10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

Amendment No. 1 to Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

Commission File No. 0-50034

TAYLOR CAPITAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	36-4108550
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

9550 West Higgins Road

Rosemont, IL 60018

(Address, including zip code, of principal executive offices)

(847) 653-7978

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x

Indicate the number of outstanding shares of each of the issuer’s classes of common stock, as of the latest practicable date: At May 2, 2005, there were 9,678,738 shares of Common Stock, $0.01 par value, outstanding.

TAYLOR CAPITAL GROUP, INC.

INDEX

		Page
EXPLANATORY NOTE – RESTATEMENT OF FINANCIAL INFORMATION		1
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (unaudited) (restated) - March 31, 2005 and December 31, 2004	3
	Consolidated Statements of Income (unaudited) (restated) - For the three months ended March 31, 2005 and 2004	4
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) (restated) - For the three months ended March 31, 2005 and 2004	5
	Consolidated Statements of Cash Flows (unaudited) (restated) - For the three months ended March 31, 2005 and 2004	6
	Notes to Consolidated Financial Statements (unaudited) (restated)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	47
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Submission of Matters to a Vote of Security Holders	49
Item 5.	Other Information	49
Item 6.	Exhibits	49
Signatures		52

EXPLANATORY NOTE – RESTATEMENT OF FINANCIAL INFORMATION

This Amendment No. 1 to Form 10-Q (“Amendment No. 1”) is being filed by Taylor Capital Group, Inc. to amend and restate its Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 filed with the Securities and Exchange Commission (“SEC”) on May 6, 2005 (“Initial Form 10-Q”). This Amendment No. 1 is being filed to correct errors in the Initial Form 10-Q related to our derivative accounting under Statement of Financial Accounting Standards 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), and to reflect a change in the amortization period of issuance costs relating to our junior subordinated debentures. Amendment No. 1 restates the Consolidated Financial Statements and the other financial information for the quarters ended March 31, 2005 and 2004, previously reported in the Initial Form 10-Q and supercedes our previously issued Consolidated Financial Statements and other financial information for the first quarters of 2005 and 2004.

In 2005 and prior years, we applied a method of fair value hedge accounting under SFAS 133 to account for the interest rate swap agreements (CD swaps) relating to certain of our brokered certificates of deposit (brokered CDs) that allowed us to assume no ineffectiveness in these transactions (the so-called “short-cut” method). We recently concluded that the CD swaps did not qualify for this method in prior periods because the related CD broker placement fee was determined, in retrospect, to have caused the swap not to have a fair value of zero at inception (which is required under SFAS 133 to qualify for the short-cut method). Furthermore, although historical effectiveness testing performed in November 2005 demonstrated that the CD swaps would have qualified for hedge accounting under the “long-haul” method, hedge accounting under SFAS 133 is not allowed retrospectively because the hedge documentation required for the long-haul method was not in place at the inception of the hedge. Eliminating the application of fair value hedge accounting reverses the fair value adjustments that were made to the hedged items, the brokered CDs, and results in the recording and subsequent amortization of the CD broker placement fee, which was incorporated into the CD swap, as an adjustment to the par amount of the brokered CDs. In connection with the determination of the appropriate amortization period for the brokered CD placement fees, we also determined that the issuance costs relating to our junior subordinated debentures should have been amortized through the maturity date of the debentures, rather than their earlier call dates. The net cumulative effect of this non-cash restatement at March 31, 2005 was a decrease to retained earnings of $591,000. For additional information regarding our restatement, see Note 2 to our Consolidated Financial Statements contained herein.

Amendment No. 1 includes restated financial information and related disclosures in Part I Items 1 through 4 including disclosures within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Controls and Procedures”, as a result of the restatement described above and management’s restated assessment of our disclosure controls and procedures as of March 31, 2005. The restatement does not change any of the disclosures previously reported in Part II Items 1 through 5 of the Initial Form 10-Q, however for the convenience of readers, those parts are included in this Amendment No. 1.

1

Except as otherwise specifically noted, all information contained herein is as of March 31, 2005 and does not reflect any events or changes that have occurred subsequent to that date. We are not required to and have not updated any forward-looking statements previously included in the Initial Form 10-Q filed with the SEC on May 6, 2005.

2

TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share and per share data)

	(Restated) March 31, 2005			(Restated) December 31, 2004
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	73,198		$	55,101
Federal funds sold		16,000			15,000
Short-term investments		4,811			9,149
Total cash and cash equivalents		94,009			79,250
Investment securities:
Available-for-sale, at fair value		529,763			533,344
Held-to-maturity, at amortized cost (fair value of $275 at March 31, 2005 and December 31, 2004)		275			275
Loans, net of allowance for loan losses of $39,262 and $37,484 at March 31, 2005 and December 31, 2004, respectively		2,216,605			2,174,122
Premises, leasehold improvements and equipment, net		12,024			14,787
Investments in Federal Home Loan Bank and Federal Reserve Bank stock, at cost		12,620			12,516
Other real estate and repossessed assets, net		57			58
Goodwill		23,354			23,354
Other assets		57,167			51,342
Total assets	$	2,945,874		$	2,889,048
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	461,060		$	519,158
Interest-bearing		1,890,250			1,765,539
Total deposits		2,351,310			2,284,697
Short-term borrowings		214,866			229,547
Accrued interest, taxes and other liabilities		48,168			46,093
Notes payable and FHLB advances		85,500			85,500
Junior subordinated debentures		87,638			87,638
Total liabilities		2,787,482			2,733,475
Stockholders’ equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued and outstanding		—			—
Common stock, $.01 par value; 25,000,000 shares authorized; 10,001,645 and 9,976,556 shares issued at March 31, 2005 and December 31, 2004, respectively; 9,678,638 and 9,653,549 shares outstanding at March 31, 2005 and December 31, 2004, respectively		100			100
Surplus		148,429			147,682
Unearned compensation - stock grants		(1,782	)		(1,383	)
Retained earnings		24,656			16,698
Accumulated other comprehensive loss		(5,954	)		(467	)
Treasury stock, at cost, 323,007 shares at March 31, 2005 and December 31, 2004		(7,057	)		(7,057	)
Total stockholders’ equity		158,392			155,573
Total liabilities and stockholders’ equity	$	2,945,874		$	2,889,048

See accompanying notes to consolidated financial statements

3

TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(in thousands, except per share data)

	For the Three Months Ended March 31,
	(Restated) 2005			(Restated) 2004
Interest income:
Interest and fees on loans	$	33,927		$	26,999
Interest and dividends on investment securities:
Taxable		4,995			4,980
Tax-exempt		481			513
Interest on cash equivalents		109			18
Total interest income		39,512			32,510
Interest expense:
Deposits		9,983			7,055
Short-term borrowings		975			499
Notes payable and FHLB advances		1,002			1,094
Junior subordinated debentures		1,705			546
Total interest expense		13,665			9,194
Net interest income		25,847			23,316
Provision for loan losses		1,834			2,750
Net interest income after provision for loan losses		24,013			20,566
Noninterest income:
Deposit service charges		2,407			2,783
Trust and wealth management services		1,184			1,240
Gain on sale of land trusts		2,000			—
Gain on sale of branch		1,572			—
Gain on sale of investment securities, net		127			—
Net cash settlements on CD swaps		223			207
Change in fair value of CD swaps		(1,576	)		958
Other noninterest income		965			652
Total noninterest income		6,902			5,840
Noninterest expense:
Salaries and employee benefits		10,000			10,731
Occupancy of premises		1,725			1,807
Furniture and equipment		884			1,135
Computer processing		433			434
Corporate insurance		370			622
Legal fees, net		172			329
Advertising and public relations		109			422
Other noninterest expense		3,047			3,303
Total noninterest expense		16,740			18,783
Income before income taxes		14,175			7,623
Income taxes		5,636			2,649
Net income	$	8,539		$	4,974
Preferred dividend requirements		—			(861	)
Net income applicable to common stockholders	$	8,539		$	4,113
Basic earnings per common share	$	0.88		$	0.43
Diluted earnings per common share		0.87			0.43

See accompanying notes to consolidated financial statements

4

TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

(in thousands, except per share data)

	Series A 9% Noncumulative Perpetual Preferred Stock		Common Stock		Surplus		Unearned Compensation - Stock Grants			Retained Earnings (Deficit)			Accumulated Other Comprehensive Income/(Loss)			Treasury Stock			Total
Balance at December 31, 2004, as previously stated	$	—	$	100	$	147,682	$	(1,383	)	$	16,386		$	(467	)	$	(7,057	)	$	155,261
Cumulative effect of restatement		—		—		—		—			312			—			—			312
Balance at December 31, 2004, as restated		—		100		147,682		(1,383	)		16,698			(467	)		(7,057	)		155,573
Issuance of stock grants		—		—		571		(571	)		—			—			—			—
Amortization of stock grants		—		—		—		172			—			—			—			172
Exercise of stock options		—		—		142		—			—			—			—			142
Tax benefit on stock options exercised and stock awards		—		—		34		—			—			—			—			34
Comprehensive income:
Net income (Restated)		—		—		—		—			8,539			—			—			8,539
Change in unrealized loss on available-for-sale investment securities, net of reclassification adjustment, net of income taxes		—		—		—		—			—			(4,946	)		—			(4,946	)
Change in unrealized loss from cash flow hedging instruments, net of income taxes		—		—		—		—			—			(498	)		—			(498	)
Changes in deferred gain from termination of cash flow hedging instruments, net of income taxes		—		—		—		—			—			(43	)		—			(43	)
Total comprehensive income (Restated)																				3,052
Common stock dividends— $0.06 per share		—		—		—		—			(581	)		—			—			(581	)
Balance at March 31, 2005 (Restated)	$	—	$	100	$	148,429	$	(1,782	)	$	24,656		$	(5,954	)	$	(7,057	)	$	158,392
Balance at December 31, 2003	$	38,250	$	98	$	143,918	$	(1,138	)	$	(2,106	)	$	4,520		$	(7,057	)	$	176,485
Issuance of stock grants		—		—		100		(100	)		—			—			—			—
Amortization of stock grants		—		—		—		125			—			—			—			125
Exercise of stock options		—		—		118		—			—			—			—			118
Tax benefit on stock options exercised and stock awards		—		—		29		—			—			—			—			29
Comprehensive income:
Net income (Restated)		—		—		—		—			4,974			—			—			4,974
Change in unrealized gain on available-for-sale investment securities, net of income taxes		—		—		—		—			—			2,243			—			2,243
Changes in deferred gain from termination of cash flow hedging instruments, net of income taxes		—		—		—		—			—			(43	)		—			(43	)
Total comprehensive income (Restated)																				7,174
Dividends:
Preferred — $0.5625 per share		—		—		—		—			(861	)		—			—			(861	)
Common — $0.06 per share		—		—		—		—			(570	)		—			—			(570	)
Balance at March 31, 2004 (Restated)	$	38,250	$	98	$	144,165	$	(1,113	)	$	1,437		$	6,720		$	(7,057	)	$	182,500

See accompanying notes to consolidated financial statements

5

TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

	For the Three Months Ended March 31,
	(Restated) 2005			(Restated) 2004
Cash flows from operating activities:
Net income	$	8,539		$	4,974
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums and discounts, net		508			703
Gain on sale of available-for-sale securities, net		(127	)		—
Deferred loan fee amortization		(1,099	)		(657	)
Provision for loan losses		1,834			2,750
Depreciation and amortization		779			956
Deferred income taxes		(2,450	)		1,335
(Gain) loss on sales of other real estate		—			3
Provision for other real estate		—			66
Gain on sale of land trusts		(2,000	)		—
Gain on sale of branch		(1,572	)		—
Other, net		(320	)		(318	)
Changes in other assets and liabilities:
Accrued interest receivable		(1,251	)		(1,401	)
Other assets		1,135			(1,074	)
Accrued interest, taxes and other liabilities		865			(1,613	)
Net cash provided by operating activities		4,841			5,724
Cash flows from investing activities:
Purchases of available-for-sale securities		(20,182	)		(103,144	)
Proceeds from principal payments and maturities of available-for-sale securities		13,112			17,034
Proceeds from sale of available-for-sale securities		2,725			—
Net increase in loans		(48,535	)		(58,483	)
Additions to premises, leasehold improvements and equipment		(33	)		(273	)
Net cash paid on sale of branch		(10,853	)		—
Proceeds from sale of land trusts		2,050			—
Proceeds from sales of other real estate		1			50
Net cash used in investing activities		(61,715	)		(144,816	)
Cash flows from financing activities:
Net increase in deposits		86,751			68,986
Net increase (decrease) in short-term borrowings		(14,681	)		54,289
Repayments of notes payable and FHLB advances		—			(15,000	)
Proceeds from exercise of employee stock options		142			118
Dividends paid		(579	)		(1,430	)
Net cash provided by financing activities		71,633			106,963
Net increase (decrease) in cash and cash equivalents		14,759			(32,129	)
Cash and cash equivalents, beginning of period		79,250			88,504
Cash and cash equivalents, end of period	$	94,009		$	56,375

Consolidated Statements of Cash Flows continued on next page

See accompanying notes to consolidated financial statements

6

TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (unaudited) (Continued)

(in thousands)

	For the Three Months Ended March 31,
	(Restated) 2005			(Restated) 2004
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	12,557		$	9,286
Income taxes		476			(46	)
Supplemental disclosures of noncash investing and financing activities:
Change in fair value of available-for-sale investments securities, net of tax	$	(4,946	)	$	2,243
Tax benefit on stock options exercised and stock awards		34			29
Loans acquired through foreclosure		—			1,551

See accompanying notes to consolidated financial statements

7

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Basis of Presentation:

These consolidated financial statements contain unaudited information as of March 31, 2005 and for the three month periods ended March 31, 2005 and 2004. The unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America are not included herein. In management’s opinion, these unaudited financial statements include all adjustments, necessary for a fair presentation of the information when read in conjunction with the Company’s audited consolidated financial statements and the related notes. The balance sheet at December 31, 2004 reflects restated balances as a result of the restatement described in Note 2. The income statement data for the three month period ended March 31, 2005 are not necessarily indicative of the results that the Company may achieve for the full year.

