<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               ------------------

                                    FORM 10-Q

               [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the Quarterly Period Ended September 30, 1998

               [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                FOR THE TRANSITION PERIOD FROM _______ TO _______

                            -------------------------

                         COMMISSION FILE NUMBER 1-041077

                   T & W FINANCIAL CORPORATION (Exact name of
                     registrant as specified in its charter)






                 WASHINGTON                                 91-1844249
---------------------------------------------          ------------------------
        (State or other jurisdiction of                   (I.R.S. Employer
        incorporation or organization)                    Identification No.)

6416 PACIFIC HIGHWAY EAST, TACOMA, WASHINGTON                  98424
---------------------------------------------          ------------------------
   (Address of principal executive offices)                  (Zip Code)


       Registrant's telephone number, including area code: (253) 922-5164


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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  [ ]

The number of shares outstanding of the registrant's common stock as of November
11, 1998 was 8,395,691




<PAGE>   2



                           T & W FINANCIAL CORPORATION

                                    FORM 10-Q

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998

                                      INDEX
<TABLE>
<CAPTION>
Part I.  Financial Statements

        Item I. Financial Statements                                                  Page
                                                                                     ----
<S>                                                                                  <C>
        a)     Income Statements                                                       1
               for the three months and nine months ended September 30, 1998
               and September 30, 1997

        b)     Balance Sheets                                                          2
               as of September 30, 1998, and December 31, 1997

        c)     Cash Flows Statements                                                   3
               for the nine months ended September 30, 1998 and September 30, 1997

        d)     Shareholders' Equity                                                    4
               for the period ended September 30, 1998

        e)     Notes to Financial Statements                                           5


        Item 2. Management's Discussion and Analysis of Financial                       8
                Condition and Results of Operations

Part II.  Other Information

        Item 6. Exhibits and Reports on Form 8-K                                       18

Signature

</TABLE>

<PAGE>   3
                                     Page 3

                   T&W FINANCIAL CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                          Three Months Ended          Nine Months Ended
                                             September 30,              September 30,
                                          --------------------      --------------------
                                           1998         1997         1998         1997
                                          -------      -------      -------      -------
<S>                                       <C>          <C>          <C>          <C>    
Revenues:
 Lease contract revenue                   $ 4,421      $ 3,513      $12,975      $10,812
 Gain on sale of leases                    10,725        4,492       25,754        7,940
 Fee income                                   839          288        1,729          422
 Servicing & Other Income                   1,456          168        3,632          906
                                          -------      -------      -------      -------
      Total Revenues                       17,441        8,462       44,090       20,080
                                          -------      -------      -------      -------
Expenses:
 Interest expense                           2,176        1,912        5,918        5,638
 Compensation and related expenses          1,992        1,254        4,264        3,240
 Amortization of initial direct cost        1,274          558        2,938        1,780
 Provision for credit losses                  883          372        2,311          774
 Other general and administrative
    expenses                                2,759          765        5,733        1,838
                                          -------      -------      -------      -------
                                            9,084        4,861       21,164       13,270
                                          -------      -------      -------      -------
 Income before minority interest
   and income taxes                         8,357        3,601       22,926        6,810
 Minority Interest                          1,254          540        3,439        1,022
                                          -------      -------      -------      -------
Income before income taxes                  7,103        3,061       19,487        5,788
Income Taxes                                2,556        1,102        7,015        2,084
                                          -------      -------      -------      -------
Net Income                                $ 4,547      $ 1,959      $12,472      $ 3,704
                                          =======      =======      =======      =======
Earnings Per Share: Basic and
  Diluted                                 $  0.54      $  0.34      $  1.48      $  0.64
Weighted Average Number of shares
 of Common Stock and Common Stock
 Equivalents Outstanding                    8,400        5,800        8,400        5,800

</TABLE>



                             See accompanying notes

                                     Page 1
<PAGE>   4

                   T&W FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                   September 30,  December 31,
                                                       1998         1997
                                                   -----------    ---------
                                                   (Unaudited)    (Audited)
<S>                                                 <C>           <C>     
Cash and cash equivalents                           $ 15,971      $ 28,553
Dealer floor plans                                     6,504         6,797
Net investment in leases                             109,101       148,954
Securitization receivables                            47,991        16,362
Intangible assets, net                                 3,478         2,954
Investments in other assets                           10,077         8,577
                                                    --------      --------
          Total Assets                              $193,122      $212,197
                                                    ========      ========

Accounts payable and other accrued liabilities      $  6,828      $  7,107
Notes payable - recourse                              56,648        76,065
Notes payable - securitized                           36,001        60,317
Security deposits                                     11,798         9,624
Deferred income taxes                                 18,215        11,200
                                                    --------      --------
          Total Liabilities                          129,490       164,313
                                                    --------      --------
Minority interest                                     10,313         7,183
                                                    --------      --------

Preferred Stock                                           --            --
Common Stock and paid-in capital                      28,263        28,117
Retained Earnings                                     25,056        12,584
                                                    --------      --------
          Total Shareholders' Equity                  53,319        40,701
                                                    --------      --------
          Total Liabilities and Shareholders'
            Equity                                  $193,122      $212,197
                                                    ========      ========

