----

----

**Form        10-Q**

| T | QUARTERLY                  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE                  ACT OF                  1934 |
|---|---------------------------------------------------------------------------------------------------------------------------------------------|

**September        30, 2006**

| £ | TRANSITION                  REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF                  1934 |
|--------|--------------------------------------------------------------------------------------------------------------------|

| **TOWER                  FINANCIAL CORPORATION**                                         |
|------------------------------------------------------------------------------------------|
| (Exact                  name of Registrant as specified in its                  charter) |

| INDIANA                                                                         | 35-2051170                                            |
|---------------------------------------------------------------------------------|-------------------------------------------------------|
| (State                  or other jurisdiction of incorporation or organization) | (I.R.S.                  Employer Identification No.) |

| 116                  East Berry Street, Fort Wayne, Indiana 46802 |
|-------------------------------------------------------------------|
| (Address                  of principal executive offices)         |

| (260)                  427-7000                        |
|--------------------------------------------------------|
| (Registrant’s                  telephone number) |

| Yes                  T | No                  £ |
|------------------------|----------------------------|

| Large                  accelerated filer £ | Accelerated                  filer £ | Non-accelerated                  filer T |
|-------------------------------------------------|-------------------------------------------|------------------------------------------|

| Yes                  £ | No                  T |
|-----------------------------|-----------------------|

----

----

**1**

----

**Forward-Looking        Statements**

|   | — | Our                    dependence on key management                    personnel; |
|--------|---------|-----------------------------------------------------------------------------------|

|   | — | the                    risk of losses due to loan defaults by larger commercial loan                    customers or                    a significant number of borrowers; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | — | Our                    dependence on a favorable local economy in our primary service                    area; |
|--------|---------|----------------------------------------------------------------------------------------------------------------|

|   | — | the                    effect of government regulation on our ability to grow and                    compete; |
|--------|---------|---------------------------------------------------------------------------------------------------------------|

|   | — | the                    effect of changes in federal economic and monetary policies and                    local                    competition on our ability to attract deposits, make loans and                    achieve                    satisfactory interest spreads; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | — | general                    changes in economic conditions, including interest rates, interest                    rate                    spreads, and real estate values;                    and |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | — | restrictions                    imposed on the our by regulators or regulations of the financial                    services                    industry. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

**2**

----

**INDEX**

| **PART                  I. FINANCIAL INFORMATION**                                                                                                                                                            |                      |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|
|                                                                                                                                                                                                          |                      |
| Item                  1.Financial Statements                                                                                                                                                                  | page                  no. |
|                                                                                                                                                                                                          |                      |
| Consolidated                  Condensed Balance Sheets at September 30, 2006 (unaudited) and                  December                  31, 2005                                                              | 4                         |
|                                                                                                                                                                                                          |                      |
| Consolidated                  Condensed Statements of Operations for the three and nine months                  ended                  September 30, 2006 and September 30, 2005 (unaudited)                  | 5                         |
|                                                                                                                                                                                                          |                      |
| Consolidated                  Condensed Statements of Changes in Stockholders’ Equity for the nine                  months ended September 30, 2006 and September 30, 2005                  (unaudited) | 6                         |
|                                                                                                                                                                                                          |                      |
| Consolidated                  Condensed Statements of Cash Flows for the nine months ended September                  30,                  2006 and September 30, 2005 (unaudited)                            | 7                         |
|                                                                                                                                                                                                          |                      |
| Notes                  to Consolidated Condensed Financial Statements                  (unaudited)                                                                                                            | 8                         |
|                                                                                                                                                                                                          |                      |
| Item                  2. Management’s Discussion and Analysis of Financial Condition and Results                  of Operations                                                                         | 11                        |
|                                                                                                                                                                                                          |                      |
| Item                  3. Quantitative and Qualitative Disclosures About Market Risk                                                                                                                           | 19                        |
|                                                                                                                                                                                                          |                      |
| Item                  4. Controls and Procedures                                                                                                                                                              | 21                        |
|                                                                                                                                                                                                          |                      |
| **PART                  II. OTHER INFORMATION**                                                                                                                                                               |                      |
|                                                                                                                                                                                                          |                      |
| Item                  1. Legal Proceedings                                                                                                                                                                    | 22                        |
|                                                                                                                                                                                                          |                      |
| Item                  6. Exhibits                                                                                                                                                                             | 22                        |
|                                                                                                                                                                                                          |                      |
| **SIGNATURES**                                                                                                                                                                                                | 22                        |

**3**

----

*Index*

**PART        I. FINANCIAL INFORMATION **

**Item        1. FINANCIAL STATEMENTS**

**Tower        Financial Corporation**

**Consolidated        Condensed Balance Sheets**

|                                                                                                                                                                                                                             |   | *(unaudited)***September                  30****2006** |        | **December                  31,****2005** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------|-------------|-------------------------------------------|--------|
| **ASSETS**                                                                                                                                                                                                                       |   |                                                   |        |                                      |   |
| Cash                  and due from banks                                                                                                                                                                                         |   | $                                                      | 17,722,973  |                                      | $      | 14,326,710 |   |
| Short-term                  investments and interest-earning deposits                                                                                                                                                            |   |                                                   | 5,251,446   |                                      |   | 16,393,439 |   |
| Federal                  funds sold                                                                                                                                                                                              |   |                                                   | 5,903,441   |                                      |   | 7,188,188 |   |
| Total                  cash and cash equivalents                                                                                                                                                                                 |   |                                                   | 28,877,860  |                                      |   | 37,908,337 |   |
| Securities                  available for sale, at fair value                                                                                                                                                                    |   |                                                   | 59,668,043  |                                      |   | 50,642,276 |   |
| FHLB                  and FRB stock                                                                                                                                                                                              |   |                                                   | 3,233,800   |                                      |   | 3,421,300 |   |
| Loans                                                                                                                                                                                                                            |   |                                                   | 533,057,067 |                                      |   | 450,390,935 |   |
| Allowance                  for loan losses                                                                                                                                                                                       |   |                                                   | (6,580,761  | )                                         |   | (5,645,301 | ) |
| Net                  loans                                                                                                                                                                                                       |   |                                                   | 526,476,306 |                                      |   | 444,745,634 |   |
| Premises                  and equipment, net                                                                                                                                                                                     |   |                                                   | 5,856,732   |                                      |   | 4,638,436 |   |
| Accrued                  interest receivable                                                                                                                                                                                     |   |                                                   | 3,341,940   |                                      |   | 2,802,189 |   |
| Bank                  owned life insurance                                                                                                                                                                                       |   |                                                   | 10,752,278  |                                      |   | 10,462,402 |   |
| Other                  assets                                                                                                                                                                                                    |   |                                                   | 5,554,624   |                                      |   | 3,200,086 |   |
|                                                                                                                                                                                                                             |   |                                                   |        |                                      |   |   |   |
| Total                  assets                                                                                                                                                                                                    |   | $                                                      | 643,761,583 |                                      | $      | 557,820,660 |   |
|                                                                                                                                                                                                                             |   |                                                   |        |                                      |   |   |   |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY**                                                                                                                                                                        |   |                                                   |        |                                      |   |   |   |
| LIABILITIES                                                                                                                                                                                                                      |   |                                                   |        |                                      |   |   |   |
| Deposits:                                                                                                                                                                                                                        |   |                                                   |        |                                      |   |   |   |
| Noninterest-bearing                                                                                                                                                                                                              |   | $                                                      | 77,229,926  |                                      | $      | 66,742,748 |   |
| Interest-bearing                                                                                                                                                                                                                 |   |                                                   | 477,105,510 |                                      |   | 394,208,113 |   |
| Total                  deposits                                                                                                                                                                                                  |   |                                                   | 554,335,436 |                                      |   | 460,950,861 |   |
| Federal                  Home Loan Bank (FHLB) advances                                                                                                                                                                          |   |                                                   | 23,700,000  |                                      |   | 34,700,000 |   |
| Junior                  subordinated debt                                                                                                                                                                                        |   |                                                   | 11,856,000  |                                      |   | 11,856,000 |   |
| Accrued                  interest payable                                                                                                                                                                                        |   |                                                   | 1,533,680   |                                      |   | 954,075 |   |
| Other                  liabilities                                                                                                                                                                                               |   |                                                   | 2,404,201   |                                      |   | 2,091,670 |   |
|                                                                                                                                                                                                                             |   |                                                   |        |                                      |   |   |   |
| Total                  liabilities                                                                                                                                                                                               |   |                                                   | 593,829,317 |                                      |   | 510,552,606 |   |
|                                                                                                                                                                                                                             |   |                                                   |        |                                      |   |   |   |
| STOCKHOLDERS'                  EQUITY                                                                                                                                                                                            |   |                                                   |        |                                      |   |   |   |
| Preferred                  stock, no par value, 4,000,000 shares authorized; no shares issued                  and                  outstanding                                                                                  |   |                                                   |        |                                      |   |   |   |
| Common                  stock and paid-in-capital, no par value, 6,000,000 shares authorized;                  4,025,560 shares issued and outstanding at September 30, 2006 and                  4,007,936 at December 31, 2005 |   |                                                   | 38,308,319  |                                      |   | 38,006,929 |   |
| Retained                  earnings                                                                                                                                                                                               |   |                                                   | 11,877,051  |                                      |   | 9,478,812 |   |
| Accumulated                  other comprehensive income(loss), net of tax of $(130,385) at September                  30, 2006 and $(122,448) at December 31, 2005                                                               |   |                                                   | (253,104    | )                                         |   | (217,687 | ) |
| Total                  stockholders' equity                                                                                                                                                                                      |   |                                                   | 49,932,266  |                                      |   | 47,268,054 |   |
|                                                                                                                                                                                                                             |   |                                                   |        |                                      |   |   |   |
| Total                  liabilities and stockholders' equity                                                                                                                                                                      |   | $                                                      | 643,761,583 |                                      | $      | 557,820,660 |   |

