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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, 2005



| ̈ | Transition 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 Business 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 Pineridge 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 12, 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 November 10, 2005



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



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY



INDEX



|                                                                                                                        |  |      
|----------------------------------------------------------------------------------------------------------------------- |  | -----
|                                                                                                                        |  | Page 
|PART I. 
FINANCIAL INFORMATION                                                                                          |  |      
|                                                                                                                        | 
|Item 1. Financial Statements                                                                                            |  |      
|                                                                                                                        | 
|Condensed Consolidated Balance Sheets - At September 30, 2005 (unaudited) and at March 31, 2005                         |  | 2    
|                                                                                                                        | 
|Condensed Consolidated Statements of Operations - Three and Six Months Ended September 30, 2005 and 2004 (unaudited)    |  | 3    
|                                                                                                                        | 
|Condensed Consolidated Statements of Stockholders Equity (Deficit) - Six Ended September 30, 2005 and 2004 (unaudited) |  | 4    
|                                                                                                                        | 
|Condensed Consolidated Statements of Cash Flows - Six Months Ended September 30, 2005 and 2004 (unaudited)              |  | 5    
|                                                                                                                        | 
|Notes to Condensed Consolidated Financial Statements (unaudited)                                                        |  | 6-10 
|                                                                                                                        | 
|Review by Independent Registered Public Accounting Firm                                                                 |  | 11   
|                                                                                                                        | 
|Report of Independent Registered Public Accounting Firm                                                                 |  | 12   
|                                                                                                                        | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 13-14
|                                                                                                                        | 
|Item 3. Controls and Procedures                                                                                         |  | 15   
|                                                                                                                        | 
|PART II. 
OTHER INFORMATION                                                                                             |  |      
|                                                                                                                        | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                     |  | 15   
|                                                                                                                        | 
|Item 6. Exhibits                                                                                                        |  | 16   
|                                                                                                                        | 
|SIGNATURES                                                                                                              |  | 17   



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY



PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



Condensed Consolidated Balance Sheets

($ in thousands, except share data)



