TAYLOR CAPITAL GROUP INC, 10-K405, 1999-03-29

TAYLOR CAPITAL GROUP INC
10-K405, 1999-03-29
STATE COMMERCIAL BANKS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1998

Commission file no. 333-14713
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TAYLOR CAPITAL GROUP, INC.
Exact Name of registrant as specified in its charter

<TABLE>
<S> <C>
DELAWARE 36-4108550
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
</TABLE>

350 EAST DUNDEE ROAD, SUITE 300
WHEELING, ILLINOIS 60090-3199
Address of principal executive offices and Zip Code

(847) 808-6873
Registrant's telephone number, including area code

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

None of the voting or nonvoting common stock of the registrant is held by
non-affiliates of the registrant.

On March 17, 1999, there were 4,658,533 shares of the registrant's common
stock issued and outstanding.

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TAYLOR CAPITAL GROUP, INC.

INDEX

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PAGE NO.
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PART I.
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 16
Item 3. Legal Proceedings........................................... 16
Item 4. Submission of Matters to a Vote of Security Holders......... 18
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 18
Item 6. Selected Financial Data..................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 20
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 55
Item 8. Financial Statements and Supplementary Data................. 56
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 98
PART III.
Item 10. Directors and Executive Officers of the Registrant.......... 98
Item 11. Executive Compensation...................................... 100
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 102
Item 13. Certain Relationships and Related Transactions.............. 103
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 105
</TABLE>

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TAYLOR CAPITAL GROUP, INC.

PART I

ITEM 1. BUSINESS

Taylor Capital Group, Inc. (the "Company" or the "Parent Company") is a
bank holding company, incorporated in Delaware on October 9, 1996, that wholly
owns Cole Taylor Bank (the "Bank"). The Company was formed by certain members of
the Bank's management and related investors to consummate the acquisition of the
Bank. The Company acquired the Bank on February 12, 1997 in Split-Off
Transactions (as defined below), which were accounted for by the purchase method
of accounting. Prior to February 12, 1997, the Bank was a wholly-owned
subsidiary 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 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 and a dividend from the
Bank to CTFG consisting of cash and loans totaling approximately $84 million.

The Company also wholly owns CT Mortgage Company, Inc. (the "Mortgage
Company") which it acquired from CTFG, on February 12, 1997, for a cash payment
of $1.1 million.

THE BANK

The Bank commenced operations over 60 years ago as Main State Bank. In
1978, Drovers National Bank was purchased. The Bank of Yorktown was acquired in
1982 and Wheeling Trust & Savings Bank, Ford City Bank & Trust Co. and Skokie
Trust & Savings Bank were acquired in 1984. At the end of 1988, the banks (other
than The Bank of Yorktown) were merged into Cole Taylor Bank. The Bank of
Yorktown was merged into Cole Taylor Bank in 1992.

The Bank provides a full range of commercial and consumer banking services
to small and mid-size businesses and to individuals through its twelve branch
offices in Chicago neighborhoods and suburban Cook County, Illinois and DuPage
County, Illinois. The Bank's historical market niche has been providing
commercial loans to small and mid-size companies located in the Chicago
metropolitan area.

The Bank offers various loan products such as commercial and industrial
loans, residential construction and mortgage loans and consumer loans, as well
as a full range of deposit services, including checking, savings and money
market accounts and certificates of deposit. The Bank's trust department
provides a wide array of trust services for corporations and individuals.

The Bank's primary market is the Chicago metropolitan area. Six of the
Bank's branch offices are located in Chicago and the remainder are located in
suburban Cook and DuPage counties. A substantial majority of the Bank's loans
are made to customers located in the Chicago metropolitan area. Generally, each
branch draws most of its deposits from, and makes most of its consumer and small
business loans to, customers located within a three mile radius of the branch;
however, the Bank's branches provide commercial banking services and make
industrial loans to companies located throughout the Chicago metropolitan area.

The Bank's staff focuses on establishing and maintaining long-term
relationships with customers. The Bank encourages its officers to actively
participate in community organizations and, within credit and rate of return
parameters, the Bank attempts to meet the credit needs of its communities and
invest in local municipal securities. The Bank has focused its marketing efforts
on its "Relationship Builders" advertising campaign and promoting programs such
as the Bank's "Sweat Equity" program, in which commercial lenders, branch
managers and trust officers from the Bank spend a day working at a customer's
business.

LOANS

General

In allocating its assets among locally generated loans, investment assets
and other earning assets, the Bank attempts to maximize return while managing
risk at an acceptable level. The Bank has identified and

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TAYLOR CAPITAL GROUP, INC.

PART I

implemented strategies to reach these goals, emphasizing quality local loan
growth. The following is a brief description of lending activities engaged in by
the Bank. For further information regarding these activities, see Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition -- Loan Portfolio."

Commercial and Industrial Loans

Commercial and industrial loans represent the largest portion
(approximately 58% at December 31, 1998) of the Bank's loan portfolio. The Bank
makes both collateralized and unsecured loans. Collateral for loans generally
includes accounts receivable, inventory, equipment and real estate. Included in
this category are commercial real estate loans, which are generally
collateralized by owner-occupied properties used for business purposes.

Real Estate -- Construction Loans

The real estate-construction loan portfolio consists primarily of loans to
professional home builders and developers. These loans, which at December 31,
1998 represented approximately 18% of the loan portfolio, have increased as a
percentage of total loans outstanding in recent years, primarily because of an
increase in home building in the Chicago metropolitan area. Generally, these
loans are structured with three components: a non-revolving lot loan which is
used to fund costs other than construction, such as marketing, architectural
costs and financing fees; a construction revolver primarily relating to pre-sold
homes; and a letter of credit which the Bank issues to guarantee the performance
of a customer to a third party. These loans generally mature and are completely
repaid within three years and bear interest at an annual rate based on the prime
rate.

Residential Real Estate -- Mortgage Loans

The residential real estate-mortgage loan portfolio primarily consists of
first mortgage loans for single-family properties and represented approximately
12% of the Bank's loan portfolio at December 31, 1998. The Bank acquires
mortgage loans from its commercial banking and mortgage banking loan origination
activities.

Home Equity Lines of Credit

The Bank offers home equity lines of credit through both its retail network
and its wholesale mortgage broker network. These lines can be drawn at the
discretion of the borrower. Approximately 65% of the home equity lines, after
giving effects to the outstanding loan balance of any existing mortgage loan, do
not exceed 80% of the appraised value of the underlying real estate collateral.
The remaining 35% of the home equity lines exceed 80% of the appraised value up
to a maximum of 100% of the underlying real estate collateral. Both retail and
wholesale loans are underwritten by the Bank. At December 31, 1998, home equity
lines of credit comprised approximately 8% of the loan portfolio.

Consumer Loans

The Bank's consumer loan portfolio consists of both collateralized and
unsecured loans to individuals for various personal reasons, including
automobile purchases, credit cards and home improvement loans. At December 31,
1998, consumer loans comprised approximately 4% of the loan portfolio.

LOAN APPROVAL PROCEDURES AND AUTHORITY

The Bank's Loan Policy is established by the Board of Directors based upon
the recommendations of the Bank's Chief Credit Officer and the Credit Policy
Committee. The Loan Policy of the Bank is reviewed and reaffirmed by the Board
of Directors on an annual basis. The Bank's lending guidelines for its various
product lines are approved by the Credit Policy Committee and reviewed annually
by that Committee as well as the Directors' Loan Committee. These guidelines and
policies set forth the underwriting criteria for the various types of loans
originated by the Bank based upon the risks attendant to each type of loan, the
borrowers of
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TAYLOR CAPITAL GROUP, INC.

PART I

such loans and the types of collateral. The Credit Policy Committee also
determines the adequacy of the Bank's allowance for loan losses.

The Board of Directors has granted designated individuals $1.0 million loan
authority. Credit exposures in excess of $1.0 million, but less than $3.0
million require concurrence approval of both the Lending Division Manager and
the Credit Policy Division. The Bank's Loan Committee, in addition to the
Lending Division Manager and the Credit Policy Division, must approve all loans
and commitments when the aggregate credit exposure is $3.0 million or more. All
loans or commitments in excess of $500,000 when the aggregate credit exposure is
$5.0 million or more are presented for review on a monthly basis to the Credit
Policy Committee and the Directors' Loan Committee (which includes members of
the Bank's Board of Directors). Subject to these requirements, each loan officer
has authority to approve loans that comply with the Bank's commercial lending
guidelines and loan policies of up to a specified amount which is determined
based upon such person's experience and position with the Bank. Any exception to
the Bank's commercial lending guidelines and loan policies, if any, must be
approved by a higher authority, such as the Loan Committee or Credit Policy
Committee.

INVESTMENT PORTFOLIO

The Company's investment portfolio is used primarily to provide a source of
earnings and secondarily for liquidity management purposes. In addition, the
investment portfolio may be used to effect asset and liability management
objectives. The portfolio is comprised of U.S. Treasury securities, U.S.
government agency instruments, mortgage-backed securities, collateralized
mortgage obligations and investment grade obligations of state and political
subdivisions. Virtually all of the securities in the Bank's portfolio at
December 31, 1998 were rated investment grade by a nationally recognized rating
organization. The Bank uses various interest rate contracts (floors and swaps)
to manage interest rate and market risk. At December 31, 1998 the Bank is a
party to an interest rate floor contract with a notional amount of $50 million.
See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition -- Investment Securities
and -- Market Risk."

DEPOSITS

Each of the Bank branches offers the customary range of depository products
provided by commercial banks, including checking, savings and money market
accounts, and certificates of deposit. Deposits at each Bank are insured by the
Federal Deposit Insurance Corporation up to statutory limits. The Bank also
gathers deposits through brokerage relationships and a nationwide electronic
certificate of deposit rate posting service provided by a third party vendor.
Retail investment securities activities on behalf of the Bank's customers are
completed through a third party agreement with a registered broker/dealer. See
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Financial Condition -- Deposits."

TRUST DEPARTMENT

The Bank's Trust department provides a wide array of trust services for
corporations and individuals. The Bank's trust business mix consists of
approximately 19% employee benefits, 33% exchange/land trusts, 25% personal
trusts, and 23% corporate trusts. The Trust department provides trust products
and services to the Bank's commercial, municipal and consumer customer base.

MORTGAGE BANKING OPERATIONS

The Bank originates residential mortgage and home equity loans from
approved mortgage brokers and other financial intermediaries as well as employee
loan originators who are compensated on a full commission basis. The majority of
the first mortgage loans originated are conforming loans that are generally sold
into the secondary market. The home equity loans are retained for the Bank's
portfolio. Currently, approximately 60%

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TAYLOR CAPITAL GROUP, INC.

PART I

of originations are through the employee loan originators and 40% are through
mortgage brokers. All loans are underwritten by a central underwriting function
independent from the origination areas.

From the time a formal commitment is extended to the borrower until the
sale of the resulting mortgage loan to the secondary mortgage market investor,
the Bank is exposed to changes in interest rates which impact the market values
of these loans. The primary method used to manage this risk is forward sale of
the mortgages. Mortgage loans held for sale are valued at the lower of cost or
fair value. Fair value is the commitment price for loans sold forward and market
prices for loans with no sale commitments.

The Bank's mortgage banking operations have been identified as a segment
for financial reporting purposes although the revenue, profit and assets of the
operations comprise less than 10% of the total for the Company. See footnote 26
to the financial statements for segment reporting financial information.

COMPETITION

The banking business is highly competitive. The Bank encounters competition
primarily in seeking deposits and in obtaining loan customers. The Bank's
principal competitors include other commercial banks, savings and loan
associations, mutual funds, money market funds, finance companies, credit
unions, mortgage companies, the United States Government, private issuers of
debt obligations and suppliers of other investment alternatives, such as
securities firms. In recent years, several major multi-bank holding companies
have entered the Chicago metropolitan market. Generally, these financial
institutions are significantly larger than the Bank and have access to greater
capital and other resources. As a result of these and other factors, future
growth opportunities for the Bank may be limited. In addition, many of the
Bank's non-bank competitors are not subject to the same extensive federal
regulations that govern bank holding companies and federally insured banks and
state regulations governing state chartered banks. As a result, these non-bank
competitors may have advantages over the Bank in providing certain services.

THE MORTGAGE COMPANY

The Mortgage Company was in the business of originating loans in the
subprime mortgage market and reselling those loans to independent mortgage
investors. The Mortgage Company began operations in the first quarter of 1996
and sold the majority of its operations on August 5, 1997. The Mortgage
Company's operations were in the southeastern United States with its principal
office in Altamonte Springs, Florida. Under the terms of the sale, the purchaser
acquired substantially all of the Mortgage Company's outstanding loans held for
sale, the pipeline of loan commitments outstanding and the furniture and
equipment. In addition, the purchaser agreed to assume the lease obligations for
the facilities and hired all the Mortgage Company employees. The Mortgage
Company has not originated any loans since the sale of its Florida operations.
The Mortgage Company currently has no employees. Its assets at December 31, 1998
consist of $251,000 of loans, net of an allowance for loan losses, which are
serviced by the Bank.

CTRE, INC.

On March 19, 1998, the Company sold CTRE, Inc. CTRE, Inc. was a subsidiary
of the Bank within which the Company conducted reverse exchange transactions
executed in connection with its real estate trust services business. CTRE, Inc.
acted as a "parking intermediary", temporarily acquiring certain assets until
their sale to the ultimate owner. The acquisitions were funded entirely with
nonrecourse borrowings. During the holding period the customers leased the
assets at rentals approximating the debt service payments on the borrowings. The
assets were not used in the operations of the Company. All assets and borrowings
of the subsidiary were sold with the subsidiary on March 19, 1998.

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TAYLOR CAPITAL GROUP, INC.

PART I

EMPLOYEES

At December 31, 1998, the Bank and the Parent Company had a total of
approximately 652 full-time equivalent employees. None of the employees of the
Company or the Bank are subject to a collective bargaining agreement. The
Company and the Bank consider their relationships with employees to be good.

SUPERVISION AND REGULATION

GENERAL

Financial institutions and their holding companies are extensively
regulated under federal and state laws. As a result, the business, financial
condition and prospects of the Company and its subsidiaries, including the Bank,
can be materially affected not only by management decisions and general economic
conditions, but also by applicable statutes and regulations and the legislative
and governmental actions of Congress and the various federal and state
regulatory agencies with jurisdiction over the Company and the Bank, such as the
Federal Reserve Board ("FRB"), Federal Deposit Insurance Corporation ("FDIC")
and the Illinois Office of Banks and Real Estate ("IOBRE"). The effect of
applicable statutes, regulations and policies can be significant, cannot be
predicted with a high degree of certainty and can change over time. Furthermore,
such statutes, regulations and other pronouncements and policies are intended to
protect the Bank's depositors and the FDIC's deposit insurance fund, not to
protect stockholders. Bank holding companies and banks are subject to
enforcement actions by their regulators for statutory and regulatory violations
and safety and soundness considerations. In addition to compliance with
statutory and regulatory limitations and requirements concerning financial,
managerial and operating matters, regulated financial institutions such as the
Company and the Bank must file periodic and other reports and information with
their regulators and are subject to examination by each of their regulators.

The statutory requirements applicable to, and regulatory supervision of,
bank holding companies and banks have increased significantly and have undergone
substantial change in recent years. These changes are embodied in, among others,
the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), the Riegle Community Development and Regulatory Improvement Act of
1994 (the "Community Development Act"), the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "IBBEA"), the Economic Growth and
Paperwork Reduction Act of 1996 ("EGPWRA") and the regulations promulgated
thereunder.

Additional legislation may be introduced from time to time that could, if
enacted, have significant impact on the operations of the Company and its
subsidiaries.

On September 30, 1996 President Clinton signed into law the Deposit
Insurance Funds Act of 1996 ("DIFA") to require all federally-insured depository
institutions to contribute towards the cost of interest due on bonds issued
between 1987 and 1989 to resolve failed savings and loan associations. To cover
the annual Financial Corporation ("FICO") assessment for the period from January
1, 1997 until December 31, 1999, banks, including the Bank, pay annually on
their Bank Insurance Fund ("BIF") deposit base 1.29 basis points, according to
revised Banking Committee estimates. Starting in the year 2000 until the FICO
bonds are retired, banks and thrifts will pay the FICO assessment on a pro rata
basis (estimated to run 2.43 basis points on each institution's insured deposit
base). Legislation is being considered to extend the differential between the
FICO rates paid by BIF members and the FICO rates paid by SAIF members. There is
no certainty such legislation will be enacted into law. Recently enacted
legislation allows well-capitalized bank holding companies to engage in certain
activities without the advance approval of the FRB. Well-capitalized bank
holding companies are required merely to notify the FRB within 10 business days
of engaging in such activity. Congress is considering legislation to broaden the
powers of bank holding companies and permit other financial service companies to
own banks. Legislation also has been considered in the Congress to restructure
the federal bank regulatory system. Although the Secretary of Treasury of the
United States and the

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TAYLOR CAPITAL GROUP, INC.

PART I

Chairman of the FRB have previously expressed support for restructuring the
federal bank regulatory system, there can be no certainty as to the effect, if
any, that such legislation would have on the regulation of the Company or the
Bank.

The following discussion and other references to and descriptions of the
regulation of financial institutions and their parent holding companies
contained herein are not intended to constitute and do not purport to be a
complete statement of all legal restrictions and requirements applicable to the
Company and the Bank, and all such descriptions are qualified in their entirety
by reference to applicable statutes, regulations and policies.

REGULATION OF BANK HOLDING COMPANIES AND THEIR NON-BANK SUBSIDIARIES

The Company is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended ("BHCA"). As such, the Company is subject to
regulation, supervision and examination by the FRB. The Company is also subject
to the limitations and requirements of the Illinois Bank Holding Company Act
("IBHCA"). These limitations and requirements, however, are no more restrictive
in most instances than those imposed by the BHCA and the FRB. The business and
affairs of the Company are regulated in a variety of ways, including limitations
on acquiring control of other banks and bank holding companies, limitations on
activities and investments, regulations relating to capital requirements and
limitations on payment of dividends. In addition, it is the FRB's policy that a
bank holding company is expected to act as a source of financial strength to
banks that it owns or controls and, as a result, the FRB could require the
Company to commit resources to support the Bank in circumstances in which the
Company might not do so absent the FRB's policy.

In 1996, Federal Reserve examiners began assigning a formal supervisory
rating relating to the adequacy of a bank holding company's and its member
bank's risk management processes, including their internal controls. The
emphasis on sound risk management processes and strong internal controls
reflects the Federal Reserve's view that proper risk management is critical to
the conduct of safe and sound banking activities in light of new technologies,
activities in product innovation and other changes to the banking industry.

Acquisition of Banks and Bank Holding Companies

The BHCA generally prohibits a bank holding company from (1) acquiring,
directly or indirectly, more than 5% of the outstanding shares of any class of
voting securities of a bank or bank holding company, (2) acquiring control of a
bank or another bank holding company, (3) acquiring all or substantially all of
the assets of a bank, or (4) merging or consolidating with another bank holding
company, without first obtaining FRB approval. In considering an application
with respect to any such transaction, the FRB is required to consider a variety
of factors, including the potential anti-competitive effects of the transaction,
the financial condition, managerial resources and future prospects of the
combining and resulting institutions, the convenience and needs of the
communities the combined organization would serve, the record of performance of
each combining organization under the Community Reinvestment Act ("CRA") and the
prospective availability to the FRB of information appropriate to determine
ongoing regulatory compliance with applicable banking laws. In addition, both
the federal Change In Bank Control Act and the Illinois Banking Act ("IBA")
impose limitations on the ability of one or more individuals or other entities
to acquire control of the Company or the Bank.

Affiliate Transactions

The Federal Reserve Act and IBA impose certain limitations on extensions of
credit and other transactions by and between banks and their parent holding
companies or affiliates of their parent holding companies. Under the Bank
Holding Company Act Amendments of 1970 and the FRB's regulations, a bank holding
company and its bank and nonbanking subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property and the furnishing of any services.

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TAYLOR CAPITAL GROUP, INC.

PART I

Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.

Interstate Banking and Branching

Beginning June 1, 1997, the IBBEA authorized a bank to merge with a bank in
another state as long as neither of the states has opted out of interstate
branching between the date of enactment of the IBBEA and May 31, 1997. If a
state opted out of interstate branching within the specified time period, no
bank in any other state may establish a branch in the opting out state, whether
through an acquisition or de novo. Under Illinois law, after May 31, 1997, an
Illinois chartered bank, such as the Bank, may establish and maintain branches
in another state that may conduct any activity in the state that is authorized
or permitted for any bank that has a banking charter issued by that state,
subject to the same limitations and restrictions that are applicable to banks
charted by the state. In addition, an out-of-state bank which is the resulting
bank in a merger with an Illinois chartered bank may, after the merger,
establish or maintain a branch or branches in Illinois at the locations where
the in-state bank had its main office and branches in Illinois to the same
extent as an in-state bank.

The restrictions described above represent limitations on expansion by the
Company and the Bank, the acquisition of control of the Company by another
company and the disposition by the Company of all or a portion of the stock of
the Bank or by the Bank of all or a substantial portion of its assets.

Permitted Non-Banking Activities

The BHCA generally prohibits a bank holding company from engaging in
activities or acquiring or controlling, directly or indirectly, more than 5% of
the voting securities or assets of any company engaged in any activity other
than banking, managing or controlling banks and bank subsidiaries or another
activity that the FRB has determined, by regulation or otherwise, to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Those activities that the FRB has determined by regulation to
be closely related to banking include real estate mortgage lending, the
principal activity of the Mortgage Company. Subject to certain exceptions, a
bank holding company must obtain the prior approval of the FRB to engage in or
acquire control of a company engaging in a permissible nonbanking activity.

In evaluating such applications, the FRB will consider, among other
relevant factors, whether permitting the bank holding company to engage in the
activity in question can reasonably be expected to produce benefits to the
public (such as increased convenience, competition or efficiency) that outweigh
any possible adverse effects (such as undue concentration of resources,
decreased or unfair competition, conflicts of interest or safety and soundness
concerns).

The Economic Growth and Regulatory Paperwork Reduction Act of 1996
("EGRPRA") streamlined the nonbanking activities application process for well
capitalized and well managed bank holding companies. Under EGRPRA, qualified
bank holding companies may commence a regulatory approved nonbanking activity
without prior notice to the FRB; written notice is merely required within 10
days after commencing the activity. Also, under EGRPRA, the prior notice period
is reduced to 12 days in the event of any nonbanking acquisition or share
purchase, assuming the size of the acquisition does not exceed 10% of risk-
weighted assets of the acquiring bank holding company and the consideration does
not exceed 15% in Tier 1 capital. This prior notice requirement also applies to
commencing a nonbanking activity de novo which has been previously approved by
order of the FRB, but not yet implemented by regulations.

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TAYLOR CAPITAL GROUP, INC.

PART I

Capital Requirements

The FRB has adopted minimum risk-based capital standards for bank holding
companies. The FRB requires bank holding companies to maintain certain minimum
ratios of risk-weighted capital to total risk-adjusted assets. Risk-adjusted
assets include a "credit equivalent amount" of off-balance sheet items,
determined in accordance with conversion factors set forth in the FRB's
regulations. The conversion factors used to calculate the credit equivalent
amounts recognize certain derivative contracts and transactions subject to
qualifying bilateral netting arrangements. Each asset and off-balance sheet
item, after certain adjustments, is assigned to one of four risk-weighing
categories, 0%, 20%, 50% or 100%, and the risk-adjusted values then are added
together to determine the total amount of risk-weighted assets.

A bank holding company must meet two risk-based capital standards, a "core"
or "Tier 1" capital requirement and a total capital requirement. The current
regulations require that a bank holding company maintain Tier 1 capital equal to
4% of risk-adjusted assets and total capital equal to 8% of risk-adjusted
assets, at least one-half of which must be Tier 1 capital. Tier 1 capital
consists of common stockholders' equity; qualifying noncumulative perpetual
preferred stock; qualifying cumulative perpetual preferred stock (up to 25% of
total Tier 1 capital); and minority interests in the equity accounts of
consolidated subsidiaries. Core capital excludes goodwill and certain other
intangible assets. It is intended that the Company's Preferred Stock will be
considered Tier 1 capital for the purposes of those regulations.

Total capital represents the sum of Tier 1 capital plus "Tier 2" capital,
less certain deductions. Tier 2 or "supplementary" capital consists, subject to
certain limitations, of allowances for loan and lease losses (up to 1.25% of
total weighted risk assets); perpetual preferred stock (to the extent not
included in Tier 1 capital); hybrid capital instruments; perpetual debt;
mandatory convertible debt securities; term subordinated debt; and intermediate
term preferred stock. In determining total capital, a bank holding company must
deduct its investments in unconsolidated banking and finance subsidiaries and,
as determined by the FRB on a case by case basis, other designated subsidiaries
or associated companies; reciprocal holdings of certain securities of banking
organizations; and other deductions required by regulation or determined by the
FRB on a case-by-case basis. The FRB has adopted certain adjustments to
risk-based capital ratio calculations for banks with significant exposure to
market risk (defined as the risk of loss resulting from movements in market
prices).

The FRB also has established a minimum leveraged ratio requirement for bank
holding companies. The minimum leverage ratio, which is defined as Tier 1
capital divided by average quarterly assets (net of allowance for losses and
goodwill), is 3% for banking organizations that do not anticipate significant
growth and that have well-diversified risk (including no undue interest rate
risk), excellent asset quality, high liquidity and good earnings. The 3% ratio
also applies to institutions that comply with the market risk capital rule.
Banking organizations, however, generally are expected to operate well above
these minimum risk-based ratios and are expected to have ratios of at least 100
to 200 basis points above the stated minimum, depending upon their particular
condition and growth plans. Higher capital ratios could be required if warranted
by the particular circumstances or risk profile of a given banking organization.
The FRB has not advised the Company of any specific minimum Tier 1 leverage
ratio applicable to it.

As of December 31, 1998, the Company's consolidated regulatory ratios were:
total risk-based capital ratio of 9.02%; a Tier 1 risk-based capital ratio of
7.76% ; and a leverage ratio of 6.17%.

The failure of a bank holding company to meet its risk-based capital
standards may result in supervisory action, as well as an inability to obtain
approval of any regulatory applications and, potentially, increased frequency of
examination. The nature and intensity of the supervisory action will depend upon
the level of noncompliance. Under the IBHCA, no bank holding company may acquire
control of a bank if, at the time it applies for approval or at the time the
transaction is consummated, its ratio of total capital to total assets as
determined in accordance with then applicable FRB regulations, is or will be
less than 7%.

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TAYLOR CAPITAL GROUP, INC.

PART I

The federal bank regulators have previously indicated a desire to raise
minimum capital requirements for banking organizations and have suggested that
revisions to the risk-based capital requirements should be made. The effect of
any future changes in the required capital ratios of the Company or the Bank
cannot be determined at this time.

Risk-based capital ratios which focus principally on broad categories of
credit risk are only one indicator of the overall financial health of a bank
organization. They do not incorporate other factors that can affect the
Company's financial condition, such as overall interest rate risk exposure,
liquidity, funding and market risks, the quality and level of earnings,
investment or loan portfolio concentrations, the quality of loans and
investments, the effectiveness of loan and investment policies and management's
ability to monitor and control financial and operating risks.

In the event that the subsidiary institution fails to meet minimum capital
requirements and is required to submit a capital restoration plan, such plan
would be acceptable only if the parent holding company guarantees compliance
with the plan up to the lesser of 5% of the institution's total assets or the
amount necessary to bring the institution into compliance with capital standards
applicable at the time that the institution fails to comply.

Dividends

The FRB has indicated that banking organizations should generally pay cash
dividends out of current operating earnings and the current rate of earnings
retention should be consistent with the organization's capital needs, asset
quality and overall financial condition. A banking organization experiencing
earnings weaknesses should not pay cash dividends which exceed its net income or
which could only be funded in ways that would weaken its financial health or
undermine its ability to serve as a source of strength to its subsidiary bank,
such as by borrowing. The FRB may, and in certain circumstances must, prohibit a
bank holding company from making any capital distributions without prior FRB
approval if the subsidiary institution is undercapitalized. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity." The FRB also may impose limitations on the payment of
dividends as a condition to its approval of certain applications, including
applications for approval of mergers or acquisitions.

REGULATION OF BANKS

The Bank is a banking corporation organized under the IBA. As such, it is
subject to regulation, supervision and examination by the IOBRE. The Bank is a
member of the Federal Reserve System and, therefore, subject to regulation,
supervision and examination by the FRB. The Bank is a member of the FDIC's Bank
Insurance Fund (the "BIF") and the deposit accounts of the Bank are insured up
to applicable limits by the FDIC. Thus, the Bank is also subject to regulation,
supervision and examination by the FDIC. In certain instances, the statutes
administered and regulations promulgated by certain of these agencies are more
stringent than those of other agencies with jurisdiction. In these instances,
the Bank must comply with the more stringent restrictions, prohibitions or
requirements.

The business and affairs of the Bank are regulated in a variety of ways.
Regulations apply to, among other things, insurance of deposit accounts, the
Bank's capital ratios, payment of dividends, liquidity requirements, the nature
and amount of the investments that the Bank may make, transactions with
affiliates, community and consumer lending, internal policies and controls,
reporting by and examination of the Bank and changes in control of the Bank. The
federal bank regulators have recently adopted an interest rate risk component to
the risk capital requirements to assess the exposure of banks to declines in the
economic value of the bank's capital due to changes in interest rates.

Deposit Insurance

As a BIF-insured institution, the Bank is required to pay deposit premiums
to the FDIC which are deposited into the BIF. The FDIC has implemented a
risk-based deposit insurance assessment system under
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TAYLOR CAPITAL GROUP, INC.

PART I

which each insured depository institution is assigned to one of nine categories
based upon its level of capital and an evaluation of other supervisory factors
and assessed insurance premiums accordingly. These premiums rates for the
semiannual period beginning January 1, 1999 range from 0.0% of deposits included
in an institution's "assessment base" for the highest rated institutions to
0.27% of such deposits for the lowest rated institutions. Risk classification of
an insured institution is made by the FDIC for each semiannual assessment
period. Rates may be increased in the future if the designated reserve ratio for
BIF falls below 1.25%, or are otherwise modified by the FDIC or the Congress.
The FDIC is also considering additional changes in the assessment rate matrix to
reflect a greater range of risks facing insured depository institutions.

The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound banking practices, is in a condition
that is unsafe or unsound for the continuation of operations or otherwise has
violated any applicable law, regulation or order, or any condition imposed in
writing by or in a written agreement with the FDIC. The FDIC also may suspend
deposit insurance temporarily during the pendency of a proceeding to terminate
insurance if the institution has no tangible capital.

Depositor Preference

Federal law establishes a nationwide depositor preference rule in the event
of a bank failure. Under these laws, all deposits and certain other claims
against a bank, including claims made by the FDIC as subrogee of insured
depositors, would receive payment in full before any general creditor of the
bank would be entitled to any payment in the event of an insolvency or
liquidation of the bank.

Capital Requirements

FRB regulations establish the same three minimum capital standards for
insured state member banks as they do for bank holding companies. Under the FRB
regulations, the Bank's capital ratios are computed in a manner substantially
similar to the manner in which bank holding company capital ratios are
determined. See "Regulation of Bank Holding Companies and Their Non-Bank
Subsidiaries -- Capital Requirements." The FRB capital requirements are minimum
requirements and higher levels of capital will be required if warranted by the
particular circumstances or risk profile of an individual bank.

FDICIA provides the federal banking regulators with broad power to take
"prompt corrective action" to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers under this provision depends
on whether the institution in question is "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Under regulations adopted by the federal banking
regulators, a bank is considered "well capitalized" if it (i) has a total
risk-based capital ratio of 10% or greater, (ii) has a Tier 1 risk-based capital
ratio of 6% or greater, (iii) has a leverage ratio of 5% or greater and (iv) is
not subject to any order or written directive to meet and maintain a specific
capital level. An "adequately capitalized" bank is defined as one that (i) has a
total risk-based capital ratio of 8% or greater, (ii) has a Tier 1 risk-based
capital ratio of 4% or greater, (iii) has a leverage ratio of 4% or greater (or
3% or greater in the case of a bank with the highest composite regulatory
examination rating that is not experiencing or anticipating significant growth)
and (iv) does not meet the definition of a well capitalized bank. A bank would
be considered (A) "undercapitalized" if it has (i) a total risk-based capital
ratio of less than 8%, (ii) a Tier 1 risk-based capital ratio of less than 4% or
(iii) a leverage ratio of less than 4% (or 3% in the case of a bank with the
highest composite regulatory examination rating that is not experiencing or
anticipating significant growth); (B) "significantly undercapitalized" if the
bank has (i) a total risk-based capital ratio of less than 6%, (ii) a Tier 1
risk-based capital ratio of less than 3% or (iii) a leverage ratio of less than
3%; and (C) "critically undercapitalized" if the bank has a ratio of tangible
equity to total assets of equal to or less than 2%. The appropriate federal
banking regulator may downgrade a bank to the next lower category if the
regulator determines (i) after notice and opportunity for hearing or response,
that the bank is in an unsafe or

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TAYLOR CAPITAL GROUP, INC.

PART I

unsound condition or (ii) that the bank has received (and not corrected) a
less-than-satisfactory rating for any of the categories of asset quality,
management, earnings or liquidity in its most recent exam.

As of December 31, 1998, the Bank qualified as "well capitalized," with a
total risk-based capital ratio of 10.67%; a Tier 1 risk-based capital ratio of
9.42% and a leverage ratio of 7.33%.

Depending upon the capital category to which an institution is assigned,
the regulators' supervisory and corrective powers, many of which are mandatory
in certain circumstances, include a prohibition on capital distributions by the
institution if, after making the distribution, it would be undercapitalized;
prohibition on payment of management fees to controlling persons; requiring the
submission of a capital restoration plan; placing limits on asset growth;
limiting acquisitions, branching or new lines of business; requiring the
institution to issue additional capital stock (including additional voting
stock) or to be acquired; restricting transactions with affiliates; restricting
the interest rates that the institution may pay on deposits; ordering a new
election of directors of the institution; requiring that senior executive
officers or directors be dismissed; prohibiting the institution from accepting
deposits from correspondent banks; requiring the institution to divest certain
subsidiaries; requiring the holding company to divest the institution or other
nonbanking subsidiaries; prohibiting the holding company from making any
distributions without FRB approval; prohibiting the payment of principal or
interest on subordinated debt; and, ultimately, appointing a receiver for the
institution. See "-- Regulation of Bank Holding Companies and Their Non-Bank
Subsidiaries -- Dividends."

Dividends

Under the IBA, the Bank is permitted to declare and pay dividends in
amounts up to the amount of its accumulated net profits, provided that it shall
retain in its surplus at least one-tenth of its net profits since the date of
the declaration of its most recent previous dividend until said additions to
surplus, in the aggregate, equal at least the paid-in capital of the Bank. In no
event may the Bank, while it continues its banking business, pay dividends in
excess of its net profits then on hand (after deductions for losses and bad
debts). The Bank is also subject to various regulatory policies and requirements
relating to the payment of dividends. See "Regulation of Banks -- Capital
Requirements."

The FRB permits a state member bank such as the Bank to pay dividends,
while it continues its banking operations, in an amount not greater than its net
profits then on hand, after deducting therefrom its losses and bad debts. No
state member bank may pay as a dividend any portion of its paid-in capital and
no state member bank may pay dividends if its accumulated losses equal or exceed
its undivided profits then on hand. The FRB cash dividend policy statement
described above (See "Regulation of Bank Holding Companies and Their Non-Bank
Subsidiaries -- Dividends") also applies to the payment of dividends by state
member banks.

Insider and Affiliate Transactions

The Bank is subject to certain restrictions imposed by the Federal Reserve
Act and the IBA on any extensions of credit to, purchase of assets from, and
other transactions with the Company and its nonbanking subsidiaries, on
investments in the stock or other securities of the Company and its subsidiaries
and the acceptance of the stock or other securities of the Company or its
subsidiaries as collateral for loans made by the Bank.

Such restrictions prevent the Company and its affiliates from borrowing
from the Bank unless the loans are secured by marketable obligations of
specified amounts. Further, such secured loans, investments and other
transactions between the Bank and the Company or its affiliates are limited to
10% of the Bank's capital and surplus (as defined by federal regulations) and
such secured loans, investments and other transactions are limited, in the
aggregate, to 20% of the Bank's capital and surplus (as defined by federal
regulations). The sales of some assets, for example the sales of mortgages by
the Mortgage Company to the Bank, are exempt from these percentage limitations
with affiliates, however, the transaction must comply with regulations

13
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TAYLOR CAPITAL GROUP, INC.

PART I

prohibiting terms that would be preferential to the Company or the Mortgage
Company and the Bank which would implicate these provisions.

Certain limitations and reporting requirements also are placed on
extensions of credit by the Bank to principal stockholders of the Company and to
directors and certain executive officers of the Company, its non-bank
subsidiaries and the Bank and to "related interests" of such principal
stockholders, directors and officers. In addition, any director or officer of
the Company or the Bank or principal stockholder of the Company may be limited
in his or her ability to obtain credit from banks with which the Bank maintains
a correspondent relationship.

Community Reinvestment Act

In connection with its lending activities, the Bank is subject to a variety
of federal and state laws designed to protect borrowers and promote lending to
various sectors of the economy and population. Included among these are the Home
Mortgage Disclosure Act ("HMDA"), Real Estate Settlement Procedures Act
("RESPA"), Truth-In-Lending Act ("TILA"), the Equal Credit Opportunity Act
("ECOA"), Fair Credit Reporting Act ("FCRA"), the CRA and similar Illinois laws
applicable to, among other things, usury, credit discrimination and business
practices.

The CRA requires a bank to define the communities that it serves, identify
the credit needs of such communities and adopt and implement a "Community
Reinvestment Act Statement" pursuant to which it offers credit products and
takes other actions that respond to the credit needs of the communities. Under
FIRREA, the FRB is required to conduct annual CRA examinations of insured
financial institutions and to assign to them a CRA rating of "outstanding,"
"satisfactory," "needs improvement" or "unsatisfactory" based on their record of
meeting community needs.

The federal banking regulatory agencies will take into account the CRA
ratings of combining organizations and their level of compliance with the Equal
Credit Opportunity Act in connection with acquisitions involving a change in
control of a financial institution and, if any of the combining institutions has
a CRA rating of "needs improvement" or "unsatisfactory," the agency may deny the
application or require corrective action as a condition of its approval. The
Bank's previous CRA rating was "outstanding". The Bank is currently under review
to assess its performance in meeting community needs.

The operations of the Mortgage Company are subject to HMDA, RESPA, TILA,
ECOA, the regulations promulgated thereunder and similar state laws applicable
to among other things, usury, credit discounts and business practices.
Provisions of those statutes and related regulations prohibit discrimination and
require disclosure of certain basic information to mortgagors such as credit and
settlement costs. Each of the subsidiaries of the Mortgage Company has or will
obtain all necessary licenses in all states in which it conducts or expects to
conduct its mortgage operations.

Annual Audit, Reporting and Managerial Control Requirements

Under FDICIA, the FDIC was required to promulgate regulations requiring
FDIC-insured financial institutions over a certain size to have an annual
independent audit of their financial statements in accordance with generally
accepted auditing standards, to have an independent audit committee of outside
directors, and to file with the FDIC and their respective primary federal
regulators annual reports, attested to by their independent auditors, as to
their internal control over financial reporting. The FDIC's regulations apply
these requirements to insured depository institutions with total assets of $500
million or more. The requirements are satisfied by audit procedures adhered to
by a parent entity such as the Company which is consolidated with the Bank for
financial reporting purposes. Legislation has been considered and may be
considered in the future that could result in substantial changes to the audit
requirements. There is no certainty as to what, if any, effect such legislation
may have on the Company or the Bank.

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TAYLOR CAPITAL GROUP, INC.