*The        following notes are an integral part of the financial        statements.*

**4**

----

*Index*

**Tower        Financial Corporation**

**Consolidated        Condensed Statements of Operations**

|                                                                                                     |   | *(unaudited)***Three                  Months ended****September                  30** |       | **Nine                  Months Ended****September                  30** |   |
|----------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|--------|
|                                                                                                     |   | **2006**                                                                              |       | **2005**                                                                |   | **2006** |   | **2005** |   |
| **Interest                  income:**                                                                    |   |                                                                                  |       |                                                                    |   |   |   |   |   |
| Loans,                  including fees                                                                   |   | $                                                                                     | 10,040,721 |                                                                    | $      | 7,084,500 |   | $ | 27,264,488 |   | $ | 19,217,557 |   |
| Securities                  - taxable                                                                    |   |                                                                                  | 565,520    |                                                                    |   | 225,580 |   |   | 1,580,679 |   |   | 704,128 |   |
| Securities                  - tax exempt                                                                 |   |                                                                                  | 181,699    |                                                                    |   | 131,878 |   |   | 498,954 |   |   | 401,239 |   |
| Other                  interest income                                                                   |   |                                                                                  | 117,457    |                                                                    |   | 150,666 |   |   | 425,374 |   |   | 354,453 |   |
| Total                  interest income                                                                   |   |                                                                                  | 10,905,397 |                                                                    |   | 7,592,624 |   |   | 29,769,495 |   |   | 20,677,377 |   |
| **Interest                  expense:**                                                                   |   |                                                                                  |       |                                                                    |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                                 |   |                                                                                  | 5,142,295  |                                                                    |   | 2,836,590 |   |   | 13,125,563 |   |   | 6,994,033 |   |
| Short-term                  borrowings                                                                   |   |                                                                                  | -          |                                                                    |   |   |   |   |   |   |   | 289 |   |
| FHLB                  advances                                                                           |   |                                                                                  | 372,355    |                                                                    |   | 221,888 |   |   | 1,093,602 |   |   | 649,993 |   |
| Junior                  subordinated debt                                                                |   |                                                                                  | 209,230    |                                                                    |   | 81,180 |   |   | 627,692 |   |   | 243,540 |   |
| Total                  interest expense                                                                  |   |                                                                                  | 5,723,880  |                                                                    |   | 3,139,658 |   |   | 14,846,857 |   |   | 7,887,855 |   |
| Net                  interest income                                                                     |   |                                                                                  | 5,181,517  |                                                                    |   | 4,452,966 |   |   | 14,922,638 |   |   | 12,789,522 |   |
| **Provision                  for loan losses**                                                           |   |                                                                                  | 645,000    |                                                                    |   | 600,000 |   |   | 1,695,000 |   |   | 1,717,000 |   |
| Net                  interest income after provision for loan losses                                     |   |                                                                                  | 4,536,517  |                                                                    |   | 3,852,966 |   |   | 13,227,638 |   |   | 11,072,522 |   |
| **Noninterest                  income:**                                                                 |   |                                                                                  |       |                                                                    |   |   |   |   |   |   |   |   |   |
| Trust                  and brokerage fees                                                                |   |                                                                                  | 717,772    |                                                                    |   | 541,191 |   |   | 2,112,270 |   |   | 1,579,775 |   |
| Service                  charges                                                                         |   |                                                                                  | 174,943    |                                                                    |   | 232,195 |   |   | 494,806 |   |   | 549,632 |   |
| Loan                  broker fees                                                                        |   |                                                                                  | 25,955     |                                                                    |   | 64,723 |   |   | 60,983 |   |   | 175,518 |   |
| Other                  fees                                                                              |   |                                                                                  | 340,015    |                                                                    |   | 309,108 |   |   | 1,077,690 |   |   | 750,059 |   |
| Total                  noninterest income                                                                |   |                                                                                  | 1,258,685  |                                                                    |   | 1,147,217 |   |   | 3,745,749 |   |   | 3,054,984 |   |
| **Noninterest                  expense:**                                                                |   |                                                                                  |       |                                                                    |   |   |   |   |   |   |   |   |   |
| Salaries                  and benefits                                                                   |   |                                                                                  | 2,685,003  |                                                                    |   | 2,154,043 |   |   | 7,752,658 |   |   | 6,142,586 |   |
| Occupancy                  and equipment                                                                 |   |                                                                                  | 555,323    |                                                                    |   | 447,331 |   |   | 1,547,168 |   |   | 1,344,588 |   |
| Marketing                                                                                                |   |                                                                                  | 146,472    |                                                                    |   | 115,340 |   |   | 443,108 |   |   | 425,083 |   |
| Data                  processing                                                                         |   |                                                                                  | 177,223    |                                                                    |   | 111,974 |   |   | 500,834 |   |   | 335,894 |   |
| Loan                  and professional costs                                                             |   |                                                                                  | 197,917    |                                                                    |   | 271,081 |   |   | 747,701 |   |   | 665,229 |   |
| Office                  supplies and postage                                                             |   |                                                                                  | 104,643    |                                                                    |   | 75,638 |   |   | 333,739 |   |   | 216,681 |   |
| Courier                  services                                                                        |   |                                                                                  | 91,687     |                                                                    |   | 83,308 |   |   | 271,332 |   |   | 246,004 |   |
| Business                  development                                                                    |   |                                                                                  | 146,947    |                                                                    |   | 108,733 |   |   | 390,402 |   |   | 305,474 |   |
| Other                  expense                                                                           |   |                                                                                  | 312,001    |                                                                    |   | 210,805 |   |   | 873,635 |   |   | 602,564 |   |
| Total                  noninterest expense                                                               |   |                                                                                  | 4,417,216  |                                                                    |   | 3,578,253 |   |   | 12,860,577 |   |   | 10,284,103 |   |
| **Income                  before income taxes**                                                          |   |                                                                                  | 1,377,986  |                                                                    |   | 1,421,930 |   |   | 4,112,810 |   |   | 3,843,403 |   |
| Income                  taxes expense                                                                    |   |                                                                                  | 405,020    |                                                                    |   | 489,270 |   |   | 1,232,710 |   |   | 1,342,320 |   |
| **Net                  income**                                                                          |   | $                                                                                     | 972,966    |                                                                    | $      | 932,660 |   | $ | 2,880,100 |   | $ | 2,501,083 |   |
|                                                                                                     |   |                                                                                  |       |                                                                    |   |   |   |   |   |   |   |   |   |
| **Basic                  earnings per common share**                                                     |   | $                                                                                     | 0.24       |                                                                    | $      | 0.23 |   | $ | 0.72 |   | $ | 0.62 |   |
| **Diluted                  earnings per common share**                                                   |   | $                                                                                     | 0.24       |                                                                    | $      | 0.23 |   | $ | 0.70 |   | $ | 0.61 |   |
| Average                  common shares outstanding                                                       |   |                                                                                  | 4,022,087  |                                                                    |   | 4,007,697 |   |   | 4,015,867 |   |   | 4,005,575 |   |
| Average                  common shares and dilutive potential common shares                  outstanding |   |                                                                                  | 4,123,789  |                                                                    |   | 4,093,426 |   |   | 4,134,172 |   |   | 4,078,027 |   |
| Dividends                  declared per share                                                            |   | $                                                                                     | 0.04       |                                                                    |   | n/a |   | $ | 0.12 |   |   | n/a |   |

*The        following notes are an integral part of the financial        statements*

