<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
Commission File No. 333-14713
TAYLOR CAPITAL GROUP, INC.
Exact Name of Registrant as Specified in Charter
DELAWARE 36-4108550
- -------------------------------- ---------------------
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification Number
350 EAST DUNDEE ROAD, SUITE 300
WHEELING, ILLINOIS 60090-3199
Address of Principal Executive Offices
(847) 459-1111
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each of the Registrant's classes of common
stock, as of the latest practicable date:
Class Outstanding at August 11, 1997
- ---------------------------- ------------------------------
Common Stock, $.01 Par Value 4,500,000
<PAGE> 2
COLE TAYLOR FINANCIAL GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION ..................................................... PAGE
- ------------------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets -
Successor Basis - Taylor Capital Group, Inc. - Consolidated
June 30, 1997; Predecessor Basis - Cole Taylor Bank -
December 31, 1996 ....................................................... 3
Statements of Income -
Successor Basis - Taylor Capital Group, Inc. - Consolidated For the
Three Months Ended June 30, 1997; Predecessor Basis - Cole
Taylor Bank - For the Three Months Ended June 30, 1996;
Successor Basis - Taylor Capital Group, Inc. - Consolidated For
the Period of February 12, 1997 to June 30, 1997; Predecessor Basis
- Cole Taylor Bank - For the Six Months Ended June 30, 1996 ............. 4
Statements of Cash Flows -
Successor Basis - Taylor Capital Group, Inc. - Consolidated For the
Period of February 12, 1997 to June 30, 1997; Predecessor Basis
- Cole Taylor Bank - For the Six Months Ended June 30, 1996 ............. 5
Notes to Financial Statements ............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................... 12
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K .......................................... 22
</TABLE>
2
<PAGE> 3
TAYLOR CAPITAL GROUP, INC.
BALANCE SHEETS (Unaudited)
(in thousands)
---------------------
<TABLE>
<CAPTION>
Successor
Basis - Taylor
Capital Group, Predecessor
Inc. - Basis - Cole
Consolidated Taylor Bank -
June 30, December 31,
1997 1996
------------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 100,334 $ 67,021
Interest-bearing deposits with banks 106 14,564
Federal funds sold --- 5,675
Investment securities:
Available-for-sale, at fair value 419,818 328,817
Held-to-maturity, at amortized cost (fair value of $80,581 and $77,758 at
June 30, 1997 and December 31, 1996, respectively) 79,856 74,972
Loans held for sale, net, at lower of cost or market 28,466 25,153
Loans, net of allowance for loan losses of $24,709, and $24,184, at June 30,
1997 and December 31, 1996, respectively 1,190,076 1,175,657
Premises, leasehold improvements and equipment, net 21,571 15,247
Other real estate and repossessed assets, net 1,848 1,119
Auto loan sale proceeds receivable --- 66,570
Goodwill and other intangibles 37,312 2,478
Other assets 31,628 35,232
---------- ----------
Total assets $1,911,015 $1,812,505
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 319,361 $334,068
Interest-bearing 1,142,073 1,072,832
---------- ----------
Total deposits 1,461,434 1,406,900
Short-term borrowings 169,139 162,182
Accrued interest, taxes and other liabilities 18,021 16,788
Long-term borrowings 126,000 85,000
---------- ----------
Total liabilities 1,774,594 1,670,870
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value, 3,000,000 shares authorized,
Series A 9% noncumulative perpetual, 1,530,000 shares issued and
outstanding, $25 stated value 38,250 ---
Common stock, $.01 par value; 7,000,000 shares authorized, 4,500,000 shares
issued and outstanding 45 ---
Common stock, $10 par value; 1,500,000 shares authorized, issued and
outstanding --- 15,000
Surplus 96,143 52,028
Retained earnings 2,282 76,586
Unrealized holding loss on securities available-for-sale, net of
income taxes (299) (1,979)
---------- ----------
Total stockholders' equity 136,421 141,635
---------- ----------
Total liabilities and stockholders' equity $1,911,015 $1,812,505
========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
TAYLOR CAPITAL GROUP, INC.
STATEMENTS OF INCOME (Unaudited)
(in thousands)
-------------------------------
<TABLE>
<CAPTION>
Successor Successor
Basis - Taylor Basis - Taylor
Capital Group, Predecessor Capital Group, Predecessor
Inc. - Basis - Cole Inc. - Basis - Cole
Consolidated Taylor Bank - Consolidated Taylor Bank -
For the Three For the Three For the Period of For the Six
Months Ended Months Ended Feb. 12, 1997 to Months Ended
Jun. 30, 1997 Jun. 30, 1996 Jun. 30, 1997 Jun. 30, 1996
--------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 27,018 $ 27,519 $ 40,924 $ 54,376
Interest on investment securities:
Taxable 6,673 5,558 9,917 11,269
Tax-exempt 734 961 1,144 1,943
Interest on cash equivalents 214 324 458 497
-------- -------- ---------- ----------
Total interest income 34,639 34,362 52,443 68,085
-------- -------- ---------- ----------
Interest expense:
Deposits 12,851 13,574 19,516 26,229
Short-term borrowings 2,397 1,951 3,618 4,468
Long-term borrowings 1,847 871 2,604 1,795
-------- -------- ---------- ----------
Total interest expense 17,095 16,396 25,738 32,492
-------- -------- ---------- ----------
Net interest income 17,544 17,966 26,705 35,593
Provision for loan losses 904 1,053 1,388 2,052
-------- --------- ---------- ----------
Net interest income after
provision for loan losses 16,640 16,913 25,317 33,541
-------- -------- ---------- ----------
Noninterest income:
Service charges 2,371 2,167 3,635 4,269
Trust fees 864 913 1,357 1,774
Other noninterest income 1,331 883 1,924 1,621
-------- -------- ---------- ----------
Total noninterest income 4,566 3,963 6,916 7,664
-------- -------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 8,970 7,464 13,542 15,119
Occupancy of premises, net 1,522 1,085 2,397 2,350
Furniture and equipment 895 857 1,371 1,673
Computer processing 603 521 876 999
Advertising and public relations 412 500 519 917
Goodwill and other intangible
amortization 664 50 978 100
Other real estate and repossessed
asset expense 192 124 198 675
Other noninterest expense 3,682 2,687 5,243 5,392
-------- -------- ----------- ----------
Total noninterest expense 16,940 13,288 25,124 27,225
-------- -------- ----------- ----------
Income before income taxes 4,266 7,588 7,109 13,980
Income taxes 1,853 2,603 2,688 4,665
-------- -------- ----------- ----------
Net income $ 2,413 $ 4,985 $ 4,421 $ 9,315
======== ======== =========== ==========
Net income applicable to common
stockholders $ 1,552 $ 3,092
======== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
