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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K/A

Amendment No. 1 to Form 10-K



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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended December 31, 2004



Commission file number 0-50034



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TAYLOR CAPITAL GROUP, INC.

(Exact name of registrant as specified in its charter)



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



9550 West Higgins
Road

Rosemont, Illinois 60018

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



(847) 653-7978

(Registrants telephone number, including area code)



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Securities registered pursuant to Section 12(b) of the Act: None



Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per share



9.75% Trust Preferred Securities Issued by TAYC Capital Trust I and the

Guarantee With Respect
Thereto



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



Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.  x



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the 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



The aggregate market value of the voting stock held by non-affiliates of the
registrant, i.e., persons other than directors and executive officers of the registrant is $126,707,406 and is based upon the last sales price as quoted on the Nasdaq National Market on March 2, 2005.



At March 2, 2005, there were 9,659,549 shares of the registrants
common stock outstanding.



DOCUMENTS INCORPORATED BY
REFERENCE



Part III  Portions of the Proxy Statement
for the Annual Meeting of Stockholders held on June 16, 2005 are incorporated by reference into Part III hereof.



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TAYLOR CAPITAL GROUP, INC.



INDEX



|         |  |                                                                                                              |  |         
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | --------
|         |  |                                                                                                              |  | Page No.
|         |  | Explanatory Note  Restatement of 2004 Financial Information                                                 |  | 1       
|         |  |                                                                                                             
|Part II. |  |                                                                                                              |  |         
|         |  |                                                                                                             
|Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 3       
|Item 6.  |  | Selected Financial Data                                                                                      |  | 5       
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 7       
|Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk.                                                  |  | 57      
|Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  | 58      
|Item 9.  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |  | 107     
|Item 9A. |  | Controls and Procedures                                                                                      |  | 107     
|Item 9B. |  | Other Information                                                                                            |  | 110     
|         |  |                                                                                                             
|Part IV. |  |                                                                                                              |  |         
|         |  |                                                                                                             
|Item 15. |  | Exhibits, Financial Statement Schedules                                                                      |  | 111     



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TAYLOR CAPITAL GROUP, INC.



EXPLANATORY NOTE  RESTATEMENT OF 2004 FINANCIAL INFORMATION



This Amendment No. 1 to Form 10-K (Amendment No. 1) is being filed by Taylor Capital Group, Inc. to amend and restate its Annual Report on Form 10-K for the fiscal year ended December 31,
2004 filed with the Securities and Exchange Commission (SEC) on March 10, 2005 (Initial Form 10-K). This Amendment No. 1 is being filed to correct errors in the Initial Form 10-K 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 year ended December 31, 2004, and for each of the quarters in 2004, previously reported in the Initial Form 10-K and supercedes our previously issued Consolidated
Financial Statements and other financial information for 2004. The impact of these errors for the years ended December 31, 2003 and 2002 were not material and, therefore, the Consolidated Financial Statements for 2003 and 2002 have not been
restated.



In 2004 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. For additional information regarding our restatement, see Note 1 to our Consolidated Financial Statements contained herein.



Amendment No. 1 includes restated financial information and related
disclosures in Part II Items 6, 7, 8 and 9, including disclosures within Managements Discussion and Analysis of Financial Condition and Results of Operations, as a result of the restatement described above. The restatement does not
change any of the disclosures previously reported in Part I Items 1, 2, 3 and 4 or Part III Items 10, 11, 12, 13 and 14 of the Initial Form 10-K and therefore, those parts are not included in this Amendment No. 1.



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Except as otherwise specifically noted, all information contained herein is as of December 31, 2004
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-K filed with the SEC on March 10, 2005.



The impact of this non-cash restatement (in thousands) on 2004
net income is summarized below:



|                                     |  |                                                         |        |   |                    |   |       
|------------------------------------ |  | ------------------------------------------------------- | ------ | - | ------------------ | - | ------
|Period                               |  | Effect of Corrections Increase (Decrease) in Net Income |        |   | Restated NetIncome
|1stQuarter 2004                      |  | $                                                       | 838    |   |                    | $ | 4,974 
|2ndQuarter 2004                      |  |                                                         | (1,528 | ) |                    |   | 2,779 
|3rdQuarter 2004                      |  |                                                         | 1,226  |   |                    |   | 8,058 
|4thQuarter 2004                      |  |                                                         | (224   | ) |                    |   | 7,162 
|Cumulative through December 31, 2004 |  | $                                                       | 312    |   |                    | $ | 22,973



This Amendment
No. 1 includes changes to our prior disclosures in Item 9A, Controls and Procedures and reflects managements restated assessment of our disclosure controls and procedures as of December 31, 2004. This restatement of
our assessment results from a material weakness in our internal control over financial reporting relating to our accounting for derivative financial instruments under 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 effectively to ensure that each of the requirements for fair value hedge accounting treatment set forth in SFAS 133 was evaluated properly 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 for these
CD swaps and separately recording the CD broker placement fee as an adjustment to the par amount of the brokered CDs.



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TAYLOR CAPITAL GROUP, INC.



PART II



Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.



Our common stock trades on the Nasdaq National Market under the symbol TAYC. The high and low sales price of our common stock for the periods
indicated is set forth below:



|                           |  |      |       |     |   |      
|-------------------------- |  | ---- | ----- | --- | - | -----
|                           |  | High |       | Low
|2004                       |  |      |       |     |   |      
|Quarter Ended March 31     |  | $    | 28.75 |     | $ | 23.00
|Quarter Ended June 30      |  |      | 25.00 |     |   | 19.97
|Quarter Ended September 30 |  |      | 24.46 |     |   | 21.38
|Quarter Ended December 31  |  |      | 35.20 |     |   | 23.46
|                           |  |     
|2003                       |  |      |       |     |   |      
|Quarter Ended March 31     |  | $    | 20.85 |     | $ | 17.78
|Quarter Ended June 30      |  |      | 25.80 |     |   | 19.55
|Quarter Ended September 30 |  |      | 25.12 |     |   | 20.60
|Quarter Ended December 31  |  |      | 27.99 |     |   | 23.23



As of March 2,
2005, the closing price of our common stock was $31.41.



As of
March 2, 2005, there were 58 stockholders of record of the common stock, based upon securities position listings furnished to us by our transfer agent. We believe the number of beneficial owners is greater than the number of record holders
because a large portion of our common stock is held of record through brokerage firms in street name.



The following table sets forth, for each quarter in 2004 and 2003, the dividends declared on our common stock:



|               |  |                                          |      |                                          |   |     
|-------------- |  | ---------------------------------------- | ---- | ---------------------------------------- | - | ----
|               |  | 2004 Dividends Per Share of Common Stock |      | 2003 Dividends Per Share of Common Stock
|First quarter  |  | $                                        | 0.06 |                                          | $ | 0.06
|Second quarter |  |                                          | 0.06 |                                          |   | 0.06
|Third quarter  |  |                                          | 0.06 |                                          |   | 0.06
|Fourth quarter |  |                                          | 0.06 |                                          |   | 0.06



Holders of our common
stock are entitled to receive any cash dividends that may be declared by our Board of Directors. Since 1997, we have paid regular cash dividends on our common stock. The declaration and payment of future dividends to holders of our common stock will
be at the discretion of our Board of Directors and will depend upon our earnings and financial condition, the capital requirements of our subsidiaries, regulatory conditions and considerations and other factors as our Board of Directors may deem
relevant.



It is our intention to continue to pay cash
dividends on the common stock to the extent permitted by our loan agreement, applicable banking regulations and the terms of the trust preferred securities. As a holding company, we ultimately are dependent upon the Bank to provide funding for our
operating expenses, debt service, and dividends. Various banking laws applicable to the Bank limit the payment of dividends, management fees and other distributions



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by the Bank to us, and may therefore limit our ability to pay dividends on our common stock. We will also be prohibited
from paying dividends on our common stock if we fail to make distributions or required payments on the trust preferred securities. In addition, our loan agreement also limits our ability to pay dividends on our common stock. See the section of
Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operation, captioned Liquidity for additional details of restrictions on our ability to pay dividends and the ability of the Bank to pay
dividends to us.



We did not repurchase any shares of our
common stock during the fourth quarter of 2004. We currently do not have any Board of Director authorized share repurchase programs.



In 2004, we did not make any unregistered sales of equity securities.



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Item 6: Selected Financial Data



The selected consolidated financial data presented below under the caption Taylor Capital Group, Inc. as of and for the five years ended December 31, 2004, is derived from our historical financial statements. The selected
financial information presented below under the caption of Cole Taylor Bank is derived from unaudited financial statements of the Bank or from the audited consolidated financial statements of Taylor Capital Group, Inc. You should read
this information in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the related notes included elsewhere in this annual report.
Results from past periods are not necessarily indicative of results that may be expected for any future period. All share and per share information for all periods presented has been adjusted for a three-for-two split of our common stock that was
effected as a dividend to stockholders of record as of October 2, 2002.



|                                                     |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|---------------------------------------------------- |  | --------------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -- |  | ---- | --------- | - |  | - | --------- | -
|                                                     |  | Year Ended December 31,                       |          
|                                                     |  | (Restated) 2004                               |           |   | 2003 |   |           | 2002 |  |   | 2001      |    |  | 2000 |          
|                                                     |  | (dollars in thousands, except per share data) |          
|TAYLOR CAPITAL GROUP, INC. (consolidated):           |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Income Statement Data:                               |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Net interest income                                  |  | $                                             | 94,523    |   |      | $ | 95,730    |      |  | $ | 101,335   |    |  | $    | 91,718    |   |  | $ | 87,322    |  
|Provision for loan losses                            |  |                                               | 10,083    |   |      |   | 9,233     |      |  |   | 9,900     |    |  |      | 9,700     |   |  |   | 7,454     |  
|                                                     |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Net interest income after provision for loan losses  |  |                                               | 84,440    |   |      |   | 86,497    |      |  |   | 91,435    |    |  |      | 82,018    |   |  |   | 79,868    |  
|Noninterest income:                                  |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Service charges                                      |  |                                               | 10,854    |   |      |   | 12,336    |      |  |   | 12,206    |    |  |      | 11,914    |   |  |   | 10,346    |  
|Trust and investment management fees                 |  |                                               | 5,471     |   |      |   | 5,051     |      |  |   | 5,541     |    |  |      | 6,425     |   |  |   | 4,654     |  
|Gain on sale of investment securities, net           |  |                                               | 144       |   |      |   |          |      |  |   | 2,076     |    |  |      | 2,333     |   |  |   | 750       |  
|Net cash settlements on CD swaps                     |  |                                               | 2,166     |   |      |   |          |      |  |   |          |    |  |      |          |   |  |   |          |  
|Change in fair value of CD swaps                     |  |                                               | 27        |   |      |   |          |      |  |   |          |    |  |      |          |   |  |   |          |  
|Other noninterest income                             |  |                                               | 2,857     |   |      |   | 2,654     |      |  |   | 2,156     |    |  |      | 3,601     |   |  |   | 3,523     |  
|                                                     |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Total noninterest income                             |  |                                               | 21,519    |   |      |   | 20,041    |      |  |   | 21,979    |    |  |      | 24,273    |   |  |   | 19,273    |  
|Noninterest expense:                                 |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Salaries and employee benefits                       |  |                                               | 38,951    |   |      |   | 41,066    |      |  |   | 43,780    |    |  |      | 43,207    |   |  |   | 39,383    |  
|Legal fees, net                                      |  |                                               | 1,808     |   |      |   | 943       |      |  |   | 4,098     |    |  |      | 2,504     |   |  |   | 12,053    |  
|Goodwill amortization                                |  |                                               |          |   |      |   |          |      |  |   |          |    |  |      | 2,316     |   |  |   | 2,326     |  
|Lease abandonment and termination charges            |  |                                               | 984       |   |      |   | 3,534     |      |  |   |          |    |  |      |          |   |  |   |          |  
|Litigation settlement charge                         |  |                                               |          |   |      |   |          |      |  |   | 61,900    |    |  |      |          |   |  |   |          |  
|Other noninterest expense                            |  |                                               | 29,930    |   |      |   | 33,680    |      |  |   | 33,376    |    |  |      | 31,105    |   |  |   | 26,821    |  
|                                                     |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Total noninterest expense                            |  |                                               | 71,673    |   |      |   | 79,223    |      |  |   | 143,154   |    |  |      | 79,132    |   |  |   | 80,583    |  
|                                                     |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Income (loss) before income taxes                    |  |                                               | 34,286    |   |      |   | 27,315    |      |  |   | (29,740   | )  |  |      | 27,159    |   |  |   | 18,558    |  
|Income taxes                                         |  |                                               | 11,313    |   |      |   | 8,568     |      |  |   | 11,675    |    |  |      | 9,528     |   |  |   | 9,604     |  
|                                                     |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Net income (loss)                                    |  |                                               | 22,973    |   |      |   | 18,747    |      |  |   | (41,415   | )  |  |      | 17,631    |   |  |   | 8,954     |  
|Preferred dividend requirements                      |  |                                               | (1,875    | ) |      |   | (3,443    | )    |  |   | (3,442    | )  |  |      | (3,443    | ) |  |   | (3,443    | )
|                                                     |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Net income (loss) applicable to common stockholders  |  | $                                             | 21,098    |   |      | $ | 15,304    |      |  | $ | (44,857   | )  |  | $    | 14,188    |   |  | $ | 5,511     |  
|                                                     |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Common Share Data: (1)                               |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Basic earnings (loss) per share                      |  | $                                             | 2.21      |   |      | $ | 1.62      |      |  | $ | (6.12     | )  |  | $    | 2.07      |   |  | $ | 0.80      |  
|Diluted earnings (loss) per share                    |  |                                               | 2.19      |   |      |   | 1.61      |      |  |   | (6.12     | )  |  |      | 2.05      |   |  |   | 0.79      |  
|Cash dividends per share                             |  |                                               | 0.24      |   |      |   | 0.24      |      |  |   | 0.24      |    |  |      | 0.24      |   |  |   | 0.24      |  
|Book value per share                                 |  |                                               | 16.12     |   |      |   | 14.57     |      |  |   | 13.87     |    |  |      | 19.41     |   |  |   | 17.25     |  
|Dividend payout ratio                                |  |                                               | 10.96     | % |      |   | 14.91     | %    |  |   | (3.92     | )% |  |      | 11.61     | % |  |   | 30.13     | %
|Weighted average shares  basic earnings per share   |  |                                               | 9,539,242 |   |      |   | 9,449,336 |      |  |   | 7,323,979 |    |  |      | 6,862,761 |   |  |   | 6,919,751 |  
|Weighted average shares  diluted earnings per share |  |                                               | 9,644,515 |   |      |   | 9,528,785 |      |  |   | 7,323,979 |    |  |      | 6,908,070 |   |  |   | 6,960,494 |  
|Shares outstanding  end of year                     |  |                                               | 9,653,549 |   |      |   | 9,486,724 |      |  |   | 9,410,660 |    |  |      | 6,836,028 |   |  |   | 6,902,289 |  



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|                                                                        |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|----------------------------------------------------------------------- |  | --------------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -- |  | ---- | --------- | - |  | - | --------- | -
|                                                                        |  | Year Ended December 31,                       |          
|                                                                        |  | (Restated) 2004                               |           |   | 2003 |   |           | 2002 |  |   | 2001      |    |  | 2000 |          
|                                                                        |  | (dollars in thousands, except per share data) |          
|TAYLOR CAPITAL GROUP, INC. (consolidated):                              |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Balance Sheet Data (at end of year):                                    |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Total assets                                                            |  | $                                             | 2,889,048 |   |      | $ | 2,603,656 |      |  | $ | 2,535,461 |    |  | $    | 2,390,670 |   |  | $ | 2,263,323 |  
|Investment securities                                                   |  |                                               | 533,619   |   |      |   | 488,302   |      |  |   | 501,606   |    |  |      | 494,208   |   |  |   | 510,187   |  
|Total loans                                                             |  |                                               | 2,211,606 |   |      |   | 1,962,008 |      |  |   | 1,879,474 |    |  |      | 1,741,637 |   |  |   | 1,611,692 |  
|Allowance for loan losses                                               |  |                                               | 37,484    |   |      |   | 34,356    |      |  |   | 34,073    |    |  |      | 31,118    |   |  |   | 29,568    |  
|Goodwill                                                                |  |                                               | 23,354    |   |      |   | 23,354    |      |  |   | 23,354    |    |  |      | 23,354    |   |  |   | 25,671    |  
|Total deposits                                                          |  |                                               | 2,284,697 |   |      |   | 2,013,084 |      |  |   | 1,963,749 |    |  |      | 1,833,689 |   |  |   | 1,742,830 |  
|Short-term borrowings                                                   |  |                                               | 229,547   |   |      |   | 219,108   |      |  |   | 215,360   |    |  |      | 244,993   |   |  |   | 249,819   |  
|Notes payable and FHLB advances                                         |  |                                               | 85,500    |   |      |   | 110,500   |      |  |   | 110,500   |    |  |      | 111,000   |   |  |   | 77,000    |  
|Junior subordinated debentures                                          |  |                                               | 87,638    |   |      |   | 45,000    |      |  |   | 45,000    |    |  |      |          |   |  |   |          |  
|Preferred stock                                                         |  |                                               |          |   |      |   | 38,250    |      |  |   | 38,250    |    |  |      | 38,250    |   |  |   | 38,250    |  
|Common stockholders equity                                             |  |                                               | 155,573   |   |      |   | 138,235   |      |  |   | 130,487   |    |  |      | 132,666   |   |  |   | 119,061   |  
|Total stockholders equity                                              |  |                                               | 155,573   |   |      |   | 176,485   |      |  |   | 168,737   |    |  |      | 170,916   |   |  |   | 157,311   |  
|Earnings Performance Data:                                              |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Return on average assets                                                |  |                                               | 0.84      | % |      |   | 0.73      | %    |  |   | (1.70     | )% |  |      | 0.75      | % |  |   | 0.40      | %
|Return on average stockholders equity                                  |  |                                               | 14.00     |   |      |   | 10.86     |      |  |   | (26.29    | )  |  |      | 10.62     |   |  |   | 5.93      |  
|Net interest margin (non tax-equivalent) (2)                            |  |                                               | 3.60      |   |      |   | 3.91      |      |  |   | 4.37      |    |  |      | 4.13      |   |  |   | 4.14      |  
|Noninterest income to revenues                                          |  |                                               | 13.54     |   |      |   | 12.85     |      |  |   | 13.08     |    |  |      | 12.72     |   |  |   | 9.84      |  
|Efficiency ratio (3)                                                    |  |                                               | 61.84     |   |      |   | 68.43     |      |  |   | 118.08    |    |  |      | 69.62     |   |  |   | 76.13     |  
|Loans to deposits                                                       |  |                                               | 96.80     |   |      |   | 97.46     |      |  |   | 95.71     |    |  |      | 94.98     |   |  |   | 92.48     |  
|Average interest earning assets to average interest bearing liabilities |  |                                               | 125.99    |   |      |   | 124.71    |      |  |   | 124.48    |    |  |      | 122.48    |   |  |   | 122.58    |  
|Ratio of earnings to fixed charges: (4)                                 |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Including interest on deposits                                          |  |                                               | 1.65x     |   |      |   | 1.47x     |      |  |   | 0.32x     |    |  |      | 1.27x     |   |  |   | 1.14x     |  
|Excluding interest on deposits                                          |  |                                               | 2.85x     |   |      |   | 2.17x     |      |  |   | (1.18     | )x |  |      | 1.97x     |   |  |   | 1.49x     |  
|Asset Quality Ratios:                                                   |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Allowance for loan losses to total loans                                |  |                                               | 1.69      | % |      |   | 1.75      | %    |  |   | 1.81      | %  |  |      | 1.79      | % |  |   | 1.83      | %
|Allowance for loan losses to nonperforming loans (5)                    |  |                                               | 265.98    |   |      |   | 150.79    |      |  |   | 186.62    |    |  |      | 178.84    |   |  |   | 264.69    |  
|Net loan charge-offs to average total loans                             |  |                                               | 0.34      |   |      |   | 0.47      |      |  |   | 0.39      |    |  |      | 0.49      |   |  |   | 0.27      |  
|Nonperforming assets to total loans plus repossessed property (6)       |  |                                               | 0.64      |   |      |   | 1.17      |      |  |   | 1.00      |    |  |      | 1.03      |   |  |   | 0.71      |  
|Capital Ratios:                                                         |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Total stockholders equity to assets  end of year                      |  |                                               | 5.38      | % |      |   | 6.78      | %    |  |   | 6.66      | %  |  |      | 7.15      | % |  |   | 6.95      | %
|Average stockholders equity to average assets                          |  |                                               | 5.99      |   |      |   | 6.73      |      |  |   | 6.45      |    |  |      | 7.09      |   |  |   | 6.79      |  
|Leverage ratio                                                          |  |                                               | 6.49      |   |      |   | 7.64      |      |  |   | 7.21      |    |  |      | 5.99      |   |  |   | 5.55      |  
|Tier 1 risk-based capital ratio                                         |  |                                               | 7.29      |   |      |   | 8.73      |      |  |   | 8.82      |    |  |      | 7.70      |   |  |   | 7.25      |  
|Total risk-based capital ratio                                          |  |                                               | 10.27     |   |      |   | 10.44     |      |  |   | 10.61     |    |  |      | 8.96      |   |  |   | 8.51      |  
|                                                                        |  |                                               |           |   |     
|COLE TAYLOR BANK:                                                       |  |                                               |           |   |      |   |           |      |  |   |           |    |  |      |           |   |  |   |           |  
|Net Income                                                              |  | $                                             | 28,314    |   |      | $ | 24,042    |      |  | $ | 25,387    |    |  | $    | 22,508    |   |  | $ | 21,797    |  
|Return on average assets                                                |  |                                               | 1.04      | % |      |   | 0.94      | %    |  |   | 1.04      | %  |  |      | 0.96      | % |  |   | 0.98      | %
|Stockholders equity to assets  end of year                            |  |                                               | 8.82      |   |      |   | 9.16      |      |  |   | 8.72      |    |  |      | 8.41      |   |  |   | 8.35      |  
|Leverage ratio                                                          |  |                                               | 8.29      |   |      |   | 8.31      |      |  |   | 7.52      |    |  |      | 7.37      |   |  |   | 7.06      |  
|Tier 1 risk-based capital ratio                                         |  |                                               | 9.30      |   |      |   | 9.50      |      |  |   | 9.22      |    |  |      | 9.46      |   |  |   | 9.22      |  
|Total risk-based capital ratio                                          |  |                                               | 10.55     |   |      |   | 10.75     |      |  |   | 10.47     |    |  |      | 10.72     |   |  |   | 10.47     |  

---

|(1) | All share and per share information for all periods presented has been adjusted for a three-for-two split of our common stock that was effected as a dividend to stockholders of
record as of October 2, 2002.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Net interest margin is determined by dividing net interest income, as reported, by average interest-earning assets.
|--- | -------------------------------------------------------------------------------------------------------------------

|(3) | The efficiency ratio is determined by dividing noninterest expense by an amount equal to net interest income plus noninterest income, less investment securities gains.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income before income taxes and cumulative effect of change in accounting principle plus
interest and rent expense. Fixed charges consist of interest expense, rent expense and preferred stock dividend requirements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Nonperforming loans includes nonaccrual loans and loans contractually past due 90 days or more but still accruing interest.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(6) | Nonperforming assets include nonperforming loans, other real estate, and other repossessed assets.
|--- | --------------------------------------------------------------------------------------------------



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Item 7: Managements Discussion And Analysis Of Financial Condition And Results Of Operations



Introduction



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 banking services to our customers, with a primary focus on serving closely-held businesses in the Chicago metropolitan area and the people who own and mange them.



The following discussion and analysis presents our consolidated financial
condition at December 31, 2004 and 2003 and the results of operations for the years ended December 31, 2004, 2003 and 2002. This discussion should be read together with the Selected Consolidated Financial Data, our audited
consolidated financial statements and the notes thereto and other financial data contained elsewhere in this annual report. 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. All share and per share information for all periods presented has been adjusted for a
three-for-two split of our common stock that was effected as a dividend to stockholders of record as of October 2, 2002.



Restatements of Results of Operations and Financial Condition



We are restating our previously reported financial information for the year ended December 31, 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.



Since December 2002, we have 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



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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.



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 December 31, 2004 is $660,000 (representing a $2.0 million elimination of the fair value adjustment to the brokered CDs less a $1.3 million adjustment to record the unamortized CD
broker placement fees). The cumulative after-tax impact was a $401,000 reduction to net income and 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 December 31, 2004 of
amortization of the debt issuance costs through the maturity date of the related debt is an increase to net income and retained earnings of $713,000 ($1.2 million pre-tax). Our net unamortized debt issuance cost at December 31, 2004 is $3.4
million.



The combined impact of the errors in derivative
accounting and debt issuance cost increased net income for the year ended December 31, 2004 and retained earnings by $312,000. The impact of these errors on our financial statements for the years ended December 31, 2003 and 2002 was not
material and, therefore, those financial statements have not been restated. The reduction to previously reported net income in any of the restated quarterly periods did not



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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.



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 1 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.



Overview



We reported net income applicable to common stockholders for the year
ended December 31, 2004 of $21.1 million, or $2.19 per diluted common share, compared with $15.3 million, or $1.61 per diluted common share, for the year ended December 31, 2003. The increased net income applicable to common stockholders
was a result of reduced noninterest expense and reduced preferred stock dividends. Noninterest expense declined $7.6 million, or 9.5%, for the year ended December 31, 2004 as compared with 2003. We achieved the reduction in noninterest expense
through reduced salary and advertising expense as well as a lower charge relating to our facilities initiatives. We also lowered our cost of capital by redeeming our Series A, 9% preferred stock with the proceeds from junior subordinated debentures
in mid-2004. The lower interest rate and the tax deductibility of the interest on the debentures, as compared to the preferred stock dividends, resulted in after-tax savings of approximately $870,000 in 2004.



We reported net income applicable to common stockholders of $15.3 million, or
$1.61 per diluted common share, during 2003, compared to a net loss applicable to common stockholders of $44.9 million, or $6.12 per common share, during 2002. Our net loss applicable to common stockholders during 2002 resulted from a charge of
$61.9 million in connection with the settlement of litigation associated with our acquisition of the Bank in 1997. See the section of this discussion and analysis captioned Litigation and Settlement for further details of the litigation
settlement charge. Without the net $61.9 million litigation settlement charge, we would have recorded net income applicable to common stockholders in 2002 of $17.0 million, or $2.32 per diluted common share. Net income applicable to common
stockholders in 2003 was $1.7 million less than 2002 net income exclusive of the litigation settlement charge. The lower level of income was primarily a result of decreased net interest income and noninterest income. The decline in diluted earnings
per share was also a result of an increase in the number of common shares outstanding. In the fourth quarter of 2002, we issued 2,587,500 additional shares of common stock in an initial public offering.



Management uses certain non-GAAP financial measures and ratios to evaluate
the Companys performance. Specifically, management reviews net income and the related earnings per share amounts excluding the $61.9 million litigation settlement charge during 2002. We believe that excluding the non-recurring litigation
settlement charge from both net income and



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earnings per share presents a more suitable comparison of our period-to-period results because of the extraordinary
nature of the litigation that led to the settlement charge and the likelihood that such a significant event will not reoccur. The following table reconciles net income as reported under generally accepted accounting principles, or GAAP, on our
consolidated statements of income to the non-GAAP pro forma net income.



|                                                        |  |                                               |        |   |      |   |        |      |  |   |         |  
|------------------------------------------------------- |  | --------------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                        |  | For the Year Ended December 31,               |       
|                                                        |  | (Restated) 2004                               |        |   | 2003 |   |        | 2002 | 
|                                                        |  | (dollars in thousands, except per share data) |       
|Net income (loss) - as stated                           |  | $                                             | 22,973 |   |      | $ | 18,747 |      |  | $ | (41,415 | )
|Add back: Litigation settlement charge                  |  |                                               |       |   |      |   |       |      |  |   | 61,900  |  
|                                                        |  |                                               |        |   |      |   |        |      |  |   |         |  
|Pro forma net income                                    |  | $                                             | 22,973 |   |      | $ | 18,747 |      |  | $ | 20,485  |  
|Less preferred dividend requirements                    |  |                                               | (1,875 | ) |      |   | (3,443 | )    |  |   | (3,442  | )
|                                                        |  |                                               |        |   |      |   |        |      |  |   |         |  
|Net income applicable to common stockholders Pro forma |  | $                                             | 21,098 |   |      | $ | 15,304 |      |  | $ | 17,043  |  
|                                                        |  |                                               |        |   |      |   |        |      |  |   |         |  
|Earnings (loss) per common share:                       |  |                                               |        |   |      |   |        |      |  |   |         |  
|Basic - as stated                                       |  | $                                             | 2.21   |   |      | $ | 1.62   |      |  | $ | (6.12   | )
|Diluted - as stated                                     |  |                                               | 2.19   |   |      |   | 1.61   |      |  |   | (6.12   | )
|                                                        |  |                                               |       
|Basic - pro forma                                       |  | $                                             | 2.21   |   |      | $ | 1.62   |      |  | $ | 2.33    |  
|Diluted - pro forma                                     |  |                                               | 2.19   |   |      |   | 1.61   |      |  |   | 2.32    |  



Total assets increased
$285.4 million, or 11.0%, during 2004 to $2.89 billion at December 31, 2004, as compared to $2.60 billion at December 31, 2003. The increase in total assets during 2004 was due to loan growth and the higher amount of investment securities.
Net loans increased $246.5 million, or 12.8%, to $2.17 billion at December 31, 2004 as compared to $1.93 billion at year-end 2003. Investment securities increased $45.3 million, or 9.3%, to $533.6 million at the end of 2004. Total deposits
increased $271.6 million, or 13.5%, to $2.28 billion at December 31, 2004 as compared to total deposits at December 31, 2003 of $2.01 billion. Total stockholders equity was $155.6 million at December 31, 2004 compared to $176.5
million at year-end 2003, a decrease of $20.9 million. The lower stockholders equity reflects the redemption of the $38.25 million Series A preferred stock in mid-2004.



Capital Transactions



On June 17, 2004, TAYC Capital Trust II, our wholly owned (non-consolidated) subsidiary, issued $40.0 million of trust preferred securities in a
private placement. The trust preferred securities were sold under an exemption from registration under the Securities Act of 1933, as amended, and have not been registered under the Securities Act or any state securities laws. TAYC Capital Trust II
invested the proceeds, along with $1.2 million received from us for the purchase of its common equity securities, in $41.2 million of junior subordinated debentures issued by Taylor Capital Group, Inc. On July 16, 2004, we used the proceeds
from the junior subordinated debentures to redeem all of our outstanding shares of Series A 9% noncumulative perpetual preferred stock. The redemption price was the stated liquidation value of the Series A preferred stock of $25.00 per share,
totaling $38.25 million, plus $153,000 of accrued and unpaid dividends since the last dividend distribution date. The remaining proceeds from the issuance of the junior subordinated debentures after issuance costs and redemption of the Series A
preferred stock were used for general corporate purposes.



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On October 21, 2002, we completed a concurrent offering of common stock and trust preferred
securities. We issued 2,250,000 shares of common stock at an initial public offering price of $16.50 per share. Concurrently, we raised $45.0 million of gross proceeds through the issuance of $45.0 million aggregate principal amount of 9.75% trust
preferred securities by TAYC Capital Trust I, our wholly owned (non-consolidated) subsidiary. On November 6, 2002, we sold an additional 337,500 shares of common stock to our underwriters pursuant to an option granted in connection with the
initial public offering to cover over allotments and received additional net proceeds of $5.2 million. The total net amount raised from the 2002 initial public offering of common stock and the trust preferred securities and the subsequent exercise
by our underwriters of the over allotment option was $80.3 million. We used $61.9 million to settle the litigation described below. In addition, we used $17.0 million to restructure and reduce our outstanding indebtedness. See the section of this
annual report captioned Notes to Consolidated Financial Statements  Junior Subordinated Debentures for additional details.



Litigation and Settlement



During 2002, we agreed to settle outstanding litigation concerning our 1997 acquisition of the Bank. We entered into certain settlement agreements with
the plaintiffs and other parties in the cases to halt the substantial expense, inconvenience, and distraction of continued litigation and to eliminate any exposure and uncertainty that may have existed as a result of such litigation. These
agreements provided that, subject to our completion of a public offering of trust preferred and common securities and the dismissal of the lawsuits, we would pay an amount equal to (1) $65 million, plus (2) a contingent amount based on the
offering price of the common shares, minus (3) a minimum of $3.1 million as a partial reimbursement to us of offering expenses.



The settlement of this litigation was completed on October 21, 2002 following our initial public offering of common stock and trust preferred
securities. From the net proceeds of these offerings, we paid $61.9 million in full satisfaction of our obligation under the settlement agreements. We recorded a $61.9 million charge to earnings in 2002 to reflect the cost of settling this
litigation.



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.



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Our accounting policies are contained in the section of this annual report captioned Notes to
Consolidated Financial StatementsSummary of Significant Accounting and Reporting Policies. 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 judgment 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 judgment 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 relies on several key elements, which include a general allowance computed by applying loss factors to categories of loans outstanding in the portfolio, specific allowances for
identified problem loans and portfolio segments, and the unallocated allowance. 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 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 surrounding our portfolio of borrowers abilities to successfully execute
their business models through changing economic environments and competitive challenges as well as management and other changes greatly complicate the estimate of the risk of loss and amount of loss on any loan. Because of the degree of uncertainty
and susceptibility of these 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 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. 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, as we identify changes in estimates, the allowance for loan losses is adjusted through the recording of a provision for loan losses.



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Goodwill Impairment



We have goodwill of $23.4 million that we recognized in connection with our 1997 acquisition of the Bank. We test this
goodwill annually for impairment, or whenever events or significant changes in circumstances indicate that the carry 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 the Bank to our carrying value for the Bank. Because there is not a readily observable market value for the 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 at the holding company.



Income Taxes



At times, we apply different tax treatment for selected transactions for tax return purposes than for income tax 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 the value 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.



Derivative Financial Instruments



We use derivative financial instruments (derivatives), including interest rate exchange and floor agreements, to assist in our interest rate risk
management. In accordance with SFAS 133, all derivatives are measured and reported at fair value on our consolidated balance sheet as either an asset or a liability. For derivatives that are designated and qualify as a fair value hedge, the gain or
loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the effective portion of the hedged risk, are recognized in current earnings during the period of the change in the fair values. For derivatives that
are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative 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 derivatives that do not qualify for hedge accounting under SFAS 133 are also reported currently in earnings.



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 derivatives 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 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 flow through the consolidated statements of income in other noninterest
income, which results in greater volatility in our earnings.



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The estimates of fair values of our derivatives 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 as of and for the years ended
December 31, 2004, 2003, and 2002



Net Interest
Income



Net interest income is the difference between
total interest income 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, and the level of rates earned or paid on those assets and liabilities.



Year Ended December 31, 2004 as Compared to Year Ended
December 31, 2003.Net interest income was $94.5 million during 2004, as compared to $95.7 million during 2003, a decrease of $1.2 million, or 1.3%. With an adjustment for tax-exempt income, our consolidated net interest income was $95.8
million, a decrease from the $97.2 million of net interest income in 2003. Net interest income decreased 1.4%, as the benefit from the 7.3% increase in interest-earning assets was more than offset by a 32 basis point decline in our net interest
margin. The tax-equivalent net interest margin was 3.65% for all of 2004 compared to 3.97% for 2003. Our net interest margin declined as the yield on our interest-earning assets declined while our cost of interest-bearing liabilities remained
unchanged. The third and fourth quarters of 2004 included the incremental interest expense of approximately $450,000 and $500,0000, respectively, arising from the $41.2 million of junior subordinated debentures issued in June 2004, which increased
interest expense by 4 basis points each quarter.



Average
interest-earning assets during 2004 increased $177.5 million, or 7.3%, to $2.62 billion as compared to $2.45 billion during 2003. An increase in average loans, primarily in our commercial portfolio, produced the increase in average earning assets.
Average commercial loans increased $256.9 million, or 17.5%, during 2004 to $1.72 billion as compared to $1.47 billion during 2003. This increase was partly offset by lower consumer-related loans. A $56.4 million increase in average investment
securities also contributed to the increase in average earning assets. The asset growth was funded primarily with time deposits. Total average time deposits were $1.04 billion during 2004, a $116.5 million increase from average time deposits of
$927.5 million during 2003. Higher average brokered and customer certificates of deposit produced the majority of the increase. Additional funding was also provided by a $52.8 million increase in average non-interest bearing demand deposits.



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##### Table of Contents

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 during the last half
of 2004, as the Banks prime lending rate increased 125 basis points over that period. 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.



Year Ended December 31, 2003 as Compared to Year Ended December 31, 2002.Net interest income was $95.7 million during the year ended
December 31, 2003, as compared to $101.3 million during 2002, a decrease of $5.6 million, or 5.5%. With an adjustment for tax-exempt income, our consolidated net interest income was $97.2 million, a decrease of $5.9 million, or 5.7%, as
compared to $103.1 million during 2002. The net interest income declined because of compression in our net interest margin, despite an increase in average interest-earning assets. The tax equivalent net interest margin was 3.97% during 2003 compared
to 4.44% during 2002. The low interest rate environment negatively impacted our net interest margin during 2003. Our interest-earning asset yield declined 76 basis points to 5.61% during 2003 from 6.37% during 2002. However, the cost of
interest-bearing liabilities declined only 35 basis points from 2.40% during 2002 to 2.05% during 2003. The $45.0 million of 9.75% junior subordinated debentures, which were issued in October 2002, caused approximately 17 basis points of the decline
in the net interest margin between the two annual periods. The tax equivalent net interest spread was 3.56% during 2003 as compared to 3.97% during 2002.



Average interest-earning assets during 2003 rose to $2.45 billion, an increase of $126.7 million, or 5.5%, as compared to average interest-earning assets
of $2.32 billion during 2002. Growth in the loan portfolio accounted for the majority of the increase in average interest earning assets. An increase in cash equivalent balances of $21.5 million accounted for the remainder of the increase in average
interest-earning assets. Average total loans were $1.90 billion during 2003 compared to $1.80 billion during 2002. A $165.9 million, or 12.8%, increase in average commercial and commercial real estate loans produced most of the loan growth. The
increase in commercial loans was partly offset by lower residential mortgage, home equity and consumer loans, products that we chose to de-emphasize. Between the two annual periods, the yield on loans declined 68 basis points to 5.91% during 2003 as
compared to 6.59% during 2002. The asset growth was funded with interest-bearing deposit balances, with time deposit balances comprising the majority of the increase. Average time deposit balances increased to $927.5 million during 2003 compared to
$794.7 million during 2002. Higher average brokered and out-of-local-market certificates of deposit produced the majority of the increase.



15



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##### Table of Contents

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, 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.