PART I

Brokered Deposits

The FDIC's rule regarding the ability of depository institutions to accept
brokered deposits, i.e. deposits obtained through a deposit broker provides that
(i) an "undercapitalized" institution is prohibited from accepting, renewing or
rolling over brokered deposits, (ii) an "adequately capitalized" institution
must obtain a waiver from the FDIC before accepting, renewing or rolling over
brokered deposits and is subject to limitations on the rate of interest payable
on brokered deposits, and (iii) a "well capitalized" institution may accept or
renew brokered deposits without restriction. At December 31, 1998, the Bank had
brokered deposits of $56.3 million and was considered "well capitalized".

Other FDICIA Rules

The banking agencies have also adopted or proposed rules to implement
provisions of FDICIA, the Community Development Act, the IBBEA and EGPWRA
including: (i) real estate lending standards for banks, which provide guidelines
concerning loan-to-value ratios for various types of real estate loans; (ii)
revisions to the risk-based capital rules to account for interest rate risk,
concentration of credit risk, transferring of assets without recourse and the
risks posed by "non-traditional activities"; (iii) rules requiring depository
institutions to develop and implement internal procedures to evaluate and
control credit and settlement exposure to their correspondent banks; (iv) rules
prohibiting, with certain exceptions, state member banks from making equity
investments of types and amounts not permissible for national banks; and (v)
rules addressing various "safety and soundness" issues, including operations and
managerial standards, standards for asset quality, earnings and stock
valuations, and compensation standards for the officers, directors, employees
and principal shareholders of the depository institution.

Change In Control

As an Illinois bank, the Bank is subject to the rules regarding change in
control of Illinois banks contained in the IBA. The Company is also subject to
these rules by virtue of its control of the Bank. Generally, the IBA provides
that no person or entity or group of affiliated persons or entities may, without
the Commissioner's consent, directly or indirectly, acquire control of an
Illinois bank. Such control is presumed if any person, directly or indirectly,
owns or controls 20% or more of the outstanding stock of an Illinois bank or
such lesser amount as would enable the holder or holders, by applying cumulative
voting, to elect one director of the bank.

In evaluating applications for acquisition of control of an Illinois bank
or bank holding company, in addition to the IOBRE's consideration of other
factors deemed relevant, the IOBRE must find that the character of the proposed
management of the bank, after the change in control will assure reasonable
promise of successful, safe and sound operation; that the future earnings
prospects of the bank after the promised change in control are favorable, and
that any prior involvement that the proposed controlling persons or the proposed
management of the institution after the change in control have had with any
other financial institution has been conducted in a safe and sound manner. See
"Regulation of Bank Holding Companies and Their Non-Bank
Subsidiaries -- Acquisition of Banks and Bank Holding Companies."

Year 2000

Financial institution regulators have increased their focus on Year 2000
century date change compliance issues, issuing guidance concerning the
responsibilities of senior management and directors. The Federal Financial
Institutions Examination Council ("FFIEC") has issued several interagency
statements on Year 2000 Project Management Awareness. These statements require
financial institutions to, among other things, examine the Year 2000
implications of reliance on vendors, data exchange and potential impact on
customers, suppliers and borrowers. These statements also require each federally
regulated financial institution to survey its exposure, measure its risk and
prepare a plan in order to solve the Year 2000 issue. In addition, the federal
banking regulators have issued safety and soundness guidelines to be followed by
insured depository

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TAYLOR CAPITAL GROUP, INC.

PART I

institutions, such as the Bank, to assure resolution of any Year 2000 problems.
The federal banking agencies have said that Year 2000 testing and certification
is a key safety and soundness issue, and, thus, an institution's failure to
address appropriately the Year 2000 issue could result in supervisory action,
including such enforcement actions as the reduction of the institution's
supervisory ratings, the denial of applications for approval of a merger or
acquisition, the imposition of civil money penalties, or the termination of
deposit insurance.

ITEM 2. PROPERTIES

The principal offices of both the Company and the Bank are located in the
Bank's main office building at 350 East Dundee Road, Wheeling, Illinois. The
Bank's main office is leased by the Bank under a renegotiated lease which
commenced on January 1, 1995 and expires on March 31, 2010, with options to
extend until March 31, 2025.

The Company owns seven of the buildings from which Bank branches are
operated, Ashland, Skokie, Burbank, Yorktown, Broadview, Old Orchard and
Western. The company leases the land under the buildings at Yorktown, Old
Orchard and Western. The Company leases the buildings for its Cicero, Woodlawn,
Jackson and West Washington branches, which in accordance with the current lease
terms expire in or may be extended to January 2002, May 2013, February 2001 and
December 2007, respectively.

ITEM 3. LEGAL PROCEEDINGS

Jeffrey W. Taylor, Chairman of the Board and Chief Executive Officer of the
Company, Bruce W. Taylor, President of the Company, Iris A. Taylor, Sidney J.
Taylor, Cindy Taylor Bleil, related trusts and a related partnership
(collectively, the "Taylor Family") have been named as defendants in the
lawsuits described below relating to (1) the Split-Off Transactions and (2) the
financial and public reporting of Reliance Acceptance Group, Inc. ("Reliance").
Certain of the lawsuits also named other current or former officers and
directors of the Company and Reliance, other stockholders of the Company,
Reliance's public accountants at the time of the Split-Off Transactions (who
continue to serve as the Company's public accountants), the investment banks
that were involved in the Split-Off Transactions, Reliance and the Company as
additional defendants. The filing dates of these lawsuits range from October
1997 to September 1998.

The Split-Off Transactions were a series of transactions completed on
February 12, 1997 in accordance with the Share Exchange Agreement, dated June
12, 1996 (the "Share Exchange Agreement") between Reliance and the Taylor
Family, which owned approximately 25% of the outstanding common stock of
Reliance prior to the Split-Off Transactions. Pursuant to the Split-Off
Transactions, the Taylor Family and certain other stockholders of Reliance
exchanged all of their common stock of Reliance for all of the outstanding
common stock of the Company. On February 9, 1998, Reliance filed a voluntary
petition under Chapter 11 of the Bankruptcy Code.

In September 1998, five class actions, brought on behalf of current and
former stockholders of Reliance and pending in Delaware Chancery Court, were
consolidated into one class action. The consolidated class action alleges that
the Taylor Family, certain directors and officers of the Company, and certain
other defendants breached their fiduciary duties in connection with disclosures
made to the stockholders prior to the vote which approved the Split-Off
Transactions. The case seeks relief in the form of unspecified damages,
attorneys' fees and recision of the Split-Off Transactions. On September 9, 1998
the Delaware Chancery Court stayed this consolidated class action indefinitely
pending resolution of the consolidated class action in Texas that is described
below.

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TAYLOR CAPITAL GROUP, INC.

PART I

Northern District of Illinois. These cases allege that the Taylor Family,
certain directors and officers of the Company, and certain other defendants
violated the federal securities laws and breached common law fiduciary duties.
In addition, the cases allege that the Company and certain other defendants
violated ERISA and breached certain fiduciary duties, including fiduciary 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 and
attorneys' fees. Cole Taylor Bank is named as an additional defendant in the
Illinois action. A motion is pending to transfer the Texas case to Illinois, and
a motion is pending to transfer the Illinois case to Texas.

On August 19, 1998, Irwin Cole and other members of his family, who
collectively owned approximately 25% of the outstanding common stock of Reliance
prior to the Split-Off Transactions, brought suit in Delaware Chancery Court
against members of the Taylor Family, the Company, other current and/or former
officers and directors of Reliance and the Company, and other stockholders of
the Company. The suit alleges that the Taylor Family, certain directors and
officers of the Company, and certain other defendants breached their fiduciary
duties, committed fraud and/or engaged in self-dealing in connection with the
operation of Reliance and the Split-Off Transactions. The lawsuit seeks
unspecified damages, attorneys' fees and requests that the Court place all of
the shares of the Company held by the Taylor Family in a constructive trust.

On October 5, 1998, the United States Bankruptcy Court of the District of
Delaware (the "Bankruptcy Court") entered an order preliminarily enjoining the
plaintiffs in most of the above lawsuits from prosecuting their cases on account
of the pending adversary proceedings by the Reliance Estate Representative that
are described below. The Company expects that the Bankruptcy Court's order will
be amended in the near future to preliminarily enjoin the remaining plaintiffs
from prosecuting their cases.

On July 6, 1998, the Bankruptcy Court entered a confirmation order that
discharged the liability of Reliance and its subsidiaries in connection with all
of the lawsuits described above and permanently enjoined the filing of similar
new suits against them. The Bankruptcy Court also appointed an Estate
Representative (the "Estate Representative") for the Post-Confirmation Chapter
11 Estate of Reliance and its subsidiaries. On September 4, 1998, the Estate
Representative filed two adversary proceeding complaints which named as
defendants members of the Taylor Family, certain other directors and officers of
the Company, one of Reliance's former legal counsel and Reliance's former public
accountants (both of whom continue to serve the Company), the Company and Cole
Taylor Bank, as trustee. The complaints allege fraudulent conveyance and
breaches of fiduciary duties and contract with respect to the Taylor Family, the
Company and Cole Taylor Bank, as trustee. The complaints charge certain of the
other defendants with alleged breaches of fiduciary duty, breaches of contract,
malpractice and negligent misrepresentation and aiding and abetting the Taylor
Family's and the Company's alleged breaches. These complaints seek unspecified
damages and attorneys' fees and avoidance of the Split-Off Transactions by the
transfer to the Estate Representative of either the assets exchanged in the
Split-Off Transactions or the value of such assets. One of the complaints
demands monetary damages pursuant to the Taylor Family's obligation under the
Share Exchange Agreement to indemnify Reliance for certain losses resulting from
the Split-Off Transactions, and asks the court to disallow any claims for
indemnification that any of the defendants have against Reliance or, in the
alternative, to equitably subordinate such claims to all other creditor claims
against Reliance. Motions to consolidate the two adversary proceedings and to
have the adversary cases heard by the District Court, as opposed to the
Bankruptcy Court, are pending.

On December 7, 1998, the Estate Representative filed a motion for a
preliminary injunction which seeks to enjoin the Company and Cole Taylor Bank
from paying directly or indirectly any dividends to any of their respective
shareholders and from paying any of the litigation defense costs of the Taylor
Family or any other co-defendants with respect to any litigation arising out of
the Split-Off Transactions. On March 3, 1999, the Company filed a memorandum in
opposition that opposes such preliminary injunction.

PART I

Obligations under the Share Exchange Agreement. The Company is unable at this
time to predict the extent to which it will be required to pay any amounts under
its indemnification obligation to the Taylor Family. The Company and its
subsidiaries have paid and may continue to pay defense and other legal costs of
the lawsuits described above that are not otherwise advanced by insurance
carriers on behalf of the Taylor Family and other directors, officers and
stockholders of the Company who are defendants in these lawsuits.

The Company believes that it has meritorious defenses to all of the actions
against the Company, and the Company intends to defend itself and its
subsidiaries vigorously. However, the Company is unable to predict, at this
time, the potential impact of the litigation, the indemnification obligations
and the payment of legal fees described above on the management, business,
financial condition, liquidity and operating results of the Company. Even if the
Taylor Family, the Company and the other defendants are successful in defending
themselves in the lawsuits, the Company has and will incur significant costs
with respect to such lawsuits.

The Company is from time to time a party to various other legal actions
arising in the normal course of 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 business, financial condition, liquidity or
operating results of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 1998.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

There is no established public market for the Company's common stock.

As of March 17, 1999, the approximate number of stockholders of record of
the common stock was 76, based upon securities position listings furnished to
the Company by its transfer agent and registrar.

The Company has paid regular cash dividends on the common stock since it
commenced operations in the first quarter of 1997. The following table sets
forth, for each quarter in 1998 and 1997, the dividends declared on the common
stock:

<TABLE>
<CAPTION>
1998 1997
DIVIDENDS PER DIVIDENDS PER
COMMON SHARE COMMON SHARE
------------- -------------
<S> <C> <C>
First Quarter................................ $0.09 $0.09
Second Quarter............................... 0.09 0.09
Third Quarter................................ 0.09 0.09
Fourth Quarter............................... 0.09 0.09
</TABLE>

The holders of the common stock are entitled to receive such dividends as
are declared by the Board of Directors of the Company, which considers payment
of dividends quarterly. The common stock dividends are subject to the rights of
holders of preferred stock. It is the intention of the Company to continue to
pay cash dividends on the common stock. There is no assurance that dividends
will be paid by the Company or that dividends will not be reduced or eliminated
in the future. In determining the timing and amount of dividends the Board of
Directors considers the earnings, capital requirements and debt of the Company,
the Bank and Mortgage Company as well as general economic conditions and other
relevant factors. The Bank's ability to pay dividends is subject to regulatory
restrictions. See Item 1. Business -- "Supervision and Regulation."

On December 7, 1998, a motion was filed for a preliminary injunction which
seeks to prevent the Company and the Bank from paying any dividends to any of
their respective shareholders. In March 1999, the Company filed a memorandum in
opposition that opposes such preliminary injunction. See Item 3. -- "Legal
Proceedings."

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TAYLOR CAPITAL GROUP, INC.

PART II

ITEM 6. SELECTED FINANCIAL DATA

The selected data presented below under the caption "Income Statement Data"
and "Balance Sheet Data" for the year ended December 31, 1998 and for the period
of February 12, 1997 to December 31, 1997 and as of December 31, 1998 and 1997
are derived from the audited financial statements of the Company. The selected
data for the years ended, and as of, December 31, 1996, 1995 and 1994 are
derived from the historical audited financial statements of the Bank on a
stand-alone basis. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Basis of Presentation". This
data should be read in conjunction with the financial statements, the notes
thereto and other financial information included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
SUCCESSOR BASIS--
TAYLOR CAPITAL GROUP, INC.--
CONSOLIDATED
------------------------------
FOR THE FOR THE PERIOD OF PREDECESSOR BASIS--COLE TAYLOR BANK
YEAR ENDED FEB. 12, 1997 ------------------------------------
DEC. 31, TO DEC. 31, FOR THE YEARS ENDED DECEMBER 31,
---------- ----------------- ------------------------------------
1998 1997 1996 1995 1994
---------- ----------------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (1)
Gross interest income...................... $ 136,145 $ 122,614 $ 138,897 $ 133,684 $ 116,267
Gross interest expense..................... 65,409 60,458 66,377 64,366 44,118
---------- ---------- ---------- ---------- ----------
Net interest income...................... 70,736 62,156 72,520 69,318 72,149
Provision for loan losses.................. 5,135 4,061 3,307 4,056 7,374
Noninterest income......................... 20,621 17,873 15,824 14,227 12,887
Noninterest expense........................ 70,428 59,534 55,373 53,549 55,248
Income taxes............................... 6,353 6,321 9,971 7,774 6,512
---------- ---------- ---------- ---------- ----------
Net income............................... $ 9,441 $ 10,113 $ 19,693 $ 18,166 $ 15,902
========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................... $1,910,330 $1,855,711 $1,812,505 $1,774,032 $1,719,653
Investments and federal funds sold......... 441,192 482,671 409,464 443,348 488,019
Loans, gross............................... 1,335,981 1,204,437 1,224,994 1,211,622 1,130,177
Allowance for loan losses.................. 24,599 25,813 24,184 23,869 22,833
Total deposits............................. 1,439,737 1,377,957 1,406,900 1,364,075 1,293,411
Short-term borrowings...................... 171,718 186,053 162,182 202,033 243,997
Nonrecourse borrowings..................... -- 18,757 -- -- --
Notes payable.............................. 131,500 112,000 85,000 61,003 47,864
Stockholders' equity....................... 145,133 141,070 141,635 132,741 118,997
EARNINGS PERFORMANCE DATA: (2)
Return on average total assets............. 0.51% 0.61% 1.08% 1.05% 0.98%
Return on average stockholders' equity..... 6.57 8.64 14.73 14.29 14.50
Net interest margin (tax-equivalent)....... 4.22 4.23 4.35 4.38 4.88
Ratio of earnings to fixed charges:
Including interest on deposits........... 1.22x 1.25x 1.44x 1.40x 1.50x
Excluding interest on deposits........... 1.65 1.78 3.12 2.42 2.84
BALANCE SHEET AND OTHER KEY RATIOS:
Nonperforming assets to total assets....... 0.90% 0.81% 0.82% 1.08% 1.03%
Nonperforming assets to total loans plus
repossessed property..................... 1.29 1.25 1.21 1.57 1.56
Net loan charge-offs to average total loans
(2)...................................... 0.50 0.27 0.24 0.26 0.41
Allowance for loan losses to total loans... 1.84 2.14 1.97 1.97 2.02
Allowance for loan losses to nonperforming
loans.................................... 175.92 189.34 176.29 174.76 157.61
Average stockholders' equity to average
total assets............................. 7.69 7.10 7.36 7.34 6.75
</TABLE>

- ---------------
(1) Neither the Company's nor the Bank's common stock is or was publicly traded
, therefore, the per share disclosure for earnings and dividends is not
presented.

(2) Earnings performance data and net loan charge-offs to average total loans
are annualized for 1997.

19
<PAGE> 20

TAYLOR CAPITAL GROUP, INC.

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following presents management's discussion and analysis of the
consolidated financial condition and results of operations of Taylor Capital
Group, Inc. as of December 31, 1998 and 1997 and for the year ended December 31,
1998 and for the period of February 12, 1997 to December 31, 1997 and of Cole
Taylor Bank on a stand-alone basis for the period of January 1, 1997 to February
11, 1997 and as of and for the year ended December 31, 1996. This discussion
should be read in conjunction with the "Selected Financial Data," the Company's
Financial Statements and the Notes thereto and other financial data appearing
elsewhere in this Form 10-K.

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 (the
"Bank"), CT Mortgage Company, Inc. (the "Mortgage Company") and CTRE, Inc. The
Company is a bank holding company which was formed to consummate the acquisition
of the Bank and Mortgage Company on February 12, 1997 in the Split-Off
Transactions (as defined below) which were accounted for by the purchase method
of accounting.

Management's discussion and analysis compares the results of operations and
financial condition of the Company with the results of operations and financial
condition of the Bank on a stand alone predecessor basis for prior periods. As a
result of the Split-Off Transactions, the consolidated financial information of
the Company for the year ended December 31, 1998 and for the period February 12,
1997 through December 31, 1997 is presented on a different cost basis than that
for the Bank for the periods prior to the Split-Off Transactions and, therefore,
is not comparable. While financial information related to the Bank for the
period January 1, 1997 through February 11, 1997 is included in this management
discussion and analysis, the performance for the period is not analyzed because
the period is not sufficient in length to discuss its performance in a
meaningful manner.

The Split-Off Transactions were a series of transactions pursuant to which
Cole Taylor Financial Group, Inc. ("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.

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-K, including the statements under "-- Financial Condition -- 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 1995.
When used in this report, the words "anticipates," "believes," "estimates,"
"expects," "contemplates" 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 Annual Report on Form 10-K that a number of risks, uncertainties
and other factors could cause the Company's actual results, performance or
achievements in 1999 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,

20
<PAGE> 21
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

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,
potential liabilities, or restrictions 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 elsewhere in this Form
10-K. The Company does not undertake any obligation to update or revise any
forward looking statements to reflect new events or circumstances or for any
other reason.

OVERVIEW

The Company's 1998 financial results reflected a decline in profitability
in comparison to the financial results for the period of February 12, 1997 to
December 31, 1997. Major factors contributing to this decline include the
increase in the provision for loan losses to $5.1 million in 1998 from $4.1
million in 1997 and the increase in noninterest expenses to $70.4 in 1998 from
$59.5 million in 1997. These factors were partially offset by the 1998 reporting
period having 42 more days than the 1997 reporting period.

The 1997 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 at the time of the Split-Off which resulted
in the recording of $38.3 million of goodwill, and the related goodwill
amortization expense, (2) the inclusion of approximately $27 million in
acquisition debt and the related interest expense and (3) the addition of salary
and operating expenses of the Parent and Mortgage Companies. 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 year's
operations.

For the year ended December 31, 1998 and for the period of February 12,
1997 to December 31, 1997, the consolidated Company's net income was $9.4
million and $10.1 million, respectively. Return on average assets decreased to
0.51% during 1998 as compared to annualized return on average assets of 0.61%
for the period February 12, 1997 to December 31, 1997. Return on average equity
declined to 6.57% during 1998 versus annualized return on average equity of
8.64% for the period February 12, 1997 to December 31, 1997. Total assets of the
Company were $1.91 billion and $1.86 billion at December 31, 1998 and 1997,
respectively. Loans grew to $1.34 billion in 1998 from $1.20 billion in 1997.
Total deposits were $1.44 billion and $1.38 billion at December 31, 1998 and
1997, respectively and stockholders' equity increased to $145.1 million at
December 31, 1998 as compared to $141.1 million at December 31, 1997.

The Bank's 1996 net income totaled $19.7 million. Return on average assets
and return on average equity totaled 1.08% and 14.73%, respectively. Total
assets of the Bank were $1.81 billion as of December 31, 1996. Loans and
deposits totaled $1.22 billion and $1.41 billion, respectively, at December 31,
1996. Stockholder's equity was $141.6 million at December 31, 1996.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income, the difference between total interest income earned on
earning assets and total

21
<PAGE> 22
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

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
liabilities.

Consolidated net interest income (with an adjustment for tax-exempt income)
was $73.1 million in 1998, an increase of 13.8% from $64.2 million in 1997. The
higher net interest income during 1998 was primarily due to the reporting period
consisting of 42 more days than the 1997 reporting period. Net interest income
(with an adjustment for tax-exempt income) for 1996 for the Bank on the
predecessor basis was $74.9 million. The lower net interest income reported in
1997 on the successor basis was principally due to the consolidated reporting
period for 1997 consisting of 42 fewer days of interest earned than the Bank's
1996 predecessor basis period, as well as the addition of the obligations under
the Parent Company's term loan and revolving credit facility.

Net interest margin, which is determined by dividing taxable-equivalent net
interest income by average interest-earning assets, decreased to 4.22% in 1998
from 4.23% (on an annualized basis) in 1997 for the consolidated Company. The
decline in net interest margin was primarily a result of reduced yields on
sequential- paying collateralized mortgage obligations, as described below, and
commercial loans, partially offset by a decline in the cost of interest-bearing
liabilities.

The yield on earning assets declined to 7.99% from 8.21% for the year ended
December 31, 1998, as compared to the period of February 12, 1997 to December
31, 1997. In late 1997 and early 1998, the Bank purchased approximately $92
million of sequential-paying collateralized mortgage obligations at a premium of
$7.5 million. The decline in mortgage interest rates and higher refinancing
activity experienced during 1998 required that the Bank amortize the purchase
premium at a rate faster than originally expected. Accordingly, during 1998,
impairment charges of $667,000 were recognized. In addition, adjustments of
approximately $1,433,000 were recorded to reduce the yields of the securities to
an expected yield given actual payments received to date and the future expected
prepayment rate for these securities. At December 31, 1998, after the impairment
charges, adjustments and paydowns, these securities totaled $56 million, with
$3.0 million of premium remaining and an expected yield of 0.9%. These
securities are backed by pools of single-family mortgage loans and guaranteed,
as to principal and interest, by certain agencies including the Federal National
Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation
(FHLMC). The Bank utilizes actual prepayment rates and broker estimates of
expected future prepayments, as well as current and forward interest rates, in
estimating future prepayment rates. If actual or future estimated prepayment
rates exceed those currently estimated, further impairment charges and yield
adjustments would occur. The decreased yield on commercial loans reflected the
75 basis point reduction in the Company's prime rate during the fourth quarter
of 1998 as well as increased competitive pressure on loan pricing. The yield on
real estate mortgages decreased as mortgage prepayments increased and new
mortgage production rates were lower due to the lower interest rate environment.

The cost of interest-bearing liabilities declined to 4.70% in 1998 from
4.88% for the period of February 12, 1997 to December 31, 1997 primarily as a
result of a lowering of the rate paid on interest-bearing deposits and the
repositioning of a portion of the Federal Home Loan Bank ("FHLB") short-term
borrowings to FHLB long-term callable notes.

Average earning assets for the year ended December 31, 1998 increased $15.5
million, or 0.9% when compared to the 1997 reporting period.

The net interest margin on a consolidated successor basis, for the period
February 12, 1997 to December 31, 1997, of 4.23% was lower than the 4.35% margin
of the predecessor Bank on a stand-alone basis because of the addition of the
Parent Company's term loan and revolving credit facility, the effect of purchase

22
<PAGE> 23
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

accounting on the yield on investment securities, decreased loan fees and the
recording of approximately $38.3 million of goodwill, which resulted in the
Company's consolidated nonearning assets increasing as a percentage of total
assets. The change in loan mix that resulted from the disposition of the
indirect automobile loan portfolio in connection with the Split-Off Transactions
increased the total loan portfolio yield. However, the total earning asset yield
was unchanged as the lower yielding investment securities portfolio constituted
a greater proportion of the Company's earning assets than in prior years. While
funding costs at the Bank remained relatively unchanged in 1997, the addition of
the higher cost Parent and Mortgage Company debt resulted in higher consolidated
costs than that reported by the predecessor Bank in 1996.

The following table sets forth certain information relating to the
consolidated Company's and the predecessor Bank's average 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.

ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT INTEREST AND YIELD/RATES

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED PREDECESSOR BASIS --
--------------------------------------------------------------- COLE TAYLOR BANK
FOR THE PERIOD OF ------------------------------
FOR THE YEAR ENDED FEB. 12, 1997 FOR THE YEAR ENDED
DECEMBER 31, 1998 TO DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------------ ------------------------------ ------------------------------
YIELD/ YIELD/ YIELD/
AVERAGE RATE AVERAGE RATE AVERAGE RATE
BALANCE INTEREST (%) BALANCE INTEREST (%)(3) BALANCE INTEREST (%)
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities(1):
Taxable.................... $ 392,993 $ 21,702 5.52% $ 412,304 $ 23,086 6.33% $ 367,546 $ 22,987 6.25%
Tax-exempt (tax
equivalent)(5)........... 68,824 5,389 7.83 62,709 4,343 7.89 64,825 5,906 9.11
---------- -------- ---------- -------- ---------- --------
Total investment
securities........... 461,817 27,091 5.87 475,013 27,429 6.53 432,371 28,893 6.68
---------- -------- ---------- -------- ---------- --------
Cash Equivalents............. 11,104 597 5.30 31,422 1,544 5.48 28,233 1,489 5.20
---------- -------- ---------- -------- ---------- --------
Loans(2):
Commercial and
industrial............... 904,745 81,019 8.83 854,286 68,974 9.00 809,415 73,473 9.08
Real estate mortgages...... 196,777 14,295 7.26 206,468 13,458 7.43 216,096 15,787 7.31
Consumer and other......... 159,011 13,970 8.79 150,805 11,915 8.93 236,570 19,869 8.40
Fees on loans.............. 1,526 1,339 1,815
---------- -------- ---------- -------- ---------- --------
Net loans (tax
equivalent)............ 1,260,533 110,810 8.79 1,211,559 95,686 8.92 1,262,081 110,944 8.79
---------- -------- ---------- -------- ---------- --------
Total earning assets... 1,733,454 138,498 7.99 1,717,994 124,659 8.21 1,722,685 141,326 8.20
---------- -------- ---------- -------- ---------- --------
Allowance for loan losses.... (25,092) (25,114) (24,827)
NONEARNING ASSETS:
Cash and due from banks.... 66,791 74,823 69,485
Accrued interest and other
assets................... 94,311 107,664 49,786
---------- ---------- ----------
TOTAL ASSETS................. $1,869,464 $1,875,367 $1,817,129
========== ========== ==========
</TABLE>

23
<PAGE> 24
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED PREDECESSOR BASIS --
--------------------------------------------------------------- COLE TAYLOR BANK
FOR THE PERIOD OF ------------------------------
FOR THE YEAR ENDED FEB. 12, 1997 FOR THE YEAR ENDED
DECEMBER 31, 1998 TO DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------------ ------------------------------ ------------------------------
YIELD/ YIELD/ YIELD/
AVERAGE RATE AVERAGE RATE AVERAGE RATE
BALANCE INTEREST (%) BALANCE INTEREST (%)(3) BALANCE INTEREST (%)
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Interest-bearing demand
deposits............... $ 347,544 11,983 3.45 $ 329,199 10,374 3.56 $ 338,508 12,062 3.56
Savings deposits......... 111,908 2,516 2.25 116,472 2,630 2.55 121,497 3,113 2.56
Time deposits............ 607,821 33,557 5.52 650,165 32,271 5.61 687,553 38,343 5.58
---------- -------- ---------- -------- ---------- --------
Total interest-bearing
deposits............. 1,067,273 48,056 4.50 1,095,836 45,275 4.67 1,147,558 53,518 4.66
---------- -------- ---------- -------- ---------- --------
Short-term borrowings........ 197,846 9,969 5.04 194,270 8,870 5.16 160,338 8,719 5.44
Notes payable................ 127,364 7,384 5.72 108,881 6,313 6.46 70,184 4,140 5.82
---------- -------- ---------- -------- ---------- --------
Total interest-bearing
liabilities.......... 1,392,483 65,409 4.70 1,398,987 60,458 4.88 1,378,080 66,377 4.82
---------- -------- ---------- -------- ---------- --------
NONINTEREST-BEARING
LIABILITIES:
Noninterest-bearing
deposits................. 310,512 301,941 289,389
Nonrecourse borrowings
(4)...................... 4,019 18,757 --
Accrued interest and other
liabilities.............. 18,671 23,348 15,991
---------- ---------- ----------
Total
noninterest-bearing
liabilities.......... 333,202 344,046 305,380
---------- ---------- ----------
STOCKHOLDERS' EQUITY......... 143,779 132,334 133,669
---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY....... $1,869,464 $1,875,367 $1,817,129
========== ========== ==========
Net interest income (tax
equivalent)................ $ 73,089 $ 64,201 $ 74,949
======== ======== ========
Net interest spread.......... 3.29% 3.33% 3.38%
Net interest margin.......... 4.22% 4.23% 4.35%
==== ==== ====
</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 presented net on the income
statement with trust fees.
(5) Calculations are computed on a taxable-equivalent basis using a tax rate of
35%

24
<PAGE> 25
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

The following table allocates the changes in net interest income to changes
in reporting periods, average balances or average rates for earning assets and
interest-bearing liabilities. The change in net interest income due to both
volume and rates has been allocated proportionately. The successor basis changes
in net interest income for the 1998 and 1997 reporting periods include a
reporting period variance, described as a change due to days, which reflects the
impact of the 42 day shorter reporting period in 1997. Interest income is
measured on a tax-equivalent basis using a 35% rate.

ANALYSIS OF CHANGES IN NET INTEREST INCOME

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP,
SUCCESSOR BASIS -- TAYLOR CAPITAL INC. -- CONSOLIDATED -- FOR THE PERIOD OF
GROUP, INC. -- CONSOLIDATED -- FOR THE FEBRUARY 12, 1997 TO DECEMBER 31, 1997
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE PREDECESSOR BASIS --
COMPARED TO THE PERIOD OF FEBRUARY 12, COLE TAYLOR BANK -- FOR THE YEAR ENDED
1997 TO DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------------- ------------------------------------------
CHANGES DUE TO CHANGE DUE TO
------------------------------ ------------------------------
VOLUME DAYS RATE NET VOLUME DAYS RATE NET
-------- -------- -------- -------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Investment securities:
Taxable...................... $(1,180) $ 3,002 $(3,206) $(1,384) $ 2,829 $ (3,002) $ 272 $ 99
Tax-exempt................... 479 565 2 1,046 (188) (565) (810) (1,563)
Cash equivalents............... (1,094) 201 (54) (947) 174 (201) 82 55
Loans.......................... 4,323 12,442 (1,641) 15,124 (4,490) (12,442) 1,674 (15,258)
------- ------- ------- ------- ------- -------- ------ --------
Total interest earned............ 2,528 16,210 (4,899) 13,839 (1,675) (16,210) 1,218 (16,667)
------- ------- ------- ------- ------- -------- ------ --------
INTEREST PAID ON:
Interest-bearing demand
deposits..................... 640 1,349 (380) 1,609 (331) (1,349) (8) (1,688)
Savings deposits............... (113) 342 (343) (114) (128) (342) (13) (483)
Time deposits.................. (2,345) 4,196 (565) 1,286 (2,096) (4,196) 220 (6,072)
Short-term borrowings.......... 183 1,153 (237) 1,099 1,769 (1,153) (465) 151
Notes payable.................. 1,128 821 (878) 1,071 2,493 (821) 501 2,173
------- ------- ------- ------- ------- -------- ------ --------
Total interest paid.............. (507) 7,861 (2,403) 4,951 1,707 (7,861) 235 (5,919)
------- ------- ------- ------- ------- -------- ------ --------
Net interest income.............. $ 3,035 $ 8,349 $(2,496) $ 8,888 $(3,382) $ (8,349) $ 983 $(10,748)
======= ======= ======= ======= ======= ======== ====== ========
</TABLE>

Provision for Loan Losses

Management determines a provision for loan losses which it considers
sufficient to maintain an adequate level of allowance for loan losses. In
evaluating the adequacy of the allowance for loan losses, consideration is given
to historical charge-off experience, growth of the loan portfolio, changes in
the composition of the loan portfolio, general economic conditions, information
about specific borrower situations, including their financial position and
collateral values, and other factors and estimates which are subject to change
over time. Estimating the risk of loss and amount of loss on any loan is
subjective. Ultimate losses may vary from current estimates. These estimates are
reviewed quarterly and, as changes in estimates are identified by management,
the amounts are reflected through the provision for loan losses in the
appropriate period.

25
<PAGE> 26
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

The consolidated Company's provision for loan losses, on the successor
basis, for 1998 and the shorter 1997 reporting period, was $5.1 million and $4.1
million, respectively. The $1.0 million increase in the provision for loan
losses in 1998 over the shorter 1997 reporting period was a result of increased
net charge-off activity experienced during 1998. Net charge-offs were $6.3
million during 1998 as compared to $2.9 million for the period February 12, 1997
to December 31, 1997. The increase in charge-offs during 1998 was primarily the
result of the resolution of four older problem loans within the Bank's
commercial loan portfolio. Nonperforming loans totaled $14.0 million and $13.6
million, representing 1.05% and 1.13% of total loans at December 31, 1998 and
1997, respectively. If the commercial loan portfolio continues to grow and/or
future net charge-offs do not decline, and/or nonperforming loans increase, the
Company expects that the provision for loan losses would increase. As of
December 31, 1998, management believes that the allowance for loan losses is
adequate.

The predecessor basis Bank's 1996 provision for loan losses was $3.3
million. The lower provision in 1996 resulted primarily from the sale of
indirect auto loans by the Bank in December 1996, as the reserve for loan losses
was adjusted to reflect the nonrecourse sale of those loans. Net charge-offs,
through the allowance for loan losses, were $3.0 million for 1996. See
"Financial Condition -- Allowance for Loan Losses."

Noninterest Income

The following table shows noninterest income for the periods indicated:

NONINTEREST INCOME

<TABLE>
<CAPTION>
SUCCESSOR BASIS --
TAYLOR CAPITAL GROUP, PREDECESSOR BASIS --
INC. -- CONSOLIDATED COLE TAYLOR BANK
-------------------------- --------------------------
FOR THE FOR THE
FOR THE PERIOD OF PERIOD OF FOR THE
YEAR ENDED FEB. 12, 1997 JAN. 1, 1997 YEAR ENDED
DEC. 31, TO DEC. 31, TO FEB. 11, DEC. 31,
---------- ------------- ------------ ----------
1998 1997 1997 1996
---------- ------------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deposit service charges..................... $ 8,146 $ 7,500 $1,022 $ 7,934
Retail credit card service charges.......... 501 472 60 446
Merchant credit card processing fees........ 350 307 40 302
Trust fees.................................. 3,971 3,331 359 3,635
Gain on sales of loans, net................. 3,621 2,598 169 983
Gain on sale of mortgage servicing rights... 1,462 -- -- 451
Gain on sale of credit card loans........... 686 -- -- --
Mortgage loan servicing income (loss),
net....................................... (57) 341 57 492
ATM fees.................................... 909 693 63 289
Other noninterest income.................... 1,021 1,000 160 1,292
Gain on sale of merchant credit card
program................................... -- 1,230 -- --
Investment securities gains................. 11 401 -- --
------- ------- ------ -------
Total noninterest income............... $20,621 $17,873 $1,930 $15,824
======= ======= ====== =======
</TABLE>

26
<PAGE> 27
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

Total noninterest income for the consolidated Company was $20.6 million in
1998, an increase of $2.7 million or 15.4%, as compared to $17.9 million for the
period of February 12, 1997 to December 31, 1997. Noninterest income for 1998,
excluding the impact of investment securities gains, the gain on the sale of
mortgage servicing rights and the gain on sale of credit card loans totaled
$18.5 million compared to 1997 noninterest income of $16.2 million, excluding
the impact of investment securities gains and the gain on the sale of the
merchant credit card program. The increase in non-interest income in 1998 over
1997 was primarily due to the 1998 reporting period having 42 more days and
increased gains on sales of mortgage loans. This increase was partially offset
by reduced deposit service charges and increased impairment charges due to
increased prepayment speeds on the Bank's mortgage servicing portfolio. The
Bank's predecessor basis 1996 noninterest income was $15.8 million.

Deposit service charges totaled $8.1 million and $7.5 million,
respectively, for the consolidated Company for the year ended December 31, 1998
and for the period of February 12, 1997 to December 31, 1997. The $0.6 million
increase, or 8.6%, was primarily due to the 1998 reporting period having 42 more
days than the 1997 reporting period. Absent the effect of the longer reporting
period, commercial service charge income declined in 1998. The Bank's
predecessor basis deposit service charges totaled $7.9 million in 1996. The
lower deposit service charge income on the 1997 successor basis was primarily
due to the Company's 1997 reporting period having 42 fewer days than the Bank's
predecessor basis 1996 reporting period.

Retail credit card service charges totaled $501,000 in 1998, a $29,000 or
6.1% increase, as compared to $472,000 for the consolidated Company for the
period of February 12, 1997 to December 31, 1997. The slight increase in retail
credit card service charges during 1998 was primarily due to 42 more days in the
reporting period. During November 1998, the Bank sold the majority of its credit
card loan portfolio which was classified as held for sale. The sale resulted in
a gain of $686,000. The sale is expected to significantly reduce retail credit
card service charges in future periods. The 1997 retail credit card service
charges were higher than the $446,000 reported in the Bank's predecessor basis
1996 reporting period despite the 42 fewer days in the period. This increase was
a result of growth within the credit card portfolio between 1996 and 1997.

Merchant credit card processing fees totaled $350,000 in 1998, a $43,000 or
14.0% increase, as compared to $307,000 for the consolidated Company for the
period of February 12, 1997 to December 31, 1997. The increase was primarily due
to the 1998 reporting period having 42 more days. 1997 fees approximated the
$302,000 reported by the Bank's predecessor basis 1996 reporting period, despite
the 42 fewer days in the period and the sale of the majority of the merchant
credit card deposit processing business in September 1997 to an unrelated third
party. The sale resulted in a realized gain of $1.2 million. The sale is
expected to significantly reduce merchant credit card processing fees in future
periods.

Trust fees for the consolidated Company were $4.0 million and $3.3 million,
respectively, for the year ended December 31, 1998 and for the period of
February 12, 1997 to December 31, 1997. The increase in trust fees was primarily
due to the 1998 reporting period having 42 more days than the 1997 reporting
period. The Bank's predecessor basis trust fees in 1996 were $3.6 million. The
lower trust fee income on the successor basis was primarily due to the Company's
1997 reporting period having 42 fewer days than the Bank's predecessor basis
1996 reporting period. Fee income generated from the reverse exchange program
that was sold in 1998 was not significant in 1997. See "Financial Condition --
Nonearning Assets".

Gain on sales of loans was $3.6 million and $2.6 million, respectively, for
the consolidated Company for the year ended December 31, 1998 and for the period
of February 12, 1997 to December 31, 1997. The 1997 consolidated gain on sales
of loans included $632,000 in gains attributable to the Mortgage Company, which
was sold in August 1997. The increase in 1998 was primarily due to a 32%
increase in the volume of mortgage

27
<PAGE> 28
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

loans sold as a result of the lower interest rate environment and increased
mortgage refinancing activity. The gain on sales of loans for the Bank's
predecessor period was $983,000 in 1996. The increase from 1996 to 1997 was
primarily due to a higher percentage of loans sold with servicing released.