TAYLOR CAPITAL GROUP, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Successor
Basis - Taylor
Capital Group, Predecessor
Inc. - Basis - Cole
Consolidated Taylor Bank -
For the Period of For the Six
Feb. 12, 1997 to Months Ended
Jun. 30, 1997 Jun. 30, 1996
------------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,421 $ 9,315
Provision for loan losses 1,388 2,052
Gain on sales of loans originated for sale (1,102) (447)
Loans originated and held for sale (94,933) (130,409)
Proceeds from sales of loans originated for sale 89,452 104,586
Other adjustments to net income, net 2,139 22
Net changes in other assets and liabilities (10,352) 3,032
--------- ----------
Net cash used in operating activities (8,987) (11,849)
--------- ----------
Cash flows from investing activities:
Purchases of available-for-sale securities (106,669) (49,811)
Proceeds from principal payments and maturities of
available-for-sale securities 57,154 60,327
Purchases of held-to-maturity securities (7,248) (1,077)
Proceeds from principal payments and maturities of
held-to-maturity securities 2,830 2,372
Net increase in loans (39,969) (43,938)
Net cash of Bank and Mortgage Company acquired in
Split-Off Transactions 65,311 ---
Other, net (352) 203
--------- ----------
Net cash used in investing activities (28,943) (31,924)
--------- ----------
Cash flows from financing activities:
Net increase in deposits 110,628 122,257
Net decrease in short-term borrowings (73,490) (55,660)
Repayments of long-term borrowings (10,000) (40,000)
Proceeds from long-term borrowings 76,000 50,000
Net proceeds from issuance of preferred stock 36,105 ---
Dividends paid (873) (7,900)
--------- ----------
Net cash provided by financing activities 138,370 68,697
--------- ----------
Net increase in cash and cash equivalents 100,440 24,924
Cash and cash equivalents, beginning of period --- 92,547
--------- ----------
Cash and cash equivalents, end of period $ 100,440 $ 117,471
========= ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
TAYLOR CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation:
The successor basis Taylor Capital Group, Inc. consolidated financial
statements for the period February 12, 1997 to June 30, 1997 include the
accounts of Taylor Capital Group, Inc. (the "Parent Company" or the
"Company") and its wholly owned subsidiaries, Cole Taylor Bank (the "Bank")
and CT Mortgage Company, Inc. (the "Mortgage Company"). All intercompany
balances and transactions have been eliminated in consolidation. Taylor
Capital Group, Inc. is a newly formed bank holding company which was formed
to consummate the acquisition of the Bank and Mortgage Company. Taylor
Capital Group, Inc. acquired the Bank and the Mortgage Company on February
12, 1997 in a split-off transaction (as defined below), which was accounted
for by the purchase method of accounting. Prior to February 12, 1997, the
Bank and Mortgage Company were wholly owned subsidiaries of Cole Taylor
Financial Group, Inc. ("CTFG").
The Split-Off Transactions were a series of transactions pursuant to which
CTFG transferred the common stock of the Bank and the Mortgage Company to
the Company and then transferred all of the common stock of the Company to
certain CTFG stockholders in exchange for 4.5 million shares of CTFG common
stock, a dividend from the Bank to CTFG consisting of cash and loans
totaling approximately $84 million and a cash payment of approximately $1.1
million for the Mortgage Company.
The predecessor basis Cole Taylor Bank financial statements report the
financial position and results of operations of Cole Taylor Bank on its
historical accounting basis.
The unaudited interim financial statements have been prepared pursuant to
the rules and regulations for reporting on Form 10-Q. Accordingly, certain
disclosures required by generally accepted accounting principles are not
included herein. These interim statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
Special Financial Report on Form 10-K for the year ended December 31, 1996,
as filed with the Securities and Exchange Commission.
Interim statements are subject to possible adjustment in connection with the
annual audit of the Company for the year ended December 31, 1997. In the
opinion of management of the Company, the accompanying unaudited interim
consolidated financial statements reflect all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of the
consolidated financial position and consolidated results of operations for
the periods presented.
The results of operations for the period of February 12, 1997 to June 30,
1997 are not necessarily indicative of the results to be expected for the
full year. Certain reclassifications were made to the predecessor basis
Cole Taylor Bank 1996 financial statements to conform to the successor basis
Taylor Capital Group, Inc. 1997 presentation.
6
<PAGE> 7
TAYLOR CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Acquisition of Cole Taylor Bank and CT Mortgage Company, Inc.:
-------------------------------------------------------------
The Company acquired the Bank and Mortgage Company in the Split-Off
Transactions which were consummated on February 12, 1997. The Bank is a
$1.9 billion asset commercial bank. The Mortgage Company began operations
in early 1996 and competes in the subprime mortgage market for residential
loans on a brokered basis. The acquisition has been accounted for by the
purchase method of accounting, and accordingly, the results of operations of
the Bank and Mortgage Company are included in the Company's consolidated
financial statements from February 12, 1997, the date of the Split-Off
Transactions.
The Company's cost of the acquired Bank consisted of three components: (1)
$17.2 million, which represented the proportionate interest in the Bank's
book value based on the split-off stockholder group's proportionate
ownership prior to the Split-Off Transactions, (2) $81.1 million, which
represented the proportionate fair value of the common stock of CTFG
exchanged by the split-off stockholder group, and (3) $2.3 million, which
represented estimated direct acquisition costs for accountants, attorneys,
financial advisors and other professionals to consummate the transaction.
The amount by which the purchase price exceeded the fair value of the net
assets acquired approximates $37.8 million and is reflected as goodwill in
the financial statements at June 30, 1997. The goodwill is being amortized
over 15 years using the straight-line method.
The Company acquired the Mortgage Company through a cash payment of $1.1
million which exceeded the fair value of the net assets acquired by
$416,000. The resulting goodwill is being amortized over 15 years using the
straight-line method.
