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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended June 30, 2009

Commission File No. 0-50034





TAYLOR CAPITAL GROUP, INC.

(Exact name of registrant as specified in its charter)







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

9550 West Higgins Road

Rosemont, IL 60018

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

(847) 653-7978

(Registrants telephone number, including area code)





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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter)) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈  No   ̈

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                                                                           |  |                           |  |  
|-------------------------------------------------------------------------- |  | ------------------------- |  | -
|Large accelerated filer   ̈                                                 |  | Accelerated filer         |  |  ̈
|                                                                           |  |                          
|Non-accelerated filer     ̈    (Do not check if smaller reporting
company.) |  | Smaller reporting company |  | x

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

Indicate the number of outstanding shares of each of the issuers classes of common stock, as of the latest practicable date: At August 7, 2009, there were 11,081,429 shares of Common Stock, $0.01 par value, outstanding.









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TAYLOR CAPITAL GROUP, INC.

INDEX



|                              |  |                                                                                                                          |  |   
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | --
|                              |  | Page                                                                                                                    
|PART I. FINANCIAL INFORMATION |  |                                                                                                                         
|                              |  |                                                                                                                         
|Item 1.                       |  | Financial Statements                                                                                                     |  |   
|                              |  |                                                                                                                         
|                              |  | Consolidated Balance Sheets (unaudited) - June 30, 2009 and December 31, 2008                                            |  | 1 
|                              |  |                                                                                                                         
|                              |  | Consolidated Statements of Operations (unaudited) - For the three and six months ended June 30, 2009 and 2008            |  | 2 
|                              |  |                                                                                                                         
|                              |  | Consolidated Statements of Changes in Stockholders Equity (unaudited) - For the six months ended June 30, 2009 and 2008 |  | 3 
|                              |  |                                                                                                                         
|                              |  | Consolidated Statements of Cash Flows (unaudited) - For the six months ended June 30, 2009 and 2008                      |  | 4 
|                              |  |                                                                                                                         
|                              |  | Notes to Consolidated Financial Statements (unaudited)                                                                   |  | 6 
|                              |  |                                                                                                                         
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                    |  | 26
|                              |  |                                                                                                                         
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                               |  | 60
|                              |  |                                                                                                                         
|Item 4.                       |  | Controls and Procedures                                                                                                  |  | 60
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                         
|                              |  |                                                                                                                         
|Item 1.                       |  | Legal Proceedings                                                                                                        |  | 62
|                              |  |                                                                                                                         
|Item 1A.                      |  | Risk Factors                                                                                                             |  | 62
|                              |  |                                                                                                                         
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                              |  | 62
|                              |  |                                                                                                                         
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                          |  | 62
|                              |  |                                                                                                                         
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                      |  | 62
|                              |  |                                                                                                                         
|Item 5.                       |  | Other Information                                                                                                        |  | 63
|                              |  |                                                                                                                         
|Item 6.                       |  | Exhibits                                                                                                                 |  | 64
|                              |  |                                                                                                                         
|                              |  | Signatures                                                                                                               |  | 66



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TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS (unaudited)

(dollars in thousands, except per share data)



|                                                                                                                                                                                                                                                                                                   |  |              |           |   |                  |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                                                                                                                                   |  | June 30,2009 |           |   | December 31,2008 |  
|ASSETS                                                                                                                                                                                                                                                                                             |  |              |           |   |                  |   |           |  
|Cash and cash equivalents:                                                                                                                                                                                                                                                                         |  |              |           |   |                  |   |           |  
|Cash and due from banks                                                                                                                                                                                                                                                                            |  | $            | 69,650    |   |                  | $ | 52,762    |  
|Federal funds sold                                                                                                                                                                                                                                                                                 |  |              |          |   |                  |   | 200       |  
|Short-term investments                                                                                                                                                                                                                                                                             |  |              | 50        |   |                  |   | 50        |  
|                                                                                                                                                                                                                                                                                                   |  |              |           |   |                  |   |           |  
|Total cash and cash equivalents                                                                                                                                                                                                                                                                    |  |              | 69,700    |   |                  |   | 53,012    |  
|Investment securities:                                                                                                                                                                                                                                                                             |  |              |           |   |                  |   |           |  
|Available-for-sale, at fair value                                                                                                                                                                                                                                                                  |  |              | 1,306,149 |   |                  |   | 1,094,569 |  
|Held-to-maturity, at amortized cost (fair value of $25 at June 30, 2009 and December 31, 2008)                                                                                                                                                                                                     |  |              | 25        |   |                  |   | 25        |  
|Loans, net of allowance for loan losses of $132,927 and $128,548 at June 30, 2009 and December 31, 2008,
respectively                                                                                                                                                                              |  |              | 3,044,812 |   |                  |   | 3,104,713 |  
|Premises, leasehold improvements and equipment, net                                                                                                                                                                                                                                                |  |              | 16,097    |   |                  |   | 17,124    |  
|Investments in Federal Home Loan Bank and Federal Reserve Bank stock, at cost                                                                                                                                                                                                                      |  |              | 35,741    |   |                  |   | 29,630    |  
|Other real estate and repossessed assets, net                                                                                                                                                                                                                                                      |  |              | 23,070    |   |                  |   | 13,179    |  
|Other assets                                                                                                                                                                                                                                                                                       |  |              | 52,731    |   |                  |   | 76,637    |  
|                                                                                                                                                                                                                                                                                                   |  |              |           |   |                  |   |           |  
|Total assets                                                                                                                                                                                                                                                                                       |  | $            | 4,548,325 |   |                  | $ | 4,388,889 |  
|                                                                                                                                                                                                                                                                                                   |  |              |           |   |                  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                                                               |  |              |           |   |                  |   |           |  
|Deposits:                                                                                                                                                                                                                                                                                          |  |              |           |   |                  |   |           |  
|Noninterest-bearing                                                                                                                                                                                                                                                                                |  | $            | 597,734   |   |                  | $ | 470,990   |  
|Interest-bearing                                                                                                                                                                                                                                                                                   |  |              | 2,606,840 |   |                  |   | 2,660,056 |  
|                                                                                                                                                                                                                                                                                                   |  |              |           |   |                  |   |           |  
|Total deposits                                                                                                                                                                                                                                                                                     |  |              | 3,204,574 |   |                  |   | 3,131,046 |  
|Other borrowings                                                                                                                                                                                                                                                                                   |  |              | 315,244   |   |                  |   | 275,560   |  
|Accrued interest, taxes and other liabilities                                                                                                                                                                                                                                                      |  |              | 97,772    |   |                  |   | 71,286    |  
|Notes payable and FHLB advances                                                                                                                                                                                                                                                                    |  |              | 517,000   |   |                  |   | 462,000   |  
|Junior subordinated debentures                                                                                                                                                                                                                                                                     |  |              | 86,607    |   |                  |   | 86,607    |  
|Subordinated notes, net                                                                                                                                                                                                                                                                            |  |              | 55,493    |   |                  |   | 55,303    |  
|                                                                                                                                                                                                                                                                                                   |  |              |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                                                                                                                                                  |  |              | 4,276,690 |   |                  |   | 4,081,802 |  
|                                                                                                                                                                                                                                                                                                   |  |              |           |   |                  |   |           |  
|Stockholders equity:                                                                                                                                                                                                                                                                              |  |              |           |   |                  |   |           |  
|Preferred stock, $.01 par value, 10,000,000 shares authorized at June 30, 2009 and December 31, 2008:                                                                                                                                                                                              |  |              |           |   |                  |   |           |  
|Series A, 8% non-cumulative convertible perpetual, 2,400,000 shares issued and outstanding at June 30, 2009 and December 31, 2008,
$25.00 liquidation value                                                                                                                                        |  |              | 60,000    |   |                  |   | 60,000    |  
|Series B, 5% fixed rate cumulative perpetual, 104,823 shares issued and outstanding at June 30, 2009 and December 31, 2008, $1,000
liquidation value                                                                                                                                               |  |              | 98,110    |   |                  |   | 97,314    |  
|Common stock, $.01 par value; 45,000,000 shares authorized at June 30, 2009 and December 31, 2008; 12,034,097 and 12,068,604 shares
issued at June 30, 2009 and December 31, 2008, respectively; 11,081,429 and 11,115,936 shares outstanding at June 30, 2009 and December 31, 2008, respectively |  |              | 121       |   |                  |   | 121       |  
|Surplus                                                                                                                                                                                                                                                                                            |  |              | 225,538   |   |                  |   | 224,872   |  
|Accumulated deficit                                                                                                                                                                                                                                                                                |  |              | (99,386   | ) |                  |   | (69,294   | )
|Accumulated other comprehensive income, net                                                                                                                                                                                                                                                        |  |              | 11,888    |   |                  |   | 18,710    |  
|Treasury stock, at cost, 952,668 shares at June 30, 2009 and December 31, 2008                                                                                                                                                                                                                     |  |              | (24,636   | ) |                  |   | (24,636   | )
|                                                                                                                                                                                                                                                                                                   |  |              |           |   |                  |   |           |  
|Total stockholders equity                                                                                                                                                                                                                                                                         |  |              | 271,635   |   |                  |   | 307,087   |  
|                                                                                                                                                                                                                                                                                                   |  |              |           |   |                  |   |           |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                                                         |  | $            | 4,548,325 |   |                  | $ | 4,388,889 |  
|                                                                                                                                                                                                                                                                                                   |  |              |           |   |                  |   |           |  

See accompanying notes to consolidated financial statements (unaudited)



1



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TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(dollars in thousands, except per share data)



|                                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|---------------------------------------------------------- |  | ---------------------------------- | ------- | - | -------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                           |  | For the Three MonthsEnded June 30, |         |   | For the Six MonthsEnded June 30, |  
|                                                           |  | 2009                               |         |   | 2008                             |   |         | 2009 |  |   | 2008    |  
|Interest income:                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Interest and fees on loans                                 |  | $                                  | 39,552  |   |                                  | $ | 35,749  |      |  | $ | 78,919  |   |  | $ | 76,978  |  
|Interest and dividends on investment securities:           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Taxable                                                    |  |                                    | 14,745  |   |                                  |   | 8,954   |      |  |   | 28,258  |   |  |   | 18,355  |  
|Tax-exempt                                                 |  |                                    | 1,416   |   |                                  |   | 1,456   |      |  |   | 2,843   |   |  |   | 2,938   |  
|Interest on cash equivalents                               |  |                                    | 2       |   |                                  |   | 247     |      |  |   | 12      |   |  |   | 789     |  
|                                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Total interest income                                      |  |                                    | 55,715  |   |                                  |   | 46,406  |      |  |   | 110,032 |   |  |   | 99,060  |  
|                                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Interest expense:                                          |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Deposits                                                   |  |                                    | 18,223  |   |                                  |   | 19,606  |      |  |   | 38,282  |   |  |   | 41,579  |  
|Other borrowings                                           |  |                                    | 2,232   |   |                                  |   | 2,355   |      |  |   | 4,408   |   |  |   | 5,090   |  
|Notes payable and FHLB advances                            |  |                                    | 1,719   |   |                                  |   | 1,173   |      |  |   | 3,238   |   |  |   | 2,747   |  
|Junior subordinated debentures                             |  |                                    | 1,541   |   |                                  |   | 1,707   |      |  |   | 3,141   |   |  |   | 3,605   |  
|Subordinated notes                                         |  |                                    | 1,620   |   |                                  |   |        |      |  |   | 3,237   |   |  |   |        |  
|                                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Total interest expense                                     |  |                                    | 25,335  |   |                                  |   | 24,841  |      |  |   | 52,306  |   |  |   | 53,021  |  
|                                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Net interest income                                        |  |                                    | 30,380  |   |                                  |   | 21,565  |      |  |   | 57,726  |   |  |   | 46,039  |  
|Provision for loan losses                                  |  |                                    | 39,507  |   |                                  |   | 49,355  |      |  |   | 55,070  |   |  |   | 61,105  |  
|                                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Net interest income (loss) after provision for loan losses |  |                                    | (9,127  | ) |                                  |   | (27,790 | )    |  |   | 2,656   |   |  |   | (15,066 | )
|                                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Noninterest income:                                        |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Service charges                                            |  |                                    | 2,768   |   |                                  |   | 2,255   |      |  |   | 5,589   |   |  |   | 4,421   |  
|Trust and investment management fees                       |  |                                    | 475     |   |                                  |   | 1,035   |      |  |   | 1,009   |   |  |   | 1,842   |  
|Gains on investment sales                                  |  |                                    | 7,595   |   |                                  |   |        |      |  |   | 8,259   |   |  |   |        |  
|Other derivative income                                    |  |                                    | 153     |   |                                  |   | 65      |      |  |   | 1,272   |   |  |   | 952     |  
|Other noninterest income                                   |  |                                    | 1,146   |   |                                  |   | 675     |      |  |   | 1,351   |   |  |   | 917     |  
|                                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Total noninterest income                                   |  |                                    | 12,137  |   |                                  |   | 4,030   |      |  |   | 17,480  |   |  |   | 8,132   |  
|                                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Noninterest expense:                                       |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Salaries and employee benefits                             |  |                                    | 11,004  |   |                                  |   | 11,096  |      |  |   | 21,536  |   |  |   | 22,799  |  
|Occupancy of premises                                      |  |                                    | 2,013   |   |                                  |   | 1,883   |      |  |   | 4,062   |   |  |   | 3,830   |  
|Furniture and equipment                                    |  |                                    | 526     |   |                                  |   | 850     |      |  |   | 1,094   |   |  |   | 1,668   |  
|FDIC assessment                                            |  |                                    | 4,368   |   |                                  |   | 586     |      |  |   | 5,899   |   |  |   | 1,112   |  
|Legal fees, net                                            |  |                                    | 1,655   |   |                                  |   | 769     |      |  |   | 2,795   |   |  |   | 1,354   |  
|Non-performing asset expense                               |  |                                    | 224     |   |                                  |   | 2,471   |      |  |   | 978     |   |  |   | 3,479   |  
|Early extinguishment of debt                               |  |                                    |        |   |                                  |   | 384     |      |  |   | 527     |   |  |   | 1,194   |  
|Other noninterest expense                                  |  |                                    | 3,917   |   |                                  |   | 4,584   |      |  |   | 7,981   |   |  |   | 9,003   |  
|                                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Total noninterest expense                                  |  |                                    | 23,707  |   |                                  |   | 22,623  |      |  |   | 44,872  |   |  |   | 44,439  |  
|                                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Loss before income taxes                                   |  |                                    | (20,697 | ) |                                  |   | (46,383 | )    |  |   | (24,736 | ) |  |   | (51,373 | )
|Income tax expense (benefit)                               |  |                                    | 2,558   |   |                                  |   | (21,067 | )    |  |   | 1,337   |   |  |   | (22,217 | )
|                                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Net loss                                                   |  |                                    | (23,255 | ) |                                  |   | (25,316 | )    |  |   | (26,073 | ) |  |   | (29,156 | )
|Preferred dividends and discounts                          |  |                                    | (2,868  | ) |                                  |   |        |      |  |   | (5,730  | ) |  |   |        |  
|                                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Net loss applicable to common shareholders                 |  | $                                  | (26,123 | ) |                                  | $ | (25,316 | )    |  | $ | (31,803 | ) |  | $ | (29,156 | )
|                                                           |  |                                    |         |   |                                  |   |         |      |  |   |         |   |  |   |         |  
|Basic loss per common share                                |  | $                                  | (2.49   | ) |                                  | $ | (2.42   | )    |  | $ | (3.03   | ) |  | $ | (2.79   | )
|Diluted loss per common share                              |  |                                    | (2.49   | ) |                                  |   | (2.42   | )    |  |   | (3.03   | ) |  |   | (2.79   | )