</TABLE>


                             See accompanying notes


                                     Page 2
<PAGE>   5

                   T&W FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                        Nine Months Ended September 30,
                                                        ------------------------------
                                                            1998              1997
                                                        -----------       ------------
<S>                                                       <C>             <C>      
Net Income                                                $  12,472       $   6,810
Adjustments to reconcile net income to net cash
  provided (used) by operating activities
  Amortization and depreciation                               4,044           1,780
  Provision for credit losses                                 2,311             774
  Gain on sale of leases                                    (25,754)         (7,940)
  Minority interest                                           3,439              --
  Deferred taxes                                              7,015              --
  Changes in assets and liabilities exclusive of the
      effects of business acquisitions:
     Increase (decrease) in accounts payable and
      other accrued liabilities                                (279)         13,561
     Other                                                     (309)         13,561
                                                          ---------       ---------
  Net Cash Provided (Used) by Operating Activities            2,939          14,985
                                                          ---------       ---------
Cash Flows From Investing Activities
  New leases originated                                    (220,800)        (96,400)
  Lease payments received                                    15,222          35,749
  Initial direct costs incurred                              (3,425)             --
  Proceeds from sale of lease portfolio                     237,732          73,953
  Increase in other assets                                   (1,612)             --
  Net cash (advances) payments on floor plans                   293              --
  Cash received in acquisition net of cash paid                  --             191
  Purchase of Equipment                                        (732)             --
                                                          ---------       ---------
  Net Cash Provided (Used) by Investing Activities           26,678          13,493
                                                          ---------       ---------
Cash Flows From Financing Activities
  Proceeds from recourse and nonrecourse borrowings         201,528          37,242
  Payments on recourse and nonrecourse borrowings          (245,261)        (64,890)
  Net increase in security deposits                           2,174           2,042
  Proceeds from sale of common stock, net of costs              146              --
  Debt issue costs paid                                        (786)           (294)
  Distributions to shareholders                                  --          (1,395)
                                                          ---------       ---------
  Net Cash Provided (Used) by Financing Activities          (42,199)        (27,295)
                                                          ---------       ---------
Net Increase (Decrease) in Cash and Cash Equivalents        (12,582)          1,183
Cash and Cash Equivalents, beginning of period               28,553           8,064
                                                          ---------       ---------
Cash and Cash Equivalents, ending of period               $  15,971       $   9,247
                                                          =========       =========
Income Taxes Paid
                                                          $      --       $      --
                                                          =========       =========
Interest Paid                                             $   5,918       $   5,638
                                                          =========       =========
</TABLE>

                             See accompanying notes


                                     Page 3
<PAGE>   6

                  T & W FINANCIAL CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                   (UNAUDITED)
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                Common Stock and       Retained           
                                                Paid in Capital        Earnings            Total
                                                -------------------------------------------------
<S>                                              <C>                 <C>                <C>    
Balance at December 31, 1997                       $28,117             $12,584            $40,701
     Net Income                                                         12,472             12,472
     Issuance of common stock                          146                                    146
                                                   -------             -------            -------
Balance at September 30, 1998                      $28,263             $25,056            $53,319
                                                   =======             =======            =======
</TABLE>




                             See accompanying notes


                                     Page 4
<PAGE>   7

                         T & W FINANCIAL CORPORATION AND SUBSIDIARIES
                            NOTES TO INTERIM FINANCIAL STATEMENTS

NOTE 1.  DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

T & W Financial Corporation ("T&W" or the "Company") is a specialized commercial
finance company that was formed in August 1997 to provide capital equipment
financing principally in the form of leases, to commercial entities. Previously,
the Company's operations were part of a group of pass-through entities, each
having primarily the same two individual owners. The assets, liabilities and
operations of these pass-through entities were transferred to a newly formed
limited liability company owned 85% by T&W and 15% by T & W Funding Company VI,
L.L.C., an entity owned by T&W's senior management. The Company's operations
extend throughout the United States, with no significant concentration in any
region except the Pacific Northwest. The Company's headquarters are located in
Tacoma, Washington.

The accompanying consolidated balance sheets and related interim consolidated
statements of income and cash flows are unaudited. In the opinion of management,
all adjustments, which consist of only normal recurring items necessary for the
fair presentation of these interim financial statements have been included.
Interim results are not necessarily indicative of the results expected for the
full year.