2. Restated Results of Operations and Financial Condition:

The Company is restating its previously reported financial information for the first quarters of 2005 and 2004 to correct errors in those consolidated financial statements relating to its derivative accounting under Statement of Financial Accounting Standards 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), and to reflect a change in the amortization period of issuance costs related to its junior subordinated debentures. In addition, the following Notes to the Consolidated Financial Statements have been restated: 5, 9, 10 and 11. These restated consolidated financial statements supercede the Company’s previously issued consolidated financial statements reported in the Company Initial Form 10-Q filed with the SEC on May 6, 2005.

In 2005 and prior years, the Company entered into interest rate swap agreements (CD swaps) to hedge the interest rate risk inherent in certain of its brokered certificates of deposit (brokered CDs). From the inception of the hedging program, the Company applied a method of fair value hedge accounting under SFAS 133 to account for the CD swaps that allowed the Company to assume no ineffectiveness in these transactions (the so-called “short-cut” method). The Company has recently concluded that the CD swaps did not qualify for this method in prior periods because the related CD broker placement fee was determined, in retrospect, to have caused the swap not to have a fair value of zero at inception (which is required under SFAS 133 to qualify for the short-cut method).

8

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Fair value hedge accounting allows a company to record the effective portion of the change in fair value of the hedged item (in this case, the brokered CDs) as an adjustment to income that offsets the fair value adjustment on the related interest rate swaps. Eliminating the application of fair value hedge accounting reverses the fair value adjustments that were made to the brokered CDs. Therefore, while the interest rate swap is recorded on the consolidated balance sheet at its fair value, the related hedged item, the brokered CDs, are required to be carried at par, net of the unamortized balance of the CD broker placement fee. In addition, the CD broker placement fee, which was incorporated into the swap, is now separately recorded as an adjustment to the par amount of the brokered CDs and amortized through the maturity date of the related CDs.

The net cumulative pre-tax effect of eliminating the fair value adjustment to the brokered CDs at March 31, 2005 is $2.3 million (representing a $4.0 million elimination of the fair value adjustment to the brokered CDs less a $1.7 million adjustment to record the unamortized CD broker placement fees). The cumulative after-tax impact was a $1.4 million reduction to retained earnings.

In connection with the determination of the appropriate amortization period for the brokered CD placement fees, the Company also determined that the issuance costs relating to its junior subordinated debentures should have been amortized through the maturity date of the debentures, rather than their earlier call dates. The cumulative effect through March 31, 2005 of amortization of the debt issuance costs through the maturity date of the related debt is an increase to retained earnings of $805,000 ($1.3 million pre-tax).

The combined impact of the errors in derivative accounting and debt issuance cost decreased retained earnings at March 31, 2005 by $591,000. The reduction to previously reported net income and retained earnings in any of the restated quarterly periods did not cause any violation of the Company’s debt covenants and did not cause either Cole Taylor Bank’s or Taylor Capital Group’s regulatory capital ratios to fall below the “well-capitalized” levels as of the end of any of these periods.

9

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The following tables reflect the previously reported amounts, the adjustments made to eliminate hedge accounting for the CD swaps and the change in the amortization of the issuance costs related to the junior subordinated debentures, and the restated results by financial statement line item for the consolidated statement of income for the quarters ended March 31, 2005 and 2004 and the consolidated balance sheet at March 31, 2005 and statement of stockholders’ equity as of March 31, 2005 and 2004. The restatement did not affect previously reported cash flows from operating activities, investing activities or financing activities.

	For the Quarter Ended March 31, 2005								For the Quarter Ended March 31, 2004
	As Originally Reported		Adjustments			As Restated			As Originally Reported		Adjustments			As Restated
	(in thousands, expect per share data)
Interest income	$	39,512	$	—		$	39,512		$	32,510	$	—		$	32,510
Interest expense:
Deposits		9,696		287	(1)		9,983			6,527		528	(1)		7,055
Short-term borrowings		975		—			975			499		—			499
Notes payable and FHLB advances		1,002		—			1,002			1,094		—			1,094
Junior subordinated debentures		1,856		(151	)(2)		1,705			1,288		(742	)(2)		546
Total interest expense		13,529		136			13,665			9,408		(214	)		9,194
Net interest income		25,983		(136	)		25,847			23,102		214			23,316
Provision for loan losses		1,834		—			1,834			2,750		—			2,750
Net interest income after provision for loan losses		24,149		(136	)		24,013			20,352		214			20,566
Noninterest income:
Service charges		2,407		—			2,407			2,783		—			2,783
Trust and investment management fees		1,184		—			1,184			1,240		—			1,240
Gain on sale of land trusts		2,000		—			2,000			—		—			—
Gain on sale of branch		1,572		—			1,572			—		—			—
Gain on sale of investment securities, net		127		—			127			—		—			—
Net cash settlements on CD swaps		—		223	(1)		223			—		207	(1)		207
Change in fair value of CD swaps		—		(1,576	)(3)		(1,576	)		—		958	(3)		958
Other noninterest income		965		—			965			652		—			652
Total noninterest income		8,255		(1,353	)		6,902			4,675		1,165			5,840
Noninterest expense		16,740		—			16,740			18,783		—			18,783
Income before income taxes		15,664		(1,489	)		14,175			6,244		1,379			7,623
Income taxes		6,222		(586	)(4)		5,636			2,108		541	(4)		2,649
Net income	$	9,442	$	(903	)	$	8,539			4,136	$	838			4,974
Basic earnings per common share	$	0.98	$	(0.10	)	$	0.88		$	0.35	$	0.08		$	0.43
Diluted earnings per common share	$	0.96	$	(0.09	)	$	0.87		$	0.34	$	0.09		$	0.43

10

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

	As of March 31, 2005
	As Originally Reported			Adjustments			As Restated
	(in thousands)
ASSETS
Cash and cash equivalents	$	94,009		$	—		$	94,009
Investment securities		530,038			—			530,038
Loans, net of allowance for loan losses		2,216,605			—			2,216,605
Premises, leasehold improvements and equipment, net		12,024			—			12,024
Investment in Federal Home Loan Bank and Federal Reserve Bank stock		12,620			—			12,620
Other real estate and repossessed assets, net		57			—			57
Goodwill		23,354			—			23,354
Other assets		55,458			1,709	(5)		57,167
Total assets	$	2,944,165		$	1,709		$	2,945,874
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	461,060		$	—		$	461,060
Interest-bearing		1,887,950			2,300	(6)		1,890,250
Total deposits		2,349,010			2,300			2,351,310
Short-term borrowings		214,866			—			214,866
Accrued interest, taxes and other liabilities		48,168			—			48,168
Notes payable and FHLB advances		85,500			—			85,500
Junior subordinated debentures		87,638			—			87,638
Total liabilities		2,785,182			2,300			2,787,482
Stockholders’ equity:
Common stock		100			—			100
Surplus		148,429			—			148,429
Unearned compensation - stock grants		(1,782	)		—			(1,782	)
Retained earnings		25,247			(591	)(7)		24,656
Accumulated other comprehensive loss		(5,954	)		—			(5,954	)
Treasury stock		(7,057	)		—			(7,057	)
Total stockholders’ equity		158,983			(591	)		158,392
Total liabilities and stockholders’ equity	$	2,944,165		$	1,709		$	2,945,874

	For the Quarter Ended March 31, 2005							For the Quarter Ended March 31, 2004
	As Originally Reported		Adjustments			As Restated		As Originally Reported		Adjustments		As Restated
	(in thousands)
Total stockholders’ equity, January 1	$	155,261	$	312		$	155,573	$	176,485	$	—	$	176,485
Net income		9,442		(903	)		8,539		4,136		838		4,974
Total comprehensive income, net of tax		3,955		(903	)		3,052		6,336		838		7,174
Total stockholders’ equity, March 31		158,983		(591	)		158,392		181,662		838		182,500

(1) The net cash settlements under the CD swaps that were originally reported in deposit interest expense, with the interest expense of the hedged item (the brokered CDs), have been reclassified to noninterest income from net interest income. In addition, deposit interest expense has been restated to include the amortization of the CD broker placement fee.

(2) The amortization of the issuance costs for the junior subordinated debentures has been reduced to reflect the period to maturity rather than the period to the call date.

11

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(3) The change in the fair value of the CD swaps during the period that was originally off-set by the change in the fair value of the associated brokered CDs is reported in noninterest income.

(4) Income tax expense (benefit) for the adjustments reflect the Company’s statutory rate of approximately 39%.

(5) The adjustments result in changes in deferred tax assets and deferred debt issuance costs, both of which are reported in other assets.

(6) The fair value adjustments to the brokered CDs have been eliminated and the unamortized CD broker placement fees have been recorded.

(7) The adjustment to stockholders’ equity reflects the cumulative impact of the adjustments, net of income taxes at approximately 39%, at the balance sheet date.

3. Investment Securities:

The amortized cost and estimated fair values of investment securities at March 31, 2005 and December 31, 2004 were as follows:

	March 31, 2005
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Available-for-sale:
U.S. government agency securities	$	194,212	$	10	$	(3,262	)	$	190,960
Collateralized mortgage obligations		112,880		154		(2,817	)		110,217
Mortgage-backed securities		188,295		317		(4,838	)		183,774
State and municipal obligations		43,214		1,621		(23	)		44,812
Total available-for-sale		538,601		2,102		(10,940	)		529,763
Held-to-maturity:
Other debt securities		275		—		—			275
Total held-to-maturity		275		—		—			275
Total	$	538,876	$	2,102	$	(10,940	)	$	530,038

12

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

	December 31, 2004
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Available-for-sale:
U.S. government agency securities	$	194,370	$	76	$	(753	)	$	193,693
Collateralized mortgage obligations		117,020		207		(1,534	)		115,693
Mortgage-backed securities		181,515		735		(1,899	)		180,351
State and municipal obligations		41,668		1,939		—			43,607
Total available-for-sale		534,573		2,957		(4,186	)		533,344
Held-to-maturity:
Other debt securities		275		—		—			275
Total held-to-maturity		275		—		—			275
Total	$	534,848	$	2,957	$	(4,186	)	$	533,619

4. Loans:

Loans classified by type at March 31, 2005 and December 31, 2004 were as follows:

	March 31, 2005			Dec. 31, 2004
	(in thousands)
Commercial and industrial	$	656,259		$	656,099
Commercial real estate secured		730,473			732,251
Real estate-construction		594,694			531,868
Residential real estate mortgages		62,708			64,569
Home equity loans and lines of credit		193,207			207,164
Consumer		16,977			18,386
Other loans		1,716			1,460
Gross loans		2,256,034			2,211,797
Less: Unearned discount		(167	)		(191	)
Total loans		2,255,867			2,211,606
Less: Allowance for loan losses		(39,262	)		(37,484	)
Loans, net	$	2,216,605		$	2,174,122

Nonaccrual and impaired loans at March 31, 2005 were $11.1 million and $19.8 million, respectively, as compared to $12.3 million and $18.3 million at December 31, 2004, respectively.

