<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 MARCH 31, 1998
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) 808-6369
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 outstanding shares of each of the Registrant's classes of common
stock, as of the latest practicable date:
Class Outstanding at May 5, 1998
- ---------------------------- --------------------------
Common Stock, $.01 Par Value 4,654,533
<PAGE> 2
TAYLOR CAPITAL GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION ......................................................... PAGE
- ------------------------------- ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 .......................................... 3
Statements of Income -
Successor Basis - Taylor Capital Group, Inc. - Consolidated For
the Three Months Ended March 31, 1998 and the Period of
February 12, 1997 to March 31, 1997; Predecessor Basis
- Cole Taylor Bank - For the Period of January 1, 1997 to
February 11, 1997 ............................................................. 4
Statements of Cash Flows -
Successor Basis - Taylor Capital Group, Inc. - Consolidated For
the Three Months Ended March 31, 1998 and the Period of
February 12, 1997 to March 31, 1997; Predecessor Basis
- Cole Taylor Bank - For the Period of January 1, 1997 to
February 11, 1997 ............................................................. 5
Notes to Financial Statements .................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................................... 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk ........................ 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................................ 23
Item 6. Exhibits and Reports on Form 8-K ................................................. 23
Signatures ....................................................................... 24
</TABLE>
2
<PAGE> 3
TAYLOR CAPITAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
--------------------
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1998 1997
----------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 74,554 $ 72,210
Interest-bearing deposits with banks 68 12,131
Federal funds sold --- 275
Investment securities:
Available-for-sale, at fair value 397,692 399,145
Held-to-maturity, at amortized cost (fair value of $86,850 and $84,581 at
March 31, 1998 and December 31, 1997, respectively) 85,495 83,251
Loans held for sale, net, at lower of cost or market 52,913 31,771
Loans, net of allowance for loan losses of $25,642 and $25,813
at March 31, 1998 and December 31, 1997, respectively 1,135,739 1,146,853
Premises, leasehold improvements and equipment, net 22,333 22,713
Other real estate and repossessed assets, net 2,115 1,463
Goodwill and other intangibles, net of amortization of $2,846 and $2,235
at March 31, 1998 and December 31, 1997, respectively 33,890 34,356
Other assets 35,678 51,543
----------- ----------
Total assets $ 1,840,477 $1,855,711
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 319,130 $ 340,419
Interest-bearing 1,049,656 1,037,538
----------- ----------
Total deposits 1,368,786 1,377,957
Short-term borrowings 179,877 186,053
Accrued interest, taxes and other liabilities 20,140 19,874
Nonrecourse borrowings --- 18,757
Notes payable 128,400 112,000
----------- ----------
Total liabilities 1,697,203 1,714,641
----------- ----------
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 and redemptive value 38,250 38,250
Common stock, $.01 par value; 7,000,000 shares authorized, 4,654,533
and 4,640,453 shares issued and outstanding at March 31, 1998 and
December 31, 1997, respectively 47 46
Surplus 99,764 99,371
Unearned compensation - stock grants (2,756) (2,656)
Retained earnings 7,838 5,278
Accumulated other comprehensive income 131 781
----------- ----------
Total stockholders' equity 143,274 141,070
----------- ----------
Total liabilities and stockholders' equity $ 1,840,477 $1,855,711
=========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
TAYLOR CAPITAL GROUP, INC.
STATEMENTS OF INCOME
(in thousands)
------------------
<TABLE>
<CAPTION>
(Unaudited)
Predecessor
Successor Basis - Taylor Capital Basis - Cole
Group, Inc. - Consolidated Taylor Bank -
--------------------------------------- -------------------
For the Three For the Period of For the Period of
Months Ended Feb. 12, 1997 to Jan. 1, 1997 to
Mar. 31, 1998 Mar. 31, 1997 Feb. 11, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $26,455 $13,906 $12,481
Interest and dividends on investment securities:
Taxable 6,478 3,244 2,606
Tax-exempt 785 410 431
Interest on cash equivalents 90 244 124
------- ------- -------
Total interest income 33,808 17,804 15,642
------- ------- -------
Interest expense:
Deposits 11,942 6,665 5,614
Short-term borrowings 2,497 1,221 1,026
Notes payable 1,865 757 436
------- ------- -------
Total interest expense 16,304 8,643 7,076
------- ------- -------
Net interest income 17,504 9,161 8,566
Provision for loan losses 750 484 420
------- ------- -------
Net interest income after provision for loan losses 16,754 8,677 8,146
------- ------- -------
Noninterest income:
Service charges 2,324 1,264 1,122
Trust fees 945 493 359
Gain on sales of loans, net 801 68 169
Gain on sale of servicing rights 1,447 --- ---
Other noninterest income 410 525 280
------- ------- -------
Total noninterest income 5,927 2,350 1,930
------- ------- -------
Noninterest expense:
Salaries and employee benefits 9,125 4,572 3,645
Occupancy of premises, net 1,714 883 656
Furniture and equipment 809 412 322
Computer processing 561 273 222
Advertising and public relations 158 107 157
Goodwill and other intangible amortization 611 314 20
Legal fees 314 120 194
Other noninterest expense 2,996 1,503 1,250
------- ------- -------
Total noninterest expense 16,288 8,184 6,466
------- ------- -------
Income before income taxes 6,393 2,843 3,610
Income taxes 2,512 835 1,328
------- ------- -------
Net income $3,881 $2,008 $2,282
======= ======= =======
Preferred dividend requirements (861) (468) ---
------- ------- -------
Net income applicable to common stockholders $3,020 $1,540 ---
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
TAYLOR CAPITAL GROUP, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
-----------------
<TABLE>
<CAPTION>
(Unaudited)
Predecessor
Successor Basis - Taylor Capital Basis - Cole
Group, Inc. - Consolidated Taylor Bank -
--------------------------------------- -------------------
For the Three For the Period of For the Period of
Months Ended Feb. 12, 1997 to Jan. 1, 1997 to
