UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-QSB

(Mark One)

ý  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

o  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the Transition Period from                                to                               

Commission File No.   0-50106

LEGENDS FINANCIAL HOLDINGS, INC.

(Exact name of small business issuer as specified in its charter)

TENNESSEE

(State or other jurisdiction of incorporation or organization)

32-0008963

(I.R.S. Employer Identification No.)

310 North First Street, Clarksville, TN  37050

(Address of principal executive offices)

(931) 503-1234

(Issuer’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

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  ý     No  o

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

Common stock, $1.00 par value, outstanding: 1,424,199 shares at November 14, 2005

Transitional Small Business Disclosure Format (check one):  Yes  o     No  ý

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

PART I - FINANCIAL INFORMATION
	Item 1.		Financial Statements
	The unaudited financial statements of the registrant are as follows:
		Consolidated Balance Sheets - September 30, 2005 and December 31, 2004
		Consolidated Statements of Earnings - For the three months and nine months ended September 30, 2005 and 2004
		Consolidated Statements of Comprehensive Earnings - For the three months and nine months ended September 30, 2005 and 2004
		Consolidated Statements of Cash Flows - For the nine months ended September 30, 2005 and 2004
	Item 2.		Management’s Discussion and Analysis or Plan of Operation
	Item 3.		Controls and Procedures
PART II – OTHER INFORMATION
	Item 1.		Legal Proceedings
	Item 2.		Unregistered Sale of Equity Securities and Use of Proceeds
	Item 3.		Defaults Upon Senior Securities
	Item 4.		Submission of Matters to a Vote of Security Holders
	Item 5.		Other Information
	Item 6.		Exhibits
Signatures

2

LEGENDS FINANCIAL HOLDINGS, INC.

Consolidated Balance Sheets

September 30, 2005 and December 31 2004

(Unaudited)

	September 30,			December 31,
	2005			2004
	(In Thousands)
Assets
Loans, less allowance for possible loan losses of $1,640,000 and $1,517,000, respectively	$	143,225		$	128,334
Securities available-for-sale, at market (amortized cost of $44,512,000 and $37,877,000, respectively)	44,157			37,580
Restricted equity securities	772			655
Total earning assets	188,154			166,569
Cash and due from banks	11,686			11,052
Bank premises and equipment, net	6,139			5,717
Accrued interest receivable	919			765
Other real estate owned	661			281
Other assets	306			325
Deferred tax asset, net	347			262
Goodwill	153			153
Total assets	$	208,365		$	185,124
Liabilities and Stockholders’ Equity
Deposits	$	175,110		$	154,975
Securities sold under repurchase agreements	2,037			636
Federal funds purchased	1,399			3,804
Advances from Federal Home Loan Bank	11,836			8,919
Accrued interest payable	535			282
Income taxes payable	40			388
Accounts payable and other liabilities	494			407
Total liabilities	191,451			169,411
Stockholders’ equity:
Preferred stock, no par value, authorized 1,000,000 shares, no shares issued	—			—
Common stock, par value $1 per share, authorized 2,000,000 shares, 1,423,651 and 1,408,497 shares issued and outstanding, respectively	1,424			1,408
Additional paid-in capital	12,673			12,495
Retained earnings	3,036			1,993
Net unrealized losses on available-for-sale securities, net of income taxes of $136,000 and $114,000, respectively	(219		)	(183		)
Total stockholders’ equity	16,914			15,713
Total liabilities and stockholders’ equity	$	208,365		$	185,124

See accompanying notes to consolidated financial statements (unaudited).

3

LEGENDS FINANCIAL HOLDINGS, INC.

Consolidated Statements of Earnings

Three Months and Nine Months Ended September 30, 2005 and 2004

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
	(In Thousands Except Per Share Amounts)				(In Thousands Except Per Share Amounts)
Interest income:
Interest and fees on loans	$	2,499	$	1,897	$	7,092	$	5,403
Interest and dividends on taxable securities	271		244		828		712
Interest on non-taxable securities	130		103		355		257
Interest and dividends on restricted equity securities	8		5		22		14
Interest on Federal funds sold	9		6		19		13
Total interest income	2,917		2,255		8,316		6,399
Interest expense:
Interest on negotiable order of withdrawal accounts	223		88		490		267
Interest on money market and savings accounts	189		80		444		197
Interest on certificates of deposit over $100,000	374		228		974		636
Interest on certificates of deposit - other	191		115		501		329
Interest on Federal funds purchased	4		2		20		9
Interest on advances from Federal Home Loan Bank	88		43		232		102
Interest on securities sold under repurchase agreements	8		2		22		2
Total interest expense	1,077		558		2,683		1,542
Net interest income before provision for possible loan losses	1,840		1,697		5,633		4,857
Provision for possible loan losses	25		110		160		320
Net interest income after provision for possible loan losses	1,815		1,587		5,473		4,537
Non-interest income:
Service charges on deposit accounts	202		172		569		490
Other fees and commissions	248		198		631		623
Gain on sale of securities	—		—		—		67
Gain on sale of other real estate, net	—		—		6		—
Gain on sales of loans	135		—		135		—
Total non-interest income	585		370		1,341		1,180
Non-interest expenses:
Employee salaries and benefits	825		723		2,381		2,093
Occupancy expenses, net	115		99		336		299
Furniture and equipment expense	123		118		360		350
Data processing expense	115		104		344		302
Advertising expense	33		49		87		136
Director fees and expenses	35		35		115		104
Public relationships and donations	41		32		105		89
Printing and supplies	52		30		146		96
Legal and accounting fees	49		30		149		93
Freight and postage	28		21		75		62
Loss on sale of fixed assets	6		—		6		—
Other operating expenses	179		160		468		521
Loss on sale of other real estate	—		5		—		5
Loss on sale of securities	10		—		4		—
Total non-interest expenses	1,611		1,406		4,576		4,150
Earnings before income taxes	789		551		2,238		1,567
Income taxes	266		129		768		449
Net earnings	$	523	$	422	$	1,470	$	1,118
Basic earnings per common share	$	.37	$	.30	$	1.03	$	.80
Diluted earnings per common share	$	.36	$	.29	$	1.00	$	.78

See accompanying notes to consolidated financial statements (unaudited).

