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

                                   FORM 10-QSB
                                   (Mark One)

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

      For the quarterly period ended JUNE 30, 2002

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

      For the transition period from ____________ to ____________
      Commission file number 000-25287


                           TOWER FINANCIAL CORPORATION
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)



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



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


                                 (260) 427-7000
--------------------------------------------------------------------------------
                           (Issuer's telephone number)

     Check whether the issuer (1) filed all reports required to be filed by
     Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
     such shorter period that the registrant was required to file such reports),
     and (2) has been subject to such filing requirements for the past 90 days.
     Yes [ X ] No [ ]


  Number of shares of the issuer's common stock, without par value, outstanding
                         as of July 31, 2002: 2,530,000.


     Transitional Small Business Disclosure Format   Yes [ ]   No [X]



                                       1
<PAGE>
                          PART I. FINANCIAL INFORMATION

TOWER FINANCIAL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
At June 30, 2002 and December 31, 2001

<TABLE>
<CAPTION>
                                                                   (unaudited)
                                                                     JUNE 30,         DECEMBER 31,
                                                                      2002               2001
                                                                  -------------      -------------
<S>                                                               <C>                <C>
ASSETS
Cash and due from banks                                           $   5,855,545      $   7,634,418
Short-term investments and interest-earning deposits                  3,084,419         16,696,853
Federal funds sold                                                    8,810,177         24,344,768
                                                                  -------------      -------------
       Total cash and cash equivalents                               17,750,141         48,676,039

Interest-earning deposits                                               495,000          2,806,000
Securities available for sale, at fair value                         12,916,304          3,481,520
Loans held for sale                                                     839,300          4,293,350

Loans                                                               286,606,943        232,346,371
Allowance for loan losses                                            (4,130,137)        (3,480,205)
                                                                  -------------      -------------
       Net loans                                                    282,476,806        228,866,166

Premises and equipment, net                                           2,196,368          1,573,848
Accrued interest receivable                                           1,167,230            954,805
Other assets                                                          1,559,803          1,152,807
                                                                  -------------      -------------

       Total assets                                               $ 319,400,952      $ 291,804,535
                                                                  =============      =============

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
   Noninterest-bearing                                            $  36,273,805      $  28,382,995
   Interest-bearing                                                 231,915,396        227,770,072
                                                                  -------------      -------------
       Total deposits                                               268,189,201        256,153,067

Short-term borrowings                                                 1,060,000          1,060,000
Federal Home Loan Bank advances                                      21,500,000          6,500,000
Trust preferred securities                                            3,500,000          3,430,225
Accrued interest payable                                                246,345            288,932
Other liabilities                                                       580,658            866,972
                                                                  -------------      -------------

       Total liabilities                                            295,076,204        268,299,196

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; 2,530,000 shares issued and outstanding        23,469,770         23,469,770
Retained earnings                                                       720,582             45,149
Accumulated other comprehensive income (loss), net of tax of
   $89,597 at June 30, 2002 and $(6,400) at December 31, 2001           134,396             (9,580)
                                                                  -------------      -------------
       Total stockholders' equity                                    24,324,748         23,505,339
                                                                  -------------      -------------

       Total liabilities and stockholders' equity                 $ 319,400,952      $ 291,804,535
                                                                  =============      =============
</TABLE>


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



                                       2
<PAGE>


TOWER FINANCIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the three and six month periods ended June 30, 2002 and June 30, 2001
(unaudited)


<TABLE>
<CAPTION>
                                                   THREE MONTHS                 SIX MONTHS
                                                  ENDED JUNE 30,               ENDED JUNE 30,
                                           -------------------------     -------------------------
                                              2002           2001           2002           2001
                                           ----------     ----------     ----------     ----------
<S>                                        <C>            <C>            <C>            <C>
Interest income:
      Loans, including fees                $3,852,078     $3,331,168     $7,399,855     $6,689,742
      Securities - taxable                    117,769         93,820        161,206        198,189
      Securities - tax exempt                  14,894          2,829         20,026          3,476
      Other interest income                    62,142        578,199        204,356      1,033,935
                                           ----------     ----------     ----------     ----------
           Total interest income            4,046,883      4,006,016      7,785,443      7,925,342
Interest expense:
      Deposits                              1,396,421      2,159,070      2,827,765      4,365,884
      Short-term borrowings                     9,422          6,026         13,586         13,238
      FHLB advances                            73,396         25,508        129,470         28,064
      Trust preferred securities               76,904           --          158,962           --
                                           ----------     ----------     ----------     ----------
           Total interest expense           1,556,143      2,190,604      3,129,783      4,407,186
                                           ----------     ----------     ----------     ----------

Net interest income                         2,490,740      1,815,412      4,655,660      3,518,156
Provision for loan losses                     445,000        225,000        820,000        450,000
                                           ----------     ----------     ----------     ----------

Net interest income after provision
   for loan losses                          2,045,740      1,590,412      3,835,660      3,068,156

Noninterest income:
      Trust fees                              257,626        196,916        519,254        370,450
      Service charges                          95,447         54,873        189,236         88,921
      Loan broker fees                        105,350        114,906        213,278        198,853
      Other fees                              106,087         57,810        190,627        105,307
                                           ----------     ----------     ----------     ----------
           Total noninterest income           564,510        424,505      1,112,395        763,531

Noninterest expense:
      Salaries and benefits                 1,183,292        861,615      2,295,545      1,703,515
      Occupancy and equipment                 251,568        209,594        482,338        427,038
      Marketing                                63,309         36,368        112,991        105,522
      Data processing                          66,369         49,859        132,805        104,984
      Loan and professional costs             158,010        173,666        217,181        240,601
      Other expense                           307,962        244,314        594,962        473,914
                                           ----------     ----------     ----------     ----------
           Total noninterest expense        2,030,510      1,575,416      3,835,822      3,055,574
                                           ----------     ----------     ----------     ----------

Income before income taxes                    579,740        439,501      1,112,233        776,113
Income taxes expense                          225,100        176,346        436,800        309,800
                                           ----------     ----------     ----------     ----------

Net income                                 $  354,640     $  263,155     $  675,433     $  466,313
                                           ==========     ==========     ==========     ==========

Basic earnings per common share            $     0.14     $     0.10     $     0.27     $     0.18
Diluted earnings per common share          $     0.14     $     0.10     $     0.26     $     0.18
Average common shares outstanding           2,530,000      2,530,000      2,530,000      2,530,000
Average common shares and dilutive
   potential common shares outstanding      2,611,029      2,530,408      2,610,269      2,530,251
</TABLE>


      The following notes are an integral part of the financial statements


                                       3
<PAGE>

TOWER FINANCIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
For the three months and six month periods ended June 30, 2002 and June 30, 2001
(unaudited)

<TABLE>
<CAPTION>
                                                    THREE MONTHS               SIX MONTHS
                                                    ENDED JUNE 30,            ENDED JUNE 30,
                                                ---------------------     ---------------------
                                                  2002         2001         2002         2001
                                                --------     --------     --------     --------
<S>                                             <C>          <C>          <C>          <C>
Net income                                      $354,640     $263,155     $675,433     $466,313