On August 5, 1997, the Mortgage Company sold 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 lease obligations for the facilities and hired
all the Mortgage Company employees. The proceeds for the sale, net of related
disposition expenses, the carrying value of the assets sold, payments for
pipeline commitments that subsequently closed and the write-off of goodwill of
$403,000 resulted in a loss of approximately $10,000. The Florida-based
operations represented the majority of the Mortgage Company's operations. Since
the sale, the Mortgage Company has not originated any loans. The Mortgage
Company is not expected to generate any significant income in 1999.

Mortgage loan servicing (loss) was ($57,000) in 1998, compared to income of
$341,000 for the consolidated Company for the period of February 12, 1997 to
December 31, 1997. The Bank has not purchased any mortgage servicing rights in
1998 or in prior years. All servicing rights were generated from loans
originated by the Bank where the loans were subsequently sold. On January 30,
1998, the Bank sold the servicing rights for approximately $274 million of
mortgage loans. The sale resulted in a gain of $1.5 million. As a result of the
decreased servicing income resulting from the sale, and the $329,000 of
impairment provisions taken on mortgage servicing rights during 1998, a mortgage
loan servicing loss was recognized during 1998. No sales of servicing rights
occurred in 1997, and 1996 reflects gains from sales of mortgage servicing
rights totaling $451,000. Amortization of capitalized mortgage servicing rights
decreased significantly during 1998 due to the mortgage servicing rights sale.
The Bank's portfolio of mortgage loans serviced for others was $69 million, $311
million and $283 million at December 31, 1998, 1997 and 1996, respectively.

ATM fee income was $909,000 and $693,000 for the consolidated Company for
the year ended December 31, 1998 and for the period of February 12, 1997 to
December 31, 1997. The Bank's predecessor basis 1996 ATM fee income was
$289,000. The consolidated Company's higher ATM fee income was due to the
implementation of a surcharge fee in the 4th quarter of 1996 and an increase in
the surcharge fee during the fourth quarter of 1998.

Other noninterest income, which principally includes standby letters of
credit fees, fees from financial services (i.e., the sale of certain insurance
products and other financial services products), and safe deposit rental fees,
totaled $1.0 million for the consolidated Company for both the 1998 and 1997
reporting periods. The Bank's predecessor basis other noninterest income for
1996 totaled $1.3 million. The lower other noninterest income on the successor
basis was primarily the result of the consolidated Company's 1997 reporting
period having 42 fewer days than the Bank's predecessor basis 1996 reporting
period.

Investment security gains for the consolidated Company for the year ended
December 31, 1998 and for the period of February 12, 1997 to December 31, 1997
were $11,000 and $401,000, respectively. There were no investment security sales
or gains in 1996 on the predecessor basis. The securities sales in 1997 were a
result of a realignment of the Bank's available-for-sale mortgage-backed
securities portfolio. This realignment was undertaken in response to changing
market conditions and reflected management's actions to modify the Bank's
interest rate risk profile.

28
<PAGE> 29
TAYLOR CAPITAL GROUP, INC.

PART II
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>
SUCCESSOR BASIS --
TAYLOR CAPITAL GROUP, PREDECESSOR BASIS --
INC. -- CONSOLIDATED COLE TAYLOR BANK
---------------------- ---------------------
FOR THE FOR THE
PERIOD OF PERIOD OF FOR THE
FOR THE FEB. 12, JAN. 1, YEAR
YEAR ENDED 1997 TO 1997 TO ENDED
DEC. 31, DEC. 31, FEB. 11, DEC. 31,
---------- --------- --------- --------
1998 1997 1997 1996
---------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and employee benefits.................... $37,303 $31,683 $3,645 $30,171
Occupancy of premises, net........................ 7,158 5,298 656 5,198
Furniture and equipment........................... 3,413 3,262 322 3,017
Computer processing............................... 2,234 2,004 222 2,033
Legal fees........................................ 4,364 2,227 194 1,473
Advertising and public relations.................. 1,807 1,713 157 1,764
Goodwill and other intangible amortization........ 2,448 2,253 20 199
Other real estate and repossessed asset expense... 522 551 31 695
Other noninterest expense......................... 11,179 10,543 1,219 10,823
------- ------- ------ -------
Total noninterest expense....................... $70,428 $59,534 $6,466 $55,373
======= ======= ====== =======
Efficiency ratio(1)............................... 77.10% 74.77% 61.60% 62.68%
</TABLE>

- ---------------

(1) Noninterest expense divided by an amount equal to net interest income plus
noninterest income, less securities gains.

Total noninterest expense for the consolidated Company in 1998 was $70.4
million, an increase of $10.9 million or 18.3%, as compared to $59.5 million for
the period of February 12, 1997 to December 31, 1997. The increase in
noninterest expense during 1998 versus 1997 was primarily due to increased
salaries and benefit expenses, the operation of two new branches which
significantly increased occupancy expenses, and increased litigation expenses
associated with various legal actions against the Company. Total noninterest
expense on the Bank's predecessor basis in 1996 was $55.4 million. The higher
noninterest expense in 1997, despite the consolidated Company's 1997 reporting
period having 42 fewer days than the predecessor Bank's reporting period, was
primarily due to the inclusion of the noninterest operating expenses of the
Parent and Mortgage Companies which totaled $4.9 million and the amortization of
the goodwill related to the Split-Off Transactions of $2.3 million.

Salaries and employee benefits represent the largest category of
noninterest expense. Salaries and employee benefits totaled $37.3 million, an
increase of $5.6 million or 17.7%, as compared to the consolidated Company's
period of February 12, 1997 to December 31, 1997, for which salaries and
benefits totaled $31.7 million. The increase is due to the longer reporting
period in 1998 and certain increased expenses. At December 31, 1998 the Company
had a total of approximately 652 full-time equivalent (FTE) employees up from
617 in 1997 and 604 for the Bank in 1996. Annual merit increases and increased
FTE headcount

29
<PAGE> 30
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

contributed to increased salaries of $1.2 million during 1998. In addition, 1998
includes approximately $400,000 of additional health insurance cost due to
increased claims experience and more employees. Increased funding requirements
for the Company's 401(k) and ESOP plans were approximately $500,000 in 1998.
Salaries and benefits for 1996 on the predecessor basis totaled $30.2 million.
Included in the consolidated Company's salary and benefits expense for the 1997
reporting period was $2.8 million of expense relating to the Parent and Mortgage
Companies, and $1.5 million of expense resulting from the establishment of new
long-term incentive plans, partially offset by the consolidated Company's 1997
reporting period having 42 fewer days than the predecessor Bank's 1996 reporting
period.

Occupancy expenses for the consolidated Company for the year ended December
31, 1998 totaled $7.2 million compared to $5.3 million for the period of
February 12, 1997 to December 31, 1997. The rise in the consolidated Company's
occupancy expenses during the 1998 reporting period was due to the addition of
two new banking facilities. The Old Orchard branch opened in October 1997, and
the West Washington Street branch in downtown Chicago opened in March 1998. The
increased occupancy expenses related to the operation of these two branches
totaled $987,000 during 1998. Occupancy expenses in 1996 for the predecessor
Bank were $5.2 million. The consolidated Company's occupancy expense for the
1997 reporting period included expenses of $31,000 relating to the Mortgage and
Parent Companies, $194,000 related to the Bank's Old Orchard branch and
increased depreciation of purchase accounting adjustments resulting from the
write-up of the premises to their fair value in connection with the Split-Off
Transactions, partially offset by the consolidated Company's 1997 reporting
period having 42 fewer days.

Furniture and equipment expenses for the consolidated Company remained
relatively flat in 1998, totaling $3.4 million as compared to $3.3 million for
the period of February 12, 1997 to December 31, 1997. The predecessor Bank's
1996 furniture and equipment expense totaled $3.0 million. The consolidated
Company's higher expense in the 1997 reporting period was due to the inclusion
of $43,000 of expense relating to the Mortgage and Parent Companies, increased
depreciation of purchase accounting adjustments resulting from the write-up of
the furniture and equipment to their fair value in connection with the Split-Off
Transactions, partially offset by the consolidated Company's 1997 reporting
period having 42 fewer days than the predecessor Bank's 1996 reporting period.
During 1998 and the first quarter of 1999, the Bank made significant technology
enhancements within the Bank's operations center and is replacing certain
hardware and software applications with ones of greater functionality. Capital
expenditures related to the replacement of hardware and software applications
are expected to total approximately $2.5 million. These enhancements and
replacements are expected to increase furniture and equipment expenses in future
periods.

Computer processing expense is comprised of payments to third party
processors, primarily for the Company's "mission critical" data processing
applications, including loans, deposits, general ledger and ATM operations. The
expense for the consolidated Company for 1998 totaled $2.2 million versus $2.0
million for the period of February 12, 1997 to December 31, 1997. The 1998
increase was primarily due to the 1998 reporting period having 42 more days than
the 1997 reporting period. The Bank's predecessor basis 1996 computer processing
expense was $2.0 million. Increases in amounts paid to third party processors in
1997 were offset by the shorter 1997 reporting period.

Legal fees for the consolidated Company for the year ended December 31,
1998 totaled $4.4 million compared to $2.2 million for the period of February
12, 1997 to December 31, 1997. Legal fees for 1998 increased significantly from
1997 despite $308,000 in reimbursements received in 1998 from the Bank's
insurance carrier for certain 1997 Bank related legal defense costs. The legal
costs relating to the bankruptcy of Reliance Acceptance Group, Inc. and the
defense of the various lawsuits relating to the Split-Off Transactions totaled
approximately $3.3 million and $674,000 during the 1998 and 1997 reporting
periods.
30
<PAGE> 31
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

Management expects to continue to incur significant legal expenses in connection
with the Split-Off Transactions litigation, which will continue to adversely
affect profitability. A portion of these defense costs have been and will be
submitted to insurance carriers for reimbursement. Management, however, cannot
predict to what extent such costs will be reimbursed or when such reimbursement
will occur. See "-- Litigation" below. The predecessor Bank's 1996 legal fees
totaled $1.5 million.

Advertising and public relations expense for the consolidated Company for
the year ended December 31, 1998 totaled $1.8 million compared to $1.7 million
for the period of February 12, 1997 to December 31, 1997. The increase in 1998
was primarily due to the reporting period consisting of 42 more days than the
comparable 1997 reporting period. Advertising and public relations expense in
1996 for the predecessor Bank was $1.8 million. The consolidated Company's 1997
expense includes increased advertising related to the opening of the Bank's new
Old Orchard branch, offset by the shorter 1997 reporting period.

Goodwill and other intangible amortization expense for the consolidated
Company for the 1998 and 1997 reporting periods totaled $2.4 million and $2.3
million, respectively. The Bank's predecessor basis 1996 goodwill and other
intangible amortization expense totaled $199,000. The consolidated Company's
1998 and 1997 expense included higher amortization of goodwill related to the
acquisition of the Bank and Mortgage Company.

Other real estate and repossessed asset expense for the consolidated
Company for the year ended December 31, 1998 totaled $522,000, as compared to
$551,000 for the period of February 12, 1997 to December 31, 1997. The
predecessor Bank's other real estate and repossessed asset expense was $695,000
in 1996. The 1997 decrease in expense was primarily due to the disposition in
the spring of 1996 of a significant repossessed business property initially
acquired in August of 1995. Provision for losses on other real estate included
in these amounts were $111,000, $252,000, and $72,000 for the successor basis
reporting periods in 1998 and 1997, and for the predecessor Bank's year ended
December 31, 1996, respectively. The principal balance of other real estate and
repossessed assets outstanding as of December 31, 1998, 1997, and 1996 was $3.3
million, $1.5 million, and $1.1 million, respectively. See "Financial Condition
- -- Nonperforming Loans and Assets."

Other noninterest expense (which principally includes certain professional
fees, FDIC insurance, consulting, outside services and other operating expenses
such as telephone, postage, office supplies and printing) for the consolidated
Company for the year ended December 31, 1998 and for the period of February 12,
1997 to December 31, 1997 totaled $11.1 million and $10.5 million, respectively.
The Bank's predecessor basis 1996 expense totaled $10.8 million. The fluctuation
in noninterest expenses during the successor and predecessor reporting periods
was primarily due to the longer reporting period in 1998 and the shorter
reporting period in 1997. As a result of the Bank's replacing of certain
hardware and software applications during the first quarter of 1999 the Bank
will incur training and consulting expenses which will increase 1999's other
noninterest expenses.

Income Taxes

Income tax expense totaled $6.3 million for the 1998 and 1997 reporting
periods. The effective income tax rate for the consolidated Company approximated
40% and 39% for the year ended December 31, 1998 and for the period February 12,
1997 to December 31, 1997, respectively. The increase in the effective tax rate
during 1998 was primarily due to certain employee benefit costs that were not
fully deductible for tax purposes. In connection with the Split-Off
Transactions, the Company acquired state tax net operating loss carryforwards
and deductible temporary differences totaling approximately $60 million. In
accordance with

31
<PAGE> 32
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

generally accepted accounting principles, the state income tax benefit of these
items is applied against goodwill when recognized, rather than as a reduction of
income tax expense. A valuation allowance was established at the date of the
acquisition to reduce the deferred state income tax asset to an amount deemed
more likely than not to be realized. At December 31, 1998, $700,000 of the
valuation allowance related to the acquired deferred state benefits. Future
reductions in that portion of the valuation allowance, if appropriate, would
reduce the goodwill recognized in connection with the acquisition of the Bank.
No valuation reserve for deferred federal income tax assets was established at
December 31, 1998, as management has determined that it is more likely than not
that the deferred assets can be supported by carrybacks of federal taxable
income to amounts paid in 1998 and taxable income estimated for 1999.

Income tax expense for the Bank on the predecessor basis was $10.0 million
for 1996. The effective income tax rate was lower than that reported for the
consolidated Company in 1997 primarily because the benefits of the Bank's state
net operating loss carryforwards lowered income tax expense under the
predecessor basis of accounting. In addition, the successor basis included the
impact of nondeductible goodwill amortization expense.

FINANCIAL CONDITION

The Company's total assets were $1.91 billion at December 31, 1998,
representing an increase of $54.6 million, or 2.9% from December 31, 1997.
Average total assets for 1998 were $1.87 billion, virtually unchanged from a
year earlier. An increase in loans was offset by a decrease in deposits with
banks and investment securities as well as the sale of the Bank's CTRE, Inc.
subsidiary on March 19, 1998. At December 31, 1997 CTRE, Inc.'s assets totaled
$18.8 million and were reflected in other assets.

Investment Securities

The purpose of the investment portfolio is primarily to provide a source of
earnings and secondarily for liquidity management purposes. In managing the
portfolio and the composition of the entire balance sheet, the Company seeks a
balance among earnings, credit and interest rate risk, and liquidity
considerations, with a goal of maximizing longer-term overall profitability.

32
<PAGE> 33
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

The following tables present the composition and maturities of the
investment portfolio by major category as of the date indicated:

INVESTMENT PORTFOLIO COMPOSITION

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
---------------------------------------------------------------------
AVAILABLE-FOR-SALE HELD-TO-MATURITY TOTAL
--------------------- --------------------- ---------------------
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998:
U.S. Treasury securities............ $110,019 $110,878 $ -- $ -- $110,019 $110,878
U.S. government agency securities... 51,287 51,326 -- -- 51,287 51,326
Mortgage-backed securities.......... 98,296 99,510 -- -- 98,296 99,510
State and municipal obligations..... -- -- 74,609 76,414 74,609 76,414
Collateralized mortgage
obligations....................... 91,696 89,694 -- -- 91,696 89,694
Other securities.................... -- -- 15,144 15,206 15,144 15,206
-------- -------- ------- ------- -------- --------
Total..................... $351,298 $351,408 $89,753 $91,620 $441,051 $443,028
======== ======== ======= ======= ======== ========
DECEMBER 31, 1997:
U.S. Treasury securities............ $205,007 $205,784 $ -- $ -- $205,007 $205,784
U.S. government agency securities... 13,261 13,345 -- -- 13,261 13,345
Mortgage-backed securities.......... 95,364 95,999 -- -- 95,364 95,999
State and municipal obligations..... -- -- 65,034 66,319 65,034 66,319
Collateralized mortgage
obligations....................... 84,330 84,017 -- -- 84,330 84,017
Other securities.................... -- -- 18,217 18,262 18,217 18,262
-------- -------- ------- ------- -------- --------
Total..................... $397,962 $399,145 $83,251 $84,581 $481,213 $483,726
======== ======== ======= ======= ======== ========
PREDECESSOR BASIS - COLE TAYLOR BANK
---------------------------------------------------------------------
DECEMBER 31, 1996:
U.S. Treasury securities............ $123,824 $123,738 $ -- $ -- $123,824 $123,738
U.S. government agency securities... 44,855 45,075 -- -- 44,855 45,075
Mortgage-backed securities.......... 163,239 159,771 -- -- 163,239 159,771
State and municipal obligations..... -- -- 62,948 65,730 62,948 65,730
Collateralized mortgage
obligations....................... 240 233 -- -- 240 233
Other securities.................... -- -- 12,024 12,028 12,024 12,028
-------- -------- ------- ------- -------- --------
Total..................... $332,158 $328,817 $74,972 $77,758 $407,130 $406,575
======== ======== ======= ======= ======== ========
</TABLE>

During 1998, the Bank's investment portfolio decreased as a portion of
maturing U.S. Treasury security cash flows were utilized to fund loan growth. Of
the collateralized mortgage obligations at December 31, 1998, $56 million were
high-coupon, sequential-paying securities that are also known as synthetic
premiums because the coupons on these securities exceed those on the underlying
mortgage loans. During 1998, lower mortgage interest rates and higher
refinancing activity required that the Bank amortize the purchase premium at a
rate

33
<PAGE> 34
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

significantly higher than originally expected. Accordingly, in 1998, impairment
charges and additional yield adjustments were recognized. See -- "Net Interest
Income".

INVESTMENT PORTFOLIO -- MATURITY AND YIELDS
(AS OF DECEMBER 31, 1998)

<TABLE>
<CAPTION>
MATURING
-----------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN WITHIN WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
---------------- ---------------- --------------- --------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ----- -------- ----- ------- ----- ------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale securities(1):
U.S. Treasury securities.......... $100,494 6.13% $ 10,384 6.03% $ -- --% $ -- --% $110,878 6.12%
U.S. government agency
securities...................... 39,468 5.33 11,858 4.88 -- -- -- -- 51,326 5.23
Mortgage-backed securities(3)... 22,331 5.87 51,370 6.11 25,809 5.99 -- -- 99,510 6.06
Collateralized mortgage
obligations(3)................ 39,415 0.48 45,621 4.96 4,658 5.74 -- -- 89,694 2.90
-------- -------- ------- ------- --------
Total available-for-sale...... 201,708 119,233 30,467 -- 351,408
-------- -------- ------- ------- --------
Held-to-maturity securities (2):
States and political subdivisions
(4)............................. 8,157 8.45 32,595 8.54 24,104 8.02 9,753 7.35 74,609 8.21
Other securities.................. -- -- 325 8.08 500 7.95 14,319 6.45 15,144 6.53
-------- -------- ------- ------- --------
Total held-to-maturity........ 8,157 32,920 24,604 24,072 89,753
-------- -------- ------- ------- --------
Total securities.......... $209,865 $152,153 $55,071 $24,072 $441,161
======== ======== ======= ======= ========
</TABLE>

- ---------------
(1) Based on estimated fair value.
(2) Based on amortized cost.
(3) Maturities of mortgage-backed securities and collateralized mortgage
obligations are based on anticipated lives of the underlying mortgages, not
contractual maturities.
(4) Rates on obligations of states and political subdivisions have been adjusted
to tax equivalent yields using a 35% income tax rate.

Investments in U.S. Treasury securities and U.S. government agency
securities are generally considered to have low credit risk. The mortgage-backed
securities consist principally of direct "pass through" securities issued by the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). These securities are also considered to have low
credit risk, but do possess market value risk due to the prepayment risk of
mortgage-backed securities. The collateralized mortgage obligations consist of
(1) high-coupon, sequential-paying securities and (2) planned amortization class
securities both of which are backed by fixed rate single family mortgage loans.
The high-coupon, sequential-paying securities are guaranteed, as to principal
and interest, by certain agencies including FNMA and FHLMC. At December 31,
1998, after impairment charges, adjustments and paydowns, these securities
totaled $56 million with $3.0 million of premiums remaining and an expected
yield of 0.9%. These securities possess market risk due to the prepayment risk
of the underlying collateral. The Company generally invests in state and
municipal investment securities which are rated investment grade by nationally
recognized rating organizations. Certain municipal issues, however, which are
restricted to the Company's local market area, are not rated and undergo the
Bank's standard underwriting procedures for loan transactions. Other securities
are primarily composed of Federal Reserve Bank stock and Federal Home Loan Bank
stock that are required to be maintained for

34
<PAGE> 35
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

various purposes. At December 31, 1998, the Company held no securities of any
single issuer, other than the U.S. Treasury and U.S. government agency
securities, including FNMA, that exceeded 10% of stockholders' equity. Although
the Company holds securities issued by municipalities within the state of
Illinois which, in the aggregate, exceed 10% of stockholders' equity, none of
the holdings from any individual municipal issue exceed this threshold.

A significant portion of the Company's investment securities portfolio
(approximately 57.5% at December 31, 1998) is used as collateral for public
funds time deposits and securities sold under agreement to repurchase.

Loan Portfolio

The Company's primary source of income is interest on loans. The following
table presents the composition of the Company's and the predecessor Bank's loan
portfolios as of the date indicated:

LOAN PORTFOLIO

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR
CAPITAL GROUP, INC. -- PREDECESSOR BASIS -- COLE TAYLOR BANK
CONSOLIDATED DECEMBER 31, DECEMBER 31,
------------------------- ----------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial and industrial.......... $ 749,984 $ 671,506 $ 655,919 $ 638,497 $ 611,670
Real estate-construction........... 232,018 179,855 192,759 121,547 94,223
Residential real
estate-mortgages................. 150,930 165,258 176,819 207,377 202,455
Mortgage loans held-for-sale....... 42,257 31,771 25,153 15,748 1,554
Home equity lines of credit........ 106,521 104,287 86,648 65,371 52,628
Consumer........................... 53,751 50,391 84,622 166,346 172,299
Other loans........................ 1,806 2,448 4,622 2,061 1,136
---------- ---------- ---------- ---------- ----------
Gross loans................... 1,337,267 1,205,516 1,226,542 1,216,947 1,135,965
Less: Unearned discount............ (1,286) (1,079) (1,548) (5,325) (5,788)
---------- ---------- ---------- ---------- ----------
Total loans................... 1,335,981 1,204,437 1,224,994 1,211,622 1,130,177
Less: Allowance for loan losses.... (24,599) (25,813) (24,184) (23,869) (22,833)
---------- ---------- ---------- ---------- ----------
Loans, net.................... $1,311,382 $1,178,624 $1,200,810 $1,187,753 $1,107,344
========== ========== ========== ========== ==========
</TABLE>

At December 31, 1998 and 1997, the consolidated Company's gross loans
totaled $1.34 billion and $1.21 billion, respectively. The increase in loans
during 1998 was primarily due to growth in the commercial and industrial and
real estate construction portfolios, partially offset by a decline in the
residential real estate mortgages portfolio. At December 31, 1996, the
predecessor Bank's gross loans totaled $1.23 billion. The decline in loans
between 1997 and 1996 was primarily due to the transfer of the indirect auto
loans (included in the Consumer category) to CTFG in connection with the
Split-Off Transactions.

Commercial and industrial loans, the largest component of the Company's
loan portfolio, were $750.0 million and $671.5 million at December 31, 1998 and
1997, respectively. Commercial and industrial loans for the predecessor Bank
were $655.9 million at December 31, 1996. Commercial and industrial loans
represented 56.1% and 55.7% of the Company's loan portfolio at December 31, 1998
and 1997, respectively and 53.5% of the predecessor Bank's loan portfolio at
December 31, 1996.

35
<PAGE> 36
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

Real estate-construction loans of the consolidated Company totaled $232.0
million and $179.9 million at December 31, 1998 and 1997, respectively. Real
estate-construction loans of the predecessor Bank totaled $192.8 million at
December 31, 1996. Real estate-construction loans represented 17.4% and 14.9% of
the consolidated Company's loan portfolio at December 31, 1998 and 1997,
respectively, and 15.7% of the predecessor Bank's loan portfolio at December 31,
1996.

At December 31, 1998 and 1997, residential real estate-mortgages of the
consolidated Company were $150.9 million and $165.3 million, respectively. At
December 31, 1996, residential real estate-mortgages of the predecessor Bank
were $176.8 million. Residential real estate-mortgages of the consolidated
Company represented 11.3% and 13.7% of gross loans as of December 31, 1998 and
1997, respectively, and 14.4% of the predecessor Bank's gross loans at December
31, 1996. The decline in mortgage loans was due to normal loan amortization and
prepayments due to a lower mortgage interest rate environment in 1998 and
management's asset/liability strategy during 1998 and 1997 to limit investment
in long-term fixed rate mortgage loans.

Mortgage loans held-for-sale of the consolidated Company totaled $42.3
million and $31.8 million at December 31, 1998 and 1997, respectively. Mortgage
loans held for sale are stated at the lower of aggregate cost or aggregate fair
value as determined by outstanding commitments from investors or current market
prices for loans with no sale commitments. Forward commitments to sell mortgage
loans are used to manage interest rate risk exposure. The hedging activity helps
protect the Company from the risk that the market value of mortgage loans
intended to be sold will be adversely affected by changes in interest rates. The
Company's mortgage hedging policy designates a minimum coverage ratio of 75% of
loans and commitments, net of fallout estimates. The Company is exposed to
interest rate risk on the portion of the loans and commitments that are not
hedged. At December 31, 1996, mortgage loans held-for-sale of the predecessor
Bank were $25.2 million. The increase in mortgage loans held-for-sale during
1998 was a result of the decreased interest rate environment which increased
mortgage loans sold production 32% over those levels experienced in 1997. The
overall increasing trend in mortgage loans held-for-sale from 1994 to 1998
reflected the increase in mortgage loan origination over the years, as well as
the strategic plan to sell the majority of conforming mortgage loans originated
rather than holding them in the Company's loan portfolio.

Home equity lines of credit outstanding totaled $106.5 million and $104.3
million as of December 31, 1998 and 1997, respectively, for the consolidated
Company, and $86.6 million as of December 31, 1996 for the predecessor Bank.
Home equity lines of credit outstanding of the consolidated Company represented
8.0% and 8.7% of gross loans at December 31, 1998 and 1997, respectively, and
7.1% of the predecessor Bank's gross loans at December 31, 1996.

Consumer loans of the consolidated Company were $53.8 million and $50.4
million at December 31, 1998 and 1997, respectively, and $84.6 million as of
December 31, 1996, for the predecessor Bank. Consumer loans consist of home
equity loans, indirect and direct auto loans, credit card loans and other
personal secured and unsecured loans. The increase in 1998 was primarily due to
a $12.9 million increase in the home equity loan portfolio, partially offset by
the sale of $7.4 million of credit card loans. The decline in 1997 was due to
the predecessor Bank transferring approximately $32 million of indirect auto
loans to CTFG in connection with the Split-Off Transactions. Consumer loans
represented 4.0% and 4.2% of the consolidated Company's gross loans as of
December 31, 1998 and 1997, respectively, and 6.9% of the predecessor Bank's
gross loans at December 31, 1996. (Included in consumer loans were retail credit
card loans totaling $2.0 million, $10.1 million, $9.8 million, and $5.8 million
at December 31, 1998, 1997, 1996 and 1995 respectively.) Management's strategic
plan calls for no further significant growth in retail credit card loans.

36
<PAGE> 37
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

The following table sets forth the remaining maturities, net of unearned
discount for certain commercial and consumer loans, at December 31, 1998:

MATURITIES AND RATE SENSITIVITY OF LOANS (1)

<TABLE>
<CAPTION>
OVER 1 YEAR
THROUGH 5 YEARS OVER 5 YEARS
--------------------- ---------------------
ONE YEAR FLOATING FLOATING
OR LESS FIXED RATE RATE FIXED RATE RATE TOTAL
-------- ---------- -------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial........ $370,664 $225,124 $ 74,566 $ 63,165 $ 16,465 $ 749,984
Real estate -- construction...... 108,229 27,834 81,837 12,851 1,267 232,018
Residential real
estate -- mortgages............ 11,399 22,160 4,142 44,320 68,909 150,930
Mortgage loans held-for-sale..... 42,257 -- -- -- -- 42,257
Home equity lines of credit...... 1,009 -- 3,454 -- 102,058 106,521
Consumer......................... 12,396 33,972 142 7,241 -- 53,751
Other loans...................... 1,806 -- -- -- -- 1,806
-------- -------- -------- -------- -------- ----------
Total.................. $547,760 $309,090 $164,141 $127,577 $188,699 $1,337,267
======== ======== ======== ======== ======== ==========
</TABLE>

- ---------------
(1) Maturities are based upon contractual dates. Demand loans are included in
the one year or less category and totaled $2.2 million as of December 31,
1998. Balances are shown net of unearned discount.

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 may become 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. Those loans on which management does not expect to
collect interest in the normal course of business are placed on nonaccrual
status. After a loan is placed on nonaccrual status, any current period interest
previously accrued but not yet collected is reversed against current income.
Interest is included in income subsequent to the date the loan is placed on
nonaccrual status only as interest is received and so long as management is
satisfied that there is no impairment of collateral values. The loan is returned
to accrual status only when the borrower has demonstrated the ability to make
future payments of principal and interest as scheduled.

37
<PAGE> 38
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

The following table sets forth the amounts of nonperforming loans and other
assets at the end of the periods indicated:

NONPERFORMING ASSETS

<TABLE>
<CAPTION>
SUCCESSOR BASIS --
TAYLOR CAPITAL
GROUP, INC. --
CONSOLIDATED PREDECESSOR BASIS -- COLE TAYLOR BANK
DECEMBER 31, DECEMBER 31,
------------------ --------------------------------------
1998 1997 1996 1995 1994
------- ------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans contractually past due 90 days or
more but still accruing interest....... $ 2,618 $ 2,009 $ 2,820 $ 3,737 $ 4,012
Nonaccrual loans......................... 11,365 11,624 10,898 9,921 10,475
------- ------- ------- ------- -------
Total nonperforming loans.............. 13,983 13,633 13,718 13,658 14,487
Other real estate........................ 3,185 1,391 865 2,928 2,843
Other repossessed assets................. 83 72 254 2,488 356
------- ------- ------- ------- -------
Total nonperforming assets............. $17,251 $15,096 $14,837 $19,074 $17,686
======= ======= ======= ======= =======
Nonperforming loans to total loans....... 1.05% 1.13% 1.12% 1.13% 1.28%
Nonperforming assets to total loans plus
repossessed property................... 1.29 1.25 1.21 1.57 1.56
Nonperforming assets to total assets..... 0.90 0.81 0.82 1.08 1.03
</TABLE>

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
generated from the loan portfolio, but may also be derived 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. Although a loan is charged-off by
management when deemed uncollectible, collection efforts continue and future
recoveries may occur. The allowance is maintained by management at a level
considered adequate to cover losses that are currently anticipated based on past
loss experience, general economic conditions, information about specific
borrower situations, including their financial position, collateral values, and
other factors and estimates which are subject to change over time. Estimating
the risk of loss and amount of loss on any loan is subjective, and ultimate
losses may vary from current estimates. These estimates are reviewed quarterly
and, as changes in estimates are identified by management, the amounts are
reflected through the provision for loan losses in the appropriate period. The
adequacy of the allowance for loan losses is monitored by the internal loan
review staff and reported to management and the Board of Directors. Although
management believes that the Company's allowance for loan losses is adequate to
absorb any losses on existing loans that may become uncollectible, there can be
no assurance that the allowance will prove sufficient to cover actual loan
losses in the future. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the adequacy of the
Company's allowance for loan losses. Such agencies may require the Company to
make additional provisions to the allowance based upon their judgments about
information available to them at the time of their examinations. See "Results of
Operations -- Provision for Loan Losses".

38
<PAGE> 39
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

The following table summarizes, for the periods indicated, activity in the
allowance for loan losses, including amounts of loans charged-off, amounts of
recoveries, additions to the allowance charged to operating expense, the ratio
of 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>
SUCCESSOR BASIS --
TAYLOR CAPITAL
GROUP, INC. -- CONSOLIDATED PREDECESSOR BASIS -- COLE TAYLOR BANK
----------------------------- ---------------------------------------------------
FOR THE FOR THE
FOR THE YEAR PERIOD OF PERIOD OF
ENDED FEB. 12, 1997 JAN. 1, 1997 FOR THE YEARS ENDED
DEC. 31, TO DEC. 31, TO FEB. 11, DECEMBER 31,
------------ -------------- ------------ ------------------------------------
1998 1997 1997 1996 1995 1994
------------ -------------- ------------ ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Average total loans......................... $1,260,533 $1,211,559 $1,220,897 $1,262,081 $1,161,513 $1,053,928
========== ========== ========== ========== ========== ==========
Total loans at end of period................ $1,335,981 $1,204,437 $1,226,072 $1,224,994 $1,211,622 $1,130,177
========== ========== ========== ========== ========== ==========
ALLOWANCE FOR LOAN LOSSES:
Allowance at beginning of period............ $ 25,813 $ 24,607 $ 24,184 $ 23,869 $ 22,833 $ 19,740
---------- ---------- ---------- ---------- ---------- ----------
Charge-offs:
Commercial and industrial.................. (6,157) (2,201) (32) (1,751) (3,728) (4,280)
Real estate -- construction................ -- -- -- -- -- --
Residential real estate-mortgages.......... (289) (178) -- (346) (242) (290)
Consumer and other......................... (1,141) (1,151) (243) (1,732) (931) (588)
---------- ---------- ---------- ---------- ---------- ----------
Total charge-offs........................ (7,587) (3,530) (275) (3,829) (4,901) (5,158)
---------- ---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial and industrial.................. 947 394 188 445 1,581 666
Real estate -- construction................ -- -- -- -- -- --
Residential real estate-mortgages.......... 70 27 2 74 40 --
Consumer and other......................... 221 254 53 318 260 211
---------- ---------- ---------- ---------- ---------- ----------
Total recoveries......................... 1,238 675 243 837 1,881 877
---------- ---------- ---------- ---------- ---------- ----------
Net charge-offs............................. (6,349) (2,855) (32) (2,992) (3,020) (4,281)
---------- ---------- ---------- ---------- ---------- ----------
Provision for loan losses................... 5,135 4,061 420 3,307 4,056 7,374
---------- ---------- ---------- ---------- ---------- ----------
Allowance at end of period.................. $ 24,599 $ 25,813 $ 24,572 $ 24,184 $ 23,869 $ 22,833
========== ========== ========== ========== ========== ==========
Net charge-offs to average total loans(1)... 0.50% 0.27% 0.02% 0.24% 0.26% 0.41%
Allowance to total loans at end of period... 1.84 2.14 2.00 1.97 1.97 2.02
Allowance to nonperforming loans............ 175.92 189.34 172.13 176.29 174.76 157.61
</TABLE>

- ---------------
(1) The ratio is annualized for the Successor Basis -- Taylor Capital Group,
Inc. -- Consolidated for the period of February 12, 1997 to December 31,
1997, and for the Predecessor Basis -- Cole Taylor Bank for the period of
January 1, 1997 to February 11, 1997.

Net charge-offs for the year ended December 31, 1998 as compared to the
period February 12, 1997 to December 31, 1997 increased $3.5 million. Net
charge-offs decreased $137,000 for the 1997 reporting period as compared to the
1996 predecessor basis reporting period. The increase in charge-offs during 1998
was primarily the result of the resolution of four older problem loans within
the Bank's commercial loan portfolio. Net charge-offs related to these four
credits totaled $5.1 for the 1998 reporting period. The Company establishes what
it believes to be an appropriate allowance level for the portfolio as a whole,
including but not

39
<PAGE> 40
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

limited to the nonperforming component in the portfolio and the classification
of certain assets as nonperforming in accordance with established regulatory and
management policies. Although management believes that the allowance for loan
losses is adequate to absorb any losses on existing loans that may become
uncollectible, there can be no assurance that the allowance will prove
sufficient to cover actual loan losses in the future.

Consumer loan charge-offs include charge-offs relating to retail credit
card loans, indirect and direct auto loans, home equity loans and lines of
credit, overdrafts and all other types of consumer loans. The majority of the
consumer loan net charge-offs for the years presented related to retail credit
card and indirect auto loans. Retail credit card loan net charge-offs were
$451,000, $721,000, $301,000 and $35,000 in 1998, 1997, 1996 and 1995
respectively. During 1998 the Company sold the majority of its credit card
portfolio to an outside third party. Management's strategic plan calls for no
further significant growth in retail credit card loans.

Indirect auto loan net charge-offs were $22,000, $144,000, $803,000,
$584,000, and $312,000 in 1998, 1997, 1996, 1995, and 1994, respectively. The
Company sold or transferred the majority of its indirect auto loans in
connection with the Split-Off Transactions.

The Company regards the allowance for loan losses as a general reserve
which is available to absorb losses from all loans. However, for purposes of
complying with disclosure requirements of the Securities and Exchange
Commission, the table below presents an allocation of the allowance for loan
losses among the various loan categories and sets forth the percentage of loans
in each category to gross loans. The allocation of the allowance for loan losses
as shown in the table should neither be interpreted as an indication of future
charge-offs, nor as an indication that charge-offs in future periods will
necessarily occur in these amounts or in the indicated proportions.

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR CAPITAL
GROUP, INC. -- CONSOLIDATED PREDECESSOR BASIS -- COLE TAYLOR BANK
DECEMBER 31, DECEMBER 31,
--------------------------------------- ------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------------ ------------------ ------------------ ------------------
LOAN LOAN LOAN LOAN LOAN
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO GROSS TO GROSS TO GROSS TO GROSS TO GROSS
AMOUNT LOANS(1) AMOUNT LOANS(1) AMOUNT LOANS(1) AMOUNT LOANS(1) AMOUNT LOANS(1)
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALLOCATED:
Commercial and
industrial............... $13,115 57.9% $11,741 57.1% $11,467 54.7% $11,163 52.5% $10,693 53.8%
Real
estate -- construction... 4,060 17.9 3,147 15.3 3,373 16.0 2,127 10.0 1,648 8.3
Residential real estate --
mortgages................ 1,509 11.8 1,661 14.2 1,768 14.7 2,231 18.3 2,040 18.0
Consumer and other......... 1,868 12.4 1,817 13.4 2,191 14.6 2,972 19.2 2,891 19.9
UNALLOCATED................ 4,047 -- 7,447 -- 5,385 -- 5,376 -- 5,561 --
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total allowance for loan
losses................... $24,599 100.0% $25,813 100.0% $24,184 100.0% $23,869 100.0% $22,833 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>

- ---------------

(1) excludes mortgage loans held-for-sale

The consolidated Company has maintained the same allocation of allowance
for loan losses to specific loan types as used by the Bank on the predecessor
basis.

40
<PAGE> 41
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

Nonearning Assets

The Company recorded $38.3 million of goodwill in connection with the
acquisition of the Bank and Mortgage Company on February 12, 1997. Goodwill for
the consolidated Company totaled $32.0 million and $34.4 million as of December
31, 1998 and 1997, respectively. Goodwill amortization expense totaled $2.4
million and $2.3 million for the consolidated Company's 1998 and 1997 reporting
periods. Goodwill was further reduced at December 31, 1997 by $1.3 million
resulting from state net operating loss carryforward utilization. See --
"Results of Operations -- Income Taxes." On August 5, 1997, the Mortgage Company
sold its operations headquartered in Florida. Because the Florida-based
operations generated the majority of the Mortgage Company's earnings, the
remaining goodwill of $403,000 was written off in August 1997.

