----

----

| 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.) |
|                                                           |                                 |

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

|   | Large accelerated filer o                      |   | Accelerated filer o         |
|--------|------------------------------------------------|--------|-----------------------------|
|   | Non-accelerated filer o                        |   | Smaller reporting company x |
|   | (Do not check if a smaller reporting company.) |   |                        |

----

----

----

|   | · | Changes in banking regulation; |
|--------|--------|--------------------------------|

|   | · | Governmental economic and regulatory policy changes and restrictions; |
|--------|--------|-----------------------------------------------------------------------|

|   | · | Changes in the national and local economy; |
|--------|--------|--------------------------------------------|

|   | · | Trends in customer behavior, their ability to repay loans, and risk of losses due to loan defaults; |
|--------|--------|-----------------------------------------------------------------------------------------------------|

|   | · | Outcomes of contingencies, including loan loss reserves; |
|--------|--------|----------------------------------------------------------|

|   | · | Changes in local real estate and other collateral values; |
|--------|--------|-----------------------------------------------------------|

|   | · | Changes in interest rates and interest rate relationships; |
|--------|--------|------------------------------------------------------------|

|   | · | Demand for our products and services; |
|--------|--------|---------------------------------------|

|   | · | The degree of competition by traditional and non-traditional competitors; |
|--------|--------|---------------------------------------------------------------------------|

|   | · | Changes in tax laws; |
|--------|--------|----------------------|

|   | · | Changes in prices; |
|--------|--------|--------------------|

|   | · | The impact of technological advances; and |
|--------|--------|-------------------------------------------|

|   | · | Changes in local real estate and other collateral values. |
|--------|--------|-----------------------------------------------------------|

----

INDEX

| PART I.   FINANCIAL INFORMATION  |                                                                                                                                            |
|------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                 | Item 1.   Financial Statements                                                                                                        | page no. |
|                                                 |                                                                                                                                            |   |
|                                                 | Consolidated Condensed Balance Sheets at June 30, 2010 (unaudited) and December 31, 2009                                                        | 4 |
|                                                 |                                                                                                                                            |   |
|                                                 | Consolidated Condensed Statements of Operations for the three and six months ended June 30, 2010 and June 30, 2009 (unaudited)                  | 5 |
|                                                 |                                                                                                                                            |   |
|                                                 | Consolidated Condensed Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2010 and June 30, 2009 (unaudited) | 7 |
|                                                 |                                                                                                                                            |   |
|                                                 | Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2010 and June 30, 2009 (unaudited)                            | 8 |
|                                                 |                                                                                                                                            |   |
|                                                 | Notes to Consolidated Condensed Financial Statements (unaudited)                                                                                | 9 |
|                                                 |                                                                                                                                            |   |
|                                                 | Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations                            | 26 |
|                                                 |                                                                                                                                            |   |
|                                                 | Item 4.   Controls and Procedures                                                                                                | 33 |
|                                                 |                                                                                                                                            |   |
| PART II.   OTHER INFORMATION          |                                                                                                                                            |
|                                                 |                                                                                                                                            |   |
|                                                 | Item 1.   Legal Proceedings                                                                                                      | 34 |
|                                                 |                                                                                                                                            |   |
|                                                 | Item 1a. Risk Factors                                                                                                                           | 34 |
|                                                 |                                                                                                                                            |   |
|                                                 | Item 2.   Unregistered Sale of Securities                                                                                             |  34 |
|                                                 |                                                                                                                                            |   |
|                                                 | Item 5.   Other Information                                                                                                           |  34 |
|                                                 |                                                                                                                                            |   |
|                                                 | Item 6.   Exhibits                                                                                                                    | 35 |
|                                                 |                                                                                                                                            |   |
| SIGNATURES                                           | 35                                                                                                                                              |

----

Index

PART I.  FINANCIAL INFORMATION

|                                                                                                                                                                                   |   | June 30, |        |   | December 31, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-------------|--------|--------------|--------|
|                                                                                                                                                                                   |   | 2010     |        |   | 2009         |   |
| ASSETS                                                                                                                                                                                 |   |     |        |   |         |   |
| Cash and due from banks                                                                                                                                                                |   | $        | 14,405,724  |   |         | $      | 19,861,434 |   |
| Short-term investments and interest-earning deposits                                                                                                                                   |   |     | 1,712,645   |   |         |   | 1,259,197 |   |
| Federal funds sold                                                                                                                                                                     |   |     | 1,098,535   |   |         |   | 3,543,678 |   |
| Total cash and cash equivalents                                                                                                                                                        |   |     | 17,216,904  |   |         |   | 24,664,309 |   |
|                                                                                                                                                                                   |   |     |        |   |         |   |   |   |
| Securities held to maturity, at cost (fair value of $5,792,378 and $4,635,616 in 2010 and 2009, respectively)                                                                          |   |     | 5,655,990   |   |         |   | 4,495,977 |   |
| Securities available for sale, at fair value                                                                                                                                           |   |     | 89,546,114  |   |         |   | 85,179,160 |   |
| FHLB and FRB stock                                                                                                                                                                     |   |     | 4,325,800   |   |         |   | 4,250,800 |   |
| Loans held for sale                                                                                                                                                                    |   |     | 1,663,315   |   |         |   | 3,842,089 |   |
|                                                                                                                                                                                   |   |     |        |   |         |   |   |   |
| Loans                                                                                                                                                                                  |   |     | 509,656,449 |   |         |   | 527,333,461 |   |
| Allowance for loan losses                                                                                                                                                              |   |     | (12,718,300 | )      |         |   | (11,598,389 | ) |
| Net loans                                                                                                                                                                              |   |     | 496,938,149 |   |         |   | 515,735,072 |   |
|                                                                                                                                                                                   |   |     | -           |   |         |   | - |   |
| Premises and equipment, net                                                                                                                                                            |   |     | 8,641,955   |   |         |   | 8,011,574 |   |
| Accrued interest receivable                                                                                                                                                            |   |     | 2,532,448   |   |         |   | 2,439,859 |   |
| Bank owned life insurance                                                                                                                                                              |   |     | 13,279,982  |   |         |   | 13,046,573 |   |
| Other real estate owned (OREO)                                                                                                                                                         |   |     | 6,185,563   |   |         |   | 4,634,089 |   |
| Prepaid FDIC Insurance                                                                                                                                                                 |   |     | 3,864,053   |   |         |   | 4,777,797 |   |
| Other assets                                                                                                                                                                           |   |     | 8,476,492   |   |         |   | 9,081,759 |   |
|                                                                                                                                                                                   |   |     |        |   |         |   |   |   |
| Total assets                                                                                                                                                                           |   | $        | 658,326,765 |   |         | $      | 680,159,058 |   |
|                                                                                                                                                                                   |   |     |        |   |         |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                   |   |     |        |   |         |   |   |   |
| LIABILITIES                                                                                                                                                                            |   |     |        |   |         |   |   |   |
| Deposits:                                                                                                                                                                              |   |     |        |   |         |   |   |   |
| Noninterest-bearing                                                                                                                                                                    |   | $        | 84,994,979  |   |         | $      | 95,027,233 |   |
| Interest-bearing                                                                                                                                                                       |   |     | 479,992,858 |   |         |   | 473,353,118 |   |
| Total deposits                                                                                                                                                                         |   |     | 564,987,837 |   |         |   | 568,380,351 |   |
|                                                                                                                                                                                   |   |     | -           |   |         |   | - |   |
| Federal Home Loan Bank (FHLB) advances                                                                                                                                                 |   |     | 22,500,000  |   |         |   | 43,200,000 |   |
| Junior subordinated debt                                                                                                                                                               |   |     | 17,527,000  |   |         |   | 17,527,000 |   |
| Accrued interest payable                                                                                                                                                               |   |     | 886,520     |   |         |   | 480,885 |   |
| Other liabilities                                                                                                                                                                      |   |     | 3,475,777   |   |         |   | 3,634,713 |   |
| Total liabilities                                                                                                                                                                      |   |     | 609,377,134 |   |         |   | 633,222,949 |   |
|                                                                                                                                                                                   |   |     |        |   |         |   |   |   |
| STOCKHOLDERS' EQUITY                                                                                                                                                                   |   |     |        |   |         |   |   |   |
| Preferred stock, no par value, 4,000,000 shares authorized; 18,300 shares issued and outstanding at June 30, 2010 and December 31, 2009                                                |   |     | 1,788,000   |   |         |   | 1,788,000 |   |
| Common stock and paid-in-capital, no par value, 6,000,000 shares authorized; 4,155,432 issued; and  4,090,432 shares outstanding at June 30, 2010 and December 31, 2009 |   |     | 39,859,103  |   |         |   | 39,835,648 |   |
| Treasury stock, at cost, 65,000 shares at June 30, 2010 and December 31, 2009                                                                                                          |   |     | (884,376    | )      |         |   | (884,376 | ) |
| Retained earnings                                                                                                                                                                      |   |     | 6,521,934   |   |         |   | 5,286,808 |   |
| Accumulated other comprehensive income, net of tax of $857,712 at June 30, 2010 and $468,803 at December 31, 2009                                                                      |   |     | 1,664,970   |   |         |   | 910,029 |   |
| Total stockholders' equity                                                                                                                                                             |   |     | 48,949,631  |   |         |   | 46,936,109 |   |
|                                                                                                                                                                                   |   |     |        |   |         |   |   |   |
| Total liabilities and stockholders' equity                                                                                                                                             |   | $        | 658,326,765 |   |         | $      | 680,159,058 |   |
|                                                                                                                                                                                   |   |     |        |   |         |   |   |   |
| The following notes are an integral part of the financial statements.                                                                                                                  |