Other comprehensive income:
Change in net unrealized appreciation
   (depreciation) on securities available
   for sale, net of tax of $103,837 and
   $3,990 for the three months ended
   June 30, 2002 and 2001 and $95,997 and
   $3,463 for the six months ended June 30,
   2002 and 2001                                 155,696        6,087      143,976        5,286
                                                --------     --------     --------     --------

Comprehensive income                            $510,336     $269,242     $819,409     $471,599
                                                ========     ========     ========     ========
</TABLE>




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


                                       4
<PAGE>

TOWER FINANCIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the six months ended June 30, 2002 and 2001
(unaudited)


<TABLE>
<CAPTION>
                                          COMMON         RETAINED       ACCUMULATED
                                        STOCK AND        EARNINGS          OTHER
                                         PAID-IN      (ACCUMULATED     COMPREHENSIVE
                                         CAPITAL         DEFICIT)      INCOME (LOSS)        TOTAL
                                       -----------     -----------     -------------     -----------
<S>                                    <C>             <C>              <C>              <C>
Balance, January 1, 2001               $23,469,770     $(1,074,806)     $       529      $22,395,493

Net income                                                 466,313                           466,313

Change in net unrealized
   appreciation (depreciation)
   on securities available
   for sale, net of tax of $3,463                                             5,286            5,286
                                       -----------     -----------      -----------      -----------
Balance, June 30, 2001                 $23,469,770     $  (608,493)     $     5,815      $22,867,092
                                       ===========     ===========      ===========      ===========

Balance, January 1, 2002               $23,469,770     $    45,149      $    (9,580)     $23,505,339

Net income                                                 675,433                           675,433

Change in net unrealized
   appreciation (depreciation)
   on securities available
   for sale, net of tax of $95,997                                          143,976          143,976
                                       -----------     -----------      -----------      -----------
Balance, June 30, 2002                 $23,469,770     $   720,582      $   134,396      $24,324,748
                                       ===========     ===========      ===========      ===========
</TABLE>


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





                                       5
<PAGE>

TOWER FINANCIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2002 and June 30, 2001
(unaudited)

<TABLE>
<CAPTION>
                                                               SIX MONTHS ENDED
                                                                   JUNE 30,
                                                        ------------------------------
                                                            2002              2001
                                                        ------------      ------------
<S>                                                     <C>               <C>
Cash flows from operating activities:
     Net income                                         $    675,433      $    466,313
     Adjustments to reconcile net income
        to net cash from operating activities:
         Depreciation and amortization                       171,569           158,010
         Provision for loan losses                           820,000           450,000
         Change in accrued interest receivable              (212,425)          145,393
         Change in other assets                             (433,218)         (261,815)
         Change in accrued interest payable                  (42,587)          (25,352)
         Change in other liabilities                        (286,314)         (267,588)
         Origination of loans held for sale              (11,429,950)       (3,883,978)
         Proceeds from sales of loans held for sale       14,884,000         1,710,550
                                                        ------------      ------------
            Net cash from operating activities             4,146,508        (1,508,467)

Cash flows from investing activities:
     Net change in loans                                 (54,430,640)      (22,909,835)
     Net change in interest earning deposits               2,311,000           513,000
     Purchase of securities available for sale            (9,194,811)      (15,436,751)
     Proceeds from maturities of securities
        available for sale                                      --          15,000,000
     Purchase of equipment and leasehold
        expenditures                                        (794,089)         (275,207)
                                                        ------------      ------------
         Net cash from investing activities              (62,108,540)      (23,108,793)

Cash flows from financing activities:
     Net change in deposits                               12,036,134        26,653,546
     Net change in short-term borrowings                        --             500,000
     Proceeds from FHLB advances                          15,000,000         2,500,000
                                                        ------------      ------------
         Net cash from financing activities               27,036,134        29,653,546
                                                        ------------      ------------

Net change in cash and cash equivalents                  (30,925,898)        5,036,286
Cash and cash equivalents, beginning of period            48,676,039        42,715,744
                                                        ------------      ------------

Cash and cash equivalents, end of period                $ 17,750,141      $ 47,752,030
                                                        ============      ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
     Interest                                           $  3,172,370      $  4,432,538
     Income taxes                                            871,600           499,274
</TABLE>




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



                                       6
<PAGE>


TOWER FINANCIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a.   ORGANIZATION: Tower Financial Corporation ("the Company") was
          incorporated on July 8, 1998. The Company's wholly-owned subsidiary,
          Tower Bank & Trust Company ("the Bank") opened on February 19, 1999
          after receiving federal and state bank regulatory approvals to
          commence its banking operations. The Company's wholly-owned special
          purpose trust subsidiary, Tower Capital Trust 1 ("TCT1"), was
          incorporated on November 1, 2001 for the single purpose of issuing
          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-QSB 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 June 30, 2002 and its consolidated
          results of operations, comprehensive income, changes in stockholders'
          equity and cash flows for the three-month and six-month periods ended
          June 30, 2002 and June 30, 2001. The results for the periods ended
          June 30, 2002 should not be considered as indicative of results for a
          full year. These unaudited consolidated condensed financial statements
          should be read in conjunction with the audited consolidated financial
          statements for the years ended December 31, 2001, 2000, and 1999 and
          related notes included in the Company's Annual Report on Form 10-KSB
          for the year ended December 31, 2001.

     c.   PRINCIPLES OF CONSOLIDATION: The accompanying unaudited consolidated
          condensed financial statements include the accounts of the Company,
          the Bank and TCT1. All significant intercompany accounts and
          transactions have been eliminated in consolidation.

     d.   NEW ACCOUNTING PRONOUNCEMENTS: On January 1, 2002, the Company adopted
          a new accounting standard which addresses accounting for goodwill and
          intangible assets from business combinations. Identifiable intangible
          assets must be separated from goodwill. Identifiable intangible assets
          with finite useful lives are amortized under the new standard, whereas
          goodwill, both amounts previously recorded and future amounts
          purchased, ceased being amortized. Annual impairment testing is
          required for goodwill with impairment being recorded if the carrying
          amount of goodwill exceeds its implied fair value. Adoption of this
          standard on January 1, 2002 did not have a material effect on the
          Company's consolidated financial position or results of operations.

          On January 1, 2002, the Company adopted SFAS No. 144, " Accounting for
          the Impairment or Disposal of Long-Lived Assets." This new accounting
          standard establishes more restrictive requirements for the
          classification of assets as "held for sale" and also expands the types
          of dispositions that are to be accounted for as discontinued
          operations. Adoption of this standard on January 1, 2002 did not have
          a material effect on the Company's consolidated financial position or
          results of operations.

          In August 2001, the Financial Accounting Standards Board issued
          Statement of Financial Accounting Standard ("SFAS") No. 143,
          "Accounting for Asset Retirement Obligations" which will be adopted by
          the Company on January 1, 2003. The new accounting standard addresses
          accounting for obligations associated with the retirement of tangible,
          long-lived assets and requires a liability to be recognized for the
          fair value of any such obligations. Adoption of this standard on
          January 1, 2003 is not expected to have a material effect on the
          Company's consolidated financial position or results of operations.

     e.   RECLASSIFICATION: Certain items from the prior period financial
          statements were reclassified to conform to the current presentation.