7
<PAGE> 8
TAYLOR CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
3. Investment Securities:
---------------------
The amortized cost and estimated fair values of investment securities at
June 30, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Successor Basis - Taylor Capital Group, Inc. - Consolidated
June 30, 1997
-----------------------------------------------------------------------------
Gross Unrealized Gross Unrealized Estimated
Amortized Cost Gains Losses Fair Value
-------------- ---------------- ---------------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. Treasury securities $233,539 $461 $(380) $233,620
U.S. government agency securities 35,969 --- (63) 35,906
Mortgage-backed securities 150,752 563 (1,023) 150,292
----------- -------- -------- --------
Total Available-for-Sale 420,260 1,024 (1,466) 419,818
----------- -------- -------- --------
Held-to-Maturity:
State and municipal obligations 61,650 739 (15) 62,374
Other securities 18,206 1 --- 18,207
----------- -------- -------- --------
Total Held-to-Maturity 79,856 740 (15) 80,581
----------- -------- -------- --------
Total $500,116 $1,764 $(1,481) $500,399
=========== ======== ======== ========
Predecessor Basis - Cole Taylor Bank
December 31, 1996
-----------------------------------------------------------------------------
Gross Unrealized Gross Unrealized Estimated
Amortized Cost Gains Losses Fair Value
-------------- ---------------- ---------------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. Treasury securities $123,824 $267 $(353) $123,738
U.S. government agency securities 44,855 256 (36) 45,075
Mortgage-backed securities 163,479 668 (4,143) 160,004
----------- -------- -------- --------
Total Available-for-Sale 332,158 1,191 (4,532) 328,817
----------- -------- -------- --------
Held-to-Maturity:
State and municipal obligations 62,948 2,798 (16) 65,730
Other securities 12,024 4 --- 12,028
----------- -------- -------- --------
Total Held-to-Maturity 74,972 2,802 (16) 77,758
----------- -------- -------- --------
Total $407,130 $3,993 $(4,548) $406,575
=========== ======= ======== ========
</TABLE>
8
<PAGE> 9
TAYLOR CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Loans:
Loans classified by type at June 30, 1997 and December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Successor
Basis - Taylor
Capital Group, Predecessor
Inc. - Basis - Cole
Consolidated Taylor Bank -
June 30, December 31,
1997 1996
---------------- ---------------
(in thousands)
<S> <C> <C>
Commercial and industrial $ 677,967 $ 655,919
Real estate-construction 200,234 192,759
Real estate-mortgage 187,764 176,819
Consumer 147,525 171,270
Other loans 2,401 4,622
---------- ----------
Gross loans 1,215,891 1,201,389
Less: Unearned discount (1,106) (1,548)
---------- ----------
Total loans 1,214,785 1,199,841
Less: Allowance for loan losses (24,709) (24,184)
---------- ----------
Loans, net $1,190,076 $1,175,657
========== ==========
5. Interest-Bearing Deposits:
Interest-bearing deposits at June 30, 1997 and December 31, 1996 were as follows:
Successor
Basis - Taylor
Capital Group, Predecessor
Inc. - Basis - Cole
Consolidated Taylor Bank -
June 30, December 31,
1997 1996
---------------- ---------------
(in thousands)
<S> <C> <C>
NOW accounts $ 80,442 $ 77,693
Savings accounts 117,739 118,056
Money market deposits 227,918 244,302
Certificates of deposit 425,008 408,681
Public time deposits 159,875 143,415
Brokered certificates of deposit 131,091 80,685
---------- ----------
Total $1,142,073 $1,072,832
========== ==========
</TABLE>
9
<PAGE> 10
TAYLOR CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Long-Term Borrowings:
Long-term borrowings consisted of the following at June 30, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
Successor
Basis - Taylor
Capital Group, Predecessor
Inc. - Basis - Cole
Consolidated Taylor Bank -
June 30, December 31,
1997 1996
------------ -------------
(in thousands)
<S> <C> <C>
COLE TAYLOR BANK:
- ----------------
Federal Home Loan Bank (FHLB) - various advances ranging from $10
million to $25 million due at various dates through May 8, 1998,
collateralized by qualified first mortgage residential loans and
FHLB stock; weighted average interest rates at June 30, 1997
and December 31, 1996 were 6.00% and 5.91%, respectively. $ 95,000 $ 85,000
TAYLOR CAPITAL GROUP, INC.:
- --------------------------
Unsecured $25 million term loan bearing interest at prime rate or
LIBOR plus 1.25%, annual principal reductions of $1 million
commencing 1999 and a balloon payment of $22 million on February
12, 2002; interest rate at June 30, 1997 was 7.06%. 25,000 ---
Unsecured $7 million revolving credit facility bearing interest
at prime rate or LIBOR plus 1.25%, maturing February 12, 1998;
interest rate at June 30, 1997 was 8.5%. 6,000 ---
-------- -------
Total $126,000 $85,000
======== =======
</TABLE>
On February 12, 1997, the Parent Company executed a loan agreement with
LaSalle National Bank ("LaSalle") for a $25 million term loan and a $5 million
revolving credit facility. On February 27, 1997 the loan agreement was amended,
increasing the revolving credit facility amount from $5 million to $7 million.
The loan agreement includes certain defined financial covenants relating to the
Bank with respect to regulatory capital, return on average assets, nonperforming
assets and Parent Company leverage. In addition, the Bank's common stock is
held in safekeeping at LaSalle and, in the event of default under the loan
agreement, the Company must pledge the Bank's stock to LaSalle. As of June 30,
1997, the Company was in compliance with the provisions of the loan agreement.
10
<PAGE> 11
TAYLOR CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
7. Financial Instruments with Off-Balance Sheet Risk:
The Company is a party to various financial instruments with off-balance
sheet risk. The Company uses these financial instruments in the normal
course of business to meet the financing needs of customers and to
effectively manage exposure to interest rate risk. These financial
instruments include commitments to extend credit, standby letters of credit,
interest-rate exchange contracts (swaps) and forward commitments to sell
loans.
At June 30, 1997, the contractual or notional amounts are as follows:
<TABLE>
<CAPTION>
Amount
------------
(in thousands)
<S> <C>
Financial instruments wherein contract amounts represent credit risk:
Commitments to extend credit $350,444
Standby letters of credit 55,969
Financial instruments wherein notional amounts exceed the amount of credit risk:
Interest rate exchange agreements (swaps) $25,000
Forward commitments to sell loans 17,000
</TABLE>
8. Subsequent Event:
On August 5, 1997 the Mortgage Company entered into an agreement to sell its
operations headquartered in Florida. The purchaser of the Mortgage
Company's Florida assets acquired substantially all of the outstanding loans
held for sale, the pipeline of loan commitments outstanding and the
furniture and equipment. In addition, the purchaser agreed to assume the
obligations for the facilities' leases and hired all of the related Mortgage
Company employees. Management estimates that the proceeds from the sale,
after all related disposition expenses, approximates the Mortgage Company's
carrying value for the assets, including the impact of this transaction to
the goodwill recorded at the acquisition of the Mortgage Company on February
12, 1997.