At December 31, 1997, the consolidated Company's nonearning assets included
certain assets related to reverse exchange transactions executed in connection
with the Company's real estate trust services business. The Company acted as a
"parking intermediary", temporarily acquiring certain assets until their sale to
the ultimate owner. The acquisitions were funded entirely with nonrecourse
borrowings. During the holding period, the customers leased the assets at
rentals approximating the debt service payments on the borrowings. The assets
were not used in the operations of the Company and were carried at the lower of
the acquisition price or estimated fair value. Assets related to the reverse
exchange program comprised approximately $18.8 million of other assets at
December 31, 1997 and the related collateralized nonrecourse borrowings totaled
the same amount. On March 19, 1998, the Company sold the subsidiary (CTRE, Inc.)
within which the reverse exchange business was conducted. All assets and
borrowings of the subsidiary were sold with the subsidiary. No significant gain
or loss was realized as a result of the sale. See -- "Financial Condition
- -- Nonrecourse Borrowings."

Premises, leasehold improvements and equipment, net of accumulated
depreciation and amortization, totaled $22.7 million for the consolidated
Company as of December 31, 1998 and 1997. In 1998, the Bank leased a new branch
facility in downtown Chicago. In addition, during 1998 capital expenditures
increased due to various technology enhancements within the Bank's operations
center. The Company anticipates expenditures of approximately $2.5 million in
early 1999 to replace the Bank's wide area network including hardware and
software applications.

In connection with the Split-Off Transactions, the premises, leasehold
improvements and equipment of the consolidated Company were written-up by
approximately $7 million to their fair value. In addition, during 1997 the Bank
constructed a new branch facility in Skokie, Illinois.

Deposits

The Company's core deposits consist of noninterest and interest-bearing
demand deposits, savings deposits, certificates of deposit and certain public
funds and core customer repurchase agreements. (Customer repurchase agreements
are reported as short-term borrowings.) Brokered and other out-of-market
certificates of deposit and FHLB advances are also used by the Company to
support its asset base.

41
<PAGE> 42
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

The following table sets forth the distribution of the Company's average
deposit account balances and average cost of funds on each category of deposits
for the periods indicated:

AVERAGE DEPOSITS

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR CAPITAL PREDECESSOR BASIS -- COLE
GROUP, INC. -- CONSOLIDATED TAYLOR BANK
----------------------------------------------------------- ----------------------------
FOR THE PERIOD OF
FOR THE YEAR ENDED FEBRUARY 12, 1997 TO FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------------- ---------------------------- ----------------------------
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
PERCENT PERCENT PERCENT
AVERAGE OF AVERAGE OF AVERAGE OF
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits..................... $ 310,512 22.53% --% $ 301,941 21.60% --% $ 289,389 20.14% --%
Interest-bearing demand
deposits..................... 347,544 25.23 3.45 329,199 23.55 3.56 338,508 23.56 3.56
Savings deposits............... 111,908 8.12 2.25 116,472 8.33 2.55 121,497 8.45 2.56
Time deposits:
Certificates of deposit,
under $100,000............. 327,313 23.75 5.47 307,397 21.99 5.52 323,219 22.49 5.57
Certificates of deposit, over
$100,000................... 109,241 7.93 5.44 108,393 7.76 5.46 79,719 5.55 5.37
Brokered certificates of
deposit...................... 65,929 4.79 5.86 96,127 6.88 5.99 113,456 7.90 5.78
Public funds................... 105,338 7.65 5.37 138,248 9.89 5.66 171,159 11.91 5.54
---------- ------ ---------- ------ ---------- ------
Total time deposits........ 607,821 44.12 5.52 650,165 46.52 5.61 687,553 47.85 5.58
---------- ------ ---------- ------ ---------- ------
Total deposits........... $1,377,785 100.00% $1,397,777 100.00% $1,436,947 100.00%
========== ====== ========== ====== ========== ======
</TABLE>

Average deposits for the consolidated Company declined 1.4% during the year
ended December 31, 1998 from the reporting period of February 12, 1997 to
December 31, 1997. The decrease during 1998 was primarily in wholesale funding
categories, including brokered certificates of deposit and certain public funds.
These decreases were offset by growth in core customer deposits including demand
deposits and core certificates of deposit. The change in funding mix from
wholesale funding to core funding reflects Bank management's continued efforts
to obtain lower cost core customer deposit funding as well as greater use of
FHLB advances.

Average deposits for the consolidated Company declined 2.7% during the
reporting period of February 12, 1997 to December 31, 1997 from the Bank's
predecessor basis 1996 reporting period. The decline was primarily concentrated
in the brokered and out-of-market certificates of deposit and public funds.
During 1997, growth in core customer deposits, including core customer
utilization of repurchase agreements, allowed for reductions in funding obtained
from brokered and other out-of-market certificates of deposit as well as public
funds. The mix of core funding changed as a result of the increased popularity
of repurchase agreements utilized by core Bank customers, as well as the Bank's
marketing focus during the period which emphasized certificates of deposit and
NOW accounts.

Over the years, earning asset growth has exceeded core deposit growth,
which has resulted in the use of brokered and out-of-market certificates of
deposit and other borrowed funds. The Company offers certificates of deposit to
out-of-market customers by providing rates to a private third party electronic
system which provides certificate of deposit rates from institutions across the
country to its subscribers. The balance of

42
<PAGE> 43
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

certificates of deposit obtained through this marketing medium was $29.6 million
at December 31, 1998, as compared to $32.0 million and $46.9 million at December
31, 1997 and 1996, respectively. The Company also issues brokered certificates
of deposit. The balance of brokered certificates of deposit was $56.3 million,
$69.9 million and $80.7 million at December 31, 1998, 1997 and 1996,
respectively. Under FDIC regulations, only "well-capitalized" institutions may
fund themselves with brokered certificates of deposit without the prior approval
of regulators. The Bank is categorized as "well-capitalized". Adverse operating
results at the Bank or changes in industry conditions or overall market
liquidity, could lead to an inability to replace brokered deposits at maturity,
which could result in higher costs to or reduced asset levels of the Bank.
Municipal deposits, consisting of public fund time deposits and repurchase
agreements with state and local governments, are an important funding source for
the Bank. Total municipal time deposits and repurchase agreements approximated
$173 million and $146 million at December 31, 1998 and 1997, respectively. Most
of these deposits are collateralized by investment securities in the Bank's
investment portfolio.

Time deposits in denominations of $100,000 or more totaled $268.2 million
at December 31, 1998, an increase of $41.8 million, or 18.5%, from December 31,
1997. The following table sets forth the amount and maturities of time deposits
of $100,000 or more at December 31, 1998:

TIME DEPOSITS $100,000 AND OVER
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
3 months or less........................................... $161,106
Over 3 months through 6 months............................. 64,795
Over 6 months through 12 months............................ 33,283
Over 12 months............................................. 9,054
--------
Total............................................... $268,238
========
</TABLE>

Borrowed Funds

Short-Term Borrowings: The Company also uses short-term borrowings to
support its asset base. These borrowings include federal funds purchased,
securities sold under agreements to repurchase and U.S. Treasury tax and loan
note option accounts. The federal funds purchased are primarily funds obtained
from financial institutions where the Bank acts as one of the selling
institution's primary correspondent banks. The securities sold under agreement
to repurchase are primarily executed with core Bank customers. At December 31,
1998, the consolidated Company's short-term borrowings were $171.7 million
compared to $186.1 million at December 31, 1997. For the year ended December 31,
1998 and the period of February 12, 1997 to December 31, 1997 consolidated
Company short-term borrowings averaged $197.8 million and $194.3 million,
respectively.

During 1997 the use of repurchase agreements as an investment product
increased among the Bank's larger commercial customers. The predecessor Bank's
short-term borrowings averaged $160.3 million during 1996.

The following table reflects categories of short-term borrowings having
average balances during the period greater than 30% of stockholders' equity at
the end of each period. During each reported period, federal

43
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TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

funds purchased and securities sold under repurchase agreements were the only
categories meeting this criteria.

SHORT-TERM BORROWINGS

<TABLE>
<CAPTION>
SUCCESSOR BASIS --TAYLOR PREDECESSOR
CAPITAL GROUP, INC. -- BASIS -- COLE
CONSOLIDATED TAYLOR BANK
------------------------------------- -------------
AT OR FOR AT OR FOR
AT OR FOR THE THE PERIOD OF THE YEAR
YEAR ENDED FEBRUARY 12, 1997 TO ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------- -------------------- -------------
1998 1997 1996
------------- -------------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal Funds Purchased:
Balance at end of period..................... $ 51,225 $ 11,450 $ 26,040
Weighted average interest rate at end of
period.................................... 4.85% 6.00% 6.61%
Maximum amount outstanding (1)............... $ 60,800 $ 29,650 $ 42,045
Average amount outstanding................... $ 36,900 $ 22,946 $ 28,258
Weighted average interest rate during
period.................................... 5.29% 5.48% 5.37%
Securities Sold Under Repurchase Agreements:
Balance at end of period..................... $115,610 $169,550 $126,173
Weighted average interest rate at end of
period.................................... 4.23% 5.05% 5.18%
Maximum amount outstanding (1)............... $180,194 $203,898 $144,825
Average amount outstanding................... $156,642 $165,321 $126,484
Weighted average interest rate during
period.................................... 4.89% 5.11% 5.46%
</TABLE>

- ---------------

(1) Based on amount outstanding at month end during each period.

At December 31, 1998, the Bank had pre-approved overnight federal funds
borrowing lines available from its correspondent banks totaling $170 million.

Nonrecourse Borrowings

At December 31 1997, the consolidated Company's nonrecourse borrowings
totaled $18.8 million. There were no nonrecourse borrowings at December 31, 1998
or for the predecessor Bank in prior periods. Nonrecourse borrowings consisted
of debt incurred or assumed in connection with the acquisition of certain other
assets related to the Company's reverse exchange program. Funds were used to
acquire certain assets where the Company acted as a "parking intermediary",
temporarily holding the property until sale to its ultimate owner. The
borrowings were obtained from third-party banks and the customers initiating the
transactions and were collateralized by the assets acquired. The sole remedy of
the lender in event of nonpayment of the loan was the asset pledged as
collateral. During the holding period, the customers leased the assets at
rentals approximating the debt service payments on the nonrecourse borrowings.
On March 19, 1998, the Company sold the subsidiary (CTRE, Inc.) within which the
reverse exchange business was conducted. All assets and borrowings of the
subsidiary were sold with the subsidiary. No significant gain or loss was
realized as a result of the sale. See "Financial Condition -- Nonearning
Assets".

Notes Payable

The Company's notes payable consist of Federal Home Loan Bank (FHLB)
advances and long-term callable notes and Parent Company debt. Borrowings from
the FHLB totaled $105 million at December 31,

44
<PAGE> 45
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

1998 and $85 million at December 31, 1997. Based on the value of collateral
pledged at December 31, 1998, the Bank had additional borrowing capacity at the
FHLB of $17.9 million at December 31, 1998. During 1998, the Bank restructured a
portion of its FHLB advances into FHLB long-term callable notes which
effectively reduced the advance rates on this type of wholesale funding by an
average of 62 basis points.

The consolidated Company, as of December 31, 1998, had Parent Company debt
consisting of a $25 million term loan and a $12 million revolving credit
facility, of which $1.5 million was then outstanding. In October 1998, the
Company's loan agreement was extended, effective September 1, 1998 to September
1, 1999. In exchange for an increase in the revolving credit facility to $12
million from $7 million and a reduction in the interest rate, the loan
agreement, including the $25 million term loan, is now secured by the common
stock owned by the Bank. 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 December 31, 1998, the Company was not aware of any
instances of non-compliance.

Capital Resources

The Company actively monitors compliance with bank regulatory capital
requirements, focusing primarily on the risk-based capital guidelines. Under the
risk-based capital method of capital measurement, the ratio computed is
dependent on the amount and composition of assets recorded on the balance sheet,
and the amount and composition of off-balance sheet items, in addition to the
level of capital.

The consolidated Company's Tier 1 risk-based capital ratios were 7.76% and
7.95% at December 31, 1998 and 1997, respectively. The consolidated Company's
total risk-based capital ratios were 9.02% and 9.21% at December 31, 1998 and
1997, respectively. The Bank's Tier 1 risk-based capital ratios were 9.42%,
9.90% and 10.23% at December 31, 1998, 1997 and 1996, respectively. The Bank's
total risk based capital ratios were 10.67%, 11.16%, and 11.48% at December 31,
1998, 1997 and 1996, respectively. The Parent Company's capital ratios
decreased, in 1998, primarily as a result of commercial loan asset growth at the
Bank. The cash flow requirements at the Parent Company, which increased
significantly as a result of the legal defense costs related to the Split-Off
Transactions, resulted in increased dividends from the Bank. The dividend payout
ratio at the Bank increased to 99.3% in 1998 from 56.3% in 1997, while assets
grew 4.2%. As a result the capital ratios of the Bank declined during 1998. The
decline during 1997 in the Bank's ratios was 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.

Management of the Company recognizes the need to effectively manage capital
levels to remain above the regulatory "well capitalized" guidelines as it
relates to asset growth. In order to avoid declining capital levels, management
will continue to evaluate options, including utilizing the Parent Company's
revolving credit facility to fund Parent Company expenses, including legal
costs.

45
<PAGE> 46
TAYLOR CAPITAL GROUP, INC.

PART II
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 PURPOSES ACTION PROVISION
---------------- ------------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- ---------- ------ -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to Risk Weighted Assets)
Successor Basis -- Taylor Capital Group, Inc. --
Consolidated..................................... $131,218 9.02% >$ 116,405 >8.00% NA
Cole Taylor Bank................................... 154,943 10.67 > 116,144 >8.00 145,507 >10.00%
Tier I Capital (to Risk Weighted Assets)
Successor Basis -- Taylor Capital Group, Inc. --
Consolidated..................................... 112,951 7.76% > 58,203 > 4.00% NA
Cole Taylor Bank................................... 136,717 9.42 > 58,072 >4.00 87,304 > 6.00%
Leverage(1)
Successor Basis -- Taylor Capital Group, Inc. --
Consolidated..................................... 112,951 6.17% > 73,204 >4.00% NA
Cole Taylor Bank................................... 136,717 7.33 > 74,655 >4.00 91,506 > 5.00%
As of December 31, 1997:
Total Capital (to Risk Weighted Assets)
Successor Basis -- 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)
Successor Basis -- Taylor Capital Group, Inc. --
Consolidated..................................... 105,698 7.95% > 53,185 >4.00% NA
Cole Taylor Bank................................... 131,348 9.90 > 53,068 >4.00 79,601 > 6.00%
Leverage (1)
Successor Basis -- Taylor Capital Group, Inc. --
Consolidated..................................... 105,698 5.85% > 72,318 >4.00% NA
Cole Taylor Bank................................... 131,348 7.26 > 72,319 >4.00 90,399 > 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.

During the year ended December 31, 1998 and for the period of February 12,
1997 to December 31, 1997, the Parent Company declared $3.4 million and $3.1
million in preferred stock dividends and $1.7 million and $1.6 million of common
stock dividends, respectively. On December 17, 1998, the Company declared a
dividend of $.09 per common share, totaling $419,000, payable on January 15,
1999.

Liquidity

The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for business expansion. Liquidity management addresses the
Company's ability to meet withdrawals either on demand or at contractual
maturity, to repay

46
<PAGE> 47
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

borrowings as they mature and to make new loans and investments as opportunities
arise. The Bank actively manages its liquidity position to maintain sufficient
funds to respond to the needs of depositors and borrowers, as well as to take
advantage of earnings enhancement opportunities. In addition to the normal
influx of liquidity from core deposit growth, together with repayments and
maturities of loans and investments, the Bank utilizes brokered and national
certificate of deposit market, FHLB borrowings, broker/dealer repurchase
agreements and federal funds purchased to meet it liquidity needs. The FHLB
borrowings are collateralized by the Bank's first mortgage residential loans and
FHLB stock. Based on the value of collateral pledged at December 31, 1998, the
Bank had additional borrowing capacity at the FHLB of $17.9 million at December
31, 1998. The Bank also maintains pre-approved overnight federal funds borrowing
lines at various correspondent banks, which provided additional short-term
borrowing capacity of $170 million.

The Bank's management uses two primary measures of liquidity to monitor its
position. The first measure is a static analysis of basic surplus, which
represents the relationship between liquid assets and short-term liabilities
which are vulnerable to non-replacement under abnormally stringent conditions.
The second measure is a 90-day cash flow forecast of the relationship between
identified funding sources and uses and the total funds required to support that
asset position. Management has targeted ranges specified for each of the
measures and maintains a liquidity plan with specific action steps to provide
required liquidity under abnormally stringent conditions.

During 1998, the Bank's liquidity position remained stable. Asset growth in
commercial and home equity loans was funded primarily by cash flows from
maturing investment securities, prepayments of mortgage loans, a modest increase
in core customer deposits and decreased nonearning assets. The Parent Company's
revolving credit facility has been extended to September 1, 1999. In exchange
for an increase in the revolving credit facility to $12 million from $7 million
and a reduction in the interest rate, the loan agreement is now secured by the
common stock owned by the Bank. The Company believes that its current sources of
funds are adequate to meet all of the Company's financial commitments and asset
growth targets. Cash inflows from operating activities exceeded operating
outflows by $25.1 million during 1998. Net cash provided by operating activities
was higher in 1998 as compared to 1997 primarily due to required accelerated
premium amortization on investment securities and increased proceeds from sales
of loans originated for sale and other changes in assets and liabilities.

Overall, the Bank's liquidity increased in 1997 as a result of the
Split-Off Transactions and modest loan growth. Cash inflows from operating
activities exceeded operating outflows for the consolidated Company for the
period of February 12, 1997 to December 31, 1997 by $3.6 million. The
predecessor Bank's cash inflows from operating activities exceeded operating
outflows by $18.0 million in 1996. Net cash provided by operating activities was
lower in 1997 as compared to 1996 primarily due to the lower net income of the
consolidated Company as compared to the predecessor Bank.

Interest received net of interest paid was the principal source of
operating cash inflows in each of the above periods. Management of investing and
financing activities and market conditions determine the level and the stability
of net interest cash flows.

Net cash outflows from investing activities for the consolidated Company
for the year ended December 31, 1998 were $85.4 million. Net cash inflows from
investing activities for the consolidated Company for the period of February 12,
1997 to December 31, 1997 were $7.0 million. The increase in net cash outflows
experienced in 1998 were primarily due to loan growth. Net cash inflows during
the 1997 were attributable to the net cash of the Bank and Mortgage Company
acquired in the Split-Off Transactions. Net cash outflows

47
<PAGE> 48
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

from investing activities on the Bank's predecessor basis were $41.3 million in
1996. The net cash outflows in 1996 were primarily due to loan growth.

Net cash inflows from financing activities for the consolidated Company for
the year ended December 31, 1998 and for the period of February 12, 1997 to
December 31, 1997 were $43.1 million and $74.0 million, respectively. Net cash
inflows for 1998 were primarily a result of additional FHLB advances and deposit
growth. During 1997, net cash inflows were primarily attributable to the
issuance of preferred stock of $36.1 million and the Parent Company debt of $27
million in connection with the Split-Off Transactions. Net cash inflows from
financing activities on the Bank's predecessor basis were $18.0 million in 1996.
In 1996, net cash inflows were primarily attributable to increases in deposits
and additional FHLB advances.

The Parent Company's primary source of funds are dividends received from
the Bank. Dividends received from the Bank in 1998 and 1997 totaled $14.5
million and $8.0 million, respectively. The Bank is subject to dividend
restrictions set forth by regulatory authorities, whereby the Bank may not,
without prior approval of regulatory authorities, declare dividends in excess of
the sum of the current year's earnings plus the retained earnings from the prior
two years. The dividends, as of December 31, 1998, that the Bank could declare
and pay to the Company, without the approval of regulatory authorities, amounts
to approximately $8.3 million. On December 7, 1998 a motion was filed for a
preliminary injunction which seeks to prevent the Company and the Bank from
paying any dividends to any of their respective shareholders. In March 1999, the
Company filed a memorandum in opposition that opposes such preliminary
injunction. See Item 3. "Legal Proceedings."

The Parent Company also has a $12 million revolving credit facility, of
which only $1.5 million was outstanding at December 31, 1998.

As described in Footnote 23 to the consolidated financial statements
included in Part II, Item 8, and under the caption "Litigation" in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the Company and its subsidiaries continue to pay defense and other
legal costs related to certain significant litigation. As these costs are being
paid primarily by the Parent Company, the Parent Company's cash needs have
increased. The liquidity uses of the Parent Company on a standalone basis
consists primarily of dividends to shareholders and expenses for general
corporate purposes including legal costs. The primary source of Parent Company
cash flow is dividends received from the Bank. The Bank currently has adequate
capital to allow continued dividends, out of earnings, to support the expected
liquidity demands of the Parent Company.

Market Risk

Interest rate risk is the most significant market risk affecting the
Company. Other types of market risk, such as foreign currency risk and commodity
price risk, do not arise in the normal course of the Company's business
activities. Interest rate risk can be defined as the exposure to a movement in
interest rates that could have an adverse effect on the Company's net interest
income or the market value of its financial instruments. The ongoing monitoring
and management of this risk is an important component of the Company's asset and
liability management process, which is governed by policies established by the
Board of Directors and carried out by the Company's Asset/Liability Management
Committee ("ALCO"). ALCO's objectives are to manage, to the degree prudently
possible, the Company's exposure to interest rate risk over both the one year
planning cycle and the longer term strategic horizon and, at the same time, to
provide a stable and steadily increasing flow of net interest income.

The Company uses various interest rate contracts (floors and swaps) and
forward sale commitments to manage interest rate and market risk. These
contracts are designated as hedges of specific existing assets and
48
<PAGE> 49
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

liabilities. The Company's asset and liability management and investment
policies do not allow the use of derivative financial instruments for trading
purposes.

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, using the balances, rates,
maturities and repricing characteristics of all of the Bank's existing assets
and liabilities, including off-balance sheet financial instruments. Net interest
income is computed by the model assuming market rates remaining unchanged and
there is a parallel shift of market interest rates both up and down 200 basis
points. The impact of imbedded options in such products as callable and
mortgage-backed securities, real estate mortgage loans and callable borrowings
are considered. 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. ALCO utilizes the results of the model to quantify the
estimated exposure of net interest income to sustained interest rate changes.

The Company's simulation model at December 31, 1997 indicated that the Bank
was potentially exposed to declining market interest rates in both the one and
two year horizons. During 1998, the Company's potential exposure to declining
interest rates was realized, as current cash flows on the mortgage backed
securities portfolio accelerated and resulted in significantly reduced yields on
collateralized mortgage obligations. In addition, the Company entered into a two
year interest rate floor agreement on June 26, 1998. The floor, which has a
notional amount of $50 million, is based on 3 month LIBOR, with a strike rate of
6.0%. The floor is designated as a hedge against certain floating rate assets,
which yields would decrease in a declining interest rate environment. As a
result of the above, as well as changes in the Bank's balance sheet the Bank's
exposure to falling market interest rates declined in 1998.

At December 31, 1998 the Company's simulation model indicated a continued
exposure to declining rates, but only in the one year horizon, as the second
year exposure was mitigated through the runoff of the sequential-paying
collateralized mortgage obligations. At December 31, 1998 the net interest
income at risk for year one in the declining rate scenario was calculated at
$724,000, or 0.97% lower than the net interest income in the rates unchanged
scenario. This exposure was well within the Bank's policy guidelines of 10%. The
net interest income for year one in the rising rate scenario was calculated as
$1.9 million, or 2.5% higher than the net interest income in the rates unchanged
scenario. Computation of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, loan and security prepayments, deposit decay, and pricing and
reinvestment strategies and should not be relied upon as indicative of actual
results. Further, the computations do not contemplate any actions the Company
may take in response to changes in interest rates. No assurance can be given
that the actual net interest income would increase or decrease by the amounts
computed in response to a 200 basis point parallel increase in market rates.

During 1998, the Bank was a party to two interest rate contracts. An
interest rate swap contract with a notional amount of $25 million, was
designated as a hedge against certain floating-rate commercial loans, and the
Company paid a variable rate (LIBOR based) in exchange for receiving a fixed
rate. During 1998, the financial impact of the swap was to increase net interest
income by approximately $108,000. The interest rate swap matured in December
1998.

On June 26, 1998, the Bank entered into an interest floor contract for a
notional amount of $50 million. The floor contract provides for the receipt of
payments when the three month LIBOR rate is below the predetermined interest
rate floor of 6%. The floor is designated as a hedge against certain
floating-rate commercial loans. During 1998, the financial impact of the floor
was to increase net interest income by

49
<PAGE> 50
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

approximately $20,000 . As of December 31, 1998, the estimated fair value of the
interest rate floor contract was approximately $743,000.

THE YEAR 2000 ISSUE

The Company continues to be actively addressing its Year 2000 ("Y2K")
issues. A comprehensive Y2K plan (the "Plan") has been prepared and identifies
internal systems (most of which were purchased from third-party software
vendors) and those provided by third-party data processing service providers
that require modification or replacement. The Plan has been approved by the
Company's Board of Directors and includes multiple phases which are to be
completed, including awareness, assessment, renovation, validation/testing, and
implementation. The Plan also addresses contingency planning. The Company also
formed a Y2K oversight committee which is responsible for ensuring that the Plan
is executed on a timely basis.

The Company has substantially completed the awareness and assessment phases
of the Plan. The awareness phase included understanding the potential impact of
Y2K on the Company, educating employees and customers about Y2K issues, and
implementing various training and communication programs. The assessment phase
included a review of all information technology and non-information technology
systems to determine the effect of the Y2K on each particular system. An
inventory of all systems was developed to assess which systems will be likely to
cause material adverse consequences to the Company upon the arrival of Y2K
unless appropriate remedial action is taken. The Plan calls for the replacement
or upgrade of non-compliant systems during the fourth quarter of 1998 and early
1999. The Company expects all replacements and upgrades to be completed by June
30, 1999. In addition, significant vendors and borrowers of the Company have
been contacted and requested to inform the Company whether they are Y2K
compliant and, if not, their timetable for becoming compliant.

The Company began the renovation and validation/testing phases of its Plan
during the third quarter of 1998. These phases involve both the repair and
replacement of systems and computer equipment, as well as the development of
test scripts to test typical daily transactions on various systems. Appropriate
corrections, to applicable systems will be made based upon testing results. The
majority of the renovation and validation/testing is being performed during the
fourth quarter of 1998 and in early 1999. The Company expects the
validation/testing phases to be completed by May 31, 1999.

The majority of the Company's mission critical systems (specifically those
that process loans, deposits, investments, and general ledger transactions) are
provided by third party processors and, therefore, the Company continues to work
closely with those service providers through the renovation and
validation/testing phases to ensure effective compliant systems before the Year
2000. The Company's primary data processing provider has been subjected to
independent third-party reviews of its Y2K compliance plan and processes and an
examination by bank regulatory authorities. At this time, the primary data
processing provider reports that it is on target to meet all required dates to
provide compliant systems. All core applications provided by the Company's
primary data processing provider have been tested for Y2K readiness. The
majority of the remediated core applications provided by the Company's primary
data processing provider have already been implemented. The Company anticipates
that the remaining core applications provided by the Company's primary data
processing provider will be implemented by May 1999.

The Company's contingency plans relative to Y2K issues have not yet been
finalized and are being developed as the testing of all systems proceeds. Upon
completion of testing during the first quarter of 1999, appropriate contingency
plans will be finalized. As the Company's primary data processing provider is

50
<PAGE> 51
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

currently on target to meet all required dates to provide compliant systems, a
contingency plan covering this particular element has not yet been developed.

The Company expensed approximately $81,000 during 1998, and expects to
incur additional costs through 1999 for its Y2K compliance program. With respect
to certain technology applications, the Company has elected to replace the
existing applications with ones of greater functionality, rather than limit its
response only to remediation of the Y2K issue. For that reason, the Company's
future technology expenditures are expected to materially increase from
historical levels. The Company expects the additional costs incurred related to
Y2K to represent only a small portion of its overall technology expenditures.

Regardless of the Y2K 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 Y2K compliant. Other risks may include potential losses related
to major loan or deposit customers, vendors or other counterparties. The Company
has been evaluating, in accordance with the guidelines outlined by the Federal
Financial Institutions Examination Council, the potential credit and liquidity
risk associated with Y2K as it relates to the Company's customer base. The
Company's analysis performed to date has not identified major credit exposure
within the high risk category of customers; in-depth analysis will continue to
be performed during 1999. The Company has developed a liquidity strategy for Y2K
in order to meet expected currency demands at the Bank's branches and ATM's.
This strategy will be fully implemented during 1999.

Based on the Company's progress to date in executing its Plan, the Company
expects no significant disruption of business activities resulting from Y2K.

As a regulated financial institution, the Company is subject to possible
supervisory or enforcement action if the governing regulatory agency deems the
Company's response and progress with respect to the Y2K issue to be of serious
concern. At this time, management believes its progress with respect to Y2K
compliance to be satisfactory.

LITIGATION

Jeffrey W. Taylor, Chairman of the Board and Chief Executive Officer of the
Company, Bruce W. Taylor, President of the Company, Iris A. Taylor, Sidney J.
Taylor, Cindy Taylor Bleil, related trusts and a related partnership
(collectively, the "Taylor Family") have been named as defendants in the
lawsuits described below relating to (1) the Split-Off Transactions and (2) the
financial and public reporting of Reliance. Certain of the lawsuits also named
other current or former officers and directors of the Company and Reliance,
other stockholders of the Company, Reliance's public accountants at the time of
the Split-Off Transactions (who continue to serve as the Company's public
accountants), the investment banks that were involved in the Split-Off
Transactions, Reliance and the Company as additional defendants. The filing
dates of these lawsuits range from October 1997 to September 1998.

51
<PAGE> 52
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

In August 1998, nine class actions, brought on behalf of current and former
stockholders of Reliance and pending in the United States District Court for the
Western District of Texas, were consolidated into one class action. One class
action, brought on behalf of current and former stockholders of Reliance, is
pending in the Northern District of Illinois. These cases allege that the Taylor
Family, certain directors and officers of the Company, and certain other
defendants violated the federal securities laws and breached common law
fiduciary duties. In addition, the cases allege that the Company and certain
other defendants violated ERISA and breached certain fiduciary duties, including
fiduciary 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 and attorneys' fees. Cole Taylor Bank is named as an
additional defendant in the Illinois action. A motion is pending to transfer the
Texas case to Illinois, and a motion is pending to transfer the Illinois case to
Texas.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

exchanged in the Split-Off Transactions or the value of such assets. One of the
complaints demands monetary damages pursuant to the Taylor Family's obligation
under the Share Exchange Agreement to indemnify Reliance for certain losses
resulting from the Split-Off Transactions, and asks the court to disallow any
claims for indemnification that any of the defendants have against Reliance or,
in the alternative, to equitably subordinate such claims to all other creditor
claims against Reliance. Motions to consolidate the two adversary proceedings
and to have the adversary cases heard by the District Court, as opposed to the
Bankruptcy Court, are pending.

In accordance with the terms and conditions of the Share Exchange Agreement
relating to the Split-Off Transactions, the Taylor Family has agreed to
indemnify Reliance for certain losses incurred by Reliance, including certain
losses relating to the Split-Off Transactions ("Taylor Family Indemnification
Obligations"). In accordance with the terms of an agreement dated February 6,
1997 between the Taylor Family and the Company, the Company agreed to indemnify
the Taylor Family for certain losses that the Taylor Family may incur as a
result of the Split-Off Transactions, including a portion of the Taylor Family
Indemnification Obligations under the Share Exchange Agreement. The Company is
unable at this time to predict the extent to which it will be required to pay
any amounts under its indemnification obligation to the Taylor Family. The
Company and its subsidiaries have paid and may continue to pay defense and other
legal costs of the lawsuits described above that are not otherwise advanced by
insurance carriers on behalf of the Taylor Family and other directors, officers
and stockholders of the Company who are defendants in these lawsuits.

NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998. This
Statement standardizes the accounting for derivative instruments. Under the
standard, entities are required to carry all derivative instruments in the
statement of financial condition at fair value. The accounting for changes in
fair value (i.e., gains or losses) of the derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, if so, the reason for holding it. If certain conditions are met, entities
may elect to designate the derivative instrument as a hedge of exposure to
changes in fair values, cash flows or foreign currencies. If the hedged exposure
is a fair value exposure, the gain or loss on the derivative instrument is
recognized in earnings in the period of

53
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TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

change together with the offsetting gain or loss on the hedged item attributable
to the risk being hedged. If the hedged exposure is a cash flow exposure, the
effective portion of the gain or loss on the derivative instrument is reported
initially as a component of other comprehensive income (outside earnings) and
subsequently reclassified into earnings when the forecasted transaction affects
earnings. Any amounts excluded from the assessment of hedge effectiveness, as
well as the ineffective portion of the gain or loss, is reported in earnings
immediately. Accounting for foreign currency hedged is similar to the accounting
for fair value and cash flow hedges. If the derivative instrument is not
designated as a hedge, the gain or loss is recognized in earnings in the period
of change. The Company must adopt the Statement by January 1, 2000; however,
early adoption is permitted. Upon adoption, the provisions of the Statement must
be applied prospectively. The Company plans to adopt the Statement during 1999.
The Company has not yet quantified the impact of its adoption of the Statement.

Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities," is effective for fiscal years beginning after December 15, 1998.
SOP 98-5 requires that the cost of start-up activities and organization costs to
be expensed as incurred. Initial application of SOP 98-5 will be reported as the
cumulative effect of an accounting change in accounting principle as described
in Accounting Principles Board Opinion No. 20, "Accounting Changes." The Company
will adopt SOP 98-5 during the first quarter of 1999. The adoption of the
statement will result in a cumulative effect of a change in accounting principle
totaling approximately $360,000.

QUARTERLY FINANCIAL INFORMATION

The following table sets forth unaudited financial data regarding the
Company's operations for each of the four quarters of 1998 and 1997. This
information, in the opinion of management, includes all adjustments necessary to
present fairly the Company's results of operations for such periods, consisting
only of normal recurring adjustments for the periods indicated. The operating
results for any quarter are not necessarily indicative of results for any future
period.

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. --
CONSOLIDATED -- 1998 QUARTER ENDED
---------------------------------------------------
MAR. 31 JUN. 30 SEP. 30 DEC. 31
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................. $33,808 $34,022 $34,276 $34,039
Interest expense................................ 16,304 16,575 16,755 15,775
------- ------- ------- -------
Net interest income............................. 17,504 17,447 17,521 18,264
Provision for loan losses....................... 750 1,500 1,050 1,835
Investment securities gains, net................ -- -- -- 11
Non interest income............................. 5,927 4,840 4,549 5,294
Non interest expense............................ 16,288 18,266 17,392 18,482
------- ------- ------- -------
Income before income taxes...................... 6,393 2,521 3,628 3,252
Income taxes.................................... 2,512 1,143 1,445 1,253
------- ------- ------- -------
Net income...................................... $ 3,881 $ 1,378 $ 2,183 $ 1,999
======= ======= ======= =======
</TABLE>

54
<PAGE> 55
TAYLOR CAPITAL GROUP, INC.

PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

<TABLE>
<CAPTION>
PREDECESSOR
BASIS -- COLE
TAYLOR BANK SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. --
1997 CONSOLIDATED -- 1997 QUARTER ENDED
----------------- ---------------------------------------------------
JAN. 1 -- FEB. 11 FEB. 12 -- MAR. 31 JUN. 30 SEP. 30 DEC. 31
----------------- ------------------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income................ $15,642 $17,804 $34,639 $35,801 $34,370
Interest expense............... 7,076 8,643 17,095 17,978 16,742
------- ------- ------- ------- -------
Net interest income............ 8,566 9,161 17,544 17,823 17,628
Provision for loan losses...... 420 484 904 1,769 904
Investment securities gains,
net.......................... -- -- -- 329 72
Non interest income............ 1,930 2,350 4,566 6,084 4,472
Non interest expense........... 6,466 8,184 16,940 17,230 17,180
------- ------- ------- ------- -------
Income before income taxes..... 3,610 2,843 4,266 5,237 4,088
Income taxes................... 1,328 835 1,853 2,128 1,505
------- ------- ------- ------- -------
Net income..................... $ 2,282 $ 2,008 $ 2,413 $ 3,109 $ 2,583
======= ======= ======= ======= =======
</TABLE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by the Item is included under Item 7.
"Management's Discussion and Analysis -- Financial Condition -- Market Risk."

55
<PAGE> 56

TAYLOR CAPITAL GROUP, INC.

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Taylor Capital Group, Inc.:

We have audited the accompanying consolidated balance sheets of Taylor
Capital Group, Inc. and subsidiaries (Successor) as of December 31, 1998 and
1997 and the related consolidated statements of income, stockholders' equity,
and cash flows for the year ended December 31, 1998 and the period from February
12, 1997 to December 31, 1997 (Successor periods). We have also audited the
accompanying statements of income, stockholder's equity, and cash flows of Cole
Taylor Bank (Predecessor) for the period from January 1, 1997 to February 11,
1997 and for the year ended December 31, 1996 (Predecessor periods). These
financial statements are the responsibility of the Successor's and Predecessor's
managements. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the aforementioned Successor's consolidated financial
statements present fairly, in all material respects, the financial position of
Taylor Capital Group, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for the Successor
periods in conformity with generally accepted accounting principles.
Furthermore, in our opinion, the aforementioned Predecessor's financial
statements present fairly, in all material respects, the results of Cole Taylor
Bank's operations and its cash flows for the Predecessor periods in conformity
with generally accepted accounting principles.

As discussed in Note 1 to the financial statements, effective February 12,
1997, certain members of Predecessor's management and related investors acquired
Taylor Capital Group, Inc. and subsidiaries in a business combination accounted
for as a purchase and, accordingly, the assets and liabilities of Taylor Capital
Group, Inc. and subsidiaries were revalued. Consequently, the consolidated
financial information for the period after the acquisition is presented on a
different cost basis than that for the periods before the acquisition and,
therefore, is not comparable.

Chicago, Illinois /s/ KPMG LLP
February 19, 1999, except for
Note 23, which is as of March 3, 1999

56
<PAGE> 57
TAYLOR CAPITAL GROUP, INC.

PART II

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 66,192 $ 72,210
Interest-bearing deposits with banks........................ 1,200 12,131
Federal funds sold.......................................... 31 275
Investment securities:
Available-for-sale, at fair value......................... 351,408 399,145
Held-to-maturity, at amortized cost (fair value of $91,620
and $84,581 at December 31, 1998 and 1997,
respectively).......................................... 89,753 83,251
Loans held for sale, net, at lower of cost or market........ 42,257 31,771
Loans, net of allowance for loan losses of $24,599 and
$25,813 at December 31, 1998 and 1997, respectively....... 1,269,125 1,146,853
Premises, leasehold improvements and equipment, net......... 22,702 22,713
Other real estate and repossessed assets, net............... 3,267 1,463
Goodwill and other intangibles, net of amortization of
$4,683 and $2,235 at December 31, 1998 and 1997,
respectively.............................................. 32,053 34,356
Other assets................................................ 32,342 51,543
---------- ----------
Total assets........................................... $1,910,330 $1,855,711
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing....................................... $ 350,711 $ 340,419
Interest-bearing.......................................... 1,089,026 1,037,538
---------- ----------
Total deposits....................................... 1,439,737 1,377,957
Short-term borrowings....................................... 171,718 186,053
Accrued interest, taxes and other liabilities............... 22,242 19,874
Nonrecourse borrowings...................................... -- 18,757
Notes payable............................................... 131,500 112,000
---------- ----------
Total liabilities...................................... 1,765,197 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
redemption value....................................... 38,250 38,250
Common stock, $.01 par value; 7,000,000 shares authorized,
4,658,533 and 4,640,453 shares issued and outstanding
at December 31, 1998 and 1997, respectively............ 47 46
Surplus................................................... 99,990 99,371
Unearned compensation -- stock grants..................... (2,083) (2,656)
Employee stock ownership plan loan........................ (576) --
Retained earnings......................................... 9,434 5,278
Accumulated other comprehensive income.................... 71 781
---------- ----------
Total stockholders' equity............................. 145,133 141,070
---------- ----------
Total liabilities and stockholders' equity........... $1,910,330 $1,855,711
========== ==========
</TABLE>

See accompanying notes to financial statements.
57
<PAGE> 58
TAYLOR CAPITAL GROUP, INC.