4

LEGENDS FINANCIAL HOLDINGS, INC.

Consolidated Statements of Comprehensive Earnings

Three Months and Nine Months Ended September 30, 2005 and 2004

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2005			2004		2005			2004
	(In Thousands)					(In Thousands)
Net earnings	$	523		$	422	$	1,470		$	1,118
Other comprehensive earnings (loss):
Unrealized gains (losses) on available-for-sale securities arising during period, net of taxes of $65,000, $326,000, $23,000 and $91,000, respectively	(106		)	526		(39		)	146
Less: reclassification adjustment for (gains) losses included in earnings, net of taxes of $4,000, $0, $1,000 and $26,000, respectively	7			—		3			(41		)
Other comprehensive earnings	(99		)	526		(36		)	105
Comprehensive earnings	$	424		$	948	$	1,434		$	1,223

See accompanying notes to consolidated financial statements (unaudited).

5

LEGENDS FINANCIAL HOLDINGS, INC.

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2005 and 2004

Increase (Decrease) in Cash and Cash Equivalents

(Unaudited)

	2005			2004
	(In Thousands)
Cash flows from operating activities:
Interest received	$	8,315		$	6,444
Fees received	1,338			1,127
Interest paid	(2,430		)	(1,630		)
Cash paid to suppliers and employees	(4,207		)	(3,630		)
Proceeds from sale of loans	—			1,207
Originations of loans held for sale	—			(933		)
Taxes paid	(1,116		)	(153		)
Net cash provided by operating activities	1,900			2,432
Cash flows from investing activities:
Purchase of available-for-sale securities	(14,522		)	(13,957		)
Proceeds from maturities/calls and principal payments of available-for-sale securities	760			4,051
Loans made to customers, net of repayments	(15,634		)	(19,253		)
Purchase of bank premises and equipment	(772		)	(599		)
Proceeds from sales of available-for-sale securities	1,959			4,224
Disposal of bank premises and equipment	—			16
Purchase of restricted equity securities	(96		)	(170		)
Proceeds from sale of other real estate	195			—
Proceeds from sale of fixed assets	34			—
Proceeds of other assets	5			—
Paydown of available-for-sale securities	4,990			—
Net cash used in investing activities	(23,081		)	(25,688		)
Cash flows from financing activities:
Net increase in non-interest bearing, savings and NOW deposit accounts	7,281			2,798
Net increase in time deposits	12,854			13,580
Increase in Federal funds purchased	(2,405		)	4,253
Proceeds from sale of common stock issued pursuant to stock option plan	194			205
Dividends paid	(427		)	(280		)
Proceeds from Federal Home Loan Bank borrowings	2,917			7,934
Decrease in repurchase agreements, net	1,401			(346		)
Net cash provided by financing activities	21,815			28,144
Net increase in cash and cash equivalents	634			4,888
Cash and cash equivalents at beginning of period	11,052			6,596
Cash and cash equivalents at end of period	$	11,686		$	11,484

See accompanying notes to consolidated financial statements (unaudited).

6

	2005			2004
	(In Thousands)
Reconciliation of net earnings to net cash provided by operating activities:
Net earnings	$	1,470		$	1,118
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation	310			462
Amortization and accretion	174			—
FHLB dividend reinvestment	(22		)	—
Gains on sale of other real estate	(6		)	—
Security losses (gains) related to available-for-sale securities	4			(67		)
Loss on sale of premises and equipment	6			—
Provision for possible loan losses	160			320
Increase in accrued interest receivable	(154		)	(96		)
Increase in other assets	(34		)	(88		)
Increase (decrease) in accrued interest payable	253			(88		)
Increase in other liabilities	87			301
Decrease in loans held for sale	—			274
Increase (decrease) in income taxes payable	(348		)	296
Total adjustments	430			1,314
Net cash provided by operating activities	$	1,900		$	2,432
Supplemental Schedule of Non-Cash Activities:
Unrealized gain (loss) on securities available-for-sale, net of taxes of $22,000 and $65,000, respectively	$	(36	)	$	105
Non-cash transfers from loans to other real estate	$	569		$	420

See accompanying notes to consolidated financial statements (unaudited).

7

LEGENDS FINANCIAL HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Basis of Presentation

The unaudited consolidated financial statements include the accounts of Legends Financial Holdings, Inc. (“Legends Financial” or “the Company”), Legends Bank (“Legends Bank”), its wholly-owned subsidiary, and Legends Financial Services, Inc., a wholly-owned subsidiary of Legends Bank.  On February 27, 2002, the stockholders of Legends Bank voted to exchange their stock for stock in Legends Financial.  Effective July 1, 2002, Legends Financial became a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended.  The transaction has been treated as a reorganization for accounting purposes.