11
<PAGE> 12
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Taylor Capital
Group, Inc. (the "Parent Company" or the "Company") and its wholly owned
subsidiaries, Cole Taylor Bank (the "Bank") and CT Mortgage Company, Inc. (the
"Mortgage Company"). The Company is a newly formed bank holding company which
was formed to consummate the acquisition of the Bank and Mortgage Company on
February 12, 1997 in a split-off transaction (as defined below) which was
accounted for by the purchase method of accounting. Management's discussion
and analysis compares the results of operations and financial condition of the
consolidated Company with the results of operations and financial condition of
the Bank on a stand alone predecessor basis for prior periods. This discussion
should be read in conjunction with the Company's Special Financial Report on
Form 10-K for the year ended December 31, 1996, which contains the audited
financial statements of Cole Taylor Bank on a stand alone predecessor basis for
the years ended December 31, 1996 and 1995.
The Split-Off Transactions were a series of transactions pursuant to which CTFG
transferred the common stock of the Bank and the Mortgage Company to the
Company and then transferred all of the common stock of the Company to certain
CTFG stockholders in exchange for 4.5 million shares of CTFG common stock, a
dividend from the Bank to CTFG consisting of cash and loans totaling
approximately $84 million and a cash payment of approximately $1.1 million for
the Mortgage Company.
RESULTS OF OPERATIONS
Overview
Generally, the financial results of the consolidated Company in comparison to
the Bank on a stand alone predecessor basis, present reduced profitability.
The primary reasons for the decline in consolidated profitability include: (1)
the application of purchase accounting which resulted in the recording of
substantial goodwill and the related goodwill amortization expense, (2) the
inclusion of approximately $31 million in debt and the related interest expense
and (3) the addition of salary and operating expenses of the newly formed
Parent Company. Additionally, the 1997 consolidated financial results of the
Company on a successor basis, which commenced operations on February 12, 1997,
include less than a full six months of operations.
For the second quarter of 1997, consolidated net income was $2.4 million.
Annualized return on average assets and return on average equity were .52% and
7.23%, respectively. For the period of February 12, 1997 to June 30, 1997,
consolidated net income was $4.4 million. For this period, annualized return
on average assets and return on average equity were .63% and 8.58%,
respectively. Net income for the Bank on the predecessor basis for the stub
period January 1, 1997 to February 11, 1997 was $2.3 million.
Net income for the Bank on the predecessor basis for the quarter ended
June 30, 1996 was $5.0 million. Annualized return on average assets and return
on average equity for the Bank during the second quarter of 1996 were 1.11% and
15.36%, respectively. Net income for the Bank on the predecessor basis for the
first six months ended June 30, 1996 was $9.3 million. For this period,
annualized return on average assets and return on average equity were 1.05% and
14.18%, respectively.
12
<PAGE> 13
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Net Interest Income
Net interest income, the difference between total interest income earned on
earning assets and total interest expense paid on interest-bearing liabilities,
is the Company's principal source of earnings. The amount of net interest
income is affected by changes in the volume and mix of earning assets and
interest-bearing liabilities and the level of rates earned or paid on those
assets and interest-bearing liabilities.
Consolidated net interest income (with an adjustment for tax-exempt income) for
the second quarter of 1997 was $18.1 million. For the period of February 12,
1997 to June 30, 1997 consolidated net interest income (with an adjustment for
tax-exempt income) was $27.6 million. Net interest income (with an adjustment
for tax-exempt income) for the Bank on the predecessor basis for the second
quarter of 1996 and for the first six months of 1996 was $18.6 million and
$36.8 million, respectively. The lower net interest income for the first half
of the year reported on the successor basis was due to the consolidated
reporting period for 1997 consisting of 43 fewer days of interest earned than
the Bank's 1996 predecessor basis period.
Net interest margin, which is determined by dividing taxable-equivalent net
interest income by average earning assets, was 4.24% for the second quarter of
1997 for the consolidated Company. Consolidated net interest margin for the
period of February 12, 1997 to June 30, 1997 was 4.26%. Net interest margin
for the Bank on the predecessor basis for the second quarter of 1996 and for
the first six months of 1996 was 4.37% and 4.38%, respectively. The net
interest margin on a consolidated successor basis was lower than that of the
predecessor Bank on a stand alone basis because of the addition of the Parent
Company's term loan and revolving credit facility, which increased the
consolidated Company's cost of long-term borrowings, and the recording of
approximately $37.8 million of goodwill, which resulted in the Company's
consolidated nonearning assets increasing as a percentage of total assets.
Net interest margin at the Bank was essentially flat with the prior year's
period. An increase in yield resulting from the net write-down of investment
securities related to the Split-Off Transactions, along with a decline in total
funding costs, were offset by an overall reduction in earning asset yield
brought about by a change in asset mix.
The following table sets forth certain information relating to the Company's
and the predecessor Bank's average consolidated balance sheets and reflects the
yield on average earning assets and cost of average liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average balance of assets or liabilities. Interest income is measured on a
tax equivalent basis using a 35% rate in each period presented.