Mar. 31, 1998 Mar. 31, 1997 Feb. 11, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $3,881 $2,008 $2,282
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for loan losses
Gain on sales of loans originated for sale 750 484 420
Loans originated and held for sale (925) (323) (137)
Proceeds from sales of loans originated for sale (75,122) (28,306) (12,852)
Depreciation and amortization 62,445 30,063 23,724
Other adjustments to net income, net 1,585 499 238
Net changes in other assets and liabilities 797 594 502
Net cash provided by (used in) operating activities (2,704) (10,282) 7,645
------- -------- --------
(9,293) (5,263) 21,822
------- -------- --------
Cash flows from investing activities:
Purchases of available-for-sale securities
Purchases of held-to-maturity securities (21,516) (66,286) (43,533)
Proceeds from principal payments and maturities of (4,331) --- ---
available-for-sale securities
Proceeds from principal payments and maturities of 21,389 48,336 2,000
held-to-maturity securities
Net decrease (increase) in loans 1,955 163 1,209
Net cash of Bank and Mortgage Company acquired in 2,615 (15,235) (12,509)
Split-Off Transactions
Proceeds from sale of new indirect auto loans --- 65,306 ---
Decrease in reverse exchange assets --- --- 66,570
Other, net 18,757 --- ---
Net cash provided by investing activities (588) (416) (51)
------- -------- --------
18,281 31,868 13,686
------- -------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits
Net (decrease) increase in short-term borrowings (9,171) 79,772 (56,094)
Repayments of notes payable (6,176) (69,718) 80,447
Proceeds from notes payable (65,000) (4) (25,201)
Net proceeds from issuance of preferred stock 81,400 31,000 ---
Decrease in nonrecourse borrowings --- 36,105 ---
Dividends paid (18,757) --- ---
Net cash provided by (used in) financing activities (1,278) --- ---
------- -------- --------
(18,982) 77,155 (848)
------- -------- --------
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period (9,994) 103,760 34,660
84,616 --- 87,260
------- -------- --------
Cash and cash equivalents, end of period
$74,622 $103,760 $121,920
======= ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $16,182 $8,018 $7,303
Income taxes --- --- 997
</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 include the accounts of Taylor Capital Group, Inc. (the "Parent
Company") and its wholly owned subsidiaries (collectively, with the Parent
Company, the "Company"), Cole Taylor Bank and its subsidiaries (the "Bank")
and CT Mortgage Company, Inc. (the "Mortgage Company").
Taylor Capital Group, Inc. acquired the Bank and the Mortgage Company on
February 12, 1997 in the Split-Off Transactions (as defined below), which
were 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"), now known as Reliance Acceptance
Group, Inc. 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 Parent Company and then transferred all of the common
stock of the Parent 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. These results, which are for the reporting
period of January 1, 1997 to February 11, 1997 immediately prior to the
acquisition of the Bank by the Parent Company, are therefore not comparable
to subsequent periods.
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 Annual
Report on Form 10-K for the year ended December 31, 1997, 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, 1998. 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 as of
the dates and for the periods presented.
The results of operations for the three months ended March 31, 1998 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 1997 financial statements to conform to the successor basis Taylor
Capital Group, Inc. 1997 and 1998 presentation.
6
<PAGE> 7
TAYLOR CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Investment Securities:
The amortized cost and estimated fair values of investment securities at
March 31, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
March 31, 1998
---------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities $196,996 $ 988 --- $197,984
U.S. government agency securities 10,237 140 $ (32) 10,345
Collateralized mortgage obligations 99,578 70 (1,888) 97,760
Mortgage-backed securities 90,682 1,134 (213) 91,603
--------- ---------- ---------- -----------
Total available-for-sale 397,493 2,332 (2,133) 397,692
--------- ---------- ---------- -----------
Held-to-maturity:
State and municipal obligations 63,407 1,279 (1) 64,685
Federal Reserve Bank and Federal Home Loan
Bank equity securities 21,263 --- --- 21,263
Other debt securities 825 77 --- 902
--------- ---------- ---------- -----------
Total held-to-maturity 85,495 1,356 (1) 86,850
--------- ---------- ---------- -----------
Total $482,988 $3,688 $(2,134) $484,542
========= ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities $205,007 $ 797 $ (20) $205,784
U.S. government agency securities 13,261 125 (41) 13,345
Collateralized mortgage obligations 84,330 61 (374) 84,017
Mortgage-backed securities 95,364 645 (10) 95,999
--------- ---------- ---------- -----------
Total available-for-sale 397,962 1,628 (445) 399,145
--------- ---------- ---------- -----------
Held-to-maturity:
State and municipal obligations 65,034 1,364 (79) 66,319
Federal Reserve Bank and Federal Home Loan
Bank equity securities 17,392 --- --- 17,392
Other debt securities 825 46 (1) 870
--------- ---------- ---------- -----------
Total held-to-maturity 83,251 1,410 (80) 84,581
--------- ---------- ---------- -----------
Total $481,213 $3,038 $ (525) $483,726
========= ========== =========== ===========
</TABLE>
7
<PAGE> 8
TAYLOR CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
3. Loans:
Loans classified by type at March 31, 1998 and December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ----------
(in thousands)
<S> <C> <C>
Commercial and industrial $ 673,731 $ 671,506
Real estate-construction 183,591 179,855
Residential real estate-mortgages 158,346 165,258
Home equity lines of credit 103,852 104,287
Consumer 41,652 50,391
Other loans 1,294 2,448
---------- ----------
Gross loans 1,162,466 1,173,745
Less: Unearned discount (1,085) (1,079)
---------- ----------
Total loans 1,161,381 1,172,666
Less: Allowance for loan losses (25,642) (25,813)
---------- ----------
Loans, net $1,135,739 $1,146,853
========== ==========
</TABLE>
At March 31, 1998, approximately $7.7 million of the Bank's $9.6 million of
credit card receivables was transferred, at cost, from the consumer loan
category to loans held for sale. The Bank is currently negotiating to sell
these receivables. No loss is expected from the sale.
