TAYLOR CAPITAL GROUP INC - FORM 8-K - EX-99.1 - QUARTERLY EARNINGS RELEASE

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8-K - FORM 8-K - TAYLOR CAPITAL GROUP INC	d245202d8k.htm

Exhibit 99.1

LOGO

Investor Relations and Media Contact:

Christina Hachikian

(847) 653-7166

Taylor Capital Group reports net income

of $9.8 million for the third quarter of 2011

Year to date: net income of $8.8 million;

24% decline in nonperforming loans

CHICAGO, IL – October 20, 2011 – Taylor Capital Group, Inc. (the “Company”) (NASDAQ: TAYC), the parent company of Cole Taylor Bank (the “Bank”), today reported earnings for the third quarter of 2011.

Net income for the third quarter of 2011 was $9.8 million, compared to a net loss of $1.4 million for the second quarter of 2011. Net income applicable to common stockholders was $7.3 million, or $0.35 per diluted share, for the third quarter of 2011, compared to a net loss applicable to common stockholders of $3.9 million, or $0.19 per diluted share, for the second quarter of 2011.

Net income for the nine months ended September 30, 2011 was $8.8 million, compared to a net loss of $8.2 million for the nine months ended September 30, 2010. Net income applicable to common stockholders was $1.4 million, or $0.07 per diluted share, for the nine months ended September 30, 2011, compared to a net loss applicable to common stockholders of $31.2 million, or $2.19 per diluted share, for the nine months ended September 30, 2010(1).

“The third quarter of 2011 was very positive for Taylor Capital,” said Mark A. Hoppe, President and Chief Executive Officer of Taylor Capital Group. “We earned $9.8 million in the third quarter, and as a result are profitable year to date. Starting in 2008, with the addition of new management and the support of new investors and board members, we set out to reposition the balance sheet, strengthen asset quality and diversify revenue to drive earnings. This quarter is clear evidence that we are well on our way to achieving these strategic goals.”

Hoppe continued, “Enhanced profitability this quarter is a result of improved net interest margin resulting from lower funding costs and deposit repricing, as well as higher fee income from our commercial banking and mortgage units. We also showed continued improvement in asset quality, including a 15% drop in nonperforming loans, a 14% reduction in commercial criticized and classified balances, and a 14% improvement in the coverage ratio of allowance for loan losses to nonperforming loans. All in all, this quarter was one of the most positive in several years, and is indicative of progress resulting from the immense efforts focused on our “fix and grow” strategy. Today we are also announcing that we plan to convert our Series C and E Preferred into common stock, and are contemplating a common stock rights offering of up to $35 million in the next few months.”

THIRD QUARTER 2011 HIGHLIGHTS

Pre-tax, pre-provision operating earnings up 80.2% in 3Q 2011 from 2Q 2011

•

Pre-tax, pre-provision operating earnings(2) totaled $23.8 million for the third quarter of 2011, up from $13.2 million for the second quarter of 2011.

•

Revenue(2), excluding gains and losses on investment securities and derivative termination costs, was up 28.4% from $39.0 million for the second quarter of 2011 to $50.1 million for the third quarter of 2011.

•

Noninterest expense, excluding nonperforming asset expense and nonrecurring early extinguishment of debt expense, was $26.4 million for the third quarter of 2011, up 2.3% from $25.8 million in the second quarter of 2011.

•

Net interest margin was 3.25% for the third quarter of 2011, up from 3.09% for the second quarter of 2011.

Asset quality indicators again improved, including a 15.0% reduction in nonperforming loans

•

Nonperforming loans were $121.5 million, or 4.02% of total loans at September 30, 2011, down from $143.1 million, or 4.91% of total loans at June 30, 2011.

•

At September 30, 2011, commercial criticized and classified loans(3) totaled $221.1 million, down 14.5% from $258.5 million at June 30, 2011.

•

At September 30, 2011, the allowance for loan losses was $105.8 million, compared to $109.0 million at June 30, 2011.

•

The allowance for loan losses as a percent of nonperforming loans increased to 87.06% at September 30, 2011, from 76.22% at June 30, 2011.

•

Provision for loan losses was $16.2 million for the third quarter of 2011, up from $11.8 million for the second quarter of 2011.

THIRD QUARTER 2011 PERFORMANCE OVERVIEW

Results of Operations

Income before income taxes was $9.8 million for the third quarter of 2011, compared to a loss before income taxes of $1.0 million in the second quarter of 2011. This improvement was largely due to a $10.6 million increase in pre-tax, pre-provision operating earnings offset by a $757,000 increase in credit costs (provision for loan losses and nonperforming asset expense). In addition, there were nonrecurring items that affected income before income taxes, including $4.9 million of gains on the sales of investment securities, taken to mitigate potential prepayment risk, offset by an $896,000 loss in other derivative income associated with the termination of certain derivative contracts and $3.4 million in expenses for the early extinguishment of debt. The termination of certain derivatives and the early extinguishment of debt were completed to lower funding costs. The net impact of these nonrecurring items on income before income taxes was $598,000 for the third quarter of 2011.

Pre-tax, Pre-provision Operating Earnings

Pre-tax, pre-provision operating earnings totaled $23.8 million for the third quarter of 2011, compared to $13.2 million for the second quarter of 2011. This increase was largely due to a $5.3 million increase in mortgage origination revenue, $3.4 million in higher derivative income (excluding a loss on the termination of certain derivative contracts) and a $2.5 million improvement in net interest income.

Revenue

Revenue was $50.1 million for the third quarter of 2011, up from $39.0 million for the second quarter of 2011, a 28.4% increase.

Net interest income was up 7.8% at $34.7 million for the third quarter of 2011, compared to $32.2 million for the second quarter of 2011. This improvement was made up of a $2.0 million decline in interest expense and a $478,000 increase in interest income. The net interest margin was 3.25% for the third quarter of 2011, up 16 basis points from 3.09% for the second quarter of 2011.

Lower funding costs drove the improvement in net interest income and the net interest margin. There was significant, anticipated deposit repricing, largely in customer certificates of deposit and brokered certificates of deposit during the third quarter 2011, which benefited the net interest margin. The decline in funding costs was also the result of funding-related transactions, including the termination of certain derivative contracts and early extinguishment of debt. It was determined that these actions were in the best long-term economic interest of the Company, despite short-term losses and expenses, as it is expected that these actions will continue to benefit the net interest margin going forward.