                                       7
<PAGE>

NOTE 2 -- EARNINGS PER SHARE

     The following table reflects the calculation of basic and diluted earnings
     per common share for the three-month and six-month periods ended June 30,
     2002 and June 30, 2001.


<TABLE>
<CAPTION>
                                                                          THREE MONTHS                        SIX MONTHS
                                                                         ENDED JUNE 30,                      ENDED JUNE 30,
                                                                 ------------------------------      ------------------------------
                                                                     2002             2001               2002             2001
     ------------------------------------------------------------------------------------------------------------------------------
     <S>                                                         <C>              <C>                <C>              <C>
     BASIC
     Net income                                                  $    354,640     $     263,155      $    675,433     $     466,313
                                                                 ------------------------------      ------------------------------
     Weighted average common shares outstanding                     2,530,000         2,530,000         2,530,000         2,530,000
                                                                 ------------------------------      ------------------------------
     Basic earnings per common share                             $       0.14     $        0.10      $       0.27     $        0.18

     DILUTED
     Net income                                                  $    354,640     $     263,155      $    675,433     $     466,313
                                                                 ------------------------------      ------------------------------
     Weighted average common shares outstanding                     2,530,000         2,530,000         2,530,000         2,530,000
     Add:  dilutive effect of assumed stock option exercises           81,029               408            80,269               251
                                                                 ------------------------------      ------------------------------
     Weighted average common shares and dilutive additional
        potential common shares outstanding                         2,611,029         2,530,408         2,610,269         2,530,251
                                                                 ------------------------------      ------------------------------
     Diluted earnings per common share                           $       0.14     $        0.10      $       0.26     $        0.18
</TABLE>



NOTE 3 -- LOANS AND ALLOWANCE FOR LOAN LOSSES

     Loans at June 30, 2002 and December 31, 2001 are as follows:

<TABLE>
<CAPTION>
                                                                          JUNE 30, 2002                     DECEMBER 31, 2001
                                                                 ------------------------------      ------------------------------
                                                                    BALANCE                 %          BALANCE                  %
     ------------------------------------------------------------------------------------------------------------------------------
     <S>                                                         <C>                       <C>       <C>                       <C>
     Commercial                                                  $186,028,324              64.9%     $143,087,477              61.6%
     Commercial real estate                                        43,621,556              15.2%       40,551,840              17.5%
     Residential real estate                                       24,196,233               8.5%       16,739,642               7.2%
     Home equity                                                   17,547,933               6.1%       16,042,465               6.9%
     Consumer                                                      15,137,543               5.3%       15,717,153               6.8%
                                                                 ------------------------------      ------------------------------
          Total loans                                             286,531,589             100.0%      232,138,577             100.0%
     Net deferred loan costs                                           75,354                             207,794
     Allowance for loan losses                                     (4,130,137)                         (3,480,205)
                                                                 ------------                        ------------
          NET LOANS                                              $282,476,806                        $228,866,166
                                                                 ============                        ============
</TABLE>


     Activity in the allowance for loan losses during the six months ended June
     30, 2002 and June 30, 2001 was as follows:

                                                           2002          2001
     ---------------------------------------------------------------------------
     Beginning balance, January 1                      $ 3,480,205    $2,364,509
     Provision charged to operating expense                820,000       450,000
     Charge-offs                                          (172,863)            -
     Recoveries                                              2,795             -
                                                       -----------   -----------
          ENDING BALANCE, JUNE 30                      $ 4,130,137    $2,814,509
                                                       ===========   ===========


     Loans classified as nonaccrual or impaired were $745,109 at June 30, 2002
     compared to $468,863 at December 31, 2001 and $123,234 at June 30, 2001,
     while loans past due 90 days and still accruing interest were $3,205 at
     June 30, 2002 compared to $347,233 and $57,000 for the other corresponding
     periods. There were no troubled debt restructurings at June 30, 2002,
     December 31, 2001 or June 30, 2001.


                                       8
<PAGE>

NOTE 4 -- INCOME TAXES

     For the six-month period ended June 30, 2002, the Company recorded income
     tax expense of $436,800 The expense reflected an effective tax rate of
     39.3%, which was slightly lower than the statutory rate of 39.6% for that
     period.

     For the six-month period ended June 30, 2001, the Company recorded income
     tax expense of $309,800. The expense reflected an effective tax rate of
     39.9%, which was slightly higher than the statutory rate of 39.6% for that
     period.


NOTE 5  -- DEPOSITS

     Deposits at June 30, 2002 and December 31, 2001 are summarized as follows:

<TABLE>
<CAPTION>
                                         JUNE 30, 2002            DECEMBER 31, 2001
                                    -----------------------   -----------------------
                                       BALANCE          %        BALANCE         %
     --------------------------------------------------------------------------------
     <S>                            <C>               <C>     <C>               <C>
     Noninterest-bearing demand     $ 36,273,805      13.5%   $ 28,382,995      11.1%
     Interest-bearing checking        14,004,207       5.2%     14,909,190       5.8%
     Money market                    108,844,316      40.6%    112,580,454      44.0%
     Savings                           5,894,395       2.2%      4,520,632       1.8%
     Time, under $100,000             42,209,351      15.8%     30,076,087      11.7%
     Time, $100,000 and over          60,963,127      22.7%     65,683,709      25.6%
                                    ------------     -----    ------------     -----
           Total deposits           $268,189,201     100.0%   $256,153,067     100.0%
                                    ============     =====    ============     =====
</TABLE>


NOTE 6 - STOCK OPTION PLAN

     Options to buy stock are granted to directors, officers and employees under
     the 1998 and 2001 Stock Option and Incentive Plans (the "Plans"), which
     together provide for issuance of up to 435,000 shares of common stock of
     the Company. The exercise price of stock options granted under the Plans
     may not be less than the market price at the date of grant. The maximum
     option term is ten years. Option vesting occurs over various periods of
     time ranging from immediately to four years.

     At June 30, 2002, options to purchase 376,390 shares were outstanding to
     certain officers, employees and directors. The options were granted at the
     market price on the dates of the grant in a range from $7.625 to $13.55 per
     share. Of the total options outstanding, options to purchase 259,708 shares
     were vested and exercisable at June 30, 2002. During the three months ended
     June 30, 2002, options to purchase 1,010 shares were forfeited by
     terminated employees, including options to purchase 757 shares which were
     previously vested.








                                       9
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The Company was formed to be the bank holding company for the Bank. The Company
was in a development stage until the Bank commenced operations on February 19,
1999. Prior to the opening of the Bank, the Company's principal activities
related to the organization of the Bank and the conducting of the Company's
initial public offering.

The following presents management's discussion and analysis of the consolidated
financial condition of the Company as of June 30, 2002 and December 31, 2001 and
results of operations for the three and six months ended June 30, 2002 and June
30, 2001. This discussion should be read in conjunction with the Company's
unaudited consolidated condensed financial statements and the related notes
appearing elsewhere in this report and the Company's Annual Report on Form
10-KSB for the year ended December 31, 2001.