See accompanying notes to consolidated financial statements (unaudited)



2



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (unaudited)

(dollars in thousands, except per share data)



|                                                                                                                            |  |                         |        |                         |   |             |  |         |     |  |                                      |         |   |                                     |   |         |               |  |   |        |   |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ----------------------- | - | ----------- |  | ------- | --- |  | ------------------------------------ | ------- | - | ----------------------------------- | - | ------- | ------------- |  | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                                            |  | PreferredStock,Series A |        | PreferredStock,Series B |   | CommonStock |  | Surplus |     |  | RetainedEarnings(AccumulatedDeficit) |         |   | AccumulatedOtherComprehensiveIncome |   |         | TreasuryStock |  |   | Total  |  
|Balance at December 31, 2008                                                                                                |  | $                       | 60,000 |                         | $ | 97,314      |  | $       | 121 |  | $                                    | 224,872 |   |                                     | $ | (69,294 | )             |  | $ | 18,710 |   |  | $ | (24,636 | ) |  | $ | 307,087 |  
|Adoption of FSP FAS115-2 and 124-2, effective April 1, 2009                                                                 |  |                         |       |                         |   |            |  |         |    |  |                                      |        |   |                                     |   | 1,709   |               |  |   | (1,033 | ) |  |   |        |   |  |   | 676     |  
|Preferred stock issuance cost, Series B                                                                                     |  |                         |       |                         |   |            |  |         |    |  |                                      | (27     | ) |                                     |   |        |               |  |   |       |   |  |   |        |   |  |   | (27     | )
|Amortization of stock based compensation awards                                                                             |  |                         |       |                         |   |            |  |         |    |  |                                      | 1,140   |   |                                     |   |        |               |  |   |       |   |  |   |        |   |  |   | 1,140   |  
|Tax benefit on stock awards                                                                                                 |  |                         |       |                         |   |            |  |         |    |  |                                      | (447    | ) |                                     |   |        |               |  |   |       |   |  |   |        |   |  |   | (447    | )
|Comprehensive loss:                                                                                                         |  |                         |        |                         |   |             |  |         |     |  |                                      |         |   |                                     |   |         |               |  |   |        |   |  |   |         |   |  |   |         |  
|Net loss                                                                                                                    |  |                         |       |                         |   |            |  |         |    |  |                                      |        |   |                                     |   | (26,073 | )             |  |   |       |   |  |   |        |   |  |   | (26,073 | )
|Change in unrealized gains on available-for-sale investment securities, net of income taxes and reclassification adjustment |  |                         |       |                         |   |            |  |         |    |  |                                      |        |   |                                     |   |        |               |  |   | (3,525 | ) |  |   |        |   |  |   | (3,525  | )
|Changes in deferred gain from termination of cash flow hedging instruments, net of income taxes                             |  |                         |       |                         |   |            |  |         |    |  |                                      |        |   |                                     |   |        |               |  |   | (2,264 | ) |  |   |        |   |  |   | (2,264  | )
|                                                                                                                            |  |                         |        |                         |   |             |  |         |     |  |                                      |         |   |                                     |   |         |               |  |   |        |   |  |   |         |   |  |   |         |  
|Total comprehensive loss                                                                                                    |  |                         |        |                         |   |             |  |         |     |  |                                      |         |   |                                     |   |         |               |  |   |        |   |  |   |         |   |  |   | (31,862 | )
|                                                                                                                            |  |                         |        |                         |   |             |  |         |     |  |                                      |         |   |                                     |   |         |               |  |   |        |   |  |   |         |   |  |   |         |  
|Preferred stock dividends declared, Series A-$1.00 per share                                                                |  |                         |       |                         |   |            |  |         |    |  |                                      |        |   |                                     |   | (2,400  | )             |  |   |       |   |  |   |        |   |  |   | (2,400  | )
|Preferred stock dividends accumulated, Series B                                                                             |  |                         |       |                         |   | 796         |  |         |    |  |                                      |        |   |                                     |   | (3,328  | )             |  |   |       |   |  |   |        |   |  |   | (2,532  | )
|                                                                                                                            |  |                         |        |                         |   |             |  |         |     |  |                                      |         |   |                                     |   |         |               |  |   |        |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2009                                                                                                    |  | $                       | 60,000 |                         | $ | 98,110      |  | $       | 121 |  | $                                    | 225,538 |   |                                     | $ | (99,386 | )             |  | $ | 11,888 |   |  | $ | (24,636 | ) |  | $ | 271,635 |  
|                                                                                                                            |  |                         |        |                         |   |             |  |         |     |  |                                      |         |   |                                     |   |         |               |  |   |        |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2007                                                                                                |  | $                       |       |                         | $ |            |  | $       | 115 |  | $                                    | 197,214 |   |                                     | $ | 75,145  |               |  | $ | 6,418  |   |  | $ | (24,636 | ) |  | $ | 254,256 |  
|Amortization of stock based compensation awards                                                                             |  |                         |       |                         |   |            |  |         |    |  |                                      | 1,111   |   |                                     |   |        |               |  |   |       |   |  |   |        |   |  |   | 1,111   |  
|Issuance of restricted stock grants                                                                                         |  |                         |       |                         |   |            |  |         | 4   |  |                                      | (4      | ) |                                     |   |        |               |  |   |       |   |  |   |        |   |  |   |        |  
|Exercise of stock options                                                                                                   |  |                         |       |                         |   |            |  |         |    |  |                                      | 30      |   |                                     |   |        |               |  |   |       |   |  |   |        |   |  |   | 30      |  
|Tax benefit on stock options exercised and stock awards                                                                     |  |                         |       |                         |   |            |  |         |    |  |                                      | (176    | ) |                                     |   |        |               |  |   |       |   |  |   |        |   |  |   | (176    | )
|Comprehensive income (loss):                                                                                                |  |                         |        |                         |   |             |  |         |     |  |                                      |         |   |                                     |   |         |               |  |   |        |   |  |   |         |   |  |   |         |  
|Net loss                                                                                                                    |  |                         |       |                         |   |            |  |         |    |  |                                      |        |   |                                     |   | (29,156 | )             |  |   |       |   |  |   |        |   |  |   | (29,156 | )
|Change in unrealized gains and losses on available-for-sale investment securities, net of income taxes                      |  |                         |       |                         |   |            |  |         |    |  |                                      |        |   |                                     |   |        |               |  |   | (4,149 | ) |  |   |        |   |  |   | (4,149  | )
|Change in unrealized gains and losses from cash flow hedging instruments, net of income taxes                               |  |                         |       |                         |   |            |  |         |    |  |                                      |        |   |                                     |   |        |               |  |   | 1,543  |   |  |   |        |   |  |   | 1,543   |  
|Changes in deferred gains and losses from termination of cash flow hedging instruments, net of income taxes                 |  |                         |       |                         |   |            |  |         |    |  |                                      |        |   |                                     |   |        |               |  |   | (980   | ) |  |   |        |   |  |   | (980    | )
|                                                                                                                            |  |                         |        |                         |   |             |  |         |     |  |                                      |         |   |                                     |   |         |               |  |   |        |   |  |   |         |   |  |   |         |  
|Total comprehensive loss                                                                                                    |  |                         |        |                         |   |             |  |         |     |  |                                      |         |   |                                     |   |         |               |  |   |        |   |  |   |         |   |  |   | (32,742 | )
|                                                                                                                            |  |                         |        |                         |   |             |  |         |     |  |                                      |         |   |                                     |   |         |               |  |   |        |   |  |   |         |   |  |   |         |  
|Common stock dividends$0.10 per share                                                                                      |  |                         |       |                         |   |            |  |         |    |  |                                      |        |   |                                     |   | (1,081  | )             |  |   |       |   |  |   |        |   |  |   | (1,081  | )
|                                                                                                                            |  |                         |        |                         |   |             |  |         |     |  |                                      |         |   |                                     |   |         |               |  |   |        |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2008                                                                                                    |  | $                       |       |                         | $ |            |  | $       | 119 |  | $                                    | 198,175 |   |                                     | $ | 44,908  |               |  | $ | 2,832  |   |  | $ | (24,636 | ) |  | $ | 221,398 |  
|                                                                                                                            |  |                         |        |                         |   |             |  |         |     |  |                                      |         |   |                                     |   |         |               |  |   |        |   |  |   |         |   |  |   |         |  

See accompanying notes to consolidated financial statements (unaudited)



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(dollars in thousands)



|                                                                                 |  |                                 |          |   |      |   |          |  
|-------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                 |  | For the Six Months EndedJune 30 |         
|                                                                                 |  | 2009                            |          |   | 2008 |  
|Cash flows from operating activities:                                            |  |                                 |          |   |      |   |          |  
|Net loss                                                                         |  | $                               | (26,073  | ) |      | $ | (29,156  | )
|Adjustments to reconcile net loss to net cash provided by operating activities:  |  |                                 |          |   |      |   |          |  
|Other derivative income                                                          |  |                                 | (1,272   | ) |      |   | (952     | )
|Gains on investment sales                                                        |  |                                 | (8,259   | ) |      |   |         |  
|Amortization of premiums and discounts, net                                      |  |                                 | (429     | ) |      |   | (495     | )
|Deferred loan fee amortization                                                   |  |                                 | (2,170   | ) |      |   | (1,121   | )
|Provision for loan losses                                                        |  |                                 | 55,070   |   |      |   | 61,105   |  
|Depreciation and amortization                                                    |  |                                 | 1,190    |   |      |   | 1,688    |  
|Deferred income tax expense (benefit)                                            |  |                                 | 2,286    |   |      |   | (21,230  | )
|Losses on other real estate                                                      |  |                                 | 666      |   |      |   | 814      |  
|Tax expense on stock options exercised or stock awards                           |  |                                 | (447     | ) |      |   | (176     | )
|Excess tax benefit on stock options exercised and stock awards                   |  |                                 | 372      |   |      |   | 155      |  
|Cash received on termination of derivative instruments                           |  |                                 | 6,630    |   |      |   | 3,934    |  
|Other, net                                                                       |  |                                 | (1,197   | ) |      |   | (244     | )
|Changes in other assets and liabilities:                                         |  |                                 |          |   |      |   |          |  
|Accrued interest receivable                                                      |  |                                 | 3        |   |      |   | 3,596    |  
|Other assets                                                                     |  |                                 | 11,343   |   |      |   | (2,068   | )
|Accrued interest, taxes and other liabilities                                    |  |                                 | (8,304   | ) |      |   | 2,082    |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Net cash provided by operating activities                                        |  |                                 | 29,409   |   |      |   | 17,932   |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Cash flows from investing activities:                                            |  |                                 |          |   |      |   |          |  
|Purchases of available-for-sale securities                                       |  |                                 | (618,208 | ) |      |   | (39,994  | )
|Proceeds from principal payments and maturities of available-for-sale securities |  |                                 | 193,048  |   |      |   | 107,759  |  
|Proceeds from sales of available-for-sale securities                             |  |                                 | 254,820  |   |      |   |         |  
|Net increase in loans                                                            |  |                                 | (8,928   | ) |      |   | (207,142 | )
|Net additions to premises, leasehold improvements and equipment                  |  |                                 | (163     | ) |      |   | (1,287   | )
|Net cash paid on sale of branch                                                  |  |                                 |         |   |      |   | (6,444   | )
|Additions to foreclosed property                                                 |  |                                 | (342     | ) |      |   | (179     | )
|Net proceeds from sales of other real estate                                     |  |                                 | 5,714    |   |      |   | 2,284    |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Net cash used by investing activities                                            |  |                                 | (174,059 | ) |      |   | (145,003 | )
|                                                                                 |  |                                 |          |   |      |   |          |  
|Cash flows from financing activities:                                            |  |                                 |          |   |      |   |          |  
|Net increase in deposits                                                         |  |                                 | 72,199   |   |      |   | 346,448  |  
|Net increase (decrease) in other borrowings                                      |  |                                 | 39,684   |   |      |   | (88,487  | )
|Proceeds from notes payable and FHLB advances                                    |  |                                 | 55,000   |   |      |   | 122,000  |  
|Repayments of notes payable and FHLB advances                                    |  |                                 |         |   |      |   | (180,000 | )
|Preferred stock issuance costs                                                   |  |                                 | (27      | ) |      |   |         |  
|Proceeds from exercise of employee stock options                                 |  |                                 |         |   |      |   | 30       |  
|Excess tax benefit on stock options exercised and stock awards                   |  |                                 | (372     | ) |      |   | (155     | )
|Dividends paid                                                                   |  |                                 | (5,146   | ) |      |   | (1,081   | )
|                                                                                 |  |                                 |          |   |      |   |          |  
|Net cash provided by financing activities                                        |  |                                 | 161,338  |   |      |   | 198,755  |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Net increase in cash and cash equivalents                                        |  |                                 | 16,688   |   |      |   | 71,684   |  
|Cash and cash equivalents, beginning of period                                   |  |                                 | 53,012   |   |      |   | 83,561   |  
|                                                                                 |  |                                 |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                         |  | $                               | 69,700   |   |      | $ | 155,245  |  
|                                                                                 |  |                                 |          |   |      |   |          |  