----

Index

Tower Financial Corporation

|                                          |   | (unaudited)        |      |   | (unaudited)      |   |
|-----------------------------------------------|--------|--------------------|-----------|--------|------------------|--------|
|                                          |   | Three Months Ended |      |   | Six Months Ended |   |
|                                          |   | June 30            |      |   | June 30          |   |
|                                          |   | 2010               |      |   | 2009             |   |   | 2010 |   |   | 2009 |   |
| Interest income:                              |   |               |      |   |             |   |   |   |   |   |   |   |
| Loans, including fees                         |   | $                  | 6,826,902 |   |             | $      | 7,099,710 |   |   | $ | 13,709,904 |   |   | $ | 14,147,664 |   |
| Securities - taxable                          |   |               | 662,823   |   |             |   | 781,080 |   |   |   | 1,301,914 |   |   |   | 1,414,797 |   |
| Securities - tax exempt                       |   |               | 255,223   |   |             |   | 243,046 |   |   |   | 499,774 |   |   |   | 469,329 |   |
| Other interest income                         |   |               | 6,122     |   |             |   | 2,708 |   |   |   | 12,370 |   |   |   | 9,553 |   |
| Total interest income                         |   |               | 7,751,070 |   |             |   | 8,126,544 |   |   |   | 15,523,962 |   |   |   | 16,041,343 |   |
| Interest expense:                             |   |               |      |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                      |   |               | 1,727,772 |   |             |   | 2,803,694 |   |   |   | 3,487,270 |   |   |   | 5,646,584 |   |
| Short-term borrowings                         |   |               | 111       |   |             |   | 1,082 |   |   |   | 111 |   |   |   | 990 |   |
| FHLB advances                                 |   |               | 142,854   |   |             |   | 216,680 |   |   |   | 312,712 |   |   |   | 467,028 |   |
| Junior subordinated debt                      |   |               | 283,071   |   |             |   | 283,071 |   |   |   | 563,297 |   |   |   | 563,297 |   |
| Total interest expense                        |   |               | 2,153,808 |   |             |   | 3,304,527 |   |   |   | 4,363,390 |   |   |   | 6,677,899 |   |
| Net interest income                           |   |               | 5,597,262 |   |             |   | 4,822,017 |   |   |   | 11,160,572 |   |   |   | 9,363,444 |   |
| Provision for loan losses                     |   |               | 1,100,000 |   |             |   | 6,550,000 |   |   |   | 2,440,000 |   |   |   | 7,510,000 |   |
| Net interest income after provision           |   |               |      |   |             |   |   |   |   |   |   |   |   |   |   |   |
| for loan losses                               |   |               | 4,497,262 |   |             |   | (1,727,983 | ) |   |   | 8,720,572 |   |   |   | 1,853,444 |   |
| Noninterest income:                           |   |               |      |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Trust and brokerage fees                      |   |               | 889,681   |   |             |   | 806,067 |   |   |   | 1,772,647 |   |   |   | 1,673,956 |   |
| Service charges                               |   |               | 280,053   |   |             |   | 283,483 |   |   |   | 570,439 |   |   |   | 541,316 |   |
| Loan broker fees                              |   |               | 167,069   |   |             |   | 195,403 |   |   |   | 284,569 |   |   |   | 333,681 |   |
| Gain on sale/calls of securities              |   |               | 41,708    |   |             |   | 3,861 |   |   |   | 42,548 |   |   |   | 195,012 |   |
| Other-than-temporary loss:                    |   |               |      |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Total impairment loss                         |   |               | (14,278   | )      |             |   | (47,656 | ) |   |   | (24,868 | ) |   |   | (169,899 | ) |
| Loss recognized in other comprehensive income |   |               | -         |   |             |   | - |   |   |   | - |   |   |   | 122,243 |   |
| Net impairment loss recognized in earnings    |   |               | (14,278   | )      |             |   | (47,656 | ) |   |   | (24,868 | ) |   |   | (47,656 | ) |
| Other income                                  |   |               | 369,916   |   |             |   | 357,790 |   |   |   | 686,508 |   |   |   | 691,942 |   |
| Total noninterest income                      |   |               | 1,734,149 |   |             |   | 1,598,948 |   |   |   | 3,331,843 |   |   |   | 3,388,251 |   |
| Noninterest expense:                          |   |               |      |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Salaries and benefits                         |   |               | 2,273,975 |   |             |   | 2,644,960 |   |   |   | 4,661,051 |   |   |   | 5,367,409 |   |
| Occupancy and equipment                       |   |               | 630,224   |   |             |   | 692,810 |   |   |   | 1,259,502 |   |   |   | 1,391,402 |   |
| Marketing                                     |   |               | 144,975   |   |             |   | 134,215 |   |   |   | 241,667 |   |   |   | 278,872 |   |
| Data processing                               |   |               | 116,300   |   |             |   | 327,443 |   |   |   | 425,212 |   |   |   | 621,452 |   |
| Loan and professional costs                   |   |               | 421,030   |   |             |   | 383,196 |   |   |   | 859,437 |   |   |   | 695,140 |   |
| Office supplies and postage                   |   |               | 71,103    |   |             |   | 73,489 |   |   |   | 134,292 |   |   |   | 170,546 |   |
| Courier services                              |   |               | 55,790    |   |             |   | 58,472 |   |   |   | 111,124 |   |   |   | 119,907 |   |
| Business development                          |   |               | 99,832    |   |             |   | 165,765 |   |   |   | 178,840 |   |   |   | 266,762 |   |
| Communication                                 |   |               | 58,502    |   |             |   | 44,321 |   |   |   | 94,861 |   |   |   | 88,239 |   |
| FDIC insurance premiums                       |   |               | 490,467   |   |             |   | 679,308 |   |   |   | 992,672 |   |   |   | 958,798 |   |
| OREO expenses and write-downs                 |   |               | 945,519   |   |             |   | 1,012,683 |   |   |   | 1,001,316 |   |   |   | 1,055,170 |   |
| Other expense                                 |   |               | 334,619   |   |             |   | 241,219 |   |   |   | 587,528 |   |   |   | 437,455 |   |
| Total noninterest expense                     |   |               | 5,642,336 |   |             |   | 6,457,881 |   |   |   | 10,547,502 |   |   |   | 11,451,152 |   |
| Income (loss) before income taxes             |   |               | 589,075   |   |             |   | (6,586,916 | ) |   |   | 1,504,913 |   |   |   | (6,209,457 | ) |
| Income taxes expense (benefit)                |   |               | 74,985    |   |             |   | (2,491,436 | ) |   |   | 269,787 |   |   |   | (2,524,202 | ) |
|                                          |   |               |      |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                             |   | $                  | 514,090   |   |             | $      | (4,095,480 | ) |   | $ | 1,235,126 |   |   | $ | (3,685,255 | ) |

----

Index

|                                                                    |   | (unaudited)        |      |   | (unaudited)      |   |
|-------------------------------------------------------------------------|--------|--------------------|-----------|--------|------------------|--------|
|                                                                    |   | Three Months Ended |      |   | Six Months Ended |   |
|                                                                    |   | June 30            |      |   | June 30          |   |
|                                                                    |   | 2010               |      |   | 2009             |   |   | 2010 |   |   | 2009 |   |
|                                                                    |   |               |      |   |             |   |   |   |   |   |   |   |
| Net income (loss):                                                      |   | $                  | 514,090   |   |             | $      | (4,095,480 | ) |   | $ | 1,235,126 |   |   | $ | (3,685,255 | ) |
|                                                                    |   |               |      |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income (loss) net of tax:                           |   |               |      |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized appreciation (depreciation) on available for sale securities |   |               | 447,894   |   |             |   | (298,167 | ) |   |   | 754,941 |   |   |   | (124,391 | ) |
| Unrealized gain (loss) on cash flow hedge                               |   |               | -         |   |             |   | 57,558 |   |   |   | - |   |   |   | 116,905 |   |
| Total comprehensive income (loss)                                       |   | $                  | 961,984   |   |             | $      | (4,336,089 | ) |   | $ | 1,990,067 |   |   | $ | (3,692,741 | ) |
|                                                                    |   |               |      |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings (loss) per common share                                  |   | $                  | 0.13      |   |             | $      | (1.00 | ) |   | $ | 0.30 |   |   | $ | (0.90 | ) |
| Diluted earnings (loss) per common share                                |   | $                  | 0.12      |   |             | $      | (1.00 | ) |   | $ | 0.28 |   |   | $ | (0.90 | ) |
| Average common shares outstanding                                       |   |               | 4,090,432 |   |             |   | 4,090,432 |   |   |   | 4,090,432 |   |   |   | 4,090,399 |   |
| Average common shares and dilutive potential common shares outstanding  |   |               | 4,394,419 |   |             |   | 4,090,432 |   |   |   | 4,394,419 |   |   |   | 4,090,399 |   |
|                                                                    |   |               |      |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Dividends declared per share                                            |   | $                  | -         |   |             | $      | - |   |   | $ | - |   |   | $ | - |   |

----

Index

Tower Financial Corporation

|                                           |   |      |      |   | Common    |   |       |     |   |   | Accumulated   |   |   |     |      |   |   |   |
|------------------------------------------------|--------|-----------|-----------|--------|-----------|--------|------------|----------|--------|--------|---------------|--------|--------|----------|-----------|--------|--------|--------|
|                                           |   |      |      |   | Stock and |   |       |     |   |   | Other         |   |   |     |      |   |   |   |
|                                           |   | Preferred |      |   | Paid-in   |   |       | Retained |   |   | Comprehensive |   |   | Treasury |      |   |   |   |
|                                           |   | Stock     |      |   | Capital   |   |       | Earnings |   |   | Income (Loss) |   |   | Stock    |      |   | Total  |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |
| Balance, January 1, 2009                       |   | $         | -         |   |      | $      | 39,766,742 |     |   | $      | 10,895,724    |   |   | $        | (159,950  | )      |   | $      | (884,376 | ) |   | $ | 49,618,140 |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
| Net income (loss) for 2009                     |   |      |      |   |      |   |       |     |   |   | (3,685,255    | )      |   |     |      |   |   |   |   |   |   |   | (3,685,255 | ) |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |
| Other Comprehensive Income (Loss) (See Note 4) |   |      |      |   |      |   |       |     |   |   |          |   |   |     | (7,486    | )      |   |   |   |   |   |   | (7,486 | ) |
| Total Comprehensive Income (Loss)              |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   | (3,692,741 | ) |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
| Stock based compensation expense               |   |      |      |   |      |   | 36,850     |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   | 36,850 |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2009                         |   | $         | -         |   |      | $      | 39,803,592 |     |   | $      | 7,210,469     |   |   | $        | (167,436  | )      |   | $      | (884,376 | ) |   | $ | 45,962,249 |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
| Balance, January 1, 2010                       |   | $         | 1,788,000 |   |      | $      | 39,835,648 |     |   | $      | 5,286,808     |   |   | $        | 910,029   |   |   | $      | (884,376 | ) |   | $ | 46,936,109 |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
| Net income for 2010                            |   |      |      |   |      |   |       |     |   |   | 1,235,126     |   |   |     |      |   |   |   |   |   |   |   | 1,235,126 |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
| Other Comprehensive Income (See Note 4)        |   |      |      |   |      |   |       |     |   |   |          |   |   |     | 754,941   |   |   |   |   |   |   |   | 754,941 |   |
| Total Comprehensive Income                     |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   | 1,990,067 |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
| Stock based compensation expense               |   |      |      |   |      |   | 23,455     |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   | 23,455 |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
|                                           |   |      |      |   |      |   |       |     |   |   |          |   |   |     |      |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2010                         |   | $         | 1,788,000 |   |      | $      | 39,859,103 |     |   | $      | 6,521,934     |   |   | $        | 1,664,970 |   |   | $      | (884,376 | ) |   | $ | 48,949,631 |   |

----

Index

Tower Financial Corporation

|                                                                              |   | (unaudited)      |        |   | (unaudited)      |   |
|-----------------------------------------------------------------------------------|--------|------------------|-------------|--------|------------------|--------|
|                                                                              |   | Six Months ended |        |   | Six Months ended |   |
|                                                                              |   | June 30, 2010    |        |   | June 30, 2009    |   |
| Cash flows from operating activities:                                             |   |             |        |   |             |   |
| Net income (loss)                                                                 |   | $                | 1,235,126   |   |             | $      | (3,685,255 | ) |
| Adjustments to reconcile net income (loss) to net cash from operating activities: |   |             |        |   |             |   |   |   |
| Depreciation and amortization                                                     |   |             | 738,401     |   |             |   | 687,346 |   |
| Provision for loan losses                                                         |   |             | 2,440,000   |   |             |   | 7,510,000 |   |
| Stock based compensation expense                                                  |   |             | 23,455      |   |             |   | 36,850 |   |
| Earnings on life insurance                                                        |   |             | (233,409    | )      |             |   | (219,469 | ) |
| Gain on sale of securities AFS                                                    |   |             | (42,548     | )      |             |   | (195,012 | ) |
| Gain on settlement of interest rate floor                                         |   |             | -           |   |             |   | (312,656 | ) |
| Loss on disposal of premises and equipment                                        |   |             | 678         |   |             |   | 231 |   |
| Impairment on AFS securities                                                      |   |             | 24,868      |   |             |   | 47,656 |   |
| Loans originated for sale                                                         |   |             | (9,331,135  | )      |             |   | (14,961,125 | ) |
| Proceeds from sale of loans                                                       |   |             | 11,509,909  |   |             |   | 11,599,018 |   |
| Loss on sale and write-down of OREO                                               |   |             | 876,805     |   |             |   | 1,009,151 |   |
| Change in accrued interest receivable                                             |   |             | (92,589     | )      |             |   | 152,380 |   |
| Change in other assets                                                            |   |             | 1,130,101   |   |             |   | (3,046,532 | ) |
| Change in accrued interest payable                                                |   |             | 405,635     |   |             |   | (119,763 | ) |
| Change in other liabilities                                                       |   |             | (158,936    | )      |             |   | 341,906 |   |
| Net cash from operating activities                                                |   |             | 8,526,361   |   |             |   | (1,155,274 | ) |
| Cash flows from investing activities:                                             |   |             |        |   |             |   |   |   |
| Net change in loans                                                               |   |             | 13,574,850  |   |             |   | (3,617,775 | ) |
| Purchase of securities AFS                                                        |   |             | (18,272,067 | )      |             |   | (14,029,392 | ) |
| Proceeds from calls and maturities of securities AFS                              |   |             | 11,944,067  |   |             |   | 8,108,024 |   |
| Purchase of securities HTM                                                        |   |             | (1,721,320  | )      |             |   | (4,720,914 | ) |
| Proceeds from calls and maturities of securities HTM                              |   |             | 611,105     |   |             |   | - |   |
| Proceeds on sale of other real estate owned                                       |   |             | 353,795     |   |             |   | 630,788 |   |
| Proceeds from sale of securities AFS                                              |   |             | 2,738,144   |   |             |   | 6,022,315 |   |
| Purchase of FHLB stock                                                            |   |             | (75,000     | )      |             |   | - |   |
| Purchase of premises and equipment                                                |   |             | (1,034,826  | )      |             |   | (88,850 | ) |
| Net cash from investing activities                                                |   |             | 8,118,748   |   |             |   | (7,695,804 | ) |
| Cash flows from financing activities:                                             |   |             |        |   |             |   |   |   |
| Net change in deposits                                                            |   |             | (3,392,514  | )      |             |   | 8,356,634 |   |
| Net change in short term FHLB advances                                            |   |             | (12,000,000 | )      |             |   | 2,800,000 |   |
| Repayment of FHLB fixed rate advances                                             |   |             | (8,700,000  | )      |             |   | (18,000,000 | ) |
| Net cash from (used in) financing activities                                      |   |             | (24,092,514 | )      |             |   | (6,843,366 | ) |
| Net change in cash and cash equivalents                                           |   |             | (7,447,405  | )      |             |   | (15,694,444 | ) |
| Cash and cash equivalents, beginning of period                                    |   |             | 24,664,309  |   |             |   | 31,576,373 |   |
| Cash and cash equivalents, end of period                                          |   | $                | 17,216,904  |   |             | $      | 15,881,929 |   |
|                                                                              |   |             |        |   |             |   |   |   |
| Supplemental disclosures of cash flow information                                 |   |             |        |   |             |   |   |   |
| Cash paid during the year for:                                                    |   |             |        |   |             |   |   |   |
| Interest                                                                          |   | $                | 3,957,755   |   |             | $      | 6,797,662 |   |
| Income taxes                                                                      |   |             | 700,000     |   |             |   | 1,265,000 |   |
| Noncash items:                                                                    |   |             |        |   |             |   |   |   |
| Transfer of loans to other real estate owned                                      |   |             | 2,782,073   |   |             |   | 3,039,655 |   |