The accompanying consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations.  Certain prior period financial information has been reclassified to conform with current period presentation.

In the opinion of management, the consolidated financial statements contain all adjustments and disclosures necessary to summarize fairly the financial position of the Legends Financial as of September 30, 2005 and December 31, 2004, the results of operations for the three months and nine months ended September 30, 2005 and 2004, comprehensive earnings for the three months and nine months ended September 30, 2005 and 2004, and changes in cash flows for the nine months ended September 30, 2005 and 2004.  All significant intercompany transactions have been eliminated.  The interim consolidated financial statements should be read in conjunction with the notes to the December 31, 2004 financial statements presented in Legends Financial’s December 31, 2004 Annual Report to Stockholders.  The results for interim periods are not necessarily indicative of results to be expected for the complete fiscal year.

Allowance for Loan Losses

Transactions in the allowance for loan losses were as follows:

	Nine Months Ended
	September 30,
	2005			2004
	(In Thousands)
Balance, January 1, 2005 and 2004, respectively	$	1,517		$	1,225
Add (deduct):
Losses charged to allowance	(42		)	(87		)
Recoveries credited to allowance	5			6
Provision for loan losses	160			320
Balance, September 30, 2005 and 2004, respectively	$	1,640		$	1,464

8

Allowance for Loan Losses, Continued

The provision for loan losses was $160,000 and $320,000 for the first nine months of 2005 and 2004, respectively.  The provision for loan losses is based on past loan experience and other factors which, in management’s judgment, deserve current recognition in estimating possible loan losses.  Such factors include growth and composition of the loan portfolio, review of specific loan problems, the relationship of the allowance for loan losses to outstanding loans, and current economic conditions that may affect the borrower’s ability to repay.  Management has in place a system designed to identify and monitor problems on a timely basis.

The Company maintains an allowance for loan losses which management believes is adequate to absorb losses inherent in the loan portfolio.  A formal review is prepared on a monthly basis by management to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses.  The review includes analysis of historical performance, the level of non-performing and adversely rated loans, specific analysis of certain problem loans, loan activity since the previous assessment, reports prepared by the Loan Review Committee, consideration of current economic conditions, and other pertinent information.  The level of the allowance to net loans outstanding will vary depending on the overall results of this monthly assessment.  The review is presented to and subsequently approved by Legends Financial Board of Directors on a quarterly basis.

Acquisition

Effective March 24, 2003, the Company acquired certain assets and liabilities of NBC Bank in the Clarksville, Tennessee area.  The acquisition was accounted for as a purchase.  Goodwill arising from this transaction will be evaluated on an annual basis.

Stock Option Arrangement

In December, 1998, the Board of Directors of Legends Bank approved the Legends Bank 1998 Stock Option Arrangement (the “1998 Arrangement”).  The Arrangement provides for the granting of stock options, and authorizes the issuance of common stock upon the exercise of such options, for up to 74,400 shares of common stock to officers of Legends Bank and up to 33,600 shares of common stock to the Directors of Legends Bank.  At September 30, 2005, 108,000 shares have been granted at $8.33 per share (720 shares have been forfeited and reallocated to plan participants and 59,968 shares have been exercised).  At September 30, 2005, 48,032 shares have been granted and not exercised and all of these shares are exercisable as of September 30, 2005.

Under the 1998 Arrangement, stock option awards may be granted in the form of incentive stock options or nonstatutory stock options, and are generally exercisable for up to five years following the date such option award are granted.  Exercise prices of incentive stock options must be equal to or greater than 100% of the fair market value of the common stock on the grant date.

9

Stock Option Arrangement, Continued

In April of 2001, the Board of Directors of Legends Bank approved the 2001 Stock Option Plan (the “2001 Plan”).  The 2001 Plan provides for the granting of 215,998 shares of stock available for options.  Under the 2001 Plan, stock option awards may be granted in the form of incentive stock options or nonstatutory stock options and are exercisable over three to six years.  At September 30, 2005, 174,020 shares of the options had been granted at $18.75 per share and 40,500 shares of the options had been granted at $17.00 per share (6,840 shares have been forfeited and reallocated to plan participants and 7,700 shares have been exercised).  At September 30, 2005, 206,820 shares had been granted and not exercised, and all of which were exercisable.

Legends Financial’s stockholders approved Legends Bank 1998 Stock Option Arrangement and 2001 Stock Option Plan.  Legends Financial agreed with Legends Bank that it would exchange its options to the holders of stock options under the 1998 Arrangement and the 2001 Plan on an option-for-option basis.  Thus options that were outstanding under the 1998 Arrangement and the 2001 Plan have been exchanged for options under Legends Financial’s Stock Option Plan.

On September 17, 2002, the Board of Directors of Legends Financial approved a stock-split effected in the form of a one-for-five stock dividend.  The stock dividend also applied to all option arrangements and as such the number of options, exercise prices and related earnings per share disclosures have been retroactively adjusted to reflect the stock-split effected in the form of a dividend.

Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure” sets forth the methods for recognition of cost of arrangements similar to those of Legends Financial.  As is permitted, management has elected to continue accounting for the arrangement under APB Opinion 25 and related Interpretations in accounting for its arrangement.  However, under SFAS No. 123, Legends Financial is required to make proforma disclosures as if cost had been recognized in accordance with the pronouncement.  Had compensation cost for Legends Financial’s stock option arrangement been determined based on the fair value at the grant dates for awards under the arrangement consistent with the method of SFAS No. 123, Legends Financial’s net earnings and basic earnings per common share and diluted earnings per common share would have been reduced to the proforma amounts indicated below.