13

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

5. Interest-Bearing Deposits:

Interest-bearing deposits at March 31, 2005 and December 31, 2004 were as follows:

	(Restated) March 31, 2005		(Restated) Dec. 31, 2004
	(in thousands)
NOW accounts	$	116,359	$	124,015
Savings accounts		80,524		85,371
Money market deposits		483,552		421,529
Time deposits:
Certificates of deposit		514,756		525,173
Out-of-local-market certificates of deposit		139,992		124,005
Brokered certificates of deposit		481,017		415,811
Public time deposits		74,050		69,635
Total time deposits		1,209,815		1,134,624
Total	$	1,890,250	$	1,765,539

At March 31, 2005 and December 31, 2004, time deposits in amounts $100,000 or more totaled $331.1 million and $331.3 million, respectively.

6. Short-Term Borrowings:

Short-term borrowings at March 31, 2005 and December 31, 2004 consisted of the following:

	March 31, 2005		Dec. 31, 2004
	(in thousands)
Securities sold under agreements to repurchase	$	193,843	$	185,737
Federal funds purchased		20,921		43,685
U.S. Treasury tax and loan note option		102		125
Total	$	214,866	$	229,547

14

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

7. Notes Payable and FHLB Advances:

Notes payable and FHLB advances at March 31, 2005 and December 31, 2004 consisted of the following:

	March 31, 2005		Dec. 31, 2004
	(in thousands)
Taylor Capital Group, Inc.:
Subordinated Debt – interest, at the Company’s election, at prime rate plus 2.50% or LIBOR plus 2.75%; interest rates at March 31, 2005 and December 31, 2004 were 5.64% and 5.13%, respectively; matures on November 27, 2011	$	10,000	$	10,000
Term Loan – interest, at the Company’s election, at the prime rate or LIBOR plus 1.15%, with a minimum interest rate of 3.50%; interest rates at March 31, 2005 and December 31, 2004 were 4.04% and 3.53%, respectively; matures on November 27, 2011		500		500
Revolving Credit Facility – $11.5 million maximum available; interest, at the Company’s election, at the prime rate or LIBOR plus 1.15%, with a minimum interest rate of 3.50%; matures November 27, 2005		—		—
Total notes payable		10,500		10,500
Cole Taylor Bank:
FHLB advance – 4.30%, due January 8, 2011, callable after January 8, 2002		25,000		25,000
FHLB advance – 4.55%, due January 8, 2011, callable after January 8, 2003		25,000		25,000
FHLB advance – 4.83%, due February 1, 2011, callable after January 8, 2004		25,000		25,000
Total FHLB advances		75,000		75,000
Total notes payable and FHLB advances	$	85,500	$	85,500

The notes payable require compliance with certain defined financial covenants. As of March 31, 2005, the Company is in compliance with these covenants.

15

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

8. Other Comprehensive Income/(Loss):

The following table presents other comprehensive income (loss) for the periods indicated:

	Before Tax Amount			Tax Effect			Net of Tax
	(in thousands)
For the Three Months Ended March 31, 2005:
Unrealized gain/(loss) from securities:
Change in unrealized gain/(loss) on available-for-sale securities	$	(7,482	)	$	2,619		$	(4,863	)
Less: reclassification adjustment for gains included in net income		(127	)		44			(83	)
Change in unrealized gain/(loss) on available-for-sale securities, net of reclassification adjustment		(7,609	)		2,663			(4,946	)
Change in net unrealized loss from cash flow hedging instruments		(766	)		268			(498	)
Change in deferred gain from termination of cash flow hedging instruments		(66	)		23			(43	)
Other comprehensive loss	$	(8,441	)	$	2,954		$	(5,487	)
For the Three Months Ended March 31, 2004:
Change in unrealized gain/(loss) on available-for-sale securities	$	3,450		$	(1,207	)	$	2,243
Change in deferred gain from termination of cash flow hedging instruments		(66	)		23			(43	)
Other comprehensive income	$	3,384		$	(1,184	)	$	2,200

16

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

9. Earnings per Share:

The following table sets forth the computation of basic and diluted earnings per common share. Stock options are the only common stock equivalents. For the three month periods ended March 31, 2005 and 2004, stock options outstanding to purchase 1,000 and 228,850 common shares, respectively, were not included in the computation of diluted earnings per share because the effect would have been antidilutive.

	For the Three Months Ended March 31,
(in thousands, except share and per share amounts)	(Restated) 2005		(Restated) 2004
Net income	$	8,539	$	4,974
Less preferred dividend requirements		—		(861	)
Net income available to common stockholders	$	8,539	$	4,113
Weighted average common shares outstanding		9,663,676		9,490,917
Dilutive effect of stock options		169,299		132,188
Diluted weighted average common shares outstanding		9,832,975		9,623,105
Basic earnings per common share	$	0.88	$	0.43
Diluted earnings per common share		0.87		0.43

10. Stock-based Compensation:

The Company accounts for the stock-based compensation plans under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” For the stock option program, 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. For the restricted stock program, the Company uses the fixed method of accounting and records compensation expense, over the vesting period of the grant, based upon the fair market value of the stock at the date of grant. In accordance with the disclosure requirements of Statement of Financial Accounting Standard, or SFAS, No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—An amendment of FASB Statement No. 123”, the following table provides the pro forma effect on net income and earnings per share if the fair value method of accounting for stock-based compensation had been used for all awards:

17

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

	For the Three Months Ended March 31,
(in thousand, except per share amounts)	(Restated) 2005			(Restated) 2004
Net income as reported	$	8,539		$	4,974
Add: Stock-based compensation, net of tax, included in the determination of net income, as reported		104			75
Deduct: Stock-based compensation, net of tax, that would have been reported if the fair value based method had been applied to all awards		(270	)		(238	)
Pro forma net income	$	8,373		$	4,811
Less preferred dividend requirements		—			(861	)
Pro forma net income available to common stockholders	$	8,373		$	3,950
Basic earnings per common share
As reported	$	0.88		$	0.43
Pro forma		0.87			0.42
Diluted earnings per common share
As reported	$	0.87		$	0.43
Pro forma		0.85			0.41

11. Derivative Financial Instruments:

The Company uses derivative financial instruments to assist in interest rate risk management. At both March 31, 2005 and December 31, 2004, the only derivative financial instruments outstanding were interest rate exchange agreements. The following table sets forth the activity in the notional amounts of derivative financial instruments during the first three months of 2005.

	CD Swaps			Cash Flow Hedge			Total
	(in thousands)
Balance at December 31, 2004	$	130,000		$	50,000		$	180,000
Additions		50,000			—			50,000
Terminations/calls		—			—			—
Maturities		—			—			—
Balance at March 31, 2005	$	180,000		$	50,000		$	230,000
Fair value at March 31, 2005	$	(4,019	)	$	(1,286	)	$	(5,305	)

18

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

Below is summary information regarding the derivative financial instruments outstanding at March 31, 2005.

	Notional Amount (in thousands)		Weighted Averages
			Receive Rate		Pay Rate		Life in Years
CD Swaps	$	180,000	3.46	%	2.83	%	4.9
Cash Flow Hedge		50,000	6.04	%	5.75	%	2.4
Total	$	230,000	4.02	%	3.47	%	4.4

During the first three months of 2005, we entered into additional interest rate exchange agreements with a notional amount of $50.0 million related to newly issued brokered certificates of deposit of $50.0 million.

19

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We are a bank holding company headquartered in Rosemont, Illinois, a suburb of Chicago. We derive substantially all of our revenue from our subsidiary, Cole Taylor Bank. We provide a range of products and services to our commercial customers, and currently operate 11 banking facilities throughout the Chicago metropolitan area.

The following discussion and analysis presents our consolidated financial condition and results of operations as of and for the dates and periods indicated. This discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this document. In addition to the historical information provided below, we have made certain estimates and forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these estimates and forward-looking statements as a result of certain factors, including those discussed in the section captioned “Risk Factors” in Amendment No. 1 to our Registration Statement on Form S-3 (Registration No. 333-126864) filed with the SEC on August 5, 2005.

Restatements of Results of Operations and Financial Condition

We are restating our previously reported financial information for the quarters ended March 31, 2005 and 2004 to correct errors in those consolidated financial statements relating to our derivative accounting under Statement of Financial Accounting Standards 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), and to reflect a change in the amortization period of issuance costs related to our junior subordinated debentures.

In 2005 and prior years, we entered into interest rate swap agreements (CD swaps) to hedge the interest rate risk inherent in certain of our brokered certificates of deposit (brokered CDs). We believe using interest rate swaps to convert the interest expense on brokered CDs from fixed to variable is prudent from a risk management standpoint. The brokered CDs are typically structured with terms of 5 to 7 years with a call option on our part, but no surrender option for the CD holder, other than death. The extended term of the brokered CDs minimize liquidity risk while our option to call the CDs after 1 year provides us with funding flexibility. This variable rate funding matches well with our large floating rate loan portfolio. We consider these CD swaps to be valuable economic transactions that benefit our Company.

From the inception of the hedging program, we applied a method of fair value hedge accounting under SFAS 133 to account for the CD swaps that allowed us to assume no ineffectiveness in these transactions (the so-called “short-cut” method). We recently concluded that the CD swaps did not qualify for this method in prior periods because the related CD broker placement fee was determined, in retrospect, to have caused the swap not to have a fair value of zero at inception (which is required under SFAS 133 to qualify for the short-cut method). Furthermore, although historical effectiveness testing performed in November 2005 demonstrated that the CD swaps would have qualified for hedge accounting under the “long-haul” method, hedge accounting under SFAS 133 is not allowed retrospectively because the hedge documentation required for the long-haul method was not in place at the inception of the hedge.

20

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Fair value hedge accounting allows a company to record the effective portion of the change in fair value of the hedged item (in this case, the brokered CDs) as an adjustment to income that offsets the fair value adjustment on the related interest rate swaps. Eliminating the application of fair value hedge accounting reverses the fair value adjustments that were made to the brokered CDs. Therefore, while the interest rate swap is recorded on the consolidated balance sheet at its fair value, the related hedged item, the brokered CDs, are required to be carried at par, net of the unamortized balance of the CD broker placement fee. In addition, the CD broker placement fee, which was incorporated into the swap, is now separately recorded as an adjustment to the par amount of the brokered CDs and amortized through the maturity date of the related CDs. Because the majority of the swaps and the brokered CDs have mirror call options after one year, the call of a brokered CD prior to maturity will now result in the expensing of the unamortized CD broker placement fee on the call date.

The net cumulative pre-tax effect of eliminating the fair value adjustment to the brokered CDs at March 31, 2005 is $2.3 million (representing a $4.0 million elimination of the fair value adjustment to the brokered CDs less a $1.7 million adjustment to record the unamortized CD broker placement fees). The cumulative after-tax impact was a $1.4 reduction to retained earnings. Although these CD swaps cannot retrospectively qualify for hedge accounting under SFAS 133, there is no effect on cash flows for these changes and the effectiveness of the CD swaps as economic hedge transactions has not been affected by these changes in accounting treatment.

On November 18, 2005, we re-designated our interest rate swaps relating to our brokered CDs utilizing the “long-haul” method and completed new contemporaneous hedging documentation. Accordingly, we believe these CD swaps should qualify for fair value hedge accounting in future periods under SFAS 133.

In connection with the determination of the appropriate amortization period for the brokered CD placement fees, we also determined that the issuance costs relating to our junior subordinated debentures should have been amortized through the maturity date of the debentures, rather than their earlier call dates. The cumulative effect through March 31, 2005 of amortization of the debt issuance costs through the maturity date of the related debt is an increase to retained earnings of $805,000 ($1.3 million pre-tax).

The combined impact of the errors in derivative accounting and debt issuance cost decreased retained earnings at March 31, 2005 by $591,000. The reduction to previously reported net income and retained earnings in any of the restated quarterly periods did not cause any violation of our debt covenants and did not cause either Cole Taylor Bank’s or Taylor Capital Group’s regulatory capital ratios to fall below the “well-capitalized” levels as of the end of any of these periods.

21

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Further information regarding the impact of these restatements to our results of operations, financial condition, and stockholders equity and comprehensive income can be found in Note 2 to the consolidated financial statements. The following discussion and tables include the adjustments made to correct for the incorrect application of fair value hedge accounting under SFAS 133 and the amortization period for the debt issuance costs.

Application of Critical Accounting Policies

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America and general reporting practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

Certain accounting policies require us to use significant judgment and estimates, which can have a material impact on the carrying value of certain assets and liabilities. We consider these policies to be critical accounting policies. The judgments and assumptions made by us are based upon historical experience or other factors that we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions, actual results could differ from these judgments and estimates which could have a material affect on our financial condition and results of operations.

The following accounting policies materially affect our reported earnings and financial condition and require significant judgments and estimates.