|                                                                                                                                                          |  |                   |        |   |               |      |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------ | - | ------------- | ---- | -
|                                                                                                                                                          |  | September 30,2005 |        |   | March 31,2005 |     
|                                                                                                                                                          |  | (Unaudited)       |        |   |               |     
|Assets                                                                                                                                                    |  |                   |        |   |               |      |  
|                                                                                                                                                          |  |                  
|Cash and due from banks                                                                                                                                   |  | $                 | 372    |   |               | 32   |  
|Federal funds sold                                                                                                                                        |  |                   | 3,000  |   |               |     |  
|Interest-bearing deposits                                                                                                                                 |  |                   | 6,914  |   |               |     |  
|                                                                                                                                                          |  |                   |        |   |               |      |  
|Total cash and cash equivalents                                                                                                                           |  |                   | 10,286 |   |               | 32   |  
|                                                                                                                                                          |  |                  
|Securities available for sale                                                                                                                             |  |                   | 4,007  |   |               |     |  
|Loans, net of allowance for loan losses of $38                                                                                                            |  |                   | 4,714  |   |               |     |  
|Prepaid common stock offering costs                                                                                                                       |  |                   |       |   |               | 63   |  
|Premises and equipment, net                                                                                                                               |  |                   | 658    |   |               | 140  |  
|Accrued interest receivable                                                                                                                               |  |                   | 31     |   |               |     |  
|Deferred income taxes                                                                                                                                     |  |                   | 336    |   |               |     |  
|Deposits on property and equipment                                                                                                                        |  |                   |       |   |               | 149  |  
|Other assets                                                                                                                                              |  |                   | 292    |   |               | 28   |  
|                                                                                                                                                          |  |                   |        |   |               |      |  
|Total assets                                                                                                                                              |  | $                 | 20,324 |   |               | 412  |  
|                                                                                                                                                          |  |                   |        |   |               |      |  
|                                                                                                                                                          |  |                  
|Liabilities and Stockholders Equity                                                                                                                      |  |                   |        |   |               |      |  
|                                                                                                                                                          |  |                  
|Liabilities:                                                                                                                                              |  |                   |        |   |               |      |  
|Noninterest-bearing demand deposits                                                                                                                       |  |                   | 1,533  |   |               |     |  
|Savings, NOW and money-market deposits                                                                                                                    |  |                   | 3,724  |   |               |     |  
|Time deposits                                                                                                                                             |  |                   | 764    |   |               |     |  
|                                                                                                                                                          |  |                   |        |   |               |      |  
|Total deposits                                                                                                                                            |  |                   | 6,021  |   |               |     |  
|                                                                                                                                                          |  |                  
|Note payable                                                                                                                                              |  |                   |       |   |               | 401  |  
|Accrued interest payable and other liabilities                                                                                                            |  |                   | 12     |   |               | 4    |  
|                                                                                                                                                          |  |                   |        |   |               |      |  
|Total liabilities                                                                                                                                         |  |                   | 6,033  |   |               | 405  |  
|                                                                                                                                                          |  |                   |        |   |               |      |  
|Stockholders equity:                                                                                                                                     |  |                   |        |   |               |      |  
|Preferred stock, no par value; 1,000,000 shares authorized, 2,350 shares issued and outstanding at March 31, 2005; none outstanding at
September 30, 2005 |  |                   |       |   |               | 235  |  
|Common stock, $.01 par value; 9,000,000 shares authorized, 1,500,000 issued and outstanding at September 30, 2005                                         |  |                   | 15     |   |               |     |  
|Additional paid-in capital                                                                                                                                |  |                   | 14,850 |   |               |     |  
|Accumulated deficit                                                                                                                                       |  |                   | (574   | ) |               | (228 | )
|                                                                                                                                                          |  |                   |        |   |               |      |  
|Total stockholders equity                                                                                                                                |  |                   | 14,291 |   |               | 7    |  
|                                                                                                                                                          |  |                   |        |   |               |      |  
|Total liabilities and stockholders equity                                                                                                                |  | $                 | 20,324 |   |               | 412  |  
|                                                                                                                                                          |  |                   |        |   |               |      |  



See
Accompanying Notes to Condensed Consolidated Financial Statements.



2



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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, |    
|                                                                 |  | 2005                            |         |   | 2004                          |     |   | 2005 |         |   | 2004 |    
|Interest income:                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Loans                                                            |  | $                               | 13      |   |                               |    |   |      | 13      |   |      |    |  
|Investment securities                                            |  |                                 | 1       |   |                               |    |   |      | 1       |   |      |    |  
|Other interest-earning assets                                    |  |                                 | 47      |   |                               |    |   |      | 47      |   |      |    |  
|                                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Total interest income                                            |  |                                 | 61      |   |                               |    |   |      | 61      |   |      |    |  
|                                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Interest expense-                                                |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Deposits                                                         |  |                                 | 7       |   |                               |    |   |      | 7       |   |      |    |  
|                                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Net interest income                                              |  |                                 | 54      |   |                               |    |   |      | 54      |   |      |    |  
|                                                                 |  |                                 |         |  
|Provision for loan losses                                        |  |                                 | 38      |   |                               |    |   |      | 38      |   |      |    |  
|                                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Net interest income after provision for loan losses              |  |                                 | 16      |   |                               |    |   |      | 16      |   |      |    |  
|                                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Noninterest income:                                              |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Service charges on deposit accounts                              |  |                                 |        |   |                               |    |   |      |        |   |      |    |  
|Other service charges and fees                                   |  |                                 |        |   |                               |    |   |      |        |   |      |    |  
|                                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Total noninterest income                                         |  |                                 |        |   |                               |    |   |      |        |   |      |    |  
|                                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Noninterest expenses:                                            |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Salaries and employee benefits                                   |  |                                 | 128     |   |                               |    |   |      | 128     |   |      |    |  
|Occupancy and equipment                                          |  |                                 | 22      |   |                               |    |   |      | 22      |   |      |    |  
|Advertising                                                      |  |                                 | 13      |   |                               |    |   |      | 13      |   |      |    |  
|Insurance                                                        |  |                                 | 2       |   |                               |    |   |      | 2       |   |      |    |  
|Data processing/systems                                          |  |                                 | 9       |   |                               |    |   |      | 9       |   |      |    |  
|Communications                                                   |  |                                 | 3       |   |                               |    |   |      | 3       |   |      |    |  
|Professional fees                                                |  |                                 | 3       |   |                               |    |   |      | 3       |   |      |    |  
|Preopening and organizational expenses                           |  |                                 | 182     |   |                               | 57  |   |      | 505     |   |      | 57  |  
|Other                                                            |  |                                 | 13      |   |                               |    |   |      | 13      |   |      |    |  
|                                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Total noninterest expenses                                       |  |                                 | 375     |   |                               | 57  |   |      | 698     |   |      | 57  |  
|                                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Loss before income tax benefit                                   |  |                                 | (359    | ) |                               | 57  |   |      | 682     |   |      | 57  |  
|                                                                 |  |                                 |         |  
|Income tax benefit                                               |  |                                 | 336     |   |                               |    |   |      | 336     |   |      |    |  
|                                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Net loss                                                         |  | $                               | (23     | ) |                               | (57 | ) |      | (346    | ) |      | (57 | )
|                                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Loss per share, basic and diluted                                |  | $                               | (.03    | ) |                               |    |   |      | (.88    | ) |      |    |  
|                                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Weighted-average number of shares outstanding, basic and diluted |  |                                 | 692,935 |   |                               |    |   |      | 394,262 |   |      |    |  
|                                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  
|Dividends per share                                              |  | $                               |        |   |                               |    |   |      |        |   |      |    |  
|                                                                 |  |                                 |         |   |                               |     |   |      |         |   |      |     |  