FORWARD-LOOKING STATEMENTS

The statements contained in this Quarterly Report filed on Form 10-QSB that are
not historical facts are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act. Forward-looking statements are made
based upon management's current expectations and beliefs concerning future
developments and their potential effects upon the Company or the Bank. There can
be no assurance that future developments affecting the Company or the Bank will
be those anticipated by management. Actual results may differ materially from
those included in the forward-looking statements. These forward-looking
statements involve risks and uncertainties including, but not limited to, the
following:

     -    the Company's status as a start-up company with less than four years
          of operating history;
     -    the effect of extensive banking regulation on the Bank's ability to
          grow and compete;
     -    the effect of changes in federal economic and monetary policies on the
          Bank's ability to attract deposits, make loans and achieve
          satisfactory interest spreads;
     -    the degree of competition by traditional and non-traditional
          competitors;
     -    the demand for products and services;
     -    the trends in customer behavior as well as their ability to repay
          loans;
     -    the Company's dependence on key management personnel;
     -    the increased risk of losses due to loan defaults caused by the Bank's
          commercial loan concentration;
     -    the Company's dependence on a favorable local economy in the Bank's
          primary service area;
     -    the Bank's dependence on net interest spread for profitability; and
     -    the Bank's ability to implement developments in technology to be
          competitive.

Readers are also directed to other risks and uncertainties discussed in other
documents filed by the Company with the Securities and Exchange Commission. The
Company undertakes no obligation to update or revise any forward-looking
information, whether as a result of new information, future developments or
otherwise.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. We believe that
our critical accounting policies are limited to those described below. For a
detailed discussion on the application of these and other accounting policies,
see Note 1 - Summary of Significant Accounting Policies to the audited
consolidated



                                       10
<PAGE>

financial statements included in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2001.

Loans: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of unearned interest, deferred loan fees and costs and
an allowance for loan losses. Loans held for sale are reported at the lower of
cost or market, on an aggregate basis. Interest income is reported on the
interest method and includes amortization of net deferred loan fees and costs
over the loan term. Interest income is not reported when full loan repayment is
in doubt, typically when the loan is impaired or payments are past due over 90
days (180 days for residential mortgages). Payments received on such loans are
reported as principal reductions.

Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required using past loan loss experience, the nature and
volume of the portfolio, information about specific borrower situations and
estimated collateral values, economic conditions and other factors. Allocations
of the allowance may be made for specific loans, but the entire allowance is
available for any loan that, in management's judgment, should be charged off.
Loan losses are charged against the allowance when management believes the
uncollectibility of a loan is confirmed.

Loan Impairment: A loan is impaired when full payment under the loan terms is
not expected. Impairment is evaluated in the aggregate for smaller-balance loans
of a similar nature such as residential mortgage and consumer loans, and on an
individual loan basis for other loans. Commercial loans and mortgage loans
secured by other properties are evaluated individually for impairment. When
analysis of a borrower's operating results and financial condition indicates
that underlying cash flows of the borrower's business are not adequate to meet
its debt service requirements, the loan is evaluated for impairment. If a loan
is impaired, a portion of the allowance is allocated so that the loan is
reported, net, at the present value of estimated future cash flows using the
loan's existing interest rate or at the fair value of collateral if repayment is
expected solely from the collateral.

FINANCIAL CONDITION

The Company continued to experience growth in the second quarter of 2002. Total
assets of the Company were $319.4 million at June 30, 2002 compared to its
assets at December 31, 2001 of $291.8 million. The 9.5% increase in assets was
mainly due to an increase in loans and was supported in part by a $12.0 million
inflow of funds from deposit growth and a $15.0 million increase in Federal Home
Loan Bank advances during the first six months of 2002. Asset growth has been
substantial during each quarter since the Bank began operations. Total assets at
June 30, 2001 were $242.2 million. As the Bank is in its fourth year of
operation, the Company anticipates that, in the near-term, assets will increase
at a rate similar to our historical trends as we continue to market our
institution, products and banking expertise, deliver a high level of customer
service and develop our branch network.

Cash and cash equivalents, which include federal funds sold, were $17.8 million
at June 30, 2002, a $30.9 million or 63.5% decrease from $48.7 million at
December 31, 2001. Securities available for sale were $12.9 million at the end
of the second quarter of 2002, an increase of $9.4 million from December 31,
2001. The net decrease in cash and cash equivalents during the first six months
of 2002 was primarily due to a decrease in short-term investments,
interest-earning deposits and federal funds sold, as those assets were invested
in higher yielding loans. The decrease was reflective of the cash needs of the
Bank relative to loan growth, the purchase of securities and normal daily
liquidity activity. The increase in securities available for sale was a result
of the purchase of approximately $9.2 million in agency and municipal bonds for
the Bank's investment portfolio.

Total loans were $286.6 million at June 30, 2002 reflecting a 23.4% increase
from total loans of $232.3 million at December 31, 2001. The loans outstanding
at June 30, 2002 consisted of $229.7 million in commercial and commercial real
estate loans, $24.2 million in residential real estate and $32.7 million in home
equity and consumer loans. Loan growth in the first and second quarters of 2002
occurred mainly in the commercial and commercial real estate portfolio as well
as residential real estate portfolio. Management believes that the strong loan
growth during the





                                       11


<PAGE>
first six months of 2002 was the result of the Bank's continued experience in
lending and its clients' demand for a high level of customer service and local
expertise.

Management anticipates that loan growth will continue in the foreseeable future
and that funding for balance sheet growth and liquidity needs will continue to
come from a variety of sources including deposits from local markets as we
expand our branch distribution network, national market CDs and FHLB advances,
proceeds from the offerings, and, potentially, brokered CDs.

The allowance for loan losses at June 30, 2002 was $4.1 million. This
represented approximately 1.44% of total loans outstanding. The provision for
loan losses during the second quarter of 2002 was $445,000 compared to $225,000
in the second quarter of 2001. The addition to the allowance during the second
quarter of each year was directly attributable to the amount of the loan growth
during the respective periods, net charge-offs, probable incurred credit losses
and other risk factors inherent in the portfolio. Management considers the
allowance for loan losses to be adequate; however, there can be no assurance
that charge-offs in future periods will not exceed the allowance. Additional
provisions for the allowance are expected during 2002 as a result of anticipated
increases in the total loan portfolio.

        LOAN QUALITY                                AT AND FOR THE THREE MONTHS
                                                           ENDED JUNE 30
                                                    ---------------------------
         ($ in thousands)                             2002              2001
        =======================================================================
        Total Loans                                 $ 286,607         $ 178,790
        Net charge offs                             $     148         $       -
        Net charge offs to average loans*                0.22%             0.00%
        Allowance for loan losses                   $   4,130         $   2,815
        Allowance for loan losses to total loans         1.44%             1.57%
        Nonperforming loans                         $     748         $     180
               Nonperforming loans to total loans        0.26%             0.10%
        *annualized


Net premises and equipment increased by $622,520 during the first six months of
2002 from $1.6 million at December 31, 2001. The net increase resulted mainly
from expenditures on several projects including the purchase of land and
construction in process for a new branch site in Fort Wayne as well as
technology equipment, leasehold improvements, furniture and equipment for new
personnel.