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 Year Ended December 31, |       
|                                               |  | (Restated)2004                  |        |   | 2003 |   |        | 2002 | 
|                                               |  | (dollars in thousands)          |       
|Net interest income as stated                  |  | $                               | 94,523 |   |      | $ | 95,730 |      |  | $ | 101,335 |  
|Tax equivalent adjustment-investments          |  |                                 | 1,085  |   |      |   | 1,263  |      |  |   | 1,525   |  
|Tax equivalent adjustment-loans                |  |                                 | 172    |   |      |   | 181    |      |  |   | 190     |  
|                                               |  |                                 |        |   |      |   |        |      |  |   |         |  
|Tax equivalent net interest income             |  | $                               | 95,780 |   |      | $ | 97,174 |      |  | $ | 103,050 |  
|                                               |  |                                 |        |   |      |   |        |      |  |   |         |  
|Yield on earning assets without tax adjustment |  |                                 | 5.24   | % |      |   | 5.56   | %    |  |   | 6.30    | %
|Yield on earning assets - tax equivalent       |  |                                 | 5.28   | % |      |   | 5.61   | %    |  |   | 6.37    | %
|Net interest margin without tax adjustment     |  |                                 | 3.60   | % |      |   | 3.91   | %    |  |   | 4.37    | %
|Net interest margin - tax equivalent           |  |                                 | 3.65   | % |      |   | 3.97   | %    |  |   | 4.44    | %
|Net interest spread - without tax adjustment   |  |                                 | 3.18   | % |      |   | 3.51   | %    |  |   | 3.90    | %
|Net interest spread - tax equivalent           |  |                                 | 3.23   | % |      |   | 3.56   | %    |  |   | 3.97    | %



16



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##### Table of Contents

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%.



|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|------------------------------------------ |  | ----------------------- | --------- | - | -------- | - | ------------- | ---- | ---- | -------------- |  | - | --------- | - | ------------- | - | ------- | -------------- | ----- | - | -------- | - | ------------- | - |  | - | ------- |  | ----- | -
|                                           |  | Year Ended December 31, |          
|                                           |  | (Restated) 2004         |           |   | 2003     |   |               | 2002 |     
|                                           |  | AVERAGEBALANCE          |           |   | INTEREST |   | YIELD/RATE(%) |      |      | AVERAGEBALANCE |  |   | INTEREST  |   | YIELD/RATE(%) |   |         | AVERAGEBALANCE |       |   | INTEREST |   | YIELD/RATE(%) |  
|                                           |  | (dollars in thousands)  |          
|INTEREST-EARNING ASSETS:                   |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Investment securities (1):                 |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Taxable                                    |  | $                       | 517,110   |   |          | $ | 20,486        |      | 3.96 | %              |  | $ | 454,956   |   |               | $ | 21,158  |                | 4.65  | % |          | $ | 439,889       |   |  | $ | 24,448  |  | 5.56  | %
|Tax-exempt (tax equivalent) (2)            |  |                         | 43,538    |   |          |   | 3,083         |      | 7.08 |                |  |   | 49,316    |   |               |   | 3,572   |                | 7.24  |   |          |   | 57,278        |   |  |   | 4,284   |  | 7.48  |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Total investment securities                |  |                         | 560,648   |   |          |   | 23,569        |      | 4.20 |                |  |   | 504,272   |   |               |   | 24,730  |                | 4.90  |   |          |   | 497,167       |   |  |   | 28,732  |  | 5.78  |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Cash Equivalents                           |  |                         | 17,264    |   |          |   | 271           |      | 1.55 |                |  |   | 43,248    |   |               |   | 454     |                | 1.04  |   |          |   | 21,743        |   |  |   | 364     |  | 1.65  |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Loans (3):                                 |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Commercial and commercial real estate      |  |                         | 1,723,210 |   |          |   | 96,724        |      | 5.52 |                |  |   | 1,466,351 |   |               |   | 85,883  |                | 5.78  |   |          |   | 1,300,409     |   |  |   | 84,918  |  | 6.44  |  
|Residential real estate mortgages          |  |                         | 70,963    |   |          |   | 3,806         |      | 5.36 |                |  |   | 105,484   |   |               |   | 6,216   |                | 5.89  |   |          |   | 137,915       |   |  |   | 9,631   |  | 6.98  |  
|Home equity and consumer                   |  |                         | 251,550   |   |          |   | 12,402        |      | 4.93 |                |  |   | 326,769   |   |               |   | 16,418  |                | 5.02  |   |          |   | 362,220       |   |  |   | 20,791  |  | 5.74  |  
|Fees on loans                              |  |                         |           |   |          |   | 1,838         |      |      |                |  |   |           |   |               |   | 3,627   |                |       |   |          |   |               |   |  |   | 3,294   |  |       |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Net loans (tax equivalent) (2)             |  |                         | 2,045,723 |   |          |   | 114,770       |      | 5.61 |                |  |   | 1,898,604 |   |               |   | 112,144 |                | 5.91  |   |          |   | 1,800,544     |   |  |   | 118,634 |  | 6.59  |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Total interest earning assets              |  |                         | 2,623,635 |   |          |   | 138,610       |      | 5.28 |                |  |   | 2,446,124 |   |               |   | 137,328 |                | 5.61  |   |          |   | 2,319,454     |   |  |   | 147,730 |  | 6.37  |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|NON-EARNING ASSETS:                        |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Allowance for loan losses                  |  |                         | (36,756   | ) |          |   |               |      |      |                |  |   | (35,160   | ) |               |   |         |                |       |   |          |   | (33,347       | ) |  |   |         |  |       |  
|Cash and due from banks                    |  |                         | 59,878    |   |          |   |               |      |      |                |  |   | 58,616    |   |               |   |         |                |       |   |          |   | 60,263        |   |  |   |         |  |       |  
|Accrued interest and other assets          |  |                         | 90,266    |   |          |   |               |      |      |                |  |   | 97,104    |   |               |   |         |                |       |   |          |   | 95,896        |   |  |   |         |  |       |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|TOTAL ASSETS                               |  | $                       | 2,737,023 |   |          |   |               |      |      |                |  | $ | 2,566,684 |   |               |   |         |                |       |   |          | $ | 2,442,266     |   |  |   |         |  |       |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|INTEREST-BEARING LIABILITIES:              |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Interest-bearing deposits:                 |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Interest-bearing demand deposits           |  | $                       | 564,920   |   |          |   | 4,370         |      | 0.77 |                |  | $ | 564,645   |   |               |   | 4,672   |                | 0.83  |   |          | $ | 618,819       |   |  |   | 8,524   |  | 1.38  |  
|Savings deposits                           |  |                         | 89,678    |   |          |   | 279           |      | 0.31 |                |  |   | 90,975    |   |               |   | 346     |                | 0.38  |   |          |   | 89,360        |   |  |   | 750     |  | 0.84  |  
|Time deposits                              |  |                         | 1,044,023 |   |          |   | 26,593        |      | 2.55 |                |  |   | 927,481   |   |               |   | 23,378  |                | 2.52  |   |          |   | 794,728       |   |  |   | 26,011  |  | 3.27  |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Total interest-bearing deposits            |  |                         | 1,698,621 |   |          |   | 31,242        |      | 1.84 |                |  |   | 1,583,101 |   |               |   | 28,396  |                | 1.79  |   |          |   | 1,502,907     |   |  |   | 35,285  |  | 2.35  |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Short-term borrowings                      |  |                         | 219,438   |   |          |   | 2,228         |      | 1.02 |                |  |   | 219,913   |   |               |   | 2,124   |                | 0.97  |   |          |   | 227,557       |   |  |   | 3,339   |  | 1.47  |  
|Notes payable and FHLB advances            |  |                         | 95,582    |   |          |   | 4,336         |      | 4.46 |                |  |   | 113,374   |   |               |   | 4,617   |                | 4.02  |   |          |   | 124,007       |   |  |   | 5,098   |  | 4.05  |  
|Trust preferred securities                 |  |                         | 68,709    |   |          |   | 5,024         |      | 7.31 |                |  |   | 45,000    |   |               |   | 5,017   |                | 11.15 |   |          |   | 8,877         |   |  |   | 958     |  | 10.79 |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Total interest-bearing liabilities         |  |                         | 2,082,350 |   |          |   | 42,830        |      | 2.05 |                |  |   | 1,961,388 |   |               |   | 40,154  |                | 2.05  |   |          |   | 1,863,348     |   |  |   | 44,680  |  | 2.40  |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|NONINTEREST-BEARING LIABILITIES:           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Noninterest-bearing deposits               |  |                         | 447,345   |   |          |   |               |      |      |                |  |   | 394,511   |   |               |   |         |                |       |   |          |   | 372,387       |   |  |   |         |  |       |  
|Accrued interest and other liabilities     |  |                         | 43,286    |   |          |   |               |      |      |                |  |   | 38,170    |   |               |   |         |                |       |   |          |   | 48,986        |   |  |   |         |  |       |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Total noninterest-bearing liabilities      |  |                         | 490,631   |   |          |   |               |      |      |                |  |   | 432,681   |   |               |   |         |                |       |   |          |   | 421,373       |   |  |   |         |  |       |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|STOCKHOLDERS EQUITY                       |  |                         | 164,042   |   |          |   |               |      |      |                |  |   | 172,615   |   |               |   |         |                |       |   |          |   | 157,545       |   |  |   |         |  |       |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |  | $                       | 2,737,023 |   |          |   |               |      |      |                |  | $ | 2,566,684 |   |               |   |         |                |       |   |          | $ | 2,442,266     |   |  |   |         |  |       |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Net interest income (tax equivalent)       |  |                         |           |   |          | $ | 95,780        |      |      |                |  |   |           |   |               | $ | 97,174  |                |       |   |          |   |               |   |  | $ | 103,050 |  |       |  
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Net interest spread (4)                    |  |                         |           |   |          |   |               |      | 3.23 | %              |  |   |           |   |               |   |         |                | 3.56  | % |          |   |               |   |  |   |         |  | 3.97  | %
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  
|Net interest margin (5)                    |  |                         |           |   |          |   |               |      | 3.65 | %              |  |   |           |   |               |   |         |                | 3.97  | % |          |   |               |   |  |   |         |  | 4.44  | %
|                                           |  |                         |           |   |          |   |               |      |      |                |  |   |           |   |               |   |         |                |       |   |          |   |               |   |  |   |         |  |       |  

---

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

|(2) | Calculations are computed on a taxable-equivalent basis using a 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.
|--- | ------------------------------------------------------------------------------------------------------------------------



17



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##### Table of Contents

The following table presents, for the periods indicated, a summary of the changes in interest earned and
interest paid resulting from changes in volume and rates for the major components of interest-earning assets and interest-bearing liabilities on a fully taxable equivalent basis. The impact of changes in the mix of interest-earning assets and
interest-bearing liabilities is reflected in net interest income.



|                                   |  |                                              |       |   |                                    |   |        |     |  |   |        |   |  |      |       |   |     |   |         |   |  |   |         |  
|---------------------------------- |  | -------------------------------------------- | ----- | - | ---------------------------------- | - | ------ | --- |  | - | ------ | - |  | ---- | ----- | - | --- | - | ------- | - |  | - | ------- | -
|                                   |  | Year Ended December 31,                      |      
|                                   |  | 2004 (Restated) over 2003INCREASE/(DECREASE) |       |   | 2003 over 2002 INCREASE/(DECREASE) |  
|                                   |  | VOLUME                                       |       |   | RATE                               |   |        | NET |  |   | VOLUME |   |  | RATE |       |   | NET |  
|                                   |  | (in thousands)                               |      
|INTEREST EARNED ON:                |  |                                              |       |   |                                    |   |        |     |  |   |        |   |  |      |       |   |     |   |         |   |  |   |         |  
|Investment securities:             |  |                                              |       |   |                                    |   |        |     |  |   |        |   |  |      |       |   |     |   |         |   |  |   |         |  
|Taxable                            |  | $                                            | 2,687 |   |                                    | $ | (3,359 | )   |  | $ | (672   | ) |  | $    | 816   |   |     | $ | (4,106  | ) |  | $ | (3,290  | )
|Tax-exempt                         |  |                                              | (411  | ) |                                    |   | (78    | )   |  |   | (489   | ) |  |      | (578  | ) |     |   | (134    | ) |  |   | (712    | )
|Cash equivalents                   |  |                                              | (344  | ) |                                    |   | 161    |     |  |   | (183   | ) |  |      | 259   |   |     |   | (169    | ) |  |   | 90      |  
|Loans                              |  |                                              | 8,469 |   |                                    |   | (5,843 | )   |  |   | 2,626  |   |  |      | 6,217 |   |     |   | (12,707 | ) |  |   | (6,490  | )
|                                   |  |                                              |       |   |                                    |   |        |     |  |   |        |   |  |      |       |   |     |   |         |   |  |   |         |  
|Total interest-earning assets      |  |                                              |       |   |                                    |   |        |     |  |   | 1,282  |   |  |      |       |   |     |   |         |   |  |   | (10,402 | )
|                                   |  |                                              |       |   |                                    |   |        |     |  |   |        |   |  |      |       |   |     |   |         |   |  |   |         |  
|INTEREST PAID ON:                  |  |                                              |       |   |                                    |   |        |     |  |   |        |   |  |      |       |   |     |   |         |   |  |   |         |  
|Interest-bearing demand deposits   |  |                                              | 3     |   |                                    |   | (305   | )   |  |   | (302   | ) |  |      | (694  | ) |     |   | (3,158  | ) |  |   | (3,852  | )
|Savings deposits                   |  |                                              | (5    | ) |                                    |   | (62    | )   |  |   | (67    | ) |  |      | 13    |   |     |   | (417    | ) |  |   | (404    | )
|Time deposits                      |  |                                              | 2,937 |   |                                    |   | 278    |     |  |   | 3,215  |   |  |      | 3,914 |   |     |   | (6,547  | ) |  |   | (2,633  | )
|Short-term borrowings              |  |                                              | (5    | ) |                                    |   | 109    |     |  |   | 104    |   |  |      | (109  | ) |     |   | (1,106  | ) |  |   | (1,215  | )
|Notes payable and FHLB advances    |  |                                              | (753  | ) |                                    |   | 472    |     |  |   | (281   | ) |  |      | (443  | ) |     |   | (38     | ) |  |   | (481    | )
|Junior subordinated debentures     |  |                                              | 2,094 |   |                                    |   | (2,087 | )   |  |   | 7      |   |  |      | 4,026 |   |     |   | 33      |   |  |   | 4,059   |  
|                                   |  |                                              |       |   |                                    |   |        |     |  |   |        |   |  |      |       |   |     |   |         |   |  |   |         |  
|Total interest-bearing liabilities |  |                                              |       |   |                                    |   |        |     |  |   | 2,676  |   |  |      |       |   |     |   |         |   |  |   | (4,526  | )
|                                   |  |                                              |       |   |                                    |   |        |     |  |   |        |   |  |      |       |   |     |   |         |   |  |   |         |  
|Net interest income                |  | $                                            | 6,949 |   |                                    | $ | (8,343 | )   |  | $ | (1,394 | ) |  | $    | 5,546 |   |     | $ | (11,422 | ) |  | $ | (5,876  | )
|                                   |  |                                              |       |   |                                    |   |        |     |  |   |        |   |  |      |       |   |     |   |         |   |  |   |         |  



Provision for
Loan Losses



We determine a provision for loan losses
that we consider sufficient to maintain an allowance to absorb probable losses inherent in our portfolio as of the balance sheet date. For additional information concerning this determination, see the sections of this discussion and analysis
captioned Application of Critical Accounting PoliciesAllowance for Loan Losses, Nonperforming Assets and Impaired Loans and Allowance for Loan Losses.



Our provision for loan losses was $10.1 million during 2004, an increase of
$850,000, or 9.2%, over the provision for loan losses of $9.2 million in 2003. The increase in the provision was mainly due to the growth in commercial loans. Net charge-offs totaled $7.0 million during 2004 compared to $9.0 million in 2003.



Our provision of $9.2 million during 2003 was $667,000, or
6.7%, less than the provision of $9.9 million during 2002. The lower provision in 2003 as compared to 2002 was due to a more favorable outlook, based on evaluations of key qualitative factors, including the economic environment and the continuing
improvement in our credit administration. Net charge-offs totaled $6.9 million in 2002.



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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.



Noninterest Income



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



|                                           |  |                         |        |   |      |   |        |      |  |   |       
|------------------------------------------ |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------
|                                           |  | Year Ended December 31,
|                                           |  | (Restated)2004          |        |   | 2003 |   |        | 2002
|                                           |  | (in thousands)         
|Service charges                            |  | $                       | 10,854 |   |      | $ | 12,336 |      |  | $ | 12,206
|Trust and investment management fees       |  |                         | 5,471  |   |      |   | 5,051  |      |  |   | 5,541 
|Gain on sale of trust assets               |  |                         |       |   |      |   |       |      |  |   | 510   
|Mortgage-banking activities                |  |                         | (83    | ) |      |   | (408   | )    |  |   | 332   
|Gain on sale of investment securities, net |  |                         | 144    |   |      |   |       |      |  |   | 2,076 
|Loan syndication fees (1)                  |  |                         | 1,350  |   |      |   | 1,000  |      |  |   |      
|Letter of credit fees                      |  |                         | 565    |   |      |   | 807    |      |  |   | 261   
|ATM fees                                   |  |                         | 459    |   |      |   | 603    |      |  |   | 666   
|Net cash settlements of CD swaps           |  |                         | 2,166  |   |      |   |       |      |  |   |      
|Change in fair value of CD swaps           |  |                         | 27     |   |      |   |       |      |  |   |      
|Other noninterest income                   |  |                         | 566    |   |      |   | 652    |      |  |   | 387   
|                                           |  |                         |        |   |      |   |        |      |  |   |       
|Total noninterest income                   |  | $                       | 21,519 |   |      | $ | 20,041 |      |  | $ | 21,979
|                                           |  |                         |        |   |      |   |        |      |  |   |       

---

|(1) | Loan syndication fees in 2003 were formerly reported as part of net interest margin.
|--- | ------------------------------------------------------------------------------------



Our noninterest income was $21.5 million during 2004, an increase of $1.5 million, or 7.4%, as compared to the $20.0 million
of noninterest income in 2003. An increase in trust, investment management and loan syndication fees and net cash settlements on CD swaps, partly offset by lower service charges, produced the increase. Noninterest income of $20.0 million during 2003
was $1.9 million, or 8.8%, less than the noninterest income of $22.0 million during 2002. Most of the decline was due to gains realized on the sale of investment securities of $2.1 million during 2002. In addition, lower trust and investment
management income and losses from mortgage banking activities in 2003 also contributed to the decline. The receipt of $1.0 million in loan syndication fees and higher letter of credit fees in 2003 partly offset these decreases.



Service charges arise principally on deposit accounts. Service charges
declined to $10.9 million during 2004, compared to $12.3 million and $12.2 million during 2003 and 2002, respectively. 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 2004 was mainly caused by lower
commercial service charge income as a result of reduced activity fees.



Trust and investment management fees include corporate trust, land trust and tax deferred exchange trust services, as well as wealth management services, such as financial planning,



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insurance, and asset management services. Total trust and investment management fees increased $420,000, or 8.3%, to $5.5
million in 2004 compared to $5.1 million in 2003. Corporate and exchange trust fees increased $503,000 to $2.8 million producing the increase in revenues. Total trust and investment management fees in 2003 declined $490,000, or 8.8%, because we
exited fiduciary personal and employee benefit trust services in late 2002. During the second half of 2002, we sold a portion of these lines of trust business and recorded a gain of $510,000, which is reported separately in the table above. We have
signed a letter of intent to potentially sell our land trust business in 2005. In 2004, land trust revenues totaled $1.1 million.



We incurred losses related to our mortgage-banking activities of $83,000 and $408,000 during 2004 and 2003, respectively. The losses resulted from
indemnification agreements on loans sold in prior periods. No such losses were incurred in 2002. As of December 31, 2004, we had approximately $1.4 million of loans that we had sold in prior years for which we had agreed to indemnify a third
party for losses that may result from underwriting or documentation deficiencies. The losses recorded include actual indemnification losses incurred to date as well as our estimate of future losses from sold loans still outstanding and subject to
such indemnification agreements. Revenue from mortgage-banking activities was $332,000 for the year ended December 31, 2002. We discontinued most mortgage banking activities during 2002.



During 2004, we recorded a net gain on the sale of investment securities of
$144,000. The net gain primarily resulted from the sale of $99.7 million of U.S. government agency securities with short remaining maturities. The proceeds from the sale were reinvested in longer duration, higher yielding securities. In addition, we
sold low par value mortgage-backed securities to enhance the operational efficiency of our investment portfolio. We recorded no gains or losses on the sale of investment securities in 2003. Net gains on the sale of available-for-sale investment
securities totaled $2.1 million during 2002, resulting from the sale of $93 million of U.S. government agency securities. We reinvested the proceeds from these sales in U.S. government agency securities with longer maturities to extend the duration
of the investment portfolio.



During 2004, we received $1.35
million of loan syndication fees compared to $1.0 million in 2003. In our 2003 Annual Report the loan syndication fees were included in loan fees and therefore, were reported as part of net interest income. No such fees were received in 2002. These
fees were earned through the syndication of certain commercial real estate development loans for our customers. While professional real estate developers have for years been a significant part of our commercial banking business, we have not been
active in loan syndication. We expect the opportunity to provide this service to recur, but not necessarily on a routine, predictable basis.



ATM fees have declined since 2002 as the number of automatic teller machines we have deployed in our market has decreased.



We use certain interest rate exchange agreements, or swaps, to convert fixed
rate brokered certificates of deposits to a variable rate. For the year ended December 31, 2004, the net cash settlements from these CD swaps are reported in noninterest income.



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For the year ended December 31, 2004, we had a gain in fair value from these CD swaps of $27,000.
For additional information concerning the accounting treatment for these CD swaps, please see Application of Critical Accounting PoliciesDerivative Financial Instruments and Notes 1 and 19 to our consolidated financial statements
in this Form 10-K/A.



Other noninterest income principally
includes safe deposit rental fees and gains (losses) from equity, partnership or deferred compensation plan investments and totaled $566,000, $652,000 and $387,000 for the years ended December 31, 2004, 2003 and 2002, respectively.



Noninterest Expense



The following table presents for the periods indicated the composition of
our noninterest expense:



|                                                  |  |                                 |        |      |   |        |      |  |   |        
|------------------------------------------------- |  | ------------------------------- | ------ | ---- | - | ------ | ---- |  | - | -------
|                                                  |  | For the Year Ended December 31,
|                                                  |  | 2004                            |        | 2003 |   |        | 2002
|                                                  |  | (In thousands)                 
|Salaries and employee benefits:                   |  |                                 |        |      |   |        |      |  |   |        
|Salaries, employment taxes, and medical insurance |  | $                               | 31,813 |      | $ | 34,723 |      |  | $ | 35,985 
|Incentives, commissions, and retirement benefits  |  |                                 | 7,138  |      |   | 6,343  |      |  |   | 7,795  
|                                                  |  |                                 |        |      |   |        |      |  |   |        
|Total salaries and employee benefits              |  |                                 | 38,951 |      |   | 41,066 |      |  |   | 43,780 
|                                                  |  |                                 |       
|Occupancy of premises                             |  |                                 | 7,465  |      |   | 7,203  |      |  |   | 6,500  
|Furniture and equipment                           |  |                                 | 3,892  |      |   | 3,457  |      |  |   | 3,457  
|Lease abandonment and termination charge          |  |                                 | 984    |      |   | 3,534  |      |  |   |       
|Building sale write down                          |  |                                 |       |      |   |       |      |  |   | 386    
|Corporate insurance                               |  |                                 | 2,334  |      |   | 2,989  |      |  |   | 1,634  
|Computer processing                               |  |                                 | 1,874  |      |   | 2,038  |      |  |   | 2,400  
|Holding company legal fees, net                   |  |                                 | 624    |      |   | (1,019 | )    |  |   | 1,600  
|Bank legal fees, net                              |  |                                 | 1,184  |      |   | 1,962  |      |  |   | 2,498  
|Advertising and public relations                  |  |                                 | 1,489  |      |   | 3,050  |      |  |   | 2,187  
|Consulting                                        |  |                                 | 527    |      |   | 1,184  |      |  |   | 1,264  
|Other real estate and repossessed asset expense   |  |                                 | 472    |      |   | 155    |      |  |   | 393    
|Other intangible assets amortization              |  |                                 | 13     |      |   | 370    |      |  |   | 366    
|Litigation settlement charge                      |  |                                 |       |      |   |       |      |  |   | 61,900 
|Other noninterest expense                         |  |                                 | 11,864 |      |   | 13,234 |      |  |   | 14,789 
|                                                  |  |                                 |        |      |   |        |      |  |   |        
|Total noninterest expense                         |  | $                               | 71,673 |      | $ | 79,223 |      |  | $ | 143,154
|                                                  |  |                                 |        |      |   |        |      |  |   |        



Our noninterest
expense in 2004 was $71.7 million compared to $79.2 million during 2003, a decrease of $7.6 million, or 9.5%. The decrease in noninterest expense was primarily a result of our efforts to reduce our operating expenses. Salaries and benefits and
advertising expense declined in 2004 compared to 2003. In addition, in 2004 we recorded a $984,000 charge to terminate an operating lease for our former administrative offices in Wheeling, Illinois. In 2003, we recorded a $3.5 million charge when we
abandoned the Wheeling facility as part of our corporate center consolidation. Noninterest expense in 2003 was $79.2 million compared to $143.2 million during 2002. Excluding the litigation settlement charge of $61.9 million in 2002, noninterest
expense for 2003 would have decreased $2.0 million, or 2.5%, as compared to 2002. Lower net legal fees and salaries and benefits expense, partially offset by the $3.5 million charge for the abandonment of a leased facility, resulted in the lower
noninterest expense in 2003.



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Salaries and employee benefits represent the largest category of our noninterest expense. Total salaries
and benefits during 2004 were $39.0 million compared to $41.1 million during 2003, and $43.8 million in 2002, reflecting decreases of $2.1 million and $2.7 million, respectively. As part of our initiative to reduce our operating expenses, we have
reduced our workforce and eliminated positions throughout the organization. The number of full-time equivalent employees decreased almost 20% to 431 at the end of 2004 compared to 483 at the end of 2003 and 531 at the end of 2002. Total costs for
salaries, employment taxes and medical expenses in 2004 was $31.8 million compared to $34.7 million in 2003 and $36.0 million in 2002. Salary expense in each year included severance expense of $1.1 million in 2004, $533,000 in 2003 and $1.8 million
in 2002. Total incentives, commissions, and retirement benefits were $7.1 million for 2004 compared to $6.3 million for 2003, and $7.8 million for 2002.



Salaries and employee benefits expense in 2005 and in the future 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 the third quarter of 2005, we will be required to record compensation expense in the future for all existing stock options that have not vested as of June 30, 2005 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 salary and employee benefit
expense as a result of implementation. See the section of this discussion and analysis captioned New Accounting Pronouncements for additional details.



Total noninterest expense, including occupancy of premises and furniture and equipment, has been impacted and will continue
to be impacted by our initiative to rationalize our occupancy space. We have taken steps to both consolidate our administrative and operating departments and to modify our banking center profile. During late 2003, we transitioned our administrative
and operations departments to our new corporate center, 108,000 square feet of leased office space in Rosemont, Illinois. We moved departments to the corporate center that were previously located in our Wheeling, Ashland, and Burbank facilities. We
pursued alternatives regarding these vacated facilities, all of which previously held administrative offices as well as banking centers. In June 2004, we sold our Burbank facility and agreed to lease back approximately one-half of the space for our
existing banking center and the lending offices that remained at that location. Upon sale, we realized a gain of approximately $245,000 that was deferred and is being amortized over the 10-year life of the new operating lease. In December 2004, we
also completed the sale of our Ashland property. We agreed to sell this property in 2002 and recorded a $386,000 charge at that time to reduce the book value of the property to the expected net sales price. We retained a smaller parcel of land to
build a smaller banking facility that we expect to be operational in late 2005. In the fourth quarter of 2004, we reached an agreement to terminate the existing operating lease at the abandoned Wheeling facility. We closed this transaction on
February 18, 2005 and upon termination of our obligation under the existing lease, we signed a new 10-year operating lease for a smaller portion of that facility for a banking center.



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We have also modified our banking center profile by opening two new banking centers and exiting two
others. During the second quarter of 2004, we opened a 2,500 square foot leased banking center in Itasca, Illinois, a northwest suburb of Chicago. We also signed an operating lease for a 2,800 square foot facility in Orland Park, Illinois, a
southern suburb of Chicago. We expect the Orland Park facility to open during the first half of 2005. In October of 2003, we closed our Jackson banking center just before its operating lease expired. Finally, on January 27, 2005, we completed
the sale of our Broadview banking center. See the section of this discussion and analysis captioned Financial ConditionNon-earning Assets for additional details.



Our occupancy of premises expense was $7.5 million during 2004 as compared to $7.2 million during 2003, an increase of
$262,000. Most of the increase was due to higher rent expense resulting for our new Rosemont corporate center and rent payments on the new operating lease at our Burbank facility that began in the third quarter of 2004. These increases were partly
offset by a decline in depreciation of building-related improvements related to the abandonment of our Wheeling and Burbank facilities. Our occupancy of premises expense increased $703,000, or 10.8%, to $7.2 million during 2003 from $6.5 million
during 2002. Most of the increase was associated with the additional space leased for our new Rosemont corporate center.



Furniture and equipment expense was $3.9 million during 2004 compared to $3.5 million during both 2003 and 2002. The increase in expense during 2004
resulted from additional depreciation from the new furniture and equipment acquired in the fourth quarter of 2003 in connection with the corporate center consolidation.



In connection with the corporate center consolidation, we abandoned our administrative offices on the second and third
floors of our Wheeling facility, a 58,000 square foot facility. Upon ceasing to use this space in 2003, we recorded a $3.5 million lease abandonment charge. The charge was comprised of a $976,000 write-off of leasehold improvements, furniture and
other equipment that were abandoned and a $2.6 million charge for the liability related to the operating lease that represented the estimated liability for the lease payments that we would incur for the remaining term of the lease for which we would
receive no future economic benefit other than through subleasing. The abandonment liability was reduced by $357,000 in 2004 as we made rent payments. During 2004, we continued to pursue alternatives to terminate this lease obligation, which was
scheduled to end in March 2010. At the end of 2004, we reached an agreement to terminate the lease for a cash payment of $3.3 million and the transfer of a small parcel of land we owned next to the site. In connection with this agreement, we
recorded an additional charge of $984,000 in the fourth quarter of 2004 to increase our lease termination liability to $3.3 million, write-off the small parcel of land, and accrue the related transaction costs. On February 18, 2005, we closed
this transaction and terminated the lease. No additional expense was recorded in the first quarter of 2005 related to this lease termination transaction. Upon termination of our obligation under the existing lease, we signed a new 10-year operating
lease for 8,274 square feet on the first floor of the facility for a smaller banking center. We expect to save approximately $400,000 per year by operating the smaller space at this facility.



Corporate insurance totaled $2.3 million during 2004, compared to $3.0
million and $1.6 million during the years ended December 31, 2003 and 2002, respectively. An adjustment to our



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directors and officers insurance coverage, among other factors, caused the decrease in expense during 2004. The increase
in expense during 2003, as compared to 2002, was caused by higher costs for our directors and officers insurance policy associated with the first full year of a being a publicly-traded company.



Our computer processing expense is comprised of payments to third party
processors, primarily for our mission critical data processing applications including loans, deposits, and general ledger and ATM operations. Our computer processing expense was $1.9 million, $2.0 million, and $2.4 million during years
ending December 31, 2004, 2003, and 2002, respectively. A slight decline in expense for our primary data processing vendor caused the declines.



Currently, holding company legal fees consist primarily of costs for general corporate matters, including securities law compliance and other costs
associated with being a publicly-traded company. During 2002, holding company legal fees included costs related to the defense and settlement of litigation concerning our 1997 acquisition of the Bank. Portions of our defense costs related to the
litigation, which were recorded as expenses in previous periods, had been submitted to insurance carriers for reimbursement. During 2003, we received a $2.1 million reimbursement of such legal costs. We received no such reimbursements in 2004 or
2002 and we do not expect to receive any further reimbursements related to that litigation. Because of the reimbursement received in 2003, we reported higher holding company legal expenses during 2004 and 2002 as compared to 2003.



Bank legal fees relate to collection activities as well as general corporate
and compliance matters. Legal fees were $1.2 million, $2.0 million, and $2.5 million during 2004, 2003, and 2002, respectively. The decline in expense during 2004, as compared to 2003 resulted from lower legal fees incurred in our special asset loan
work out area. In addition to the decrease in gross expense, we were able to obtain more in reimbursements from these borrowers than in prior years. The higher legal fees in 2002 as compared to 2003 were primarily caused by increased collection
activity and professional fees related to our decision to exit some non-core lines of business and to develop new products and services for our core business banking customers.



We substantially reduced our advertising activities during 2004, resulting in a $1.6 million, or 51.2%, decrease to $1.5
million in 2004 from $3.1 million in 2003. Advertising and public relations expense was $2.2 million during 2002. Our advertising expense increased in 2003 because of a media campaign to increase the Banks visibility in the business community.
This campaign included television commercials, which began airing in 2003, print advertising, and the introduction of a new corporate identity with a more contemporary logo. The costs of producing the television commercials were capitalized in 2002
and 2003 and were being amortized, beginning in 2003, over three years, which had been the expected time horizon over which the commercials would be aired. At December 31, 2003, we had capitalized advertising costs totaling $503,000 recorded in
other assets on the Consolidated Balance Sheet. As part of our expense management initiative, we reduced planned advertising activities and discontinued the use of the television advertising campaign. Upon making the decision to discontinue the
television advertising, we wrote off the remaining balance of the capitalized advertising costs during the second quarter of 2004.



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Consulting expense was $527,000, $1.2 million, and $1.3 million during the years ended December 31,
2004, 2003, and 2002, respectively. The higher expense in 2003 and 2002 was due to projects related to information technology, strategic and facilities planning, and marketing consultation.



Other real estate and repossessed asset expense was $472,000 for the year
ended December 31, 2004, compared to expense of $155,000 and $393,000 for 2003 and 2002, respectively. The increase in expense during 2004 as compared to 2003 was associated with higher losses on the disposal of owned real estate properties.
This net expense is influenced to a large degree by the number and complexity of properties being maintained pending their sale.



At December 31, 2004, we had $54,000 of net intangible assets related to the purchase of land trust business in 1998. Intangible assets are amortized
over their estimated useful life, which is periodically reevaluated. The unamortized balance of $54,000 will be charged against the proceeds from the anticipated sale of our land trust business in 2005. Other intangible assets amortization expense
was $13,000, $370,000, and $366,000 during 2004, 2003, and 2002, respectively. The higher amortization expense in 2003 and 2002 related to other trust business purchased, the value of which was deemed expired at the end of 2003.



Noninterest expense in 2002 reflects a $61.9 million charge related to our
settlement of the split-off litigation. This settlement was funded with a portion of the net proceeds from the concurrent offerings of common stock and trust preferred securities completed in October 2002. See the section of this discussion and
analysis captioned Litigation and Settlement for additional details. The amount of the settlement was based, in part, on the anticipated initial public offering price of our common stock. After completion of the initial public offering
in October 2002, we paid $61.9 million in full satisfaction of our settlement agreements.



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 $11.9 million during 2004 compared to $13.2 million and $14.8 million during 2003 and 2002, respectively. Other noninterest expense in 2003 and 2002 included charges of $500,000 and $1.0 million, respectively, related
to our portfolio of indirect manufactured homes. Because of negative trends in the manufactured housing industry, we recorded the $1.0 million charge in 2002 to establish a reserve related to interest receivable carried in connection with this
portfolio. We increased this reserve by $500,000 in 2003, and the reserve represents our estimate of the portion of this prepaid interest receivable that may not be collectable. No such charges were recorded in 2004. In addition, during 2002, we
recorded an $856,000 charge related to consideration paid for the contractual termination of a revenue sharing agreement associated with the trust business acquired in October 2000. As part of that acquisition, we had agreed to share a portion of
the trust revenues earned on the accounts purchased over the following five years. In connection with our exit of certain fiduciary trust activities we have sold some of the trust accounts that were subject to this revenue sharing agreement.



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Income Taxes



Our income tax expense was $11.3 million during 2004, resulting in an effective tax rate of 33.0%, compared to our income
tax expense of $8.6 million during 2003, or an effective income tax rate of 31.4%. The higher level of pre-tax income caused the increase in income tax expense during 2004. The effective tax rates in 2004 and 2003 were impacted by the recognition of
$1.1 million and $1.0 million income tax benefits, respectively, relating to expenses deducted on prior years tax returns for which the statute of limitations has expired. Without the recognition of these benefits, the effective income tax
rates would have been 36.1% and 35.0% for 2004 and 2003, respectively.



Despite a net loss in 2002, we recorded income tax expense of $11.7 million primarily because we did not recognize any income tax benefit for financial reporting purposes with respect to the litigation settlement charge of $61.9 million. In
October 2002, the Company paid its obligation to a settlement fund to satisfy the claims of various plaintiff groups under certain lawsuits. The Company has not recognized any income tax benefit for financial reporting purposes with respect to the
litigation settlement payment of $61.9 million. However, the Company did deduct a portion of the settlement ($28.7 million) on its 2002 income tax return, because management believes that a portion of the settlement that relates to specific settled
claims is more likely than not deductible as ordinary and necessary business expense. This degree of certainty is not sufficient to recognize an income tax benefit for financial reporting purposes. The Company will recognize all or a portion of the
income tax benefit for financial reporting purposes if and when the Company determines that the position it took on its 2002 income tax return becomes probable of being sustained by the taxing authorities. Given the complexity of the litigation, the
settlement and related tax law, management continues to believe that only a specific resolution of the matter with the taxing authorities or the expiration of the statute of limitations would provide sufficient evidence for management to conclude
that the deductibility is probable. While the statute of limitations for the 2002 tax return expires in September 2006, the Internal Revenue Service can request an extension of the statute of limitations at any time prior to that date. Accrued
interest, taxes and other liabilities on our consolidated balance sheet at December 31, 2004 include $12.2 million representing the tax benefit of the deduction of $11.4 million and $787,000 of related accrued interest through such date, if the
deduction were disallowed by the taxing authorities.



Impact of Inflation and Changing Prices



The consolidated financial statements and notes thereto presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of our financial position and operating results in terms
of historical amounts without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, nearly all of our
assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on our performance than do the effects of the general levels of inflation. Interest rates do not necessarily move in the same direction or, to the same
extent, as the price of goods and services.



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Financial Condition



Our total assets increased $285.4 million, or 11.0%, during 2004 to $2.89 billion at December 31, 2004 compared to $2.60 billion at year-end 2003. An
increase in loans and investment securities primarily produced the increase. Total deposits increased $271.6 million, or 13.5%, to reached $2.28 billion at December 31, 2004 as compared to total deposits of $2.01 billion at December 31,
2003. Total stockholders equity decreased $20.9 million during 2004 to $155.6 million at December 31, 2004 compared to $176.5 million at December 31, 2003. The redemption of the $38.25 million of Series A preferred stock during
mid-2004 produced the decrease in total stockholders equity.



Average interest-earning assets during 2004 totaled $2.62 billion, an increase of $177.5 million, or 7.3%, as compared to average interest-earning assets of $2.45 billion during 2003. An $147.1 million increase in total average loans and a
$56.4 million increase in average investment securities produced the increase in average interest-earning assets. Average interest-bearing deposits during 2004 increased $115.5 million to $1.70 billion as compared to $1.58 billion during 2003, while
average noninterest-bearing deposits increased $52.8 million to $447.3 million over the same time period.



Interest-bearing Cash Equivalents



Interest-bearing cash equivalents consist of federal funds sold and deposits with the Federal Home Loan Bank. These balances are overnight or over weekend
investments and are maintained primarily for liquidity management purposes.



Investment Securities



Our investment portfolio is designed to provide a source of income with minimal risk of loss, a source of liquidity and interest rate risk management opportunities. In managing our investment portfolio within the composition of the entire
balance sheet, we balance our earnings, credit, interest rate risk, and liquidity considerations, with a goal of maximizing longer-term overall profitability.



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



|                                    |  |                    |         |                     |   |               |  |                     |     |               |   |                     |  |   |         |  |   |        
|----------------------------------- |  | ------------------ | ------- | ------------------- | - | ------------- |  | ------------------- | --- | ------------- | - | ------------------- |  | - | ------- |  | - | -------
|                                    |  | AVAILABLE-FOR-SALE |         | HELD-TO-MATURITY    |   | TOTAL        
|                                    |  | Amortizedcost      |         | Estimatedfair value |   | Amortizedcost |  | Estimatedfair value |     | Amortizedcost |   | Estimatedfair value
|                                    |  | (in thousands)    
|December 31, 2004:                  |  |                    |         |                     |   |               |  |                     |     |               |   |                     |  |   |         |  |   |        
|U.S. government agency securities   |  | $                  | 194,370 |                     | $ | 193,693       |  | $                   |    |               | $ |                    |  | $ | 194,370 |  | $ | 193,693
|Collateralized mortgage obligations |  |                    | 117,020 |                     |   | 115,693       |  |                     |    |               |   |                    |  |   | 117,020 |  |   | 115,693
|Mortgage-backed securities          |  |                    | 181,515 |                     |   | 180,351       |  |                     |    |               |   |                    |  |   | 181,515 |  |   | 180,351
|State and municipal obligations     |  |                    | 41,668  |                     |   | 43,607        |  |                     |    |               |   |                    |  |   | 41,668  |  |   | 43,607 
|Other debt securities               |  |                    |        |                     |   |              |  |                     | 275 |               |   | 275                 |  |   | 275     |  |   | 275    
|                                    |  |                    |         |                     |   |               |  |                     |     |               |   |                     |  |   |         |  |   |        
|Total                               |  | $                  | 534,573 |                     | $ | 533,344       |  | $                   | 275 |               | $ | 275                 |  | $ | 534,848 |  | $ | 533,619
|                                    |  |                    |         |                     |   |               |  |                     |     |               |   |                     |  |   |         |  |   |        
|December 31, 2003:                  |  |                    |         |                     |   |               |  |                     |     |               |   |                     |  |   |         |  |   |        
|U.S. government agency securities   |  | $                  | 176,888 |                     | $ | 180,243       |  | $                   |    |               | $ |                    |  | $ | 176,888 |  | $ | 180,243
|Collateralized mortgage obligations |  |                    | 116,053 |                     |   | 116,300       |  |                     |    |               |   |                    |  |   | 116,053 |  |   | 116,300
|Mortgage-backed securities          |  |                    | 143,259 |                     |   | 143,072       |  |                     |    |               |   |                    |  |   | 143,259 |  |   | 143,072
|State and municipal obligations     |  |                    | 45,918  |                     |   | 48,162        |  |                     |    |               |   |                    |  |   | 45,918  |  |   | 48,162 
|Other debt securities               |  |                    |        |                     |   |              |  |                     | 525 |               |   | 564                 |  |   | 525     |  |   | 564    
|                                    |  |                    |         |                     |   |               |  |                     |     |               |   |                     |  |   |         |  |   |        
|Total                               |  | $                  | 482,118 |                     | $ | 487,777       |  | $                   | 525 |               | $ | 564                 |  | $ | 482,643 |  | $ | 488,341
|                                    |  |                    |         |                     |   |               |  |                     |     |               |   |                     |  |   |         |  |   |        
|December 31, 2002:                  |  |                    |         |                     |   |               |  |                     |     |               |   |                     |  |   |         |  |   |        
|U.S. government agency securities   |  | $                  | 152,143 |                     | $ | 157,726       |  | $                   |    |               | $ |                    |  | $ | 152,143 |  | $ | 157,726
|Collateralized mortgage obligations |  |                    | 227,207 |                     |   | 234,382       |  |                     |    |               |   |                    |  |   | 227,207 |  |   | 234,382
|Mortgage-backed securities          |  |                    | 51,944  |                     |   | 55,200        |  |                     |    |               |   |                    |  |   | 51,944  |  |   | 55,200 
|State and municipal obligations     |  |                    | 51,539  |                     |   | 53,473        |  |                     |    |               |   |                    |  |   | 51,539  |  |   | 53,473 
|Other debt securities               |  |                    |        |                     |   |              |  |                     | 825 |               |   | 884                 |  |   | 825     |  |   | 884    
|                                    |  |                    |         |                     |   |               |  |                     |     |               |   |                     |  |   |         |  |   |        
|Total                               |  | $                  | 482,833 |                     | $ | 500,781       |  | $                   | 825 |               | $ | 884                 |  | $ | 483,658 |  | $ | 501,665
|                                    |  |                    |         |                     |   |               |  |                     |     |               |   |                     |  |   |         |  |   |        

Investment securities do not include investments in Federal Home Loan Bank and Federal Reserve Bank stock of $12.5
million, $12.1 million and $11.0 million, at December 31, 2004, 2003, and 2002, respectively. These investments are stated at cost.



Our investment portfolio increased by $45.3 million, or 9.3%, to $533.6 million at December 31, 2004 compared to $488.3 million at year-end 2003. We
increased our investment portfolio to increase net interest income by increasing interest-earning assets. During 2004, we sold $103.5 million of available-for-sale investment securities at a net gain of $144,000. We sold U.S. government agency
securities with short maturities and reinvested the proceeds in both agency and mortgage-backed securities with longer durations and higher yields. We also sold approximately $3.7 million of mortgage-related securities with very low par values to
improve the operating efficiency of our investment portfolio. We purchased a total of $251.9 million of investment securities in 2004.