Interest income increased despite a decline in the yield on earning assets from 4.46% for the second quarter of 2011 to 4.41% for the third quarter of 2011. This variance was in part driven by growth in mortgage loans originated by Cole Taylor Mortgage, which increased average earning assets, but lowered the yield on earning assets.

Noninterest income was $15.4 million, excluding $4.9 million in gains on the sales of investment securities and an $896,000 loss associated with the termination of certain derivative contracts, compared to $6.8 million for the second quarter of 2011, which excluded a $381,000 impairment loss on an investment security. The sales of investment securities were executed during the third quarter as these securities had higher repayment risk due to the underlying collateral refinance uncertainty.

Higher mortgage origination revenue and other derivative income contributed to the quarter-over-quarter increase in revenue. The increase in mortgage origination revenue, from $2.2 million in the second quarter of 2011 to $7.6 million in the third quarter of 2011, was a result of increased loan fundings in the third quarter of 2011 at Cole Taylor Mortgage. Loan fundings were $521.5 million, up from $318.3 million in the second quarter of 2011. The increased volume was due to lower mortgage interest rates in the third quarter, further bolstered by the continued expansion of the unit’s national platform.

The increase in other derivative fee income from $194,000 in the second quarter of 2011 to $3.4 million (excluding a loss on the termination of certain derivative contracts) in the third quarter of 2011 was the result of a higher volume of interest rate swap agreements entered into by commercial clients of Cole Taylor Commercial Banking and Cole Taylor Commercial Real Estate Banking, two of the Bank’s commercial lending units.

Noninterest Expense

Noninterest expense was $28.2 million for the third quarter of 2011, compared to $27.8 million for the second quarter of 2011. This increase was primarily the result of $3.4 million in nonrecurring expense related to the early extinguishment of debt, offset somewhat by the reversal of nonperforming asset expense of $1.6 million, primarily the result of reversals of reserves for unfunded commitments associated

with nonperforming loans that were resolved during the third quarter of 2011. These items are excluded from pre-tax, pre-provision operating earnings. Noninterest expense excluding these items was $26.4 million for the third quarter of 2011, compared to $25.8 million for the second quarter of 2011.

Credit Quality

Nonperforming loans decreased $21.5 million, or 15.0%, and nonperforming assets were down $20.1 million, or 11.8%, from the second quarter of 2011 to the third quarter of 2011. The watch list of commercial criticized and classified loans(3) decreased for the fifth consecutive quarter. The watch list of commercial criticized and classified loans, a key indicator of asset quality, was down from $258.5 million in the second quarter of 2011 to $221.1 million in the third quarter of 2011, or less than half its balance of $453.1 million at the historical peak of June 30, 2009.

Credit costs in the third quarter of 2011 were $14.6 million up from $13.8 million in the second quarter of 2011. However, year to date credit costs declined 55.3% from $93.7 million for the nine months ended September 30, 2010, to $41.9 million for the nine months ended September 30, 2011.

Loan Portfolio Performance and Credit Quality

Nonaccrual loans decreased to $121.5 million at September 30, 2011, compared to $143.1 million at June 30, 2011. The total decline of $21.6 million consisted of a reduction of $11.1 million in commercial and industrial nonaccrual loans, $7.3 million in commercial real estate secured nonaccrual loans and $2.4 million in residential land and construction nonaccrual loans. The balance of the decline was in commercial land and construction nonaccrual loans and all other nonaccrual loans.

Other real estate and repossessed assets increased slightly to $29.2 million at September 30, 2011 from $27.9 million at June 30, 2011, principally the result of one completed foreclosure in the third quarter of 2011, offset by several property sales. The net proceeds from these sales during the third quarter of 2011 were higher than their total net carrying value.

Nonperforming assets were $150.8 million at September 30, 2011, compared to $170.9 million at June 30, 2011. Nonperforming assets to total assets declined to 3.35% at September 30, 2011, compared to 3.89% at June 30, 2011.

Loans contractually past due 30 through 89 days and still accruing were $5.6 million at September 30, 2011, compared to $5.7 million at June 30, 2011. The decrease was principally the result of having no commercial loans past due 30 through 89 days at September 30, 2011, and a slight reduction in consumer loans past due.

Commercial criticized and classified loans were $221.1 million at September 30, 2011, compared to $258.5 million at June 30, 2011, or a decrease of 14.5%. This decrease was largely the result of pay downs and charge-offs during the third quarter of 2011, partially offset by new loans being placed on criticized and classified status.

Allowance and Provision for Loan Losses

The allowance for loan losses was $105.8 million at September 30, 2011, down from $109.0 million at June 30, 2011. This decline during the third quarter of 2011 resulted from net charge-offs exceeding the provision for loan losses by $3.2 million, as credit quality trends continue to improve and the watch list of criticized and classified loans declines. The coverage ratio of the allowance for loan losses as a percent of nonperforming loans was 87.06% at September 30, 2011, up from 76.22% at June 30, 2011.

The provision for loan losses was $16.2 million for the third quarter of 2011, up from $11.8 million for the second quarter of 2011. The increase in provision was largely the result of higher specific reserves on two nonperforming loans and higher charge-offs. The provision year-to-date was $38.3 million for the

nine months ended September 30, 2011, down 54.0% from $83.2 million for the nine months ended September 30, 2010.

Credit Quality Performance Summary


(dollars in thousands)	9/30/2011			6/30/2011			Change 6/30/2011 to 9/30/2011

Nonperforming loans	$	121,534		$	143,058		($	21,524	)

Nonperforming assets	$	150,772		$	170,915		($	20,143	)

Nonperforming loans to total loans		4.02	%		4.91	%		-0.89	%

Allowance to nonperforming loans		87.06	%		76.22	%		10.84	%

Commercial criticized and classified loans	$	221,122		$	258,486		($	37,364	)

Balance Sheet

Assets

Total assets at September 30, 2011 were $4.50 billion, compared to $4.40 billion at June 30, 2011.