----

Index

Tower Financial Corporation

----

Index

|                                             |   |      |       |   | June 30, 2010     |   |      |             |   |   |     |   |
|--------------------------------------------------|--------|-----------|------------|--------|-------------------|--------|-----------|------------------|--------|--------|----------|--------|
|                                             |   | Amortized |       |   | Gross Unrealized  |   |      | Gross Unrealized |   |   | Fair     |   |
|                                             |   | Cost      |       |   | Gains             |   |      | Losses           |   |   | Value    |   |
|                                             |   |      |       |   |              |   |      |             |   |   |     |   |
| Available for sale securities:                   |   |      |       |   |              |   |      |             |   |   |     |   |
| U.S. Government agency debt obligations          |   | $         | 4,752,652  |   |              | $      | 90,590    |             |   | $      | -        |   |   | $ | 4,843,242 |   |
| Obligations of states and political subdivisions |   |      | 31,561,520 |   |              |   | 1,113,530 |             |   |   | (87,818  | )      |   |   | 32,587,232 |   |
| Mortgage-backed securities (residential)         |   |      | 45,856,742 |   |              |   | 1,586,757 |             |   |   | (183,508 | )      |   |   | 47,259,991 |   |
| Mortgage-backed securities (commercial)          |   |      | 4,621,176  |   |              |   | 224,473   |             |   |   | -        |   |   |   | 4,845,649 |   |
| Collateralized debt obligations                  |   |      | 231,342    |   |              |   | -         |             |   |   | (221,342 | )      |   |   | 10,000 |   |
| Total available for sale securities              |   | $         | 87,023,432 |   |              | $      | 3,015,350 |             |   | $      | (492,668 | )      |   | $ | 89,546,114 |   |
|                                             |   |      |       |   |              |   |      |             |   |   |     |   |   |   |   |   |
| Held to maturity securities:                     |   |      |       |   |              |   |      |             |   |   |     |   |   |   |   |   |
| Mortgage-backed securities (residential)         |   |      | 5,655,990  |   |              |   | 164,488   |             |   |   | (28,100  | )      |   |   | 5,792,378 |   |
| Total held to maturity securities                |   |      | 5,655,990  |   |              |   | 164,488   |             |   |   | (28,100  | )      |   |   | 5,792,378 |   |
|                                             |   |      |       |   |              |   |      |             |   |   |     |   |   |   |   |   |
| Total Securities                                 |   | $         | 92,679,422 |   |              | $      | 3,179,838 |             |   | $      | (520,768 | )      |   | $ | 95,338,492 |   |
|                                             |   |      |       |   |              |   |      |             |   |   |     |   |   |   |   |   |
|                                             |   |      |       |   |              |   |      |             |   |   |     |   |   |   |   |   |
|                                             |   |      |       |   | December 31, 2009 |   |      |             |   |   |     |   |   |
|                                             |   | Amortized |       |   | Gross Unrealized  |   |      | Gross Unrealized |   |   | Fair     |   |
|                                             |   | Cost      |       |   | Gains             |   |      | Losses           |   |   | Value    |   |
|                                             |   |      |       |   |              |   |      |             |   |   |     |   |   |   |   |   |
| Available for sale securities:                   |   |      |       |   |              |   |      |             |   |   |     |   |   |   |   |   |
| U.S. Government agency debt obligations          |   | $         | 8,241,408  |   |              | $      | 114,962   |             |   | $      | (68,987  | )      |   | $ | 8,287,383 |   |
| Obligations of states and political subdivisions |   |      | 26,707,619 |   |              |   | 644,961   |             |   |   | (150,035 | )      |   |   | 27,202,545 |   |
| Mortgage-backed securities (residential)         |   |      | 43,664,429 |   |              |   | 1,288,946 |             |   |   | (296,377 | )      |   |   | 44,656,998 |   |
| Mortgage-backed securities (commercial)          |   |      | 4,955,530  |   |              |   | 71,629    |             |   |   | (4,925   | )      |   |   | 5,022,234 |   |
| Collateralized debt obligations                  |   |      | 231,342    |   |              |   | -         |             |   |   | (221,342 | )      |   |   | 10,000 |   |
| Total available for sale securities              |   | $         | 83,800,328 |   |              | $      | 2,120,498 |             |   | $      | (741,666 | )      |   | $ | 85,179,160 |   |
|                                             |   |      |       |   |              |   |      |             |   |   |     |   |   |   |   |   |
| Held to maturity securities:                     |   |      |       |   |              |   |      |             |   |   |     |   |   |   |   |   |
| Mortgage-backed securities (residential)         |   |      | 4,495,977  |   |              |   | 139,639   |             |   |   | -        |   |   |   | 4,635,616 |   |
| Total held to maturity securities                |   |      | 4,495,977  |   |              |   | 139,639   |             |   |   | -        |   |   |   | 4,635,616 |   |
|                                             |   |      |       |   |              |   |      |             |   |   |     |   |   |   |   |   |
| Total Securities                                 |   | $         | 88,296,305 |   |              | $      | 2,260,137 |             |   | $      | (741,666 | )      |   | $ | 89,814,776 |   |

----

Index

|                                                  |   | 6/30/2010 |   |
|-------------------------------------------------------|--------|-----------|--------|
|                                                  |   | Weighted  |   |   |   |   |   |   |   |
|                                                  |   | Average   |   |   | Amortized |   |   | Fair |   |
|                                                  |   | Yield     |   |   | Cost |   |   | Value |   |
| Available for sale securities:                        |   |      |   |   |   |   |   |   |   |
| Agencies:                                             |   |      |   |   |   |   |   |   |   |
| Due in one year or less                               |   |      | 3.25   | % |   | $ | 700,000 |   |   | $ | 713,783 |   |
| Due after one to five years                           |   |      | 2.84   | % |   |   | 1,398,307 |   |   |   | 1,424,890 |   |
| Due after five to ten years                           |   |      | 2.58   | % |   |   | 2,654,345 |   |   |   | 2,704,569 |   |
| Total Agencies                                        |   |      | 2.76   | % |   | $ | 4,752,652 |   |   | $ | 4,843,242 |   |
|                                                  |   |      |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities:                           |   |      |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities (residential)              |   |      | 3.80   | % |   | $ | 45,856,742 |   |   | $ | 47,259,991 |   |
| Mortgage-backed securities (commercial)               |   |      | 3.94   | % |   |   | 4,621,176 |   |   |   | 4,845,649 |   |
|                                                  |   |      | 3.81   | % |   | $ | 50,477,918 |   |   | $ | 52,105,640 |   |
| Obligations of state and political subdivisions:      |   |      |   |   |   |   |   |   |   |   |   |   |
| Due in one year or less                               |   |      | 5.03   | % |   | $ | 95,000 |   |   | $ | 95,005 |   |
| Due after one to five years                           |   |      | 4.92   | % |   |   | 2,469,896 |   |   |   | 2,571,296 |   |
| Due after five to ten years                           |   |      | 5.45   | % |   |   | 10,441,079 |   |   |   | 10,906,825 |   |
| Due after ten years                                   |   |      | 6.13   | % |   |   | 18,555,545 |   |   |   | 19,014,106 |   |
| Total Obligations of state and political subdivisions |   |      | 5.80   | % |   | $ | 31,561,520 |   |   | $ | 32,587,232 |   |
|                                                  |   |      |   |   |   |   |   |   |   |   |   |   |
| Collateralized debt obligations                       |   |      |   |   |   |   |   |   |   |   |   |   |
| Due after ten years                                   |   |      | 1.39   | % |   | $ | 231,342 |   |   | $ | 10,000 |   |
|                                                  |   |      |   |   |   |   |   |   |   |   |   |   |
| Held to maturity securities:                          |   |      |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities:                           |   |      |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities (residential)              |   |      | 5.09   | % |   | $ | 5,655,990 |   |   | $ | 5,792,378 |   |
|                                                  |   |      |   |   |   |   |   |   |   |   |   |   |

|                                                  |   | 12/31/2009 |   |
|-------------------------------------------------------|--------|------------|--------|
|                                                  |   | Weighted   |   |   |   |   |   |   |   |
|                                                  |   | Average    |   |   | Amortized |   |   | Fair |   |
|                                                  |   | Yield      |   |   | Cost |   |   | Value |   |
| Available for sale securities:                        |   |       |   |   |   |   |   |   |   |
| Agencies:                                             |   |       |   |   |   |   |   |   |   |
| Due after one to five years                           |   |       | 3.53   | % |   | $ | 4,786,251 |   |   | $ | 4,840,794 |   |
| Due after five to ten years                           |   |       | 3.44   | % |   |   | 2,393,069 |   |   |   | 2,416,589 |   |
| Due after ten years                                   |   |       | 2.55   | % |   |   | 1,062,088 |   |   |   | 1,030,000 |   |
| Total Agencies                                        |   |       | 3.38   | % |   | $ | 8,241,408 |   |   | $ | 8,287,383 |   |
|                                                  |   |       |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities:                           |   |       |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities (residential)              |   |       | 4.14   | % |   | $ | 43,664,429 |   |   | $ | 44,656,998 |   |
| Mortgage-backed securities (commercial)               |   |       | 3.65   | % |   |   | 4,955,530 |   |   |   | 5,022,234 |   |
|                                                  |   |       | 4.09   | % |   | $ | 48,619,959 |   |   | $ | 49,679,232 |   |
| Obligations of state and political subdivisions:      |   |       |   |   |   |   |   |   |   |   |   |   |
| Due in one year or less                               |   |       | 3.40   | % |   | $ | 190,000 |   |   | $ | 191,449 |   |
| Due after one to five years                           |   |       | 3.65   | % |   |   | 1,935,646 |   |   |   | 1,982,218 |   |
| Due after five to ten years                           |   |       | 4.23   | % |   |   | 7,804,309 |   |   |   | 7,984,641 |   |
| Due after ten years                                   |   |       | 4.27   | % |   |   | 16,777,664 |   |   |   | 17,044,237 |   |
| Total Obligations of state and political subdivisions |   |       | 4.21   | % |   | $ | 26,707,619 |   |   | $ | 27,202,545 |   |
|                                                  |   |       |   |   |   |   |   |   |   |   |   |   |
| Collateralized debt obligations                       |   |       |   |   |   |   |   |   |   |   |   |   |
| Due after ten years                                   |   |       | 1.10   | % |   | $ | 231,342 |   |   | $ | 10,000 |   |
|                                                  |   |       |   |   |   |   |   |   |   |   |   |   |
| Held to maturity securities:                          |   |       |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities:                           |   |       |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities (residential)              |   |       | 4.89   | % |   | $ | 4,495,977 |   |   | $ | 4,635,616 |   |
|                                                  |   |       |   |   |   |   |   |   |   |   |   |   |