Allowance for Loan Losses

We have established an allowance for loan losses to provide for loans in our portfolio that may not be repaid in their entirety. The allowance is based on our regular, quarterly assessments of the probable estimated losses inherent in the loan portfolio. Our methodology for measuring the appropriate level of the allowance includes identifying problem loans, estimating the amount of probable loss related to those loans, estimating probable losses from specific portfolio segments and evaluating the impact to our loan portfolio of a number of economic and qualitative factors. We maintain the allowance for loan losses at a level considered adequate to absorb probable losses inherent in our portfolio as of the balance sheet date. In evaluating the adequacy of our allowance for loan losses, we consider numerous quantitative factors, including historical charge-off experience, growth of our loan portfolio, changes in the composition of our loan portfolio and the volume of delinquent and criticized loans. In addition, we use information about specific borrower situations, including their financial position, work-out plans and estimated collateral values under various liquidation scenarios to estimate the risk and amount of

22

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

loss for those borrowers. Finally, we also consider many qualitative factors, including general and economic business conditions, duration of the current business cycle, the impact of competition on our underwriting terms, current general market collateral valuations, trends apparent in any of the factors we take into account and other matters, which are by nature more subjective and fluid. The significant uncertainties that could affect the ability of the borrowers in our portfolio to successfully execute their business models through changing economic environments and competitive challenges, as well as management and other changes that affect our borrowers, complicate the estimate of the risk of loss and amount of loss on any loan. Because of the degree of uncertainty and susceptibility of all of the above factors to change, actual losses may vary from current estimates.

As a business bank, our loan portfolio is comprised primarily of commercial loans to businesses, which are typically larger in amount than loans to individual consumers. The individually larger commercial loans can cause greater volatility in reported credit quality performance measures, such as total impaired or nonperforming loans. Our current credit risk rating and loss estimate with respect to a single sizable loan can have a material impact on our reported impaired loans and related loss exposure estimates. We review our estimates on a quarterly basis and, as we identify changes in estimates, the allowance for loan losses is adjusted through the recording of a provision for loan losses.

Goodwill Impairment

We have goodwill of $23.4 million that we recognized in connection with our 1997 acquisition of Cole Taylor Bank. We test this goodwill annually for impairment, or whenever events or significant changes in circumstances indicate that the carrying value may not be recoverable. Most recently, we tested goodwill for impairment as of July 1, 2004 and we determined that no impairment charge was necessary. The evaluation for impairment includes comparing the estimated fair market value of Cole Taylor Bank to our carrying value for Cole Taylor Bank. Because there is not a readily observable market value for Cole Taylor Bank, the estimation of the fair market value is based on the market price of our common stock adjusted for the junior subordinated debentures and the notes payable obligations of the holding company.

Income Taxes

At times, we apply different tax treatment for selected transactions for tax return purposes than for financial reporting purposes. The different positions result from the varying application of statutes, rules, regulations, and interpretations, and our accruals for income taxes include reserves for these differences in position. Our estimate of these reserves contains assumptions based upon our past experience and judgments about potential actions by taxing authorities, and we believe that the level of these reserves is reasonable. A reserve is utilized or reversed once the applicable statute of limitations has expired or the matter is otherwise resolved. It is likely that the ultimate resolution of these matters may be greater or less than the amounts we have accrued.

23

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Derivative Financial Instruments

We use derivative financial instruments, including interest rate exchange and floor agreements to assist in our interest rate risk management. In accordance with SFAS 133, all derivative financial instruments are measured and reported at fair value on our balance sheet as either an asset or a liability. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings during the period of the change in the fair values. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For all hedging relationships, derivative gains and losses that are not effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings during the period of the change. Similarly, the changes in the fair value of derivative instruments that do not qualify for hedge accounting under SFAS 133 are also reported currently in earnings.

With the exception of hedges that qualify under the “short-cut” method, at the inception of the hedge and quarterly thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instruments have been highly effective in offsetting the changes in the fair values or cash flows of the hedged item and whether they are expected to be highly effective in the future. If it is determined that the derivative instrument is not highly effective as a hedge, hedge accounting is discontinued prospectively. Once hedge accounting is terminated, all changes in fair value of the derivative instrument flow through the consolidated statements of income in other noninterest income, which results in greater volatility in our earnings.

The estimates of fair values of our derivative instruments are obtained from dealer quotes. The dealers calculate the fair value of derivatives using valuation models to estimate mid-market valuations. The fair values produced by these proprietary valuation models may be theoretical in whole or part and therefore can vary between dealers and are not necessarily reflective of the actual price at which the contract could be traded. Small changes in assumptions can result in significant changes in valuation. The risks inherent in the determination of the fair value of a derivative may result in income statement volatility.

RESULTS OF OPERATIONS

Overview

We recorded net income applicable to common stockholders for the quarter ended March 31, 2005 of $8.5 million, or $0.87 per diluted common share, compared to $4.1 million, or $0.43 per diluted common share, for the first quarter of 2004. Net income applicable to common stockholders increased as a result of both increased net interest income and noninterest income and decreased noninterest expense. Net income applicable to common stockholders for the first

24

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

quarter of 2005 included pre-tax gains of $3.6 million from the sale of certain non-strategic assets. Additionally, the first quarter 2005 was not burdened with the $861,000 in dividends paid on our Series A preferred stock in the first quarter of 2004, which we redeemed in July 2004.

Net Interest Income

Net interest income is the difference between total interest income and fees earned on interest-earning assets, including investment securities and loans, and total interest expense paid on interest-bearing liabilities, including deposits and other borrowed funds. Net interest income is our 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, the level of rates earned or paid on those assets and liabilities and the amount of loan fees earned.

Three Months Ended March 31, 2005 as Compared to the Three Months Ended March 31, 2004

Net interest income was $25.8 million during the first quarter of 2005, a $2.5 million, or 10.9%, increase over the $23.3 million of net interest income during the same quarter a year ago. With an adjustment for tax-exempt income, our consolidated net interest income for the first quarter of 2005 was $26.1 million as compared to $23.6 million during the same quarter in 2004. Net interest income during the first quarter of 2005 has benefited from both an increase in interest-earning assets and a higher net interest margin.

The net interest margin, which is determined by dividing taxable equivalent net interest income by average interest-earning assets, was 3.83% during the first quarter of 2005 compared to 3.76% during the same quarter a year ago. Our net interest margin benefited from the increase in market interest rates that began at the end of the second quarter of 2004 as well as higher noninterest-bearing funding. Our net interest spread decreased 5 basis points. The yield on our interest-earning assets increased 60 basis points to 5.83% during the first quarter of 2005 from 5.23% during the same quarter in 2004. The cost of our interest-bearing liabilities increased 65 basis points to 2.49% during the first quarter of 2005 from 1.84% during the same quarter in 2004.

The rise in market interest rates, which triggered the 175 basis point increase in our prime lending rate, produced an increase in both the yield on earning assets and the cost of interest-bearing liabilities. The yield earned on our loans was 6.27% during the first quarter of 2005, or 75 basis points higher than the loan yield of 5.52% during the first quarter a year ago. The cost of interest-bearing deposits increased 49 basis points to 2.23% during the first quarter of 2005 from 1.74% during the first quarter in 2004. In addition, the issuance of $41.2 million of junior subordinated debentures in June 2004, increased interest expense by $548,000, or 5 basis points, for the first quarter of 2005, as compared to the same quarter a year ago.

Average interest-earning assets increased $242.1 million, or 9.6%, to $2.76 billion for the first quarter of 2005 compared to $2.52 billion for the first quarter in 2004. Average loans increased $224.8 million, or 11.4%, to $2.20 billion during the first quarter of 2005 compared to $1.97 billion for the same quarter a year ago. The $297.9 million increase in commercial and commercial real estate loan balances, partly offset by the continued run off of our consumer loan portfolio, produced the increase in average loans.

25

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

The $224.8 million increase in average loans between the first quarters of 2004 and 2005 was funded primarily with the $222.9 million increase in deposits. Total interest-bearing deposits increased $183.9 million and noninterest-bearing deposits increased $39.1 million. The majority of the increase in interest-bearing deposits between the first quarters of 2004 and 2005 occurred in brokered and out-of-local-market deposits. Between the two quarterly periods, average brokered certificates of deposits increased $116.9 million, or 37.0%, to $433.0 million for the first quarter of 2005 and average out-of-local-market certificates of deposit increased $46.3 million, or 54.0%, to $132.0 million for the first quarter of 2005. Average noninterest-bearing demand deposits increased $39.1 million, or 9.6%, to $447.9 million for the first quarter of 2005.

Average stockholders’ equity declined $21.4 million, to $157.9 million for the first quarter 2005 as compared to the first quarter of 2004, primarily as a result of the redemption of our Series A preferred stock in July 2004. The reduction in average stockholders’ equity caused by the redemption of $38.25 million in preferred stock was partially offset by net income after dividends.

The interest rate risk position of our overall balance sheet is asset sensitive, which means our assets are expected to re-price before our liabilities over the one-year horizon. This balance sheet structure provides opportunity for an increase in net interest margin during periods of rising interest rates, such as we experienced over the last nine months. If interest rates remain unchanged in future periods, we would expect to be exposed to the negative impact of a large percentage of our interest-bearing liabilities repricing at current market rates, while a large portion of our assets has already repriced. If interest rates continue to gradually rise in future periods, we would expect our net interest margin to increase. See the section of this discussion and analysis captioned “Quantitative and Qualitative Disclosure About Market Risks” for further discussion on the impact of interest rates.

Tax Equivalent Adjustments to Yields and Margins

As part of our evaluation of net interest income, we review our consolidated average balances, our yield on average interest-earning assets, and the costs of average interest-bearing liabilities. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities. Because management reviews net interest income on a taxable equivalent basis, the analysis contains certain non-GAAP financial measures. In these non-GAAP financial measures, investment interest income, loan interest income, total interest income, and net interest income are adjusted to reflect tax-exempt interest income on an equivalent before-tax basis assuming an effective tax rate of 35%. This assumed rate may differ from our actual effective income tax rate. In addition, the earning asset yield, net interest margin, and the net interest rate spread are adjusted to a fully taxable equivalent basis. We believe that these measures and ratios present a more meaningful measure of the performance of interest-earning assets because they provide a better basis for comparison of net interest income regardless of the mix of taxable and tax-exempt instruments.

26

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

The following table reconciles the tax equivalent net interest income to net interest income as reported on the Consolidated Statements of Income. In addition, the earning asset yield, net interest margin and net interest spread are shown with and without the tax equivalent adjustment.

	For the Three Months Ended March 31,
	(Restated) 2005			(Restated) 2004
	(in thousands)
Net interest income as stated	$	25,847		$	23,316
Tax equivalent adjustment-investments		259			279
Tax equivalent adjustment-loans		39			44
Tax equivalent net interest income	$	26,145		$	23,639
Yield on earning assets without tax adjustment		5.79	%		5.18	%
Yield on earning assets - tax equivalent		5.83	%		5.23	%
Net interest margin without tax adjustment		3.79	%		3.71	%
Net interest margin - tax equivalent		3.83	%		3.76	%
Net interest spread - without tax adjustment		3.30	%		3.34	%
Net interest spread - tax equivalent		3.34	%		3.39	%

The following tables present, for the periods indicated, certain information relating to our consolidated average balances and reflect our yield on average interest-earning assets and costs of average interest-bearing liabilities. The table contains certain non-GAAP financial measures to adjust tax-exempt interest income on an equivalent before-tax basis assuming an effective tax rate of 35%.