Investment securities were $1.31 billion at September 30, 2011, compared to $1.33 billion at June 30, 2011. Loans held for sale were $148.7 million at September 30, 2011, compared to $86.1 million at June 30, 2011, a result of higher mortgage origination volumes at Cole Taylor Mortgage in the third quarter of 2011.

Loans, net of allowance for loan losses, were $2.77 billion at September 30, 2011, compared to $2.72 billion at June 30, 2011. Commercial and industrial loans, including commercial owner-occupied real estate loans were $1.82 billion, up from $1.81 billion. Consumer-oriented loans were $266.8 million, up from $182.4 million, primarily the result of certain mortgages originated by Cole Taylor Mortgage being held in portfolio, rather than sold to the secondary market. Offsetting these increases was a decrease in real estate related loans, excluding commercial owner-occupied real estate loans, to $789.5 million at September 30, 2011, from $835.4 million at June 30, 2011. This decline was due to pay downs and nonperforming loan resolutions during the third quarter of 2011.

Liabilities and Stockholders’ Equity

Total liabilities at September 30, 2011 were $4.21 billion, compared to $4.15 billion at June 30, 2011.

Total deposits were $2.93 billion at September 30, 2011, compared to $2.91 billion at June 30, 2011. The largest increases were in NOW accounts and noninterest bearing deposits, as well as out-of-local market certificates of deposit and brokered certificates of deposit. These increases more than offset declines in customer certificates of deposit and in money market accounts.

Other borrowings were down from $270.4 million at June 30, 2011 to $180.8 million at September 30, 2011, primarily due to the termination of a repurchase agreement for which the Company paid early extinguishment penalties. This decrease in other borrowings was offset by an increase in notes payable and other advances from $740.0 million to $872.5 million due to an increase in Federal Home Loan Bank advances. These actions were taken to shift the funding mix to lower the overall cost of funds.

Total stockholders’ equity increased to $288.9 million at September 30, 2011, from $242.6 million at June 30, 2011. The increase was due to net income available to common stockholders in the third quarter of 2011, as well as an increase in accumulated other comprehensive income due to an improvement in the unrealized gain position of the investment securities portfolio.

Capital

Simultaneously with the release of this earnings announcement, the Company filed a preliminary proxy statement with the Securities and Exchange Commission which includes information regarding the planned conversion of the Company’s 8% Non-Cumulative Convertible Perpetual Preferred Stock, Series C, and 8% Non-Cumulative Convertible Perpetual Preferred Stock, Series E, into shares of common stock, or in the case of some shareholders Nonvoting, Non-Cumulative, Convertible Perpetual Preferred Stock, Series G. The preliminary proxy statement also includes information about a common stock rights offering being contemplated.

At September 30, 2011, the Company’s Tier I Risk Based Capital ratio was 10.08%, while its Total Risk Based Capital ratio was 13.63% and its Tier I Capital to Average Assets leverage ratio was 7.83%.

All the Company’s regulatory capital ratios exceeded the regulatory requirements for well-capitalized bank holding companies of 6.00% for Tier I Risk Based Capital, 10.00% for Total Risk Based Capital and 5.00% for Tier I Capital to Average Assets.

This press release does not constitute an offer to sell or a solicitation of an offer to buy any securities of the Company.

Conference Call and Slide Presentation

The Company will host a webcast and conference call on Thursday, October 20, 2011, at 10:00 am Central Time (11:00 am Eastern Time) to discuss the third quarter of 2011 earnings and other matters. To access the call, please dial 1-877-317-6789 (toll-free) or 1-412-317-6789, and request the Taylor Capital Group Earnings Call. To access streaming audio, please go to www.taylorcapitalgroup.com.

The Company will also provide a slide presentation, which management will speak to during the discussion. A copy of the presentation will be available for download prior to the start of the call at www.taylorcapitalgroup.com. The presentation will not be webcast live. If you have any trouble obtaining a copy of the presentation, please call Investor Relations at 1-847-653-7166.

Accompanying Financial Statements and Tables

This press release is accompanied by the following unaudited financial information:

•

Condensed Consolidated Balance Sheets

•

Consolidated Statements of Operations

•

Summary of Key Quarterly Financial Data

•

Summary of Key Year-To-Date Financial Data

•

Summary of Key Period-End Financial Data

•

Composition of Loan Portfolio

•

Credit Quality

•

Loan Portfolio and Held for Sale Aging

•

Funding Liabilities

•

Reconciliation of U.S. GAAP Financial Measures

About Taylor Capital Group, Inc. (NASDAQ: TAYC)

Taylor Capital Group, Inc. is a $4.5 billion bank holding company for Cole Taylor Bank, a Chicago-based

commercial bank specializing in serving the banking needs of closely held businesses and the people who own and manage them. Cole Taylor is a member of the FDIC and an Equal Housing Lender.

Endnotes:

(1)

The net loss applicable to common stockholders for the nine months ended September 30, 2010 included a non-cash, non-capital impacting implied divided of $15.8 million in the second quarter of 2010, representing an inducement to the holders of all of the Company’s Series A Preferred who converted to common stock in the second quarter of 2010.

(2)

Schedules reconciling earnings in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) to the non-GAAP measurement of pre-tax, pre-provision operating earnings and revenue are provided in the attached tables.