		In Thousands, Except Per Share Amounts
		Three Months Ended September 30,				Nine Months Ended September 30,
		2005		2004		2005		2004
Net earnings	As Reported	$	523	$	422	$	1,470	$	1,118
	Proforma	$	520	$	416	$	1,423	$	1,094
Basic earnings	As Reported	$	.37	$	.30	$	1.03	$	.80
per common share	Proforma	$	.37	$	.30	$	1.00	$	.78
Diluted earnings	As Reported	$	.36	$	.29	$	1.00	$	.78
per common share	Proforma	$	.35	$	.29	$	.97	$	.77

10

Stock Option Arrangement, Continued

In December, 2004, the Financial Accounting Standards Board (“FASB”) reissued Statement of Financial Accounting Standards No. 123 (revised 2004) (“SFAS”) related to share based payments.  For Legends Financial the SFAS applies to the accounting for stock options.  The substance of the revised statement is to require companies to record as an expense amortization of the fair market value of stock options determined as of the grant date.  The offsetting credits is to additional paid-in capital unless there is an obligation to buy back the stock or exchange other assets for the stock.  If such an obligation exists the offsetting credit would be to a liability account.  The statement is effective for the first interim reporting period after December 15, 2005.  Legends Financial is currently assessing the impact of this SFAS; however, management does not expect the impact to be material to the financial condition or results of operations.

The Company uses the fair value method to calculate the compensation reported in the proforma earnings.  The fair value of options granted in 2005 was $1.41 for each option.  The 2005 respective weighted average assumptions used to calculate the minimum value were as follows:  risk free rate at 4.19%; expected life of ten years; volatility of .01%; and dividend yield of 3.0%.  The dividend yield was computed assuming a 15% return on equity with a 30% dividend to earnings payout ratio.

Earnings Per Share

Statement of Financial Accounting Standards (SFAS) No. 128 “Earnings Per Share” establishes uniform standards for computing and presenting earnings per share.  SFAS No. 128 replaces the presentation of primary earnings per share with the presentation of basic earnings per share and diluted earnings per share.  The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period.  For the Company, the computation of diluted earnings per share begins with the basic earnings per share plus the effect of common shares contingently issuable from stock options.

11

Earnings Per Share, Contiued

The following is a summary of components comprising basic and diluted earnings per share (EPS) for the three and nine months ended September 30, 2005 and 2004:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands, except share amounts)	2005		2004		2005		2004
Basic EPS Computation:
Numerator – net earnings available to common shareholders	$	523	$	422	$	1,470	$	1,118
Denominator - weighted average number of common shares outstanding	1,423,477		1,406,397		1,420,729		1,396,909
Basic earnings per common share	$	0.37	$	.30	$	1.03	$	.80
Diluted EPS Computation:
Numerator - net earnings available to common shareholders	$	523	$	422	$	1,470	$	1,118
Denominator:
Weighted average number of common shares outstanding	1,423,477		1,406,397		1,420,729		1,396,909
Dilutive effect of stock options	41,790		31,291		46,331		31,291
	1,465,267		1,437,688		1,467,060		1,428,200
Diluted earnings per common share	$	0.36	$	.29	$	1.00	$	.78

12

Item 2.Management’s Discussion and Analysis or Plan of Operation

The purpose of this discussion is to provide insight into the financial condition and results of operations of the Company.  This discussion should be read in conjunction with the financial statements.  Reference should also be made to the Company’s December 31, 2004 financial statements for a more complete discussion of factors that impact liquidity, capital and the results of operations.  These financial statements are available at www.sec.gov.

Forward-Looking Statements

Management’s discussion of the Company and management’s analysis of the Company’s operations and prospects, and other matters, may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of federal and state securities laws.  Although management believes that the assumptions underlying such forward-looking statements contained in this Report are reasonable, any of the assumptions could be inaccurate and, accordingly, there can be no assurance that the forward-looking statements included herein will prove to be accurate.  The use of such words as expect, anticipate, forecast, and comparable terms should be understood by the reader to indicate that the statement is “forward-looking” and thus subject to change in a manner that can be unpredictable.  Factors that could cause actual results to differ from the results anticipated, but not guaranteed, in this Report, include (without limitation) economic and social conditions, competition for loans, mortgages, and other financial services and products, changes in interest rates, unforeseen changes in liquidity, results of operations, and financial conditions affecting the Company’s customers, as well as other risks that cannot be accurately quantified or completely identified.  Many factors affecting the Company’s financial condition and profitability, including changes in economic conditions, the volatility of interest rates, political events and competition from other providers of financial services simply cannot be predicted.  Because these factors are unpredictable and beyond the Company’s control, earnings may fluctuate from period to period.  The purpose of this type of information (such as in Item 2, as well as other portions of this Quarterly Report) is to provide Form 10-QSB readers with information relevant to understanding and assessing the financial condition and results of operations of the Company, and not to predict the future or to guarantee results.  Management is unable to predict the types of circumstances, conditions, and factors that can cause anticipated results to change.  The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of changes or unanticipated events, circumstances, or results.