27

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

	For the Three Months Ended March 31,
	2005 (Restated)							2004 (Restated)
	AVERAGE BALANCE			INTEREST		YIELD/ RATE (%)(6)		AVERAGE BALANCE			INTEREST		YIELD/ RATE (%)(6)
	(dollars in thousands)
INTEREST-EARNING ASSETS:
Investment securities (1):
Taxable	$	506,068		$	4,995	3.95	%	$	497,299		$	4,980	4.01	%
Tax-exempt (tax equivalent) (2)		41,790			740	7.08			44,530			792	7.11
Total investment securities		547,858			5,735	4.19			541,829			5,772	4.26
Cash Equivalents		18,516			109	2.35			7,262			18	0.97
Loans (2) (3):
Commercial and commercial real estate		1,911,926			29,656	6.20			1,614,028			21,906	5.37
Residential real estate mortgages		64,147			854	5.32			82,064			1,124	5.48
Home equity and consumer		219,688			2,991	5.52			274,845			3,376	4.94
Fees on loans					465							637
Net loans (tax equivalent) (2)		2,195,761			33,966	6.27			1,970,937			27,043	5.52
Total interest-earning assets (2)		2,762,135			39,810	5.83			2,520,028			32,833	5.23
Allowance for loan losses		(38,561	)						(34,761	)
NON-EARNING ASSETS:
Cash and due from banks		65,162							56,243
Accrued interest and other assets		85,779							94,232
TOTAL ASSETS	$	2,874,515						$	2,635,742
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Interest-bearing demand deposits	$	573,276			1,790	1.27		$	561,147			962	0.69
Savings deposits		82,540			60	0.29			91,161			71	0.31
Time deposits		1,156,777			8,133	2.85			976,435			6,022	2.48
Total interest-bearing deposits		1,812,593			9,983	2.23			1,628,743			7,055	1.74
Short-term borrowings		234,702			975	1.66			231,034			499	0.87
Notes payable and FHLB advances		85,500			1,002	4.69			100,115			1,094	4.32
Junior subordinated debentures		87,638			1,705	7.78			46,400			546	4.71
Total interest-bearing liabilities		2,220,433			13,665	2.49			2,006,292			9,194	1.84
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits		447,904							408,822
Accrued interest, taxes, and other liabilities		48,295							41,323
Total noninterest-bearing liabilities		496,199							450,145
STOCKHOLDERS’ EQUITY		157,883							179,305
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,874,515						$	2,635,742
Net interest income (tax equivalent) (2)				$	26,145						$	23,639
Net interest spread (tax equivalent) (2) (4)						3.34	%						3.39	%
Net interest margin (tax equivalent) (2) (5)						3.83	%						3.76	%

(1) Investment securities average balances are based on amortized cost.

(2) Adjusted to reflect tax-exempt interest income on an equivalent before-tax basis assuming an effective income tax rate of 35%.

(3) Nonaccrual loans are included in the above stated average balances.

(4) Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(5) Net interest margin is determined by dividing taxable equivalent net interest income by average interest-earning assets.

(6) Yield/Rates are annualized.

28

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Noninterest Income

The following table presents, for the periods indicated, our major categories of noninterest income:

	For Three Months Ended March 31,
	(Restated) 2005			(Restated) 2004
	(in thousands)
Deposit service charges	$	2,407		$	2,783
Trust services		848			975
Wealth management services		336			265
Gain on sale of land trusts		2,000			—
Gain on sale of branch		1,572			—
Gain on sale of investment securities, net		127			—
Net cash settlements on CD swaps		223			207
Change in fair value of CD swaps		(1,576	)		958
Loan syndication fees		700			—
Other noninterest income		265			652
Total noninterest income	$	6,902		$	5,840

Noninterest income increased by $1.1 million to $6.9 million for the first quarter of 2005, as compared to $5.8 million for the same quarter in 2004. Noninterest income in 2005 included $3.6 million in gains from the sales of our land trust operations and our Broadview, Illinois branch. In addition, the first quarter of 2005 included $700,000 of loan syndication fees. The loss on the fair value of the CD swaps was $1.6 million during the first quarter of 2005 compared to a gain of $958,000 during the same quarter a year ago. Also, deposit service charges, trust fees, and other noninterest income were lower in the first quarter of 2005 as compared to the same quarter a year ago.

Deposit service charges were $2.4 million during the first quarter of 2005, $376,000 or 13.5% less than the deposit service charges of $2.8 million during the same quarter a year ago. Reported service charge income is impacted by a number of factors including the volume of deposit accounts and service transactions, the price established for each deposit service, the earnings credit rate and the collected balances customers maintain in their commercial checking accounts. The decrease in service charge revenue during 2005 was primarily caused by lower commercial service charge income as a result of reduced activity fees and an increase in the earnings credit rate given to customers on their collected account balances to offset gross activity charges. We believe intelligent product development and pricing, as well as customer account acquisition, will be necessary to increase this revenue stream in future periods.

Trust service fees were $848,000 during the first quarter of 2005 compared to $975,000 during the same quarter a year ago, a decrease of $127,000, or 13.0%. Trust services during both periods include corporate, land, and exchange trust services. The decrease between the two

29

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

quarterly periods was largely due to lower corporate trust fees. On March 31, 2005, we sold our land trust operations and recorded a gain of $2.0 million. We elected to capitalize on the current value of our land trust operations by selling it to an existing land trustee who can apply greater economies of scale. Our decision is consistent with our focus on our products and services that best meet the needs of our business customers. We expect that our total trust revenues will be lower beginning with the second quarter of 2005 because of this sale. In prior years, land trust operations had provided fee income of approximately $1.1 million annually. Direct operating expenses relating to our land trust operations totaled approximately $500,000 annually.

Wealth management services consist primarily of asset management consulting services. Wealth management fees increased $71,000 to $336,000 during the first quarter of 2005 compared to $265,000 during the same quarter a year ago. The market value of assets under management has increased over the past year. We believe that increased fee opportunities continue to be available to us in providing these services.

We recorded a $1.6 million gain in connection with the sale of our Broadview, Illinois branch in January 2005. In addition to selling the land and building, we sold approximately $19.7 million of deposit balances and $5.3 million of loans associated with the branch. This sale allows us to redeploy our investment in banking facilities into geographic markets more aligned with our targeted customers.

During the first quarter of 2005, we recorded a $127,000 gain on the sale of $2.7 million of available-for-sale investment securities. We sold eleven low-balance, mortgage-backed securities to improve the operating efficiency of the portfolio. No sales of investment securities occurred during the first quarter of 2004.

We use certain interest rate exchange agreements, or swaps, to convert fixed rate brokered certificates of deposits to a variable rate. Under these swaps, we receive a fixed rate and pay a variable rate based upon LIBOR. The net cash settlements from these CD swaps were $223,000 during the first quarter of 2005 compared to $207,000 during the same quarter in 2004.

The change in the fair value of the CD swaps can vary greatly from quarter to quarter based upon market interest rates, the total notional amount and the terms of swap transactions that we have entered into. For the first quarter of 2005, we had a loss in fair value from these CD swaps of $1.6 million compared to a gain in fair value of $958,000 during the first quarter of 2004. For additional information concerning the accounting treatment for these CD swaps, please see “Application of Critical Accounting Policies—Derivative Financial Instruments” and Notes 2 and 11 to our consolidated financial statements in this Amendment No. 1 to Form 10-Q.

We received $700,000 of loan syndication fees during the first quarter of 2005. We earn these fees through the syndication of certain commercial real estate development loans for our customers. We expect the opportunity to provide this service to recur, but not necessarily on a routine, predictable basis. We did not receive any similar fees during the first three months of 2004.

30

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Other noninterest income includes fees received from the issuance of standby letters of credit, fees for non-customer usage of our automated teller machines, revenues (losses) from mortgage banking operations, gains (losses) from equity or partnership investments, gains (losses) on the assets in our employees’ deferred compensation plans, and other miscellaneous sources of revenues. The decrease in other noninterest income during the first quarter of 2005 as compared to the year ago quarter was primarily due to a $250,000 increase in losses from our investment in low-income housing partnerships and a lower gain realized on the assets held in employee deferred compensation plans.

Noninterest Expense

The following table presents for the periods indicated the major categories of noninterest expense:

	For Three Months Ended March 31,
	2005		2004
	(in thousands)
Salaries and employee benefits:
Salaries, employment taxes, and medical insurance	$	7,897	$	9,029
Incentives, commissions, and retirement benefits		2,103		1,702
Total salaries and employee benefits		10,000		10,731
Occupancy of premises		1,725		1,807
Furniture and equipment		884		1,135
Computer processing		433		434
Corporate insurance		370		622
Legal fees, net		172		329
Advertising and public relations		109		422
Other noninterest expense		3,047		3,303
Total noninterest expense	$	16,740	$	18,783

Noninterest expense declined $2.0 million, or 10.9%, to $16.7 million during the first quarter of 2005, as compared to the $18.8 million of noninterest expense during the same quarter in 2004. The decrease in noninterest expense was principally a result of our efforts to reduce our operating expenses. The lower level of noninterest expense was primarily due to lower salaries and benefits, occupancy of premises, furniture and equipment, corporate insurance, and advertising.

Total salaries and employee benefits expense decreased $731,000, or 6.8%, to $10.0 million during the first quarter of 2005 compared to $10.7 million during the first quarter a year ago. Salaries, employment taxes, and medical insurance decreased $1.1 million, or 12.5%, to $7.9 million during the first quarter of 2005 compared to $9.0 million for the first quarter of 2004. The decline in total base salaries was a result of the reduction in the number of full-time equivalent employees. The number of full-time equivalent employees declined to 435 at March 31, 2005 from 482 at March 31, 2004. In addition, severance expense declined $395,000 in the first quarter of 2005. Incentives, commissions, and retirement benefits increased $402,000, or 23.6%, to $2.1 million during the first quarter of 2005 reflecting the improved financial performance of the Bank in the first quarter of 2005 as compared to the first quarter of 2004.

31

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Beginning 2006, salaries and employee benefits expense will be impacted by the implementation of Statement of Financial Accounting Standard No. 123, “Share-Based Payment” (“SFAS 123R”), which is revised and reissued guidance on the accounting for stock-based compensation. SFAS 123R eliminates the intrinsic value method that we currently use to account for the granting of employee stock options. Beginning in 2006, we will be required to record compensation expense in the future for all existing stock options that have not vested as of date of adoption and for all future grants of employee stock options. While we have not yet completed our evaluation of the impact of the adoption of SFAS 123R on our consolidated financial statements, including the impact of the transitional provisions of SFAS 123R, we expect to record increased salary and employee benefit expense as a result of its implementation. See the section of this discussion and analysis captioned “New Accounting Pronouncements” for additional details concerning our implementation of SFAS 123R.

Occupancy expense was $1.7 million during the first quarter of 2005 compared to $1.8 million during the same quarter a year ago, a decrease of $82,000, or 4.5%. Lower building depreciation, real estate taxes, and repair and maintenance expense, partly offset by an increase in rent expense, combined to produce the lower occupancy expense. The lower depreciation on buildings was primarily due to the January 2005 sale of our Broadview branch and the June 2004 sale of our Burbank facility. Upon sale of our Burbank facility, we leased back approximately one-half of the space for our retail branch and certain operating departments at that facility. This new lease, as well as our new 2,500 square foot banking facility in Itasca, Illinois, which opened in June 2004, caused the increase in rent expense between the first quarter of 2004 and the first quarter of 2005.

In addition, we have taken other steps that are expected to impact occupancy expense in the future. On February 18, 2005, we completed a transaction in which we terminated the operating lease for our 58,000 square-foot Wheeling facility. Upon termination of our obligation under the existing lease, we signed a new 10-year operating lease for 8,300 square feet on the first floor of the Wheeling facility for a smaller branch. We expect to save approximately $400,000 per year by occupying less space at this facility. In addition, in April 2005 we opened a 2,800 square-foot banking facility under a 3-year operating lease in Orland Park, Illinois, a southern suburb of Chicago. We also completed the sale of our Ashland facility in the fourth quarter of 2004. We retained a small parcel of land to construct a new, smaller facility on that site. We expect to move into this new 6,000 square-foot facility, from our temporary rented facility on Bishop, during the second half of 2005.

The expense for furniture and equipment was $884,000 during the first quarter of 2005, compared to $1.1 million during the same quarter in 2004, a decrease of $251,000 or 22.1%. The decrease in expense was mainly due to lower depreciation for furniture and equipment and a reduction in equipment repairs and maintenance.

32

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Corporate insurance expense declined for the first quarter of 2005 to $370,000 compared to $622,000 during the first quarter of 2004. An adjustment to our directors’ and officers’ insurance coverage and a more favorable insurance market, among other factors, caused the decrease in expense for 2005 as compared to 2004.

We incur legal fees for the holding company and for the Bank. Legal fees at the Bank relate to collection activities as well as contract and compliance matters. Holding company legal fees are for general corporate matters, including securities law compliance and other costs associated with being a publicly-traded company. Net legal fees totaled $172,000 during the first quarter of 2005 compared to $329,000 during the same period in 2004. Legal fees in 2005 included a $330,000 reimbursement of legal fees to the Bank from a legal action we instituted in 1999.

Advertising and public relations expense was $109,000 during the first quarter of 2005 as compared to $422,000 during the same quarter in 2004. The lower expense was a result of the timing of marketing activities and such activities can vary from quarter to quarter.

Other noninterest expense principally includes certain professional fees, FDIC insurance, outside services, operating losses and other operating expenses such as telephone, postage, office supplies, and printing. Other noninterest expense was $3.0 million during the first quarter of 2005 compared to $3.3 million during the same period in 2004, a decrease of $256,000, or 7.8%. Lower telephone expense, outside services, and cost related to other real estate owned assets caused the decrease in expense between the two quarterly periods.