(3)

Commercial criticized and classified loans (special mention, substandard, and nonaccrual loans) in commercial & industrial, commercial real estate, residential construction and land, and commercial construction and land Federal collateral codes. Excludes consumer loans.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release includes forward-looking statements that reflect our current expectations and projections about our future results, performance, prospects and opportunities. We have tried to identify these forward-looking statements by using words including “may,” “might,” “contemplate,” “plan,” “prudent,” “potential,” “should,” “will,” “expect,” “anticipate,” “believe,” “intend,” “could” and “estimate” and similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities in 2011 and beyond to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include, without limitation: the risk that our regulators could require us to maintain regulatory capital in excess of the levels needed to be considered well capitalized; the risk that our allowance for loan losses may prove insufficient to absorb probable losses in our loan portfolio; possible volatility in loan charge-offs and recoveries between periods; negative developments and further disruption in the credit and lending markets impacting our business and the businesses of our customers, as well as other banks and lending institutions with which we have commercial relationships; the continued decline in residential real estate sales volume and the likely potential for continuing illiquidity in the real estate market, including within the Chicago metropolitan area; the risks associated with the high volume of loans secured by commercial real estate in our portfolio; the uncertainties in estimating the fair value of developed real estate and undeveloped land in light of declining demand for such assets and continuing illiquidity in the real estate market; the risks associated with the planned growth of our new mortgage unit, including the expansion into new geographic markets and regulatory changes; lending concentration risks; the risks associated with attracting and retaining experienced and qualified personnel, including our senior management and other key personnel in our core business lines; uncertainty in estimating the fair value of loans held for sale and the possibility that we will not be able to dispose of these assets on terms acceptable to us; security risks relating to our internet banking activities that could damage our reputation and our business; the potential impact of certain operational risks, including, but not limited to, data processing system failures and errors and customer or employee fraud; the risks associated with implementing our business strategy and managing our growth effectively, including our ability to preserve and access sufficient capital to execute on our strategy; the effect on our profitability if interest rates fluctuate, as well as the effect of our customers’ changing use of our deposit products; the ability to use net operating loss carryforwards to reduce future tax payments if an ownership change of the Company is deemed to have occurred for tax purposes; the possibility that our wholesale funding sources may prove insufficient to replace deposits at maturity and support our growth; continuation of volatility in the capital markets; the effectiveness of our hedging transactions and their impact on our future results of operations; the conditions of the local economy in which we operate and continued weakness in the local economy; changes in general economic and capital market conditions, interest rates, our debt credit ratings, deposit flows, loan demand, loan syndication opportunities and competition; regulatory restrictions and liquidity constraints at the holding company level that could impair our ability to pay dividends or interest on our outstanding securities; significant restrictions on our operations as a result of our participation in the TARP Capital Purchase Program; the impact of changes in legislation, including the Dodd-Frank Act, or regulatory and accounting principles, policies or guidelines affecting our business, including those relating to capital requirements; and other economic, competitive, governmental, regulatory and technological factors impacting our operations.

For further information about these and other risks, uncertainties and factors, please review the disclosure included in the section captioned “Risk Factors” in our December 31, 2010 Annual Report on Form 10-K filed with the SEC on March 22, 2011. You should not place undue reliance on any forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements or risk factors, whether as a result of new information, future events, changed circumstances or any other reason after the date of this press release.

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CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)


	(Unaudited) Sept. 30, 2011			(Unaudited) June 30, 2011			Dec. 31, 2010
ASSETS
Cash and cash equivalents	$	83,902		$	83,661		$	81,329
Investment securities		1,309,579			1,328,857			1,254,477
Loans held for sale		148,718			86,109			259,020
Loans, net of allowance for loan losses of $105,805 at September 30, 2011, $109,044 at June 30, 2011 and $124,568 at December 31, 2010		2,767,605			2,720,922			2,710,770
Premises, leasehold improvements and equipment, net		15,356			15,584			15,890
Investment in Federal Home Loan Bank and Federal Reserve Bank stock		56,767			48,619			40,032
Other real estate and repossessed assets, net		29,237			27,857			31,490
Other assets		92,070			83,507			90,846


Total assets	$	4,503,234		$	4,395,116		$	4,483,854


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	658,092		$	635,543		$	633,300
Interest-bearing		2,268,189			2,271,234			2,393,606

Total deposits		2,926,281			2,906,777			3,026,906
Other borrowings		180,755			270,376			511,008
Accrued interest, taxes and other liabilities		58,725			59,572			56,697
Notes payable and other advances		872,500			740,000			505,000
Junior subordinated debentures		86,607			86,607			86,607
Subordinated notes, net		89,436			89,230			88,835

Total liabilities		4,214,304			4,152,562			4,275,053


Stockholders’ equity:
Preferred stock, Series B		101,619			101,201			100,389
Preferred stock, Series C		31,912			31,912			31,912
Preferred stock, Series D		4			4			4
Preferred stock, Series E		5,588			5,588			5,588
Preferred stock, Series G		2			2			—
Common stock		217			216			192
Surplus		340,641			339,348			312,693
Accumulated deficit		(188,511	)		(195,834	)		(189,895	)
Accumulated other comprehensive income (loss)		27,043			(10,298	)		(22,497	)
Treasury stock		(29,585	)		(29,585	)		(29,585	)

Total stockholders’ equity		288,930			242,554			208,801


Total liabilities and stockholders’ equity	$	4,503,234		$	4,395,116		$	4,483,854

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CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except per share data)


	For the Three Months Ended									For the Nine Months Ended
	Sept. 30, 2011			June 30, 2011			Sept. 30, 2010			Sept. 30, 2011			Sept. 30, 2010
Interest income:
Interest and fees on loans	$	35,204		$	34,343		$	38,821		$	104,912		$	115,292
Interest and dividends on investment securities:
Taxable		11,391			11,753			12,007			34,596			39,662
Tax-exempt		700			722			1,148			2,197			3,589
Interest on cash equivalents		4			3			4			10			6

Total interest income		47,299			46,821			51,980			141,715			158,549


Interest expense:
Deposits		6,505			8,028			10,448			23,157			34,884
Other borrowings		1,131			1,506			2,097			4,446			6,851
Notes payable and other advances		995			1,100			1,200			3,138			3,998
Junior subordinated debentures		1,445			1,446			1,471			4,334			4,355
Subordinated notes		2,505			2,498			2,397			7,492			5,949

Total interest expense		12,581			14,578			17,613			42,567			56,037


Net interest income		34,718			32,243			34,367			99,148			102,512
Provision for loan losses		16,240			11,822			18,128			38,303			83,204

Net interest income after provision for loan losses		18,478			20,421			16,239			60,845			19,308


Noninterest income:
Service charges		2,897			2,696			2,783			8,483			8,421
Mortgage origination revenue		7,571			2,243			6,308			11,331			8,503
Gain (loss) on disposition of bulk purchased mortgage loans		30			41			(410	)		99			(2,437	)
Gain on sales of investment securities		4,938			—			32,804			4,938			34,379
Other derivative income		2,735			194			1,127			3,682			1,294
Other noninterest income		1,261			1,213			1,530			4,171			4,514

