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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                      ------------------------------------

                                   FORM 10-K
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the Fiscal Year ended December 31, 1999

                         Commission File No. 333-14713
                      ------------------------------------

                           TAYLOR CAPITAL GROUP, INC.
              Exact name of registrant as specified in its charter

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

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

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

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

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

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

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

     On March 3, 2000, there were 4,626,160 shares of the registrant's common
stock outstanding.

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                           TAYLOR CAPITAL GROUP, INC.

                                     INDEX

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<CAPTION>
                                                                               PAGE NO.
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<S>             <C>                                                            <C>
PART I.
  Item 1.       Business....................................................     3
  Item 2.       Properties..................................................    17
  Item 3.       Legal Proceedings...........................................    17
  Item 4.       Submission of Matters to a Vote of Security Holders.........    19
PART II.
  Item 5.       Market for Registrant's Common Equity and Related
                  Stockholder Matters.......................................    20
  Item 6.       Selected Financial Data.....................................    21
  Item 7.       Management's Discussion and Analysis of Financial Condition
                  and Results of Operations.................................    22
  Item 7A.      Quantitative and Qualitative Disclosures about Market
                  Risk......................................................    56
  Item 8.       Financial Statements and Supplementary Data.................    57
  Item 9.       Changes in and Disagreements With Accountants on Accounting
                  and Financial Disclosure..................................    98
PART III.
  Item 10.      Directors and Executive Officers of the Registrant..........    99
  Item 11.      Executive Compensation......................................   101
  Item 12.      Security Ownership of Certain Beneficial Owners and
                  Management................................................   103
  Item 13.      Certain Relationships and Related Transactions..............   105
PART IV.
  Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form
                  8-K.......................................................   106
</TABLE>

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                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

ITEM 1.  BUSINESS

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

     The Split-Off Transactions were a series of transactions pursuant to which
CTFG transferred the common stock of the Bank to the Company and then
transferred all of the common stock of the Company to certain CTFG stockholders
in exchange for 4.5 million shares of CTFG common stock and a dividend from the
Bank to CTFG consisting of cash and loans totaling approximately $84 million.

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

THE BANK

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

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

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

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

     The Bank's staff focuses on establishing and maintaining long-term
relationships with customers. The Bank encourages its officers to actively
participate in community organizations and, within credit and rate of return
parameters, the Bank attempts to meet the credit needs of its communities and
invest in local municipal securities.

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                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

LOANS

General

     In allocating its assets among loans, investment securities and other
earning assets, the Bank attempts to maximize return while managing risk at an
acceptable level. The Bank has identified and implemented strategies to reach
these goals, emphasizing quality loan growth. The following is a brief
description of lending activities engaged in by the Bank. For further
information regarding these activities, see Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial Condition
-- Loan Portfolio."

Commercial and Industrial Loans

     Commercial and industrial loans represent the largest portion
(approximately 55% at December 31, 1999) of the Bank's loan portfolio. The Bank
makes both collateralized and unsecured loans. Collateral for loans generally
includes accounts receivable, inventory, equipment and real estate. Included in
this category are commercial real estate loans, which are generally
collateralized by owner-occupied properties used for business purposes.

Real Estate -- Construction Loans

     The majority of the real estate-construction loan portfolio consists of
loans to professional home builders and developers. These loans, which at
December 31, 1999 represented approximately 18% of the loan portfolio, have
increased as a percentage of total loans outstanding in recent years, primarily
because of an increase in home building in the Chicago metropolitan area.
Generally, these loans are structured with three components: a non-revolving
lot loan which includes land development costs and other expenses, such as
marketing, architectural costs and financing fees; a construction revolver
primarily relating to pre-sold homes; and a letter of credit which the Bank
issues to guarantee the performance of a customer to a third party. These loans
generally mature and are completely repaid within three years and bear interest
at an annual rate based on the prime rate.

Residential Real Estate -- Mortgage Loans

     The residential real estate-mortgage loan portfolio primarily consists of
first mortgage loans for single-family properties and represented approximately
13% of the Bank's loan portfolio at December 31, 1999. The Bank acquires
mortgage loans from its commercial banking and mortgage banking loan origination
activities.

Home Equity Lines of Credit

     The Bank offers home equity lines of credit through both its retail network
and its wholesale mortgage broker network. These lines can be drawn at the
discretion of the borrower. Approximately 58% of the home equity lines, after
giving effects to the outstanding loan balance of any existing mortgage loan, do
not exceed 80% of the appraised value of the underlying real estate collateral.
The remaining 42% of the home equity lines exceed 80% of the appraised value
of the underlying real estate collateral. The Bank's general underwriting
guidelines do not allow lines in excess of 100% of appraised value. Both retail
and wholesale loans are underwritten by the Bank. At December 31, 1999, home
equity lines of credit comprised approximately 8% of the loan portfolio.

Consumer Loans

     The Bank's consumer loan portfolio consists of both collateralized and
unsecured loans to individuals for various personal reasons, including home
improvement loans (70%), indirect auto loans (17%), credit cards (2%) and other
personal loans (11%). Approximately 70% of the home improvement loans exceeded
80% of the appraised

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                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

value of the underlying real estate collateral. At December 31, 1999, consumer
loans comprised approximately 6% of the loan portfolio.

LOAN APPROVAL PROCEDURES AND AUTHORITY

     Based upon the recommendations of the Bank's Chief Credit Officer and the
Credit Policy Committee, the Bank's Loan Policy is reviewed and recommended for
approval by the Directors Loan Committee to the Board of Directors. The Loan
Policy of the Bank is reviewed and reaffirmed by the Board of Directors on an
annual basis. The Bank's lending guidelines for its various product lines are
approved by the Credit Policy Committee and reviewed annually by that Committee
as well as the Directors' Loan Committee. These guidelines and policies set
forth the underwriting criteria for the various types of loans originated by the
Bank based upon the risks attendant to each type of loan, the borrowers of such
loans and the types of collateral. The Credit Policy Committee also determines
the adequacy of the Bank's allowance for loan losses.

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

INVESTMENT PORTFOLIO

     The Company's investment portfolio is used primarily to provide a source of
earnings and secondarily for liquidity management purposes. In addition, the
investment portfolio may be used to effect asset and liability management
objectives. The portfolio is comprised of U.S. Treasury securities, U.S.
government agency instruments, mortgage-backed securities, collateralized
mortgage obligations and investment grade obligations of state and political
subdivisions. Virtually all of the securities in the Bank's portfolio at
December 31, 1999 were rated investment grade by a nationally recognized rating
organization. The Bank uses various interest rate contracts (floors and swaps)
to manage interest rate and market risk. At December 31, 1999 the Bank is a
party to an interest rate floor contract with a notional amount of $50 million.
See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition -- Investment Securities
and -- Market Risk."

DEPOSITS

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

                                        5
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                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

TRUST DEPARTMENT

     The Bank's Trust department provides a variety of trust services for
corporations and individuals. The Bank's trust business mix consists of
approximately 12% employee benefits, 33% exchange/land trusts, 26% personal
trusts, and 29% corporate trusts. The Trust department provides trust products
and services to the Bank's commercial, municipal and consumer customer base.

MORTGAGE BANKING OPERATIONS

     The Bank originates residential mortgage and home equity loans from
approved mortgage brokers and other financial intermediaries as well as employee
loan originators who are compensated on a full commission basis. The majority of
the first mortgage loans originated are conforming loans that are generally sold
into the secondary market. The home equity loans are retained for the Bank's
portfolio. Currently, approximately 56% of originations are through the employee
loan originators and 44% are through mortgage brokers. All loans are
underwritten by a central underwriting function independent from the origination
areas.

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

     The Bank's mortgage banking operations have been identified as a segment
for financial reporting purposes although the revenue, profit and assets of the
operations comprise less than 10% of the total for the Company. See Footnote 24
to the financial statements for segment reporting financial information.

COMPETITION

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

THE MORTGAGE COMPANY

     The Mortgage Company was in the business of originating loans in the
subprime mortgage market and reselling those loans to independent mortgage
investors. The Mortgage Company began operations in the first quarter of 1996
and sold the majority of its operations on August 5, 1997. The Mortgage
Company's operations were in the southeastern United States with its principal
office in Altamonte Springs, Florida. Under the terms of the sale, the purchaser
acquired substantially all of the Mortgage Company's outstanding loans held for
sale, the pipeline of loan commitments outstanding and the furniture and
equipment. In addition, the purchaser agreed to assume the lease obligations for
the facilities and hired all the Mortgage Company employees. The Mortgage
Company has not originated any loans since the sale of its Florida operations.
The Mortgage Company currently has no employees. During 1999, the Mortgage
Company's remaining loan

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                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

portfolio totaling $181,000 was sold to the Bank. Its assets at December 31,
1999 consist of $256,000 of short-term investments.

EMPLOYEES

     At December 31, 1999, the Bank and the Parent Company had a total of
approximately 612 full-time equivalent employees. None of the employees of the
Company or the Bank are subject to a collective bargaining agreement. The
Company and the Bank consider their relationships with employees to be good.

SUPERVISION AND REGULATION

GENERAL

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

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

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

     On September 30, 1996 President Clinton signed into law the Deposit
Insurance Funds Act of 1996 ("DIFA") to require all federally-insured depository
institutions to contribute towards the cost of interest due on bonds issued
between 1987 and 1989 to resolve failed savings and loan associations. To cover
the annual Financial Corporation ("FICO") assessment for the period from January
1, 1997 until December 31, 1999, banks, including the Bank, paid annually on
their Bank Insurance Fund ("BIF") deposit base one fifth of the assessment
imposed on savings associations. Starting January 1, 2000, until the FICO bonds
are retired, all banks and thrifts are required to pay the FICO assessment on a
pro rata basis at the same rate, which was 2.12 basis points of the
institution's insured deposit base for the first semiannual period of 2000.

     Recently enacted legislation allows well-capitalized bank holding
companies to engage in certain activities without the advance approval of the
FRB. Well-capitalized bank holding companies are required merely to notify the
FRB within 10 business days of engaging in such activity. Congress has enacted
the GLBA to broaden the powers of bank

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                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

holding companies and permit other financial service companies to own banks.
Legislation also has been considered in the Congress to restructure the federal
bank regulatory system. Although the Secretary of Treasury of the United States
and the Chairman of the FRB have previously expressed support for restructuring
the federal bank regulatory system, there can be no certainty as to the effect,
if any, that such legislation would have on the regulation of the Company or the
Bank.

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

REGULATION OF BANK HOLDING COMPANIES AND THEIR NON-BANK SUBSIDIARIES

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

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

     Acquisition of Banks and Bank Holding Companies

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

Affiliate Transactions

     The Federal Reserve Act and IBA impose certain limitations on extensions of
credit and other transactions by and between banks and their parent holding
companies or affiliates of their parent holding

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                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

companies. Under the Bank Holding Company Act Amendments of 1970 and the FRB's
regulations, a bank holding company and its bank and nonbanking subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property and the furnishing of any
services.

     Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment. Additionally,
the GLBA provides that a bank holding company is prevented from bringing a
claim against any federal banking agency for the return of any bank holding
company assets transferred to or for the benefit of an affiliated bank which
is undercapitalized or subject to a federal regulator's order to increase
its capital.

Interstate Banking and Branching

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

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

Permitted Non-Banking Activities

     The BHCA generally prohibits a bank holding company from engaging in
activities or acquiring or controlling, directly or indirectly, more than 5% of
the voting securities or assets of any company engaged in any activity other
than banking, managing or controlling banks and bank subsidiaries or another
activity that the FRB had determined, by regulation or order as of November 12,
1999, to be so closely related to banking as to be a proper incident thereto.
Those activities that the FRB has determined by regulation to be closely related
to banking include real estate mortgage lending, the principal activity of the
Mortgage Company. Subject to certain exceptions, a bank holding company must
obtain the prior approval of the FRB to engage in or acquire control of a
company engaging in a permissible nonbanking activity.

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

     The Economic Growth and Regulatory Paperwork Reduction Act of 1996
("EGRPRA") streamlined the nonbanking activities application process for well
capitalized and well managed bank holding companies. Under EGRPRA, qualified
bank holding companies may commence a regulatory approved nonbanking
                                        9
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                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

activity without prior notice to the FRB; written notice is merely required
within 10 days after commencing the activity. Also, under EGRPRA, the prior
notice period is increased to 12 days in the event of any nonbanking acquisition
or share purchase, assuming the size of the acquisition does not exceed 10% of
risk-weighted assets of the acquiring bank holding company and the consideration
does not exceed 15% in Tier 1 capital. This prior notice requirement also
applies to commencing a nonbanking activity de novo which has been previously
approved by order of the FRB, but not yet implemented by regulations.

     Under the GLBA, a bank holding company that elects to become a financial
holding company may engage in those activities permissible for bank holding
companies as well as activities that the FRB determines to be financial in
nature or incidental to such financial activities or which are complementary to
a financial activity and do not pose a substantial risk to the safety or
soundness of a depository institution or the financial system generally. The
GLBA states that certain money-related activities, insurance activities,
investment advisory services, the issuing or selling of certain pooled
investments, securities underwriting activities and portfolio investment are
financial in nature. For other activities, the FRB, in consultation with the
United States Department of the Treasury, will determine which activities are
financial in nature or incidental to financial services.

     Bank holding companies electing to become financial holding companies must
satisfy certain eligibility requirements. Specifically, a bank holding company
may not become a financial holding company unless all of its insured depository
institution subsidiaries are well capitalized and well managed. The holding
company must file with the FRB a declaration that it elects to become a
financial holding company and a certification that all of its insured depository
institution subsidiaries are well capitalized and well managed. A financial
subsidiary of a state member bank may, with limited exceptions, engage in the
same activities. A bank holding company's election to become a financial holding
company will be effective, within thirty days of the filing, unless the FRB
notifies the holding company that all of the holding company's insured
depository institution subsidiaries did not achieve a "satisfactory rating of
meeting community credit needs" at their most recent examination.

Capital Requirements

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

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

     Total capital represents the sum of Tier 1 capital plus "Tier 2" capital,
less certain deductions. Tier 2 or "supplementary" capital consists, subject to
certain limitations, of allowances for loan and lease losses (up to 1.25% of
total weighted risk assets); perpetual preferred stock (to the extent not
included in Tier 1 capital);

                                       10
<PAGE>   11
                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

hybrid capital instruments; perpetual debt; mandatory convertible debt
securities; term subordinated debt; and intermediate term preferred stock. In
determining total capital, a bank holding company must deduct its investments in
unconsolidated banking and finance subsidiaries and, as determined by the FRB on
a case by case basis, other designated subsidiaries or associated companies;
reciprocal holdings of certain securities of banking organizations; and other
deductions required by regulation or determined by the FRB on a case-by-case
basis. The FRB has adopted certain adjustments to risk-based capital ratio
calculations for banks with significant exposure to market risk (defined as the
risk of loss resulting from movements in market prices).

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

     As of December 31, 1999, the Company's consolidated regulatory ratios were:
total risk-based capital ratio of 9.03%; a Tier 1 risk-based capital ratio of
7.77%; and a leverage ratio of 6.11%. Under the GLBA, with the exception of
certain functionally regulated entities, bank holding companies that elect to
become financial holding companies will continue to be subject to consolidated
capital ratios.

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

     The GLBA requires that if a bank holding company elects to become a
financial holding company all of its insured depository institution subsidiaries
must be well capitalized.

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

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

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

                                       11
<PAGE>   12
                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

     If a financial holding company is not in compliance with the requirements
for engaging in expanded financial activities (e.g., all of the depository
institution subsidiaries of the holding company are not well capitalized and
well managed) and it does not correct the situation within 180 days, it may be
required to divest control of any subsidiary depository institution or, at the
election of the financial holding company, cease to engage in any activity that
is not a permissible activity for a bank holding company under subsection
4(c)(8) of the BHCA.

Dividends

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

REGULATION OF BANKS

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

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

Deposit Insurance

     As a BIF-insured institution, the Bank is required to pay deposit premiums
to the FDIC which are deposited into the BIF. The FDIC has implemented a
risk-based deposit insurance assessment system under which each insured
depository institution is assigned to one of nine categories based upon its
level of capital and an evaluation of other supervisory factors and assessed
insurance premiums accordingly. These premium rates for the semiannual period
beginning January 1, 2000 range from 0.0% of deposits included in an
institution's "assessment base" for the highest rated institutions to 0.27% of
such deposits for the lowest rated institutions. Risk classification of an
insured institution is made by the FDIC for each semiannual assessment period.
Rates may be increased in the future if the designated reserve ratio for BIF
falls below 1.25%, or are otherwise modified by the FDIC or the Congress. The
FDIC has recently refined the assessment rate matrix to reflect a greater range
of risks facing insured depository institutions.

                                       12
<PAGE>   13
                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

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

Depositor Preference

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

Capital Requirements

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

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

     As of December 31, 1999, the Bank qualified as "well capitalized," with a
total risk-based capital ratio of 10.68%; a Tier 1 risk-based capital ratio of
9.41% and a leverage ratio of 7.41%.

     Depending upon the capital category to which an institution is assigned,
the regulators' supervisory and corrective powers, many of which are mandatory
in certain circumstances, include a prohibition on capital

                                       13
<PAGE>   14
                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

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

Dividends

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

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

Insider and Affiliate Transactions

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

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

     Certain limitations and reporting requirements also are placed on
extensions of credit by the Bank to principal stockholders of the Company and to
directors and certain executive officers of the Company, its non-bank
subsidiaries and the Bank and to "related interests" of such principal
stockholders, directors and officers. In addition, any director or officer of
the Company or the Bank or principal stockholder of the Company may

                                       14
<PAGE>   15
                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

be limited in his or her ability to obtain credit from banks with which the Bank
maintains a correspondent relationship.

Community Reinvestment Act

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

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

     The federal banking regulatory agencies will take into account the CRA
ratings of combining organizations and their level of compliance with the Equal
Credit Opportunity Act in connection with acquisitions involving a change in
control of a financial institution and, if any of the combining institutions has
a CRA rating of "needs improvement" or "unsatisfactory," the agency may deny the
application or require corrective action as a condition of its approval. The
Bank's most recent CRA rating, which was from a November 1998 CRA examination,
was "outstanding". The Bank will next be subject to a CRA examination in the
third quarter of 2000.

     The GLBA requires public disclosure of agreements between an insured
depository institution and a non-governmental entity or person made pursuant to
or in connection with the CRA. Agreements covered include contracts for a cash
payment or grant in excess of $10,000 or with an aggregate principal amount of
$50,000 annually. Excluded from coverage are individual mortgage loans or
specific commitments for various types of loans or extensions of credit if the
loans are substantially not below the market and the purpose of the loan does
not include relending of the borrowed funds to others.

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

Annual Audit, Reporting and Managerial Control Requirements

     Under FDICIA, the FDIC was required to promulgate regulations requiring
FDIC-insured financial institutions over a certain size to have an annual
independent audit of their financial statements in accordance with generally
accepted auditing standards, to have an independent audit committee of outside
directors, and to file with the FDIC and their respective primary federal
regulators annual reports, attested to by their independent auditors, as to
their internal control over financial reporting. The FDIC's regulations apply
these requirements to insured depository institutions with total assets of $500
million or more. The requirements are satisfied by audit procedures adhered to
by a parent entity such as the Company which is consolidated with the Bank for
financial reporting purposes.

                                       15
<PAGE>   16
                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

Brokered Deposits

     The FDIC's rule regarding the ability of depository institutions to accept
brokered deposits, i.e., deposits obtained through a deposit broker provides
that (i) an "undercapitalized" institution is prohibited from accepting,
renewing or rolling over brokered deposits, (ii) an "adequately capitalized"
institution must obtain a waiver from the FDIC before accepting, renewing or
rolling over brokered deposits and is subject to limitations on the rate of
interest payable on brokered deposits, and (iii) a "well capitalized"
institution may accept or renew brokered deposits without restriction. At
December 31, 1999, the Bank had brokered deposits of $162.6 million and was
considered "well capitalized".

Other FDICIA Rules

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

     The FRB may impose restrictions on relationships or transactions between a
depository institution subsidiary of a bank holding company and any affiliate,
as well as between a state member bank and its subsidiary. The FRB is permitted
to impose such restrictions, however, only after it finds that the restrictions
are (i) consistent with the purposes of the applicable federal banking laws and
(ii) appropriate to prevent an evasion of any provision of applicable law or
avoid any significant risk to the safety and soundness of depository
institutions or one of the federal depository insurance funds or other adverse
effects such as undue concentration of resources, decreased or unfair
competition, conflicts of interests or unsound banking.

Change In Control

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

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

                                       16
<PAGE>   17
                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

ITEM 2.  PROPERTIES

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

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

ITEM 3.  LEGAL PROCEEDINGS

     Jeffrey W. Taylor, Chairman of the Board and Chief Executive Officer of the
Company, Bruce W. Taylor, President of the Company, Iris A. Taylor, Sidney J.
Taylor, Cindy Taylor Bleil, related trusts and a related partnership
(collectively, the "Taylor Family") have been named as defendants in the
lawsuits described below relating to (1) the Split-Off Transactions and (2) the
financial and public reporting of Reliance Acceptance Group, Inc. ("Reliance").
Certain of the lawsuits also named other current or former officers and
directors of the Company and Reliance, other stockholders of the Company,
Reliance's public accountants at the time of the Split-Off Transactions (who
continue to serve as the Company's public accountants), the investment banks
that were involved in the Split-Off Transactions, Reliance and the Company as
additional defendants. The filing dates of these lawsuits range from October
1997 to October 1999.

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

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

                                       17
<PAGE>   18
                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

     In August 1998, nine class actions, brought on behalf of current and former
stockholders of Reliance and pending in the United States District Court for the
Western District of Texas, were consolidated into one class action. Another
class action, brought on behalf of current and former stockholders of Reliance,
is also pending in the Northern District of Illinois. These cases allege that
the Taylor Family, certain directors and officers of the Company, and certain
other defendants violated the federal securities laws and breached common law
fiduciary duties. In addition, the cases allege that the Company and certain
other defendants violated ERISA and breached certain fiduciary duties, including
fiduciary duties owed to a subclass consisting of participants in Reliance's
ESOP and 401(k) Profit Sharing Plan. The Texas and Illinois cases seek
unspecified damages and attorneys' fees. Cole Taylor Bank was named as an
additional defendant in the Illinois action. On August 11, 1999, an amended
consolidated complaint was filed in Illinois which combined the Illinois and
Texas actions. On December 9, 1999, the Judicial Panel for Multi-district
Litigation consolidated in the District Court of Delaware for pretrial purposes
the Illinois stockholders' suit and the adversary proceedings referred to below.
A motion to certify the plaintiff class is pending.

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

     On October 5, 1998, the United States Bankruptcy Court of the District of
Delaware (the "Bankruptcy Court") entered an order preliminarily enjoining the
plaintiffs in most of the above lawsuits from prosecuting their cases on account
of the pending adversary proceedings by the Reliance Estate Representative that
are described below. On June 2, 1999 the District Court for the District of
Delaware reversed the Bankruptcy Court's order. The District Court's order has
been appealed.

     On July 6, 1998, the Bankruptcy Court entered a confirmation order that
discharged the liability of Reliance and its subsidiaries in connection with all
of the lawsuits described above and permanently enjoined the filing of similar
new suits against them. The Bankruptcy Court also appointed an Estate
Representative (the "Estate Representative") for the Post-Confirmation Chapter
11 Estate of Reliance and its subsidiaries. On September 4, 1998, the Estate
Representative filed two adversary proceeding complaints which named as
defendants members of the Taylor Family, certain other directors and officers of
the Company, one of Reliance's former legal counsel and Reliance's former public
accountants (both of whom continue to serve the Company), the Company and Cole
Taylor Bank, as trustee. The complaints allege fraudulent conveyance and
breaches of fiduciary duties and contract with respect to the Taylor Family, the
Company and Cole Taylor Bank, as trustee. The complaints charge certain of the
other defendants with alleged breaches of fiduciary duty, breaches of contract,
malpractice and negligent misrepresentation and aiding and abetting the Taylor
Family's and the Company's alleged breaches. These complaints seek unspecified
damages and attorneys' fees and avoidance of the Split-Off Transactions by the
transfer to the Estate Representative of either the assets exchanged in the
Split-Off Transactions or the value of such assets. One of the complaints
demands monetary damages pursuant to the Taylor Family's obligation under the
Share Exchange Agreement to indemnify Reliance for certain losses resulting from
the Split-Off Transactions, and asks the court to disallow any claims for
indemnification that any of the defendants have against Reliance or, in the
alternative, to equitably subordinate such claims to all other creditor claims
against Reliance. The two adversary proceedings have been consolidated and
withdrawn to the Delaware District Court. Discovery is ongoing in the adversary
proceedings and a January 2001 trial date has been set. On March 2, 2000, the
court granted the Estate Representative leave to file an amended complaint.

                                       18
<PAGE>   19
                           TAYLOR CAPITAL GROUP, INC.

                                     PART I

     On December 7, 1998, the Estate Representative filed a motion for a
preliminary injunction which seeks to enjoin the Company and Cole Taylor Bank
from paying directly or indirectly any dividends to any of their respective
shareholders and from paying any of the litigation defense costs of the Taylor
Family or any other co-defendants with respect to any litigation arising out of
the Split-Off Transactions. On October 14, 1999 the District Court denied the
motion for preliminary injunction.

     On October 4, 1999, another lawsuit relating to the Split-Off Transactions
was filed in the Circuit Court of Cook County, Illinois by four Reliance
stockholders. Members of the Taylor Family, a related partnership, Taylor
Capital Group, Inc., Cole Taylor Bank and another officer and director of Taylor
Capital Group, Inc., were named as defendants. Damages in an unspecified amount
are sought. A motion to dismiss the lawsuit is pending.

     On February 23, 2000, another class action lawsuit relating to the
Split-Off Transactions was filed in the Circuit Court of Cook County, Illinois
by a holder of 9% subordinated notes of Reliance. Members of the Taylor Family,
Taylor Capital Group, Inc., Cole Taylor Bank, another officer and another
director of Taylor Capital Group, Inc., in addition to individuals and entities
unrelated to the Company or the Taylor Family were named as defendants. Damages
of $25 million, plus interest and other relief are sought.

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

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

     The Company is from time to time a party to various other legal actions
arising in the normal course of business. Management knows of no such other
threatened or pending legal actions against the Company that are likely to have
a material adverse impact on the business, financial condition, liquidity or
operating results of the Company.

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

     No matters were submitted to a vote of security holders during the fourth
quarter of 1999.


                                       19
<PAGE>   20

                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

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

     As of March 3,2000, the approximate number of stockholders of record of the
common stock was 49, based upon securities position listings furnished to the
Company by its transfer agent and registrar.

     The Company has paid regular cash dividends on the common stock since it
commenced operations in the first quarter of l997. The following table sets
forth, for each quarter in 1999 and 1998, the dividends declared on the common
stock:

<TABLE>
<CAPTION>
                                                       1999            1998
                                                   DIVIDENDS PER   DIVIDENDS PER
                                                   COMMON SHARE    COMMON SHARE
                                                   -------------   -------------
<S>                                                <C>             <C>
First Quarter....................................      $0.09           $0.09
Second Quarter...................................       0.09            0.09
Third Quarter....................................       0.09            0.09
Fourth Quarter...................................       0.09            0.09
</TABLE>

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

     On December 7, 1998 a motion was filed for a preliminary injunction which
sought to prevent the Company and the Bank from paying any dividends to any of
their respective shareholders. On October 14, 1999 the District Court denied the
motion for preliminary injunction. See Item 3. "Legal Proceedings."

     The Company's management intends to suspend its duty to file reports
(including Form l0-Q's and Form 10-K's) pursuant to the Securities Exchange Act
of 1934 following the Company's filing of this Annual Report on Form 10-K for
the year ended December 31,1999.

                                       20
<PAGE>   21
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

ITEM 6.  SELECTED FINANCIAL DATA

    The selected data presented below under the caption "Income Statement Data"
and "Balance Sheet Data" for the years ended December 31, 1999 and 1998, and for
the period of February 12, 1997 to December 31, 1997 and as of December 31,
1999, 1998 and 1997 are derived from the audited financial statements of the
Company. The selected data for the years ended, and as of, December 31, 1996 and
1995 are derived from the historical audited financial statements of the Bank on
a stand-alone basis. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Basis of Presentation." This
data should be read in conjunction with the financial statements, the notes
thereto and other financial information included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                         SUCCESSOR BASIS --                PREDECESSOR BASIS --
                                             TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED      COLE TAYLOR BANK
                                             ------------------------------------------   -----------------------
                                                                        FOR THE PERIOD
                                               FOR THE YEARS ENDED     OF FEB. 12, 1997     FOR THE YEARS ENDED
                                                  DECEMBER 31,           TO DEC. 31,           DECEMBER 31,
                                             -----------------------   ----------------   -----------------------
                                                1999         1998            1997            1996         1995
                                             ----------   ----------   ----------------   ----------   ----------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                          <C>          <C>          <C>                <C>          <C>
INCOME STATEMENT DATA:(1)
  Gross interest income....................  $  143,224   $  136,145      $  122,614      $  138,897   $  133,684
  Gross interest expense...................      64,390       65,409          60,458          66,377       64,366
                                             ----------   ----------      ----------      ----------   ----------
    Net interest income....................      78,834       70,736          62,156          72,520       69,318
  Provision for loan losses................       6,000        5,135           4,061           3,307        4,056
  Noninterest income.......................      19,190       20,621          17,873          15,824       14,227
  Noninterest expense......................      72,544       70,428          59,534          55,373       53,549
  Income taxes.............................       7,973        6,353           6,321           9,971        7,774
  Cumulative effect of change in accounting
    principle, net of income taxes.........        (214)          --              --              --           --
                                             ----------   ----------      ----------      ----------   ----------
    Net income.............................  $   11,293   $    9,441      $   10,113      $   19,693   $   18,166
                                             ==========   ==========      ==========      ==========   ==========
BALANCE SHEET DATA (AT END OF PERIOD):
  Total assets.............................  $2,044,370   $1,910,330      $1,855,711      $1,812,505   $1,774,032
  Investments and federal funds sold.......     450,681      442,361         482,671         409,464      443,348
  Loans, gross.............................   1,456,805    1,335,981       1,204,437       1,224,994    1,211,622
  Allowance for loan losses................      26,261       24,599          25,813          24,184       23,869
  Total deposits...........................   1,607,550    1,439,737       1,377,957       1,406,900    1,364,075
  Short-term borrowings....................     147,129      171,718         186,053         162,182      202,033
  Nonrecourse borrowings...................          --           --          18,757              --           --
  Notes payable............................     114,500      131,500         112,000          85,000       61,003
  Stockholders' equity.....................     147,597      145,133         141,070         141,635      132,741
EARNINGS PERFORMANCE DATA:(2)
  Return on average total assets...........        0.57%        0.51%           0.61%           1.08%        1.05%
  Return on average stockholders' equity...        7.70         6.57            8.64           14.73        14.29
  Net interest margin (tax-equivalent).....        4.39         4.22            4.23            4.35         4.38
  Ratio of earnings to fixed charges:
    Including interest on deposits.........        1.27x        1.22x           1.25x           1.44x        1.40x
    Excluding interest on deposits.........        1.89         1.65            1.78            3.12         2.42
BALANCE SHEET AND OTHER KEY RATIOS:
  Nonperforming assets to total assets.....        0.76%        0.90%           0.81%           0.82%        1.08%
  Nonperforming assets to total loans plus
    repossessed property...................        1.06         1.29            1.25            1.21         1.57
  Net loan charge-offs to average total
    loans(2)...............................        0.31         0.50            0.27            0.24         0.26
  Allowance for loan losses to total
    loans..................................        1.80         1.84            2.14            1.97         1.97
  Allowance for loan losses to
    nonperforming loans....................      180.90       175.92          189.34          176.29       174.76
  Average stockholders' equity to average
    total assets...........................        7.41         7.69            7.10            7.36         7.34
</TABLE>

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

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

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

                                       21
<PAGE>   22

                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

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

     The following presents management's discussion and analysis of the
consolidated financial condition and results of operations of Taylor Capital
Group, Inc. as of December 31, 1999 and 1998 and for the years ended December
31, 1999 and 1998 and for the period of February 12, 1997 to December 31, 1997
and of Cole Taylor Bank on a stand-alone basis for the period of January 1, 1997
to February 11, 1997. This discussion should be read in conjunction with the
"Selected Financial Data", the Company's Financial Statements and the Notes
thereto and other financial data appearing elsewhere in this Form 10-K.

BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of Taylor
Capital Group, Inc. (the "Parent Company") and its wholly owned subsidiaries
(collectively, with the Parent Company, the "Company"), Cole Taylor Bank (the
"Bank") and CT Mortgage Company, Inc. (the "Mortgage Company"). The Company is a
bank holding company which was formed to consummate the acquisition of the Bank
and Mortgage Company on February 12, 1997 in the Split-Off Transactions (as
defined below) which were accounted for by the purchase method of accounting.

     The Split-Off Transactions were a series of transactions pursuant to which
Cole Taylor Financial Group, Inc. ("CTFG") transferred the common stock of the
Bank and the Mortgage Company to the Company and then transferred all of the
common stock of the Company to certain CTFG stockholders in exchange for 4.5
million shares of CTFG common stock, a dividend from the Bank to CTFG consisting
of cash and loans totaling approximately $84 million and a cash payment of
approximately $1.1 million for the Mortgage Company.

     As a result of the Split-Off Transactions, the consolidated financial
information of the Company for the years ended December 31, 1999 and 1998 and
for the period of February 12, 1997 through December 31, 1997 is presented on a
different cost basis than that for the Bank for the period prior to the
Split-Off Transactions and, therefore, is not comparable. While financial
information related to the Bank for the period January 1, 1997 through February
11, 1997 is included in this Management's Discussion and Analysis, the
performance for the period is not analyzed because the period is not sufficient
in length to discuss its performance in a meaningful manner.

SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     Certain statements contained in this Management's Discussion and Analysis
of Financial Condition and Results of Operations and elsewhere in this Form
10-K, including the statements under "-- Financial Condition -- Market Risk",
are forward-looking statements that are based on the beliefs of the Company's
management, as well as assumptions made by and information currently available
to the Company's management. Such forward-looking statements are subject to the
safe harbor created by the Private Securities Litigation Reform Act of 1995.
When used in this report, the words "anticipates", "believes", "estimates",
"expects", "contemplates" and similar expressions, as they relate to the Company
or its management, are intended to identify such forward-looking statements, but
are not the exclusive means of identifying such statements. The Company cautions
readers of this Annual Report on Form 10-K that a number of risks, uncertainties
and other factors could cause the Company's actual results, performance or
achievements in 2000 and beyond to differ materially from the results,
performance or achievements expressed in, or implied by, such forward-looking
statements. These risks, uncertainties and other factors include, without
limitation,

                                       22
<PAGE>   23
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

the general economic and business conditions affecting the Company's customers;
the ability of the Bank to maintain sufficient funds to respond to the needs of
depositors and borrowers; changes in interest rates; changes in customer
response to the Bank's pricing strategies; competition from the Company's
principal competitors; changes in federal and state legislation or regulatory
requirements; the adequacy of the Company's allowance for loan losses;
contractual, statutory or regulatory restrictions on the Bank's ability to pay
dividends to the Company; and continuing obligations, potential liabilities, or
restrictions arising from or relating to the Split-Off Transactions, including
pending legal actions. Certain of these risks, uncertainties and other factors
are more fully described elsewhere in this Form 10-K. Except as specifically
required by the federal securities laws the Company does not undertake any
obligation to update or revise any forward looking statements to reflect new
events or circumstances or for any other reason.

OVERVIEW

     The Company's 1999 financial results reflected an increase in profitability
in comparison to the financial results for 1998. This increase was primarily a
result of an increase in net interest income to $78.8 million in 1999 from $70.7
million in 1998. This increase was partially offset by an increase in the loan
loss provision to $6.0 million in 1999 from $5.1 million in 1998, a decrease in
noninterest income to $19.2 million in 1999 from $20.6 million in 1998, and an
increase in noninterest expense to $72.5 million in 1999 from $70.4 million in
1998.

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

     For the years ended December 31, 1999 and 1998 and for the period of
February 12, 1997 to December 31, 1997, the consolidated Company's net income
was $11.3 million, $9.4 million and $10.1 million, respectively. Return on
average assets increased to 0.57% in 1999 as compared to 0.51% during 1998 and
an annualized return on average assets of 0.61% for the period February 12, 1997
to December 31, 1997. Return on average stockholders' equity increased to 7.70%
in 1999 as compared to 6.57% during 1998 and an annualized return on average
stockholders' equity of 8.64% for the period February 12, 1997 to December 31,
1997. Total assets of the Company were $2.04 billion and $1.91 billion at
December 31, 1999 and 1998, respectively. Loans grew to $1.46 billion in 1999
from $1.34 billion in 1998. Total deposits were $1.61 billion and $1.44 billion
at December 31, 1999 and 1998, respectively and stockholders' equity increased
to $147.6 million at December 31, 1999 as compared to $145.1 million at December
31, 1998.

RESULTS OF OPERATIONS

Net Interest Income

     Net interest income, the difference between total interest income earned on
earning assets and total interest expense paid on interest-bearing liabilities,
is the Company's principal source of earnings. The amount of net interest income
is affected by changes in the volume and mix of earning assets and
interest-bearing liabilities, and the level of rates earned or paid on those
assets and liabilities.

     Consolidated net interest income (with an adjustment for tax-exempt income)
was $81.3 million in 1999, an increase of 11.2% from $73.1 million in 1998. The
increase in net interest income during 1999 was a result of an increase in
average earnings assets and net interest margin. Consolidated net interest
income (with an

                                       23
<PAGE>   24
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

adjustment for tax-exempt income) in 1998 of $73.1 million reflected an increase
of 13.8% from $64.2 million in 1997. The higher net interest income during 1998
was primarily due to the reporting period consisting of 42 more days than the
1997 reporting period.

     Average earning assets increased $116.8 million or 6.7% during 1999 when
compared to 1998. Year-to-date average loans increased $133.6 million and a
change in asset mix occurred when a portion of the maturing investment
securities were utilized to fund higher yielding loans. Net interest margin,
which is determined by dividing taxable equivalent net interest income by
average interest-earning assets, increased to 4.39% for the year ended December
31, 1999 from 4.22% for the year ended December 31, 1998. The net interest
margin increased as the cost of interest-bearing liabilities was reduced more
than the decline in the earning asset yields.

     The cost of interest-bearing liabilities declined to 4.32% during 1999 from
4.70% for the year ended December 31, 1998. This decline was a result of
lowering the rates paid on interest-bearing deposits and the renewal of maturing
notes payable at lower interest rates due to the lower interest rate environment
experienced in late 1998 and the first half of 1999.

     The yields on earning assets declined to 7.87% during 1999 from 7.99% in
1998. The decline in the yield on commercial and industrial loans reflected the
75 basis point reduction in the Company's prime rate during the fourth quarter
of 1998 as compared to a 50 basis point increase in the prime rate in the third
quarter of 1999 and a 25 basis point increase in November of 1999. This decline
was partially offset by the payoff of a loan which was originally purchased at a
discount by the Bank resulting in the recognition of the remaining unamortized
discount as interest income in the amount of $535,000. The decrease in consumer
loan yields resulted from a change in portfolio mix due to the sale of the
majority of the Bank's higher-yielding credit card portfolio in November 1998.

     Average earning assets for the year ended December 31, 1998 increased $15.5
million, or 0.9% compared to the 1997 reporting period. Net interest margin was
4.23% (on an annualized basis) in 1997 for the consolidated Company. The decline
in net interest margin during 1998 was primarily a result of reduced yields on
sequential-paying collateralized mortgage obligations, as described below, and
commercial and industrial loans, partially offset by a decline in the cost of
interest-bearing liabilities.

     The yield on earning assets declined to 7.99% from 8.21% for the year ended
December 31, 1998, as compared to the period of February 12, 1997 to December
31, 1997. In late 1997 and early 1998, the Bank purchased approximately $92
million of high-coupon, sequential-paying collateralized mortgage obligations at
a premium of $7.5 million. The decline in mortgage interest rates and higher
refinancing activity experienced during 1998 required that the Bank amortize the
purchase premium at a rate faster than originally expected. Accordingly, during
1998, impairment charges of $667,000 were recognized. In addition, adjustments
of approximately $1,433,000 were recorded to reduce the yields of the securities
to an expected yield given actual payments received to date and the future
expected prepayment rate for these securities. In 1999 actual and anticipated
prepayment activity slowed resulting in reduced premium amortization and
increased expected yields. At December 31, 1999, after impairment charges,
adjustments and paydowns, these securities totaled $26.5 million, with $999,000
of premium remaining and an expected yield of 6.78%. These securities are backed
by pools of single-family mortgage loans and guaranteed, as to principal and
interest, by certain agencies including the Federal National Mortgage
Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). The
Bank utilizes actual prepayment rates and broker estimates of expected future
prepayments, as well as current and forward interest rates, in estimating future
prepayment rates.

                                       24
<PAGE>   25
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

     The decreased yield on commercial and industrial loans from 1997 to 1998
reflected the 75 basis point reduction in the Company's prime rate during the
fourth quarter of 1998 as well as increased competitive pressure on loan
pricing. The yield on real estate mortgages decreased as mortgage prepayments
increased and new mortgage production rates were lower due to the lower mortgage
interest rate environment. The cost of interest-bearing liabilities declined to
4.70% in 1998 from 4.88% for the period of February 12, 1997 to December 31,
1997 primarily as a result of a lowering of the rate paid on interest-bearing
deposits and the repositioning of a portion of the Federal Home Loan Bank
("FHLB") short-term borrowings to FHLB long-term callable notes.

                                       25
<PAGE>   26
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

     The following table sets forth certain information relating to the
consolidated Company's average balance sheets and reflects the yield on average
earning assets and cost of average liabilities for the periods indicated. Such
yields and costs are derived by dividing income or expense by the average
balance of assets or liabilities. Interest income is measured on a
tax-equivalent basis using a 35% rate.

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

<TABLE>
<CAPTION>
                                                  SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
                                -------------------------------------------------------------------------------------------------
                                      FOR THE YEAR ENDED               FOR THE YEAR ENDED           FOR THE PERIOD OF FEB. 12,
                                      DECEMBER 31, 1999                DECEMBER 31, 1998             1997 TO DECEMBER 31, 1997
                                ------------------------------   ------------------------------   -------------------------------
                                                        YIELD/                           YIELD/                           YIELD/
                                 AVERAGE                 RATE     AVERAGE                 RATE     AVERAGE                 RATE
                                 BALANCE     INTEREST    (%)      BALANCE     INTEREST    (%)      BALANCE     INTEREST   (%)(3)
                                ----------   --------   ------   ----------   --------   ------   ----------   --------   -------
                                                                     (DOLLARS IN THOUSANDS)
<S>                             <C>          <C>        <C>      <C>          <C>        <C>      <C>          <C>        <C>
INTEREST-EARNING ASSETS:
Investment securities(1):
  Taxable.....................  $  366,018   $ 20,631    5.64%   $  392,993   $21,702     5.52%   $  412,304   $ 23,086    6.33%
  Tax-exempt (tax
    equivalent)(5)............      70,941      5,439    7.67        68,824     5,389     7.83        62,709      4,343    7.89
                                ----------   --------            ----------   -------             ----------   --------
      Total investment
        securities............     436,959     26,070    5.97       461,817    27,091     5.87       475,013     27,429    6.53
                                ----------   --------            ----------   -------             ----------   --------
Cash Equivalents..............      19,180        973    5.07        11,104       597     5.38        31,422      1,544    5.55
                                ----------   --------            ----------   -------             ----------   --------
Loans(2):
  Commercial and industrial...   1,027,353     88,765    8.64       904,745    81,019     8.95       854,286     68,974    9.12
  Real estate mortgages.......     186,509     13,459    7.22       196,777    14,295     7.26       206,468     13,458    7.43
  Consumer and other..........     180,296     14,801    8.21       159,011    13,970     8.79       150,805     11,915    8.93
  Fees on loans...............                  1,583                           1,526                             1,339
                                ----------   --------            ----------   -------             ----------   --------
    Net loans (tax
      equivalent).............   1,394,158    118,608    8.51     1,260,533   110,810     8.79     1,211,559     95,686    8.92
                                ----------   --------            ----------   -------             ----------   --------
      Total earning assets....   1,850,297    145,651    7.87     1,733,454   138,498     7.99     1,717,994    124,659    8.21
                                ----------   --------            ----------   -------             ----------   --------
Allowance for loan losses.....     (25,959)                         (25,092)                         (25,114)
NONEARNING ASSETS:
  Cash and due from banks.....      69,389                           66,791                           74,823
  Accrued interest and other
    assets....................      86,699                           94,311                          107,664
                                ----------                       ----------                       ----------
TOTAL ASSETS..................  $1,980,426                       $1,869,464                       $1,875,367
                                ==========                       ==========                       ==========
INTEREST-BEARING LIABILITIES:
  Interest-bearing deposits:
    Interest-bearing demand
      deposits................  $  371,020     11,498    3.10    $  347,544    11,983     3.45    $  329,199     10,374    3.56
    Savings deposits..........     105,215      1,775    1.69       111,908     2,516     2.25       116,472      2,630    2.55
    Time deposits.............     705,308     35,859    5.08       607,821    33,557     5.52       650,165     32,271    5.61
                                ----------   --------            ----------   -------             ----------   --------
      Total interest-bearing
        deposits..............   1,181,543     49,132    4.16     1,067,273    48,056     4.50     1,095,836     45,275    4.67
                                ----------   --------            ----------   -------             ----------   --------
Short-term borrowings.........     189,250      8,665    4.58       197,846     9,969     5.04       194,270      8,870    5.16
Notes payable.................     120,241      6,593    5.48       127,364     7,384     5.80       108,881      6,313    6.55
                                ----------   --------            ----------   -------             ----------   --------
      Total interest-bearing
        liabilities...........   1,491,034     64,390    4.32     1,392,483    65,409     4.70     1,398,987     60,458    4.88
                                ----------   --------            ----------   -------             ----------   --------
NONINTEREST-BEARING
  LIABILITIES:
  Noninterest-bearing
    deposits..................     318,287                          310,512                          301,941
  Nonrecourse borrowings(4)...          --                            4,019                           18,757
  Accrued interest and other
    liabilities...............      24,428                           18,671                           23,348
                                ----------                       ----------                       ----------
      Total
        noninterest-bearing
        liabilities...........     342,715                          333,202                          344,046
                                ----------                       ----------                       ----------
STOCKHOLDERS' EQUITY..........     146,677                          143,779                          132,334
                                ----------                       ----------                       ----------
      TOTAL LIABILITIES AND
        STOCKHOLDERS'
        EQUITY................  $1,980,426                       $1,869,464                       $1,875,367
                                ==========                       ==========                       ==========
Net interest income (tax
  equivalent).................               $ 81,261                         $73,089                          $ 64,201
                                             ========                         =======                          ========
Net interest spread...........                           3.55%                            3.29%                            3.33%
Net interest margin...........                           4.39%                            4.22%                            4.23%
                                                         ====                             ====                             ====
</TABLE>

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

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

                                       26
<PAGE>   27
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

(3) Yields/rates are annualized.

(4) Interest expense on nonrecourse borrowings is presented net on the income
    statement with trust fees.

(5) Calculations are computed on a taxable-equivalent basis using a tax rate of
    35%.

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

                   ANALYSIS OF CHANGES IN NET INTEREST INCOME

<TABLE>
<CAPTION>
                                         SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
                                      -------------------------------------------------------------------
                                          FOR THE YEAR ENDED                 FOR THE YEAR ENDED
                                      DECEMBER 31, 1999 COMPARED        DECEMBER 31, 1998 COMPARED TO
                                           TO THE YEAR ENDED           THE PERIOD OF FEBRUARY 12, 1997
                                           DECEMBER 31, 1998                TO DECEMBER 31, 1997
                                      ---------------------------   -------------------------------------
                                        CHANGE DUE TO                      CHANGE DUE TO
                                      -----------------             ---------------------------
                                      VOLUME     RATE       NET     VOLUME     DAYS      RATE       NET
                                      -------   -------   -------   -------   -------   -------   -------
                                                                (IN THOUSANDS)
<S>                                   <C>       <C>       <C>       <C>       <C>       <C>       <C>
INTEREST EARNED ON:
  Investment securities:
    Taxable.........................  $(1,513)  $   442   $(1,071)  $(1,180)  $ 3,002   $(3,206)  $(1,384)
    Tax-exempt......................      164      (114)       50       479       565         2     1,046
  Cash equivalents..................      411       (35)      376    (1,094)      201       (54)     (947)
  Loans.............................   11,456    (3,658)    7,798     4,323    12,442    (1,641)   15,124
                                      -------   -------   -------   -------   -------   -------   -------
Total interest earned...............  $10,518   $(3,365)  $ 7,153   $ 2,528   $16,210   $(4,899)  $13,839
                                      =======   =======   =======   =======   =======   =======   =======
INTEREST PAID ON:
  Interest-bearing demand
    deposits........................  $   777   $(1,262)  $  (485)  $   640   $ 1,349   $  (380)  $ 1,609
  Savings deposits..................     (143)     (598)     (741)     (113)      342      (343)     (114)
  Time deposits.....................    5,097    (2,795)    2,302    (2,345)    4,196      (565)    1,286
  Short-term borrowings.............     (420)     (884)   (1,304)      183     1,153      (237)    1,099
  Notes payable.....................     (402)     (389)     (791)    1,128       821      (878)    1,071
                                      -------   -------   -------   -------   -------   -------   -------
Total interest paid.................    4,909    (5,928)   (1,019)     (507)    7,861    (2,403)    4,951
                                      -------   -------   -------   -------   -------   -------   -------
Net interest income.................  $ 5,609   $ 2,563   $ 8,172   $ 3,035   $ 8,349   $(2,496)  $ 8,888
                                      =======   =======   =======   =======   =======   =======   =======
</TABLE>

Provision for Loan Losses

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

     The provision for loan losses for the years ended December 31, 1999 and
1998 was $6.0 million and $5.1 million, respectively. The $865,000 increase in
the provision was primarily a result of an increase in loan

                                       27
<PAGE>   28
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

volume in 1999. Net charge-offs were $4.3 million in 1999 as compared to $6.3
million in 1998. The higher net charge-off activity experienced in 1998 was a
result of the resolution of four older, chronic commercial problem loans.
Nonperforming loans totaled $14.5 million and $14.0 million, representing 1.00%
and 1.05% of total loans at December 31, 1999 and 1998, respectively. If the
loan portfolio continues to grow and/or future net charge-offs, and/or
nonperforming loans increase, the Company expects that the provision for loan
losses would increase. As of December 31, 1999, management believes that the
allowance for loan losses is adequate. See "Financial Condition -- Nonperforming
Loans and Assets."

     The consolidated Company's provision for loan losses for the shorter 1997
reporting period was $4.1 million. The $1.0 million increase in the provision
for loan losses in 1998 over the shorter 1997 reporting period was a result of
increased net charge-off activity experienced during 1998. Net charge-offs were
$2.9 million for the period of February 12, 1997 to December 31, 1997. The
increase in charge-offs during 1998 was primarily the result of the resolution
of the aforementioned four older chronic problem loans. Nonperforming loans
totaled $13.6 million, representing 1.13% of total loans at December 31, 1997.

Noninterest Income

     The following table shows noninterest income for the periods indicated:

                               NONINTEREST INCOME

<TABLE>
<CAPTION>
                                                                                        PREDECESSOR
                                                  SUCCESSOR BASIS -- TAYLOR CAPITAL    BASIS -- COLE
                                                     GROUP, INC. -- CONSOLIDATED        TAYLOR BANK
                                                  ----------------------------------   --------------
                                                                      FOR THE PERIOD   FOR THE PERIOD
                                                       FOR THE         OF FEB. 12,       OF JAN. 1,
                                                     YEARS ENDED         1997 TO          1997 TO
                                                      DEC. 31,           DEC. 31,         FEB. 11,
                                                  -----------------   --------------   --------------
                                                   1999      1998          1997             1997
                                                  -------   -------   --------------   --------------
                                                                    (IN THOUSANDS)
<S>                                               <C>       <C>       <C>              <C>
Deposit service charges.........................  $ 9,271   $ 8,146      $ 7,500           $1,022
Retail credit card service charges..............      280       501          472               60
Merchant credit card processing fees............       58       350          307               40
Trust fees......................................    4,563     3,971        3,331              359
Gain on sales of loans, net.....................    2,169     3,621        2,598              169
Gain on sale of mortgage servicing rights.......      204     1,462           --               --
Gain on sale of credit card loans...............       --       686           --               --
Mortgage loan servicing income (loss), net......      309       (57)         341               57
ATM fees........................................    1,026       909          693               63
Other noninterest income........................    1,202     1,021        1,000              160
Gain on sale of merchant credit card program....       --        --        1,230               --
Investment securities gains, net................      108        11          401               --
                                                  -------   -------      -------           ------
          Total noninterest income..............  $19,190   $20,621      $17,873           $1,930
                                                  =======   =======      =======           ======
</TABLE>

     Total noninterest income for the consolidated Company was $19.2 million in
1999, a decrease of $1.4 million or 6.9%, as compared to $20.6 million for the
comparable 1998 reporting period. Decreases in gain on sales of loans, net, gain
on sale of mortgage servicing rights and gain on sale of credit cards were
partially offset by increases in deposit service charges, trust fees, ATM fees
and investment securities gains. Total

                                       28
<PAGE>   29
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

noninterest income for 1998 was $20.6 million compared to 1997 noninterest
income of $17.9 million. The increase in non-interest income in 1998 over 1997
was primarily due to the 1998 reporting period having 42 more days and increased
gains on sales of mortgage loans and mortgage servicing rights. This increase
was partially offset by reduced deposit service charges and increased impairment
charges due to increased prepayment speeds on the Bank's mortgage servicing
portfolio.

     Deposit service charges totaled $9.3 million, $8.1 million and $7.5
million, respectively, for the consolidated Company for the years ended December
31, 1999 and 1998 and for the period of February 12, 1997 to December 31, 1997.
The $1.2 million, or 13.8%, increase during 1999 as compared to 1998 was due to
the increased service charge schedules/rates implemented during the year. The
$0.6 million, or 8.6%, increase in 1998 as compared to the 1997 reporting period
was primarily due to the 1998 reporting period having 42 more days than the 1997
reporting period. Absent the effect of the longer reporting period, commercial
service charge income declined in 1998 as compared to 1997.

     Retail credit card service charges totaled $280,000, $501,000, and
$472,000, respectively, for the consolidated Company for the years ended
December 31, 1999 and 1998 and for the period of February 12, 1997 to December
31, 1997. The $221,000, or 44.1%, decrease in retail credit card service charges
during 1999 as compared to 1998 was primarily due to the sale of a significant
portion of the Bank's credit card loan portfolio in November 1998. The Bank
retained two types of credit cards, business and secured, that exhibited higher
fee potential and reduced credit risk. The sale resulted in a gain of $686,000.
The $29,000, or 6.1% slight increase in retail credit card service charges
during 1998 was primarily due to 42 more days in the reporting period versus
1997.

     Merchant credit card processing fees totaled $58,000, $350,000 and
$307,000, respectively, for the consolidated Company for the years ended
December 31, 1999 and 1998 and for the period of February 12, 1997 to December
31, 1997. The $292,000, or 83.4%, decrease in merchant credit card processing
fees in 1999 as compared to 1998 was due to reductions in the pricing of
merchant credit card deposit services. The $43,000, or 14.0%, increase during
1998 as compared to 1997 was primarily due to the 1998 reporting period having
42 more days than the 1997 reporting period.

     Trust fees for the consolidated Company were $4.6 million, $4.0 million and
$3.3 million, respectively, for the years ended December 31, 1999 and 1998 and
for the period of February 12, 1997 to December 31, 1997. The increase in trust
fees during 1999 as compared to 1998 was primarily a result of an increase in
bond trustee account business. The increase in trust fees during 1998 as
compared to 1997 was primarily due to the 1998 reporting period having 42 more
days than the 1997 reporting period.

     Gain on sales of loans, net, was $2.2 million, $3.6 million and $2.6
million, respectively, for the consolidated Company for the years ended December
31, 1999 and 1998 and for the period of February 12, 1997 to December 31, 1997.
The decrease in gains on sale of loans, net, during 1999 as compared to 1998 was
primarily a result of a 35% decrease in the volume of loans sold. Loan
origination volume declined as a result of decreased mortgage refinancing
activity as a result of a higher mortgage interest rate environment. The
decrease in the gain on sales of loans, net, was also due to lower sales
spreads. The increase in 1998 as compared to 1997 was primarily due to a 32%
increase in the volume of mortgage loans sold as a result of the lower mortgage
interest rate environment and increased mortgage refinancing activity. The 1997
consolidated gain on sales of loans included $632,000 in gains attributable to
the Mortgage Company, which is discussed below.

     On August 5, 1997, the Mortgage Company sold its operations headquartered
in Florida. The purchaser of the Mortgage Company's Florida assets acquired
substantially all of the outstanding loans held for sale, the pipeline of loan
commitments outstanding and the furniture and equipment. In addition, the
purchaser agreed to assume the lease obligations for the facilities and hired
all the Mortgage Company employees. The proceeds for the sale, net of related
disposition expenses, the carrying value of the assets sold, payments for
pipeline
                                       29
<PAGE>   30
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

commitments that subsequently closed and the write-off of goodwill of $403,000
resulted in a loss of approximately $10,000. The Florida-based operations
represented the majority of the Mortgage Company's operations. Since the sale,
the Mortgage Company has not originated any loans.

     Mortgage loan servicing income (loss), net totaled $309,000, ($57,000), and
$341,000 for the consolidated Company for the years ended December 31, 1999 and
1998 and for the period of February 12, 1997 to December 31, 1997. The increase
in mortgage loan servicing income during 1999 was primarily due to a $47,000
reduction in the valuation reserve related to capitalized mortgage servicing
rights during the first quarter of 1999, as prepayment activity slowed during
1999. An impairment provision of $329,000 had been recognized during 1998. On
June 15, 1999 the Bank sold the servicing rights relating to approximately $74
million of mortgage loans. The sale resulted in a gain of $204,000. On January
30, 1998, the Bank sold the servicing rights relating to approximately $274
million of mortgage loans. The sale resulted in a gain of $1.5 million. As a
result of the decreased servicing income resulting from the sale in 1998, and
the $329,000 of impairment provisions taken on mortgage servicing rights during
1998, a mortgage loan servicing loss was recognized during 1998. No sales of
servicing rights occurred in 1997. Amortization of capitalized mortgage
servicing rights also decreased significantly during 1999 and 1998 due to the
mortgage servicing rights sales. The Bank's portfolio of mortgage loans serviced
for others was $9 million, $69 million, and $311 million at December 31, 1999,
1998 and 1997, respectively. The Bank has not purchased any mortgage servicing
rights in 1999 or in prior years. All servicing rights have been generated from
loans originated by the Bank where the loans were subsequently sold.

     ATM fee income was $1.0 million, $909,000 and $693,000 for the consolidated
Company for the years ended December 31, 1999 and 1998 and for the period of
February 12, 1997 to December 31, 1997. The consolidated Company's higher ATM
fee income during 1999 and 1998 was due an increase in the surcharge fee during
the fourth quarter of 1998 as well as the 1998 reporting period have 42 more
days than the 1997 reporting period.

     Other noninterest income, which principally includes standby letters of
credit fees, fees from financial services (i.e., the sale of certain insurance
products and other financial services products), and safe deposit rental fees,
totaled $1.2 million for the consolidated Company for the 1999 reporting period
and $1.0 million for both the 1998 and 1997 reporting periods. The increase in
other noninterest income during 1999 was primarily a result of an increase of
$178,000 in standby letter of credit fees.

     Investment securities gains, net for the consolidated Company for the years
ended December 31, 1999 and 1998 and for the period of February 12, 1997 to
December 31, 1997 were $108,000, $11,000 and $401,000, respectively. The
securities sales were a result of a realignment of the Bank's available-for-sale
portfolio. This realignment was undertaken in response to changing market
conditions and reflected management's actions to increase investment yields
and/or modify the Bank's interest rate risk profile.

                                       30
<PAGE>   31
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

Noninterest Expense

     The following table shows noninterest expense for the periods indicated:

                              NONINTEREST EXPENSE

<TABLE>
<CAPTION>
                                                                                          PREDECESSOR
                                                   SUCCESSOR BASIS -- TAYLOR CAPITAL     BASIS -- COLE
                                                      GROUP, INC. -- CONSOLIDATED         TAYLOR BANK
                                                  ------------------------------------   --------------
                                                                        FOR THE PERIOD   FOR THE PERIOD
                                                                         OF FEB. 12,       OF JAN. 1,
                                                  FOR THE YEARS ENDED      1997 TO          1997 TO
                                                        DEC. 31            DEC. 31,         FEB. 11,
                                                  -------------------   --------------   --------------
                                                    1999       1998          1997             1997
                                                  --------   --------   --------------   --------------
                                                                     (IN THOUSANDS)
<S>                                               <C>        <C>        <C>              <C>
Salaries and employee benefits..................  $38,205    $37,303       $31,683           $3,645
Occupancy of premises, net......................    6,472      7,158         5,298              656
Furniture and equipment.........................    4,291      3,413         3,262              322
Computer processing.............................    2,411      2,234         2,004              222
Legal fees......................................    6,226      4,364         2,227              194
Advertising and public relations................    1,275      1,807         1,713              157
Goodwill and other intangible amortization......    2,411      2,448         2,253               20
Other real estate and repossessed asset
  expense.......................................      229        522           551               31
Other noninterest expense.......................   11,024     11,179        10,543            1,219
                                                  -------    -------       -------           ------
          Total noninterest expense.............  $72,544    $70,428       $59,534           $6,466
                                                  =======    =======       =======           ======
Efficiency ratio(1).............................    74.09%     77.10%        74.77%           61.60%
</TABLE>

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

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

     Total noninterest expense for the consolidated Company in 1999 was $72.5
million, an increase of $2.1 million, or 3.0%, as compared to $70.4 million for
the comparable 1998 period. The primary reason for the higher noninterest
expense during 1999 was an increase in legal fees related to the defense of the
lawsuits relating to the Split-Off Transactions. Decreases in occupancy of
premises, advertising and public relations, and other real estate and
repossessed asset expense were partially offset by increases in salaries and
employee benefits and furniture and equipment expense. Total noninterest expense
for the period February 12, 1997 to December 31, 1997 was $59.5 million. The
increase in noninterest expense during 1998 versus 1997 was primarily due to
increased salaries and benefit expenses, the operation of two new branches which
significantly increased occupancy expenses, and increased litigation expenses
associated with the defense of the lawsuits relating to the Split-Off
Transactions.

     Salaries and employee benefits represent the largest category of
noninterest expense. In 1999, salaries and employee benefits totaled $38.2
million, an increase of $902,000, or 2.4%, as compared to the consolidated
Company's 1998 reporting period, for which salaries and benefits totaled $37.3
million. The primary reason for the increase in 1999 was routine annual salary
increases and severance payments partially offset by a lower number of full time
equivalent employees in 1999 versus 1998. At December 31, 1999 the Company had a
total of approximately 612 full-time equivalent (FTE) employees down from 652 in
1998 and 617 in 1997. Annual merit increases and increased FTE headcount
contributed to increased salaries of $1.2 million during

                                       31
<PAGE>   32
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

1998. In addition, 1998 includes approximately $400,000 of additional health
insurance cost due to increased claims experience and more employees. Increased
funding requirements for the Company's 401(k) and ESOP plan were approximately
$500,000 in 1998.