----

Index

|                                             |   | Continuing Unrealized |      |   | Continuing Unrealized |   |    |       |   |   |             |   |
|--------------------------------------------------|--------|-----------------------|-----------|--------|-----------------------|--------|---------|------------|--------|--------|------------------|--------|
|                                             |   | Losses for            |      |   | Losses for            |   |    |       |   |   |             |   |
|                                             |   | Less than 12 months   |      |   | More than 12 months   |   |    | Total      |   |
|                                             |   |                  |      |   |                  |   |    |       |   |   |             |   |   |   |   |   |   |   |
|                                             |   |                  |      |   | Gross Unrealized      |   |    |       |   |   | Gross Unrealized |   |   |   |   |   | Gross Unrealized |   |
|                                             |   | Fair Value            |      |   | Losses                |   |    | Fair Value |   |   | Losses           |   |   | Fair Value |   |   | Losses |   |
| Available for sale securities:                   |   |                  |      |   |                  |   |    |       |   |   |             |   |   |   |   |   |   |   |
| U.S. Government agency debt obligations          |   | $                     | -         |   |                  | $      | -       |       |   | $      | -                |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Obligations of states and political subdivisions |   |                  | 1,021,930 |   |                  |   | (6,049  | )          |   |   | 3,801,412        |   |   |   | (81,769 | ) |   |   | 4,823,342 |   |   |   | (87,818 | ) |
| Mortgage-backed securities (residential)         |   |                  | 3,547,997 |   |                  |   | (26,811 | )          |   |   | 479,529          |   |   |   | (156,697 | ) |   |   | 4,027,526 |   |   |   | (183,508 | ) |
| Mortgage-backed securities (commercial)          |   |                  | -         |   |                  |   | -       |       |   |   | -                |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Collateralized debt obligations                  |   |                  | -         |   |                  |   | -       |       |   |   | 10,000           |   |   |   | (221,342 | ) |   |   | 10,000 |   |   |   | (221,342 | ) |
| Total available for sale securities              |   | $                     | 4,569,927 |   |                  | $      | (32,860 | )          |   | $      | 4,290,941        |   |   | $ | (459,808 | ) |   | $ | 8,860,868 |   |   | $ | (492,668 | ) |
|                                             |   |                  |      |   |                  |   |    |       |   |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held to maturity securities:                     |   |                  |      |   |                  |   |    |       |   |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities (residential)         |   |                  | 1,545,977 |   |                  |   | (28,100 | )          |   |   | -                |   |   |   | - |   |   |   | 1,545,977 |   |   |   | (28,100 | ) |
| Total held to maturity securities                |   | $                     | 1,545,977 |   |                  | $      | (28,100 | )          |   | $      | -                |   |   | $ | - |   |   | $ | 1,545,977 |   |   | $ | (28,100 | ) |
|                                             |   |                  |      |   |                  |   |    |       |   |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total temporarily impaired                       |   | $                     | 6,115,904 |   |                  | $      | (60,960 | )          |   | $      | 4,290,941        |   |   | $ | (459,808 | ) |   | $ | 10,406,845 |   |   | $ | (520,768 | ) |

|                                             |   | Continuing Unrealized |       |   | Continuing Unrealized |   |     |       |   |   |             |   |
|--------------------------------------------------|--------|-----------------------|------------|--------|-----------------------|--------|----------|------------|--------|--------|------------------|--------|
|                                             |   | Losses for            |       |   | Losses for            |   |     |       |   |   |             |   |
|                                             |   | Less than 12 months   |       |   | More than 12 months   |   |     | Total      |   |
|                                             |   |                  |       |   |                  |   |     |       |   |   |             |   |   |   |   |   |   |   |
|                                             |   |                  |       |   | Gross Unrealized      |   |     |       |   |   | Gross Unrealized |   |   |   |   |   | Gross Unrealized |   |
|                                             |   | Fair Value            |       |   | Losses                |   |     | Fair Value |   |   | Losses           |   |   | Fair Value |   |   | Losses |   |
| Available for sale securities:                   |   |                  |       |   |                  |   |     |       |   |   |             |   |   |   |   |   |   |   |
| U.S. Government agency debt obligations          |   | $                     | 2,656,626  |   |                  | $      | (68,987  | )          |   | $      | -                |   |   | $ | - |   |   | $ | 2,656,626 |   |   | $ | (68,987 | ) |
| Obligations of states and political subdivisions |   |                  | 2,450,819  |   |                  |   | (25,413  | )          |   |   | 2,899,366        |   |   |   | (124,622 | ) |   |   | 5,350,185 |   |   |   | (150,035 | ) |
| Mortgage-backed securities (residential)         |   |                  | 7,225,027  |   |                  |   | (64,868  | )          |   |   | 468,665          |   |   |   | (231,509 | ) |   |   | 7,693,692 |   |   |   | (296,377 | ) |
| Mortgage-backed securities (commercial)          |   |                  | 1,497,108  |   |                  |   | (4,925   | )          |   |   | -                |   |   |   | - |   |   |   | 1,497,108 |   |   |   | (4,925 | ) |
| Collateralized debt obligations                  |   |                  | -          |   |                  |   | -        |       |   |   | 10,000           |   |   |   | (221,342 | ) |   |   | 10,000 |   |   |   | (221,342 | ) |
| Total available for sale securities              |   | $                     | 13,829,580 |   |                  | $      | (164,193 | )          |   | $      | 3,378,031        |   |   | $ | (577,473 | ) |   | $ | 17,207,611 |   |   | $ | (741,666 | ) |
|                                             |   |                  |       |   |                  |   |     |       |   |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held to maturity securities:                     |   |                  |       |   |                  |   |     |       |   |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities (residential)         |   |                  | -          |   |                  |   | -        |       |   |   | -                |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total held to maturity securities                |   | $                     | -          |   |                  | $      | -        |       |   | $      | -                |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
|                                             |   |                  |       |   |                  |   |     |       |   |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total temporarily impaired                       |   | $                     | 13,829,580 |   |                  | $      | (164,193 | )          |   | $      | 3,378,031        |   |   | $ | (577,473 | ) |   | $ | 17,207,611 |   |   | $ | (741,666 | ) |

----

Index

|                    |   | June 30 |   |   | March 31 |   |   | December 31 |   |   | September 30 |   |   | June 30 |   |   | March 31 |   |
|-------------------------|--------|---------|--------|--------|----------|--------|--------|-------------|--------|--------|--------------|--------|--------|---------|--------|--------|----------|--------|
|                    |   | 2010    |   |   | 2010     |   |   | 2009        |   |   | 2009         |   |   | 2009    |   |   | 2009     |   |
| Delinquency 60+         |   |    | 19.13  | %      |     |   | 20.50  | %           |   |   | 20.30        | %      |   |    | 18.03  | %      |     |   | 16.76 | % |   |   | 14.38 | % |
| Delinquency 90+         |   |    | 17.38  | %      |     |   | 18.20  | %           |   |   | 17.65        | %      |   |    | 14.82  | %      |     |   | 13.68 | % |   |   | 11.39 | % |
| Other Real Estate Owned |   |    | 0.17   | %      |     |   | 1.27   | %           |   |   | 1.32         | %      |   |    | 0.84   | %      |     |   | 1.51 | % |   |   | 0.32 | % |
| Foreclosure             |   |    | 10.79  | %      |     |   | 11.43  | %           |   |   | 11.38        | %      |   |    | 10.64  | %      |     |   | 7.77 | % |   |   | 6.85 | % |
| Bankruptcy              |   |    | 3.35   | %      |     |   | 3.87   | %           |   |   | 3.36         | %      |   |    | 2.60   | %      |     |   | 0.31 | % |   |   | 0.31 | % |

----

Index

|               |   | Deferral |       |   | Default |   |
|--------------------|--------|----------|------------|--------|---------|--------|
| March 31, 2008     |   | $        | -          |   |    | $      | 25,000,000 |   |
| September 30, 2008 |   |     | 20,000,000 |   |    |   | - |   |
| December 31, 2008  |   |     | 15,000,000 |   |    |   | 35,000,000 |   |
| March 31, 2009     |   |     | 22,500,000 |   |    |   | - |   |
| June 30, 2009      |   |     | 35,600,000 |   |    |   | 25,000,000 |   |
| September 30, 2009 |   |     | 86,000,000 |   |    |   | - |   |
| December 31, 2009* |   |     | 7,500,000  |   |    |   | 25,000,000 |   |
| March 31, 2010     |   |     | -          |   |    |   | - |   |
| June 30, 2010      |   |     | -          |   |    |   | - |   |
|               |   |     |       |   |    |   |   |   |

----

Index

|                                                                                                              |   | Three months ended June 30 |    |
|-------------------------------------------------------------------------------------------------------------------|--------|----------------------------|---------|
|                                                                                                              |   | 2010                       |    |   | 2009 |   |
| Net Income (Loss)                                                                                                 |   | $                          | 514,090 |   |   | $ | (4,095,480 | ) |
| Change in securities available-for-sale:                                                                          |   |                       |    |   |   |   |   |   |
| Unrealized holding gains on securities for which other-than-temporary-impairment                                  |   |                       |    |   |   |
| has been recorded                                                                                                 |   |                       | 68,788  |   |   |   | 30,690 |   |
| Other-than-temporary impairment on available-for-sale securities associated with credit losses realized in income |   |                       | 14,278  |   |   |   | 47,656 |   |
| Unrealized holding gains recorded in other comprehensive income                                                   |   |                       | 83,066  |   |   |   | 78,346 |   |
|                                                                                                              |   |                       |    |   |   |   |   |   |
| Unrealized gains (losses) on interest rate floor                                                                  |   |                       | -       |   |   |   | (132,134 | ) |
| Unrealized holding gains (losses) on available-for-sale securities                                                |   |                       | 637,269 |   |   |   |   |   |
| arising during the period                                                                                         |   |                       |    |   |   |   | (278,354 | ) |
| Reclassification adjustment for (gains) losses realized in income on interest rate floor                          |   |                       | -       |   |   |   | 219,343 |   |
| Reclassification adjustment for (gains) losses realized in income on available-for-sale securities                |   |                       | (41,708 | ) |   |   | (3,861 | ) |
| Net unrealized gains (losses)                                                                                     |   |                       | 595,561 |   |   |   | (195,006 | ) |
| Income tax expense (benefit)                                                                                      |   |                       | 230,733 |   |   |   | 123,949 |   |
| Total other comprehensive income (loss)                                                                           |   |                       | 447,894 |   |   |   | (240,609 | ) |
| Comprehensive Income (Loss)                                                                                       |   | $                          | 961,984 |   |   | $ | (4,336,089 | ) |

|                                                                                               |   | Six months ended June 30 |      |
|----------------------------------------------------------------------------------------------------|--------|--------------------------|-----------|
|                                                                                               |   | 2010                     |      |   | 2009 |   |
| Net Income (Loss)                                                                                  |   | $                        | 1,235,126 |   |   | $ | (3,685,255 | ) |
| Change in securities available-for-sale:                                                           |   |                     |      |   |   |   |   |   |
| Unrealized holding gains on securities for which other-than-temporary-impairment                   |   |                     |      |   |   |
| has been recorded                                                                                  |   |                     | 49,944    |   |   |   | (169,899 | ) |
| Other-than-temporary impairment on available-for-sale securities                                   |   |                     |      |   |   |   |   |   |
| associated with credit losses realized in income                                                   |   |                     | 24,868    |   |   |   | 47,656 |   |
| Unrealized holding gains recorded in other comprehensive income                                    |   |                     | 74,812    |   |   |   | (122,243 | ) |
|                                                                                               |   |                     |      |   |   |   |   |   |
| Unrealized gains (losses) on interest rate floor                                                   |   |                     | -         |   |   |   | 445,505 |   |
| Unrealized holding gains (losses) on available-for-sale securities                                 |   |                     | 1,111,586 |   |   |   |   |   |
| arising during the period                                                                          |   |                     |      |   |   |   | 128,785 |   |
| Reclassification adjustment for (gains) losses realized in income on interest rate floor           |   |                     | -         |   |   |   | (268,376 | ) |
| Reclassification adjustment for (gains) losses realized in income on available-for-sale securities |   |                     | (42,548   | ) |   |   | (195,012 | ) |
| Net unrealized gains (losses)                                                                      |   |                     | 1,069,038 |   |   |   | 110,902 |   |
| Income tax expense (benefit)                                                                       |   |                     | 388,909   |   |   |   | 3,855 |   |
| Total other comprehensive income (loss)                                                            |   |                     | 754,941   |   |   |   | (7,486 | ) |
| Comprehensive Income (Loss)                                                                        |   | $                        | 1,990,067 |   |   | $ | (3,692,741 | ) |