NOTE 2.  NET INVESTMENT IN LEASES

The Company's investments in leases have been pledged as collateral for certain
notes payable. The investment in leases which are in Special Purpose Entities 
(SPE or SPEs) and pledged as collateral for related debt are referred to herein
as "Securitized". The net investment in leases presented on a basis by type of
borrowing for which the investment is pledged as collateral is summarized as
follows (in thousands):

<TABLE>
<CAPTION>

                                                           September 30,      December 31,
                                                               1998              1997
                                                          ---------------   ---------------
                                                            (Unaudited)      (Audited)
<S>                                                         <C>             <C>      
Securitized ---
     Minimum lease payments receivable                      $  42,673       $  70,811
     Estimated residual value of leased equipment, net          5,757           8,620
     Unearned lease revenue                                    (5,054)        (11,619)
                                                            ---------       ---------
                                                               43,376          67,812
                                                            ---------       ---------
Not Securitized ---
     Minimum lease payments receivable                         62,103          78,428
     Estimated residual value of leased equipment, net         13,275          14,651
     Unearned lease revenue                                   (11,029)        (13,186)
                                                            ---------       ---------
                                                               64,349          79,893
                                                            ---------       ---------
Allowance for Credit Losses                                    (1,595)         (1,235)
                                                            ---------       ---------
Initial Direct Costs, net                                       2,971           2,484
                                                            ---------       ---------
     Net Investment in Leases                               $ 109,101       $ 148,954
                                                            =========       =========
</TABLE>



                                     Page 5
<PAGE>   8

A summary of activity in the allowance for credit losses account is as follows
(in thousands):
<TABLE>
<CAPTION>

                                      Nine Months Ended   Year Ended
                                        September 30,     December 31,
                                          30, 1998           1997
                                      -----------------  --------------
                                       (Unaudited)        (Audited)
<S>                                      <C>               <C>    
BALANCE, beginning of period             $ 1,235           $ 1,323
                                         -------           -------
Provision for credit losses                2,311             1,581
                                         -------           -------
Charge-offs                               (1,711)             (405)
Recoveries                                   379                50
                                         -------           -------
     Net charge-offs                      (1,332)             (355)
                                         -------           -------
Decrease related to leases sold             (619)           (1,314)
                                         -------           -------
BALANCE, end of period                   $ 1,595           $ 1,235
                                         =======           =======
</TABLE>

NOTE 3.  NOTES PAYABLE - RECOURSE

Notes payable for which the lender has recourse against the Company are secured
by guarantees of shareholders and for lines of credit borrowings, underlying
pledged leases, and are summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                              September 30,      December 31,
                                                                                  1998              1997
                                                                             ---------------    -------------
                                                                               (Unaudited)        (Audited)
<S>                                                                             <C>              <C>    
Payable to bank drawn on a $75 million credit facility, interest
   payable monthly at 1.5% above the LIBOR rate, due in July 1999                $40,500          $69,212

Payable to bank drawn on a $15 million credit line, interest
   payable monthly at 2.0% above 30 day LIBOR rate, due as payments are              308            1,201
   made on underlying leases (last lease payment due October 2001)

Payable to bank drawn on a $5 million credit line, interest
   payable monthly at 2.0% above LIBOR, due December 1998                          1,520              912

Payable to bank drawn on a $7.5 million credit line, interest
   payable monthly at 2.0% above LIBOR, due July 1999                              4,730               --

$75 million Commercial Paper Facility, interest payable monthly
   at .80% above LIBOR, due July 1999                                              5,110               --

Acquisition notes payable, interest at 8%, $750,000 due January
   1999 with remaining principal and interest due quarterly to 2007,
   net of imputed interest discount of $219,000                                    4,480            4,740
                                                                                 -------          -------
                                                                                 $56,648          $76,065
                                                                                 =======          =======

</TABLE>



                                     Page 6
<PAGE>   9

NOTE 4.  SUBSEQUENT EVENTS

In October 1998, the Company and Accel Financial Group Ltd. ("Accel") of
Vancouver Canada signed a letter of intent for the Company or its subsidiary, T
& W Financial Services Company L.L.C. to acquire Accel for C$2.50 per share.
The letter contemplates a "going private transaction" under Canadian law which
would enable the Company to acquire all of the outstanding shares of Accel. Both
companies expect to finalize the transaction by January 19, 1999.




                                     Page 7
<PAGE>   10

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

Forward-looking statements are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. Any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "anticipates", "believes" ,"estimates", "expects", "intends", "plans",
"seeks", and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed in this section. Unless the context
otherwise requires, the terms "Company" and "T&W" mean T & W Financial
Corporation, its predecessors, subsidiaries and affiliates.

The Company's forward-looking statements are based primarily on the Company's
current expectations and are subject to a number of risks and uncertainties.
Important factors to consider in evaluating the Company's forward-looking
statements include (1) the Company's ability to continue to fund its current
business strategy with cost effective asset securitization facilities; (2) the
level of credit enhancement required by rating agencies to achieve investment
grade status for debt securities issued by the special purpose entities or owner
trusts which purchase leases from the Company (the "SPEs"); (3) the
collectibility of securitization receivables which represent the excess cash
flows anticipated by the SPEs; (4) the Company's ability to identify suitable
acquisition candidates or complete acquisitions on reasonable terms; (5) the
Company's ability to attract and retain qualified management personnel; (6) the
existence of a market for used equipment that must be sold or re-leased to
recover the residual value of such equipment recorded by the Company, when
guarantors of the residual values cannot satisfy their obligations to the
Company; (7) the Company's ability to create and maintain relationships with
equipment providers and referral sources to generate sufficient origination
volume; and (8) the ability of lessees to comply with the terms of their leases
so these leases may qualify to serve as collateral under the Company's bank
lines of credit or as part of the lease pool under the Company's securitization
facilities; (9) the Company's ability to continue rapid growth into new markets
while attempting to maintain credit quality and customer satisfaction; and (10)
changes in general economic conditions in the markets in which the Company may,
from time to time, compete. In view of the risks and uncertainties, there can be
no assurance that the forward-looking statements contained in this Quarterly
Report on Form 10-Q will, in fact, have the results indicated, and accordingly,
the actual results of the Company may differ materially from those indicated by
such forward-looking statements.