The net unrealized loss on the available for sale portfolio was $1.2 million at the end of 2004 compared to an unrealized gain of $5.7 million at the end
of 2003. The decline in the fair value of the portfolio was due to changes in market interest rates and to a lesser degree prepayment speeds on mortgage-related securities. At December 31, 2004, we had 24



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investment securities in an unrealized loss position. Of these securities, six 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.



Our investment
portfolio totaled $488.3 million at December 31, 2003, a decrease of $13.3 million as compared to the investment portfolio of $501.6 million at December 31, 2002. The portfolio experienced significant repayments of mortgage-related
securities in 2003. To offset these repayments, we purchased additional mortgage-backed securities, and to a lesser extent, collateralized mortgage obligations, or CMOs, and U.S. government agency securities during 2003. In addition, the unrealized
gain on the available-for-sale portion of the portfolio declined $12.3 million due to changes in market interest rates and prepayment speeds during the year.



Investment Portfolio  Maturity and Yields



The following table summarizes the contractual maturity of investment securities and their weighted average yields:



|                                        |  |                         |        |       |                               |   |        |                               |         |  |                |        |  |       |         |  |        |   |       |   |        |       |      |       |  |   |         |  |      |  
|--------------------------------------- |  | ----------------------- | ------ | ----- | ----------------------------- | - | ------ | ----------------------------- | ------- |  | -------------- | ------ |  | ----- | ------- |  | ------ | - | ----- | - | ------ | ----- | ---- | ----- |  | - | ------- |  | ---- | -
|                                        |  | AS OF DECEMBER 31, 2004 |       
|                                        |  | WITHIN ONEYEAR          |        |       | AFTER ONE BUTWITHIN FIVEYEARS |   |        | AFTER FIVE BUTWITHIN TENYEARS |         |  | AFTER TENYEARS |        |  | TOTAL |        
|                                        |  | AMOUNT                  |        | YIELD |                               |   | AMOUNT |                               | YIELD   |  |                | AMOUNT |  | YIELD |         |  | AMOUNT |   | YIELD |   |        | TOTAL |      | YIELD | 
|                                        |  | (dollars in thousands)  |       
|Available-for-sale securities (1):      |  |                         |        |       |                               |   |        |                               |         |  |                |        |  |       |         |  |        |   |       |   |        |       |      |       |  |   |         |  |      |  
|U.S. government agency securities       |  | $                       | 9,967  |       | 4.51                          | % |        | $                             | 138,085 |  | 3.28           | %      |  | $     | 45,641  |  | 4.33   | % |       | $ |       |       |     | %     |  | $ | 193,693 |  | 3.59 | %
|Collateralized mortgage obligations (2) |  |                         | 12,538 |       | 3.73                          |   |        |                               | 71,518  |  | 3.90           |        |  |       | 31,637  |  | 3.98   |   |       |   |       |       |     |       |  |   | 115,693 |  | 3.90 |  
|Mortgage-backed securities (2)          |  |                         | 32,890 |       | 4.28                          |   |        |                               | 88,803  |  | 4.25           |        |  |       | 47,426  |  | 4.28   |   |       |   | 11,232 |       | 4.58 |       |  |   | 180,351 |  | 4.28 |  
|States and political subdivisions (3)   |  |                         | 3,835  |       | 6.51                          |   |        |                               | 11,151  |  | 6.00           |        |  |       | 10,768  |  | 7.48   |   |       |   | 17,853 |       | 7.65 |       |  |   | 43,607  |  | 7.08 |  
|                                        |  |                         |        |       |                               |   |        |                               |         |  |                |        |  |       |         |  |        |   |       |   |        |       |      |       |  |   |         |  |      |  
|Total available-for-sale                |  |                         | 59,230 |       | 4.34                          |   |        |                               | 309,557 |  | 3.80           |        |  |       | 135,472 |  | 4.48   |   |       |   | 29,085 |       | 6.46 |       |  |   | 533,344 |  | 4.18 |  
|Held-to-maturity securities (4):        |  |                         |        |       |                               |   |        |                               |         |  |                |        |  |       |         |  |        |   |       |   |        |       |      |       |  |   |         |  |      |  
|Other debt securities                   |  |                         |       |       |                              |   |        |                               | 275     |  | 7.11           |        |  |       |        |  |       |   |       |   |       |       |     |       |  |   | 275     |  | 7.11 |  
|                                        |  |                         |        |       |                               |   |        |                               |         |  |                |        |  |       |         |  |        |   |       |   |        |       |      |       |  |   |         |  |      |  
|Total held-to-maturity                  |  |                         |       |       |                              |   |        |                               | 275     |  | 7.11           |        |  |       |        |  |       |   |       |   |       |       |     |       |  |   | 275     |  | 7.11 |  
|                                        |  |                         |        |       |                               |   |        |                               |         |  |                |        |  |       |         |  |        |   |       |   |        |       |      |       |  |   |         |  |      |  
|Total securities                        |  | $                       | 59,230 |       | 4.34                          | % |        | $                             | 309,832 |  | 3.80           | %      |  | $     | 135,472 |  | 4.48   | % |       | $ | 29,085 |       | 6.46 | %     |  | $ | 533,619 |  | 4.18 | %
|                                        |  |                         |        |       |                               |   |        |                               |         |  |                |        |  |       |         |  |        |   |       |   |        |       |      |       |  |   |         |  |      |  

---

|(1) | Based on estimated fair value.
|--- | ------------------------------

|(2) | Maturities of mortgage-backed securities and collateralized mortgage obligations (CMOs) are based on anticipated lives of the underlying mortgages, not contractual maturities. CMO
maturities are based on cash flow (or payment) windows derived from broker market consensus.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Rates on obligations of states and political subdivisions have been adjusted to tax equivalent yields using a 35% income tax rate.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

|(4) | Based on amortized cost.
|--- | ------------------------



Investments in U.S. Treasury securities and U.S. government agency securities are generally considered to have low credit risk. Our mortgage-backed
securities holdings consist principally of direct pass through securities issued by the Fannie Mae and Freddie Mac. These securities are also considered to have low credit risk, but do possess market value risk due to the prepayment risk
associated with mortgage-backed securities. Our CMOs consist primarily of planned amortization class securities that are backed by fixed-rate, single-family mortgage loans. Although CMOs are guaranteed as to principal and interest by certain
agencies, primarily Fannie Mae and Freddie Mac, they possess market risk due to the prepayment risk associated with the underlying collateral.



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We generally invest in state and municipal obligations that are rated investment grade by nationally
recognized rating organizations. However, certain municipal issues, which are restricted to our local market area, are not rated and undergo the Banks standard underwriting procedures for loan transactions. We also have investments in Federal
Reserve Bank stock and Federal Home Loan Bank stock which are required to be maintained for various purposes. At December 31, 2004, we held no securities of any single issuer, other than U.S. government agency securities, that exceeded 10% of
stockholders equity. Although we hold securities issued by municipalities within the State of Illinois that, in the aggregate, exceed 10% of stockholders equity, none of the holdings from any individual municipal issue exceed this
threshold.



Investment securities with an approximate book
value of $304 million and $270 million at December 31, 2004 and 2003, respectively, were pledged to collateralize certain deposits, securities sold under agreements to repurchase, FHLB advances, and for other purposes as required or permitted
by law.



Loan Portfolio



Our primary source of income is interest on loans. The following table
presents the composition of our loan portfolio by type of loan as of the dates indicated:



|                                      |  |                    |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|------------------------------------- |  | ------------------ | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                      |  | As of December 31, |          
|                                      |  | 2004               |           |   | 2003 |   |           | 2002 |  |   | 2001      |   |  | 2000 |          
|                                      |  | (in thousands)     |          
|Commercial and industrial             |  | $                  | 656,099   |   |      | $ | 589,987   |      |  | $ | 586,885   |   |  | $    | 521,592   |   |  | $ | 481,812   |  
|Commercial real estate secured        |  |                    | 732,251   |   |      |   | 642,364   |      |  |   | 484,015   |   |  |      | 354,214   |   |  |   | 353,043   |  
|Real estate  construction            |  |                    | 531,868   |   |      |   | 364,294   |      |  |   | 317,739   |   |  |      | 380,674   |   |  |   | 328,856   |  
|Residential real estate  mortgages   |  |                    | 64,569    |   |      |   | 86,710    |      |  |   | 117,652   |   |  |      | 160,699   |   |  |   | 188,766   |  
|Mortgage loans held-for-sale          |  |                    |          |   |      |   |          |      |  |   |          |   |  |      | 1,147     |   |  |   | 7,004     |  
|Home equity loans and lines of credit |  |                    | 207,164   |   |      |   | 253,006   |      |  |   | 336,727   |   |  |      | 273,133   |   |  |   | 209,870   |  
|Consumer                              |  |                    | 18,386    |   |      |   | 24,636    |      |  |   | 34,572    |   |  |      | 47,572    |   |  |   | 40,414    |  
|Other loans                           |  |                    | 1,460     |   |      |   | 1,330     |      |  |   | 2,412     |   |  |      | 3,461     |   |  |   | 2,836     |  
|                                      |  |                    |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Gross loans                           |  |                    | 2,211,797 |   |      |   | 1,962,327 |      |  |   | 1,880,002 |   |  |      | 1,742,492 |   |  |   | 1,612,601 |  
|Less: Unearned discount               |  |                    | (191      | ) |      |   | (319      | )    |  |   | (528      | ) |  |      | (855      | ) |  |   | (909      | )
|                                      |  |                    |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Total loans                           |  |                    | 2,211,606 |   |      |   | 1,962,008 |      |  |   | 1,879,474 |   |  |      | 1,741,637 |   |  |   | 1,611,692 |  
|Less: Allowance for loan losses       |  |                    | (37,484   | ) |      |   | (34,356   | )    |  |   | (34,073   | ) |  |      | (31,118   | ) |  |   | (29,568   | )
|                                      |  |                    |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Loans, net                            |  | $                  | 2,174,122 |   |      | $ | 1,927,652 |      |  | $ | 1,845,401 |   |  | $    | 1,710,519 |   |  | $ | 1,582,124 |  
|                                      |  |                    |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  



At December 31,
2004, our gross loan portfolio totaled $2.2 billion compared to gross loans at December 31, 2003 and 2002 of $1.96 billion and $1.88 billion, respectively. Our loan portfolio is comprised primarily of commercial loans, which constituted 87% of
total loans at December 31, 2004. Our commercial loan portfolio, which includes commercial and industrial, commercial real estate secured, and real estateconstruction, totaled $1.92 billion at year-end, an increase of $323.6 million, or
20.3%, over commercial loans of $1.60 billion at December 31, 2003. Our consumer-oriented loan products, which include residential real estate mortgages, home equity loans and lines of credit, and consumer loans decreased to $290.1 million at
year-end



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2004 compared to $364.4 million and $489.0 million at December 31, 2003 and 2002, respectively. Consumer loans have continued to decline as we
discontinued origination of indirect auto and manufactured homes, de-emphasized first mortgage products, and ceased acquiring home equity loans and lines from mortgage brokers.



Commercial and industrial (C&I) loans consist of loans to businesses or for business purposes that are either unsecured
or secured by collateral other than the business real estate. These loans totaled $656.1 million, $590.0 million, and $586.9 million, at December 31, 2004, 2003, and 2002, respectively and have represented approximately 30% of our total loan
portfolio in each of the last three years. Commercial and industrial loans increased $66.1 million, or 11%, during 2004. While total commercial credit line commitments have increased each year, the percentage of the total commercial credit lines
actually drawn on by the borrowers was 63%, 59% and 62% at December 31, 2004, 2003 and 2002, respectively.



Loans secured by commercial real estate consist of commercial owner-occupied properties as well as investment properties. These loans totaled $732.3
million, $642.4 million, and $484.0 million, at December 31, 2004, 2003, and 2002, respectively and have represented approximately 33% of our total loan portfolio over the past two years and 26% at the end of 2002. Commercial real estate
secured loans increased $89.9 million, or 14%, during 2004. At December 31, 2004 our commercial real estate secured portfolio was comprised of $215 million (or 29%) owner-occupied commercial real estate, $109 million (or 15%) multi-family
investment properties and the remaining 56% was secured by commercial income-producing properties. The growth in commercial real estate secured loans in 2004 and 2003 related primarily to investment and income-producing commercial properties.
Commercial real estate lending has remained strong over the last two years as historically low interest rates have added to the attractiveness of real estate investments.



Real estate-construction loans consist primarily of loans to professional real estate developers for the construction of
single-family homes, town-homes, condominium conversions and commercial property. These loans totaled $531.9 million, $364.3 million, and $317.7 million at December 31, 2004, 2003 and 2002, respectively. These loans represented 24% of our total
loan portfolio at December 31, 2004, compared to 19% and 17% at December 31, 2003 and 2002, respectively. Real estate construction loans increased $167.6 million, or 46%, in 2004. Approximately two thirds of the growth in 2004 was related
to residential real estate development.



Our portfolio of
residential real estate-mortgages continues to decline as a result of our decision to de-emphasize this product in 2001. At December 31, 2004, this portfolio totaled $64.6 million compared to $86.7 million and $117.7 million at
December 31, 2003 and 2002, respectively. Correspondingly, this portfolio as a percentage of total loans has decreased to 3% at year-end 2004 from 6% at December 31, 2002. We expect that this portfolio of loans will continue to decline. In
2001, we also stopped originating loans for sale into the secondary market, and as a result, we no longer have loans classified as held-for-sale.



Our portfolio of home equity loans and lines of credit continues to decline as a result of our decision to discontinue the origination of third-party
sourced home equity products in 2002. At



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December 31, 2004, this portfolio totaled $207.2 million, compared to $253.0 million and $336.7 million at December 31, 2003 and 2002 respectively.
Correspondingly, this portfolio as a percentage of total loans has decreased to 9% at year-end 2004 from 18%, at December 31, 2002. The percentage of our home equity loans and lines that exceed 80% of the appraised value of the underlying real
estate, after giving effect to any outstanding first mortgage loans, was 24% at December 31, 2004 as compared to 35% at year-end 2002. The Banks general underwriting guidelines do not allow lines in excess of 100% of appraised value. The
percentage of our outstanding home equity loans and lines that were originally sourced through mortgage brokers was 33% at year-end 2004 compared to 56% at December 31, 2002.



Consumer loans were $18.4 million, $24.6 million, and $34.6 million at December 31, 2004, 2003, and 2002, respectively
and represent approximately 1% of total loans at December 31, 2004. Of total consumer loans at December 31, 2004, 74% were indirect manufactured home loans, 8% were indirect auto and boat loans, 3% were direct auto loans, and the remaining
15% were other personal secured and unsecured loans. During 2003, we sold the remaining portion of our credit card portfolio for a modest gain, and we had previously discontinued the origination of indirect auto and manufactured homes. As a result,
we expect our indirect consumer loan portfolio to continue to decline as these loans repay.



The following table shows our maturity distribution of gross loans as of the dates indicated:



|                                      |  |                            |            |                             |                          |              |           |       |                          |  |   |         |  |   |         |  |   |          
|------------------------------------- |  | -------------------------- | ---------- | --------------------------- | ------------------------ | ------------ | --------- | ----- | ------------------------ |  | - | ------- |  | - | ------- |  | - | ---------
|                                      |  | As of December 31, 2004(1)
|                                      |  | ONE YEAROR LESS            |            | OVER 1 YEAR THROUGH 5 YEARS |                          | OVER 5 YEARS |           | TOTAL
|                                      |  |                            | FIXED RATE |                             | FLOATINGORADJUSTABLERATE |              | FIXEDRATE |       | FLOATINGORADJUSTABLERATE | 
|                                      |  | (in thousands)            
|Commercial and commercial real estate |  | $                          | 573,787    |                             | $                        | 407,812      |           | $     | 291,370                  |  | $ | 99,180  |  | $ | 16,201  |  | $ | 1,388,350
|Real estate  construction            |  |                            | 272,115    |                             |                          | 33,644       |           |       | 210,590                  |  |   | 15,519  |  |   |        |  |   | 531,868  
|Residential real estate  mortgages   |  |                            | 4,704      |                             |                          | 8,704        |           |       | 7,186                    |  |   | 7,193   |  |   | 36,782  |  |   | 64,569   
|Home equity loans and lines of credit |  |                            | 7,367      |                             |                          | 18,067       |           |       | 19,080                   |  |   | 4,320   |  |   | 158,330 |  |   | 207,164  
|Consumer                              |  |                            | 2,312      |                             |                          | 3,882        |           |       | 78                       |  |   | 11,632  |  |   | 482     |  |   | 18,386   
|Other loans                           |  |                            | 1,460      |                             |                          |             |           |       |                         |  |   |        |  |   |        |  |   | 1,460    
|                                      |  |                            |            |                             |                          |              |           |       |                          |  |   |         |  |   |         |  |   |          
|Total gross loans                     |  | $                          | 861,745    |                             | $                        | 472,109      |           | $     | 528,304                  |  | $ | 137,844 |  | $ | 211,795 |  | $ | 2,211,797
|                                      |  |                            |            |                             |                          |              |           |       |                          |  |   |         |  |   |         |  |   |          

---

|(1) | Maturities are based upon contractual dates. Demand loans are included in the one year or less category and totaled $6.2 million as of December 31, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



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Nonperforming Assets and Impaired Loans



Lending officers and their managers are responsible for continuous review of
present and estimated future performance of the loans within their assigned portfolio and for risk rating such loans in accordance with the Banks risk rating system. In addition, an objective loan review process independently risk rates loans
to monitor and confirm the effectiveness of the lending officers loan risk rating conclusion. Delinquency reports are reviewed monthly by the lending officers, their managers and credit administration. The current status of loans past due or
current but graded below a designated level is reported by the responsible lending officer to a loan committee where consideration is given to placing the loan on nonaccrual, the need for a specific allowance for loan loss, or, if appropriate, a
partial or full charge-off.



Nonperforming loans include
nonaccrual loans and interest-accruing loans contractually past due 90 days or more. Loans are placed on a nonaccrual basis for recognition of interest income when sufficient doubt exists as to the full collection of principal and interest.
Generally, loans are to be placed on nonaccrual when principal and interest is contractually past due 90 days, unless the loan is adequately secured and in the process of collection.



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



|                                                                         |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|------------------------------------------------------------------------ |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                                         |  | As of December 31,     |       
|                                                                         |  | 2004                   |        |   | 2003 |   |        | 2002 |  |   | 2001   |   |  | 2000 |       
|                                                                         |  | (dollars in thousands) |       
|Loans contractually past due 90 days or more but still accruing interest |  | $                      | 1,807  |   |      | $ | 4,728  |      |  | $ | 6,151  |   |  | $    | 3,744  |   |  | $ | 4,487  |  
|Nonaccrual loans                                                         |  |                        | 12,286 |   |      |   | 18,056 |      |  |   | 12,107 |   |  |      | 13,656 |   |  |   | 6,684  |  
|                                                                         |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total nonperforming loans                                                |  |                        | 14,093 |   |      |   | 22,784 |      |  |   | 18,258 |   |  |      | 17,400 |   |  |   | 11,171 |  
|Other real estate                                                        |  |                        | 46     |   |      |   | 141    |      |  |   | 602    |   |  |      | 322    |   |  |   | 153    |  
|Other repossessed assets                                                 |  |                        | 12     |   |      |   | 23     |      |  |   | 23     |   |  |      | 247    |   |  |   | 132    |  
|                                                                         |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total nonperforming assets                                               |  | $                      | 14,151 |   |      | $ | 22,948 |      |  | $ | 18,883 |   |  | $    | 17,969 |   |  | $ | 11,456 |  
|                                                                         |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Restructured loans not included in nonperforming assets                  |  | $                      | 1,777  |   |      | $ | 130    |      |  | $ | 313    |   |  | $    |       |   |  | $ |       |  
|                                                                         |  |                        |        |   |     
|Nonperforming loans to total loans                                       |  |                        | 0.64   | % |      |   | 1.16   | %    |  |   | 0.97   | % |  |      | 1.00   | % |  |   | 0.69   | %
|Nonperforming assets to total loans plus repossessed property            |  |                        | 0.64   | % |      |   | 1.17   | %    |  |   | 1.00   | % |  |      | 1.03   | % |  |   | 0.71   | %
|Nonperforming assets to total assets                                     |  |                        | 0.49   | % |      |   | 0.88   | %    |  |   | 0.74   | % |  |      | 0.75   | % |  |   | 0.51   | %



A loan is considered
impaired if, based upon current information and events, it is probable that we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Certain homogenous loans,
including residential mortgage and consumer loans, are collectively evaluated for impairment and, therefore, do not have individual credit risk ratings and are excluded from impaired loans. Impaired loans include all nonaccrual loans as well as
certain accruing loans judged to have higher risk of noncompliance with the present contractual repayment schedule for both interest and principal. Once a loan has been determined to be impaired, it is measured to establish the amount of the
impairment. While impaired loans exhibit weaknesses that may inhibit repayment in compliance with the original note terms, the measurement of impairment may not always



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result in an allowance for loan loss for every impaired loan. The amount in the allowance for loan losses for impaired
loans is based on the present value of expected future cash flows discounted at the loans effective interest rate, except that collateral-dependent loans may be measured for impairment based on the fair value of the collateral, net of cost to
sell.



Information about the impaired loans at or for the years
ended December 31, 2004, 2003, and 2002 is as follows:



|                                                                    |  |                |        |      |   |        |  |   |       
|------------------------------------------------------------------- |  | -------------- | ------ | ---- | - | ------ |  | - | ------
|                                                                    |  | 2004           |        | 2003 |   | 2002  
|                                                                    |  | (in thousands)
|Recorded balance of impaired loans, at end of year:                 |  |                |        |      |   |        |  |   |       
|With related allowance for loan loss                                |  | $              | 12,271 |      | $ | 12,788 |  | $ | 9,454 
|With no related allowance for loan loss                             |  |                | 6,056  |      |   | 11,559 |  |   | 7,453 
|                                                                    |  |                |        |      |   |        |  |   |       
|Total                                                               |  | $              | 18,327 |      | $ | 24,347 |  | $ | 16,907
|                                                                    |  |                |        |      |   |        |  |   |       
|Allowance for loan losses related to impaired loans, at end of year |  | $              | 1,067  |      | $ | 5,503  |  | $ | 3,333 
|Average balance of impaired loans for the year                      |  |                | 20,797 |      |   | 23,377 |  |   | 16,616
|Interest income recognized on impaired loans for the year           |  |                | 1,004  |      |   | 982    |  |   | 598   



In addition to the
impaired loans, we continue to closely monitor the credit quality trends in the manufactured housing industry and its potential impact on our portfolio of loans secured by manufactured homes. These trends could lead to higher net charge-offs in the
future. At December 31, 2004, our consumer loan portfolio included $13.7 million of loans to consumers secured by manufactured homes.



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 the formula described below,
specific allowances for identified problem loans and portfolio segments, and the unallocated allowance.



The formula portion of the allowance is calculated by applying loss factors to categories of loans outstanding in the portfolio. The loans are categorized
by loan type as commercial, residential real estate mortgage and consumer loans. Those categories are further segregated by risk classification and in some cases by delinquency status. Each commercial, commercial real estate and real estate
construction loan has a risk grade based on formal defined criteria. For consumer loans, we further categorize the loans into consumer loan product types; for example home equity loans over 80% loan to value, home equity loans equal to or less than
80%, and loans secured by manufactured homes. Segregation of the loans into more discrete pools facilitates greater precision in matching historic and expected loan losses with the source of the loss. We adjust these pools from time to time, based
on the changing composition of the loan portfolio, segmenting loans with similar attributes and risk characteristics. We calculate actual historic loss rates for prior years for each separate loan segment identified. Each of the prior years
historical loss rates is then weighted based on our evaluation of the duration of the economic cycle to arrive at a current expected loss rate. The current expected loss rates are



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adjusted, if deemed appropriate, for other relevant factors affecting the segments, including changes in lending
practices, trends in past due loans and industry, geographical, collateral and size concentrations. Finally, the resulting loss factors are multiplied against the current period loans outstanding to derive an estimated loss.



Specific allowances are established in cases where management has identified
significant conditions or circumstances related to a loan that indicate a loss will probably be incurred, but the degree of certainty and loss quantification has not reached the charge-off level. The amount in the allowance for loan losses for
impaired loans is determined based on the present value of expected future cash flows discounted at the loans effective interest rate, except that collateral-dependent loans may be measured for impairment based on the fair value of the
collateral, net of cost to sell. If the measure of the impaired loan is less than the recorded investment in the loan, a specific allowance is established.



The unallocated portion of the allowance contains amounts that are based on managements evaluation of conditions that are not directly measured in
the determination of the formula and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio
segments. The factors assessed are more qualitative in nature. Conditions affecting the entire lending portfolio evaluated in connection with the unallocated portion of the allowance include: general economic and business conditions, duration of the
current business cycle, the impact of competition on our underwriting terms, current general market collateral valuations and findings of our independent loan review process. Executive management reviews these conditions quarterly in discussion with
our senior lenders and credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, managements estimate of the effect of such condition
may be reflected as part of the formula allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment, managements evaluation of the
probable loss related to such conditions is reflected in the unallocated portion of the 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.



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



|                                        |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|--------------------------------------- |  | ----------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                        |  | Year Ended December 31, |          
|                                        |  | 2004                    |           |   | 2003 |   |           | 2002 |  |   | 2001      |   |  | 2000 |          
|                                        |  | (dollars in thousands)  |          
|Average total loans                     |  | $                       | 2,045,723 |   |      | $ | 1,898,604 |      |  | $ | 1,800,544 |   |  | $    | 1,660,082 |   |  | $ | 1,550,403 |  
|                                        |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Total loans at end of year              |  | $                       | 2,211,606 |   |      | $ | 1,962,008 |      |  | $ | 1,879,474 |   |  | $    | 1,741,637 |   |  | $ | 1,611,692 |  
|                                        |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Allowance for loan losses:              |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Allowance at beginning of year          |  | $                       | 34,356    |   |      | $ | 34,073    |      |  | $ | 31,118    |   |  | $    | 29,568    |   |  | $ | 26,261    |  
|                                        |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Charge-offs:                            |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Commercial and commercial real estate   |  |                         | (6,783    | ) |      |   | (8,099    | )    |  |   | (6,603    | ) |  |      | (7,987    | ) |  |   | (3,862    | )
|Real estate construction               |  |                         | (85       | ) |      |   |          |      |  |   | (350      | ) |  |      |          |   |  |   |          |  
|Residential real estate  mortgages     |  |                         | (202      | ) |      |   | (101      | )    |  |   | (152      | ) |  |      | (96       | ) |  |   | (136      | )
|Consumer and other (1)                  |  |                         | (2,050    | ) |      |   | (1,748    | )    |  |   | (1,428    | ) |  |      | (914      | ) |  |   | (952      | )
|                                        |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Subtotal                                |  |                         | (9,120    | ) |      |   | (9,948    | )    |  |   | (8,533    | ) |  |      | (8,997    | ) |  |   | (4,950    | )
|                                        |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Recoveries:                             |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Commercial and commercial real estate   |  |                         | 1,550     |   |      |   | 560       |      |  |   | 1,403     |   |  |      | 615       |   |  |   | 661       |  
|Real estate construction               |  |                         | 2         |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Residential real estate mortgages      |  |                         | 47        |   |      |   | 46        |      |  |   | 43        |   |  |      |          |   |  |   | 8         |  
|Consumer and other (1)                  |  |                         | 566       |   |      |   | 392       |      |  |   | 142       |   |  |      | 232       |   |  |   | 134       |  
|                                        |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Subtotal                                |  |                         | 2,165     |   |      |   | 998       |      |  |   | 1,588     |   |  |      | 847       |   |  |   | 803       |  
|                                        |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net charge-offs                         |  |                         | (6,955    | ) |      |   | (8,950    | )    |  |   | (6,945    | ) |  |      | (8,150    | ) |  |   | (4,147    | )
|                                        |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Provision for loan losses               |  |                         | 10,083    |   |      |   | 9,233     |      |  |   | 9,900     |   |  |      | 9,700     |   |  |   | 7,454     |  
|                                        |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Allowance at end of year                |  | $                       | 37,484    |   |      | $ | 34,356    |      |  | $ | 34,073    |   |  | $    | 31,118    |   |  | $ | 29,568    |  
|                                        |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net charge-offs to average total loans  |  |                         | 0.34      | % |      |   | 0.47      | %    |  |   | 0.39      | % |  |      | 0.49      | % |  |   | 0.27      | %
|Allowance to total loans at end of year |  |                         | 1.69      | % |      |   | 1.75      | %    |  |   | 1.81      | % |  |      | 1.79      | % |  |   | 1.83      | %
|Allowance to non-performing loans       |  |                         | 265.98    | % |      |   | 150.79    | %    |  |   | 186.62    | % |  |      | 178.84    | % |  |   | 264.69    | %

---

|(1) | Consumer loan charge-offs include charge-offs relating to credit card loans, indirect and direct auto loans, home equity loans and lines of credit, overdrafts and all other types of
consumer loans.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Loans are charged off when the
loss is highly probable and clearly identified. Net charge-offs were $7.0 million, or 0.34% of average loans during 2004. In comparison, net charge-offs totaled $9.0 million, or 0.47% of average loans, during 2003 and $6.9 million, or 0.39% of
average loans, during 2002. The provision for loan losses was $10.1 million, $9.2 million, and $9.9 million for the years ended December 31, 2004, 2003 and 2002 respectively. In each year, the provision for loan losses exceeded net charge offs.



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. At December 31, 2004, our top 20 borrowing customers had balances outstanding from $12 million to $25 million and those
loan balances totaled $308.6 million. 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



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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.



The table below presents an allocation of the allowance for loan losses among the various loan categories and sets forth the percentage of loans in each
category to gross loans. The allocation of the allowance for loan losses as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in
these amounts or in the indicated proportions.



ALLOCATION OF
THE ALLOWANCE FOR LOAN LOSSES



|                                      |  |                        |        |                               |       |   |        |      |                               |  |       |        |  |                               |        |  |        |   |                               |   |        |        |       |                               |  |   |        |  |       |  
|------------------------------------- |  | ---------------------- | ------ | ----------------------------- | ----- | - | ------ | ---- | ----------------------------- |  | ----- | ------ |  | ----------------------------- | ------ |  | ------ | - | ----------------------------- | - | ------ | ------ | ----- | ----------------------------- |  | - | ------ |  | ----- | -
|                                      |  | As of December 31,     |       
|                                      |  | 2004                   |        |                               | 2003  |   |        | 2002 |                               |  | 2001  |        |  | 2000                          |       
|                                      |  | AMOUNT                 |        | LOANCATEGORYTO GROSSLOANS (1) |       |   | AMOUNT |      | LOANCATEGORYTO GROSSLOANS (1) |  |       | AMOUNT |  | LOANCATEGORYTO GROSSLOANS (1) |        |  | AMOUNT |   | LOANCATEGORYTO GROSSLOANS (1) |   |        | AMOUNT |       | LOANCATEGORYTO GROSSLOANS (1) | 
|                                      |  | (dollars in thousands) |       
|Allocated:                            |  |                        |        |                               |       |   |        |      |                               |  |       |        |  |                               |        |  |        |   |                               |   |        |        |       |                               |  |   |        |  |       |  
|Commercial and commercial real estate |  | $                      | 17,031 |                               | 62.8  | % |        | $    | 21,438                        |  | 62.8  | %      |  | $                             | 18,751 |  | 56.9   | % |                               | $ | 17,516 |        | 50.3  | %                             |  | $ | 16,697 |  | 51.9  | %
|Real estate  construction            |  |                        | 10,808 |                               | 24.0  |   |        |      | 6,337                         |  | 18.6  |        |  |                               | 5,564  |  | 16.9   |   |                               |   | 5,710  |        | 21.9  |                               |  |   | 4,933  |  | 20.5  |  
|Residential real estate  mortgages   |  |                        | 406    |                               | 2.9   |   |        |      | 526                           |  | 4.4   |        |  |                               | 376    |  | 6.3    |   |                               |   | 402    |        | 9.2   |                               |  |   | 472    |  | 11.8  |  
|Consumer and other                    |  |                        | 3,501  |                               | 10.3  |   |        |      | 3,389                         |  | 14.2  |        |  |                               | 4,614  |  | 19.9   |   |                               |   | 2,131  |        | 18.6  |                               |  |   | 1,698  |  | 15.8  |  
|Unallocated                           |  |                        | 5,738  |                               |      |   |        |      | 2,666                         |  |      |        |  |                               | 4,768  |  |       |   |                               |   | 5,359  |        |      |                               |  |   | 5,768  |  |      |  
|                                      |  |                        |        |                               |       |   |        |      |                               |  |       |        |  |                               |        |  |        |   |                               |   |        |        |       |                               |  |   |        |  |       |  
|Total allowance for loan losses       |  | $                      | 37,484 |                               | 100.0 | % |        | $    | 34,356                        |  | 100.0 | %      |  | $                             | 34,073 |  | 100.0  | % |                               | $ | 31,118 |        | 100.0 | %                             |  | $ | 29,568 |  | 100.0 | %
|                                      |  |                        |        |                               |       |   |        |      |                               |  |       |        |  |                               |        |  |        |   |                               |   |        |        |       |                               |  |   |        |  |       |  

---

|(1) | Excludes mortgage loans held-for-sale.
|--- | --------------------------------------



Nonearning Assets



At December 31, 2004 and 2003, we had goodwill of $23.4 million, created from our 1997 acquisition of the Bank, which is no longer subject to
amortization. The goodwill is tested annually for impairment, and if at any time impairment exists, we will record an impairment loss. The goodwill was most recently tested for impairment as of July 1, 2004, and we determined that no impairment
charge was necessary.



Premises, leasehold improvements, and
equipment, net of accumulated depreciation and amortization, decreased to $14.8 million at December 31, 2004, compared to $20.5 million at December 31, 2003. The decrease in premises, leasehold improvements and equipment was due to the
sale of our Burbank and Ashland facilities, as well as normal depreciation expense. We have been executing an initiative to better rationalize our occupancy of premises. Steps that we have taken under this facilities initiative included the
following:



| |  |  | In the fourth quarter of 2003, we transitioned our administrative and operations departments to our new corporate center, a 108,000 square feet leased office space in Rosemont,
Illinois. We consolidated administrative and operating departments that had been at our Wheeling, Burbank, and Ashland facilities to this new corporate center.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | In the fourth quarter of 2003, we abandoned our administrative offices on the second and third floors of our Wheeling facility as a result of the corporate center consolidation.
Upon ceasing to use this space, we recorded a $3.5 million lease abandonment charge, recorded in noninterest expense. The charge was comprised of a $976,000 write-off of leasehold improvements, furniture and other equipment that were abandoned and a
$2.6 million charge for the liability related to the operating lease which was scheduled to continue until March 2010. This $2.6 million charge was computed based upon the remaining lease payments reduced by estimated sublease rentals that could
reasonably be obtained from the property. The charge represented the estimated liability for the lease payments that we would incur for the remaining term of the lease for which we would receive no economic benefit other than through subleasing. The
liability for lease abandonment was adjusted in 2004 as we made lease payments. In 2004, we reached an agreement to terminate the lease for a cash payment of $3.3 million and the transfer of a small parcel of land we owned next to the site. In the
fourth quarter of 2004, we recorded an additional charge of $984,000 to recognize our obligation under the lease termination agreement. The transaction was closed on February 18, 2005. Upon termination of our obligation under the existing
lease, we signed a new 10-year operating lease for approximately 8,300 square feet on the first floor of the facility for a smaller banking center.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In June 2004, we sold our Burbank facility, which had a net book value of $1.8 million. Upon sale of the Burbank facility, we agreed to lease back space on the ground and fourth
floors for the banking center and lending departments still at that location. We had vacated the second and third floors as a result of the corporate center consolidation. The gain of $245,000 realized from the sale was deferred and is being
amortized over the 10-year life of the lease.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2004, we also completed the sale of our Ashland banking center, which had a book value of $1.7 million. We agreed to sell this property in 2002 and, at that time,
recorded a $386,000 loss to reduce the net book value to the estimated net sales price. We have retained a portion of the land at the site to build a smaller banking center, which is expected to be operational by late 2005.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We continue to examine our existing network of banking centers. In June 2004, we opened a 2,470 square foot banking center located in an office building in Itasca, Illinois, a
northwest suburb of Chicago. The facility is leased under an operating lease with a three year term. We also signed a three-year operating lease for a 2,790 square feet banking center located in Orland Park, Illinois, a southern suburb of Chicago.
We expect the banking center to be operational by mid-2005. During the fourth quarter of 2003, we closed our leased Jackson banking center. The lease was scheduled to expire in the first quarter of 2004.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On January 27, 2005, we completed the sale of our Broadview banking center. In addition to selling the physical land and building, we sold approximately $19.7 million of
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | deposit balances and $5.3 million of loans associated with the banking center. We will record a $1.6 million gain on the sale of this banking center during the first quarter of
2005.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Deposits



Our core deposits consist of noninterest and interest-bearing demand
deposits, savings deposits, certificates of deposit, certain public funds and core customer repurchase agreements. Our customer repurchase agreements are reported as short-term borrowings. We also use brokered and other out-of-local-market
certificates of deposit and FHLB advances to support our asset base.



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



|                                            |  |                         |           |                   |       |   |      |      |   |                |   |                   |  |       |      |  |      |                |  |                   |           |  |       |   |  |      |  
|------------------------------------------- |  | ----------------------- | --------- | ----------------- | ----- | - | ---- | ---- | - | -------------- | - | ----------------- |  | ----- | ---- |  | ---- | -------------- |  | ----------------- | --------- |  | ----- | - |  | ---- | -
|                                            |  | Year Ended December 31, |          
|                                            |  | (Restated) 2004         |           |                   | 2003  |   |      | 2002 |  
|                                            |  | AVERAGEBALANCE          |           | PERCENTOFDEPOSITS |       |   | RATE |      |   | AVERAGEBALANCE |   | PERCENTOFDEPOSITS |  |       | RATE |  |      | AVERAGEBALANCE |  | PERCENTOFDEPOSITS |           |  | RATE  |  
|                                            |  | (dollars in thousands)  |          
|Noninterest-bearing demand deposits         |  | $                       | 447,345   |                   | 20.8  | % |      |     | % |                | $ | 394,511           |  | 20.0  | %    |  |     | %              |  | $                 | 372,387   |  | 19.9  | % |  |     | %
|Interest-bearing demand deposits            |  |                         | 564,920   |                   | 26.3  |   |      | 0.77 |   |                |   | 564,645           |  | 28.5  |      |  | 0.83 |                |  |                   | 618,819   |  | 33.0  |   |  | 1.38 |  
|Savings deposits                            |  |                         | 89,678    |                   | 4.2   |   |      | 0.31 |   |                |   | 90,975            |  | 4.6   |      |  | 0.38 |                |  |                   | 89,360    |  | 4.7   |   |  | 0.84 |  
|Time deposits:                              |  |                         |           |                   |       |   |      |      |   |                |   |                   |  |       |      |  |      |                |  |                   |           |  |       |   |  |      |  
|Certificates of deposit                     |  |                         | 510,632   |                   | 23.8  |   |      | 2.39 |   |                |   | 475,827           |  | 24.0  |      |  | 2.58 |                |  |                   | 472,238   |  | 25.2  |   |  | 3.26 |  
|Out-of-local-market certificates of deposit |  |                         | 96,663    |                   | 4.5   |   |      | 2.59 |   |                |   | 92,499            |  | 4.7   |      |  | 3.00 |                |  |                   | 67,225    |  | 3.5   |   |  | 4.02 |  
|Brokered certificates of deposit            |  |                         | 369,735   |                   | 17.3  |   |      | 2.92 |   |                |   | 290,255           |  | 14.7  |      |  | 2.51 |                |  |                   | 183,005   |  | 9.8   |   |  | 3.45 |  
|Public Funds                                |  |                         | 66,993    |                   | 3.1   |   |      | 1.61 |   |                |   | 68,900            |  | 3.5   |      |  | 1.51 |                |  |                   | 72,260    |  | 3.9   |   |  | 2.20 |  
|                                            |  |                         |           |                   |       |   |      |      |   |                |   |                   |  |       |      |  |      |                |  |                   |           |  |       |   |  |      |  
|Total time deposits                         |  |                         | 1,044,023 |                   | 48.7  |   |      | 2.55 |   |                |   | 927,481           |  | 46.9  |      |  | 2.52 |                |  |                   | 794,728   |  | 42.4  |   |  | 3.27 |  
|                                            |  |                         |           |                   |       |   |      |      |   |                |   |                   |  |       |      |  |      |                |  |                   |           |  |       |   |  |      |  
|Total deposits                              |  | $                       | 2,145,966 |                   | 100.0 | % |      |      |   |                | $ | 1,977,612         |  | 100.0 | %    |  |      |                |  | $                 | 1,875,294 |  | 100.0 | % |  |      |  
|                                            |  |                         |           |                   |       |   |      |      |   |                |   |                   |  |       |      |  |      |                |  |                   |           |  |       |   |  |      |  



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The following table sets forth the period end balances of interest-bearing deposits at December 31,
2004, 2003 and 2002, respectively.



|                                            |  |                 |           |      |   |           |  |   |          
|------------------------------------------- |  | --------------- | --------- | ---- | - | --------- |  | - | ---------
|                                            |  | At December 31,
|                                            |  | (Restated)2004  |           | 2003 |   | 2002     
|                                            |  | (in thousands) 
|NOW accounts                                |  | $               | 124,015   |      | $ | 136,119   |  | $ | 137,705  
|Savings accounts                            |  |                 | 85,371    |      |   | 90,177    |  |   | 88,000   
|Money market deposits                       |  |                 | 421,529   |      |   | 425,449   |  |   | 463,761  
|Time deposits:                              |  |                 |           |      |   |           |  |   |          
|Certificates of deposit                     |  |                 | 525,173   |      |   | 498,189   |  |   | 458,671  
|Out-of-local-market certificates of deposit |  |                 | 124,005   |      |   | 76,475    |  |   | 91,501   
|Brokered certificates of deposit            |  |                 | 415,811   |      |   | 285,689   |  |   | 249,643  
|Public time deposits                        |  |                 | 69,635    |      |   | 55,793    |  |   | 73,818   
|                                            |  |                 |           |      |   |           |  |   |          
|Total time deposits                         |  |                 | 1,134,624 |      |   | 916,146   |  |   | 873,633  
|                                            |  |                 |           |      |   |           |  |   |          
|Total interest-bearing deposits             |  | $               | 1,765,539 |      | $ | 1,567,891 |  | $ | 1,563,099
|                                            |  |                 |           |      |   |           |  |   |          



We evaluate trends in
funding by changes in average balances. Year-to-date average deposit balances increased $168.4 million, or 8.5%, to $2.15 billion in 2004 from $1.98 billion during 2003. The increase in deposits was almost equally split between local customer and
out-of-market funding sources. Out-of-market funding continues to be an important source of funds. Average brokered certificates of deposits increased $79.5 million during 2004, to $369.7 million in 2004 compared to an average of $290.3 million in
2003. In addition, average out-of-local-market certificates of deposits increased $4.2 million during 2004 to $96.7 million. From local customer sources, the largest increases in average balances were in noninterest-bearing demand deposits and
customer certificates of deposits. Average noninterest bearing demand deposits were $447.3 million during 2004, an increase of $52.8 million, or 13.4%, from $394.5 million during 2003. Average customer certificates of deposits increased $34.8
million, or 7.3%, during 2004 to $510.6 million as compared to $475.8 million during 2003.