**5**

----

*Index*

**Tower        Financial Corporation**

**Consolidated        Condensed Statements of Changes in Stockholders’ Equity **

*(unaudited)*

|                                                                                                                                                                    |   | **Common****Stock                    and****Paid-in****Capital** |       | **Retained****Earnings** |   | **Accumulated****Other****Comprehensive****Income                    (Loss)** |   | **Total** |     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|------------|--------------------------|--------|-------------------------------------------------------------------------------|--------|-----------|----------|
|                                                                                                                                                                    |   |                                                             |       |                     |   |                                                                          |   |      |     |
| **Balance,                    January 1, 2005**                                                                                                                         |   | $                                                                | 37,952,860 |                     | $      | 6,040,155                                                                     |   | $         | 20,455   |   | $ | 44,013,470 |   |
|                                                                                                                                                                    |   |                                                             |       |                     |   |                                                                          |   |      |     |   |   |   |   |
| Net                    income for 2005                                                                                                                                  |   |                                                             |       |                     |   | 2,501,083                                                                     |   |      |     |   |   | 2,501,083 |   |
|                                                                                                                                                                    |   |                                                             |       |                     |   |                                                                          |   |      |     |   |   |   |   |
| Change                    in net unrealized appreciation (depreciation) on securities available                    for                    sale, net of tax of $(25,449) |   |                                                             |       |                     |   |                                                                          |   |      | (31,869  | ) |   | (31,869 | ) |
|                                                                                                                                                                    |   |                                                             |       |                     |   |                                                                          |   |      |     |   |   |   |   |
| Total                    Comprehensive Income                                                                                                                           |   |                                                             |       |                     |   |                                                                          |   |      |     |   |   | 2,469,214 |   |
|                                                                                                                                                                    |   |                                                             |       |                     |   |                                                                          |   |      |     |   |   |   |   |
| Issuance                    of 4,780 shares of common stock for stock options exercised including                    tax                    benefit                     |   |                                                             | 54,070     |                     |   |                                                                          |   |      |     |   |   | 54,070 |   |
|                                                                                                                                                                    |   |                                                             |       |                     |   |                                                                          |   |      |     |   |   |   |   |
| **Balance,                    September 30, 2005**                                                                                                                      |   | $                                                                | 38,006,930 |                     | $      | 8,541,238                                                                     |   | $         | (11,414  | ) | $ | 46,536,754 |   |
|                                                                                                                                                                    |   |                                                             |       |                     |   |                                                                          |   |      |     |   |   |   |   |
| **Balance,                    January 1, 2006**                                                                                                                         |   | $                                                                | 38,006,929 |                     | $      | 9,478,812                                                                     |   | $         | (217,687 | ) | $ | 47,268,054 |   |
|                                                                                                                                                                    |   |                                                             |            |                     |   |                                                                          |   |      |     |   |   |   |   |
| Net                    income for 2006                                                                                                                                  |   |                                                             |       |                     |   | 2,880,100                                                                     |   |      |     |   |   | 2,880,100 |   |
|                                                                                                                                                                    |   |                                                             |       |                     |   |                                                                          |   |      |     |   |   |   |   |
| Change                    in net unrealized appreciation (depreciation) on derivitive instruments,                    net of tax of $22,440                             |   |                                                             |       |                     |   |                                                                          |   | $         | 43,560   |   |   | 43,560 |   |
|                                                                                                                                                                    |   |                                                             |       |                     |   |                                                                          |   |      |     |   |   |   |   |
| Change                    in net unrealized appreciation (depreciation) on securities available                    for                    sale, net of tax of $(30,377) |   |                                                             |       |                     |   |                                                                          |   |      | (78,977  | ) |   | (78,977 | ) |
| Total                    Comprehensive Income                                                                                                                           |   |                                                             |       |                     |   |                                                                          |   |      |     |   |   | 2,844,683 |   |
|                                                                                                                                                                    |   |                                                             |       |                     |   |                                                                          |   |      |     |   |   |   |   |
| Cash                    dividends paid ($0.12 per share)                                                                                                                |   |                                                             |       |                     |   | (481,861                                                                      | )      |      |     |   |   | (481,861 | ) |
|                                                                                                                                                                    |   |                                                             |       |                     |   |                                                                          |   |      |     |   |   |   |   |
| Issuance                    of 17,874 shares of common stock for stock options exercised,                    including                    tax benefit                   |   |                                                             | 217,093    |                     |   |                                                                          |   |      |     |   |   | 217,093 |   |
|                                                                                                                                                                    |   |                                                             |       |                     |   |                                                                          |   |      |     |   |   |   |   |
| Stock                    option compensation expense                                                                                                                    |   |                                                             | 84,297     |                     |   |                                                                          |   |      |     |   |   | 84,297 |   |
|                                                                                                                                                                    |   |                                                             |       |                     |   |                                                                          |   |      |     |   |   |   |   |
| **Balance,                    September 30, 2006**                                                                                                                      |   | $                                                                | 38,308,319 |                     | $      | 11,877,051                                                                    |   | $         | (253,104 | ) | $ | 49,932,266 |   |

| *The                  following notes are an integral part of the financial                  statements.* |
|-----------------------------------------------------------------------------------------------------------|

**6**

----

*Index*

**Tower        Financial Corporation**

**Consolidated        Condensed Statements of Cash Flows**

|                                                                                                         |   | *(unaudited)***Nine                  Months ended****September                  30, 2006** |        | *(unaudited)***Nine                  Months ended****September                  30, 2005** |   |
|--------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------|-------------|--------------------------------------------------------------------------------------------|--------|
| **Cash                  flows from operating activities:**                                                   |   |                                                                                       |        |                                                                                       |   |
| Net                  income                                                                                  |   | $                                                                                          | 2,880,100   |                                                                                       | $      | 2,501,083 |   |
| Adjustments                  to reconcile net income to net cash from operating                  activities: |   |                                                                                       |        |                                                                                       |   |   |   |
| Depreciation                  and amortization                                                               |   |                                                                                       | 403,893     |                                                                                       |   | 502,744 |   |
| Provision                  for loan losses                                                                   |   |                                                                                       | 1,695,000   |                                                                                       |   | 1,717,000 |   |
| Stock                  option compensation expense                                                           |   |                                                                                       | 84,297      |                                                                                       |   |   |   |
| Earnings                  on life insurance                                                                  |   |                                                                                       | (289,876    | )                                                                                          |   | (158,692 | ) |
| FHLB                  stock dividend                                                                         |   |                                                                                       |        |                                                                                       |   | (38,800 | ) |
| Change                  in accrued interest receivable                                                       |   |                                                                                       | (539,751    | )                                                                                          |   | (193,268 | ) |
| Change                  in other assets                                                                      |   |                                                                                       | (2,346,601  | )                                                                                          |   | (176,964 | ) |
| Change                  in accrued interest payable                                                          |   |                                                                                       | 579,605     |                                                                                       |   | 218,124 |   |
| Change                  in other liabilities                                                                 |   |                                                                                       | 312,531     |                                                                                       |   | 615,638 |   |
| Net                  cash from operating activities                                                          |   |                                                                                       | 2,779,198   |                                                                                       |   | 4,986,865 |   |
| **Cash                  flows from investing activities:**                                                   |   |                                                                                       |        |                                                                                       |   |   |   |
| Net                  change in loans                                                                         |   |                                                                                       | (81,680,146 | )                                                                                          |   | (47,346,046 | ) |
| Purchase                  of loans                                                                           |   |                                                                                       | (13,825,907 | )                                                                                          |   |   |   |
| Purchase                  of securities available for sale                                                   |   |                                                                                       | (12,227,676 | )                                                                                          |   | (5,525,771 | ) |
| Proceeds                  from maturities of securities available for sale                                   |   |                                                                                       | 3,136,119   |                                                                                       |   | 4,763,139 |   |
| Sale/(Purchase)                  of FHLB and FRB stock                                                       |   |                                                                                       | 187,500     |                                                                                       |   | (150,000 | ) |
| Purchase                  of life insurance                                                                  |   |                                                                                       |        |                                                                                       |   | (7,000,000 | ) |
| Proceeds                  from sale of participation loans                                                   |   |                                                                                       | 12,102,817  |                                                                                       |   | 2,995,757 |   |
| Purchase                  of premises and equipment                                                          |   |                                                                                       | (1,622,189  | )                                                                                          |   | (1,396,244 | ) |
| Net                  cash from investing activities                                                          |   |                                                                                       | (93,929,482 | )                                                                                          |   | (53,659,165 | ) |
| **Cash                  flows from financing activities:**                                                   |   |                                                                                       |        |                                                                                       |   |   |   |
| Net                  change in deposits                                                                      |   |                                                                                       | 93,384,575  |                                                                                       |   | 81,158,198 |   |
| Net                  change in short-term borrowings                                                         |   |                                                                                       |        |                                                                                       |   | (200,000 | ) |
| Cash                  dividends paid                                                                         |   |                                                                                       | (481,861    | )                                                                                          |   |   |   |
| Proceeds                  from issuance of common stock from exercise of stock                  options      |   |                                                                                       | 185,356     |                                                                                       |   | 49,803 |   |
| Tax                  benefit from issuance of common stock                                                   |   |                                                                                       | 31,737      |                                                                                       |   | 4,267 |   |
| Proceeds                  from FHLB advances                                                                 |   |                                                                                       | 72,500,000  |                                                                                       |   | 10,900,000 |   |
| Repayment                  of FHLB advances                                                                  |   |                                                                                       | (83,500,000 | )                                                                                          |   | (33,700,000 | ) |
| Net                  cash from financing activities                                                          |   |                                                                                       | 82,119,807  |                                                                                       |   | 58,212,268 |   |
| **Net                  change in cash and cash equivalents**                                                 |   |                                                                                       | (9,030,477  | )                                                                                          |   | 9,539,968 |   |
| Cash                  and cash equivalents, beginning of period                                              |   |                                                                                       | 37,908,337  |                                                                                       |   | 37,225,025 |   |
| **Cash                  and cash equivalents, end of period**                                                |   | $                                                                                          | 28,877,860  |                                                                                       | $      | 46,764,993 |   |
|                                                                                                         |   |                                                                                       |        |                                                                                       |   |   |   |
| Supplemental                  disclosures of cash flow information                                           |   |                                                                                       |        |                                                                                       |   |   |   |
| Cash                  paid during the year for:                                                              |   |                                                                                       |        |                                                                                       |   |   |   |
| Interest                                                                                                     |   | $                                                                                          | 14,252,943  |                                                                                       | $      | 7,669,731 |   |
| Income                  taxes                                                                                |   |                                                                                       | 2,080,141   |                                                                                       |   | 1,614,349 |   |