Results of Operations

The Company had net earnings of $1,470,000 for the nine months ended September 30, 2005 as compared to a $1,118,000 net earnings for the same period in 2004.  The increase in earnings is the result of continued growth in the assets of the Company.  On a per share basis, the Company achieved basic earnings of $1.03 and $.80 per common share and diluted earnings per common share of $1.00 and $.78 for the nine months ended September 30, 2005 and 2004, respectively.  For the three months ended September 30, 2005 and 2004 the basic earnings per share were $0.37 and $.30, respectively, and the diluted earnings per share were $0.36 and $.29, respectively.

13

Net Interest Income

Net interest income represents the amount by which interest earned on various earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of the Company’s earnings.  Total interest income for the nine months ended September 30, 2005 and 2004 was $8,316,000 and $6,399,000, respectively.  Total interest expense for the nine months ended September 30, 2005 and 2004 was $2,683,000 and $1,542,000, respectively.  This resulted in an increase in net interest income of $776,000 or 16.0% during the first nine months of 2005 as compared to the comparable period in the prior year.  Total interest income for the three months ended September 30, 2005 and 2004 was $2,917,000 and $2,255,000, respectively.  Total interest expense for the three months ended September 30, 2005 and 2004 was $1,077,000 and $558,000.  The foregoing resulted in an increase in net interest income of $143,000 or 8.4% during the three months ended September 30, 2005 as compared to the same period in the prior year.  The increase is due primarily to continued growth of the Bank.  Interest rates are expected to increase slightly in 2005.  Management believes that a satisfactory level of loans and deposit can be originated or repriced during the remainder of 2005 to maintain a satisfactory net interest margin.

Provision for Possible Loan Losses

The provision for loan losses represents a charge to earnings necessary to establish an allowance for possible loan losses that, in management’s evaluation, is adequate to provide coverage for estimated losses on outstanding loans and to provide for uncertainties in the economy.  The provision for loan losses during the nine month period ended September 30, 2005 was $160,000 as compared to $320,000 for the same period in 2004.  The provision for loan losses raised the allowance for possible loan losses to $1,640,000 at September 30, 2005, an increase of 8.1% from $1,517,000 at December 31, 2004.  The level of the allowance and the amount of the provision involve evaluation of uncertainties and matters of judgment.  Management believes the allowance for possible loan losses at September 30, 2005 to be adequate.  The allowance for loan losses was 1.13% and 1.17% of loans outstanding at September 30, 2005 and December 31, 2004.

Non-Interest Income

The Company’s non-interest income consists of service charges on deposit accounts, other fees and commissions, gains on sale of loans and gains on sale of other real estate.  Non-interest income, excluding gains on sale of loans and gains on sale of other real estate increased $87,000 or 7.8% during the nine months ended September 30, 2005 as compared to the same period in 2004.  The increase for the quarter ended September 30, 2005 was $80,000 or 21.6% as compared to the same period in 2004.  There were no security gains for the three months ended September 30, 2005 or 2004.  There were no security gains for the nine months ended September 30, 2005 as compared to $67,000 for the same period in 2004.  Gains on sale of other real estate were $6,000 for the nine months ended September 30, 2005, versus no gains on sale of other real estate for the same period in 2004.  Gains on sale of loans were $135,000 for the nine months ended September 30, 2005 as compared to no gains on sale of loans for the same period in 2004.  The increase in non-interest income for the nine months ended June 30, 2005 was due primarily to increases in service charges on deposit accounts resulting from the growth of the Company’s loan portfolio and deposit base.  Management projects that other fees and commissions will continue to increase during the remainder of 2005 due to growth of the Company.

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Non-Interest Expense

Non-interest expenses consist primarily of employee costs, occupancy expenses, furniture and equipment expenses, data processing expense, advertising expense, directors fees and expenses, public relations and donations, printing and supplies, legal and accounting, freight and postage, loss on sale of fixed assets and other operating expenses.  Non-interest expense, excluding securities transactions, increased $422,000 or 10.2% during the nine months ended September 30, 2005 as compared to the same period in 2004.  The increase for the quarter ended September 30, 2005 was $195,000 or 13.9% as compared to the same period in 2004.  The increases in non-interest expense are attributable primarily to increases in salaries and benefits due to the continued growth of the Company.  Other operating expenses for the nine months ended September 30, 2005 decreased to $468,000 from $521,000 for the first nine months of 2004.  These expenses include taxes and general operating costs which support the continued growth of the Company.

Financial Condition

Balance Sheet Summary.  The Company’s total assets increased 12.6% to $208,365,000 at September 30, 2005 from $185,124,000 at December 31, 2004.  Loans, net of allowance for possible loan losses, totaled $143,225,000 at September 30, 2005, a 11.6% or $14,891,000 increase compared to $128,334,000 at December 31, 2004.  Investment securities increased $6,577,000 or 17.5% to $44,157,000 at September 30, 2005.

Total liabilities increased by 13.0% to $191,451,000 for the nine months ended September 30, 2005 compared to $169,411,000 at December 31, 2004.  This increase was composed primarily of a $20,135,000 increase in total deposits during the nine months ended September 30, 2005 and a $2,917,000 increase in advances from Federal Home Loan Bank during the nine months ended September 30, 2005.  Federal funds purchased decreased by $2,405,000 during the nine months ended September 30, 2005.

A more detailed discussion of assets, liabilities and capital follows:

Loans

Loan categories are as follows:

	September 30,		December 31,
	2005		2004
	(In Thousands)
Commercial, financial and agricultural	$	24,723	$	24,481
Installment	5,872		5,307
Real estate - mortgage	85,126		77,646
Real estate - construction	29,144		22,417
Total	$	144,865	$	129,851

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Item 2.Management’s Discussion and Analysis or Plan of Operation, Continued

Loans are a large component of the Bank’s assets and are a primary source of income.  The loan portfolio is composed of four primary loan categories:  commercial, financial and agricultural; installment; real estate - mortgage; and real estate - construction.  The table above sets forth the loan categories in the portfolio at September 30, 2005 and December 31, 2004.