Income Taxes

We recorded income tax expense of $5.6 million during the first quarter of 2005, resulting in an effective income tax rate of 39.8%. In comparison, we recorded income tax expense of $2.6 million during the first quarter of 2004 resulting in an effective income tax rate of 34.8%. The higher pre-tax income coupled with a higher effective income tax rate produced the increase in income tax expense between the two quarterly periods. Income tax expense in 2005 includes the accrual of interest for unresolved tax positions. Without the accrual of the interest in 2005, the effective tax rate would have been 38% in 2005. The lower effective tax rate in 2004 is also a result of the increased impact of tax-exempt items because of the lower pretax income and the recognition of $46,000 in capital loss carry-back claims.

33

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

FINANCIAL CONDITION

Overview

Our total assets increased to $2.95 billion at March 31, 2005 compared to $2.89 billion at year-end 2004, an increase of $56.8 million, or 2.0%. Asset growth was driven primarily from a $42.5 million increase in total loans. Total deposits increased by $66.6 million to $2.35 billion at March 31, 2005 compared to $2.28 billion at December 31, 2004. Total stockholders’ equity at March 31, 2005 was $158.4 million compared to $155.6 million at December 31, 2004.

Cash and Cash Equivalents

Period-end cash and cash equivalents were $94.0 million at March 31, 2005 compared to $79.3 million at December 31, 2004. Cash consists of cash on hand at branches, balances at correspondent banks and cash letters in process of collection. Cash equivalents consist of short-term, interest-bearing investments and federal funds sold.

Interest-Earning Assets

Investment securities totaled $530.0 million at March 31, 2005 compared to $533.6 million at December 31, 2004. Purchases of $20.2 million in securities during the quarter were offset by $13.1 million in repayments on mortgage-related securities, a $7.6 million increase in the unrealized loss on the available for sale investment portfolio and the sale of $2.7 million of securities. The net unrealized loss on the available-for-sale portfolio increased $7.6 million during the first quarter due to changes in market interest rates. At March 31, 2005, we owned 34 investment securities in an unrealized loss position. Of these securities, ten securities have been in a loss position for more than twelve months. We believe that none of these unrealized losses represents other-than-temporary impairments of our investment portfolio. We believe that we have both the intent and ability to hold all of these securities for the time necessary to recover the amortized cost.

Period-end total loans increased $44.3 million, or 2.0%, to $2.26 billion at March 31, 2005 compared to $2.21 billion at December 31, 2004. Our commercial loan portfolio, which includes commercial and industrial, commercial real estate secured, and real estate – construction loans, increased $61.2 million, or 3.2%, during the first quarter of 2005. The increase was attributable to growth in real estate – construction loans. Our real estate construction portfolio increased $62.8 million to $594.7 million at March 31, 2005 as compared to $531.9 million at December 31, 2004. The majority of the increase in real estate - construction lending related to residential developments.

During the first quarter of 2005, total consumer-oriented loans, which include residential real estate mortgages, home equity loans and lines of credit, and other consumer loans, decreased $17.2 million to $272.9 million at March 31, 2005. Consumer-oriented loans as a percentage of total loans declined to 12% at March 31, 2005, from 13% at year-end 2004. The reduction in consumer-oriented loans included the sale of $3.65 million of mortgage, home equity and other consumer loans in connection with the sale of our Broadview banking facility. A significant portion of the consumer-oriented loan portfolio includes loans we originated through brokers in prior years, a practice we discontinued in 2001 and 2002. As expected, the broker-related loan portfolios have declined from $110 million at December 31, 2004 to $99 million at March 31, 2005.

34

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Loan Quality and Nonperforming Assets

The following table sets forth the amounts of nonperforming assets as of the dates indicated:

	March 31, 2005			Dec. 31, 2004
	(dollars in thousands)
Loans contractually past due 90 days or more but still accruing interest	$	4,117		$	1,807
Nonaccrual loans		11,120			12,286
Total nonperforming loans		15,237			14,093
Other real estate owned		46			46
Other repossessed assets		11			12
Total nonperforming assets	$	15,294		$	14,151
Restructured loans not included in nonperforming assets	$	2,768		$	1,777
Impaired loans	$	19,835		$	18,327
Nonperforming loans to total loans		0.68	%		0.64	%
Nonperforming assets to total loans plus repossessed property		0.68	%		0.64	%
Nonperforming assets to total assets		0.52	%		0.49	%

The level of nonperforming loans increased $1.1 million to $15.2 million at March 31, 2005, compared to $14.1 million at December 31, 2004. The ratio of nonperforming loans as a percentage of total loans was 0.68% at March 31, 2005 compared to and 0.64% at December 31, 2004.

Impaired loans include all nonaccrual loans as well as accruing loans judged to have higher risk of noncompliance with the present contractual repayment schedule for both interest and principal. While impaired loans exhibit weaknesses that may inhibit repayment in compliance with the original note terms, the measurement of impairment may not always result in an allowance for loan loss for every impaired loan. Total impaired loans were $19.8 million at March 31, 2005 compared to $18.3 million at year-end 2004. Certain homogenous loans, including residential mortgage and consumer loans, are collectively evaluated for impairment and therefore are excluded from impaired loans. Not included in the impaired loan amount are $13.0 million of loans to consumers secured by manufactured homes that we continue to monitor closely.

35

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Allowance for Loan Losses

We have established an allowance for loan losses to provide for loans in our portfolio that may not be repaid in their entirety. The allowance is based on our regular, quarterly assessments of the probable estimated losses inherent in the loan portfolio. Our methodology for measuring the appropriate level of the allowance relies on several key elements, which include specific allowances for identified problem loans and portfolio segments and the unallocated allowance. Although management believes that the allowance for loan losses is adequate to absorb probable losses on existing loans that may become uncollectible, there can be no assurance that our 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 our allowance for loan losses. Such agencies may require us to make additional provisions to the allowance based upon their judgments about information available to them at the time of their examinations.

The following table shows an analysis of our consolidated allowance for loan losses and other related data:

	For Three Months Ended March 31,
	2005			2004
	(dollars in thousands)
Average total loans	$	2,195,761		$	1,970,937
Total loans at end of period	$	2,255,867		$	2,017,716
Allowance for loan losses:
Allowance at beginning of period	$	37,484		$	34,356
Total charge-offs		(501	)		(2,206	)
Total recoveries		445			325
Net charge-offs		(56	)		(1,881	)
Provision for loan losses		1,834			2,750
Allowance at end of period	$	39,262		$	35,225
Annualized net charge-offs to average total loans		0.01	%		0.38	%
Allowance to total loans at end of period		1.74	%		1.75	%
Allowance to nonperforming loans		257.68	%		199.21	%

Net charge-offs during the first quarter of 2005 were $56,000, or an annualized 0.01% of average loans. In comparison, net charge-offs during the first quarter of 2004 were $1.9 million representing an annualized 0.38% of average loans. We believe that the level of net charge-off incurred during the first quarter of 2005 is likely not to be sustainable for future quarters. As a business bank, our loan portfolio is comprised primarily of commercial loans to businesses, the loans to which are inherently larger in amount than loans to individual consumers. The individually larger commercial loans can cause greater volatility in reported credit quality performance measures, such as total impaired or nonperforming loans. For example, our current credit risk rating and loss estimate with respect to a single material loan can have a material impact on our reported impaired loans and related loss exposure estimates. We review our estimates on a quarterly basis and, if necessary, adjust the allowance for loan losses through the recording of a provision for loan losses.

36

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Our allowance for loan losses increased to $39.3 million at March 31, 2005, or 1.74% of end-of-period loans and 257.68% of nonperforming loans. At December 31, 2004, the allowance for loan losses was $37.5 million, which represented 1.69% of end-of-period loans and 265.98% of nonperforming loans. At March 31, 2004, the allowance for loan losses was $35.2 million, which represented 1.75% of end-of-period loans and 199.21% of nonperforming loans.

Provision for Loan Losses

We determine a provision for loan losses that we consider sufficient to maintain an allowance covering probable losses inherent in our portfolio as of the balance sheet date. Our provision for loan losses was $1.8 million during the first quarter of 2005, compared to $2.8 million during the first quarter a year ago, a decrease of $916,000, or 33.3%. The lower level of provision for loan losses was due to the lower level of charge-offs and improved credit performance of our loan portfolio. Our loan loss provision is determined based upon an analysis of our portfolio performed on a quarterly basis, with ongoing monitoring by our Credit Policy Committee and our Credit Administration and Loan Review functions. We expect our provisioning to fluctuate as the circumstances of our individual commercial borrowers and the economic environment changes. Accordingly, the provision for loan losses in any accounting period is not an indicator of provisioning in subsequent reporting periods.

Non-earning Assets

Premises, leasehold improvements and equipment, net of accumulated depreciation and amortization, totaled $12.0 million at March 31, 2005 compared to $14.8 million at December 31, 2004, a decrease of $2.8 million. In January 2005, we sold our Broadview branch, which had a book value of $2.0 million. In February 2005, in connection with the termination of the 58,000 square-foot operating lease for the Wheeling facility, we transferred a small parcel of land we owned near the facility, which had a book value of $195,000. Depreciation expense of $779,000 during the first quarter of 2005 produced the remainder of the decrease.

In April 2005, we opened a 2,800 square-foot branch located in Orland Park, Illinois, a southern suburb of Chicago. We lease this facility under a 3-year operating lease. Additionally, we are currently building a 6,000 square-foot facility at the former location of our Ashland facility. We expect to be able to move from our temporary Bishop facility into the new Ashland facility during the second half of 2005.

At December 31, 2004, the Company had $54,000 of other intangible assets, subject to amortization, that related to the purchase of land trust business in 1998. This intangible asset was included in other assets on the Consolidated Balance Sheets. During the first quarter of 2005, the Company sold its land trust operations and the unamortized balance of this intangible asset was written off, reducing the gain recognized on the sale.

37

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Deposits

During the first quarter of 2005, total deposits increased on a net basis by $66.6 million, or 2.9%, to $2.35 billion at March 31, 2005, as compared to $2.28 billion at December 31, 2004. In January 2005, we sold our Broadview branch, which included $19.7 million of deposit balances. Of the deposits sold, $13.1 million were time deposits, $4.1 million were NOW, savings and money market accounts and $2.5 million were noninterest-bearing demand deposits. The majority of the gross increase in deposits of $86.3 million was obtained through issuance of brokered and out-of-local-market certificates of deposit. From December 31, 2004 to March 31, 2005, brokered certificates of deposit increased $65.2 million and out-of-local-market certificates of deposits increased $16.0 million. An increase in interest-bearing demand deposits of $53.6 million was largely offset by a decrease in noninterest-bearing demand deposits of $55.6 million. Historically, we experience a decline in our noninterest-bearing demand deposits in the first calendar quarter of each year, as our customers reduce their cash balances. However, the decline in the first quarter of 2005 was somewhat larger than what we have experienced in the past. Money market account balances increased during the first quarter of 2005.

We obtain our funding through several deposit generating sources; using a mix of wholesale and local customer funds based on cost effectiveness, fee income potential and liquidity dynamics. We manage potential liquidity risk associated with wholesale funding by extending and staggering maturities, pledging collateral and maintaining multiple sources within the wholesale marketplace to obtain funding. We have historically used wholesale funding sources such as brokered CDs, especially when such funds can be obtained at a lower overall cost than in-market deposits. We expect that the wholesale funds market will remain a significant funding source for us. The cost and availability of funding may be a factor in our evaluation of opportunities to grow our earning assets.

38

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

The following table sets forth, for the periods indicated, the distribution of our average deposit account balances and average cost of funds in each category of deposits:

	(Restated) For the Three Months Ended March 31, 2005						(Restated) For the Three Months Ended March 31, 2004
	Average Balance		Percent Of Deposits		Rate		Average Balance		Percent Of Deposits		Rate
	(dollars in thousands)
Noninterest-bearing demand deposits	$	447,904	19.8	%	—	%	$	408,822	20.1	%	—	%
Interest-bearing demand deposits		573,276	25.4		1.27			561,147	27.5		0.69
Savings deposits		82,540	3.7		0.29			91,161	4.5		0.31
Time deposits:
Certificates of deposit		521,129	23.1		2.70			511,590	25.1		2.31
Out-of-local-market certificates of deposit		132,026	5.8		2.88			85,734	4.2		2.74
Brokered certificates of deposit		432,992	19.1		3.09			316,105	15.5		2.92
Public Funds		70,630	3.1		2.45			63,006	3.1		1.35
Total time deposits		1,156,777	51.1		2.85			976,435	47.9		2.48
Total deposits	$	2,260,497	100.0	%			$	2,037,565	100.0	%

Quarterly average deposits increased $222.9 million, or 10.9%, to $2.26 billion for the first quarter in 2005, as compared to the first quarter in 2004. Approximately 73.2% of the increase in deposits was obtained through issuance of brokered and out-of-local-market certificates of deposit. Another 17.5% was obtained through increased noninterest-bearing demand deposit accounts. Quarterly average brokered certificates of deposit increased $116.9 million or 37.0%, to $433.0 million for the first quarter of 2005 from the first quarter of 2004. Average out-of-local-market certificates of deposits increased $46.3 million or 54.0%, to $132.0 million for the first quarter 2005 compared to the same quarter in 2004. Average noninterest-bearing demand deposits increased $39.1 million or 9.6%, to $447.9 million during the first quarter of 2005, compared to $408.8 million during the year ago quarter.

