PA as the
independent auditors for the Company for the fiscal year ending March 31, 2007:



|          |  |         |  |        
|--------- |  | ------- |  | -------
|For       |  | Against |  | Abstain
|1,004,450 |  | 10,000  |  |       



18



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##### Table of Contents

PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY

PART II. OTHER INFORMATION

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.



|               |  |                                                                         
|-------------- |  | ------------------------------------------------------------------------
|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)
|               | 
|10.3           |  | Partners Financial Corporation 2006 Stock Incentive Plan                
|               | 
|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.                   



19



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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: November 2, 2006 |  | By:                            |  | /s/ James S. Weaver                                                 
|                       |  |                                |  | James S. Weaver, President andChief Executive Officer               
|                       |  |                               
|Date: November 2, 2006 |  | By:                            |  | /s/ Charles T. DeBilio                                              
|                       |  |                                |  | Charles T. DeBilio, Senior Vice Presidentand Chief Financial Officer



20



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##### Table of Contents

Index to Exhibits



|              |  |                                                                                                                                              
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                       
|10.3.         |  | Partners Financial Corporation 2006 Stock Incentive Plan                                                                                     
|              | 
|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