13
<PAGE> 14
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT INTEREST AND YIELDS / RATES
<TABLE>
<CAPTION>
SUCCESSOR BASIS - TAYLOR CAPITAL GROUP, PREDECESSOR BASIS - COLE TAYLOR
INC. - CONSOLIDATED FOR THE THREE BANK - FOR THE THREE
MONTHS ENDED JUN. 30, 1997 MONTHS ENDED JUN. 30, 1996
--------------------------------------- -------------------------------
Yield/ Yield/
Average Rate Average Rate
Balance Interest (%)(3) Balance Interest (%)(3)
----------- ----------- -------- ---------- ---------- -------
INTEREST-EARNING ASSETS: (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities (1):
Taxable $419,219 $6,673 6.38% $353,316 $5,557 6.33%
Non-taxable (tax equivalent) 62,139 1,214 7.84 64,890 1,478 9.16
---------- ----------- --------- ----------
Total investment securities 481,358 7,887 6.57 418,206 7,035 6.77
---------- ----------- --------- ----------
Interest-bearing cash equivalents 15,412 214 5.57 24,849 324 5.24
---------- ----------- --------- ----------
Loans (2):
Commercial and industrial 860,421 19,655 9.16 804,078 18,098 9.05
Real estate mortgages 208,636 3,759 7.23 227,157 4,210 7.45
Consumer and other 148,238 3,284 8.89 233,498 4,857 8.37
Fees on loans 412 440
Less: Allowance for loan losses (24,737) (24,900)
---------- ----------- ---------
Net loans (tax equivalent) 1,192,558 27,110 9.12 1,239,833 27,605 8.95
---------- ----------- --------- ----------
Total earning assets 1,689,328 35,211 8.36 1,682,888 34,964 8.36
---------- ----------- --------- ----------
NONEARNING ASSETS:
Cash and due from banks 73,058 67,729
Premises and equipment, net 22,253 17,180
Accrued interest and other assets 67,062 30,435
---------- ----------
Total nonearning assets 162,373 115,344
---------- ----------
TOTAL ASSETS $1,851,701 35,211 7.63 $1,798,232 34,964 7.82
========== ----------- ========== ==========
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Interest-bearing demand deposits $313,565 2,733 3.50 $342,247 3,034 3.57
Savings deposits 118,600 757 2.56 123,031 784 2.56
Time deposits 675,447 9,361 5.56 706,215 9,756 5.56
--------- ----------- --------- ----------
Total deposits 1,107,612 12,851 4.65 1,171,493 13,574 4.66
--------- ----------- --------- ----------
Short-term borrowings 184,343 2,397 5.22 143,327 1,950 5.47
Long-term borrowings 114,244 1,847 6.48 60,330 871 5.81
--------- ----------- --------- ----------
Total interest-bearing liabilities 1,406,199 17,095 4.88 1,375,150 16,395 4.80
--------- ----------- --------- ----------
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits 294,201 277,303
Accrued interest and other liabilities 17,390 15,234
--------- --------
Total noninterest-bearing liabilities 311,591 292,537
--------- --------
STOCKHOLDERS' EQUITY 133,911 130,545
--------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,851,701 17,095 $1,798,232 16,395
========== ----------- ========== ----------
Net interest income (tax equivalent) $18,116 $18,569
=========== ==========
Net interest spread 3.48% 3.56%
Net interest margin 4.24% 4.37%
======== =======
SUCCESSOR BASIS - TAYLOR CAPITAL GROUP, PREDECESSOR BASIS - COLE TAYLOR
INC. - CONSOLIDATED FOR THE PERIOD OF BANK - FOR THE SIX MONTHS ENDED
FEB. 12, 1997 TO JUN. 30, 1997 JUN. 30, 1996
--------------------------------------- -------------------------------
Yield/ Yield/
Average Rate Average Rate
Balance Interest (%)(3) Balance Interest (%)(3)
----------- ----------- -------- ---------- ---------- -------
INTEREST-EARNING ASSETS: (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities (1):
Taxable $405,519 $9,917 6.42% $357,845 $11,269 6.33%
Non-taxable (tax equivalent) 62,566 1,890 7.93 65,422 2,989 9.19
---------- ----------- --------- ----------
Total investment securities 468,085 11,807 6.62 423,267 14,258 6.77
---------- ----------- --------- ----------
Interest-bearing cash equivalents 22,867 458 5.26 18,872 497 5.30
---------- ----------- --------- ----------
Loans (2):
Commercial and industrial 857,712 29,764 9.11 790,770 35,777 9.10
Real estate mortgages 205,717 5,697 7.27 227,700 8,392 7.41
Consumer and other 147,821 4,992 8.87 230,218 9,525 8.32
Fees on loans 611 853
Less: Allowance for loan losses (24,806) (24,574)
---------- ----------- --------- ----------
Net loans (tax equivalent) 1,186,444 41,064 9.09 1,224,114 54,547 8.96
---------- ----------- --------- ----------
Total earning assets 1,677,396 53,329 8.35 1,666,253 69,302 8.36
---------- ----------- --------- ----------
NONEARNING ASSETS:
Cash and due from banks 70,844 67,331
Premises and equipment, net 21,122 17,093
Accrued interest and other assets 64,145 32,530
---------- ----------
Total nonearning assets 156,111 116,954
---------- ----------
TOTAL ASSETS $1,833,507 53,329 7.64 $1,783,207 69,302 7.82
========== ----------- ========== ----------
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Interest-bearing demand deposits $316,003 4,196 3.49 $338,143 5,991 3.56
Savings deposits 118,376 1,153 2.56 123,029 1,564 2.56
Time deposits 668,394 14,167 5.57 669,716 18,674 5.61
--------- ----------- --------- ----------
Total deposits 1,102,773 19,516 4.65 1,130,888 26,229 4.66
--------- ----------- --------- ----------
Short-term borrowings 182,365 3,618 5.21 164,161 4,468 5.47
Long-term borrowings 101,910 2,604 6.71 60,165 1,795 6.00
--------- ----------- --------- ----------
Total interest-bearing liabilities 1,387,048 25,738 4.87 1,355,214 32,492 4.82
--------- ----------- --------- ----------
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits 294,473 280,982
Accrued interest and other liabilities 16,651 14,912
--------- ----------
Total noninterest-bearing liabilities 311,124 295,894
--------- ----------
STOCKHOLDERS' EQUITY 135,335 132,099
--------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,833,507 25,738 $1,783,207 32,492
========== ----------- ========== ----------
Net interest income (tax equivalent) $27,591 $36,810
=========== ==========
Net interest spread 3.48% 3.54%
Net interest margin 4.26% 4.38%
======= =======
</TABLE>
___________________________________________
(1) Investment securities average balances are based on amortized cost.
(2) Nonaccrual loans are included in the above stated average balances.
(3) Yields / rates are annualized.
14
<PAGE> 15
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Noninterest Income
The following table shows the noninterest income for the periods indicated:
<TABLE>
<CAPTION>
Successor Successor
Basis - Taylor Basis - Taylor
Capital Group, Predecessor Capital Group, Predecessor
Inc. - Basis - Cole Inc. - Basis - Cole
Consolidated Taylor Bank - Consolidated Taylor Bank -
For the Three For the Three For the Period of For the Six
Months Ended Months Ended Feb. 12, 1997 to Months Ended
Jun. 30, 1997 Jun. 30, 1996 Jun. 30, 1997 Jun. 30, 1996
-------------------- ------------- -------------------- -------------
<S> <C> <C> <C> <C>
Deposit service charges $2,148 $1,988 $3,308 $3,932
Retail and merchant credit card
service charges 223 178 327 337
Trust fees 864 913 1,357 1,774
Mortgage banking income 910 558 1,191 896
ATM fees 176 64 272 126
Other noninterest income 245 262 461 599
------ ------ ------ ------
Total noninterest income $4,566 $3,963 $6,916 $7,664
====== ====== ====== ======
</TABLE>
Total noninterest income for the consolidated Company was $4.6 million for the
second quarter of 1997 and $6.9 million for the period of February 12, 1997 to
June 30, 1997. Total noninterest income for the Bank on the predecessor basis
for the second quarter of 1996 was $4.0 million, and for the first six months
of 1996 was $7.7 million. The lower noninterest income reported on the
successor basis for the period of February 12, 1997 to June 30, 1997 was due to
the consolidated Company's 1997 reporting period having 43 fewer days than the
Bank's predecessor basis 1996 reporting period.