Period-end deposit balances increased $271.6 million, or 13.5%, to $2.28 billion at December 31, 2004 compared to $2.01 billion at December 31, 2003. Brokered certificates of deposit increased $130.1 million
during 2004 to $415.8 million and out-of-local market certificates of deposit increased $47.5 million during 2004 to $124.0 million at year-end 2004. The largest increases in local customer funding occurred in noninterest-bearing demand deposits,
which increased by $74.0 million to $519.2 million at year-end 2004, and customer certificates of deposit that increased by $27.0 million to $525.2 million at December 31, 2004.



On January 27, 2005, we completed the sale of our Broadview banking center. In addition to selling the physical land
and building, we sold approximately $19.7 million of deposits. The deposits sold consisted of $2.5 million of noninterest-bearing demand deposits, $4.1 million of interest-bearing demand deposits and $13.1 million of certificates of deposit. The
sale of these deposits did not have a material impact on our funding or cost of funds.



During 2003, year-to-date average deposits balances increased $102.3 million, or 5.5%, to $1.98 billion compared to $1.88 billion during 2002. Period-end deposits increased $49.3 million or 2.5%, to $2.01 billion at
December 31, 2003, compared to $1.96 billion at December 31, 2002.



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The year-to-date average deposit balances showed a larger increase than the period-end balances because asset growth in
the first half of 2003 was not maintained in the last half of the year. We relied on wholesale deposits as a source of funds in 2003, as deposits from customers were essentially flat. An increase in noninterest-bearing demand deposits was largely
offset by a decline in interest-bearing demand deposits. Year-to-date average balances of brokered CDs rose $107.2 million during 2003 to meet heavy asset funding needs in the first half of the year. However, period-end brokered CDs increased by
only $36.0 million at December 31, 2003 from December 31, 2002. Additionally, while our year-to-date average out-of-local-market CD balances increased $25.3 million to $92.5 million, the period-end balances actually declined by $15.0
million. Year-to-date average noninterest-bearing demand deposits increased $22.1 million, or 5.9%.



Over the years, our earning asset growth has exceeded our local customer deposit growth, which has resulted in our use of brokered and out-of-local-market
certificates of deposit and other borrowed funds. We offer certificates of deposit to out-of-local-market customers by providing rates to a private third-party electronic system that provides certificate of deposit rates from institutions across the
country to its subscribers. These certificates of deposit are generally issued at amounts of $100,000 or less as the purchasers seek to maintain full FDIC deposit insurance protection. The balance of certificates of deposit obtained through this
marketing medium was $124.0 million at December 31, 2004, as compared to $76.5 million and $91.5 million at December 31, 2003, and 2002, respectively. We also issue brokered certificates of deposit. The balance of our brokered certificates
of deposit was $415.8 million, $285.7 million, and $249.6 million at December 31, 2004, 2003, and 2002, respectively. Under FDIC regulations, only well-capitalized institutions may fund brokered certificates of deposit without prior
regulatory approval. The Bank is categorized as well-capitalized. Adverse operating results at the Bank or changes in industry conditions or overall market liquidity could lead to our inability to replace brokered deposits at maturity,
which could result in higher costs to, or reduced asset levels at, the Bank.



We have entered into interest rate exchange contracts to change the fixed interest expense on certain brokered certificates of deposit to variable. Under these contracts, we receive a fixed interest rate over the term
of the agreement and pay a floating interest rate based upon 3-month LIBOR. The notional amount of these interest rate exchange contracts related to brokered certificates of deposit totaled $130.0 million and $50.0 million at December 31, 2004
and 2003, respectively.



Municipal deposits, consisting of
public fund time deposits and repurchase agreements with state and local governments, are a significant funding source for the Bank. Total municipal deposits and repurchase agreements approximated $138 million, $130 million, and $124 million, at
December 31, 2004, 2003, and 2002, respectively. Most of these deposits are collateralized by investment securities in our investment portfolio.



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Time deposits, including public funds, in denominations of $100,000 or more totaled $331.3 million at
December 31, 2004. The following table sets forth the amount and maturities of time deposits of $100,000 or more at December 31, 2004:



|                               |  |                   |        
|------------------------------ |  | ----------------- | -------
|                               |  | December 31, 2004
|                               |  | (in thousands)   
|3 months or less               |  | $                 | 124,099
|Between 3 months and 6 months  |  |                   | 38,302 
|Between 6 months and 12 months |  |                   | 95,182 
|Over 12 months                 |  |                   | 73,744 
|                               |  |                   |        
|Total                          |  | $                 | 331,327
|                               |  |                   |        



Short-Term
Borrowings



We also use short-term borrowings to
support our asset base. Our short-term borrowings include federal funds purchased, securities sold under agreements to repurchase and U.S. Treasury tax and loan note option accounts. The federal funds purchased are primarily noncollateralized funds
obtained from financial institutions where the Bank acts as one of the selling institutions primary correspondent banks. The securities sold under agreement to repurchase are collateralized financing transactions and are primarily executed
with local Bank customers. At December 31, 2004, our short-term borrowings totaled $229.5 million as compared to $219.1 million at December 31, 2003. Average short-term borrowings for 2004 and 2003 were $219.4 million and $219.9 million,
respectively. At December 31, 2004, subject to available collateral, the Bank had available pre-approved overnight federal funds borrowings and repurchase agreement lines of $120 million and $650 million, respectively.



The following table shows categories of short-term borrowings having average
balances during the period greater than 30% of stockholders equity at the end of each period. During each reported period, securities sold under repurchase agreements were the only category meeting this criteria.



|                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                             |  | Year Ended December 31, |        
|                                             |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|                                             |  | (dollars in thousands)  |        
|Securities sold under repurchase agreements: |  |                         |         |   |      |   |         |      |  |   |         |  
|Balance at year end                          |  | $                       | 185,737 |   |      | $ | 169,890 |      |  | $ | 175,504 |  
|Weighted average interest rate at year end   |  |                         | 1.19    | % |      |   | 0.75    | %    |  |   | 1.02    | %
|Maximum amount outstanding (1)               |  | $                       | 223,404 |   |      | $ | 219,658 |      |  | $ | 211,150 |  
|Average amount outstanding during the year   |  | $                       | 176,944 |   |      | $ | 182,017 |      |  | $ | 190,287 |  
|Daily average interest rate during the year  |  |                         | 0.97    | % |      |   | 0.97    | %    |  |   | 1.44    | %

---

|(1) | Based on amount outstanding at month end during each year.
|--- | ----------------------------------------------------------



Notes Payable and FHLB Advances



Notes payable consists of our subordinated debt, revolving credit facility, and term debt. FHLB advances consist of the Banks borrowings from the
Federal Home Loan Bank of Chicago.



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Notes payable. At both December 31, 2004 and 2003, we had $10.0 million of unsecured,
subordinated debt that is subordinate to the claims of our general creditors. This debt requires interest only payments until maturity. The agreement was amended in 2004 to extend the maturity date by two years to November 27, 2011. The
subordinated debt bears interest, based upon our election, at the prime rate plus 2.50% or LIBOR plus 2.75%. The interest rate at December 31, 2004 and 2003 was 5.13% and 3.92%, respectively. The subordinated debt qualifies as Tier II capital
under Federal Reserve capital adequacy guidelines.



We also had
$500,000 outstanding under our term loan at both December 31, 2004 and 2003. This loan requires interest only payments until maturity. The agreement was also amended in 2004 to extend the maturity date by two years to November 27, 2011.
The loan bears interest, based upon our election, at the prime rate or LIBOR plus 1.15%, with a minimum interest rate of 3.50%. The interest rate at December 31, 2004 and 2003 was 3.53% and 3.50%, respectively. In addition, we have an $11.5
million revolving credit facility that has not yet been drawn upon. This facility bears interest, based upon our election, at the prime rate or LIBOR plus 1.15%, with a minimum interest rate of 3.50%. This facility also requires interest only
payments until maturity. The facility was renewed during 2004 and the maturity date extended to November 27, 2005. The term note and the revolving credit facility are secured by all of our common stock of the Bank. We capitalized costs
associated with obtaining the notes payable, such as loan fees and attorney costs. We are amortizing these costs to interest expense over seven years, the original term of the loans, using the straight-line method.



The notes payable require compliance with certain defined financial covenants
relating to the Bank, including covenants related to regulatory capital, return on average assets, nonperforming assets, and Company leverage. As of December 31, 2004, we were in compliance with these covenants. The agreement also restricts the
amount of dividends that we can pay to shareholders and the amount of dividends that the Bank can pay to us. We are restricted from paying annual cash dividends to our common shareholders during a calendar year in excess of 25% of that years
annual net income, additionally the Bank is restricted from paying annual cash dividends in a calendar year to us in excess of 60% of that years Bank net income.



FHLB advances. Our borrowings from the FHLB totaled $75.0 million at December 31, 2004 and $100.0 million at
December 31, 2003. At December 31, 2004, the FHLB advances were collateralized by $43.2 million of investment securities, $7.6 million of FHLB stock, and a blanket lien on $97.6 million of qualified first-mortgage residential and home
equity loans. At December 31, 2003, the FHLB advances were collateralized by $22.3 million of investment securities, $7.2 million of FHLB stock, and a blanket lien on $128.7 million of qualified first-mortgage residential and home equity loans.
The weighted average interest rates at December 31, 2004 and 2003 were 4.56% and 4.04%, respectively. For additional details of the FHLB advances, see the section captioned Notes to Consolidated Financial StatementsNotes Payable and
FHLB Advances from our audited financial statements contained elsewhere in this annual report.



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##### Table of Contents

Junior Subordinated Debentures



At December 31, 2004, we had $87.6 million of junior subordinated
debentures that were comprised of $46.4 million issued to TAYC Capital Trust I and $41.2 million issued to TAYC Capital Trust II. Beginning on January 1, 2004, we deconsolidated TAYC Capital Trust I in accordance with the guidance from
Financial Accounting Standards Board (FASB) Interpretation No. 46 Revised, Consolidation of Variable Interest Entities (FIN 46R). At December 31, 2003, we had consolidated TAYC Capital Trust I and
reported the $45.0 million trust preferred securities on the Consolidated Balance Sheets. We reported the cash distributions on the trust preferred securities of TAYC Capital Trust I in interest expense on the Consolidated Statements of Income.
However, upon implementation of FIN 46R on January 1, 2004, we deconsolidated TAYC Capital Trust I and we do not consolidate TAYC Capital Trust II, which we formed in 2004. At December 31, 2004, we report a liability for the total balance
of the junior subordinated debentures issued to the Trusts. We report the equity investments in the Trusts of $2.6 million in other assets on the Consolidated Balance Sheet at December 31, 2004. Interest expense on the junior subordinated
debentures is reported in interest expense.



TAYC Capital Trust
I is a wholly owned subsidiary we formed for the purpose of issuing $45.0 million of trust preferred securities in October 2002. Proceeds from the sale of these trust preferred securities, along with $1.4 million received from the purchase of its
common equity securities, were invested by TAYC Capital Trust I in $46.4 million of our 9.75% junior subordinated debentures. The sole assets of the TAYC Capital Trust I are our junior subordinated debentures. Interest on both the trust preferred
securities and junior subordinated debentures are payable quarterly at a rate of 9.75% per year.



In June 2004, we formed TAYC Capital Trust II, a wholly owned subsidiary, for the purpose of issuing $40.0 million of floating rate trust preferred
securities. Proceeds from the sale of these trust preferred securities, along with $1.2 million received from the purchase of its common equity securities, were invested by TAYC Capital Trust II in $41.2 million of our floating rate junior
subordinated debentures. The sole assets of the TAYC Capital Trust II are our junior subordinated debentures. The interest rate on both the trust preferred securities and the junior subordinated debentures equals the three-month LIBOR plus 2.68% and
re-prices quarterly on the 17thof September, December, March and June. The interest rate on both was 5.18% at
December 31, 2004.



Our obligations with respect to each
of the trust preferred securities and the related debentures, in the aggregate, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by us of the obligations of each of the Trusts under the respective trust preferred
securities. See the section of this annual report captioned Notes to Consolidated Financial StatementsJunior Subordinated Debentures for additional details.



Capital Resources



We monitor compliance with bank regulatory capital requirements, focusing primarily on the risk-based capital guidelines. Under the risk-based capital
method of capital measurement, the ratio computed is dependent on the amount and composition of assets recorded on the



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##### Table of Contents

balance sheet and the amount and composition of off-balance sheet items, in addition to the level of capital. Generally,
Tier I capital includes common stockholders equity, trust preferred securities (up to certain limits), and, in prior periods, our noncumulative perpetual preferred stock. Goodwill is deducted from Tier I capital. Total capital represents Tier
I capital plus the allowance for loan loss, subject to certain limits, our subordinated note payable and the portion of the trust preferred securities not includable in Tier I capital.



At December 31, 2004, 2003, and 2002, the holding company was considered well capitalized under capital
guidelines set by the Federal Reserve for bank holding companies. The holding companys regulatory capital ratios declined in 2004 as a result of the increase in average and risk-weighted assets and the redemption of the preferred stock. During
2004, we redeemed the $38.25 million of Series A noncumulative perpetual preferred stock, all of which qualified as Tier I capital. The Series A preferred stock was redeemed with the proceeds from the issuance of $40.0 million of trust preferred
securities by TAYC Capital Trust II on June 16, 2004. A portion of the trust preferred securities qualifies as Tier I capital and the remainder qualifies as Tier II capital. As a result, the redemption of the preferred stock and the issuance of
the trust preferred securities caused a decline in Tier I capital, but no material impact on total capital (Tier I and Tier II). Total capital increased in 2004 because of earnings retention. At December 31, 2003, although our total regulatory
capital increased, our ratios of total capital and Tier I capital to risk-weighted assets declined due to the increase in our total risk-weighted assets.



At December 31, 2004, 2003, and 2002, the Bank was considered well capitalized under regulatory capital guidelines. During 2004, the
Banks ratio of Tier I to risk weighted assets and total capital to risk weighted assets both decreased. The decrease was a result of higher risk weighted assets, partly offset by an increase in regulatory capital. Regulatory capital increased
through earnings retention. The Banks dividend payout as a percentage of Bank net income was 28% for the year ended December 31, 2004. All of the Banks capital ratios increased during 2003, as the Bank did not pay dividends to the
holding company and growth in equity out paced the higher risk-weighted and average assets. We intend to maintain the Banks capital levels at amounts above the regulatory well capitalized guidelines.



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##### Table of Contents

The holding company and the Banks capital ratios were as follows for the dates indicated:



|                                         |  |                        |         |       |                             |   |        |                                                              |         |  |   |        |   |       |    |         |  |   |       |  
|---------------------------------------- |  | ---------------------- | ------- | ----- | --------------------------- | - | ------ | ------------------------------------------------------------ | ------- |  | - | ------ | - | ----- | -- | ------- |  | - | ----- | -
|                                         |  | ACTUAL                 |         |       | FOR CAPITALADEQUACYPURPOSES |   |        | TO BE WELLCAPITALIZEDUNDER PROMPTCORRECTIVEACTION PROVISIONS |        
|                                         |  | AMOUNT                 |         | RATIO |                             |   | AMOUNT |                                                              | RATIO   |  |   | AMOUNT |   | RATIO |   
|                                         |  | (dollars in thousands) |        
|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  |  
|                                         |  |                        |         |       |                             |  
|As of December 31, 2003:                 |  |                        |         |       |                             |   |        |                                                              |         |  |   |        |   |       |    |         |  |   |       |  
|Total Capital (to Risk Weighted Assets)  |  |                        |         |       |                             |   |        |                                                              |         |  |   |        |   |       |    |         |  |   |       |  
|Taylor Capital Group, Inc.               |  | $                      | 231,328 |       | 10.44                       | % |        | >$                                                           | 177,300 |  | > | 8.00   | % |       | >$ | 221,625 |  | > | 10.00 | %
|Cole Taylor Bank                         |  |                        | 237,702 |       | 10.75                       |   |        | >                                                            | 176,823 |  | > | 8.00   |   |       | >  | 221,028 |  | > | 10.00 |  
|Tier I Capital (to Risk Weighted Assets) |  |                        |         |       |                             |   |        |                                                              |         |  |   |        |   |       |    |         |  |   |       |  
|Taylor Capital Group, Inc.               |  |                        | 193,543 |       | 8.73                        |   |        | >                                                            | 88,650  |  | > | 4.00   |   |       | >  | 132,975 |  | > | 6.00  |  
|Cole Taylor Bank                         |  |                        | 209,990 |       | 9.50                        |   |        | >                                                            | 88,411  |  | > | 4.00   |   |       | >  | 132,617 |  | > | 6.00  |  
|Leverage (to average assets)             |  |                        |         |       |                             |   |        |                                                              |         |  |   |        |   |       |    |         |  |   |       |  
|Taylor Capital Group, Inc.               |  |                        | 193,543 |       | 7.64                        |   |        | >                                                            | 101,357 |  | > | 4.00   |   |       | >  | 126,697 |  | > | 5.00  |  
|Cole Taylor Bank                         |  |                        | 209,990 |       | 8.31                        |   |        | >                                                            | 101,130 |  | > | 4.00   |   |       | >  | 126,413 |  | > | 5.00  |  
|                                         |  |                        |         |       |                             |  
|As of December 31, 2002:                 |  |                        |         |       |                             |   |        |                                                              |         |  |   |        |   |       |    |         |  |   |       |  
|Total Capital (to Risk Weighted Assets)  |  |                        |         |       |                             |   |        |                                                              |         |  |   |        |   |       |    |         |  |   |       |  
|Taylor Capital Group, Inc.               |  | $                      | 213,555 |       | 10.61                       | % |        | >$                                                           | 161,089 |  | > | 8.00   | % |       | >$ | 201,362 |  | > | 10.00 | %
|Cole Taylor Bank                         |  |                        | 210,180 |       | 10.47                       |   |        | >                                                            | 160,547 |  | > | 8.00   |   |       | >  | 200,684 |  | > | 10.00 |  
|Tier I Capital (to Risk Weighted Assets) |  |                        |         |       |                             |   |        |                                                              |         |  |   |        |   |       |    |         |  |   |       |  
|Taylor Capital Group, Inc.               |  |                        | 177,700 |       | 8.82                        |   |        | >                                                            | 80,545  |  | > | 4.00   |   |       | >  | 120,817 |  | > | 6.00  |  
|Cole Taylor Bank                         |  |                        | 184,984 |       | 9.22                        |   |        | >                                                            | 80,273  |  | > | 4.00   |   |       | >  | 120,410 |  | > | 6.00  |  
|Leverage (to average assets)             |  |                        |         |       |                             |   |        |                                                              |         |  |   |        |   |       |    |         |  |   |       |  
|Taylor Capital Group, Inc.               |  |                        | 177,700 |       | 7.21                        |   |        | >                                                            | 98,625  |  | > | 4.00   |   |       | >  | 123,281 |  | > | 5.00  |  
|Cole Taylor Bank                         |  |                        | 184,984 |       | 7.52                        |   |        | >                                                            | 98,406  |  | > | 4.00   |   |       | >  | 123,008 |  | > | 5.00  |  



During 2004, 2003, and
2002, we declared common stock dividends of $0.24 per share in each year. The amount of dividends paid was $2.3 million in both 2004 and 2003 and $1.8 million during 2002. The increase in common shares outstanding because of the October 2002 initial
public offering of common stock caused the increase in the amount of dividends paid in the last two years.



During 2004, we also declared preferred stock dividends of $1.225 per share, totaling $1.9 million. We redeemed the Series A preferred stock on
July 16, 2004, and therefore no longer pay preferred dividends. During 2003 and 2002, we declared preferred stock dividends of $2.25 per share, totaling $3.4 million in each year.



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##### Table of Contents

As of December 31, 2004, we had purchased 323,007 shares of our common stock, at a cost of $7.1
million, which are held as treasury shares. Previously, under the terms of our employee stock ownership plan, stock option agreements, and the restricted stock program, we were obligated to purchase shares of our stock from terminated employees
related to put rights. We purchased 91,527 treasury stock shares during 2002 at a total cost of $1.7 million. Following the completion of our common stock offering, we are no longer obligated to purchase shares of our stock under any of
these plans and we purchased no additional treasury shares in 2004 or 2003.



Liquidity



In addition to the normal influx of
liquidity from core deposit growth, together with repayments and maturities of loans and investments, the Bank utilizes brokered and out-of-local-market certificates of deposit, FHLB borrowings, broker/dealer repurchase agreements and federal funds
purchased to meet its liquidity needs. We manage the risk associated with reliance on wholesale funding sources by extending and laddering the maturity of these liabilities and pledging collateral. The FHLB borrowings are collateralized by the
Banks first mortgage residential and home equity loans, selected investment securities, and FHLB stock. In addition, the Bank is able to borrow from the Federal Reserve Bank using securities or commercial loans as collateral through the
Borrower-in-Custody Program. Under this program, at December 31, 2004, the Bank maintained $298 million of commercial loans as collateral with a lendable value of $225 million. The Bank also maintains pre-approved overnight federal funds
borrowing lines at various correspondent banks, which provide additional short-term borrowing capacity of $120 million at December 31, 2004. Pre-approved repurchase agreement availability with major brokers and banks totaled $650 million at
December 31, 2004, subject to acceptable unpledged marketable securities.



From December 31, 2003 to December 31, 2004, our total assets increased by $285.4 million, or 11.0%. The increase in total assets was primarily funded with the $273.0 million increase in deposits.
Noninterest-bearing demand deposits increased $74.0 million, brokered and out-of-local-market certificates of deposit increased $177.7 million and other customer deposits increased $20 million. Cash inflow from operations exceeded cash outflows by
$37.1 million in 2004. We believe that our current sources of funds are adequate to meet all of our financial commitments and asset growth targets for 2005.



During 2003, total assets grew by $68.2 million, or 2.7%. The asset growth was funded almost equally by wholesale deposits and cash provided by
operations. Most of the increase in wholesale deposits was from higher brokered CD balances. Cash inflows from operations exceeded cash outflows by $41.2 million during 2003.



During 2002, our asset growth was primarily funded with wholesale funds. During the year, we increased brokered and
out-of-market certificates of deposit by $137.8 million and $40.8 million respectively, and increased our borrowings from the FHLB by $15.0 million. These additional wholesale sources provided funds for asset growth and net deposit outflows from
customers. The decline in customer deposit balances mainly occurred in money market account balances due to withdrawals by two large-deposit commercial customers. During the year ended December 31, 2002, cash outflows from operating activities
exceeded cash inflows by $29.0



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million. The net outflow was largely due to the $61.9 million litigation settlement payment made during 2002. We used
proceeds from the common stock and trust preferred securities offerings to fund this payment.



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



Our net cash
outflows from investing activities for the years ended December 31, 2004, 2003, and 2002 were $305.8 million, $94.2 million, and $140.3 million, respectively. During all three annual periods, the net outflow was caused by increased loans. In
addition, during all three years, cash provided by repayments, maturities, and sales of investment securities were mostly reinvested in the purchase of investment securities. During 2004, we used $53.7 million of liquidity to increase our investment
portfolio.



Our net cash inflows from financing activities for
years ended December 31, 2004, 2003, and 2002 were $259.4 million, $48.6 million, and $173.9 million, respectively. During 2004, a net increase in deposits produced $273.0 million of cash inflow. Short-term-borrowings increased by $10.4
million, while FHLB advances decreased by $25.0 million because of maturities. We used proceeds from the issuance of $41.2 million of junior subordinated debentures to TAYC Capital Trust II in mid-2004 to redeem all of the outstanding Series A
preferred stock at its stated amount of $38.25 million. During 2003, the net inflow was primarily produced by a $49.3 million increase in deposits, primarily from wholesale sources. During 2002, from the issuance of 2,587,500 common shares, net of
issuance costs, we received proceeds of $38.4 million, while we received net proceeds from the issuance of trust preferred securities of $41.9 million. In addition, during 2002, cash inflows of $130.1 million were also provided by deposit growth,
primarily from wholesale funding sources. We also used a portion of the proceeds from the common stock and trust preferred offerings to reduce our notes payable.



Holding Company Liquidity. Historically, our primary source of funds has been dividends received from the Bank.
During 2004, the Bank declared $8.0 million of dividends to the holding company. During 2003, the Bank did not declare any dividends because we had sufficient liquidity from the proceeds of our concurrent offering of common and trust preferred
securities during 2002, the insurance reimbursement and estimated tax payment refund received in 2003. We received $13.0 million of dividends from the Bank during 2002. Our notes payable agreement with our lender limits the amount of common
dividends that the Bank can pay to us in any year to 60% of that years Bank net income. The Bank is also subject to dividend restrictions set forth by regulatory authorities, whereby the Bank may not, without prior approval of regulatory
authorities, declare dividends in excess of the sum of the current years earnings plus the retained earnings from the prior two years. The dividends, as of December 31, 2004, that the Bank could declare and pay to us, without the approval
of regulatory authorities, amounts to approximately $56.7 million. We also receive funds from the exercise of employee stock options. We received $2.6 million during 2004 from the exercise of employee stock options, compared to $1.3 million and
$537,000 in 2003 and 2002, respectively. We also have an $11.5 million revolving credit facility, which was not drawn upon at December 31, 2004.



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Our liquidity uses at the holding company level consist primarily of dividends to stockholders, debt
service requirements on the debentures issued to TAYC Capital Trust I and TAYC Capital Trust II, and expenses for general corporate purposes. We expect the Bank to continue paying us dividends during 2005, and we believe that the Bank currently has
adequate capital to allow continued dividends out of earnings to support our expected liquidity demands arising from our normal operations.



During mid-2004, we received net proceeds, after issuance costs, of $40.8 million from the issuance of junior subordinated debentures to TAYC Capital
Trust II. We used most of these proceeds to redeem all of our outstanding Series A preferred stock. The redemption price was the stated value of $38.25 million, plus $153,000 of accrued and unpaid dividends since the last dividend distribution date.
The remainder of the proceeds were used for general corporate purposes.



During 2002, we received net proceeds of $38.4 million from the common stock offering and $41.9 million from the trust preferred offering. These proceeds are net of underwriters discount and issuance costs, such as legal and
accounting fees and printing costs. We used $61.9 million of the net proceeds from the offerings to fully satisfy our obligations under the litigation settlement agreements related to the 1997 acquisition of the Bank. We also used $17.0 million of
the net proceeds to restructure our notes payable and reduce outstanding indebtedness.



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. We had
commitments to extend credit of $870.4 million and $835.0 million at December 31, 2004 and 2003, respectively. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many customers do not utilize the total approved commitment amounts. Historically, approximately 60% of available consumer
and commercial loan commitment amounts are drawn. Therefore, the total commitment amounts do not usually represent future cash requirements. We had $114.8 million and $103.8 million of financial and performance standby letters of credit at
December 31, 2004 and 2003, respectively. Financial standby letters of credit are conditional commitments issued by us to guarantee the payment of a specified financial obligation of a customer to a third party. Performance standby letters of
credit are conditional commitments issued by us to make a payment to a specified third party in the event a customer fails to perform under a non-financial contractual obligation. The terms of these financial guarantees range from less than one to
five years. The credit risk involved in issuing these letters of credit is essentially the same as that involved in extending loan facilities to customers. We expect most of these letters of credit to expire undrawn and we expect no significant loss
from our obligation under financial guarantees.



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The following table shows as of December 31, 2004 the loan commitments and financial guarantees by
maturity date.



|                                      |  |                   |         |                   |   |                   |  |                 |       |       |   |         |  |   |        
|------------------------------------- |  | ----------------- | ------- | ----------------- | - | ----------------- |  | --------------- | ----- | ----- | - | ------- |  | - | -------
|                                      |  | December 31, 2004
|                                      |  | Within OneYear    |         | One to ThreeYears |   | Four to FiveYears |  | After FiveYears |       | Total
|                                      |  | (in thousands)   
|Commitments to extend credit:         |  |                   |         |                   |   |                   |  |                 |       |       |   |         |  |   |        
|Commercial                            |  | $                 | 457,937 |                   | $ | 266,580           |  | $               | 9,640 |       | $ | 13,008  |  | $ | 747,165
|Consumer                              |  |                   | 3,666   |                   |   | 10,047            |  |                 | 3,642 |       |   | 105,894 |  |   | 123,249
|Financial guarantees:                 |  |                   |         |                   |   |                   |  |                 |       |       |   |         |  |   |        
|Financial standby letters of credit   |  |                   | 38,044  |                   |   | 16,574            |  |                 | 7,634 |       |   | 1,088   |  |   | 63,340 
|Performance standby letters of credit |  |                   | 46,170  |                   |   | 4,983             |  |                 | 190   |       |   | 150     |  |   | 51,493 



The following table
shows, as of December 31, 2004, our obligations and commitments to make future payments under contracts, debt and lease agreements and maturing time deposits. FHLB advances are categorized by their call date as opposed to maturity date.



|                                |  |                              |         |                   |   |                   |  |                 |        |       |   |         |  |   |          
|------------------------------- |  | ---------------------------- | ------- | ----------------- | - | ----------------- |  | --------------- | ------ | ----- | - | ------- |  | - | ---------
|                                |  | (Restated) December 31, 2004
|                                |  | Within OneYear               |         | One to ThreeYears |   | Four to FiveYears |  | After FiveYears |        | Total
|                                |  | (in thousands)              
|Notes payable and FHLB advances |  | $                            | 75,000  |                   | $ |                  |  | $               |       |       | $ | 10,500  |  | $ | 85,500   
|Junior subordinated debentures  |  |                              |        |                   |   |                  |  |                 |       |       |   | 87,638  |  |   | 87,638   
|Time deposits                   |  |                              | 743,621 |                   |   | 209,190           |  |                 | 72,899 |       |   | 108,914 |  |   | 1,134,624
|Operating leases                |  |                              | 3,163   |                   |   | 6,102             |  |                 | 5,453  |       |   | 15,816  |  |   | 30,534   
|                                |  |                              |         |                   |   |                   |  |                 |        |       |   |         |  |   |          
|Total                           |  | $                            | 821,784 |                   | $ | 215,292           |  | $               | 78,352 |       | $ | 222,868 |  | $ | 1,338,296
|                                |  |                              |         |                   |   |                   |  |                 |        |       |   |         |  |   |          



Derivative
Financial Instruments



At December 31, 2004 and
2003, we had interest rate exchange contracts with notional amounts totaling $130.0 million and $50.0 million, respectively, to change the fixed interest expense on certain brokered certificates of deposit to variable. 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. Because these CD swaps did not qualify for fair value hedge accounting under SFAS 133, we reported the net cash
settlements and the changes in fair value on the CD swaps in 2004 as separate components of noninterest income.



In August 2004, we entered into a three-year swap, with a notional amount of $50.0 million, to hedge the variability in cash flows on certain
prime-indexed 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. We account for this as a cash flow hedge, and the fair value of the interest rate swap is
recorded as an asset or liability with the corresponding gain or loss recorded in other comprehensive income in stockholders equity, net of tax.



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During 2003, we entered into swaps with a total notional amount of $200 million, to hedge the variability
of cash flows of certain prime-indexed commercial loans and accounted for these transactions as cash flow hedges. However, in October 2003, these swaps were terminated and the resulting gain on termination of $885,000 net of taxes, was deferred and
recorded in other comprehensive income in stockholders equity. This deferred gain is being reclassified as an adjustment to interest income over the remaining term of the original swaps. For the years ended December 31, 2004 and 2003,
$172,000 and $43,000, respectively, of this deferred gain was reclassified into interest income. During 2005, an additional $172,000 of this deferred gain is expected to be reclassified into interest income.



For additional information concerning the accounting treatment for our derivative
instruments, please see Application of Critical Accounting Policies  Derivative Financial Instruments and Notes 1, 2 and 19 to our consolidated financial statements in this Form 10-K/A.



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 remaining 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 considered. Changes in net interest income in the rising and declining rate scenarios are then measured against the net interest income in the rates unchanged scenario. ALCO utilizes the results of the model to quantify the estimated exposure of
net interest income to sustained interest rate changes.



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Our net interest margin increased during the second half of 2004 in response to the 125 basis point
increase in our prime rate. Our loan interest income increased as our $1.2 billion in prime-indexed, floating-rate commercial loans adjusted to higher yields. Critical factors affecting our net interest margin in future periods will be our pricing
strategy on deposit products and whether the current yield curve remains unchanged. Our modeling of the December 31, 2004 balance sheet using the market interest rates in effect at year-end, indicated increased pressure on the margin in future
periods as many of our interest-bearing liabilities continue to re-price 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 $3.8 million, or 3.84%, higher than the net interest income in the rates unchanged scenario at December 31, 2004. Conversely, at December 31, 2004, net interest income at risk for
year one in a 100 basis points falling rate scenario was calculated at $4.2 million, or 4.23%, 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 December 31, 2004 was generally consistent with our exposure at December 31, 2003. In the December 31, 2003 modeling, we used a 200 basis point rising and a 50 basis point
falling rate scenarios.



Computation of 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 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 in year one under various parallel ramp interest rate scenarios at December 31, 2004 and 2003:



|                                 |  |                                      |        |   |                      |       |    |              |   |        |                  |  |       |   
|-------------------------------- |  | ------------------------------------ | ------ | - | -------------------- | ----- | -- | ------------ | - | ------ | ---------------- |  | ----- | --
|                                 |  | Change in Future Net Interest Income |       
|                                 |  | At December 31, 2004                 |        |   | At December 31, 2003 |      
|Change in interest rates         |  | DollarChange                         |        |   | PercentageChange     |       |    | DollarChange |   |        | PercentageChange | 
|                                 |  | (dollars in thousands)               |       
|+200 basis points over one year  |  | $                                    | 3,806  |   |                      | 3.84  | %  |              | $ | 3,175  |                  |  | 3.46  | % 
|- 50 basis points over one year  |  |                                      |       |   |                      |      |    |              |   | (2,200 | )                |  | (2.40 | )%
|- 100 basis points over one year |  |                                      | (4,194 | ) |                      | (4.23 | )% |              |   |       |                  |  |      |   



We also model changes
in the shape (steepness) of the yield curve, other parallel shifts in the yield, such as a 400 basis point increase in interest rates, and balance sheet growth scenarios. We also monitor the repricing terms of our assets and liabilities through gap
matrix reports for the rates in unchanged, rising and falling interest rate scenarios. The reports illustrate, at designated time frames, the dollar amount of assets and liabilities maturing or repricing.



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Because our simulation models are based on actual cash flows, rather than accounting principles for
income and expense recognition, the errors corrected in this amendment for the CD swaps and the amortization of the issuance costs over maturity has no impact on our interest rate risk measurements.



The following table sets forth the amounts of our interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2004, on a consolidated basis, that we anticipate, based upon certain assumptions, to reprice or mature in each of the future time periods shown. The projected repricing of assets and
liabilities anticipates prepayments and scheduled rate adjustments, as well as contractual maturities under an interest rate unchanged scenario within the selected time intervals. While we believe such assumptions are reasonable, there can be no
assurance that assumed repricing rates would approximate our actual future deposit activity.



|                                                                              |  |                                                |           |   |            |   |          |             |  |   |           |   |  |           |         |   |             |   |         |       |  |   |         |   |  |   |          
|----------------------------------------------------------------------------- |  | ---------------------------------------------- | --------- | - | ---------- | - | -------- | ----------- |  | - | --------- | - |  | --------- | ------- | - | ----------- | - | ------- | ----- |  | - | ------- | - |  | - | ---------
|                                                                              |  | (Restated) Volumes Subject to Repricing Within
|                                                                              |  | 0-30 Days                                      |           |   | 31-180Days |   |          | 181-365Days |  |   | 1-3 Years |   |  | 4-5 Years |         |   | Over 5Years |   |         | Total
|                                                                              |  | (dollars in thousands)                        
|Interest-earning assets:                                                      |  |                                                |           |   |            |   |          |             |  |   |           |   |  |           |         |   |             |   |         |       |  |   |         |   |  |   |          
|Short-term investments and federal funds sold                                 |  | $                                              | 24,149    |   |            | $ |         |             |  | $ |          |   |  | $         |        |   |             | $ |        |       |  | $ |        |   |  | $ | 24,149   
|Investment securities and FHLB/Federal Reserve Bank stock                     |  |                                                | 9,780     |   |            |   | 44,804   |             |  |   | 47,747    |   |  |           | 204,510 |   |             |   | 87,921  |       |  |   | 151,373 |   |  |   | 546,135  
|Loans                                                                         |  |                                                | 1,469,338 |   |            |   | 58,507   |             |  |   | 63,218    |   |  |           | 205,430 |   |             |   | 288,781 |       |  |   | 126,332 |   |  |   | 2,211,606
|                                                                              |  |                                                |           |   |            |   |          |             |  |   |           |   |  |           |         |   |             |   |         |       |  |   |         |   |  |   |          
|Total interest-earning assets                                                 |  |                                                | 1,503,267 |   |            |   | 103,311  |             |  |   | 110,965   |   |  |           | 409,940 |   |             |   | 376,702 |       |  |   | 277,705 |   |  |   | 2,781,890
|                                                                              |  |                                                |           |   |            |   |          |             |  |   |           |   |  |           |         |   |             |   |         |       |  |   |         |   |  |   |          
|Interest-bearing liabilities:                                                 |  |                                                |           |   |            |   |          |             |  |   |           |   |  |           |         |   |             |   |         |       |  |   |         |   |  |   |          
|Interest-bearing checking, savings and money market accounts                  |  |                                                | 217,737   |   |            |   | 291,679  |             |  |   |          |   |  |           |        |   |             |   |        |       |  |   | 121,499 |   |  |   | 630,915  
|Certificates of deposit                                                       |  |                                                | 184,118   |   |            |   | 354,809  |             |  |   | 333,339   |   |  |           | 209,046 |   |             |   | 53,169  |       |  |   | 143     |   |  |   | 1,134,624
|Short-term borrowings                                                         |  |                                                | 229,547   |   |            |   |         |             |  |   |          |   |  |           |        |   |             |   |        |       |  |   |        |   |  |   | 229,547  
|Notes payable/FHLB advances                                                   |  |                                                |          |   |            |   | 10,500   |             |  |   |          |   |  |           |        |   |             |   |        |       |  |   | 75,000  |   |  |   | 85,500   
|Junior subordinated debentures                                                |  |                                                |          |   |            |   | 41,238   |             |  |   |          |   |  |           |        |   |             |   |        |       |  |   | 46,400  |   |  |   | 87,638   
|                                                                              |  |                                                |           |   |            |   |          |             |  |   |           |   |  |           |         |   |             |   |         |       |  |   |         |   |  |   |          
|Total interest-bearing liabilities                                            |  |                                                | 631,402   |   |            |   | 698,226  |             |  |   | 333,339   |   |  |           | 209,046 |   |             |   | 53,169  |       |  |   | 243,042 |   |  |   | 2,168,224
|                                                                              |  |                                                |           |   |            |   |          |             |  |   |           |   |  |           |         |   |             |   |         |       |  |   |         |   |  |   |          
|Period gap                                                                    |  | $                                              | 871,865   |   |            | $ | (594,915 | )           |  | $ | (222,374  | ) |  | $         | 200,894 |   |             | $ | 323,533 |       |  | $ | 34,663  |   |  | $ | 613,666  
|                                                                              |  |                                                |           |   |            |   |          |             |  |   |           |   |  |           |         |   |             |   |         |       |  |   |         |   |  |   |          
|Cumulative gap                                                                |  | $                                              | 871,865   |   |            | $ | 276,950  |             |  | $ | 54,576    |   |  | $         | 255,470 |   |             | $ | 579,003 |       |  | $ | 613,666 |   |  |   |          
|                                                                              |  |                                                |           |   |            |   |          |             |  |   |           |   |  |           |         |   |             |   |         |       |  |   |         |   |  |   |          
|Period gap to total assets                                                    |  |                                                | 30.18     | % |            |   | -20.59   | %           |  |   | -7.70     | % |  |           | 6.95    | % |             |   | 11.20   | %     |  |   | 1.20    | % |  |   |          
|                                                                              |  |                                                |           |   |            |   |          |             |  |   |           |   |  |           |         |   |             |   |         |       |  |   |         |   |  |   |          
|Cumulative gap to total assets                                                |  |                                                | 30.18     | % |            |   | 9.59     | %           |  |   | 1.89      | % |  |           | 8.84    | % |             |   | 20.04   | %     |  |   | 21.24   | % |  |   |          
|                                                                              |  |                                                |           |   |            |   |          |             |  |   |           |   |  |           |         |   |             |   |         |       |  |   |         |   |  |   |          
|Cumulative interest-earning assets to cumulative interest-bearing liabilities |  |                                                | 238.08    | % |            |   | 120.83   | %           |  |   | 103.28    | % |  |           | 113.65  | % |             |   | 130.08  | %     |  |   | 128.30  | % |  |   |          
|                                                                              |  |                                                |           |   |            |   |          |             |  |   |           |   |  |           |         |   |             |   |         |       |  |   |         |   |  |   |          



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Certain shortcomings are inherent in the method of analysis presented in the gap table. For example,
although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that
restrict changes in interest rates, both on a short-term basis and over the life of the asset. More importantly, changes in interest rates, prepayments and early withdrawal levels may deviate significantly from those assumed in the calculations in
the table. As a result of these shortcomings, we focus more on earnings at risk simulation modeling than on gap analysis. Even though the gap analysis reflects a ratio of cumulative gap to total assets within acceptable limits, the earnings at risk
simulation modeling is considered by management to be more informative in forecasting future income at risk.



