12. Subordinated Notes

The carrying value of subordinated notes at December 31, 2011 and 2010 is as follows:


	2011			2010
	(in thousands)
Taylor Capital Group, Inc.:
8% subordinated notes issued May 2010, due May 28, 2020	$	33,938		$	33,938
Unamortized discount		(4,059	)		(4,347	)
8% subordinated notes issued October 2010, due May 28, 2020		3,562			3,562
Unamortized discount		(427	)		(455	)

Taylor Capital Group subordinated notes, net		33,014			32,698

Cole Taylor Bank:
10% subordinated notes issued September 2008, due September 29, 2016		60,000			60,000
Unamortized discount		(3,366	)		(3,863	)

Cole Taylor Bank subordinated notes, net		56,634			56,137

Total subordinated notes, net	$	89,648		$	88,835

On September 24, 2008, the Bank issued $60.0 million of 10% subordinated notes. The subordinated notes pay interest quarterly at an annual rate of 10% and will mature on September 29, 2016, but currently can be prepaid at the Bank's option. The subordinated notes are subordinated unsecured obligations of the Bank and are subordinate to all deposits, purchased funds, and senior indebtedness of the Bank. The notes also contain restrictions on the Bank's ability to pay dividends to the Company in the event the Bank fails to make any required principal and interest payments. The Company also has agreed, consistent with its past practice, to continue to provide its regulators notice before the payment of any interest on the Bank's subordinated notes. In addition, for every $1,000 in principal amount of the subordinated notes, investors received a warrant to purchase 15 shares of the Company's common stock at an exercise price of $10.00 per share, subject to customary anti-dilution adjustments, which represents an aggregate of 900,000 shares of common stock. The warrants will expire on September 29, 2013. The proceeds received from this transaction were allocated to the subordinated notes and the warrants based upon their relative fair values. The discount represents the portion of the proceeds allocated to the warrants and is being amortized as additional interest expense on the subordinated notes over the remaining contractual life of the notes. The fair value allocated to the warrants, totaling $4.7 million at the issuance date of September 24, 2008, net of issuance costs, was credited to surplus in stockholders' equity on the Company's Consolidated Balance Sheets. The subordinated notes qualify as Tier 2 capital for regulatory capital purposes.

On May 28, 2010, the Company issued $33.9 million of 8% subordinated notes. The subordinated notes pay interest quarterly at an annual rate of 8% and will mature on May 28, 2020, but may be prepaid at the Company's option on or after May 28, 2012. The subordinated notes are subordinated unsecured obligations of the Company and are subordinate to the general creditors of the Company. The notes also contain restrictions on the Company's ability to pay dividends in the event the Company fails to make any required principal and interest payments. The Company also has agreed, consistent with its past practice, to continue to provide its regulators notice before the payment of any of the interest on the subordinated notes. In addition, for every $1,000 in principal amount of the subordinated notes, investors received a warrant to purchase 25 shares of the Company's common stock at an exercise price of $12.28 per share, representing an aggregate of 848,450 shares of common stock. The warrants are currently exercisable and will expire on May 28, 2015. The proceeds received from this transaction were allocated to the subordinated notes and the warrants based on their relative fair values. The discount represents the portion of the proceeds allocated to the warrants and is being amortized as additional interest expense on the subordinated notes over the remaining contractual life of the notes. The fair value allocated to the warrants, totaling $4.4 million at the issuance date of May 28 2010, net of issuance costs, was credited to surplus in stockholders' equity on the Company's Consolidated Balance Sheets. The subordinated notes qualify as Tier 2 capital for regulatory purposes.

On October 21, 2010, the Company issued $3.6 million of 8% subordinated notes which will pay interest quarterly at an annual rate of 8% and will mature on May 28, 2020, but may be prepaid at the Company's option on or after May 28, 2012. These notes also contain restrictions on the Company's ability to pay dividends in the event the Company fails to make any required principal and interest payments. In addition, for every $1,000 in principal amount of the subordinated notes, investors received a warrant to purchase 25 shares of the Company's common stock at an exercise price of $12.28 per share, representing an aggregate of 89,050 shares of common stock. These warrants are immediately exercisable and will expire on May 28, 2015. The proceeds were allocated between the subordinated notes and the warrants based on their relative fair values. The discount represents the portion of the proceeds allocated to the warrants and is being amortized as additional interest expense on the subordinate notes over the remaining contractual life of the note. The fair value allocated to the warrants, totaling $420,000 at the issuance date of October 21, 2010, net of issuance costs, was credited to surplus in stockholders' equity on the Company's Consolidated Balance Sheets. The subordinated notes qualify as Tier 2 capital for regulatory purposes.