     Occupancy of premises, net for the consolidated Company for the years ended
December 31, 1999 and 1998 and for the period of February 12, 1997 to December
31, 1997 totaled $6.5 million, $7.2 million and $5.3 million, respectively. In
1999, the Company significantly reduced the number of square feet leased at one
of the Bank's facilities resulting in reduced rent and related leasehold
expense. This contributed to the decrease in 1999 as compared to the 1998
reporting period. The rise in the consolidated Company's occupancy expenses
during the 1998 reporting period was due to the addition of two new banking
facilities. The Old Orchard branch opened in October 1997, and the West
Washington Street branch in downtown Chicago opened in March 1998. The increased
occupancy expenses related to the operation of these two branches totaled
$987,000 during 1998.

     Furniture and equipment expenses for the consolidated Company for the years
ended December 31, 1999 and 1998 and for the period of February 12, 1997 to
December 31, 1997 totaled $4.3 million, $3.4 million, and $3.3 million,
respectively. In late 1998 and the first two quarters of 1999, the Bank
implemented significant technology enhancements within the Bank's operations
center and replaced certain hardware and software applications with systems of
greater functionality. Capital expenditures related to the replacement of
hardware and software totaled approximately $2.8 million. These enhancements and
replacements resulted in increased furniture and equipment expenses during 1999
versus the same period in 1998.

     Computer processing expense is comprised of payments to third party
processors, primarily for the Company's "mission critical" data processing
applications, including loans, deposits, general ledger and ATM operations. The
expense for the consolidated Company for 1999 totaled $2.4 million versus $2.2
million for the 1998 reporting period. The 1999 increase was primarily due to
increased payments to the Company's primary data processor. Computer processing
expense for the period of February 12, 1997 to December 31, 1997 was $2.0
million. The 1998 increase was primarily due to the 1998 reporting period having
42 more days than the 1997 reporting period.

     Legal fees for the consolidated Company for the year ended December 31,
1999 totaled $6.2 million, an increase of $1.8 million, or 42.7%, as compared to
the year ended December 31, 1998. Legal costs increased significantly during
1999 and 1998, relating to the defense of the various lawsuits relating to the
Split-Off Transactions. The legal costs relating to the defense of the lawsuits
relating to the Split-Off Transactions totaled approximately $5.0 million, $2.8
million and $674,000, respectively, for the 1999, 1998, and 1997 reporting
periods. Legal fees for 1998 increased significantly from 1997 despite $308,000
in reimbursements received in 1998 from the Bank's insurance carrier for certain
1997 Bank related legal defense costs. The Company expects to continue to incur
significant legal expenses in connection with the Split-Off Transactions
litigation, which will continue to adversely affect profitability. A portion of
these defense costs have been, and will be, submitted to insurance carriers for
reimbursement. The Company, however, cannot predict to what extent such costs
will be reimbursed. See "Litigation" below.

     Advertising and public relations expense for the consolidated Company for
the years ended December 31, 1999 and 1998 and for the period of February 12,
1997 to December 31, 1997 totaled $1.3 million, $1.8 million and $1.7 million,
respectively. The $532,000, or 29.4% decrease during 1999 was due to the Company
utilizing reduced TV and radio advertising. The slight increase in 1998 was
primarily due to the reporting period consisting of 42 more days than the
comparable 1997 reporting period.

                                       32
<PAGE>   33
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

     Goodwill and other intangible amortization expense for the consolidated
Company for the 1999, 1998 and 1997 reporting periods totaled $2.4 million, $2.4
million and $2.3 million, respectively. The amortization expense consists
primarily of amortization of goodwill related to the acquisition of the Bank and
Mortgage Company as a result of the Split-Off Transactions.

     Other real estate and repossessed asset expense for the consolidated
Company for the years ended December 31, 1999 and 1998 and for the period of
February 12, 1997 to December 31, 1997 totaled $229,000, $522,000 and $551,000
respectively. This expense is net of gains on sales of or rental income from
such properties. The $293,000 or 56.1% decrease during 1999 was primarily a
result of the sale of a number of other real estate properties during 1999. The
sales resulted in gains on sale and other income on other real estate owned of
approximately $237,000. In addition, carrying expenses related to these
properties decreased as sales occurred in 1999. Other real estate and
repossessed asset expense remained relatively flat in 1998 when compared to the
1997 reporting period.

     Other noninterest expense (which principally includes certain professional
fees, FDIC insurance, consulting, outside services and other operating expenses
such as telephone, postage, office supplies and printing) for the consolidated
Company for the years ended December 31, 1999 and 1998 and for the period of
February 12, 1997 to December 31, 1997 totaled $11.0 million, $11.2 million and
$10.5 million, respectively. The increase in noninterest expenses during the
1998 reporting period was primarily due to the longer reporting period in 1998.

Income Taxes

     Income taxes totaled $8.0 million, $6.4 million and $6.3 million for the
1999, 1998 and 1997 reporting periods. The effective income tax rate for the
consolidated Company approximated 41%, 40% and 39% for the years ended December
31, 1999 and 1998 and for the period February 12, 1997 to December 31, 1997,
respectively. The increase in the effective tax rate during 1999 and 1998 was
primarily due to certain employee benefit costs that were not fully deductible
for tax purposes. In connection with the Split-Off Transactions, the Company
acquired state tax net operating loss carryforwards and deductible temporary
differences totaling approximately $60 million. In accordance with generally
accepted accounting principles, the state income tax benefit of these items is
applied against goodwill when recognized, rather than as a reduction of income
tax expense. All of the acquired net operating loss carryforwards (approximately
$34 million) have been utilized as of December 31, 1999. Management has
determined that it is more likely than not that the deferred tax assets can be
supported by carrybacks of federal taxable income to amounts paid in prior years
and taxable income estimated for 2000.

Cumulative Effect of Change in Accounting Principle

     As of January 1, 1999, the Company adopted Statement of Position 98-5 (SOP
98-5), "Reporting on the Costs of Start-Up Activities", which requires that the
cost of start-up activities and organization costs be expensed as incurred. The
initial adoption of SOP 98-5 resulted in a charge of $214,000 (net of a tax
benefit of $146,000) and is reported in the Consolidated Statements of Income as
a cumulative effect of change in accounting principle. The charge represents
remaining organization costs associated with the Split-Off Transactions which
had not yet been fully amortized.

                                       33
<PAGE>   34
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

FINANCIAL CONDITION

     During 1999, total assets increased $134 million to $2.04 billion at
December 31, 1999. Year-to-date average earning assets for 1999 increased $116.8
million to $1.85 billion. The growth in assets was due to growth in loans,
primarily commercial and real estate-construction loans. The assets growth was
funded primarily with customer and wholesale deposit growth.

Investment Securities

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

                                       34
<PAGE>   35
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

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

                        INVESTMENT PORTFOLIO COMPOSITION

<TABLE>
<CAPTION>
                                          SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
                                      ---------------------------------------------------------------------
                                       AVAILABLE-FOR-SALE       HELD-TO-MATURITY              TOTAL
                                      ---------------------   ---------------------   ---------------------
                                                  ESTIMATED               ESTIMATED               ESTIMATED
                                      AMORTIZED     FAIR      AMORTIZED     FAIR      AMORTIZED     FAIR
                                        COST        VALUE       COST        VALUE       COST        VALUE
                                      ---------   ---------   ---------   ---------   ---------   ---------
                                                                 (IN THOUSANDS)
<S>                                   <C>         <C>         <C>         <C>         <C>         <C>
DECEMBER 31, 1999:
U.S. Treasury securities............  $ 55,182    $ 54,884     $    --     $    --    $ 55,182    $ 54,884
U.S. government agency securities...   111,491     110,324          --          --     111,491     110,324
Mortgage-backed securities..........    94,529      92,184          --          --      94,529      92,184
State and municipal obligations.....        --          --      68,242      67,669      68,242      67,669
Collateralized mortgage
  obligations.......................   109,344     106,928          --          --     109,344     106,928
Other securities....................        --          --      14,919      14,908      14,919      14,908
                                      --------    --------     -------     -------    --------    --------
          Total.....................  $370,546    $364,320     $83,161     $82,577    $453,707    $446,897
                                      ========    ========     =======     =======    ========    ========
DECEMBER 31, 1998:
U.S. Treasury securities............  $110,019    $110,878     $    --     $    --    $110,019    $110,878
U.S. government agency securities...    51,287      51,326          --          --      51,287      51,326
Mortgage-backed securities..........    98,296      99,510          --          --      98,296      99,510
State and municipal obligations.....        --          --      74,609      76,414      74,609      76,414
Collateralized mortgage
  obligations.......................    91,696      89,694          --          --      91,696      89,694
Other securities....................        --          --      15,144      15,206      15,144      15,206
                                      --------    --------     -------     -------    --------    --------
          Total.....................  $351,298    $351,408     $89,753     $91,620    $441,051    $443,028
                                      ========    ========     =======     =======    ========    ========
DECEMBER 31, 1997:
U.S. Treasury securities............  $205,007    $205,784     $    --     $    --    $205,007    $205,784
U.S. government agency securities...    13,261      13,345          --          --      13,261      13,345
Mortgage-backed securities..........    95,364      95,999          --          --      95,364      95,999
State and municipal obligations.....        --          --      65,034      66,319      65,034      66,319
Collateralized mortgage
  obligations.......................    84,330      84,017          --          --      84,330      84,017
Other securities....................        --          --      18,217      18,262      18,217      18,262
                                      --------    --------     -------     -------    --------    --------
          Total.....................  $397,962    $399,145     $83,251     $84,581    $481,213    $483,726
                                      ========    ========     =======     =======    ========    ========
</TABLE>

     During 1999, the Bank's investment portfolio remained relatively flat.
Maturing  U.S. Treasury securities were reinvested primarily in U.S. government
agencies and planned amortization class collateralized mortgage obligations. In
March 1999, the Company executed a modest restructuring of the
available-for-sale investment portfolio. Approximately $50 million of
short-maturity U.S. Treasury securities were sold, and the proceeds were
reinvested in longer-term Treasury, government agency and mortgage-backed
securities, thereby lengthening the duration of the investment portfolio.

                                       35
<PAGE>   36
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

                  INVESTMENT PORTFOLIO -- MATURITY AND YIELDS
                           (AS OF DECEMBER 31, 1999)

<TABLE>
<CAPTION>
                                                                  MATURING
                                   ----------------------------------------------------------------------
                                                      AFTER ONE BUT     AFTER FIVE BUT
                                       WITHIN             WITHIN            WITHIN             AFTER
                                      ONE YEAR          FIVE YEARS         TEN YEARS         TEN YEARS           TOTAL
                                   ---------------   ----------------   ---------------   ---------------   ----------------
                                   AMOUNT    YIELD    AMOUNT    YIELD   AMOUNT    YIELD   AMOUNT    YIELD    AMOUNT    YIELD
                                   -------   -----   --------   -----   -------   -----   -------   -----   --------   -----
                                                                    (DOLLARS IN THOUSANDS)
<S>                                <C>       <C>     <C>        <C>     <C>       <C>     <C>       <C>     <C>        <C>
Available-for-sale securities(1):
U.S. Treasury securities.........  $    --     --%   $ 54,884   5.89%   $    --     --%   $    --     --%   $ 54,884   5.89%
U.S. government agency
  securities.....................   22,289   5.23      88,035   6.29         --     --         --     --     110,324   6.08
  Mortgage-backed
    securities(3)................   20,216   5.71      41,544   6.10     25,778   6.16      4,646   6.30      92,184   6.04
  Collateralized mortgage
    obligations(3)...............   23,107   6.26      67,255   6.19     16,566   6.37         --     --     106,928   6.23
                                   -------           --------           -------           -------           --------
    Total available-for-sale.....   65,612            251,718            42,344             4,646            364,320
                                   -------           --------           -------           -------           --------
Held-to-maturity securities(2):
States and political
  subdivisions(4)................    6,493   8.93      35,980   8.40     16,303   7.84      9,466   7.49      68,242   8.15
Other securities.................       --     --         575   7.89        295   6.94     14,049   7.03      14,919   7.06
                                                     --------           -------           -------           --------
    Total held-to-maturity.......    6,493             36,555            16,598            23,515             83,161
                                   -------           --------           -------           -------           --------
        Total securities.........  $72,105           $288,273           $58,942           $28,161           $447,481
                                   =======           ========           =======           =======           ========
</TABLE>

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

(1) Based on estimated fair value.

(2) Based on amortized cost.

(3) Maturities of mortgage-backed securities and collateralized mortgage
    obligations are based on anticipated lives of the underlying mortgages, not
    contractual maturities.

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

     Investments in U.S. Treasury securities and U.S. government agency
securities are generally considered to have low credit risk. The mortgage-backed
securities consist principally of direct "pass through" securities issued by the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). These securities are also considered to have low
credit risk, but do possess market value risk due to the prepayment risk of
mortgage-backed securities. The collateralized mortgage obligations ("CMOs")
consist of (1) high-coupon, sequential-paying securities (also known as
synthetic premiums because the coupons on these securities exceed those on the
underlying mortgage loans) and (2) planned amortization class securities, both
of which are backed by fixed-rate, single-family mortgage loans. CMOs possess
market risk due to the prepayment risk of the underlying collateral. The CMOs
are guaranteed, as to principal and interest, by certain agencies, primarily
FNMA and FHLMC. At December 31, 1999, the high-coupon, sequential-paying
securities totaled $26.5 million, with $999,000 of premium remaining and an
expected yield of 6.78%. At December 31, 1998, these securities totaled $56.0
million with $3.0 million of premiums remaining and an expected yield of 0.9%.
During 1998, lower mortgage interest rates and higher refinancing activity
required that the Bank amortize the purchase premium on these securities at a
rate significantly higher than originally expected. Accordingly, in 1998,
impairment charges and additional yield adjustments were recognized. See "Net
Interest Income."

     The Company generally invests in state and municipal investment securities
which are rated investment grade by nationally recognized rating organizations.
Certain municipal issues, however, which are restricted to the Company's local
market area, are not rated and undergo the Bank's standard underwriting
procedures for

                                       36
<PAGE>   37

                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

loan transactions. Other securities are primarily composed of Federal Reserve
Bank stock and Federal Home Loan Bank stock that are required to be maintained
for various purposes. At December 31, 1999, the Company held no securities of
any single issuer, other than the U.S. Treasury and U.S. government agency
securities, including FNMA, that exceeded 10% of stockholders' equity. Although
the Company holds securities issued by municipalities within the state of
Illinois which, in the aggregate, exceed 10% of stockholders' equity, none of
the holdings from any individual municipal issue exceed this threshold.

     A significant portion of the Company's investment securities portfolio
(approximately 63.9% at December 31, 1999) is used as collateral for public
funds time deposits and securities sold under agreement to repurchase.

Loan Portfolio

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

                                 LOAN PORTFOLIO

<TABLE>
<CAPTION>
                                    SUCCESSOR BASIS -- TAYLOR CAPITAL     PREDECESSOR BASIS -- COLE
                                       GROUP, INC. -- CONSOLIDATED              TAYLOR BANK,
                                   ------------------------------------   -------------------------
                                               DECEMBER 31,                     DECEMBER 31,
                                   ------------------------------------   -------------------------
                                      1999         1998         1997         1996          1995
                                   ----------   ----------   ----------   -----------   -----------
                                                            (IN THOUSANDS)
<S>                                <C>          <C>          <C>          <C>           <C>
Commercial and industrial........  $  801,762   $  749,984   $  671,506   $  655,919    $  638,497
Real estate -- construction......     260,972      232,018      179,855      192,759       121,547
Residential real
  estate -- mortgages............     183,427      150,930      165,258      176,819       207,377
Mortgage loans held-for-sale.....       8,917       42,257       31,771       25,153        15,748
Home equity lines of credit......     109,484      106,521      104,287       86,648        65,371
Consumer.........................      89,842       53,751       50,391       84,622       166,346
Other loans......................       3,272        1,806        2,448        4,622         2,061
                                   ----------   ----------   ----------   ----------    ----------
       Gross loans...............   1,457,676    1,337,267    1,205,516    1,226,542     1,216,947
Less: Unearned discount..........        (871)      (1,286)      (1,079)      (1,548)       (5,325)
                                   ----------   ----------   ----------   ----------    ----------
       Total loans...............   1,456,805    1,335,981    1,204,437    1,224,994     1,211,622
Less: Allowance for loan
  losses.........................     (26,261)     (24,599)     (25,813)     (24,184)      (23,869)
                                   ----------   ----------   ----------   ----------    ----------
       Loans, net................  $1,430,544   $1,311,382   $1,178,624   $1,200,810    $1,187,753
                                   ==========   ==========   ==========   ==========    ==========
</TABLE>

     At December 31, 1999, 1998, and 1997 the consolidated Company's gross loans
totaled $1.46 billion, $1.34 billion, and $1.21 billion, respectively. The
increase in loans during 1999 and 1998 was primarily due to growth in the
commercial and industrial, real estate construction, residential real estate and
consumer loan portfolios. These increases were partially offset by a decline in
the mortgage loans held-for-sale portfolio during 1999.

     Commercial and industrial loans, the largest component of the Company's
loan portfolio, were $801.8 million, $750.0 million and $671.5 million at
December 31, 1999, 1998 and 1997, respectively. Commercial and industrial loans
represented 55.0%, 56.1% and 55.7% of the Company's loan portfolio at December
31, 1999, 1998 and 1997, respectively. The continued growth in commercial and
industrial loans is a result of the Company's marketing efforts which emphasize
the Bank's business banking capability.

                                       37
<PAGE>   38
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

     Real estate-construction loans of the consolidated Company totaled $261.0
million, $232.0 million and $179.9 million at December 31, 1999, 1998 and 1997,
respectively. Real estate-construction loans represented 17.9%, 17.4% and 14.9%
of the consolidated Company's loan portfolio at December 31, 1999, 1998 and
1997, respectively. These loans consist primarily of loans to professional home
builders and developers and have increased in recent years primarily because of
increased home building in the Chicago metropolitan area.

     At December 31, 1999, 1998 and 1997, residential real estate-mortgages of
the consolidated Company were $183.4 million, $150.9 million and $165.3 million,
respectively. Residential real estate-mortgages of the consolidated Company
represented 12.6%, 11.3% and 13.7% of gross loans as of December 31, 1999, 1998
and 1997, respectively. The additions to the residential real estate mortgage
portfolio during 1999 consisted primarily of 3-1 and 5-1 year ARM nonconforming
mortgage products. The decline in the mortgage loan portfolio in 1998
was due to normal loan amortization and prepayments due to a lower mortgage
interest rate environment as well as management's asset/liability strategy to
limit investment in long-term fixed-rate mortgage loans.

     Mortgage loans held-for-sale of the consolidated Company totaled $8.9
million, $42.3 million and $31.8 million at December 31, 1999, 1998 and 1997,
respectively. Mortgage loans held-for-sale are stated at the lower of aggregate
cost or aggregate fair value as determined by outstanding commitments from
investors or current market prices for loans with no sale commitments. Forward
commitments to sell mortgage loans are used to manage interest rate risk
exposure. The hedging activity helps protect the Company from the risk that the
market value of mortgage loans, intended to be sold, will be adversely affected
by changes in interest rates. The Company's mortgage hedging policy designates a
minimum coverage ratio of 75% of loans and commitments, net of fallout
estimates. The Company is exposed to interest rate risk on the portion of the
loans and commitments that are not hedged. The decrease in mortgage loans
held-for-sale during 1999 was due to a decrease in mortgage loan production and
in the total volume of mortgage loans delivered for sale in 1999 versus 1998. A
rising mortgage interest rate environment in 1999 contributed to the decline in
mortgage originations. The increase in mortgage loans held-for-sale during 1998
was a result of the lower mortgage interest rate environment in late 1998 which
increased mortgage loans sold production over those levels experienced in 1997.
The overall increase in mortgage loans held-for-sale from 1995 to 1998 reflected
the increase in mortgage loan origination over the years, as well as the Bank's
strategy to sell the majority of conforming mortgage loans originated rather
than holding them in the Company's loan portfolio.

     Home equity lines of credit outstanding totaled $109.5 million, $106.5
million and $104.3 million as of December 31, 1999, 1998 and 1997, respectively,
for the consolidated Company. Home equity lines of credit outstanding of the
consolidated Company represented 7.5%, 8.0% and 8.7% of gross loans at December
31, 1999, 1998 and 1997, respectively. At December 31, 1999, approximately 42%
of the home equity lines, after giving effects to the any outstanding first
mortgage loan, exceed 80% of the appraised value of the underlying real estate
collateral. The Bank's general underwriting guidelines do not allow lines in
excess of 100% of appraised value.

     Consumer loans of the consolidated Company were $89.8 million, $53.8
million and $50.4 million at December 31, 1999, 1998 and 1997, respectively.
Consumer loans consist of home improvement loans (70%), indirect auto loans
(17%), credit card loans (2%) and other personal secured and unsecured loans
(11%). The increase in 1999 was primarily due to a $26.9 million increase in the
home improvement loan portfolio, and a $9.7 million increase in the indirect
auto loan portfolio. The increase in 1998 was primarily due to a $12.9 million
increase in the home improvement loan portfolio, partially offset by the sale of
$7.4 million of credit card loans. At December 31, 1999, approximately 70% of
the home improvement loans exceed 80% of the appraised value of the underlying
real estate collateral. The Bank's general underwriting guidelines do not
                                       38
<PAGE>   39
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

allow loans in excess of 100% of appraised value. Consumer loans represented
6.2%, 4.0% and 4.2% of the consolidated Company's gross loans as of December 31,
1999, 1998 and 1997, respectively.

     The following table sets forth the remaining maturities, net of unearned
discount for certain commercial and consumer loans, at December 31, 1999:

                  MATURITIES AND RATE SENSITIVITY OF LOANS (1)

<TABLE>
<CAPTION>
                                               OVER 1 YEAR
                                             THROUGH 5 YEARS              OVER 5 YEARS
                                         ------------------------   ------------------------
                                                      FLOATING OR                FLOATING OR
                              ONE YEAR                ADJUSTABLE                 ADJUSTABLE
                              OR LESS    FIXED RATE      RATE       FIXED RATE      RATE         TOTAL
                              --------   ----------   -----------   ----------   -----------   ----------
                                                            (IN THOUSANDS)
<S>                           <C>        <C>          <C>           <C>          <C>           <C>
Commercial and industrial...  $393,686    $287,840     $ 53,836      $ 60,730     $  5,670     $  801,762
Real
  estate -- construction....   126,881      36,657       90,949         6,485           --        260,972
Residential real estate --
  mortgages.................     7,789      12,283        6,294        49,169      107,892        183,427
Mortgage loans
  held-for-sale.............     8,917          --           --            --           --          8,917
Home equity lines of
  credit....................       282          --        7,710            --      101,492        109,484
Consumer....................    15,602      52,944           10        21,286           --         89,842
Other loans.................     3,272          --           --            --           --          3,272
                              --------    --------     --------      --------     --------     ----------
          Total.............  $556,429    $389,724     $158,799      $137,670     $215,054     $1,457,676
                              ========    ========     ========      ========     ========     ==========
</TABLE>

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

(1) Maturities are based upon contractual dates. Demand loans are included in
    the one year or less category and totaled $5.3 million as of December 31,
    1999. Balances are shown net of unearned discount.

Nonperforming Loans and Assets

     Management reviews the loan portfolio for problem loans through a loan
review function and various credit committees. During the ordinary course of
business, management may become aware of borrowers that may not be able to meet
the contractual requirements of loan agreements. Such loans are placed under
close supervision with consideration given to placing the loan on a nonaccrual
status, the need for an additional allowance for loan loss, and (if appropriate)
a partial or full charge-off. Those loans on which management does not expect to
collect interest in the normal course of business are placed on nonaccrual
status. After a loan is placed on nonaccrual status, any current period interest
previously accrued but not yet collected is reversed against current income.
Interest is included in income subsequent to the date the loan is placed on
nonaccrual status only as interest is received and so long as management is
satisfied that there is no impairment of collateral values. The loan is returned
to accrual status only when the borrower has demonstrated the ability to make
future payments of principal and interest as scheduled.

                                       39
<PAGE>   40
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

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

                              NONPERFORMING ASSETS

<TABLE>
<CAPTION>
                                               SUCCESSOR BASIS -- TAYLOR CAPITAL   PREDECESSOR BASIS --
                                                  GROUP, INC. -- CONSOLIDATED        COLE TAYLOR BANK
                                               ---------------------------------   ---------------------
                                                         DECEMBER 31,                  DECEMBER 31,
                                               ---------------------------------   ---------------------
                                                 1999        1998        1997        1996        1995
                                               ---------   ---------   ---------   ---------   ---------
                                                                    (IN THOUSANDS)
<S>                                            <C>         <C>         <C>         <C>         <C>
Loans contractually past due 90 days or more
  but still accruing interest................   $ 3,717     $ 2,618     $ 2,009     $ 2,820     $ 3,737
Nonaccrual loans.............................    10,800      11,365      11,624      10,898       9,921
                                                -------     -------     -------     -------     -------
          Total nonperforming loans..........    14,517      13,983      13,633      13,718      13,658
Other real estate............................       828       3,185       1,391         865       2,928
Other repossessed assets.....................       136          83          72         254       2,488
                                                -------     -------     -------     -------     -------
          Total nonperforming assets.........   $15,481     $17,251     $15,096     $14,837     $19,074
                                                =======     =======     =======     =======     =======
Nonperforming loans to total loans...........      1.00%       1.05%       1.13%       1.12%       1.13%
Nonperforming assets to total loans plus
  repossessed property.......................      1.06        1.29        1.25        1.21        1.57
Nonperforming assets to total assets.........      0.76        0.90        0.81        0.82        1.08
</TABLE>

Allowance for Loan Losses

     An allowance for loan losses has been established to provide for those
loans which may not be repaid in their entirety. Loan losses are primarily
generated from the loan portfolio, but may also be derived from other sources,
such as commitments to extend credit, guarantees, and standby letters of credit.
The allowance for loan losses is increased by provisions charged to expense and
decreased by charge-offs, net of recoveries. Although a loan is charged-off by
management when deemed uncollectible, collection efforts continue and future
recoveries may occur. The allowance is maintained by management at a level
considered adequate to absorb probable losses inherent in the portfolio as of
the balance sheet date. Factors considered include past loss experience, general
economic conditions, information about specific borrower situations, including
their financial position, collateral values, and other factors and estimates
which are subject to change over time. Estimating the risk of loss and amount of
loss on any loan is subjective, and ultimate losses may vary from current
estimates. These estimates are reviewed quarterly and, as changes in estimates
are identified by management, the resulting amounts are reflected through the
provision for loan losses in the appropriate period. The adequacy of the
allowance for loan losses is monitored by the internal loan review staff and
reported to management and the Board of Directors. Although management believes
that the Company's allowance for loan losses is adequate to absorb any losses on
existing loans that may become uncollectible, there can be no assurance that the
allowance will prove sufficient to cover actual loan losses in the future. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the adequacy of the Company's allowance for loan
losses. Such agencies may require the Company to make additional provisions to
the allowance based upon their judgments about information available to them at
the time of their examinations. See "Results of Operations -- Provision for Loan
Losses."

                                       40
<PAGE>   41
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

     The following table summarizes, for the periods indicated, activity in the
allowance for loan losses, including amounts charged-off, amounts of recoveries,
additions to the allowance charged to operating expense, the ratio of net
charge-offs to average total loans, the ratio of the allowance to total loans at
end of period, and the ratio of the allowance to nonperforming loans:

                     ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                             SUCCESSOR BASIS -- TAYLOR CAPITAL
                                                GROUP, INC. -- CONSOLIDATED         PREDECESSOR BASIS -- COLE TAYLOR BANK
                                          ---------------------------------------   --------------------------------------
                                                                       FOR THE        FOR THE
                                                                      PERIOD OF      PERIOD OF
                                            FOR THE YEARS ENDED     FEB. 12, 1997   JAN. 1, 1997     FOR THE YEARS ENDED
                                                 DEC. 31,            TO DEC. 31,    TO FEB. 11,         DECEMBER 31,
                                          -----------------------   -------------   ------------   -----------------------
                                             1999         1998          1997            1997          1996         1995
                                          ----------   ----------   -------------   ------------   ----------   ----------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                       <C>          <C>          <C>             <C>            <C>          <C>
Average total loans.....................  $1,394,158   $1,260,533    $1,211,559      $1,220,897    $1,262,081   $1,161,513
                                          ==========   ==========    ==========      ==========    ==========   ==========
Total loans at end of period............  $1,456,805   $1,335,981    $1,204,437      $1,226,072    $1,224,994   $1,211,622
                                          ==========   ==========    ==========      ==========    ==========   ==========
ALLOWANCE FOR LOAN LOSSES:
Allowance at beginning of period........  $   24,599   $   25,813    $   24,607      $   24,184    $   23,869   $   22,833
                                          ----------   ----------    ----------      ----------    ----------   ----------
Charge-offs:
  Commercial and industrial.............      (4,649)      (6,157)       (2,201)            (32)       (1,751)      (3,728)
  Real estate -- construction...........          --           --            --              --            --           --
  Residential real
    estate -- mortgages.................        (122)        (289)         (178)             --          (346)        (242)
  Consumer and other....................      (1,394)      (1,141)       (1,151)           (243)       (1,732)        (931)
                                          ----------   ----------    ----------      ----------    ----------   ----------
        Total charge-offs...............      (6,165)      (7,587)       (3,530)           (275)       (3,829)      (4,901)
                                          ----------   ----------    ----------      ----------    ----------   ----------
Recoveries:
  Commercial and industrial.............       1,591          947           394             188           445        1,581
  Real estate -- construction...........          --           --            --              --            --           --
  Residential real
    estate -- mortgages.................          38           70            27               2            74           40
  Consumer and other....................         198          221           254              53           318          260
                                          ----------   ----------    ----------      ----------    ----------   ----------
        Total recoveries................       1,827        1,238           675             243           837        1,881
                                          ----------   ----------    ----------      ----------    ----------   ----------
Net charge-offs.........................      (4,338)      (6,349)       (2,855)            (32)       (2,992)      (3,020)
                                          ----------   ----------    ----------      ----------    ----------   ----------
Provision for loan losses...............       6,000        5,135         4,061             420         3,307        4,056
                                          ----------   ----------    ----------      ----------    ----------   ----------
Allowance at end of period..............  $   26,261   $   24,599    $   25,813      $   24,572    $   24,184   $   23,869
                                          ==========   ==========    ==========      ==========    ==========   ==========
Net charge-offs to average total
  loans(1)..............................        0.31%        0.50%         0.27%           0.02%         0.24%        0.26%
Allowance to total loans at end of
  period................................        1.80         1.84          2.14            2.00          1.97         1.97
Allowance to nonperforming loans........      180.90       175.92        189.34          172.13        176.29       174.76
</TABLE>

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

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

     Net charge-offs for the year ended December 31, 1999 decreased $2.0 million
over the comparable period for 1998. Net charge-offs for the year ended December
31, 1998 as compared to the period February 12, 1997 to December 31, 1997
increased $3.5 million. The higher net charge-offs incurred during 1998 versus
the 1999 and 1997 reporting periods were primarily the result of the resolution
of certain older chronic problem loans within the Bank's commercial loan
portfolio. Net charge-offs related to these four credits totaled $5.1 million
for the 1998 reporting period. The Company establishes what it believes to be an
appropriate allowance level for the portfolio as a whole, including but not
limited to the nonperforming component in the portfolio and the classification
of certain assets as nonperforming in accordance with established regulatory and
management policies. Although management believes that the allowance for loan
losses is adequate to absorb any losses on existing loans that may become
uncollectible, there can be no assurance that the allowance will prove
sufficient to cover actual loan losses in the future.