See
Accompanying Notes to Condensed Consolidated Financial Statements.



3



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY



Condensed Consolidated Statements of Stockholders Equity (Deficit)

(In thousands)



|                                                                          |  |                |      |   |             |    |                          |        |                    |      |   |                                   |        |  
|------------------------------------------------------------------------- |  | -------------- | ---- | - | ----------- | -- | ------------------------ | ------ | ------------------ | ---- | - | --------------------------------- | ------ | -
|                                                                          |  | PreferredStock |      |   | CommonStock |    | AdditionalPaid-InCapital |        | AccumulatedDeficit |      |   | TotalStockholdersEquity(Deficit) |       
|Balance at March 31, 2004                                                 |  | $              |     |   |             |   |                          |       |                    |     |   |                                   |       |  
|Net loss (unaudited)                                                      |  |                |     |   |             |   |                          |       |                    | (57  | ) |                                   | (57    | )
|                                                                          |  |                |      |   |             |    |                          |        |                    |      |   |                                   |        |  
|Balance at September 30, 2004 (unaudited)                                 |  |                |     |   |             |   |                          |       |                    | (57  | ) |                                   | (57    | )
|                                                                          |  |                |      |   |             |    |                          |        |                    |      |   |                                   |        |  
|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 stock issuance costs of $135 (unaudited) |  |                |     |   |             | 15 |                          | 14,850 |                    |     |   |                                   | 14,865 |  
|                                                                          |  |                |      |   |             |    |                          |        |                    |      |   |                                   |        |  
|Balance at September 30, 2005 (unaudited)                                 |  | $              |     |   |             | 15 |                          | 14,850 |                    | (574 | ) |                                   | 14,291 |  
|                                                                          |  |                |      |   |             |    |                          |        |                    |      |   |                                   |        |  



See
Accompanying Notes to Condensed Consolidated Financial Statements.