Finally, we also monitor core funding utilization in each interest rate scenario as well as market value of equity. These measures are used to evaluate
long-term interest rate risk beyond the two year planning horizon.



Litigation



We are from time to time a party
to litigation arising in the normal course of business. Management knows of no such 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 December 2003, FASB issued FIN 46R that provided new accounting guidance
on when to consolidate a variable interest entity. Application of FIN 46R was effective for interests in certain variable interest entities as of December 31, 2003, and for all other types of variable interest entities for periods ending after
March 15, 2004. Beginning on January 1, 2004, the FIN 46R guidance required us to deconsolidate TAYC Capital Trust I. Not consolidating the TAYC Capital Trust I did not have a material impact on our reported results of operations or
financial condition.



Before January 1, 2004, we
consolidated TAYC Capital Trust I and reported the $45.0 million trust preferred securities on our Consolidated Balance Sheets under the caption guaranteed preferred beneficial interest in the Companys junior subordinated
debentures. The cash distributions on the trust preferred securities of TAYC Capital Trust I were also reported in interest expense, under a similar caption on the Consolidated Statements of Income. On January 1, 2004, we deconsolidated
TAYC Capital Trust I. In addition, we do not consolidate TAYC Capital Trust II, which was formed in 2004. Beginning in 2004, we now report a liability for the total balance of the junior subordinated debentures from the Trusts, which corresponds to
the sum of the trust preferred securities and the common equity of the Trusts. Our equity investments in the Trusts of $2.6 million are reported in other assets on the Consolidated Balance Sheet at December 31, 2004. Interest expense on the
junior subordinated debentures is reported in interest expense on the Consolidated Statements of Income.



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.



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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 is effective for interim periods beginning after June 15, 2005. 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 June 30, 2005, 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.



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS



Some of the statements under Management Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this annual
report on Form 10-K/A constitute forward-looking statements. These forward looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act 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 our customers changing use of our deposit



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products; 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 business strategy and managing our growth effectively; changes in general economic conditions, interest rates, deposit flows, loan demand,
including loan syndication opportunities, 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 March 10, 2005, the date of the Initial Form 10-K.



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Quarterly Financial Information



The following table sets forth unaudited financial data regarding our operations for each of the four quarters of 2004 and
2003. 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.



|                                                  |  |                                       |        |                    |                   |   |                   |  |   |                   |   |         |   |         |  |         |        |         |   |        |  |   |        |  |   |       
|------------------------------------------------- |  | ------------------------------------- | ------ | ------------------ | ----------------- | - | ----------------- |  | - | ----------------- | - | ------- | - | ------- |  | ------- | ------ | ------- | - | ------ |  | - | ------ |  | - | ------
|                                                  |  | 2004 Quarter Ended                    |        | 2003 Quarter Ended
|                                                  |  | (Restated)Dec. 31                     |        |                    | (Restated)Sep. 30 |   | (Restated)Jun. 30 |  |   | (Restated)Mar. 31 |   | Dec. 31 |   | Sep. 30 |  | Jun. 30 |        | Mar. 31
|                                                  |  | (in thousands, expect per share data)
|Interest income                                   |  | $                                     | 37,002 |                    |                   | $ | 34,972            |  | $ | 32,869            |   |         | $ | 32,510  |  | $       | 32,648 |         | $ | 33,576 |  | $ | 34,873 |  | $ | 34,787
|Interest expense                                  |  |                                       | 12,341 |                    |                   |   | 11,262            |  |   | 10,033            |   |         |   | 9,194   |  |         | 9,123  |         |   | 9,856  |  |   | 10,567 |  |   | 10,608
|                                                  |  |                                       |        |                    |                   |   |                   |  |   |                   |   |         |   |         |  |         |        |         |   |        |  |   |        |  |   |       
|Net interest income                               |  |                                       | 24,661 |                    |                   |   | 23,710            |  |   | 22,836            |   |         |   | 23,316  |  |         | 23,525 |         |   | 23,720 |  |   | 24,306 |  |   | 24,179
|Provision for loan losses                         |  |                                       | 1,833  |                    |                   |   | 2,750             |  |   | 2,750             |   |         |   | 2,750   |  |         | 2,700  |         |   | 2,700  |  |   | 1,533  |  |   | 2,300 
|Noninterest income                                |  |                                       | 5,923  |                    |                   |   | 4,280             |  |   | 4,304             |   |         |   | 4,675   |  |         | 4,939  |         |   | 5,590  |  |   | 4,977  |  |   | 4,535 
|Net cash settlements on CD swaps                  |  |                                       | 517    |                    |                   |   | 707               |  |   | 735               |   |         |   | 207     |  |         |       |         |   |       |  |   |       |  |   |      
|Change in fair value of CD swaps                  |  |                                       | (279   | )                  |                   |   | 1,940             |  |   | (2,592            | ) |         |   | 958     |  |         |       |         |   |       |  |   |       |  |   |      
|Gain (loss) on sale of investment securities, net |  |                                       | (201   | )                  |                   |   | 345               |  |   |                  |   |         |   |        |  |         |       |         |   |       |  |   |       |  |   |      
|Noninterest expense                               |  |                                       | 18,164 |                    |                   |   | 16,310            |  |   | 18,416            |   |         |   | 18,783  |  |         | 22,545 |         |   | 19,005 |  |   | 19,223 |  |   | 18,450
|                                                  |  |                                       |        |                    |                   |   |                   |  |   |                   |   |         |   |         |  |         |        |         |   |        |  |   |        |  |   |       
|Income before income taxes                        |  |                                       | 10,624 |                    |                   |   | 11,922            |  |   | 4,117             |   |         |   | 7,623   |  |         | 3,219  |         |   | 7,605  |  |   | 8,527  |  |   | 7,964 
|Income taxes                                      |  |                                       | 3,462  |                    |                   |   | 3,864             |  |   | 1,338             |   |         |   | 2,649   |  |         | 728    |         |   | 2,013  |  |   | 2,988  |  |   | 2,839 
|                                                  |  |                                       |        |                    |                   |   |                   |  |   |                   |   |         |   |         |  |         |        |         |   |        |  |   |        |  |   |       
|Net income                                        |  | $                                     | 7,162  |                    |                   | $ | 8,058             |  | $ | 2,779             |   |         | $ | 4,974   |  | $       | 2,491  |         | $ | 5,592  |  | $ | 5,539  |  | $ | 5,125 
|                                                  |  |                                       |        |                    |                   |   |                   |  |   |                   |   |         |   |         |  |         |        |         |   |        |  |   |        |  |   |       
|Earnings per share:                               |  |                                       |        |                    |                   |   |                   |  |   |                   |   |         |   |         |  |         |        |         |   |        |  |   |        |  |   |       
|Basic                                             |  | $                                     | 0.75   |                    |                   | $ | 0.84              |  | $ | 0.19              |   |         | $ | 0.43    |  | $       | 0.17   |         | $ | 0.50   |  | $ | 0.50   |  | $ | 0.45  
|Diluted                                           |  |                                       | 0.73   |                    |                   |   | 0.84              |  |   | 0.18              |   |         |   | 0.43    |  |         | 0.17   |         |   | 0.50   |  |   | 0.49   |  |   | 0.45  
|                                                  |  |                                       |        |                    |                   |   |                   |  |   |                   |   |         |   |         |  |         |        |         |   |        |  |   |        |  |   |       



Item 7A. Quantitative and Qualitative Disclosures about Market Risk



The information contained in the section 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.



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Item 8. Financial Statements and Supplementary Data



INDEX TO FINANCIAL STATEMENTS



|                                                                                                                           |  |     
|-------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                           |  | Page
|Report of Independent Registered Public Accounting Firm                                                                    |  | 59  
|Financial Statements:                                                                                                      |  |     
|Consolidated Balance Sheets as of December 31, 2004 (restated) and 2003                                                    |  | 60  
|Consolidated Statements of Income for the years ended December 31, 2004 (restated), 2003 and 2002                          |  | 61  
|Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2004 (restated), 2003 and 2002 |  | 62  
|Consolidated Statements of Cash Flows for the years ended December 31, 2004 (restated), 2003 and 2002                      |  | 63  
|Notes to Consolidated Financial Statements (restated)                                                                      |  | 65  



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Stockholders and Board of Directors of Taylor Capital Group, Inc.:



We have audited the accompanying consolidated balance sheets of Taylor Capital Group, Inc. and subsidiaries (the Company) as of
December 31, 2004 and 2003, and the related consolidated statements of income, changes in stockholders equity, and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



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



In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2004, in conformity with U.S. generally accepted accounting principles.



As discussed in Note 1 to the consolidated financial statements, the 2004 consolidated financial statements have been restated.



We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Companys
internal control over financial reporting as of December 31, 2004, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report
dated March 8, 2005, except as to the second through fourth paragraphs of Managements Report on Internal Control Over Financial Reporting (Restated), which are as of December 21, 2005, expressed an unqualified opinion on
managements assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting.





LOGO



Chicago, Illinois

March 8, 2005, except as to the restatement discussed in Note 1 to the Consolidated Financial Statements which is as of December 21, 2005



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TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)



|                                                                                                                                                                                                                                      |  |                |           |   |      |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | - | ---- | - | --------- | -
|                                                                                                                                                                                                                                      |  | December 31,   |          
|                                                                                                                                                                                                                                      |  | (Restated)2004 |           |   | 2003 |  
|ASSETS                                                                                                                                                                                                                                |  |                |           |   |      |   |           |  
|Cash and cash equivalents:                                                                                                                                                                                                            |  |                |           |   |      |   |           |  
|Cash and due from banks                                                                                                                                                                                                               |  | $              | 55,101    |   |      | $ | 53,254    |  
|Federal funds sold                                                                                                                                                                                                                    |  |                | 15,000    |   |      |   | 31,700    |  
|Short-term investments                                                                                                                                                                                                                |  |                | 9,149     |   |      |   | 3,550     |  
|                                                                                                                                                                                                                                      |  |                |           |   |      |   |           |  
|Total cash and cash equivalents                                                                                                                                                                                                       |  |                | 79,250    |   |      |   | 88,504    |  
|Investment securities:                                                                                                                                                                                                                |  |                |           |   |      |   |           |  
|Available-for-sale, at fair value                                                                                                                                                                                                     |  |                | 533,344   |   |      |   | 487,777   |  
|Held-to-maturity, at amortized cost (fair value of $275 and $564 at December 31, 2004 and 2003, respectively)                                                                                                                         |  |                | 275       |   |      |   | 525       |  
|Loans, net of allowance for loan losses of $37,484 and $34,356 at December 31, 2004 and 2003, respectively                                                                                                                            |  |                | 2,174,122 |   |      |   | 1,927,652 |  
|Premises, leasehold improvements and equipment, net                                                                                                                                                                                   |  |                | 14,787    |   |      |   | 20,548    |  
|Investment in Federal Home Loan Bank and Federal Reserve Bank stock, at cost                                                                                                                                                          |  |                | 12,516    |   |      |   | 12,058    |  
|Other real estate and repossessed assets, net                                                                                                                                                                                         |  |                | 58        |   |      |   | 164       |  
|Goodwill                                                                                                                                                                                                                              |  |                | 23,354    |   |      |   | 23,354    |  
|Other assets                                                                                                                                                                                                                          |  |                | 51,342    |   |      |   | 43,074    |  
|                                                                                                                                                                                                                                      |  |                |           |   |      |   |           |  
|Total assets                                                                                                                                                                                                                          |  | $              | 2,889,048 |   |      | $ | 2,603,656 |  
|                                                                                                                                                                                                                                      |  |                |           |   |      |   |           |  
|                                                                                                                                                                                                                                      |  |               
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                  |  |                |           |   |      |   |           |  
|Deposits:                                                                                                                                                                                                                             |  |                |           |   |      |   |           |  
|Noninterest-bearing                                                                                                                                                                                                                   |  | $              | 519,158   |   |      | $ | 445,193   |  
|Interest-bearing                                                                                                                                                                                                                      |  |                | 1,765,539 |   |      |   | 1,567,891 |  
|                                                                                                                                                                                                                                      |  |                |           |   |      |   |           |  
|Total deposits                                                                                                                                                                                                                        |  |                | 2,284,697 |   |      |   | 2,013,084 |  
|Short-term borrowings                                                                                                                                                                                                                 |  |                | 229,547   |   |      |   | 219,108   |  
|Accrued interest, taxes and other liabilities                                                                                                                                                                                         |  |                | 46,093    |   |      |   | 39,479    |  
|Notes payable and FHLB advances                                                                                                                                                                                                       |  |                | 85,500    |   |      |   | 110,500   |  
|Junior subordinated debentures                                                                                                                                                                                                        |  |                | 87,638    |   |      |   | 45,000    |  
|                                                                                                                                                                                                                                      |  |                |           |   |      |   |           |  
|Total liabilities                                                                                                                                                                                                                     |  |                | 2,733,475 |   |      |   | 2,427,171 |  
|                                                                                                                                                                                                                                      |  |                |           |   |      |   |           |  
|Stockholders equity:                                                                                                                                                                                                                 |  |                |           |   |      |   |           |  
|Preferred stock, $.01 par value, 5,000,000 shares authorized. At December 31, 2003, Series A 9% noncumulative perpetual, 1,530,000 shares
issued and outstanding, $25 stated and redemption value                                     |  |                |          |   |      |   | 38,250    |  
|Common stock, $.01 par value; 25,000,000 shares authorized; 9,976,556 and 9,809,731 shares issued at December 31, 2004 and 2003,
respectively; 9,653,549 and 9,486,724 shares outstanding at December 31, 2004 and 2003, respectively |  |                | 100       |   |      |   | 98        |  
|Surplus                                                                                                                                                                                                                               |  |                | 147,682   |   |      |   | 143,918   |  
|Unearned compensation - stock grants                                                                                                                                                                                                  |  |                | (1,383    | ) |      |   | (1,138    | )
|Retained earnings (deficit)                                                                                                                                                                                                           |  |                | 16,698    |   |      |   | (2,106    | )
|Accumulated other comprehensive income (loss)                                                                                                                                                                                         |  |                | (467      | ) |      |   | 4,520     |  
|Treasury stock, at cost, 323,007 shares at December 31, 2004 and 2003                                                                                                                                                                 |  |                | (7,057    | ) |      |   | (7,057    | )
|                                                                                                                                                                                                                                      |  |                |           |   |      |   |           |  
|Total stockholders equity                                                                                                                                                                                                            |  |                | 155,573   |   |      |   | 176,485   |  
|                                                                                                                                                                                                                                      |  |                |           |   |      |   |           |  
|Total liabilities and stockholders equity                                                                                                                                                                                            |  | $              | 2,889,048 |   |      | $ | 2,603,656 |  
|                                                                                                                                                                                                                                      |  |                |           |   |      |   |           |  



See accompanying notes
to consolidated financial statements



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TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)



|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------- |  | -------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                    |  | For the Years Ended December 31, |        
|                                                    |  | (Restated)2004                   |         |   | 2003 |   |         | 2002 | 
|Interest income:                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Interest and fees on loans                          |  | $                                | 114,598 |   |      | $ | 111,963 |      |  | $ | 118,444 |  
|Interest and dividends on investment securities:    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Taxable                                             |  |                                  | 20,486  |   |      |   | 21,158  |      |  |   | 24,448  |  
|Tax-exempt                                          |  |                                  | 1,998   |   |      |   | 2,309   |      |  |   | 2,759   |  
|Interest on cash equivalents                        |  |                                  | 271     |   |      |   | 454     |      |  |   | 364     |  
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Total interest income                               |  |                                  | 137,353 |   |      |   | 135,884 |      |  |   | 146,015 |  
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Interest expense:                                   |  |                                  |         |   |      |   |         |      |  |   |         |  
|Deposits                                            |  |                                  | 31,242  |   |      |   | 28,396  |      |  |   | 35,285  |  
|Short-term borrowings                               |  |                                  | 2,228   |   |      |   | 2,124   |      |  |   | 3,339   |  
|Notes payable and FHLB advances                     |  |                                  | 4,336   |   |      |   | 4,617   |      |  |   | 5,098   |  
|Junior subordinated debentures                      |  |                                  | 5,024   |   |      |   | 5,017   |      |  |   | 958     |  
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Total interest expense                              |  |                                  | 42,830  |   |      |   | 40,154  |      |  |   | 44,680  |  
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Net interest income                                 |  |                                  | 94,523  |   |      |   | 95,730  |      |  |   | 101,335 |  
|Provision for loan losses                           |  |                                  | 10,083  |   |      |   | 9,233   |      |  |   | 9,900   |  
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Net interest income after provision for loan losses |  |                                  | 84,440  |   |      |   | 86,497  |      |  |   | 91,435  |  
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Noninterest income:                                 |  |                                  |         |   |      |   |         |      |  |   |         |  
|Service charges                                     |  |                                  | 10,854  |   |      |   | 12,336  |      |  |   | 12,206  |  
|Trust and investment management fees                |  |                                  | 5,471   |   |      |   | 5,051   |      |  |   | 5,541   |  
|Gain on sale of investment securities, net          |  |                                  | 144     |   |      |   |        |      |  |   | 2,076   |  
|Net cash settlements on CD swaps                    |  |                                  | 2,166   |   |      |   |        |      |  |   |        |  
|Change in fair value of CD swaps                    |  |                                  | 27      |   |      |   |        |      |  |   |        |  
|Other noninterest income                            |  |                                  | 2,857   |   |      |   | 2,654   |      |  |   | 2,156   |  
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Total noninterest income                            |  |                                  | 21,519  |   |      |   | 20,041  |      |  |   | 21,979  |  
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Noninterest expense:                                |  |                                  |         |   |      |   |         |      |  |   |         |  
|Salaries and employee benefits                      |  |                                  | 38,951  |   |      |   | 41,066  |      |  |   | 43,780  |  
|Occupancy of premises                               |  |                                  | 7,465   |   |      |   | 7,203   |      |  |   | 6,500   |  
|Furniture and equipment                             |  |                                  | 3,892   |   |      |   | 3,457   |      |  |   | 3,457   |  
|Lease abandonment and termination charges           |  |                                  | 984     |   |      |   | 3,534   |      |  |   |        |  
|Corporate insurance                                 |  |                                  | 2,334   |   |      |   | 2,989   |      |  |   | 1,634   |  
|Computer processing                                 |  |                                  | 1,874   |   |      |   | 2,038   |      |  |   | 2,400   |  
|Legal fees, net                                     |  |                                  | 1,808   |   |      |   | 943     |      |  |   | 4,098   |  
|Advertising and public relations                    |  |                                  | 1,489   |   |      |   | 3,050   |      |  |   | 2,187   |  
|Other intangible assets amortization                |  |                                  | 13      |   |      |   | 370     |      |  |   | 366     |  
|Litigation settlement charge                        |  |                                  |        |   |      |   |        |      |  |   | 61,900  |  
|Other noninterest expense                           |  |                                  | 12,863  |   |      |   | 14,573  |      |  |   | 16,832  |  
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Total noninterest expense                           |  |                                  | 71,673  |   |      |   | 79,223  |      |  |   | 143,154 |  
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income taxes                   |  |                                  | 34,286  |   |      |   | 27,315  |      |  |   | (29,740 | )
|Income taxes                                        |  |                                  | 11,313  |   |      |   | 8,568   |      |  |   | 11,675  |  
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                                   |  | $                                | 22,973  |   |      | $ | 18,747  |      |  | $ | (41,415 | )
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Preferred dividend requirements                     |  |                                  | (1,875  | ) |      |   | (3,443  | )    |  |   | (3,442  | )
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Net income (loss) applicable to common stockholders |  | $                                | 21,098  |   |      | $ | 15,304  |      |  | $ | (44,857 | )
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  
|Basic earnings (loss) per common share              |  | $                                | 2.21    |   |      | $ | 1.62    |      |  | $ | (6.12   | )
|Diluted earnings (loss) per common share            |  |                                  | 2.19    |   |      |   | 1.61    |      |  |   | (6.12   | )
|                                                    |  |                                  |         |   |      |   |         |      |  |   |         |  



See accompanying notes
to consolidated financial statements



61



---

##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(in thousands, except per share data)



|                                                                                                                                         |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------- | ------- | - | ----------- | - | ------- |  | - | -------------------------------- | - |  | ------------------------- | ------ | - | ------------------------------------------ | - | ------- | ------------- |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                                                                                                                         |  | Series A 9%NoncumulativePerpetualPreferredStock |         |   | CommonStock |   | Surplus |  |   | UnearnedCompensationStock Grants |   |  | RetainedEarnings(Deficit) |        |   | AccumulatedOtherComprehensiveIncome (Loss) |   |         | TreasuryStock |  |   | Total  |  
|Balance at December 31, 2001                                                                                                             |  | $                                               | 38,250  |   |             | $ | 71      |  | $ | 102,253                          |   |  | $                         | (655   | ) |                                            | $ | 31,511  |               |  | $ | 4,826  |   |  | $ | (5,340 | ) |  | $ | 170,916 |  
|Issuance of common stock, net of issuance costs                                                                                          |  |                                                 |        |   |             |   | 26      |  |   | 38,381                           |   |  |                           |       |   |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   | 38,407  |  
|Issuance of stock grants                                                                                                                 |  |                                                 |        |   |             |   |        |  |   | 950                              |   |  |                           | (950   | ) |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   |        |  
|Forfeiture of stock grants                                                                                                               |  |                                                 |        |   |             |   |        |  |   | (244                             | ) |  |                           | 73     |   |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   | (171    | )
|Amortization of stock grants                                                                                                             |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           | 444    |   |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   | 444     |  
|Exercise of stock options                                                                                                                |  |                                                 |        |   |             |   |        |  |   | 537                              |   |  |                           |       |   |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   | 537     |  
|Tax benefit on stock options exercised and stock awards                                                                                  |  |                                                 |        |   |             |   |        |  |   | 131                              |   |  |                           |       |   |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   | 131     |  
|Purchase of treasury stock                                                                                                               |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   |        |               |  |   |       |   |  |   | (1,717 | ) |  |   | (1,717  | )
|Comprehensive income (loss):                                                                                                             |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Net loss                                                                                                                                 |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   | (41,415 | )             |  |   |       |   |  |   |       |   |  |   | (41,415 | )
|Change in unrealized gains on available-for-sale investment securities, net of reclassification adjustment, net of income
taxes          |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   |        |               |  |   | 6,841  |   |  |   |       |   |  |   | 6,841   |  
|                                                                                                                                         |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Total comprehensive loss                                                                                                                 |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   | (34,574 | )
|                                                                                                                                         |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Preferred Dividends  $2.25 per share                                                                                                    |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   | (3,442  | )             |  |   |       |   |  |   |       |   |  |   | (3,442  | )
|Common Dividends  $0.24 per share                                                                                                       |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   | (1,794  | )             |  |   |       |   |  |   |       |   |  |   | (1,794  | )
|                                                                                                                                         |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2002                                                                                                             |  | $                                               | 38,250  |   |             | $ | 97      |  | $ | 142,008                          |   |  | $                         | (1,088 | ) |                                            | $ | (15,140 | )             |  | $ | 11,667 |   |  | $ | (7,057 | ) |  | $ | 168,737 |  
|Issuance of stock grants                                                                                                                 |  |                                                 |        |   |             |   |        |  |   | 596                              |   |  |                           | (596   | ) |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   |        |  
|Forfeiture of stock grants                                                                                                               |  |                                                 |        |   |             |   |        |  |   | (129                             | ) |  |                           | 60     |   |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   | (69     | )
|Amortization of stock grants                                                                                                             |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           | 486    |   |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   | 486     |  
|Exercise of stock options                                                                                                                |  |                                                 |        |   |             |   | 1       |  |   | 1,268                            |   |  |                           |       |   |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   | 1,269   |  
|Tax benefit on stock options exercised and stock awards                                                                                  |  |                                                 |        |   |             |   |        |  |   | 175                              |   |  |                           |       |   |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   | 175     |  
|Comprehensive income:                                                                                                                    |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Net income                                                                                                                               |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   | 18,747  |               |  |   |       |   |  |   |       |   |  |   | 18,747  |  
|Change in unrealized gains on available-for-sale investment securities, net of income taxes                                              |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   |        |               |  |   | (7,989 | ) |  |   |       |   |  |   | (7,989  | )
|Deferred gain from termination of cash flow hedging instruments, net of income taxes                                                     |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   |        |               |  |   | 842    |   |  |   |       |   |  |   | 842     |  
|                                                                                                                                         |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Total comprehensive income                                                                                                               |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   | 11,600  |  
|                                                                                                                                         |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Preferred Dividends  $2.25 per share                                                                                                    |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   | (3,443  | )             |  |   |       |   |  |   |       |   |  |   | (3,443  | )
|Common Dividends  $0.24 per share                                                                                                       |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   | (2,270  | )             |  |   |       |   |  |   |       |   |  |   | (2,270  | )
|                                                                                                                                         |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2003                                                                                                             |  | $                                               | 38,250  |   |             | $ | 98      |  | $ | 143,918                          |   |  | $                         | (1,138 | ) |                                            | $ | (2,106  | )             |  | $ | 4,520  |   |  | $ | (7,057 | ) |  | $ | 176,485 |  
|Redemption of preferred stock                                                                                                            |  |                                                 | (38,250 | ) |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   | (38,250 | )
|Issuance of stock grants                                                                                                                 |  |                                                 |        |   |             |   |        |  |   | 775                              |   |  |                           | (775   | ) |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   |        |  
|Forfeiture of stock grants                                                                                                               |  |                                                 |        |   |             |   |        |  |   | (68                              | ) |  |                           | 19     |   |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   | (49     | )
|Amortization of stock grants                                                                                                             |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           | 511    |   |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   | 511     |  
|Exercise of stock options                                                                                                                |  |                                                 |        |   |             |   | 2       |  |   | 2,550                            |   |  |                           |       |   |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   | 2,552   |  
|Tax benefit on stock options exercised and stock awards                                                                                  |  |                                                 |        |   |             |   |        |  |   | 507                              |   |  |                           |       |   |                                            |   |        |               |  |   |       |   |  |   |       |   |  |   | 507     |  
|Comprehensive income:                                                                                                                    |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Net income (Restated)                                                                                                                    |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   | 22,973  |               |  |   |       |   |  |   |       |   |  |   | 22,973  |  
|Change in unrealized gains (losses) on available-for-sale investment securities, net of reclassification adjustment, net of income
taxes |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   |        |               |  |   | (4,477 | ) |  |   |       |   |  |   | (4,477  | )
|Change in unrealized loss from cash flow hedging instruments, net of income taxes                                                        |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   |        |               |  |   | (338   | ) |  |   |       |   |  |   | (338    | )
|Change in deferred gain from termination of cash flow hedging instruments, net of income taxes                                           |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   |        |               |  |   | (172   | ) |  |   |       |   |  |   | (172    | )
|                                                                                                                                         |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Total comprehensive income (Restated)                                                                                                    |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   | 17,986  |  
|                                                                                                                                         |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Preferred Dividends  $1.225 per share                                                                                                   |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   | (1,875  | )             |  |   |       |   |  |   |       |   |  |   | (1,875  | )
|Common Dividends  $0.24 per share                                                                                                       |  |                                                 |        |   |             |   |        |  |   |                                 |   |  |                           |       |   |                                            |   | (2,294  | )             |  |   |       |   |  |   |       |   |  |   | (2,294  | )
|                                                                                                                                         |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2004 (Restated)                                                                                                  |  | $                                               |        |   |             | $ | 100     |  | $ | 147,682                          |   |  | $                         | (1,383 | ) |                                            | $ | 16,698  |               |  | $ | (467   | ) |  | $ | (7,057 | ) |  | $ | 155,573 |  
|                                                                                                                                         |  |                                                 |         |   |             |   |         |  |   |                                  |   |  |                           |        |   |                                            |   |         |               |  |   |        |   |  |   |        |   |  |   |         |  



See accompanying notes
to consolidated financial statements



62



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                                |  |                                  |          |   |      |   |          |      |  |   |          |  
|----------------------------------------------------------------------------------------------- |  | -------------------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                |  | For the Years Ended December 31, |         
|                                                                                                |  | (Restated)2004                   |          |   | 2003 |   |          | 2002 | 
|Cash flows from operating activities:                                                           |  |                                  |          |   |      |   |          |      |  |   |          |  
|Net income (loss)                                                                               |  | $                                | 22,973   |   |      | $ | 18,747   |      |  | $ | (41,415  | )
|Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: |  |                                  |          |   |      |   |          |      |  |   |          |  
|Lease abandonment and termination charge                                                        |  |                                  | 984      |   |      |   | 3,534    |      |  |   |         |  
|Investment securities gains, net                                                                |  |                                  | (144     | ) |      |   |         |      |  |   | (2,076   | )
|Amortization of premiums and discounts, net                                                     |  |                                  | 2,360    |   |      |   | 986      |      |  |   | 672      |  
|Deferred loan fee amortization                                                                  |  |                                  | (3,331   | ) |      |   | (2,631   | )    |  |   | (1,901   | )
|Provision for loan losses                                                                       |  |                                  | 10,083   |   |      |   | 9,233    |      |  |   | 9,900    |  
|Loss (gain) on sales of loans originated for sale                                               |  |                                  |         |   |      |   |         |      |  |   | 23       |  
|Proceeds from sales of loans originated for sale                                                |  |                                  |         |   |      |   |         |      |  |   | 258      |  
|Depreciation and amortization                                                                   |  |                                  | 3,388    |   |      |   | 3,623    |      |  |   | 3,726    |  
|Amortization of goodwill and intangible assets                                                  |  |                                  | 13       |   |      |   | 370      |      |  |   | 366      |  
|Deferred income taxes                                                                           |  |                                  | (1,033   | ) |      |   | (2,667   | )    |  |   | (1,906   | )
|Loss (gain) on sales of other real estate                                                       |  |                                  | 225      |   |      |   | (35      | )    |  |   | 16       |  
|Provision for other real estate                                                                 |  |                                  | 71       |   |      |   |         |      |  |   | 16       |  
|Gain on sale of credit card loans                                                               |  |                                  |         |   |      |   | (140     | )    |  |   |         |  
|Gain on sale of trust business                                                                  |  |                                  |         |   |      |   |         |      |  |   | (510     | )
|Other, net                                                                                      |  |                                  | 722      |   |      |   | 1,740    |      |  |   | 2,515    |  
|Changes in other assets and liabilities:                                                        |  |                                  |          |   |      |   |          |      |  |   |          |  
|Accrued interest receivable                                                                     |  |                                  | (2,324   | ) |      |   | 1,377    |      |  |   | 42       |  
|Other assets                                                                                    |  |                                  | 317      |   |      |   | 2,259    |      |  |   | (596     | )
|Accrued interest, taxes and other liabilities                                                   |  |                                  | 2,828    |   |      |   | 4,802    |      |  |   | 1,888    |  
|                                                                                                |  |                                  |          |   |      |   |          |      |  |   |          |  
|Net cash provided (used) by operating activities                                                |  |                                  | 37,132   |   |      |   | 41,198   |      |  |   | (28,982  | )
|                                                                                                |  |                                  |          |   |      |   |          |      |  |   |          |  
|Cash flows from investing activities:                                                           |  |                                  |          |   |      |   |          |      |  |   |          |  
|Purchases of available-for-sale securities                                                      |  |                                  | (251,894 | ) |      |   | (243,964 | )    |  |   | (167,475 | )
|Proceeds from principal payments and maturities of available-for-sale securities                |  |                                  | 94,435   |   |      |   | 243,692  |      |  |   | 78,990   |  
|Proceeds from principal payments and maturities of held-to-maturity securities                  |  |                                  | 250      |   |      |   | 300      |      |  |   | 25       |  
|Proceeds from sales of available-for-sale securities                                            |  |                                  | 103,475  |   |      |   |         |      |  |   | 92,989   |  
|Net increase in loans                                                                           |  |                                  | (254,823 | ) |      |   | (91,255  | )    |  |   | (143,780 | )
|Sale of credit card loans                                                                       |  |                                  |         |   |      |   | 1,259    |      |  |   |         |  
|Investment in TAYC Capital Trust II                                                             |  |                                  | (1,239   | ) |      |   |         |      |  |   |         |  
|Additions to premises, leasehold improvements and equipment                                     |  |                                  | (1,235   | ) |      |   | (6,057   | )    |  |   | (2,030   | )
|Proceeds from the sale of premises, leasehold improvements and equipment                        |  |                                  | 3,802    |   |      |   |         |      |  |   |         |  
|Proceeds from sales of other real estate                                                        |  |                                  | 1,411    |   |      |   | 1,779    |      |  |   | 530      |  
|Proceeds from sales of trust business                                                           |  |                                  |         |   |      |   |         |      |  |   | 453      |  
|                                                                                                |  |                                  |          |   |      |   |          |      |  |   |          |  
|Net cash used in investing activities                                                           |  |                                  | (305,818 | ) |      |   | (94,246  | )    |  |   | (140,298 | )
|                                                                                                |  |                                  |          |   |      |   |          |      |  |   |          |  



Consolidated Statements
of Cash Flows continued on next page



See accompanying notes to
consolidated financial statements



63



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)

(in thousands)



|                                                                        |  |                                  |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                        |  | For the Years Ended December 31, |        
|                                                                        |  | (Restated)2004                   |         |   | 2003 |   |         | 2002 | 
|Cash flows from financing activities:                                   |  |                                  |         |   |      |   |         |      |  |   |         |  
|Net increase in deposits                                                |  | $                                | 273,002 |   |      | $ | 49,335  |      |  | $ | 130,060 |  
|Net increase (decrease) in short-term borrowings                        |  |                                  | 10,439  |   |      |   | 3,748   |      |  |   | (29,633 | )
|Repayments of notes payable and FHLB advances                           |  |                                  | (25,000 | ) |      |   | (15,000 | )    |  |   | (39,200 | )
|Proceeds from notes payable and FHLB advances                           |  |                                  |        |   |      |   | 15,000  |      |  |   | 38,700  |  
|Proceeds from issuance of junior subordinated debentures                |  |                                  | 41,238  |   |      |   |        |      |  |   | 45,000  |  
|Trust preferred issuance costs                                          |  |                                  | (390    | ) |      |   |        |      |  |   | (3,132  | )
|Redemption of preferred securities                                      |  |                                  | (38,250 | ) |      |   |        |      |  |   |        |  
|Proceeds from issuance of common securities, net                        |  |                                  |        |   |      |   |        |      |  |   | 38,407  |  
|Proceeds from exercise of employee stock options                        |  |                                  | 2,552   |   |      |   | 1,269   |      |  |   | 537     |  
|Purchase of treasury stock                                              |  |                                  |        |   |      |   |        |      |  |   | (1,717  | )
|Dividends paid                                                          |  |                                  | (4,159  | ) |      |   | (5,709  | )    |  |   | (5,081  | )
|                                                                        |  |                                  |         |   |      |   |         |      |  |   |         |  
|Net cash provided by financing activities                               |  |                                  | 259,432 |   |      |   | 48,643  |      |  |   | 173,941 |  
|                                                                        |  |                                  |         |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                    |  |                                  | (9,254  | ) |      |   | (4,405  | )    |  |   | 4,661   |  
|                                                                        |  |                                  |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents, beginning of year                            |  |                                  | 88,504  |   |      |   | 92,909  |      |  |   | 88,248  |  
|Cash and cash equivalents, end of year                                  |  | $                                | 79,250  |   |      | $ | 88,504  |      |  | $ | 92,909  |  
|                                                                        |  |                                  |         |   |      |   |         |      |  |   |         |  
|Supplemental disclosure of cash flow information:                       |  |                                  |         |   |      |   |         |      |  |   |         |  
|Cash paid during the year for:                                          |  |                                  |         |   |      |   |         |      |  |   |         |  
|Interest                                                                |  | $                                | 41,233  |   |      | $ | 40,936  |      |  | $ | 45,034  |  
|Income taxes                                                            |  |                                  | 11,809  |   |      |   | 5,512   |      |  |   | 7,674   |  
|Litigation settlement charge                                            |  |                                  |        |   |      |   |        |      |  |   | 61,900  |  
|                                                                        |  |                                  |        
|Supplemental disclosures of noncash investing and financing activities: |  |                                  |         |   |      |   |         |      |  |   |         |  
|Other comprehensive income (loss), net of income taxes                  |  | $                                | (4,987  | ) |      | $ | (7,147  | )    |  | $ | 6,841   |  
|Loans transferred to other real estate                                  |  |                                  | 1,601   |   |      |   | 1,283   |      |  |   | 618     |  
|Tax benefit on stock options exercised and stock awards                 |  |                                  | 507     |   |      |   | 175     |      |  |   | 131     |  



See accompanying notes
to consolidated financial statements



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.Restated Results of Operations and Financial Condition:



The Company is restating its previously reported
financial information for 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:
2, 9, 11, 13, 17, 19, 20, 22, and 24.



Since December 2002, the
Company has 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).



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 December 31, 2004 is $660,000 (representing a $2.0 million elimination of the fair value adjustment to the
brokered CDs less a $1.3 million adjustment to record the unamortized CD broker placement fees). The cumulative after-tax impact was a $401,000 reduction to net income and 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 December 31, 2004 of amortization of the debt issuance costs through the maturity date of the related debt is an increase to net income and retained earnings of $713,000 ($1.2 million pre-tax). The net unamortized debt
issuance cost at December 31, 2004 is $3.4 million.



The
combined impact of the errors in derivative accounting and debt issuance cost increased net income for the year ended December 31, 2004 and retained earnings by $312,000. The impact of these errors for the years ended December 31, 2003 and
2002 was not material and therefore, those years have not been restated. The reduction to previously reported net income in any of the restated quarterly periods did not



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



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.