4. Interest-Bearing Deposits:
Interest-bearing deposits at March 31, 1998 and December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ----------
(in thousands)
<S> <C> <C>
NOW accounts $ 111,215 $ 100,309
Savings accounts 113,050 112,978
Money market deposits 226,671 240,294
Certificates of deposit 428,785 417,230
Public time deposits 115,055 96,844
Brokered certificates of deposit 54,880 69,883
---------- ----------
Total $1,049,656 $1,037,538
========== ==========
</TABLE>
8
<PAGE> 9
TAYLOR CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
5. Notes Payable:
Notes payable consisted of the following at March 31, 1998 and December 31,
1997:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(in thousands)
<S> <C> <C>
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 rates at
March 31, 1998 and December 31, 1997 were 6.93% and 7.12%
respectively. $25,000 $25,000
Unsecured $7 million revolving credit facility bearing interest at prime rate or
LIBOR plus 1.25%, maturing May 1, 1998; interest rates at
March 31, 1998 and December 31, 1997 were 6.91% and 7.02%
respectively. 3,400 2,000
COLE TAYLOR BANK:
- -----------------
Federal Home Loan Bank (FHLB) - various advances ranging from
$10 million to $30 million due at various dates through
February 20, 2008, collateralized by qualified first mortgage residential
loans and FHLB stock; weighted average interest rates at March 31, 1998
and December 31, 1997 were 5.40% and 6.04% respectively 100,000 85,000
-------- --------
Total $128,400 $112,000
======== ========
</TABLE>
In April 1998, the Taylor Capital Group, Inc. loan agreement was amended to
extend the maturity date of the revolving credit facility from May 1, 1998
to June 1, 1998. The loan agreement requires compliance with certain
defined financial covenants relating to the Bank, including covenants
related to regulatory capital, return on average assets, nonperforming
assets and Parent Company leverage. As of March 31, 1998, the Company was
not aware of any instances of non-compliance.
6. Incentive Compensation Plan:
The Company has an Incentive Compensation Plan (the "Plan") that allows for
the granting of stock options and stock awards. During the three months
ended March 31, 1998, stock options were granted with respect to 88,269
shares of common stock. The stock options were granted at the fair market
value of the stock on the date of grant ($25.00 per share), as determined by
an independent appraisal.
In addition, 14,080 shares of common stock were awarded to certain employees
and non-employee members of the Board of Directors under restricted stock
agreements.
9
<PAGE> 10
TAYLOR CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
7. Comprehensive Income:
Statement of Financial Accounting Standards No. 130 "Reporting of
Comprehensive Income" requires disclosure of all components of comprehensive
income. Comprehensive income has been defined as changes in stockholders'
equity arising from transactions and other economic events from
nonstockholder sources. For the Company, comprehensive income includes net
income and unrealized holding gains or losses on available-for-sale
investment securities. The following table presents comprehensive income
for the periods indicated:
<TABLE>
<CAPTION>
Predecessor
Successor Basis - Taylor Capital Basis - Cole
Group, Inc. - Consolidated Taylor Bank
--------------------------------------------- --------------------
For the Three For the Period of For the Period of
Months Ended Feb. 12, 1997 to Jan. 1, 1997 to
Mar. 31, 1998 Mar. 31, 1997 Feb. 11, 1997
-------------------- -------------------- --------------------
(in thousands)
<S> <C> <C> <C>
Net income, as reported $3,881 $ 2,008 $2,282
Other comprehensive income:
Change in unrealized losses on
available-for- sale securities (985) (3,608) (1,890)
Income tax expense (benefit) related
to other comprehensive income (335) (1,219) (750)
------ ------- ------
Other comprehensive income, net of tax (650) (2,389) (1,140)
------ ------- ------
Total comprehensive income $3,231 $ (381) $1,142
====== ======= ======
</TABLE>
8. Litigation:
The Company has been named as a defendant in a number of lawsuits relating
to either or both (1) the Split-Off Transactions which resulted in the
Company being split-off from CTFG (now Reliance Acceptance Group, Inc.,
hereinafter referred to as "Reliance") in February 1997, and (2) the
financial and public reporting of Reliance. The lawsuits name Reliance
and/or current or former officers, directors and stockholders of the Company
and Reliance as additional defendants. Included among the defendants are
Jeffrey W. Taylor, Chairman of the Board and Chief Executive Officer of the
Company, and Bruce W. Taylor, President of the Company. One case also names
the Bank as a defendant. All of the lawsuits have been brought as purported
class actions on behalf of current and former stockholders of Reliance.
Five of these actions are pending in Delaware Chancery Court. These cases
allege that the defendants breached their fiduciary duties in connection
with disclosures made to the stockholders prior to the vote which approved
the Split-Off Transactions. These cases seek relief in the form of
unspecified damages, attorneys' fees and rescission of the Split-Off
Transactions. Two other cases are pending in the United States District
Court for the Western District of Texas and one case is
10
<PAGE> 11
TAYLOR CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
pending in the Northern District of Illinois. These cases allege that the
defendants violated the federal securities laws, and the Illinois action
also alleges that the defendants breached common law fiduciary duties. In
addition, the Illinois case alleges that the defendants violated ERISA and
breached duties owed to a subclass consisting of participants in Reliance's
ESOP and 401(k)/Profit Sharing Plan. The Texas and Illinois cases seek
unspecified damages, attorneys' fees and rescission of the Split-Off
Transactions.