PART II

STATEMENTS OF INCOME
(IN THOUSANDS)

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR CAPITAL PREDECESSOR BASIS --
GROUP, INC. -- CONSOLIDATED COLE TAYLOR BANK
---------------------------------- -----------------------------
FOR THE FOR THE PERIOD OF FOR THE PERIOD FOR THE
YEAR ENDED FEB. 12, 1997 OF JAN. 1, 1997 YEAR ENDED
DEC. 31, TO DEC. 31, TO FEB. 11, DEC. 31,
----------- ------------------ --------------- ----------
1998 1997 1997 1996
----------- ------------------ --------------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans....................... $110,505 $ 95,356 $12,481 $110,582
Interest and dividends on investment securities:
Taxable........................................ 21,702 23,086 2,606 22,987
Tax-exempt..................................... 3,341 2,628 431 3,839
Interest on cash equivalents..................... 597 1,544 124 1,489
-------- -------- ------- --------
Total interest income........................ 136,145 122,614 15,642 138,897
-------- -------- ------- --------
Interest expense:
Deposits......................................... 48,056 45,275 5,614 53,518
Short-term borrowings............................ 9,969 8,870 1,026 8,719
Notes payable.................................... 7,384 6,313 436 4,140
-------- -------- ------- --------
Total interest expense....................... 65,409 60,458 7,076 66,377
-------- -------- ------- --------
Net interest income................................ 70,736 62,156 8,566 72,520
Provision for loan losses.......................... 5,135 4,061 420 3,307
-------- -------- ------- --------
Net interest income after provision for loan
losses..................................... 65,601 58,095 8,146 69,213
-------- -------- ------- --------
Noninterest income:
Service charges.................................. 8,997 8,279 1,122 8,682
Trust fees....................................... 3,971 3,331 359 3,635
Gain on sales of loans, net...................... 3,621 2,598 169 983
Gain on sale of mortgage servicing rights........ 1,462 -- -- 451
Gain on sale of merchant credit card program..... -- 1,230 -- --
Gain on sale of credit card loans................ 686 -- -- --
Investment securities gains, net................. 11 401 -- --
Other noninterest income......................... 1,873 2,034 280 2,073
-------- -------- ------- --------
Total noninterest income..................... 20,621 17,873 1,930 15,824
-------- -------- ------- --------
Noninterest expense:
Salaries and employee benefits................... 37,303 31,683 3,645 30,171
Occupancy of premises, net....................... 7,158 5,298 656 5,198
Furniture and equipment.......................... 3,413 3,262 322 3,017
Computer processing.............................. 2,234 2,004 222 2,033
Legal fees....................................... 4,364 2,227 194 1,473
Advertising and public relations................. 1,807 1,713 157 1,764
Goodwill and other intangible amortization....... 2,448 2,253 20 199
Other noninterest expense........................ 11,701 11,094 1,250 11,518
-------- -------- ------- --------
Total noninterest expense.................... 70,428 59,534 6,466 55,373
-------- -------- ------- --------
Income before income taxes......................... 15,794 16,434 3,610 29,664
Income taxes....................................... 6,353 6,321 1,328 9,971
-------- -------- ------- --------
Net income......................................... $ 9,441 $ 10,113 $ 2,282 $ 19,693
======== ======== ======= ========
Preferred dividend requirements.................... (3,442) (3,052) -- --
-------- --------
Net income applicable to common stockholders....... $ 5,999 $ 7,061 -- --
======== ========
</TABLE>

See accompanying notes to financial statements.
58
<PAGE> 59
TAYLOR CAPITAL GROUP, INC.

PART II

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SUCCESSOR BASIS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD OF FEBRUARY 12, 1997 TO
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SERIES A 9% EMPLOYEE
NONCUMULATIVE STOCK ACCUMULATED
PERPETUAL UNEARNED OWNERSHIP OTHER
PREFERRED COMMON COMPENSATION -- PLAN RETAINED COMPREHENSIVE
STOCK STOCK SURPLUS STOCK GRANTS LOAN EARNINGS INCOME TOTAL
------------- ------ ------- --------------- --------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
February 12, 1997 initial
capitalization........... $ -- $45 $98,288 $ -- $ -- $ -- $ -- $ 98,333
Issuance of preferred
stock.................. 38,250 (2,144) 36,106
Amortization of preferred
stock issuance costs... 138 (138) --
Issuance of stock
grants................. 1 3,089 (3,090) --
Amortization of stock
grants................. 434 434
Comprehensive income
Net income............. 10,113 10,113
Unrealized holding gain
on investment
securities, net of
income taxes......... 781 781
--------
Total comprehensive
income................. 10,894
--------
Dividends:
Preferred -- $1.994 per
share................ (3,052) (3,052)
Common -- $0.36 per
share................ (1,645) (1,645)
------- --- ------- ------- ----- ------- ----- --------
Balance at December 31,
1997..................... 38,250 46 99,371 (2,656) -- 5,278 781 141,070
Amortization of preferred
stock issuance costs... 167 (167) --
Issuance of stock
grants................. 1 452 (452) 1
Amortization of stock
grants................. 1,025 1,025
Issuance of employee
stock ownership plan
loan................... (576) (576)
Comprehensive income
Net income............. 9,441 9,441
Change in unrealized
holding gain on
investment
securities, net of
income taxes......... (710) (710)
--------
Total comprehensive
income................. 8,731
--------
Dividends:
Preferred -- $2.25 per
share................ (3,442) (3,442)
Common -- $0.36 per
share................ (1,676) (1,676)
------- --- ------- ------- ----- ------- ----- --------
Balance at December 31,
1998..................... $38,250 $47 $99,990 $(2,083) $(576) $ 9,434 $ 71 $145,133
======= === ======= ======= ===== ======= ===== ========
</TABLE>

See accompanying notes to financial statements.

59
<PAGE> 60
TAYLOR CAPITAL GROUP, INC.

PART II

STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
PREDECESSOR BASIS -- COLE TAYLOR BANK
FOR THE PERIOD OF JANUARY 1, 1997 TO FEBRUARY 11, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE
STOCK SURPLUS EARNINGS INCOME TOTAL
------- ------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995.......... $15,000 $50,826 $ 66,993 $ (78) $132,741
Tax benefit associated with exercise
of common stock options.......... 1,202 1,202
Comprehensive income
Net income....................... 19,693 19,693
Change in unrealized holding loss
on investment securities, net
of income taxes................ (1,901) (1,901)
--------
Total comprehensive income.......... 17,792
--------
Dividends on common stock -- $6.733
per share........................ (10,100) (10,100)
------- ------- -------- ------- --------
Balance at December 31, 1996.......... 15,000 52,028 76,586 (1,979) 141,635
Comprehensive income
Net income....................... 2,282 2,282
Change in unrealized holding loss
on investment securities, net
of income taxes................ (1,140) (1,140)
--------
Total comprehensive income.......... 1,142
------- ------- -------- ------- --------
Balance at February 11, 1997.......... $15,000 $52,028 $ 78,868 $(3,119) $142,777
======= ======= ======== ======= ========
</TABLE>

See accompanying notes to financial statements.
60
<PAGE> 61
TAYLOR CAPITAL GROUP, INC.

PART II

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR
CAPITAL GROUP, INC. -- PREDECESSOR BASIS --
CONSOLIDATED COLE TAYLOR BANK
------------------------------ ----------------------------
FOR THE FOR THE
YEAR FOR THE PERIOD FOR THE PERIOD YEAR
ENDED OF FEB. 12, 1997 OF JAN. 1, 1997 ENDED
DEC. 31, TO DEC. 31, TO FEB. 11, DEC. 31,
---------- ---------------- --------------- ---------
1998 1997 1997 1996
---------- ---------------- --------------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 9,441 $ 10,113 $ 2,282 $ 19,693
Adjustments to reconcile net income to net cash
provided by operating activities:
Investment securities gains, net................... (11) (401) -- --
Amortization of premiums and discounts, net........ 4,893 787 6 769
Deferred loan fee amortization..................... (1,973) (1,594) (411) (2,486)
Provision for loan losses.......................... 5,135 4,061 420 3,307
Gain on sales of loans originated for sale......... (6,314) (3,663) (137) (1,628)
Loss on sale of indirect auto loans................ -- -- -- 767
Loans originated and held for sale................. (297,913) (218,778) (12,852) (235,470)
Proceeds from sales of loans originated for sale... 300,052 212,425 23,724 227,531
Depreciation and amortization...................... 4,033 3,578 238 3,021
Amortization of intangible assets.................. 2,448 2,253 20 199
Charge in lieu of taxes resulting from recognition
of acquired tax benefits......................... 1,323 634 -- --
Deferred income taxes.............................. (1,591) (589) (325) 249
(Gain) loss on sales of other real estate.......... (50) 4 93 (81)
Provision for other real estate.................... 111 252 -- 72
Other, net......................................... 508 1,190 65 (799)
Changes in assets and liabilities
Accrued interest receivable...................... 736 (2,628) 2,534 465
Other assets..................................... 1,930 (4,911) 4,582 (1,372)
Accrued interest, taxes and other liabilities.... 2,366 839 761 3,810
--------- ---------- -------- ---------
Net cash provided by operating activities...... 25,124 3,572 21,000 18,047
--------- ---------- -------- ---------
Cash flows from investing activities:
Purchases of available-for-sale securities......... (120,672) (184,670) (43,533) (200,051)
Purchases of held-to-maturity securities........... (47,638) (14,233) -- (3,568)
Proceeds from principal payments and maturities of
available-for-sale securities.................... 150,937 104,498 2,000 229,038
Proceeds from principal payments and maturities of
held-to-maturity securities...................... 40,642 5,758 1,209 5,150
Proceeds from sales of available-for-sale
securities....................................... 12,011 52,821 -- --
Proceeds from sales of held-to-maturity
securities....................................... -- 333 -- --
Net cash of Bank and Mortgage Company acquired in
Split-Off Transactions........................... -- 62,503 -- --
Proceeds from sale of new indirect auto loans...... -- -- 66,570 --
Net increase in loans.............................. (135,682) (6,339) (11,687) (74,089)
Proceeds from sale of CT Mortgage assets........... -- 8,703 -- --
Net additions to premises, leasehold improvements
and equipment.................................... (4,195) (4,000) (87) (1,340)
Acquisition of land trust customer base............ (145) -- -- --
Acquisition (disposition) of reverse exchange
assets........................................... 18,757 (18,757) -- --
Loan issuance to Employee Stock Ownership Plan..... (576) -- -- --
Proceeds from sales of other real estate........... 1,174 408 36 3,569
--------- ---------- -------- ---------
Net cash provided by (used in) investing
activities................................... (85,387) 7,025 14,508 (41,291)
--------- ---------- -------- ---------
</TABLE>

See accompanying notes to financial statements.
61
<PAGE> 62
TAYLOR CAPITAL GROUP, INC.

PART II

STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR
CAPITAL GROUP, INC. -- PREDECESSOR BASIS --
CONSOLIDATED COLE TAYLOR BANK
------------------------------ ----------------------------
FOR THE FOR THE
YEAR FOR THE PERIOD FOR THE PERIOD YEAR
ENDED OF FEB. 12, 1997 OF JAN. 1, 1997 ENDED
DEC. 31, TO DEC. 31, TO FEB. 11, DEC. 31,
---------- ---------------- --------------- ---------
1998 1997 1997 1996
---------- ---------------- --------------- ---------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits................ 61,780 27,151 (56,094) 42,825
Net (decrease) increase in short-term borrowings... (14,335) (56,576) 80,447 (39,851)
Net (decrease) increase in nonrecourse
borrowings....................................... (18,757) 18,757 -- --
Repayments of notes payable........................ (112,400) (40,600) (25,201) (50,167)
Proceeds from notes payable........................ 131,900 92,600 -- 75,250
Net proceeds from issuance of preferred stock...... -- 36,106 -- --
Dividends paid..................................... (5,118) (3,419) -- (10,100)
--------- ---------- -------- ---------
Net cash provided by (used in) financing
activities................................... 43,070 74,019 (848) 17,957
--------- ---------- -------- ---------
Net increase (decrease) in cash and cash equivalents... (17,193) 84,616 34,660 (5,287)
Cash and cash equivalents, beginning of period......... 84,616 -- 87,260 92,547
--------- ---------- -------- ---------
Cash and cash equivalents, end of period............... $ 67,423 $ 84,616 $121,920 $ 87,260
========= ========== ======== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest........................................... $ 65,903 $ 60,188 $ 7,303 $ 65,462
Income taxes....................................... 7,031 7,171 997 8,299
Supplemental disclosures of noncash investing and
financing activities:
Unrealized holding gain (loss) on investment
securities, net of income taxes.................... (710) 781 (1,140) (1,901)
Proceeds receivable on sale of new indirect auto
loans.............................................. -- -- -- 66,570
Mortgage servicing rights originated................. 898 622 127 1,697
Loans transferred to other real estate............... 3,039 1,188 138 734
Tax benefit associated with exercise of common stock
options............................................ -- -- -- 1,202
Fair value of Bank and Mortgage Company assets
acquired........................................... $ -- $1,775,581 $ -- $ --
Fair value of CTFG stock exchanged................... -- 98,333 -- --
--------- ---------- -------- ---------
Bank and Mortgage Company liabilities assumed........ $ -- $1,677,248 $ -- $ --
========= ========== ======== =========
</TABLE>

See accompanying notes to financial statements.
62
<PAGE> 63

TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION:

The successor basis Taylor Capital Group, Inc. consolidated financial
statements for the year ended December 31, 1998 and for the period of February
12, 1997 to December 31, 1997 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 (the "Bank"), CT Mortgage
Company, Inc. (the "Mortgage Company") and CTRE, Inc (which was sold March 19,
1998, as described further in footnote 14). Taylor Capital Group, Inc. is a bank
holding company which was formed by certain members of the Bank's management and
related investors 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 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
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. As a result of the Split-Off Transactions, the
consolidated financial information of the Company for the year ended December
31, 1998 and for the period from February 12, 1997 through December 31, 1997 is
presented on a different cost basis than that for the periods before the
acquisition and, therefore, is not comparable.

2. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES:

The accounting and reporting policies of the Company conform to generally
accepted accounting principles and general reporting practices within the
financial services industry. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
The following is a summary of the more significant accounting and reporting
policies:

CONSOLIDATION:

The successor basis Taylor Capital Group, Inc. consolidated financial
statements include the accounts of Taylor Capital Group, Inc. and its
wholly-owned subsidiaries, Cole Taylor Bank, CT Mortgage Company, Inc. and
CTRE, Inc. All significant intercompany balances and transactions have been
eliminated in consolidation.

CASH AND CASH EQUIVALENTS:

Cash and cash equivalents include cash on hand, amounts due from
banks, interest-bearing deposits with banks and federal funds sold. All
federal funds are sold overnight with daily settlement required.

INVESTMENT SECURITIES:

Securities that may be sold as part of the Bank's asset/liability or
liquidity management or in response to or in anticipation of changes in
interest rates and resulting prepayment risk, or for other similar factors,
are classified as available-for-sale and carried at fair value. Unrealized
holding gains and

63
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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES: -- (CONTINUED)
losses on such securities are reported net of tax in a separate component
of stockholders' equity. Securities that the Bank has the ability and
positive intent to hold to maturity are classified as held-to-maturity and
carried at amortized cost, adjusted for amortization of premiums and
accretion of discounts using the level-yield method. A decline in market
value of any security below cost that is deemed other than temporary is
charged to earnings. Realized gains and losses on the sales of all
securities are reported in income and computed using the specific
identification method. The Company and the Bank did not maintain a trading
portfolio during the periods presented.

LOANS HELD FOR SALE:

Mortgage loans held for sale are stated at the lower of aggregate cost
or aggregate fair value as determined by outstanding commitments from
investors or current market prices for loans with no sale commitments.
Forward commitments to sell mortgage loans are used to manage the interest
rate risk exposure of the mortgage banking activities. Net deferred
origination fees and costs are recognized at the time of sale in the gain
or loss determination.

LOANS:

Loans are stated at the principal amount outstanding, net of unearned
discount. Unearned discount on consumer loans is recognized as income over
the terms of the loans using the sum-of-the-months-digits method, which
approximates the interest method. Interest income on other loans is
generally recognized using the level-yield method. Loan origination and
commitment fees and certain direct loan origination costs are deferred and
the net amount amortized as an adjustment of the related loans' yields.

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. The allowance is increased
by provisions for loan losses charged to expense and decreased by
charge-offs, net of recoveries. Although a loan is charged off by
management when deemed uncollectible, collection efforts may continue and
future recoveries may occur.

The allowance is maintained by management at a level considered
adequate to cover losses that are currently anticipated based on past loss
experience, general economic conditions, information about specific
borrower situations including their financial position and collateral
values, and other factors and estimates which are subject to change over
time. Estimating the risk of loss and amount of loss on any loan is
necessarily subjective and ultimate losses may vary from current estimates.
These estimates are reviewed periodically and, as adjustments become
necessary, they are reported in income in the periods in which they become
known.

A portion of the total allowance for loan losses is related to
impaired loans. A loan is considered impaired, based on current information
and events, if it is probable that the Company will be unable to collect
the scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Certain homogenous loans,
including residential mortgage and consumer loans, are collectively
evaluated for impairment and, therefore, excluded from impaired loans.
Commercial loans exceeding size thresholds established by management are
individually evaluated for impairment. The amount in the allowance for loan
losses for impaired loans is based on the present value of expected future
cash flows discounted at the loan's effective interest rate, except that
collateral-dependent loans may be measured for impairment based on the fair
value of the collateral.

64
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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES: -- (CONTINUED)
INCOME RECOGNITION ON IMPAIRED LOANS AND NONACCRUAL LOANS:

Loans, including impaired loans, are generally placed on a nonaccrual
basis for recognition of interest income when, in the opinion of
management, uncertainty exists as to the ultimate collection of principal
or interest. The nonrecognition of interest income on an accrual basis does
not constitute forgiveness of the interest. While a loan is classified as
nonaccrual, collections of interest and principal are generally applied as
a reduction to principal outstanding. Loans may be returned to accrual
status when all principal and interest amounts contractually due are
reasonably assured of repayment within an acceptable period of time, and
there is a sustained period of repayment performance by the borrower, in
accordance with the contractual terms of interest and principal.

PREMISES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT:

Premises, leasehold improvements, and equipment are reported at cost
less accumulated depreciation and amortization. Depreciation and
amortization is charged to operating expense using the straight-line method
for financial reporting purposes over a three to twenty-five year period,
representing the estimated useful lives of the assets. Leasehold
improvements are amortized over a one to twenty year period, which
represents the shorter of the lease term or the estimated useful life of
the improvement.

OTHER REAL ESTATE:

Other real estate primarily includes properties acquired through
foreclosure or deed in lieu of foreclosure. At foreclosure, the other real
estate is recorded at the lower of the amount of the loan balance or the
fair value of the real estate, through a charge to the allowance for loan
losses, if necessary. Subsequent write-downs required by changes in
estimated fair value or disposal expenses are provided through a valuation
allowance and the provision for losses is charged to operating expense.
Carrying costs of these properties, net of related income, and gains or
losses on the sale on their disposition are included in current operations
as other real estate expense.

MORTGAGE SERVICING RIGHTS:

Mortgage servicing rights represent the servicing assets retained in
the sale of mortgage loans originated by the Company. The cost of the
mortgage is allocated between the loan and the related servicing rights
based on their relative fair values at the date of sale. The fair value of
the servicing rights is estimated using the present value of expected
future cash flows based upon assumptions on interest, default and
prepayment rates which are consistent with assumptions that market
participants would utilize. The Company stratifies the servicing rights
generally on the basis of the note rate and loan type for purposes of
measuring impairment. Impairment is recognized through a valuation
allowance for each impaired stratum. Mortgage servicing rights are
amortized in proportion to, and over the period of, estimated net servicing
income and the amortization reflected in the income statement as a
reduction to mortgage servicing fee income.

GOODWILL:

Goodwill represents the excess of purchase price over the fair value
of net assets acquired for the Bank. Under purchase accounting, the price
is allocated to the respective assets acquired and liabilities assumed
based on their estimated fair values, net of applicable income tax effects.
The goodwill is being amortized using the straight-line method over fifteen
years.

65
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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES: -- (CONTINUED)
OTHER ASSETS:

Included in other assets at December 31, 1997 were assets related to
reverse exchange transactions executed in connection with the Company's
real estate trust services business. The Company acted as a "parking
intermediary", temporarily acquiring certain assets until their sale to the
ultimate owner. The acquisitions were funded entirely with nonrecourse
borrowings. During the holding period the customers leased the assets at
rentals approximating the debt service payments on the borrowings. The
assets were not used in the operations of the Company and were carried at
the lower of the acquisition price or estimated fair value. Assets related
to the reverse exchange program comprised approximately $18.8 million of
other assets at December 31, 1997 and collateralized nonrecourse borrowings
of the same amount. Income and expense for these assets and borrowings were
netted for purposes of the consolidated statement of operations and were
included in trust fees. On March 19, 1998, the Company sold the subsidiary
(CTRE, Inc.) within which the reverse exchange business was conducted. All
assets and borrowings of the subsidiary were sold with the subsidiary. A
gain of $25,000 was realized as a result of the sale.

INCOME TAXES:

Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the income tax provision.

STOCK OPTION PLAN:

The Company applies the intrinsic value method of accounting
promulgated under Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. Accordingly, no compensation cost
is recognized in connection with the granting of stock options with an
exercise price equal to the fair market value of the stock on the date of
the grant. Financial Accounting Standard No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123), establishes a fair value method of
accounting for stock based compensation, but it allows entities to continue
to apply the intrinsic value method in accordance with the provisions of
APB Opinion No. 25 and provide certain pro forma net income disclosures
determined as if the fair value method defined in SFAS No. 123 had been
applied.

FINANCIAL INSTRUMENTS:

In the ordinary course of business the Company enters into off-balance
sheet financial instruments consisting of commitments to extend credit,
unused lines of credit, letters of credit and standby letters of credit.
Such financial instruments are recorded in the financial statements when
they are funded or related fees are incurred or received.

INTEREST RATE CONTRACTS:

The Company uses various interest rate contracts (floors and swaps) to
manage interest rate and market risk. These contracts are designated as
hedges of specific existing assets and liabilities. The Company's asset and
liability management and investment policies do not allow the use of
derivative financial instruments for trading purposes. Net interest income
(expense) resulting from the differential between exchanging floating and
fixed rate interest payments is accrued and recognized as an adjustment to
the interest income or expense of the hedged asset or liability. The cost
of interest rate floor agreements is amortized as a reduction to interest
income on loans over the life of the agreements. The fair value of

66
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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES: -- (CONTINUED)
the floor and swap agreements and changes in the fair value as a result of
changes in market interest rates are not recognized in the financial
statements. Gains or losses on termination of an agreement prior to
maturity would be deferred and amortized as an adjustment to interest
income or expense of the hedged assets or liability over the remaining term
of the original contract life of the terminated agreement.

In connection with the application of the purchase method of
accounting for the Split-Off Transactions, the interest rate swap was
recorded at its fair value ($400,000 discount) at February 12, 1997. The
net interest income (expense) from the swap, which is a designated hedge
against certain floating rate commercial loans, is accrued and included in
loan interest income. The purchase accounting adjustment was accreted on a
straight line basis over the remaining term of the swap, which matured
December 6, 1998.

COMPREHENSIVE INCOME:

Effective January 1, 1998 , the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No.
130"). SFAS No. 130 requires the reporting of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. Comprehensive income includes net income and
unrealized gains and losses on available-for-sale securities. The statement
of comprehensive income is included within the consolidated statements of
changes in stockholders' equity -- successor basis and the statements of
changes in stockholder's equity -predecessor basis. The adoption of SFAS
No. 130 had no impact on any amounts previously reported as net income.

SEGMENT REPORTING:

Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise
and Related Information ("SFAS No. 131"). SFAS No. 131 provides guidance
for the way enterprises report information about operating segments in
annual and interim financial statements.

The Company's operations include two primary segments: banking and
mortgage banking. Through its 12 banking branches located in the Chicago
metropolitan area, the Company provides a full range of commercial and
consumer banking services to small and mid size businesses. Mortgage
banking activities include the origination of first mortgage loans for
single family properties for sale into the secondary market as well as
providing servicing of mortgage loans for others.

The Company's two reportable segments are separately managed as they
offer different products and services and have different marketing
strategies. In addition, the mortgage banking segment, through its
wholesale origination operation, services a different customer base than
the banking segment.

RECLASSIFICATIONS:

Amounts in the prior years' successor and/or predecessor basis
financial statements are reclassified whenever necessary to conform with
the current year's presentation.

3. 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 operated from early 1996
through mid-1997 and competed in the subprime residential mortgage market. The
acquisition has been accounted for by the purchase method of accounting, and
accordingly, the

67
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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. ACQUISITION OF COLE TAYLOR BANK AND CT MORTGAGE COMPANY,
INC.: -- (CONTINUED)
results of operations of the Bank and Mortgage Company are included in the
Company's consolidated financial statements from February 12, 1997.

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 acquisition was accounted for using purchase accounting in accordance
with Accounting Principles Board Opinion No. 16, "Business Combinations" (APB
No. 16). Under this method of accounting, the purchase price is allocated to the
respective assets acquired and liabilities assumed based on their estimated fair
values, net of applicable income tax effects. Goodwill, representing the excess
cost over net assets acquired of the Bank, was $37.8 million and is reflected as
goodwill in the consolidated financial statements. 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 was initially being amortized over 15 years using the
straight-line method. On August 5, 1997, however, the Mortgage Company sold 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 lease obligations for
the facilities and hired all the related Mortgage Company employees. Because the
Florida-based operations generated the majority of the Mortgage Company's
earnings, the remaining goodwill was written off in August 1997. The proceeds
from the sale, net of related disposition expenses, the carrying value of the
assets sold and goodwill resulted in a loss of approximately $10,000.

4. CASH AND DUE FROM BANKS:

The Bank is required to maintain a reserve balance with the Federal Reserve
Bank. The average reserve balance for the years ended December 31, 1998 and 1997
was approximately $11.8 million and $16.7 million, respectively.

68
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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. INVESTMENT SECURITIES:

The amortized cost and estimated fair value of investment securities at
December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
SUCCESSOR BASIS--TAYLOR CAPITAL GROUP, INC.--CONSOLIDATED
DECEMBER 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...................... $110,019 $ 859 $ -- $110,878
U.S. government agency securities............. 51,287 125 (86) 51,326
Collateralized mortgage obligations........... 91,696 52 (2,054) 89,694
Mortgage-backed securities.................... 98,296 1,466 (252) 99,510
-------- ------ ------- --------
Total available-for-sale................... 351,298 2,502 (2,392) 351,408
-------- ------ ------- --------
Held-to-maturity:
State and municipal obligations............... 74,609 2,752 (947) 76,414
Federal Reserve Bank and Federal Home Loan
Bank equity securities..................... 14,319 -- -- 14,319
Other debt securities......................... 825 62 -- 887
-------- ------ ------- --------
Total held-to-maturity..................... 89,753 2,814 (947) 91,620
-------- ------ ------- --------
Total.................................... $441,051 $5,316 $(3,339) $443,028
======== ====== ======= ========
</TABLE>

<TABLE>
<CAPTION>
SUCCESSOR BASIS--TAYLOR CAPITAL GROUP, INC.--CONSOLIDATED
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 $ 862 $ (85) $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 1,596 (961) 95,999
-------- ------ ------- --------
Total available-for-sale................... 397,962 2,644 (1,461) 399,145
-------- ------ ------- --------
Held-to-maturity:
State and municipal obligations............... 65,034 2,753 (1,468) 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 2,799 (1,469) 84,581
-------- ------ ------- --------
Total.................................... $481,213 $5,443 $(2,930) $483,726
======== ====== ======= ========
</TABLE>

The amortized cost and estimated fair value of debt securities at December
31, 1998, categorized by the earlier of call or contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations.

69
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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. INVESTMENT SECURITIES: -- (CONTINUED)

<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Available-for-sale:
Due in one year or less................................... $139,350 $139,962
Due after one year through five years..................... 21,956 22,242
Collateralized mortgage obligations....................... 91,696 89,694
Mortgage-backed obligations............................... 98,296 99,510
-------- --------
Totals................................................. $351,298 $351,408
======== ========
Held-to-maturity:
Due in one year or less................................... $ 8,157 $ 7,884
Due after one year through five years..................... 32,920 33,880
Due after five years through ten years.................... 24,604 25,549
Due after ten years....................................... 9,753 9,988
-------- --------
Totals................................................. $ 75,434 $ 77,301
======== ========
</TABLE>

Gross gains of $11,000 and $405,000 and gross losses of $0 and $4,000 were
realized on the sales of investment securities available-for-sale in 1998 and
1997, respectively. There were no sales of investment securities
available-for-sale during 1996.

During 1997, a held-to-maturity investment security with an amortized cost
of $320,000 was sold resulting in a gain of $13,000. The investment security was
sold due to a down grading of its credit quality.

Included in the collateralized mortgage obligations are certain sequential
paying obligations that were purchased at a significant premium. During 1998,
prepayment activity, in excess of that originally expected, resulted in
impairment charges of $667,000 and additional premium amortization of $1.4
million to reduce the yield of the securities to reflect actual payments
received to date and expected future prepayments. These securities are backed by
pools of single-family mortgage loans and guaranteed as to principal and
interest by the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation.

Investment securities with an approximate book value of $253 million and
$298 million at December 31, 1998 and 1997, respectively, were pledged to
collateralize certain deposits, securities sold under agreements to repurchase
and for other purposes as required or permitted by law.

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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. LOANS:

Loans classified by type at December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
SUCCESSOR BASIS--
TAYLOR CAPITAL GROUP, INC.--
CONSOLIDATED
----------------------------
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Commercial and industrial................................... $ 749,984 $ 671,506
Real estate-construction.................................... 232,018 179,855
Residential real estate-mortgages........................... 150,930 165,258
Home equity lines of credit................................. 106,521 104,287
Consumer.................................................... 53,751 50,391
Other loans................................................. 1,806 2,448
---------- ----------
Gross loans............................................ 1,295,010 1,173,745
Less: Unearned discount..................................... (1,286) (1,079)
---------- ----------
Total loans............................................ 1,293,724 1,172,666
Less: Allowance for loan losses............................. (24,599) (25,813)
---------- ----------
Loans, net............................................. $1,269,125 $1,146,853
========== ==========
</TABLE>

Information about the Company's loans on a nonaccrual basis for the periods
indicated is as follows:

71
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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. LOANS: -- (CONTINUED)
Information about the Company's impaired loans for the periods indicated is
as follows:

The Company provides several types of loans to its customers including
residential, construction, commercial and consumer loans. Lending activities are
conducted with customers in a wide variety of industries as well as with
individuals with a wide variety of credit requirements. The Company does not
have a concentration of loans in any specific industry. Credit risks tend to be
geographically concentrated in that the majority of the Company's customer base
lies within the Chicago metropolitan area.

Activity in the allowance for loan losses for the periods indicated
consisted of the following:

The Company has extended loans to directors and executive officers of the
Bank, the Parent and their related interests. The aggregate loans outstanding to
the directors and executive officers of the Company and their related interests,
which individually exceeded $60,000, totaled $22.5 and $18.9 million at December
31, 1998 and 1997, respectively. During 1998 and 1997, new loans totaled $9.8
million and $2.6 million,

72
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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. LOANS: -- (CONTINUED)
respectively and repayments totaled $6.2 million and $3.1 million, respectively.
In the opinion of management, these loans were made in the normal course of
business and on substantially the same terms for comparable transactions with
other borrowers and do not involve more than a normal risk of collectibility.

7. PREMISES, LEASEHOLD IMPROVEMENT AND EQUIPMENT

Premises, leasehold improvements and equipment at December 31, 1998 and
1997 are summarized as follows:

<TABLE>
<CAPTION>
SUCCESSOR BASIS --
TAYLOR CAPITAL
GROUP, INC. --
CONSOLIDATED
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements....................................... $ 3,332 $ 3,316
Buildings and improvements.................................. 8,438 8,385
Leasehold improvements...................................... 5,095 4,493
Furniture, fixtures and equipment........................... 12,421 10,070
------- -------
Total cost............................................. 29,286 26,264
Less accumulated depreciation and amortization.............. (6,584) (3,551)
------- -------
Net book value......................................... $22,702 $22,713
======= =======
</TABLE>

8. OTHER REAL ESTATE AND REPOSSESSED ASSETS:

Activity in the allowance for other real estate for the periods indicated
are as follows:

9. AUTO LOAN SALE:

In anticipation of the Split-Off Transactions a portion of the Bank's
indirect new car loan portfolio, which was included within the Bank's consumer
loan portfolio, was sold to an unaffiliated third party for $66.6 million. A
loss of $767,000 was recognized on the sale and reflected in other noninterest
expense in 1996. Proceeds related to the sale were received January 2, 1997.

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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

10. MORTGAGE SERVICING RIGHTS

At December 31, 1998 and 1997 mortgage loans serviced for others totaled
$69 million and $311 million, respectively. A summary of the activity related to
mortgage servicing rights is as follows:

On January 30, 1998, the Bank sold approximately $274 million of mortgage
loans serviced for others. The mortgage servicing rights were obtained through
loan origination by the Bank where the loan was subsequently sold. The sale
resulted in a gain of $1,462,000.

74
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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

11. INTEREST-BEARING DEPOSITS:

Interest-bearing deposits at December 31, 1998 and 1997 are summarized as
follows:

<TABLE>
<CAPTION>
SUCCESSOR BASIS - TAYLOR
CAPITAL GROUP, INC. --
CONSOLIDATED
------------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
NOW accounts................................................ $ 120,900 $ 100,309
Savings accounts............................................ 107,274 112,978
Money market deposits....................................... 234,197 240,294
Certificates of deposit, less than $100,000................. 302,348 288,168
Certificates of deposit, $100,000 or more................... 146,425 129,062
Public time deposits........................................ 121,614 96,844
Brokered certificates of deposit............................ 56,268 69,883
---------- ----------
Total............................................. $1,089,026 $1,037,538
========== ==========
</TABLE>

Interest expense on certificates of deposit, $100,000 or more, was $5.9
million, $5.3 million, $566,400, and $4.3 million for the year ended December
31, 1998, the period of February 12, 1997 to December 31, 1997, the period of
January 1, 1997 to February 11, 1997 and for the year ended December 31, 1996,
respectively.

At December 31, 1998 the scheduled maturities of certificates of deposit,
public time deposits and brokered certificates of deposit are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ------
(IN THOUSANDS)
<S> <C>
1999........................................................ $565,774
2000........................................................ 51,796
2001........................................................ 5,681
2002........................................................ 1,440
2003........................................................ 1,923
and thereafter.............................................. 41
--------
Total............................................. $626,655
========
</TABLE>

12. SHORT-TERM BORROWINGS:

Short-term borrowings at December 31, 1998 and 1997 are summarized as
follows:

<TABLE>
<CAPTION>
SUCCESSOR BASIS --
TAYLOR CAPITAL PREDECESSOR
GROUP, INC. -- BASIS -- COLE
CONSOLIDATED TAYLOR BANK
------------------ -----------------
1998 1997
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Securities sold under agreements to repurchase.............. $115,610 $169,550
Federal funds purchased..................................... 51,225 11,450
U.S. Treasury tax and loan note option...................... 4,883 5,053
-------- --------
Total............................................. $171,718 $186,053
======== ========
</TABLE>

75
<PAGE> 76
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

12. SHORT-TERM BORROWINGS: -- (CONTINUED)
Securities sold under agreements to repurchase generally mature within 1 to
60 days from the transaction date. Under the terms of the repurchase agreements,
if the market value of the pledged securities declines below the repurchase
liability, the Bank may be required to provide additional collateral to the
buyer.

Information concerning securities sold under agreements to repurchase is
summarized as follows:

Under the treasury tax and loan note option, the Company is authorized to
accept U.S. Treasury deposits of excess funds along with the deposits of
customer taxes. These liabilities bear interest at a rate of .25% below the
average federal funds rate and are collateralized by a pledge of various
investment securities.

At December 31, 1998, the Company had unused lines of credit for short-term
borrowings with various entities totaling $520 million, subject to acceptable
collateral availability.

13. INCOME TAXES:

The components of the income tax expense (benefit) for the periods
indicated are as follows:

In connection with the acquisition of the Bank, the Company acquired state
net operating loss carryforwards and deductible temporary differences
approximating $34 million and $26 million respectively. The tax benefits of
these acquired items are applied against goodwill when recognized.

76
<PAGE> 77
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

13. INCOME TAXES: -- (CONTINUED)
Income tax expense was different from the amounts computed by applying the
federal statutory rate of 35% in 1998, 1997 and 1996 to income before income
taxes because of the following:

77
<PAGE> 78
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

13. INCOME TAXES: -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and 1997 are presented below:

<TABLE>
<CAPTION>
SUCCESSOR BASIS --
TAYLOR
CAPITAL GROUP, INC. --
CONSOLIDATED
-----------------------
1998 1997
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Fixed assets, principally due to differences in
depreciation........................................... $ 1,215 $1,068
Loans, principally due to allowance for loan losses....... 9,799 10,372
State net operating loss carryforwards.................... 685 1,203
Deferred income, principally net loan origination fees.... 1,276 1,116
Employee benefits......................................... 1,261 634
Other real estate......................................... 100 113
Other accruals............................................ 329 524
------- ------
Gross deferred tax assets.............................. 14,665 15,030
Less valuation allowance.................................. (1,420) (1,788)
------- ------
Gross deferred tax assets, net of valuation
allowance............................................. 13,245 13,242
------- ------
DEFERRED TAX LIABILITIES:
Discount accretion........................................ (124) (104)
Business combination...................................... (1,850) (2,295)
Mortgage servicing rights................................. (232) (933)
------- ------
Gross deferred tax liabilities......................... (2,206) (3,332)
------- ------
Subtotal............................................. 11,039 9,910
------- ------
Tax effect of unrealized holding losses on investment
securities............................................. (38) (402)
------- ------
Net deferred tax assets.............................. $11,001 $9,508
======= ======
</TABLE>

The Company has net operating loss carryforwards for Illinois state income
tax purposes of approximately $14 million at December 31, 1998, expiring 2004
through 2005. A valuation allowance was established for the acquired state tax
benefits at the acquisition date to reduce the deferred tax asset to an amount
which is more likely than not to be realized. At December 31, 1998, $700,000 of
the valuation allowance relates to the acquired state tax benefits. Future
reductions in that portion of the valuation allowance, if appropriate, would
reduce the goodwill recognized in connection with the acquisition of the Bank.

78
<PAGE> 79
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

14. NONRECOURSE BORROWINGS

Nonrecourse borrowings consisted of the following at December 31, 1997:

<TABLE>
<CAPTION>
SUCCESSOR BASIS --
TAYLOR CAPITAL
GROUP, INC. --
CONSOLIDATED
------------------
1997
------------------
(IN THOUSANDS)
<S> <C>
BALLOON LOANS WITH FLOATING RATES:
Various borrowings with principal ranging from $330,000 to
$3.7 million; weighted average interest rate at December
31, 1997 was 7.72%........................................ $ 5,819
BALLOON LOANS WITH FIXED RATES:
Various borrowings with principal ranging from $73,000 to
$6.0 million; weighted average interest rate at December
31, 1997 was 6.26%........................................ 9,345
MONTHLY AMORTIZING LOANS WITH FIXED RATES:
Various borrowings with principal ranging from $30,000 to
$1.8 million, monthly principal and interest payments of
$34,000; weighted average interest rate at December 31,
1997 was 8.39%............................................ 3,593
-------
Total.................................................. $18,757
=======
</TABLE>

Nonrecourse borrowings consisted of debt incurred or assumed in connection
with the acquisition of certain other assets related to the Company's reverse
exchange program. Funds were used to acquire assets where the Company acted as a
"parking intermediary", temporarily holding the property until sale to its
ultimate owner. The borrowings were obtained from banks and the customers
initiating the transactions and were collateralized by the assets acquired. The
sole remedy of the third-party lender in event of nonpayment of the loan was the
asset pledged as collateral. During the holding period, the customers leased the
assets at rentals approximating the debt service payments on the nonrecourse
borrowings. Income and expense for these assets and borrowings were netted for
purposes of the consolidated statement of operations and were included in trust
fees. On March 19, 1998, the Company sold the subsidiary (CTRE, Inc.) within
which the reverse exchange business was conducted. All assets and borrowings of
the subsidiary were sold with the subsidiary.