OUTLOOK-ISSUES AND UNCERTAINTIES

Impacts of Inflation and Changing Prices. The consolidated financial statements
and related financial data presented herein have been prepared in accordance
with generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time due
to inflation. The primary impact of inflation is reflected in the increased cost
of the Company's operations. As a result, interest rates generally have a more
significant impact on the Company's performance than do general levels of
inflation. Interest rates do not necessarily move in the same direction or the
same extent as the prices of goods and services.



                                     Page 8
<PAGE>   11
The Company's profitability is largely determined by the difference or spread
between the effective interest charged by the Company under its leases and the
interest paid by the Company under its lines of credit and securitizations. The
leases underwritten by the Company typically require payments to be made by the
lessee over a six month to seven-year term at a fixed rate of interest that is
determined by rates prevailing in the market at the time of lease approval. The
Company finances the purchase of equipment that it leases primarily through
lines of credit and the securitization of pooled leases. All of such lines of
credit and certain of such securitizations require payments by the Company at
variable rates of interest that are subject to frequent adjustment to reflect
rates prevailing in the market for short-term borrowings. Accordingly, an
increase in interest rates due to inflation or other causes could have a
material adverse effect on the Company's financial condition, results of
operations and prospects by reducing or eliminating the spread between the
interest charged by the Company under its leases and the interest paid by the
Company under its credit facilities and variable rate securitizations. Moreover,
an increase in interest rates may cause the Company to raise the rate of
interest that it charges to lessees, thereby reducing the demand for the
Company's lease products. In addition, until the Company securitizes its leases,
it may fund the purchase of equipment and other costs of such leases from lines
of credit and working capital. An increase in interest rates could have a
material adverse effect on the Company's financial condition, results of
operations and prospects by reducing the gain on sale recognized by the Company
in future securitizations. The Company has entered into interest rate swap
agreements on behalf of the SPEs to protect against the risk of significant
increases in interest rates. However, such agreements limit the Company's
ability to participate in the benefits of lower interest rates. In addition,
there can be no assurance that such agreements will adequately insulate the
Company from interest rate risks.

Impacts of Recently Issued Accounting Standards. Recently issued accounting
standards having relevant applicability to the Company consist primarily of
Statement of Financial Accounting Standard No. 130 "Reporting Comprehensive
Income" and Statement of Financial Accounting Standards No. 131 "Disclosures
about Segments of an Enterprise and Related Information", each of which relate
to additional reporting and disclosure requirements effective for financial
statement periods beginning after December 15, 1997. It is not expected that the
adoption of these accounting pronouncements will have a material effect on the
Company's operating results or financial condition.

OVERVIEW

The leases that the Company originates are "direct financing" leases in that
they transfer substantially all of the benefits and risks of equipment ownership
to the lessee. A lease is classified as a direct financing lease for accounting
purposes if the collection of the minimum lease payments is reasonably
predictable, no significant uncertainties exist relating to non-reimbursable
costs yet to be incurred by the lessor under the lease and the lease meets one
of the following criteria: (i) ownership of the property is transferred to the
lessee at the end of the lease term; (ii) the lease contains a bargain purchase
option; (iii) the term of the lease is at least equal to 75% of the estimated
economic life of the leased equipment; or (iv) the present value of the minimum
lease payments is at least equal to 90% of the fair value of the leased
equipment at the inception of the lease. Since the Company's leases are
classified as direct financing leases, the Company records total lease rentals,
estimated residual values and initial direct costs as the gross investment in
the lease. The difference between the gross investment in the lease and the cost
of the leased equipment (including initial direct costs) is recorded as
"unearned income". Lease contract income is recognized over the term of the
lease by amortizing the unearned income using the interest method. For 


                                     Page 9
<PAGE>   12

income tax purposes, the Company treats its leases as "true" leases or operating
leases which, through depreciation deductions related to the leased equipment,
generate tax benefits for the Company and its subsidiaries.

The Company finances a majority of its lease originations utilizing
securitizations. The Company has utilized several structures in its
securitizations, each designed to reduce the Company's cost of capital or
improve upon existing financing terms. Prior to 1997, the Company's
securitizations, which did not transfer control of the leases, were recorded as
financings for financial reporting purposes. Beginning in 1997, the Company's
securitizations qualified as sales for financial reporting purposes in
accordance with the new accounting standard for the transfer of financial
assets, SFAS No. 125, as control of the leases was transferred. Accordingly,
gain on sale of leases was recognized beginning in 1997. The Company's current
lease securitization structure is a commercial paper based conduit facility in
which the Company contributes its leases (including related residuals) to a
special purpose limited liability entity. Such entity sells the leases to an
unaffiliated special purpose corporate entity which administers a multi-seller
commercial paper conduit.