Seven other similar lawsuits are pending. Although the Company has not been
named as a defendant in those suits, certain directors, officers and
stockholders of the Company, including Jeffrey W. Taylor, Bruce W. Taylor
and J. Christopher Alstrin, Chief Financial Officer of the Company, have
been named.
Pursuant to the Share Exchange Agreement in which Jeffrey W. Taylor, Bruce
W. Taylor, Iris A. Taylor, Sidney J. Taylor, Cindy Taylor Bleil, related
trusts and a related partnership (collectively, the "Taylor Family") agreed
to acquire the Company from Reliance, the Taylor Family may be obligated to
indemnify Reliance for 25% of any losses (net of any insurance proceeds paid
to, or for the benefit of Reliance or members of its Board of Directors),
including without limitation, any cost or expenses of defense or settlement
of any suits, actions or proceedings initiated by third-parties and any
judgments in such suits, actions or proceedings, relating to the Split-Off
Transactions (the "Transaction Indemnification Obligation"). Subsequently,
the Company agreed to indemnify and hold harmless the Taylor Family from and
against any and all liabilities of the Taylor Family arising under the
Transaction Indemnification Obligation. On February 9, 1998, Reliance filed
a voluntary petition under Chapter 11 of the Bankruptcy Code, and all of the
aforementioned cases in which Reliance had been named as a defendant are now
stayed as to Reliance. The Company is unable at this time to predict the
extent to which it might be called upon to fulfill its indemnification
obligations to the Taylor Family with respect to the Transaction
Indemnification Obligation.
All of these cases are in their early stages. The Company believes that it
has meritorious defenses to all of the actions against the Company, and the
Company intends to defend itself vigorously. In addition, the Company has
agreed to advance defense costs that are not otherwise advanced by insurance
carriers on behalf of members of the Taylor Family and directors and
officers of the Company who are defendants in these cases. The Company is
unable to predict at this time the potential impact of the litigation on the
financial condition of the Company.
The Company is from time to time a party to various other legal actions
arising in the normal course of its business. Management knows of no such
other threatened or pending legal actions against the Company that are
likely to have a material adverse impact on the financial condition of the
Company.
11
<PAGE> 12
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following presents management's discussion and analysis of financial
condition and results of operations of the Company as of and for the dates and
periods indicated. This discussion should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto appearing
elsewhere in this Form 10-Q.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Taylor Capital
Group, Inc. (the "Parent Company") and its wholly owned subsidiaries
(collectively, with the Parent Company, the "Company"), Cole Taylor Bank and
its subsidiaries (the "Bank") and CT Mortgage Company, Inc. (the "Mortgage
Company"). This discussion should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
The Bank and Mortgage Company were acquired by the Parent Company on February
12, 1997; therefore, the consolidated results of operations for 1997 are for a
period of less than a full calendar quarter. In addition, the predecessor
basis Bank results of operations are on a different cost basis than that of the
Company's consolidated financial information and therefore are not comparable
to subsequent periods.
RESULTS OF OPERATIONS
Overview
For the first quarter of 1998, consolidated net income was $3.9 million.
Annualized return on average assets and return on average equity were .85% and
11.07%, respectively. For the previous year's period of February 12, 1997 to
March 31, 1997, consolidated net income was $2.0 million. For this period,
annualized return on average assets and return on average equity were .84% and
11.26%, respectively. The higher net income in 1998 was primarily due to the
fact that the 1997 reporting period was comprised of 42 fewer days than the
1998 quarter.
Net income for the Bank on the predecessor basis for the reporting period of
January 1, 1997 to February 11, 1997 was $2.3 million and was comprised of 42
days.
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 (with an adjustment for tax-exempt income) for the first
quarter of 1998 was $18.1 million, compared to $9.5 million in the year earlier
period of February 12, 1997 to March 31, 1997. The increased net interest
income was principally due to the reporting period for 1997 consisting of 42
fewer days of interest earned than the first quarter of 1998. On an annualized
basis, net interest income for the first quarter of 1998 increased modestly
(approximately 2%) primarily as a result of an improved net interest margin.
Average earning assets increased $15.7 million (less than 1%) from $1.68
billion in the first quarter of 1997 to $1.70 billion in the first quarter of
1998.
Net interest margin, which is determined by dividing taxable-equivalent net
interest income by average earning assets, was 4.29% for the first quarter of
1998, which was a 4 basis point increase over the year earlier period of
February 12, 1997 to March 31, 1997. The margin improvement resulted primarily
from the improved yield on loans due to higher loan fees and a change in
loan mix to more commercial and consumer loans and fewer real estate mortgages.
Also contributing to the improvement was an increase of $14.4 million in
average noninterest bearing deposits. The annualized, weighted average rate
paid on interest bearing liabilities remained unchanged.