                                       41
<PAGE>   42
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

     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. The majority of the consumer
loan net charge-offs for the years 1995 through 1997 related to the credit card
and indirect auto loans. Credit card net charge-offs were $215,000, $451,000,
$721,000, $301,000 and $35,000 in 1999, 1998, 1997, 1996, and 1995,
respectively. Indirect auto loan net charge-offs were $120,000, $22,000,
$144,000, $803,000 and $584,000 in 1999, 1998, 1997, 1996, and 1995,
respectively. During 1998 the Company sold the majority of its credit card
portfolio to an outside third party. The Company sold or transferred the
majority of its indirect auto loans in connection with the Split-Off
Transactions. During 1999 the Bank once again began to underwrite indirect auto
loans.

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

                  ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                      SUCCESSOR BASIS -- TAYLOR CAPITAL
                                         GROUP, INC. -- CONSOLIDATED                     PREDECESSOR BASIS -- COLE TAYLOR BANK
                                                 DECEMBER 31,                                        DECEMBER 31,
                         ------------------------------------------------------------   ---------------------------------------
                                1999                 1998                 1997                 1996                 1995
                         ------------------   ------------------   ------------------   ------------------   ------------------
                                     LOAN                 LOAN                 LOAN                 LOAN                 LOAN
                                   CATEGORY             CATEGORY             CATEGORY             CATEGORY             CATEGORY
                                   TO GROSS             TO GROSS             TO GROSS             TO GROSS             TO GROSS
                         AMOUNT    LOANS(1)   AMOUNT    LOANS(1)   AMOUNT    LOANS(1)   AMOUNT    LOANS(1)   AMOUNT    LOANS(1)
                         -------   --------   -------   --------   -------   --------   -------   --------   -------   --------
                                                                 (DOLLARS IN THOUSANDS)
<S>                      <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>
ALLOCATED:
Commercial and
  industrial...........  $14,031     55.3%    $13,115     57.9%    $11,741     57.1%    $11,467     54.7%    $11,163     52.5%
Real estate --
  construction.........    4,567     18.0       4,060     17.9       3,147     15.3       3,373     16.0       2,127     10.0
Residential real
  estate --
  mortgages............    1,834     12.7       1,509     11.8       1,661     14.2       1,768     14.7       2,231     18.3
Consumer and other.....    2,479     14.0       1,868     12.4       1,817     13.4       2,191     14.6       2,972     19.2
UNALLOCATED............    3,350       --       4,047       --       7,447       --       5,385       --       5,376       --
                         -------    -----     -------    -----     -------    -----     -------    -----     -------    -----
Total allowance for
  loan losses..........  $26,261    100.0%    $24,599    100.0%    $25,813    100.0%    $24,184    100.0%    $23,869    100.0%
                         =======    =====     =======    =====     =======    =====     =======    =====     =======    =====
</TABLE>

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

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

Nonearning Assets

     Cash on hand increased at December 31, 1999 to accommodate potential
increase in customer withdrawals in connection with customers' Y2K concerns.

                                       42
<PAGE>   43
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

     The Company recorded $38.3 million of goodwill in connection with the
acquisition of the Bank and Mortgage Company on February 12, 1997. Goodwill for
the consolidated Company totaled $29.0 million and $32.1 million as of December
31, 1999 and 1998, respectively. Goodwill amortization expense totaled $2.4
million for the consolidated Company's 1999 and 1998 reporting periods. Goodwill
was reduced in 1999 and prior periods as a result of the recognition of state
tax benefits acquired in connection with the acquisition of the Bank.
See -- "Results of Operations -- Income Taxes." On August 5, 1997, the Mortgage
Company sold its operations headquartered in Florida. Because the Florida-based
operations generated the majority of the Mortgage Company's earnings, the
remaining goodwill of $403,000 was written off in August 1997.

     Premises, leasehold improvements and equipment, net of accumulated
depreciation and amortization, totaled $23.1 million and $22.7 million for the
consolidated Company as of December 31, 1999 and 1998, respectively. In late
1998 and the first two quarters of 1999, the Bank implemented significant
technology enhancements within the Bank's operations center and replaced certain
hardware and software applications with systems of greater functionality.
Capital expenditures related to the replacement of hardware and software totaled
approximately $2.8 million in 1999.

Deposits

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

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

                                AVERAGE DEPOSITS

<TABLE>
<CAPTION>
                                                 SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
                                  --------------------------------------------------------------------------------------------
                                                                                                         FOR THE PERIOD
                                                                                                      OF FEBRUARY 12, 1997
                                                FOR THE YEARS ENDED DECEMBER 31,                        TO DECEMBER 31,
                                  ------------------------------------------------------------    ----------------------------
                                              1999                            1998                            1997
                                  ----------------------------    ----------------------------    ----------------------------
                                               PERCENT                         PERCENT                         PERCENT
                                   AVERAGE        OF               AVERAGE        OF               AVERAGE        OF
                                   BALANCE     DEPOSITS   RATE     BALANCE     DEPOSITS   RATE     BALANCE     DEPOSITS   RATE
                                  ----------   --------   ----    ----------   --------   ----    ----------   --------   ----
                                                                     (DOLLARS IN THOUSANDS)
<S>                               <C>          <C>        <C>     <C>          <C>        <C>     <C>          <C>        <C>
Noninterest-bearing demand
  deposits......................  $  318,287     21.22%     --%   $  310,512     22.53%     --%   $  301,941     21.60%     --%
Interest-bearing demand
  deposits......................     371,020     24.74    3.10       347,544     25.23    3.45       329,199     23.55    3.56
Savings deposits................     105,215      7.02    1.69       111,908      8.12    2.25       116,472      8.33    2.55
Time deposits:
  Certificates of deposit, under
    $100,000....................     332,280     22.15    4.99       327,313     23.75    5.47       307,397     21.99    5.52
  Certificates of deposit, over
    $100,000....................     138,135      9.21    4.99       109,241      7.93    5.44       108,393      7.76    5.46
  Brokered certificates of
    deposit.....................     122,150      8.14    5.41        65,929      4.79    5.86        96,127      6.88    5.99
  Public funds..................     112,743      7.52    5.12       105,338      7.65    5.45       138,248      9.89    5.66
                                  ----------    ------            ----------    ------            ----------    ------
    Total time deposits.........     705,308     47.02    5.08       607,821     44.12    5.52       650,165     46.52    5.61
                                  ----------    ------            ----------    ------            ----------    ------
        Total deposits..........  $1,499,830    100.00%           $1,377,785    100.00%           $1,397,777    100.00%
                                  ==========    ======            ==========    ======            ==========    ======
</TABLE>

                                       43
<PAGE>   44
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

     Average deposits for the consolidated Company increased 8.9% during the
year ended December 31, 1999 from the comparable 1998 reporting period. The
increase during 1999 was primarily in brokered certificates of deposit with
smaller increases in core customer deposits including core certificates of
deposit and NOW accounts. The growth in brokered certificates of deposit was a
result of the Company's 1999 loan growth outpacing core customer deposit growth.
Management believes its core deposit pricing strategy in 1999, which
successfully helped lower the overall cost of funds, negatively impacted its
ability to further increase core customer deposits.

     Historically, the Bank experiences a seasonal increase in
noninterest-bearing deposits at each year end, which is illustrated by comparing
the December 31 balances with the year-to-date average balance sheets. That
seasonal increase was more modest at December 31, 1999.

     Average deposits for the consolidated Company declined 1.4% during the year
ended December 31, 1998 from the reporting period of February 12, 1997 to
December 31, 1997. The decrease during 1998 was primarily in wholesale funding
categories, including brokered certificates of deposit and certain public funds.
These decreases were offset by growth in core customer deposits including demand
deposits and core certificates of deposit.

     Over the years, earning asset growth has continued to exceed core deposit
growth, which has resulted in the use of brokered and out-of-market certificates
of deposit and other borrowed funds. The Company offers certificates of deposit
to out-of-market customers by providing rates to a private third party
electronic system which provides certificate of deposit rates from institutions
across the country to its subscribers. The balance of certificates of deposit
obtained through this marketing medium was $37.5 million at December 31, 1999,
as compared to $29.6 million and $32.0 million at December 31, 1998 and 1997,
respectively. The Company also issues brokered certificates of deposit. The
balance of brokered certificates of deposit was $162.6 million, $56.3 million,
and $69.9 million at December 31, 1999, 1998 and 1997, respectively. Under FDIC
regulations, only "well-capitalized" institutions may fund themselves with
brokered certificates of deposit without the prior approval of regulators. The
Bank is categorized as "well-capitalized." Adverse operating results at the Bank
or changes in industry conditions or overall market liquidity, could lead to an
inability to replace brokered deposits at maturity, which could result in higher
costs to or reduced asset levels of the Bank. Municipal deposits, consisting of
public fund time deposits and repurchase agreements with state and local
governments, are an important funding source for the Bank. Total municipal time
deposits and repurchase agreements approximated $168 million and $173 million at
December 31, 1999 and 1998, respectively. Most of these deposits are
collateralized by investment securities in the Bank's investment portfolio.

                                       44
<PAGE>   45
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

     Time deposits in denominations of $100,000 or more totaled $288.8 million
at December 31, 1999, an increase of $20.5 million, or 7.6%, from December 31,
1998. The following table sets forth the amount and maturities of time deposits
of $100,000 or more at December 31, 1999:

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

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                              1999
                                                          ------------
<S>                                                       <C>
3 months or less.......................................     $182,657
Over 3 months through 6 months.........................       54,657
Over 6 months through 12 months........................       42,261
Over 12 months.........................................        9,183
                                                            --------
          Total........................................     $288,758
                                                            ========
</TABLE>

Short-Term Borrowings:

     The Company also uses short-term borrowings to support its asset base.
These borrowings include federal funds purchased, securities sold under
agreements to repurchase and U.S. Treasury tax and loan note option accounts.
The federal funds purchased are primarily funds obtained from financial
institutions where the Bank acts as one of the selling institution's primary
correspondent banks. The securities sold under agreement to repurchase are
primarily executed with core Bank customers. At December 31, 1999, the
consolidated Company's short-term borrowings were $147.1 million compared to
$171.7 million at December 31, 1998. For the years ended December 31, 1999 and
1998 consolidated Company short-term borrowings averaged $189.3 million and
$197.8 million, respectively.

                                       45
<PAGE>   46
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

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

                             SHORT-TERM BORROWINGS

<TABLE>
<CAPTION>
                                                               SUCCESSOR BASIS -- TAYLOR CAPITAL
                                                                  GROUP, INC. -- CONSOLIDATED
                                                       -------------------------------------------------
                                                                                       AT OR FOR THE
                                                                                         PERIOD OF
                                                                                        FEBRUARY 12,
                                                       AT OR FOR THE YEARS ENDED          1997 TO
                                                              DECEMBER 31,              DECEMBER 31,
                                                       --------------------------   --------------------
                                                          1999           1998               1997
                                                       -----------    -----------   --------------------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                                    <C>            <C>           <C>
Federal Funds Purchased:
  Balance at end of period...........................   $  8,385       $ 51,225           $ 11,450
  Weighted average interest rate at end of period....       4.50%          4.85%              6.00%
  Maximum amount outstanding(1)......................   $ 58,325       $ 60,800           $ 29,650
  Average amount outstanding.........................   $ 23,563       $ 36,900           $ 22,946
  Weighted average interest rate during period.......       4.93%          5.36%              5.48%
Securities Sold Under Repurchase Agreements:
  Balance at end of period...........................   $132,744       $115,610           $169,550
  Weighted average interest rate at end of period....       3.18%          4.23%              5.05%
  Maximum amount outstanding(1)......................   $181,932       $180,194           $203,898
  Average amount outstanding.........................   $161,745       $156,642           $165,321
  Weighted average interest rate during period.......       4.52%          4.96%              5.11%
</TABLE>

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

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

     At December 31, 1999, the Bank had pre-approved overnight federal funds
borrowing lines available from its correspondent banks totaling $120 million.

Notes Payable

     The Company's notes payable consist of Federal Home Loan Bank (FHLB)
advances and Parent Company debt. Borrowings from the FHLB totaled $90 million
and $105 million at December 31, 1999 and 1998, respectively. Based on the value
of collateral pledged at December 31, 1999, the Bank had additional borrowing
capacity at the FHLB of $34.0 million at December 31, 1999. During 1999, the
Company's $30 million 10 year callable FHLB note was called by the FHLB and was
renewed as a $30 million short-term FHLB advance.

     As of December 31, 1999, the consolidated Company had Parent Company debt
consisting of a $24 million term loan and a $12 million revolving credit
facility, of which $500,000 was then outstanding. In September 1999, the
Company's loan agreement was extended, effective September 1, 1999 to September
1, 2000. There were no other changes in the terms of the agreement other than
the extension. In October 1998, in exchange for an increase in the revolving
credit facility to $12 million from $7 million and a reduction in the interest
rate, the loan agreement, including the $25 million term loan, was secured by
the common stock

                                       46
<PAGE>   47
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

owned by the Bank. The loan agreement requires compliance with certain defined
financial covenants relating to the Bank, including covenants related to
regulatory capital, return on average assets, nonperforming assets and Parent
Company leverage. As of December 31, 1999, the Company was not aware of any
instances of non-compliance.

Capital Resources

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

     The consolidated Company's Tier 1 risk-based capital ratios were 7.77%,
7.76% and 7.95% at December 31, 1999, 1998 and 1997, respectively. The
consolidated Company's total risk-based capital ratios were 9.03%, 9.02% and
9.21% at December 31, 1999, 1998 and 1997, respectively. The Bank's Tier 1
risk-based capital ratios were 9.41%, 9.42%, 9.90% at December 31, 1999, 1998
and 1997, respectively. The Bank's total risk based capital ratios were 10.68%,
10.67%, and 11.16%, at December 31, 1999, 1998 and 1997, respectively.

     During 1999, the Parent Company's and the Bank's capital ratios remained
virtually unchanged. Increased profitability at the Bank provided additional
capital to support the Bank's loan growth, in spite of continuing strong cash
dividend needs at the Parent Company to fund legal expenses. The Bank's dividend
payout ratio was 58% in 1999.

     During 1998, certain capital ratios decreased as a result of commercial
loan growth at the Bank. The cash flow requirements at the Parent Company, which
increased significantly as a result of the legal defense costs related to the
Split-Off Transactions, also resulted in increased dividends from the Bank. The
dividend payout ratio at the Bank increased to 86% in 1998 from 56% in 1997.

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

                                       47
<PAGE>   48
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

     The Company's and the Bank's capital ratios were as follows for the dates
indicated:

<TABLE>
<CAPTION>
                                                                                                     TO BE WELL
                                                                                                 CAPITALIZED UNDER
                                                                                FOR CAPITAL      PROMPT CORRECTIVE
                                                               ACTUAL        ADEQUACY PURPOSES    ACTION PROVISION
                                                          ----------------   -----------------   ------------------
                                                           AMOUNT    RATIO    AMOUNT     RATIO    AMOUNT     RATIO
                                                          --------   -----   ---------   -----   ---------   ------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                                       <C>        <C>     <C>         <C>     <C>         <C>
As of December 31, 1999:
  Total Capital (to Risk Weighted Assets)
    Successor Basis -- Taylor Capital Group, Inc. --
      Consolidated......................................  $141,876   9.03%   >$125,753   >8.00%         NA
    Cole Taylor Bank....................................   168,040   10.68    >125,835   >8.00     157,294   >10.00%
  Tier I Capital (to Risk Weighted Assets)
    Successor Basis -- Taylor Capital Group, Inc. --
      Consolidated......................................   122,130   7.77%     >62,876   >4.00%         NA
    Cole Taylor Bank....................................   147,940   9.41      >62,918   >4.00      94,376    >6.00%
  Leverage(1)
    Successor Basis -- Taylor Capital Group, Inc. --
      Consolidated......................................   122,130   6.11%     >79,900   >4.00%         NA
    Cole Taylor Bank....................................   147,940   7.41      >79,819   >4.00      99,774    >5.00%
As of December 31, 1998:
  Total Capital (to Risk Weighted Assets)
    Successor Basis -- Taylor Capital Group, Inc. --
      Consolidated......................................  $131,218   9.02%   >$116,405   >8.00%         NA
    Cole Taylor Bank....................................   154,943   10.67    >116,144   >8.00     145,507   >10.00%
  Tier I Capital (to Risk Weighted Assets)
    Successor Basis -- Taylor Capital Group, Inc. --
      Consolidated......................................   112,951   7.76%     >58,203   >4.00%         NA
    Cole Taylor Bank....................................   136,717   9.42      >58,072   >4.00      87,304    >6.00%
  Leverage(1)
    Successor Basis -- Taylor Capital Group, Inc. --
      Consolidated......................................   112,951   6.17%     >73,204   >4.00%         NA
    Cole Taylor Bank....................................   136,717   7.33      >74,655   >4.00      91,506    >5.00%
As of December 31, 1997:
  Total Capital (to Risk Weighted Assets)
    Successor Basis -- Taylor Capital Group, Inc. --
      Consolidated......................................  $122,432   9.21%   >$106,370   >8.00%         NA
    Cole Taylor Bank....................................   148,043   11.16    >106,135   >8.00     132,669   >10.00%
  Tier I Capital (to Risk Weighted Assets)
    Successor Basis -- Taylor Capital Group, Inc. --
      Consolidated......................................   105,698   7.95%     >53,185   >4.00%         NA
    Cole Taylor Bank....................................   131,348   9.90      >53,068   >4.00      79,601    >6.00%
  Leverage(1)
    Successor Basis -- Taylor Capital Group, Inc. --
      Consolidated......................................   105,698   5.85%     >72,318   >4.00%         NA
    Cole Taylor Bank....................................   131,348   7.26      >72,319   >4.00      90,399    >5.00%
</TABLE>

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

(1) The leverage ratio is defined as Tier 1 capital divided by average quarterly
    assets.

     During both of the years ended December 31, 1999 and 1998, the Parent
Company declared $3.4 million in preferred stock dividends and $1.7 million of
common stock dividends, respectively. On December 16, 1999, the Company declared
a dividend of $.09 per common share, totaling approximately $416,000, payable on
January 13, 2000.

                                       48
<PAGE>   49

                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

     Under the terms of the Company's Employee Stock Ownership Plan (ESOP) and
stock option agreements, the Company is obligated to purchase shares of Company
stock from terminated employees related to "put" rights. During 1999, the
Company repurchased 30,604 shares of its common stock totaling approximately
$1.1 million. These shares are currently being held as treasury stock at their
purchase price, as determined by the June 30, 1999 independent third party
appraisal. As of December 31, 1999, the Company is obligated to purchase 18,790
shares of Company stock from terminated employees, which will be valued by an
independent third party appraisal at December 31, 1999.

Liquidity

     The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for business expansion. Liquidity management addresses the
Company's ability to meet withdrawals either on demand or at contractual
maturity, to repay borrowings as they mature and to make new loans and
investments as opportunities arise. The Bank actively manages its liquidity
position to maintain sufficient funds to respond to the needs of depositors and
borrowers, as well as to take advantage of earnings enhancement opportunities.
In addition to the normal influx of liquidity from core deposit growth, together
with repayments and maturities of loans and investments, the Bank utilizes
brokered and national certificate of deposit markets, FHLB borrowings,
broker/dealer repurchase agreements and federal funds purchased to meet it
liquidity needs. The FHLB borrowings are collateralized by the Bank's first
mortgage residential loans and FHLB stock. Based on the value of collateral
pledged at December 31, 1999, the Bank had additional borrowing capacity at the
FHLB of $34.0 million at December 31, 1999. The Bank also maintains pre-approved
overnight federal funds borrowing lines at various correspondent banks, which
provided additional short-term borrowing capacity of $120 million.

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

     During 1999, the asset growth of loans was funded substantially through the
issuance of brokered certificates of deposits as loan growth outpaced customer
deposit growth. Brokered certificates of deposits increased to $162.6 million at
December 31, 1999 from $56.3 million at December 31, 1998. As a result of the
increase in the volume of wholesale funding and an increase in the volatility of
certain customer non-maturity deposits, the Bank's liquidity has tightened.
Adverse operating results at the Bank or changes in industry conditions could
lead to an inability to replace such brokered deposits at maturity, which could
result in higher costs to or reduced asset levels of the Bank.

     During 1999, the Parent Company paid $1 million on its term loan and $1
million on its revolving credit facility. In addition, the Parent Company's
revolving credit facility has been extended to September 1, 2000. The Company
believes that its current sources of funds are adequate to meet all of the
Company's financial commitments and asset growth targets for 2000 and beyond.
Cash inflows from operating activities exceeded cash outflows by $56.5 million
during 1999. Net cash provided by operating activities was higher in 1999 as
compared to 1998 primarily due to proceeds from sales of loans originated for
sale, changes in assets and liabilities, and higher net income of the
consolidated Company.

     During 1998, the Bank's liquidity position remained stable. Asset growth in
commercial and home equity loans was funded primarily by cash flows from
maturing investment securities, prepayments of mortgage loans,

                                       49
<PAGE>   50
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

a modest increase in core customer deposits and decreased nonearning assets. In
exchange for an increase in the Parent Company's revolving credit facility to
$12 million from $7 million and a reduction in the interest rate, the loan
agreement was secured by the common stock owned by the Bank. Cash inflows from
operating activities exceeded operating outflows by $25.1 million during 1998.
Net cash provided by operating activities was higher in 1998 as compared to 1997
primarily due to required accelerated premium amortization on investment
securities and increased proceeds from sales of loans originated for sale and
other changes in assets and liabilities.

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

     Net cash outflows from investing activities for the consolidated Company
for the years ended December 31, 1999 and 1998 were $166.5 million and $85.4
million, respectively. Net cash inflows from investing activities for the
consolidated Company for the period of February 12, 1997 to December 31, 1997
were $7.0 million. The increase in net cash outflows experienced in 1999 and
1998 were primarily due to loan growth. Net cash inflows during the 1997 were
attributable to the net cash of the Bank and Mortgage Company acquired in the
Split-Off Transactions.

     Net cash inflows from financing activities for the consolidated Company for
the years ended December 31, 1999 and 1998 and for the period of February 12,
1997 to December 31, 1997 were $120.0 million, $43.1 million and $74.0 million,
respectively. Net cash inflows during 1999 were primarily a result of deposit
growth partially offset by the repayment of FHLB advances. Net cash inflows for
1998 were primarily a result of additional FHLB advances and deposit growth.
During 1997, net cash inflows were primarily attributable to the issuance of
preferred stock of $36.1 million and the Parent Company debt of $27 million in
connection with the Split-Off Transactions.

     The Parent Company's primary source of funds are dividends received from
the Bank. Dividends received from the Bank in 1999, 1998 and 1997 totaled $10.5
million, $14.5 million and $8.0 million, respectively. The Bank is subject to
dividend restrictions set forth by regulatory authorities, whereby the Bank may
not, without prior approval of regulatory authorities, declare dividends in
excess of the sum of the current year's earnings plus the retained earnings from
the prior two years. The dividends, as of December 31, 1999, that the Bank could
declare and pay to the Company, without the approval of regulatory authorities,
amounts to approximately $15.9 million. The Parent Company also has a $12
million revolving credit facility, of which only $500,000 was outstanding at
December 31, 1999.

     As described in Footnote 21 to the consolidated financial statements
included in Part II, Item 8, and under the caption "Litigation" in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the Company and its subsidiaries continue to pay defense and other
legal costs related to certain significant litigation. As these costs are being
paid primarily by the Parent Company, the Parent Company's cash needs have
increased. The liquidity uses of the Parent Company on a standalone basis
consists primarily of dividends to shareholders and expenses for general
corporate purposes including legal costs. The primary source of Parent Company
cash flow is dividends received from the Bank. The Company believes that the
Bank currently has adequate capital to allow continued dividends, out of
earnings, to support the expected liquidity demands of the Parent Company.

                                       50
<PAGE>   51
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

Market Risk

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

     The Company uses various interest rate contracts (floors and swaps) and
forward sale commitments to manage interest rate and market risk. These
contracts are designated as hedges of specific existing assets and liabilities.
The Company's asset and liability management and investment policies do not
allow the use of derivative financial instruments for trading purposes.

     The Company's primary measurement of interest rate risk is earnings at
risk, which is determined through computerized simulation modeling. The
simulation model assumes a static balance sheet, using the balances, rates,
maturities and repricing characteristics of all of the Bank's existing assets
and liabilities, including off-balance sheet financial instruments. Net interest
income is computed by the model assuming market rates remaining unchanged and
there is a parallel shift of market interest rates both up and down 200 basis
points. The impact of imbedded options in such products as callable and
mortgage-backed securities, real estate mortgage loans and callable borrowings
are considered. Changes in net interest income in the rising and declining rate
scenarios are then measured against the net interest income in the rates
unchanged scenario. ALCO utilizes the results of the model to quantify the
estimated exposure of net interest income to sustained interest rate changes.

     At December 31, 1999 the Company's simulation model indicated an exposure
to rising rates. At December 31, 1999 the net interest income at risk for year
one in the rising rate scenario was calculated at $1.0 million, or 1.23% lower
than the net interest income in the rates unchanged scenario. This exposure was
well within the Bank's policy guidelines of 10%. The net interest income for
year one in the declining rate scenario was essentially flat with the net
interest income in the rates unchanged scenario. Computation of prospective
effects of hypothetical interest rate changes are based on numerous assumptions,
including relative levels of market interest rates, loan and security
prepayments, deposit decay, and pricing and reinvestment strategies and should
not be relied upon as indicative of actual results. Further, the computations do
not contemplate any actions the Company may take in response to changes in
interest rates. No assurance can be given that the actual net interest income
would increase or decrease by the amounts computed in response to a 200 basis
point parallel increase in market rates.

     On June 26, 1998, the Bank entered into an interest floor contract for a
notional amount of $50 million. The floor contract provides for the receipt of
payments when the three month LIBOR rate is below the predetermined interest
rate floor of 6%. The floor is designated as a hedge against certain
floating-rate commercial loans. During 1999 and 1998, the financial impact of
the floor was to increase net interest income by approximately $161,000 and
$20,000, respectively. As of December 31, 1999, the estimated fair value of the
interest rate floor contract was approximately zero because 3-month LIBOR was
above the strike rate of 6.0%.

                                       51
<PAGE>   52
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

THE YEAR 2000 ISSUE

     The Company continues to be actively addressing any possible Year 2000
("Y2K") issues. A comprehensive Y2K plan (the "Plan") was prepared and included
awareness, assessment, renovation, validation/testing, implementation, and
contingency planning. The Company developed an extensive Y2K communication
program and continued to update customers as the Company progressed through its
plan. A part of the communication plan was related to Y2K fraud prevention. The
Company also formed a Y2K oversight committee which was responsible for ensuring
that the Plan was executed on a timely basis.

     The Company completed the awareness, assessment, renovation, and validation
phases of the Plan. The Plan called for the replacement or upgrade of
non-compliant systems and validation of those replacements or upgrades during
the fourth quarter of 1998 and early 1999. Non-compliant systems were upgraded
or replaced during the fourth quarter of 1998 and early 1999 in accordance with
the Company's Plan. The Company completed remediation, testing, and
implementation of mission critical applications and all mission critical
applications/systems were remediated as of June 30, 1999 in accordance with
milestones set forth by the Federal Financial Institutions Examination Council
(FFIEC).

     The majority of the Company's mission critical systems (specifically those
that process loans, deposits, and general ledger transactions) are provided by
third party processors. The primary data processing provider previously reported
that it met all dates required to provide compliant systems. All core
applications provided by the Company's primary data processing provider were
tested for Y2K readiness and implemented into the production environment.

     The Company completed its contingency plan related to the Year 2000. This
completion involved validation and refinement of the contingency plan during the
fourth quarter of 1999. In conjunction with contingency planning, the Company
developed a liquidity strategy for Y2K in order to meet currency demands at the
Bank's branches and automated teller machines.

     The Company expensed approximately $336,000 for its Y2K compliance program
during 1998 and 1999. With respect to certain technology applications, the
Company elected to replace the existing applications with applications having
greater functionality, rather than limit its response only to remediation of the
Y2K issue. For that reason, the Company's technology expenditures have
materially increased from historical levels. The Company expects little or no
additional costs related to Y2K.

     The Company experienced no disruption of business activities resulting from
the arrival of the Y2K. In addition, management is not aware of any third party
processor used by the Company for its mission critical systems which experienced
a material failure of its product or service as it related to Y2K. The Company
was also subject to risks associated with Y2K noncompliance by its customers.
Management is not aware of any customers which suffered losses related to a Y2K
problem which would adversely affect that customer's financial condition or its
ability to repay any outstanding loan it has from the Company.

     Although many of the critical dates related to potential Y2K items have
passed, there are certain future dates which will be monitored, such as October
10, 2000 and December 31, 2000. Accordingly, the Company will continue to
monitor mission critical and other systems and attempt to identify any potential
problems during the course of the year.

     Regardless of the Y2K compliance of the Company's systems, there can be no
assurance in the future that the Company will not be adversely affected by the
failure of others to become Y2K compliant. Other risks may include potential
losses related to major loan or deposit customers, vendors or other
counterparties who have Y2K compliance problems. The Company has been
evaluating, in accordance with the guidelines
                                       52
<PAGE>   53
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

outlined by the FFIEC, the potential credit and liquidity risk associated with
Y2K as it relates to the Company's customer base. The Company's analysis
performed to date has not identified major credit exposure within the high risk
category of customers.

LITIGATION

     Jeffrey W. Taylor, Chairman of the Board and Chief Executive Officer of the
Company, Bruce W. Taylor, President of the Company, Iris A. Taylor, Sidney J.
Taylor, Cindy Taylor Bleil, related trusts and a related partnership
(collectively, the "Taylor Family") have been named as defendants in the
lawsuits described below relating to (1) the Split-Off Transactions and (2) the
financial and public reporting of Reliance Acceptance Group, Inc.
("Reliance"). Certain of the lawsuits also named other current or former
officers and directors of the Company and Reliance, other stockholders of the
Company, Reliance's public accountants at the time of the Split-Off Transactions
(who continue to serve as the Company's public accountants), the investment
banks that were involved in the Split-Off Transactions, Reliance and the Company
as additional defendants. The filing dates of these lawsuits range from October
1997 to October 1999.

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

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

     In August 1998, nine class actions, brought on behalf of current and former
stockholders of Reliance and pending in the United States District Court for the
Western District of Texas, were consolidated into one class action. Another
class action, brought on behalf of current and former stockholders of Reliance,
is also pending in the Northern District of Illinois. These cases allege that
the Taylor Family, certain directors and officers of the Company, and certain
other defendants violated the federal securities laws and breached common law
fiduciary duties. In addition, the cases allege that the Company and certain
other defendants violated ERISA and breached certain fiduciary duties, including
fiduciary duties owed to a subclass consisting of participants in Reliance's
ESOP and 401(k) Profit Sharing Plan. The Texas and Illinois cases seek
unspecified damages and attorneys' fees. Cole Taylor Bank was named as an
additional defendant in the Illinois action. On August 11, 1999, an amended
consolidated complaint was filed in Illinois which combined the Illinois and
Texas actions. On December 9, 1999, the Judicial Panel for Multi-district
Litigation consolidated in the district Court of Delaware for pretrial purposes
the Illinois stockholders' suit and the adversary proceedings referred to below.
A motion to certify the plaintiff class is pending.

     On August 19, 1998, Irwin Cole and other members of his family, who
collectively owned approximately 25% of the outstanding common stock of Reliance
prior to the Split-Off Transactions, brought suit in

                                       53
<PAGE>   54
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

Delaware Chancery Court against members of the Taylor Family, the Company, other
current and/or former officers and directors of Reliance and the Company, and
other stockholders of the Company. The suit alleges that the Taylor Family,
certain directors and officers of the Company, and certain other defendants
breached their fiduciary duties, committed fraud and/or engaged in self-dealing
in connection with the operation of Reliance and the Split-Off Transactions. The
lawsuit seeks unspecified damages, attorneys' fees and requests that the Court
place all of the shares of the Company held by the Taylor Family in a
constructive trust. Motions to dismiss the lawsuit are pending.