The change in structure of the Company's securitizations from financings to
sales has had, and will continue to have, a significant effect on the Company's
balance sheet and income statement. Under financing treatment the Company
recorded its net investment in leases as assets and the funds raised from
securitizations as non-recourse notes payable on its balance sheet. Under sale
treatment the only item to appear on the balance sheet is an asset, the
securitization receivable. The existing balance of net investment in leases and
non-recourse notes payable should decline over time as the existing on-balance
sheet leases are paid down and new leases are sold under new securitization
facilities. Under financing treatment the Company records lease contract revenue
and interest expense on the non-recourse debt. Initial direct costs associated
with the origination of leases are amortized as an expense over the life of the
leases and provisions for credit losses are recorded based upon loss experience.
Under sale treatment the Company records a gain on sale of leases. Initial
direct costs associated with the origination of the leases sold are expensed at
the time of the sale and reduce the reported gain on sale. As a result of the
Company's securitizing a majority of its current lease originations using a
structure which qualifies for sales treatment, the Company's lease contract
revenue and interest expense on the non-recourse notes payable will decline as
existing leases pay down. 

The Company sells each pool of leases for a price equal to the present value of
future cash flows, including guaranteed residuals. Upon sale, the Company
receives in cash a substantial portion of the present value of future cash
flows, with the remaining balance held as collateral by the SPE. Any such amount
is included on the Company's balance sheet as the securitization receivable.
Recourse to the Company in such sales is limited to the extent of the
securitization receivable with respect to the leases sold. The Company retains
the servicing rights and responsibilities for each pool of leases sold and
receives as compensation normal servicing fees over the life of such leases.

The Company recognizes gain on the sale of leases at each sale date based on a
determination of the present value of the estimated future amounts to be
realized by the Company in connection with such sale. These estimates consider
all cash flows generated by the leases sold over their life less: (i) trustee
and other transaction related fees; (ii) credit enhancement expenses, if any
(such as the monoline insurers' fee, if the leases are wrapped); (iii) normal
servicing fees, which are retained by the Company in its capacity as servicer
and are recognized over the life of the transaction; and (iv) payments to
purchasers under the certificates. The securitization receivable is reduced by
an allowance which is estimated by the

                                    Page 10
<PAGE>   13

Company to be adequate to cover future credit losses. No allowance is made for
estimated prepayments, which historically have been insignificant due to the
non-cancelable nature of the leases.

The Company evaluates the carrying value of the securitization receivable for
each sale transaction at the end of each reporting period in light of actual
credit loss experience of the underlying leases sold and makes adjustments to
charge or credit operating results accordingly. To date, the Company has not
recorded any such adjustments. The Company believes that there is no active
market for the sale of its securitization receivable.

The Company intends to continue to sell a substantial portion of its leases
which it originates, using the most recent securitization structure or similar
securitization structures. There can be no assurance, however, that the Company
will be able to sell its future leases, or that the terms of any such sales will
be as favorable or similar to the terms of the Company's current sale
transactions. 

Due to the recognition of earnings from the gain resulting from the sale of the
Company's leases, the Company's reported earnings during a particular period
will be impacted by the amount and timing of sales which the Company may
consummate in such future period. Variations in quarterly earnings will depend
on the amount and timing of the completion of such sales.
<TABLE>
<CAPTION>

                                                First Quarter          Second Quarter      Third Quarter
                                                    Ended                  Ended               Ended
                                               March 31, 1998           June 30, 1998     September 30, 1998
                                               --------------           -------------     ------------------
<S>                                          <C>                     <C>                      <C>
Operating Data:
Lease financing
  receivables originated:
  Number of contracts                                1,033                   871                      954
  Lease originations(1)                        $    63,600           $    73,400              $    83,800
Leases serviced:
  Number of contracts                               10,367                10,521                   10,894
  Portfolio of leases serviced(2)              $   363,400           $   403,348              $   476,019
  Average portfolio yield (3)                        12.5%                 13.3%                    12.8%
Credit quality statistics
  Delinquencies as a percentage of
  portfolio of leases serviced
  31-60 days                                          3.44%                 2.00%                    2.27%
  61-90 days                                          1.70%                 1.60%                    0.96%
  91-120 days                                         1.70%                 1.90%                    0.55%
  Over 120 days                                       1.23%                  .90%                    0.77%
       Total                                          8.07%                 6.40%                    4.55%
Net charge-offs (4) (5)                               0.20%                 0.53%                    0.45%
</TABLE>

(1)     Represents the equipment cost for leases originated during the period.
(2)     Represents the aggregate  minimum lease  payments, excluding residual 
        values except for guaranteed residuals under all leases serviced by the 
        Company held  as direct financing leases and leases sold to SPEs.
(3)     Represents the average yield recognized during the period for the
        portfolio of leases serviced.
(4)     Represents charge-offs (reduced by recoveries), divided by the
        respective period's average net 


                                    Page 11
<PAGE>   14

        investment including residuals, under all leases serviced by the Company
        and either held as direct financing leases or sold to SPEs.