Total noninterest income		19,432			6,387			44,142			32,704			54,674


Noninterest expense:
Salaries and employee benefits		15,462			15,183			13,806			45,334			37,665
Occupancy of premises, furniture and equipment		2,707			2,603			2,668			8,200			7,975
Nonperforming asset expense		(1,648	)		2,013			1,538			3,642			10,531
FDIC assessment		1,626			1,499			2,178			5,073			6,361
Early extinguishment of debt		3,444			—			378			3,444			378
Legal fees, net		1,081			1,026			1,481			2,901			3,727
Other noninterest expense		5,480			5,522			4,597			15,953			14,628

Total noninterest expense		28,152			27,846			26,646			84,547			81,265


Income (loss) before income taxes		9,758			(1,038	)		33,735			9,002			(7,283	)
Income tax expense (benefit)		(42	)		355			321			207			933

Net income (loss)		9,800			(1,393	)		33,414			8,795			(8,216	)
Preferred dividends and discounts		(2,477	)		(2,470	)		(2,671	)		(7,411	)		(7,251	)
Implied non-cash preferred dividend		—			—			—			—			(15,756	)

Net income (loss) applicable to common stockholders	$	7,323		$	(3,863	)	$	30,743		$	1,384		$	(31,223	)


Basic income (loss) per common share	$	0.35		$	(0.19	)	$	1.68		$	0.07		$	(2.19	)
Diluted income (loss) per common share		0.35			(0.19	)		1.57			0.07			(2.19	)
Weighted-average shares outstanding		19,920,269			19,811,006			17,742,119			19,066,380			14,248,556
Weighted-average diluted shares outstanding		20,018,919			19,811,006			20,740,215			19,349,603			14,248,556

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SUMMARY OF KEY QUARTERLY FINANCIAL DATA

(dollars in thousands)

Unaudited


	2011									2010
	Third Quarter			Second Quarter			First Quarter			Fourth Quarter			Third Quarter
Condensed Income Data:
Net interest income	$	34,718		$	32,243		$	32,187		$	33,562		$	34,367
Provision for loan losses		16,240			11,822			10,241			59,923			18,128
Total noninterest income		19,432			6,387			6,885			18,009			44,142
Total noninterest expense		28,152			27,846			28,549			36,971			26,646

Income (loss) before income taxes		9,758			(1,038	)		282			(45,323	)		33,735
Income tax expense (benefit)		(42	)		355			(106	)		284			321

Net income (loss)		9,800			(1,393	)		388			(45,607	)		33,414
Preferred dividends and discounts		(2,477	)		(2,470	)		(2,464	)		(2,448	)		(2,671	)
Implied non-cash preferred dividends		—			—			—			—			—

Net income (loss) applicable to common stockholders	$	7,323		$	(3,863	)	$	(2,076	)	$	(48,055	)	$	30,743


Non-GAAP Measures of Performance (1)
Revenue	$	50,108		$	39,011		$	39,072		$	44,574		$	45,705
Pre-tax, pre-provision operating earnings		23,752			13,178			13,800			16,862			20,597

Per Share Data:
Basic earnings (loss) per common share	$	0.35		$	(0.19	)	$	(0.12	)	$	(2.76	)	$	1.68
Diluted earnings (loss) per common share		0.35			(0.19	)		(0.12	)		(2.76	)		1.57
Book value per common share		7.37			5.13			4.50			3.97			8.03
Weighted average shares-basic		19,920,269			19,811,006			17,440,617			17,427,676			17,742,119
Weighted average shares-diluted		20,018,919			19,811,006			17,440,617			17,427,676			20,740,215
Shares outstanding-end of period		20,312,842			20,240,408			20,184,809			17,877,708			18,286,842

Performance Ratios (annualized):
Return (loss) on average assets		0.89	%		(0.13	)%		0.04	%		(4.08	)%		3.01	%
Return (loss) on average equity		15.30	%		(2.36	)%		0.75	%		(64.86	)%		46.65	%
Efficiency ratio (2)		56.18	%		71.38	%		73.07	%		82.94	%		58.30	%

Average Balance Sheet Data (3):
Total assets	$	4,411,811		$	4,331,166		$	4,389,583		$	4,474,270		$	4,447,421
Investments		1,361,630			1,374,892			1,355,827			1,273,452			1,269,634
Cash equivalents		2,049			1,457			1,109			1,598			1,191
Loans		2,936,781			2,869,169			2,933,939			3,063,780			3,018,084
Total interest-earning assets		4,300,460			4,245,518			4,290,875			4,338,830			4,288,909
Interest-bearing deposits		2,276,657			2,393,647			2,460,937			2,374,297			2,389,226
Borrowings		1,177,136			1,043,623			1,057,337			1,151,370			1,101,125
Total interest-bearing liabilities		3,453,793			3,437,270			3,518,274			3,525,667			3,490,351
Noninterest-bearing deposits		646,946			604,018			612,032			617,158			602,903
Total stockholders’ equity		256,264			236,180			206,476			281,251			286,478

Tax Equivalent Net Interest Margin:
Net interest income as stated	$	34,718		$	32,243		$	32,187		$	33,562		$	34,367
Add: Tax equivalent adjust. - investment (4)		377			389			417			460			618
Tax equivalent adjust. - loans (4)		33			48			24			25			25

Tax equivalent net interest income	$	35,128		$	32,680		$	32,628		$	34,047		$	35,010

Net interest margin without tax adjust.		3.21	%		3.04	%		3.03	%		3.08	%		3.19	%
Net interest margin - tax equivalent (4)		3.25	%		3.09	%		3.07	%		3.12	%		3.25	%
Yield on earning assets without tax adjust.		4.37	%		4.42	%		4.48	%		4.58	%		4.82	%
Yield on earning assets - tax equivalent (4)		4.41	%		4.46	%		4.52	%		4.62	%		4.88	%
Yield on interest-bearing liabilities		1.45	%		1.70	%		1.77	%		1.85	%		2.00	%
Net interest spread - without tax adjust.		2.93	%		2.72	%		2.71	%		2.73	%		2.82	%
Net interest spread - tax equivalent (4)		2.97	%		2.76	%		2.75	%		2.77	%		2.88	%

Footnotes:

(1)	Refer to Reconciliation of U.S. GAAP Financial Measures for a reconciliation to GAAP.