Consolidated Statements of Cash Flows continued on the next page

See accompanying notes to consolidated financial statements (unaudited)



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

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

(dollars in
thousands)



|                                                                              |  |                                 |         |   |      |   |        |  
|----------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------ | -
|                                                                              |  | For the Six Months EndedJune 30 |        
|                                                                              |  | 2009                            |         |   | 2008 |  
|Supplemental disclosure of cash flow information:                             |  |                                 |         |   |      |   |        |  
|Cash paid (received) during the period for:                                   |  |                                 |         |   |      |   |        |  
|Interest                                                                      |  | $                               | 56,678  |   |      | $ | 52,181 |  
|Income taxes                                                                  |  |                                 | (14,968 | ) |      |   | 244    |  
|                                                                              |  |                                
|Supplemental disclosures of noncash investing and financing activities:       |  |                                 |         |   |      |   |        |  
|Change in fair value of available-for-sale investments securities, net of tax |  | $                               | (3,525  | ) |      | $ | (4,149 | )
|Available-for-sale investment securities, acquired, not yet settled           |  |                                 | 36,595  |   |      |   |       |  
|Loans transferred to other real estate                                        |  |                                 | 15,929  |   |      |   | 4,772  |  

See accompanying notes to consolidated financial statements (unaudited)



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1.
Basis of Presentation:

These consolidated financial statements contain unaudited information as of June 30, 2009 and for
the three and six month periods ended June 30, 2009 and June 30, 2008. The unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures
required by accounting principles generally accepted in the United States of America are not included herein. In managements opinion, these unaudited financial statements include all adjustments necessary for a fair presentation of the
information when read in conjunction with the Companys audited consolidated financial statements and the related notes. The statement of operations data for the three and six month periods ended June 30, 2009 is not necessarily indicative
of the results that the Company may achieve for the full year.

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

2. Investment Securities:

The amortized cost and estimated fair values of investment securities at June 30, 2009 and December 31, 2008 were as follows:



|                                            |  |                |           |                      |   |                       |  |   |                     |   |  |   |          
|------------------------------------------- |  | -------------- | --------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | ---------
|                                            |  | June 30, 2009 
|                                            |  | AmortizedCost  |           | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|                                            |  | (in thousands)
|Available-for-sale:                         |  |                |           |                      |   |                       |  |   |                     |   |  |   |          
|U.S. government sponsored agency securities |  | $              | 84,984    |                      | $ | 1,414                 |  | $ | (60                 | ) |  | $ | 86,338   
|Collateralized mortgage obligations         |  |                | 113,065   |                      |   | 3,871                 |  |   | (1,755              | ) |  |   | 115,181  
|Mortgage-backed securities                  |  |                | 943,519   |                      |   | 18,523                |  |   | (7,442              | ) |  |   | 954,600  
|State and municipal obligations             |  |                | 135,571   |                      |   | 1,327                 |  |   | (959                | ) |  |   | 135,939  
|Other debt securities                       |  |                | 14,567    |                      |   |                      |  |   | (476                | ) |  |   | 14,091   
|                                            |  |                |           |                      |   |                       |  |   |                     |   |  |   |          
|Total available-for-sale                    |  |                | 1,291,706 |                      |   | 25,135                |  |   | (10,692             | ) |  |   | 1,306,149
|                                            |  |                |           |                      |   |                       |  |   |                     |   |  |   |          
|Held-to-maturity:                           |  |                |           |                      |   |                       |  |   |                     |   |  |   |          
|Other debt securities                       |  |                | 25        |                      |   |                      |  |   |                    |   |  |   | 25       
|                                            |  |                |           |                      |   |                       |  |   |                     |   |  |   |          
|Total held-to-maturity                      |  |                | 25        |                      |   |                       |  |   |                     |   |  |   | 25       
|                                            |  |                |           |                      |   |                       |  |   |                     |   |  |   |          
|Total                                       |  | $              | 1,291,731 |                      | $ | 25,135                |  | $ | (10,692             | ) |  | $ | 1,306,174
|                                            |  |                |           |                      |   |                       |  |   |                     |   |  |   |          



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##### Table of Contents

|                                            |  |                   |           |                      |   |                       |  |   |                     |   |  |   |          
|------------------------------------------- |  | ----------------- | --------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | ---------
|                                            |  | December 31, 2008
|                                            |  | AmortizedCost     |           | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|                                            |  | (in thousands)   
|Available-for-sale:                         |  |                   |           |                      |   |                       |  |   |                     |   |  |   |          
|U.S. government sponsored agency securities |  | $                 | 64,993    |                      | $ | 1,992                 |  | $ |                    |   |  | $ | 66,985   
|Collateralized mortgage obligations         |  |                   | 152,198   |                      |   | 2,174                 |  |   | (2,669              | ) |  |   | 151,703  
|Mortgage-backed securities                  |  |                   | 704,684   |                      |   | 22,182                |  |   | (3,933              | ) |  |   | 722,933  
|State and municipal obligations             |  |                   | 137,958   |                      |   | 1,347                 |  |   | (1,130              | ) |  |   | 138,175  
|Other debt securities                       |  |                   | 14,563    |                      |   | 210                   |  |   |                    |   |  |   | 14,773   
|                                            |  |                   |           |                      |   |                       |  |   |                     |   |  |   |          
|Total available-for-sale                    |  |                   | 1,074,396 |                      |   | 27,905                |  |   | (7,732              | ) |  |   | 1,094,569
|                                            |  |                   |           |                      |   |                       |  |   |                     |   |  |   |          
|Held-to-maturity:                           |  |                   |           |                      |   |                       |  |   |                     |   |  |   |          
|Other debt securities                       |  |                   | 25        |                      |   |                      |  |   |                    |   |  |   | 25       
|                                            |  |                   |           |                      |   |                       |  |   |                     |   |  |   |          
|Total held-to-maturity                      |  |                   | 25        |                      |   |                      |  |   |                    |   |  |   | 25       
|                                            |  |                   |           |                      |   |                       |  |   |                     |   |  |   |          
|Total                                       |  | $                 | 1,074,421 |                      | $ | 27,905                |  | $ | (7,732              | ) |  | $ | 1,094,594
|                                            |  |                   |           |                      |   |                       |  |   |                     |   |  |   |          

The following table shows the contractual maturities of debt securities, categorized by amortized
cost and estimated fair value, at June 30, 2009.



|                                       |  |                |           |                     |   |          
|-------------------------------------- |  | -------------- | --------- | ------------------- | - | ---------
|                                       |  | AmortizedCost  |           | EstimatedFair Value
|                                       |  | (in thousands)
|Available-for-sale:                    |  |                |           |                     |   |          
|Due in one year or less                |  | $              | 2,300     |                     | $ | 2,303    
|Due after one year through five years  |  |                | 89,947    |                     |   | 91,353   
|Due after five years through ten years |  |                | 28,962    |                     |   | 29,631   
|Due after ten years                    |  |                | 113,913   |                     |   | 113,081  
|Collateralized mortgage obligations    |  |                | 113,065   |                     |   | 115,181  
|Mortgage-backed securities             |  |                | 943,519   |                     |   | 954,600  
|                                       |  |                |           |                     |   |          
|Total                                  |  | $              | 1,291,706 |                     | $ | 1,306,149
|                                       |  |                |           |                     |   |          
|Held-to-maturity:                      |  |                |           |                     |   |          
|Due in one year or less                |  | $              | 25        |                     | $ | 25       
|                                       |  |                |           |                     |   |          
|Total                                  |  | $              | 25        |                     | $ | 25       
|                                       |  |                |           |                     |   |          

During the second quarter and first six months of 2009, the Company had gross realized gains of
$7.6 million and $8.3 million, respectively, on the sale of available-for-sale investment securities. No gross realized losses were realized during the second quarter or the first six months of 2009. In comparison, the Company did not have any gross
realized gains or losses on the sale of investment securities during the second quarter or first six months of 2008.

The following table
summarizes, for investment securities with unrealized losses as of June 30, 2009 and December 31, 2008, the amount of the unrealized loss and the related fair value of investment securities with unrealized losses. The unrealized losses
have been further segregated by investment securities that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve or more months.



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|                                                     |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |         |  
|---------------------------------------------------- |  | --------------------------------------------- | ------- | ---------------- | ------------------- | ------ | ---------- | ----- | ---------------- | ------ |  | ---------- | ------ | ---------------- |  | - | ------- |  | - | ------- | -
|                                                     |  | June 30, 2009                                 |        
|                                                     |  | Length of Continuous Unrealized Loss Position |        
|                                                     |  | Less than 12 months                           |         |                  | 12 months or longer |        |            | Total |                 
|                                                     |  | Fair Value                                    |         | UnrealizedLosses |                     |        | Fair Value |       | UnrealizedLosses |        |  | Fair Value |        | UnrealizedLosses | 
|                                                     |  | (in thousands)                                |        
|Available-for-sale:                                  |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |         |  
|U.S. government sponsored agency securities          |  | $                                             | 14,924  |                  | $                   | (60    | )          |       | $                |       |  | $          |       |                  |  | $ | 14,924  |  | $ | (60     | )
|Collateralized mortgage obligations                  |  |                                               | 7,875   |                  |                     | (171   | )          |       |                  | 13,883 |  |            | (1,584 | )                |  |   | 21,758  |  |   | (1,755  | )
|Mortgage-backed securities                           |  |                                               | 295,575 |                  |                     | (2,335 | )          |       |                  | 6,860  |  |            | (5,107 | )                |  |   | 302,435 |  |   | (7,442  | )
|State and municipal obligations                      |  |                                               | 37,394  |                  |                     | (415   | )          |       |                  | 14,455 |  |            | (544   | )                |  |   | 51,849  |  |   | (959    | )
|Other debt securities                                |  |                                               | 14,091  |                  |                     | (476   | )          |       |                  |       |  |            |       |                  |  |   | 14,091  |  |   | (476    | )
|                                                     |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |         |  
|Temporarily impaired securities  Available-for-sale |  | $                                             | 369,859 |                  | $                   | (3,457 | )          |       | $                | 35,198 |  | $          | (7,235 | )                |  | $ | 405,057 |  | $ | (10,692 | )
|                                                     |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |         |  
|                                                     | 
|                                                     |  | December 31, 2008                             |        
|                                                     |  | Length of Continuous Unrealized Loss Position |        
|                                                     |  | Less than 12 months                           |         |                  | 12 months or longer |        |            | Total |                 
|                                                     |  | Fair Value                                    |         | UnrealizedLosses |                     |        | Fair Value |       | UnrealizedLosses |        |  | Fair Value |        | UnrealizedLosses | 
|                                                     |  | (in thousands)                                |        
|Available-for-sale:                                  |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |         |  
|Collateralized mortgage obligations                  |  | $                                             | 16,009  |                  | $                   | (391   | )          |       | $                | 11,840 |  | $          | (2,278 | )                |  | $ | 27,849  |  | $ | (2,669  | )
|Mortgage-backed securities                           |  |                                               | 6,948   |                  |                     | (2,762 | )          |       |                  | 3,828  |  |            | (1,171 | )                |  |   | 10,776  |  |   | (3,933  | )
|State and municipal obligations                      |  |                                               | 45,312  |                  |                     | (1,084 | )          |       |                  | 2,935  |  |            | (46    | )                |  |   | 48,247  |  |   | (1,130  | )
|                                                     |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |         |  
|Temporarily impaired securities  Available-for-sale |  | $                                             | 68,269  |                  | $                   | (4,237 | )          |       | $                | 18,603 |  | $          | (3,495 | )                |  | $ | 86,872  |  | $ | (7,732  | )
|                                                     |  |                                               |         |                  |                     |        |            |       |                  |        |  |            |        |                  |  |   |         |  |   |         |  

Each quarter, the Company analyzes securities in its investment portfolio which have an unrealized
loss for other-than-temporary impairment. The Company reviews factors such as the severity and duration of the unrealized loss, credit ratings, and other pertinent information. Those securities with unrealized losses for more than 12 months or for
more than 10% of their carrying value are subjected to further analysis to determine if it is probable that not all the contractual cash flows will be received. The Company obtains fair value estimates from additional independent sources and
performs cash flow analysis to determine if other than temporary impairment has occurred. When the discounted cash flow analysis obtained from those independent pricing sources indicates that it is probable that all future principal and interest
payments would be received in accordance with their original contractual terms and the Company does not intend to sell the security, expects to recover the cost basis of the security, and it is more-likely-than-not that the Company will not be
required to sell the security before recovery, the unrealized loss is deemed temporary.



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At June 30, 2009, the Company had 85 investment securities in an unrealized loss position with 20
securities in an unrealized loss position for twelve months or more. In comparison, at December 31, 2008, the Company had 63 investment securities in an unrealized loss position with six securities in an unrealized loss position for twelve or
more months. At June 30, 2009, the Company does not have the intent to sell any of these available-for-sale investment securities and believes that it is more-likely-than-not that it will not have to sell any such security before the recovery
of cost. The Company believes that the unrealized losses are due to changes in interest rate and illiquidity in the current financial markets and does not believe that any of these securities are impaired due to credit quality. The Company continues
to monitor certain private-label mortgage-backed and collateralized mortgage obligation securities for which it believes that current quoted fair values have been impacted by illiquidity in the financial markets. At June 30, 2009, the Company
had six private-label mortgage-backed and collateralized mortgage obligation securities with a fair value of $28.6 million and an amortized cost basis of $35.5 million.