Other Borrowings

Our short-term borrowings include federal funds purchased, securities sold under agreements to repurchase and U.S. Treasury tax and loan note option accounts. Period-end, short-term borrowings decreased $14.7 million, or 6.4%, to $214.9 million at March 31, 2005, as compared to $229.5 million at December 31, 2004. The decline in short-term borrowings was primarily due to lower federal funds purchased of $22.8 million, partly offset by an $8.1 million increase in securities sold under agreements to repurchase.

FHLB advances totaled $75.0 million at both March 31, 2005 and December 31, 2004. In addition, borrowings at the holding company level were $10.5 million at both March 31, 2005 and December 31, 2004. Our aggregate borrowings consist of a $10.0 million subordinated debt agreement and $500,000 term loan. We also have an $11.5 million revolving credit facility that has not yet been drawn upon.

At both March 31, 2005 and December 31, 2004, we had $87.6 million of junior subordinated debentures issued to two of our wholly owned subsidiaries. We had $46.4 million outstanding from the junior subordinated debentures, at a fixed interest rate of 9.75%, issued to

39

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

TAYC Capital Trust I. In addition, we had $41.2 million of junior subordinated debentures issued to TAYC Capital Trust II. The junior subordinated debentures have a floating interest rate, which adjusts quarterly, of the three-month LIBOR rate plus 2.68%. The interest rate was 5.71% on March 31, 2005 and 5.18% at December 31, 2004. Each of these trusts used proceeds from the issuance of trust preferred securities to purchase our junior subordinated debentures.

40

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

CAPITAL RESOURCES

At both March 31, 2005 and December 31, 2004, both the holding company and the Bank were considered “well capitalized” under capital guidelines for bank holding companies and banks. The Company’s and the Bank’s capital ratios were as follows for the dates indicated:

ACTUAL

FOR CAPITAL ADEQUACY PURPOSES

TO BE WELL CAPITALIZED UNDER PROMPT CORRECTIVE ACTION PROVISIONS

AMOUNT

RATIO

AMOUNT

RATIO

AMOUNT

RATIO

(dollars in thousands)

As of March 31, 2005 (Restated):

Total Capital (to Risk Weighted Assets)

Taylor Capital Group, Inc.

$

262,980

10.37

%

>$

202,890

>8.00

%

>$

253,612

>10.00

%

Cole Taylor Bank

271,618

10.73

>202,434

>8.00

>253,042

>10.00

Tier I Capital (to Risk Weighted Assets)

Taylor Capital Group, Inc.

190,967

7.53

>101,445

>4.00

>152,167

>6.00

Cole Taylor Bank

239,905

9.48

>101,217

>4.00

>151,825

>6.00

Leverage (to average assets)

Taylor Capital Group, Inc.

190,967

6.70

>114,046

>4.00

>142,558

>5.00

Cole Taylor Bank

239,905

8.44

>113,721

>4.00

>142,151

>5.00

As of December 31, 2004 (Restated):

Total Capital (to Risk Weighted Assets)

Taylor Capital Group, Inc.

$

255,616

10.27

%

>$

199,125

>8.00

%

>$

248,906

>10.00

%

Cole Taylor Bank

262,350

10.55

>198,954

>8.00

>248,692

>10.00

Tier I Capital (to Risk Weighted Assets)

Taylor Capital Group, Inc.

181,437

7.29

>99,563

>4.00

>149,344

>6.00

Cole Taylor Bank

231,185

9.30

>99,477

>4.00

>149,215

>6.00

Leverage (to average assets)

Taylor Capital Group, Inc.

181,437

6.49

>111,757

>4.00

>139,696

>5.00

Cole Taylor Bank

231,185

8.29

>111,611

>4.00

>139,514

>5.00

During the first quarter of 2005, the Bank’s capital ratios increased as the increase in regulatory capital exceeded the increase in risk-weighted and average assets. First quarter Bank net income of $12.5 million less dividends paid to the holding company of $2.0 million created the increase in regulatory capital at the Bank. The Bank is subject to dividend restrictions established by regulatory authorities and in the covenants of the holding company’s senior notes payable agreement. The dividends, as of March 31, 2005, that the Bank could declare and pay to the Company, without the approval of regulatory authorities, amounted to approximately $55.7 million. The note payable covenant is measured on an annual basis whereby the dividends should not exceed 60% of the total year’s net income at the Bank.

During the first quarter of 2005, the holding company’s capital ratios also increased because the increase in regulatory capital exceeded the increase in risk-weighted and average assets. During the first quarter of 2005, we declared common stock dividends of $0.06 per share, totaling $581,000. The covenants in our senior notes payable agreement restrict the amount of common dividends that the Company can pay to shareholders to 25% of that year’s annual consolidated net income. Management assesses the holding company’s capital position on a regular basis and remains cognizant of the degree to which the holding company is leveraged. The factors that management will continue to evaluate are the sources and uses of additional capital in keeping with our overall strategic plan, as well as the potential dilutive nature of raising capital and the related costs.

41

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

LIQUIDITY

From December 31, 2004 to March 31, 2005, our cash and cash equivalent balances increased $14.8 million to $94.0 million. During the first quarter of 2005, we increased deposits, primarily brokered and out-of local-market certificates of deposit, to fund loan growth. Total deposits increased $86.8 million to fund $48.5 million in loan growth and the sale of the Broadview deposits of $19.7 million. Investment securities totaling $20.2 million were purchased during the quarter to offset maturities and sales of $15.8 million as well as the decline in the fair value of the securities of $7.9 million. Additional sources of liquidity for the Bank include Federal Home Loan Bank advances, the Federal Reserve Bank’s Borrower-in-Custody Program, federal funds borrowing lines from larger correspondent banks and pre-approved repurchase agreement availability with major brokers and banks.

At the holding company level, cash and cash equivalents declined $2.3 million from December 31, 2004 to $4.6 million at March 31, 2005. The primary source of holding company liquidity for the quarter was the receipt of $2.0 million in dividends from the Bank. During the first quarter of 2005, the holding company paid interest on the junior subordinated debentures and the notes payable of $1.7 million and $135,000, respectively and dividends to common shareholders of $579,000. Cash used for holding company operations during the first quarter of 2005 included the payment of salaries, year-end bonuses and insurance premiums. The holding company did not increase its borrowings under its notes payable and at March 31, 2005 has an $11.5 revolving line of credit that has not yet been drawn upon.

Off-Balance Sheet Arrangements

Off-balance sheet arrangements include commitments to extend credit and financial guarantees. Commitments to extend credit and financial guarantees are used to meet the financial needs of our customers.

At March 31, 2005, we had $881.8 million of undrawn commitments to extend credit and $105.0 million of financial and performance standby letters of credit. We expect most of these letters of credit to expire undrawn and we expect no significant loss from our obligation under financial guarantees.

Derivative Financial Instruments

At March 31, 2005, we had $180.0 million of notional amount interest rate exchange contracts related to certain brokered certificates of deposit. Under these CD swaps, we receive a fixed interest rate equal to the rate paid on the brokered CDs and pay a variable interest rate based upon 3-month LIBOR. During the first three months of 2005, we entered into additional interest rate exchange agreements with a notional amount totaling of $50.0 million related to newly issued brokered certificates of deposit of $50.0 million. Because these CD swaps did not qualify for fair value hedge accounting under SFAS 133 during the periods, we reported the net cash settlements and the changes in fair value on the CD swaps as separate components of noninterest income.

42

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

We also have a $50.0 million interest rate exchange contract that qualifies for hedge accounting of the variability of cash flows of prime-based commercial loans. Under the terms of this swap, we receive a fixed interest rate and pay a floating rate based upon the prime-lending rate based on a notional amount of $50.0 million.

For additional information concerning the accounting treatment for our derivative instruments, please see “Application of Critical Accounting Policies — Derivative Financial Instruments” and Notes 2 and 11 to our consolidated financial statements in this Form 10-Q.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

Interest rate risk is the most significant market risk affecting us. Other types of market risk, such as foreign currency risk and commodity price risk, do not arise in the normal course of our business activities. Interest rate risk can be defined as the exposure to a movement in interest rates that could have an adverse effect on our net interest income or the market value of our financial instruments. The ongoing monitoring and management of this risk is an important component of our asset and liability management process, which is governed by policies established by the Board of Directors and carried out by the Bank’s Asset/Liability Management Committee, or ALCO. ALCO’s objectives are to manage, to the degree prudently possible, our 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. Interest rate risk management activities include establishing guidelines for tenor and repricing characteristics of new business flow, the maturity ladder of wholesale funding and investment security purchase and sale strategies, as well as the use of derivative financial instruments.

We have used various interest rate contracts, including swaps, to manage interest rate and market risk. These contracts are designated as hedges of specific existing assets and liabilities. Our asset and liability management and investment policies do not allow the use of derivative financial instruments for trading purposes.

Our primary measurement of interest rate risk is earnings at risk, which is determined through computerized simulation modeling. The primary simulation model assumes a static balance sheet, a parallel interest rate rising or declining ramp and uses the balances, rates, maturities and repricing characteristics of all of our existing assets and liabilities, including off-balance sheet financial instruments. Net interest income is computed by the model assuming market rates remain unchanged and compares those results to other interest rate scenarios with changes in the magnitude, timing, and relationship between various interest rates. The impact of imbedded options in products such as callable and mortgage-backed securities, real estate mortgage loans, and callable borrowings are also 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 our net interest income to sustained interest rate changes.

43

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Our net interest margin began increasing during the second half of 2004 in response to increased market interest rates. The impact of the 175 basis point increase in the Bank’s prime lending rate since June 2004 on our $1.2 billion in prime-indexed, floating-rate commercial loans significantly increased our loan interest income. Critical factors affecting our net interest margin in future periods will be our pricing strategy on our deposit products as well as the source of our funding growth. Our modeling of the March 31, 2005 balance sheet, using the market interest rates in effect at period-end, indicated increased pressure on our net interest margin in future periods as many of our interest-bearing liabilities will reprice to current rates as they mature.

Our simulation modeling of a continued rising rate environment indicates that net interest income would increase. Net interest income for year one in a 200 basis points rising rate scenario was calculated to be $3.0 million, or 2.94%, higher than the net interest income in the rates unchanged scenario at March 31, 2005. Conversely, at March 31, 2005, net interest income at risk for year one in a 200 basis points falling rate scenario was calculated at $8.0 million, or 7.85%, lower than the net interest income in the rates unchanged scenario. These exposures were within our policy guidelines of 10%. The direction of our one-year exposure to rising and declining interest rates at March 31, 2005 was generally consistent with our exposure at December 31, 2004. However, in our March 31, 2005 modeling, we measured and reported the risk of rates declining 200 basis points. At December 31, 2004, we measured and reported the risk of rates declining 100 basis points.

Computation of the prospective effects of hypothetical interest rate changes are based on numerous assumptions, including, among other factors, relative levels of market interest rates, product pricing, reinvestment strategies and customer behavior influencing loan and security prepayments and deposit decay and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions that we may take in response to changes in interest rates. We cannot assure you that our actual net interest income would increase or decrease by the amounts computed by the simulations.

The following table indicates the estimated impact on net interest income for the 12 months following the indicated dates, assuming a gradual shift up or down in market rates reflecting a parallel change in rates across the entire yield curve:

	Change in Future Net Interest Income
	At March 31, 2005					At December 31, 2004
	(dollars in thousands)
Change in interest rates	Dollar Change			Percentage Change		Dollar Change			Percentage Change
+200 basis points over one year	$	2,997		2.94	%	$	3,806		3.84	%
- 100 basis points over one year		—		—			(4,194	)	(4.23	)%
- 200 basis points over one year		(8,018	)	(7.85	)%		—		—

44

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

LITIGATION

We are from time to time a party to litigation arising in the normal course of business. Management knows of no threatened or pending legal actions against us that are likely to have a material adverse impact on our business, financial condition, liquidity or operating results.