As represented in the table, primary loan growth was in real estate mortgage loans.  Management is increasing loans in an orderly fashion to maintain quality.

The Company follows the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan” and SFAS No. 118, “Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures”.  These pronouncements apply to impaired loans except for large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment including credit card, residential mortgage, and consumer installment loans.

A loan is impaired when it is probable that the Company will be unable to collect the scheduled payments of principal and interest due under the contractual terms of the loan agreement.  Impaired loans are measured at the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.  If the measure of the impaired loan is less than the recorded investment in the loan, the Company shall recognize an impairment by creating a valuation allowance with a corresponding charge to the provision for loan losses or by adjusting an existing valuation allowance for the impaired loan with a corresponding charge or credit to the provision for loan losses.

The Company’s first mortgage single family residential and consumer loans which total approximately $28,954,000, and $5,496,000, respectively at September 30, 2005, are divided into various groups of smaller-balance homogeneous loans that are collectively evaluated for impairment and thus are not subject to the provisions of SFAS Nos. 114 and 118.  Substantially all other loans of the Company are evaluated for impairment under the provisions of SFAS Nos. 114 and 118.

The Company considers all loans subject to the provisions of SFAS Nos. 114 and 118 that are on nonaccrual status to be impaired.  Loans are placed on nonaccrual status when doubt as to timely collection of principal or interest exists, or when principal or interest is past due 90 days or more unless such loans are well-secured and in the process of collection.  Delays or shortfalls in loan payments are evaluated with various other factors to determine if a loan is impaired.  Generally, delinquencies under 90 days are considered insignificant unless certain other factors are present which indicate impairment is probable.  The decision to place a loan on nonaccrual status is also based on an evaluation of the borrower’s financial condition, collateral, liquidation value, and other factors that affect the borrower’s ability to pay.

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Item 2.Management’s Discussion and Analysis or Plan of Operation, Continued

Generally, at the time a loan is placed on nonaccrual status, all interest accrued on the loan in the current fiscal year is reversed from income, and all interest accrued and uncollected from the prior year is charged off against the allowance for loan losses.  Thereafter, interest on nonaccrual loans is recognized as interest income only to the extent that cash is received and future collection of principal is not in doubt.  If the collectibility of outstanding principal is doubtful, such interest received is applied as a reduction of principal.  A nonaccrual loan may be restored to accruing status when principal and interest are no longer past due and unpaid and future collection of principal and interest on a timely basis is not in doubt.  At September 30, 2005 impaired loans which had been placed on non-accrual status totaled $1,021,000.  There were $420,000 of non-accrual loans outstanding at December 31, 2004.

Other loans may be classified as impaired when the current net worth and financial capacity of the borrower or of the collateral pledged, if any, is viewed as inadequate.  In those cases, such loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt, and if such deficiencies are not corrected, there is a probability that the Company will sustain some loss.  In such cases, interest income continues to accrue as long as the loan does not meet the Company’s criteria for nonaccrual status.

Generally the Company also classifies as impaired any loans the terms of which have been modified in a troubled debt restructuring.  Interest is accrued on such loans that continue to meet the modified terms of their loan agreements.  At September 30, 2005 and 2004, the Company had no loans that had the terms modified in a troubled debt restructuring.

The Company’s charge-off policy for impaired loans is similar to its charge-off policy for all loans in that loans are charged-off in the month when they are considered uncollectible.

As of September 30, 2005, the Company had impaired loans totaling $2,107,000.  A specific allocation of $220,000 has been established by management related to these loans.  The total amount of interest recognized during the period on impaired loans approximated $104,000 and the average recorded investment for the nine months ended September 30, 2005 was $2,224,000.  At December 31, 2004, impaired loans totaled $3,052,000 and had specific allowance for possible loan losses of $196,000 allocated.  The impaired loans are generally commercial loans and have been classified as substandard and special mention by management’s internal grading system.  The total collateral of these loans as of September 30, 2005 approximates $2,713,000.

The following schedule details selected information as to non-performing loans of the Company at September 30, 2005:

	September 30, 2005				December 31, 2004
	Past Due 90 Days		Non-Accrual		Past Due 90 Days		Non-Accrual
	(In Thousands)				(In Thousands)
Real estate loans	$	—	$	976	$	—	$	350
Installment loans	—		1		—		25
Commercial	—		44		—		45
	$	—	$	1,021	$	—	$	420
Renegotiated loans	$	—			$	—

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Securities

Securities totaled $44,157,000 and $37,580,000 at September 30, 2005 and December 31, 2004, respectively, and was a primary component of the Bank’s earning assets.  Restricted equity securities totaled $772,000 and $655,000 at September 30, 2005 and December 31, 2004, respectively.  The Bank has adopted the provisions of Statement of Financial Accounting Standards No. 115 (SFAS No. 115), “Accounting for Certain Investments in Debt and Equity Securities”.  Under the provisions of the Statement, securities are to be classified in three categories and accounted for as follows:

•Debt securities for which the enterprise has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized costs.

•Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings.

•Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders’ equity.