Effective April 1, 2009, the Company adopted FASB Staff Position FAS No. 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2). FSP FAS
115-2 modifies the requirements for recognizing other-than-temporary impairment and changes the model used to determine the amount of impairment. Under FSP FAS 115-2, declines in fair value of investment securities below their amortized cost basis
that are deemed to be other-than-temporary are reflected in earnings as a realized loss that the extent the impairment is related to credit loss. The amount of impairment related to other factors is recognized in other comprehensive income. Upon
adoption of FSP FAS 115-2, the Company recorded the cumulative effect of initial application as an adjustment to the opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive income for one private label
mortgage-related security for which other-than-temporary impairment was previously recognized through earnings. The amount of the anticipated credit loss on this investment security was $488,000 upon adoption and no additional credit loss was
recorded during the second quarter of 2009. The effect of the adoption is presented in the table below.



|                                                            |  |                              |           |   |             |   |        |                             |  |   |           |  
|----------------------------------------------------------- |  | ---------------------------- | --------- | - | ----------- | - | ------ | --------------------------- |  | - | --------- | -
|                                                            |  | Before Applicationof the FSP |           |   | Adjustments |   |        | After Applicationof the FSP | 
|                                                            |  | (in thousands)               |          
|Investment securities available-for-sale, at amortized cost |  | $                            | 1,292,180 |   |             | $ | 1,709  |                             |  | $ | 1,293,889 |  
|Unrealized gains (losses) on securities                     |  |                              | 29,400    |   |             |   | (1,709 | )                           |  |   | 27,691    |  
|Investment securities available-for-sale, at fair value     |  |                              | 1,321,580 |   |             |   |       |                             |  |   | 1,321,580 |  
|Other assets                                                |  |                              | 74,475    |   |             |   | 676    |                             |  |   | 75,151    |  
|Total assets                                                |  |                              | 4,596,701 |   |             |   | 676    |                             |  |   | 4,597,377 |  
|Accumulated deficit                                         |  |                              | (74,974   | ) |             |   | 1,709  |                             |  |   | (73,265   | )
|Accumulated other comprehensive income, net                 |  |                              | 27,888    |   |             |   | (1,033 | )                           |  |   | 26,855    |  
|Total stockholders equity                                  |  |                              | 311,425   |   |             |   | 676    |                             |  |   | 312,101   |  



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##### Table of Contents

3. Loans:

Loans classified by type at June 30, 2009 and December 31, 2008 were as follows:



|                                      |  |                |           |   |                  |   |           |  
|------------------------------------- |  | -------------- | --------- | - | ---------------- | - | --------- | -
|                                      |  | June 30,2009   |           |   | December 31,2008 |  
|                                      |  | (in thousands) |          
|Commercial and industrial             |  | $              | 1,379,615 |   |                  | $ | 1,485,673 |  
|Commercial real estate secured        |  |                | 1,154,971 |   |                  |   | 1,058,930 |  
|Real estate-construction              |  |                | 476,943   |   |                  |   | 531,452   |  
|Residential real estate mortgages     |  |                | 54,956    |   |                  |   | 53,859    |  
|Home equity loans and lines of credit |  |                | 94,464    |   |                  |   | 92,085    |  
|Consumer                              |  |                | 8,532     |   |                  |   | 9,163     |  
|Other loans                           |  |                | 8,268     |   |                  |   | 2,115     |  
|                                      |  |                |           |   |                  |   |           |  
|Gross loans                           |  |                | 3,177,749 |   |                  |   | 3,233,277 |  
|Less: Unearned discount               |  |                | (10       | ) |                  |   | (16       | )
|                                      |  |                |           |   |                  |   |           |  
|Total loans                           |  |                | 3,177,739 |   |                  |   | 3,233,261 |  
|Less: Allowance for loan losses       |  |                | (132,927  | ) |                  |   | (128,548  | )
|                                      |  |                |           |   |                  |   |           |  
|Loans, net                            |  | $              | 3,044,812 |   |                  | $ | 3,104,713 |  
|                                      |  |                |           |   |                  |   |           |  

The following table sets forth information about our nonaccrual and impaired loans. Impaired loans
include all nonaccrual loans as well as accruing loans judged to have higher risk of noncompliance with the present contractual repayment schedule.



|                                                       |  |                |         |                  |   |        
|------------------------------------------------------ |  | -------------- | ------- | ---------------- | - | -------
|                                                       |  | June 30,2009   |         | December 31,2008
|                                                       |  | (in thousands)
|Nonaccrual loans                                       |  | $              | 189,437 |                  | $ | 200,227
|Restructured loans not included in nonperforming loans |  |                | 4,375   |                  |   |       
|Recorded balance of impaired loans:                    |  |                |         |                  |   |        
|With related allowance for loan loss                   |  | $              | 168,487 |                  | $ | 120,973
|With no related allowance for loan loss                |  |                | 29,188  |                  |   | 85,732 
|                                                       |  |                |         |                  |   |        
|Total recorded balance of impaired loans               |  | $              | 197,675 |                  | $ | 206,705
|                                                       |  |                |         |                  |   |        
|Allowance for loan losses related to impaired loans    |  | $              | 68,963  |                  | $ | 41,451 



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##### Table of Contents

4. Interest-Bearing Deposits:

Interest-bearing deposits at June 30, 2009 and December 31, 2008 were as follows:



|                                              |  |                |           |                  |   |          
|--------------------------------------------- |  | -------------- | --------- | ---------------- | - | ---------
|                                              |  | June 30,2009   |           | December 31,2008
|                                              |  | (in thousands)
|NOW accounts                                  |  | $              | 237,617   |                  | $ | 218,451  
|Savings accounts                              |  |                | 41,784    |                  |   | 42,275   
|Money market deposits                         |  |                | 410,175   |                  |   | 394,043  
|Time deposits:                                |  |                |           |                  |   |          
|Certificates of deposit of less than $100,000 |  |                | 345,736   |                  |   | 385,800  
|Certificates of deposit of $100,000 or more   |  |                | 484,532   |                  |   | 484,383  
|CDARS time deposits                           |  |                | 167,315   |                  |   | 5,670    
|Out-of-local-market certificates of deposit   |  |                | 107,525   |                  |   | 136,470  
|Brokered certificates of deposit              |  |                | 738,289   |                  |   | 908,133  
|Public time deposits                          |  |                | 73,867    |                  |   | 84,831   
|                                              |  |                |           |                  |   |          
|Total time deposits                           |  |                | 1,917,264 |                  |   | 2,005,287
|                                              |  |                |           |                  |   |          
|Total                                         |  | $              | 2,606,840 |                  | $ | 2,660,056
|                                              |  |                |           |                  |   |          

The Bank participates in the Certificate of Deposit Account Registry Service network
(CDARS), which allows the Bank to accommodate depositors with large funds seeking the full deposit insurance protection, by placing these funds in CDs issued by other banks in the network. Through a matching system, the Bank will receive
funds back for CDs that it issues for other banks in the network, thus allowing the Bank to retain the full amount of the original deposit.

Brokered CDs are carried net of the related broker placement fees and fair value adjustments at the date those brokered CDs were no longer accounted for as fair value hedges. The broker placement fees and fair value adjustment totaled $2.1
million and $3.5 million at June 30, 2009 and December 31, 2008, respectively, and are amortized to the maturity date of the related brokered CDs. The amortization is included in deposit interest expense. Certain brokered CDs had an option
that allowed the Company to call the CD before its stated maturity, and the Company exercised this option when prevailing interest rate on the CD was substantially higher than current market interest rates. When a brokered CD is called, any
unamortized broker placement fees and fair value adjustments are written off and included in noninterest expense on the statement of operations. During the first quarter of 2009, the Company incurred $527,000 of expense associated with $29.0 million
of brokered CDs that were called before their stated maturity. In comparison, expense associated with the early extinguishment of brokered CDs totaled $384,000 and $1.2 million in the second quarter of 2008 and the first six months of 2008,
respectively. As of June 30, 2009, the Company did not have any brokered CDs that could be called before maturity.



11



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##### Table of Contents

5. Other Borrowings:

Other borrowings at June 30, 2009 and December 31, 2008 consisted of the following:



|                                                |  |                        |         |                      |                   |   |                |   |                      |  |      |  
|----------------------------------------------- |  | ---------------------- | ------- | -------------------- | ----------------- | - | -------------- | - | -------------------- |  | ---- | -
|                                                |  | June 30, 2009          |         |                      | December 31, 2008 |  
|                                                |  | AmountBorrowed         |         | Weighted-AverageRate |                   |   | AmountBorrowed |   | Weighted-AverageRate | 
|                                                |  | (dollars in thousands) |        
|Securities sold under agreements to repurchase: |  |                        |         |                      |                   |   |                |   |                      |  |      |  
|Overnight                                       |  | $                      | 29,405  |                      | 0.18              | % |                | $ | 21,017               |  | 0.18 | %
|Term                                            |  |                        | 200,000 |                      | 4.05              |   |                |   | 200,000              |  | 4.05 |  
|Federal funds purchased                         |  |                        | 83,314  |                      | 0.34              |   |                |   | 54,482               |  | 0.36 |  
|U.S. Treasury tax and loan note option          |  |                        | 2,525   |                      | 0.00              |   |                |   | 61                   |  | 0.00 |  
|                                                |  |                        |         |                      |                   |   |                |   |                      |  |      |  
|Total                                           |  | $                      | 315,244 |                      | 2.68              | % |                | $ | 275,560              |  | 3.03 | %
|                                                |  |                        |         |                      |                   |   |                |   |                      |  |      |  

6. Notes Payable & FHLB Advances:

Notes Payable and FHLB advances at June 30, 2009 and December 31, 2008 consisted of the following:



|                                                                                                                                                                                                                                                 |  |                |         |              |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | ------- | ------------ | - | -------
|                                                                                                                                                                                                                                                 |  | June 30,2009   |         | Dec. 31,2008
|                                                                                                                                                                                                                                                 |  | (in thousands)
|Taylor Capital Group, Inc.:                                                                                                                                                                                                                      |  |                |         |              |   |        
|Revolving Credit Facility  $15.0 million maximum available; interest, at the Companys election, at the prime rate or LIBOR plus
4.00%, with a minimum interest rate of 5.00%; interest rate at June 30, 2009 was 5.00%; matures March 31, 2010 |  | $              | 12,000  |              | $ | 12,000 
|                                                                                                                                                                                                                                                 |  |                |         |              |   |        
|Total notes payable                                                                                                                                                                                                                              |  |                | 12,000  |              |   | 12,000 
|                                                                                                                                                                                                                                                 |  |                |         |              |   |        
|Cole Taylor Bank:                                                                                                                                                                                                                                |  |                |         |              |   |        
|FHLB advance  4.83%, due February 1, 2011, callable after January 8, 2004                                                                                                                                                                       |  |                | 25,000  |              |   | 25,000 
|FHLB advance  4.59%, due April 5, 2010, callable after April 4, 2008                                                                                                                                                                            |  |                | 25,000  |              |   | 25,000 
|FHLB advance  0.25%, matured on January 2, 2009                                                                                                                                                                                                 |  |                |        |              |   | 275,000
|FHLB advance  0.30%, matured on January 2, 2009                                                                                                                                                                                                 |  |                |        |              |   | 40,000 
|FHLB advance  0.48%, matured on July 2, 2009                                                                                                                                                                                                    |  |                | 175,000 |              |   |       
|FHLB advance  0.40%, matured on July 1, 2009                                                                                                                                                                                                    |  |                | 195,000 |              |   |       
|FHLB advance  2.29%, due April 7, 2011, callable after April 7, 2009                                                                                                                                                                            |  |                | 25,000  |              |   | 25,000 
|FHLB advance  2.84%, due July 14, 2011, callable after July 14, 2009                                                                                                                                                                            |  |                | 17,500  |              |   | 17,500 
|FHLB advance  2.57%, due April 8, 2013, callable after April 7, 2010                                                                                                                                                                            |  |                | 25,000  |              |   | 25,000 
|FHLB advance  3.26%, due July 15, 2013, callable after July 14, 2010                                                                                                                                                                            |  |                | 17,500  |              |   | 17,500 
|                                                                                                                                                                                                                                                 |  |                |         |              |   |        
|Total FHLB advances                                                                                                                                                                                                                              |  |                | 505,000 |              |   | 450,000
|                                                                                                                                                                                                                                                 |  |                |         |              |   |        
|Total notes payable and FHLB advances                                                                                                                                                                                                            |  | $              | 517,000 |              | $ | 462,000
|                                                                                                                                                                                                                                                 |  |                |         |              |   |        

At June 30, 2009 and December 31, 2008, the Company had a $15.0 million revolving credit
facility, of which $12.0 million was outstanding at June 30, 2009 and December 31, 2008. The notes payable under the revolver require compliance with certain defined financial covenants. As of June 30, 2009, the Company is in
compliance with all of the covenants.



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##### Table of Contents

At June 30, 2009, the FHLB advances were collateralized by $617.8 million of investment securities
and a blanket lien on $135.0 million of qualified first-mortgage residential and home equity loans. Based on the value of collateral pledged at June 30, 2009, the Bank had additional borrowing capacity at the FHLB of $196.6 million. In
comparison, at December 31, 2008, the FHLB advances were collateralized by $499.4 million of investment securities and a blanket lien on $155.2 million of qualified first-mortgage residential and home equity loans.

7. Income Taxes:

Despite a pre-tax loss, the
Company recorded income tax expense of $1.3 million for the first six months of 2009. Because of the valuation allowance maintained on the deferred tax asset, the Company does not expect to be able to record an income tax benefit during 2009
related to the pre-tax loss incurred.