----

Index

|                                                                                                           |   | Three Months Ended |      |   | Six Months Ended |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|--------|------------------|--------|
|                                                                                                           |   | June 30            |      |   | June 30          |   |
|                                                                                                           |   | 2010               |      |   | 2009             |   |   | 2010 |   |   | 2009 |   |
| Basic                                                                                                          |   |               |      |   |             |   |   |   |   |   |   |   |
| Net income (loss)                                                                                              |   | $                  | 514,090   |   |             | $      | (4,095,480 | ) |   | $ | 1,235,126 |   |   | $ | (3,685,225 | ) |
| Less: Preferred stock dividends                                                                                |   |               | -         |   |             |   | - |   |   |   | - |   |   |   | - |   |
| Net income (loss) available to common stockholders                                                             |   | $                  | 514,090   |   |             | $      | (4,095,480 | ) |   | $ | 1,235,126 |   |   | $ | (3,685,225 | ) |
| Weighted average common shares outstanding                                                                     |   |               | 4,090,432 |   |             |   | 4,090,432 |   |   |   | 4,090,432 |   |   |   | 4,090,399 |   |
| Basic earnings (loss) per common share                                                                         |   | $                  | 0.13      |   |             | $      | (1.00 | ) |   | $ | 0.30 |   |   | $ | (0.90 | ) |
|                                                                                                           |   |               |      |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                                                                        |   |               |      |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                              |   | $                  | 514,090   |   |             | $      | (4,095,480 | ) |   | $ | 1,235,126 |   |   | $ | (3,685,225 | ) |
| Less: Preferred stock dividends                                                                                |   |               | -         |   |             |   | - |   |   |   | - |   |   |   | - |   |
| Net income (loss) available to common stockholders                                                             |   | $                  | 514,090   |   |             | $      | (4,095,480 | ) |   | $ | 1,235,126 |   |   | $ | (3,685,225 | ) |
| Weighted average common shares outstanding                                                                     |   |               | 4,090,432 |   |             |   | 4,090,432 |   |   |   | 4,090,432 |   |   |   | 4,090,399 |   |
| Add:  dilutive effect of stock options                                                               |   |               | -         |   |             |   | - |   |   |   | - |   |   |   | - |   |
| Add:  dilutive effect of assumed preferred stock conversion                                          |   |               | 303,987   |   |             |   | - |   |   |   | 303,987 |   |   |   | - |   |
| Weighted average common shares and dilutive potential common shares outstanding and preferred stock conversion |   |               | 4,394,419 |   |             |   | 4,090,432 |   |   |   | 4,394,419 |   |   |   | 4,090,399 |   |
| Diluted earnings (loss) per common share                                                                       |   | $                  | 0.12      |   |             | $      | (1.00 | ) |   | $ | 0.28 |   |   | $ | (0.90 | ) |

----

Index

|                                        |   |   |    |   |      |   |   |        |   |   |       |   |
|---------------------------------------------|--------|--------|---------|--------|-----------|--------|--------|-------------|--------|--------|------------|--------|
|                                        |   |   |    |   | Weighted- |   |   | Weighted-   |   |   |       |   |
|                                        |   |   |    |   | Average   |   |   | Average     |   |   |       |   |
|                                        |   |   |    |   | Aggregate |   |   | Remaining   |   |   |       |   |
|                                        |   |   |    |   | Exercise  |   |   | Contractual |   |   | Instrinsic |   |
| Options                                     |   | Shares |    |   | Price     |   |   | Term        |   |   | Value      |   |
|                                        |   |   |    |   |      |   |   |        |   |   |       |   |
| Outstanding at January 1, 2010              |   |   | 91,404  |   |      | $      | 13.31  |        |   |   | 3.49       |   |   |   |   |
|                                        |   |   |    |   |      |   |   |        |   |   |       |   |   |   |   |
| Granted                                     |   |   | -       |   |      |   | -      |        |   |   | -          |   |   |   |   |
|                                        |   |   |    |   |      |   |   |        |   |   |       |   |   |   |   |
| Exercised                                   |   |   | -       |   |      |   | -      |        |   |   | -          |   |   |   |   |
|                                        |   |   |    |   |      |   |   |        |   |   |       |   |   |   |   |
| Forfeited or expired                        |   |   | (12,000 | )      |      |   | 13.47  |        |   |   | -          |   |   |   |   |
|                                        |   |   |    |   |      |   |   |        |   |   |       |   |   |   |   |
| Outstanding at June 30, 2010                |   |   | 79,404  |   |      |   | 13.29  |        |   |   | 3.15       |   |   |   | - |   |
|                                        |   |   |    |   |      |   |   |        |   |   |       |   |   |   |   |   |
| Vested or expected to vest at June 30, 2010 |   |   | 79,404  |   |      |   | 13.29  |        |   |   | 3.15       |   |   |   | - |   |
|                                        |   |   |    |   |      |   |   |        |   |   |       |   |   |   |   |   |
| Exercisable at June 30, 2010                |   |   | 79,404  |   |      |   | 13.29  |        |   |   | 3.15       |   |   |   | - |   |
|                                        |   |   |    |   |      |   |   |        |   |   |       |   |   |   |   |   |

----

Index

|                         |   | As of and for the three months ending June 30, 2010 |        |
|------------------------------|--------|-----------------------------------------------------|-------------|
|                         |   |                                                |        |   | Wealth |   |   | Corporate & |   |   |   |   |   |   |   |
|                         |   | Bank                                                |        |   | Management |   |   | Intercompany |   |   | Eliminations |   |   | Total |   |
| Income Statement Information |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income          |   | $                                                   | 5,864,666   |   |   | $ | 15,667 |   |   | $ | (283,071 | ) |   | $ | - |   |   | $ | 5,597,262 |   |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest income          |   |                                                | 995,270     |   |   |   | 892,762 |   |   |   | 924,656 |   |   |   | (1,078,539 | ) |   |   | 1,734,149 |   |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest expense         |   |                                                | 4,825,817   |   |   |   | 656,175 |   |   |   | 160,344 |   |   |   | - |   |   |   | 5,642,336 |   |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noncash items                |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses    |   |                                                | 1,100,000   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,100,000 |   |
| Depreciation/Amortization    |   |                                                | 369,912     |   |   |   | 8,547 |   |   |   | - |   |   |   | - |   |   |   | 378,459 |   |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense(benefit)  |   |                                                | 133,786     |   |   |   | 88,656 |   |   |   | (147,457 | ) |   |   | - |   |   |   | 74,985 |   |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Profit               |   |                                                | 800,333     |   |   |   | 163,598 |   |   |   | 628,698 |   |   |   | (1,078,539 | ) |   |   | 514,090 |   |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet Information    |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Assets               |   |                                                | 661,201,532 |   |   |   | 6,106,671 |   |   |   | 71,867,708 |   |   |   | (80,849,146 | ) |   |   | 658,326,765 |   |

|                         |   | As of and for the six months ending June 30, 2010 |        |   |       |   |
|------------------------------|--------|---------------------------------------------------|-------------|--------|------------|--------|
|                         |   |                                              |        |   | Wealth     |   |   | Corporate & |   |   |   |   |   |   |   |
|                         |   | Bank                                              |        |   | Management |   |   | Intercompany |   |   | Eliminations |   |   | Total |   |
| Income Statement Information |   |                                              |        |   |       |   |   |   |   |   |   |   |   |   |   |
| Net interest income          |   | $                                                 | 11,691,932  |   |       | $      | 31,937 |   |   | $ | (563,297 | ) |   | $ | - |   |   | $ | 11,160,572 |   |
|                         |   |                                              |        |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest income          |   |                                              | 1,896,089   |   |       |   | 1,779,495 |   |   |   | 1,935,905 |   |   |   | (2,279,646 | ) |   |   | 3,331,843 |   |
|                         |   |                                              |        |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest expense         |   |                                              | 8,976,552   |   |       |   | 1,255,457 |   |   |   | 315,493 |   |   |   | - |   |   |   | 10,547,502 |   |
|                         |   |                                              |        |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noncash items                |   |                                              |        |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses    |   |                                              | 2,440,000   |   |       |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,440,000 |   |
| Depreciation/Amortization    |   |                                              | 720,757     |   |       |   | 17,644 |   |   |   | - |   |   |   | - |   |   |   | 738,401 |   |
|                         |   |                                              |        |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense(benefit)  |   |                                              | 368,315     |   |       |   | 194,092 |   |   |   | (292,620 | ) |   |   | - |   |   |   | 269,787 |   |
|                         |   |                                              |        |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Profit               |   |                                              | 1,803,154   |   |       |   | 361,883 |   |   |   | 1,349,735 |   |   |   | (2,279,646 | ) |   |   | 1,235,126 |   |
|                         |   |                                              |        |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet Information    |   |                                              |        |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Assets               |   |                                              | 661,201,532 |   |       |   | 6,106,671 |   |   |   | 71,867,708 |   |   |   | (80,849,146 | ) |   |   | 658,326,765 |   |

----

Index

|                         |   | As of and for the three months ending June 30, 2009 |        |
|------------------------------|--------|-----------------------------------------------------|-------------|
|                         |   |                                                |        |   | Wealth |   |   | Corporate & |   |   |   |   |   |   |   |
|                         |   | Bank                                                |        |   | Management |   |   | Intercompany |   |   | Eliminations |   |   | Total |   |
| Income Statement Information |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income          |   | $                                                   | 5,081,444   |   |   | $ | 23,644 |   |   | $ | (283,071 | ) |   | $ | - |   |   | $ | 4,822,017 |   |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest income          |   |                                                | 776,511     |   |   |   | 812,741 |   |   |   | (3,718,656 | ) |   |   | 3,728,352 |   |   |   | 1,598,948 |   |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest expense         |   |                                                | 5,559,187   |   |   |   | 589,199 |   |   |   | 309,495 |   |   |   | - |   |   |   | 6,457,881 |   |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noncash items                |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses    |   |                                                | 6,550,000   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 6,550,000 |   |
| Depreciation/Amortization    |   |                                                | 323,260     |   |   |   | 9,921 |   |   |   | - |   |   |   | - |   |   |   | 333,181 |   |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense(benefit)  |   |                                                | (2,347,966  | ) |   |   | 72,272 |   |   |   | (215,742 | ) |   |   | - |   |   |   | (2,491,436 | ) |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Profit               |   |                                                | (3,903,266  | ) |   |   | 174,914 |   |   |   | (4,095,480 | ) |   |   | 3,728,352 |   |   |   | (4,095,480 | ) |
|                         |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet Information    |   |                                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Assets               |   |                                                | 682,144,241 |   |   |   | 6,284,513 |   |   |   | 67,859,336 |   |   |   | (69,981,081 | ) |   |   | 686,307,009 |   |

|                         |   | As of and for the six months ending June 30, 2009 |        |
|------------------------------|--------|---------------------------------------------------|-------------|
|                         |   |                                              |        |   | Wealth |   |   | Corporate & |   |   |   |   |   |   |   |
|                         |   | Bank                                              |        |   | Management |   |   | Intercompany |   |   | Eliminations |   |   | Total |   |
| Income Statement Information |   |                                              |        |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income          |   | $                                                 | 9,878,814   |   |   | $ | 47,927 |   |   | $ | (563,297 | ) |   | $ | - |   |   | $ | 9,363,444 |   |
|                         |   |                                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest income          |   |                                              | 1,737,926   |   |   |   | 1,685,797 |   |   |   | (2,962,404 | ) |   |   | 2,926,932 |   |   |   | 3,388,251 |   |
|                         |   |                                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest expense         |   |                                              | 9,685,144   |   |   |   | 1,192,264 |   |   |   | 573,744 |   |   |   | - |   |   |   | 11,451,152 |   |
|                         |   |                                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noncash items                |   |                                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses    |   |                                              | 7,510,000   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 7,510,000 |   |
| Depreciation/Amortization    |   |                                              | 667,473     |   |   |   | 19,873 |   |   |   | - |   |   |   | - |   |   |   | 687,346 |   |
|                         |   |                                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense(benefit)  |   |                                              | (2,301,535  | ) |   |   | 191,523 |   |   |   | (414,190 | ) |   |   | - |   |   |   | (2,524,202 | ) |
|                         |   |                                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Profit               |   |                                              | (3,276,869  | ) |   |   | 349,937 |   |   |   | (3,685,255 | ) |   |   | 2,926,932 |   |   |   | (3,685,255 | ) |
|                         |   |                                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet Information    |   |                                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment Assets               |   |                                              | 682,144,241 |   |   |   | 6,284,513 |   |   |   | 67,859,336 |   |   |   | (69,981,081 | ) |   |   | 686,307,009 |   |