     On October 5, 1998, the United States Bankruptcy Court of the District of
Delaware (the "Bankruptcy Court") entered an order preliminarily enjoining the
plaintiffs in most of the above lawsuits from prosecuting their cases on account
of the pending adversary proceedings by the Reliance Estate Representative that
are described below. On June 2, 1999 the District Court for the District of
Delaware reversed the Bankruptcy Court's order. The District Court's order has
been appealed.

     On July 6, 1998, the Bankruptcy Court entered a confirmation order that
discharged the liability of Reliance and its subsidiaries in connection with all
of the lawsuits described above and permanently enjoined the filing of similar
new suits against them. The Bankruptcy Court also appointed an Estate
Representative (the "Estate Representative") for the Post-Confirmation Chapter
11 Estate of Reliance and its subsidiaries. On September 4, 1998, the Estate
Representative filed two adversary proceeding complaints, which named as
defendants members of the Taylor Family, certain other directors
and officers of the Company, one of Reliance's former legal counsel and
Reliance's former public accountants (both of whom continue to serve the
Company), the Company and Cole Taylor Bank, as trustee. The complaints allege
fraudulent conveyance and breaches of fiduciary duties and contract with respect
to the Taylor Family, the Company and Cole Taylor Bank, as trustee. The
complaints charge certain of the other defendants with alleged breaches of
fiduciary duty, breaches of contract, malpractice and negligent
misrepresentation and aiding and abetting the Taylor Family's and the Company's
alleged breaches. These complaints seek unspecified damages and attorneys' fees
and avoidance of the Split-Off Transactions by the transfer to the Estate
Representative of either the assets exchanged in the Split-Off Transactions or
the value of such assets. One of the complaints demands monetary damages
pursuant to the Taylor Family's obligation under the Share Exchange Agreement to
indemnify Reliance for certain losses resulting from the Split-Off Transactions,
and asks the court to disallow any claims for indemnification that any of the
defendants have against Reliance or, in the alternative, to equitably
subordinate such claims to all other creditor claims against Reliance. The two
adversary proceedings have been consolidated and withdrawn to the Delaware
District Court. Discovery is ongoing in the adversary proceedings and a January
2001 trial date has been set. On March 2, 2000, the court granted the Estate
Representative leave to file an amended complaint.

     On December 7, 1998, the Estate Representative filed a motion for a
preliminary injunction which seeks to enjoin the Company and Cole Taylor Bank
from paying directly or indirectly any dividends to any of their respective
shareholders and from paying any of the litigation defense costs of the Taylor
Family or any other co-defendants with respect to any litigation arising out of
the Split-Off Transactions. On October 14, 1999, the District Court denied the
motion for preliminary injunction.

     On October 4, 1999, another lawsuit relating to the Split-Off Transactions
was filed in the Circuit Court of Cook County, Illinois by four Reliance
stockholders. Members of the Taylor Family, a related partnership, Taylor
Capital Group, Inc., Cole Taylor Bank, and another officer and director of
Taylor Capital Group, Inc., were named as defendants. Damages in an unspecified
amount are sought. A motion to dismiss the lawsuit is pending.

     On February 23, 2000, another class action lawsuit relating to the
Split-Off Transactions was filed in the Circuit Court of Cook County, Illinois
by a holder of 9% subordinated notes of Reliance. Members of the Taylor Family,
Taylor Capital Group, Inc., Cole Taylor Bank, another officer and another
director of Taylor Capital Group, Inc., in addition to individuals and entities
unrelated to the Company or the Taylor Family were named as defendants. Damages
of $25 million, plus interest and other relief are sought.

                                       54

<PAGE>   55
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

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

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

     The Company is from time to time a party to various other legal actions
arising in the normal course of business. Management knows of no such other
threatened or pending legal actions against the Company that are likely to have
a material adverse impact on the business, financial condition, liquidity or
operating results of the Company.

NEW ACCOUNTING PRONOUNCEMENTS

     Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998. This
Statement standardizes the accounting for derivative instruments. Under the
standard, entities are required to carry all derivative instruments in the
statement of financial condition at fair value. The accounting for changes in
fair value (i.e., gains or losses) of the derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, if so, the reason for holding it. If certain conditions are met, entities
may elect to designate the derivative instrument as a hedge of exposure to
changes in fair values, cash flows or foreign currencies. If the hedged exposure
is a fair value exposure, the gain or loss on the derivative instrument is
recognized in earnings in the period of change, together with the offsetting
gain or loss on the hedged item attributable to the risk being hedged. If the
hedged exposure is a cash flow exposure, the effective portion of the gain or
loss on the derivative instrument is reported initially as a component of other
comprehensive income (outside earnings) and subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any amounts excluded
from the assessment of hedge effectiveness, as well as the ineffective portion
of the gain or loss, is reported in earnings immediately. Accounting for foreign
currency hedged is similar to the accounting for fair value and cash flow
hedges. If the derivative instrument is not designated as a hedge, the gain or
loss is recognized in earnings in the period of change. In June 1999 the
Financial Accounting Standards Board (FASB) issued statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133 -- an
amendment of FASB Statement No. 133." This statement delays the effective date
of FASB No. Statement 133 for one year, to fiscal years beginning after June 15,
2000. The Company must adopt the Statement by

                                       55
<PAGE>   56
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

January 1, 2001, however early adoption is permitted. Upon adoption, the
provisions of the Statement must only be applied prospectively. The Company has
not yet quantified the impact of the adoption of the Statement.

QUARTERLY FINANCIAL INFORMATION

     The following table sets forth unaudited financial data regarding the
Company's operations for each of the four quarters of 1999 and 1998. This
information, in the opinion of management, includes all adjustments necessary to
present fairly the Company's results of operations for such periods, consisting
only of normal recurring adjustments for the periods indicated. The operating
results for any quarter are not necessarily indicative of results for any future
period.

<TABLE>
<CAPTION>
                                                 SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
                                         -----------------------------------------------------------------------------
                                                  1999 QUARTER ENDED                      1998 QUARTER ENDED
                                         -------------------------------------   -------------------------------------
                                         MAR. 31   JUN. 30   SEP. 30   DEC. 31   MAR. 31   JUN. 30   SEP. 30   DEC. 31
                                         -------   -------   -------   -------   -------   -------   -------   -------
                                                                        (IN THOUSANDS)
<S>                                      <C>       <C>       <C>      <C>       <C>        <C>       <C>       <C>
Interest income........................  $33,092   $35,074   $36,845  $38,213   $33,808    $34,022   $34,276   $34,039
Interest expense.......................  15,162     15,626    16,678   16,924    16,304     16,575    16,755    15,775
                                         -------   -------   -------   -------   -------   -------   -------   -------
    Net interest income................  17,930     19,448    20,167   21,289    17,504     17,447    17,521    18,264
Provision for loan losses..............   1,500      1,500     1,500    1,500       750      1,500     1,050     1,835
Investment securities gains, net.......     107         --        --        1        --         --        --        11
Non interest income....................   4,702      4,940     4,590    4,850     5,927      4,840     4,549     5,294
Non interest expense...................  17,225     17,526    17,805   19,988    16,288     18,266    17,392    18,482
                                         -------   -------   -------   -------   -------   -------   -------   -------
    Income before income taxes and
      cumulative effect of change in
      accounting principle.............   4,014      5,362     5,452    4,652     6,393      2,521     3,628     3,252
Income taxes...........................   1,632      2,137     2,213    1,991     2,512      1,143     1,445     1,253
                                         -------   -------   -------   -------   -------   -------   -------   -------
    Income before cumulative effect of
      change in accounting principle...   2,382      3,225     3,239    2,661     3,881      1,378     2,183     1,999
Cumulative effect of change in
  accounting principle.................    (214)        --        --       --        --         --        --        --
                                         -------   -------   -------   -------   -------   -------   -------   -------
Net income.............................  $2,168    $ 3,225   $ 3,239   $2,661    $3,881    $ 1,378   $ 2,183   $ 1,999
                                         =======   =======   =======   =======   =======   =======   =======   =======
</TABLE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

                                       56
<PAGE>   57

                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Taylor Capital Group, Inc.:

     We have audited the accompanying consolidated balance sheets of Taylor
Capital Group, Inc. and subsidiaries (Successor) as of December 31, 1999 and
1998 and the related consolidated statements of income, stockholders' equity,
and cash flows for the years ended December 31, 1999 and 1998 and the period
from February 12, 1997 to December 31, 1997 (Successor periods). We have also
audited the accompanying statements of income, stockholder's equity, and cash
flows of Cole Taylor Bank (Predecessor) for the period from January 1, 1997 to
February 11, 1997 (Predecessor period). These financial statements are the
responsibility of the Successor's and Predecessor's managements. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

     In our opinion, the aforementioned Successor's consolidated financial
statements present fairly, in all material respects, the financial position of
Taylor Capital Group, Inc. and subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for the Successor
periods in conformity with generally accepted accounting principles.
Furthermore, in our opinion, the aforementioned Predecessor's financial
statements present fairly, in all material respects, the results of Cole Taylor
Bank's operations and its cash flows for the Predecessor period in conformity
with generally accepted accounting principles.

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

                                                                    /s/ KPMG LLP
Chicago, Illinois
February 4, 2000, except for
Note 21, which is as of
March 2, 2000

                                       57
<PAGE>   58
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

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

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 1999         1998
                                                              ----------   ----------
<S>                                                           <C>          <C>
                           ASSETS
Cash and due from banks.....................................  $   74,170   $   66,192
Interest-bearing deposits with banks........................          56           31
Federal funds sold..........................................       3,200        1,200
Investment securities:
  Available-for-sale, at fair value.........................     364,320      351,408
  Held-to-maturity, at amortized cost (fair value of $82,577
     and $91,620 at December 31, 1999 and 1998,
     respectively)..........................................      83,161       89,753
Loans held for sale, net, at lower of cost or market........       8,917       42,257
Loans, net of allowance for loan losses of $26,261 and
  $24,599 at December 31, 1999 and 1998, respectively.......   1,421,627    1,269,125
Premises, leasehold improvements and equipment, net.........      23,133       22,702
Other real estate and repossessed assets, net...............         964        3,267
Goodwill, net of amortization of $7,094 and $4,683 at
  December 31, 1999 and 1998, respectively..................      28,992       32,053
Other assets................................................      35,830       32,342
                                                              ----------   ----------
          Total assets......................................  $2,044,370   $1,910,330
                                                              ==========   ==========

            LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
  Noninterest-bearing.......................................  $  325,142   $  350,711
  Interest-bearing..........................................   1,282,408    1,089,026
                                                              ----------   ----------
          Total deposits....................................   1,607,550    1,439,737
Short-term borrowings.......................................     147,129      171,718
Accrued interest, taxes and other liabilities...............      27,594       22,242
Notes payable...............................................     114,500      131,500
                                                              ----------   ----------
          Total liabilities.................................   1,896,773    1,765,197
                                                              ----------   ----------
Stockholders' equity:
  Preferred stock, $.01 par value, 3,000,000 shares
     authorized, Series A 9% noncumulative perpetual,
     1,530,000 shares issued and outstanding, $25 stated and
     redemption value.......................................      38,250       38,250
  Common stock, $.01 par value; 7,000,000 shares authorized,
     4,656,764 and 4,658,533 shares issued at December 31,
     1999 and 1998, respectively............................          47           47
  Surplus...................................................     100,281       99,990
  Unearned compensation -- stock grants.....................      (1,286)      (2,083)
  Employee stock ownership plan loan........................          --         (576)
  Retained earnings.........................................      15,451        9,434
  Accumulated other comprehensive income (loss).............      (4,047)          71
  Treasury stock, 30,604 shares, at cost....................      (1,099)          --
                                                              ----------   ----------
       Total stockholders' equity...........................     147,597      145,133
                                                              ----------   ----------
          Total liabilities and stockholders' equity........  $2,044,370   $1,910,330
                                                              ==========   ==========
</TABLE>

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

                                    PART II

                              STATEMENTS OF INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                 PREDECESSOR
                                                        SUCCESSOR BASIS -- TAYLOR CAPITAL       BASIS -- COLE
                                                           GROUP, INC. -- CONSOLIDATED           TAYLOR BANK
                                                      --------------------------------------   ---------------
                                                                             FOR THE PERIOD    FOR THE PERIOD
                                                      FOR THE YEARS ENDED   OF FEB. 12, 1997   OF JAN. 1, 1997
                                                         DECEMBER 31,         TO DEC. 31,        TO FEB. 11,
                                                      -------------------   ----------------   ---------------
                                                        1999       1998           1997              1997
                                                      --------   --------   ----------------   ---------------
<S>                                                   <C>        <C>        <C>                <C>
Interest income:
  Interest and fees on loans........................  $118,209   $110,505       $ 95,356           $12,481
  Interest and dividends on investment securities:
    Taxable.........................................    20,631     21,702         23,086             2,606
    Tax-exempt......................................     3,411      3,341          2,628               431
  Interest on cash equivalents......................       973        597          1,544               124
                                                      --------   --------       --------           -------
         Total interest income......................   143,224    136,145        122,614            15,642
                                                      --------   --------       --------           -------
Interest expense:
  Deposits..........................................    49,132     48,056         45,275             5,614
  Short-term borrowings.............................     8,665      9,969          8,870             1,026
  Notes payable.....................................     6,593      7,384          6,313               436
                                                      --------   --------       --------           -------
         Total interest expense.....................    64,390     65,409         60,458             7,076
                                                      --------   --------       --------           -------
Net interest income.................................    78,834     70,736         62,156             8,566
Provision for loan losses...........................     6,000      5,135          4,061               420
                                                      --------   --------       --------           -------
         Net interest income after provision for
           loan losses..............................    72,834     65,601         58,095             8,146
                                                      --------   --------       --------           -------
Noninterest income:
  Service charges...................................     9,609      8,997          8,279             1,122
  Trust fees........................................     4,563      3,971          3,331               359
  Gain on sales of loans, net.......................     2,169      3,621          2,598               169
  Gain on sale of mortgage servicing rights.........       204      1,462             --                --
  Gain on sale of merchant credit card program......        --         --          1,230                --
  Gain on sale of credit card loans.................        --        686             --                --
  Investment securities gains, net..................       108         11            401                --
  Other noninterest income..........................     2,537      1,873          2,034               280
                                                      --------   --------       --------           -------
         Total noninterest income...................    19,190     20,621         17,873             1,930
                                                      --------   --------       --------           -------
Noninterest expense:
  Salaries and employee benefits....................    38,205     37,303         31,683             3,645
  Occupancy of premises, net........................     6,472      7,158          5,298               656
  Furniture and equipment...........................     4,291      3,413          3,262               322
  Computer processing...............................     2,411      2,234          2,004               222
  Legal fees........................................     6,226      4,364          2,227               194
  Advertising and public relations..................     1,275      1,807          1,713               157
  Goodwill and other intangible amortization........     2,411      2,448          2,253                20
  Other noninterest expense.........................    11,253     11,701         11,094             1,250
                                                      --------   --------       --------           -------
         Total noninterest expense..................    72,544     70,428         59,534             6,466
                                                      --------   --------       --------           -------
Income before income taxes and cumulative effect of
  change in accounting principle....................    19,480     15,794         16,434             3,610
Income taxes........................................     7,973      6,353          6,321             1,328
                                                      --------   --------       --------           -------
Income before cumulative effect of change in
  accounting principle..............................    11,507      9,441         10,113             2,282
Cumulative effect of change in accounting principle,
  net of tax........................................      (214)        --             --                --
                                                      --------   --------       --------           -------
         Net income.................................  $ 11,293   $  9,441       $ 10,113           $ 2,282
                                                      ========   ========       ========           =======
Preferred dividend requirements.....................    (3,442)    (3,442)        (3,052)                0
                                                      --------   --------       --------           -------
Net income applicable to common stockholders........  $  7,851   $  5,999       $  7,061           $ 2,282
                                                      ========   ========       ========           =======
</TABLE>

                See accompanying notes to financial statements.
                                       59
<PAGE>   60
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                SUCCESSOR BASIS
 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD OF FEBRUARY 12,
                                      1997
                              TO DECEMBER 31, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                                   SERIES A 9%                                          EMPLOYEE
                                                  NONCUMULATIVE                                           STOCK
                                                    PERPETUAL                            UNEARNED       OWNERSHIP
                                                    PREFERRED     COMMON              COMPENSATION --     PLAN      RETAINED
                                                      STOCK       STOCK    SURPLUS     STOCK GRANTS       LOAN      EARNINGS
                                                  -------------   ------   --------   ---------------   ---------   --------
<S>                                               <C>             <C>      <C>        <C>               <C>         <C>
February 12, 1997 initial capitalization.........    $    --       $45     $ 98,288       $    --        $    --    $    --
 Issuance of preferred stock.....................     38,250                 (2,144)
 Amortization of preferred stock issuance
   costs.........................................                               138                                    (138)
 Issuance of stock grants........................                    1        3,089        (3,090)
 Amortization of stock grants....................                                             434
 Comprehensive income:
   Net income....................................                                                                    10,113
   Unrealized holding gain on investment
     securities, net of income taxes.............
 Total comprehensive income......................
 Dividends:
   Preferred -- $1.994 per share.................                                                                    (3,052)
   Common -- $0.36 per share.....................                                                                    (1,645)
                                                     -------       ---     --------       -------        -------    -------
Balance at December 31, 1997.....................     38,250        46       99,371        (2,656)            --      5,278
 Amortization of preferred stock issuance
   costs.........................................                               167                                    (167)
 Issuance of stock grants........................                    1          452          (452)
 Amortization of stock grants....................                                           1,025
 Issuance of employee stock ownership plan
   loan..........................................                                                           (576)
 Comprehensive income:
   Net income....................................                                                                     9,441
   Unrealized holding (loss) on investment
     securities, net of income taxes.............
 Total comprehensive income......................
 Dividends:
   Preferred -- $2.25 per share..................                                                                    (3,442)
   Common -- $0.36 per share.....................                                                                    (1,676)
                                                     -------       ---     --------       -------        -------    -------
Balance at December 31, 1998.....................     38,250        47       99,990        (2,083)          (576)     9,434
 Amortization of preferred stock issuance
   costs.........................................                               166                                    (166)
 Issuance of stock grants........................                               451          (451)
 Forfeiture of stock grants......................                              (550)          323
 Amortization of stock grants....................                                             925
 Exercise of stock options.......................                               100
 Repayment of employee stock ownership plan loan,
   including interest and dividends received.....                               117                          576          6
 Tax benefit on stock options exercised..........                                 7
 Purchase of treasury stock......................
 Comprehensive income:
   Net income....................................                                                                    11,293
   Unrealized holding (loss) on investment
     securities, net of income taxes.............
 Total comprehensive income......................
 Dividends:
   Preferred -- $2.25 per share..................                                                                    (3,442)
   Common -- $0.36 per share.....................                                                                    (1,674)
                                                     -------       ---     --------       -------        -------    -------
Balance at December 31, 1999.....................    $38,250       $47     $100,281       $(1,286)       $    --    $15,451
                                                     =======       ===     ========       =======        =======    =======

<CAPTION>

                                                    ACCUMULATED
                                                       OTHER
                                                   COMPREHENSIVE   TREASURY
                                                   INCOME (LOSS)    STOCK      TOTAL
                                                   -------------   --------   --------
<S>                                                <C>             <C>        <C>
February 12, 1997 initial capitalization.........     $    --      $    --    $ 98,333
 Issuance of preferred stock.....................                               36,106
 Amortization of preferred stock issuance
   costs.........................................                                   --
 Issuance of stock grants........................                                   --
 Amortization of stock grants....................                                  434
 Comprehensive income:
   Net income....................................                               10,113
   Unrealized holding gain on investment
     securities, net of income taxes.............         781                      781
                                                                              --------
 Total comprehensive income......................                               10,894
                                                                              --------
 Dividends:
   Preferred -- $1.994 per share.................                               (3,052)
   Common -- $0.36 per share.....................                               (1,645)
                                                      -------      -------    --------
Balance at December 31, 1997.....................         781           --     141,070
 Amortization of preferred stock issuance
   costs.........................................                                   --
 Issuance of stock grants........................                                    1
 Amortization of stock grants....................                                1,025
 Issuance of employee stock ownership plan
   loan..........................................                                 (576)
 Comprehensive income:
   Net income....................................                                9,441
   Unrealized holding (loss) on investment
     securities, net of income taxes.............        (710)                    (710)
                                                                              --------
 Total comprehensive income......................                                8,731
                                                                              --------
 Dividends:
   Preferred -- $2.25 per share..................                               (3,442)
   Common -- $0.36 per share.....................                               (1,676)
                                                      -------      -------    --------
Balance at December 31, 1998.....................          71           --     145,133
 Amortization of preferred stock issuance
   costs.........................................                                   --
 Issuance of stock grants........................                                   --
 Forfeiture of stock grants......................                                 (227)
 Amortization of stock grants....................                                  925
 Exercise of stock options.......................                                  100
 Repayment of employee stock ownership plan loan,
   including interest and dividends received.....                                  699
 Tax benefit on stock options exercised..........                                    7
 Purchase of treasury stock......................                   (1,099)     (1,099)
 Comprehensive income:
   Net income....................................                               11,293
   Unrealized holding (loss) on investment
     securities, net of income taxes.............      (4,118)                  (4,118)
                                                                              --------
 Total comprehensive income......................                                7,175
                                                                              --------
 Dividends:
   Preferred -- $2.25 per share..................                               (3,442)
   Common -- $0.36 per share.....................                               (1,674)
                                                      -------      -------    --------
Balance at December 31, 1999.....................     $(4,047)     $(1,099)   $147,597
                                                      =======      =======    ========
</TABLE>

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

                                    PART II

                 STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
                     PREDECESSOR BASIS -- COLE TAYLOR BANK
             FOR THE PERIOD OF JANUARY 1, 1997 TO FEBRUARY 11, 1997
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          ACCUMULATED
                                                                             OTHER
                                          COMMON              RETAINED   COMPREHENSIVE
                                           STOCK    SURPLUS   EARNINGS      INCOME        TOTAL
                                          -------   -------   --------   -------------   --------
<S>                                       <C>       <C>       <C>        <C>             <C>
Balance at January 1, 1997..............  $15,000   $52,028   $76,586       $(1,979)     $141,635
  Comprehensive income:
     Net income.........................                        2,282                       2,282
     Change in unrealized holding loss
       on investment securities, net of
       income taxes.....................                                     (1,140)       (1,140)
                                                                                         --------
  Total comprehensive income............                                                    1,142
                                          -------   -------   -------       -------      --------
Balance at February 11, 1997............  $15,000   $52,028   $78,868       $(3,119)     $142,777
                                          =======   =======   =======       =======      ========
</TABLE>

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

                                    PART II

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                        PREDECESSOR
                                                                SUCCESSOR BASIS -- TAYLOR CAPITAL      BASIS -- COLE
                                                                   GROUP, INC. -- CONSOLIDATED          TAYLOR BANK
                                                              --------------------------------------   --------------
                                                                                      FOR THE PERIOD   FOR THE PERIOD
                                                                                       OF FEB. 12,       OF JAN. 1,
                                                               FOR THE YEARS ENDED       1997 TO          1997 TO
                                                                  DECEMBER 31,           DEC. 31,         FEB. 11,
                                                              ---------------------   --------------   --------------
                                                                1999        1998           1997             1997
                                                              ---------   ---------   --------------   --------------
<S>                                                           <C>         <C>         <C>              <C>
Cash flows from operating activities:
  Net income................................................  $  11,293   $   9,441     $   10,113        $  2,282
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Investment securities gains, net........................       (108)        (11)          (401)             --
    Amortization of premiums and discounts, net.............      1,674       4,893            787               6
    Deferred loan fee amortization..........................     (1,971)     (1,973)        (1,594)           (411)
    Provision for loan losses...............................      6,000       5,135          4,061             420
    Gain on sales of loans originated for sale..............     (1,303)     (6,314)        (3,663)           (137)
    Loans originated and held for sale......................   (163,215)   (297,913)      (218,778)        (12,852)
    Proceeds from sales of loans originated for sale........    191,919     300,052        212,425          23,724
    Depreciation and amortization...........................      4,086       4,033          3,578             238
    Amortization of intangible assets.......................      2,411       2,448          2,253              20
    Charge in lieu of taxes resulting from recognition of
      acquired tax benefits.................................        116       1,323            634              --
    Deferred income taxes...................................     (1,542)     (1,591)          (589)           (325)
    (Gain) loss on sales of other real estate...............       (147)        (50)             4              93
    Provision for other real estate.........................         40         111            252              --
    Other, net..............................................      1,599         508          1,190              65
    Changes in assets and liabilities:
      Accrued interest receivable...........................       (342)        736         (2,628)          2,534
      Other assets..........................................        590       1,930         (4,911)          4,582
      Accrued interest, taxes and other liabilities.........      5,362       2,366            839             761
                                                              ---------   ---------     ----------        --------
        Net cash provided by operating activities...........     56,462      25,124          3,572          21,000
                                                              ---------   ---------     ----------        --------
Cash flows from investing activities:
  Purchases of available-for-sale securities................   (242,742)   (120,672)      (184,670)        (43,533)
  Purchases of held-to-maturity securities..................     (3,453)    (47,638)       (14,233)             --
  Proceeds from principal payments and maturities of
    available-for-sale securities...........................    152,218     150,937        104,498           2,000
  Proceeds from principal payments and maturities of
    held-to-maturity securities.............................      9,644      40,642          5,758           1,209
  Proceeds from sales of available-for-sale securities......     70,111      12,011         52,821              --
  Proceeds from sales of held-to-maturity securities........         --          --            333              --
  Net cash of Bank and Mortgage Company acquired in
    Split-Off Transactions..................................         --          --         62,503              --
  Proceeds from sale of new indirect auto loans.............         --          --             --          66,570
  Net increase in loans.....................................   (151,160)   (135,682)        (6,339)        (11,687)
  Proceeds from sale of CT Mortgage assets..................         --          --          8,703              --
  Net additions to premises, leasehold improvements and
    equipment...............................................     (4,555)     (4,195)        (4,000)            (87)
  Acquisition of land trust customer base...................         --        (145)            --              --
  Disposition (acquisition) of reverse exchange assets......         --      18,757        (18,757)             --
  Loan issuance to Employee Stock Ownership Plan............         --        (576)            --              --
  Repayment of loan issued to Employee Stock Ownership
    Plan....................................................        576          --             --              --
  Proceeds from sales of other real estate..................      2,893       1,174            408              36
                                                              ---------   ---------     ----------        --------
        Net cash provided by (used in) investing
          activities........................................   (166,468)    (85,387)         7,025          14,508
                                                              ---------   ---------     ----------        --------
Cash flows from financing activities:
  Net increase (decrease) in deposits.......................    167,813      61,780         27,151         (56,094)
  Net (decrease) increase in short-term borrowings..........    (24,589)    (14,335)       (56,576)         80,447
  Net (decrease) increase in nonrecourse borrowings.........         --     (18,757)        18,757              --
  Repayments of notes payable...............................    (82,500)   (112,400)       (40,600)        (25,201)
  Proceeds from notes payable...............................     65,500     131,900         92,600              --
  Net proceeds from issuance of preferred stock.............         --          --         36,106              --
  Purchase of treasury stock................................     (1,099)         --             --              --
  Dividends paid............................................     (5,116)     (5,118)        (3,419)             --
                                                              ---------   ---------     ----------        --------
        Net cash provided by (used in) financing
          activities........................................    120,009      43,070         74,019            (848)
                                                              ---------   ---------     ----------        --------
</TABLE>

                See accompanying notes to financial statements.
                                       62
<PAGE>   63
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                      STATEMENTS OF CASH FLOWS (CONTINUED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                        PREDECESSOR
                                                                SUCCESSOR BASIS -- TAYLOR CAPITAL      BASIS -- COLE
                                                                   GROUP, INC. -- CONSOLIDATED          TAYLOR BANK
                                                              --------------------------------------   --------------
                                                                                      FOR THE PERIOD   FOR THE PERIOD
                                                                                       OF FEB. 12,       OF JAN. 1,
                                                               FOR THE YEARS ENDED       1997 TO          1997 TO
                                                                  DECEMBER 31,           DEC. 31,         FEB. 11,
                                                              ---------------------   --------------   --------------
                                                                1999        1998           1997             1997
                                                              ---------   ---------   --------------   --------------
<S>                                                           <C>         <C>         <C>              <C>
Net increase (decrease) in cash and cash equivalents........     10,003     (17,193)        84,616          34,660
Cash and cash equivalents, beginning of period..............     67,423      84,616             --          87,260
                                                              ---------   ---------     ----------        --------
Cash and cash equivalents, end of period....................  $  77,426   $  67,423     $   84,616        $121,920
                                                              =========   =========     ==========        ========
Supplemental disclosure of cash flow information:
  Cash paid during the year for:
    Interest................................................  $  60,245   $  65,903     $   60,188        $  7,303
    Income taxes............................................      7,247       7,031          7,171             997
Supplemental disclosures of noncash investing and financing
  activities:
  Unrealized holding gain (loss) on investment securities,
    net of income taxes.....................................     (4,118)       (710)           781          (1,140)
  Mortgage servicing rights originated......................        256         898            622             127
  Loans transferred to other real estate....................        824       3,039          1,188             138
  Tax benefit associated with exercise of common stock
    options.................................................          7          --             --              --
  Fair value of Bank and Mortgage Company assets acquired...  $      --   $      --     $1,775,581        $     --
  Fair value of CTFG stock exchanged........................         --          --         98,333              --
                                                              ---------   ---------     ----------        --------
  Bank and Mortgage Company liabilities assumed.............  $      --   $      --     $1,677,248        $     --
                                                              =========   =========     ==========        ========
</TABLE>

                See accompanying notes to financial statements.
                                       63
<PAGE>   64

                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                         NOTES TO FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION:

     The successor basis Taylor Capital Group, Inc. consolidated financial
statements for the years ended December 31, 1999 and 1998 and for the period of
February 12, 1997 to December 31, 1997 include the accounts of Taylor Capital
Group, Inc. (the "Parent Company") and its wholly owned subsidiaries
(collectively, with the Parent Company, the "Company"), Cole Taylor Bank (the
"Bank"), and CT Mortgage Company, Inc. (the "Mortgage Company"). Taylor Capital
Group, Inc. is a bank holding company which was formed by certain members of the
Bank's management and related investors to consummate the acquisition of the
Bank and Mortgage Company. Taylor Capital Group, Inc. acquired the Bank and the
Mortgage Company on February 12, 1997 in Split-Off Transactions (as defined
below), which were accounted for by the purchase method of accounting. Prior to
February 12, 1997, the Bank and Mortgage Company were wholly-owned subsidiaries
of Cole Taylor Financial Group, Inc. ("CTFG"), now known as Reliance Acceptance
Group, Inc.

     The Split-Off Transactions were a series of transactions pursuant to which
CTFG transferred the common stock of the Bank and the Mortgage Company to the
Company and then transferred all of the common stock of the Company to certain
CTFG stockholders in exchange for 4.5 million shares of CTFG common stock, a
dividend from the Bank to CTFG consisting of cash and loans totaling
approximately $84 million and a cash payment of approximately $1.1 million for
the Mortgage Company.

     The predecessor basis Cole Taylor Bank financial statements report the
financial position and results of operations of Cole Taylor Bank on its
historical accounting basis. As a result of the Split-Off Transactions, the
consolidated financial information of the Company for the years ended December
31, 1999 and 1998 and for the period from February 12, 1997 through December 31,
1997 is presented on a different cost basis than that for the period before the
acquisition and, therefore, is not comparable.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES:

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

  CONSOLIDATION:

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

  CASH AND CASH EQUIVALENTS:

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

                                       64
<PAGE>   65
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES: -- (CONTINUED)
  INVESTMENT SECURITIES:

          Securities that may be sold as part of the Bank's asset/liability or
     liquidity management or in response to or in anticipation of changes in
     interest rates and resulting prepayment risk, or for other similar factors,
     are classified as available-for-sale and carried at fair value. Unrealized
     holding gains and losses on such securities are reported net of tax in a
     separate component of stockholders' equity. Securities that the Bank has
     the ability and positive intent to hold to maturity are classified as
     held-to-maturity and carried at amortized cost, adjusted for amortization
     of premiums and accretion of discounts using the level-yield method. A
     decline in market value of any security below cost that is deemed other
     than temporary is charged to earnings. Realized gains and losses on the
     sales of all securities are reported in income and computed using the
     specific identification method. The Company and the Bank did not maintain a
     trading portfolio during the periods presented.