4



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY



Condensed Consolidated Statements of Cash Flows (Unaudited)

($ in thousands)



|                                                                            |  |                               |        |   |      |     |  
|--------------------------------------------------------------------------- |  | ----------------------------- | ------ | - | ---- | --- | -
|                                                                            |  | Six Months EndedSeptember 30, |       
|                                                                            |  | 2005                          |        |   | 2004 |    
|Cash flows from operating activities:                                       |  |                               |        |   |      |     |  
|Net loss                                                                    |  | $                             | (346   | ) |      | (57 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                               |        |   |      |     |  
|Depreciation and amortization                                               |  |                               | 8      |   |      |    |  
|Provision for loan losses                                                   |  |                               | 38     |   |      |    |  
|Deferred income taxes                                                       |  |                               | (336   | ) |      |    |  
|Increase in accrued interest receivable                                     |  |                               | (31    | ) |      |    |  
|Increase in other assets                                                    |  |                               | (264   | ) |      | (3  | )
|Increase in accrued interest payable and other liabilities                  |  |                               | 8      |   |      | 3   |  
|                                                                            |  |                               |        |   |      |     |  
|Net cash used in operating activities                                       |  |                               | (923   | ) |      | (57 | )
|                                                                            |  |                               |        |   |      |     |  
|Cash flows from investing activities:                                       |  |                               |        |   |      |     |  
|Net increase in loans                                                       |  |                               | (4,752 | ) |      |    |  
|Purchase of securities available for sale                                   |  |                               | (4,007 | ) |      |    |  
|Purchase of premises and equipment                                          |  |                               | (377   | ) |      | (4  | )
|                                                                            |  |                               |        |   |      |     |  
|Net cash used in investing activities                                       |  |                               | (9,136 | ) |      | (4  | )
|                                                                            |  |                               |        |   |      |     |  
|Cash flows from financing activities:                                       |  |                               |        |   |      |     |  
|Net increase in deposits                                                    |  |                               | 6,021  |   |      |    |  
|Proceeds from issuance of common stock                                      |  |                               | 14,928 |   |      |    |  
|Redemption of preferred stock                                               |  |                               | (235   | ) |      |    |  
|Repayment of note payable                                                   |  |                               | (401   | ) |      |    |  
|Proceeds received from organizers                                           |  |                               |       |   |      | 130 |  
|                                                                            |  |                               |        |   |      |     |  
|Net cash provided by financing activities                                   |  |                               | 20,313 |   |      | 130 |  
|                                                                            |  |                               |        |   |      |     |  
|Net increase in cash and cash equivalents                                   |  |                               | 10,254 |   |      | 69  |  
|                                                                            |  |                              
|Cash and cash equivalents at beginning of period                            |  |                               | 32     |   |      |    |  
|                                                                            |  |                               |        |   |      |     |  
|Cash and cash equivalents at end of period                                  |  | $                             | 10,286 |   |      | 69  |  
|                                                                            |  |                               |        |   |      |     |  
|Supplemental disclosures of cash flow information:                          |  |                               |        |   |      |     |  
|Cash paid during period for:                                                |  |                               |        |   |      |     |  
|Interest                                                                    |  | $                             | 2      |   |      |    |  
|                                                                            |  |                               |        |   |      |     |  
|Income taxes                                                                |  | $                             |       |   |      |    |  
|                                                                            |  |                               |        |   |      |     |  



See Accompanying Notes to Condensed
Consolidated Financial Statements.



5



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY



Notes to Condensed Consolidated Financial Statements (Unaudited)



(1) Summary of Significant Accounting Policies



General.Partners Financial Corporation (the 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. 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 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 corporate customers through its
banking office located in Naples, Florida. The deposits in the Bank are insured by the Federal Deposit Insurance Corporation. The Company has adopted a fiscal year end of March 31.



In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments
(consisting principally of normal recurring accruals) necessary to present fairly the financial position at September 30, 2005, the results of operations for the three and six month periods ended September 30, 2005 and 2004 and cash flows
for the six month periods ended September 30, 2005 and 2004. The results of operations for the three and six month periods ended September 30, 2005 are not necessarily indicative of the results to be expected for the year ending
March 31, 2006.