*The        following notes are an integral part of the financial        statements.*

**7**

----

*Index*

**Tower        Financial Corporation**

**Notes        to Consolidated Condensed Financial Statements**

**Note1        -- Summary of Significant Accounting        Policies**

|   | **a.** | **Organization**:                  Tower Financial Corporation, collectively with its subsidiaries,                  the                  “Company,” was incorporated as an Indiana corporation on July 8, 1998. The                  Company is a holding company with one bank subsidiary, Tower Bank&                  Trust (or the “Bank”), a newly formed (effective January 1, 2006) trust                  company, Tower Trust Company, (or the “Trust Company”), two unconsolidated                  subsidiary guarantor trusts, Tower Capital Trust 1 and Tower Capital                  Trust                  2, and a newly formed (effective July 1, 2006) subsidiary of the                  Bank,                  Tower Capital Investments, Inc. (“Investment Company”), which in turn                  formed and wholly owns a real estate investment subsidiary, Tower                  Funding                  Corp. (“REIT”). The Bank is an Indiana chartered bank with depository                  accounts insured by the Federal Deposit Insurance Corporation (“FDIC”) and                  is a member of the Federal Reserve System. The Trust Company is                  an Indiana                  Corporation, and Tower Capital Trust 1 and Tower Capital Trust                  2 are                  unconsolidated, wholly owned Delaware statutory business trusts                  formed in                  November 2001 and December 2005, respectively, for the exclusive                  purpose                  of issuing and selling trust preferred securities. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **b.** | **Basis                  of Presentation:**The                  accompanying unaudited consolidated condensed financial statements                  were                  prepared in accordance with generally accepted accounting principles                  for                  interim periods and with instructions for Form 10-Q and, therefore,                  do not                  include all disclosures required by generally accepted accounting                  principles for complete presentation of the Company’s financial                  statements. In the opinion of management, the unaudited consolidated                  condensed financial statements contain all adjustments necessary                  to                  present fairly its consolidated financial position at September                  30, 2006                  and its consolidated results of operations, comprehensive income,                  changes                  in stockholders’ equity and cash flows for the three and nine-month                  periods ended September 30, 2006 and September 30, 2005. The results                  for                  the period ended September 30, 2006 should not be considered as                  indicative                  of results for a full year. These consolidated condensed financial                  statements should be read in conjunction with the audited financial                  statements for the years ended December 31, 2005, 2004, and 2003                  and                  related notes included in the Company’s Annual Report on Form 10-K for the                  year ended December 31, 2005. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **c.** | **Principles                  of Consolidation:**The                  accompanying consolidated condensed financial statements include                  the                  accounts of the Company and its subsidiaries. All significant intercompany                  accounts and transactions have been eliminated in consolidation. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **d.** | **Stock                  Compensation**:                  Prior to January 1, 2006, the Company accounted for its stock-based                  employee compensation under the recognition and measurement principles                  of                  APB Opinion 25, *Accounting                  for Stock Issued to Employees*,                  and related interpretations. No stock-based employee compensation                  cost is                  reflected in the income statements for the periods ending December                  31,                  2005, or before. Effective January 1, 2006, the Company adopted                  Statement                  of Financial Accounting Standards (“SFAS”) No. 123(R), *Share-based                  Payment*,                  utilizing the modified prospective method, and has included stock-based                  employee compensation expense of $84,297 in its income statement                  for the                  nine months ended September 30,                  2006. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**8**

----

*Index*

|                                                                                                                |   | **Three                  Months Ended****September                  30** |    | **Nine                  Months Ended****September                  30** |   |
|---------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|---------|-------------------------------------------------------------------------|--------|
|                                                                                                                |   | **2006**                                                                 |    | **2005**                                                                |   | **2006** |   | **2005** |   |
|                                                                                                                |   |                                                                     |    |                                                                    |   |   |   |   |   |
| Net                  income as reported                                                                             |   | $                                                                        | 972,966 |                                                                    | $      | 932,660 |   | $ | 2,880,100 |   | $ | 2,501,086 |   |
| Deduct:                  Stock-based compensation expense determined under fair value-based                  method |   |                                                                     |    |                                                                    |   | (32,245 | ) |   |   |   |   | (106,677 | ) |
| Pro                  forma net income                                                                               |   | $                                                                        | 972,966 |                                                                    | $      | 900,415 |   | $ | 2,880,100 |   | $ | 2,394,409 |   |
|                                                                                                                |   |                                                                     |    |                                                                    |   |   |   |   |   |   |   |   |   |
| Basic                  earnings per share as reported                                                               |   | $                                                                        | 0.24    |                                                                    | $      | 0.22 |   | $ | 0.72 |   | $ | 0.60 |   |
| Pro                  forma basic earnings per share                                                                 |   |                                                                     | n/a     |                                                                    |   | 0.22 |   |   | n/a |   |   | 0.60 |   |
| Diluted                  earnings per share as reported                                                             |   |                                                                     | 0.24    |                                                                    |   | 0.22 |   |   | 0.70 |   |   | 0.59 |   |
| Pro                  forma diluted earnings per share                                                               |   |                                                                     | n/a     |                                                                    |   | 0.22 |   |   | n/a |   |   | 0.59 |   |

|   | **e.** | **Effect                  of Newly Issued But Not Yet Effective Accounting                  Standards:**                  In                  June 2006, the FASB issued Interpretation No. 48, Accounting for                  Uncertainty in Income Taxes - an Interpretation of FASB Statement                  No. 109                  (FIN 48, which clarifies the accounting for uncertainty in income                  taxes                  recognized in a company’s financial statements in accordance with SFAS                  109, Accounting for Income Taxes. FIN 48 prescribes a recognition                  and                  measurement threshold for a tax position taken or expected to be                  taken in                  a tax return. FIN 48 also provides guidance on derecognition,                  classification, interest and penalties, accounting for interim                  periods,                  disclosure, and transition. FIN 48 is effective for fiscal years                  beginning                  after December 15, 2006. The Company has not yet completed its                  evaluation                  of the impact of the adoption of FIN                  48. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **f.** | **Reclassifications:**                  Certain items from the prior period financial statements were reclassified                  to conform to the current                  presentation. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Note        2 - Earnings Per Share**