NEW ACCOUNTING PRONOUNCEMENTS

In 2004, the FASB released Emerging Issues Task Force (“EITF”) Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” Issue No. 03-1 provides guidance for determining when an investment is impaired and whether the impairment is other than temporary as well as guidance for quantifying the impairment. The guidance from Issue No. 03-01 was to become effective for annual financial statements for fiscal years ending after June 15, 2004. However, in September 2004, the FASB issued FASB Staff Position EITF Issue No. 03-01-1 “Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” which delayed the effective date for certain measurement and recognition guidance of Issue 03-01. This delay did not suspend the requirements to recognize other-than-temporary impairments as required by existing authoritative literature. In addition, the quantitative and qualitative disclosure requirements of Issue No. 03-1 remain in effect. We will complete our evaluation of the impact upon issuance of final guidance from the FASB.

In December 2004, the FASB revised and reissued SFAS No. 123, “Share-Based Payment” (“SFAS 123R”). This Statement revises the previously issued SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123R was to be effective for interim periods beginning after June 15, 2005. However, in April 2005 the Securities and Exchange Commission issued guidance delaying the effective date to annual periods beginning after June 14, 2005. Therefore, we will be required to adopt SFAS 123R beginning in the first quarter of 2006. SFAS 123R requires public entities to measure cost of employee services received in exchange for award of equity securities based on the grant-date fair value of the award. The cost of the award will be recognized over the period during which an employee is required to provide service. Public entities are required to measure the cost of employee services received in exchange for an award of liability instruments based upon the current fair value, adjusted at each reporting date through the settlement date. Changes in the fair value during the requisite service period will be recognized as compensation over that period. SFAS 123R eliminates the intrinsic value method of accounting for employee stock options under APB Opinion No. 25. As a result, we will be required to record compensation expense in the future for all existing stock options that have not vested as of January 1, 2006, and for all future grants of employee stock options. While we have not yet completed our evaluation of the impact of adoption on the consolidated financial statements and the transitional provisions of SFAS 123R, we expect to record increased expense as a result of implementation.

45

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

QUARTERLY FINANCIAL INFORMATION

The following table sets forth unaudited financial data regarding our operations for the last eight quarters. This information, in the opinion of management, includes all adjustments necessary to present fairly our 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.

	(Restated) 2005 Quarter Ended						(Restated) 2004 Quarter Ended							2003 Quarter Ended
	Mar. 31			Dec. 31			Sep. 30		Jun. 30			Mar. 31		Dec. 31		Sep. 30		Jun. 30
	(in thousands, except per share amounts)
Interest income	$	39,512		$	37,002		$	34,972	$	32,869		$	32,510	$	32,648	$	33,576	$	34,873
Interest expense		13,665			12,341			11,262		10,033			9,194		9,123		9,856		10,567
Net interest income		25,847			24,661			23,710		22,836			23,316		23,525		23,720		24,306
Provision for loan losses		1,834			1,833			2,750		2,750			2,750		2,700		2,700		1,533
Noninterest income		8,128			5,923			4,280		4,304			4,675		4,939		5,590		4,977
Net cash settlements on CD swaps		223			517			707		735			207		—		—		—
Change in fair value of CD swaps		(1,576	)		(279	)		1,940		(2,592	)		958		—		—		—
Gain (loss) on sale of investment securities, net		127			(201	)		345		—			—		—		—		—
Noninterest expense		16,740			18,164			16,310		18,416			18,783		22,545		19,005		19,223
Income before income taxes		14,175			10,624			11,922		4,117			7,623		3,219		7,605		8,527
Income taxes		5,636			3,462			3,864		1,338			2,649		728		2,013		2,988
Net income	$	8,539		$	7,162		$	8,058	$	2,779		$	4,974	$	2,491	$	5,592	$	5,539
Earnings per share:
Basic	$	0.88		$	0.75		$	0.84	$	0.19		$	0.43	$	0.17	$	0.50	$	0.50
Diluted		0.87			0.73			0.84		0.18			0.43		0.17		0.50		0.49

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report includes forward-looking statements that reflect our current expectations and projections about our future results, performance, prospects and opportunities. We have tried to identify these forward-looking statements by using words including “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “could” and “estimate” and similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities in 2005 and beyond to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include, without limitation: the effect on our profitability if interest rates fluctuate as well as the effect of any imbalances in the interest rate sensitivities of our assets and liabilities; the possibility that our wholesale funding sources may prove insufficient to replace deposits at maturity and support our growth; the risk that our allowance for loan losses may prove insufficient to absorb probable losses in our loan portfolio; possible volatility in loan charge-offs and recoveries between periods; the effectiveness of our hedging transactions and their impact on our future results of operations; the risks associated with implementing our

46

TAYLOR CAPITAL GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

business strategy and managing our growth effectively; changes in general economic conditions, interest rates, deposit flows, loan demand, competition, legislation or regulatory and accounting principles, policies or guidelines, as well as other economic, competitive, governmental, regulatory and technological factors impacting our operations.

For further information about these and other risks, uncertainties and factors, please review the disclosure included in the section captioned “Risk Factors” in Amendment No.1 to our Registration Statement on Form S-3 (Registration No. 333-126864) filed with the SEC on August 5, 2005.

You should not place undue reliance on any forward-looking statements. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements or risk factors, whether as a result of new information, future events, changed circumstances or any other reason after the date of this quarterly report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information contained in the section of this quarterly report on Form 10-Q captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosure About Market Risks” is incorporated herein by reference.

Item 4. Controls and Procedures

We maintain a system of disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

We have carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2005. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply their judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based upon our evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that such controls and procedures were not effective as of the end of the period covered by this report because of a material weakness in internal control over financial reporting relating to our accounting for derivative financial instruments under Statement of Financial Accounting Standards 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). Specifically, we lacked sufficient technical expertise as to the application of SFAS 133, and our procedures relating to hedging transactions were not designed

47

TAYLOR CAPITAL GROUP, INC.

effectively such that each of the requirements for fair value hedge accounting treatment set forth in SFAS 133 were evaluated appropriately with respect to the CD swaps entered into to hedge the interest rate risk inherent in certain of our brokered CDs. This deficiency resulted in accounting errors, the correction of which results in eliminating the application of fair value hedge accounting and separately recording the CD broker placement fee as an adjustment to the par amount of the brokered CDs. As a result of the material weakness, we have restated our financial statements for the year ended December 31, 2004 and each of the quarters in 2004 and are restating our financial statements for the quarters ended June 30, 2005 and March 31, 2005. In light of these errors and the resulting restatements, our management, including our Chief Executive Officer and Chief Financial Officer, has determined that this deficiency constituted a material weakness in our internal control over financial reporting. The reader is therefore cautioned not to rely on management’s conclusion set forth in Item 4 “Controls and Procedures,” included in our Initial Form 10-Q for the quarter ended March 31, 2005, that was filed with the SEC on May 6, 2005, that as of March 31, 2005, our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2005, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In late October 2005, prior to the foregoing deficiency being identified by management, we engaged external consultants with expertise in hedge accounting requirements to assist us in complying with the requirements of SFAS 133, including the documentation and effectiveness testing requirements relating to current and future interest rate hedge transactions. We believe that the expertise to be provided by these consultants will help us remediate the material weakness described above.

48

TAYLOR CAPITAL GROUP, INC.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

We are from time to time a party to litigation arising in the normal course of business. As of the date of this quarterly report, management knows of no threatened or pending legal actions against us that are likely to have a material adverse effect on our business, financial condition or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit Number	Description of Exhibits
3.1	Form of Amended and Restated Certificate of Incorporation of the Taylor Capital Group, Inc. (incorporated by reference from Exhibit 3.1 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).
3.2	Form of Amended and Restated Bylaws of the Taylor Capital Group, Inc. (incorporated by reference from Exhibit 3.2 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).
4.1	Form of certificate representing Taylor Capital Group, Inc. Common Stock (incorporated by reference from Exhibit 4.3 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).
4.2	Indenture between Taylor Capital Group, Inc. and LaSalle Bank National Association, as trustee (incorporated by reference from Exhibit 4.4 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).

49

TAYLOR CAPITAL GROUP, INC.

Exhibit Number	Description of Exhibits
4.3	Form of Junior Subordinated Debenture due 2032 (incorporated by reference from Exhibit 4.5 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).
4.4	Certificate of Trust of TAYC Capital Trust I (incorporated by reference from Exhibit 4.6 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).
4.5	Amended and Restated Trust Agreement of TAYC Capital Trust I (incorporated by reference from Exhibit 4.8 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).
4.6	Preferred Securities Guarantee Agreement (incorporated by reference from Exhibit 4.9 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).
4.7	Agreement as to Expenses and Liabilities by and between Taylor Capital Group, Inc. and TAYC Capital Trust I (incorporated by reference from Exhibit 4.10 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).
4.8	Certificate representing TAYC Capital Trust I Trust Preferred Security (incorporated by reference from Exhibit 4.11 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).
4.9	Certificate of Trust of TAYC Capital Trust II (incorporated by reference from Exhibit 4.12 of the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2004).
4.10	Amended and Restated Declaration of Trust by and among Wilmington Trust Company, as Delaware and Institutional Trustee, Taylor Capital Group, Inc., as Sponsor, Jeffrey W. Taylor, Bruce W. Taylor and Robin Van Castle, as Administrators (incorporated by reference from Exhibit 4.13 of the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2004).
4.11	Indenture between Taylor Capital Group, Inc. and Wilmington Trust Company, as trustee (incorporated by reference from Exhibit 4.14 of the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2004).
4.12	Guarantee Agreement by and between Taylor Capital Group, Inc. and Wilmington Trust Company (incorporated by reference from Exhibit 4.15 of the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2004).
4.13	Certificate representing Floating Rate Capital Securities of TAYC Capital Trust II (incorporated by reference from Exhibit 4.16 of the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2004).
4.14	Certificate representing Floating Rate Common Securities of TAYC Capital Trust II (incorporated by reference from Exhibit 4.17 of the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2004).
4.15	Floating Rate Junior Subordinated Deferrable Interest Debenture due 2034 (incorporated by reference from Exhibit 4.18 of the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2004).

50

Exhibit Number	Description of Exhibits
10.42	Tenth Amendment of Taylor Capital Group, Inc. Profit Sharing and Employee Stock Ownership Plan, effective as of October 1, 1998 (incorporated by reference from Exhibit 10.42 of the Company’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2005 filed on May 6, 2005).
10.43	Eleventh Amendment of Taylor Capital Group, Inc. Profit Sharing and Employee Stock Ownership Plan, effective as of October 1, 1998 (incorporated by reference from Exhibit 10.43 of the Company’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2005 filed on May 6, 2005).
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Security Exchange Act of 1934.
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Security Exchange Act of 1934.
32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

51

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TAYLOR CAPITAL GROUP, INC.
Date: December 30, 2005
	/s/ DANIEL C. STEVENS
	Daniel C. Stevens
	Chief Financial Officer
	(Principal Financial and Accounting Officer)
	/s/ JEFFREY W. TAYLOR
	Jeffrey W. Taylor
	Chairman and Chief Executive Officer
	(Principal Executive Officer)

EX-31.1

TAYLOR CAPITAL GROUP, INC.

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

I, Jeffrey W. Taylor, certify that:

1. I have reviewed this Amendment No. 1 to the Quarterly Report on Form 10-Q of Taylor Capital Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

TAYLOR CAPITAL GROUP, INC.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 30, 2005

/s/ JEFFREY W. TAYLOR

Jeffrey W. Taylor

Chief Executive Officer

EX-31.2

TAYLOR CAPITAL GROUP, INC.

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

I, Daniel C. Stevens, certify that:

1. I have reviewed this Amendment No. 1 to the Quarterly Report on Form 10-Q of Taylor Capital Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

TAYLOR CAPITAL GROUP, INC.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 30, 2005

/s/ DANIEL C. STEVENS

Daniel C. Stevens

Chief Financial Officer

EX-32.1

TAYLOR CAPITAL GROUP, INC.

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.

Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer and Chief Financial Officer of Taylor Capital Group, Inc. (the “Company”) hereby certify that:

(i) the accompanying Amendment No. 1 to the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: December 30, 2005	/s/ JEFFREY W. TAYLOR
	Jeffrey W. Taylor Chief Executive Officer
Dated: December 30, 2005	/s/ DANIEL C. STEVENS
	Daniel C. Stevens Chief Financial Officer

This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906, or another document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Taylor Capital Group, Inc. and will be retained by Taylor Capital Group, Inc. and furnished to the Securities and Exchange Commission or its Staff upon request.