(5)     Year to date charge-off percentage, annualized.

RESULTS OF OPERATIONS

The Company's revenues are comprised of lease contract revenue, gain on sale of
leases, fee income, and servicing and other income. Lease contract revenue is
the revenue recognized from the net investment in leases held. Gain on sale of
leases is the revenue recognized under sale treatment for leases securitized.
Fee income represents security deposits which are recognized as income upon
lease expirations and commitment fees received upon the origination of leases.
Servicing and other income includes normal servicing fees, late fees, interest
income and amounts received from the owner trust relating to interest rate
collar agreements. 

The Company's expenses are comprised of interest expense, compensation and
related expenses, amortization of initial direct costs, provisions for credit
losses and other general and administrative expenses. Interest expense includes
the expense related to notes payable and the amortization of related debt
issuance costs. Compensation and related expenses include salaries and bonuses
paid to employees and management fees to affiliates. Amortization of initial
direct costs relates to costs associated with originating leases, including
commissions, which are amortized over the period of the leases. Provisions for
credit losses are provided based on estimated future credit losses. Other
general and administrative expenses include trustee, legal and other
professional fees, and occupancy and other office-related expenses.

NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997. Leases originated increased from $96.4 million for the nine months ended
September 30, 1997 to $220.8 million for the comparable period in 1998,
representing an increase of 129%. The number of leases originated increased from
1,830 for the nine months ended September 30, 1997 to 2,858 for the comparable
period in 1998. Increase in dollar volume was due to an increase in the number
of leases originated and an increase in the average ticket size in 1998 over the
1997 period. The average annualized yield of the portfolio of leases serviced
increased from 12.6% for the nine months ended September 30, 1997 to 12.8% for
the comparable period in 1998.

The portfolio of leases serviced increased from $216.9 million at September 30,
1997 to $476.0 million at September 30, 1998, representing an increase of 119%.
This increase was due to an increase in lease originations.

Lease contract revenue increased from $10.8 million for the nine months ended
September 30, 1997 to $13.0 million for the comparable period in 1998,
representing an increase of 20% due primarily to a 3% increase in the net
investment in leases owned and an increase in average yield of the lease
portfolio during the 1998 period.

As described above, the Company's securitizations have predominantly been
structured as sales for financial reporting purposes, rather than as financing
transactions as was the case in prior years. During the nine months ended
September 30, 1998, the Company recognized a gain on sale of $25.8 million.
Since the Company plans to continue to structure its securitizations as sale
transactions, it anticipates that gain on sale of leases will increase and
become a larger portion of revenues in the future. 


                                    Page 12
<PAGE>   15

Fee income increased from $.4 million for the nine months ended September 30,
1997 to $1.7 million for the comparable period in 1998, representing a increase
of 310%. This increase was due primarily to the Company's increased business
activity of charging fee income on lease transactions.

Servicing and other income increased from $.9 million for the nine months ended
September 30, 1997 to $3.6 million for the comparable period in 1998,
representing an increase of 301%, due primarily to an increase in the serviced
portfolio and interest income received.

Total revenues increased from $20.0 million for the nine months ended September
30, 1997 to $44.1 million for the comparable period in 1998, representing an
increase of 120%, primarily as a result of the above factors.

Compensation and related expenses increased from $3.2 million for the nine
months ended September 30, 1997 to $4.3 million for the comparable period in
1998, representing an increase of 32%. The increase was due primarily to an
increased number of total employees.

Amortization of initial direct costs increased from $1.8 million for the nine
months ended September 30, 1997 to $2.9 million for the comparable period in
1998, representing an increase of 65%. Initial direct costs, relative to the
investment in leases, increased from December 31, 1996 to December 31, 1997 (the
beginning of the nine month period ended September 30, 1998), which resulted in
increased amortization charges during the 1998 period as compared to the prior
year.

The provision for credit losses increased from $.8 million for the nine months
ended September 30, 1997 to $2.3 million for the comparative period in 1998,
representing an increase of 199%. This increase was due to increased
originations and sale transactions.

Other general and administrative expenses increased from $1.8 million for the
nine months ended September 30, 1997 to $5.7 million for the comparable period
in 1998, representing an increase of 217%. The increase was due primarily to
increased trustee and legal fees incurred during the 1998 period, a significant
portion of which relates to the most recent securitization structure, and to
increased occupancy and related costs associated with supporting the Company's
growth.

Total expenses increased from $13.3 million for the nine months ended September
30, 1997 to $21.2 million for the comparable period in 1998, representing an
increase of 59%, primarily as a result of the above factors.

As a result of the above factors, net income increased from $3.7 million for the
nine months ended September 30, 1997 to $12.5 million for the comparable period
in 1998, an increase of 238%.

THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997. Leases originated increased from $46.1 million for the three months
ended September 30, 1997 to $83.8 million for the comparable period in 1998. The
number of leases originated increased from 529 for the three months ended
September 30, 1997 to 954 for the comparable period in 1998.

Lease contract revenue increased from $3.5 million for the three months ended
September 30, 1997 to $4.4 million for the comparable period in 1998,
representing an increase of 26%. The increase in lease contract revenue was due
to the increase in the Company's average net investment in leases.

                                    Page 13
<PAGE>   16

Fee income increased from $288,000 for the three months ended September 30, 1997
to $839,000 for the comparable period in 1998, representing an increase of 253%.
This increase was due primarily to the Company's increased business activity of
charging fee income on lease transactions.

Servicing and other income increased from $168,000 for the three months ended
September 30, 1997 to $1.5 million for the comparable period in 1998,
representing an increase of 767%. This increase was related to an increase in
the serviced portfolio and interest income.

Total revenues increased from $8.5 million for the three months ended September
30, 1997 to $17.4 million for the comparable period in 1998, representing an
increase of 106%, primarily as a result of the above factors.

Interest expense directly associated with the Company's lease borrowings
increased from $1.9 million for the three months ended September 30, 1997 to
$2.2 million for the comparable period in 1998, representing an increase of 14%.
The increase in such interest expense was primarily due to the higher average
borrowings.

Compensation related expenses increased from $1.3 million for the three months
ended September 30, 1997 to $2.0 million for the comparable period in 1998,
representing an increase of 59%. The increase was due to increases in the number
of employees and compensation levels necessitated by the growth of the Company.

Amortization of initial direct costs increased from $558,000 for the three
months ended September 30, 1997 to $1.3 million for the comparable period in
1998, an increase of 128%, due primarily to the increase in investment in
leases.

The provisions for credit losses increased from $372,000 for the three months
ended September 30, 1997 to $883,000 for 1998, representing an increase of 137%.
This increase was due to increased originations and sale transactions.

General and administrative expenses, increased from $765,000 for the three
months ended September 30, 1997 to $2.8 million, representing an increase of
261%. The increase was due primarily to increased trustee and legal fees
incurred during the 1998 period, a significant portion of which relates to the
most recent securitization structure, and to increased occupancy and related
costs associated with supporting the Company's growth.

Total expenses increased from $4.9 million for the three months ended September
30, 1997 to $9.1 million for the comparable period in 1998, representing an
increase of 187%.

As a result of the above factors, net income increased from $2.0 million for the
three months ended September 30, 1997 to $4.5 million for the comparable period
in 1998, representing an increase of 125%.

LIQUIDITY AND CAPITAL RESOURCES

The Company requires a substantial amount of cash to implement its business
strategy. The Company funds its operations primarily through securitizations and
bank borrowings. The Company will continue 

                                    Page 14
<PAGE>   17

to require access to significant additional funding to maintain and expand its
volume of lease originations. The Company's most significant use of cash
includes the purchase of equipment subject to direct financing leases and the
principal payments on notes payable. The following table sets forth the major
components of the increase in cash and cash equivalents:
<TABLE>
<CAPTION>

                                                                   Nine Months Ended
                                                                     September 30,
                                                                1998               1997
                                                              --------           --------
<S>                                                           <C>                <C>     
Net cash provided by operating activities                     $  2,939           $ 14,985
Net cash provided by investing activities                       26,678             13,493
Net cash used for financing activities                         (42,199)           (27,295)
                                                              --------           --------
Net increase (decrease) in cash and cash equivalents          $(12,582)          $  1,183
                                                              ========           ========
</TABLE>


SECURITIZATIONS.

The Company has utilized several structures in its securitizations, each
designed to reduce the Company's cost of capital or improve upon existing
financing terms. Prior to 1997, the Company's securitizations, which did not
transfer control of the leases, were recorded as financings for financial
reporting purposes. Beginning in 1997, the Company's securitizations qualified
as sales for financial reporting purposes in accordance with the new accounting
standard for the transfer of financial assets, SFAS No. 125, as control of the
leases was transferred. Accordingly, gain on sale of leases was recognized
beginning in 1997. The Company's current lease securitization structure is a
commercial paper based conduit facility in which the Company contributes its
leases (including related residuals) to a special purpose limited liability
entity. Such entity sells the leases to an unaffiliated special purpose
corporate entity which administers a multi-seller commercial paper conduit.