The following table sets forth certain information relating to the Company'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% income tax rate for 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 YIELD/RATES
<TABLE>
<CAPTION>
CONSOLIDATED FOR THE THREE CONSOLIDATED FOR THE PERIOD OF
MONTHS ENDED MAR. 31. 1998 FEB. 12, 1997 TO MAR. 31. 1997
------------------------------- ----------------------------------
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 $421,823 $6,478 6.19 % $384,968 $3,244 6.43 %
Non-taxable (tax equivalent) 63,784 1,270 7.96 63,205 676 8.02
---------- ------- ---------- -------
Total investment securities 485,607 7,748 6.42 448,173 3,920 6.59
---------- ------- ---------- -------
Cash equivalents 6,535 90 5.51 34,048 244 5.49
---------- ------- ---------- -------
Loans (2):
Commercial and industrial 859,393 19,224 8.95 853,648 10,109 8.88
Real estate mortgages 193,402 3,608 7.46 201,338 1,938 7.22
Consumer and other 155,182 3,414 8.92 147,195 1,708 8.82
Fees on loans 301 199
---------- ------- ---------- -------
Net loans (tax equivalent) 1,207,977 26,547 8.90 1,202,181 13,954 8.81
---------- ------- ---------- -------
Total earning assets 1,700,119 34,385 8.18 1,684,402 18,118 8.15
---------- ------- ---------- -------
Allowance for loan losses (25,780) (24,909)
NONEARNING ASSETS:
Cash and due from banks 72,370 67,523
Accrued interest and other assets 107,677 80,188
---------- ----------
TOTAL ASSETS $1,854,386 $1,807,204
========== ==========
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Interest-bearing demand deposits $343,841 3,039 3.58 $319,660 1,463 3.48
Savings deposits 112,911 711 2.55 118,041 396 2.55
Time deposits 589,008 8,192 5.64 657,814 4,806 5.56
---------- ------- ---------- -------
Total deposits 1,045,760 11,942 4.63 1,095,515 6,665 4.63
---------- ------- ---------- -------
Short-term borrowings 197,304 2,497 5.13 179,398 1,221 5.18
Notes payable 123,638 1,865 6.12 84,293 757 6.83
---------- ------- ---------- -------
Total interest-bearing liabilities 1,366,702 16,304 4.84 1,359,206 8,643 4.84
---------- ------- ---------- -------
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits 309,236 294,880
Nonrecourse borrowings (4) 16,256 ---
Accrued interest and other liabilities 19,965 17,423
STOCKHOLDERS' EQUITY 142,227 135,625
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,854,386 $1,807,134
========== ==========
Net interest income (tax equivalent) $18,081 $9,475
======= =======
Net interest spread 3.34 % 3.31 %
Net interest margin 4.29 % 4.25 %
===== =====
</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.
(4) Interest expense on nonrecourse borrowings is netted against trust fees
on the income statement.
14
<PAGE> 15
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Provision for Loan Losses
The provision for loan losses in the first quarter of 1998 was $750,000 as
compared to $484,000 for the period of February 12, 1997 to March 31, 1997.
The provision for any reporting period reflects management's evaluation of the
adequacy of the allowance for loan losses in relation to nonperforming,
impaired and total loans as well as general economic conditions and past and
expected future loss experience. Credit quality is the determining factor in
establishing the allowance for loan losses and required provisions for loan
losses.
Noninterest Income
The following table shows noninterest income for the periods indicated:
NONINTEREST INCOME
<TABLE>
<CAPTION>
Predecessor Basis -
Successor Basis - Taylor Capital Cole Taylor
Group, Inc. - Consolidated Bank
-------------------------------------------------- --------------------
For the Three For the Period of For the Period of
Months Ended Feb. 12, 1997 to Jan. 1, 1997 to
Mar. 31, 1998 Mar. 31, 1997 Feb. 11, 1997
-------------------- -------------------- --------------------
(in thousands)
<S> <C> <C> <C>
Deposit service charges $2,090 $1,160 $1,022
Retail credit card service charges 130 64 60
Merchant credit card processing fees 104 40 40
Trust fees 945 493 359
Gain on sale of loans 801 247 169
Mortgage loan servicing income (10) 88 57
ATM fees 193 97 63
Gain on sale of mortgage servicing rights 1,447 --- ---
Other noninterest income 227 161 160
------ ------ ------
Total noninterest income $5,927 $2,350 $1,930
====== ====== ======
</TABLE>
Total noninterest income for the first quarter of 1998 was $5.9 million as
compared to $2.3 million for the period February 12, 1997 to March 31, 1997.
First quarter 1998 noninterest income exceeded that reported in the 1997 period
primarily because there were 42 fewer days in the 1997 consolidated reporting
period. First quarter 1998 noninterest income also included a gain on sale of
mortgage servicing rights of $1.4 million. As result of the sale of these
mortgage servicing rights, mortgage loan servicing income was reduced in the
first quarter of 1998 from the 1997 reported amounts. The gain on sale of
loans in 1998 increased as a result of a change in the mix of loans sold, an
improvement in the average loan sale price and a 21% increase in the volume of
loans sold (as adjusted for the difference in days). Mortgage loan servicing
income is presented net of an impairment provision of $53,000 on the
capitalized mortgage servicing rights. Included in other noninterest income in
the first quarter of 1998 is a gain of $13,000 on the sale of the CTRE, Inc.
subsidiary.
15
<PAGE> 16
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Noninterest Expense
The following table shows noninterest expense for the periods indicated:
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Predecessor Basis -
Successor Basis - Taylor Capital Cole Taylor
Group, Inc. - Consolidated Bank
--------------------------------------------- --------------------
For the Three For the Period of For the Period of
Months Ended Feb. 12, 1997 to Jan. 1, 1997 to
Mar. 31, 1998 Mar. 31, 1997 Feb. 11, 1997
-------------------- -------------------- --------------------
(dollars in thousands)
<S> <C> <C> <C>
Salaries and employee benefits $9,125 $4,572 $3,645
Occupancy of premises, net 1,714 883 656
Furniture and equipment 809 412 322
Computer processing 561 273 222
Legal fees 314 120 194
Advertising and public relations 158 107 157
Goodwill and other intangible amortization 611 314 20
Other real estate and repossessed asset
expense 98 6 31
Other noninterest expense 2,898 1,497 1,219
------- ------ ------
Total noninterest expense $16,288 $8,184 $6,466
======= ====== ======
Efficiency ratio (1) 69.51% 71.10% 61.60%
======= ====== ======
</TABLE>
- ------------------------
(1) Noninterest expense divided by an amount equal to net interest income plus
noninterest income.
Total noninterest expense for the first quarter of 1998 was $16.3 million as
compared to $8.2 million for the period February 12, 1997 to March 31, 1997.
The primary reason for the higher expense in 1998 was the 42 fewer days in the
1997 reporting period.