|                                                                                                                  |   | **Three                    Months Ended****September                    30** |      | **Nine                    Months Ended****September                    30** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|-----------|-----------------------------------------------------------------------------|--------|
|                                                                                                                  |   | **2006**                                                                     |      | **2005**                                                                    |   | **2006** |   | **2005** |   |
| **Basic**                                                                                                             |   |                                                                         |      |                                                                        |   |   |   |   |   |
| Net                    income                                                                                         |   | $                                                                            | 972,966   |                                                                        | $      | 932,660 |   | $ | 2,880,100 |   | $ | 2,501,083 |   |
| Weighted                    average common shares outstanding                                                         |   |                                                                         | 4,022,087 |                                                                        |   | 4,007,697 |   |   | 4,015,867 |   |   | 4,005,572 |   |
| Basic                    earnings per common share                                                                    |   | $                                                                            | 0.24      |                                                                        | $      | 0.23 |   | $ | 0.72 |   | $ | 0.62 |   |
|                                                                                                                  |   |                                                                         |      |                                                                        |   |   |   |   |   |   |   |   |   |
| **Diluted**                                                                                                           |   |                                                                         |      |                                                                        |   |   |   |   |   |   |   |   |   |
| Net                    income                                                                                         |   | $                                                                            | 972,966   |                                                                        | $      | 932,660 |   | $ | 2,880,100 |   | $ | 2,501,083 |   |
| Weighted                    average common shares outstanding                                                         |   |                                                                         | 4,022,087 |                                                                        |   | 4,007,697 |   |   | 4,015,867 |   |   | 4,005,572 |   |
| Add:                    dilutive effect of assumed stock option exercises                                             |   |                                                                         | 101,702   |                                                                        |   | 85,729 |   |   | 118,305 |   |   | 72,455 |   |
| Weighted                    average common shares and dilutive potential common shares                    outstanding |   |                                                                         | 4,123,789 |                                                                        |   | 4,093,426 |   |   | 4,134,172 |   |   | 4,078,027 |   |
| Diluted                    earnings per common share                                                                  |   | $                                                                            | 0.24      |                                                                        | $      | 0.23 |   | $ | 0.70 |   | $ | 0.61 |   |

**9**

----

*Index*

**Note        3 - Stock Option Plans**

|                                         | 2006   | 2005                             |
|----------------------------------------------|--------|----------------------------------|
| Expected                  volatility         | n/a    | 26.29%                  - 26.65% |
|                                         |   |                             |
| Weighted-average                  volatility | n/a    | 26.39%                           |
|                                         |   |                             |
| Expected                  dividends          | n/a    | n/a                              |
|                                         |   |                             |
| Expected                  term (in years)    | n/a    | 7                  years         |
|                                         |   |                             |
| Risk-free                  rate              | n/a    | 4.1%                             |

| Options                                 |   | Shares |    | WeightedAverageExercisePrice |   | Weighted-AverageRemainingContractualTerm |   | AggregateIntrinsicValue |   |
|-----------------------------------------|--------|--------|---------|------------------------------|--------|------------------------------------------|--------|-------------------------|--------|
|                                    |   |   |    |                         |   |                                     |   |                    |   |
| Outstanding                  at 1/1/06  |   |   | 352,296 |                         | $      | 11.21                                    |   |                    |   |   |   |   |   |
|                                    |   |   |    |                         |   |                                     |   |                    |   |   |   |   |   |
| Granted                                 |   |   | 0       |                         |   |                                     |   |                    |   |   |   |   |   |
|                                    |   |   |    |                         |   |                                     |   |                    |   |   |   |   |   |
| Exercised                               |   |   | (17,874 | )                            | $      | 10.37                                    |   |                    |   |   |   |   |   |
|                                    |   |   |    |                         |   |                                     |   |                    |   |   |   |   |   |
| Forfeited                  or expired   |   |   | (1,500  | )                            | $      | 13.50                                    |   |                    |   |   |   |   |   |
|                                    |   |   |    |                         |   |                                     |   |                    |   |   |   |   |   |
| Outstanding                  at 9/30/06 |   |   | 332,922 |                         | $      | 11.25                                    |   |                    | 4.11   |   | $ | 2,273,371 |   |
|                                    |   |   |    |                         |   |                                     |   |                    |   |   |   |   |   |
| Exercisable                  at 9/30/06 |   |   | 285,687 |                         | $      | 10.66                                    |   |                    | 4.11   |   | $ | 2,179,792 |   |

**10**

----

*Index*

| Non-vested                  shares    |   | Shares |    | Weighted-AverageGrant-DateFair                  Value |   |
|---------------------------------------|--------|--------|---------|-------------------------------------------------------|--------|
|                                  |   |   |    |                                                  |   |
| Nonvested                  at 1/1/06  |   |   | 69,522  |                                                  | $      | 14.40 |   |
|                                  |   |   |    |                                                  |   |   |   |
| Granted                               |   |   | 0       |                                                  |   |   |   |
|                                  |   |   |    |                                                  |   |   |   |
| Vested                                |   |   | (22,287 | )                                                     | $      | 13.60 |   |
|                                  |   |   |    |                                                  |   |   |   |
| Nonvested                  at 6/30/06 |   |   | 47,235  |                                                  | $      | 14.78 |   |

**Note        4 - Derivative Instruments**

**Item        2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL        CONDITION AND RESULTS OF OPERATIONS**

**Critical        Accounting Policies**

**11**

----

*Index*

**Financial        Condition**

*Cash        and Investments*

*Loans*

|                                            |   | **September                  30** |        | **December                  31, 2005** |   |
|-------------------------------------------------|--------|-----------------------------------|-------------|----------------------------------------|--------|
|                                            |   | Balance                           |        |  %                                |   | Balance |   |  % |   |
|                                            |   |                              |        |                                   |   |   |   |   |   |
| Commercial                                      |   | $                                 | 230,485,135 |                                   |   | 43.2 | % | $ | 208,867,595 |   |   | 46.4 | % |
| Commercial                  real estate         |   |                              | 168,926,686 |                                   |   | 31.7 | % |   | 145,558,639 |   |   | 32.3 | % |
| Residential                  real estate        |   |                              | 81,999,326  |                                   |   | 15.4 | % |   | 50,293,491 |   |   | 11.2 | % |
| Home                  equity                    |   |                              | 33,957,269  |                                   |   | 6.4 | % |   | 30,251,837 |   |   | 6.7 | % |
| Consumer                                        |   |                              | 17,717,357  |                                   |   | 3.3 | % |   | 15,390,374 |   |   | 3.4 | % |
| Total                  loans                    |   |                              | 533,085,773 |                                   |   | 100.0 | % |   | 450,361,936 |   |   | 100.0 | % |
| Net                  deferred loan costs/(fees) |   |                              | (28,706     | )                                      |   |   |   |   | 28,999 |   |   |   |   |
| Allowance                  for loan losses      |   |                              | (6,580,761  | )                                      |   |   |   |   | (5,645,301 | ) |   |   |   |
|                                            |   |                              |        |                                   |   |   |   |   |   |   |   |   |   |
| Net                  loans                      |   | $                                 | 526,476,306 |                                   |   |   |   | $ | 444,745,634 |   |   |   |   |

*Nonperforming        Assets.*

**12**

----

*Index*

|                                                            |   | **September                  30, 2006** |      | **December                  31, 2005** |   |
|-----------------------------------------------------------------|--------|-----------------------------------------|-----------|----------------------------------------|--------|
|                                                            |   |                                    |      |                                   |   |
| Loans                  past due over 90 days and still accruing |   | $                                       | 22,975    |                                   | $      | 863,862 |   |
| Nonaccrual                  loans                               |   |                                    | 3,779,057 |                                   |   | 1,332,472 |   |
| Total                  nonperforming loans                      |   | $                                       | 3,802,032 |                                   | $      | 2,196,334 |   |
| Other                  real estate owned                        |   |                                    | 465,000   |                                   |   | 244,050 |   |
| Total                  nonperforming assets                     |   | $                                       | 4,267,032 |                                   | $      | 2,440,384 |   |
|                                                            |   |                                    |      |                                   |   |   |   |
| Nonperforming                  assets to total assets           |   |                                    | 0.66      | %                                      |   | 0.44 | % |
|                                                            |   |                                    |      |                                   |   |   |   |
| Nonperforming                  loans to total loans             |   |                                    | 0.71      | %                                      |   | 0.49 | % |

*Allowance        for Loan Losses. *

|                                              |   | September                  30, 2006 |      | December                  31, 2005 |   |
|---------------------------------------------------|--------|-------------------------------------|-----------|------------------------------------|--------|
|                                              |   |                                |      |                               |   |
| Specific                  allocations             |   | $                                   | 4,216,000 |                               | $      | 3,692,000 |   |
| Loan                  pool percentage allocations |   |                                | 2,323,000 |                               |   | 1,942,000 |   |
| Unallocated                                       |   |                                | 41,761    |                               |   | 11,301 |   |
|                                              |   |                                |      |                               |   |   |   |
| Total                  allowance for loan losses  |   | $                                   | 6,580,761 |                               | $      | 5,645,301 |   |

|                                                           |   | **2006** |      | **2005** |   |
|----------------------------------------------------------------|--------|----------|-----------|----------|--------|
|                                                           |   |     |      |     |   |
| Beginning                  balance, January 1                  |   | $        | 5,645,301 |     | $      | 5,607,992 |   |
| Provision                  charged to operating expense        |   |     | 1,695,000 |     |   | 1,717,000 |   |
| Charge-offs                                                    |   |     | (978,595  | )        |   | (1,620,541 | ) |
| Recoveries                                                     |   |     | 219,055   |     |   | 125,246 |   |
|                                                           |   |     |      |     |   |   |   |
| Ending                  balance, September 30                  |   | $        | 6,580,761 |     | $      | 5,829,697 |   |
|                                                           |   |     |      |     |   |   |   |
| Net                  charge-offs to average loans (annualized) |   |     | 0.21      | %        |   | 0.48 | % |