  LOANS HELD FOR SALE:

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

  LOANS:

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

  ALLOWANCE FOR LOAN LOSSES:

          An allowance for loan losses has been established to provide for those
     loans which may not be repaid in their entirety. The allowance is increased
     by provisions for loan losses charged to expense and decreased by
     charge-offs, net of recoveries. Although a loan is charged off by
     management when deemed uncollectible, collection efforts may continue and
     future recoveries may occur.

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

          A portion of the total allowance for loan losses is related to
     impaired loans. A loan is considered impaired, based on current information
     and events, if it is probable that the Company will be unable to collect
     the scheduled payments of principal or interest when due according to the
     contractual terms of the loan agreement. Certain homogenous loans,
     including residential mortgage and consumer loans, are

                                       65
<PAGE>   66
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES: -- (CONTINUED)
     collectively evaluated for impairment and, therefore, excluded from
     impaired loans. Commercial loans exceeding size thresholds established by
     management are individually evaluated for impairment. The amount in the
     allowance for loan losses for impaired loans is based on the present value
     of expected future cash flows discounted at the loan's effective interest
     rate, except that collateral-dependent loans may be measured for impairment
     based on the fair value of the collateral.

  INCOME RECOGNITION ON IMPAIRED LOANS AND NONACCRUAL LOANS:

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

  PREMISES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT:

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

  OTHER REAL ESTATE:

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

  MORTGAGE SERVICING RIGHTS:

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

                                       66
<PAGE>   67
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

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

  INCOME TAXES:

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

  STOCK OPTION PLAN:

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

  FINANCIAL INSTRUMENTS:

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

  INTEREST RATE CONTRACTS:

          The Company uses various interest rate contracts (floors and swaps) to
     manage interest rate and market risk. These contracts are designated as
     hedges of specific existing assets and liabilities. The Company's asset and
     liability management and investment policies do not allow the use of
     derivative financial instruments for trading purposes. Net interest income
     (expense) resulting from the differential between exchanging floating and
     fixed rate interest payments is accrued and recognized as an adjustment to
     the interest income or expense of the hedged asset or liability. The cost
     of interest rate floor agreements is amortized as a reduction to interest
     income on loans over the life of the agreements. The fair value of the
     floor and swap agreements and changes in the fair value as a result of
     changes in market interest rates are not recognized in the financial
     statements. Gains or losses on termination of an agreement prior to
     maturity would be deferred and amortized as an adjustment to interest
     income or expense of the hedged assets or liability over the remaining term
     of the original contract life of the terminated agreement.

          In connection with the application of the purchase method of
     accounting for the Split-Off Transactions, an interest rate swap was
     recorded at its fair value ($400,000 discount) at February 12,

                                       67
<PAGE>   68
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES: -- (CONTINUED)
     1997. The net interest income (expense) from the swap, which is a
     designated hedge against certain floating rate commercial loans, was
     accrued and included in loan interest income. The purchase accounting
     adjustment was accreted on a straight line basis over the remaining term of
     the swap, which matured December 6, 1998.

  COMPREHENSIVE INCOME:

          Comprehensive income includes net income and unrealized gains and
     losses on available-for-sale securities. The statement of comprehensive
     income is included within the consolidated statements of changes in
     stockholders' equity -- successor basis and the statements of changes in
     stockholder's equity -- predecessor basis.

  SEGMENT REPORTING:

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

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

  RECLASSIFICATIONS:

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

3.  ACQUISITION OF COLE TAYLOR BANK AND CT MORTGAGE COMPANY, INC.:

     The Company acquired the Bank and Mortgage Company in the Split-Off
Transactions which were consummated on February 12, 1997. The Bank is a $2.0
billion asset commercial bank. The Mortgage Company operated from early 1996
through mid-1997 and competed in the subprime residential mortgage market. The
acquisition has been accounted for by the purchase method of accounting, and
accordingly, the results of operations of the Bank and Mortgage Company are
included in the Company's consolidated financial statements from February 12,
1997.

     The Company's cost of the acquired Bank consisted of three components: (1)
$17.2 million, which represented the proportionate interest in the Bank's book
value based on the split-off stockholder group's proportionate ownership prior
to the Split-Off Transactions, (2) $81.1 million, which represented the
proportionate fair value of the common stock of CTFG exchanged by the split-off
stockholder group, and (3) $2.3 million, which represented direct acquisition
costs for accountants, attorneys, financial advisors and other professionals to
consummate the transaction.

     The acquisition was accounted for using purchase accounting in accordance
with Accounting Principles Board Opinion No. 16, "Business Combinations" (APB
No. 16). Under this method of accounting, the purchase price is allocated to the
respective assets acquired and liabilities assumed based on their estimated fair
values, net of applicable income tax effects. Goodwill, representing the excess
cost over net assets acquired
                                       68
<PAGE>   69
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3.  ACQUISITION OF COLE TAYLOR BANK AND CT MORTGAGE COMPANY,
INC.: -- (CONTINUED)
of the Bank, was $37.8 million and is reflected as goodwill in the consolidated
financial statements. The goodwill is being amortized over 15 years using the
straight-line method.

     The Company acquired the Mortgage Company through a cash payment of $1.1
million which exceeded the fair value of the net assets acquired by $416,000.
The resulting goodwill was initially being amortized over 15 years using the
straight-line method. On August 5, 1997, however, the Mortgage Company sold its
operations headquartered in Florida. The purchaser of the Mortgage Company's
Florida assets acquired substantially all of the outstanding loans held for
sale, the pipeline of loan commitments outstanding and the furniture and
equipment. In addition, the purchaser agreed to assume the lease obligations for
the facilities and hired all the related Mortgage Company employees. Because the
Florida-based operations generated the majority of the Mortgage Company's
earnings, the remaining goodwill was written off in August 1997. The proceeds
from the sale, net of related disposition expenses, the carrying value of the
assets sold and goodwill resulted in a loss of approximately $10,000.

4.  CASH AND DUE FROM BANKS:

     The Bank is required to maintain a reserve balance with the Federal Reserve
Bank. The average reserve balance for the years ended December 31, 1999 and 1998
was approximately $10.5 million and $11.8 million, respectively.

5.  INVESTMENT SECURITIES:

     The amortized cost and estimated fair value of investment securities at
December 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                               SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
                                                                     DECEMBER 31, 1999
                                               --------------------------------------------------------------
                                                                  GROSS            GROSS
                                                AMORTIZED       UNREALIZED       UNREALIZED       ESTIMATED
                                                  COST            GAINS            LOSSES         FAIR VALUE
                                               -----------     ------------     ------------     ------------
                                                                       (IN THOUSANDS)
<S>                                            <C>             <C>              <C>              <C>
Available-for-sale:
  U.S. Treasury securities...................    $ 55,182         $    7           $  (305)        $ 54,884
  U.S. government agency securities..........     111,491             --            (1,167)         110,324
  Collateralized mortgage obligations........     109,344             --            (2,416)         106,928
  Mortgage-backed securities.................      94,529            734            (3,079)          92,184
                                                 --------         ------           -------         --------
       Total available-for-sale..............     370,546            741            (6,967)         364,320
                                                 --------         ------           -------         --------
Held-to-maturity:
  State and municipal obligations............      68,242            932            (1,505)          67,669
  Federal Reserve Bank and Federal Home Loan
     Bank equity securities..................      14,069             --                --           14,069
  Other debt securities......................         850              4               (15)             839
                                                 --------         ------           -------         --------
       Total held-to-maturity................      83,161            936            (1,520)          82,577
                                                 --------         ------           -------         --------
          Total..............................    $453,707         $1,677           $(8,487)        $446,897
                                                 ========         ======           =======         ========
</TABLE>

                                       69
<PAGE>   70
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5.  INVESTMENT SECURITIES: -- (CONTINUED)

<TABLE>
<CAPTION>
                                               SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
                                                                     DECEMBER 31, 1998
                                               --------------------------------------------------------------
                                                                  GROSS            GROSS
                                                AMORTIZED       UNREALIZED       UNREALIZED       ESTIMATED
                                                  COST            GAINS            LOSSES         FAIR VALUE
                                               -----------     ------------     ------------     ------------
                                                                       (IN THOUSANDS)
<S>                                            <C>             <C>              <C>              <C>
Available-for-sale:
  U.S. Treasury securities...................    $110,019         $  859           $    --         $110,878
  U.S. government agency securities..........      51,287            125               (86)          51,326
  Collateralized mortgage obligations........      91,696             52            (2,054)          89,694
  Mortgage-backed securities.................      98,296          1,466              (252)          99,510
                                                 --------         ------           -------         --------
       Total available-for-sale..............     351,298          2,502            (2,392)         351,408
                                                 --------         ------           -------         --------
Held-to-maturity:
  State and municipal obligations............      74,609          2,752              (947)          76,414
  Federal Reserve Bank and Federal Home Loan
     Bank equity securities..................      14,319             --                --           14,319
  Other debt securities......................         825             62                --              887
                                                 --------         ------           -------         --------
       Total held-to-maturity................      89,753          2,814              (947)          91,620
                                                 --------         ------           -------         --------
          Total..............................    $441,051         $5,316           $(3,339)        $443,028
                                                 ========         ======           =======         ========
</TABLE>

     The amortized cost and estimated fair value of debt securities at December
31, 1999, categorized by the earlier of call or contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations.

<TABLE>
<CAPTION>
                                                              AMORTIZED   ESTIMATED
                                                                COST      FAIR VALUE
                                                              ---------   ----------
                                                                  (IN THOUSANDS)
<S>                                                           <C>         <C>
Available-for-sale:
  Due in one year or less...................................  $ 22,423     $ 22,289
  Due after one year through five years.....................   144,250      142,919
  Collateralized mortgage obligations.......................   109,344      106,928
  Mortgage-backed obligations...............................    94,529       92,184
                                                              --------     --------
          Totals............................................  $370,546     $364,320
                                                              ========     ========
Held-to-maturity:
  Due in one year or less...................................  $  6,493     $  6,295
  Due after one year through five years.....................    36,555       36,825
  Due after five years through ten years....................    16,578       16,405
  Due after ten years.......................................     9,466        8,983
                                                              --------     --------
          Totals............................................  $ 69,092     $ 68,508
                                                              ========     ========
</TABLE>

     Gross gains of $108,000, $11,000 and $405,000 were realized on the sales of
investment securities available-for-sale in 1999, 1998 and 1997, respectively.
There were no losses realized on the sales of investment securities
available-for-sale in 1999 and 1998. Gross losses of $4,000 were realized in
1997.

                                       70
<PAGE>   71
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

     Included in the collateralized mortgage obligations are certain sequential
paying obligations that were purchased at a significant premium. During 1998,
prepayment activity, in excess of that originally expected, resulted in
impairment charges of $667,000 and additional premium amortization of $1.4
million to reduce the yield of the securities to reflect actual payments
received to date and expected future prepayments. During 1999, actual and
anticipated prepayment activity slowed resulting in reduced premium
amortization. At December 31, 1999 and 1998 these securities totaled $26.5
million and $56.0 million with $999,000 and $3.0 million of premium remaining,
respectively. These securities are backed by pools of single-family mortgage
loans and guaranteed, as to principal and interest, by the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation.

     Investment securities with an approximate book value of $286 million and
$253 million at December 31, 1999 and 1998, respectively, were pledged to
collateralize certain deposits, securities sold under agreements to repurchase
and for other purposes as required or permitted by law.

6.  LOANS:

     Loans classified by type at December 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                              SUCCESSOR BASIS -- TAYLOR
                                                               CAPITAL GROUP, INC. --
                                                                    CONSOLIDATED
                                                              -------------------------
                                                                 1999          1998
                                                              -----------   -----------
                                                                   (IN THOUSANDS)
<S>                                                           <C>           <C>
Commercial and industrial...................................  $  801,762    $  749,984
Real estate -- construction.................................     260,972       232,018
Residential real estate -- mortgages........................     183,427       150,930
Home equity lines of credit.................................     109,484       106,521
Consumer....................................................      89,842        53,751
Other loans.................................................       3,272         1,806
                                                              ----------    ----------
     Gross loans............................................   1,448,759     1,295,010
Less: Unearned discount.....................................        (871)       (1,286)
                                                              ----------    ----------
     Total loans............................................   1,447,888     1,293,724
Less: Allowance for loan losses.............................     (26,261)      (24,599)
                                                              ----------    ----------
          Loans, net........................................  $1,421,627    $1,269,125
                                                              ==========    ==========
</TABLE>

                                       71
<PAGE>   72
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
                                               SUCCESSOR BASIS -- TAYLOR CAPITAL      PREDECESSOR BASIS --
                                                  GROUP, INC. -- CONSOLIDATED           COLE TAYLOR BANK
                                             --------------------------------------   --------------------
                                                                       AT AND FOR
                                                                     THE PERIOD OF       AT AND FOR THE
                                             AT AND FOR THE YEARS    FEB. 12, 1997     PERIOD OF JAN. 1,
                                              ENDED DECEMBER 31,      TO DEC. 31,       1997 TO FEB. 11,
                                             ---------------------   --------------   --------------------
                                               1999        1998           1997                1997
                                             ---------   ---------   --------------   --------------------
<S>                                          <C>         <C>         <C>              <C>
Recorded balance of nonaccrual loans, at
  end of period:...........................   $10,800     $11,365       $11,624             $11,162
  Interest included in income..............       591         287            73                  12
  Interest which would have been recognized
     under the original terms of the
     loans.................................     1,642       1,313           967                 197
</TABLE>

     Information about the Company's impaired loans for the periods indicated is
as follows:

<TABLE>
<CAPTION>
                                             SUCCESSOR BASIS -- TAYLOR CAPITAL      PREDECESSOR BASIS --
                                                GROUP, INC. -- CONSOLIDATED           COLE TAYLOR BANK
                                           --------------------------------------   --------------------
                                                                     AT AND FOR
                                                                   THE PERIOD OF       AT AND FOR THE
                                           AT AND FOR THE YEARS    FEB. 12, 1997     PERIOD OF JAN. 1,
                                            ENDED DECEMBER 31,      TO DEC. 31,       1997 TO FEB. 11,
                                           --------------------    --------------   --------------------
                                             1999        1998           1997                1997
                                           --------    --------    --------------   --------------------
<S>                                        <C>         <C>         <C>              <C>
Recorded balance of impaired loans, at
  end of period:
  With related allowance for loan loss...  $10,506     $ 7,725        $ 5,901             $ 3,557
  With no related allowance for loan
     loss................................    2,644       5,755          8,011               7,708
                                           -------     -------        -------             -------
          Total..........................  $13,150     $13,480        $13,912             $11,265
                                           =======     =======        =======             =======
Average balance of impaired loans for the
  period.................................  $13,447     $13,696        $11,258             $11,304
                                           =======     =======        =======             =======
Allowance for loan loss related to
  impaired loans.........................  $ 4,203     $ 2,752        $ 2,582             $ 1,711
                                           =======     =======        =======             =======
Interest income recognized on impaired
  loans..................................  $   873     $   190        $   217             $    --
</TABLE>

     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.

                                       72
<PAGE>   73
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6.  LOANS: -- (CONTINUED)
     Activity in the allowance for loan losses for the periods indicated
consisted of the following:

<TABLE>
<CAPTION>
                                              SUCCESSOR BASIS -- TAYLOR CAPITAL      PREDECESSOR BASIS --
                                                 GROUP, INC. -- CONSOLIDATED           COLE TAYLOR BANK
                                            --------------------------------------   --------------------
                                                                   FOR THE PERIOD       FOR THE PERIOD
                                            FOR THE YEARS ENDED     OF FEB. 12,          OF JAN. 11,
                                               DECEMBER 31,       1997 TO DEC. 31,     1997 TO FEB. 11,
                                            -------------------   ----------------   --------------------
                                              1999       1998           1997                 1997
                                            --------   --------   ----------------   --------------------
                                                                   (IN THOUSANDS)
<S>                                         <C>        <C>        <C>                <C>
Balance at beginning of period............  $24,599    $25,813        $24,607              $24,184
Provision for loan losses.................    6,000      5,135          4,061                  420
Loans charged-off.........................   (6,165)    (7,587)        (3,530)                (275)
Recoveries on loans previously
  charged-off.............................    1,827      1,238            675                  243
                                            -------    -------        -------              -------
Net charge-offs...........................   (4,338)    (6,349)        (2,855)                 (32)
                                            -------    -------        -------              -------
Balance at end of period..................  $26,261    $24,599        $25,813              $24,572
                                            =======    =======        =======              =======
</TABLE>

     The Company has extended loans to directors and executive officers of the
Bank, the Parent and their related interests. The aggregate loans outstanding to
the directors and executive officers of the Company and their related interests,
which individually exceeded $60,000, totaled $23.0 million and $22.5 million at
December 31, 1999 and 1998, respectively. During 1999 and 1998, new loans
totaled $12.6 million and $9.8 million, respectively and repayments totaled
$12.1 million and $6.2 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 collectibility.

7.  PREMISES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT:

     Premises, leasehold improvements and equipment at December 31, 1999 and
1998 are summarized as follows:

<TABLE>
<CAPTION>
                                                              SUCCESSOR BASIS -- TAYLOR
                                                               CAPITAL GROUP, INC. --
                                                                    CONSOLIDATED
                                                              -------------------------
                                                                 1999           1998
                                                              ----------      ---------
                                                                   (IN THOUSANDS)
<S>                                                           <C>             <C>
Land and improvements.......................................   $  3,403        $ 3,332
Buildings and improvements..................................      9,017          8,438
Leasehold improvements......................................      5,776          5,095
Furniture, fixtures and equipment...........................     15,322         12,421
                                                               --------        -------
          Total cost........................................     33,518         29,286
Less accumulated depreciation and amortization..............    (10,385)        (6,584)
                                                               --------        -------
          Net book value....................................   $ 23,133        $22,702
                                                               ========        =======
</TABLE>

                                       73
<PAGE>   74
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8.  OTHER REAL ESTATE AND REPOSSESSED ASSETS:

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

<TABLE>
<CAPTION>
                                               SUCCESSOR BASIS -- TAYLOR CAPITAL    PREDECESSOR BASIS --
                                                  GROUP, INC. -- CONSOLIDATED         COLE TAYLOR BANK
                                               ----------------------------------   --------------------
                                                                      FOR THE             FOR THE
                                                    FOR THE          PERIOD OF           PERIOD OF
                                                  YEARS ENDED      FEB. 12, 1997        JAN. 1, 1997
                                                 DECEMBER 31,       TO DEC. 31,         TO FEB. 11,
                                               -----------------   --------------   --------------------
                                                1999       1998         1997                1997
                                               ------     ------   --------------   --------------------
                                                                    (IN THOUSANDS)
<S>                                            <C>        <C>      <C>              <C>
Balance at beginning of period...............  $ 253      $ 286         $ 99                $104
Provision for other real estate..............     40        111          252                  --
Charge-offs..................................   (264)      (144)         (65)                 (5)
                                               -----      -----         ----                ----
Balance at end of period.....................  $  29      $ 253         $286                $ 99
                                               =====      =====         ====                ====
</TABLE>

9.  MORTGAGE SERVICING RIGHTS:

     At December 31, 1999 and 1998 mortgage loans serviced for others totaled $9
million and $69 million, respectively. A summary of the activity related to
mortgage servicing rights is as follows:

<TABLE>
<CAPTION>
                                              SUCCESSOR BASIS -- TAYLOR CAPITAL    PREDECESSOR BASIS --
                                                 GROUP, INC. -- CONSOLIDATED         COLE TAYLOR BANK
                                              ----------------------------------   --------------------
                                                                    FOR THE              FOR THE
                                                  FOR THE          PERIOD OF            PERIOD OF
                                                YEARS ENDED      FEB. 12, 1997         JAN. 1, 1997
                                               DECEMBER 31,       TO DEC. 31,          TO FEB. 11,
                                              ---------------   ----------------   --------------------
                                              1999     1998           1997                 1997
                                              -----   -------   ----------------   --------------------
                                                                   (IN THOUSANDS)
<S>                                           <C>     <C>       <C>                <C>
Book value, at beginning of period..........  $ 913   $ 2,471        $2,414               $2,344
Originated mortgage servicing rights
  capitalized...............................    256       898           622                  127
Originated mortgage servicing rights sold...   (965)   (2,370)           --                   --
Amortization of mortgage servicing rights...    (94)      (86)         (565)                 (57)
                                              -----   -------        ------               ------
Book value, at end of period................  $ 110   $   913        $2,471               $2,414
                                              =====   =======        ======               ======
Impairment valuation allowance, at beginning
  of period.................................  $ 329   $   119        $   66               $   66
Valuation allowance on mortgage servicing
  rights sold...............................   (282)     (119)           --                   --
Valuation allowance adjustments charged to
  operations................................    (47)      329            53                   --
                                              -----   -------        ------               ------
Impairment valuation allowance, at end of
  period....................................  $   0   $   329        $  119               $   66
                                              =====   =======        ======               ======
Carrying value, at end of period............  $ 110   $   584        $2,352               $2,348
                                              =====   =======        ======               ======
Fair value, at end of period................  $ 110   $   584        $2,451               $2,350
                                              =====   =======        ======               ======
</TABLE>

     On June 15, 1999, the Bank sold approximately $74 million of mortgage loans
serviced for others. The mortgage servicing rights were obtained through loan
origination by the Bank where the loan was subsequently

                                       74
<PAGE>   75
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9.  MORTGAGE SERVICING RIGHTS: -- (CONTINUED)
sold. The sale resulted in a gain of $204,000. On January 30, 1998, the Bank
sold approximately $274 million of mortgage loans serviced for others resulting
in a gain of $1,462,000.

10.  INTEREST-BEARING DEPOSITS:

     Interest-bearing deposits at December 31, 1999 and 1998 are summarized as
follows:

<TABLE>
<CAPTION>
                                                              SUCCESSOR BASIS -- TAYLOR
                                                               CAPITAL GROUP, INC. --
                                                                    CONSOLIDATED
                                                              -------------------------
                                                                 1999          1998
                                                              -----------   -----------
                                                                   (IN THOUSANDS)
<S>                                                           <C>           <C>
NOW accounts................................................  $  168,248    $  120,900
Savings accounts............................................      99,166       107,274
Money market deposits.......................................     282,869       234,197
Certificates of deposit, less than $100,000.................     280,578       302,348
Certificates of deposit, $100,000 or more...................     186,396       146,425
Public time deposits........................................     102,568       121,614
Brokered certificates of deposit............................     162,583        56,268
                                                              ----------    ----------
          Total.............................................  $1,282,408    $1,089,026
                                                              ==========    ==========
</TABLE>

     Interest expense on certificates of deposit, $100,000 or more, was $6.9
million, $5.9 million, $5.3 million and $566,400 for the years ended December
31, 1999, 1998, the period of February 12, 1997 to December 31, 1997 and the
period of January 1, 1997 to February 11, 1997, respectively.

     At December 31, 1999 the scheduled maturities of certificates of deposit,
public time deposits and brokered certificates of deposit are as follows:

<TABLE>
<CAPTION>
YEAR                                                               AMOUNT
----                                                           --------------
                                                               (IN THOUSANDS)
<S>                                                            <C>
2000........................................................      $676,091
2001........................................................        48,731
2002........................................................         4,709
2003........................................................         1,944
2004........................................................           408
and thereafter..............................................           242
                                                                  --------
          Total.............................................      $732,125
                                                                  ========
</TABLE>

                                       75
<PAGE>   76
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

11.  SHORT-TERM BORROWINGS:

     Short-term borrowings at December 31, 1999 and 1998 are summarized as
follows:

<TABLE>
<CAPTION>
                                                              SUCCESSOR BASIS -- TAYLOR
                                                               CAPITAL GROUP, INC. --
                                                                    CONSOLIDATED
                                                              -------------------------
                                                                 1999          1998
                                                              -----------   -----------
                                                                   (IN THOUSANDS)
<S>                                                           <C>           <C>
Securities sold under agreements to repurchase..............   $132,744      $115,610
Federal funds purchased.....................................      8,385        51,225
U.S. Treasury tax and loan note option......................      6,000         4,883
                                                               --------      --------
          Total.............................................   $147,129      $171,718
                                                               ========      ========
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                                         PREDECESSOR
                                               SUCCESSOR BASIS -- TAYLOR CAPITAL        BASIS -- COLE
                                                  GROUP, INC. -- CONSOLIDATED            TAYLOR BANK
                                            ---------------------------------------   -----------------
                                                                  FOR THE PERIOD OF   FOR THE PERIOD OF
                                            FOR THE YEARS ENDED     FEB. 12, 1997       JAN. 1, 1997
                                               DECEMBER 31,          TO DEC. 31,         TO FEB. 11,
                                            -------------------   -----------------   -----------------
                                              1999       1998           1997                1997
                                            --------   --------   -----------------   -----------------
                                                              (DOLLARS IN THOUSANDS)
<S>                                         <C>        <C>        <C>                 <C>
Daily average balance during the period...  $161,745   $156,642       $165,321            $150,478
Daily average rate during the period......      4.52%      4.96%          5.11%               5.19%
Maximum amount outstanding at any month
  end.....................................  $181,932   $180,194       $203,898            $147,082
</TABLE>

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

     At December 31, 1999, the Company had unused lines of credit for short-term
borrowings with various entities totaling $570 million, subject to acceptable
collateral availability.

                                       76
<PAGE>   77
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

12.  INCOME TAXES:

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

<TABLE>
<CAPTION>
                                                                                             PREDECESSOR
                                                  SUCCESSOR BASIS -- TAYLOR CAPITAL         BASIS -- COLE
                                                     GROUP, INC. -- CONSOLIDATED             TAYLOR BANK
                                               ----------------------------------------   -----------------
                                                                      FOR THE PERIOD OF   FOR THE PERIOD OF
                                               FOR THE YEARS ENDED      FEB. 12, 1997      JAN. 1, 1997 TO
                                                   DECEMBER 31,          TO DEC. 31,          FEB. 11,
                                               --------------------   -----------------   -----------------
                                                 1999        1998           1997                1997
                                               --------    --------   -----------------   -----------------
                                                                      (IN THOUSANDS)
<S>                                            <C>         <C>        <C>                 <C>
Current tax expense (benefit):
  Federal....................................   $7,178      $6,646         $6,241              $1,353
  State......................................    2,221         (25)            35                 300
                                                ------      ------         ------              ------
          Total..............................    9,399       6,621          6,276               1,653
                                                ------      ------         ------              ------
Deferred tax expense (benefit):
  Federal....................................   (1,287)     (1,591)          (589)               (325)
  State......................................     (255)         --             --                  --
Charge in lieu of taxes resulting from
  recognition of acquired tax benefits.......      116       1,323            634                  --
                                                ------      ------         ------              ------
     Applicable income taxes.................   $7,973      $6,353         $6,321              $1,328
                                                ======      ======         ======              ======
</TABLE>

     In connection with the acquisition of the Bank, the Company acquired state
net operating loss carryforwards and deductible temporary differences
approximating $34 million and $26 million respectively. The tax benefits of
these acquired items are applied against goodwill when recognized. The remainder
of the acquired net operating loss carryforwards was utilized in 1999.

     Income tax expense was different from the amounts computed by applying the
federal statutory rate of 35% in 1999, 1998 and 1997 to income before income
taxes because of the following:

<TABLE>
<CAPTION>
                                              SUCCESSOR BASIS -- TAYLOR CAPITAL    PREDECESSOR BASIS --
                                                 GROUP, INC. -- CONSOLIDATED         COLE TAYLOR BANK
                                             -----------------------------------   --------------------
                                              FOR THE YEARS    FOR THE PERIOD OF    FOR THE PERIOD OF
                                                  ENDED        FEB. 12, 1997 TO      JAN. 1, 1997 TO
                                              DECEMBER 31,         DEC. 31,              FEB. 11,
                                             ---------------   -----------------   --------------------
                                              1999     1998          1997                  1997
                                             ------   ------   -----------------   --------------------
                                                            (IN THOUSANDS)
<S>                                          <C>      <C>      <C>                 <C>
Federal income tax expense at statutory
  rate.....................................  $6,818   $5,528        $5,752                $1,264
Increase (decrease) in taxes resulting
  from:
  Tax-exempt interest income, net of
     disallowed interest deduction.........  (1,325)  (1,348)       (1,130)                 (162)
  Goodwill amortization....................     785      798           787                    --
  State taxes, net.........................   1,278      (16)           23                   195
  Charge in lieu of state taxes, net.......      76      860           634                    --
  Other, net...............................     341      531           255                    31
                                             ------   ------        ------                ------
          Total............................  $7,973   $6,353        $6,321                $1,328
                                             ======   ======        ======                ======
</TABLE>

                                       77
<PAGE>   78
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

12.  INCOME TAXES: -- (CONTINUED)
     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 are presented below:

<TABLE>
<CAPTION>
                                                              SUCCESSOR BASIS -- TAYLOR
                                                               CAPITAL GROUP, INC. --
                                                                    CONSOLIDATED
                                                              -------------------------
                                                                1999            1998
                                                              ---------       ---------
                                                                   (IN THOUSANDS)
<S>                                                           <C>             <C>
DEFERRED TAX ASSETS:
  Fixed assets, principally due to differences in
     depreciation...........................................   $ 1,221         $ 1,215
  Loans, principally due to allowance for loan losses.......    10,459           9,799
  State net operating loss carryforwards....................        --             685
  Deferred income, principally net loan origination fees....     1,116           1,276
  Employee benefits.........................................     1,836           1,261
  Other real estate.........................................        11             100
  Other accruals............................................       178             329
                                                               -------         -------
     Gross deferred tax assets..............................    14,821          14,665
  Less valuation allowance..................................        --          (1,420)
                                                               -------         -------
     Gross deferred tax assets, net of valuation
      allowance.............................................    14,821          13,245
                                                               -------         -------
DEFERRED TAX LIABILITIES:
  Discount accretion........................................      (119)           (124)
  Business combination......................................    (1,573)         (1,850)
  Mortgage servicing rights.................................       (43)           (232)
                                                               -------         -------
     Gross deferred tax liabilities.........................    (1,735)         (2,206)
                                                               -------         -------
       Subtotal.............................................    13,086          11,039
                                                               -------         -------
  Tax effect of unrealized holding losses on investment
     securities.............................................     2,179             (38)
                                                               -------         -------
          Net deferred tax assets...........................   $15,265         $11,001
                                                               =======         =======
</TABLE>

                                       78
<PAGE>   79
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

13.  NOTES PAYABLE:

     Notes payable at December 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                              SUCCESSOR BASIS -- TAYLOR
                                                               CAPITAL GROUP, INC. --
                                                                    CONSOLIDATED
                                                              -------------------------
                                                                 1999          1998
                                                              -----------   -----------
                                                                   (IN THOUSANDS)
<S>                                                           <C>           <C>
TAYLOR CAPITAL GROUP, INC.:
$25 million term loan bearing interest at prime rate or
  LIBOR plus 1.15%, annual principal reductions of $1
  million commencing 1999 and a balloon payment of $22
  million on February 12, 2002; interest rates at December
  31, 1999 and 1998 were 7.35% and 6.42%, respectively......   $ 24,000      $ 25,000
$12 million revolving credit facility bearing interest at
  prime rate or LIBOR plus 1.15%, maturing September 1,
  2000; weighted average interest rates at December 31, 1999
  and 1998 were 7.28% and 6.43%, respectively...............        500         1,500
COLE TAYLOR BANK:
Federal Home Loan Bank (FHLB) -- various advances ranging
  from $10 million to $25 million due at various dates
  through November 2000, collateralized by $206.7 million of
  qualified first mortgage residential loans and FHLB stock;
  weighted average interest rates at December 31, 1999 and
  1998 were 5.71% and 5.23%, respectively...................     90,000       105,000
                                                               --------      --------
     Total..................................................   $114,500      $131,500
                                                               ========      ========
</TABLE>

     In September 1999, the Taylor Capital Group, Inc. loan agreement was
extended, effective September 1, 1999 to September 1, 2000. There were no other
changes in the terms of the agreement other than the extension. The loan
agreement requires compliance with certain defined financial covenants relating
to the Bank, including covenants related to regulatory capital, return on
average assets, nonperforming assets and Parent Company leverage. As of December
31, 1999, the Company was not aware of any instances of non-compliance.