Accrued interest receivable increased by $212,425 while other assets increased
by $406,996 from December 31, 2001 balances and were $1.2 million and $1.6
million respectively at June 30, 2002. The increase in accrued interest
receivable from year-end was mainly attributable to loan growth, growth in
securities available for sale, and the timing of loan payments and the increase
in other assets was mainly attributable to income tax accounts.

Total deposits were $268.2 million at June 30, 2002. Total deposits at December
31, 2001 were $256.2 million. Deposit growth has been significant since the Bank
commenced operations, resulting from new and existing deposit accounts
established from the business, consumer and the municipal sectors. While deposit
growth was reflected compared to year-end 2001, total deposits decreased during
the second quarter when compared with the $274.3 million at March 31, 2002 as
the Bank reduced its dependency in CDs over $100,000 and replaced them with
$15.0 million in Federal Home Loan Bank ("FHLB") advances. All other core
deposit categories, except savings accounts, reflected growth during the second
quarter of 2002 from the first quarter 2002 and increases were evident mainly in
money market accounts ($5.0 million) and CDs under $100,000 ($3.4 million). CDs
over $100,000 decreased by $17.4 million during the second quarter. While the
vast majority of total funding has come from the local market since the Bank
began operations, the majority of the growth in funding during 2002 has been
generated from national market CDs under $100,000, which grew during the first
half of 2002 by $11.8 million, and FHLB advances. The balance of national market
CDs reached $25.1 million at June 30, 2002 or 9.4% of the total deposit
portfolio. The amount of national market CDs in deposits at December 31, 2001
was $13.3 million.


                                       12


<PAGE>


Short-term borrowings at June 30, 2002 and December 31, 2001 remained the same
at $1.1 million and were entirely comprised of overnight federal funds
purchased. In addition, the Company also had borrowings in the amount of $21.5
million in FHLB advances, of which $6.5 million was in callable advances and
$15.0 million was in traditional fixed term advances. The FHLB callable advances
mature in 2012 and each have quarterly call features while the traditional fixed
term advances have various maturities which range from six months to three
years.

The Company had principal outstanding of $3.5 million in Trust Preferred
Securities at June 30, 2002 as a result of our subsidiary, TCT1, closing a
private placement offering of $3.5 million in Trust Preferred Securities on
November 16, 2001. The proceeds of the offering were loaned to the Company in
exchange for junior subordinated debentures with similar terms to the Trust
Preferred Securities. These securities are considered Tier I capital (with
certain limitations applicable) under current regulatory guidelines.

The junior subordinated debentures are subject to mandatory redemption, in whole
or in part, upon repayment of the Trust Preferred Securities at maturity or
their earlier redemption at the par amount. The maturity date of the Trust
Preferred Securities is November 15, 2031. Subject to the Company having
received prior approval of the Federal Reserve Bank, if then required, the Trust
Preferred Securities are redeemable prior to the maturity date beginning
November 15, 2006 and each year thereafter at the option of the Company.

Accrued interest payable decreased $42,587 and other liabilities decreased by
$286,314 from year-end 2001 and were $246,345 and $580,658 at June 30, 2002,
respectively. The decrease in accrued interest payable was attributable to less
accrued interest expense on deposits due to a lower interest rates during the
first half of 2002 while the decrease in other liabilities was related to the
payment during 2002 of various payroll and other expenses accrued at December
31, 2001.

Total stockholders' equity at June 30, 2002 was $24.3 million; an increase of
$819,409 from $23.5 million at December 31, 2001. The increase was mainly
attributable to net income of $675,433 recorded during the first six months of
2002 as well as the $143,976 net change in the unrealized appreciation on
securities.

RESULTS OF OPERATIONS

For The Three Month Period Ended June 30
----------------------------------------

Results of operations for the three-month period ended June 30, 2002 reflected
net income of $354,640 or $0.14 per diluted share. This reflected a $91,485 or
34.8% increase over 2001's second quarter net income of $263,155. Net income per
diluted share for second quarter of 2001 was $0.10. The operating improvement
during the three-month period ended June 30, 2002 from the second quarter of
2001 was mainly the result of revenue growth from both net interest income and
noninterest income. The improvement in operating results occurred despite
increases in both provision for loan losses and noninterest expenses.

        PERFORMANCE RATIOS                              THREE MONTHS ENDED
                                                              JUNE 30
                                                    ---------------------------
                                                      2002              2001
        =======================================================================
        Return on average assets*                        0.46%             0.45%
        Return on average equity*                        5.91%             4.63%
        Net interest margin*                             3.34%             3.15%
        Efficiency ratio                                66.46%            70.33%
        *annualized



Interest income for the three-month periods ended June 30, 2002 and 2001
remained stable at $4.0 million while interest expense for those periods was
$1.6 million and $2.2 million respectively, resulting in net interest income of
$2.5 million for the second quarter of 2002 and $1.8 million for the second
quarter of 2001. The increase in net interest income from the second quarter of
2001 was reflective of the general growth in loans and other earning assets
during those periods. The net interest margin for the second quarter of 2002 was
3.34%, while the net interest margin for the second quarter of 2001 was 3.15%.
The increase in the net interest margin from the second quarter of 2001


                                       13


<PAGE>


was mainly reflective of deposit repricings which lowered funding costs and a
tighter liquidity position. These improvements were made despite the effects of
a lower interest rate environment on an asset sensitive balance sheet as well as
the addition of higher cost funds in the form of 9% Trust Preferred Securities.

The following table reflects the average balance, interest earned or paid, and
yield or cost of the Company's assets, liabilities and stockholders' equity at
and for the three month period ended June 30, 2002 and 2001.

<TABLE>
<CAPTION>


AVERAGE BALANCE,                                               AT AND FOR THE THREE MONTH PERIOD ENDED
INTEREST AND YIELD/                           ------------------------------------------------------------------------
COST ANALYSIS                                            JUNE 30, 2002                        JUNE 30, 2001
                                              ------------------------------------------------------------------------
                                                            INTEREST                             INTEREST
                                                AVERAGE      EARNED       YIELD      AVERAGE      EARNED       YIELD
($ in thousands)                                BALANCE      OR PAID    OR COST*     BALANCE      OR PAID    OR COST*
======================================================================================================================
<S>                                           <C>            <C>           <C>     <C>            <C>          <C>
ASSETS
Short-term investments and
   interest-earning deposits                  $      5,599   $      35     2.51%   $     17,106   $     224     5.25%
Federal funds sold                                   6,575          28     1.71%         35,006         354     4.06%
Securities - taxable                                10,112         117     4.64%          7,902          94     4.77%
Securities - tax exempt (1)                          1,592          25     6.30%            400           5     5.01%
Loans held for sale                                  1,345          11     3.28%              -           -        -
Loans                                              275,407       3,841     5.59%        170,542       3,331     7.83%
                                              ------------------------             ------------------------
           Total interest-earning assets           300,630       4,057     5.41%        230,956       4,008     6.96%