Income tax expense was different from the amounts computed by applying the federal statutory rate of
35% for the six month period ended June 30, 2009 to the loss before income taxes due to the following:



|                                                       |  |              |        |  
|------------------------------------------------------ |  | ------------ | ------ | -
|                                                       |  | June 30,2009 |       
|Federal income tax expense (benefit) at statutory rate |  | $            | (8,658 | )
|Increase (decrease) in income taxes resulting from:    |  |              |        |  
|Increase in valuation allowance                        |  |              | 10,789 |  
|Residual tax effect                                    |  |              | 1,485  |  
|Other, net                                             |  |              | (2,279 | )
|                                                       |  |              |        |  
|Total income tax expense                               |  | $            | 1,337  |  
|                                                       |  |              |        |  

A current income tax benefit that would normally result from a pre-tax loss was offset by
additional deferred tax expense due to an increase in the valuation allowance. Additional contributing factors to the income tax expense recorded in 2009 include the release of the residual tax effects of changes in the beginning of the year
valuation allowance previously allocated to other comprehensive income. These residual tax effects resulted from changes in the deferred tax liability associated with deferred gains on terminated cash flow hedges recorded in other comprehensive
income. The Company expects additional expense of $1.1 million during the last six months of 2009 associated with the release of these residual tax effects.

The valuation allowance increased $12.2 million during the first six months of 2009 to $58.6 million at June 30, 2009 as compared to $46.4 million at December 31, 2008. The net deferred tax asset before the
valuation allowance, including the tax effect of items recorded in other comprehensive income, increased to $64.3 million at June 30, 2009 as compared to $53.3 million at December 31, 2008. The largest deferred tax asset principally
relates to the allowance for loan losses. After considering the valuation allowance, the net deferred tax asset totaled $5.8 million at June 30, 2009 compared to $6.9 million at December 31, 2008. The net deferred tax asset in excess of
the valuation allowance was supported by remaining carry backs of income taxes paid in prior years and available tax planning strategies.



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##### Table of Contents

Generally, the provision for income taxes is determined by applying an estimated annual effective income
tax rate to income before income taxes. The rate is based on the most recent annualized forecast of pretax income, permanent book versus tax differences and tax credits. FASB Interpretation No. 18 (FIN 18), Accounting for
Income Taxes in Interim Periods  an interpretation of APB No. 28, provides that, when a reliable estimate of the annual effective tax rate cannot be made, the actual effective tax rate for the year-to-date period may be
used. During the second quarter of 2009, the Company concluded that a reliable estimate of the annual effective tax rate could not be made primarily due to the volatility experienced in its provision for loan losses and the impact of such on
its forecasts of pre-tax income or loss. Accordingly, the Company has determined that the actual effective tax rate for the year-to-date period is the best estimate of the effective tax rate. The Company will re-evaluate the combined
federal and state income tax rates each quarter. Therefore, the current projected effective tax rate for the entire year may change.

8. Other
Comprehensive Income:

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



|                                                                                                |  |                                         |         |   |                                         |   |        |           |  |   |                 |   |  |           |         |   |           |   |       |   |  |   |        |  
|----------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | --------------------------------------- | - | ------ | --------- |  | - | --------------- | - |  | --------- | ------- | - | --------- | - | ----- | - |  | - | ------ | -
|                                                                                                |  | For the Three Months EndedJune 30, 2009 |         |   | For the Three Months EndedJune 30, 2008 |  
|                                                                                                |  | BeforeTaxAmount                         |         |   | TaxEffect                               |   |        | Net ofTax |  |   | BeforeTaxAmount |   |  | TaxEffect |         |   | Net ofTax |  
|                                                                                                |  | (in thousands)                          |        
|Unrealized gains from securities:                                                               |  |                                         |         |   |                                         |   |        |           |  |   |                 |   |  |           |         |   |           |   |       |   |  |   |        |  
|Change in unrealized gains on available-for-sale securities                                     |  | $                                       | (5,652  | ) |                                         | $ | (3,737 | )         |  | $ | (9,389          | ) |  | $         | (16,006 | ) |           | $ | 6,324 |   |  | $ | (9,682 | )
|Less: reclassification adjustment for gains included in net loss                                |  |                                         | (7,595  | ) |                                         |   | 3,009  |           |  |   | (4,586          | ) |  |           |        |   |           |   |      |   |  |   |       |  
|                                                                                                |  |                                         |         |   |                                         |   |        |           |  |   |                 |   |  |           |         |   |           |   |       |   |  |   |        |  
|Change in unrealized gains on available-for-sale securities, net of reclassification adjustment |  |                                         | (13,247 | ) |                                         |   | (728   | )         |  |   | (13,975         | ) |  |           | (16,006 | ) |           |   | 6,324 |   |  |   | (9,682 | )
|Change in net unrealized gain from cash flow hedging instruments                                |  |                                         |        |   |                                         |   |       |           |  |   |                |   |  |           | 822     |   |           |   | (325  | ) |  |   | 497    |  
|Change in deferred gains and losses from termination of cash flow hedging instruments           |  |                                         | (1,642  | ) |                                         |   | 650    |           |  |   | (992            | ) |  |           | (1,062  | ) |           |   | 417   |   |  |   | (645   | )
|                                                                                                |  |                                         |         |   |                                         |   |        |           |  |   |                 |   |  |           |         |   |           |   |       |   |  |   |        |  
|Other comprehensive income                                                                      |  | $                                       | (14,889 | ) |                                         | $ | (78    | )         |  | $ | (14,967         | ) |  | $         | (16,246 | ) |           | $ | 6,416 |   |  | $ | (9,830 | )
|                                                                                                |  |                                         |         |   |                                         |   |        |           |  |   |                 |   |  |           |         |   |           |   |       |   |  |   |        |  



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|                                                                                                |  |                                       |        |   |                                       |   |        |           |  |   |                 |   |  |           |        |   |           |   |        |   |  |   |        |  
|----------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ------------------------------------- | - | ------ | --------- |  | - | --------------- | - |  | --------- | ------ | - | --------- | - | ------ | - |  | - | ------ | -
|                                                                                                |  | For the Six Months EndedJune 30, 2009 |        |   | For the Six Months EndedJune 30, 2008 |  
|                                                                                                |  | BeforeTaxAmount                       |        |   | TaxEffect                             |   |        | Net ofTax |  |   | BeforeTaxAmount |   |  | TaxEffect |        |   | Net ofTax |  
|                                                                                                |  | (in thousands)                        |       
|Unrealized gains from securities:                                                               |  |                                       |        |   |                                       |   |        |           |  |   |                 |   |  |           |        |   |           |   |        |   |  |   |        |  
|Change in unrealized gains on available-for-sale securities                                     |  | $                                     | 4,240  |   |                                       | $ | (2,778 | )         |  | $ | 1,462           |   |  | $         | (6,859 | ) |           | $ | 2,710  |   |  | $ | (4,149 | )
|Less: reclassification adjustment for gains included in net loss                                |  |                                       | (8,259 | ) |                                       |   | 3,272  |           |  |   | (4,987          | ) |  |           |       |   |           |   |       |   |  |   |       |  
|                                                                                                |  |                                       |        |   |                                       |   |        |           |  |   |                 |   |  |           |        |   |           |   |        |   |  |   |        |  
|Change in unrealized gains on available-for-sale securities, net of reclassification adjustment |  |                                       | (4,019 | ) |                                       |   | 494    |           |  |   | (3,525          | ) |  |           | (6,859 | ) |           |   | 2,710  |   |  |   | (4,149 | )
|Change in net unrealized gain/(loss) from cash flow hedging instruments                         |  |                                       |       |   |                                       |   |       |           |  |   |                |   |  |           | 2,545  |   |           |   | (1,002 | ) |  |   | 1,543  |  
|Change in net deferred gain/(loss) from termination of cash flow hedging instruments            |  |                                       | (3,749 | ) |                                       |   | 1,485  |           |  |   | (2,264          | ) |  |           | (1,589 | ) |           |   | 609    |   |  |   | (980   | )
|                                                                                                |  |                                       |        |   |                                       |   |        |           |  |   |                 |   |  |           |        |   |           |   |        |   |  |   |        |  
|Other comprehensive loss                                                                        |  | $                                     | (7,768 | ) |                                       | $ | 1,979  |           |  | $ | (5,789          | ) |  | $         | (5,903 | ) |           | $ | 2,317  |   |  | $ | (3,586 | )
|                                                                                                |  |                                       |        |   |                                       |   |        |           |  |   |                 |   |  |           |        |   |           |   |        |   |  |   |        |  

The tax effects of changes in the beginning of the year deferred tax asset valuation allowance
solely attributable to identifiable events recorded in other comprehensive income, primarily changes in unrealized gains on the available-for-sale investment portfolio, were allocated to other comprehensive income in accordance with Financial
Accounting Standard No. 109, Accounting for Income Taxes.

9. Earnings Per Share:

The following table sets forth the computation of basic and diluted loss per common share for the periods indicated. Due to the net loss for both the
three and six month periods ended June 30, 2009, all common stock equivalents, which consisted of 634,625 options outstanding to purchase shares of common stock, 2,862,647 warrants to purchase shares of common stock, and the convertible Series
A Preferred stock which could be converted into 6,000,000 shares of common stock, were considered antidilutive and not included in the computation of diluted earnings per share. For both the three and six month periods ended June 30, 2008,
690,998 options outstanding to purchase shares of common stock were not included in the computation of diluted earnings per share because the effect would have been antidilutive.



|                                                   |  |                                                  |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|-------------------------------------------------- |  | ------------------------------------------------ | ---------- | - | -------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                   |  | For the Three Months EndedJune 30,               |            |   | For the Six Months EndedJune 30, |  
|                                                   |  | 2009                                             |            |   | 2008                             |   |            | 2009 |  |   | 2008       |  
|                                                   |  | (dollars in thousands, except per share amounts) |           
|Net loss                                           |  | $                                                | (23,255    | ) |                                  | $ | (25,316    | )    |  | $ | (26,073    | ) |  | $ | (29,156    | )
|Preferred dividends and discounts                  |  |                                                  | (2,868     | ) |                                  |   |           |      |  |   | (5,730     | ) |  |   |           |  
|                                                   |  |                                                  |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Net loss available to common stockholders          |  | $                                                | (26,123    | ) |                                  | $ | (25,316    | )    |  | $ | (31,803    | ) |  | $ | (29,156    | )
|                                                   |  |                                                  |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|                                                   |  |                                                  |            |  
|Weighted-average common shares outstanding         |  |                                                  | 10,492,789 |   |                                  |   | 10,446,512 |      |  |   | 10,482,212 |   |  |   | 10,442,573 |  
|Dilutive effect of common stock equivalents        |  |                                                  |           |   |                                  |   |           |      |  |   |           |   |  |   |           |  
|                                                   |  |                                                  |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Diluted weighted-average common shares outstanding |  |                                                  | 10,492,789 |   |                                  |   | 10,446,512 |      |  |   | 10,482,212 |   |  |   | 10,442,573 |  
|                                                   |  |                                                  |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Basic loss per common share                        |  | $                                                | (2.49      | ) |                                  | $ | (2.42      | )    |  | $ | (3.03      | ) |  | $ | (2.79      | )
|Diluted loss per common share                      |  |                                                  | (2.49      | ) |                                  |   | (2.42      | )    |  |   | (3.03      | ) |  |   | (2.79      | )
|                                                   |  |                                                  |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  



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10. Stock-Based Compensation:

The Companys Incentive Compensation Plan (the Plan) allows for the granting of stock options and stock awards. Under the Plan, the Company has only issued nonqualified stock options and restricted
stock to employees and directors.

Stock options, generally, are granted with an exercise price equal to the last reported sales price of
the common stock on the Nasdaq Global Select Market on the date of grant. The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options issued to employees and directors. Compensation expense associated with
stock options is recognized over the vesting period, or until the employee or director becomes retirement eligible if that time period is shorter.

The following is a summary of stock option activity for the six month period ended June 30, 2009:



|                               |  |         |   |  |                                |      
|------------------------------ |  | ------- | - |  | ------------------------------ | -----
|                               |  | Shares  |   |  | Weighted-AverageExercise Price
|Outstanding at January 1, 2009 |  | 716,642 |   |  | $                              | 23.85
|Granted                        |  |        |   |  |                                |     
|Exercised                      |  |        |   |  |                                |     
|Forfeited                      |  | (13,059 | ) |  |                                | 30.64
|Expired                        |  | (68,958 | ) |  |                                | 22.43
|                               |  |         |   |  |                                |      
|Outstanding at June 30, 2009   |  | 634,625 |   |  |                                | 23.86
|                               |  |         |   |  |                                |      
|Exercisable at June 30, 2009   |  | 557,978 |   |  | $                              | 23.55
|                               |  |         |   |  |                                |      

As of June 30, 2009, the total compensation cost related to nonvested stock options that have
not yet been recognized totaled $493,000 and the weighted-average period over which these costs are expected to be recognized is approximately 1.9 years.

Generally, the Company grants restricted stock awards that vest upon completion of future service requirements. The fair value of these awards is equal to the last reported sales price of the Companys common
stock on the date of grant. The Company recognizes stock-based compensation expense for these awards over the vesting period based upon the number of awards ultimately expected to vest.



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The following table provides information regarding nonvested restricted stock for the six month period
ended June 30, 2009:



|                             |  |         |   |  |                                      |      
|---------------------------- |  | ------- | - |  | ------------------------------------ | -----
|Nonvested Restricted Stock   |  | Shares  |   |  | Weighted-AverageGrant-DateFair Value
|Nonvested at January 1, 2009 |  | 656,181 |   |  | $                                    | 16.21
|Granted                      |  |        |   |  |                                      |     
|Vested                       |  | (40,855 | ) |  |                                      | 28.00
|Forfeited                    |  | (34,428 | ) |  |                                      | 19.35
|                             |  |         |   |  |                                      |      
|Nonvested at June 30, 2009   |  | 580,898 |   |  |                                      | 15.20
|                             |  |         |   |  |                                      |      

As of June 30, 2009, the total compensation cost related to nonvested restricted stock that
has not yet been recognized totaled $7.1 million and the weighted-average period over which these costs are expected to be recognized is approximately 3.6 years.