**13**

----

*Index*

*Other        Assets*

*Deposits*

|                                        |   | **September                  30, 2006** |        | **December                  31, 2005** |       |
|---------------------------------------------|--------|-----------------------------------------|-------------|----------------------------------------|------------|
|                                        |   | **Balance**                             | ** **  | **%**                                  | ** ** | **Balance** | ** ** | **%** |   |
|                                        |   |                                    |        |                                   |       |   |   |   |   |
| Noninterest-bearing                  demand |   | $                                       | 77,229,927  |                                   |       | 13.9 | % | $ | 66,742,748 |   |   | 14.5 | % |
| Interest-bearing                  checking  |   |                                    | 31,806,388  |                                   |       | 5.7 | % |   | 32,684,869 |   |   | 7.1 | % |
| Money                  market               |   |                                    | 104,525,016 |                                   |       | 18.9 | % |   | 76,437,818 |   |   | 16.6 | % |
| Savings                                     |   |                                    | 12,962,562  |                                   |       | 2.3 | % |   | 14,081,131 |   |   | 3.1 | % |
| Time,                  under $100,000       |   |                                    | 81,076,444  |                                   |       | 14.6 | % |   | 64,560,749 |   |   | 14.0 | % |
| Time,                  $100,000 and over    |   |                                    | 246,735,099 |                                   |       | 44.6 | % |   | 206,443,546 |   |   | 44.7 | % |
|                                        |   |                                    |        |                                   |       |   |   |   |   |   |   |   |   |
| Total                  deposits             |   | $                                       | 554,335,436 |                                   |       | 100.0 | % | $ | 460,950,861 |   |   | 100.0 | % |

*Borrowings*

*Other        Liabilities. *

**Results        of Operations**

**14**

----

*Index*

| **Performance                  Ratios**      |   | **September                  30** |   |
|----------------------------------------------|--------|-----------------------------------|--------|
|                                         |   | **2006**                          |   | **2005** |   |
|                                         |   |                              |   |   |   |
| Return                  on average assets *  |   |                              | 0.62   | % |   | 0.71 | % |
| Return                  on average equity *  |   |                              | 7.94   | % |   | 8.02 | % |
| Net                  interest margin (TEY) * |   |                              | 3.54   | % |   | 3.64 | % |
| Efficiency                  ratio            |   |                              | 68.59  | % |   | 63.89 | % |
|                                         |   |                              |   |   |   |   |   |
| *                  annualized                |   |                              |   |   |   |   |   |

*Net        Interest Income*

|                                                                                             |   | **At                  and For The Three Month Period Ended** |    |
|--------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|---------|
|                                                                                             |   | **September                  30, 2006**                      |    | **September                  30, 2005** |   |
| ($                  in thousands)                                                                |   | **Average****Balance**                                       |    | **Interest****Earned****or                  Paid** |   | **Annualized****Yield****or                  Cost** |   | **Average****Balance** |   | **Interest****Earned****or                  Paid** |   | **Annualized****Yield****or                  Cost** |   |
| **Assets**                                                                                       |   |                                                         |    |   |   |   |   |   |   |   |   |   |   |
| Short-term                  investments and interest-earning deposits                            |   | $                                                            | 4,022   |   | $ | 44 |   |   | 4.34 | % | $ | 16,110 |   | $ | 109 |   |   | 2.68 | % |
| Federal                  funds sold                                                              |   |                                                         | 5,758   |   |   | 73 |   |   | 5.03 | % |   | 4,857 |   |   | 42 |   |   | 3.43 | % |
| Securities                  - taxable                                                            |   |                                                         | 44,532  |   |   | 566 |   |   | 5.04 | % |   | 22,195 |   |   | 226 |   |   | 4.04 | % |
| Securities                  - tax exempt (1)                                                     |   |                                                         | 17,060  |   |   | 280 |   |   | 6.51 | % |   | 12,349 |   |   | 199 |   |   | 6.39 | % |
| Loans                                                                                            |   |                                                         | 520,260 |   |   | 10,040 |   |   | 7.66 | % |   | 437,426 |   |   | 7,085 |   |   | 6.43 | % |
| Total                  interest-earning assets                                                   |   |                                                         | 591,632 |   |   | 11,003 |   |   | 7.38 | % |   | 492,937 |   |   | 7,661 |   |   | 6.17 | % |
| Allowance                  for loan losses                                                       |   |                                                         | (6,323  | ) |   |   |   |   |   |   |   | (5,926 | ) |   |   |   |   |   |   |
| Cash                  and due from banks                                                         |   |                                                         | 18,480  |   |   |   |   |   |   |   |   | 12,379 |   |   |   |   |   |   |   |
| Other                  assets                                                                    |   |                                                         | 17,808  |   |   |   |   |   |   |   |   | 19,151 |   |   |   |   |   |   |   |
| Total                  assets                                                                    |   | $                                                            | 621,597 |   |   |   |   |   |   |   | $ | 518,541 |   |   |   |   |   |   |   |
| **Liabilities                  and Stockholders' Equity**                                        |   |                                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                  checking                                                       |   | $                                                            | 30,903  |   | $ | 88 |   |   | 1.13 | % | $ | 28,236 |   | $ | 45 |   |   | 0.63 | % |
| Savings                                                                                          |   |                                                         | 12,789  |   |   | 29 |   |   | 0.90 | % |   | 14,250 |   |   | 17 |   |   | 0.47 | % |
| Money                  market                                                                    |   |                                                         | 101,984 |   |   | 916 |   |   | 3.56 | % |   | 70,651 |   |   | 332 |   |   | 1.86 | % |
| Certificates                  of deposit                                                         |   |                                                         | 316,694 |   |   | 4,110 |   |   | 5.15 | % |   | 261,492 |   |   | 2,443 |   |   | 3.71 | % |
| FHLB                  advances                                                                   |   |                                                         | 28,330  |   |   | 372 |   |   | 5.21 | % |   | 25,356 |   |   | 222 |   |   | 3.47 | % |
| Junior                  subordinated debt                                                        |   |                                                         | 11,856  |   |   | 209 |   |   | 6.99 | % |   | 3,608 |   |   | 81 |   |   | 8.91 | % |
| Total                  interest-bearing liabilities                                              |   |                                                         | 502,556 |   |   | 5,724 |   |   | 4.52 | % |   | 403,593 |   |   | 3,140 |   |   | 3.09 | % |
| Noninterest-bearing                  checking                                                    |   |                                                         | 66,592  |   |   |   |   |   |   |   |   | 66,339 |   |   |   |   |   |   |   |
| Other                  liabilities                                                               |   |                                                         | 3,719   |   |   |   |   |   |   |   |   | 2,425 |   |   |   |   |   |   |   |
| Stockholders'                  equity                                                            |   |                                                         | 48,730  |   |   |   |   |   |   |   |   | 46,183 |   |   |   |   |   |   |   |
| Total                  liabilities and stockholders' equity                                      |   | $                                                            | 621,597 |   |   |   |   |   |   |   | $ | 518,540 |   |   |   |   |   |   |   |
| **Net                  interest income**                                                         |   |                                                         |    |   | $ | 5,279 |   |   |   |   |   |   |   | $ | 4,521 |   |   |   |   |
| **Rate                  spread**                                                                 |   |                                                         |    |   |   |   |   |   | 2.86 | % |   |   |   |   |   |   |   | 3.08 | % |
| **Net                  interest income as a percent of average earning                  assets** |   |                                                         |    |   |   |   |   |   | 3.54 | % |   |   |   |   |   |   |   | 3.64 | % |

| (1)                  Computed on a tax equivalent basis for tax exempt securities using                  a 35%                  statutory tax rate. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|

**15**

----

*Index*

*Provision        for Loan Losses*

*Noninterest        Income*

*Noninterest        Expense*

*Income        Taxes. *

**16**

----

*Index*

| **Performance                  Ratios**      |   | **September                  30** |   |
|----------------------------------------------|--------|-----------------------------------|--------|
|                                         |   | **2006**                          |   | **2005** |   |
|                                         |   |                              |   |   |   |
| Return                  on average assets *  |   |                              | 0.65   | % |   | 0.68 | % |
| Return                  on average equity *  |   |                              | 7.98   | % |   | 7.38 | % |
| Net                  interest margin (TEY) * |   |                              | 3.62   | % |   | 3.67 | % |
| Efficiency                  ratio            |   |                              | 68.89  | % |   | 64.90 | % |
|                                         |   |                              |   |   |   |   |   |
| *                  annualized                |   |                              |   |   |   |   |   |