Included in the consolidated Company's mortgage banking income are gains on the
sale of mortgage loans relating to the Mortgage Company's operations. These
gains were $336,000 for the three months ended June 30, 1997, and $451,000 for
the period of February 12, 1997 to June 30, 1997. No Mortgage Company gains
are included in the Bank's predecessor basis 1996 results. The Florida-based
operations generated the majority of the Mortgage Company's loan origination
volume and resultant profits. Therefore the sale of the Florida-based
operations is expected to significantly reduce the Mortgage Company's income
for the remainder of 1997.
Noninterest Expense
Total noninterest expense for the consolidated Company was $16.9 million for
the second quarter of 1997 and $25.1 million for the period of February 12,
1997 to June 30, 1997. Total noninterest expense for the Bank on the
predecessor basis for the second quarter of 1996 was $13.3 million, and for the
first six months of 1996 was $27.2 million. The lower noninterest expense on
the successor basis for the period of February 12, 1997 to June 30, 1997 was
due to the consolidated Company's 1997 reporting period having 43 fewer days
than the Bank's predecessor basis 1996 reporting period.
15
<PAGE> 16
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Salaries and employee benefits represent the largest category of noninterest
expense, accounting for 53.0% and 53.9% of total noninterest expense for the
consolidated Company's three months ended June 30, 1997, and for the period of
February 12, 1997 to June 30, 1997, respectively. Included in the consolidated
Company's salaries and employee benefits for the three months ended June 30,
1997 is $1.0 million of expense relating to the Mortgage and Parent Companies.
For the period of February 12, 1997 to June 30, 1997, the salaries and employee
benefits expense relating to the Mortgage and Parent Companies totaled $1.4
million. Total average headcount at the Bank for 1997 was 630 as compared to
650 for 1996. The implementation of a new long-term incentive compensation
plan in 1997 increased total salary and benefits expense.
Noninterest expense other than salaries and benefits expense totaled
$8.0 million for the consolidated Company for the second quarter of 1997 and
$11.6 million for the period of February 12, 1997 to June 30, 1997. Noninterest
expense other than salaries and benefits expense for the Bank on the predecessor
basis for the second quarter of 1996 and the first six months of 1996 totaled
$5.8 million and $12.1 million, respectively. The consolidated Company's
reporting period for the three months ended June 30, 1997 and for the period of
February 12, 1997 to June 30, 1997 includes $664,000 and $978,000, respectively,
of goodwill amortization and $590,000 and $799,000, respectively, of other
noninterest expense relating to the Mortgage and Parent Companies. Occupancy
expenses increased approximately $320,000 as a result of the increased
amortization of purchase accounting adjustments from the write-up of the
premises, leasehold improvements and equipment to their fair value in connection
with the Split-Off Transactions. In addition, 1997 occupancy costs include land
rent for the new branch facility opening in the fall of 1997.
Income Taxes
The effective income tax rate for the consolidated Company for the period of
February 12, 1997 to June 30, 1997 was 37.8%. The effective income tax rate
for the Bank on the predecessor basis for the first six months of 1996 was
33.4%. The Bank's lower effective income tax rate for 1996 was due to the
utilization for book purposes of state net operating loss carryforwards.
FINANCIAL CONDITION
Overview
The consolidated Company's total assets were $1.91 billion at June 30, 1997.
The Company's average earning assets for the second quarter of 1997 were $1.71
billion. For the period of February 12, 1997 to June 30, 1997 the Company's
average earning assets were $1.70 billion. In connection with the Split-Off
Transactions, the Company sold or transferred approximately $100 million in
consumer loans secured by automobiles. Approximately $67 million of consumer
loans were sold on December 31, 1996. The remaining $32 million of consumer
loans were transferred to CTFG on the date of the consummation of the Split-Off
Transactions. In comparison to the second quarter of 1996 and the first six
months of 1996, the Bank's loan portfolio composition changed as a result of
the sale and transfer of the consumer loans, offset by growth in commercial
loans.
16
<PAGE> 17
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Nonearning assets increased as a result of the recognition of approximately
$37.8 million in goodwill and the estimated $7.2 million write-up of the Bank's
premises, leasehold improvements and equipment using the purchase method of
accounting for the Split-Off Transactions.
The consolidated Company's long-term borrowings include the Parent Company's
$25 million term loan and $6 million outstanding under the revolving credit
facility, which were funded in connection with the Split-Off Transactions.
Nonperforming Loans and Assets
Management reviews the loan portfolio for problem loans through a loan review
function and various credit committees. During the ordinary course of
business, management periodically becomes aware of borrowers that may not be
able to meet the contractual requirements of loan agreements. Such loans are
placed under close supervision with consideration given to placing the loan on
a nonaccrual status, the need for an additional allowance for loan loss, and
(if appropriate) a partial or full charge-off.
The following table sets forth the amounts of nonperforming loans and other
assets at the end of periods indicated:
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
Successor Basis - Taylor Predecessor
Capital Group, Inc. - Basis - Cole
Consolidated Taylor Bank
------------------------ ------------
June 30, March 31, December 31,
1997 1997 1996
-------- --------- ------------
(dollars in thousands)
<S> <C> <C> <C>
Loans contractually past due 90 days or more but
still accruing $ 2,323 $ 2,310 $ 2,820
Nonaccrual loans 10,969 11,261 10,898
------- ------- -------
Total nonperforming loans 13,292 13,571 13,718
Other real estate 1,800 1,862 865
Other repossessed assets 48 39 254
------- ------- -------
Total nonperforming assets $15,140 $15,472 $14,837
======= ======= =======
Nonperforming loans to total loans 1.07% 1.12% 1.12%
Nonperforming assets to total loans plus
repossessed property 1.22 1.28 1.21
Nonperforming assets to total assets 0.79 0.84 0.82
</TABLE>
17
<PAGE> 18
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Allowance for Loan Losses
An allowance for loan losses has been established to provide for those loans
which may not be repaid in their entirety. Loan losses are primarily created
from the loan portfolio, but may also be generated from other sources, such as
commitments to extend credit, guarantees, and standby letters of credit. The
allowance for loan losses is increased by provisions charged to expense and
decreased by charge-offs, net of recoveries.