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 year ended December 31, 2004 and the consolidated balance sheet and statement of stockholders equity as of
December 31, 2004. The restatement did not affect previously reported cash flows from operating activities, investing activities or financing activities.



|                                                    |  |                                       |         |   |             |   |        |            |  |   |         |  
|--------------------------------------------------- |  | ------------------------------------- | ------- | - | ----------- | - | ------ | ---------- |  | - | ------- | -
|                                                    |  | For the Year Ended December 31, 2004  |        
|                                                    |  | AsOriginallyReported                  |         |   | Adjustments |   |        | AsRestated | 
|                                                    |  | (in thousands, expect per share data) |        
|Interest income                                     |  | $                                     | 137,353 |   |             | $ |       |            |  | $ | 137,353 |  
|Interest expense:                                   |  |                                       |         |   |             |   |        |            |  |   |         |  
|Deposits                                            |  |                                       | 28,389  |   |             |   | 2,853  | (1)        |  |   | 31,242  |  
|Short-term borrowings                               |  |                                       | 2,228   |   |             |   |       |            |  |   | 2,228   |  
|Notes payable and FHLB advances                     |  |                                       | 4,336   |   |             |   |       |            |  |   | 4,336   |  
|Junior subordinated debentures                      |  |                                       | 6,199   |   |             |   | (1,175 | )(2)       |  |   | 5,024   |  
|                                                    |  |                                       |         |   |             |   |        |            |  |   |         |  
|Total interest expense                              |  |                                       | 41,152  |   |             |   | 1,678  |            |  |   | 42,830  |  
|                                                    |  |                                       |         |   |             |   |        |            |  |   |         |  
|Net interest income                                 |  |                                       | 96,201  |   |             |   | (1,678 | )          |  |   | 94,523  |  
|Provision for loan losses                           |  |                                       | 10,083  |   |             |   |       |            |  |   | 10,083  |  
|                                                    |  |                                       |         |   |             |   |        |            |  |   |         |  
|Net interest income after provision for loan losses |  |                                       | 86,118  |   |             |   | (1,678 | )          |  |   | 84,440  |  
|                                                    |  |                                       |         |   |             |   |        |            |  |   |         |  
|Noninterest income:                                 |  |                                       |         |   |             |   |        |            |  |   |         |  
|Service charges                                     |  |                                       | 10,854  |   |             |   |       |            |  |   | 10,854  |  
|Trust and investment management fees                |  |                                       | 5,471   |   |             |   |       |            |  |   | 5,471   |  
|Gain on sale of investment securities, net          |  |                                       | 144     |   |             |   |       |            |  |   | 144     |  
|Net cash settlements on CD swaps                    |  |                                       |        |   |             |   | 2,166  | (1)        |  |   | 2,166   |  
|Change in fair value of CD swaps                    |  |                                       |        |   |             |   | 27     | (3)        |  |   | 27      |  
|Other noninterest income                            |  |                                       | 2,857   |   |             |   |       |            |  |   | 2,857   |  
|                                                    |  |                                       |         |   |             |   |        |            |  |   |         |  
|Total noninterest income                            |  |                                       | 19,326  |   |             |   | 2,193  |            |  |   | 21,519  |  
|                                                    |  |                                       |         |   |             |   |        |            |  |   |         |  
|Noninterest expense                                 |  |                                       | 71,673  |   |             |   |       |            |  |   | 71,673  |  
|                                                    |  |                                       |         |   |             |   |        |            |  |   |         |  
|Income before income taxes                          |  |                                       | 33,771  |   |             |   | 515    |            |  |   | 34,286  |  
|Income taxes                                        |  |                                       | 11,110  |   |             |   | 203    | (4)        |  |   | 11,313  |  
|                                                    |  |                                       |         |   |             |   |        |            |  |   |         |  
|Net income                                          |  | $                                     | 22,661  |   |             | $ | 312    |            |  | $ | 22,973  |  
|                                                    |  |                                       |         |   |             |   |        |            |  |   |         |  
|Preferred dividend requirements                     |  |                                       | (1,875  | ) |             |   |       |            |  |   | (1,875  | )
|                                                    |  |                                       |         |   |             |   |        |            |  |   |         |  
|Net income applicable to common stockholders        |  | $                                     | 20,786  |   |             | $ | 312    |            |  | $ | 21,098  |  
|                                                    |  |                                       |         |   |             |   |        |            |  |   |         |  
|Basic earnings per common share                     |  | $                                     | 2.18    |   |             | $ | 0.03   |            |  | $ | 2.21    |  
|Diluted earnings per common share                   |  | $                                     | 2.16    |   |             | $ | 0.03   |            |  | $ | 2.19    |  



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



|                                                                    |  |                         |           |   |             |   |     |             |  |   |           |  
|------------------------------------------------------------------- |  | ----------------------- | --------- | - | ----------- | - | --- | ----------- |  | - | --------- | -
|                                                                    |  | As of December 31, 2004 |          
|                                                                    |  | AsOriginallyReported    |           |   | Adjustments |   |     | As Restated | 
|                                                                    |  | (in thousands)          |          
|ASSETS                                                              |  |                         |           |   |             |   |     |             |  |   |           |  
|Cash and cash equivalents                                           |  | $                       | 79,250    |   |             | $ |    |             |  | $ | 79,250    |  
|Investment securities                                               |  |                         | 533,619   |   |             |   |    |             |  |   | 533,619   |  
|Loans, net of allowance for loan losses                             |  |                         | 2,174,122 |   |             |   |    |             |  |   | 2,174,122 |  
|Premises, leasehold improvements and equipment, net                 |  |                         | 14,787    |   |             |   |    |             |  |   | 14,787    |  
|Investment in Federal Home Loan Bank and Federal Reserve Bank stock |  |                         | 12,516    |   |             |   |    |             |  |   | 12,516    |  
|Other real estate and repossessed assets, net                       |  |                         | 58        |   |             |   |    |             |  |   | 58        |  
|Goodwill                                                            |  |                         | 23,354    |   |             |   |    |             |  |   | 23,354    |  
|Other assets                                                        |  |                         | 50,370    |   |             |   | 972 | (5)         |  |   | 51,342    |  
|                                                                    |  |                         |           |   |             |   |     |             |  |   |           |  
|Total assets                                                        |  | $                       | 2,888,076 |   |             | $ | 972 |             |  | $ | 2,889,048 |  
|                                                                    |  |                         |           |   |             |   |     |             |  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                |  |                         |           |   |             |   |     |             |  |   |           |  
|Deposits:                                                           |  |                         |           |   |             |   |     |             |  |   |           |  
|Noninterest-bearing                                                 |  | $                       | 519,158   |   |             | $ |    |             |  | $ | 519,158   |  
|Interest-bearing                                                    |  |                         | 1,764,879 |   |             |   | 660 | (6)         |  |   | 1,765,539 |  
|                                                                    |  |                         |           |   |             |   |     |             |  |   |           |  
|Total deposits                                                      |  |                         | 2,284,037 |   |             |   | 660 |             |  |   | 2,284,697 |  
|Short-term borrowings                                               |  |                         | 229,547   |   |             |   |    |             |  |   | 229,547   |  
|Accrued interest, taxes and other liabilities                       |  |                         | 46,093    |   |             |   |    |             |  |   | 46,093    |  
|Notes payable and FHLB advances                                     |  |                         | 85,500    |   |             |   |    |             |  |   | 85,500    |  
|Junior subordinated debentures                                      |  |                         | 87,638    |   |             |   |    |             |  |   | 87,638    |  
|                                                                    |  |                         |           |   |             |   |     |             |  |   |           |  
|Total liabilities                                                   |  |                         | 2,732,815 |   |             |   | 660 |             |  |   | 2,733,475 |  
|                                                                    |  |                         |           |   |             |   |     |             |  |   |           |  
|Stockholders equity:                                               |  |                         |           |   |             |   |     |             |  |   |           |  
|Common stock                                                        |  |                         | 100       |   |             |   |    |             |  |   | 100       |  
|Surplus                                                             |  |                         | 147,682   |   |             |   |    |             |  |   | 147,682   |  
|Unearned compensation - stock grants                                |  |                         | (1,383    | ) |             |   |    |             |  |   | (1,383    | )
|Retained earnings                                                   |  |                         | 16,386    |   |             |   | 312 | (7)         |  |   | 16,698    |  
|Accumulated other comprehensive loss                                |  |                         | (467      | ) |             |   |    |             |  |   | (467      | )
|Treasury stock                                                      |  |                         | (7,057    | ) |             |   |    |             |  |   | (7,057    | )
|                                                                    |  |                         |           |   |             |   |     |             |  |   |           |  
|Total stockholders equity                                          |  |                         | 155,261   |   |             |   | 312 |             |  |   | 155,573   |  
|                                                                    |  |                         |           |   |             |   |     |             |  |   |           |  
|Total liabilities and stockholders equity                          |  | $                       | 2,888,076 |   |             | $ | 972 |             |  | $ | 2,889,048 |  
|                                                                    |  |                         |           |   |             |   |     |             |  |   |           |  



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



|                                        |  |                                      |         |             |   |            |  |   |        
|--------------------------------------- |  | ------------------------------------ | ------- | ----------- | - | ---------- |  | - | -------
|                                        |  | For the Year Ended December 31, 2004
|                                        |  | AsOriginallyReported                 |         | Adjustments |   | AsRestated
|                                        |  | (in thousands)                      
|Total stockholders equity, January 1   |  | $                                    | 176,485 |             | $ |           |  | $ | 176,485
|Net income                              |  |                                      | 22,661  |             |   | 312        |  |   | 22,973 
|Total comprehensive income, net of tax  |  |                                      | 17,674  |             |   | 312        |  |   | 17,986 
|Total stockholders equity, December 31 |  |                                      | 155,261 |             |   | 312        |  |   | 155,573

---

|(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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



2.Summary of Significant Accounting and Reporting
Policies:



The accounting and reporting policies of
Taylor Capital Group, Inc. (the Company) 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.



The following is a summary of the more significant accounting and reporting policies:



Consolidation:



The primary subsidiaries of the Company are Cole Taylor Bank (the Bank), TAYC Capital Trust I and TAYC Capital
Trust II (each, a Trust and collectively, the Trusts). The Bank, a wholly-owned subsidiary, is a $2.9 billion asset commercial bank with banking offices located in the Chicago metropolitan area. The Bank provides a full range of
commercial banking services, primarily to small and midsize business, and consumer banking products and services. TAYC Capital Trust I, formed in 2002, and TAYC Capital Trust II, formed in June 2004, are Delaware statutory trusts created to issue
trust preferred securities. The Company owns all the common stock of the Trusts.



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Prior to 2004, the consolidated financial statements included the accounts of the Company, the Bank, and TAYC Capital Trust I. Beginning on
January 1, 2004, the Company deconsolidated TAYC Capital Trust I in accordance with the guidance from Financial Accounting Standards Board (FASB) Interpretation No. 46 Revised, Consolidation of Variable Interest
Entities, (FIN 46R). As a result, beginning in 2004, the consolidated financial statements include the accounts of the Company and the Bank and do not include the accounts of TAYC Capital Trust I and TAYC Capital Trust II, both of
which are unconsolidated subsidiaries. All significant intercompany balances and transactions between consolidated companies have been eliminated.



The Companys products and services consist of commercial banking credit and deposit products delivered by a single operations area. The Company does
not have separate and discreet operating segments.



Cash and Cash
Equivalents:



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



Investment Securities:



Securities that may be sold as part of the Companys asset/liability or liquidity management or in response to or in
anticipation of changes in interest rates and resulting prepayment risk, or for other similar factors, are classified as available-for-sale and carried at fair value. Unrealized holding gains and losses on such securities are reported, net of tax,
in accumulated other comprehensive income in stockholders equity. Securities that the Company has the ability and positive intent to hold to maturity are classified as held-to-maturity and carried at amortized cost, adjusted for amortization
of premiums and accretion of discounts using the level-yield method. A decline in market value of any available-for-sale or held-to-maturity security below cost that is deemed other-than-temporary results in a reduction in carrying amount to fair
value, a charge to earnings, and a new cost basis for the security. In determining if an impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold an investment until market price recovery, the reasons
for impairment, the severity and duration of the impairment, changes in value subsequent to year-end, and forecasted performance of the security. Realized gains and losses on the sales of all securities are reported in income and computed using the
specific identification method. Securities classified as trading are carried at fair value with unrealized gains or losses included in noninterest income.



Loans:



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



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Allowance for Loan Losses:



An allowance for loan losses has been established to provide for those loans that may not be repaid in their entirety. The allowance is increased by
provisions for loan losses charged to expense and decreased by charge-offs, net of recoveries. Loans are charged off when the loss is highly probable and clearly identified. Although a loan is charged off, collection efforts may continue and future
recoveries may occur. Management maintains the allowance at a level considered adequate to absorb probable losses inherent in the portfolio as of the balance sheet date.



In evaluating the adequacy of the allowance for loan losses, consideration is given to many quantitative and qualitative
factors including historical charge-off experience, growth and changes in the composition of the loan portfolio, the volume of delinquent and criticized loans, information about specific borrower situations, including their financial position and
estimated collateral values, general economic and business conditions and collateral valuations, impact of competition on our underwriting terms and other factors and estimates which are subject to change over time. Estimating the risk of loss and
amount of loss on any loan is necessarily subjective and ultimate losses may vary from current estimates. These estimates are reviewed quarterly and, as changes in estimates are identified by management, the amounts are reflected in income through
the provision for loan losses in the appropriate period.



A
portion of the total allowance for loan losses is related to impaired loans. Certain homogenous loans, including residential mortgage and consumer loans, are collectively evaluated for impairment and, therefore, excluded from impaired loans. A loan
is considered impaired if, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Impaired
loans include all nonaccrual loans as well as certain accruing loans judged to have higher risk of noncompliance with the present contractual repayment schedule for both interest and principal. Once a loan has been determined to be impaired, it is
measured to establish the amount of the impairment, if any, based on the present value of expected future cash flows discounted at the loans effective interest rate, except that collateral-dependent loans may be measured for impairment based
on the fair value of the collateral, less cost to sell. If the measure of the impaired loan is less than the recorded investment in the loan, a valuation allowance is recognized. 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.



Income Recognition on Nonaccrual Loans:



Loans are placed on a nonaccrual basis for recognition of interest income when sufficient doubt exists as to the full collection of principal and
interest. Generally, loans are to be placed on nonaccrual when principal and interest is contractually past due 90 days, unless the loan is adequately secured and in the process of collection. The nonrecognition of interest income on an accrual
basis does not constitute forgiveness of the interest. After a loan is placed on nonaccrual



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



status, any current period interest previously accrued but not yet collected is reversed against current income. Interest is included in income subsequent to the date the
loan is placed on nonaccrual status only as interest is received and so long as management is satisfied that there is a high probability that principal will be collected in full. The loan is returned to accrual status only when the borrower has
demonstrated the ability to make future payments of principal and interest as scheduled.



Premises, Leasehold Improvements and Equipment:



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



Premises offered or contracted for sale are reported at the
lower of cost or fair value, less cost to sell, and depreciation on such assets is ceased. A charge to expense for the abandonment of a leased facility is recorded in the period that the Company ceases to occupy the space. The charge is determined
based upon the remaining lease rentals, reduced by estimated sublease rentals that could reasonably be obtained from the property. Leasehold improvements associated with abandoned facilities are charged to expense in the period in which the Company
ceases to occupy the space.



Other Real Estate:



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



Goodwill and Intangible Assets:



Goodwill was created upon the Companys acquisition of the Bank in 1997 and represents the excess of purchase price over the fair value of net assets
acquired. The transaction was accounted for by the purchase method of accounting. Under purchase accounting, the price is allocated to the respective assets acquired and liabilities assumed based on their estimated fair values, net of applicable
income tax effects. Beginning on January 1, 2002, goodwill is no longer subject to amortization. Instead, goodwill is tested annually for impairment, and if, at any time impairment exists, the Company will record an impairment loss.



Intangible assets with finite lives are amortized over their estimated
useful lives and tested for impairment only when events or circumstances indicate that the carrying value of the asset



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



may not be recovered. The Bank has intangible assets, associated with the acquisition of various lines of trust business, which are considered to have finite lives. These
intangible assets are being amortized using a straight-line method over the estimated life of the acquired business.



Income Taxes:



Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the income tax provision. At times, the Company applies different tax treatment for selected
transactions for tax return purposes than for financial reporting purposes. The accruals for income taxes include reserves for those differences in position. The reserves are utilized or reversed once the statute of limitations has expired or when
the Company determines that it is probable that the position taken on the tax return will be sustained by the taxing authorities.



Loss Contingency:



The Company recognizes as a loss legal and other contingencies when, based upon available information, it is probable that a liability has been incurred
and the amount of the loss contingency or range of amounts can be reasonably estimated.



Employee Benefit Plans:



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



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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:



|                                                                                                                                          |  |                                  |        |   |      |   |        |      |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                                                                                          |  | For the Years Ended December 31, |       
|(dollars in thousand, except per share amounts)                                                                                           |  | (Restated)2004                   |        |   | 2003 |   |        | 2002 | 
|Net income (loss) as reported                                                                                                             |  | $                                | 22,973 |   |      | $ | 18,747 |      |  | $ | (41,415 | )
|Add: Stock-based compensation, net of tax, included in the determination of net income (loss), as reported                                |  |                                  | 278    |   |      |   | 253    |      |  |   | 275     |  
|Deduct: Stock-based compensation, net of tax, that would have been reported if the fair value based method had been applied to all
awards |  |                                  | (757   | ) |      |   | (769   | )    |  |   | (651    | )
|                                                                                                                                          |  |                                  |        |   |      |   |        |      |  |   |         |  
|Pro forma net income (loss)                                                                                                               |  |                                  | 22,494 |   |      |   | 18,231 |      |  |   | (41,791 | )
|Less preferred dividend requirements                                                                                                      |  |                                  | (1,875 | ) |      |   | (3,443 | )    |  |   | (3,442  | )
|                                                                                                                                          |  |                                  |        |   |      |   |        |      |  |   |         |  
|Pro forma net income (loss) available to common stockholders                                                                              |  | $                                | 20,619 |   |      | $ | 14,788 |      |  | $ | (45,233 | )
|                                                                                                                                          |  |                                  |        |   |      |   |        |      |  |   |         |  
|Basic earnings (loss) per share                                                                                                           |  |                                  |        |   |      |   |        |      |  |   |         |  
|As reported                                                                                                                               |  | $                                | 2.21   |   |      | $ | 1.62   |      |  | $ | (6.12   | )
|Pro forma                                                                                                                                 |  |                                  | 2.16   |   |      |   | 1.56   |      |  |   | (6.18   | )
|                                                                                                                                          |  |                                  |       
|Diluted earnings (loss) per share                                                                                                         |  |                                  |        |   |      |   |        |      |  |   |         |  
|As reported                                                                                                                               |  | $                                | 2.19   |   |      | $ | 1.61   |      |  | $ | (6.12   | )
|Pro forma                                                                                                                                 |  |                                  | 2.14   |   |      |   | 1.55   |      |  |   | (6.18   | )



The following are the
significant assumptions used to determine the fair value of stock option awards, using a modified Black-Scholes option pricing model, under the fair value accounting method from SFAS No. 123, as amended by SFAS No. 148:



|                                      |  |                                  |         |   |      |   |         |      |  |   |         |  
|------------------------------------- |  | -------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                      |  | For the Years Ended December 31, |        
|                                      |  | 2004                             |         |   | 2003 |   |         | 2002 | 
|Grant date fair value per share       |  | $                                | 6.03    |   |      | $ | 4.48    |      |  | $ | 5.00    |  
|Significant assumptions:              |  |                                  |         |   |      |   |         |      |  |   |         |  
|Risk-free interest rate at grant date |  |                                  | 3.40    | % |      |   | 3.74    | %    |  |   | 5.10    | %
|Expected stock price volatility       |  |                                  | 16.02   | % |      |   | 14.96   | %    |  |   | 14.55   | %
|Expected dividend payout              |  |                                  | 0.92    | % |      |   | 1.19    | %    |  |   | 1.24    | %
|Expected option life                  |  |                                  | 7 years |   |      |   | 7 years |      |  |   | 7 years |  



Restricted Stock
Plan: Under its plan, the Company can grant restricted stock awards that vest upon completion of future service requirements or specified performance criteria. The Company accounts for restricted stock grants with only future service
requirements under the fixed method of accounting. Compensation expense is recorded for the fair market value of the stock at the date of grant. The expense is recognized over the vesting period of the award. No expense is recorded on awards that
are forfeited. For awards that vest upon satisfaction of specified performance criteria, the Company uses the variable method of accounting with the final measure of compensation cost based upon the number of shares that ultimately vest and the
market price on the date the performance criteria are met. At each interim date, compensation cost is measured based upon an estimate of the number of shares that will vest considering the performance criteria and the market price of the stock at
the interim date. Under both the variable and fixed method of accounting, unearned compensation is recorded as a reduction in stockholders equity.



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Nonqualified Deferred Compensation Plan: The Company maintains a nonqualified deferred compensation program for certain key employees which allows
the participants to defer a portion of their base, commission, or incentive compensation. The amount of compensation deferred by the participant, along with any Company discretionary contributions to the plan, are held in a rabbi trust for the
participants. The Companys discretionary contributions are recorded as additional compensation expense when contributed. While the Company maintains ownership of the assets, the participants are allowed to direct the investment of the assets
in several equity and fixed income mutual funds. These assets are recorded at their approximate fair market value in other assets on the Consolidated Balance Sheets. A liability is established, in accrued interest, taxes and other liabilities in the
Consolidated Balance Sheets, for the fair value of the obligation to the participants. Any increase or decrease in the fair market value of plan assets is recorded in other noninterest income on the Consolidated Statements of Income. Any increase or
decrease in the fair value of the deferred compensation obligation to participants is recorded as additional compensation expense or a reduction of compensation expense on the Consolidated Statements of Income.



Advertising Costs:



Advertising costs include expenditures for print and television advertisements and are generally expensed as incurred.
However, production costs incurred for long-term television advertising campaigns may be capitalized and amortized over the expected time horizon that the commercials will air. Included in other assets on the Consolidated Balance Sheets at
December 31, 2003 were capitalized advertising costs of $503,000 associated with the production costs of a television advertising campaign. These costs were written off during 2004 when the campaign was discontinued.



Derivative Instruments and Hedging Activities:



We use derivative financial instruments (derivatives), including interest
rate exchange and floor agreements to assist in our interest rate risk management. The Companys asset and liability management and investment policies do not allow the use of derivatives for trading purposes. In accordance with SFAS 133, all
derivatives are measured and reported at fair value on our consolidated balance sheet as either an asset or a liability. For derivatives that are designated and qualify as a fair value hedge, the gain or loss on the derivative, 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 derivatives that are designated and qualify as a cash flow hedge, the effective
portion of the gain or loss on the derivative 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 derivatives in 2004 that do not qualify for hedge accounting under SFAS 133 are also reported currently in earnings, in noninterest income.



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being
hedged. The net cash settlements on derivatives that do not qualify for hedge accounting are reported in noninterest income in 2004.



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 derivatives 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. The Company discontinues hedge accounting prospectively when
it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative expires, is sold, or terminated, or management determines that designation of the derivative as a
hedging instrument is no longer appropriate.



When hedge
accounting is discontinued, the future gains and losses arising from any change in fair value are recorded as noninterest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value
and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transaction is still expected to occur, gains or losses that
were accumulated in other comprehensive income are amortized or accreted into earnings over the same periods which the hedged transactions would have affected earnings.



Financial Instruments:



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



Comprehensive Income:



Comprehensive income includes net income, unrealized holding gains and losses on available-for-sale securities, and gains and losses associated with cash
flow hedging instruments. The statement of comprehensive income is included within the Consolidated Statements of Changes in Stockholders Equity. Also, see Note 23  Other Comprehensive Income for further details.



New Accounting Standards:



In December 2003, FASB issued FIN 46R that provided new accounting guidance
on when to consolidate a variable interest entity. Application of FIN 46R was effective for interests in certain variable interest entities as of December 31, 2003, and for all other types of variable interest entities for periods ending after
March 15, 2004. Beginning on January 1, 2004, the FIN 46R guidance required the Company to deconsolidate TAYC Capital Trust I. Not consolidating the TAYC Capital Trust I did not have a material impact on the Companys reported results
of operations or financial condition.



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Before
January 1, 2004, the Company consolidated TAYC Capital Trust I and reported the $45.0 million trust preferred securities on the Consolidated Balance Sheets under the caption guaranteed preferred beneficial interest in the Companys
junior subordinated debentures. The cash distributions on the trust preferred securities of TAYC Capital Trust I were also reported in interest expense, under a similar caption on the Consolidated Statements of Income. On January 1, 2004,
the Company deconsolidated TAYC Capital Trust I. In addition, the Company does not consolidate TAYC Capital Trust II. The Company now reports a liability for the total balance of the junior subordinated debentures from the Trusts, which corresponds
to the sum of the trust preferred securities and the common equity of the Trusts. The Companys equity investments in the Trusts of $2.6 million are reported in other assets on the Consolidated Balance Sheet at December 31, 2004. Interest
expense on the junior subordinated debentures is reported in interest expense.



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 No. 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. The Company will complete its 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 is effective for interim
periods beginning after June 15, 2005. 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, the Company will be required to record compensation expense in the future for all existing stock options that have not vested as of June 30, 2005, and for all future grants of
employee stock options. The Company has not yet completed its evaluation of the impact of adoption on the consolidated financial statements and the transitional provisions of SFAS 123R.



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Reclassifications:



Amounts in the prior years financial statements are reclassified whenever necessary to conform to the current years presentation.



All share and per share data has been restated for a three-for-two stock
split declared on September 13, 2002 for common shareholders of record as of October 2, 2002.



3.Cash and Due From Banks



The Bank is required to maintain a balance with the Federal Reserve Bank to cover reserve and clearing requirements. The average balance required to be maintained for the years ended December 31, 2004 and 2003
was approximately $1.1 million and $1.0 million, respectively.



4.
Investment Securities



The amortized cost and
estimated fair value of investment securities at December 31, 2004 and 2003 are as follows:



|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|----------------------------------- |  | ----------------- | ------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | -------
|                                    |  | December 31, 2004
|                                    |  | AmortizedCost     |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair 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
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        



|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|----------------------------------- |  | ----------------- | ------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | -------
|                                    |  | December 31, 2003
|                                    |  | AmortizedCost     |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|                                    |  | (in thousands)   
|Available-for-sale:                 |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|U.S. government agency securities   |  | $                 | 176,888 |                      | $ | 3,355                 |  | $ |                    |   |  | $ | 180,243
|Collateralized mortgage obligations |  |                   | 116,053 |                      |   | 1,026                 |  |   | (779                | ) |  |   | 116,300
|Mortgage-backed securities          |  |                   | 143,259 |                      |   | 1,461                 |  |   | (1,648              | ) |  |   | 143,072
|State and municipal obligations     |  |                   | 45,918  |                      |   | 2,244                 |  |   |                    |   |  |   | 48,162 
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total available-for-sale            |  |                   | 482,118 |                      |   | 8,086                 |  |   | (2,427              | ) |  |   | 487,777
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Held-to-maturity:                   |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Other debt securities               |  |                   | 525     |                      |   | 39                    |  |   |                    |   |  |   | 564    
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total held-to-maturity              |  |                   | 525     |                      |   | 39                    |  |   |                    |   |  |   | 564    
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total                               |  | $                 | 482,643 |                      | $ | 8,125                 |  | $ | (2,427              | ) |  | $ | 488,341
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table summarizes, for investment securities with unrealized losses as of December 31, 2004, the amount of the unrealized loss and the
related fair value of investment securities with unrealized losses. The unrealized losses have been further segregated by investment securities that have been in a continuous unrealized loss position for less than 12 months and those that have been
in a continuous unrealized loss position for 12 or more months. At December 31, 2004, the Company had 24 investment securities in an unrealized loss position. Of these securities, six securities have been in a loss position for more than twelve
months. Management believes that none of these unrealized losses represents other-than-temporary impairments of the investment portfolio. Management believes that it has both the intent and ability to hold all of these securities for the time
necessary to recover the amortized cost.



|                                                     |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |        |  
|---------------------------------------------------- |  | --------------------------------------------- | ------- | ---------------- | ------------------- | ------ | ---------- | ----- | ---------------- | ------ |  | ---------- | ------ | ---------------- |  | - | ------- |  | - | ------ | -
|                                                     |  | Length Of Continuous Unrealized Loss Position |        
|                                                     |  | Less than 12 months                           |         |                  | 12 months or longer |        |            | Total |                 
|(Dollars in thousands)                               |  | Fair Value                                    |         | UnrealizedLosses |                     |        | Fair Value |       | UnrealizedLosses |        |  | Fair Value |        | UnrealizedLosses | 
|Available-for-sale:                                  |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |        |  
|U.S. government agency securities                    |  | $                                             | 128,066 |                  | $                   | (753   | )          |       | $                |       |  | $          |       |                  |  | $ | 128,066 |  | $ | (753   | )
|Collateralized mortgage obligations                  |  |                                               | 84,629  |                  |                     | (1,037 | )          |       |                  | 25,128 |  |            | (497   | )                |  |   | 109,757 |  |   | (1,534 | )
|Mortgage-backed securities                           |  |                                               | 47,706  |                  |                     | (741   | )          |       |                  | 62,202 |  |            | (1,158 | )                |  |   | 109,908 |  |   | (1,899 | )
|State and municipal obligations                      |  |                                               |        |                  |                     |       |            |       |                  |       |  |            |       |                  |  |   |        |  |   |       |  
|                                                     |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |        |  
|Temporarily impaired securities  Available-for-sale |  |                                               | 260,401 |                  |                     | (2,531 | )          |       |                  | 87,330 |  |            | (1,655 | )                |  |   | 347,731 |  |   | (4,186 | )
|                                                     |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |        |  
|Held-to-maturity:                                    |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |        |  
|Other debt securities                                |  |                                               |        |                  |                     |       |            |       |                  |       |  |            |       |                  |  |   |        |  |   |       |  
|                                                     |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |        |  
|Temporarily impaired securities  Held-to-maturity   |  |                                               |        |                  |                     |       |            |       |                  |       |  |            |       |                  |  |   |        |  |   |       |  
|                                                     |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |        |  
|Total temporarily impaired securities                |  | $                                             | 260,401 |                  | $                   | (2,531 | )          |       | $                | 87,330 |  | $          | (1,655 | )                |  | $ | 347,731 |  | $ | (4,186 | )
|                                                     |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |        |  



The following table
shows the contractual maturities of debt securities, categorized by amortized cost and estimated fair value, at December 31, 2004.



|                                       |  |                |         |                     |   |        
|-------------------------------------- |  | -------------- | ------- | ------------------- | - | -------
|                                       |  | AmortizedCost  |         | EstimatedFair Value
|                                       |  | (in thousands)
|Available-for-sale:                    |  |                |         |                     |   |        
|Due in one year or less                |  | $              | 13,666  |                     | $ | 13,802 
|Due after one year through five years  |  |                | 149,223 |                     |   | 149,236
|Due after five years through ten years |  |                | 56,089  |                     |   | 56,409 
|Due after ten years                    |  |                | 17,060  |                     |   | 17,853 
|Collateralized mortgage obligations    |  |                | 117,020 |                     |   | 115,693
|Mortgage-backed securities             |  |                | 181,515 |                     |   | 180,351
|                                       |  |                |         |                     |   |        
|Totals                                 |  | $              | 534,573 |                     | $ | 533,344
|                                       |  |                |         |                     |   |        
|Held-to-maturity:                      |  |                |         |                     |   |        
|Due in one year or less                |  | $              |        |                     | $ |       
|Due after one year through five years  |  |                | 275     |                     |   | 275    
|Due after five years through ten years |  |                |        |                     |   |       
|Due after ten years                    |  |                |        |                     |   |       
|                                       |  |                |         |                     |   |        
|Totals                                 |  | $              | 275     |                     | $ | 275    
|                                       |  |                |         |                     |   |        



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Gross gains of $397,000 were realized on the sale of investment securities classified as available-for-sale during 2004, while no gross gains were
realized during 2003 and $2.1 million of gross gains on available-for-sale investment securities were realized in 2002. Gross losses of $253,000 were realized on the sale of available-for-sale investment securities in 2004, while no gross losses
were realized on available-for-sale investment securities in 2003 and 2002.



Investment securities with an approximate book value of $304 million and $270 million at December 31, 2004 and 2003, respectively, were pledged to collateralize certain deposits, securities sold under agreements
to repurchase, FHLB advances, and for other purposes as required or permitted by law.



Investment securities do not include the Banks investment in Federal Home Loan Bank (FHLB) and Federal Reserve Bank stock of $12.5 million and $12.1 million at December 31, 2004 and 2003,
respectively. These investments are required for membership and are carried at cost. The Bank also must maintain a specified level of investment in FHLB stock based upon the amount of outstanding FHLB borrowings.



5. Loans



Loans classified by type at December 31, 2004 and 2003 are as follows:



|                                      |  |                |           |   |      |   |           |  
|------------------------------------- |  | -------------- | --------- | - | ---- | - | --------- | -
|                                      |  | 2004           |           |   | 2003 |  
|                                      |  | (in thousands) |          
|Commercial and industrial             |  | $              | 656,099   |   |      | $ | 589,987   |  
|Commercial real estate secured        |  |                | 732,251   |   |      |   | 642,364   |  
|Real estate-construction              |  |                | 531,868   |   |      |   | 364,294   |  
|Residential real estate mortgages     |  |                | 64,569    |   |      |   | 86,710    |  
|Home equity loans and lines of credit |  |                | 207,164   |   |      |   | 253,006   |  
|Consumer                              |  |                | 18,386    |   |      |   | 24,636    |  
|Other loans                           |  |                | 1,460     |   |      |   | 1,330     |  
|                                      |  |                |           |   |      |   |           |  
|Gross loans                           |  |                | 2,211,797 |   |      |   | 1,962,327 |  
|Less: Unearned discount               |  |                | (191      | ) |      |   | (319      | )
|                                      |  |                |           |   |      |   |           |  
|Total loans                           |  |                | 2,211,606 |   |      |   | 1,962,008 |  
|Less: Allowance for loan losses       |  |                | (37,484   | ) |      |   | (34,356   | )
|                                      |  |                |           |   |      |   |           |  
|Loans, net                            |  | $              | 2,174,122 |   |      | $ | 1,927,652 |  
|                                      |  |                |           |   |      |   |           |  



Nonperforming loans
include nonaccrual loans and interest-accruing loans contractually past due 90 days or more. Loans are generally placed on a nonaccrual basis for recognition of interest income when sufficient doubt exists as to the full collection of principal and
interest. Generally, loans are to be placed on nonaccrual when principal and interest is contractually past due 90 days, unless the loan is adequately secured and in the process of collection.



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table sets forth the amounts of nonperforming loans at December 31, 2004, 2003, and 2002 and the related interest on nonaccrual loans
for the years then ended:



|                                                                                                             |  |                |        |      |   |        |  |   |       
|------------------------------------------------------------------------------------------------------------ |  | -------------- | ------ | ---- | - | ------ |  | - | ------
|                                                                                                             |  | 2004           |        | 2003 |   | 2002  
|                                                                                                             |  | (in thousands)
|Recorded balance of loans contractually past due 90 days or more but still accruing interest, at end of year |  | $              | 1,807  |      | $ | 4,728  |  | $ | 6,151 
|Recorded balance of nonaccrual loans, at end of year                                                         |  |                | 12,286 |      |   | 18,056 |  |   | 12,107
|                                                                                                             |  |                |        |      |   |        |  |   |       
|Total nonperforming loans                                                                                    |  | $              | 14,093 |      | $ | 22,784 |  | $ | 18,258
|                                                                                                             |  |                |        |      |   |        |  |   |       
|Restructured loans not included in nonperforming loans                                                       |  | $              | 1,777  |      | $ | 130    |  | $ | 313   
|                                                                                                             |  |                |       
|Interest on nonaccrual loans recognized in income                                                            |  |                | 160    |      |   | 458    |  |   | 256   
|Interest on nonaccrual loans which would have been recognized under the original terms of the loans          |  |                | 766    |      |   | 1,157  |  |   | 1,182 



Impaired loans include
all nonaccrual loans as well as certain accruing loans judged to have higher risk of noncompliance with the present contractual repayment schedule for both interest and principal. Once a loan has been determined to be impaired, it is measured to
establish the amount of the impairment based on the present value of expected future cash flows discounted at the loans effective interest rate, except that collateral-dependent loans may be measured for impairment based on the fair value of
the collateral, less cost to sell. If the measure of the impaired loan is less than the recorded investment in the loan, a valuation allowance is recognized. 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.



Information about the Companys impaired loans at or for the years ended December 31, 2004, 2003, and 2002 is as follows:



|                                                                    |  |                |        |      |   |        |  |   |       
|------------------------------------------------------------------- |  | -------------- | ------ | ---- | - | ------ |  | - | ------
|                                                                    |  | 2004           |        | 2003 |   | 2002  
|                                                                    |  | (in thousands)
|Recorded balance of impaired loans, at end of year:                 |  |                |        |      |   |        |  |   |       
|With related allowance for loan loss                                |  | $              | 12,271 |      | $ | 12,788 |  | $ | 9,454 
|With no related allowance for loan loss                             |  |                | 6,056  |      |   | 11,559 |  |   | 7,453 
|                                                                    |  |                |        |      |   |        |  |   |       
|Total                                                               |  | $              | 18,327 |      | $ | 24,347 |  | $ | 16,907
|                                                                    |  |                |        |      |   |        |  |   |       
|Allowance for loan losses related to impaired loans, at end of year |  | $              | 1,067  |      | $ | 5,503  |  | $ | 3,333 
|Average balance of impaired loans for the year                      |  |                | 20,797 |      |   | 23,377 |  |   | 16,616
|Interest income recognized on impaired loans for the year           |  |                | 1,004  |      |   | 982    |  |   | 598   



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



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Activity in the allowance for loan losses for the years ended December 31, 2004, 2003, and 2002 consisted of the following:



|                                           |  |                |        |   |      |   |        |      |  |   |        |  
|------------------------------------------ |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                           |  | 2004           |        |   | 2003 |   |        | 2002 | 
|                                           |  | (in thousands) |       
|Balance at beginning of year               |  | $              | 34,356 |   |      | $ | 34,073 |      |  | $ | 31,118 |  
|Provision for loan losses                  |  |                | 10,083 |   |      |   | 9,233  |      |  |   | 9,900  |  
|Loans charged-off                          |  |                | (9,120 | ) |      |   | (9,948 | )    |  |   | (8,533 | )
|Recoveries on loans previously charged-off |  |                | 2,165  |   |      |   | 998    |      |  |   | 1,588  |  
|                                           |  |                |        |   |      |   |        |      |  |   |        |  
|Net charge-offs                            |  |                | (6,955 | ) |      |   | (8,950 | )    |  |   | (6,945 | )
|                                           |  |                |        |   |      |   |        |      |  |   |        |  
|Balance at end of year                     |  | $              | 37,484 |   |      | $ | 34,356 |      |  | $ | 34,073 |  
|                                           |  |                |        |   |      |   |        |      |  |   |        |  



The Company has
extended loans to directors and executive officers of the Bank, the Company and their related interests. The aggregate loans outstanding to the directors and executive officers of the Bank, the Company and their related interests, which individually
exceeded $60,000, totaled $32.8 million and $25.3 million at December 31, 2004 and 2003, respectively. During 2004 and 2003, new loans totaled $20.8 million and $16.8 million, respectively and repayments totaled $13.3 million and $18.2 million,
respectively. In the opinion of management, these loans were made in the normal course of business and on substantially the same terms for comparable transactions with other borrowers and do not involve more than a normal risk of collectiblity.



6. Premises, Leasehold Improvements, and Equipment



Premises, leasehold improvements, and equipment at December 31, 2004
and 2003 are summarized as follows:



|                                               |  |                |         |   |      |   |         |  
|---------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                               |  | 2004           |         |   | 2003 |  
|                                               |  | (in thousands) |        
|Land and improvements                          |  | $              | 2,414   |   |      | $ | 3,819   |  
|Buildings and improvements                     |  |                | 3,931   |   |      |   | 10,377  |  
|Leasehold improvements                         |  |                | 4,525   |   |      |   | 4,387   |  
|Furniture, fixtures and equipment              |  |                | 17,256  |   |      |   | 16,999  |  
|                                               |  |                |         |   |      |   |         |  
|Total cost                                     |  |                | 28,126  |   |      |   | 35,582  |  
|Less accumulated depreciation and amortization |  |                | (13,339 | ) |      |   | (15,034 | )
|                                               |  |                |         |   |      |   |         |  
|Net book value                                 |  | $              | 14,787  |   |      | $ | 20,548  |  
|                                               |  |                |         |   |      |   |         |  



In connection with the
consolidation of its corporate operations and administrative functions into a centrally located corporate center, the Company completed sales of two of its facilities in 2004. In June 2004, the Company completed the sale of its Burbank facility and
agreed to lease back approximately one-half of the space for a banking center and administrative offices. Upon sale, the Company realized a gain of $245,000 that was deferred and is being amortized over the 10 year life of the lease. In December
2004, the Company completed the sale of its Ashland facility. The Company had recorded a $386,000 charge in 2002 to reduce the book value of the property to the expected sales price upon execution of the sales agreement.



In 2003, the Company also abandoned its administrative offices on the second
and third floors of the Wheeling facility. Upon ceasing to use this space, the Company recorded a $3.5 million lease abandonment charge in the fourth quarter of 2003. The charge was comprised of a



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



$976,000 write-off of leasehold improvements, furniture and other equipment that were abandoned and a $2.6 million charge for the liability related to the operating
lease. This $2.6 million charge was computed based upon the remaining lease payments, reduced by estimated sublease rentals that could reasonably be obtained from the property. The charge represented the estimated liability for the lease payments
that the Company would incur for the remaining term of the lease for which it would receive no future economic benefit other than through subleasing. The abandonment liability was reduced by $357,000 in 2004 as the Company made rent payments. During
late 2004, the Company reached an agreement to terminate the lease that was originally scheduled to end in March 2010 for a cash payment of $3.3 million and the transfer of a small parcel of land it owned near the site. In connection with this
agreement, the Company recorded an additional charge of $984,000 in the fourth quarter of 2004 to increase the lease termination liability to $3.3 million, write-off the small parcel of land, and accrue other transaction costs. In February 2005, the
Company closed this transaction and terminated the lease. No additional expense was recorded in the first quarter of 2005 related to this transaction. Upon termination of the Companys obligation under the existing lease, the Company then
entered into a new operating lease for a smaller space on the first floor of that facility for a banking center.



7.Other Real Estate and Repossessed Assets



Activity in the allowance for other real estate and repossessed assets for the years ended December 31, 2004, 2003, and 2002, are as follows:



|                                |  |                |     |   |      |   |    |      |  |   |     |  
|------------------------------- |  | -------------- | --- | - | ---- | - | -- | ---- |  | - | --- | -
|                                |  | 2004           |     |   | 2003 |   |    | 2002 | 
|                                |  | (in thousands) |    
|Balance at beginning of year    |  | $              | 7   |   |      | $ | 16 |      |  | $ | 15  |  
|Provision for other real estate |  |                | 71  |   |      |   |   |      |  |   | 16  |  
|Charge-offs                     |  |                | (74 | ) |      |   | (9 | )    |  |   | (15 | )
|                                |  |                |     |   |      |   |    |      |  |   |     |  
|Balance at end of year          |  | $              | 4   |   |      | $ | 7  |      |  | $ | 16  |  
|                                |  |                |     |   |      |   |    |      |  |   |     |  



8.Goodwill and
Intangible Assets



The Company has $23.4
million of goodwill, created from the 1997 acquisition of the Bank, which beginning on January 1, 2002 was no longer subject to amortization. Goodwill is tested annually for impairment as of July 1, and as of July 1, 2004, the Company
determined that no impairment charge was necessary at that time. No additions or disposals to goodwill were recorded during 2004 or 2003.



The Company also has $54,000 of other intangible assets subject to amortization that relate to the purchase of lines of trust business, which is included
in other assets on the Consolidated Balance Sheets. No additions or disposals to intangible assets were recorded during 2004 or 2003. Amortization expense for these intangible assets was $13,000, $370,000, and $366,000 during the years ended
December 31, 2004, 2003, 2002, respectively. The estimated amortization expense for these assets is expected to be $13,000 for each of the years ended December 2005 through 2008, and $1,000 for the year ended December 2009.



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



9.Interest-Bearing Deposits



Interest-bearing deposits at December 31, 2004 and 2003 are summarized as follows:



|                                            |  |                 |           |      |   |          
|------------------------------------------- |  | --------------- | --------- | ---- | - | ---------
|                                            |  | (Restated) 2004 |           | 2003
|                                            |  | (in thousands) 
|NOW accounts                                |  | $               | 124,015   |      | $ | 136,119  
|Savings accounts                            |  |                 | 85,371    |      |   | 90,177   
|Money market deposits                       |  |                 | 421,529   |      |   | 425,449  
|Time deposits:                              |  |                 |           |      |   |          
|Certificates of deposit                     |  |                 | 525,173   |      |   | 498,189  
|Out-of-local-market certificates of deposit |  |                 | 124,005   |      |   | 76,475   
|Brokered certificates of deposit            |  |                 | 415,811   |      |   | 285,689  
|Public time deposits                        |  |                 | 69,635    |      |   | 55,793   
|                                            |  |                 |           |      |   |          
|Total time deposits                         |  |                 | 1,134,624 |      |   | 916,146  
|                                            |  |                 |           |      |   |          
|Total                                       |  | $               | 1,765,539 |      | $ | 1,567,891
|                                            |  |                 |           |      |   |          



At December 31,
2004 and 2003, time deposits in amounts $100,000 or more totaled $331.3 million and $282.0 million, respectively. Interest expense on time deposits with balances of $100,000 or more was $5.5 million, $4.7 million and $5.1 million for the years ended
December 31, 2004, 2003, and 2002, respectively.