Allowance for loan losses                           (3,930)                              (2,674)
Cash and due from banks                              6,344                                4,197
Other assets                                         4,411                                3,083
                                              ------------                         ------------
           Total assets                       $    307,455                         $    235,562
                                              ============                         ============

LIABILITIES AND STOCKHOLDERS'
   EQUITY
Interest-bearing checking                     $     12,791   $      32     1.00%   $      8,520   $      35     1.65%
Savings                                              5,683          21     1.48%          2,745          19     2.78%
Money market                                       107,693         492     1.83%         92,901         965     4.17%
Certificates of deposit                            110,106         852     3.10%         82,169       1,140     5.56%
Short-term borrowings                                2,302           9     1.57%            601           6     4.00%
FHLB advances                                        8,797          73     3.33%          2,500          26     4.17%
Trust preferred securities                           3,454          77     8.94%              -           -        -
                                              ------------------------             ------------------------
           Total interest-bearing liabilities      250,826       1,556     2.49%        189,436       2,191     4.64%

Noninterest-bearing checking                        31,060                               22,136
Other liabilities                                    1,461                                1,222
Stockholders' equity                                24,108                               22,768
                                              ------------                         ------------
           Total liabilities and
              stockholders' equity            $    307,455                         $    235,562
                                              ============                         ============


NET INTEREST INCOME                                          $   2,501                            $   1,817
                                                             =========                            =========
RATE SPREAD*                                                               2.92%                                2.32%
NET INTEREST INCOME AS A PERCENT
   OF AVERAGE EARNING ASSETS*                                              3.34%                                3.15%


</TABLE>

(1) Computed on a tax equivalent basis for tax exempt securities using a 34%
    statutory tax rate.
 *  Annualized

A provision for loan losses was recorded in the amount of $445,000 during the
second quarter of 2002 as compared to $225,000 for the second quarter of 2001.
The provision recorded was directly related to the growth in the loan


                                       14


<PAGE>


portfolio, net charge-offs, probable incurred credit losses and other risk
factors inherent in the loan portfolio. The allowance for loan losses at June
30, 2002 totaled $4.1 million and was 1.44% of total loans outstanding on that
date. Loan charge offs for the three-month period ended June 30, 2002 were
$150,579 with recoveries of $2,795. There were no charge offs or recoveries
during the same period a year ago. At June 30, 2002, nonperforming loans
amounted to $748,314 of which $3,205 were still accruing but past due 90 days or
more. Nonperforming loans at June 30, 2001 were $180,234 of which $57,000 were
still accruing but past due 90 days or more.

Noninterest income was $564,510 during the second quarter of 2002. This was a
$140,005 or 33.0% increase over the second quarter of 2001. The increase in
noninterest income from the comparable period was reflected in most categories
but mainly attributable to a 30.8% growth in fees from trust services, a 73.9%
growth in service charge revenue, and 83.5% growth in other fees. Trust fees
improved reflective of higher levels of trust assets under management, while
improvements in service charges and other fees generally were reflective of an
increase in activity and growth in and development of deposit accounts.

Noninterest expense was $2.0 million for the second quarter of 2002 while
noninterest expense for the three-month period ended June 30, 2001 was $1.6
million. The main components of noninterest expense for the second quarter of
2002 were salaries and benefits of $1.2 million, occupancy and equipment costs
of $251,568, and loan and professional expenses in the amount of $158,010. These
costs were mainly the result of human resource needs to operate the bank, rent
expense and equipment depreciation, as well as normal professional fees for
accountants, attorneys and other professionals used to originate loans. The
increase in noninterest expense for the second quarter of 2002 as compared to
the second quarter of 2001 was mainly reflective of the general growth of the
Bank in the form of personnel, rent and equipment at the existing locations. The
number of employees (FTEs) at June 30, 2002 was 84.0 compared to 58.3 at June
30, 2001. Strong revenue growth, combined with continued attention to expense
control, resulted in an improved efficiency ratio, which was 66.5% for the
second quarter of 2002 compared to 70.3% for the second quarter of 2001.

For The Six Month Period Ended June 30
--------------------------------------

Results of operations for the six-month period ended June 30, 2002 reflected net
income of $675,433 or $0.26 per diluted share. This was a $209,120 or 44.8%
increase over 2001's first six month's net income of $466,313. Net income per
diluted share for the first six months of 2001 was $0.18. The operating
improvement during the six-month period ended June 30, 2002 from the same period
a year ago was mainly the result of revenue growth from both net interest income
and noninterest income. The improvement in operating results occurred despite
increases in both provision for loan losses and noninterest expenses.

        PERFORMANCE RATIOS                               SIX MONTHS ENDED
                                                              JUNE 30
                                                    ---------------------------
                                                       2002             2001
        =======================================================================
        Return on average assets*                        0.45%             0.43%
        Return on average equity*                        5.64%             4.15%
        Net interest margin*                             3.20%             3.30%
        Efficiency ratio                                66.50%            71.37%
        *annualized

Interest income for the six-month periods ended June 30, 2002 and 2001 was $7.8
million and $7.9 million, respectively, while interest expense for those periods
was $3.1 million and $4.4 million, respectively, resulting in net interest
income of $4.7 million for the first six months of 2002 and $3.5 million for the
same period in 2001. The increase in net interest income was reflective of the
general growth in loans and other earning assets during those periods despite a
decrease in net interest margin. The net interest margin for the first six
months of 2002 was 3.20%, while the net interest margin for the first six months
of 2001 was 3.30%. On a year-to-date basis, the decrease in the net interest
margin from a year ago was mainly reflective of the lower interest rate
environment's effect on an asset sensitive balance sheet and higher funding
costs in the form of 9% trust preferred securities. During the second




                                       15


<PAGE>

quarter of 2002, the Company improved net interest margin through deposit
repricings, which lowered funding costs, investments in securities available for
sale and a tighter liquidity position.

The following table reflects the average balance, interest earned or paid, and
yield or cost of the Company's assets, liabilities and stockholders' equity at
and for the six month period ended June 30, 2002 and 2001.


<TABLE>
<CAPTION>


AVERAGE BALANCE,                                               AT AND FOR THE SIX MONTH PERIOD ENDED
INTEREST AND YIELD/                           ------------------------------------------------------------------------
COST ANALYSIS                                            JUNE 30, 2002                        JUNE 30, 2001
                                              ------------------------------------------------------------------------
                                                              INTEREST                             INTEREST
                                                AVERAGE       EARNED     YIELD       AVERAGE        EARNED    YIELD
($ in thousands)                                BALANCE       OR PAID   OR COST*     BALANCE       OR PAID   OR COST*
======================================================================================================================
<S>                                           <C>            <C>           <C>     <C>            <C>          <C>
ASSETS
Short-term investments and
   interest-earning deposits                  $     10,160   $     113     2.24%   $     15,164   $     372     4.95%
Federal funds sold                                  10,730          91     1.71%         27,346         662     4.88%
Securities - taxable                                 6,928         161     4.69%          7,635         198     5.23%
Securities - tax exempt (1)                          1,000          33     6.73%            137           5     8.53%
Loans held for sale                                  2,290          42     3.70%              -           -        -
Loans                                              263,079       7,358     5.64%        164,462       6,690     8.20%
                                              ------------------------             ------------------------
           Total interest-earning assets           294,187       7,798     5.34%        214,744       7,927     7.44%