11. Derivative Financial Instruments:

The Company uses derivative financial instruments to accommodate customer
needs and to assist in interest rate risk management. The Company has used interest rate exchange agreements, or swaps, and interest rate floors and collars to manage the interest rate risk associated with its commercial loan portfolio. At
June 30, 2009, all of the Companys derivatives related to customer loans. The following table describes the derivative instruments outstanding at June 30, 2009:



|                                              |  |                                          |  |                |         |              |                         |                  |         |           |   |         |  
|--------------------------------------------- |  | ---------------------------------------- |  | -------------- | ------- | ------------ | ----------------------- | ---------------- | ------- | --------- | - | ------- | -
|Product                                       |  | BalanceSheet/IncomeStatement Location    |  | NotionalAmount |         | Strike Rates |                         | Wt. Avg.Maturity |         | FairValue |  
|                                              |  | (dollars in thousands)                   | 
|Non-hedging derivative instruments:           |  |                                          |  |                |         |              |                         |                  |         |           |   |         |  
|Interest Rate Swappay fixed/receive variable |  | Other Liabilities/Other DerivativeIncome |  | $              | 181,589 |              | Pay 4.32%Receive 0.583% |                  | 3.6 yrs |           | $ | (10,348 | )
|Interest Rate Swapreceive fixed/pay variable |  | Other Assets/ OtherDerivative Income     |  |                | 181,589 |              | Receive 4.32%Pay 0.583% |                  | 3.6 yrs |           |   | 10,522  |  
|                                              |  |                                          |  |                |         |              |                         |                  |         |           |   |         |  
|Total                                         |  |                                          |  | $              | 363,178 |              |                         |                  |         |           |   |         |  
|                                              |  |                                          |  |                |         |              |                         |                  |         |           |   |         |  

In January 2009, the Company terminated a $100.0 million notional amount interest rate swap that
was not designated as an accounting hedge. The Company discontinued hedge accounting in December 2008 when it determined the hedge would no longer be effective. The unrealized gain of $6.4 million upon de-designation, which had accumulated in other
comprehensive income (net of tax), is being amortized to loan interest income over what would have been the life of the hedge. Changes in fair value of the swap from the period that hedge designations were removed until the swap was sold, in January
2009, were included in other derivative income in noninterest income. Other derivative income during 2009 included a $33,000 loss because of a decrease in fair value until the date the swap was sold.



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12. Fair Value:

On January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, (SFAS 157) (FASB ASC 820-10). On January 1, 2009, the Company adopted FSP FAS 157-2,
Effective Date of FASB Statement No. 157 (FSP 157-2). In accordance with FSP 157-2, the Company delayed application of SFAS 157 for non-financial assets, such as the Companys other real estate owned assets,
and non-financial liabilities until 2009. The impact of the adoption of SFAS 157 and FSP 157-2 was not material.

On January 1, 2008,
the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, (SFAS 159) (FASB ASC 825-10), however, the Company did not elect the fair value option for any financial assets or
liabilities as of that date, nor for any asset acquired or liability incurred subsequent to January 1, 2008.

Fair Value Measurement

In accordance with SFAS No. 157 (FASB ASC 820-35), the Company groups financial assets and financial liabilities measured at fair
value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1  Quoted prices for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2  Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities,
quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level
3  Significant unobservable inputs that reflect an entitys own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate fair values:

Available-for-sale investment securities: For these securities, the Company obtains fair value measurements from an independent pricing service.
The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the
bonds terms and conditions, among other things. The Company has determined that these valuations are classified in Level 2 of the fair value hierarchy.



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Assets held in employee deferred compensation plans: Assets held in employee deferred compensation
plans are recorded at fair value and included in other assets on the Companys consolidated balance sheets. The assets associated with these plans are invested in mutual funds and classified as Level 1 as the fair value
measurement is based upon available quoted prices. The Company also records a liability included in accrued interest, taxes and other liabilities on its consolidated balance sheets for the amount due to employees related to these plans.

Derivatives:The Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives,
including the period to maturity, and uses observable market-based inputs, including interest rate curves, and implied volatilities. To comply with the provisions of No. 157 (FASB ASC 820-10), the Company incorporates credit valuation
adjustments to appropriately reflect both its own nonperformance risk and the respective counterpartys nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance
risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Loans:The Company does not record loans at their fair value on a recurring basis. However, the Company evaluates certain loans for impairment when it is probable the payment of interest and principal will not
be made in accordance with the contractual terms of the loan agreement. Once a loan has been determined to be impaired, it is measured to establish the amount of the impairment, if any, based on the present value of expected future cash flows
discounted at the loans effective interest rate, except that collateral-dependent loans may be measured for impairment based on the fair value of the collateral, less cost to sell. If the measure of the impaired loan is less than the recorded
investment in the loan, a valuation allowance is recognized. At June 30, 2009, a portion of the Companys total impaired loans were evaluated based on the fair value of the collateral. In accordance with SFAS 157 (FASB ASC 820-10), only
impaired loans for which an allowance for loan loss has been established based on the fair value of collateral require classification in the fair value hierarchy. As a result, a portion, but not all, of the Companys impaired loans are
classified in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or an estimate of fair value from an independent third-party real estate professional, the Company classifies the impaired loan as
nonrecurring Level 2 in the fair value hierarchy.

Other Real Estate Owned and Repossessed Assets: The Company does not record other
real estate owned (OREO) and repossessed assets at their fair value on a recurring basis. At foreclosure or obtaining possession of the assets, OREO and repossessed assets are recorded at the lower of the amount of the loan balance or
the fair value of the collateral, less estimated costs to sell. Generally, the fair value of real estate is determined through the use of a current appraisal and the fair value of other repossessed assets is based upon the estimated net proceeds
from the sale or disposition of the underlying collateral. Only assets that are recorded at fair value, less estimated cost to sell, are classified under the fair value hierarchy. When the fair value of the collateral is based upon an observable
market price or an estimate of fair value from an independent third-party real estate professional, the Company classifies the OREO and repossessed asset as nonrecurring Level 2 in the fair value hierarchy.



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Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below.



|                                                    |  |                     |           |                                       |   |                                           |  |                                        |           |  |   |  
|--------------------------------------------------- |  | ------------------- | --------- | ------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | --------- |  | - | -
|                                                    |  | As of June 30, 2009
|                                                    |  | Total FairValue     |           | QuotedPrices inActiveMarkets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level
3)
|                                                    |  | (in thousands)     
|Assets:                                             |  |                     |           |                                       |   |                                           |  |                                        |           |  |   |  
|Available for sale securities                       |  | $                   | 1,306,149 |                                       | $ |                                          |  | $                                      | 1,306,149 |  | $ | 
|Assets held in employee deferred compensation plans |  |                     | 3,052     |                                       |   | 3,052                                     |  |                                        |          |  |   | 
|Derivative instruments                              |  |                     | 10,522    |                                       |   |                                          |  |                                        | 10,522    |  |   | 
|                                                    |  |                     |           |                                      
|Liabilities:                                        |  |                     |           |                                       |   |                                           |  |                                        |           |  |   |  
|Derivative instruments                              |  |                     | 10,348    |                                       |   |                                          |  |                                        | 10,348    |  |   | 



|                                                    |  |                         |           |                                       |   |                                           |  |                                        |           |  |   |  
|--------------------------------------------------- |  | ----------------------- | --------- | ------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | --------- |  | - | -
|                                                    |  | As of December 31, 2008
|                                                    |  | Total FairValue         |           | QuotedPrices inActiveMarkets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level
3)
|                                                    |  | (in thousands)         
|Assets:                                             |  |                         |           |                                       |   |                                           |  |                                        |           |  |   |  
|Available for sale securities                       |  | $                       | 1,094,569 |                                       | $ |                                          |  | $                                      | 1,094,569 |  | $ | 
|Assets held in employee deferred compensation plans |  |                         | 4,161     |                                       |   | 4,161                                     |  |                                        |          |  |   | 
|Derivative instruments                              |  |                         | 18,578    |                                       |   |                                          |  |                                        | 18,578    |  |   | 
|                                                    |  |                         |           |                                      
|Liabilities:                                        |  |                         |           |                                       |   |                                           |  |                                        |           |  |   |  
|Derivative instruments                              |  |                         | 11,940    |                                       |   |                                          |  |                                        | 11,940    |  |   | 



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Assets Measured on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis are summarized below. The Company may be required, from time to time, to measure certain other
financial assets at fair value on a nonrecurring basis. These assets generally consist of loans considered impaired that may require periodic adjustment to the lower of cost or fair value.



|                                         |  |                         |         |                                       |   |                                           |  |                                        |         |  |   |       
|---------------------------------------- |  | ----------------------- | ------- | ------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | ------- |  | - | ------
|                                         |  | As of June 30, 2009    
|                                         |  | Total FairValue         |         | QuotedPrices inActiveMarkets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level
3)
|                                         |  | (in thousands)         
|Assets:                                  |  |                         |         |                                       |   |                                           |  |                                        |         |  |   |       
|Loans                                    |  | $                       | 168,487 |                                       | $ |                                          |  | $                                      | 118,997 |  | $ | 49,490
|Other real estate and repossessed assets |  |                         | 17,048  |                                       |   |                                          |  |                                        | 17,048  |  |   |      
|                                         | 
|                                         |  | As of December 31, 2008
|                                         |  | Total FairValue         |         | QuotedPrices inActiveMarkets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level
3)
|                                         |  | (in thousands)         
|Assets:                                  |  |                         |         |                                       |   |                                           |  |                                        |         |  |   |       
|Loans                                    |  | $                       | 120,973 |                                       | $ |                                          |  | $                                      | 75,094  |  | $ | 45,879
|Other real estate and repossessed assets |  |                         | 11,523  |                                       |   |                                          |  |                                        | 11,523  |  |   |      



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

Cash and Cash Equivalents: The carrying amounts of cash, due from banks, interest-bearing deposits
with banks or other financial institutions, federal funds sold, and securities purchased under agreement to resell with original maturities less than 90 days approximate fair value since their maturities are short-term.

Investment Securities:The fair value measurements of investment securities consider observable data that may include dealer quotes, market
spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bonds terms and conditions, among other things.

Loans:The 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, less a valuation adjustment for general portfolio risks. However, certain loans are accounted for at fair value when it is probable the payment of interest and principal will not be made in
accordance with the contractual terms and impairment exists. In these cases, the fair value is determined based on the present value of expected future cash flows discounted at the loans effective interest rate, except that
collateral-dependent loans may be measured for impairment based on the fair value of the collateral, less cost to sell.

Investment in
FHLB and Federal Reserve Bank Stock:The fair value of these investments in FHLB and Federal Reserve Bank Stock equals its book value as these stocks can only be sold back to the FHLB, Federal Reserve Bank, or other member banks at their par
value per share.

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

Derivative Financial Instruments:The carrying amount and fair value of existing derivative financial
instruments are based upon independent valuation models, which use widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the
derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own
nonperformance risk and the respective counterpartys nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of
netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. On the Companys Consolidated Balance Sheets, instruments that have a positive fair value are included in other assets and
those instruments that have a negative fair value are included in accrued interest, taxes, and other liabilities.



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Other Assets:Financial instruments in other assets consist of assets in the Companys
nonqualified deferred compensation plan, and are carried at fair value based upon quoted market prices.

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

Other Borrowings:The carrying amount of overnight securities sold under agreements to repurchase, federal funds purchased, and the U.S. Treasury
tax and loan note option, approximates fair value, as the maturities of these borrowings are short-term. Securities sold under agreements to repurchase with original maturies over one year have been valued at the present values of future cash flows
using rates which approximate current market rates for instruments of like maturities.

Notes Payable and FHLB Advances:Notes
payable and FHLB advances have been valued at the present value of estimated future cash flows using rates which approximate current market rates for instruments of like maturities.

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

Junior Subordinated Debentures:The fair value of the fixed rate junior subordinated debentures issued to TAYC Capital Trust I is computed based
upon the publicly quoted market prices of the underlying trust preferred securities issued by the Trust. The fair value of the floating rate junior subordinated debentures issued to TAYC Capital Trust II has been valued at the present value of
estimated future cash flows using current market rates and credit spreads for an instrument with a like maturity.

Subordinated Notes:The subordinated notes issued by the Bank in 2008 have been valued at the present value of estimated future cash flows using current market rates and credit spreads for an instrument with a like maturity.

Off-Balance Sheet Financial Instruments:The fair value of commercial loan commitments to extend credit is not material as they are predominantly
floating rate, subject to material adverse change clauses, cancelable and not readily marketable. The carrying value and the fair value of standby letters of credit represent the unamortized portion of the fee paid by the customer. A reserve for
unfunded commitments is established if it is probable that a liability has been incurred by the Company under a standby letter of credit or a loan commitment that has not yet been funded.