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



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



Securities. Securities may be classified as trading, held to
maturity or available for sale. Trading securities are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in operations. Held-to-maturity securities are those
which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities consist of securities not classified as trading securities nor as held-to-maturity securities. Unrealized
holding gains and losses, net of tax, on available-for-sale securities are excluded from operations and reported as a net amount in other comprehensive income (loss). Gains and losses on the sale of available-for-sale securities are determined using
the specific-identification method. Premiums and discounts on securities available for sale and held to maturity are recognized in interest income using the interest method over the period to maturity. At September 30, 2005, book value
approximated market value for securities available for sale.



(continued)



6



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY



Notes to Condensed Consolidated Financial Statements (Unaudited),
Continued



(1) Summary of Significant Accounting Policies, Continued



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



Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan. The accrual of interest on loans is discontinued at the time the loan is ninety days delinquent unless the loan is well collateralized and in process of collection. In all cases,
loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.



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



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



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



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



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



(continued)



7



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY



Notes to Condensed Consolidated Financial Statements (Unaudited), Continued



(1) Summary of Significant Accounting Policies, Continued



Income Taxes. Deferred income tax assets
and liabilities are recorded to reflect the tax consequences on future years of temporary differences between revenues and expenses reported for financial statement and those reported for income tax purposes. Deferred tax assets and liabilities are
measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The Company recognized a deferred tax benefit and deferred tax asset during the three
months ended September 30, 2005, because management believes it will utilize the deferred tax asset to offset income tax liabilities generated in future periods.



Preopening and Organizational Costs. Preopening and organizational costs were approximately $733,000 before
income tax benefit. Prior to the commencement of banking operations, all costs had been charged to expense as incurred.



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



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 loss incurred by the Company.



(2) Loan Impairment and Loan Losses



At September 30, 2005, there were no impaired loans. The activity in
the allowance for loan losses is as follows (in thousands):



|                               |  |                                 |    |                               |   |      |    |      |  
|------------------------------ |  | ------------------------------- | -- | ----------------------------- | - | ---- | -- | ---- | -
|                               |  | Three Months EndedSeptember 30, |    | Six Months EndedSeptember 30,
|                               |  | 2005                            |    | 2004                          |   | 2005 |    | 2004
|Balance at beginning of period |  | $                               |   |                               |  |      |   |      | 
|Provision for loan losses      |  |                                 | 38 |                               |  |      | 38 |      | 
|Net charge-offs and recoveries |  |                                 |   |                               |  |      |   |      | 
|                               |  |                                 |    |                               |   |      |    |      |  
|Balance at end of period       |  | $                               | 38 |                               |  |      | 38 |      | 
|                               |  |                                 |    |                               |   |      |    |      |  



At September 30,
2005, there were no nonaccrual loans or no loans past due ninety days or more, still accruing interest.



(3) Organization



On
October 18, 2004, the Organizers of the Company filed applications for authority to become a thrift holding company and to organize a federally chartered savings bank with the Office of Thrift Supervision (OTS) and on
October 19, 2004, the Organizers filed an application for federal deposit insurance with the Federal Deposit Insurance Corporation which was declared complete on January 28, 2005.



(continued)



8



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY



Notes to Condensed Consolidated Financial Statements (Unaudited), Continued



(4) Commitments



The Company has entered into a purchase agreement dated October 19,
2004 to purchase a parcel of land for $996,000 for which they have paid a $96,000 deposit. The Company expects to close on the purchase of this property in the first quarter of fiscal 2006. The Company plans to purchase the parcel of land with the
proceeds from the sale of common stock (see Note 6). The Company expects to construct, on this land, the main office of the Bank and an office for the Company. The developer of this project is related to a director of the Company. Also architectural
services of approximately $107,000 will be provided by a company owned by a director.



The Banks initial main office is a store front located in a strip retail shopping center. The lease is for $7,660 a month which expires in December 2010 with a five year renewal option. The Company expects to
use this location as a branch office after the main office facility is completed. The Company utilized the services of businesses owned by two directors for architectural and general contractor services at a total cost to the Company of
approximately $12,900. The Company is currently negotiating a lease agreement for a new branch which will replace the store front location in fiscal 2006. This branch will be leased from a company owned by various directors.