     In October 1998, in exchange for an increase in the revolving credit
facility to $12 million from $7 million and a reduction in the interest rate,
the loan agreement, including the $25 million term loan, is now secured by the
common stock owned by the Bank.

     Following are the scheduled maturities of notes payable, categorized by the
earlier of call or contractual maturity, at December 31, 1999:

<TABLE>
<CAPTION>
YEAR                                                         AMOUNT
----                                                     --------------
                                                         (IN THOUSANDS)
<S>                                                      <C>
2000.................................................       $ 91,500
2001.................................................          1,000
2002.................................................         22,000
2003.................................................             --
2004.................................................             --
Thereafter...........................................             --
                                                            --------
     Total...........................................       $114,500
                                                            ========
</TABLE>

                                       79
<PAGE>   80
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

14.  EMPLOYEE BENEFIT PLANS:

     The employees of the Company participate in employee benefit plans
consisting of a 401(k)/profit-sharing and Employee Stock Ownership Plan
("ESOP"), collectively called (the "Plans"). Company contributions to the Plans
are at the discretion of the Board of Directors, with the exception of certain
401(k) matching of employee contributions. For the years ended December 31, 1999
and 1998, and for the period of February 12, 1997 to December 31, 1997
contributions paid to the Plans were $2.2 million, $2.3 million and $1.5
million, respectively. The Plans owned 340,251 shares and 366,820 shares of the
Company's common stock as of December 31, 1999 and 1998, respectively. These
shares are held in trust for the participants by the Plans' trustee (Cole Taylor
Bank). As of December 31, 1999, 39,886 shares of the Company's common stock
owned by the ESOP were unallocated and committed to be released.

     In November 1998, the Parent Company leveraged its ESOP. The ESOP entered
into a Loan and Pledge Agreement (ESOP loan) with the Parent Company whereby the
Parent Company financed the ESOP the sum of $576,000 to enable the ESOP to
purchase 24,000 shares of Company common stock from certain related parties of
the Company. The ESOP loan called for equal principal payments of $115,000 and
interest accrued at 7.75% on the unpaid principal balance commencing annually on
December 15, 1999, with a maturity date of December 15, 2003. The ESOP loan was
collateralized by the 24,000 shares of Company common stock purchased by the
ESOP.

     On December 15, 1999 the ESOP loan was repaid in full from Bank
contributions. Dividends paid during 1999 were not used to repay the ESOP loan.
Upon repayment of the ESOP loan, all 24,000 shares of company stock, purchased
by the ESOP and held by the ESOP trustee, were released and allocated to
the ESOP participants.

     As of December 31, 1999 the Company is obligated to purchase 18,790 shares
of Company stock from terminated employees, which will be valued by an
independent third party appraisal at December 31, 1999.

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

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

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, 563,066 shares
of common stock have been reserved.

STOCK OPTIONS:

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

                                       80
<PAGE>   81
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

15.  INCENTIVE COMPENSATION PLAN: -- (CONTINUED)
     The following is a summary of stock option activity for 1999, 1998 and the
period of February 12, 1997 to December 31, 1997:

<TABLE>
<CAPTION>
                                                              SUCCESSOR BASIS -- TAYLOR CAPITAL
                                                                 GROUP, INC. -- CONSOLIDATED
                                                              ----------------------------------
                                                                                    WEIGHTED
                                                               NUMBER OF            AVERAGE
                                                                SHARES           EXERCISE PRICE
                                                              -----------       ----------------
<S>                                                           <C>               <C>
Options outstanding at February 12, 1997....................         --                  --
Granted.....................................................    163,889              $22.00
Exercised...................................................         --                  --
Forfeited...................................................     (9,408)              22.00
                                                                -------              ------
Options outstanding at December 31, 1997....................    154,481               22.00
Granted.....................................................    100,619               24.98
Exercised...................................................       (128)              22.00
Forfeited...................................................    (24,536)              22.82
                                                                -------              ------
Options outstanding at December 31, 1998....................    230,436               23.24
Granted.....................................................    126,070               27.00
Exercised...................................................     (5,982)              24.17
Forfeited...................................................    (47,814)              24.47
                                                                -------              ------
Options outstanding at December 31, 1999....................    302,710              $24.59
                                                                =======              ======
</TABLE>

     As of December 31, 1999 and 1998 there are 62,434 shares and 26,973 shares
which are exercisable at a weighted average exercise price of $22.74 and $22.00,
respectively. There were no shares exercisable as of December 31, 1997.

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

<TABLE>
<CAPTION>
                                                                  SUCCESSOR BASIS -- TAYLOR CAPITAL
                                                                     GROUP, INC. -- CONSOLIDATED
                                                              -----------------------------------------
                                                              FOR THE YEARS ENDED   FOR THE PERIOD OF
                                                                 DECEMBER 31,       FEB. 12 TO DEC. 31,
                                                              -------------------   -------------------
                                                                1999       1998            1997
                                                              --------   --------   -------------------


<S>                                                           <C>        <C>           <C>
Grant date fair value per share.............................  $  9.01     $ 7.47          $  7.39
Significant assumptions:
  Risk-free interest rate at grant date.....................     5.31%      5.00%            6.00%
  Expected stock price volatility...........................    25.00%     25.00%           25.00%
  Expected dividend payout..................................     1.33%      1.64%            1.64%
  Expected option life......................................  7 years    7 years          7 years
Net income (in thousands):
  As reported...............................................  $11,293     $9,441          $10,113
  Pro forma.................................................  $11,080     $9,280          $10,044
</TABLE>

                                       81
<PAGE>   82
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

15.  INCENTIVE COMPENSATION PLAN: -- (CONTINUED)
  RESTRICTED STOCK AWARDS:

     During 1999 and 1998, 16,703 and 18,080 shares of common stock were
awarded, and 24,454 and 0 shares of common stock were forfeited, respectively,
under restricted stock agreements. Vesting of the shares requires a continuous
service period by each participant. The vesting rate is 50% at the end of year
three, 75% at the end of year four and 100% at the end of year five or upon
death, disability, retirement or change of control of the Company. If a
participant terminates employment prior to the end of the continuous service
period, the entire stock award is forfeited. The unearned compensation related
to the restricted stock grants is reported in stockholders' equity. Compensation
expense equal to the fair market value at the date of grant is being recognized
over the vesting period. For the years ended December 31, 1999, 1998 and the
period of February 12, 1997 to December 31, 1997, compensation expense related
to the stock awards totaled $925,000, $1,025,000 and $434,000, respectively. The
Company has 150,782 restricted stock awards outstanding as of December 31, 1999.

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

16.  STOCKHOLDERS' EQUITY:

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

  COMMON STOCK:

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

  PREFERRED STOCK:

     The shares of preferred stock are not convertible into, or exchangeable
for, shares of common stock, any other class or classes of capital stock of the
Company and have no preemptive rights. Holders of shares of preferred stock are
entitled to receive noncumulative cash dividends payable quarterly in arrears
for each quarter when, as and if declared by the Board of Directors. Shares of
preferred stock are not redeemable prior to January 15, 2002. On or after such
date, they are redeemable at the option of the Company.

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

                                       82
<PAGE>   83
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

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

17.  COMMITMENTS AND FINANCIAL INSTRUMENTS:

  COMMITMENTS:

     The Company is obligated in accordance with the terms of various long-term
noncancelable operating leases for certain premises (land and building) and
office space and equipment, including the principal offices of both the Company
and the Bank. The terms of the leases generally require periodic adjustment of
the minimum lease payments based on an increase in the consumer price index. In
addition, the Company is obligated to pay the real estate taxes assessed on the
properties and certain maintenance costs. Certain of the leases contain renewal
options for periods of up to five years. Total rental expense for the Company in
connection with these leases for the year ended December 31, 1999, 1998 and for
the period of February 12, 1997 to December 31, 1997 was approximately $2.8
million, $3.0 million and $2.4 million, respectively. The predecessor Bank's
total rental expense for the period of January 1, 1997 to February 11, 1997 was
approximately $290,000.

     Estimated future minimum rental commitments under these operating leases as
of December 31, 1999 are as follows:

<TABLE>
<CAPTION>
YEAR                                                         AMOUNT
----                                                     --------------
                                                         (IN THOUSANDS)
<S>                                                      <C>
2000................................................        $ 2,357
2001................................................          1,992
2002................................................          1,691
2003................................................          1,665
2004................................................          1,577
Thereafter..........................................         11,449
                                                            -------
          Total.....................................        $20,731
                                                            =======
</TABLE>

  FINANCIAL INSTRUMENTS:

     The Company is party to various financial instruments with off-balance
sheet risk. The Company uses these financial instruments in the normal course of
business to meet the financing needs of customers and to effectively manage
exposure to interest rate risk. These financial instruments include commitments
to extend credit, standby letters of credit, interest-rate exchange contracts
(swaps), interest rate floor contracts and forward commitments to sell loans.
When viewed in terms of the maximum exposure, those instruments may involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheet. Credit risk is the
possibility that a counterparty to a financial instrument will be

                                       83
<PAGE>   84
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

17.  COMMITMENTS AND FINANCIAL INSTRUMENTS: -- (CONTINUED)
unable to perform its contractual obligations. Interest rate risk is the
possibility that, due to changes in economic conditions, the Bank's net interest
income will be adversely affected.

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

     The following is a summary of the contractual or notional amount of each
significant class of off-balance sheet financial instrument outstanding. The
Company's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
these instruments. For interest rate floor agreements, interest-rate exchange
contracts (swaps), and forward commitments to sell loans the contract or
notional amounts substantially exceed actual exposure to credit loss.

     At December 31, 1999 and 1998, the contractual or notional amounts were as
follows:

<TABLE>
<CAPTION>
                                                                    SUCCESSOR BASIS --
                                                              TAYLOR CAPITAL GROUP, INC. --
                                                                       CONSOLIDATED
                                                              ------------------------------
                                                                  1999              1998
                                                              ------------      ------------
                                                                      (IN THOUSANDS)
<S>                                                           <C>               <C>
Financial instruments wherein contract amounts represent
  credit risk:
  Commitments to extend credit..............................    $661,249          $578,002
  Standby letters of credit.................................      84,726            41,228
Financial instruments wherein notional amounts exceed the
  amount of credit risk:
  Interest rate floor agreement.............................    $ 50,000          $ 50,000
  Forward commitments to sell loans.........................       6,000            28,000
</TABLE>

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

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

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

                                       84
<PAGE>   85
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

17.  COMMITMENTS AND FINANCIAL INSTRUMENTS: -- (CONTINUED)
     An interest-rate exchange contract (swap) is an agreement in which two
parties agree to exchange, at specified intervals, interest payment streams
calculated on an agreed-upon notional principal amount with at least one stream
based on a specified floating-rate index. The Bank's objective in holding
interest-rate swaps is interest rate risk management. As of December 31, 1999
and 1998 there were no interest rate exchange agreements.

     The Company enters into forward commitments to sell loans to manage the
interest rate risk exposure of mortgage banking activities. The hedging activity
helps to protect the Company from a risk that the market value of mortgage loans
intended to be sold will be adversely affected by changes in interest rates. At
December 31, 1999, the Company's forward commitments to sell loans had delivery
commitments expiring within three months. Gross unrealized gains on forward sale
commitments, based on dealer-quoted prices, approximated $16,000 at December 31,
1999.

18.  FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

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

  CASH AND CASH EQUIVALENTS:

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

  INVESTMENT SECURITIES:

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

  LOANS:

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

                                       85
<PAGE>   86
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

18.  FAIR VALUE OF FINANCIAL INSTRUMENTS: -- (CONTINUED)
  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:

     Short-term borrowings and notes payable have been valued at present values
of future cash flows using rates which approximate current market rates for
similar instruments.

  OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:

     The fair value of commitments to extend credit and standby letters of
credit is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan commitments,
fair value also considers the difference between current levels of interest
rates and the committed rates. The fair value of these commitments is not
material. The fair value of interest rate floor agreements is estimated using
quoted market prices for similar instruments.

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

<TABLE>
<CAPTION>
                                                      SUCCESSOR BASIS -- TAYLOR CAPITAL
                                                         GROUP, INC. -- CONSOLIDATED
                                              --------------------------------------------------
                                                 DECEMBER 31, 1999          DECEMBER 31, 1998
                                              -----------------------    -----------------------
                                               CARRYING       FAIR        CARRYING       FAIR
                                                VALUE        VALUE         VALUE        VALUE
                                              ----------   ----------    ----------   ----------
                                                                (IN THOUSANDS)
<S>                                           <C>          <C>           <C>          <C>
Financial Assets:
  Cash and cash equivalents.................  $   77,426   $   77,426    $   67,423   $   67,423
  Investment securities.....................     447,481      446,897       441,161      443,028
  Loans, net of allowance...................   1,430,544    1,414,292     1,311,382    1,318,874
                                              ----------   ----------    ----------   ----------
     Total financial assets.................  $1,955,451   $1,938,615    $1,819,966   $1,829,325
                                              ==========   ==========    ==========   ==========
Financial Liabilities:
  Deposits without stated maturities........  $  875,425   $  875,425    $  813,082   $  813,082
  Deposits with stated maturities...........     732,125      732,125       626,655      627,086
  Short-term borrowings.....................     147,129      147,129       171,718      171,718
  Notes payable.............................     114,500      114,292       131,500      131,410
                                              ----------   ----------    ----------   ----------
     Total financial liabilities............  $1,869,179   $1,868,971    $1,742,955   $1,743,296
                                              ==========   ==========    ==========   ==========
Off-Balance-Sheet Financial Instruments:
  Interest rate floor agreements............  $      104   $        0    $      316   $      743
  Commitments to extend credit..............          --           --            --           --
  Letter of credit..........................          --           --            --           --
                                              ----------   ----------    ----------   ----------
     Total off-balance-sheet financial
       instruments..........................  $      104   $       --    $      316   $      743
                                              ==========   ==========    ==========   ==========
</TABLE>

                                       86
<PAGE>   87
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

19.  REGULATORY DISCLOSURES:

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

     Quantitative measures established by regulation to ensure capital adequacy
require the Parent Company and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Based on these quantitative measures,
as of December 31, 1999, the Parent Company is categorized as
"adequately-capitalized" and the Bank is categorized as "well-capitalized."

     As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as "well-capitalized" under
the regulatory framework for prompt corrective action. To be categorized
"well-capitalized" the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.

                                       87
<PAGE>   88
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

19.  REGULATORY DISCLOSURES: -- (CONTINUED)
     The Company's and the Bank's actual capital amounts and ratios as of
December 31, 1999 and 1998 are presented in the following table.

<TABLE>
<CAPTION>
                                                                               TO BE WELL CAPITALIZED
                                                           FOR CAPITAL         UNDER PROMPT CORRECTIVE
                                      ACTUAL            ADEQUACY PURPOSES         ACTION PROVISION
                                 -----------------   -----------------------   -----------------------
                                  AMOUNT    RATIO       AMOUNT       RATIO       AMOUNT        RATIO
                                 --------   ------   ------------   --------   -----------   ---------
                                                     (DOLLARS IN THOUSANDS)
<S>                              <C>        <C>      <C>            <C>        <C>           <C>
As of December 31, 1999:
  Total Capital (to Risk
     Weighted Assets)
     Successor Basis -- Taylor
       Capital Group, Inc. --
       Consolidated............  $141,876     9.03%   >$125,753      >8.00%           NA
     Cole Taylor Bank..........   168,040    10.68     >125,835      >8.00      >157,294      >10.00%
  Tier I Capital (to Risk
     Weighted Assets)
     Successor Basis -- Taylor
       Capital Group, Inc. --
       Consolidated............   122,130     7.77%     >62,876      >4.00%           NA
     Cole Taylor Bank..........   147,940     9.41      >62,918      >4.00       >94,376       >6.00%
  Leverage (to Average Assets)
     Successor Basis -- Taylor
       Capital Group, Inc. --
       Consolidated............   122,130     6.11%     >79,900      >4.00%           NA
     Cole Taylor Bank..........   147,940     7.41      >79,819      >4.00       >99,774       >5.00%
As of December 31, 1998:
  Total Capital (to Risk
     Weighted Assets)
     Successor Basis -- Taylor
       Capital Group, Inc. --
       Consolidated............  $131,218     9.02%   >$116,405      >8.00%           NA
     Cole Taylor Bank..........   154,943    10.67     >116,144      >8.00      >145,507      >10.00%
  Tier I Capital (to Risk
     Weighted Assets)
     Successor Basis -- Taylor
       Capital Group, Inc. --
       Consolidated............   112,951     7.76%     >58,203      >4.00%           NA
     Cole Taylor Bank..........   136,717     9.42      >58,072      >4.00       >87,304       >6.00%
  Leverage (to Average Assets)
     Successor Basis -- Taylor
       Capital Group, Inc. --
       Consolidated............   112,951     6.17%     >73,204      >4.00%           NA
     Cole Taylor Bank..........   136,717     7.33      >74,655      >4.00       >91,506       >5.00%
</TABLE>

                                       88
<PAGE>   89
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

20.  PARENT COMPANY ONLY:

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

                                 BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
                                     ASSETS

Noninterest-bearing deposits with subsidiary Bank...........  $  1,878   $  1,617
Investment in subsidiaries..................................   173,098    169,614
Other assets................................................       613      3,170
                                                              --------   --------
          Total assets......................................  $175,589   $174,401
                                                              ========   ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Accrued interest, taxes and other liabilities...............  $  3,492   $  2,768
Notes payable...............................................    24,500     26,500
Stockholders' equity........................................   147,597    145,133
                                                              --------   --------
          Total liabilities and stockholders' equity........  $175,589   $174,401
                                                              ========   ========
</TABLE>

                                       89
<PAGE>   90
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

20.  PARENT COMPANY ONLY: -- (CONTINUED)
                              STATEMENTS OF INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                              FOR THE YEARS ENDED   FOR THE PERIOD  OF
                                                                 DECEMBER 31,       FEB. 12 TO DEC. 31,
                                                              -------------------   -------------------
                                                                1999       1998            1997
                                                              --------   --------   -------------------
<S>                                                           <C>        <C>          <C>
Income:
  Dividends from subsidiary Bank............................  $10,500    $14,500         $ 8,000
  Dividends from non-bank subsidiary........................      500         --              --
  Interest..................................................       --         --             140
                                                              -------    -------         -------
          Total income......................................   11,000     14,500           8,140
                                                              -------    -------         -------
Expenses:
  Interest..................................................    1,634      1,894           1,898
  Salaries and employee benefits............................    1,996      1,837           2,141
  Legal fees................................................    5,355      3,299             674
  Other.....................................................    1,075      1,289           1,130
                                                              -------    -------         -------
          Total expenses....................................   10,060      8,319           5,843
                                                              -------    -------         -------
Income before income taxes, equity in undistributed net
  income of subsidiaries and cumulative effect of change in
  accounting principle......................................      940      6,181           2,297
Income tax benefit..........................................    3,474      2,886           1,946
Equity in undistributed net income of subsidiaries..........    7,093        374           5,870
                                                              -------    -------         -------
Income before cumulative effect of change in accounting
  principle.................................................   11,507      9,441          10,113
                                                              -------    -------         -------
Cumulative effect of change in accounting principle, net of
  income taxes..............................................     (214)        --              --
                                                              -------    -------         -------
          Net income........................................  $11,293    $ 9,441         $10,113
                                                              =======    =======         =======
</TABLE>

                                       90
<PAGE>   91
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

20.  PARENT COMPANY ONLY: -- (CONTINUED)
                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                    FOR THE PERIOD
                                                                                     OF FEB. 12,
                                                              FOR THE YEARS ENDED      1997 TO
                                                                 DECEMBER 31,          DEC. 31,
                                                              -------------------   --------------
                                                                1999       1998          1997
                                                              --------   --------   --------------
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
  Net income................................................  $11,293    $ 9,441       $ 10,113
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Amortization of other assets...........................      619        370            327
     Amortization of unearned compensation..................      196        237             58
     Equity in undistributed net income of subsidiaries.....   (7,093)      (374)        (5,870)
     Other, net.............................................      257         23             21
     Changes in assets and liabilities:
       Other assets.........................................    1,987     (3,622)        (1,602)
       Other liabilities....................................      727        149          1,340
                                                              -------    -------       --------
          Net cash provided by operating activities.........    7,986      6,224          4,387
                                                              -------    -------       --------
Cash flows from investing activities:
  Purchase of Bank and Mortgage Company.....................       --         --        (62,101)
  Advances to subsidiaries..................................       --         --        (14,600)
  Repayments of advances to subsidiaries....................       --         --         14,600
  Loan issuance to Employee Stock Ownership Plan............       --       (576)            --
  Proceeds from repayment of loan issued to Employee Stock
     Ownership Plan.........................................      576         --             --
  Other, net................................................      (86)       (25)          (361)
                                                              -------    -------       --------
          Net cash provided by (used in) investing
            activities......................................      490       (601)       (62,462)
                                                              -------    -------       --------
Cash flows from financing activities:
  Dividends paid............................................   (5,116)    (5,118)        (3,419)
  Repayments of notes payable...............................   (2,500)    (2,400)        (5,600)
  Proceeds from notes payable...............................      500      1,900         32,600
  Net proceeds from issuance of preferred stock.............       --         --         36,106
  Purchase of treasury stock................................   (1,099)        --             --
                                                              -------    -------       --------
          Net cash (used in) provided by financing
            activities......................................   (8,215)    (5,618)        59,687
                                                              -------    -------       --------
Net increase in cash and cash equivalents...................      261          5          1,612
Cash and cash equivalents, beginning of period..............    1,617      1,612             --
                                                              -------    -------       --------
Cash and cash equivalents, end of period....................  $ 1,878    $ 1,617       $  1,612
                                                              =======    =======       ========
</TABLE>

     The Bank is subject to dividend restrictions set forth by regulatory
authorities. Under such restrictions, the Bank may not, without prior approval
of regulatory authorities, declare dividends in excess of the sum of the current
year's earnings (as defined) plus the retained earnings (as defined) from the
prior two years. The dividends, as of December 31, 1999, that the Bank could
declare and pay to the Company, without the

                                       91
<PAGE>   92
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

20.  PARENT COMPANY ONLY: -- (CONTINUED)
approval of regulatory authorities, amounted to approximately $15.9 million.
However, payment of such dividends is also subject to the Bank remaining in
compliance with all applicable capital ratios.

21.  LITIGATION:

     Jeffrey W. Taylor, Chairman of the Board and Chief Executive Officer of the
Company, Bruce W. Taylor, President of the Company, Iris A. Taylor, Sidney J.
Taylor, Cindy Taylor Bleil, related trusts and a related partnership
(collectively, the "Taylor Family") have been named as defendants in the
lawsuits described below relating to (1) the Split-Off Transactions and (2) the
financial and public reporting of Reliance Acceptance Group, Inc.
("Reliance"). Certain of the lawsuits also named other current or former
officers and directors of the Company and Reliance, other stockholders of the
Company, Reliance's public accountants at the time of the Split-Off
Transactions (who continue to serve as the Company's public accountants), the
investment banks that were involved in the Split-Off Transactions, Reliance
and the Company as additional defendants. The filing dates of these lawsuits
range from October 1997 to October 1999.

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

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

     In August 1998, nine class actions, brought on behalf of current and former
stockholders of Reliance and pending in the United States District Court for the
Western District of Texas, were consolidated into one class action. Another
class action, brought on behalf of current and former stockholders of Reliance,
is also pending in the Northern District of Illinois. These cases allege that
the Taylor Family, certain directors and officers of the Company, and certain
other defendants violated the federal securities laws and breached common law
fiduciary duties. In addition, the cases allege that the Company and certain
other defendants violated ERISA and breached certain fiduciary duties, including
fiduciary duties owed to a subclass consisting of participants in Reliance's
ESOP and 401(k) Profit Sharing Plan. The Texas and Illinois cases seek
unspecified damages and attorneys' fees. Cole Taylor Bank was named as an
additional defendant in the Illinois action. On August 11, 1999, an amended
consolidated complaint was filed in Illinois which combined the Illinois and
Texas actions. On December 9, 1999, the Judicial Panel for Multi-district
Litigation consolidated in the District Court of Delaware for pretrial purposes
the Illinois stockholders' suit and the adversary proceedings referred to below.
A motion to certify the plaintiff class is pending.

     On August 19, 1998, Irwin Cole and other members of his family, who
collectively owned approximately 25% of the outstanding common stock of Reliance
prior to the Split-Off Transactions, brought suit in Delaware Chancery Court
against members of the Taylor Family, the Company, other current and/or former
                                       92
<PAGE>   93
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

21.  LITIGATION: -- (CONTINUED)
officers and directors of Reliance and the Company, and other stockholders of
the Company. The suit alleges that the Taylor Family, certain directors and
officers of the Company, and certain other defendants breached their fiduciary
duties, committed fraud and/or engaged in self-dealing in connection with the
operation of Reliance and the Split-Off Transactions. The lawsuit seeks
unspecified damages, attorneys' fees and requests that the Court place all of
the shares of the Company held by the Taylor Family in a constructive trust.
Motions to dismiss the lawsuit are pending.

     On October 5, 1998, the United States Bankruptcy Court of the District of
Delaware (the "Bankruptcy Court") entered an order preliminarily enjoining the
plaintiffs in most of the above lawsuits from prosecuting their cases on account
of the pending adversary proceedings by the Reliance Estate Representative that
are described below. On June 2, 1999 the District Court for the District of
Delaware reversed the Bankruptcy Court's order. The District Court's order has
been appealed.

     On July 6, 1998, the Bankruptcy Court entered a confirmation order that
discharged the liability of Reliance and its subsidiaries in connection with all
of the lawsuits described above and permanently enjoined the filing of similar
new suits against them. The Bankruptcy Court also appointed an Estate
Representative (the "Estate Representative") for the Post-Confirmation Chapter
11 Estate of Reliance and its subsidiaries. On September 4, 1998, the Estate
Representative filed two adversary proceeding complaints which named as
defendants members of the Taylor Family, certain other directors and officers of
the Company, one of Reliance's former legal counsel and Reliance's former public
accountants (both of whom continue to serve the Company), the Company and Cole
Taylor Bank, as trustee. The complaints allege fraudulent conveyance and
breaches of fiduciary duties and contract with respect to the Taylor Family, the
Company and Cole Taylor Bank, as trustee. The complaints charge certain of the
other defendants with alleged breaches of fiduciary duty, breaches of contract,
malpractice and negligent misrepresentation and aiding and abetting the Taylor
Family's and the Company's alleged breaches. These complaints seek unspecified
damages and attorneys' fees and avoidance of the Split-Off Transactions by the
transfer to the Estate Representative of either the assets exchanged in the
Split-Off Transactions or the value of such assets. One of the complaints
demands monetary damages pursuant to the Taylor Family's obligation under the
Share Exchange Agreement to indemnify Reliance for certain losses resulting from
the Split-Off Transactions, and asks the court to disallow any claims for
indemnification that any of the defendants have against Reliance or, in the
alternative, to equitably subordinate such claims to all other creditor claims
against Reliance. The two adversary proceedings have been consolidated and
withdrawn to the Delaware District Court. Discovery is ongoing in the adversary
proceedings and a January 2001 trial date has been set. On March 2, 2000, the
court granted the Estate Representative leave to file an amended complaint.

     On December 7, 1998, the Estate Representative filed a motion for a
preliminary injunction which seeks to enjoin the Company and Cole Taylor Bank
from paying directly or indirectly any dividends to any of their respective
shareholders and from paying any of the litigation defense costs of the Taylor
Family or any other co-defendants with respect to any litigation arising out of
the Split-Off Transactions. On October 14, 1999 the District Court denied the
motion for preliminary injunction.

     On October 4, 1999, another lawsuit relating to the Split-Off Transactions
was filed in the Circuit Court of Cook County, Illinois by four Reliance
stockholders. Members of the Taylor Family, a related partnership, Taylor
Capital Group, Inc., Cole Taylor Bank, and another officer and director of
Taylor Capital Group, Inc., were named as defendants. Damages in an unspecified
amount are sought. A motion to dismiss the lawsuit is pending.

     On February 23, 2000, another class action lawsuit relating to the
Split-Off Transactions was filed in the Circuit Court of Cook County, Illinois
by a holder of 9% subordinated notes of Reliance. Members of the Taylor Family,
Taylor Capital Group, Inc., Cole Taylor Bank, another officer and another
director of Taylor Capital Group, Inc., in addition to individuals and entities
unrelated to the Company or the Taylor Family were named as defendants. Damages
of $25 million, plus interest and other relief are sought.

     In accordance with the terms and conditions of the Share Exchange Agreement
relating to the Split-Off Transactions, the Taylor Family has agreed to
indemnify Reliance for certain losses incurred by Reliance,
                                       93
<PAGE>   94
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

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

     The Company is from time to time a party to various other legal actions
arising in the normal course of business. Management knows of no such other
threatened or pending legal actions against the Company that are likely to have
a material adverse impact on the business, financial condition, liquidity or
operating results of the Company.