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



|                                                  |  |                |           |                   |   |               |  |           |           |  |   |          
|------------------------------------------------- |  | -------------- | --------- | ----------------- | - | ------------- |  | --------- | --------- |  | - | ---------
|                                                  |  | June 30, 2009  |           | December 31, 2008
|                                                  |  | CarryingValue  |           | FairValue         |   | CarryingValue |  | FairValue
|                                                  |  | (in thousands)
|Financial Assets:                                 |  |                |           |                   |   |               |  |           |           |  |   |          
|Cash and cash equivalents                         |  | $              | 69,700    |                   | $ | 69,700        |  | $         | 53,012    |  | $ | 53,012   
|Investments                                       |  |                | 1,306,174 |                   |   | 1,306,174     |  |           | 1,094,594 |  |   | 1,094,594
|Loans, net of allowance                           |  |                | 3,044,812 |                   |   | 3,017,921     |  |           | 3,104,713 |  |   | 3,113,565
|Investment in FHLB and Federal Reserve Bank stock |  |                | 35,741    |                   |   | 35,741        |  |           | 29,630    |  |   | 29,630   
|Accrued interest receivable                       |  |                | 17,656    |                   |   | 17,656        |  |           | 17,659    |  |   | 17,659   
|Derivative financial instruments                  |  |                | 10,522    |                   |   | 10,522        |  |           | 18,578    |  |   | 18,578   
|Other assets                                      |  |                | 3,052     |                   |   | 3,052         |  |           | 4,162     |  |   | 4,162    
|                                                  |  |                |           |                   |   |               |  |           |           |  |   |          
|Total financial assets                            |  | $              | 4,487,657 |                   | $ | 4,460,766     |  | $         | 4,322,348 |  | $ | 4,331,200
|                                                  |  |                |           |                   |   |               |  |           |           |  |   |          
|Financial Liabilities:                            |  |                |           |                   |   |               |  |           |           |  |   |          
|Deposits without stated maturities                |  | $              | 1,287,310 |                   | $ | 1,287,310     |  | $         | 1,125,759 |  | $ | 1,125,759
|Deposits with stated maturities                   |  |                | 1,917,264 |                   |   | 1,953,973     |  |           | 2,005,287 |  |   | 2,053,784
|Other borrowings                                  |  |                | 315,244   |                   |   | 330,265       |  |           | 275,560   |  |   | 296,744  
|Notes payable and FHLB advances                   |  |                | 517,000   |                   |   | 522,041       |  |           | 462,000   |  |   | 464,844  
|Accrued interest payable                          |  |                | 14,963    |                   |   | 14,963        |  |           | 19,631    |  |   | 19,631   
|Derivative financial instruments                  |  |                | 10,348    |                   |   | 10,348        |  |           | 11,940    |  |   | 11,940   
|Junior subordinated debentures                    |  |                | 86,607    |                   |   | 71,429        |  |           | 86,607    |  |   | 70,274   
|Subordinated notes                                |  |                | 55,493    |                   |   | 58,569        |  |           | 55,303    |  |   | 58,956   
|                                                  |  |                |           |                   |   |               |  |           |           |  |   |          
|Total financial liabilities                       |  | $              | 4,204,229 |                   | $ | 4,248,898     |  | $         | 4,042,087 |  | $ | 4,101,932
|                                                  |  |                |           |                   |   |               |  |           |           |  |   |          
|Off-Balance-Sheet Financial Instruments:          |  |                |           |                   |   |               |  |           |           |  |   |          
|Unfunded commitments to extend credit             |  | $              | 2,098     |                   | $ | 2,098         |  | $         | 2,917     |  | $ | 2,917    
|Standby letters of credit                         |  |                | 1,363     |                   |   | 1,363         |  |           | 269       |  |   | 269      
|                                                  |  |                |           |                   |   |               |  |           |           |  |   |          
|Total off-balance-sheet financial instruments     |  | $              | 3,461     |                   | $ | 3,461         |  | $         | 3,186     |  | $ | 3,186    
|                                                  |  |                |           |                   |   |               |  |           |           |  |   |          

The remaining balance sheet assets and liabilities of the Company are not considered financial
instruments and have not been valued differently than is required 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.



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13. Subsequent Events:

Events subsequent to the balance sheet date of June 30, 2009 had been evaluated for potential recognition or disclosure in these financial statements that would provide additional evidence about conditions that
existed at the date of the balance sheet, including the estimates inherent in the process of preparing the financial statements. The Company has determined that there was no additional evidence about conditions that existed at the date of the
balance sheet or any new nonrecognized subsequent event that would need to be disclosed to keep the financial statements from being misleading through the date these financial statements were filed.



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Introduction

We are a bank holding company headquartered in Rosemont, Illinois, a suburb of Chicago.
We derive substantially all of our revenue from our wholly-owned subsidiary, Cole Taylor Bank. We provide a range of banking services to our customers, with a primary focus on serving closely-held businesses in the Chicago metropolitan area and the
people who own and manage them.

The following discussion and analysis presents our consolidated financial condition and results of
operations as of and for the dates and periods indicated. This discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this document. In addition to the historical information
provided below, we have made certain estimates and forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these estimates and forward-looking statements as a result of
certain factors, including those discussed in the section captioned Risk Factors in our 2008 Annual Report on Form 10-K filed with the SEC on March 11, 2009.

Application of Critical Accounting Policies

Our accounting and reporting policies conform to
accounting principles generally accepted in the United States of America and general reporting practices within the financial services industry. Our accounting policies are described in the section captioned Notes to Consolidated Financial
StatementsSummary of Significant Accounting and Reporting Policies in our 2008 Annual Report on Form 10-K.

The preparation of
financial statements in conformity with these accounting principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates,
assumptions and judgments are based on information available to us as of the date of the consolidated financial statements and, accordingly, as this information changes, actual results could differ from the estimates, assumptions and judgments
reflected in the financial statements. The estimates, assumptions and judgments made by us are based upon historical experience or other factors that we believe to be reasonable under the circumstances. Certain accounting policies inherently have
greater reliance on the use of estimates, assumptions and judgments and as such, have a greater possibility of producing results that could be materially different than originally reported. We consider our policies for the allowance for loan losses,
the valuation of deferred tax assets and establishment of tax liabilities and the valuation of financial instruments such as investment securities and derivatives to be critical accounting policies.

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



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Allowance for Loan Losses

We have established an allowance for loan losses to provide for loans in our portfolio that may not be repaid in their entirety. The allowance is based on our regular, quarterly assessments of the probable estimated
losses inherent in our loan portfolio. Our methodology for measuring the appropriate level of the allowance relies on several key elements, which include a general allowance computed by applying loss factors to categories of loans outstanding in the
portfolio, specific allowances for identified problem loans and portfolio segments, and an unallocated allowance. We maintain our allowance for loan losses at a level considered adequate to absorb probable losses inherent in our portfolio as of the
balance sheet date. In evaluating the adequacy of our allowance for loan losses, we consider numerous quantitative factors, including historical charge-off experience, growth of our loan portfolio, changes in the composition of our loan portfolio
and the volume of delinquent and criticized loans. In addition, we use information about specific borrower situations, including their financial position, work-out plans and estimated collateral values under various liquidation scenarios to estimate
the risk and amount of loss on loans to those borrowers. Finally, we also consider many qualitative factors, including general and economic business conditions, duration of the current business cycle, the impact of competition on our underwriting
terms, current general market collateral valuations, trends apparent in any of the factors we take into account and other matters, which are by nature more subjective and fluid. Our estimates of risk of loss and amount of loss on any loan are
complicated by the uncertainties surrounding not only our borrowers probability of default, but also the fair value of the underlying collateral. The current illiquidity in the real estate market has increased the uncertainty with respect to
real estate values. Because of the degree of uncertainty and the sensitivity of valuations to the underlying assumptions regarding holding period until sale and the collateral liquidation method, our actual losses may materially vary from our
current estimates.

As a business bank, our loan portfolio is comprised primarily of commercial loans to businesses. These loans are
inherently larger in amount than loans to individual consumers and, therefore, have higher potential losses on an individual loan basis. The individually larger commercial loans can cause greater volatility in our reported credit quality performance
measures, such as total impaired or nonperforming loans. Our current credit risk rating and loss estimate with respect to a single sizable loan can have a material impact on our reported impaired loans and related loss estimates. Because our loan
portfolio contains a significant number of commercial loans with relatively large balances, the deterioration of any one or a few of these loans can cause a significant increase in uncollectible loans and, therefore, our allowance for loan losses.
We review our estimates on a quarterly basis and, as we identify changes in estimates, our allowance for loan losses is adjusted through the recording of a provision for loan losses.

Income Taxes

We have maintained significant net deferred tax assets for deductible temporary
differences, the largest of which relates to the allowance for loan losses. For income tax return purposes, only net charge-offs are deductible, not the provision for loan losses. Under generally accepted accounting principles, a valuation allowance
is required to be recognized if it is more likely than not



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that the deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon
judgment concerning managements evaluation of both positive and negative evidence, the forecasts of future income, applicable tax planning strategies, and assessments of the current and future economic and business conditions. We consider both
positive and negative evidence regarding the ultimate realizability of our deferred tax assets. Positive evidence includes the existence of taxes paid in available carry-back years as well as the probability that taxable income will be generated in
future periods, while negative evidence includes a cumulative loss in the current year and prior two years and general business and economic trends. We currently maintain a valuation allowance against our deferred tax asset because it is more likely
than not that the deferred tax asset will not be realized. This determination was based, largely, on the negative evidence of a cumulative loss in the most recent three year period caused primarily by the significant loan loss provisions made during
recent periods. In addition, general uncertainty surrounding the future economic and business conditions have increased the likelihood of volatility in our future earnings.

At times, we apply different tax treatment for selected transactions for tax return purposes than for income tax financial reporting purposes. The
different positions result from the varying application of statutes, rules, regulations, and interpretations, and our accruals for income taxes include reserves for these differences in position. Our estimate of the value of these reserves contains
assumptions based upon our past experience and judgments about potential actions by taxing authorities, and we believe that the level of these reserves is reasonable. We initially recognize the financial statement effects of a tax position when it
is more likely than not, based on the technical merits, that the position will be sustained upon examinations. Subsequently, the reserves are then utilized or reversed when we determine the more likely than not threshold is no longer met, once the
statute of limitations has expired, or the tax matter is effectively settled. However, because reserve balances are estimates that are subject to uncertainties, the ultimate resolution of these matters may be greater or less than the amounts we have
accrued.

Derivative Financial Instruments

We use derivative financial instruments (derivatives), including interest rate exchange and floor and collar agreements, to accommodate individual customer needs and to assist in our interest rate risk management. In
accordance with Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133) (FASB ASC 815-10), all derivatives are measured and reported
at fair value on our consolidated balance sheet as either an asset or a liability. For derivatives that are designated and qualify as a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item
attributable to the effective portion of the hedged risk, are recognized in current earnings during the period of the change in the fair values. For derivatives that are designated and qualify as a cash flow hedge, the effective portion of the gain
or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For all hedging relationships, derivative gains and
losses that are not effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings during the period of the change in fair value. Similarly, the changes in the fair value of
derivatives that do not qualify for hedge accounting or are not designated as an accounting hedge are also reported currently in earnings.



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At the inception of a hedge and quarterly thereafter, a formal assessment is performed to determine
whether changes in the fair values or cash flows of the derivatives have been highly effective in offsetting the changes in the fair values or cash flows of the hedged item and whether they are expected to be highly effective in the future. If it is
determined that derivatives are not highly effective as a hedge, hedge accounting is discontinued for the period. Once hedge accounting is terminated, all changes in fair value of the derivatives flow through the consolidated statements of
operations in other noninterest income, which results in greater volatility in our earnings.

The estimates of fair values of our
derivatives are calculated using independent valuation models to estimate market-based valuations. The valuations are determined using widely accepted valuation techniques, including discounted cash flow analysis of the expected cash flow of each
derivative. This analysis reflects the contractual terms of the derivative and uses observable market-based inputs, including interest rate curves and implied volatilities. In addition, the fair value estimate also incorporates a credit valuation
adjustment to reflect the risk of nonperformance by both us and our counterparties in the fair value measurement. The resulting fair values produced by these proprietary valuation models are in part theoretical and, therefore, can vary between
derivative dealers and are not necessarily reflective of the actual price at which the derivative contract could be traded. Small changes in assumptions can result in significant changes in valuation. The risks inherent in the determination of the
fair value of a derivative may result in volatility in our statement of operations.

Valuation of Investment Securities

Each quarter we review our investment securities portfolio to determine whether unrealized losses are temporary or other than temporary, based on an
evaluation of the creditworthiness of the issuers/guarantors, as well as the underlying collateral, if applicable. Our analysis includes an evaluation of the type of security, the length of time and extent to which the fair value has been less than
the securitys carrying value, the characteristics of the underlying collateral, the degree of credit support provided by subordinate tranches within the total issuance, independent credit ratings and discounted cash flow analysis.We
utilize various independent pricing sources to obtain fair values and perform discounted cash flow analysis for selected securities. When the discounted cash flow analysis we obtain from those independent pricing sources indicates that it is
probable that all future principal and interest payments would be received in accordance with their original contractual terms and we do not intend to sell the security and we expect to recover the cost basis of the security and more-likely-than-not
will not be required to sell the security before recover, the unrealized loss is deemed temporary. Our assessments of creditworthiness and the resultant expected cash flows are complicated by the significant uncertainties surrounding not only the
specific security and its underlying collateral but also the severity of the current overall economic downturn. Our cash flow estimates for mortgage-backed securities are based on estimates of mortgage default rates and future housing prices, which
are difficult to predict. Changes in assumptions can result in material changes in expected cash flows. Therefore, unrealized losses that we have determined to be temporary may at a later date be determined to be other than temporary and have a
material impact on our statement of operations.



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under Management Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q constitute forward-looking statements.
We have tried to identify these forward-looking statements by using words including may, might, expect, plan, predict, potential, should, will,
expect, anticipate, believe, intend, could and estimate and similar expressions. These forward-looking statements are based on information currently available to us and are
subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities in 2009 and beyond to differ materially from those expressed in, or implied by, these forward-looking
statements. These risks, uncertainties and other factors include, without limitation:



| |  |  | the risk that our allowance for loan losses may prove insufficient to absorb probable losses in our loan portfolio;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | possible volatility in loan charge-offs and recoveries between periods;
| | - |  | -----------------------------------------------------------------------



| |  |  | negative developments and disruptions in the credit and lending markets, including the impact of the ongoing credit crisis on our business and on the businesses of
our customers as well as other banks and lending institutions with which we have commercial relationships;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the decline in residential real estate sales volume and the likely potential for continuing illiquidity in the real estate market, including within the Chicago
metropolitan area;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risks associated with the high concentration of commercial real estate loans in our portfolio;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | costs, risks and effects of deficiencies in or impairments of mortgage loans acquired from other financial institutions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | the uncertainties in estimating the fair value of developed real estate and undeveloped land in light of declining demand for such assets and continuing illiquidity
in the real estate market;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risks associated with implementing our business strategy and managing our growth effectively, including our ability to preserve and access sufficient capital to
execute on our strategy;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risks associated with management changes, employee turnover and our commercial banking growth initiative, including our expansion of our asset-based lending
operations and our entry into new geographical markets;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the effect on our profitability if interest rates fluctuate as well as the effect of our customers changing use of our deposit products;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the possibility that our wholesale funding sources may prove insufficient to replace deposits at maturity and support our growth;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | a continuation of the unprecedented volatility in the capital markets;
| | - |  | ----------------------------------------------------------------------



| |  |  | the effectiveness of our hedging transactions and their impact on our future results of operations;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | changes in general economic and capital market conditions, interest rates, our debt credit ratings, deposit flows, loan demand, including loan syndication
opportunities and competition;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | changes in legislation or regulatory and accounting principles, policies or guidelines affecting our business; and
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | other economic, competitive, governmental, regulatory and technological factors impacting our operations.
| | - |  | ---------------------------------------------------------------------------------------------------------

For further information about these and other risks, uncertainties and factors, please review the disclosure included in the section captioned Risk Factors
in our December 31, 2008 Annual Report on Form 10-K filed with the SEC on March 11, 2009. You should not place undue reliance on any forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking
statements or risk factors, whether as a result of new information, future events, changed circumstances or any other reason after the date of this press release.