From 1992 through September 30, 1998, the Company has completed the following
securitizations:

<TABLE>
<CAPTION>

                                                                                  SUBORDINATION LEVEL
    COMMENCEMENT                                                                 (EXCLUDING GUARANTEED
       DATE                          AMOUNT        RATING          AGENCY             RESIDUALS)
    ------------                     -----         ------          ------         ---------------------
<S>                               <C>              <C>           <C>               <C> 
April 1992.....................   $12.1 million     AA+          Duff & Phelps             20%
May 1993.......................    10.6 million     AAA/Aaa      S&P/Moody's               13%
June 1994......................    30.0 million     A-1/P-1      S&P/Moody's               13%
July 1995......................    90.0 million     AAA/Aaa      S&P/Moody's                8%
February 1997..................    61.6 million     AAA/Aaa      S&P/Moody's                8%
September 1997.................    74.3 million     AAA/BBB      Duff & Phelps              2%
March 1998.....................    86.0 million     AAA(93%)     Duff & Phelps/Fitch      2.5%
                                                    BBB(6%)
June 1998                         117.5 million     A-1/P-1      S&P/Moody's                 -
September 1998.................    77.4 million     AAA/Aaa      Duff & Phelps/Fitch      3.00
                                  -------------
TOTAL.....................       $559.5 million

</TABLE>


                                    Page 15
<PAGE>   18

The Company continually seeks to improve the efficiency of its securitizations
by reducing the Company's cost of capital or improving upon existing financing
terms. In the Company's latest securitization the subordination level was
insignificant when excluding guaranteed residuals and the spread was 45 basis
points over comparable United States Treasury securities. The effect of these
reduced subordination levels and spreads has been to decrease the effective cost
of the securitizations to the Company. 


Bank Lines of Credit and Other Credit Facilities. The Company uses bank lines of
credit to fund leases pending inclusion in the Company's securitizations and to
fund leases for retention in the Company's retained portfolio. Borrowings under
the lines of credit are repaid with the proceeds received by the Company from
securitizations and revenue received by the Company from retained leases. The
Company will seek to obtain replacement or additional sources of financing as
its current lines of credit expire or become fully utilized.

The Company currently maintains an aggregate of $157.5 million in secured lines
of credit to finance equipment purchases subject to on balance sheet direct
financing leases. At September 30, 1998, the Company had an aggregate of $105.6
million available under such lines of credit. These lines of credit include: (i)
a $75 million credit facility with Lehman Brothers, under which interest is
payable monthly at 80 basis points over LIBOR (this facility expires in July
1999, if not renewed); (ii) a $75 million credit facility with First Union, N.A.
under which interest is payable monthly at LIBOR plus 1.5% (this facility
expires in July 1999); (iii) a $7.5 million credit facility with First Union,
N.A. under which interest is payable monthly at LIBOR plus 2.0% (this facility
expires in July 1999). These lines of credit are secured by the on balance sheet
leases and guarantees from the minority member of T & W Financial Services
Company L.L.C. and senior management of the Company, and limit the amount of
funds which may be advanced to the Company to a percentage of the discounted
value of such leases. The Company also maintains an additional aggregate of $7.0
million in unsecured lines of credit from two banks and a credit arrangement
with PLM Consulting Group, L.L.C. to finance internal operations and the
purchase of leases prior to their securitization or placement on "lease-line"
secured credit facilities. At September 30, 1998, the Company had reached its
borrowing capacity under these unsecured lines.

The Company believes, based on its historical cash requirements and anticipated
uses of cash, that the cash currently available and the cash to be derived from
the Company's operating, investing and financing activities will be sufficient
to meet its cash requirements, and implement its business plan through the end
of 1998.


                                    Page 16
<PAGE>   19

YEAR 2000

The Company has been working with an external consultant and an internal
committee of employees to address the scope of its year 2000 issue and implement
any necessary resolutions.

The Company is making inquiries to customers and suppliers on which operation of
its business are critically dependent to determine their year 2000 readiness. An
analysis of the responses from software vendors and suppliers received so far
indicates substantial compliance with year 2000 issues, so that it currently
appears that any effect based on a third party's noncompliance would not be
material.

To date, the Company's major business systems have been reviewed and tested for
year 2000 compliance. Based on such review the Company believes that the
majority of all critical business systems appear to be year 2000 compliant. The
Company's estimates that its new lease servicing software will be chosen by the
end of the fourth quarter of fiscal year 1998 with implementation of the new
system to begin approximately in the first quarter of 1999. When the Company
migrates to a new accounting software package in the first quarter of 1999, all
critical business systems should be year 2000 compliant.

Over the past year, the Company has spent approximately $300,000 to upgrade all
of its computer hardware and networking software, and not solely to resolve
potential year 2000 problems. Although the Company has already upgraded its
hardware, the Company has still budgeted $250,000 over the next two years to
upgrade and fully integrate its software and business and processing systems to
maintain year 2000 compliance. Although no contingency plan has yet been created
by the Company to deal with potential year 2000 issues, it continues to assess
and analyze the potential effects from the year 2000 and will prepare such a
contingency plan if, based on its continuing review and analysis, the Company
believes one is warranted.


                                    Page 17
<PAGE>   20

                           Part II. Other Information


ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

(A)     EXHIBITS
        11.     Computation of Earnings Per Share is on page 4
        27.     Financial Data Schedule.

(B)     REPORTS ON FORM 8-K
        T&W Financial Corporation filed no reports on Form 8-K during the
        quarter ended September 30, 1998.

ITEMS 1 THROUGH 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.


                                    Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

T&W Financial Corporation


Date:  November 11, 1998                    By: /s/ Paul B. Luke
                                            Paul B. Luke
                                            Senior Vice President,
                                            Chief Financial Officer,
                                            Treasurer and Director


                                    Page 18