22.  SELECTED QUARTERLY FINANCIAL DATA, (UNAUDITED):

     The following is selected data summarizing the results of operation for
each quarter in the years ended December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                       SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
                                                 -----------------------------------------------------------------------------
                                                          1999 QUARTER ENDED                      1998 QUARTER ENDED
                                                 -------------------------------------   -------------------------------------
                                                 MAR. 31   JUN. 30   SEP. 30   DEC. 31   MAR. 31   JUN. 30   SEP. 30   DEC. 31
                                                 -------   -------   -------   -------   -------   -------   -------   -------
                                                                                (IN THOUSANDS)
<S>                                              <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Interest income................................ $33,092    $35,074   $36,845  $38,213   $33,808    $34,022   $34,276   $34,039
Interest expense...............................  15,162     15,626    16,678   16,924    16,304     16,575    16,755    15,775
                                                 -------   -------   -------   -------   -------   -------   -------   -------
    Net interest income........................  17,930     19,448    20,167   21,289    17,504     17,447    17,521    18,264
Provision for loan losses......................   1,500      1,500     1,500    1,500       750      1,500     1,050     1,835
Investment securities gains, net...............     107         --        --        1        --         --        --        11
Noninterest income.............................   4,702      4,940     4,590    4,850     5,927      4,840     4,549     5,294
Noninterest expense............................  17,225     17,526    17,805   19,988    16,288     18,266    17,392    18,482
                                                 -------   -------   -------   -------   -------   -------   -------   -------
    Income before income taxes and cumulative
      effect of change in accounting
      principle................................   4,014      5,362     5,452    4,652     6,393      2,521     3,628     3,252
Income taxes...................................   1,632      2,137     2,213    1,991     2,512      1,143     1,445     1,253
                                                 -------   -------   -------   -------   -------   -------   -------   -------
    Income before cumulative effect of change
      in accounting principle..................   2,382      3,225     3,239    2,661     3,881      1,378     2,183     1,999
Cumulative effect of change in accounting
  principle....................................    (214)        --        --       --        --         --        --        --
                                                 -------   -------   -------   -------   -------   -------   -------   -------
        Net income.............................  $2,168    $ 3,225   $ 3,239   $2,661    $3,881    $ 1,378   $ 2,183   $ 1,999
                                                 =======   =======   =======   =======   =======   =======   =======   =======
</TABLE>

                                       94
<PAGE>   95
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

23.  COMPREHENSIVE INCOME:

     The following table presents comprehensive income for the periods
indicated:

<TABLE>
<CAPTION>
                                                 SUCCESSOR BASIS -- TAYLOR CAPITAL       PREDECESSOR BASIS --
                                                    GROUP, INC. -- CONSOLIDATED            COLE TAYLOR BANK
                                             -----------------------------------------   --------------------
                                                FOR THE YEARS      FOR THE PERIOD OF      FOR THE PERIOD OF
                                             ENDED DECEMBER 31,    FEB. 12 TO DEC. 31,    JAN. 1 TO FEB. 11,
                                             -------------------   -------------------   --------------------
                                               1999       1998            1997                   1997
                                             --------   --------   -------------------   --------------------
                                                                      (IN THOUSANDS)
<S>                                          <C>        <C>              <C>                   <C>
Net income, as reported....................  $11,293    $ 9,441          $10,113               $ 2,282
Other comprehensive income:
  Change in unrealized gains (losses) on
     available-for-sale securities.........   (6,228)    (1,062)           1,584                (1,890)
  Less: reclassification adjustment for
     gains included in net income..........     (108)       (11)            (401)                   --
                                             -------    -------          -------               -------
                                              (6,336)    (1,073)           1,183                (1,890)
  Income tax expense (benefit) related to
     other comprehensive income............   (2,218)      (363)             402                  (750)
                                             -------    -------          -------               -------
  Other comprehensive income, net of tax...   (4,118)      (710)             781                (1,140)
                                             -------    -------          -------               -------
          Total comprehensive income.......  $ 7,175    $ 8,731          $10,894               $ 1,142
                                             =======    =======          =======               =======
</TABLE>

24.  SEGMENT REPORTING:

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

                                       95
<PAGE>   96
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

24.  SEGMENT REPORTING: -- (CONTINUED)
     The following tables present reportable segment information for the periods
indicated:
<TABLE>
<CAPTION>
                                   SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
                              -----------------------------------------------------------------------
                                      FOR THE YEAR ENDED                   FOR THE YEAR ENDED
                                        DEC. 31, 1999                        DEC. 31, 1998
                              ----------------------------------   ----------------------------------
                                           MORTGAGE                             MORTGAGE
                               BANKING     BANKING      TOTAL       BANKING     BANKING      TOTAL
                              ----------   --------   ----------   ----------   --------   ----------
                                                          (IN THOUSANDS)
<S>                           <C>          <C>        <C>          <C>          <C>        <C>
Net interest income.......... $   77,494   $ 2,943    $   80,437   $   70,072   $ 2,531    $   72,603
Noninterest income...........     16,516       263        16,779       14,871       272        15,143
Depreciation and
 amortization................      4,065        21         4,086        3,879       154         4,033
Other significant noncash
 items:
 Provision for loan losses...      5,848       152         6,000        5,012        88         5,100
 Gain on sales of loans,
   net.......................         --     2,169         2,169          679     3,628         4,307
 Gain on sale of mortgage
   servicing rights..........         --       204           204           --     1,462         1,462
 Impairment of mortgage
   servicing rights..........         --        --            --           --       329           329
 Reduction of impairment
   reserve on mortgage
   servicing rights..........         --        47            47           --        --            --
Income taxes.................     11,973      (513)       11,460        8,995       285         9,280
Segment net income (loss).... $   19,114   $(1,002)   $   18,112   $   14,389   $   516    $   14,905
                              ==========   =======    ==========   ==========   =======    ==========
Segment average assets....... $1,882,415   $95,808    $1,978,223   $1,790,892   $71,892    $1,862,784
                              ==========   =======    ==========   ==========   =======    ==========

<CAPTION>
                               SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
                               ----------------------------------
                               FOR THE PERIOD OF FEB. 12, 1997 TO
                                         DEC. 31, 1997
                               ----------------------------------
                                            MORTGAGE
                                BANKING     BANKING      TOTAL
                               ----------   --------   ----------
                                         (IN THOUSANDS)
<S>                            <C>          <C>        <C>
Net interest income..........  $   62,523   $ 1,164    $   63,687
Noninterest income...........      14,955       382        15,337
Depreciation and
 amortization................       3,347       199         3,546
Other significant noncash
 items:
 Provision for loan losses...       3,790       106         3,896
 Gain on sales of loans,
   net.......................          (6)    1,972         1,966
 Gain on sale of mortgage
   servicing rights..........          --        --            --
 Impairment of mortgage
   servicing rights..........          --        53            53
 Reduction of impairment
   reserve on mortgage
   servicing rights..........          --        --            --
Income taxes.................       9,407    (1,197)        8,210
Segment net income (loss)....  $   16,486   $(2,235)   $   14,251
                               ==========   =======    ==========
Segment average assets.......  $1,808,161   $37,243    $1,845,404
                               ==========   =======    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                            PREDECESSOR BASIS -- COLE TAYLOR BANK
                                                            -------------------------------------
                                                                      FOR THE PERIOD OF
                                                                JAN. 1, 1997 TO FEB. 11, 1997
                                                            -------------------------------------
                                                                          MORTGAGE
                                                              BANKING      BANKING       TOTAL
                                                            -----------   ---------   -----------
                                                                       (IN THOUSANDS)
<S>                                                         <C>           <C>         <C>
Net interest income.......................................  $    8,345    $    221    $    8,566
Noninterest income........................................       1,681          80         1,761
Depreciation and amortization.............................         192          12           204
Other significant noncash items:
  Provision for loan losses...............................         486         (66)          420
  Gain on sales of loans, net.............................          --         169           169
  Gain on sale of mortgage servicing rights...............          --          --            --
  Impairment of mortgage servicing rights.................          --          --            --
Income taxes..............................................       1,517        (180)        1,337
Segment net income (loss).................................  $    2,585    $   (339)   $    2,246
                                                            ==========    ========    ==========
Segment average assets....................................  $1,613,155    $158,128    $1,771,283
                                                            ==========    ========    ==========
</TABLE>

                                       96
<PAGE>   97
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

24.  SEGMENT REPORTING: -- (CONTINUED)
     The following tables reconcile segment information to the financial
statements for the periods indicated:
<TABLE>
<CAPTION>
                                                 SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
                                           -------------------------------------------------------------------------
                                               FOR THE YEAR ENDED DEC. 31,           FOR THE YEAR ENDED DEC. 31,
                                                          1999                                  1998
                                           -----------------------------------   -----------------------------------
                                           REPORTABLE             CONSOLIDATED   REPORTABLE             CONSOLIDATED
                                            SEGMENTS     OTHER       TOTALS       SEGMENTS     OTHER       TOTALS
                                           ----------   -------   ------------   ----------   -------   ------------
                                                                        (IN THOUSANDS)
<S>                                        <C>          <C>       <C>            <C>          <C>       <C>
Net interest income......................  $  80,437    $(1,603)   $   78,834    $  72,603    $(1,867)   $   70,736
Noninterest income.......................     16,779         (9)       16,770       15,143         38        15,181
Depreciation and amortization............      4,086         --         4,086        4,033         --         4,033
Other significant noncash items:
 Provision for loan losses...............      6,000         --         6,000        5,100         35         5,135
 Gain on sales of loans,
   net...................................      2,169         --         2,169        4,307         --         4,307
 Gain on sale of mortgage servicing
   rights................................        204         --           204        1,462         --         1,462
 Impairment of mortgage servicing
   rights................................         --         --            --          329         --           329
 Reduction of impairment reserve on
   mortgage servicing rights.............         --         47            47           --         --            --
Income taxes.............................     11,460     (3,487)        7,973        9,280     (2,927)        6,353
Segment net income
 (loss)..................................  $  18,112    $(6,819)   $   11,293    $  14,905    $(5,464)   $    9,441
                                           ==========   =======    ==========    ==========   =======    ==========
Segment average assets...................  $1,978,223   $ 2,203    $1,980,426    $1,862,784   $ 6,680    $1,869,464
                                           ==========   =======    ==========    ==========   =======    ==========

<CAPTION>
                                           SUCCESSOR BASIS -- TAYLOR CAPITAL GROUP, INC. -- CONSOLIDATED
                                           -----------------------------------
                                             FOR THE PERIOD OF FEB. 12, 1997
                                                    TO DEC. 31, 1997
                                           -----------------------------------
                                           REPORTABLE             CONSOLIDATED
                                            SEGMENTS     OTHER       TOTALS
                                           ----------   -------   ------------
                                                     (IN THOUSANDS)
<S>                                        <C>          <C>       <C>
Net interest income......................  $  63,687    $(1,531)   $   62,156
Noninterest income.......................     15,337         (9)       15,328
Depreciation and amortization............      3,546         32         3,578
Other significant noncash items:
 Provision for loan losses...............      3,896        165         4,061
 Gain on sales of loans,
   net...................................      1,966        632         2,598
 Gain on sale of mortgage servicing
   rights................................         --         --            --
 Impairment of mortgage servicing
   rights................................         53         --            53
 Reduction of impairment reserve on
   mortgage servicing rights.............         --         --            --
Income taxes.............................      8,210     (1,889)        6,321
Segment net income
 (loss)..................................  $  14,251    $(4,138)   $   10,113
                                           ==========   =======    ==========
Segment average assets...................  $1,845,404   $29,963    $1,875,367
                                           ==========   =======    ==========
</TABLE>

     For the years ended December 31, 1999, 1998 and for the period of February
12, 1997 to December 31, 1997 amounts presented in the other columns represent
the operations of the Parent Company, and the Mortgage Company which have not
been defined as reportable segments.

<TABLE>
<CAPTION>
                                                               PREDECESSOR BASIS -- COLE TAYLOR BANK
                                                              ---------------------------------------
                                                                  FOR THE PERIOD OF JAN. 1, 1997
                                                                         TO FEB. 11, 1997
                                                              ---------------------------------------
                                                               REPORTABLE               CONSOLIDATED
                                                                SEGMENTS      OTHER        TOTALS
                                                              ------------   -------   --------------
                                                                          (IN THOUSANDS)
<S>                                                           <C>            <C>       <C>
Net interest income.........................................   $    8,566      $--       $    8,566
Noninterest income..........................................        1,761       --            1,761
Depreciation and amortization...............................          204       34              238
Other significant noncash items:
  Provision for loan losses.................................          420       --              420
  Gain on sales of loans, net...............................          169       --              169
  Gain on sale of mortgage servicing rights.................           --       --               --
  Impairment of mortgage servicing rights...................           --       --               --
Income taxes................................................        1,337       (9)           1,328
Segment net income (loss)...................................   $    2,246      $36       $    2,282
                                                               ==========      ===       ==========
Segment average assets......................................   $1,771,283      $--       $1,771,283
                                                               ==========      ===       ==========
</TABLE>

25.  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE:

     As of January 1, 1999, the Company adopted Statement of Position 98-5 (SOP
98-5), "Reporting on the Costs of Start-Up Activities", which requires that the
cost of start-up activities and organization costs be expensed as incurred. The
initial adoption of SOP 98-5 resulted in a charge of $214,000 (net of a tax
benefit of

                                       97
<PAGE>   98
                           TAYLOR CAPITAL GROUP, INC.

                                    PART II


                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

25.  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE: -- (CONTINUED)
$146,000) and is reported in the Consolidated Statements of Income as a
cumulative effect of change in accounting principle. The charge represents
remaining organization costs associated with the Split-Off Transactions which
had not yet been fully amortized.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None



                                       98
<PAGE>   99

                           TAYLOR CAPITAL GROUP, INC.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

<TABLE>
<CAPTION>
                   NAME                     AGE                    POSITION
                   ----                     ---                    --------
<S>                                         <C>   <C>
Jeffrey W. Taylor(1)......................  47    Chairman of the Board, Chief Executive
                                                  Officer and Director of the Company,
                                                  Chairman of the Board and Director of the
                                                  Bank and Director of the Mortgage Company
Bruce W. Taylor(1)........................  44    President and Director of the Company,
                                                  President, Director and Chief Executive
                                                  Officer of the Bank and Director of the
                                                  Mortgage Company
John Christopher Alstrin(1)...............  53    Chief Financial Officer and Director of
                                                  the Company, the Bank and the Mortgage
                                                  Company
Cindy Taylor Bleil........................  43    Director of the Company
Adelyn Dougherty(2).......................  69    Director of the Company
Ronald Emanuel(3).........................  54    Director of the Company
Edward T. McGowan(3)......................  64    Director of the Company
Melvin E. Pearl(2)........................  64    Director of the Company
Richard W. Tinberg(2)(3)..................  49    Director of the Company
Mark L. Yeager............................  50    Director of the Company
</TABLE>

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

(1) Member of the Executive Committee.

(2) Member of the Compensation Committee.

(3) Member of the Audit Committee

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

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

                                       99
<PAGE>   100
                           TAYLOR CAPITAL GROUP, INC.

                                    PART III

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

     CINDY TAYLOR BLEIL is a Director of the Company. Ms. Bleil is active in
civic and charitable organizations and is a private investor. Ms. Bleil is the
sister of Jeffrey W. Taylor and Bruce W. Taylor.

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

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

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

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

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

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

TERMS OF OFFICE

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

                                       100
<PAGE>   101
                           TAYLOR CAPITAL GROUP, INC.

                                    PART III

ITEM 11.  EXECUTIVE COMPENSATION

     The following table sets forth the compensation paid to the Chief Executive
Officer and the three other executive officers of the Company (collectively, the
"Named Officers") in 1999, 1998 and 1997. The Company was incorporated on
October 9, 1996 and commenced operations in February 1997.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                         LONG TERM
                                                                                       COMPENSATION
                                                    ANNUAL COMPENSATION           -----------------------
                                             ----------------------------------   RESTRICTED
                                                                      OTHER         STOCK      SECURITIES    ALL OTHER
NAME AND PRINCIPAL                                                    ANNUAL        AWARD      UNDERLYING   COMPENSATION
POSITION                              YEAR    SALARY     BONUS     COMPENSATION     (#)(1)     OPTIONS(#)       (2)
------------------                    ----   --------   --------   ------------   ----------   ----------   ------------
<S>                                   <C>    <C>        <C>        <C>            <C>          <C>          <C>
Jeffrey W. Taylor,                    1999   $448,296   $226,879          --            --           --       $ 50,059(3)a
Chairman of the Board and             1998    444,510     50,868          --            --           --         46,625(3)b
Executive Officer of the Company      1997    358,623    240,255          --            --           --         43,265

Bruce W. Taylor,                      1999   $443,568   $224,486          --            --           --       $ 45,703(4)a
President of the Company              1998    439,818     48,868          --            --           --         38,130(4)b
                                      1997    350,063    237,875          --            --           --         37,782

Sidney J. Taylor,(7)                  1999   $300,000         --          --            --           --       $170,859(5)a
Chairman of the Executive             1998    300,000   $ 16,300          --            --           --        163,859(5)b
Committee of the Company              1997    264,808     16,560          --            --           --        171,674

J. Christopher Alstrin,               1999   $232,875   $ 76,522          --            --        6,200       $  2,644(6)a
Chief Financial Officer of            1998    230,906     41,780          --            --        6,200          2,598(6)b
the Company                           1997    196,615     67,500     $45,700        18,182        6,200         31,245
</TABLE>

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

(1) As of December 31, 1999, Mr. Alstrin was the only Named Officer that held
    any restricted common stock of the Company. Mr. Alstrin's 18,182 shares of
    restricted stock, which were issued in 1997, had an aggregate fair value of
    $527,278 at December 31, 1999. This fair value was calculated by using a per
    share value of $29, as determined by a third party appraisal. Dividends on
    the restricted shares are paid to Mr. Alstrin as they are declared.

(2) As of March 2000, the Company had not completed its 1999 contribution
    allocation to the Named Officers in connection with the Company's deferred
    compensation plan and 401(k)/Profit Sharing and ESOP Plan. Therefore, these
    amounts have not been included in the "All Other Compensation" column for
    1999.

(3) (a) Represents the full dollar value of all premiums paid by the Company for
        split-dollar life insurance for Mr. Taylor.

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

(4) (a) Represents the full dollar value of all premiums paid by the Company for
        split-dollar life insurance for Mr. Taylor.

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

                                       101
<PAGE>   102
                           TAYLOR CAPITAL GROUP, INC.

                                    PART III

(5) (a) Represents the full dollar value of all premiums paid by the Company for
        split-dollar life insurance for Mr. Taylor.

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

(6) (a) Represents the full dollar value of all premiums paid by the Company for
        split-dollar life insurance for Mr. Alstrin.

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

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

     The following table provides information on grants of stock options in 1999
to the Named Officers pursuant to the Company's 1999 Incentive Compensation
Plan. The Company has never granted any of the Named Officers stock appreciation
rights.

                             OPTION GRANTS IN 1999

<TABLE>
<CAPTION>
                                  INDIVIDUAL GRANTS                                   POTENTIAL REALIZABLE
                            ------------------------------                              VALUE AT ASSUMED
                               NUMBER OF       % OF TOTAL                             ANNUAL RATES OF STOCK
                              SECURITIES        OPTIONS                              PRICE APPRECIATION FOR
                              UNDERLYING       GRANTED TO    EXERCISE                    OPTION TERMS(1)
                            OPTIONS GRANTED   EMPLOYEES IN    PRICE     EXPIRATION   -----------------------
NAME                            (#)(2)            1999        ($/SH)       DATE        5% ($)      10% ($)
----                        ---------------   ------------   --------   ----------   ----------   ----------
<S>                         <C>               <C>            <C>        <C>          <C>          <C>
Jeffrey W. Taylor.........          --             --           --            --            --           --
Bruce W. Taylor...........          --             --           --            --            --           --
Sidney J. Taylor..........          --             --           --            --            --           --
J. Christopher Alstrin....       6,200            4.9%         $27       2/25/09      $105,277     $266,792
</TABLE>

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

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

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

     The following table provides information on the unexercised options of the
Named Officers outstanding as of December 31, 1999. None of the Named Officers
exercised any options during 1999.

                          YEAR END 1999 OPTION VALUES

<TABLE>
<CAPTION>
                                             NUMBER OF SECURITIES UNDERLYING        VALUE OF UNEXERCISED
                                                   UNEXERCISED OPTIONS              IN-THE-MONEY OPTIONS
                                                 AT DECEMBER 31, 1999(#)          AT DECEMBER 31, 1999(1)
                                             --------------------------------   ----------------------------
NAME                                         EXERCISABLE       UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
----                                         ------------      --------------   -----------    -------------
<S>                                          <C>               <C>              <C>            <C>
Jeffrey W. Taylor..........................        --                  --              --              --
Bruce W. Taylor............................        --                  --              --              --
Sidney J. Taylor...........................        --                  --              --              --
J. Christopher Alstrin.....................     3,720              14,880         $22,320         $58,280
</TABLE>

                                       102
<PAGE>   103
                           TAYLOR CAPITAL GROUP, INC.

                                    PART III

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

(1) This value is calculated by subtracting the exercise price per share from
    the fair value at December 31, 1999, of the Company's common stock of $29,
    as determined by a third party appraisal.

DIRECTOR COMPENSATION

     Directors who are not employees of the Company receive an annual fee of
$10,000 and an attendance fee of $750 for each Board meeting attended and $650
for each committee meeting attended. The Chairman of each committee receives an
additional $1,000 for chairing a committee. In addition, all directors may be
reimbursed for certain expenses in connection with attendance at Board and
committee meetings. Other than with respect to reimbursement of expenses,
directors who are employees or officers of the Company do not receive additional
compensation for service as a director.

SEVERANCE POLICY

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

CHANGE OF CONTROL POLICY

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

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

     The following table sets forth certain information regarding the Common
Stock of the Company beneficially owned as of March 3, 2000 by (i) each
stockholder known by the Company to be the beneficial owner of more than five
percent of the outstanding shares of the Common Stock, (ii) each director of the
Company, (iii) each Named Officer and (iv) all directors and executive officers
of the Company as a group. Collectively, such stockholders set forth below
constitute the "Taylor Group." Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based on
information provided by such owners, will have sole investment and voting power
with respect to such shares, subject to

                                       103
<PAGE>   104
                           TAYLOR CAPITAL GROUP, INC.

                                    PART III

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

<TABLE>
<CAPTION>
                                                               NUMBER OF SHARES      PERCENT OF
NAME                                                          BENEFICIALLY OWNED   COMMON STOCK(1)
----                                                          ------------------   ---------------
<S>                                                           <C>                  <C>
Iris A. Taylor(2)(3)........................................      2,397,190             51.8%
Sidney J. Taylor(4).........................................         40,540                *
Jeffrey W. Taylor(2)(5)(6)..................................      3,500,546             75.7
Bruce W. Taylor(2)(6).......................................      3,513,106             75.9
Cindy Taylor Bleil(2)(6)....................................      3,358,876             72.6
Voting Trust dated November 1998............................      2,244,990             48.5
Taylor Family Partnership...................................        974,006             21.1
J. Christopher Alstrin......................................         18,182                *
Company's 401(k)/Profit Sharing and Employee Stock Ownership
  Plan......................................................        340,251              7.4
Melvin E. Pearl.............................................          2,000                *
Adelyn Dougherty............................................          2,000                *
Ronald Emanuel..............................................          2,000                *
Edward McGowan..............................................          2,000                *
Richard Tinberg.............................................          2,000                *
Mark L. Yeager..............................................          2,000                *
All directors and executive officers as a group (10
  persons)..................................................      3,964,718             85.7
</TABLE>

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

 *  Less than 1 %.

(1) Percentage of beneficial ownership is based on 4,626,160 shares of common
    stock of the Company outstanding as of March 3, 2000.

(2) Includes 2,244,990 shares held by a Voting Trust dated November 30, 1998 of
    which Iris A. Taylor, Jeffrey W. Taylor, Bruce W. Taylor and Cindy Taylor
    Bleil each serve as trustees.

(3) Excludes 40,540 shares beneficially owned by Iris A. Taylor's husband,
    Sidney J. Taylor, of which shares Iris A. Taylor disclaims beneficial
    ownership.

(4) Excludes 2,397,190 shares beneficially owned by Sidney J. Taylor's wife,
    Iris A. Taylor, of which shares Sidney J. Taylor disclaims beneficial
    ownership.

(5) Includes a 40,700 shares held in trust for the benefit of Jeffrey W.
    Taylor's spouse and 700 shares held by Jeffrey W. Taylor's children.

(6) Includes 974,006 shares held by the Taylor Family Partnership, L.P. of which
    Jeffrey W. Taylor, Bruce W. Taylor and Cindy Taylor Bleil share voting and
    investment power.

                                       104
<PAGE>   105
                           TAYLOR CAPITAL GROUP, INC.

                                    PART III

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Certain of the directors and officers of the Company and of the Bank and
members of their immediate families, and firms and corporations with which they
are associated, have had transactions with the Bank, including borrowings and
investments in certificates of deposit. Management believes that all such loans
and investments have been and will continue to be made in the ordinary course of
business of the Bank on substantially the same terms, including interest rates
paid and collateral required, as those prevailing at the time for comparable
transactions with unaffiliated persons, and did not involve more than the normal
risk of collectibility or present other unfavorable features. All future
material transactions and loans, and any forgiveness of loans, will be approved
by a majority of the independent outside members of the Company's Board of
Directors who do not have an interest in the transactions. As of December 31,
1999, the aggregate outstanding amount of all loans which individually exceed
$60,000 to officers and directors of the Company, and members of their immediate
families and firms and corporations in which they have at least a 10% beneficial
interest was approximately $23.0 million. The Company relies on its directors
and executive officers for identification of loans to their related interests.

     The Company's primary insurance brokers are Dann Brothers, Inc., which
provides property and casualty insurance brokerage services. Each of Russell
Dann and Scott Dann, brothers-in-law of Jeffrey W. Taylor, beneficially owns
approximately 25% of the capital stock of Dann Brothers, Inc. For the year ended
December 31, 1999, the Company paid total premiums of approximately $291,000 to
Dann Brothers, Inc. in connection with various insurance policies.

     Two of the Company's primary legal counsel are Katten Muchin Zavis and
McDermott, Will & Emery. Mr. Melvin E. Pearl, a Director of the Company, is a
Partner with the law firm of Katten Muchin Zavis and Mark L. Yeager, a
Director of the Company, is a Partner with the law firm of McDermott, Will &
Emery. For the year ended December 31, 1999, the Company paid legal fees to
Katten Muchin Zavis and McDermott, Will & Emery totaling approximately
$405,000 and $2,705,000, respectively.

                                       105
<PAGE>   106

                           TAYLOR CAPITAL GROUP, INC.

                                    PART IV

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

  DOCUMENTS FILED AS PART OF THIS FORM 10-K

(a)(1)  THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED ON PAGES 57 THROUGH 98
        OF THIS REPORT:

        Balance Sheets -- Successor Basis -- Taylor Capital Group,
        Inc. -- Consolidated -- December 31, 1999 and 1998

        Statements of Income -- Successor Basis -- Taylor Capital Group,
        Inc. -- Consolidated For the Years Ended December 31, 1999 and 1998 and
        for the Period of February 12, 1997 to December 31, 1997; Predecessor
        Basis -- Cole Taylor Bank -- For the Period of January 1, 1997 to
        February 11, 1997

        Statements of Changes in Stockholders' Equity -- Successor
        Basis -- Taylor Capital Group, Inc. -- Consolidated For the Years Ended
        December 31, 1999 and 1998 and For the Period of February 12, 1997 to
        December 31, 1997; Predecessor Basis -- Cole Taylor Bank -- For the
        Period January 1, 1997 to February 11, 1997

        Statements of Cash Flows -- Successor Basis -- Taylor Capital Group,
        Inc. -- Consolidated For the Years Ended December 31, 1999 and 1998 and
        For the Period of February 12, 1997 to December 31, 1997; Predecessor
        Basis -- Cole Taylor Bank -- For the Period of January 1, 1997 to
        February 11, 1997

        Notes to Financial Statements

        Independent Auditors' Report

(a)(2)  NO FINANCIAL STATEMENT SCHEDULES ARE INCLUDED BECAUSE SUCH SCHEDULES ARE
        NOT REQUIRED OR THE INFORMATION REQUIRED HAS BEEN PRESENTED IN THE
        AFOREMENTIONED FINANCIAL STATEMENTS.

(a)(3)  EXHIBITS:

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

                                       106
<PAGE>   107

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

                                       107
<PAGE>   108

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                  DESCRIPTION                              METHOD OF FILING
-------                 -----------                              ----------------
<C>       <S>                                        <C>
10.17     Form of Stock Transfer Agreement for       Incorporated by reference to Exhibit
            Stock Option Grants*                       10.11 to the December 31, 1997 Form
                                                       10-K
10.18     Form of Restricted Stock Award agreement   Incorporated by reference to Exhibit
            with recipients*                           10.12 to the December 31, 1997 Form
                                                       10-K
10.19     Form of Stock Transfer Agreement for       Incorporated by reference to Exhibit
            Restricted Stock Awards*                   10.13 to the December 31, 1997 Form
                                                       10-K
10.20     Taylor Capital Group, Inc. 1997            Incorporated by reference to Exhibit
            Long-Term Incentive Plan*                  10.14 to the December 31, 1997 Form
                                                       10-K
10.21     Servicing Rights Sale Agreement Between    Incorporated by reference to Exhibit
            Cole Taylor Bank and First Nationwide      10.15 to the December 31, 1997 Form
            Mortgage Corporation                       10-K
10.22     Stock Purchase Agreement Between Jeffrey   Incorporated by reference to Exhibit
            W. Taylor and Cindy Taylor Bleil, as       10.22 to the December 31, 1998 Form
            sellers, and Taylor Capital Group,         10-K
            Inc. Profit Sharing and Employee Stock
            Ownership Trust, as buyer and Taylor
            Capital Group, Inc.
10.23     ESOP Loan and Pledge Agreement between     Incorporated by reference to Exhibit
            Taylor Capital Group, Inc. and Taylor      10.23 to the December 31, 1998 Form
            Capital Group, Inc. Profit Sharing and     10-K
            employee Stock Ownership Trust
10.24     First Amendment of Taylor Capital Group,   Incorporated by reference to Exhibit
            Inc. Deferred Compensation Plan            10.1 to the March 31, 1999 Form 10-Q
10.25     Taylor Capital Group, Inc. Profit          Incorporated by reference to Exhibit
            Sharing and Employee Stock Ownership       10.1 to the June 30, 1999 Form 10-Q
            Plan
10.26     Amendment and Restatement of the Taylor    Incorporated by reference to Exhibit
            Capital Group, Inc. Profit Sharing and     10.2 to the June 30, 1999 Form 10-Q
            Employee Stock Ownership Trust
10.27     Taylor Capital Group, Inc. 401(k) Plan     Incorporated by reference to Exhibit
                                                       10.3 to the June 30, 1999 Form 10-Q
10.28     Taylor Capital Group, Inc. 401(k) Trust    Incorporated by reference to Exhibit
                                                       10.4 to the June 30, 1999 Form 10-Q
10.29     First Amendment of Taylor Capital Group,   Incorporated by reference to Exhibit
            Inc. 401(k) Plan                           10.1 to the September 30, 1999 Form
                                                       10-Q
10.30     $12,000,000 Substitute Revolving Loan      Incorporated by reference to Exhibit
            Agreement Between Taylor Capital           10.3 to the September 30, 1999 Form
            Group, Inc. and LaSalle Bank National      10-Q
            Association
10.31     Seventh Amendment to Revolving Loan        Incorporated by reference to Exhibit
            Agreement Between Taylor Capital           10.3 to the September 30, 1999 Form
            Group, Inc. and LaSalle Bank National      10-Q
            Association
12        Computation of Ratio of Earnings to        Filed with this document Form 10-K
            Fixed Charges
21        List of Subsidiaries                       Filed with this document Form 10-K
27        Financial Data Schedule                    Filed with this document Form 10-K
</TABLE>

                                       108
<PAGE>   109

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

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

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

(b)  REPORTS ON FORM 8-K.

     The Company did not file any reports on Form 8-K during the fourth quarter
of 1999.

                                       109
<PAGE>   110

                           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 28th day of
March, 2000.

                                            TAYLOR CAPITAL GROUP, INC.

                                            By:    /s/ JEFFREY W. TAYLOR
                                              ----------------------------------
                                                     Jeffrey W. Taylor
                                            Chairman and Chief Executive Officer



                                            By:    /s/ J. CHRISTOPHER ALSTRIN
                                              ----------------------------------
                                                     J. Christopher Alstrin
                                            Chief Financial Officer



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

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----
<C>                                                      <S>                            <C>

                /s/ JEFFREY W. TAYLOR                    Chairman and Chief             March 28, 2000
-----------------------------------------------------      Executive Officer
                  Jeffrey W. Taylor                        (principal executive
                                                           officer)

                 /s/ BRUCE W. TAYLOR                     President and Director         March 28, 2000
-----------------------------------------------------
                   Bruce W. Taylor

             /s/ J. CHRISTOPHER ALSTRIN                  Chief Financial Officer and    March 28, 2000
-----------------------------------------------------      Director (principal
               J. Christopher Alstrin                      financial and accounting
                                                           officer)

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

                /s/ ADELYN DOUGHERTY                     Director                       March 28, 2000
-----------------------------------------------------
                  Adelyn Dougherty

                 /s/ RONALD EMANUEL                      Director                       March 28, 2000
-----------------------------------------------------
                   Ronald Emanuel

                /s/ EDWARD T. MCGOWAN                    Director                       March 28, 2000
-----------------------------------------------------
                  Edward T. McGowan

                                                         Director
-----------------------------------------------------
                   Melvin E. Pearl

                 /s/ RICHARD TINBERG                     Director                       March 28, 2000
-----------------------------------------------------
                   Richard Tinberg

                 /s/ MARK L. YEAGER                      Director                       March 28, 2000
-----------------------------------------------------
                   Mark L. Yeager
</TABLE>

                                       110
<PAGE>   111

                           TAYLOR CAPITAL GROUP, INC.

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>

           12            -- Computation of Ratio of Earnings to Fixed Charges
           21            -- List of Subsidiaries
           27            -- Financial Data Schedule
</TABLE>

                                       111