Allowance for loan losses                           (3,765)                              (2,559)
Cash and due from banks                              6,251                                4,267
Other assets                                         4,139                                3,056
                                              ------------                         ------------
           Total assets                       $    300,812                         $    219,508
                                              ============                         ============


LIABILITIES AND STOCKHOLDERS'
  EQUITY
Interest-bearing checking                     $     12,874        $ 65     1.02%   $      7,376   $      62     1.70%
Savings                                              5,484          42     1.55%          2,583          36     2.82%
Money market                                       105,016         991     1.90%         84,287       1,955     4.68%
Certificates of deposit                            109,468       1,730     3.19%         78,548       2,313     5.94%
Short-term borrowings                                1,712          13     1.60%            566          13     4.72%
FHLB advances                                        7,655         129     3.41%          1,340          28     4.22%
Trust preferred securities                          3,453          159     9.28%              -           -        -
                                              ------------------------             ------------------------
           Total interest-bearing liabilities      245,662       3,129     2.57%        174,700       4,407     5.09%

Noninterest-bearing checking                        30,185                               20,969
Other liabilities                                      817                                1,191
Stockholders' equity                                24,148                               22,648
                                              ------------                         ------------
           Total liabilities and
               stockholders' equity           $    300,812                         $    219,508
                                              ============                         ============

NET INTEREST INCOME                                          $   4,669                            $   3,520
                                                             =========                            =========
RATE SPREAD*                                                               2.77%                                2.35%
NET INTEREST INCOME AS A PERCENT
   OF AVERAGE EARNING ASSETS*                                              3.20%                                3.30%


</TABLE>

(1)  Computed on a tax equivalent basis for tax exempt securities using a 34%
     statutory tax rate.
 *   Annualized

A provision for loan losses was recorded in the amount of $820,000 during the
first six months of 2002 as compared to $450,000 for the first six months of
2001. The increase in the provision for loan losses was directly related to the
growth in the loan portfolio, net charge-offs, probable incurred credit losses
and other risk factors inherent in the loan


                                       16



<PAGE>

portfolio. Loan charge offs for the six-month period ended June 30, 2002 were
$172,863 with recoveries of $2,795. There were no charge offs or recoveries
during the same period a year ago.

Noninterest income was $1.1 million during the first half of 2002. This was a
$348,864 or 45.7% increase over the first six months of 2001. The increase in
noninterest income from the comparable period was reflected in most categories
but mainly attributable to a 40.2% growth in fees from trust services, a 112.8%
growth in service charge revenue, and 81.0% growth in other fees. Trust fees
improved reflective of higher levels of trust assets under management, while
improvements in service charges and other fees generally were reflective of an
increase in activity and growth in and development of deposit accounts.

Noninterest expense was $3.8 million for the first six months of 2002 while
noninterest expense for the six-month period ended June 30, 2001 was $3.1
million. The main components of noninterest expense for the first half of 2002
were salaries and benefits of $2.3 million, occupancy and equipment costs of
$482,338, and loan and professional expenses in the amount of $217,181. These
costs were mainly the result of human resource needs to operate the bank, rent
expense and equipment depreciation, as well as normal professional fees for
accountants, attorneys and other professionals used to originate loans. The
increase in noninterest expense for the first six months of 2002 as compared to
the same period a year ago was mainly reflective of the general growth of the
Bank in the form of personnel, rent and equipment at the existing locations.

LIQUIDITY AND CAPITAL RESOURCES

The Company's general liquidity strategy is to fund loan growth with deposits
and borrowings, as well as maintain an adequate level of short- and medium-term
investments to meet typical daily loan and deposit activity needs. Deposit
growth was realized during the first quarter of 2002 as it had been each quarter
since inception, however, for the quarter ended June 30, 2002, total deposits
decreased from March 31, 2002 levels as the Company continued to diversify its
funding base and reduced large dollar CDs and replaced them with FHLB advances.
Deposits have been generated mainly from in-market sources, however the Company
has expanded its funding base during 2001 and the first half of 2002 to include
national, non-brokered certificates of deposit, overnight borrowings, borrowings
from the FHLB and trust preferred securities. The total dollars and percentage
of total funding that these sources provided the Company at June 30, 2002 were $
51.2 million and 17.4%, respectively. At December 31, 2001, the total dollars
and percentage of total funding that these sources provided were $23.2 million
and 8.7%, respectively. At June 30, 2002, total deposits were $268.2 million and
the loan to deposit ratio was 106.9% while the loan to total funding ratio was
97.4%. Total borrowings at June 30, 2002 were $26.1 million and were $11.0
million at December 31, 2001.

        LIQUIDITY AND CAPITAL RATIOS                           JUNE 30
                                                    ---------------------------
                                                      2002               2001
        =======================================================================
        Loan to deposit ratio                          106.87%            83.18%
        Loan to funding ratio                           97.40%            81.83%
        Total risk-based capital                        10.57%            12.95%
        Tier 1 risk-based capital                        9.32%            11.70%
        Tier 1 leverage capital                          9.01%             9.71%

The Company expects to continue to experience loan growth in the foreseeable
future. Funding for balance sheet growth and liquidity needs will continue to
come from a variety of sources including, in-market sources through the
marketing of products and the development of branch locations, wholesale,
out-of-market deposits and borrowing capacities such as national market CDs and
FHLB advances to augment our interest rate sensitivity strategy and liquidity
capabilities and to diversify the funding base of the Bank.

In its initial public offering in early 1999, the Company raised equity capital
with aggregate proceeds, net of underwriters' discount and offering expenses, of
$23.5 million. The Company initially contributed $15.0 million of the net
proceeds from the offering to the Bank. During the first quarter of 2000, the
Company contributed an additional $4.0 million in capital to the Bank as a
result of the substantial growth experienced during 1999. Additionally, during
2001, the Company contributed $2.0 million in capital to the Bank during the
first quarter, $1.5


                                       17


<PAGE>


million during the third quarter and $3.25 million during the fourth quarter,
all to support the continued growth of the Bank.

As noted in previous filings, as a condition to regulatory approvals for the
formation of the Bank, the Company and the Bank were required to have
capitalization sufficient to provide a ratio of Tier 1 capital to total assets
of not less than eight percent (8%) and Tier 1 capital to average assets in
excess of nine percent (9%), during the first three years of operation. These
restrictions expired in February 2002. Currently and going forward, the Company
and the Bank are now subject to the same capitalization requirements as other
financial holding companies and banks. The Company and the Bank currently have
capitalization sufficient to meet these requirements. As further growth of the
business is anticipated, management continually explores various capital
alternatives in the event additional capital is needed in the future.

On July 22, 2002, the Securities and Exchange Commission declared effective the
Company's Registration Statement on Form SB-2 (Registration No. 333-88852) with
respect to a rights offering and a possible limited public offering of up to
1,395,232 shares of the Company's no par value common stock. If the maximum
number of shares offered are sold in the offerings, the gross proceeds from the
offerings would be approximately $15.0 million. The Company estimates that fees
and expenses for the offerings will range from approximately $800,000 to $1.5
million, assuming the maximum number of shares offered are sold.