*Net        Interest Income*

|                                                                                                 |   | **At                    and For The Nine Month Periods Ended** |    |
|------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|---------|
|                                                                                                 |   | **September                    30, 2006**                      |    | **September                    30, 2006** |   |
| ($                    in thousands)                                                                  |   | **Average****Balance**                                         |    | **Interest****Earned****or                    Paid** |   | **Annualized****Yield****or                    Cost** |   | **Average****Balance** |   | **Interest****Earned****or                    Paid** |   | **Annualized****Yield****or                    Cost** |   |
| **Assets**                                                                                           |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |
| Short-term                    investments and interest-earning deposits                              |   | $                                                              | 6,624   |   | $ | 232 |   |   | 4.68 | % | $ | 10,745 |   | $ | 216 |   |   | 2.69 | % |
| Federal                    funds sold                                                                |   |                                                           | 5,462   |   |   | 193 |   |   | 4.72 | % |   | 6,602 |   |   | 138 |   |   | 2.79 | % |
| Securities                    - taxable                                                              |   |                                                           | 42,665  |   |   | 1,581 |   |   | 4.95 | % |   | 23,071 |   |   | 704 |   |   | 4.08 | % |
| Securities                    - tax exempt (1)                                                       |   |                                                           | 15,742  |   |   | 768 |   |   | 6.52 | % |   | 12,459 |   |   | 608 |   |   | 6.52 | % |
| Loans                                                                                                |   |                                                           | 490,145 |   |   | 27,264 |   |   | 7.44 | % |   | 420,261 |   |   | 19,218 |   |   | 6.11 | % |
| Total                    interest-earning assets                                                     |   |                                                           | 560,638 |   |   | 30,038 |   |   | 7.16 | % |   | 473,138 |   |   | 20,884 |   |   | 5.90 | % |
| Allowance                    for loan losses                                                         |   |                                                           | (6,163  | ) |   |   |   |   |   |   |   | (5,803 | ) |   |   |   |   |   |   |
| Cash                    and due from banks                                                           |   |                                                           | 16,117  |   |   |   |   |   |   |   |   | 12,975 |   |   |   |   |   |   |   |
| Other                    assets                                                                      |   |                                                           | 20,864  |   |   |   |   |   |   |   |   | 14,260 |   |   |   |   |   |   |   |
| Total                    assets                                                                      |   | $                                                              | 591,456 |   |   |   |   |   |   |   | $ | 494,570 |   |   |   |   |   |   |   |
| **Liabilities                    and Stockholders' Equity**                                          |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                    checking                                                         |   | $                                                              | 29,993  |   | $ | 234 |   |   | 1.04 | % | $ | 27,951 |   | $ | 117 |   |   | 0.56 | % |
| Savings                                                                                              |   |                                                           | 13,808  |   |   | 81 |   |   | 0.78 | % |   | 13,624 |   |   | 41 |   |   | 0.40 | % |
| Money                    market                                                                      |   |                                                           | 94,170  |   |   | 2,257 |   |   | 3.20 | % |   | 72,471 |   |   | 876 |   |   | 1.62 | % |
| Certificates                    of deposit                                                           |   |                                                           | 290,667 |   |   | 10,554 |   |   | 4.85 | % |   | 236,906 |   |   | 5,960 |   |   | 3.36 | % |
| Short-term                    borrowings                                                             |   |                                                           | -       |   |   |   |   |   | 0.00 | % |   | 17 |   |   | - |   |   | 0.00 | % |
| FHLB                    advances                                                                     |   |                                                           | 31,490  |   |   | 1,093 |   |   | 4.64 | % |   | 29,080 |   |   | 650 |   |   | 2.99 | % |
| Junior                    subordinated debt                                                          |   |                                                           | 11,856  |   |   | 628 |   |   | 7.08 | % |   | 3,608 |   |   | 244 |   |   | 9.04 | % |
| Total                    interest-bearing liabilities                                                |   |                                                           | 471,984 |   |   | 14,847 |   |   | 4.21 | % |   | 383,657 |   |   | 7,888 |   |   | 2.75 | % |
| Noninterest-bearing                    checking                                                      |   |                                                           | 67,954  |   |   |   |   |   |   |   |   | 63,495 |   |   |   |   |   |   |   |
| Other                    liabilities                                                                 |   |                                                           | 3,248   |   |   |   |   |   |   |   |   | 2,116 |   |   |   |   |   |   |   |
| Stockholders'                    equity                                                              |   |                                                           | 48,270  |   |   |   |   |   |   |   |   | 45,302 |   |   |   |   |   |   |   |
| Total                    liabilities and stockholders' equity                                        |   | $                                                              | 591,456 |   |   |   |   |   |   |   | $ | 494,570 |   |   |   |   |   |   |   |
| **Net                    interest income**                                                           |   |                                                           |    |   | $ | 15,191 |   |   |   |   |   |   |   | $ | 12,996 |   |   |   |   |
| **Rate                    spread**                                                                   |   |                                                           |    |   |   |   |   |   | 2.95 | % |   |   |   |   |   |   |   | 3.15 | % |
| **Net                    interest income as a percent of average earning                    assets** |   |                                                           |    |   |   |   |   |   | 3.62 | % |   |   |   |   |   |   |   | 3.67 | % |

| (1)                  Computed on a tax equivalent basis for tax exempt securities using                  a 34%                  tax rate. |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|

*Provision        for Loan Losses*

**17**

----

*Index*

*Noninterest        Income*

*Noninterest        Expense*

*Income        Taxes. *

**Liquidity        and Capital Resources**

*Liquidity*

*Capital        Resources. *

**18**

----

*Index*

|                               |   | **September                  30, 2006** |   | **December                  31, 2005** |   |
|------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                               |   | Actual                                  |   | Well-Capitalized                       |   | MinimumRequired |   | Actual |   | Well-Capitalized |   | MinimumRequired |   |
|                               |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| **The                  Company**   |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |
| Leverage                  capital  |   |                                    | 9.92   | %                                      |   | 5.00 | % |   | 4.00 | % |   | 11.08 | % |   | 5.00 | % |   | 4.00 | % |
| Tier                  1 risk-based |   |                                    | 11.17  | %                                      |   | 6.00 | % |   | 4.00 | % |   | 12.16 | % |   | 6.00 | % |   | 4.00 | % |
| Total                  risk-based  |   |                                    | 12.36  | %                                      |   | 10.00 | % |   | 8.00 | % |   | 13.23 | % |   | 10.00 | % |   | 8.00 | % |
|                               |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **The                  Bank**      |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Leverage                  capital  |   |                                    | 8.46   | %                                      |   | 5.00 | % |   | 4.00 | % |   | 9.28 | % |   | 5.00 | % |   | 4.00 | % |
| Tier                  1 risk-based |   |                                    | 9.47   | %                                      |   | 6.00 | % |   | 4.00 | % |   | 10.18 | % |   | 6.00 | % |   | 4.00 | % |
| Total                  risk-based  |   |                                    | 10.67  | %                                      |   | 10.00 | % |   | 8.00 | % |   | 11.34 | % |   | 10.00 | % |   | 8.00 | % |