79
<PAGE> 80
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

15. NOTES PAYABLE:

Notes payable at December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
SUCCESSOR BASIS --
TAYLOR CAPITAL
GROUP, INC. --
CONSOLIDATED
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
TAYLOR CAPITAL GROUP, INC.:
$25 million term loan bearing interest at prime rate or
LIBOR plus 1.15%, annual principal reductions of $1
million commencing 1999 and a balloon payment of $22
million on February 12, 2002; interest rates at December
31, 1998 and 1997 were 6.42% and 7.12%, respectively...... $ 25,000 $ 25,000
$12 million revolving credit facility bearing interest at
prime rate or LIBOR plus 1.15%, maturing September 1,
1999; weighted average interest rates at December 31, 1998
and 1997 were 6.43% and 7.02%, respectively............... 1,500 2,000
COLE TAYLOR BANK:
Federal Home Loan Bank (FHLB) -- various advances ranging
from $25 million to $30 million due at various dates
through October 2000 and $30 million due February 2008,
callable by the FHLB annually beginning February 1999,
collateralized by $210.3 million of qualified first
mortgage residential loans and FHLB stock; weighted
average interest rates at December 31, 1998 and 1997 were
5.23% and 6.04%, respectively............................. 105,000 85,000
-------- --------
Total.................................................. $131,500 $112,000
======== ========
</TABLE>

In October 1998, the Taylor Capital Group, Inc. loan agreement was
extended, effective September 1, 1998 to September 1, 1999. In exchange for an
increase in the revolving credit facility to $12 million from $7 million and a
reduction in the interest rate, as reflected in the above table, the loan
agreement, including the $25 million term loan, is now secured by the common
stock owned by the Bank. 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 December 31, 1998, the Company was not aware of any
instances of non-compliance.

Following are the scheduled maturities of notes payable, categorized by the
earlier of call or contractual maturity, at December 31, 1998:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------------
(IN THOUSANDS)
<S> <C>
1999...................................................... $ 82,500
2000...................................................... 26,000
2001...................................................... 1,000
2002...................................................... 22,000
2003...................................................... --
Thereafter................................................ --
--------
Total................................................ $131,500
========
</TABLE>

16. EMPLOYEE BENEFIT PLANS:

The employees of the Company participate in employee benefit plans
consisting of a 401(k)/profit-sharing and Employee Stock Ownership Plan (the
"401(k) and ESOP Plan"). Company contributions are at

80
<PAGE> 81
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

16. EMPLOYEE BENEFIT PLANS: -- (CONTINUED)

the discretion of the Board of Directors, with the exception of certain 401(k)
matching of employee contributions. For the year ended December 31, 1998 and for
the period of February 12, 1997 to December 31, 1997 contributions paid to the
Plan were $2.3 million and $1.5 million, respectively. Contributions paid to the
Plan by the predecessor Bank during the year ended December 31, 1996 were $1.2
million. The 401(k) and ESOP Plan owned 366,820 shares and 344,024 shares of the
Company's common stock as of December 31, 1998 and 1997, respectively. These
shares are held in trust for the participants by the Plan's trustee (Cole Taylor
Bank). As of December 31, 1998 40,597 shares of the Company's common stock owned
by the ESOP were unallocated and committed to be released.

In November 1998, the Parent Company leveraged its 401(k) and ESOP Plan.
The 401(k) and ESOP Plan entered into a Loan and Pledge Agreement (ESOP loan)
with the Parent Company whereby the Parent Company financed the 401(k) and ESOP
Plan the sum of $576,000 to enable the 401(k) and ESOP Plan to purchase 24,000
shares of Company common stock from related parties of the Company. The ESOP
loan calls for equal principal payments of $115,000 and the interest accrued on
the unpaid principal balance commencing annually on December 15, 1999, with a
maturity date of December 15, 2003. The ESOP loan bears interest at the annual
interest rate of 7.75% and is collateralized by the 24,000 shares of Company
common stock purchased by the ESOP. As of December 31, 1998, the common stock
purchased is unallocated and is being held by the ESOP trustee. As principal and
interest on the loan are repaid, shares held as collateral will be released. The
ESOP loan will be repaid from Bank contributions and/or dividends on unallocated
shares. No dividends have been paid to the ESOP during 1998 subsequent to the
leverage transaction.

As of December 31, 1998 the Company is obligated to purchase shares of
Company stock from terminated employees related to "put" rights. As of December
31, 1998, the Company is obligated to purchase 14,042 shares, which will be
valued by an independent third party appraisal. These shares upon purchase will
be immediately contributed to the Company's 401(k) and ESOP Plan.

In 1997 and 1998, the Company acted as a self-insurer for employee's
medical insurance whereby it assumed limited liabilities with the excess
liability assumed by underwriters. Claims for employees are charged to
operations during the year. For the year ended December 31, 1998 and for the
period of February 12, 1997 to December 31, 1997, employee claims totaled
$938,000 and $1.1 million, respectively. Employee claims for the predecessor
Bank totaled $1.0 million for the year ended December 31, 1996.

Beginning January 1, 1999 the Company has contracted with a third party
carrier for employee's medical insurance and as a result will no longer act as a
self-insurer.

17. INCENTIVE COMPENSATION PLAN:

The Company has an Incentive Compensation Plan (the "Plan") that allows for
the granting of stock options and stock awards. Under the Plan, 563,066 shares
of common stock have been reserved.

STOCK OPTIONS:

Stock options are granted with an exercise price equal to the fair market
value of the stock on the date of grant, as determined by an independent
appraisal. The stock options vest over a five year period (vesting at 20% per
year) and expire 10 years following the grant date. Upon death, disability,
retirement or change of control of the Company (as defined) vesting is
accelerated to 100%. The Company has elected to account for the stock options
using the intrinsic value method and accordingly no compensation expense was
recognized in connection with the granting of the stock options.

81
<PAGE> 82
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

17. INCENTIVE COMPENSATION PLAN: -- (CONTINUED)
The following is a summary of stock option activity for 1998 and the
period of February 12, 1997 to December 31, 1997:

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR CAPITAL
GROUP, INC. -- CONSOLIDATED
---------------------------------
NUMBER OF WEIGHTED -- AVERAGE
SHARES EXERCISE PRICE
---------- -------------------
<S> <C> <C>
Options outstanding at February 12, 1997.................... -- --
Granted..................................................... 163,889 $22.00
Exercised................................................... -- --
Forfeited................................................... (9,408) 22.00
-------
Options outstanding at December 31, 1997.................... 154,481 22.00
Granted..................................................... 100,619 24.98
Exercised................................................... (128) 22.00
Forfeited................................................... (24,536) 22.82
-------
Options outstanding at December 31, 1998.................... 230,436 $23.24
=======
</TABLE>

As of December 31, 1998 there are 26,973 shares which are exercisable at an
exercise price of $22.00. There were no shares exercisable as of December 31,
1997.

The grant date fair value of stock options granted to employees during the
year, the significant assumptions used to determine those fair values, using a
modified Black-Sholes option pricing model, and the pro forma effect of the fair
value accounting for stock options under SFAS No. 123 are as follows:

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR CAPITAL
GROUP, INC. -- CONSOLIDATED
---------------------------------
FOR THE PERIOD
FOR THE YEAR OF
ENDED FEB. 12, 1997 TO
DEC. 31, 1998 DEC. 31, 1997
------------- ----------------
<S> <C> <C>
Grant date fair value per share............................. $ 7.47 $ 7.39
Significant assumptions:
Risk-free interest rate at grant date..................... 5.00% 6.00%
Expected stock price volatility........................... 25.00% 25.00%
Expected dividend payout.................................. 1.64% 1.64%
Expected option life...................................... 7 years 7 years
Net income (in thousands):
As reported............................................... $ 9,441 $10,113
Pro forma................................................. $ 9,280 $10,044
</TABLE>

RESTRICTED STOCK AWARDS:

During 1998 and 1997, 18,080 and 140,453 shares of common stock,
respectively, were awarded under restricted stock agreements. Vesting of the
shares requires a continuous service period by each participant. The vesting
rate is 50% at the end of year three, 75% at the end of year four and 100% at
the end of year five or upon death, disability, retirement or change of control
of the Company. If a participant terminates employment prior to the end of the
continuous service period, the entire stock award is forfeited. The unearned
compensation related to the restricted stock grants is reported in stockholders'
equity. Compensation expense equal to the fair market value at the date of grant
is being recognized over the vesting period. For the year ended December 31,
1998 and the period of February 12, 1997 to December 31, 1997, compensation
expense

82
<PAGE> 83
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

17. INCENTIVE COMPENSATION PLAN: -- (CONTINUED)
related to the stock awards totaled $1,026,000 and $434,000, respectively. The
Company has 158,533 restricted stock awards outstanding as of December 31, 1998.

In connection with the granting of the stock options and awards, stock
transfer agreements are entered into with the participants. These agreements
place certain restrictions on the transfer of any shares acquired through option
exercise or award and provide the participants with limited rights to "put" the
stock so acquired back to the Company. The Company's repurchase liability,
including ESOP obligations, is limited to $3,000,000 per year. The Company may
satisfy the put obligations with cash or through the issuance of 5 year
installment notes to the participants.

18. STOCKHOLDERS' EQUITY:

The authorized capital stock of the Company consists of 10 million shares,
of which 7 million shares are common stock, par value $.01 per share, and 3
million shares are preferred stock, par value $.01 per share.

COMMON STOCK:

The holders of outstanding shares of common stock are entitled to receive
dividends out of assets legally available therefore at such times and in such
amounts as the Board of Directors may from time to time determine. The shares of
common stock are neither redeemable nor convertible, and the holders thereof
have no preemptive or subscription rights to purchase any securities of the
Company. Upon liquidation, dissolution or winding up of the Company, the holders
of common stock are entitled to receive, pro rata, the assets of the Company
which are legally available for distribution, after payment of all debts and
other liabilities and subject to the prior rights of any holders of preferred
stock then outstanding. Each outstanding share of common stock is entitled to
one vote on all matters submitted to a vote of stockholders.

PREFERRED STOCK:

The shares of preferred stock are not convertible into, or exchangeable
for, shares of common stock, any other class or classes of capital stock of the
Company and have no preemptive rights.

Holders of shares of preferred stock are entitled to receive noncumulative
cash dividends payable quarterly in arrears for each quarter when, as and if
declared by the Board of Directors. Shares of preferred stock are not redeemable
prior to January 15, 2002. On or after such date, they are redeemable at the
option of the Company.

The holders of the preferred stock have no voting rights, except for the
election of one director of the Company. The holders vote separately as a class
and are entitled to cast one vote (or fraction thereof) for each $25.00 of
liquidation preference to which such preferred stock is entitled.

In the event of any liquidation, dissolution or winding up of the Company,
the holders of shares of preferred stock are entitled to receive out of the
assets of the Company available for distribution to stockholders, before any
distribution of the assets is made to the holders of shares of the common stock
or on any other class or series of stock of the Company ranking junior to the
shares of preferred stock as to such a distribution, an amount equal to $25.00
per share, plus an amount equal to dividends declared and unpaid for the
then-current dividend period.

The costs related to the issuance of the preferred stock is being amortized
over 5 years using the straight line method.

83
<PAGE> 84
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

19. COMMITMENTS AND FINANCIAL INSTRUMENTS:

COMMITMENTS:

The Company is obligated in accordance with the terms of various long-term
noncancelable operating leases for certain premises (land and building) and
office space and equipment, including the principal offices of both the Company
and the Bank. The terms of the leases generally require periodic adjustment of
the minimum lease payments based on an increase in the consumer price index. In
addition, the Company is obligated to pay the real estate taxes assessed on the
properties and certain maintenance costs. Certain of the leases contain renewal
options for periods of up to five years. Total rental expense for the Company in
connection with these leases for the year ended December 31, 1998 and for the
period of February 12, 1997 to December 31, 1997 was approximately $3.0 million
and $2.4 million, respectively. The predecessor Bank's total rental expense for
the period of January 1, 1997 to February 11, 1997 and the year ended December
31, 1996 was approximately $290,000, and $2.3 million, respectively.

Estimated future minimum rental commitments under these operating leases as
of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
(IN THOUSANDS)
<S> <C>
1999........................................................ $ 2,025
2000........................................................ 2,063
2001........................................................ 1,756
2002........................................................ 1,467
2003........................................................ 1,477
Thereafter.................................................. 12,912
-------
Total.................................................. $21,700
=======
</TABLE>

FINANCIAL INSTRUMENTS:

The Company is 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), interest rate floor contracts and forward commitments to sell loans.
When viewed in terms of the maximum exposure, those instruments may involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheet. Credit risk is the
possibility that a counterparty to a financial instrument will be unable to
perform its contractual obligations. Interest rate risk is the possibility that,
due to changes in economic conditions, the Bank's net interest income will be
adversely affected.

The Company mitigates its exposure to credit risk through its internal
controls over the extension of credit. These controls include the process of
credit approval and review, the establishment of credit limits, and, when deemed
necessary, securing collateral. Collateral held varies but may include deposits
held in financial institutions; U.S. Treasury securities; other marketable
securities; income-producing commercial properties; accounts receivable;
inventories; and property, plant and equipment. The Company manages its exposure
to interest rate risk, on a limited basis, by using off-balance sheet
instruments to offset existing interest rate risk of its assets and liabilities,
and by generally setting variable rates of interest on extensions of credit.

The following is a summary of the contractual or notional amount of each
significant class of off-balance sheet financial instrument outstanding. The
Company's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit and
standby letters of credit

84
<PAGE> 85
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

19. COMMITMENTS AND FINANCIAL INSTRUMENTS: -- (CONTINUED)
is represented by the contractual notional amount of these instruments. For
interest rate floor agreements, interest-rate exchange contracts (swaps), and
forward commitments to sell loans the contract or notional amounts substantially
exceed actual exposure to credit loss.

At December 31, 1998 and 1997, the contractual or notional amounts were as
follows:

<TABLE>
<CAPTION>
SUCCESSOR BASIS --
TAYLOR CAPITAL GROUP, INC. --
CONSOLIDATED
------------------------------
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Financial instruments wherein contract amounts represent
credit risk:
Commitments to extend credit.............................. $578,002 $613,095
Standby letters of credit................................. 41,228 63,800
Financial instruments wherein notional amounts exceed the
amount of credit risk:
Interest rate floor agreement............................. $ 50,000 $ --
Interest rate exchange agreements (swaps)................. -- 25,000
Forward commitments to sell loans......................... 28,000 14,000
</TABLE>

Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.

Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Such instruments
are generally issued for one year or less. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. Most of the Company's standby letters of credit are
expected to expire undrawn.

Interest rate floor agreements provide for the receipt of payments when the
three month LIBOR rate is below a predetermined interest rate floor. The Bank
has entered into an agreement based on a $50 million notional amount to manage
interest rate risk on certain variable rate loans. The original term of this
agreement is two years and matures on June 26, 2000 with a strike rate of 6.0%.

An interest-rate exchange contract (swap) is an agreement in which two
parties agree to exchange, at specified intervals, interest payment streams
calculated on an agreed-upon notional principal amount with at least one stream
based on a specified floating-rate index. The Bank's objective in holding
interest-rate swaps is interest rate risk management. The Bank entered into an
agreement based on a $25 million notional amount to assume variable-market
indexed interest payments in exchange for fixed-rate interest payments. The
original term of this agreement was five years and the fixed-rate component
received was 5.32%. The variable-interest rate component paid was based on
three-month LIBOR and was approximately 5.94% as of December 31, 1997. The
agreement matured December 6, 1998.

The Company enters into forward commitments to sell loans to manage the
interest rate risk exposure of mortgage banking activities. The hedging activity
helps to protect the Company from a risk that the market value of mortgage loans
intended to be sold will be adversely affected by changes in interest rates. At
December 31, 1998, the Company's forward commitments to sell loans had delivery
commitments expiring within three months. Gross unrealized losses on forward
sale commitments, based on dealer-quoted prices, approximated $63,000 at
December 31, 1998.

85
<PAGE> 86
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

20. FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107 (SFAS No. 107),
"Disclosures about Fair Value of Financial Instruments," requires disclosure of
the estimated fair value of financial instruments. For the Company, a
significant portion of its assets and liabilities are considered financial
instruments as defined in SFAS No. 107. Many of the Company's financial
instruments, however, lack an available, or readily determinable, trading market
as characterized by a willing buyer and willing seller engaging in an exchange
transaction. Significant estimations and present value calculations were used by
the Company for the purposes of estimating fair values. Accordingly, fair values
are based on various factors relative to expected loss experience, current
economic conditions, risk characteristics, and other factors. The assumptions
and estimates used in the fair value determination process are subjective in
nature and involve uncertainties and significant judgment and, therefore, fair
values cannot be determined with precision. Changes in assumptions could
significantly affect these estimated values.

The methods and assumptions used to determine fair values for each
significant class of financial instruments are presented below:

CASH AND CASH EQUIVALENTS:

Cash, due from banks, interest-bearing deposits with banks and federal
funds sold are reported at amounts which approximate fair value in the
balance sheet.

INTEREST BEARING DEPOSITS WITH BANKS:

The carrying amounts reported for interest bearing deposits
approximate the assets' fair values.

INVESTMENT SECURITIES:

Fair values for investment securities are determined from quoted
market prices. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar instruments.

LOANS:

Fair values of loans have been estimated by the present value of
future cash flows, using current rates at which similar loans would be made
to borrowers with the same remaining maturities.

DEPOSIT LIABILITIES:

Deposit liabilities with stated maturities have been valued at the
present value of future cash flows using rates which approximate current
market rates for similar instruments. Fair values of deposits without
stated maturities equal the respective amounts due on demand.

SHORT-TERM AND NONRECOURSE BORROWINGS AND NOTES PAYABLE:

Short-term borrowings and notes payable have been valued at present
values of future cash flows using rates which approximate current market
rates for similar instruments. The carrying amounts reported for
nonrecourse borrowings approximate those borrowings' fair values.

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:

The fair value of commitments to extend credit and standby letters of
credit is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The

86
<PAGE> 87
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

20. FAIR VALUE OF FINANCIAL INSTRUMENTS: -- (CONTINUED)
fair value of these commitments is not material. The fair value of interest
rate swap agreements and interest rate floor agreements is estimated using
quoted market prices for similar instruments.

The estimated fair values of the Company's financial instruments are as
follows:

<TABLE>
<CAPTION>
SUCCESSOR BASIS --
TAYLOR CAPITAL GROUP, INC. --
CONSOLIDATED
----------------------------------------------------
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents............. $ 67,423 $ 67,423 $ 84,616 $ 84,616
Investment securities................. 441,161 443,028 482,396 483,726
Loans, net of allowance............... 1,311,382 1,318,874 1,178,624 1,177,267
---------- ---------- ---------- ----------
Total financial assets............. $1,819,966 $1,829,325 $1,745,636 $1,745,609
========== ========== ========== ==========
Financial Liabilities:
Deposits without stated maturities.... $ 813,082 $ 813,082 $ 794,000 $ 794,000
Deposits with stated maturities....... 626,655 627,086 583,957 584,311
Short-term borrowings................. 171,718 171,718 186,053 186,053
Nonrecourse borrowings................ -- -- 18,757 18,757
Notes payable......................... 131,500 131,410 112,000 111,981
---------- ---------- ---------- ----------
Total financial liabilities........ $1,742,955 $1,743,296 $1,694,767 $1,695,102
========== ========== ========== ==========
Off-Balance Sheet Financial Instruments:
Interest rate floor agreements........ $ 316 $ 743 $ -- $ --
Interest rate swap agreements (1)..... -- -- (218) (152)
Commitments to extend credit.......... -- -- -- --
Letter of credit...................... -- -- -- --
---------- ---------- ---------- ----------
Total off-balance sheet financial
instruments...................... $ 316 $ 743 $ (218) $ (152)
========== ========== ========== ==========
</TABLE>

- ---------------

(1) Carrying value reflects purchase accounting adjustment.

The remaining balance sheet assets and liabilities of the Company are not
considered financial instruments and have not been valued differently than is
customary under historical cost accounting. Since assets and liabilities that
are not financial instruments are excluded above, the difference between total
financial assets and financial liabilities does not, nor is it intended to,
represent the market value of the Company. Furthermore, the estimated fair value
information may not be comparable between financial institutions due to the wide
range of valuation techniques permitted, and assumptions necessitated, in the
absence of an available trading market.

21. REGULATORY DISCLOSURES:

The Parent Company and the Bank are subject to various capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary actions by regulators, that, if undertaken, could have a direct
material effect

87
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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

21. REGULATORY DISCLOSURES: -- (CONTINUED)
on the Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Parent Company and the
Bank must meet specific capital guidelines that involve quantitative measures of
the entity's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The entity's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Parent Company and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Based on these quantitative measures,
as of December 31, 1998, the Parent Company is categorized as
"adequately-capitalized" and the Bank is categorized as "well-capitalized".

As of December 31, 1998, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as "well-capitalized" under
the regulatory framework for prompt corrective action. To be categorized
"well-capitalized" the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.

The Company's and the Bank's actual capital amounts and ratios as of
December 31, 1998 and 1997 are presented in the following table.

88
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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

21. REGULATORY DISCLOSURES: -- (CONTINUED)

22. PARENT COMPANY ONLY:

Summarized unconsolidated financial information of Taylor Capital Group,
Inc. is as follows:

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Noninterest-bearing deposits with subsidiary Bank........... $ 1,617 $ 1,612
Investment in subsidiaries.................................. 169,614 167,461
Other assets................................................ 3,170 1,615
-------- --------
Total assets........................................... $174,401 $170,688
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued interest, taxes and other liabilities............... $ 2,768 $ 2,618
Notes payable............................................... 26,500 27,000
Stockholders' equity........................................ 145,133 141,070
-------- --------
Total liabilities and stockholders' equity............. $174,401 $170,688
======== ========
</TABLE>

89
<PAGE> 90
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

22. PARENT COMPANY ONLY -- (CONTINUED):
STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE
FOR THE PERIOD
YEAR OF FEB. 12,
ENDED 1997 TO
DEC. 31, DEC. 31,
1998 1997
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Income:
Dividends from subsidiary Bank............................ $14,500 $ 8,000
Interest.................................................. -- 140
------- -------
Total income........................................... 14,500 8,140
------- -------
Expenses:
Interest.................................................. 1,894 1,898
Salaries and employee benefits............................ 1,837 2,141
Legal fees................................................ 3,299 674
Other..................................................... 1,289 1,130
------- -------
Total expenses......................................... 8,319 5,843
------- -------
Income before income taxes and equity in undistributed net
income of subsidiaries.................................... 6,181 2,297
Income tax benefit.......................................... 2,886 1,946
Equity in undistributed net income of subsidiaries.......... 374 5,870
------- -------
Net income............................................. $ 9,441 $10,113
======= =======
</TABLE>

90
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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

22. PARENT COMPANY ONLY -- (CONTINUED):
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR ENDED OF FEB. 12, 1997
DEC. 31, 1998 TO DEC. 31, 1997
------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 9,441 $ 10,113
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of other assets........................... 370 327
Amortization of unearned compensation.................. 237 58
Equity in undistributed net income of subsidiaries..... (374) (5,870)
Other, net............................................. 23 21
Changes in assets and liabilities:
Other assets......................................... (3,622) (1,602)
Other liabilities.................................... 149 1,340
------- --------
Net cash provided by operating activities......... 6,224 4,387
------- --------
Cash flows from investing activities:
Purchase of Bank and Mortgage Company..................... -- (62,101)
Advances to subsidiaries.................................. -- (14,600)
Repayments of advances to subsidiaries.................... -- 14,600
Loan issuance to Employee Stock Ownership Plan............ (576) --
Other, net................................................ (25) (361)
------- --------
Net cash used in investing activities............. (601) (62,462)
------- --------
Cash flows from financing activities:
Dividends paid............................................ (5,118) (3,419)
Repayments of notes payable............................... (2,400) (5,600)
Proceeds from notes payable............................... 1,900 32,600
Net proceeds from issuance of preferred stock............. -- 36,106
------- --------
Net cash (used in) provided by financing
activities..................................... (5,618) 59,687
------- --------
Net increase in cash and cash equivalents................... 5 1,612
------- --------
Cash and cash equivalents, beginning of period.............. 1,612 --
------- --------
Cash and cash equivalents, end of period.................... $ 1,617 $ 1,612
======= ========
</TABLE>

The Bank is subject to dividend restrictions set forth by regulatory
authorities. Under such restrictions, the Bank may not, without prior approval
of regulatory authorities, declare dividends in excess of the sum of the current
year's earnings (as defined) plus the retained earnings (as defined) from the
prior two years. The dividends, as of December 31, 1998, that the Bank could
declare and pay to the Company, without the approval of regulatory authorities,
amounted to approximately $8.3 million. However, payment of such dividends is
also subject to the Bank remaining in compliance with all applicable capital
ratios.

23. LITIGATION:

91
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TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

23. LITIGATION: -- (CONTINUED)
related partnership (collectively, the "Taylor Family") have been named as
defendants in the lawsuits described below relating to (1) the Split-Off
Transactions and (2) the financial and public reporting of Reliance. Certain of
the lawsuits also named other current or former officers and directors of the
Company and Reliance, other stockholders of the Company, Reliance's public
accountants at the time of the Split-Off Transactions (who continue to serve as
the Company's public accountants), the investment banks that were involved in
the Split-Off Transactions, Reliance and the Company as additional defendants.
The filing dates of these lawsuits range from October 1997 to September 1998.

92
<PAGE> 93
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

23. LITIGATION: -- (CONTINUED)
described below. The Company expects that the Bankruptcy Court's order will be
amended in the near future to preliminarily enjoin the remaining plaintiffs from
prosecuting their cases.

93
<PAGE> 94
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

23. LITIGATION: -- (CONTINUED)
The Company is from time to time a party to various other legal actions
arising in the normal course of 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 business, financial condition, liquidity or
operating results of the Company.

24. SELECTED QUARTERLY FINANCIAL DATA, (UNAUDITED):

The following is selected data summarizing the results of operation for
each quarter in the years ended December 31, 1998 and 1997:

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP,
INC. --
CONSOLIDATED -- 1998 QUARTER ENDED
------------------------------------------
MAR. 31 JUN. 30 SEPT. 30 DEC. 31
-------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income........................................... $33,808 $34,022 $34,276 $34,039
Interest expense.......................................... 16,304 16,575 16,755 15,775
------- ------- ------- -------
Net interest income.................................. 17,504 17,447 17,521 18,264
Provision for loan losses................................. 750 1,500 1,050 1,835
Investment securities gains, net.......................... -- -- -- 11
Non interest income....................................... 5,927 4,840 4,549 5,294
Non interest expense...................................... 16,288 18,266 17,392 18,482
------- ------- ------- -------
Income before income taxes........................... 6,393 2,521 3,628 3,252
Income taxes......................................... 2,512 1,143 1,445 1,253
------- ------- ------- -------
Net income................................................ $ 3,881 $ 1,378 $ 2,183 $ 1,999
======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
PREDECESSOR
BASIS --
COLE TAYLOR
BANK SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. --
1997 CONSOLIDATED -- 1997 QUARTER ENDED
-------------- --------------------------------------------------
JAN. 1-FEB. 11 FEB. 12-MAR. 31 JUN. 30 SEPT. 30 DEC. 31
-------------- ---------------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income.......................... $15,642 $17,804 $34,639 $35,801 $34,370
Interest expense......................... 7,076 8,643 17,095 17,978 16,742
------- ------- ------- ------- -------
Net interest income................. 8,566 9,161 17,544 17,823 17,628
Provision for loan losses................ 420 484 904 1,769 904
Investment securities gains, net......... -- -- -- 329 72
Non interest income...................... 1,930 2,350 4,566 6,084 4,472
Non interest expense..................... 6,466 8,184 16,940 17,230 17,180
------- ------- ------- ------- -------
Income before income taxes.......... 3,610 2,843 4,266 5,237 4,088
Income taxes........................ 1,328 835 1,853 2,128 1,505
------- ------- ------- ------- -------
Net income............................... $ 2,282 $ 2,008 $ 2,413 $ 3,109 $ 2,583
======= ======= ======= ======= =======
</TABLE>

94
<PAGE> 95
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

25. COMPREHENSIVE INCOME:

The following table presents comprehensive income for the periods
indicated:

<TABLE>
<CAPTION>
SUCCESSOR BASIS --
TAYLOR CAPITAL
GROUP, INC. -- PREDECESSOR BASIS --
CONSOLIDATED COLE TAYLOR BANK
-------------------- ---------------------
FOR THE FOR THE
FOR THE PERIOD OF PERIOD OF FOR THE
YEAR FEB. 12, JAN. 1, YEAR
ENDED 1997 TO 1997 TO ENDED
DEC. 31, DEC. 31, FEB. 11, DEC. 31,
-------- --------- --------- ---------
1998 1997 1997 1996
-------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income, as reported................................... $ 9,441 $10,113 $ 2,282 $19,693
Other comprehensive income:
Change in unrealized gains (losses) on
available-for-sale securities........................ (1,062) 1,584 (1,890) (3,221)
Less: reclassification adjustment for gains included in
net income........................................... (11) (401) -- --
------- ------- ------- -------
(1,073) 1,183 (1,890) (3,221)
Income tax expense (benefit) related to other
comprehensive income................................. (363) 402 (750) (1,320)
------- ------- ------- -------
Other comprehensive income, net of tax.................. (710) 781 (1,140) (1,901)
------- ------- ------- -------
Total comprehensive income........................... $ 8,731 $10,894 $ 1,142 $17,792
======= ======= ======= =======
</TABLE>

26. SEGMENT REPORTING:

The segment financial information provided below has been derived from the
internal profitability reporting system used by management to monitor and manage
the financial performance of the Bank. The accounting policies of the two
segments are the same as those described in the summary of significant
accounting and reporting policies. The Bank evaluates segment performance based
on profit or loss before income taxes. Certain indirect expenses have been
allocated based on actual volume measurements and other criteria, as
appropriate. The Bank accounts for intersegment revenue and transfers at current
market prices.

95
<PAGE> 96
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

26. SEGMENT REPORTING: -- (CONTINUED)
The following tables present reportable segment information for the periods
indicated:

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
-----------------------------------------------------------------------
FOR THE PERIOD OF FEB. 12, 1997 TO
FOR THE YEAR ENDED DEC. 31, 1998 DEC. 31, 1997
---------------------------------- ----------------------------------
MORTGAGE MORTGAGE
BANKING BANKING TOTAL BANKING BANKING TOTAL
---------- -------- ---------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net interest income........... $ 70,072 $ 2,531 $ 72,603 $ 62,523 $ 1,164 $ 63,687
Noninterest income............ 14,871 272 15,143 14,955 382 15,337
Depreciation and
amortization................ 3,879 154 4,033 3,347 199 3,546
Other significant noncash
items:
Provision for loan losses... 5,012 88 5,100 3,790 106 3,896
Gain on sales of loans,
net...................... 679 3,628 4,307 (6) 1,972 1,966
Gain on sale of mortgage
servicing rights......... -- 1,462 1,462 -- -- --
Impairment of mortgage
servicing rights......... -- 329 329 -- 53 53
Income taxes.................. 8,995 285 9,280 9,407 (1,197) 8,210
Segment net income (loss)..... $ 14,389 $ 516 $ 14,905 $ 16,486 $(2,235) $ 14,251
========== ======= ========== ========== ======= ==========
Segment average assets........ $1,790,892 $71,892 $1,862,784 $1,808,161 $37,243 $1,845,404
========== ======= ========== ========== ======= ==========
</TABLE>

<TABLE>
<CAPTION>
PREDECESSOR BASIS -- COLE TAYLOR BANK
-----------------------------------------------------------------------
FOR THE PERIOD OF JAN. 1, 1997
TO FEB. 11, 1997 FOR THE YEAR ENDED DEC. 31, 1996
---------------------------------- ----------------------------------
MORTGAGE MORTGAGE
BANKING BANKING TOTAL BANKING BANKING TOTAL
---------- -------- ---------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net interest income........... $ 8,345 $ 221 $ 8,566 $ 71,063 $ 1,457 $ 72,520
Noninterest income............ 1,681 80 1,761 13,777 679 14,456
Depreciation and
amortization................ 192 12 204 2,810 211 3,021
Other significant noncash
items:
Provision for loan losses... 486 (66) 420 3,122 185 3,307
Gain on sales of loans,
net...................... -- 169 169 700 283 983
Gain on sale of mortgage
servicing rights......... -- -- -- -- 451 451
Impairment of mortgage
servicing rights......... -- -- -- -- 66 66
Income taxes.................. 1,517 (180) 1,337 10,608 (637) 9,971
Segment net income (loss)..... $ 2,585 $ (339) $ 2,246 $ 20,878 $(1,198) $ 19,680
========== ======== ========== ========== ======= ==========
Segment average assets........ $1,613,155 $158,128 $1,771,283 $1,776,120 $41,009 $1,817,129
========== ======== ========== ========== ======= ==========
</TABLE>

96
<PAGE> 97
TAYLOR CAPITAL GROUP, INC.

PART II

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

26. SEGMENT REPORTING: -- (CONTINUED)
The following tables reconcile segment information to the financial
statements for the periods indicated:

<TABLE>
<CAPTION>
SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
-------------------------------------------------------------------------
FOR THE PERIOD OF FEB. 12, 1997
FOR THE YEAR ENDED DEC. 31, 1998 TO DEC. 31, 1997
----------------------------------- -----------------------------------
REPORTABLE CONSOLIDATED REPORTABLE CONSOLIDATED
SEGMENTS OTHER TOTALS SEGMENTS OTHER TOTALS
---------- ------- ------------ ---------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net interest income............ $ 72,603 $(1,867) $ 70,736 $ 63,687 $(1,531) $ 62,156
Noninterest income............. 15,143 38 15,181 15,337 (9) 15,328
Depreciation and
amortization................. 4,033 -- 4,033 3,546 32 3,578
Other significant noncash
items:
Provision for loan losses.... 5,100 35 5,135 3,896 165 4,061
Gain on sales of loans,
net....................... 4,307 -- 4,307 1,966 632 2,598
Gain on sale of mortgage
servicing rights.......... 1,462 -- 1,462 -- -- --
Impairment of mortgage
servicing rights.......... 329 -- 329 53 -- 53
Income taxes................... 9,280 (2,927) 6,353 8,210 (1,889) 6,321
Net income (loss).............. $ 14,905 $(5,464) $ 9,441 $ 14,251 $(4,138) $ 10,113
========== ======= ========== ========== ======= ==========
Average assets................. $1,862,784 $ 6,680 $1,869,464 $1,845,404 $29,963 $1,875,367
========== ======= ========== ========== ======= ==========
</TABLE>

For the year ended December 31, 1998 and for the period of February 12,
1997 to December 31, 1997 amounts presented in the other columns represent the
operations of the Parent Company, the Mortgage Company, and CTRE, Inc. which
have not been defined as reportable segments.

<TABLE>
<CAPTION>
PREDECESSOR BASIS -- COLE TAYLOR BANK
--------------------------------------------------------------------
FOR THE PERIOD OF JAN. 1, 1997
TO FEB. 11, 1997 FOR THE YEAR ENDED DEC. 31, 1996
------------------------------- ----------------------------------
REPORTABLE REPORTABLE
SEGMENTS OTHER TOTALS SEGMENTS OTHER TOTALS
---------- ----- ---------- ----------- ------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net interest income............ $ 8,566 $-- $ 8,566 $ 72,520 $-- $ 72,520
Noninterest income............. 1,761 -- 1,761 14,456 -- 14,456
Depreciation and
amortization................. 204 34 238 3,021 -- 3,021
Other significant noncash
items:
Provision for loan losses.... 420 -- 420 3,307 -- 3,307
Gain on sales of loans,
net....................... 169 -- 169 983 -- 983
Gain on sale of mortgage
servicing rights.......... -- -- -- 451 -- 451
Impairment of mortgage
servicing rights.......... -- -- -- 66 -- 66
Income taxes................... 1,337 (9) 1,328 9,971 -- 9,971
Net income..................... $ 2,246 $36 $ 2,282 $ 19,680 $13 $ 19,693
========== === ========== ========== === ==========
Average assets................. $1,771,283 $-- $1,771,283 $1,817,129 $-- $1,817,129
========== === ========== ========== === ==========
</TABLE>

97
<PAGE> 98

TAYLOR CAPITAL GROUP, INC.
PART II

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jeffrey W. Taylor(1)................. 46 Chairman of the Board, Chief Executive Officer and
Director of the Company, Chairman of the Board and
Director of the Bank and Director of the Mortgage
Company
Bruce W. Taylor(1)................... 43 President and Director of the Company, President,
Director and Chief Executive Officer of the Bank and
Director of the Mortgage Company
John Christopher Alstrin(1).......... 52 Chief Financial Officer and Director of the Company, the
Bank and the Mortgage Company
Daniel S. Bleil...................... 42 Group Senior Vice President -- Strategic Business
Initiatives of the Bank and Director of the Company
Adelyn Dougherty(2).................. 68 Director of the Company
Ronald Emanuel(3).................... 53 Director of the Company
Edward T. McGowan(3)................. 63 Director of the Company
Melvin E. Pearl(2)................... 63 Director of the Company
Richard W. Tinberg(2)(3)............. 48 Director of the Company
Mark L. Yeager....................... 49 Director of the Company
</TABLE>

- ---------------

(1) Member of the Executive Committee.

(2) Member of the Compensation Committee.

(3) Member of the Audit Committee

JEFFREY W. TAYLOR is Chairman of the Board, Chief Executive Officer and a
Director of the Company and Chairman of the Board and a Director of both the
Bank and the Mortgage Company. Mr. Taylor was formerly a Director of CTFG from
its inception in 1984 until the closing of the Split-Off Transactions. From
February 1994 until prior to the Split-Off Transactions, Mr. Taylor served as
Chairman and Chief Executive Officer of CTFG and Chairman and Chief Executive
Officer of the Bank. From 1991 to February 1994, Mr. Taylor served as Vice
Chairman of CTFG and Chairman and Chief Executive Officer of the Bank. Mr.
Taylor began his career with the Bank in 1978 as associate General Counsel and
has held several management positions with the Bank since that time. Mr. Taylor
is the son of Sidney J. Taylor and the brother of Bruce W. Taylor.

BRUCE W. TAYLOR is President and a Director of the Company and President
and Chief Executive Officer of the Bank and a Director of both the Bank and the
Mortgage Company. Mr. Taylor was formerly a Director of CTFG from its inception
in 1984 until the closing of the Split-Off Transactions. From February 1994
until prior to the Split-Off Transactions, Mr. Taylor served as President of
CTFG in addition to President and Chief Executive Officer of the Bank. From 1991
to February 1994, Mr. Taylor served as Vice Chairman of CTFG and President and
Chief Operating Officer of the Bank. Mr. Taylor began working for Cole Taylor
Bank in 1979 and has held several management positions with the Bank since that
time. Mr. Taylor is the son of Sidney J. Taylor and the brother of Jeffrey W.
Taylor.

98
<PAGE> 99
TAYLOR CAPITAL GROUP, INC.
PART III

JOHN CHRISTOPHER ALSTRIN is a Director and the Chief Financial Officer of
the Company. Mr. Alstrin was formerly the Chief Financial Officer of CTFG from
August 1995 until the closing of the Split-Off Transactions. Mr. Alstrin also
has been Chief Financial Officer of the Bank since August 1995 and has served as
a director of the Mortgage Company since its inception. From March 1989 to June
1994, Mr. Alstrin was the Chief Financial Officer and the Chief Investment
Officer of the Farm & Home Financial Corp., a financial services corporation.

DANIEL S. BLEIL was the Group Senior Vice President -- Strategic Business
Initiatives of the Bank and a Director of the Company. In March 1999, Mr. Bleil
resigned as an employee of the Bank and continues to serve as a Director of the
Company. Mr. Bleil was formerly the Group Senior Vice President -- Strategic
Business Initiatives of CTFG from August 1996 until the closing of the Split-Off
Transactions. Mr. Bleil began his career with the Bank in 1983 and has held
several management positions since that time.