(2)	Efficiency ratio is determined by dividing noninterest expense by an amount equal to net interest income plus noninterest income, adjusted for gains or losses from investment securities.

(3)	Average balances are daily averages.

(4)	Adjustment reflects tax-exempt interest income on an equivalent before-tax basis assuming a tax rate of 35.0%.

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SUMMARY OF KEY YEAR-TO-DATE FINANCIAL DATA

(dollars in thousands)

Unaudited


	Year To Date September 30,
	2011			2010
Condensed Income Data:
Net interest income	$	99,148		$	102,512
Provision for loan losses		38,303			83,204
Total noninterest income		32,704			54,674
Total noninterest expense		84,547			81,265

Income (loss) before income taxes		9,002			(7,283	)
Income tax expense		207			933

Net income (loss)		8,795			(8,216	)
Preferred dividends and discounts		(7,411	)		(7,251	)
Implied non-cash preferred dividends		—			(15,756	)

Net income (loss) applicable to common stockholders	$	1,384		$	(31,223	)


Non-GAAP Measures of Performance (1)
Revenue	$	128,191		$	122,807

Pre-tax, pre-provision operating earnings		50,730			52,073

Per Share Data:
Basic income (loss) per common share	$	0.07		$	(2.19	)
Diluted income (loss) per common share		0.07			(2.19	)
Book value per common share		7.37			8.03
Weighted average shares-basic		19,066,380			14,248,556
Weighted average shares-diluted		19,349,603			14,248,556
Shares outstanding-end of period		20,312,842			18,286,842

Performance Ratios (annualized):
Return (loss) on average assets		0.27	%		(0.24	)%
Return (loss) on average equity		5.03	%		(4.00	)%
Efficiency ratio (2)		65.95	%		66.17	%

Average Balance Sheet Data (3):
Total assets	$	4,377,602		$	4,499,864
Investments		1,364,138			1,350,578
Cash equivalents		1,542			717
Loans		2,913,306			3,025,165
Total interest-earning assets		4,278,986			4,376,460
Interest-bearing deposits		2,376,405			2,391,024
Borrowings		1,093,137			1,183,565
Total interest-bearing liabilities		3,469,542			3,574,589
Noninterest-bearing deposits		621,127			597,904
Total stockholders’ equity		233,156			273,554

Tax Equivalent Net Interest Margin:
Net interest income as stated	$	99,148		$	102,512
Add: Tax equivalent adjust. - investment (4)		1,182			1,933
Tax equivalent adjust. - loans (4)		104			75

Tax equivalent net interest income	$	100,434		$	104,520

Net interest margin without tax adjust.		3.10	%		3.13	%
Net interest margin - tax equivalent (4)		3.14	%		3.19	%
Yield on earning assets without tax adjust.		4.42	%		4.84	%
Yield on earning assets - tax equivalent (4)		4.46	%		4.90	%
Yield on interest-bearing liabilities		1.64	%		2.10	%
Net interest spread - without tax adjust.		2.78	%		2.74	%
Net interest spread - tax equivalent (4)		2.82	%		2.80	%

Footnotes:

(1)	Refer to Reconciliation of U.S. GAAP Financial Measures for a reconciliation to GAAP.

(2)	Efficiency ratio is determined by dividing noninterest expense by an amount equal to net interest income plus noninterest income, adjusted for gains or losses from investment securities.

(3)	Average balances are daily averages.

(4)	Adjustment reflects tax-exempt interest income on an equivalent before-tax basis assuming a tax rate of 35.0%.

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SUMMARY OF KEY PERIOD-END FINANCIAL DATA

(dollars in thousands)

Unaudited


	Sept. 30, 2011			June 30, 2011			Mar. 31, 2011			Dec. 31, 2010			Sept. 30, 2010
Condensed Balance Sheet Data:
Investment securities	$	1,309,579		$	1,328,857		$	1,305,486		$	1,254,477		$	1,172,600
Loans		3,022,128			2,916,075			2,836,759			3,094,358			3,032,939
Allowance for loan losses		105,805			109,044			114,966			124,568			94,138
Total assets		4,503,234			4,395,116			4,286,690			4,483,854			4,658,815
Total deposits		2,926,281			2,906,777			3,076,857			3,026,906			2,972,668
Total borrowings		1,229,298			1,186,213			926,611			1,191,450			1,169,009
Total stockholders’ equity		288,930			242,554			229,039			208,801			278,741

Asset Quality Ratios:
Nonperforming loans	$	121,534		$	143,058		$	168,210		$	159,740		$	118,419
Nonperforming assets		150,771			170,915			206,375			191,230			157,482
Allowance for loan losses to total loans (excluding loans held for sale)		3.68	%		3.85	%		4.13	%		4.39	%		3.25	%
Allowance for loan losses to nonperforming loans		87.06	%		76.22	%		68.35	%		77.98	%		79.50	%
Nonperforming assets to total loans plus repossessed property		4.94	%		5.98	%		7.18	%		6.12	%		5.13	%

Capital Ratios (Taylor Capital Group, Inc.):
Total Capital (to Risk Weighted Assets)		13.63	%		13.80	%		14.24	%		12.98	%		14.15	%
Tier I Capital (to Risk Weighted Assets)		10.08	%		9.90	%		10.26	%		8.93	%		10.39	%
Leverage (to average assets)		7.83	%		7.78	%		7.72	%		6.89	%		8.04	%

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COMPOSITION OF LOAN PORTFOLIO (unaudited)

(dollars in thousands)

The following table presents the composition of the Company’s loan portfolio as of the dates indicated:


	Sept. 30, 2011						June 30, 2011						December 31, 2010
Loans:	Balance			Percent of Gross Loans			Balance			Percent of Gross Loans			Balance			Percent of Gross Loans
Commercial and industrial	$	1,398,337			48.7	%	$	1,408,263			49.9	%	$	1,351,862			47.7	%
Commercial real estate secured		1,017,899			35.4			1,056,652			37.3			1,120,361			39.5
Residential construction & land		71,227			2.5			79,747			2.8			104,036			3.7
Commercial construction & land		119,157			4.1			102,860			3.6			106,423			3.8