On a comparable days basis, total salaries and benefit expense increased 6% in
the first quarter of 1998. The primary reason for this increase was the
expense related to the long-term incentive and restricted stock award programs
which were introduced in September 1997. Full time equivalent employees
averaged 617 in the first quarter of 1998 as compared to 613 during the 1997
reporting period.
Occupancy expense, on a comparable days basis, increased 4% in the first
quarter of 1998. The rise in occupancy expense was due to the addition of two
new banking facilities. The Old Orchard (Skokie, IL) branch opened in October
1997 and the 111 West Washington branch in downtown Chicago opened in March
1998.
16
<PAGE> 17
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Legal expenses in the first quarter of 1998 were reduced by $308,000 of
reimbursements from the Company's insurance carrier for legal defense costs
related to two suits settled in 1997. The cost of legal services for the
various lawsuits relating to the Split-Off Transactions totaled approximately
$500,000 in the first quarter of 1998. The Company has insurance which provides
for reimbursement of eligible legal defense costs with respect to the Split-Off
Transactions litigation. Management intends to submit the costs of that
litigation to the insurance carrier for potential reimbursement. Management can
not predict what portion of the legal defense costs will meet the insurance
carrier's definition of eligibility and when reimbursement would occur.
Income Taxes
The income tax expense of $2.5 million for the first quarter of 1998 reflected
an effective tax rate of 39%. The income tax expense for the 1997 reporting
period of $0.8 million reflected an effective tax rate of 29%. The higher
effective tax rate in 1998 was primarily due to the lower state income tax
provision recorded in the 1997 period.
FINANCIAL CONDITION
Overview
The Company's total assets of $1.84 billion at March 31, 1998 represented a
decrease of approximately $16 million from the December 31, 1997 total of
$1.86 billion. The primary reason for the decline was the sale of the Bank's
CTRE, Inc. subsidiary on March 19, 1998. At December 31, 1997, CTRE, Inc.'s
assets totaled $18.7 million and were reflected in other assets. Those assets
were supported by nonrecourse borrowings of an equal amount.
Total earning assets remained relatively unchanged between December 31, 1997
and March 31, 1998. Loans held for sale increased as a result of increased
mortgage origination due to favorable market rates and increased refinancing
activity. In addition, at March 31, 1998, approximately $7.7 million of the
Bank's $9.6 million of credit card receivables were reflected in loans held
for sale as the Bank negotiated to sell these assets. Commercial and real
estate construction loans increased modestly while real estate mortgage loans
declined due to an increase in refinancing activity.
Total customer deposits declined between December 31, 1997 and March 31, 1998
primarily due to the recurring seasonal increase in demand deposits at each
year end. On an average basis, demand deposits for the first quarter of 1998
exceeded demand deposits for the period of February 12, 1997 to March 31, 1997.
Wholesale funding, obtained primarily through brokered certificates of deposit
and Federal Home Loan Bank (FHLB) advances, remained unchanged in total,
although FHLB advances were utilized to a greater extent due to more favorable
funding costs.
17
<PAGE> 18
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
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 the periods indicated:
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- -----------
(dollars in thousands)
<S> <C> <C>
Loans contractually past due 90 days or more but
still accruing $1,821 $2,009
Nonaccrual loans 12,997 11,624
-------- -------
Total nonperforming loans 14,818 13,633
Other real estate 2,055 1,391
Other repossessed assets 60 72
-------- -------
Total nonperforming assets $16,933 $15,096
======== =======
Nonperforming loans to total loans 1.22% 1.13%
Nonperforming assets to total loans plus repossessed
property 1.39% 1.25%
Nonperforming assets to total assets 0.92% 0.81%
</TABLE>
In addition to the loans presented above, management has identified through its
internal monitoring procedures a $4.9 million loan at March 31, 1998 and
December 31, 1997 which exhibits a higher than normal credit risk. This loan
is not in default but has characteristics that management feels might
jeopardize the future timely collection or interest payments.
18
<PAGE> 19
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:
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Predecessor
Successor Basis - Taylor Capital Basis - Cole
Group, Inc. - Consolidated Taylor Bank
For the Three For the Period of For the Period of
Months Ended Feb. 12, 1997 to Jan. 1, 1997 to
Mar. 31, 1998 Mar. 31, 1997 Feb. 11, 1997
-------------------- ----------------- -----------------
(dollars in thousands)
<S> <C> <C> <C>
Average total loans $1,207,977 $1,202,181 $1,220,897
========== ========== ==========
Total loans at end of period $1,214,294 $1,210,588 $1,226,072
========== ========== ==========
ALLOWANCE FOR LOAN LOSSES:
Allowance at beginning of period $ 25,813 $ 24,607 $ 24,184
Charge-offs (1,140) (755) (275)
Recoveries 219 193 243
---------- ---------- ----------
Net charge-offs (921) (562) (32)
---------- ---------- ----------
Provisions for loan losses 750 484 420
---------- ---------- ----------
Allowance at end of period $ 25,642 $ 24,529 $ 24,572
========== ========== ==========
Net charge-offs to average total loans (annualized) 0.31% 0.36% 0.02%
Allowance to total loans at end of period 2.11% 2.03% 2.00%
Allowance to nonperforming loans 173.05% 180.75% 172.13%
</TABLE>
19
<PAGE> 20
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
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 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
---------- --------- ----------- ----------- ---------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1998:
Total Capital (to Risk Weighted Assets)
Taylor Capital Group, Inc. - Consolidated $125,690 9.61 % >$104,605 >8.00 % NA
Cole Taylor Bank 151,014 11.58 > 104,370 >8.00 > $130,463 >10.00%
Tier I Capital (to Risk Weighted Assets)
Taylor Capital Group, Inc. - Consolidated 109,231 8.35 % > 52,303 >4.00 NA
Cole Taylor Bank 134,593 10.32 > 52,185 >4.00 > 78,278 >6.00
Leverage (1)
Taylor Capital Group, Inc. - Consolidated 109,231 6.06 % > 72,072 >4.00 NA
Cole Taylor Bank 134,593 7.47 > 72,073 >4.00 > 90,091 >5.00
As of December 31, 1997:
Total Capital (to Risk Weighted Assets)
Taylor Capital Group, Inc. - Consolidated $122,432 9.21 % $106,370 >8.00 % NA
Cole Taylor Bank 148,043 11.16 > 106,135 >8.00 > $132,669 >10.00%
Tier I Capital (to Risk Weighted Assets)
Taylor Capital Group, Inc. - Consolidated 105,698 7.95 53,185 NA
Cole Taylor Bank 131,348 9.90 > 53,068 >4.00 > 79,601 >6.00
Leverage (1)
Taylor Capital Group, Inc. - Consolidated 105,698 5.85 72,318 NA
Cole Taylor Bank 131,348 7.26 > 72,319 >4.00 > 90,399 >5.00
</TABLE>
- ---------------------------
(1) The leverage ratio is defined as Tier 1 capital divided by average
quarterly assets.