ADELYN DOUGHERTY is a Director of the Company and was formerly a Director
of CTFG from August 1995 until the closing of the Split-Off Transactions. Ms.
Dougherty retired in August 1996 as the President of the Institute of European
and Asian Studies. From 1988 to 1992, Ms. Dougherty was Senior Vice President
and Director of Human Resources for First Colonial Bankshares Corporation, a
holding company for sixteen banks and three non-bank subsidiaries located in the
greater metropolitan Chicago area.

RONALD EMANUEL is a Director of the Company. Since 1979, Mr. Emanuel has
been President and majority stockholder of ATI Carriage House, Inc., a retail
furniture distributor.

EDWARD MCGOWAN is a Director of the Company. Since 1973, Mr. McGowan has
been President of Edon Construction Co., Inc., a carpentry contractor. He is
also Secretary/Treasurer of Dremco, Inc., a real estate developer.

RICHARD W. TINBERG is a Director of the Company and was formerly a Director
of CTFG from 1995 until the closing of the Split-Off Transactions. Since 1985,
Mr. Tinberg has been the President and Chief Executive Officer of The Bradford
Group, a group of organizations engaged in the development and marketing of
collectibles and Chief Executive Officer of Hammacher Schlemmer & Company, which
specializes in the marketing of innovative products and gifts.

MELVIN E. PEARL is a Director of the Company and was formerly a Director of
CTFG from its inception in 1984 until the closing of the Split-Off Transactions.
Mr. Pearl has been a Partner with the law firm of Katten, Muchin & Zavis since
1977.

MARK L. YEAGER is a Director of the Company. Since 1981, Mr. Yeager has
been a Partner with the law firm of McDermott, Will & Emery.

TERMS OF OFFICE

Each member of the Board of Directors of the Company is elected annually.
All officers of the Company serve at the pleasure of the Board of Directors.

99
<PAGE> 100
TAYLOR CAPITAL GROUP, INC.
PART III

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the compensation paid to the Chief Executive
Officer and the three other executive officers of the Company (collectively, the
"Named Officers") in 1998 and 1997. The Company was incorporated on October 9,
1996 and commenced operations in February 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------------------
RESTRICTED
OTHER STOCK SECURITIES ALL OTHER
NAME AND PRINCIPAL ANNUAL AWARD UNDERLYING COMPENSATION
POSITION YEAR SALARY BONUS COMPENSATION (#)(1) OPTIONS(#) (2)
- ------------------ ---- -------- -------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeffrey W. Taylor, 1998 $444,510 $ 50,868 -- -- -- $ 46,625(3)
Chairman of the Board 1997 358,623 240,255 -- -- -- $ 43,265
and Executive Officer of the
Company
Bruce W. Taylor, 1998 439,818 48,868 -- -- -- $ 38,130(4)
President of the Company 1997 350,063 237,875 -- -- -- $ 37,782
Sidney J. Taylor(7), 1998 300,000 16,300 -- -- -- $163,859(5)
Chairman of the Executive 1997 264,808 16,560 -- -- -- $171,674
Committee of the Company
J. Christopher Alstrin, 1998 230,906 41,780 -- -- 6,200 $ 2,598(6)
Chief Financial Officer of 1997 196,615 67,500 $45,700 18,182 6,200 $ 31,245
the Company
</TABLE>

- ---------------
(1) As of December 31, 1998, Mr. Alstrin was the only Named Officer that held
any restricted common stock of the Company. Mr. Alstrin's 18,182 shares of
restricted stock, which were issued in 1997, had an aggregate fair value of
$490,914 at December 31, 1998. This fair value was calculated by using a
per share value of $27, as determined by a third party appraisal. Dividends
on the restricted shares are paid to Mr. Alstrin as they are declared.

(2) As of March 1999, the Company had not completed its 1998 contribution
allocation to the Named Officers in connection with the Company's deferred
compensation plan and 401(k)/Profit Sharing and ESOP Plan. Therefore, these
amounts have not been included in the "All Other Compensation" column for
1998.

(3) Includes $1,228 for reimbursement of premiums paid by Mr. Taylor for
split-dollar and $45,397 representing the full dollar value of all premiums
paid by the Company for split-dollar life insurance for Mr. Taylor.

(4) Includes $994 for reimbursement of premiums paid by Mr. Taylor for
split-dollar life insurance and $37,136 representing the full dollar value
of all premiums paid by the Company for split-dollar life insurance for Mr.
Taylor.

(5) Includes $84,320 for reimbursement of premiums paid by Mr. Taylor for
split-dollar life insurance and $79,539 representing the full dollar value
of all premiums paid by the Company for split-dollar life insurance for Mr.
Taylor.

(6) Includes $450 for reimbursement of premiums paid by Mr. Alstrin for
split-dollar life insurance and $2,148 representing the full dollar value
of all premiums paid by the Company for split-dollar life insurance for Mr.
Alstrin.

(7) Mr. Taylor resigned as Chairman of the Executive Committee and as a
Director of the Company and the Bank in February 1999.

100
<PAGE> 101
TAYLOR CAPITAL GROUP, INC.
PART III

The following table provides information on grants of stock options in 1998
to the Named Officers pursuant to the Company's 1998 Incentive Compensation
Plan. The Company has never granted any of the Named Officers stock appreciation
rights.

OPTION GRANTS IN 1998

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------ VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERMS(1)
OPTIONS GRANTED EMPLOYEES IN EXERCISE EXPIRATION ----------------------
NAME (#)(2) 1998 PRICE ($/SH) DATE 5% ($) 10% ($)
---- --------------- ------------ ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey W. Taylor..... -- -- -- -- -- --
Bruce W. Taylor....... -- -- -- -- -- --
Sidney J. Taylor...... -- -- -- -- -- --
J. Christopher
Alstrin............. 6,200 6.2% $25 2/26/08 $97,479 $247,030
</TABLE>

- ---------------

(1) Potential realizable value is presented net of the option exercise price.
These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, are dependent on the future performance of the Common Stock
and the option holder's continued employment throughout the vesting period.

(2) These non-qualified options were granted under the Company's Incentive
Compensation Plan. The stock options vest over a five year period at 20% per
year. Upon death, disability, retirement or change of control of the Company
(as defined) vesting is accelerated to 100%.

The following table provides information on the unexercised options of the
Named Officers outstanding as of December 31, 1998. None of the Named Officers
exercised any options during 1998.

YEAR END 1998 OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998(#) DECEMBER 31, 1998(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jeffrey W. Taylor.......................... -- -- -- --
Bruce W. Taylor............................ -- -- -- --
Sidney J. Taylor........................... -- -- -- --
J. Christopher Alstrin..................... 1,240 11,160 $6,200 $37,200
</TABLE>

- ---------------
(1) This value is calculated by subtracting the exercise price per share from
the fair value at December 31, 1998, of the Company's common stock of $27,
as determined by a third party appraisal.

101
<PAGE> 102
TAYLOR CAPITAL GROUP, INC.
PART III

DIRECTOR COMPENSATION

Directors who are not employees of the Company receive an annual fee of
$10,000 and an attendance fee of $750 for each Board meeting attended and $650
for each committee meeting attended. The Chairman of each committee receives an
additional $250 per committee meeting attended. In addition, all directors may
be reimbursed for certain expenses in connection with attendance at Board and
committee meetings. Other than with respect to reimbursement of expenses,
directors who are employees or officers of the Company do not receive additional
compensation for service as a director.

SEVERANCE POLICY

The Company has established a severance policy to provide certain benefits
to senior managers. The policy covers Jeffrey Taylor, Bruce Taylor, J.
Christopher Alstrin, and certain other senior managers. The policy provides that
upon termination other than for cause or performance, each senior manager will
be entitled to severance payments which will range from the amount of such
senior manager's base salary to one and one-half times such senior manager's
base salary. In addition, said severance will include an amount equal to the
performance bonus payable to such senior manager in the year immediately
preceding termination (the "Past Performance Amount"). The senior manager will
also receive medical benefits and outplacement assistance for a defined period
following termination.

CHANGE OF CONTROL POLICY

The Company has established a change of control policy to provide certain
benefits to J. Christopher Alstrin and certain other senior managers. The policy
provides that upon termination due to a change of control of the Company, any
stock options held by the said senior manager will be fully exercizable and any
contributions to the Company's deferred compensation plan will become fully
vested. In addition, each senior manager will receive a change of control
severance payment in an amount which will range from one and one-half times such
senior manager's base salary plus the Past Performance Amount to two and
one-half times base salary plus the Past Performance Amount. The senior manager
will also receive medical benefits and outplacement assistance for a defined
period following termination.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following table sets forth certain information regarding the Common
Stock of the Company beneficially owned as of March 17, 1999 by (i) each
stockholder known by the Company to be the beneficial owner of more than five
percent of the outstanding shares of the Common Stock, (ii) each director of the
Company, (iii) each Named Officer and (iv) all directors and executive officers
of the Company as a group. Collectively, such stockholders set forth below,
together with Cindy Taylor Bleil, who beneficially owns 113,360 shares,
constitute the "Taylor Group." Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based on
information provided by such owners, will have sole investment and voting power
with respect to such shares, subject to community property laws where

102
<PAGE> 103
TAYLOR CAPITAL GROUP, INC.
PART III

applicable. Except as set forth below, the address of each of the stockholders
named below is the Company's principal executive and administrative office.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED COMMON STOCK (1)
- ---- ------------------ ----------------
<S> <C> <C>
Iris A. Taylor(2).......................................... 2,755,006 59.1%
Sidney J. Taylor(3)........................................ 595,650 12.8
Jeffrey W. Taylor(4)....................................... 255,130 5.5
Bruce W. Taylor............................................ 267,630 5.7
J. Christopher Alstrin..................................... 18,182 *
Company's 401(K)/Profit Sharing and Employee Stock
Ownership Plan........................................... 366,820 7.9
Melvin E. Pearl(5)......................................... 2,000 *
Adelyn Dougherty........................................... 2,000 *
Ronald Emanuel............................................. 2,000 *
Edward McGowan............................................. 2,000 *
Richard Tinberg............................................ 2,000 *
Mark L. Yeager............................................. 2,000 *
Daniel Bleil............................................... 700 *
All directors and executive officers as a group (11
persons)................................................. 1,149,292 24.7
</TABLE>

- ---------------

* Less than 1%.

(1) Percentage of beneficial ownership is based on 4,658,533 shares of common
stock of the Company outstanding as of March 17, 1999.

(2) Excludes 595,650 shares beneficially owned by Iris A. Taylor's husband,
Sidney J. Taylor, of which shares Iris Taylor disclaims beneficial
ownership. Includes an aggregate 1,781,000 shares held by various Taylor
Family Trusts, including 633,960 shares held by the Shirley Tark
Grandchildren Trust dated January 20, 1978; 783,960 shares held by the
Shirley Tark Great Grandchildren Trust dated January 20, 1978; 152,200
shares held by the Lillian M. Tark Trust dated October 26, 1971 and 210,880
shares held by the Annual Gift Trusts dated December 14, 1982 July 10, 1983,
November 10, 1985, November 18, 1985, December 15, 1987 and August 1, 1988;
over all of which Iris A. Taylor has sole voting and investment power. Also
includes 974,006 shares held by the Taylor Family Partnership, L.P. (the
"Taylor Family Partnership"), over which Iris Taylor has sole voting and
investment power.

(3) Excludes 2,755,006 shares beneficially owned by Sidney J. Taylor's wife,
Iris A. Taylor, of which shares Sidney J. Taylor disclaims beneficial
ownership. Includes 547,320 shares held in the Sidney J. Taylor Trust dated
September 17, 1976, over which Sidney J. Taylor has sole voting and
investment power.

(4) Includes 40,700 shares held in trust for the benefit of Mr. Taylor's spouse
and 700 shares held by Mr. Taylor's children.

(5) Mr. Pearl disclaims beneficial ownership of 60,380 shares which are held by
the 12/17/92 Gift Trust of which Mr. Pearl serves as a Trustee. Mr. Pearl's
address is c/o Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600,
Chicago, Illinois 60661.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain of the directors and officers of the Company and of the Bank and
members of their immediate families, and firms and corporations with which they
are associated, have had transactions with the Bank, including borrowings and
investments in certificates of deposit. Management believes that all such loans
and investments have been and will continue to be made in the ordinary course of
business of the Bank on substantially the same terms, including interest rates
paid and collateral required, as those prevailing at the

103
<PAGE> 104
TAYLOR CAPITAL GROUP, INC.
PART III

time for comparable transactions with unaffiliated persons, and did not involve
more than the normal risk of collectibility or present other unfavorable
features. All future material transactions and loans, and any forgiveness of
loans, will be approved by a majority of the independent outside members of the
Company's Board of Directors who do not have an interest in the transactions. As
of December 31, 1998, the aggregate outstanding amount of all loans which
individually exceed $60,000 to officers and directors of the Company, and
members of their immediate families and firms and corporations in which they
have at least a 10% beneficial interest was approximately $22.5 million. The
Company relies on its directors and executive officers for identification of
loans to their related interests.

The Company's primary insurance brokers are Dann Brothers, Inc., which
provides property and casualty insurance brokerage services. Each of Russell
Dann and Scott Dann, the brothers-in-law of Jeffrey W. Taylor, beneficially owns
approximately 25% of the capital stock of Dann Brothers, Inc. For the year ended
December 31, 1998, the Company paid total premiums of approximately $599,000 to
Dann Brothers, Inc. in connection with various insurance policies.

Two of the Company's primary legal counsel are Katten, Muchin & Zavis and
McDermott, Will & Emery. Mr. Melvin E. Pearl, a Director of the Company, is a
Partner with the law firm of Katten, Muchin & Zavis and Mark L. Yeager, a
Director of the Company, is a Partner with the law firm of McDermott, Will &
Emery. For the year ended December 31, 1998, the Company paid legal fees to
Katten, Muchin, & Zavis and McDermott, Will, & Emery totaling approximately
$857,000 and $3,231,000, respectively.

104
<PAGE> 105

TAYLOR CAPITAL GROUP, INC.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

DOCUMENTS FILED AS PART OF THIS FORM 10-K

<TABLE>
<S> <C>
(a)(1) THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED ON PAGES 56
THROUGH 97 OF THIS REPORT:
Balance Sheets -- Successor Basis -- Taylor Capital Group,
Inc. -- Consolidated December 31, 1998 and 1997
Statements of Income -- Successor Basis -- Taylor Capital
Group, Inc. -- Consolidated For the Year Ended December 31,
1998 and for the Period of February 12, 1997 to December 31,
1997; Predecessor Basis -- Cole Taylor Bank -- For the
Period of January 1, 1997 to February 11, 1997, and for the
Year ended December 31, 1996
Statement of Changes in Stockholders' Equity -- Successor
Basis -- Taylor Capital Group, Inc. -- Consolidated For the
Year Ended December 31, 1998 and For the Period of February
12, 1997 to December 31, 1997; Predecessor Basis -- Cole
Taylor Bank -- For the Period January 1, 1996 to February
11, 1997
Statements of Cash Flows -- Successor Basis -- Taylor
Capital Group, Inc. -- Consolidated For the Year Ended
December 31, 1998 and For the Period of February 12, 1997 to
December 31, 1997; Predecessor Basis -- Cole Taylor Bank --
For the Period of January 1, 1997 to February 11, 1997, and
For the Year ended December 31, 1996
Notes to Financial Statements
Independent Auditors' Report -- KPMG LLP
(a)(2) NO FINANCIAL STATEMENT SCHEDULES ARE INCLUDED BECAUSE SUCH
SCHEDULES ARE NOT REQUIRED OR THE INFORMATION REQUIRED HAS
BEEN PRESENTED IN THE AFOREMENTIONED FINANCIAL STATEMENTS.
(a)(3) EXHIBITS:
</TABLE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
<C> <S> <C>
3.1 Certificate of Incorporation of the Incorporated by reference to Exhibit
Registrant 3.1.1 to the Registration Statement on
Form S-1 (No.333-14713)
3.2 Certificate of Designation of the Incorporated by reference to Exhibit
Preferred Stock 3.1.2 to the Registration Statement on
Form S-1 (No.333-14713)
3.3 Bylaws of the Registrant Incorporated by reference to Exhibit 3.2
to the Registration Statement on Form
S-1 (No.333-14713)
4.1 Specimen of Certificate for the 9% Incorporated by reference to Exhibit 4
Noncumulative Perpetual Preferred to the Registration Statement on Form
Stock, Series A S-1 (No.333-14713)
10.1 Loan Agreement Between LaSalle National Incorporated by reference to Exhibit
Bank and Taylor Capital Group, Inc. 10.1 to the Registration Statement on
Form S-1 (No.333-14713)
10.2 Safekeeping Agreement Between LaSalle Incorporated by reference to Exhibit
National Bank and Taylor Capital 10.1(a) to the Registration Statement
Group, Inc. on Form S-1 (No.333-14713)
10.3 First Amendment to Loan Agreement Incorporated by reference to Exhibit
Between LaSalle National Bank and 10.1 to the March 31, 1997 Form 10-Q
Taylor Capital Group, Inc.
</TABLE>

105
<PAGE> 106
TAYLOR CAPITAL GROUP, INC.

PART IV

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
<C> <S> <C>
10.4 Second Amendment to Loan Agreement Incorporated by reference to Exhibit
Between LaSalle National Bank and 10.4 to the December 31, 1997 Form
Taylor Capital Group, Inc. 10-K
10.5 Third Amendment to Loan Agreement Incorporated by reference to Exhibit
Between LaSalle National Bank and 10.1 to the March 31, 1998 Form 10-Q
Taylor Capital Group, Inc.
10.6 Fourth Amendment to Loan Agreement Incorporated by reference to Exhibit
Between LaSalle National Bank and 10.1 to the June 30, 1998 Form 10-Q
Taylor Capital Group, Inc.
10.7 Fifth Amendment to Loan Agreement Incorporated by reference to Exhibit
Between LaSalle National Bank and 10.2 to the June 30, 1998 Form 10-Q
Taylor Capital Group, Inc.
10.8 Sixth Amendment to Loan Agreement Incorporated by reference to Exhibit
Between LaSalle National Bank and 10.1 to the September 30, 1998 Form
Taylor Capital Group, Inc. 10-Q
10.9 Amended and Restated Third Party Incorporated by reference to Exhibit
Safekeeping Agreement 10.2 to the September 30, 1998 Form
10-Q
10.10 Security Agreement and Assignment of Incorporated by reference to Exhibit
European American Bank Safekeeping 10.3 to the September 30, 1998 Form
Account 10-Q
10.11 Taylor Capital Group, Inc. Deferred Incorporated by reference to Exhibit
Compensation Plan* 10.7 to the Registration Statement on
Form S-1 (No.333-14713)
10.12 Agreement among Taylor Capital Group, Incorporated by reference to Exhibit
Inc., Cole Taylor Financial Group, 10.4 to the Registration Statement on
Inc. and the Taylor Family Form S-1 (No.333-14713)
10.13 Indemnity Agreement by and among Taylor Incorporated by reference to Exhibit
Capital Group, Inc. and The Taylor 10.5 to the Registration Statement on
Family Form S-1 (No.333-14713)
10.14 Taylor Capital Group, Inc. 401(k)/Profit Incorporated by reference to Exhibit
Sharing and Employee Stock Ownership 10.8 to the December 31, 1997 Form
Plan* 10-K
10.15 Taylor Capital Group, Inc. Incentive Incorporated by reference to Exhibit
Compensation Plan* 10.9 to the December 31, 1997 Form
10-K
10.16 Form of Non-Qualified Stock Option Incorporated by reference to Exhibit
agreement with employees* 10.10 to the December 31, 1997 Form
10-K
10.17 Form of Stock Transfer Agreement for Incorporated by reference to Exhibit
Stock Option Grants* 10.11 to the December 31, 1997 Form
10-K
10.18 Form of Restricted Stock Award agreement Incorporated by reference to Exhibit
with recipients* 10.12 to the December 31, 1997 Form
10-K
10.19 Form of Stock Transfer Agreement for Incorporated by reference to Exhibit
Restricted Stock Awards* 10.13 to the December 31, 1997 Form
10-K
10.20 Taylor Capital Group, Inc. 1997 Incorporated by reference to Exhibit
Long-Term Incentive Plan* 10.14 to the December 31, 1997 Form
10-K
</TABLE>

106
<PAGE> 107
TAYLOR CAPITAL GROUP, INC.

PART IV

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
<C> <S> <C>
10.21 Servicing Rights Sale Agreement Between Incorporated by reference to Exhibit
Cole Taylor Bank and First Nationwide 10.15 to the December 31, 1997 Form
Mortgage Corporation 10-K
10.22 Stock Purchase Agreement Between Jeffrey Filed with this document Form 10-K
W. Taylor and Cindy Taylor Bleil, as
sellers, and Taylor Capital Group,
Inc. Profit Sharing and Employee Stock
Ownership Trust, as buyer and Taylor
Capital Group, Inc.
10.23 ESOP Loan and Pledge Agreement between Filed with this document Form 10-K
Taylor Capital Group, Inc. and Taylor
Capital Group, Inc. Profit Sharing and
Employee Stock Ownership Trust
12 Computation of Ratio of Earnings to Filed with this document Form 10-K
Fixed Charges
21 List of Subsidiaries Filed with this document Form 10-K
27 Financial Data Schedule Filed with this document Form 10-K
</TABLE>

- ---------------

* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K.

The Company will furnish to any stockholder, upon written request, any
exhibit listed above upon payment by such stockholder of the Company's
reasonable expenses in furnishing any such exhibit.

(b) REPORTS ON FORM 8-K:

The Company did not file any reports on Form 8-K during the fourth quarter
of 1998

107
<PAGE> 108

TAYLOR CAPITAL GROUP, INC.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 29th day of
March, 1999.

TAYLOR CAPITAL GROUP, INC.

/s/ JEFFREY W. TAYLOR
By:
--------------------------------------

Jeffrey W. Taylor
Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JEFFREY W. TAYLOR Chairman and Chief Executive Officer March 29, 1999
- --------------------------------------------- (principal executive officer)
Jeffrey W. Taylor

/s/ BRUCE W. TAYLOR President and Director March 29, 1999
- ---------------------------------------------
Bruce W. Taylor

/s/ J. CHRISTOPHER ALSTRIN Chief Financial Officer and Director March 29, 1999
- --------------------------------------------- (principal financial and accounting
J. Christopher Alstrin officer)

/s/ ADELYN DOUGHERTY Director March 29, 1999
- ---------------------------------------------
Adelyn Dougherty

/s/ RONALD EMANUEL Director March 29, 1999
- ---------------------------------------------
Ronald Emanuel

/s/ EDWARD T. MCGOWAN Director March 29, 1999
- ---------------------------------------------
Edward T. McGowan

Director March 29, 1999
- ---------------------------------------------
Melvin E. Pearl

/s/ RICHARD TINBERG Director March 29, 1999
- ---------------------------------------------
Richard Tinberg

/s/ MARK L. YEAGER Director March 29, 1999
- ---------------------------------------------
Mark L. Yeager

/s/ DANIEL BLEIL Director March 29, 1999
- ---------------------------------------------
Daniel Bleil
</TABLE>

108
<PAGE> 109
EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
- ------ -----------

10.22 Stock Purchase Agreement Between Jeffrey W. Taylor and Cindy
Taylor Bleil, as sellers, and Taylor Capital Group, Inc.
Profit Sharing and Employee Stock Ownership Trust, as buyer,
and Taylor Capital Group, Inc.
10.23 ESOP Loan and Pledge Agreement between Taylor Capital Group,
Inc. and Taylor Capital Group, Inc. Profit Sharing and
Employee Stock Ownership Trust
12 Computation of Ratio of Earnings to Fixed Charges
21 List of Subsidiaries
27 Financial Data Schedule

<PAGE> 1
EXHIBIT 10.22

STOCK PURCHASE AGREEMENT

by and among

JEFFREY W. TAYLOR
AND
CINDY TAYLOR BLEIL,
AS SELLERS

AND

TAYLOR CAPITAL GROUP, INC.
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP TRUST,
AS BUYER

AND

TAYLOR CAPITAL GROUP, INC.

DATED AS OF NOVEMBER 25, 1998
<PAGE> 2
STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT ("Agreement") dated November 25,
by and among (i) Jeffrey W. Taylor and Cindy Taylor Bleil, (the "Sellers"), (ii)
Cole Taylor Bank, not in its corporate capacity, but solely as trustee (the
"Trustee") of the Taylor Capital Group, Inc. Profit Sharing and Employee Stock
Ownership Trust (the "Trust" or "Buyer"), which implements and forms a part of
the Taylor Capital Group, Inc. Employee Stock Ownership Plan (the "Plan") (the
Plan and Trust are collectively referred to as the "ESOP"), and (iii) Taylor
Capital Group, a Delaware corporation (the "Company").

WHEREAS, the Sellers desire to sell collectively 24,000 shares
of the Company's common stock, $.01 par value (the "Common Shares") to the Buyer
and the Buyer desire to purchase the Common Shares from the Sellers; and

WHEREAS, the Company and will make a loan to the Buyer in
order to permit the Buyer to purchase shares of Company Stock;

NOW, THEREFORE, in consideration of the foregoing and of the
mutual agreements, covenants, representations and warranties hereinafter
contained, the parties hereby agree as follows:

SECTION 1. Purchase and Sale of Common Shares.

Subject to the terms and conditions of this Agreement, at the
Closing (as defined in Section 3 hereof), each of the Sellers will sell to the
Buyer, and the Buyer will purchase from the Sellers the number of Common Shares,
as defined in the recitals, set forth opposite such Seller's name in Schedule 1,
attached hereto.

SECTION 2. Purchase Price and Payment.

In full consideration of the Sellers' sale, conveyance,
transfer and delivery to the Buyer of the Common Shares at the Closing, the
Buyer shall pay the aggregate purchase price for the Common Shares (the
"Purchase Price") of Five Hundred Seventy-Six Thousand Dollars ($576,000),
payable to each Seller by delivery of separate certified or cashier's check to
her order, or by wire transfer to an account designated by such Seller, in the
amount set forth opposite each Seller's name in Schedule 1.

SECTION 3. Closing.

3.1 Time and Place. The documents to be transferred and the
payments to be made on the Closing shall be transferred and made at the offices
of the Company 350 East Dundee Rd., Wheeling, IL 60090, at 9:00 a.m., on
November 25, 1998, or at such other time as shall be mutually agreed upon by the
parties. However, as used herein, the term "Closing" shall
<PAGE> 3
mean the date on which the Common Shares are delivered to Buyer and the Purchase
Price is paid to the Sellers.

3.2 Deliveries. At or prior to the Closing: (i) each Sellers
shall deliver, or previously have delivered, to the Buyer certificates
representing the number of Common Shares set forth opposite such Seller's name
in Schedule 1, which certificates shall be duly endorsed to the Buyer or
accompanied by duly executed stock powers, in transferable form, accompanied by
all documentation required for transfer; and (ii) the Buyer shall deliver to the
Sellers the Purchase Price as described in Section 2. On the Closing, and from
time to time thereafter, the Sellers shall, at the request of the Buyer, take
all action necessary to put the Buyer in actual possession and control of the
Common Shares and shall execute and deliver such further instruments of transfer
and conveyance and take such other actions as the Buyer may reasonably request,
in order more effectively to transfer and convey the Common Shares to the Buyer,
to confirm the title of the Buyer to the Common Shares, and to assist the Buyer
in exercising any rights with respect thereto. Notwithstanding any provision in
this Agreement to the contrary, Buyer's obligation to consummate the Closing is
conditioned on the Trustee's receipt of a favorable opinion from Alex Sheshunoff
& Co. ("Sheshunoff") that the Purchase Price does not exceed "Adequate
Consideration" (as defined in Section 3(18) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")).

SECTION 4. Representations and Warranties of the Sellers.

Each Seller severally and not jointly represents and warrants
to the Buyer as follows only with respect to himself or herself and only with
respect to his or her Shares:

4.1 Title to Common Shares. Each Seller is the lawful record
and beneficial owners of their Common Shares, free and clear of any security
interest, claim, lien, pledge, option, encumbrance or restriction (on
transferability or otherwise) whatsoever in law or at equity, and the delivery
of the Common Shares by each Seller to the Buyer pursuant to this Agreement will
convey to the Buyer lawful, valid and indefeasible title thereto, free and clear
of any security interest, claim, lien, pledge, option, encumbrance or
restriction whatsoever.

4.2 Necessary Authority. The Seller has full power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Seller and constitutes the legal, valid and binding obligation
of the Seller, enforceable against the Seller in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, reorganization or
other laws affecting the enforcement of creditors' rights generally now or
hereafter in effect, and subject to the availability of equitable remedies. The
Seller's execution and performance of this Agreement, as well as the
consummation of the transactions contemplated hereby will not result in a breach
or violation of any of the terms and provisions of any agreement or instrument
to which the Seller is a party or by which the Common Shares are bound.

4.3. No Bankruptcy, etc. There has not been filed any petition
or application, or any proceedings commenced, by or against, or with respect to
any assets of the Seller under Title 11 of the United States Code or any other
law, domestic or foreign, relating to bankruptcy,

2
<PAGE> 4
reorganization, compromise, arrangement, insolvency, readjustment of debt or
creditors' rights, and the Seller has not made any assignment for the benefit of
creditors.

4.4 Legal Proceedings. There is no action, suit, proceeding or
investigation pending (or, to the knowledge of the Seller, threatened) affecting
the right of the Seller to sell the Seller's shares pursuant to this Agreement
or otherwise to carry out the provisions of this Agreement and the transactions
contemplated hereby, in any court, at law or in equity, or before or by any
Federal, state, local or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, or before any arbitrator
of any kind.

4.5 No Conflicts. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby do
not and will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under (i) any indenture, mortgage, deed
of trust, instrument, order, arbitration award, judgment or decree to which the
Seller is a party or by which the Seller is bound, or (ii) any statute, rule or
regulation of any federal, state or local government or agency applicable to the
Seller or his or her assets or properties.

4.6 Required Consents. No consent, approval or authorization
of, or declaration, filing or registration with any governmental or regulatory
authority is required to be obtained by the Seller in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby.

SECTION 5. Representations and Warranties of the Sellers and the Company.

The Sellers and the Company represent and warrant to the Buyer
as follows.

5.1 Necessary Authority. The Company has all requisite
corporate power and authority to enter into, deliver and perform this Agreement
and to consummate the transactions contemplated herein. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated herein have been duly authorized by all necessary action on the
part of the Company. This Agreement has been duly executed and delivered by the
Company and constitutes its valid and legally binding obligation, enforceable
against the Company in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally, now or hereafter in effect, and
subject to the availability of equitable remedies.

5.2 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and its consummation of the transactions
contemplated herein, do not and will not (i) require the consent, approval,
authorization, order, filing, registration or qualification of or with any
court, governmental authority or third person which has not been obtained, (ii)
conflict with or result in any violation of or default under any provision of
the Certificate of Incorporation or Bylaws of the Company or of any mortgage,
indenture, lease, agreement or other instrument, permit, concession, grant,
franchise or license to which the Company is a party or by which it or its
properties are bound, (iii) violate any law, ordinance,

3
<PAGE> 5
rule, regulation, judgment, order or decree applicable to the Company, or (iv)
result in the creation of any security interest, claim, lien, charge or
encumbrance upon any of the Shares (except as otherwise contemplated herein).

5.3 Corporate Organization and Good Standing of the Company.
The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to own, operate and lease its properties and to carry on its
business as such business is now being conducted.

5.4 Authorized and Outstanding Stock. The Company's authorized
capital stock consists of 7,000,000 shares of common stock, $.01 par value per
share and 3,000,000 shares of preferred stock, $.01 par value per share. The
Common Shares have been duly authorized and are validly issued, fully paid,
nonassessable, free of preemptive rights. There are no liens, charges,
encumbrances, security interests or restrictions agreed to or granted by the
Company as to such Common Shares, and they were issued in full compliance with
all applicable federal and state securities laws. Other than stock options and
shares of restricted stock granted pursuant to the Taylor Capital Group, Inc.
Incentive Compensation Plan to key employees and directors of the Company, there
are no options, warrants or rights to acquire, or securities convertible into or
exchangeable for shares of the Company's capital stock which were issued or
granted by the Company.

5.5 Ownership of Subsidiaries. The Company's only material
subsidiary is Cole Taylor Bank (the "Subsidiary").

5.6 Financial Statements.

(a) True and complete copies of the annual reviewed
consolidated financial statements of the Company and the Subsidiary for the
years ended December 31, 1995 through December 31, 1997, and the interim
statement for the period ending October 31, 1998 (collectively and including any
notes thereto, the "Financial Statements") have been delivered to Sheshunoff.

(b) To the knowledge of the Company and the Sellers, the
Financial Statements: (i) are true and correct in all material respects, are in
accordance with the books and records of the Company and the Subsidiary, present
fairly the financial condition and results of operations of the Company and the
Subsidiary at and for the periods indicated, and (ii) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis.

(c) To the knowledge of the Company and the Sellers and except
as would not have a material adverse effect on the financial condition of the
Company, the Company and the Subsidiary have no liabilities, commitments or
obligations of any nature whether absolute, accrued, contingent, known or
unknown, due or to become due or otherwise, except: (i) as reflected in the
Financial Statements and not heretofore discharged, (ii) as otherwise disclosed
in the SEC Reports (as defined in Section 6.4, and (iii) as incurred as a result
of the normal and ordinary course of business since the date of such Financial
Statements.

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<PAGE> 6
5.7 Taxes.

(a) The Company and the Subsidiary have duly filed all
federal, state, local and foreign tax returns necessary to be filed (all such
returns being true and correct in all material respects) and has duly paid or
made provisions for the payment of all taxes (including any interest or
penalties) which are due or payable pursuant to such returns or pursuant to any
assessment with respect to taxes, whether or not in conjunction with such
returns.

(b) To the knowledge of the Company and the Sellers, the
liability for taxes reflected in the most recent balance sheet(s) of the Company
and the Subsidiary included within the Financial Statements is sufficient for
the payment of all unpaid federal, state, local and foreign taxes (including
interest and penalties), whether or not disputed, for all years and periods
ended prior thereto.

(c) Except as would not have a material adverse effect on the
financial condition of the Company or the Subsidiary, proper amounts have been
withheld by the Company and the Subsidiary from its employees for all prior
periods in compliance with the tax withholding provisions of all applicable
federal, state, local and other laws. Accurate and complete federal, state,
local and other returns have been filed by the Company and the Subsidiary for
all periods for which returns were due with respect to income tax withholding,
social security and unemployment taxes and the amounts shown on such returns to
be due and payable have been paid in full or adequate provision therefor has
been included by the Company and the Subsidiary in the Financial Statements.

5.8 No Violation. To the knowledge of the Company and the
Sellers, except as disclosed in the SEC Reports (as defined in Section 6.4) and
except as would not have a material adverse effect on the Company, neither the
Company nor the Subsidiary is in violation of, or under investigation with
respect to, nor has it been formally charged with or been given notice of any
violation of, any applicable law, statute, order, rule, regulation, policy or
guideline promulgated, or judgment entered, by any federal, state, local or
foreign court or governmental authority relating to or affecting the Company or
the Subsidiary, the businesses or properties of the Company or the Subsidiary,
including without limitation, any immigration law, zoning, building, health or
safety, or noise reduction law or ordinance.

5.9 Title to and Condition of Assets.

(a) The Company and the Subsidiary have good and valid title
to all of their real and personal property and leasehold interests including,
but not limited to, the property and assets reflected in the Financial
Statements (other than property and assets disposed of in the ordinary course of
business since such date) free and clear of all title defects and all liens,
pledges, claims, charges, security interests, and other encumbrances and (in the
case of real property) rights of way, building or use restrictions, exceptions,
variances, reservations or limitations of any nature whatsoever, except, with
respect to all mortgages and liens securing debt which is reflected as a
liability in the Financial Statements. There are no existing claims adverse or
challenges to the title or ownership of any property of the Company or the
Subsidiary.

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<PAGE> 7
(b) All personal property material to the condition (financial
or otherwise), operations, business or prospects of the Company and the
Subsidiary, and all buildings, structures and fixtures used by the Company in
the conduct of its business are, considering their ages and uses, in good
operating condition (subject to normal maintenance and repair).

5.10 Contracts. To the knowledge of the Company and the
Sellers, the Company and the Subsidiary are not in material violation of, or in
default in respect of, any contract, lease, agreement, instrument, arrangement
or understanding, to which it is a party, and there are no facts or
circumstances which would reasonably indicate that the Company or the Subsidiary
will be in violation of or in default in respect of any such contract, lease,
agreement, instrument, arrangement or understanding subsequent to the date
hereof.

5.11 Litigation and Compliance with Governmental Rules. Except
as described in Schedule 5.11 or the SEC Reports there are no actions, suits,
proceedings, arbitrations or investigations pending, or to the best of the
Company's and Sellers' knowledge, threatened, in any court or before any
governmental agency or instrumentality or arbitration panel or otherwise, or
judgments, orders, decrees, or governmental restrictions, against, by or
affecting the Company which would interfere with the transactions contemplated
by this Agreement or which have or, if adversely determined would have, a
materially adverse effect on the financial condition, assets, liabilities,
business, operations or prospects of the Company or the Subsidiary.

5.12 Insurance. The insurance maintained by the Company with
respect to its property and the conduct of its business is adequate for the
risks facing the Company and has not been and will not be canceled, terminated
or allowed to lapse through the Closing Date. The insurance coverage provided by
such policies of insurance will not in any respect be affected by, and will not
terminate or lapse by reason of, the transactions contemplated by this
Agreement.

5.13 Plan Compliance. The Plan in form and in operation, to
the knowledge of the Company and Sellers, satisfies the requirements to be
qualified under Section 401(a) of the Code and constitutes an employee stock
ownership plan within the meaning of Section 4975(e)(7) of the Code, and the
Buyer is exempt from taxation under Section 501(a) of the Code.

SECTION 6. Representations and Warranties of the Buyer.

The Buyer represents and warrants to the Sellers as follows,
which representations and warranties shall continue in full force and effect to
and including the Closing and shall survive the Closing:

6.1 Necessary Authority. The Buyer has full power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Buyer and constitutes the legal, valid and binding obligation
of the Buyer, enforceable against the Buyer in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency, reorganization or other
laws

6
<PAGE> 8
affecting the enforcement of creditors' rights generally now or hereafter in
effect, and subject to the availability of equitable remedies.

6.2 No Conflicts. The execution, delivery and performance of
this Agreement by the Buyer and the consummation of the transactions
contemplated herein do not and will not: (i) require the consent or approval of,
or filing with, any person or public authority or (ii) constitute or result in
the breach of any provision of, or constitute a default under, the ESOP or any
agreement indenture or other instrument to which the ESOP is a party or by which
it or its assets may be bound.

6.3 Shares Not Registered. Buyer acknowledges that the Common
Shares are not registered under the provisions of the Securities Act of 1933.

6.4 Securities Law Representations.

(a) Buyer is an "accredited investor" as such term is defined
in Regulation D promulgated under the Securities Act. Buyer has
received a copy of (i) the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 and (ii) Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1998, June 30, 1998 and September 30,
1998 (collectively, the "SEC Reports").

(b) Buyer (i) has been provided the opportunity to ask
questions of and receive answers from the Company and Sellers, or their
respective representatives, concerning the operations, business and
financial condition of the Company, and all such questions have been
answered to Buyers full satisfaction and any information necessary to
verify such responses has been made available to Buyer; (ii) confirms
that Buyer has carefully read and understands the SEC Reports and is
relying on the accuracy and completeness of the SEC Reports without
independent certification thereof; (iii) confirms that the Common
Shares have not been offered to him by any means of general
solicitation or general advertising; (iv) has such knowledge and
experience in financial and business matters that Buyer is capable of
evaluating the merits and risks of an investment in the Common Shares;
(v) is acquiring the Common Shares for its own account, for investment
purposes only, and not with a view towards the sale or other
distribution thereof, in whole or in part; and (vi) understands that
there are restrictions on the transferability of the Common Shares.