The Bank’s classification of securities as of September 30, 2005 and December 31, 2004 is as follows:

	Available-for-Sale
	September 30, 2005				December 31, 2004
			Estimated				Estimated
	Amortized		Market		Amortized		Market
	Cost		Value		Cost		Value
U.S. Treasury and other U.S. Government agencies and corporations	$	4,441	$	4,375	$	4,070	$	4,001
Mortgage-backed securities	20,778		20,496		18,934		18,744
Obligations of states and political subdivisions	16,270		16,294		12,123		12,104
Domestic corporate bonds	3,023		2,992		2,750		2,731
	$	44,512	$	44,157	$	37,877	$	37,580

No securities have been classified as trading or held-to-maturity securities.

Deposits

Deposits, which in the future are expected to be the principal source of funds for the Bank, totaled $175,110,000 and $154,975,000 at September 30, 2005 and December 31, 2004, respectively.  The Bank has targeted local consumers, professionals, local governments and commercial businesses as its central clientele; therefore, deposit instruments in the form of demand deposits, savings accounts, money market demand accounts, certificates of deposits and individual retirement accounts are offered to customers.

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Management believes the Montgomery and Stewart County areas in Tennessee are a growing economic market offering growth opportunities for the Bank; however, the Bank competes with several large bank holding companies that have banking offices in this area.  Even though the Bank is in a very competitive market, management currently believes that it is possible to increase the Bank’s deposit and asset size.  Management believes that it’s position as a locally oriented financial institution that offers personalized service will contribute significantly to loan and deposit growth and eventually to overall profitability.  However, no assurance of market growth can be given.

Liquidity and Asset Management

The Company’s management seeks to maximize net interest income by managing the Company’s assets and liabilities within appropriate constraints on capital, liquidity and interest rate risk.  Liquidity is the ability to maintain sufficient cash levels necessary to fund operations, meet the requirements of depositors and borrowers and fund attractive investment opportunities.  Higher levels of liquidity bear corresponding costs, measured in terms of lower yields on short-term more liquid earning assets and higher interest expense involved in extending liability maturities.

The Company maintains a formal asset and liability management process to quantify, monitor and control interest rate risk and to assist management in maintaining stability in the net interest margin under varying interest rate environments.  The Company accomplishes this process through the development and implementation of lending, funding and pricing strategies designed to maximize net interest income under varying interest rate environments subject to specific liquidity and interest rate risk guidelines.

Analysis of rate sensitivity and rate gap analysis are the primary tools used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates.  Included in the analysis are cash flows and maturities of financial instruments held for purposes other than trading, changes in market conditions, loan volumes and pricing and deposit volume and mix.  These assumptions are inherently uncertain, and, as a result, net interest income cannot be precisely estimated nor can the impact of higher or lower interest rates on net interest income be precisely predicted.  Actual results will differ due to timing, magnitude and frequency of interest rate changes and changes in market conditions and managements strategies, among other factors.

The Company’s primary source of liquidity is expected to be a stable core deposit base.  In addition, short-term investments, loan payments and investment security maturities provide a secondary source.

The Company’s securities portfolio consists of earning assets that provide interest income.  Securities classified as available-for-sale include securities intended to be used as part of the Company’s asset/liability strategy and/or securities that may be sold in response to changes in interest rate, prepayment risk, the need or desire to increase capital and similar economic factors.  Securities totaling approximately $5.3 million mature or will be subject to rate adjustments within the next twelve months.

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Liquidity and Asset Management, Continued

The Company has entered into an interest rate swap agreement.  The swap instrument’s notional value is $500,000 and the Company receives a fixed rate of 6.65% through January 28, 2009.  The underlying security used in the swap transaction is a trust preferred security which yields LIBOR plus three hundred fifty basis points.  As of September 30, 2005, the transaction has resulted in an unrealized loss of approximately $14,000.

A secondary source of liquidity is the Company’s loan portfolio.  At September 30, 2005, loans of approximately $73.3 million either will become due or will be subject to rate adjustments within twelve months from the respective date.

As for liabilities, certificates of deposit of $100,000 or greater of approximately $33.0 million will become due during the next twelve months.  Management anticipates that there will be no significant reductions from withdrawable accounts such as negotiable order of withdrawal accounts, money market demand accounts, demand deposit and regular savings accounts in the future.

The Company has committed to an administration building in the Clarksville, Tennessee area expected to be completed in 2006.  The total estimated cost has not yet been determined.

Currently, the Bank is contracted to handle all the deposits for the City of Clarksville.  This agreement will expire February, 2006, and if not renewed, could negatively impact anticipated deposit growth.

At the present time there are no known trends or any known commitments, demands, events or uncertainties that will result in or that are reasonably likely to result in the Company’s liquidity changing in any material way, other than the branch opening and city accounts previously discussed.

Capital Position and Dividends

At September 30, 2005, total stockholders’ equity was $16,914,000 or 8.1% of total assets, which compares with $15,713,000 or 8.5% of total assets at December 31, 2004.  The dollar increase in stockholders’ equity during the nine months ended September 30, 2005 results from the Bank’s earnings of $1,470,000, a $36,000 unrealized loss on available-for-sale securities, proceeds from issuance of stock pursuant to the Company’s stock option plan totaling $194,000 which was offset by a dividend paid of $427,000.