The following table summarizes, for the periods indicated, activity in the
allowance for loan losses, including amounts charged-off, amount of recoveries,
additions to the allowance charged to operating expense, the ratio of
annualized net charge-offs to average total loans, the ratio of the allowance
to total loans at end of period, and the ratio of the allowance to
nonperforming loans:
<TABLE>
<CAPTION>
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
Successor Successor
Basis - Taylor Basis - Taylor
Capital Group, Predecessor Capital Group, Predecessor
Inc. - Basis - Cole Inc. - Basis - Cole
Consolidated Taylor Bank - Consolidated Taylor Bank -
For the Three For the Three For the Period of For the Six
Months Ended Months Ended Feb. 12, 1997 to Months Ended
Jun. 30, 1997 Jun. 30, 1996 Jun. 30, 1997 Jun. 30, 1996
-------------- ------------- ------------------ -------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Average total loans $1,217,295 $1,264,733 $1,211,250 $1,248,688
============== ============= ================== =============
Total loans at end of period $1,243,251 $1,280,383
================== =============
ALLOWANCE FOR LOAN LOSSES:
Allowance at beginning of period $24,529 $24,433 $24,607 $23,869
Charge-offs (954) (1,148) (1,709) (1,814)
Recoveries 230 137 423 368
-------------- ------------- ------------------ -------------
Net charge-offs (724) (1,011) (1,286) (1,446)
-------------- ------------- ------------------ -------------
Provisions for loan losses 904 1,053 1,388 2,052
-------------- ------------- ------------------ -------------
Allowance at end of period $24,709 $24,475 $24,709 $24,475
============== ============= ================== =============
Net charge-offs to average total loans
(annualized) 0.24% 0.32% 0.28% 0.23%
Allowance to total loans at end of period 1.99 1.91
Allowance to nonperforming loans 185.89 155.57
</TABLE>
18
<PAGE> 19
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Deposits and Borrowed Funds
The Company's core deposits consist of noninterest and interest-bearing demand
deposits, savings deposits, certain certificates of deposit and certain public
funds and core customer repurchase agreements, which are reported as short term
borrowings. Certificates of deposit distributed through the National CD
Network, brokered certificates of deposit and FHLB advances are also used by
the Company to support its asset base.
On an average basis core deposits increased modestly during the first six
months of 1997. The decline in demand deposits between December 1996 and June
1997 reflects the recurring seasonal increase in demand accounts at each year
end. The mix of core deposits changed reflecting the Bank's marketing focus
during the period. Increases in brokered certificates of deposit and FHLB
advances were utilized to fund growth in the Company's asset base during 1997
as asset growth outpaced core deposit growth. The balance of certificates of
deposit obtained through the National CD Network was $39.7 million and $46.9
at June 30, 1997 and December 31, 1996, respectively.
Capital Resources
The Company actively monitors compliance with bank regulatory capital
requirements, focusing primarily on the risk-based capital guidelines. Under
the risk-based method of capital measurement, computed ratios are dependent on
the amount and composition of assets recorded on the balance sheet as well as
the amount and composition of off-balance sheet items, in addition to the level
of capital.
The Bank's Tier 1 risk-based capital ratios were 9.57% and 10.23% at June 30,
1997 and December 31, 1996, respectively. The Bank's total risk-based capital
ratios were 10.82% and 11.48% at June 30, 1997 and December 31, 1996,
respectively. The declines in these ratios were due to the decrease in
tangible capital resulting from the dividend of approximately $84.0 million to
CTFG in connection with the Split-Off Transactions. The Bank's capital was
immediately supplemented with a capital contribution of $58.7 million from the
Parent Company on the date of the consummation of the Split-Off Transactions.
As a result of the capital contribution, the Bank remained above the regulatory
"well capitalized" guidelines subsequent to the Split-Off Transactions.
For the period of February 12, 1997 to June 30, 1997 the Parent Company
declared $1.3 million and $810,000 in preferred stock and common stock
dividends, respectively.
19
<PAGE> 20
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company's and the Bank's capital ratios were as follows for the dates
indicated:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purpose Action Provision
----------------- --------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
----------------- --------------------- --------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997:
Total Capital (to Risk Weighted Assets)
Successor Basis - Taylor Capital
Group, Inc. - Consolidated $115,682 8.81% >$105,006 >8.00% NA
Cole Taylor Bank 142,231 10.82 > 105,113 >8.00 >$131,392 >10.00%
Tier I Capital (to Risk Weighted Assets)
Successor Basis - Taylor Capital
Group, Inc. - Consolidated 99,172 7.56% > 52,503 >4.00 NA
Cole Taylor Bank 125,705 9.57 > 52,557 >4.00 > 78,835 > 6.00
Leverage (1)
Successor Basis - Taylor Capital
Group, Inc. - Consolidated 99,172 5.47% > 72,566 >4.00 NA
Cole Taylor Bank 125,705 6.94 > 72,404 >4.00 > 90,505 > 5.00
As of December 31, 1996:
Total Capital (to Risk Weighted Assets)
Predecessor Basis - Cole Taylor Bank $158,874 11.48% >$110,702 >8.00% >$138,338 >10.00%
Tier I Capital (to Risk Weighted Assets)
Predecessor Basis - Cole Taylor Bank 141,492 10.23 > 55,351 >4.00 > 83,027 > 6.00
Leverage (1)
Predecessor Basis - Cole Taylor Bank 141,492 7.63 > 74,158 >4.00 > 92,698 > 5.00
</TABLE>
__________________________________
(1) The leverage ratio is defined as Tier 1 capital divided by average
quarterly assets.
Liquidity and Asset/Liability Management
In connection with the Split-Off Transactions, the Bank's liquidity
temporarily increased as the Bank sold certain loans and received a capital
contribution from the Parent Company. During 1997, this cash was redeployed
into investment securities and loans and asset growth exceeded core deposit
growth. In addition, the mix of core deposit growth changed to consist of
shorter term deposits and certain deposits which require collateralization. As
a result, the Company's liquidity at June 30, 1997 tightened as compared to
February 12, 1997 and additional wholesale funding was obtained to support the
Company's continued growth. The Company's liquidity at June 30, 1997 remains
within target levels maintained in prior years as the Company continues to
utilize prudent levels of wholesale borrowings to support its growth and
profitability.
20
<PAGE> 21
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Safe Harbor Provisions of the Private Securities Reform Act of 1995
Certain statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations are certain forward-looking
statements that are based on the beliefs of the Company's management, as well
as assumptions made by and information currently available to the company's
management, and that are subject to certain risks or uncertainties. Such
forward-looking statements are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1996. When used in this document
and the documents incorporated by reference, the word "anticipate", "believe",
"estimate", "expect" and similar expressions, as they relate to the Company or
its management, are intended to identify such forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions. The
Company cautions readers of this Quarterly Report on Form 10-Q that a number of
important factors could cause the Company's actual results, performance or
achievements in 1997 and beyond to differ materially from the results,
performance or achievements expressed in, or implied by, such forward-looking
statements. These factors include, without limitation, the general economic
and business conditions affecting the Company's customers; the ability of the
Bank to maintain sufficient funds to respond to the needs of depositors and
borrowers; changes in interest rates; competition from its principal
competitors; changes in federal and state legislation or regulatory
requirements; the adequacy of the Company's allowance for loan losses;
contractual, statutory or regulatory restrictions on the Bank's ability to pay
dividends to the Company; and continuing obligations or potential liabilities
arising from the Split-Off Transactions. These and other factors are more fully
described in the Company's previous filings with the Securities and Exchange
Commission including, without limitation, the Company's Prospectus dated
February 7, 1997.