----

Index

|                           |   | June 30, 2010 |        |   | December 31, 2009 |   |
|--------------------------------|--------|---------------|-------------|--------|-------------------|--------|
|                           |   | Balance       |        |   | %                 |   |   | Balance |   |   | % |   |
|                           |   |          |        |   |              |   |   |   |   |   |   |   |
| Commercial                     |   | $             | 243,583,103 |   |              |   | 47.8 | % |   | $ | 251,773,047 |   |   |   | 47.7 | % |
| Commercial real estate         |   |          | 129,901,285 |   |              |   | 25.5 | % |   |   | 132,355,208 |   |   |   | 25.1 | % |
| Residential real estate        |   |          | 81,928,304  |   |              |   | 16.1 | % |   |   | 86,679,947 |   |   |   | 16.4 | % |
| Home equity                    |   |          | 39,571,519  |   |              |   | 7.7 | % |   |   | 40,042,804 |   |   |   | 7.6 | % |
| Consumer                       |   |          | 14,767,000  |   |              |   | 2.9 | % |   |   | 16,648,679 |   |   |   | 3.2 | % |
| Total loans                    |   |          | 509,751,211 |   |              |   | 100.0 | % |   |   | 527,499,685 |   |   |   | 100.0 | % |
| Net deferred loan costs (fees) |   |          | (94,762     | )      |              |   |   |   |   |   | (166,224 | ) |   |   |   |   |
| Allowance for loan losses      |   |          | (12,718,300 | )      |              |   |   |   |   |   | (11,598,389 | ) |   |   |   |   |
|                           |   |          |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Net loans                      |   | $             | 496,938,149 |   |              |   |   |   |   | $ | 515,735,072 |   |   |   |   |   |

|                                          |   | 2010   |       |   | 2009   |   |
|-----------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                          |   |   |       |   |   |   |
| Beginning balance, January 1                  |   | $      | 11,598,389 |   |   | $      | 10,654,879 |   |
| Provision expense                             |   |   | 2,440,000  |   |   |   | 7,510,000 |   |
| Charge-offs                                   |   |   | (1,448,727 | )      |   |   | (4,236,678 | ) |
| Recoveries                                    |   |   | 128,638    |   |   |   | 176,873 |   |
|                                          |   |   |       |   |   |   |   |   |
| Ending balance, June 30                       |   | $      | 12,718,300 |   |   | $      | 14,105,074 |   |
|                                          |   |   |       |   |   |   |   |   |
| Net charge-offs to average loans (annualized) |   |   | 0.51       | %      |   |   | 1.46 | % |

|                             |   | June 30, 2010 |       |   | December 31, 2009 |   |
|----------------------------------|--------|---------------|------------|--------|-------------------|--------|
|                             |   |          |       |   |              |   |
| Specific allocations             |   | $             | 5,195,500  |   |              | $      | 5,250,000 |   |
| Loan pool percentage allocations |   |          | 7,454,000  |   |              |   | 6,296,000 |   |
| Unallocated                      |   |          | 68,800     |   |              |   | 52,389 |   |
|                             |   |          |       |   |              |   |   |   |
| Total allowance for loan losses  |   | $             | 12,718,300 |   |              | $      | 11,598,389 |   |

----

Index

|                                                                                                                                                                                                                                                                                                                                                                                                                               |   | June 30, 2010 |       |   | December 31, 2009 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|------------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                               |   |          |       |   |              |   |
| Loans past due over 90 days and still accruing                                                                                                                                                                                                                                                                                                                                                                                     |   | $             | 2,185,168  |   |              | $      | 561,136 |   |
| Restructured loans                                                                                                                                                                                                                                                                                                                                                                                                                 |   |          | 1,861,734  |   |              |   | 1,915,127 |   |
| Nonaccrual loans                                                                                                                                                                                                                                                                                                                                                                                                                   |   |          | 10,414,369 |   |              |   | 13,466,165 |   |
| Total nonperforming loans                                                                                                                                                                                                                                                                                                                                                                                                          |   | $             | 14,461,271 |   |              | $      | 15,942,428 |   |
| Other real estate owned*                                                                                                                                                                                                                                                                                                                                                                                                           |   |          | 6,185,563  |   |              |   | 4,634,089 |   |
| Impaired Securities                                                                                                                                                                                                                                                                                                                                                                                                                |   |          | 489,529    |   |              |   | 478,665 |   |
| Total nonperforming assets                                                                                                                                                                                                                                                                                                                                                                                                         |   | $             | 21,136,363 |   |              | $      | 21,055,182 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                               |   |          |       |   |              |   |   |   |
| Nonperforming assets to total assets                                                                                                                                                                                                                                                                                                                                                                                               |   |          | 3.21       | %      |              |   | 3.10 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                               |   |          |       |   |              |   |   |   |
| Nonperforming loans to total loans                                                                                                                                                                                                                                                                                                                                                                                                 |   |          | 2.84       | %      |              |   | 3.02 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                               |   |          |       |   |              |   |   |   |
| *Several purchase agreements were entered into in June and July 2010. Upon closing, the sales will result in a decrease in other real estate owned by $3.5 million upon closing, which is expected in the third quarter. A valuation allowance has been recorded for these properties at June 30, 2010 based on the estimated losses from the sales and no further losses are expected upon closing on these properties. |   |

|                                              |   | As of and for the  |       |   | As of and for the |   |
|---------------------------------------------------|--------|--------------------|------------|--------|-------------------|--------|
|                                              |   | three months ended |       |   | year months ended |   |
|                                              |   | June 30, 2010      |       |   | December 31, 2009 |   |
|                                              |   |               |       |   |              |   |
| Loans with no allocated allowance for loan losses |   | $                  | 10,028,825 |   |              | $      | 9,776,211 |   |
| Loans with allocated allowance for loan losses    |   |               | 13,935,031 |   |              |   | 13,674,754 |   |
| Total Impaired Loans                              |   | $                  | 23,963,856 |   |              | $      | 23,450,965 |   |
|                                              |   |               |       |   |              |   |   |   |
| Amount of allowance for loan losses allocated     |   | $                  | 3,674,321  |   |              | $      | 3,825,000 |   |
|                                              |   |               |       |   |              |   |   |   |
| Average impaired loans during the period          |   | $                  | 25,652,787 |   |              | $      | 25,424,530 |   |
|                                              |   |               |       |   |              |   |   |   |
| Interest recognized on impaired loans             |   | $                  | 382,907    |   |              | $      | 938,621 |   |
|                                              |   |               |       |   |              |   |   |   |
| Cash-basis interest income recognized             |   | $                  | 382,907    |   |              | $      | 938,621 |   |

----

Index

|                                                                     |   |          |       |   |              |   |
|--------------------------------------------------------------------------|--------|---------------|------------|--------|-------------------|--------|
|                                                                     |   | June 30, 2010 |       |   | December 31, 2009 |   |
|                                                                     |   |          |       |   |              |   |
| 2.29% bullet advance, principal due at maturity March 22, 2010           |   |          | -          |   |              |   | 2,000,000 |   |
| 3.26% bullet advance, principal due at maturity April 28, 2010           |   |          | -          |   |              |   | 1,500,000 |   |
| 0.47% variable rate advance, principal due at maturity May 24, 2010      |   |          | -          |   |              |   | 15,000,000 |   |
| 0.47% variable rate advance, principal due at maturity June 16, 2010     |   |          | -          |   |              |   | 12,000,000 |   |
| 3.63% bullet advance, principal due at maturity June 28, 2010            |   |          | -          |   |              |   | 4,000,000 |   |
| 4.32% bullet advance, principal due at maturity June 29, 2010            |   |          | -          |   |              |   | 1,200,000 |   |
| 0.47% variable rate advance, principal due at maturity December 6, 2010  |   |          | 2,000,000  |   |              |   | - |   |
| 0.47% variable rate advance, principal due at maturity December 20, 2010 |   |          | 6,000,000  |   |              |   | - |   |
| 0.47% variable rate advance, principal due at maturity December 27, 2010 |   |          | 7,000,000  |   |              |   | - |   |
| 3.19% bullet advance, principal due at maturity March 28, 2011           |   |          | 2,000,000  |   |              |   | 2,000,000 |   |
| 3.60% bullet advance, principal due at maturity April 28, 2011           |   |          | 1,500,000  |   |              |   | 1,500,000 |   |
| 3.55% bullet advance, principal due at maturity March 26, 2012           |   |          | 2,000,000  |   |              |   | 2,000,000 |   |
| 3.81% bullet advance, principal due at maturity March 26, 2013           |   |          | 2,000,000  |   |              |   | 2,000,000 |   |
|                                                                     |   |          |       |   |              |   |   |   |
|                                                                     |   | $             | 22,500,000 |   |              | $      | 43,200,000 |   |

| Year   |   | Advances |       |
|--------|--------|----------|------------|
| 2010   |   |     | 15,000,000 |   |
| 2011   |   |     | 3,500,000  |   |
| 2012   |   |     | 2,000,000  |   |
| 2013   |   |     | 2,000,000  |   |
| 2014   |   |     | -          |   |
|   |   | $        | 22,500,000 |   |