At
December 31, 2004, the scheduled maturities of certificates of deposit, public time deposits, and brokered certificates of deposit are as follows:



|           |  |                   |          
|---------- |  | ----------------- | ---------
|Year       |  | (Restated) Amount
|           |  | (in thousands)   
|2005       |  | $                 | 743,621  
|2006       |  |                   | 162,451  
|2007       |  |                   | 46,739   
|2008       |  |                   | 53,263   
|2009       |  |                   | 19,636   
|Thereafter |  |                   | 108,914  
|           |  |                   |          
|Total      |  | $                 | 1,134,624
|           |  |                   |          



10.Short-Term Borrowings



Short-term borrowings at December 31, 2004 and
2003 are summarized as follows:



|                                               |  |                        |         |                       |      |   |                 |   |                       |  |      |  
|---------------------------------------------- |  | ---------------------- | ------- | --------------------- | ---- | - | --------------- | - | --------------------- |  | ---- | -
|                                               |  | 2004                   |         |                       | 2003 |  
|                                               |  | Amount Borrowed        |         | Weighted Average Rate |      |   | Amount Borrowed |   | Weighted Average Rate | 
|                                               |  | (dollars in thousands) |        
|Securities sold under agreements to repurchase |  | $                      | 185,737 |                       | 1.19 | % |                 | $ | 169,890               |  | 0.75 | %
|Federal funds purchased                        |  |                        | 43,685  |                       | 2.06 |   |                 |   | 40,613                |  | 0.87 |  
|U.S. Treasury tax and loan note option         |  |                        | 125     |                       | 1.74 |   |                 |   | 8,605                 |  | 0.70 |  
|                                               |  |                        |         |                       |      |   |                 |   |                       |  |      |  
|Total                                          |  | $                      | 229,547 |                       | 1.36 | % |                 | $ | 219,108               |  | 0.77 | %
|                                               |  |                        |         |                       |      |   |                 |   |                       |  |      |  



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Securities sold under agreements to repurchase generally mature within 1 to 60 days from the transaction date. Under the terms of the repurchase
agreements, if the market value of the pledged securities declines below the repurchase liability, the Bank may be required to provide additional collateral to the buyer. In general, the Bank maintains control of the pledged securities.



Information concerning securities sold under agreements to repurchase for
the years ended December 31, 2004, 2003, and 2002 is summarized as follows:



|                                            |  |                        |         |   |      |   |         |      |  |   |         |  
|------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                            |  | 2004                   |         |   | 2003 |   |         | 2002 | 
|                                            |  | (dollars in thousands) |        
|Daily average balance during the year       |  | $                      | 176,944 |   |      | $ | 182,017 |      |  | $ | 190,287 |  
|Daily average rate during the year          |  |                        | 0.97    | % |      |   | 0.97    | %    |  |   | 1.44    | %
|Maximum amount outstanding at any month end |  | $                      | 223,404 |   |      | $ | 219,658 |      |  | $ | 211,150 |  



Under the treasury tax
and loan note option, the Bank is authorized to accept U.S. Treasury deposits of excess funds along with the deposits of customer taxes. These liabilities bear interest at a rate of 0.25% below the average federal funds rate and are collateralized
by a pledge of various investment securities and commercial loans. The Bank also participates in the U.S. Treasurys Term Investment Option program whereby the Bank can obtain additional short-term funding from the U.S. Treasury at the
prevailing short-term market rates.



At December 31, 2004,
subject to available collateral, the Bank had available pre-approved overnight federal funds borrowings and repurchase agreement lines of $120 million and $650 million, respectively.



11.Income Taxes



The components of the income tax expense (benefit) for the years ended December 31, 2004, 2003, and 2002 are as follows:



|                        |  |                 |        |   |      |   |        |      |  |   |        |  
|----------------------- |  | --------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                        |  | (Restated) 2004 |        |   | 2003 |   |        | 2002 | 
|                        |  | (in thousands)  |       
|Current tax expense:    |  |                 |        |   |      |   |        |      |  |   |        |  
|Federal                 |  | $               | 10,598 |   |      | $ | 9,282  |      |  | $ | 11,564 |  
|State                   |  |                 | 1,748  |   |      |   | 1,953  |      |  |   | 2,017  |  
|                        |  |                 |        |   |      |   |        |      |  |   |        |  
|Total                   |  |                 | 12,346 |   |      |   | 11,235 |      |  |   | 13,581 |  
|                        |  |                 |        |   |      |   |        |      |  |   |        |  
|Deferred tax benefit:   |  |                 |        |   |      |   |        |      |  |   |        |  
|Federal                 |  |                 | (1,045 | ) |      |   | (2,130 | )    |  |   | (1,561 | )
|State                   |  |                 | 12     |   |      |   | (537   | )    |  |   | (345   | )
|                        |  |                 |        |   |      |   |        |      |  |   |        |  
|Total                   |  |                 | (1,033 | ) |      |   | (2,667 | )    |  |   | (1,906 | )
|                        |  |                 |        |   |      |   |        |      |  |   |        |  
|Applicable income taxes |  | $               | 11,313 |   |      | $ | 8,568  |      |  | $ | 11,675 |  
|                        |  |                 |        |   |      |   |        |      |  |   |        |  



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Income tax expense was different from the amounts computed by applying the federal statutory rate of 35% for the years ended December 31, 2004, 2003,
and 2002 to income before income taxes because of the following:



|                                                                 |  |                 |        |   |      |   |        |      |  |   |         |  
|---------------------------------------------------------------- |  | --------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                 |  | (Restated) 2004 |        |   | 2003 |   |        | 2002 | 
|                                                                 |  | (in thousands)  |       
|Federal income tax expense (benefit) at statutory rate           |  | $               | 12,000 |   |      | $ | 9,560  |      |  | $ | (10,409 | )
|Increase (decrease) in taxes resulting from:                     |  |                 |        |   |      |   |        |      |  |   |         |  
|Tax-exempt interest income, net of disallowed interest deduction |  |                 | (725   | ) |      |   | (846   | )    |  |   | (926    | )
|State taxes, net                                                 |  |                 | 1,144  |   |      |   | 920    |      |  |   | 1,087   |  
|Litigation settlement charge                                     |  |                 |       |   |      |   |       |      |  |   | 21,665  |  
|Legal fees, net                                                  |  |                 |       |   |      |   |       |      |  |   | 224     |  
|Reversal of allocated tax reserves                               |  |                 | (1,056 | ) |      |   | (1,000 | )    |  |   |        |  
|Other, net                                                       |  |                 | (50    | ) |      |   | (66    | )    |  |   | 34      |  
|                                                                 |  |                 |        |   |      |   |        |      |  |   |         |  
|Total                                                            |  | $               | 11,313 |   |      | $ | 8,568  |      |  | $ | 11,675  |  
|                                                                 |  |                 |        |   |      |   |        |      |  |   |         |  



The Company did not
recognize any income tax benefit for financial reporting purposes with respect to the litigation settlement charge of $61.9 million and certain legal defense costs incurred in 2002. However, the Company did deduct a portion of the settlement ($28.7
million) on its 2002 income tax return, because it believes that a portion of the settlement that relates to specific settled claims is more likely than not deductible as ordinary and necessary business expense. This degree of certainty is not
sufficient to recognize an income tax benefit for financial reporting purposes. The Company will recognize all or a portion of the income tax benefit for financial reporting purposes if and when the Company determines that the position it took on
its 2002 income tax return becomes probable of being sustained by the taxing authorities. Given the complexity of the litigation, the settlement and related tax law, the Company continues to believe that only a specific resolution of the matter with
the taxing authorities or the expiration of the statute of limitations would provide sufficient evidence for management to conclude that the deductibility is probable. While the statute of limitations for the 2002 tax return expires in September
2006, the Internal Revenue Service can request an extension of the statute of limitations at any time prior to that date.



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 2004 and 2003 are presented below:



|                                                             |  |                |        |   |      |   |        |  
|------------------------------------------------------------ |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                             |  | (Restated)2004 |        |   | 2003 |  
|                                                             |  | (in thousands) |       
|Deferred Tax Assets:                                         |  |                |        |   |      |   |        |  
|Fixed assets, principally due to differences in depreciation |  | $              | 1,381  |   |      | $ | 2,597  |  
|Loans, principally due to allowance for loan losses          |  |                | 15,263 |   |      |   | 14,222 |  
|Deferred income, principally net loan origination fees       |  |                | 2,478  |   |      |   | 1,654  |  
|Employee benefits                                            |  |                | 2,518  |   |      |   | 2,070  |  
|Other                                                        |  |                | 47     |   |      |   | 923    |  
|                                                             |  |                |        |   |      |   |        |  
|Gross deferred tax assets                                    |  |                | 21,687 |   |      |   | 21,466 |  
|                                                             |  |                |        |   |      |   |        |  
|Deferred Tax Liabilities:                                    |  |                |        |   |      |   |        |  
|Discount accretion                                           |  |                | (26    | ) |      |   | (309   | )
|Purchase accounting                                          |  |                | (182   | ) |      |   | (711   | )
|                                                             |  |                |        |   |      |   |        |  
|Gross deferred tax liabilities                               |  |                | (208   | ) |      |   | (1,020 | )
|                                                             |  |                |        |   |      |   |        |  
|Subtotal                                                     |  |                | 21,479 |   |      |   | 20,446 |  
|                                                             |  |                |        |   |      |   |        |  
|Tax effect of other comprehensive income                     |  |                | 252    |   |      |   | (2,434 | )
|                                                             |  |                |        |   |      |   |        |  
|Net deferred tax assets                                      |  | $              | 21,731 |   |      | $ | 18,012 |  
|                                                             |  |                |        |   |      |   |        |  



Based upon historical
taxable income as well as projections of future taxable income, management believes that it is more likely than not that the deferred tax assets will be realized. Therefore, no valuation reserve has been recorded at December 31, 2004 or 2003.



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



12.Notes Payable and FHLB Advances



Notes payable and FHLB advances at December 31, 2004 and 2003 consisted of the following:



|                                                                                                                                                                                                                                             |  |                |        |      |   |        
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | ---- | - | -------
|                                                                                                                                                                                                                                             |  | 2004           |        | 2003
|                                                                                                                                                                                                                                             |  | (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
December 31, 2004 and 2003 were 5.13% and 3.92%, 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 December 31, 2004 and 2003; were 3.53% and 3.50% 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 
|FHLB advance  3.94%, matured November 23, 2004                                                                                                                                                                                              |  |                |       |      |   | 10,000 
|FHLB advance  1.50%, matured January 29, 2004                                                                                                                                                                                               |  |                |       |      |   | 15,000 
|                                                                                                                                                                                                                                             |  |                |        |      |   |        
|Total FHLB advances                                                                                                                                                                                                                          |  |                | 75,000 |      |   | 100,000
|                                                                                                                                                                                                                                             |  |                |        |      |   |        
|Total notes payable and FHLB advances                                                                                                                                                                                                        |  | $              | 85,500 |      | $ | 110,500
|                                                                                                                                                                                                                                             |  |                |        |      |   |        



Notes payable:
The Companys notes payable consists of a $10.0 million of subordinated debt due on November 27, 2011, a $500,000 term loan due November 27, 2011, and an $11.5 million revolving facility due on November 27, 2005. In December
2004, the maturity date of term loan and the subordinated debt were each extended by two years to 2011 and the maturity date of the revolving credit facility was extended by one year to 2005. To date, the Company has not drawn upon the $11.5 million
revolving credit facility.



Both the term loan and the
subordinated debt require interest only payments until maturity. The term note and the revolving credit facility are secured by all of the Companys common stock in the Bank. The subordinated debt is not secured by any assets of the Company and
is subordinate to the claims of the general creditors of the Company. The subordinated debt qualifies as Tier II capital under Federal Reserve capital adequacy guidelines. Costs associated with obtaining the notes payable credit facilities,
consisting of loan fees and attorney costs, were capitalized and are being amortized to interest expense over seven years, the original term of the loans, using the straight line method.



The notes payable require compliance with certain defined financial covenants relating to the Bank, including covenants
related to regulatory capital, return on average assets, nonperforming assets, and Company leverage. As of December 31, 2004, the Company is in compliance with these covenants. The notes payable agreements also restrict the amount of dividends
that the Company can pay to shareholders and the amount of dividends that the Bank



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can pay to the Company. The Company is restricted from paying annual cash dividends to common shareholders during a calendar year in excess of 25% of that years
annual net income, while the Bank is restricted from paying annual cash dividends in a calendar year to the Company in excess of 60% of that years annual net income.



FHLB advances: At December 31, 2004, the FHLB advances were collateralized by $43.2 million of investment
securities, $7.6 million of FHLB stock, and a blanket lien on $97.6 million of qualified first-mortgage residential and home equity loans. At December 31, 2003, the FHLB advances were collateralized by $22.3 million of investment securities,
$7.2 million of FHLB stock, and a blanket lien on $128.7 million of qualified first-mortgage residential and home equity loans. Based on the value of collateral pledged at December 31, 2004, the Bank had additional borrowing capacity at the
FHLB of $27.1 million. The weighted average interest rates at December 31, 2004 and 2003 were 4.56% and 4.04%, respectively.



Following are the scheduled maturities of notes payable and FHLB advances, categorized by the earlier of call or contractual maturity, at
December 31, 2004:



|                    |  |                |       
|------------------- |  | -------------- | ------
|Year                |  | Amount        
|                    |  | (in thousands)
|2005                |  | $              | 75,000
|2006                |  |                |      
|2007                |  |                |      
|2008                |  |                |      
|2009                |  |                |      
|2010 and thereafter |  |                | 10,500
|                    |  |                |       
|Total               |  | $              | 85,500
|                    |  |                |       



13.Junior Subordinated
Debentures



The following table summarizes the amount
of junior subordinated debentures issued by the Company to TAYC Capital Trust I and TAYC Capital Trust II as of December 31, 2004:



|                      |  |               |  |                                          |        |                                                      |   |             |  |                    |  |              
|--------------------- |  | ------------- |  | ---------------------------------------- | ------ | ---------------------------------------------------- | - | ----------- |  | ------------------ |  | -------------
|Trust Name            |  | Issuance Date |  | Amount of Junior Subordinated Debentures |        | Amount of Trust Preferred Securities Issued by Trust |   | Annual Rate |  | Maturity Date     
|TAYC Capital Trust I  |  | Oct. 2002     |  | $                                        | 46,400 |                                                      | $ | 45,000      |  | 9.75%              |  | Oct. 21, 2032
|TAYC Capital Trust II |  | June 2004     |  |                                          | 41,238 |                                                      |   | 40,000      |  | 3-mo LIBOR + 2.68% |  | June 17, 2034
|                      |  |               |  |                                          |        |                                                      |   |             |  |                    |  |              
|                      |  |               |  | $                                        | 87,638 |                                                      | $ | 85,000      |  |                    |  |              
|                      |  |               |  |                                          |        |                                                      |   |             |  |                    |  |              



In June 2004, the
Company formed TAYC Capital Trust II, a wholly owned subsidiary and a Delaware statutory trust. On June 17, 2004, TAYC Capital Trust II issued $40.0 million of floating rate trust preferred securities and invested the proceeds, along with $1.2
million received from the purchase of its common equity securities, in $41.2 million of floating rate junior subordinated debentures of the Company. The sole assets of the TAYC Capital Trust II are the Companys junior subordinated debentures.
The interest rate on both the trust preferred securities and the junior subordinated debentures equals the three-month LIBOR plus 2.68% and



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re-prices quarterly on the 17thof
September, December, March and June. The interest rate on both the trust preferred securities and the junior subordinated debentures was 5.18% at December 31, 2004. The rates are payable and adjust quarterly. The Company may redeem all or part
of the debentures at any time on or after June 17, 2009, subject to approval by the Federal Reserve Bank, at a redemption price equal to 100% of the aggregate liquidation amount of the debentures plus any accumulated and unpaid distributions
thereon to the date of redemption. The trust preferred securities are subject to mandatory redemption when the junior subordinated debentures are paid at maturity in 2034 or upon any earlier redemption of the debentures. The trust preferred
securities may also be redeemed at any time in the event of unfavorable changes in certain laws or regulations, provided that any redemption prior to June 17, 2009 would require the payment of a prepayment penalty.



In October 2002, the Company formed TAYC Capital Trust I, a wholly owned
subsidiary and a Delaware statutory trust to issue $45.0 million of trust preferred securities. Proceeds from the sale of these trust preferred securities, along with $1.4 million received from the purchase of its common equity securities, were
invested by TAYC Capital Trust I in $46.4 million of 9.75% junior subordinated debentures of the Company. The sole assets of the TAYC Capital Trust I are the Companys junior subordinated debentures. Interest on both the trust preferred
securities and junior subordinated debentures are payable quarterly at a rate of 9.75% per year. The Company may redeem all or part of these debentures at any time on or after October 21, 2007, subject to approval by the Federal Reserve
Bank, at a redemption price equal to 100% of the aggregate liquidation amount of the debentures plus any accumulated and unpaid distributions thereon to the date of redemption. The trust preferred securities are subject to mandatory redemption when
the junior subordinated debentures are paid at maturity in 2032 or upon any earlier redemption of the debentures. The trust preferred securities may also be redeemed at any time in the event of unfavorable changes in certain laws or regulations.



The Company may defer the payment of interest on each of the
junior subordinated debentures at any time for a period not exceeding 20 consecutive quarters, provided that the deferral period does not extend past the stated maturity. During any such deferral period, distributions on the corresponding trust
preferred securities will also be deferred and the Companys ability to pay dividends on its common shares will be restricted. Issuance costs from each issuance of the trust preferred securities, consisting primarily of underwriting discounts
and professional fees, were capitalized and are being amortized over thirty years, or through the maturity dates, to interest expense using the straight-line method.



The Companys obligations with respect to each of the trust preferred securities and the related debentures, in the
aggregate, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by the Company of the obligations of each of the Trusts under the respective trust preferred securities.



Beginning on January 1, 2004, the Company deconsolidated TAYC Capital
Trust I in accordance with FIN 46R. At December 31, 2003, the Company had consolidated TAYC Capital Trust I and reported the $45.0 million trust preferred securities on the Consolidated Balance Sheets. The cash distributions on the trust
preferred securities of TAYC Capital Trust I were reported in interest expense on the Consolidated Statements of Income. However, upon



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implementation of FIN 46R on January 1, 2004, the Company deconsolidated TAYC Capital Trust I and does not consolidate TAYC Capital Trust II, which was formed in
2004. At December 31, 2004, the Company reports a liability for the total balance of the junior subordinated debentures from the Trusts. The equity investments in the Trusts of $2.6 million are reported in other assets on the Consolidated
Balance Sheet at December 31, 2004. Interest expense on the junior subordinated debentures is reported in interest expense.



14. Employee Benefit Plans



The Companys employees participate in employee benefit plans consisting of a 401(k) Plan and a Profit Sharing/Employee Stock Ownership Plan
(ESOP), collectively called the Plans. Contributions to the Plans are made at the discretion of the Board of Directors, with the exception of certain 401(k) matching of employee contributions. The 401(k) plan allows
participants a choice of several equity and fixed income mutual funds. Company common stock is not an investment option for 401(k) participants. For the years ended December 31, 2004, 2003 and 2002, contributions paid to the Plans were $2.3
million, $2.6 million, and $2.5 million, respectively. The ESOP owned 331,487 shares and 382,321 shares of the Companys common stock as of December 31, 2004 and 2003, respectively. These shares are held in trust for the participants by
the ESOPs trustee. As of December 31, 2004, all shares of Company common stock owned by the ESOP were allocated to plan participants.



Before the Companys initial public offering in October 2002, there was no public market for the Companys common shares owned by employees in
the employee benefit plans. As a result, under the terms of the ESOP, stock option agreements, and the restricted stock program, the Company was obligated to purchase shares of Company common stock from terminated employees related to
put rights. During 2002, the Company repurchased 91,527 shares of common stock totaling approximately $1.7 million. The Company acquired these shares and holds them as treasury stock at the purchase price, which was determined by a
semiannual independent third party appraisal of the Companys common stock. Since its common shares became publicly traded, the Company is no longer obligated to purchase shares of common stock associated with the ESOP, stock options
agreements, or the restricted stock program.



The Company also
maintains a non-qualified deferred compensation plan for certain key employees that allow participants to defer up to 75% of base compensation and up to 95% of incentive compensation. The Company also may make contributions and discretionary
matching contributions to the plan. Vesting in the matching contribution is based upon years of service. Participant vests in the matching contributions 20% after the first year of service, 40% after two years, 60% after three years, 80% after four
years, and 100% vested after five years of service. Vesting in discretionary contribution is determined by the Plan Administrator. The plan also allows for executive discretionary contributions for certain key executives. The executive discretionary
contributions vests 20% after six years of service, 40% after seven years, 60% after eight years, 80% after nine years, and 100% after ten years of service. The deferrals and Company contributions are held in a rabbi trust for the participants.
While the Company maintains ownership of the assets, the participants are able to direct the investment of the assets into several equity and fixed income mutual funds. Company common stock is not an investment option for the participants. The
Company records the assets at their fair market value in other



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assets in the Consolidated Balance Sheets. The liability to participants is recorded in other liabilities in the Consolidated Balance Sheets. The deferrals and earnings
grow tax deferred until withdrawn from the plan. The amount and method of benefit payment depend on the occurrence of specific events. When such an event occurs, benefit payments become due. Events include retirement, maturation of personal goals,
termination of employment, disability, death, and financial hardship. The participant can withdraw their balance at any other time with a 10% early withdrawal penalty. Upon retirement or maturation of a personal goal, the account may be paid in a
lump sum or in annual installments. Upon termination, disability, or death, the account is paid in a lump sum. Total assets and the corresponding liability in the nonqualified deferred compensation plan totaled $3.5 million and $3.2 million at
December 31, 2004 and 2003, respectively.



15. Incentive
Compensation Plan



The Company has an Incentive
Compensation Plan (the Plan) that allows for the granting of stock options and stock awards. Under the Plan, directors, officers and employees selected by the Board of Directors will be eligible to receive awards, including incentive
stock options, nonqualified stock options, stock appreciation rights, stock awards, and performance awards. Stock appreciation rights may be granted at any time either in tandem with an option or on a freestanding basis. The Company has only issued
nonqualified stock options and restricted stock awards under the Plan. During the term of the plan, on the first day of each calendar year the number of shares reserved for issuance under the plan will be increased by a number of shares equal to the
excess of 3.0% of the aggregate number of shares outstanding as of December 31 of the immediately preceding calendar year, over the number of shares remaining available for awards at that time. As of December 31, 2004, 1,497,594 shares of
common stock have been authorized for use in the Plan and 140,619 shares were available for future grants. In accordance with the provision in the Plan that increases the number of common shares reserved on the first day of each calendar year, as of
January 1, 2005, 289,606 shares of Company common stock will be available for future grants.



Stock Options:



Stock
options are granted with an exercise price equal to the fair market value of the common stock on the date of grant. Prior to the Companys initial public offering in October 2002, the fair market value of the common stock was determined by an
independent appraisal. After the initial public offering, the fair market value of the stock is determined based upon quoted market prices. The stock options vest over a five year period (vesting at 20% per year) and expire 10 years following
the grant date. Upon death, disability, retirement or change of control of the Company (as defined) vesting may be accelerated to 100%. The Company has elected to account for the stock options using the intrinsic value method and accordingly no
compensation expense is recognized in connection with the granting of the stock options.



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The following is a summary of stock option activity for 2004, 2003, and 2002:



|                                         |  |                  |   |  |                                 |      
|---------------------------------------- |  | ---------------- | - |  | ------------------------------- | -----
|                                         |  | Number of Shares |   |  | Weighted Average Exercise Price
|Options outstanding at December 31, 2001 |  | 719,328          |   |  | $                               | 18.81
|Granted                                  |  | 212,100          |   |  |                                 | 19.33
|Exercised                                |  | (42,792          | ) |  |                                 | 15.50
|Forfeited                                |  | (167,657         | ) |  |                                 | 19.64
|                                         |  |                  |   |  |                                 |      
|Options outstanding at December 31, 2002 |  | 720,979          |   |  |                                 | 18.97
|Granted                                  |  | 250,350          |   |  |                                 | 20.29
|Exercised                                |  | (56,283          | ) |  |                                 | 16.34
|Forfeited                                |  | (64,597          | ) |  |                                 | 20.15
|                                         |  |                  |   |  |                                 |      
|Options outstanding at December 31, 2003 |  | 850,449          |   |  |                                 | 19.44
|Granted                                  |  | 228,350          |   |  |                                 | 26.14
|Exercised                                |  | (146,222         | ) |  |                                 | 17.45
|Forfeited                                |  | (104,970         | ) |  |                                 | 21.98
|                                         |  |                  |   |  |                                 |      
|Options outstanding at December 31, 2004 |  | 827,607          |   |  | $                               | 21.32
|                                         |  |                  |   |  |                                 |      



As of
December 31, 2004, 2003 and 2002 there are 325,593 shares, 339,928 shares and 297,233 shares that were exercisable at a weighted average exercise price of $19.27, $18.28 and $17.48, respectively. At December 31, 2004, the range of exercise
prices for outstanding options was between $14.67 and $34.32. The following table presents certain information with respect to stock options outstanding and exercisable stock options as of December 31, 2004:



|                        |  |                     |  |                                 |       |                                       |     |                     |         |                                 |   |      
|----------------------- |  | ------------------- |  | ------------------------------- | ----- | ------------------------------------- | --- | ------------------- | ------- | ------------------------------- | - | -----
|                        |  | Options Outstanding |  | Options Exercisable            
|Range of Exercise Price |  | Options Outstanding |  | Weighted Average Exercise Price |       | Weighted Average Remaining Life (Yrs) |     | Options Exercisable |         | Weighted Average Exercise Price
|$14.67 to $18.00        |  | 117,377             |  | $                               | 17.15 |                                       | 4.1 |                     | 109,457 |                                 | $ | 17.09
|$19.33 to $21.01        |  | 406,600             |  |                                 | 19.68 |                                       | 7.3 |                     | 160,508 |                                 |   | 19.54
|$22.67 to $27.37        |  | 299,630             |  |                                 | 25.06 |                                       | 8.3 |                     | 55,628  |                                 |   | 22.77
|$29.35 to $34.32        |  | 4,000               |  |                                 | 30.59 |                                       | 9.9 |                     |        |                                 |   |     
|                        |  |                     |  |                                 |       |                                       |     |                     |         |                                 |   |      
|                        |  | 827,607             |  | $                               | 21.32 |                                       | 7.2 |                     | 325,593 |                                 | $ | 19.27
|                        |  |                     |  |                                 |       |                                       |     |                     |         |                                 |   |      



Restricted Stock Awards:



During 2004, 2003, and 2002, 24,231 shares, 26,574
shares, and 49,142 shares of common stock were awarded, and 3,628 shares, 6,793 shares, and 13,267 shares of common stock were forfeited, respectively, under restricted stock agreements. The awards granted during 2004 were at a weighted average
value of $31.99 per share. The Company accounts for awards that vest upon completion of future service requirement as a fixed plan and records compensation expense, equal to the fair market value of the award at the date of grant, over the vesting
period. Vesting of the shares requires a continuous service period by each participant. The vesting rate is 50% at the end of year three, 75% at the end of year four and 100% at the end of year five or upon death, disability, retirement or change of
control (as defined) of the Company. If a participant terminates employment prior to the end of the continuous service period, the unearned portion of the stock award is forfeited. The Company may also issue awards that vest upon satisfaction of
specified performance criteria. For these types of awards, the Company uses



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the variable method of accounting with the final measure of compensation cost based upon the number of shares that ultimately vest and the market price on the date the
performance criteria are met. At each interim date, compensation cost is measured based upon an estimate of the number of shares that will vest considering the performance criteria and the market price of the stock at the interim date. The unearned
compensation related to both types of restricted stock grants is reported in stockholders equity. For the years ended December 31, 2004, 2003 and 2002, compensation expense, net of forfeitures, related to the stock awards totaled
$462,000, $417,000, and $444,000, respectively. At December 31, 2004, the Company had 104,046 shares of unvested restricted stock awards outstanding.



16. Stockholders Equity



The authorized capital stock of the Company consists of 30 million shares, of which 25 million shares are common stock, par value $0.01 per
share, and 5 million are preferred shares, par value $0.01 per share.



Common stock:



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



Preferred stock:



The Companys amended
and restated certificate of incorporation authorizes the Board of Directors to issue preferred stock in classes or series and to establish the designations, preferences, qualifications, limitations or restrictions of any class or series with respect
to the rate and nature of dividends, the price and terms and conditions on which shares may be redeemed, the terms and conditions for conversion or exchange into any other class or series of the stock, voting rights and other terms.



Pursuant to this authority, the Board of Directors had designated 1,530,000
shares as 9.0% Noncumulative Perpetual preferred stock, Series A, $25.00 stated value per share. These shares of preferred stock became redeemable at the Companys option on and after January 15, 2002. On July 16, 2004, the Company
used proceeds from the issuance of $41.2 million of junior subordinated debentures to TAYC Capital Trust II to redeem all the outstanding shares of the Series A preferred stock. The redemption price was the stated liquidation value of $25.00 per
share, which totaled $38.25 million, plus $153,000 of accrued and unpaid dividends since the last dividend distribution date. Upon redemption, the shares of preferred stock were canceled and are no longer considered outstanding.



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17. Regulatory Disclosures:



The Company and the Bank are subject to various capital requirements administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional discretionary actions by regulators, which, if undertaken, could have a direct material effect on the Companys financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the entitys assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Banks and Companys capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.



Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Based on these quantitative measures, as of December 31, 2004 and 2003, the Company and the Bank were categorized as well-capitalized.



As of December 31, 2004 and 2003, the Federal Deposit Insurance Corporation categorized the Bank as
well-capitalized under the regulatory framework for prompt corrective action. To be categorized well-capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
the table. At December 31, 2004, there are no conditions or events since that notification that management believes have changed the institutions category.



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The Companys and the Banks actual capital amounts and ratios as of December 31, 2004 and 2003 are presented in the following table:



|                                          |  |                        |         |       |                               |   |        |                                                                  |         |  |   |        |   |       |    |         |  |   |       |  
|----------------------------------------- |  | ---------------------- | ------- | ----- | ----------------------------- | - | ------ | ---------------------------------------------------------------- | ------- |  | - | ------ | - | ----- | -- | ------- |  | - | ----- | -
|                                          |  | 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 December 31, 2004 (Restated):       |  |                        |         |       |                               |   |        |                                                                  |         |  |   |        |   |       |    |         |  |   |       |  
|Total Capital (to Risk Weighted Assets)   |  |                        |         |       |                               |   |        |                                                                  |         |  |   |        |   |       |    |         |  |   |       |  
|Taylor Capital Group, Inc.  Consolidated |  | $                      | 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.  Consolidated |  | $                      | 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.  Consolidated |  | $                      | 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  |  
|                                          |  |                        |         |       |                               |  
|As of December 31, 2003:                  |  |                        |         |       |                               |   |        |                                                                  |         |  |   |        |   |       |    |         |  |   |       |  
|Total Capital (to Risk Weighted Assets)   |  |                        |         |       |                               |   |        |                                                                  |         |  |   |        |   |       |    |         |  |   |       |  
|Taylor Capital Group, Inc.  Consolidated |  | $                      | 231,328 |       | 10.44                         | % |        | >$                                                               | 177,300 |  | > | 8.00   | % |       | >$ | 221,625 |  | > | 10.00 | %
|Cole Taylor Bank                          |  |                        | 237,702 |       | 10.75                         |   |        | >                                                                | 176,823 |  | > | 8.00   |   |       | >  | 221,028 |  | > | 10.00 |  
|Tier I Capital (to Risk Weighted Assets)  |  |                        |         |       |                               |   |        |                                                                  |         |  |   |        |   |       |    |         |  |   |       |  
|Taylor Capital Group, Inc.  Consolidated |  | $                      | 193,543 |       | 8.73                          | % |        | >$                                                               | 88,650  |  | > | 4.00   | % |       | >$ | 132,975 |  | > | 6.00  | %
|Cole Taylor Bank                          |  |                        | 209,990 |       | 9.50                          |   |        | >                                                                | 88,411  |  | > | 4.00   |   |       | >  | 132,617 |  | > | 6.00  |  
|Leverage (to Average Assets)              |  |                        |         |       |                               |   |        |                                                                  |         |  |   |        |   |       |    |         |  |   |       |  
|Taylor Capital Group, Inc.  Consolidated |  | $                      | 193,543 |       | 7.64                          | % |        | >$                                                               | 101,357 |  | > | 4.00   | % |       | >$ | 126,697 |  | > | 5.00  | %
|Cole Taylor Bank                          |  |                        | 209,990 |       | 8.31                          |   |        | >                                                                | 101,130 |  | > | 4.00   |   |       | >  | 126,413 |  | > | 5.00  |  



In addition to
covenants contained in the Companys notes payable agreements, the Bank is also subject to dividend restrictions set forth by regulatory authorities. Under such restrictions, the Bank may not, without prior approval of regulatory authorities,
declare dividends in excess of the sum of the current years earnings (as defined) plus the retained earnings (as defined) from the prior two years. The dividends, as of December 31, 2004, that the Bank could declare and pay to the
Company, without the approval of regulatory authorities, amounted to approximately $56.7 million. However, payment of such dividends is also subject to the Bank remaining in compliance with all applicable capital ratios. Also see Note
12Notes Payable and FHLB Advances for additional details of loan covenants in the Companys notes payable agreement that place restrictions on the amount of dividends the Company and the Bank can pay.



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



18.Commitments and Financial Instruments with Off-Balance Sheet Risks



Commitments:



The Company is obligated in accordance with the terms of various long-term noncancelable operating leases for certain premises (land and building) and
office space and equipment, including the Companys principal offices. The terms of the leases generally require periodic adjustment of the minimum lease payments based on an increase in the consumer price index. In addition, the Company is
obligated to pay the real estate taxes assessed on the properties and certain maintenance costs. Certain of the leases contain renewal options for periods of up to five years. Total rental expense for the Company in connection with these leases for
the years ended December 31, 2004, 2003 and 2002 was approximately $4.6 million, $3.4 million and $2.8 million, respectively.



In February 2005, the Company terminated the operating lease for its Wheeling administrative offices that was scheduled to expire in March 2010. Upon
termination, the Company executed a new operating lease for a significantly smaller space at the facility for a banking center. This new operating lease has a ten year term. Estimated future minimum rental commitments under all operating leases as
of December 31, 2004, adjusted for the future rental commitments associated with the new operating lease at the Wheeling facility, are as follows:



|           |  |                |       
|---------- |  | -------------- | ------
|Year       |  | Amount        
|           |  | (in thousands)
|2005       |  | $              | 3,163 
|2006       |  |                | 3,065 
|2007       |  |                | 3,037 
|2008       |  |                | 2,747 
|2009       |  |                | 2,706 
|Thereafter |  |                | 15,816
|           |  |                |       
|Total      |  | $              | 30,534
|           |  |                |       



Financial Instruments with
Off-Balance Sheet Risks:



At times, the Company is party
to various financial instruments with off-balance sheet risk. The Company uses these financial instruments in the normal course of business to meet the financing needs of customers. These financial instruments include commitments to extend credit
and financial guarantees, such as financial and performance standby letters of credit. When viewed in terms of the maximum exposure, those instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amount
recognized in the Consolidated Balance Sheet. Credit risk is the possibility that a counterparty to a financial instrument will be unable to perform its contractual obligations. Interest rate risk is the possibility that, due to changes in economic
conditions, the Companys net interest income will be adversely affected.



The Company mitigates its exposure to credit risk through its internal controls over the extension of credit. These controls include the process of credit approval and review, the establishment of credit limits, and,
when deemed necessary, securing collateral. Collateral held varies but may include deposits held in financial institutions; U.S. Treasury securities; other marketable securities; income-producing commercial or multi-family rental properties, vacant



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



land or land under development; accounts receivable; inventories; and property, plant and equipment. The Company manages its exposure to interest rate risk generally by
setting variable rates of interest on extensions of credit and administered rates on interest bearing non-maturity deposits and, on a limited basis, by using derivative financial instruments to offset existing interest rate risk of its assets and
liabilities.



The following is a summary of the contractual or
notional amount of each significant class of financial instrument with off-balance sheet credit risk outstanding. The Companys maximum exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for
commitments to extend credit and financial guarantees is represented by the contractual notional amount of these instruments.



At December 31, 2004 and 2003, the contractual amounts were as follows:



|                                                                      |  |                |         |      |   |        
|--------------------------------------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                                                      |  | 2004           |         | 2003
|                                                                      |  | (in thousands)
|Financial instruments wherein contract amounts represent credit risk: |  |                |         |      |   |        
|Commitments to extend credit                                          |  | $              | 870,414 |      | $ | 835,009
|Financial guarantees:                                                 |  |                |         |      |   |        
|Financial standby letters of credit                                   |  |                | 63,340  |      |   | 47,081 
|Performance standby letters of credit                                 |  |                | 51,493  |      |   | 56,754 



Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many
customers do not utilize the total approved commitments amounts. Historically, only approximately 60% of available commitment amounts are drawn. Therefore, the total commitment amounts do not usually represent future cash requirements.



The Company issues financial guarantees in the form of financial and
performance standby letters of credit to meet the needs of customers. Financial standby letters of credit are conditional commitments issued by the Company to guarantee the payment of a specified financial obligation of a customer to a third party.
Performance standby letters of credit are conditional commitments issued by the Company to make a payment to a specified third party in the event a customer fails to perform under a nonfinancial contractual obligation. The terms of these financial
guarantees range from less than one year to five years. A contingent liability is recognized if it is probable that a liability has been incurred by the Company under a standby letter of credit. The credit risk involved in issuing these letters of
credit is essentially the same as that involved in extending loan facilities to customers. Management expects most of the Companys letters of credit to expire undrawn. Management expects no significant loss from its obligation under these
financial guarantees.



19.Derivative Financial Instruments



The Company uses derivative financial instruments, to
assist in its interest rate risk management process. At December 31, 2004 and 2003, the Companys only derivative financial instruments were interest rate exchange contracts.



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



An interest rate exchange contract is an agreement in which two parties agree to exchange, at specified intervals, interest payment streams calculated on
an agreed-upon notional principal amount with at least one stream based on a specified floating-rate index. The notional amount does not represent the direct credit exposure. The Company is exposed to credit-related losses in the event of
non-performance by the counterparty on the interest rate exchange payment, but does not anticipate that any counterparty will fail to meet its payment obligation.



As of December 31, 2004, the Company had $130.0 million notional amount of swaps (CD swaps) to hedge the interest rate
risk inherent in certain of its brokered certificates of deposits (brokered CDs). The CD swaps are used to convert the fixed rate paid on the brokered CDs to a variable rate based upon 3-month LIBOR. Because these transactions did not qualify for
fair value hedge accounting under SFAS 133, the Company reported the net cash settlements and the change in the fair value of these CD swaps as separate components of noninterest income in 2004. The fair value of the CD swaps is reported on the
consolidated balance sheets in accrued interest, taxes and other liabilities. See Note 1 Restated Results of Operations and Financial Condition for a discussion of the change in accounting treatment for these derivatives.



During August 2004, the Company also entered into a three-year
interest rate swap, with a notional amount of $50.0 million, to hedge the variability in cash flows on certain prime-based commercial loans. Under the terms of the interest rate swap, the Company receives a fixed interest rate of 6.04% and pays a
floating rate based upon the prime-lending rate. This contract is accounted for as a cash flow hedge and is expected to be highly effective, over the life of the swap, in hedging the variability of cash flows on prime-based loans due to movements in
the prime-lending rate. Net cash settlements for 2004 totaled $447,000 and are reported in loan interest income. The fair value of the interest rate swap is recorded as an asset or liability with the corresponding gain or loss recorded in other
comprehensive income in stockholders equity, net of tax.



During 2003, the Company terminated, with the original counterparties, interest rate exchange contracts with a total notional amount of $200 million that were used to hedge the variability of cash flows of $200 million of prime rate-based
commercial loans. The Company had accounted for these transactions as cash flow hedges, and the resulting gain on termination, which totaled $1.4 million, was deferred and recorded in other comprehensive income in stockholders equity. This
deferred gain will be reclassified as an adjustment to interest income over the remaining term of the original interest rate exchange contracts. For the years ended December 31, 2004 and 2003, $172,000 and $43,000, respectively, of this
deferred gain was reclassified into interest income. In addition, $172,000 of this deferred gain is expected to be reclassified into interest income during 2005.



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table sets forth the activity in the notional amounts of derivative financial instruments during 2004 and 2003.



|                            |  |                |             |   |                |   |          |       |  |   |          |  
|--------------------------- |  | -------------- | ----------- | - | -------------- | - | -------- | ----- |  | - | -------- | -
|                            |  | CD Swaps       |             |   | Cash FlowHedge |   |          | Total | 
|                            |  | (in thousands) |            
|Balance at Dec. 31, 2002    |  | $              | 25,000      |   |                | $ |         |       |  | $ | 25,000   |  
|Additions                   |  |                | 25,000      |   |                |   | 200,000  |       |  |   | 225,000  |  
|Terminations                |  |                |            |   |                |   | (200,000 | )     |  |   | (200,000 | )
|Maturities                  |  |                |            |   |                |   |         |       |  |   |         |  
|                            |  |                |             |   |                |   |          |       |  |   |          |  
|Balance at Dec. 31, 2003    |  | $              | 50,000      |   |                | $ |         |       |  | $ | 50,000   |  
|Additions                   |  |                | 130,000,000 |   |                |   | 50,000   |       |  |   | 180,000  |  
|Terminations\calls          |  |                | (50,000     | ) |                |   |         |       |  |   | (50,000  | )
|Maturities                  |  |                |            |   |                |   |         |       |  |   |         |  
|                            |  |                |             |   |                |   |          |       |  |   |          |  
|Balance at Dec. 31, 2004    |  | $              | 130,000     |   |                | $ | 50,000   |       |  | $ | 180,000  |  
|                            |  |                |             |   |                |   |          |       |  |   |          |  
|Fair value at Dec. 31, 2004 |  | $              | (2,001      | ) |                | $ | (520     | )     |  | $ | (2,521   | )
|                            |  |                |             |   |                |   |          |       |  |   |          |  



Below is summary
information regarding the derivative financial instruments outstanding at December 31, 2004.



|                |  |                               |             |                   |      |         |  |      |              |  |    
|--------------- |  | ----------------------------- | ----------- | ----------------- | ---- | ------- |  | ---- | ------------ |  | ---
|                |  | Notional Amount(in thousands) |             | Weighted Averages
|                |  |                               | ReceiveRate |                   |      | PayRate |  |      | Life inYears
|CD Swaps        |  | $                             | 130,000     |                   | 3.15 | %       |  | 2.21 | %            |  | 5.7
|Cash Flow Hedge |  |                               | 50,000      |                   | 6.04 | %       |  | 5.25 | %            |  | 2.7
|                |  |                               |             |                   |      |         |  |      |              |  |    
|Total           |  | $                             | 180,000     |                   | 3.96 | %       |  | 3.06 | %            |  | 4.8
|                |  |                               |             |                   |      |         |  |      |              |  |    



20.Fair Value of
Financial Instruments



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



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



Cash and Cash Equivalents:



The carrying amount of cash, due from banks, interest-bearing deposits with
banks, money market mutual funds, and federal funds sold approximate fair value since their maturities are short-term.