21
<PAGE> 22
TAYLOR CAPITAL GROUP, INC.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE BY SECURITY HOLDERS
(a) The Annual Meeting of the Stockholders of the Company was held on
June 24, 1997.
(b) The Common Stockholders voted to elect nine directors to the
Company's Board of Directors, with the following vote:
Authority
Directors For Withheld
--------- --- ---------
Jeffrey W. Taylor 3,528,506 0
Bruce W. Taylor 3,528,506 0
Sidney J Taylor 3,528,506 0
Richard W. Tinberg 3,528,506 0
Melvin E. Pearl 3,528,506 0
John Christopher Alstrin 3,528,506 0
Ronald D. Emanuel 3,528,506 0
Edward McGowan 3,528,506 0
Mark L. Yeager 3,528,506 0
(c) The Preferred Stockholders voted to elect one director to the
Company's Board of Directors, with the following vote:
Authority
Director For Withheld
-------- --- ---------
Adelyn Dougherty 1,449,005 6,910
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Exhibit Index on page 24.
(b) Form 8-K - No reports on Form 8-K were filed during the period
covered by this report.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Taylor Capital Group, Inc.
--------------------------------
(Registrant)
Date: August 11, 1997 /s/ J. Christopher Alstrin
--------------- -----------------------------
J. Christopher Alstrin*
Chief Financial Officer
* Duly authorized to sign on behalf of the Registrant
23
<PAGE> 24
TAYLOR CAPITAL GROUP, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Documents
------- ------------------------
<S> <C>
11 Statement regarding computation of primary earnings per share
12 Statement regarding computation of ratio of earnings to fixed charges
27 Financial Data Schedule
</TABLE>
24
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
Successor Basis - Taylor Capital
Group, Inc. - Consolidated
----------------------------------
For the Three For the Period of
Months Ended Feb. 12, 1997 to
Jun. 30, 1997 Jun. 30, 1997
------------- -----------------
<S> <C> <C>
AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
1 Average common shares outstanding 4,500,000 4,500,000
============= =================
EARNINGS:
2 Net income $2,413,000 $4,421,000
3 Less preferred stock dividends 860,625 1,329,187
------------- -----------------
4 Earnings available for common shares $1,552,375 $3,091,813
============= =================
PER SHARE AMOUNTS:
Net income per share (line 4 / line 1) $0.34 $0.69
============= =================
</TABLE>
Note: In all periods, earnings per share were calculated using the treasury
stock method. Fully diluted earnings per share are not presented as they
are less than 3% dilutive.
25
<PAGE> 1
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(Dollars in thousands)
<TABLE>
<CAPTION>
Successor Successor
Basis - Taylor Basis - Taylor
Capital Group, Predecessor Capital Group, Predecessor
Inc. - Basis - Cole Inc. - Basis - Cole
Consolidated Taylor Bank - Consolidated Taylor Bank -
For the Three For the Three For the Period of For the Six
Months Ended Months Ended Feb. 12, 1997 to Months Ended
Jun. 30, 1997 Jun. 30, 1996 Jun. 30, 1997 Jun. 30, 1996
--------------- ------------- ------------------ -------------
<S> <C> <C> <C> <C>
1 Income before income taxes $4,266 $7,588 $7,109 $13,980
ADD BACK FIXED CHARGES:
2 Total interest expense (1) 17,095 16,396 25,738 32,492
3 Interest included in operating
lease rental expense (2) 331 275 517 542
4 Preferred stock dividend (3) 1,324 --- 2,045 ---
------- ------- ------- -------
5 Adjusted earnings including
interest on deposits 23,016 24,259 35,409 47,014
6 Less: interest expense on deposits 12,851 13,574 19,516 26,229
------- ------- ------- -------
7 Adjusted earnings excluding
interest on deposits $10,165 $10,685 $15,893 $20,785
======= ======= ======= =======
8 Fixed charges including interest on
deposits (line 2 + line 3 + line 4) $18,750 $16,671 $28,300 $33,034
======= ======= ======= =======
9 Fixed charges excluding interest on
deposits (line 8 - line 6) $5,899 $3,097 $8,784 $6,805
======= ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES
Including interest on deposits
(line 5 / line 8) 1.23 1.46 1.25 1.42
======= ======= ======= =======
Excluding interest on deposits
(line 7 / line 9) 1.72 3.45 1.81 3.05
======= ======= ======= =======
</TABLE>
(1) Interest expense includes cash interest expense on deposits and
other debt and amortization of debt issuance costs.
(2) Calculation of interest included in operating lease rental expense
is representative of the interest factor attributable to the lease payment.
(3) Preferred stock dividends have been computed based on $38,250,000 of
preferred stock issued and a dividend rate of 9% per annum. The stock
dividend amount has been grossed up to compute the pretax income equivalent
assuming an estimated 35% tax rate.
26
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TAYLOR
CAPITAL GROUP, INC. FORM 10-Q FOR THE 139 DAY PERIOD ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> FEB-12-1997
<PERIOD-END> JUN-30-1997
<CASH> 100,334
<INT-BEARING-DEPOSITS> 106
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 419,818
<INVESTMENTS-CARRYING> 79,856
<INVESTMENTS-MARKET> 80,581
<LOANS> 1,243,251
<ALLOWANCE> 24,709
<TOTAL-ASSETS> 1,911,015
<DEPOSITS> 1,461,434
<SHORT-TERM> 169,139
<LIABILITIES-OTHER> 18,021
<LONG-TERM> 126,000
0
38,250
<COMMON> 45
<OTHER-SE> 98,126
<TOTAL-LIABILITIES-AND-EQUITY> 1,911,015
<INTEREST-LOAN> 40,924
<INTEREST-INVEST> 11,061
<INTEREST-OTHER> 458
<INTEREST-TOTAL> 52,443
<INTEREST-DEPOSIT> 19,516
<INTEREST-EXPENSE> 25,738
<INTEREST-INCOME-NET> 26,705
<LOAN-LOSSES> 1,388
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 25,124
<INCOME-PRETAX> 7,109
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,421
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.26
<LOANS-NON> 10,969
<LOANS-PAST> 2,323
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 24,607
<CHARGE-OFFS> 1,709
<RECOVERIES> 423
<ALLOWANCE-CLOSE> 24,709
<ALLOWANCE-DOMESTIC> 24,709
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