(c) Buyer agrees with the Company and Sellers that the Common
Shares will not be sold or otherwise disposed of except pursuant to (i)
an exemption or exclusion from the registration requirements under the
Securities Act of 1933, as amended (the "Securities Act"), which does
not require the filing by the Company with the Commission of any
registration statement, offering circular or other document, in which
case Buyer shall first supply to the Company an opinion of counsel
(which opinion and counsel shall be reasonably satisfactory to the
Company) that such exemption or exclusion is available, (iii) a
registration statement filed by the Company with the Commission under
the Securities Act.

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<PAGE> 9
(d) Buyer agrees that the certificates for the Common Shares
shall bear the following legend:

THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT; (ii) PURSUANT
TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, PROVIDED THAT AN OPINION OF
COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER, HAS BEEN GIVEN BY COUNSEL SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT REGISTRATION IS NOT
REQUIRED; or (iii) IN ACCORDANCE WITH THE TERMS OF
THE TAYLOR CAPITAL GROUP, INC., PROFIT SHARING AND
EMPLOYEE STOCK OWNERSHIP PLAN.

SECTION 7. Closing Conditions for the Benefit of the Buyer

Each and every obligation of the Buyer under this Agreement
shall be subject to the satisfaction, on or prior to the Closing, of each of the
following conditions, any of which may be waived in writing by the Trustee on
behalf of the Buyer (except that the conditions set forth in Sections 7.5 and
7.6 shall not be waived by the Buyer):

7.1 Representations and Warranties True. The representations
and warranties of the Sellers and the Company contained in this Agreement shall
be true, correct and complete in all material respects as of the date hereof and
shall be deemed to have been made again at and as of the Closing and shall then
be true in all material respects (except as otherwise contemplated by this
Agreement).

7.2 Performance. Each of the obligations of the Sellers and
the Company to be performed by them on or before the Closing pursuant to the
terms hereof shall have been duly performed and complied with in all material
respects by the Closing.

7.3 Opinion of Valuation Consultants. The Trustee shall have
been furnished with an opinion of Sheshunoff to the effect that the Purchase
Price to be paid by the Buyer for the Shares is not in excess of "Adequate
Consideration" within the meaning of Section 3(18)(B) of ERISA, and such opinion
shall remain in effect and shall not have been withdrawn by such valuation
consulting firm prior to the Closing.

7.4 Trustee Approval. The Trustee shall not have determined
that the purchase of the Common Shares is imprudent or that such purchases would
result in a prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code or otherwise violate the provisions of applicable law.

8
<PAGE> 10
7.5. ESOP Loan Agreement. The Company and the Buyer shall have
entered into the ESOP Loan and Pledge Agreement dated as of the date hereof and
the Buyer shall have received the proceeds of such loan extended to Buyer
pursuant thereto.

7.6 Deliveries by Sellers. The Sellers shall have made the
deliveries required by Section 3.2.

SECTION 8. Closing Conditions for the Benefit of the Selling Stockholder
and the Company

Each and every obligation of the Sellers and the Company under
this Agreement shall be subject to the satisfaction, on or prior to the Closing,
of each of the following conditions, any of which may be waived in writing by
the Selling Stockholder and the Company:

8.1 Representations and Warranties True. The representations
and warranties of the Trustee on behalf of the Buyer contained in this Agreement
shall be true and correct in all material respects as of the date hereof and
shall be deemed to have been made again at and as of the Closing and shall then
be true in all material respects (except as otherwise contemplated by this
Agreement).

8.2. The Buyer's Performance. Each of the obligations of the
Trustee on behalf of the Buyer to be performed by it on or before the Closing
pursuant to the terms hereof shall have been duly performed and complied with in
all material respects by the Closing.

8.3 ESOP Loan Agreement. The Company and the Buyer shall have
entered into the ESOP Loan and Pledge Agreement and the Buyer shall have
received the proceeds of the loan extended thereunder.

8.4 Deliveries by the Buyer. The Buyer shall have made the
deliveries required by Section 3.2.

SECTION 9. Restriction on the Disposition of the Common Shares.

Until such time as the Common Shares are registered pursuant
to the provision of the 1933 Securities Act, any certificate or certificates
representing the Common Shares delivered pursuant to Section 3.2, or thereafter
upon transfer, exchange or substitution, will bear a legend in substantially the
following form:

"THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT; (ii) PURSUANT
TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933,

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<PAGE> 11
PROVIDED THAT AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER, HAS BEEN GIVEN
BY COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT REGISTRATION IS NOT REQUIRED; or (iii) IN
ACCORDANCE WITH THE TERMS OF THE TAYLOR CAPITAL
GROUP, INC., PROFIT SHARING AND EMPLOYEE STOCK
OWNERSHIP PLAN."

SECTION 10. Survival of Representations and Warranties; Indemnification

10.1 Survival of Representations and Warranties. The
representations and warranties made under this Agreement shall survive the
Closing for a period of two years from the date hereof.

10.2 Indemnification. The Sellers agree to defend, indemnify
and hold Buyer harmless against and shall reimburse Buyer for any actions,
claims, proceedings, losses, liabilities and damages, including reasonable
attorneys' fees) (collectively, "Damages") incurred by the Buyer on or after the
Closing Date arising out of the breach of any representation, warranty,
covenant, or agreement of the Company and the Sellers pursuant to this
Agreement. Notwithstanding anything contained in this Agreement or in this
Section 10.2 to the contrary, the liability of Sellers for any action pertaining
to the breach of any covenant, representation or warranty or for any action for
indemnification with respect to any of the foregoing under this Agreement shall
be strictly limited to the Purchase Price paid by the Buyer hereunder.

10.3 Third Party Claims. With respect to claims or demands by
third parties, whenever the Company or the Buyer shall have received notice that
such a claim or demand has been asserted or threatened, which, if valid, would
be subject to indemnity under this Section 10, the Buyer or the Company shall,
as soon as possible, and in any event within thirty (30) days of receipt of such
notice, give written notice to the Sellers of such claim or demand and of all
relevant facts within its knowledge which relate thereto; provided, however,
that the failure to give timely notice hereunder shall not relieve the Sellers
of his or her obligations under this Section 10 unless, and only to the extent
that, such failure prejudiced the Sellers. The Sellers shall have the right at
his or her expense to undertake the defense of any such claims or demands
utilizing counsel selected by the Sellers. In the event that the Sellers should
fail to give notice of her intention to undertake the defense of any such claim
or demand within sixty (60) days after receiving notice that it has been
asserted or threatened, the Buyer or the Company shall have the right to satisfy
and discharge the same by payment, compromise or otherwise. In such case, the
Buyer and/or the Company shall give written notice to the Sellers of its
satisfaction or discharge of the claim or demand by payment, compromise or
otherwise.

SECTION 11. General.

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<PAGE> 12
11.1 Actions After the Closing. After the date of Closing, the
parties shall execute and deliver such other and further instruments and perform
such other and further acts as may reasonably be required fully to consummate
the transactions contemplated hereby.

11.2 Execution of Counterparts. For the convenience of the
parties, this Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.

11.3 Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if delivered personally or by registered or certified
mail, postage prepaid to the address indicated on the signature page.

11.4 Assignment, Successors and Assigns. This Agreement shall
be binding upon the parties hereto, their heirs, personal representatives,
successors and assigns.

11.5 Applicable Laws. This Agreement shall be construed and
governed by the internal laws, and not the law of conflicts, of the State of
Illinois applicable to agreements made and to be performed in Illinois, to the
extent that such laws are not preempted by Federal law.

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<PAGE> 13
11.6 Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto, and no party hereto shall be bound by any
communications between them on the subject matter hereof unless such
communications are in writing and bear a date contemporaneous with or subsequent
to the date hereof. Any prior written agreements or letters of intent among the
parties shall, upon the execution of this Agreement, be null and void.

11.7 Reliance by the Buyer Upon Representations and
Warranties. The parties mutually agree that, notwithstanding any right of the
Buyer to fully investigate the affairs of the Sellers and notwithstanding any
knowledge of facts determined or determinable by the Buyer pursuant to such
investigation or right of investigation, the Buyer has the right to fully rely
upon the representations and warranties of the Sellers contained in this
Agreement and on the accuracy of any document or certificate given or delivered
to the Buyer pursuant to this Agreement.

[Signature Page Follows]

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<PAGE> 14
IN WITNESS WHEREOF, each of the parties has executed this
Agreement as of the day and year first above written.

COMPANY: BUYER:

TAYLOR CAPITAL GROUP, INC. THE TAYLOR CAPITAL GROUP, INC.
PROFIT SHARING AND EMPLOYEE STOCK
OWNERSHIP TRUST

By: ________________________ By: Cole Taylor Bank,

Title: ________________________ Not in its corporate capacity but solely
as Trustee of The Taylor Capital Group,
Inc. Profit Sharing and Employee
Stock Ownership Trust
Address:
350 East Dundee By: ________________________
Wheeling, IL 60090 Title: ________________________

Attention: Secretary Address:
Cole Taylor Bank
with a copy to 350 East Dundee Rd.
Helen H. Morrison. Wheeling, IL 60090
McDermott, Will & Emery Attn: __________
Suite 4400
Chicago, IL 60606

SELLERS:

- ------------------------
Jeffrey W. Taylor

- ------------------------
Cindy Taylor Bleil

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<PAGE> 15
SCHEDULE 1

<TABLE>
<CAPTION>
Name of No. of Shares Allocation
Stockholder of Common Stock to be Sold of Purchase Price
<S> <C> <C>
Jeffrey W. Taylor 10,000 $240,000

Cindy Taylor Bleil 14,000 $336,000
</TABLE>

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<PAGE> 16
SCHEDULE 5.11

Litigation

Jeffrey W. Taylor, Chairman of the Board and Chief Executive Officer of the
Company, Bruce W. Taylor, President of the Company, Iris A. Taylor, Sidney J.
Taylor, Cindy Taylor Bleil, related trusts and a related partnership
(collectively, the "Taylor Family") have been named as defendants in the
lawsuits described below relating to (1) the Split-Off Transactions and (2) the
financial and public reporting of Reliance. Certain of the lawsuits also named
other current or former officers and directors of the Company and Reliance,
other stockholders of the Company, Reliance's public accountants at the time of
the Split-Off Transactions, Reliance and the Company as additional defendants.
The filing dates of these lawsuits range from October, 1997 to September, 1998.

The Split-Off Transactions were a series of transactions completed on February
12, 1997 in accordance with the Share Exchange Agreement, dated June 12, 1997
(the "Share Exchange Agreement") between Reliance and the Taylor Family, which
owned approximately 25% of the outstanding common stock of Reliance prior to the
Split-Off Transactions. Pursuant to the Split-Off Transactions, the Taylor
Family and certain other stockholders of Reliance exchanged all of their common
stock of the Company. On February 9, 1998, Reliance filed a voluntary petition
under Chapter 11 of the Bankruptcy code.

In September, 1998, five class actions, brought on behalf of current and former
stockholders of Reliance and pending in Delaware Chancery Court, were
consolidated into one class action. The consolidated class action alleges that
the Taylor Family, certain directors and officers of the Company, and certain
other defendants breached their fiduciary duties in connection with disclosures
made to the stockholders prior to the vote which approved the Split-Off
Transactions. The case seeks relief in the form of unspecified damages,
attorneys' fees and recission of the Split-Off Transactions. On September 9,
1998 the Delaware Chancery Court stayed this consolidated class action
indefinitely pending resolution of the consolidated class action in Texas that
is described below.

In August, 1998, nine class actions, brought on behalf of current and former
stockholders of Reliance and pending in the United States District court for the
Western District of Texas, were consolidated into one class action. One class
action, brought on behalf of current and former stockholders of Reliance, is
pending in the Northern District of Illinois. These cases allege that the Taylor
Family, certain directors and officers of the Company, and certain other
defendants violated the federal securities laws and breached common law
fiduciary duties. In addition, the cases allege that the Company and certain
other defendants violated ERISA and breached certain fiduciary duties including
fiduciary 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 and attorney's fees. Cole Taylor Bank is named as an
additional defendant in the Illinois action. A motion is pending to transfer the
Texas case to Illinois, and a motion is pending to transfer the Illinois case to
Texas.

On August 19, 1998, Irwin Cole and other members of his family, who collectively
owned approximately 25% of the outstanding common stock of Reliance prior to the
Split-Off Transactions, brought suit in Delaware Chancery Court against members
of the Taylor Family, the Company, other current and/or former officers and
directors of Reliance and the company, and other stockholders of the Company.
The suite alleges that the Taylor Family, certain directors and officers of the
Company, and certain other defendants breached their fiduciary duties, committed
fraud and/or engaged in self-dealing in connection with the operation of
Reliance and the Split-Off Transactions. The lawsuit seeks unspecified damages,
attorneys' fees and requests that the Court place all of the shares of the
Company held by the Taylor Family in a constructive trust.

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<PAGE> 17
the Bankruptcy court's order will be amended in the near future to preliminarily
enjoin the remaining plaintiffs from prosecuting their cases.

On July 6, 1998, the Bankruptcy Court entered a confirmation order that
discharged the liability of Reliance and its subsidiaries in connection with all
of the lawsuits described above and permanently enjoined the filing of similar
new suits against them. The Bankruptcy Court also appointed an Estate
Representative (the "Estate representative") for the Post-Confirmation chapter
11 Estate of Reliance and its subsidiaries. On September 4, 1998, the Estate
Representative filed two adversary proceeding complaints which named as
defendants members of the Taylor Family, certain other directors and officers of
the Company, one of Reliance's former legal counsel and Reliance's former public
accountants (both of whom continue to serve the Company), the Company and Cole
Taylor Bank, as trustee. The complaints allege fraudulent conveyance and
breaches of fiduciary duties and contract with respect to the Taylor family, the
Company, and Cole Taylor Bank, as trustee. The complaints charge certain of the
other defendants with alleged breaches of fiduciary duty, breaches of contract,
malpractice and negligent misrepresentation and aiding and abetting the Taylor
Family's and the Company's alleged breaches. These complaints seek unspecified
damages and attorneys' fees and avoidance of the Split-Off Transactions by the
transfer to the Estate Representative of either the assets exchanged in the
Split-Off Transactions or the value of such assets. One of the complaints
demands monetary damages pursuant to the Taylor Family's obligation under the
Share Exchange Agreement to indemnify Reliance for certain losses resulting from
the Split-Off Transactions, and asks the court to disallow any claims for
indemnification that any of the defendants have against Reliance or, in the
alternative equitably subordinate such claims to all other creditor claims
against Reliance.

In accordance with the terms and conditions of the Share Exchange Agreement
relating to the Split-Off Transactions, the Taylor Family has agreed to
indemnify Reliance for certain loses incurred by Reliance, including certain
losses relating to the Split-Off Transactions ("Taylor Family Indemnification
Obligations"). In accordance with the terms of an agreement dated February 6,
1997 between the Taylor Family and the Company, the Company agreed to indemnify
the Taylor Family for certain losses that the Taylor Family may incur as a
result of the Split-Off Transactions, including a portion of the Taylor Family
Indemnification Obligations under the Share Exchange Agreement. The Company is
unable at this time to predict the extent to which it will be required to pay
amounts under its indemnification obligation to the Taylor Family. The Company
and its subsidiaries have paid and may continue to pay defense and other legal
costs of the lawsuits described above that are not otherwise advanced by
insurance carriers on behalf of the Taylor family and other directors, officers
and stockholders of the Company who are defendants in these lawsuits.

The Company believes that it has meritorious defenses to all of the actions
against the Company, and the company intends to defend itself and its
subsidiaries vigorously. However, the Company is unable to predict, at this
time, the potential impact of the litigation, the indemnification obligations
and the payment of legal fees described above on the management, business,
financial condition, liquidity and operating results of the Company. Even if the
Taylor Family, the Company and the other defendants are successful in defending
themselves in the lawsuits, the Company will incur significant costs with
respect to such lawsuits.

The Company is from time to time a party to various other legal actions arising
in the normal course of 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.

<PAGE> 1
EXHIBIT 10.23

ESOP LOAN AND PLEDGE AGREEMENT
BETWEEN
TAYLOR CAPITAL GROUP, INC.
AND
TAYLOR CAPITAL GROUP, INC. PROFIT
SHARING AND EMPLOYEE STOCK OWNERSHIP TRUST
<PAGE> 2
ESOP LOAN AND PLEDGE AGREEMENT

THIS ESOP LOAN AND PLEDGE AGREEMENT is dated as of November 25, 1998,
by and between Taylor Capital Group, Inc., a Delaware corporation (the
"Corporation"), and Cole Taylor Bank, not in its individual or corporate
capacity, but as trustee under the Taylor Capital Group, Inc. Profit Sharing and
Employee Stock Ownership Trust (the "Borrower" or the "ESOT").

WHEREAS, the Corporation desires to lend Borrower the sum of Five
Hundred Seventy Six Thousand Dollars ($576,000) (the "ESOP Loan") for the
purpose of enabling the Borrower to purchase from Jeffrey W. Taylor and Cindy
Taylor Bleil (the "Sellers"), 24,000 shares of common stock of the Corporation
(the "Common Stock") pursuant to that certain Stock Purchase Agreement dated as
of the date hereof, by and between the Sellers and the ESOT (the "Purchase
Agreement"); and

WHEREAS, the parties intend that the ESOP Loan shall constitute an
"exempt loan" within the meaning of Section 4975(d)(3) of the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury Regulation Section 54.4975-7(b),
Section 408(d)(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Department of Labor Regulation Section 2550.408b-3
(collectively, the "Exempt Loan Rules") and an "Acquisition Loan" within the
meaning set forth in the Plan.

NOW, THEREFORE, in consideration of the promises herein contained, and
each intending to be legally bound hereby, the parties agree as follows:

SECTION I. DEFINITIONS.

As used herein:

"Closing" has the meaning set forth in Paragraph 3.01 hereof.

"Code" has the meaning set forth in the Preamble.

"Collateral" means the 24,000 shares of Common Stock, represented by
certificate no. __ that will be acquired by the Borrower with the proceeds of
the loan made hereunder, less those shares which are released pursuant to
Section 8.01.

"ERISA" has the meaning set forth in the Preamble.

"ESOP Loan" means the loan described in the Preamble and Section II.

"ESOP Note" has the meaning set forth in Paragraph 2.01 hereof.

"Event of Default" has the meaning set forth in Paragraph 7.01 of this
Agreement.

1
<PAGE> 3
"Laws" means all ordinances, statutes, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof, or of any court or similar entity established by any thereof.

"Obligations" means the obligation of the Borrower to pay the principal
of and interest on the ESOP Note in accordance with the terms thereof and to
perform all obligations of Borrower arising out of or under or in respect of
this Agreement, as the same may be amended, modified or supplemented from time
to time.

"Person" means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture, court or
government or political subdivision or agency thereof.

"Plan" means the Taylor Capital Group, Inc. Profit Sharing and Employee
Stock Ownership Plan, effective as of October 1, 1996, as amended.

SECTION II. THE LOAN.

2.01 General Terms, Subject to the terms and conditions of this
Agreement, the Corporation agrees to make a loan to the Borrower on the Closing
in the principal amount of Five Hundred Seventy Six Thousand Dollars ($576,000)
evidenced by the promissory note in the form attached hereto (the "ESOP Note")
and payable as provided in the ESOP Note and in Paragraph 2.02. At the Closing,
the Borrower shall execute and deliver the ESOP Note to the Corporation.

2.02 Payments; Prepayments. On December 15th of each year, while any
principal balance of the ESOP Loan remains outstanding, commencing December 15,
1999, Borrower shall make a payment to the Corporation comprised of equal
principal payments in the amount of One Hundred Fifteen Dollars ($115,000), and
the interest accrued on the unpaid principal balance. If not sooner paid, the
entire principal amount of the ESOP Loan outstanding and all interest accrued
thereon shall be paid in full on or before December 15, 2003.

The Borrower may at any time prepay the principal amount of the ESOP
Loan outstanding in whole or in part without premium or penalty; provided,
however, that no repayment or prepayment of the ESOP Loan shall be required or
permitted if it would adversely affect (a) the qualification of the Plan or the
Borrower under the Code or ERISA, or (b) the status of the ESOP Loan as an
"exempt loan" as such term is described in Section 4975 (d)(3) of the Code. If
Borrower prepays the entire principal amount of the ESOP Loan outstanding, such
payment shall also include the interest due on the ESOP Loan outstanding to the
date of such prepayment. Each prepayment shall be applied first to the accrued
but unpaid interest on the ESOP Loan and then to reduce the outstanding
principal balance of the ESOP Loan. If any prepayment prepays less than the
entire outstanding principal balance of the Loan, Borrower shall continue to
make payments pursuant to this Section 2.02 until the entire principal balance
of, and all accrued but unpaid interest on, the ESOP Loan has been paid in full.
Any such prepayments shall be applied against the unpaid installments of
principal in the inverse order of their maturity.

2
<PAGE> 4
2.03 Interest Rate. The outstanding principal amount of the ESOP Loan
shall bear interest at the annual rate of 7.75%. Interest payments shall be made
on the same dates as payments of principal under Section 2.02.

If, at any time, the interest to be paid hereunder shall be
deemed by any competent court of law, governmental agency or tribunal to exceed
the maximum rate of interest permitted by applicable Laws, including Treasury
Regulations governing exemptions from prohibited transactions under Section 4975
of the Code, then, for such time as such interest payments are deemed excessive,
their application shall be suspended and there shall be charged instead the
maximum rate of interest permissible under such Laws.

2.04 Payments to Corporation. All sums payable to the Corporation
hereunder shall be paid directly to the Corporation in immediately available
funds. All payments shall be applied first against any interest due and payable,
and then against the outstanding principal balance of the ESOP Loan.

2.05 Source of Funds. The ESOP Note and any interest thereon shall be
payable from (a) contributions (other than contributions of "employer
securities" as such term is described in Section 409(l)) of the Code) made to
the Borrower in accordance with the ESOP to enable the Borrower to pay its
obligations under the ESOP Note, earnings attributable to such contributions and
earnings on the Common Stock held in the unallocated share suspense account and
acquired with the proceeds of the ESOP Loan, including but not limited to, cash
dividends received by Borrower with respect to such shares of Common Stock,
and/or (b) the proceeds of a subsequent loan made to repay the ESOP Loan. No
contributions, earnings or dividends may be applied in payment of the ESOP Note
or any interest thereon if such application would cause the Corporation to incur
an excise tax under Section 4975 of the Code or would adversely affect (a) the
qualification of the ESOP or the Borrower under the Code or ERISA, or (b) the
status of the ESOP Loan as an "exempt loan" as such term is described in Section
4975(d)(3) of the Code.

SECTION III. CONDITIONS PRECEDENT.

The obligation of the Corporation to make the ESOP Loan
hereunder is subject to the following conditions precedent:

3.01 Documents Required for the Closing. The Borrower shall have
delivered to Corporation, prior to the disbursement of the ESOP Loan (the
"Closing"), the following:

(A) The ESOP Note.

(B) This Agreement.

3
<PAGE> 5
(C) Stock certificate no. __ evidencing the Collateral with duly
executed assignments in blank.

(D) Executed copy of the Trust Agreement between Cole Taylor Bank and
the Corporation.

(E) An opinion of Alex Sheshunoff & Co. in the form required under the
Purchase Agreement; and

(F) Such other documents as may be reasonably required by the
Corporation.

SECTION IV. REPRESENTATIONS AND WARRANTIES.

4.01 Original. To induce the Corporation to enter into this Agreement,
the Borrower represents and warrants to the Corporation as follows:

(A) Cole Taylor Bank, the trustee of the ESOT (the "Trustee") (i) is a
duly organized and validly existing trust company in good standing with full
authority to act as trustee of the ESOT and exercise trust powers under the laws
of the State of Illinois, and (ii) has full corporate power and authority to
execute and deliver the Trust Agreement between the Company and Borrower
establishing the ESOT and to carry out the transactions contemplated thereby.

(B) This Agreement and the ESOP Note have been duly executed and
delivered by the Borrower and constitute the legal, valid and binding obligation
of the Borrower enforceable against the Borrower in accordance with their
respective terms, except as the enforceability thereof may be limited by the
effect of the applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights
generally and by general principles of equity and ERISA (regardless of whether
considered in a proceeding at law or in equity).

(C) The execution, delivery and performance of this Agreement and the
ESOP Note will not violate (i) Trustee's Charter or Bylaws, each as amended or
restated to date, (ii) any provision of any agreement, instrument, order, award,
judgment or decree to which the Trustee or the ESOT is a party or by which they
or any of their businesses or properties are bound, or (iii) any statute, rule
or regulation of any federal, state or local government or governmental agency
applicable to the Trustee or the ESOT.

(D) The Collateral is free and clear of any liens, encumbrances, and
security interests, except for those created by this Agreement.

(E) All of the proceeds of the ESOP Loan shall be used by the Borrower
to acquire shares of Common Stock.

4
<PAGE> 6
4.02 Survival. All of the representations and warranties set forth in
Paragraph 4.01 shall survive until all Obligations are satisfied in full.

SECTION V. THE BORROWER'S COVENANTS.

The Borrower does hereby covenant and agree with the
Corporation that, so long as any of the Obligations remain unsatisfied, it shall
comply with the following covenants:

(A) The Borrower shall use the proceeds of the ESOP Loan only for the
purposes of acquiring Common Stock of the Corporation.

(B) The Borrower shall not knowingly take any action that would
jeopardize the Plan's continued qualification under Sections 401(a) and
4975(e)(7).

SECTION VI. THE CORPORATION'S COVENANT.

Subject to the Corporation's right to amend or to terminate
the Plan, the Corporation agrees to make contributions to Borrower at such times
and in such amounts as are sufficient, when added to earnings and dividends
available for such purpose, to enable Borrower to meet all obligations under the
ESOP Loan; provided, however, that such contributions are deductible by the
Corporation under Section 404 of the Code, do not exceed applicable limitations
under Section 415 of the Code, and, provided further, that the Plan is, at the
time of any such contribution, qualified under Section 401(a) of the Code and
that the Corporation has taken all reasonable action to maintain the
tax-qualified status of the Plan.

SECTION VII. DEFAULT.

7.01 Event of Default. An event of default ("Event of Default") shall
occur hereunder if the Borrower shall fail to pay when due any installment of
principal or interest payable hereunder and such default shall continue for a
period of 10 days after written notice by the Corporation; provided, however,
that no Event of Default shall be deemed to have occurred if the Borrower's
failure to make timely payment is caused by the Corporation's breach of its
obligations under Section VI hereof.

7.02 Rights and Remedies of Corporation. Under no circumstances shall
an Event of Default result in an acceleration of the due date for payment of any
portion of the principal of the ESOP Loan.

SECTION VIII. PLEDGE OF COLLATERAL; REMEDIES.

8.01 Pledge. As security for the performance of its Obligations
hereunder, Borrower hereby pledges the Collateral to the Corporation. Collateral
shall be released from this pledge in accordance with the formula prescribed in
Section 7.4 of the Plan for release of shares from the Loan Suspense Account (as
defined in the Plan). The Corporation, as pledgee, shall retain custody

5
<PAGE> 7
of all pledged Collateral prior to its release, and shall have full power to
assign its rights or prospective rights as Pledgee. So long as no Event of
Default has occurred and is continuing, Borrower shall be entitled to collect
and receive all dividends, income, installment sale proceeds, revenue, and
profits accruing with respect to the Collateral, and shall have full power with
respect to the voting, sale, and other exercise of discretionary shareholder
rights with respect to the Collateral.

8.02 Remedies. If an Event of Default shall occur and be continuing,
the Corporation, as pledgee, shall be entitled to realize upon the Collateral up
to, but not in excess of, the amount then in default. The Corporation, as
pledgee, is entitled to sell at public or private sale or otherwise dispose of
any part of the Collateral, and after deducting from the proceeds of such sale
or other disposition all expenses (including reasonable attorneys' fees and
expenses), the Corporation may apply any such proceeds toward the satisfaction
of the Obligations. Any remainder of the proceeds after satisfaction of the
Event of Default shall be held as additional collateral for the remaining
obligations, or distributed as required by applicable Laws. Notice of any sale
or other disposition shall be given to the Borrower at least 10 business days
before the time of any such sale or disposition, which the Borrower hereby
agrees shall be reasonable notice of such sale or disposition. If an Event of
Default shall occur and be continuing, the Corporation (or its assignee) shall
be entitled to collect and receive all dividends, income, installment sale
proceeds, revenue, and profits accruing with respect to the Collateral, to be
held as additional collateral or, at the option of the Corporation, applied
against the Obligations as described herein, and the Corporation or its assignee
shall have full power with respect to the voting, sale, and other exercise of
discretionary shareholder rights with respect to that portion of the Collateral
the fair market value of which is not in excess of the amount of the default.

8.03 Non-Recourse. Except as specifically provided in this Section VIII
with respect to the Collateral, the ESOP Loan shall be without recourse against
Borrower's assets. If an Event of Default shall occur and be continuing, the
Corporation shall have no rights to assets of the Borrower other than shares of
Common Stock acquired with the proceeds of the ESOP Loan which are Collateral
for the ESOP Loan, contributions (other than contributions of "employer
securities" as such term is described in Section 409(l) of the Code) that are
made by the Corporation to enable the Borrower to meet its obligations
hereunder, earnings attributable to the investment of such contributions and
such other assets, if any, as to which recourse may be permitted under Section
4975 of the Code and the regulations thereunder; provided, however, that (a) the
value of the Borrower's assets transferred in satisfaction of the ESOP Loan
shall not exceed the amount of the default (without regard to any acceleration
of the payment schedule that occurs as a result of the default); and (b) the
Borrower's assets shall be transferred to the Corporation only to the extent of
the failure of the Borrower to meet the payment schedule of the ESOP Loan.

6
<PAGE> 8
SECTION IX. MISCELLANEOUS.

9.01 Further Assurance. From time to time, the Borrower will execute
and deliver to the Corporation such additional documents and will provide such
additional information as the Corporation may reasonably require to carry out
the terms of this Agreement and be informed of the Borrower's status and
affairs.

9.02 Applicable Law. Except to the extent preempted by ERISA, the
substantive Laws of the State of Illinois shall govern the construction of this
Agreement and the rights and remedies of the parties hereto.

9.03 Assignment and Amendment. This Agreement shall inure to the
benefit of, and shall be binding upon, the respective successors and permitted
assigns of the parties hereto. The Borrower has no right to assign any of its
rights or obligations hereunder without the prior written consent of the
Corporation. The Corporation may assign its rights and obligations hereunder to
any Person by giving notice thereof to the Borrower. This Agreement, and the
documents executed and delivered pursuant hereto and in connection herewith,
constitute the entire agreement between the parties and may be amended only by a
writing signed on behalf of each of the Corporation (or its assigns) and the
Borrower.

9.04 Severability. If any provision of this Agreement shall be held
invalid under any applicable Laws, such invalidity shall not affect any other
provision of this Agreement that can be given effect without the invalid
provision, and, to this end, the provisions hereof are severable.

9.05 Integration. This Agreement and the ESOP Note contain the entire
understanding of the parties hereto with respect to the subject matter contained
herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.

9.06 Notices. Any notice, request or other document to be given
hereunder to any party shall be effective upon receipt (or refusal of receipt)
and shall be in writing and delivered personally or sent by telecopy or
certified or registered mail, postage prepaid to the address indicated on the
signature page.

9.07 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.

9.08 Waivers. No failure by the Corporation to exercise any rights or
remedies hereunder shall operate as a waiver thereof, nor shall any waiver of
any right or remedy hereunder preclude any future exercise of such right or
remedy.

9.09 Construction. It is the intention of the Corporation and the
Borrower that the ESOP Loan shall qualify as an "exempt loan" as defined in 29
C.F.R. Section 2550.408(b)-3 and 26 C.F.R.

7
<PAGE> 9
Section 54.4975-7(b)(iii), and that the Plan shall continue to be qualified
under Sections 401(a) and 4975(e)(7) of the Code. All terms of the ESOP Loan and
the ESOP Note shall be construed in a manner consistent with this intent. In the
event that it is necessary to amend the terms of the ESOP Loan or the ESOP Note
to carry out this intent, the Corporation and the Borrower agree to negotiate
such an amendment (which may have retroactive effect) promptly and in good
faith.

[Signature Page Follows]

8
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have duly executed this ESOP
Loan and Pledge Agreement as of the day and year first above written.

COMPANY: BUYER:

TAYLOR CAPITAL GROUP, INC. THE TAYLOR CAPITAL GROUP, INC.
PROFIT SHARING AND EMPLOYEE STOCK
OWNERSHIP TRUST

By: ________________________ By: Cole Taylor Bank,
Title: ________________________ Not in its corporate capacity but solely
as Trustee of The Taylor Capital Group,
Inc. Profit Sharing and Employee Stock
Ownership Trust
Address:
350 East Dundee By: ________________________
Wheeling, IL 60090 Title: ________________________

Attention: Secretary Address:
Cole Taylor Bank
with a copy to 350 East Dundee Rd.
Helen H. Morrison. Wheeling, IL 60090
McDermott, Will & Emery Attn: __________
Suite 4400
Chicago, IL 60606

9
<PAGE> 11
ESOP NOTE

November 25, 1998 $576,000.00

FOR VALUE RECEIVED, the undersigned promises to pay to the order of TAYLOR
CAPITAL GROUP, INC., a Delaware corporation (the "Corporation"), at its
principal office located at 350 East Dundee, Wheeling, Illinois 60090, the
principal sum of Five Hundred Seventy Six Thousand Dollars ($576,000.00), plus
interest on the unpaid balance thereof as determined herein.

This ESOP Note ("ESOP Note") is issued pursuant to a certain ESOP Loan and
Pledge Agreement dated as of the date hereof by and between the undersigned and
the Corporation (the "Agreement") reference to which Agreement is made for a
statement of the additional rights and obligations of the parties hereto. For
purposes hereof, this ESOP Note, the Agreement and all other documents or
instruments issued in connection therewith, are collectively referred to as the
"Loan Documents". All of the terms, covenants, provisions, conditions,
stipulations, promises and agreements contained in the Loan Documents to be
kept, observed and/or performed by the undersigned are made a part of this ESOP
Note and are incorporated herein by this reference to the same extent and with
the same force and effect as if they were fully set forth herein, and the
undersigned promises and agrees to keep, observe and perform them, or cause
them to be kept, observed and performed, strictly in accordance with the terms
and provisions thereof. In the event of an express conflict between the terms
hereof and the terms of the Agreement, the terms of the Agreement shall
prevail. Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Agreement.

Payments of principal and interest shall be made in such amounts and at
such times as are specified in the Agreement.

If at any time the rate of interest provided for herein shall be deemed by
any competent court of law, governmental agency or tribunal to exceed the
maximum rate of interest permitted by applicable laws, then, for such time as
the rate would be deemed excessive, its application shall be suspended and
there shall be charged instead the maximum rate of interest permissible.

Payments shall be made in immediately available funds and shall be
applied, unless otherwise agreed, first to interest, then to principal.

The undersigned may prepay the principal hereof, in whole or in part, at
any time. Any prepayments of principal shall be applied against installments of
principal, if any, due hereunder in the inverse order of their maturity.
Prepayment is permitted in accordance with the terms of the Agreement. This note
is not payable on demand.

<PAGE> 12
The occurrence of an Event of Default as defined in the Agreement shall
constitute an Event of Default hereunder and the holder shall have such
remedies as are specified in the Agreement.

The obligations of the Borrower hereunder are without recourse to the
Borrower, except to the extent of any Collateral.

Any payment on this ESOP Note coming due on a Saturday, a Sunday, or a day
which is a legal holiday in the place at which a payment is to be made
hereunder shall be made on the next succeeding day which is a business day in
such place, and any such extension of the time of payment shall be included in
the computation of interest hereunder.

TAYLOR CAPITAL GROUP, INC.
PROFIT SHARING AND EMPLOYEE STOCK
OWNERSHIP TRUST

By: Cole Taylor Bank
Not in its individual or corporate capacity, but
solely in its capacity as Trustee of the Taylor Capital
Group, Inc. Profit Sharing and Employee Stock
Ownership Trust

By:
-------------------
Title:
----------------

<PAGE> 1
EXHIBIT 12

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Successor Basis -
Taylor Capital Group, Inc. - Predecessor Basis -
Consolidated Cole Taylor Bank
----------------------------- --------------------------------------
For the For the Period of
Year Ended Feb. 12, 1997 to
Dec. 31, Dec. 31, For the Years Ended December 31,
---------- ----------------- --------------------------------------
1998 1997 1996 1995 1994

<S> <C> <C> <C> <C> <C>
1. Income before income taxes $15,794 $16,434 $29,664 $25,940 $22,414

ADD BACK FIXED CHARGES:

2. Total interest expense(1) ............ 65,409 60,458 66,377 64,366 44,118
3. Interest included in operating lease
rental expense(2) .................... 1,508 1,184 1,130 996 1,067
4. Preferred stock dividend(3) .......... 5,295 4,697 -- -- --
------- ------- ------- ------- ------
5. Adjusted earnings including interest
on deposits .......................... 88,006 82,773 97,171 91,302 67,599
6. Less: interest expense on deposits ... 48,056 45,275 53,518 47,034 32,998
------- ------- ------- ------- ------
7. Adjusted earnings excluding interest
on deposits .......................... $39,950 $37,498 $43,653 $44,268 $34,601
======= ======= ======= ======= =======
8. Fixed charges including interest on
deposits (line 2 + line 3 + line 4) .. $72,212 $66,339 $67,507 $65,362 $45,185
======= ======= ======= ======= =======
9. Fixed charges excluding interest on
deposits (line 8 - line 6) ........... $24,156 $21,064 $13,989 $18,328 $12,187
======= ======= ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES

10. Including interest on deposits
(line 5 / line 8) .................... 1.22 1.25 1.44 1.40 1.50
======= ======= ======= ======= =======
11. Excluding interest on deposits
(Line 7 / line 9) .................... 1.65 1.78 3.12 2.42 2.84
======= ======= ======= ======= =======
</TABLE>
- --------------
(1) Interest expense includes cash interest expense on deposits and other
borrowings 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) The preferred stock dividend amount has been grossed up to compute the
pretax income equivalent assuming an estimated 35% tax rate.

<PAGE> 1
EXHIBIT 21

LIST OF SUBSIDIARIES OF TAYLOR CAPITAL GROUP, INC.

Cole Taylor Bank*(1)

1965 Milwaukee Ave. Building Corp.(1)
Cole Taylor Deferred Exchange Corp.(1)
Cole Taylor Financial Services, Inc.(1)
CT Car Wash I, Inc.(1)
CT Car Wash II, Inc.(1)
TCGRE, Inc.(1)
Drovers Agency, Inc.(1)

CT Mortgage Company, Inc.*(2)

*Indicates direct wholly-owned subsidiary of Taylor Capital Group, Inc.

(1)State of Incorporation=Illinois
(2)State of Incorporation=Delaware

<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TAYLOR
CAPITAL GROUP, INC. FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 66,192
<INT-BEARING-DEPOSITS> 1,200
<FED-FUNDS-SOLD> 31
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 351,408
<INVESTMENTS-CARRYING> 89,753
<INVESTMENTS-MARKET> 91,620
<LOANS> 1,335,981
<ALLOWANCE> 24,599
<TOTAL-ASSETS> 1,910,330
<DEPOSITS> 1,439,737
<SHORT-TERM> 171,718
<LIABILITIES-OTHER> 22,242
<LONG-TERM> 131,500
0
38,250
<COMMON> 47
<OTHER-SE> 106,836
<TOTAL-LIABILITIES-AND-EQUITY> 1,910,330
<INTEREST-LOAN> 110,505
<INTEREST-INVEST> 25,043
<INTEREST-OTHER> 597
<INTEREST-TOTAL> 136,145
<INTEREST-DEPOSIT> 48,056
<INTEREST-EXPENSE> 65,409
<INTEREST-INCOME-NET> 70,736
<LOAN-LOSSES> 5,135
<SECURITIES-GAINS> 11
<EXPENSE-OTHER> 70,428
<INCOME-PRETAX> 15,794
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,441
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.22
<LOANS-NON> 11,365
<LOANS-PAST> 2,618
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 25,813
<CHARGE-OFFS> 7,587
<RECOVERIES> 1,238
<ALLOWANCE-CLOSE> 24,599
<ALLOWANCE-DOMESTIC> 24,599
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>