The Company’s principal regulators have established minimum risk-based capital requirements and leverage capital requirements for the Company.  These guidelines classify capital into two categories of Tier I and Total risk-based capital.  Total risk-based capital consists of Tier I (or core) capital (essentially common equity less intangible assets) and Tier II capital (essentially qualifying long-term debt, of which the Company has none, and a part of the allowance for possible loan losses).  In determining risk-based capital requirements, assets are assigned risk-weights of 0% to 100%, depending on  regulatory assigned levels of credit risk associated with such assets.  The risk-based capital guidelines require the Company to have a total risk-based capital ratio of 8.0% and a Tier I risk-based capital ratio of 4.0%.  At September 30, 2005, the Company’s total risk-based capital ratio was 11.4% and its Tier I risk-based capital ratio was 10.4%.  At December 31, 2004, the Company’s total risk-based capital ratio was 12.1% and its Tier I risk-based capital ratio was 11.0%.  The required Tier I leverage capital ratio (Tier I capital to average assets for the most recent quarter) for the Company is 4%.  At September 30, 2005, the Company had a leverage ratio of 8.5% compared to 8.7% at December 31, 2004.  It is management’s objective to leverage the Company to approximately a 8% capital ratio.  The emphasis will be on asset quality and growth in core deposits both of which should be aided by the large stockholder base.

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Capital Position and Dividends, Continued

There is no established trading market for the Company’s stock.  From time to time the Company may acquire shares of its stock to provide some liquidity in the shares.  During the quarter ended September 30, 2005, the Company did not redeem or issue any shares of its voting common stock.  No shares of the Company’s common voting stock were redeemed for the year ending December 31, 2004.  During the three months ended September 30, 2005, the Company issued 500 shares in connection with its stock option plan.  Privately negotiated trades may not be reliable indicators of value.

On January 18, 2005, the Board of Directors recommended a dividends be declared at the Annual Shareholders meeting in April, 2005.  The recommendation was to set the dividend rate for 2005 at 30.0% of 2004 earnings.  On April 29, 2005, the dividends were paid in the amount of $427,000.

The Financial Accounting Standards Board has proposed a pronouncement that requires all companies to recognize compensation expense related to the issuance of stock options.  However, implementation of this pronouncement has been delayed through Congressional action.  The ultimate outcome remains unknown until Congress reaches a consensus on how to account for stock options.  If the Company is required to expense stock options it will have a negative impact on earnings, the effect of which is not yet determinable.

Off Balance Sheet Arrangements

At September 30, 2005 the Company had unfunded loan commitments outstanding of $29.6 million and outstanding standby letters of credit of $1,999,000.  Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements.  Primarily the commitments that are regularly funded relate to construction projects and generally are funded over a period of time.  If needed to fund these outstanding commitments, the Company has the ability to liquidate Federal funds sold or securities available-for-sale or on a short-term basis to borrow and purchase Federal funds from other financial institutions.  Additionally, the Company could sell participations in these or other loans to correspondent banks.  As mentioned above, the Company has been able to fund its ongoing liquidity needs through its stable core deposit base, loan payments, its investment security maturities and short-term borrowings.

Impact of Inflation

Although interest rates are significantly affected by inflation, the inflation rate is immaterial when reviewing the Company’s results of operations.

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Item 3.Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and the Chief Financial Officer, of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act)).  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information that we are required to disclose in the reports we file under the Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms.  Our Chief Executive Officer and Chief Financial Officer also concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to our Company required to be included in our periodic SEC filings.

There have been no changes in our internal controls or in other factors that has materially affected or is reasonably likely to materially affect internal controls over financial reporting during the three months ended September 30, 2005.

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PART II.  OTHER INFORMATION

Item 1.   LEGAL PROCEEDINGS

None

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)Shares of the Company’s common stock were issued to Employees pursuant to the Company’s Stock Options Plan as follows:

	Number of Shares of
Date of Sale	Common Stock Sold	Price Per Share
8/1/05	500	$	17.00

The aggregate proceeds of the shares sold were $8,500.

There were no underwriters and no underwriting discounts or commissions.  All sales were for cash.

The Company believes that an exemption from registration of these shares was available to the Company in that the issuance thereof did not constitute a public offering of securities within the meaning of the Securities Act of 1933, as amended.  The Company relied on the exemption provided by Section 4(2) of the Securities Act of 1933.

The common stock is not convertible or exchangeable into other equity securities.

The proceeds of the sales are being used by the Company for general corporate purposes.

(b)Not Applicable.

(c)No repurchase of Company securities were made during the quarter ended September 30, 2005.  The only restrictions on working capital and/or dividends are those reported in Part 1 of this Quarterly Report on
Form 10-QSB.

Item 3.DEFAULTS UPON SENIOR SECURITIES

None

Item 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

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Item 5.OTHER INFORMATION

None

Item 6.EXHIBITS

Rule 13a-14(a) Certifications.

Section 1350 Certifications.

24

SIGNATURES

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

		LEGENDS FINANCIAL HOLDINGS, INC.
		(Registrant)
DATE:	November 11, 2005		/s/	Billy Atkins
			Billy Atkins, President and
			Chief Executive Officer
DATE:	November 11, 2005		/s/	Thomas Bates
			Thomas Bates, Executive Vice President and
			Chief Financial Officer

LEGENDS FINANCIAL HOLDINGS, INC.

INDEX TO EXHIBITS FOR FORM 10-QSB

FOR QUARTER ENDED SEPTEMBER 30, 2005

EXHIBIT NO.	EXHIBIT DESCRIPTION
Exhibits 31.1 and 31.2	Rule 13a-14(a) Certifications
Exhibits 32.1 and 32.2	1350 Certifications

25