(5) Note Payable

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



(6) Sale of Common Shares and Warrants



The Company sold a total of 1,500,000 shares of its common stock to the public. During the offering period, 1,500,000 shares were included in units with a
unit consisting of one share of common stock and one warrant. Each warrant will entitle the holder thereof to purchase one share of additional common stock at $10. The warrants are exercisable during the 36 month period following the commencement of
banking operations. Up to 1,500,000 shares will be available to holders of the warrants. However there can be no assurance given that any of the warrants will be exercised.



During the course of the offering the Company, relying on limited offering and other exemptions, accepted subscriptions for
173,850 shares by 22 investors in eight states where the securities were not registered. The Company is in the process of commencing a rescission offer to the purchasers of these securities. While there can be no guarantee that all 22 of these
investors will reconfirm their subscription, the Company is confident that with a waiting list of potential investors and the fact that the original offering was oversubscribed that there should be little or no impact on the Companys capital
position.



The Company intends to adopt a directors
warrant plan. This plan will only be adopted if the OTS consents. In the proposed plan the exercise price of the warrant will be will be the fair market value of the stock at the time the plan is approved. The warrant will vest over a four year
period and expire in five years.



(continued)



9



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY



Notes to Condensed Consolidated Financial Statements (Unaudited), Continued



(7) Preferred Stock



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



(8) Regulatory Capital



The Bank is required to maintain certain minimum regulatory capital
requirements. At September 30, 2005, the Bank was in compliance with its regulatory capital requirements.



10



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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, 2005, and for the three- and six-month periods ended
September 30, 2005 and 2004 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.



11



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Report of Independent Registered Public Accounting Firm



Partners Financial Corporation

Naples, Florida:



We have reviewed the accompanying interim condensed consolidated balance sheet of Partners Financial Corporation and Subsidiary (the Company)
as of September 30, 2005, the related interim condensed consolidated statements of operations for the three- and six-month periods ended September 30, 2005 and 2004 and the related interim condensed consolidated statements of changes in
stockholders equity (deficit) and cash flows for the six-month periods ended September 30, 2005 and 2004. 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, 2005, and the related consolidated statements of operations, stockholders equity and cash flows for the period from
February 11, 2004 (date of incorporation) to March 31, 2005 (not presented herein); and in our report dated June 28, 2005, we expressed an unqualified opinion on those financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of March 31, 2005, 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                
|November 1, 2005              



12



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY



Item 2. Managements Discussion and Analysis

of Financial Condition and Results of Operations



General



Partners Financial Corporation (the 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. 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 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 corporate customers through its banking office located in Naples, Florida. The deposits in the Bank are insured by the Federal Deposit Insurance Corporation. The Company has adopted a
fiscal year end of March 31. At September 30, 2005, the Company had 12 employees and anticipates approximately twenty employees by March 31, 2006.



It is anticipated that the Bank will be able to meet its liquidity needs by attracting deposits and the use of other
borrowings. However, the Company may pursue the issuance of additional shares of common stock at some point in the future to fund future expansion.



Liquidity and Capital Resources



The Companys primary source of cash during the six-month period ended September 30, 2005 was from the net proceeds from the sale of common
stock of $14.9 million and net deposit inflows of $6.0 million. Cash was used primarily to originate loans, net of principal repayments totaling $4.8 million to purchase securities available for sale of approximately $4.0 million and to purchase
premises and equipment of $377,000. At September 30, 2005, the Bank exceeded its regulatory liquidity requirements. The primary source of funds for the Holding Company are borrowings (currently there are no borrowing agreements), proceeds from
the issuance of equity securities and dividends from the Bank. The Company does not anticipate that the Bank will pay dividends for the foreseeable future, and the Company currently does not have any borrowing agreements.



Off-Balance Sheet Arrangements and Aggregate Contractual Obligations



The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and unused lines of credit. These instruments involve, to varying degrees, elements of credit and
interest-rate risk in excess of the amounts recognized in the condensed consolidated balance sheet. The contract amounts of those instruments reflect the extent of the Companys involvement in particular classes of financial instruments.