----

Index

|                                     |   |          |              |   |    |   |       |    |   |   |    |   |
|------------------------------------------|--------|---------------|-------------------|--------|---------|--------|------------|---------|--------|--------|---------|--------|
|                                     |   | June 30, 2010 |              |
|                                     |   | Level 1       |              |   | Level 2 |   |       | Level 3 |   |   | Total   |   |
| Available for sale securities:           |   |          |              |   |    |   |       |    |   |   |    |   |
| U.S. Government agency debt obligations  |   | $             | 4,843,242         |   |    |   | -          |    |   |   | -       |   |   | $ | 4,843,242 |   |
| Obligations of states and political      |   |          |              |   |    |   |       |    |   |   |    |   |   |   |   |   |
| subdivisions                             |   |          | -                 |   |    |   | 32,587,232 |    |   |   | -       |   |   |   | 32,587,232 |   |
| Mortgage-backed securities (residential) |   |          | 46,780,462        |   |    |   | -          |    |   |   | 479,529 |   |   |   | 47,259,991 |   |
| Mortgage-backed securities (commercial)  |   |          | 2,748,399         |   |    |   | 2,097,250  |    |   |   | -       |   |   |   | 4,845,649 |   |
| Collateralized debt obligations          |   |          | -                 |   |    |   | -          |    |   |   | 10,000  |   |   |   | 10,000 |   |
| Total                                    |   | $             | 54,372,103        |   |    | $      | 34,684,482 |    |   | $      | 489,529 |   |   | $ | 89,546,114 |   |
|                                     |   |          |              |   |    |   |       |    |   |   |    |   |   |   |   |   |
|                                     |   |          |              |   |    |   |       |    |   |   |    |   |   |   |   |   |
|                                     |   |          | December 31, 2009 |   |
|                                     |   | Level 1       |              |   | Level 2 |   |       | Level 3 |   |   | Total   |   |
| Available for sale securities:           |   |          |              |   |    |   |       |    |   |   |    |   |   |   |   |   |
| U.S. Government agency debt obligations  |   | $             | 8,287,383         |   |    | $      | -          |    |   | $      | -       |   |   | $ | 8,287,383 |   |
| Obligations of states and political      |   |          |              |   |    |   |       |    |   |   |    |   |   |   |   |   |
| subdivisions                             |   |          | -                 |   |    |   | 27,202,545 |    |   |   | -       |   |   |   | 27,202,545 |   |
| Mortgage-backed securities (residential) |   |          | 44,188,333        |   |    |   | -          |    |   |   | 468,665 |   |   |   | 44,656,998 |   |
| Mortgage-backed securities (commercial)  |   |          | 2,932,234         |   |    |   | 2,090,000  |    |   |   | -       |   |   |   | 5,022,234 |   |
| Collateralized debt obligations          |   |          | -                 |   |    |   | -          |    |   |   | 10,000  |   |   |   | 10,000 |   |
| Total                                    |   | $             | 55,407,950        |   |    | $      | 29,292,545 |    |   | $      | 478,665 |   |   | $ | 85,179,160 |   |

|                                   |   | Available-for-sale securities |    |   | Available-for-sale securities |   |
|----------------------------------------|--------|-------------------------------|---------|--------|-------------------------------|--------|
| For the three months ended             |   | June 30, 2010                 |    |   | June 30, 2009                 |   |
|                                   |   |                          |    |   |                          |   |
| Beginning Balance, April 1             |   | $                             | 440,232 |   |                          | $      | 37,655 |   |
| Principal paydowns                     |   |                          | (19,491 | )      |                          |   | - |   |
| Net realized/unrealized gains (losses) |   |                          |    |   |                          |   |   |   |
| Included in earnings:                  |   |                          |    |   |                          |   |   |   |
| Interest income on securities          |   |                          | -       |   |                          |   | 5,708 |   |
| Credit loss recognized in earnings     |   |                          | (14,278 | )      |                          |   | (47,656 | ) |
| Included in other comprehensive income |   |                          | 83,066  |   |                          |   | 78,346 |   |
| Ending Balance, June 30                |   | $                             | 489,529 |   |                          | $      | 74,053 |   |

----

Index

|                                   |   | Available-for-sale securities |    |   | Available-for-sale securities |   |
|----------------------------------------|--------|-------------------------------|---------|--------|-------------------------------|--------|
| For the six months ended               |   | June 30, 2010                 |    |   | June 30, 2009                 |   |
|                                   |   |                          |    |   |                          |   |
| Beginning Balance, January 1           |   | $                             | 478,665 |   |                          | $      | 230,900 |   |
| Principal paydowns                     |   |                          | (39,080 | )      |                          |   | - |   |
| Net realized/unrealized gains (losses) |   |                          |    |   |                          |   |   |   |
| Included in earnings:                  |   |                          |    |   |                          |   |   |   |
| Interest income on securities          |   |                          | -       |   |                          |   | 13,052 |   |
| Credit loss recognized in earnings     |   |                          | (24,868 | )      |                          |   | (47,656 | ) |
| Included in other comprehensive income |   |                          | 74,812  |   |                          |   | (122,243 | ) |
| Ending Balance, June 30                |   | $                             | 489,529 |   |                          | $      | 74,053 |   |

|                    |   | June 30, 2010 |   |
|-------------------------|--------|---------------|--------|
|                    |   | Level 1       |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Impaired loans          |   |          | -      |   |   |   | - |   |   |   | 6,532,719 |   |   |   | 6,532,719 |   |
| Other real estate owned |   |          | -      |   |   |   | - |   |   |   | 5,283,437 |   |   |   | 5,283,437 |   |

|                    |   | December 31, 2009 |   |
|-------------------------|--------|-------------------|--------|
|                    |   | Level 1           |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Impaired loans          |   |              | -      |   |   |   | - |   |   |   | 6,095,793 |   |   |   | 6,095,793 |   |
| Other real estate owned |   |              | -      |   |   |   | - |   |   |   | 1,932,200 |   |   |   | 1,932,200 |   |

----

Index

|                          |   | June 30, 2010 |         |   | December 31, 2009 |   |
|-------------------------------|--------|---------------|--------------|--------|-------------------|--------|
|                          |   | Carrying      |         |   | Fair              |   |   | Carrying |   |   | Fair |   |
|                          |   | Value         |         |   | Value             |   |   | Value |   |   | Value |   |
| Financial assets:             |   |          |         |   |              |   |   |   |   |   |   |   |
| Cash and cash equivalents     |   | $             | 17,216,904   |   |              | $      | 17,216,904 |   |   | $ | 24,664,309 |   |   | $ | 24,664,309 |   |
| Securities held to maturity   |   |          | 5,655,990    |   |              |   | 5,792,378 |   |   |   | 4,495,977 |   |   |   | 4,635,616 |   |
| Securities available for sale |   |          | 89,546,114   |   |              |   | 89,546,114 |   |   |   | 85,179,160 |   |   |   | 85,179,160 |   |
| FHLBI and FRB stock           |   |          | 4,325,800    |   |              |   | N/A |   |   |   | 4,250,800 |   |   |   | N/A |   |
| Loans held for sale           |   |          | 1,663,315    |   |              |   | 1,663,315 |   |   |   | 3,842,089 |   |   |   | 3,842,089 |   |
| Loans, net                    |   |          | 496,938,149  |   |              |   | 498,681,027 |   |   |   | 515,735,072 |   |   |   | 518,357,191 |   |
| Accrued interest receivable   |   |          | 2,532,448    |   |              |   | 2,532,448 |   |   |   | 2,439,859 |   |   |   | 2,439,859 |   |
| Financial liabilities:        |   |          |         |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                      |   | $             | (564,987,837 | )      |              | $      | (567,750,117 | ) |   | $ | (568,380,351 | ) |   | $ | (571,401,464 | ) |
| FHLB advances                 |   |          | (22,500,000  | )      |              |   | (22,790,000 | ) |   |   | (43,200,000 | ) |   |   | (43,578,410 | ) |
| Junior subordinated debt      |   |          | (17,527,000  | )      |              |   | (16,948,709 | ) |   |   | (17,527,000 | ) |   |   | (17,147,380 | ) |
| Accrued interest payable      |   |          | (886,520     | )      |              |   | (886,520 | ) |   |   | (480,885 | ) |   |   | (480,885 | ) |

----

Index

em

----

Index

----

Index

|                             |   | June 30, 2010 |        |   | December 31, 2009 |   |
|----------------------------------|--------|---------------|-------------|--------|-------------------|--------|
|                             |   | Balance       |        |   | %                 |   |   | Balance |   |   | % |   |
| Core deposits:                   |   |          |        |   |              |   |   |   |   |   |   |   |
| Noninterest-bearing demand       |   | $             | 84,994,979  |   |              |   | 15.1 | % |   | $ | 95,027,233 |   |   |   | 16.7 | % |
| Interest-bearing checking        |   |          | 99,653,531  |   |              |   | 17.6 | % |   |   | 89,734,976 |   |   |   | 15.8 | % |
| Money market                     |   |          | 147,706,398 |   |              |   | 26.1 | % |   |   | 152,091,793 |   |   |   | 26.8 | % |
| Savings                          |   |          | 21,071,887  |   |              |   | 3.7 | % |   |   | 18,264,036 |   |   |   | 3.2 | % |
| Time, under $100,000             |   |          | 60,854,616  |   |              |   | 10.8 | % |   |   | 77,202,688 |   |   |   | 13.6 | % |
| Total core deposits              |   |          | 414,281,411 |   |              |   | 73.3 | % |   |   | 432,320,726 |   |   |   | 76.1 | % |
| Non-core deposits:               |   |          |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| In-market non-core deposits:     |   |          |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Time, $100,000 and over          |   |          | 54,633,128  |   |              |   | 9.7 | % |   |   | 67,389,262 |   |   |   | 11.9 | % |
| Out-of-market non-core deposits: |   |          |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Brokered money market deposits   |   |          | 5,000,653   |   |              |   | 0.9 | % |   |   | - |   |   |   | 0.0 | % |
| Brokered certificate of deposits |   |          | 91,072,645  |   |              |   | 16.1 | % |   |   | 68,670,363 |   |   |   | 12.1 | % |
| Total non-core deposits          |   |          | 150,706,426 |   |              |   | 26.7 | % |   |   | 136,059,625 |   |   |   | 23.9 | % |
|                             |   |          |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Total deposits                   |   | $             | 564,987,837 |   |              |   | 100.0 | % |   | $ | 568,380,351 |   |   |   | 100.0 | % |

| Performance Ratios          |   | June 30 |   |
|-----------------------------|--------|---------|--------|
|                        |   | 2010    |   |   | 2009 |   |
|                        |   |    |   |   |   |   |
| Return on average assets *  |   |    | 0.31   | % |   |   | -2.32 | % |
| Return on average equity *  |   |    | 4.26   | % |   |   | -32.66 | % |
| Net interest margin (TEY) * |   |    | 3.72   | % |   |   | 3.02 | % |
| Efficiency ratio            |   |    | 76.96  | % |   |   | 100.57 | % |
|                        |   |    |   |   |   |   |   |   |
| * annualized                |   |    |   |   |   |   |   |   |