Investments:



Fair values for investment securities are determined from quoted market prices. If a quoted market price is not available, fair value is estimated using
quoted market prices for similar instruments. Investments also include the Companys investment in FHLB and Federal Reserve Bank Stock. The fair value of these investments equals its book value as these stocks can only be sold back to the FHLB,
Federal Reserve Bank, or other member banks at its par value per share.



Loans:



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



Accrued Interest Receivable:



The carrying amount of accrued interest receivable approximates fair value since its maturity is short-term.



Interest Rate Exchange Agreements:



The carrying amount and fair value of existing agreements are based upon
quoted market prices.



Other Assets:



Financial instruments in other assets consist of assets in the
Companys nonqualified deferred compensation plan. The carrying value of these assets approximates their fair value and are based upon quoted market prices.



Deposit Liabilities:



Deposit liabilities with stated maturities have been valued at the present value of future cash flows using rates which approximate current market rates
for similar instruments; unless this calculation results in a present value which is less than the book value of the reflected deposit, in which case the book value would be utilized as an estimate of fair value. Fair values of deposits without
stated maturities equal the respective amounts due on demand.



Short-Term
Borrowings and Notes Payable and FHLB Advances:



The
carrying amount of short-term borrowings approximates fair value, as the maturities of these borrowings are short-term. Notes payable and FHLB advances have been valued at the present values of future cash flows using rates which approximate current
market rates for similar instruments.



Accrued Interest Payable:



The carrying amount of accrued interest payable
approximates fair value since its maturity is short-term.



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Junior subordinated debentures:



The fair value of the fixed rate junior subordinated debentures issued to TAYC Capital Trust I is computed based upon the publicly quoted market prices of
the underlying trust preferred securities issued by the Trust. The fair value of the floating rate junior subordinated debentures issued to TAYC Capital Trust II is assumed to approximate its carrying value as the underlying interest rate adjusts
quarterly based upon short-term market interest rates.



Off-Balance Sheet
Financial Instruments:



The fair value of commercial loan
commitments to extend credit are not material as they are predominantly floating rate, subject to material adverse change clauses, cancelable and not readily marketable. The fair value of standby letters of credit is measured by the fee paid by the
customer, amortized over the term of the agreement.



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



|                                              |  |                              |           |                   |   |               |  |            |           |  |   |          
|--------------------------------------------- |  | ---------------------------- | --------- | ----------------- | - | ------------- |  | ---------- | --------- |  | - | ---------
|                                              |  | (Restated) December 31, 2004 |           | December 31, 2003
|                                              |  | CarryingValue                |           | Fair Value        |   | CarryingValue |  | Fair Value
|                                              |  | (in thousands)              
|Financial Assets:                             |  |                              |           |                   |   |               |  |            |           |  |   |          
|Cash and cash equivalents                     |  | $                            | 79,250    |                   | $ | 79,250        |  | $          | 88,504    |  | $ | 88,504   
|Investments                                   |  |                              | 546,135   |                   |   | 546,135       |  |            | 500,360   |  |   | 500,399  
|Loans, net of allowance                       |  |                              | 2,174,122 |                   |   | 2,192,399     |  |            | 1,927,652 |  |   | 1,952,810
|Accrued interest receivable                   |  |                              | 12,880    |                   |   | 12,880        |  |            | 10,556    |  |   | 10,556   
|Interest rate exchange agreements             |  |                              |          |                   |   |              |  |            | 48        |  |   | 48       
|Other assets                                  |  |                              | 3,513     |                   |   | 3,513         |  |            | 3,226     |  |   | 3,226    
|                                              |  |                              |           |                   |   |               |  |            |           |  |   |          
|Total financial assets                        |  | $                            | 2,815,900 |                   | $ | 2,834,177     |  | $          | 2,530,346 |  | $ | 2,555,543
|                                              |  |                              |           |                   |   |               |  |            |           |  |   |          
|Financial Liabilities:                        |  |                              |           |                   |   |               |  |            |           |  |   |          
|Deposits without stated maturities            |  | $                            | 1,150,073 |                   | $ | 1,150,073     |  | $          | 1,096,938 |  | $ | 1,096,938
|Deposits with stated maturities               |  |                              | 1,134,624 |                   |   | 1,135,514     |  |            | 916,146   |  |   | 927,150  
|Short-term borrowings                         |  |                              | 229,547   |                   |   | 229,547       |  |            | 219,108   |  |   | 219,108  
|Notes payable and FHLB advances               |  |                              | 85,500    |                   |   | 85,997        |  |            | 110,500   |  |   | 112,331  
|Accrued interest payable                      |  |                              | 5,488     |                   |   | 5,488         |  |            | 4,118     |  |   | 4,118    
|Interest rate exchange agreements             |  |                              | 2,521     |                   |   | 2,521         |  |            |          |  |   |         
|Junior subordinated debentures                |  |                              | 87,638    |                   |   | 91,628        |  |            | 45,000    |  |   | 50,508   
|                                              |  |                              |           |                   |   |               |  |            |           |  |   |          
|Total financial liabilities                   |  | $                            | 2,695,391 |                   | $ | 2,700,768     |  | $          | 2,391,810 |  | $ | 2,410,153
|                                              |  |                              |           |                   |   |               |  |            |           |  |   |          
|Off-Balance-Sheet Financial Instruments:      |  |                              |           |                   |   |               |  |            |           |  |   |          
|Commitments to extend credit                  |  | $                            |          |                   | $ |              |  | $          |          |  | $ |         
|Standby letters of credit                     |  |                              |          |                   |   | 514           |  |            |          |  |   | 479      
|                                              |  |                              |           |                   |   |               |  |            |           |  |   |          
|Total off-balance-sheet financial instruments |  | $                            |          |                   | $ | 514           |  | $          |          |  | $ | 479      
|                                              |  |                              |           |                   |   |               |  |            |           |  |   |          



The remaining balance
sheet assets and liabilities of the Company are not considered financial instruments and have not been valued differently than is customary under historical cost accounting. Since assets and liabilities that are not financial instruments are
excluded above, the difference between total financial assets and financial liabilities does not, nor is it intended to,



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



represent the market value of the Company. Furthermore, the estimated fair value information may not be comparable between financial institutions due to the wide range of
valuation techniques permitted, and assumptions necessitated, in the absence of an available trading market.



21.Litigation and Settlement:



The Company is, 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 the Company that are likely to have a material
adverse impact on its business, financial condition, liquidity or operating results.



During 2002, the Company agreed to settle outstanding litigation concerning the 1997 acquisition of the Bank. The Company entered into certain settlement agreements with the plaintiffs and other parties in the cases
to halt the substantial expense, inconvenience and distraction of continued litigation and to eliminate any exposure and uncertainty that may have existed as a result of such litigation.



The settlement of this litigation was completed on October 21, 2002 following the Companys initial public
offering of common stock and trust preferred securities. From the net proceeds from these offerings, the Company paid $61.9 million in full satisfaction of its obligation under the settlement agreements. The Company recorded a $61.9 million charge
to earnings in 2002 to reflect the cost of settling this litigation.



To facilitate the settlement, on October 21, 2002, the Company completed a concurrent offering of common stock and trust preferred securities. The Company issued 2,250,000 shares of common stock at an initial public offering price of
$16.50 per share. Concurrently, the Company raised $45.0 million of gross proceeds through the issuance of $45.0 million aggregate principal amount of 9.75% cumulative, mandatory redeemable trust preferred securities by TAYC Capital Trust I, a
Delaware statutory trust formed by the Company to issue the trust preferred securities. See Note 13  Junior Subordinated Debentures for additional details on the trust preferred securities.



On November 6, 2002, the Company sold an additional 337,500 shares of
common stock to the underwriters of its initial public offering pursuant to an option granted in connection therewith. The Company received additional net proceeds of $5.2 million in connection with this sale.



The total net amount raised from the initial public offering of common stock
and the trust preferred securities and the subsequent exercise by the Companys underwriters of the over allotment option was $80.3 million. In addition to the $61.9 million payment to settle the litigation described above, the Company used
$17.0 million to restructure and reduce our outstanding indebtedness.



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



22.Parent Company Only



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



BALANCE SHEETS

(in thousands)



|                                                  |  |                |         |      |   |        
|------------------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                                  |  | December 31,  
|                                                  |  | (Restated)2004 |         | 2003
|ASSETS                                            |  |                |         |      |   |        
|                                                  |  |               
|Noninterest-bearing deposits with subsidiary Bank |  | $              | 6,881   |      | $ | 4,125  
|Investment in bank subsidiary                     |  |                | 254,126 |      |   | 237,932
|Investment in non-bank subsidiaries               |  |                | 2,646   |      |   | 1,404  
|Other assets                                      |  |                | 5,321   |      |   | 5,892  
|                                                  |  |                |         |      |   |        
|Total assets                                      |  | $              | 268,974 |      | $ | 249,353
|                                                  |  |                |         |      |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY              |  |                |         |      |   |        
|                                                  |  |               
|Accrued interest, taxes and other liabilities     |  | $              | 15,263  |      | $ | 15,968 
|Notes payable                                     |  |                | 10,500  |      |   | 10,500 
|Junior subordinated debentures                    |  |                | 87,638  |      |   | 46,400 
|Stockholders equity                              |  |                | 155,573 |      |   | 176,485
|                                                  |  |                |         |      |   |        
|Total liabilities and stockholders equity        |  | $              | 268,974 |      | $ | 249,353
|                                                  |  |                |         |      |   |        



STATEMENTS OF INCOME

(in thousands)



|                                                                                      |  |                                  |        |   |      |   |        |      |  |   |         |  
|------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                                      |  | For the Years Ended December 31, |       
|                                                                                      |  | (Restated)2004                   |        |   | 2003 |   |        | 2002 | 
|Income:                                                                               |  |                                  |        |   |      |   |        |      |  |   |         |  
|Dividends from subsidiary Bank                                                        |  | $                                | 8,000  |   |      | $ |       |      |  | $ | 13,000  |  
|Dividends from non-bank subsidiary                                                    |  |                                  | 164    |   |      |   | 136    |      |  |   | 27      |  
|                                                                                      |  |                                  |        |   |      |   |        |      |  |   |         |  
|Total income                                                                          |  |                                  | 8,164  |   |      |   | 136    |      |  |   | 13,027  |  
|                                                                                      |  |                                  |        |   |      |   |        |      |  |   |         |  
|Expenses:                                                                             |  |                                  |        |   |      |   |        |      |  |   |         |  
|Interest                                                                              |  |                                  | 5,507  |   |      |   | 5,618  |      |  |   | 1,840   |  
|Salaries and employee benefits                                                        |  |                                  | 1,655  |   |      |   | 1,532  |      |  |   | 1,803   |  
|Legal fees, net                                                                       |  |                                  | 624    |   |      |   | (1,019 | )    |  |   | 1,600   |  
|Litigation settlement charge                                                          |  |                                  |       |   |      |   |       |      |  |   | 61,900  |  
|Other                                                                                 |  |                                  | 2,931  |   |      |   | 3,632  |      |  |   | 2,370   |  
|                                                                                      |  |                                  |        |   |      |   |        |      |  |   |         |  
|Total expenses                                                                        |  |                                  | 10,717 |   |      |   | 9,763  |      |  |   | 69,513  |  
|                                                                                      |  |                                  |        |   |      |   |        |      |  |   |         |  
|Income (loss) before income taxes, equity in undistributed net income of subsidiaries |  |                                  | (2,553 | ) |      |   | (9,627 | )    |  |   | (56,486 | )
|Income tax benefit                                                                    |  |                                  | 5,209  |   |      |   | 4,332  |      |  |   | 2,685   |  
|Equity in undistributed net income of subsidiaries                                    |  |                                  | 20,317 |   |      |   | 24,042 |      |  |   | 12,386  |  
|                                                                                      |  |                                  |        |   |      |   |        |      |  |   |         |  
|Net income (loss)                                                                     |  | $                                | 22,973 |   |      | $ | 18,747 |      |  | $ | (41,415 | )
|                                                                                      |  |                                  |        |   |      |   |        |      |  |   |         |  



103



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



STATEMENTS OF CASH FLOWS

(in
thousands)



|                                                                                                |  |                                  |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                |  | For the Years Ended December 31, |        
|                                                                                                |  | (Restated)2004                   |         |   | 2003 |   |         | 2002 | 
|Cash flows from operating activities:                                                           |  |                                  |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                                                                               |  | $                                | 22,973  |   |      | $ | 18,747  |      |  | $ | (41,415 | )
|Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: |  |                                  |         |   |      |   |         |      |  |   |         |  
|Amortization of unearned compensation                                                           |  |                                  | 21      |   |      |   | 1       |      |  |   | 17      |  
|Equity in undistributed net income of subsidiaries                                              |  |                                  | (20,317 | ) |      |   | (24,042 | )    |  |   | (12,386 | )
|Other, net                                                                                      |  |                                  | 81      |   |      |   |        |      |  |   | 17      |  
|Changes in assets and liabilities:                                                              |  |                                  |         |   |      |   |         |      |  |   |         |  
|Other assets                                                                                    |  |                                  | 554     |   |      |   | 839     |      |  |   | (5,129  | )
|Other liabilities                                                                               |  |                                  | (715    | ) |      |   | 6,879   |      |  |   | 1,071   |  
|                                                                                                |  |                                  |         |   |      |   |         |      |  |   |         |  
|Net cash provided (used) by operating activities                                                |  |                                  | 2,597   |   |      |   | 2,424   |      |  |   | (57,825 | )
|                                                                                                |  |                                  |         |   |      |   |         |      |  |   |         |  
|Cash flows from investing activities:                                                           |  |                                  |         |   |      |   |         |      |  |   |         |  
|Investment in TAYC Capital Trust I                                                              |  |                                  |        |   |      |   |        |      |  |   | (1,401  | )
|Investment in TAYC Capital Trust II                                                             |  |                                  | (1,239  | ) |      |   |        |      |  |   |        |  
|Other, net                                                                                      |  |                                  | 17      |   |      |   | (34     | )    |  |   | (85     | )
|                                                                                                |  |                                  |         |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                                           |  |                                  | (1,222  | ) |      |   | (34     | )    |  |   | (1,486  | )
|                                                                                                |  |                                  |         |   |      |   |         |      |  |   |         |  
|Cash flows from financing activities:                                                           |  |                                  |         |   |      |   |         |      |  |   |         |  
|Repayments of notes payable                                                                     |  |                                  |        |   |      |   |        |      |  |   | (27,200 | )
|Proceeds from notes payable                                                                     |  |                                  |        |   |      |   |        |      |  |   | 11,700  |  
|Proceeds from issuance of junior subordinated debentures                                        |  |                                  | 41,238  |   |      |   |        |      |  |   | 46,400  |  
|Dividends paid                                                                                  |  |                                  | (4,159  | ) |      |   | (5,709  | )    |  |   | (5,081  | )
|Proceeds from the issuance of common stock, net                                                 |  |                                  |        |   |      |   |        |      |  |   | 38,407  |  
|Redemption of Series A preferred stock                                                          |  |                                  | (38,250 | ) |      |   |        |      |  |   |        |  
|Proceeds from the exercise of employee stock options                                            |  |                                  | 2,552   |   |      |   | 1,269   |      |  |   | 537     |  
|Purchase of treasury stock                                                                      |  |                                  |        |   |      |   |        |      |  |   | (1,717  | )
|                                                                                                |  |                                  |         |   |      |   |         |      |  |   |         |  
|Net cash provided (used) by financing activities                                                |  |                                  | 1,381   |   |      |   | (4,440  | )    |  |   | 63,046  |  
|                                                                                                |  |                                  |         |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                            |  |                                  | 2,756   |   |      |   | (2,050  | )    |  |   | 3,735   |  
|Cash and cash equivalents, beginning of year                                                    |  |                                  | 4,125   |   |      |   | 6,175   |      |  |   | 2,440   |  
|                                                                                                |  |                                  |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents, end of year                                                          |  | $                                | 6,881   |   |      | $ | 4,125   |      |  | $ | 6,175   |  
|                                                                                                |  |                                  |         |   |      |   |         |      |  |   |         |  



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



23.Other Comprehensive Income



The following table presents other comprehensive income for the years ended December 31, 2004, 2003, and 2002:



|                                                                                               |  |                 |         |   |           |   |        |           |  |   |        |  
|---------------------------------------------------------------------------------------------- |  | --------------- | ------- | - | --------- | - | ------ | --------- |  | - | ------ | -
|                                                                                               |  | BeforeTaxAmount |         |   | TaxEffect |   |        | Net ofTax | 
|                                                                                               |  | (in thousands)  |        
|Year ended December 31, 2002:                                                                  |  |                 |         |   |           |   |        |           |  |   |        |  
|Unrealized gains from securities:                                                              |  |                 |         |   |           |   |        |           |  |   |        |  
|Change in unrealized gains on available-for-sale securities                                    |  | $               | 12,599  |   |           | $ | (4,409 | )         |  | $ | 8,190  |  
|Less: reclassification adjustment for gains included in net income                             |  |                 | (2,076  | ) |           |   | 727    |           |  |   | (1,349 | )
|                                                                                               |  |                 |         |   |           |   |        |           |  |   |        |  
|Other comprehensive income                                                                     |  | $               | 10,523  |   |           | $ | (3,682 | )         |  | $ | 6,841  |  
|                                                                                               |  |                 |         |   |           |   |        |           |  |   |        |  
|Year ended December 31, 2003:                                                                  |  |                 |         |   |           |   |        |           |  |   |        |  
|Change in unrealized gains on available-for-sale securities                                    |  | $               | (12,290 | ) |           | $ | 4,301  |           |  | $ | (7,989 | )
|Deferred gain from termination of cash flow hedging instruments                                |  |                 | 1,295   |   |           |   | (453   | )         |  |   | 842    |  
|                                                                                               |  |                 |         |   |           |   |        |           |  |   |        |  
|Other comprehensive loss                                                                       |  | $               | (10,995 | ) |           | $ | 3,848  |           |  | $ | (7,147 | )
|                                                                                               |  |                 |         |   |           |   |        |           |  |   |        |  
|Year ended December 31, 2004:                                                                  |  |                 |         |   |           |   |        |           |  |   |        |  
|Unrealized losses from securities:                                                             |  |                 |         |   |           |   |        |           |  |   |        |  
|Change in unrealized losses on available-for-sale securities                                   |  | $               | (6,744  | ) |           | $ | 2,360  |           |  | $ | (4,384 | )
|Less: reclassification adjustment for gains included in net income                             |  |                 | (144    | ) |           |   | 51     |           |  |   | (93    | )
|                                                                                               |  |                 |         |   |           |   |        |           |  |   |        |  
|Change in unrealized gain on available-for-sale securities, net of reclassification adjustment |  |                 | (6,888  | ) |           |   | 2,411  |           |  |   | (4,477 | )
|Net unrealized loss from cash flow hedging instruments                                         |  |                 | (520    | ) |           |   | 182    |           |  |   | (338   | )
|Change in deferred gain from termination of cash flow hedging instruments                      |  |                 | (265    | ) |           |   | 93     |           |  |   | (172   | )
|                                                                                               |  |                 |         |   |           |   |        |           |  |   |        |  
|Other comprehensive loss                                                                       |  | $               | (7,673  | ) |           | $ | 2,686  |           |  | $ | (4,987 | )
|                                                                                               |  |                 |         |   |           |   |        |           |  |   |        |  



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



24.Earnings Per Share



The following table sets forth the computation of basic and diluted earnings (loss) per common share. Stock options are the only common stock equivalents.
Before the initial public offering in October 2002, the Companys common stock was not publicly traded. The estimated market value of the Companys common shares before the initial public offering was based upon semiannual independent
third party appraisals prepared in connection with the employee benefit plans. For the years ended December 31, 2004, 2003, and 2002, stock options outstanding to purchase 210,150, 127,380 and 453,360 common shares, respectively, were not
included in the computation of diluted earnings per share because the effect would have been antidilutive.



|                                                           |  |                                  |           |   |      |   |           |      |  |   |           |  
|---------------------------------------------------------- |  | -------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                           |  | For the Years Ended December 31, |          
|(dollars in thousands, except share and per share amounts) |  | (Restated)2004                   |           |   | 2003 |   |           | 2002 | 
|Net income (loss)                                          |  | $                                | 22,973    |   |      | $ | 18,747    |      |  | $ | (41,415   | )
|Preferred dividend requirements                            |  |                                  | (1,875    | ) |      |   | (3,443    | )    |  |   | (3,442    | )
|                                                           |  |                                  |           |   |      |   |           |      |  |   |           |  
|Net income (loss) available to common stockholders         |  | $                                | 21,098    |   |      | $ | 15,304    |      |  | $ | (44,857   | )
|                                                           |  |                                  |           |   |      |   |           |      |  |   |           |  
|Weighted average common shares outstanding                 |  |                                  | 9,539,242 |   |      |   | 9,449,336 |      |  |   | 7,323,979 |  
|Dilutive effect of stock options                           |  |                                  | 105,273   |   |      |   | 79,449    |      |  |   |          |  
|                                                           |  |                                  |           |   |      |   |           |      |  |   |           |  
|Diluted weighted average common shares outstanding         |  |                                  | 9,644,515 |   |      |   | 9,528,785 |      |  |   | 7,323,979 |  
|                                                           |  |                                  |           |   |      |   |           |      |  |   |           |  
|Basic earnings (loss) per common share                     |  | $                                | 2.21      |   |      | $ | 1.62      |      |  | $ | (6.12     | )
|Diluted earnings (loss) per common share                   |  | $                                | 2.19      |   |      | $ | 1.61      |      |  | $ | (6.12     | )



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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure



None



Item 9A. Controls and Procedures



(a) Conclusion Regarding the Effectiveness of Disclosure 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.



Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we reevaluated the design and operation of our disclosure controls and procedures as of December 31, 2004. 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 its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.



Based upon our reevaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure 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 (described below) 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 effectively
to ensure 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 resulted 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 for each of the quarters in 2004. The reader is therefore cautioned not to rely on our managements conclusion
set forth in Item 9A, Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures, included in our annual report on Form 10-K for the year ended December 31, 2004, and filed with the SEC on March 10, 2005,
that our disclosure controls and procedures were effective.



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(b) Managements Report on Internal Control Over Financial Reporting(Restated)



Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we evaluated the effectiveness of our internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control  Integrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).



Based on this assessment, in our Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 10, 2005, management concluded that our internal control over financial reporting was effective as of
December 31, 2004. Subsequently, management identified the following material weakness in internal control over financial reporting with respect to our accounting for derivative financial instruments under Statement of Financial Accounting
Standards 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). We lacked sufficient technical expertise as to the application of SFAS 133, and our procedures relating to hedging transactions were not
designed effectively to ensure 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 resulted 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, our financial statements for the year ended December 31, 2004 and for each of the quarters in 2004 contained material errors and have been restated.



As a result of the aforementioned material weakness, we have revised our earlier assessment and concluded that our internal
control over financial reporting was not effective as of December 31, 2004.



Our managements assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 (as restated) has been audited by KPMG LLP, an independent registered public
accounting firm. KPMGs attestation report appears in Item 9A(d).



(c)
Changes in Internal Control Over Financial Reporting



There have been no changes in our internal control over financial reporting that occurred during the quarter-ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.



In late October 2005, we engaged a
third party consultant to provide ongoing expertise related to hedge documentation at inception and ongoing monitoring, and to assist management in evaluating the appropriateness of the accounting for these transactions in accordance with Generally
Accepted Accounting Principles.



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##### Table of Contents

(d) Report Of Independent Registered Public Accounting Firm



To the Stockholders and Board of Directors of Taylor Capital Group, Inc.:



We have audited managements restated assessment,
included in the accompanying Managements Report on Internal Control Over Financial Reporting (Restated) that Taylor Capital Group, Inc. and its subsidiaries (Taylor Capital) did not maintain effective internal control over financial reporting
as of December 31, 2004, because of the effect of the material weakness identified in managements restated assessment, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Taylor Capital management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of Taylor Capitals internal control over financial reporting based on our audit.



We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures
as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.



A companys internal control over financial reporting is a process designed 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. A companys internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.



A
material weakness is a control deficiency, or a combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The
following material weakness has been identified and included in managements assessment: The Company lacked sufficient technical expertise as to the application of SFAS 133, and the procedures relating to hedging transactions were not designed
effectively to ensure 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 resulted 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, the Companys financial statements for the year ended December 31, 2004 and for each of the quarters in 2004 contained material errors and have been restated.



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As stated in the second through fourth paragraphs of Managements Report on Internal control over
Financial Reporting (Restated), managements assessment of the effectiveness of Taylor Capitals internal control over financial reporting has been revised.



We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Taylor Capital Group, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in stockholders equity, and cash flows for each of the years in the
three-year period ended December 31, 2004. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 Consolidated Financial Statements (as restated), and this report does
not affect our report dated March 8, 2005, except as to the restatement discussed in Note 1 to the Consolidated Financial Statements, which is as of December 21, 2005, which expresses an unqualified opinion on those consolidated financial
statements.



In our opinion, managements restated
assessment that Taylor Capital did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria,
Taylor Capital has not maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal ControlIntegrated Framework issued by Committee of Sponsoring Organizations of
the Treadway Commission (COSO).



LOGO



Chicago, Illinois

March 8, 2005, except as to the second through fourth paragraphs of Managements Report on Internal Control Over Financial Reporting (Restated),
which are as of December 21, 2005



Item 9B. Other Information



None.



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.



PART IV



Item 15. Exhibits, Financial Statement Schedules



(a)(1) Financial Statements



See Part II  Item 8. Financial Statements and Supplementary Data



(a)(2) Financial Statement Schedules



Schedules have been omitted because the information required to be shown in the schedules is not applicable or is included elsewhere in our financial statements or accompanying notes.



(a)(3) Exhibits:



EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                 
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | 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)).              
|              | 
|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)).



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|              |  |                                                                                                                                                                                                                                                                                                                                                                              
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                      
|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).                                                                                                                                                                  
|              | 
|9.1           |  | Voting Trust Agreement, dated November 30, 1998, by and between the Depositors and Trustees as set forth therein. (incorporated by reference from Exhibit 9.1 of the Amended Registration
Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).                                                                                                        
|              | 
|9.2           |  | Amendment Number One of Voting Trust Agreement, dated December 1, 1999, by and between the Depositors and Trustees as set forth therein. (incorporated by reference from Exhibit 9.2 of the
Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).                                                                                 
|              | 
|9.3           |  | Amendment Number Two of Voting Trust Agreement, dated June 1, 2002, by and between the Depositors and Trustees as set forth therein. (incorporated by reference from Exhibit 9.3 of the Amended
Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).                                                                                     
|              | 
|10.1          |  | Taylor Capital Group, Inc. Deferred Compensation Plan effective April 1, 2001. (incorporated by reference from Exhibit 10.16 of the Amended Registration Statement on Form S-1 filed October
10, 2002 (Registration No. 333-89158)).*                                                                                                                                        
|              | 
|10.2          |  | Trust Under Taylor Capital Group, Inc. Deferred Compensation Plan, dated April 1, 2001. (incorporated by reference from Exhibit 10.17 of the Amended Registration Statement on Form S-1 filed
October 10, 2002 (Registration No. 333-89158)).*                                                                                                                               



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|              |  |                                                                                                                                                                                                                                                                                                                                
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibits                                                                                                                                                                                                                                                                                                        
|10.3          |  | Taylor Capital Group, Inc. Profit Sharing and Employee Stock Ownership Plan effective October 1, 1998 (incorporated by reference from Exhibit 10.20 of the Amended Registration Statement on
Form S-1 filed October 10, 2002 (Registration No. 333-89158))*.                                                                   
|              | 
|10.4          |  | First Amendment to Taylor Capital Group, Inc. Profit Sharing and Employee Stock Ownership Plan effective January 1, 2000 (incorporated by reference from Exhibit 10.21 of the Amended
Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).*                                                
|              | 
|10.5          |  | Second Amendment to Taylor Capital Group, Inc. Profit Sharing and Employee Stock Ownership Plan effective October 1, 2000 (incorporated by reference from Exhibit 10.22 of the Amended
Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).*                                               
|              | 
|10.6          |  | Third Amendment to Taylor Capital Group, Inc. Profit Sharing and Employee Stock Ownership Plan effective January 1, 2001 (incorporated by reference from Exhibit 10.23 of the Amended
Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).*                                                
|              | 
|10.7          |  | Amendment and Restatement of the Taylor Capital Group, Inc. Profit Sharing and Employee Stock Ownership Trust, effective October 1, 1998 (incorporated by reference from Exhibit 10.24 of the
Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).*                                
|              | 
|10.8          |  | Taylor Capital Group, Inc. 1997 Incentive Compensation Plan (incorporated by reference from Exhibit 10.25 of the Amended Registration Statement on Form S-1 filed October 10, 2002
(Registration No. 333-89158)).*                                                                                                             
|              | 
|10.9          |  | Taylor Capital Group, Inc. 1997 Long-Term Incentive Plan (incorporated by reference from Exhibit 10.30 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration
No. 333-89158)).*                                                                                                                
|              | 
|10.10         |  | Form of Executive Level Change in Control Severance Agreement (incorporated by reference from Exhibit 10.42 of the Amended Registration Statement on Form S-1 filed October 10, 2002
(Registration No. 333-89158)).*                                                                                                           
|              | 
|10.11         |  | Taylor Capital Group, Inc. 2002 Incentive Bonus Plan (incorporated by reference from Exhibit 10.52 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No.
333-89158)).*                                                                                                                    
|              | 
|10.12         |  | Taylor Capital Group, Inc. 2002 Incentive Compensation Plan (incorporated by reference from Exhibit 10.53 of the Amended Registration Statement on Form S-1 filed October 10, 2002
(Registration No. 333-89158)).*                                                                                                             
|              | 
|10.13         |  | Share Restriction Agreement, dated November 30, 1998, by and among the Principal Stockholders (as defined therein) and Taylor Capital Group, Inc. (incorporated by reference from Exhibit 10.54
of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).                        
|              | 
|10.14         |  | Amendment Number One of Share Restriction Agreement, dated November 30, 1998, by and among the Principal Stockholders (as defined therein) and Taylor Capital Group, Inc. (incorporated by
reference from Exhibit 10.55 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).
|              | 
|10.15         |  | Fourth Amendment to Taylor Capital Group, Inc. Profit Sharing and Employee Stock Ownership Plan effective October 1, 1998 (incorporated by reference from Exhibit 10.61 of the Companys
Annual Report on Form 10-K for the year ending December 31, 2002).*                                                                   



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|              |  |                                                                                                                                                                                                                                                                                                                
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibits                                                                                                                                                                                                                                                                                        
|10.16         |  | Fifth Amendment to Taylor Capital Group, Inc. Profit Sharing and Employee Stock Ownership Plan effective October 1, 1998 (incorporated by reference from Exhibit 10.62 of the Companys
Annual Report on Form 10-K for the year ending December 31, 2002).*                                                    
|              | 
|10.17         |  | Amendment No. 1 of Taylor Capital Group, Inc. Deferred Compensation Plan (incorporated by reference from Exhibit 10.63 of the Companys Annual Report on Form 10-K for the year ending
December 31, 2002).*                                                                                                    
|              | 
|10.18         |  | Amendment No. 2 of Taylor Capital Group, Inc. Deferred Compensation Plan (incorporated by reference from Exhibit 10.64 of the Companys Annual Report on Form 10-K for the year ending
December 31, 2002).*                                                                                                    
|              | 
|10.19         |  | Amendment No. 3 of Taylor Capital Group, Inc. Deferred Compensation Plan (incorporated by reference from Exhibit 10.65 of the Companys Annual Report on Form 10-K for the year ending
December 31, 2002).*                                                                                                    
|              | 
|10.20         |  | Pointe OHare Office Lease, between Orix OHare II Inc. and Cole Taylor Bank, dated March 5, 2003 (incorporated by reference from Exhibit 10.66 of the Companys Annual Report
on Form 10-K for the year ending December 31, 2002).                                                                            
|              | 
|10.21         |  | Loan and Subordinated Debenture Purchase Agreement, dated November 27, 2002, between LaSalle Bank National Association and Taylor Capital Group, Inc. (incorporated by reference from Exhibit
99.1 of the Companys Current Report on Form 8-K dated as of November 26, 2002).                                 
|              | 
|10.22         |  | Taylor Capital Group, Inc. Incentive Bonus Plan  Long Term Incentive Plan (incorporated by reference from Exhibit 10.68 of the Companys Quarterly Report on Form 10-Q for the
quarter ending March 31, 2003).*                                                                                               
|              | 
|10.23         |  | Form of Amended and Restated Executive Level Change in Control Severance Agreement (incorporated by reference from Exhibit 10.69 of the Companys Quarterly Report on Form 10-Q for the
quarter ending March 31, 2003).*                                                                                       
|              | 
|10.24         |  | Amendment No. 4 to Taylor Capital Group, Inc. Deferred Compensation Plan (incorporated by reference from Exhibit 10.70 of the Companys Quarterly Report on Form 10-Q for the quarter
ending March 31, 2003).*                                                                                                 
|              | 
|10.25         |  | Sixth Amendment of Taylor Capital Group, Inc. Profit Sharing and Employee Stock Ownership Plan effective as of October 1, 1998 (incorporated by reference from Exhibit 10.71 of the
Companys Quarterly Report on Form 10-Q for the quarter ending March 31, 2003).*                                           
|              | 
|10.26         |  | Seventh Amendment of Taylor Capital Group, Inc. Profit Sharing and Employee Stock Ownership Plan, effective as of October 1, 1998 (incorporated by reference from Exhibit 10.73 of the
Companys Annual Report on Form 10-K for the year ending December 31, 2003).*                                           
|              | 
|10.27         |  | First Amendment to Loan and Subordinated Debenture Purchase Agreement Between LaSalle Bank National Association and Taylor Capital Group, Inc., dated as of November 27, 2003 (incorporated by
reference from Exhibit 10.74 of the Companys Annual Report on Form 10-K for the year ending December 31, 2003).
|              | 
|10.28         |  | Eighth Amendment of Taylor Capital Group, Inc. Profit Sharing and Employee Stock Ownership Plan, effective as of October 1, 1998 (incorporated by reference from Exhibit 10.75 of the
Companys Quarterly Report on Form 10-Q for the quarter ending March 31, 2004).*                                         
|              | 
|10.29         |  | Ninth Amendment of Taylor Capital Group, Inc. Profit Sharing and Employee Stock Ownership Plan, effective as of October 1, 1998 (incorporated by reference from Exhibit 10.76 of the
Companys Quarterly Report on Form 10-Q for the quarter ending March 31, 2004).*                                          



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|              |  |                                                                                                                                                                                                                                                                                                                                 
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibits                                                                                                                                                                                                                                                                                                         
|10.30         |  | Second Amendment to Loan and Subordinated Debenture Purchase Agreement between LaSalle Bank National Association and Taylor Capital Group, Inc. (incorporated by reference from Exhibit 10.78
of the Companys Quarterly Report on Form 10-Q for the quarter ending June 30, 2004).                                             
|              | 
|10.31         |  | Placement Agreement by and among Taylor Capital Group, Inc., TAYC Capital Trust II, FTN Financial Capital Markets and Keefe, Bruyette & Woods, Inc. (incorporated by reference from Exhibit
10.79 of the Companys Quarterly Report on Form 10-Q for the quarter ending June 30, 2004).                                         
|              | 
|10.32         |  | Employment Letter from Taylor Capital Group, Inc. to Daniel C. Stevens dated December 1, 2004 (incorporated by reference from Exhibit 10.1 of the Companys Current Report on Form 8-K
dated as of December 1, 2004).*                                                                                                          
|              | 
|10.33         |  | Third Amendment to Loan and Subordinated Debenture Purchase Agreement Between LaSalle Bank National Association and Taylor Capital Group, Inc. dated December 9, 2004, effective as of November
27, 2004 (incorporated by reference from Exhibit 10.1 of the Companys Current Report on Form 8-K dated as of December 9, 2004).
|              | 
|10.34         |  | Master Agreement by and between Cole Taylor Bank and DMCB, LLC dated September 8, 2004 (incorporated by reference from Exhibit 10.1 of the Companys Current Report on Form 8-K dated as
of December 16, 2004).                                                                                                                 
|              | 
|10.35         |  | Letter Agreement by and between Cole Taylor Bank and Arbor Acquisitions, Inc., as nominee of DMCB, LLC, dated November 12, 2004 (incorporated by reference from Exhibit 10.2 of the
Companys Current Report on Form 8-K dated as of December 16, 2004).                                                                        
|              | 
|10.36         |  | Letter Agreement by and between Cole Taylor Bank and Arbor Acquisitions, Inc., as nominee of DMCB, LLC, dated November 15, 2004 (incorporated by reference from Exhibit 10.3 of the
Companys Current Report on Form 8-K dated as of December 16, 2004).                                                                        
|              | 
|10.37         |  | Sublease by and between Cole Taylor Bank and Arbor Acquisitions, Inc. dated November 19, 2004 (incorporated by reference from Exhibit 10.4 of the Companys Current Report on Form 8-K
dated as of December 16, 2004).                                                                                                          
|              | 
|10.38         |  | Form of Non-Employee Director Restricted Stock Award (incorporated by reference from Exhibit 10.38 of the Companys Annual Report on Form 10-K for the year ended December 31, 2004 filed
on March 10, 2005).*                                                                                                                  
|              | 
|10.39         |  | Form of Officer and Employee Restricted Stock Award (incorporated by reference from Exhibit 10.39 of the Companys Annual Report on Form 10-K for the year ended December 31, 2004 filed
on March 10, 2005).*                                                                                                                   
|              | 
|10.40         |  | Form of Non-Employee Director Non-Qualified Stock Option Agreement (incorporated by reference from Exhibit 10.40 of the Companys Annual Report on Form 10-K for the year ended December
31, 2004 filed on March 10, 2005).*                                                                                                    
|              | 
|10.41         |  | Form of Officer and Employee Non-Qualified Stock Option Agreement (incorporated by reference from Exhibit 10.41 of the Companys Annual Report on Form 10-K for the year ended December
31, 2004 filed on March 10, 2005).*                                                                                                     
|              | 
|12.1          |  | Statement Regarding Computation of Ratios.                                                                                                                                                                                                                                                                                      



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|              |  |                                                                                                                                                                                   
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibits                                                                                                                                                           
|21.1          |  | List of Subsidiaries of Taylor Capital Group, Inc.                                                                                                                                
|              | 
|23.1          |  | Consent of KPMG LLP.                                                                                                                                                              
|              | 
|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.

---

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



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|(b) | Exhibits
|--- | --------



See Item 15(a)(3) above



|(c) | Financial Statement Schedules
|--- | -----------------------------



See Item 15(a)(2) above



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TAYLOR CAPITAL GROUP, INC.



SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 21st day of December 2005.



TAYLOR CAPITAL GROUP, INC./s/ DANIEL C. STEVENSDaniel C. StevensChief Financial Officer(Principal Financial and Accounting Officer)/s/ JEFFREY W. TAYLORJeffrey W. TaylorChairman and Chief Executive Officer(Principal Executive Officer)




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



|                                       |  |                                                   |  |                  
|-------------------------------------- |  | ------------------------------------------------- |  | -----------------
|Signature                              |  | Title                                             |  | Date             
|/s/ JEFFREY W. TAYLORJeffrey W. Taylor |  | Chief Executive Officer and Chairman of the Board |  | December 21, 2005
|                                       |  |                                                  
|/s/ BRUCE W. TAYLOR                    |  | President and Director                            |  | December 21, 2005
|Bruce W. Taylor                        |  |                                                   |  |                  
|                                       |  |                                                  
|/s/ RONALD L. BLIWAS                   |  | Director                                          |  | December 21, 2005
|Ronald L. Bliwas                       |  |                                                   |  |                  
|                                       |  |                                                  
|/s/ ADELYN DOUGHERTY LEANDER           |  | Director                                          |  | December 21, 2005
|Adelyn Dougherty Leander               |  |                                                   |  |                  
|                                       |  |                                                  
|/s/ RONALD EMANUEL                     |  | Director                                          |  | December 21, 2005
|Ronald Emanuel                         |  |                                                   |  |                  
|                                       |  |                                                  
|/s/ EDWARD MCGOWAN                     |  | Director                                          |  | December 21, 2005
|Edward McGowan                         |  |                                                   |  |                  
|                                       |  |                                                  
|/s/ LOUISE OSULLIVAN                  |  | Director                                          |  | December 21, 2005
|Louise OSullivan                      |  |                                                   |  |                  
|                                       |  |                                                  
|/s/ MELVIN E. PEARL                    |  | Director                                          |  | December 21, 2005
|Melvin E. Pearl                        |  |                                                   |  |                  
|                                       |  |                                                  
|/s/ SHEPHERD G. PRYOR IV               |  | Director                                          |  | December 21, 2005
|Shepherd G. Pryor IV                   |  |                                                   |  |                  
|                                       |  |                                                  
|/s/ RICHARD W. TINBERG                 |  | Director                                          |  | December 21, 2005
|Richard W. Tinberg                     |  |                                                   |  |                  
|                                       |  |                                                  
|/s/ MARK L. YEAGER                     |  | Director                                          |  | December 21, 2005
|Mark L. Yeager                         |  |                                                   |  |                  



118