**Subsequent        Events**

**Commitments        and Off-Balance Sheet Risk**

**Item        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET        RISK**

**19**

----

*Index*

| **Rate                  Sensitivity Analysis**                                                             |   |
|------------------------------------------------------------------------------------------------------------|--------|
| ($                  in thousands)                                                                          |   | **Within****Three****Months** |   | **Three                  to****Twelve****Months** |   | **One                  to****Five****Years** |   | **After****Five****Years** |   | **Total** |   |
| **Assets**                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Federal                  funds sold, short-term investments and interest-earning                  deposits |   | $ | 11,155 |   |   |   |   |   |   |   |   |   |   | $ | 11,155 |   |
| Securities                  available for sale                                                             |   |   | 6,067 |   |   | 5,162 |   |   | 29,388 |   |   | 19,051 |   |   | 59,668 |   |
| FHLBI                  and FRB stock                                                                       |   |   |   |   |   |   |   |   |   |   |   | 3,234 |   |   | 3,234 |   |
| Fixed                  rate loans                                                                          |   |   | 33,682 |   |   | 42,165 |   |   | 113,857 |   |   | 35,057 |   |   | 224,761 |   |
| Variable                  rate loans                                                                       |   |   | 81,813 |   |   | 120,048 |   |   | 98,587 |   |   | 7,848 |   |   | 308,296 |   |
| Allowance                  for loan losses                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (6,581 | ) |
| Other                  assets                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 43,229 |   |
| Total                  assets                                                                              |   | $ | 132,717 |   | $ | 167,375 |   | $ | 241,832 |   | $ | 65,190 |   | $ | 643,762 |   |
| **Liabilities**                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                  checking                                                                 |   | $ | 1,511 |   | $ | 3,710 |   | $ | 13,335 |   | $ | 13,250 |   | $ | 31,806 |   |
| Savings                  accounts                                                                          |   |   | 991 |   |   | 2,541 |   |   | 6,789 |   |   | 2,642 |   |   | 12,963 |   |
| Money                  market accounts                                                                     |   |   | 8,004 |   |   | 20,469 |   |   | 54,708 |   |   | 21,344 |   |   | 104,525 |   |
| Time                  deposits < $100,000                                                               |   |   | 10,776 |   |   | 31,940 |   |   | 38,334 |   |   | 26 |   |   | 81,076 |   |
| Time                  deposits $100,000 and over                                                           |   |   | 69,354 |   |   | 79,165 |   |   | 98,216 |   |   |   |   |   | 246,735 |   |
| Short-term                  borrowings                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |
| FHLB                  advances                                                                             |   |   | 4,500 |   |   | 10,500 |   |   | 8,700 |   |   |   |   |   | 23,700 |   |
| Junior                  subordinated debt                                                                  |   |   |   |   |   |   |   |   |   |   |   | 11,856 |   |   | 11,856 |   |
| Noninterest-bearing                  checking                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 77,230 |   |
| Other                  liabilities                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 3,939 |   |
| Total                  liabilities                                                                         |   |   | 95,136 |   |   | 148,325 |   |   | 220,082 |   |   | 49,118 |   |   | 593,830 |   |
| **Stockholders'                  Equity**                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 49,932 |   |
| Total                  sources of funds                                                                    |   | $ | 95,136 |   | $ | 148,325 |   | $ | 220,082 |   | $ | 49,118 |   | $ | 643,762 |   |
| Net                  asset (liability) GAP                                                                 |   | $ | 37,581 |   | $ | 19,050 |   | $ | 21,750 |   | $ | 16,072 |   | $ |   |   |
| **Cumulative                  GAP**                                                                        |   | $ | 37,581 |   | $ | 56,631 |   | $ | 78,381 |   | $ | 94,453 |   | $ |   |   |
| **Percent                  of cumulative GAP to total assets**                                             |   |   | 5.8 | % |   | 8.8 | % |   | 12.2 | % |   | 14.7 | % |   |   |   |

**20**

----

*Index*

|                                               |   | **Principal                  Amount Maturing in:** |    |
|----------------------------------------------------|--------|----------------------------------------------------|---------|
| ($                  in thousands)                  |   | **09/30/07**                                       |    | **09/30/08** |   | **09/30/09** |   | **09/30/10** |   | **09/30/11** |   | **Thereafter** |   | **Total** |   | **Fair                  Value****9/30/2006** |   |
| Rate                  sensitive assets:            |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed                  interest rate loans         |   | $                                                  | 75,846  |   | $ | 42,905 |   | $ | 27,858 |   | $ | 20,756 |   | $ | 22,340 |   | $ | 35,055 |   | $ | 224,760 |   | $ | 222,694 |   |
| Average                  interest rate             |   |                                               | 6.83    | % |   | 6.69 | % |   | 6.62 | % |   | 6.55 | % |   | 6.89 | % |   | 5.57 | % |   | 6.56 | % |   |   |   |
| Variable                  interest rate loans      |   |                                               | 201,861 |   |   | 52,049 |   |   | 22,828 |   |   | 14,832 |   |   | 8,877 |   |   | 7,850 |   | $ | 308,297 |   |   | 308,297 |   |
| Average                  interest rate             |   |                                               | 8.29    | % |   | 8.19 | % |   | 8.33 | % |   | 8.21 | % |   | 7.87 | % |   | 7.99 | % |   | 8.25 | % |   |   |   |
| Fixed                  interest rate securities    |   |                                               | 11,229  |   |   | 10,111 |   |   | 7,983 |   |   | 4,967 |   |   | 6,327 |   |   | 19,051 |   | $ | 59,668 |   |   | 59,671 |   |
| Average                  interest rate             |   |                                               | 4.98    | % |   | 4.80 | % |   | 4.74 | % |   | 4.56 | % |   | 4.65 | % |   | 4.57 | % |   | 4.72 | % |   |   |   |
| Other                  interest bearing assets     |   |                                               | 11,155  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 11,155 |   |   |   |   |
| Average                  interest rate             |   |                                               | 4.84    | % |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 4.84 | % |   |   |   |
|                                               |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rate                  sensitive liabilities:       |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  bearing checking         |   |                                               | 5,221   |   |   | 4,249 |   |   | 3,569 |   |   | 2,998 |   |   | 2,519 |   |   | 13,250 |   | $ | 31,806 |   |   | 28,719 |   |
| Average                  interest rate             |   |                                               | 1.14    | % |   | 1.14 | % |   | 1.14 | % |   | 1.14 | % |   | 1.14 | % |   | 1.15 | % |   | 1.14 | % |   |   |   |
| Savings                  accounts                  |   |                                               | 3,532   |   |   | 2,570 |   |   | 1,869 |   |   | 1,360 |   |   | 990 |   |   | 2,642 |   | $ | 12,963 |   |   | 11,537 |   |
| Average                  interest rate             |   |                                               | 0.92    | % |   | 0.92 | % |   | 0.92 | % |   | 0.92 | % |   | 0.92 | % |   | 0.92 | % |   | 0.92 | % |   |   |   |
| Money                  market accounts             |   |                                               | 28,473  |   |   | 20,702 |   |   | 15,065 |   |   | 10,963 |   |   | 7,978 |   |   | 21,344 |   | $ | 104,525 |   |   | 115,982 |   |
| Average                  interest rate             |   |                                               | 3.65    | % |   | 3.66 | % |   | 3.66 | % |   | 3.67 | % |   | 3.68 | % |   | 3.70 | % |   | 3.67 | % |   |   |   |
| Time                  deposits                     |   |                                               | 191,235 |   |   | 99,438 |   |   | 14,527 |   |   | 22,509 |   |   | 77 |   |   | 25 |   | $ | 327,811 |   |   | 326,257 |   |
| Average                  interest rate             |   |                                               | 5.19    | % |   | 5.32 | % |   | 4.05 | % |   | 4.11 | % |   | 4.12 | % |   | 4.08 | % |   | 5.11 | % |   |   |   |
| Fixed                  interest rate borrowings    |   |                                               | 5,500   |   |   | 3,500 |   |   | 4,000 |   |   | 1,200 |   |   |   |   |   | 11,856 |   | $ | 26,056 |   |   | 26,385 |   |
| Average                  interest rate             |   |                                               | 4.08    | % |   | 5.08 | % |   | 5.16 | % |   | 4.32 | % |   |   |   |   | 7.14 | % |   | 5.78 | % |   |   |   |
| Variable                  interest rate borrowings |   |                                               | 9,500   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 9,500 |   |   | 9,500 |   |
| Average                  interest rate             |   |                                               | 5.35    | % |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 5.35 | % |   |   |   |

**Item4.        CONTROLS AND PROCEDURES**

*Evaluation        of Disclosure Controls and Procedures*

**21**

----

*Index*

*Changes        in Internal Control*

**PART        II. OTHER INFORMATION**

| **Item                  1.** | **LEGAL                  PROCEEDINGS** |
|------------------------------|----------------------------------------|

| **Item                  1a.** | **RISK                  FACTORS** |
|-------------------------------|-----------------------------------|

| **Item                  6.** | **EXHIBITS** |
|------------------------------|--------------|

|   | (a) | Exhibits. |
|--------|-----|-----------|

31.1

31.2

32.1

32.2

**SIGNATURES**

|                                      | TOWER                  FINANCIAL CORPORATION                                                       |
|-------------------------------------------|----------------------------------------------------------------------------------------------------|
|                                      |                                                                                               |
|                                      |                                                                                               |
| Dated:                  November 13, 2006 |                    / s / Donald F. Schenkel                                                   |
|                                      | Donald                  F. Schenkel, Chairman of the Board,                                        |
|                                      | President                  and Chief Executive Officer                                             |
|                                      |                                                                                               |
|                                      |                                                                                               |
| Dated:                  November 13, 2006 |                    / s / Michael D. Cahill                                                    |
|                                      | Michael                  D. Cahill                                                                 |
|                                      | Executive                  Vice President, Chief Financial Officer, and                  Secretary |

**22**

----