----

Index

|                                                       |   | (Dollars in Thousands)                     |    |
|------------------------------------------------------------|--------|--------------------------------------------|---------|
|                                                       |   | As of and For The Three Month Period Ended |    |
|                                                       |   | June 30, 2010                              |    |   | June 30, 2009 |   |
|                                                       |   |                                       |    |   | Interest |   |   | Annualized |   |   |   |   |   | Interest |   |   | Annualized |   |
|                                                       |   | Average                                    |    |   | Earned |   |   | Yield |   |   | Average |   |   | Earned |   |   | Yield |   |
|                                                       |   | Balance                                    |    |   | or Paid |   |   | or Cost |   |   | Balance |   |   | or Paid |   |   | or Cost |   |
| Assets                                                     |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term investments and                                 |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest-earning deposits                                  |   | $                                          | 2,115   |   |   | $ | 5 |   |   |   | 0.95 | % |   | $ | 2,438 |   |   | $ | - |   |   |   | 0.00 | % |
| Federal funds sold                                         |   |                                       | 2,006   |   |   |   | 1 |   |   |   | 0.20 | % |   |   | 4,849 |   |   |   | 3 |   |   |   | 0.25 | % |
| Securities - taxable                                       |   |                                       | 71,059  |   |   |   | 663 |   |   |   | 3.74 | % |   |   | 62,826 |   |   |   | 781 |   |   |   | 4.99 | % |
| Securities - tax exempt (1)                                |   |                                       | 25,623  |   |   |   | 386 |   |   |   | 6.04 | % |   |   | 23,421 |   |   |   | 368 |   |   |   | 6.30 | % |
| Loans held for sale                                        |   |                                       | 1,294   |   |   |   | - |   |   |   | 0.00 | % |   |   | 2,190 |   |   |   | - |   |   |   | 0.00 | % |
| Loans                                                      |   |                                       | 514,962 |   |   |   | 6,827 |   |   |   | 5.32 | % |   |   | 561,814 |   |   |   | 7,100 |   |   |   | 5.07 | % |
| Total interest-earning assets                              |   |                                       | 617,059 |   |   |   | 7,882 |   |   |   | 5.12 | % |   |   | 657,538 |   |   |   | 8,252 |   |   |   | 5.03 | % |
| Allowance for loan losses                                  |   |                                       | (12,606 | ) |   |   |   |   |   |   |   |   |   |   | (11,294 | ) |   |   |   |   |   |   |   |   |
| Cash and due from banks                                    |   |                                       | 16,057  |   |   |   |   |   |   |   |   |   |   |   | 26,683 |   |   |   |   |   |   |   |   |   |
| Other assets                                               |   |                                       | 43,314  |   |   |   |   |   |   |   |   |   |   |   | 35,355 |   |   |   |   |   |   |   |   |   |
| Total assets                                               |   | $                                          | 663,824 |   |   |   |   |   |   |   |   |   |   | $ | 708,282 |   |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity                       |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing checking                                  |   | $                                          | 105,376 |   |   | $ | 88 |   |   |   | 0.33 | % |   | $ | 83,597 |   |   | $ | 172 |   |   |   | 0.83 | % |
| Savings                                                    |   |                                       | 19,870  |   |   |   | 20 |   |   |   | 0.40 | % |   |   | 16,940 |   |   |   | 16 |   |   |   | 0.38 | % |
| Money market                                               |   |                                       | 148,952 |   |   |   | 317 |   |   |   | 0.85 | % |   |   | 157,684 |   |   |   | 436 |   |   |   | 1.11 | % |
| Certificates of deposit                                    |   |                                       | 212,406 |   |   |   | 1,303 |   |   |   | 2.46 | % |   |   | 265,507 |   |   |   | 2,180 |   |   |   | 3.29 | % |
| FHLB advances                                              |   |                                       | 24,078  |   |   |   | 143 |   |   |   | 2.38 | % |   |   | 23,133 |   |   |   | 217 |   |   |   | 3.76 | % |
| Short-term borrowings                                      |   |                                       | 36      |   |   |   | - |   |   |   | 0.00 | % |   |   | 453 |   |   |   | 1 |   |   |   | 0.89 | % |
| Junior subordinated debt                                   |   |                                       | 17,527  |   |   |   | 283 |   |   |   | 6.48 | % |   |   | 17,527 |   |   |   | 283 |   |   |   | 6.49 | % |
| Total interest-bearing liabilities                         |   |                                       | 528,245 |   |   |   | 2,154 |   |   |   | 1.64 | % |   |   | 564,841 |   |   |   | 3,305 |   |   |   | 2.35 | % |
| Noninterest-bearing checking                               |   |                                       | 83,155  |   |   |   |   |   |   |   |   |   |   |   | 88,921 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                          |   |                                       | 4,020   |   |   |   |   |   |   |   |   |   |   |   | 4,217 |   |   |   |   |   |   |   |   |   |
| Stockholders' equity                                       |   |                                       | 48,404  |   |   |   |   |   |   |   |   |   |   |   | 50,303 |   |   |   |   |   |   |   |   |   |
| Total liabilities and stockholders' equity                 |   | $                                          | 663,824 |   |   |   |   |   |   |   |   |   |   | $ | 708,282 |   |   |   |   |   |   |   |   |   |
| Net interest income                                        |   |                                       |    |   |   | $ | 5,728 |   |   |   |   |   |   |   |   |   |   | $ | 4,947 |   |   |   |   |   |
| Rate spread                                                |   |                                       |    |   |   |   |   |   |   |   | 3.48 | % |   |   |   |   |   |   |   |   |   |   | 2.68 | % |
|                                                       |   |                                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income as a percent of average earning assets |   |                                       |    |   |   |   |   |   |   |   | 3.72 | % |   |   |   |   |   |   |   |   |   |   | 3.02 | % |

----

Index

| Performance Ratios          |   | June 30 |   |
|-----------------------------|--------|---------|--------|
|                        |   | 2010    |   |   | 2009 |   |
|                        |   |    |   |   |   |   |
| Return on average assets *  |   |    | 0.37   | % |   |   | -1.06 | % |
| Return on average equity *  |   |    | 5.20   | % |   |   | -14.83 | % |
| Net interest margin (TEY) * |   |    | 3.69   | % |   |   | 2.93 | % |
| Efficiency ratio            |   |    | 72.78  | % |   |   | 89.80 | % |
|                        |   |    |   |   |   |   |   |   |
| * annualized                |   |    |   |   |   |   |   |   |

----

Index

|                                                       |   | As of and For The Six Month Period Ended |    |
|------------------------------------------------------------|--------|------------------------------------------|---------|
|                                                       |   | June 30, 2010                            |    |   | June 30, 2009 |   |
|                                                       |   |                                     |    |   | Interest |   |   | Annualized |   |   |   |   |   | Interest |   |   | Annualized |   |
|                                                       |   | Average                                  |    |   | Earned |   |   | Yield |   |   | Average |   |   | Earned |   |   | Yield |   |
| ($ in thousands)                                           |   | Balance                                  |    |   | or Paid |   |   | or Cost |   |   | Balance |   |   | or Paid |   |   | or Cost |   |
| Assets                                                     |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term investments and                                 |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest-earning deposits                                  |   | $                                        | 2,274   |   |   | $ | 9 |   |   |   | 0.80 | % |   | $ | 1,996 |   |   | $ | - |   |   |   | 0.00 | % |
| Federal funds sold                                         |   |                                     | 2,863   |   |   |   | 3 |   |   |   | 0.21 | % |   |   | 12,106 |   |   |   | 9 |   |   |   | 0.15 | % |
| Securities - taxable                                       |   |                                     | 71,050  |   |   |   | 1,302 |   |   |   | 3.70 | % |   |   | 61,206 |   |   |   | 1,416 |   |   |   | 4.67 | % |
| Securities - tax exempt (1)                                |   |                                     | 25,021  |   |   |   | 758 |   |   |   | 6.11 | % |   |   | 22,580 |   |   |   | 709 |   |   |   | 6.33 | % |
| Loans held for sale                                        |   |                                     | 1,225   |   |   |   | - |   |   |   | 0.00 | % |   |   | 1,527 |   |   |   | - |   |   |   | 0.00 | % |
| Loans                                                      |   |                                     | 520,888 |   |   |   | 13,710 |   |   |   | 5.31 | % |   |   | 560,710 |   |   |   | 14,148 |   |   |   | 5.09 | % |
| Total interest-earning assets                              |   |                                     | 623,321 |   |   |   | 15,782 |   |   |   | 5.11 | % |   |   | 660,125 |   |   |   | 16,282 |   |   |   | 4.97 | % |
| Allowance for loan losses                                  |   |                                     | (12,323 | ) |   |   |   |   |   |   |   |   |   |   | (11,121 | ) |   |   |   |   |   |   |   |   |
| Cash and due from banks                                    |   |                                     | 17,671  |   |   |   |   |   |   |   |   |   |   |   | 18,959 |   |   |   |   |   |   |   |   |   |
| Other assets                                               |   |                                     | 42,227  |   |   |   |   |   |   |   |   |   |   |   | 34,393 |   |   |   |   |   |   |   |   |   |
| Total assets                                               |   | $                                        | 670,896 |   |   |   |   |   |   |   |   |   |   | $ | 702,356 |   |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity                       |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing checking                                  |   | $                                        | 106,133 |   |   | $ | 194 |   |   |   | 0.37 | % |   | $ | 84,109 |   |   | $ | 348 |   |   |   | 0.83 | % |
| Savings                                                    |   |                                     | 19,511  |   |   |   | 39 |   |   |   | 0.40 | % |   |   | 17,170 |   |   |   | 38 |   |   |   | 0.45 | % |
| Money market                                               |   |                                     | 149,351 |   |   |   | 640 |   |   |   | 0.86 | % |   |   | 155,073 |   |   |   | 917 |   |   |   | 1.19 | % |
| Certificates of deposit                                    |   |                                     | 206,311 |   |   |   | 2,614 |   |   |   | 2.56 | % |   |   | 268,403 |   |   |   | 4,344 |   |   |   | 3.26 | % |
| Short-term borrowings                                      |   |                                     | 18      |   |   |   | - |   |   |   | 0.00 | % |   |   | 226 |   |   |   | 1 |   |   |   | 0.89 | % |
| FHLB advances                                              |   |                                     | 34,421  |   |   |   | 313 |   |   |   | 1.83 | % |   |   | 24,645 |   |   |   | 467 |   |   |   | 3.82 | % |
| Junior subordinated debt                                   |   |                                     | 17,527  |   |   |   | 563 |   |   |   | 6.48 | % |   |   | 17,527 |   |   |   | 563 |   |   |   | 6.48 | % |
| Total interest-bearing liabilities                         |   |                                     | 533,272 |   |   |   | 4,363 |   |   |   | 1.65 | % |   |   | 567,153 |   |   |   | 6,678 |   |   |   | 2.37 | % |
| Noninterest-bearing checking                               |   |                                     | 85,693  |   |   |   |   |   |   |   |   |   |   |   | 80,973 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                          |   |                                     | 4,018   |   |   |   |   |   |   |   |   |   |   |   | 4,108 |   |   |   |   |   |   |   |   |   |
| Stockholders' equity                                       |   |                                     | 47,913  |   |   |   |   |   |   |   |   |   |   |   | 50,122 |   |   |   |   |   |   |   |   |   |
| Total liabilities and stockholders' equity                 |   | $                                        | 670,896 |   |   |   |   |   |   |   |   |   |   | $ | 702,356 |   |   |   |   |   |   |   |   |   |
| Net interest income                                        |   |                                     |    |   |   | $ | 11,419 |   |   |   |   |   |   |   |   |   |   | $ | 9,604 |   |   |   |   |   |
| Rate spread                                                |   |                                     |    |   |   |   |   |   |   |   | 3.46 | % |   |   |   |   |   |   |   |   |   |   | 2.60 | % |
|                                                       |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income as a percent of average earning assets |   |                                     |    |   |   |   |   |   |   |   | 3.69 | % |   |   |   |   |   |   |   |   |   |   | 2.93 | % |

----

Index

|              |   | June 30, 2010 |   |   | December 31, 2009 |   |
|-------------------|--------|---------------|--------|--------|-------------------|--------|
|              |   |          |   |   | Well-             |   |   | Minimum |   |   |   |   |   | Well- |   |   | Minimum |   |
|              |   | Actual        |   |   | Capitalized       |   |   | Required |   |   | Actual |   |   | Capitalized |   |   | Required |   |
|              |   |          |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The Company       |   |          |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Leverage capital  |   |          | 9.50   | %      |              |   | 5.00 | % |   |   | 4.00 | % |   |   | 9.05 | % |   |   | 5.00 | % |   |   | 4.00 | % |
| Tier 1 risk-based |   |          | 11.62  | %      |              |   | 6.00 | % |   |   | 4.00 | % |   |   | 10.90 | % |   |   | 6.00 | % |   |   | 4.00 | % |
| Total risk-based  |   |          | 13.11  | %      |              |   | 10.00 | % |   |   | 8.00 | % |   |   | 12.45 | % |   |   | 10.00 | % |   |   | 8.00 | % |
|              |   |          |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The Bank          |   |          |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Leverage capital  |   |          | 9.70   | %      |              |   | 5.00 | % |   |   | 4.00 | % |   |   | 9.30 | % |   |   | 5.00 | % |   |   | 4.00 | % |
| Tier 1 risk-based |   |          | 11.79  | %      |              |   | 6.00 | % |   |   | 4.00 | % |   |   | 11.06 | % |   |   | 6.00 | % |   |   | 4.00 | % |
| Total risk-based  |   |          | 13.05  | %      |              |   | 10.00 | % |   |   | 8.00 | % |   |   | 12.32 | % |   |   | 10.00 | % |   |   | 8.00 | % |

----

Index

Ite

----

Index

Item 1

em

em 

m

----

Index

em

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

31.1

31.2

32.1

32.2

SIGNATURES

|                             |   | TOWER FINANCIAL CORPORATION        |
|----------------------------------|--------|------------------------------------|
|                             |   |                               |
|                             |   |                               |
| Dated:  August 4, 2010 |   | / s /  Michael D. Cahill |
|                             |   | Michael D. Cahill, President       |
|                             |   | and Chief Executive Officer        |
|                             |   |                               |
|                             |   |                               |
| Dated:  August 4, 2010 |   | / s /  Richard R. Sawyer |
|                             |   | Richard R. Sawyer                  |
|                             |   | Chief Financial Officer            |
|                             |   |                               |

----