For the first quarter of 1998, the Parent Company declared $861,000 and
$419,000 in preferred and common stock dividends respectively.
20
<PAGE> 21
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity
The Company's liquidity position remained stable during the first quarter of
1998. The asset growth of loans and loans held-for-sale was funded by cash
resources and funds generated from operations. The Company believes that its
current sources of funds are adequate to meet all of the Company's financial
commitments and asset growth targets for 1998. The Parent Company's revolving
credit facility was renewed until June 1, 1998 as the Company continues to
negotiate the terms of the renewal. Management anticipates that the agreement
will be renewed for a one year term prior to its current maturity date.
YEAR 2000
The Company is continuing to evaluate the impact of the Year 2000 issue. A
comprehensive project plan has been prepared and is being diligently refined as
the assessment and implementation stages of the project progress. The plan
identifies both internal systems and those provided by third-party data
processors that require modification or replacement. Because the Company's
primary "mission-critical" systems are provided by third-party processors, the
assessment phase includes working closely with those vendors to ensure
effective compliant systems before the year 2000. The impact of ensuring all
Company systems are year 2000 compliant is expected to be significant in terms
of utilization of existing resources. However, the estimated incremental cost
associated with implementing Year 2000 compliance is not, at this time,
expected to be material. Regardless of the Year 2000 compliance of the
Company's systems, there can be no assurance that the Company will not be
adversely affected by the failure of others to become Year 2000 compliant.
Such risk may include potential losses related to major loan customers, vendors
or other counterparties.
LITIGATION
As disclosed in footnote 8 to the financial statements included in Part I, Item
1 to this Form 10-Q, the Company has been named as a defendant in a number of
lawsuits relating to either or both (1) the transaction which resulted in the
Company being split-off from CTFG (now Reliance Acceptance Group, Inc.,
hereinafter referred to as "Reliance") in February 1997, and (2) the financial
and public reporting of Reliance. The lawsuits name Reliance and/or current or
former officers, directors and stockholders of the Company and Reliance as
additional defendants. All of the lawsuits have been brought as purported
class actions on behalf of current and former stockholders of Reliance. These
cases seek relief in the form of unspecified damages, attorneys' fees and
rescission of the Split-Off Transactions.
All of these cases are in their early stages. The Company believes that it has
meritorious defenses to all of the actions against the Company, and the Company
intends to defend itself vigorously. In addition, the Company has agreed to
advance defense costs that are not otherwise advanced by insurance carriers on
behalf of members of the Taylor Family and directors and officers of the
Company who are defendants in these cases. Such costs will be expensed as
incurred. The Company is unable at this time to predict the potential impact
of the litigation on the financial condition of the Company.
21
<PAGE> 22
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information.", was issued in June 1997.
The statement provides guidance for the way public enterprises report
information about operating segments in annual financial statements and
requires selected information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for certain
related disclosures about products and services, geographic areas and major
customers. The segment and other information disclosure is required for annual
financial reports for fiscal years beginning after December 15, 1997.
Management is currently assessing what segment information may be appropriate
and informative to financial statement readers.
SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Form 10-Q,
including the statements in Part I, Item 3 "Quantitative and Qualitative
Disclosures About Market Risk", are 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. Such
forward-looking statements are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1996. When used in this Form 10-Q,
the words "anticipate," "believe," "estimate," "expect" and similar
expressions, as they relate to the Company or its management, are intended to
identify such forward-looking statements but are not the exclusive means of
identifying such statements. The Company cautions readers of this Quarterly
Report on Form 10-Q that a number of risks, uncertainties and other factors
could cause the Company's actual results, performance or achievements in 1998
and beyond to differ materially from the results, performance or achievements
expressed in, or implied by, such forward-looking statements. These risks,
uncertainties and other 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; changes in customer response to the
Bank's pricing strategies; the effects of the year 2000 on the Company's
computer systems and the computer systems of its loan customers; competition
from the Company's 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 or relating to the Split-Off Transactions,
including pending legal actions. Certain of these risks, uncertainties 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.
22
<PAGE> 23
TAYLOR CAPITAL GROUP, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary measurement of interest rate risk is earnings at risk,
which is determined through computerized simulation modeling. The simulation
model assumes a static balance sheet and net interest income is computed
assuming market rates unchanged and a parallel shift of market interest rates
both up and down 200 basis points. Changes in net interest income in the
rising and declining rate scenarios are then measured against the net interest
income in the rates unchanged scenario. The Company's simulation modeling
indicates that the Company's net interest income is potentially exposed to
declining market interest rates. During the first quarter of 1998, the
Company's potential exposure to declining interest rates increased modestly as
a result of additional purchases of collateralize mortgage obligations coupled
with increasing prepayment rates on all mortgage-backed securities and mortgage
loans.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's Annual Report on Form 10-K for the year ended December 31, 1997
(the "1997 Form 10-K") discusses certain potentially significant litigation
relating to the Split-Off Transactions and the financial and public reporting
of Reliance Acceptance Group, Inc. No material developments with respect to
this litigation have occurred since the filing of the 1997 Form 10-K. Readers
of this Form 10-Q are directed to read the Legal Proceedings section of the
1997 Form 10-K for more information with respect to this pending litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Exhibit 10.1 - Third Amendment to Loan Agreement
Between LaSalle National Bank and Taylor Capital Group, Inc.