Total commercial loans		2,606,620			90.7			2,647,522			93.6			2,682,682			94.7
Consumer-oriented loans		266,790			9.3			182,444			6.4			152,657			5.3

Gross loans		2,873,410			100.0	%		2,829,966			100.0	%		2,835,339			100.0	%

Less: Unearned discount		—						—						(1	)

Total loans		2,873,410						2,829,966						2,835,338
Less: Loan loss allowance		(105,805	)					(109,044	)					(124,568	)

Net loans	$	2,767,605					$	2,720,922					$	2,710,770


Loans Held for Sale	$	148,718					$	86,109					$	259,020

The following tables provide details of the Company’s commercial real estate and residential construction and land portfolios:


	Sept. 30, 2011					June 30, 2011					December 31, 2010
	Balance		Percent of Total			Balance		Percent of Total			Balance		Percent of Total
Commercial real estate secured*:
Commercial non-owner occupied:
Retail strip centers or malls	$	154,302		15.2	%	$	174,369		16.5	%	$	198,527		17.7	%
Office/mixed use property		105,381		10.4			117,890		11.2			116,726		10.4
Commercial properties		130,440		12.8			138,521		13.1			147,920		13.2
Specialized - other		77,029		7.6			80,534		7.6			82,332		7.4
Other commercial properties		40,052		3.9			40,102		3.8			43,595		3.9

Subtotal commercial non-owner occupied		507,204		49.9			551,416		52.2			589,100		52.6
Commercial owner-occupied		418,739		41.1			403,823		38.2			411,519		36.7
Multi-family properties		91,956		9.0			101,413		9.6			119,742		10.7

Total commercial real estate secured	$	1,017,899		100.0	%	$	1,056,652		100.0	%	$	1,120,361		100.0	%


Residential construction & land:
Residential construction	$	51,342		72.1	%	$	58,885		73.8	%	$	80,685		77.6	%
Land		19,885		27.9			20,862		26.2			23,351		22.4

Total residential construction and land	$	71,227		100.0	%	$	79,747		100.0	%	$	104,036		100.0	%

As a result of our core system conversion, we identified certain sub-codings within our loan system that changed the characterization of certain commercial real estate non-owner occupied loans to owner occupied real estate. Although there was no impact to the calculation of the total commercial real estate loans, we have adjusted the table above to reflect the revised classifications for all periods presented.

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CREDIT QUALITY (unaudited)

(dollars in thousands)


	At or for the Three Months Ended
	Sept. 30, 2011			June 30, 2011			Dec. 31, 2010
Nonperforming Assets:
Loans contractually past due 90 days or more but still accruing interest	$	—		$	—		$	55
Nonaccrual loans:
Commercial and industrial		55,052			66,186			71,438
Commercial real estate secured		39,305			46,605			42,221
Residential construction and land		7,529			9,929			20,660
Commercial construction and land		6,172			6,188			12,734
All other loan types		13,476			14,150			12,632

Total nonaccrual loans		121,534			143,058			159,685

Total nonperforming loans		121,534			143,058			159,740
Other real estate owned and repossessed assets		29,237			27,857			31,490

Total nonperforming assets	$	150,771		$	170,915		$	191,230


Other Credit Quality Information:
Loans contractually past due 30 through 89 days and still accruing	$	5,609		$	5,692		$	11,948
Commercial criticized and classified loans (1)		221,122			258,486			303,923
Performing restructured loans		11,365			17,687			29,786
Recorded balance of impaired loans		119,472			147,241			181,081
Allowance for loan losses related to impaired loans		32,051			37,215			59,857


Allowance for Loan Losses Summary:
Allowance at beginning of period	$	109,044		$	114,966		$	94,138
Charge-offs, net of recoveries:
Commercial and commercial real estate		(17,558	)		(12,391	)		(27,945	)
Real estate - construction and land		(1,116	)		(3,155	)		(639	)
Total consumer-oriented loans		(804	)		(2,198	)		(910	)

Total net charge-offs		(19,478	)		(17,744	)		(29,494	)
Provision for loan losses		16,239			11,822			59,924

Allowance at end of period	$	105,805		$	109,044		$	124,568


Key Credit Ratios:
Nonperforming loans to total loans		4.02	%		4.91	%		5.16	%
Nonperforming assets to total loans plus repossessed property		4.94	%		5.98	%		6.12	%
Nonperforming assets to total assets		3.35	%		3.89	%		4.26	%
Annualized net charge-offs to average total loans		2.61	%		2.59	%		3.85	%
Allowance to total loans at end of period (excluding loans held for sale)		3.68	%		3.85	%		4.39	%
Allowance to nonperforming loans		87.06	%		76.22	%		77.98	%
30 – 89 days past due to total loans		0.19	%		0.20	%		0.39	%

(1)	Commercial criticized and classified loans (special mention, substandard and nonaccrual loans) in commercial & industrial, commercial real estate, residential construction and land and commercial construction and land federal collateral codes. Excludes consumer loans.

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LOAN PORTFOLIO AND HELD FOR SALE AGING (unaudited)

(dollars in thousands)


	As of Sept. 30, 2011
	30-89 Days Past Due		>90 Days Past Due and Still Accruing		Nonaccrual		Current		Total Loans		% of Total Loans			Allowance for Loan Loss Allocation

Commercial and industrial	$	—	$	—	$	55,052	$	1,343,285	$	1,398,337		46	%	$	56,751

Commercial real estate secured:
Commercial non-owner occupied:
Retail strip centers or malls		—		—		6,864		147,438		154,302		5	%		5,457
Office/mixed use property		—		—		4,336		101,045		105,381		3	%		2,794
Commercial properties		—		—		1,667		128,773		130,440		4	%		2,610
Specialized - other		—		—		6,410		70,619		77,029		3	%		2,081
Other commercial properties		—		—		—		40,052		40,052		1	%		771