Commitments and Off-Balances Sheet Risk. The Bank maintains off-balance-sheet
investments in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. Loan commitments to extend credit are agreements to
lend to a customer at any time, as the customer's needs vary, as long as there
is no violation of any condition established in the contract. Standby letters of
credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. We monitor fluctuations in loan balances and commitment levels and
include such data in our overall liquidity management.

The instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized, if any, in the balance sheet. The Bank's maximum
exposure to loan loss in the event of nonperformance by the other party to the
financial instruments for commitments to extend credit and standby letters of
credit is represented by the contractual notional amount of these instruments.
Such financial instruments are recorded when they are funded.

The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. Collateral, such as
accounts receivable, securities, inventory, property and equipment, is generally
required based on management's credit assessment of the borrower.

Fair value of the Bank's off-balance-sheet instruments (commitments to extend
credit and standby letters of credit) is based on rates currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing. At December 31, 2001, the
rates on existing off-balance-sheet instruments were equivalent to current
market rates, considering the underlying credit standing of the counterparties.

The Company and the Bank occupy their respective headquarters, offices and other
facilities under long-term operating leases and, in addition, are parties to
long-term contracts for data processing and operating systems.

Under the terms of certain employment contracts, upon the occurrence of certain
events resulting in the severance of certain executive officers' employment with
the Company, payments may be required to be made in excess of amounts that have
been accrued.


                                       18


<PAGE>




The following tables represent the Company's contractual obligations and
commitments at December 31, 2001.

<TABLE>
<CAPTION>

        CONTRACTUAL OBLIGATIONS                                    PAYMENTS DUE BY PERIOD
        AT DECEMBER 31, 2001                    ----------------------------------------------------
                                                  LESS
                                                 THAN 1     1 - 3      4 - 5      AFTER 5
        (dollars in thousands)                    YEAR      YEARS      YEARS       YEARS     TOTAL
        --------------------------------------------------------------------------------------------
        <S>                                     <C>        <C>        <C>        <C>        <C>
        Federal Home Loan Bank advances         $      -   $      -   $      -   $  6,500   $  6,500
        Trust preferred securities                     -          -          -      3,430      3,430
        Operating leases                             452        986        988      3,620      6,046
        Unconditional land purchase obligations      330          -          -          -        330
                                                ----------------------------------------------------
        Total contactual cash obligations       $    782   $    986   $    988   $ 13,550   $ 16,306
                                                ====================================================


        COMMITMENTS                                  AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
        AT DECEMBER 31, 2001                    ----------------------------------------------------
                                                  LESS
                                                 THAN 1     1 - 3      4 - 5      AFTER 5
        (dollars in thousands)                    YEAR      YEARS      YEARS       YEARS     TOTAL
        --------------------------------------------------------------------------------------------

        Lines of credit                         $ 34,692   $  7,338   $  6,080   $  3,434   $ 51,544
        Standby letters of credit                    250         48         64          -        362
                                                ----------------------------------------------------

        Total commercial commitments            $ 34,942   $  7,386   $  6,144   $  3,434   $ 51,906
                                                ====================================================

</TABLE>


Related Party Transactions. Certain directors and executive officers of the
Company, including their immediate families and companies in which they are
principal owners, are loan customers of the Bank. At June 30, 2002 and 2001, the
Bank had $13.9 million and $15.9 million, respectively, in loan commitments to
directors and executive officers, of which $11.2 million and $13.6 million were
outstanding at the respective period-ends.

During 2002 and 2001, the Company and the Bank engaged in transactions with
entities controlled by their respective directors or their affiliates. The Bank
leases its headquarters facility from Tippmann Properties, Inc., agent for John
V. Tippmann, Sr., a director. The original lease was a 10-year lease commencing
on January 1, 1999. During 2001, the original lease term was extended to 15
years with provisions for one renewal term of 10 years at then prevailing market
rates. The total amount paid to Tippmann Properties by the Company and the Bank
for rent and maintenance was $160,775 and $118,798 during the six-month periods
ended June 30, 2002 and 2001, respectively. The lease is accounted for as an
operating lease. Refer to the discussion above for a summary of future lease
payment commitments under this and other leases.


                           PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS
-------------------------

The Company and the Bank may be involved from time to time in various routine
legal proceedings incidental to its business. Neither the Company nor the Bank
is engaged in any legal proceeding that is expected to have a material adverse
effect on the results of operations or financial position of the Company or the
Bank.

Item 2. CHANGES IN SECURITIES
-----------------------------

On July 22, 2002, the Securities and Exchange Commission declared effective the
Company's Registration Statement on Form SB-2 (Registration No. 333-88852) with
respect to a rights offering and a limited public offering of up to 1,395,232
shares of the Company's no par value common stock. On or about July 25, 2002,
nontransferable rights to purchase shares of common stock were distributed at no
charge to the Company's shareholders and option holders of record at the close
of business on May 31, 2002. The rights offering will expire on August 21, 2002.
In addition, the Company may conduct a limited public offering of any shares
that are not subscribed for in the rights offering. If


                                       19



<PAGE>



conducted, the limited public offering will expire on August 28, 2002, unless
the Company extends it, in the Company's sole discretion. The Company does not
intend to extend the limited public offering past September 12, 2002. The
Company has retained Stifel, Nicolaus & Company, Incorporated as its financial
advisor and lead marketing agent for the offerings. Fahnestock & Co., Inc. will
serve as co-marketing agent for the offerings.

The registration statement registered 1,395,232 shares of the Company's no par
value common stock and 2,790,465 nontransferable rights to purchase shares of
common stock. If the maximum number of shares offered are sold in the offerings,
the gross proceeds from the offerings would be approximately $15.0 million. The
Company estimates that fees and expenses for the offerings will range from
approximately $800,000 to $1.5 million, assuming the maximum number of shares
offered are sold.

Item 3. DEFAULTS UPON SENIOR SECURITES
--------------------------------------

None.

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

The results of the Company's Annual Meeting of Shareholders held on April 16,
2002 were previously reported in the Company's quarterly report on Form 10-QSB
for the period ended March 31, 2002. There were no other matters submitted for a
vote of security holders during the quarter ended June 30, 2002.

Item 5. OTHER INFORMATION
-------------------------

None.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------

(a) Exhibits.

        99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
             Section 1350.

        99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
             Section 1350.

(b) No reports on Form 8-K were filed during the quarter ended June 30, 2002.



                                   SIGNATURES
                                   ----------

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

                                TOWER FINANCIAL CORPORATION


Dated:  August 12, 2002         /s/  Donald F. Schenkel
                                -----------------------------------------------
                                Donald F. Schenkel, Chairman of the Board,
                                President and Chief Executive Officer


Dated:  August 12, 2002         /s/  Kevin J. Himmelhaver
                                -----------------------------------------------
                                Kevin J. Himmelhaver, Executive Vice President,
                                Chief Financial Officer and Secretary


                                       20