(b) Exhibits - Exhibit 27 - Financial Data Schedule.
(c) Form 8-K - No reports on Form 8-K were filed during the period
covered by this report.
23
<PAGE> 24
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: May 13, 1998 /s/ J. Christopher Alstrin
-------------- ---------------------------------
J. Christopher Alstrin*
Chief Financial Officer
* Duly authorized to sign on behalf of the Registrant
24
<PAGE> 1
EXHIBIT 10.1
THIRD AMENDMENT TO
REVOLVING LOAN AGREEMENT
THIS THIRD AMENDMENT TO REVOLVING LOAN AND SECURITY AGREEMENT dated as of
May 1, 1998 (this "Amendment"), is between TAYLOR CAPITAL GROUP, INC., an
Delaware corporation (the "Borrower"), and LASALLE NATIONAL BANK, a national
banking association (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower and the Bank entered into a Loan Agreement dated as
of February 12, 1997, as amended by a First Amendment dated February 27, 1997
and a Second Amendment dated November 1, 1997 (as so amended, the "Agreement");
and
WHEREAS, the Borrower and the Bank have agreed to amend the Agreement as
more fully described herein,
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms used herein without definition
shall have the respective meanings set forth in the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
2.1 Amendment to Section 1.1. The definition of "Revolving Credit
Maturity Date" set forth in Section 1.1 of the Agreement is hereby amended by
deleting therefrom the date "May 1, 1998" and substituting therefor the date
"June 1, 1998".
2.2 Replacement of Exhibit 3.1. Exhibit 3.1 attached to and made a
part of the Agreement is hereby deleted in its entirety and Exhibit 3.1
attached hereto is hereby substituted therefor.
3. WARRANTIES. To induce the Bank to enter into this Amendment, the
Borrower warrants that:
3.1 Authorization. The Borrower is duly authorized to execute and
deliver this Amendment and is and will continue to be duly authorized to borrow
monies under the Agreement, as amended hereby, and to perform its obligations
under the Agreement, as amended hereby.
3.2 No Conflicts. The execution and delivery of this Amendment and the
performance by the Borrower of its obligations under the Agreement, as amended
hereby, do not and will not conflict with any provision of law or the charter
or by-laws of the Borrower or of any agreement binding upon the Borrower.
<PAGE> 2
3.3 Validity and Binding Effect. The Agreement, as amended hereby, is
a legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency or other similar laws of general application
affecting the enforcement of creditors' rights or by general principles of
equity limiting the availability of equitable remedies.
3.4 No Default. As of the date hereof, no Event of Default under
Section 8 of the Agreement, as amended by this Amendment, or event or condition
which, with the giving of notice or the passage of time, shall constitute an
Event of Default, has occurred or is continuing.
3.5 Warranties. As of the date hereof, the representations and
warranties in Section 7 of the Agreement are true and correct as though made
on such date, except for such changes as are specifically permitted under the
Agreement.
4. GENERAL.
4.1 Law. This Amendment shall be construed in accordance with and
governed by the laws of the State of Illinois.
4.2 Successors. This Amendment shall be binding upon the Borrower and
the Bank and their respective successors and assigns, and shall inure to the
benefit of the Borrower and the Bank and their respective successors and
assigns.
4.3 Confirmation of the Agreement. Except as amended hereby, the
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects.
5. EFFECTIVENESS. This Amendment shall become effective upon receipt by
the Bank of the following documents, duly executed by the parties thereto:
(a) This Amendment;
(b) Substitute Revolving Note in the form of Exhibit 3.1 attached
hereto duly executed by the Borrower; and
(c) such other documents as the Bank reasonably may request.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
LASALLE NATIONAL BANK TAYLOR CAPITAL GROUP, INC.
By: /s/ Jay C. Goldner By: /s/ J.C. Alstrin
------------------- -----------------
Its: Vice President Its: Chief Financial Officer
--------------- ------------------------
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TAYLOR
CAPITAL GROUP, INC. FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 74,554
<INT-BEARING-DEPOSITS> 68
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 397,692
<INVESTMENTS-CARRYING> 85,495
<INVESTMENTS-MARKET> 86,850
<LOANS> 1,214,294
<ALLOWANCE> 25,642
<TOTAL-ASSETS> 1,840,477
<DEPOSITS> 1,368,786
<SHORT-TERM> 179,877
<LIABILITIES-OTHER> 20,140
<LONG-TERM> 128,400
0
38,250
<COMMON> 47
<OTHER-SE> 104,977
<TOTAL-LIABILITIES-AND-EQUITY> 1,840,477
<INTEREST-LOAN> 26,455
<INTEREST-INVEST> 7,263
<INTEREST-OTHER> 90
<INTEREST-TOTAL> 33,808
<INTEREST-DEPOSIT> 11,942
<INTEREST-EXPENSE> 16,304
<INTEREST-INCOME-NET> 17,504
<LOAN-LOSSES> 750
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 16,288
<INCOME-PRETAX> 6,393
<INCOME-PRE-EXTRAORDINARY> 3,881
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,881
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.31
<LOANS-NON> 12,997
<LOANS-PAST> 1,821
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 25,813
<CHARGE-OFFS> 1,140
<RECOVERIES> 219
<ALLOWANCE-CLOSE> 25,642
<ALLOWANCE-DOMESTIC> 25,642
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