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



13



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY



Item 2. Managements Discussion and Analysis

of Financial Condition and Results of Operations, Continued



Off-Balance Sheet Arrangements and Aggregate Contractual Obligations, 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 many of the commitments are expected to expire without being
drawn upon, the total committed amounts do not necessarily represent future cash requirements. The Company evaluates each customers credit worthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the
Company 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, 2005 follows:



|                                             |  |                |           |                |   |                    |  
|-------------------------------------------- |  | -------------- | --------- | -------------- | - | ------------------ | -
|                                             |  | ContractAmount |           | CarryingAmount |   | EstimatedFairValue
|Commitments to extend credit                 |  | $              | 1,346,000 |                |  |                    | 
|                                             |  |                |           |                |   |                    |  
|Unused lines of credit and undisbursed loans |  | $              | 1,017,000 |                |  |                    | 
|                                             |  |                |           |                |   |                    |  



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:



General. Net losses for the three months ended September 30, 2005 and 2004 were $23,000 and $57,000, respectively. The Bank commenced
operations on August 24, 2005. A discussion of operating results at September 30, 2005, or for the three months ended September 30, 2005 and 2004 would not be meaningful. At September 30, 2005, the Company had not achieved the
asset size to operate profitably.



General. Net
losses for the six months ended September 30, 2005 and 2004 were $346,000 and $57,000, respectively. The Bank commenced operations on August 24, 2005. A discussion of operating results at September 30, 2005, or for the six months
ended September 30, 2005 and 2004 would not be meaningful. At September 30, 2005, the Company had not achieved the asset size to operate profitably.



14



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY



Item 3. Controls and Procedures



|a. | Evaluation of disclosure controls and procedures. The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports
that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their
evaluation of those controls and procedures as of September 30, 2005, the Chief Executive and Chief Financial officers of the Company concluded that the Companys disclosure controls and procedures were effective.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|b. | Changes in internal controls. There were no significant changes in the Companys internal control over financial reporting during the Companys last fiscal quarter
that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



PART II. OTHER INFORMATION



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



On August 24, 2005, the Company closed its initial offer of common stock totaling 1,500,000 shares. The proceeds from this offering were applied as follows:



|                                |  |         |           
|------------------------------- |  | ------- | ----------
|                                |  | Minimum
|Capitalization of Partners Bank |  | $       | 11,000,000
|Redemption of Preferred Stock   |  |         | 195,000   
|Offering Expenses               |  |         | 135,000   
|Working Capital                 |  |         | 3,670,000 
|                                |  |         |           
|Total                           |  | $       | 15,000,000
|                                |  |         |           



15



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PARTNERS FINANCIAL CORPORATION AND SUBSIDIARY



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 Exhibits denominated with a (b) were 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.



|              |  |                                                                                                                                               
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                        
|3.1           |  | Articles of Incorporation (a)                                                                                                                 
|              | 
|3.2           |  | Bylaws (a)                                                                                                                                    
|              | 
|4.1           |  | Specimen Common Stock Certificate (a)                                                                                                         
|              | 
|4.2           |  | 2004 Warrant Plan  included in Prospectus as Appendix A (b)                                                                                  
|              | 
|4.3           |  | Form of Proposed Directors Warrant Plan (b)                                                                                                   
|              | 
|10.1          |  | Sales Contract for Main Office (a)                                                                                                            
|              | 
|10.2          |  | Employment Agreement of James S. Weaver, dated as of March 23, 2005.                                                                          
|              | 
|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



16



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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 10, 2005 |  | By:                            |  | /s/ James S. Weaver                      
|                        |  |                                |  | James S. Weaver, President and           
|                        |  |                                |  | Chief Executive Officer                  
|                        |  |                               
|Date: November 10, 2005 |  | By:                            |  | /s/ Charles T. DeBilio                   
|                        |  |                                |  | Charles T. DeBilio, Senior Vice President
|                        |  |                                |  | and Chief Financial Officer              



17



---

Index to Exhibits



|              |  |                                                                                                                                               
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                        
|10.2          |  | Employment Agreement of James S. Weaver, dated as of March 23, 2005                                                                           
|              | 
|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