Subtotal commercial non-owner occupied		—		—		19,277		487,927		507,204		16	%		13,713
Commercial owner-occupied		—		—		9,085		409,654		418,739		14	%		8,435
Multi-family properties		—		—		10,943		81,013		91,956		3	%		3,839

Total commercial real estate secured		—		—		39,305		978,594		1,017,899		33	%		25,987

Residential construction & land:
Residential construction		—		—		3,993		47,349		51,342		2	%		5,829
Land		—		—		3,536		16,349		19,885		1	%		2,506

Total residential construction and land		—		—		7,529		63,698		71,227		3	%		8,335

Commercial construction and land		—		—		6,172		112,985		119,157		4	%		8,444

Total commercial loans		—		—		108,058		2,498,562		2,606,620		86	%		99,517

Consumer loans		5,608		—		13,476		396,424		415,508		14	%		6,288

Total loans	$	5,608	$	—	$	121,534	$	2,894,986	$	3,022,128		100	%	$	105,805

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FUNDING LIABILITIES (unaudited)

(dollars in thousands)

The following table presents the distribution of the Company’s average deposit account balances for the periods indicated:


	For the Quarter Ended
	Sept. 30, 2011					June 30, 2011					Sept. 30, 2010
	Average Balance		Percent of Deposits			Average Balance		Percent of Deposits			Average Balance		Percent of Deposits
In-market deposits:
Noninterest-bearing deposits	$	646,946		22.1	%	$	604,018		20.1	%	$	602,903		20.1	%
NOW accounts		252,123		8.6			237,119		7.9			300,372		10.0
Savings deposits		38,818		1.3			38,440		1.3			40,545		1.4
Money market accounts		609,256		20.9			620,457		20.7			568,014		19.0
Customer certificates of deposit		611,360		20.9			678,285		22.6			755,765		25.3
CDARS time deposits		142,552		4.9			189,215		6.3			152,170		5.1
Public time deposits		58,333		2.0			70,503		2.4			45,043		1.5

Total in-market deposits		2,359,388		80.7			2,438,037		81.3			2,464,812		82.4

Out-of-market deposits:
Brokered money market deposits		—		0.0			5,191		0.2			6,173		0.2
Out-of-local-market certificates of deposit		122,942		4.2			109,235		3.6			92,805		3.1
Brokered certificates of deposit		441,273		15.1			445,202		14.9			428,339		14.3

Total out-of-market deposits		564,215		19.3			559,628		18.7			527,317		17.6

Total deposits	$	2,923,603		100.0	%	$	2,997,665		100.0	%	$	2,992,129		100.0	%

The following table sets forth the period end balances of total deposits as of each of the dates indicated below, as well as categorizes the Company’s deposits as “in-market” and “out-of-market” deposits:


	Sept. 30, 2011		June 30, 2011		Dec. 31, 2010
In-market deposits:
Noninterest-bearing deposits	$	658,092	$	635,543	$	633,300
NOW accounts		273,863		231,953		248,662
Savings accounts		38,480		38,306		37,992
Money market accounts		605,312		623,953		583,365
Customer certificates of deposit		579,020		654,240		715,030
CDARS time deposits		148,500		141,400		182,879
Public time deposits		59,030		61,754		70,697

Total in-market deposits		2,362,297		2,387,149		2,471,925

Out-of-market deposits:
Brokered money market deposits		—		4,904		5,832
Out-of-local-market certificates of deposit		126,910		101,132		99,313
Brokered certificates of deposit		437,074		413,592		449,836

Total out-of-market deposits		563,984		519,628		554,981

Total deposits	$	2,926,281	$	2,906,777	$	3,026,906

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RECONCILIATION OF U.S. GAAP FINANCIAL MEASURES (unaudited)

(dollars in thousands)

The following, as of the dates indicated, reconciles the income (loss) before income taxes to pre-tax, pre-provision operating earnings.


	For the Three Months Ended
	Sept. 30, 2011			June 30, 2011			Mar. 31, 2011		Dec. 31, 2010			Sept. 30, 2010
Income (loss) before income taxes	$	9,758		$	(1,038	)	$	282	$	(45,323	)	$	33,735
Add back (subtract):
Credit costs:
Provision for loan losses		16,240			11,822			10,241		59,923			18,128
Nonperforming asset expense		(1,648	)		2,013			3,277		9,259			1,538

Credit costs subtotal		14,592			13,835			13,518		69,182			19,666
Other:
Gain on sales of investment securities		(4,938	)		—			—		(6,997	)		(32,804	)
Derivative termination fees		896			—			—		—			—
Early extinguishment of debt		3,444			—			—		—			378
Impairment of investment securities		—			381			—		—			—

Other subtotal		(598	)		381			—		(6,997	)		(32,426	)

Pre-tax, pre-provision operating earnings	$	23,752		$	13,178		$	13,800	$	16,862		$	20,975

The following, as of the dates indicated, details the components of revenue.


	For the Three Months Ended
	Sept. 30, 2011			June 30, 2011		Mar. 31, 2011		Dec. 31, 2010			Sept. 30, 2010
Net interest income	$	34,718		$	32,243	$	32,187	$	33,562		$	34,367
Noninterest income		19,432			6,387		6,885		18,009			44,142
Add back (subtract):
Gain on sales of investment securities		(4,938	)		—		—		(6,997	)		(32,804	)
Derivative termination fees		896			—		—		—			—
Impairment of investment securities		—			381		—		—			—

Revenue	$	50,108		$	39,011	$	39,072	$	44,574		$	45,705

The Company’s accounting and reporting policies conform to U.S. generally accepted accounting principles (“GAAP”) and general practice within the banking industry. Management uses certain non-GAAP financial measures to evaluate the Company’s financial performance and has provided the non-GAAP measures of pre-tax, pre-provision operating earnings and of revenue. In the pre-tax, pre-provision operating earnings non-GAAP financial measure, the provision of loan losses, nonperforming asset expense and certain non-recurring items, such as gains and losses on investment securities, are excluded from the determination of operating results. The non-GAAP measure of revenue is calculated as the sum of net interest income and noninterest income less investment securities gains and losses. Management believes that these measures are useful because they provide a more comparable basis for evaluating financial performance from core operations period to period.

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