RESULTS OF OPERATIONS

Overview

We reported a net loss applicable to common shareholders of $26.1 million, or a loss of $2.49 per diluted share outstanding, for the second quarter of 2009, compared to a net loss applicable to common shareholders of $25.3 million, or a
loss of $2.42 per diluted share, in the second quarter of 2008. For the first six months of 2009, we reported a net loss applicable to common shareholders of $31.8 million, or a loss of $3.03 per diluted share, compared to a net loss applicable to
common shareholders of $29.2 million, or a loss of $2.79 per diluted share, during the first six months of 2008. The net loss in all periods was primarily caused by the increased level of the provision for loan losses as the prolonged recession
negatively impacted the business community and our clients.

We continue to take additional steps in an effort to improve operating
results. In both the quarterly and year-to-date periods, net interest income and noninterest income increased and the level of noninterest expense was held relatively flat. Net interest income totaled $30.4 million during the second quarter of 2009
compared to $21.6 million during the second quarter of 2008. During the first six months of 2009, net interest income increased to $57.7 million from $46.0 million during the first six months of 2009. These increases were due to higher
interest-earning asset volumes. We have also focused on improving our loan pricing, including the use of interest rate floors in new loan originations taken, and increased the size and duration of our investment portfolio to take advantage of higher
yields. On the liability side, we continue to strengthen our liquidity position by obtaining more funding from core customers and reducing our reliance on more costly brokered deposits. Noninterest income, excluding gains on the sale of investment
securities, increased in both the second quarter and year-to-date 2009 periods as an increase in service charge revenue was partly offset by lower trust and investment management fees. Noninterest expense has remained relatively flat in both the
quarterly and year-to-date comparisons, despite the significant increase in deposit insurance premiums, as we have instituted a number of cost control measures to reduce our noninterest expense, such as salaries and benefit costs and other overhead
expenses.



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Net Interest Income

Net interest income is the difference between total interest income and fees earned on interest-earning assets, including investment securities and loans, and total interest expense paid on interest-bearing
liabilities, including deposits and other borrowed funds. Net interest income is our principal source of earnings. The amount of net interest income is affected by changes in the volume and mix of earning assets and interest-bearing liabilities, the
level of rates earned or paid on those assets and liabilities and the amount of loan fees earned.

Quarter Ended June 30, 2009 Compared to the
Quarter Ended June 30, 2008

Net interest income was $30.4 million for the second quarter of 2009, an increase of $8.8 million, or
40.9%, from $21.6 million of net interest income in the second quarter of 2008. With an adjustment for tax-exempt income, our consolidated net interest income for the second quarter of 2009 was $31.2 million, compared to $22.4 million for the same
quarter a year ago. This non-GAAP presentation is discussed in the section captioned Tax-Equivalent Adjustments to Yields and Margins following. Net interest income for the second quarter of 2009 was higher due to higher interest-earning
asset levels and an increase in net interest margin.

Net interest margin is determined by dividing taxable equivalent net interest income
by average interest-earning assets. For the second quarter of 2009, our net interest margin was 2.76%, compared to 2.60% for the same quarter a year ago, an increase of 16 basis points. The net interest margin was higher in the second quarter of
2009 because declining interest rates between the two quarterly periods led to declining funding costs, which outpaced the reductions in asset yields. On the asset side, our yield on our interest-earning assets decreased 50 basis points from 5.50%
for the second quarter of 2008 to 5.00% for the second quarter of 2009. This decrease was largely the result of a 64 basis point reduction in the loan yield, which decreased from 5.62% in the second quarter of 2008 to 4.98% during the second quarter
of 2009. Approximately 69% of our loan portfolio is based upon a floating or variable rate. The impact of higher nonaccrual loans also contributed to the lower loan yield.

In addition, our funding costs declined 70 basis points to 2.82% during the second quarter of 2009 from 3.52% during the same quarter a year ago. The
lower funding cost was a result of the decline in market interest rates between the two periods as our term deposits continue to reprice to the lower current market rates. Also, funding costs during the second quarter of 2009 benefited from an
increase in lower costing core deposits which has allowed us to reduce our reliance on brokered deposits.

Our average interest-earning
assets during the second quarter of 2009 were $4.53 billion, an increase of $1.08 billion, or 31.3%, as compared to the same quarter in 2008. A $629.3 million, or 24.6%, increase in average loan balances, and a $497.7 million, or 59.0%, increase in
average investment securities combined to produce the higher interest-earning assets. Average loans outstanding increased to $3.19 billion during the second quarter of 2009, compared to $2.56 billion during the second quarter of 2008. The increase
in loans is a result of a growth strategy implemented in 2008 in which we increased our lending staff. The higher average investment securities mainly resulted from the purchase of mortgage-related investment securities during the past twelve months
as we increased the size of the investment portfolio to take advantage of higher yields on longer duration securities.



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Our net interest margin has increased in each of the last three quarterly periods as we have taken
additional steps to increase our net interest margin. We have changed the mix of our funding as our core in-market deposits increased allowing us to reduce our reliance on higher costing brokered deposits. In addition, we have increased the size of
our investment securities portfolio and are continuing our attempts to improve our loan pricing, including the use of interest rate floors, in an effort to increase our earning asset yields. Using market interest rates in effect at that time, our
interest rate risk simulation modeling of the June 30, 2009 balance sheet indicated that our net interest margin would likely increase in future quarters in a rates unchanged scenario. Our net interest margin would improve as our term deposits
continue to reprice at current market interest rates. See the section of this discussion and analysis captioned Quantitative and Qualitative Disclosure About Market Risks for further discussion of the impact of changes in interest rates
on our results of operations.

Six Months Ended June 30, 2009 Compared to the Six Months Ended June 30, 2008

Net interest income was $57.7 million for the first six months of 2009, compared to $46.0 million during the same six month period a year ago, an increase
of $11.7 million, or 25.4%. With an adjustment for tax-exempt income, our consolidated net interest income for the first six months of 2009 was $59.3 million, compared to $47.7 million for the first six months of 2008. This non-GAAP presentation is
discussed in the section captioned Tax-Equivalent Adjustments to Yields and Margins following. Net interest income for the first six months of 2009 was higher due to a $1.02 billion increase in average interest-earning assets, offset by
a decline in net interest margin.

Our net interest margin declined 11 basis points to 2.67% during the first half of 2009 as compared to
2.78% during the first half of 2008. Between the two six month periods, the decline in earning-asset yields outpaced the decline in our interest-bearing funding costs. Our total earning asset yield during the first half of 2009 was 5.03% compared to
5.87% during the first half of 2008, a decrease of 84 basis points. At the same time, the cost of our interest-bearing liabilities decreased 81 basis points to 2.95% during the first half of 2009 from 3.76% during the first half of 2008. As market
interest rates declined during 2008, our portfolio of variable rate loans adjusted as market rates declined. However, because our term deposits tend to take longer to reprice to current market interest rates, our overall cost of funds did not
decline to the same extent as the yield on interest-earning assets.

Our average interest-earning assets during the first half of 2009 were
$4.46 billion, an increase of $1.02 billion, or 29.6%, as compared to the $3.44 billion of average interest-earning assets during the first half of 2008. The growth strategy implemented in 2008 caused the $691.3 million, or 27.4%, increase in
average loan balances between the two year-to-date periods. In addition, the increase in the size of the investment portfolio that occurred during the last twelve months caused average investment securities to increase by $384.4 million, or 44.6%,
in the first half of 2009 as compared to the same six month period a year ago.



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Rate vs. Volume Analysis of Net Interest Income

The following table presents, for the periods indicated, a summary of the changes in interest earned and interest paid resulting from changes in volume
and rates for the major components of interest-earning assets and interest-bearing liabilities on a tax-equivalent basis using a tax rate of 35.0%.



|                                    |  |                                                                                |       |   |                                                                                      |   |        |     |  |   |        |   |  |      |        |   |        |   |         |     |  |   |      |   |  |   |        |  
|----------------------------------- |  | ------------------------------------------------------------------------------ | ----- | - | ------------------------------------------------------------------------------------ | - | ------ | --- |  | - | ------ | - |  | ---- | ------ | - | ------ | - | ------- | --- |  | - | ---- | - |  | - | ------ | -
|                                    |  | Quarter Ended June 30, 2009 OverQuarter Ended June 30, 2008Increase/(Decrease) |       |   | Six Months Ended June 30, 2009 OverSix Months Ended June 30,
2008Increase/(Decrease) |  
|                                    |  | VOLUME                                                                         |       |   | RATE                                                                                 |   |        | NET |  |   | VOLUME |   |  | RATE |        |   | DAY(1) |   |         | NET | 
|                                    |  | (in thousands)                                                                 |      
|INTEREST EARNED ON:                 |  |                                                                                |       |   |                                                                                      |   |        |     |  |   |        |   |  |      |        |   |        |   |         |     |  |   |      |   |  |   |        |  
|Investment securities               |  | $                                                                              | 6,090 |   |                                                                                      | $ | (361   | )   |  | $ | 5,729  |   |  | $    | 9,734  |   |        | $ | 22      |     |  | $ |     |   |  | $ | 9,756  |  
|Cash equivalents                    |  |                                                                                | (190  | ) |                                                                                      |   | (55    | )   |  |   | (245   | ) |  |      | (551   | ) |        |   | (222    | )   |  |   | (4   | ) |  |   | (777   | )
|Loans                               |  |                                                                                | 8,194 |   |                                                                                      |   | (4,393 | )   |  |   | 3,801  |   |  |      | 18,878 |   |        |   | (16,521 | )   |  |   | (423 | ) |  |   | 1,934  |  
|                                    |  |                                                                                |       |   |                                                                                      |   |        |     |  |   |        |   |  |      |        |   |        |   |         |     |  |   |      |   |  |   |        |  
|Total interest-earning assets       |  |                                                                                |       |   |                                                                                      |   |        |     |  |   | 9,285  |   |  |      |        |   |        |   |         |     |  |   |      |   |  |   | 10,913 |  
|                                    |  |                                                                                |       |   |                                                                                      |   |        |     |  |   |        |   |  |      |        |   |        |   |         |     |  |   |      |   |  |   |        |  
|                                    |  |                                                                                |       |   |                                                                                      |   |       
|INTEREST PAID ON:                   |  |                                                                                |       |   |                                                                                      |   |        |     |  |   |        |   |  |      |        |   |        |   |         |     |  |   |      |   |  |   |        |  
|Interest-bearing deposits           |  |                                                                                | 3,425 |   |                                                                                      |   | (4,808 | )   |  |   | (1,383 | ) |  |      | 8,245  |   |        |   | (11,314 | )   |  |   | (228 | ) |  |   | (3,297 | )
|Total borrowings                    |  |                                                                                | 3,749 |   |                                                                                      |   | (1,872 | )   |  |   | 1,877  |   |  |      | 7,042  |   |        |   | (4,397  | )   |  |   | (63  | ) |  |   | 2,582  |  
|                                    |  |                                                                                |       |   |                                                                                      |   |        |     |  |   |        |   |  |      |        |   |        |   |         |     |  |   |      |   |  |   |        |  
|Total interest-bearing liabilities  |  |                                                                                |       |   |                                                                                      |   |        |     |  |   | 494    |   |  |      |        |   |        |   |         |     |  |   |      |   |  |   | (715   | )
|                                    |  |                                                                                |       |   |                                                                                      |   |        |     |  |   |        |   |  |      |        |   |        |   |         |     |  |   |      |   |  |   |        |  
|Net interest income, tax-equivalent |  | $                                                                              | 7,868 |   |                                                                                      | $ | 923    |     |  | $ | 8,791  |   |  | $    | 14,785 |   |        | $ | (3,021  | )   |  | $ | (136 | ) |  | $ | 11,628 |  
|                                    |  |                                                                                |       |   |                                                                                      |   |        |     |  |   |        |   |  |      |        |   |        |   |         |     |  |   |      |   |  |   |        |  



|(1) | The six months ended June 30, 2009 had 181 days compared to 182 days in the six months ended June 30, 2008.
|--- | -----------------------------------------------------------------------------------------------------------

Tax-Equivalent Adjustments to Yields and Margins

As part of our evaluation of net interest income, we review our consolidated average balances, our yield on average interest-earning assets and the costs of average interest-bearing liabilities. Such yields and costs
are derived by dividing annualized income or expense by the average balance of assets or liabilities. Because management reviews net interest income on a tax-equivalent basis, the analysis contains certain non-GAAP financial measures. In these
non-GAAP financial measures, investment interest income, loan interest income, total interest income and net interest income are adjusted to reflect tax-exempt interest income on a tax-equivalent basis assuming a tax rate of 35.0%. This assumed rate
may differ from our actual effective income tax rate. In addition, the earning asset yield, net interest margin, and the net interest rate spread are adjusted to a fully taxable equivalent basis. We believe that these measures and ratios present a
more meaningful measure of the performance of interest-earning assets because they provide a better basis for comparison of net interest income regardless of the mix of taxable and tax-exempt instruments.



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



|                                               |  |                                    |        |   |                                  |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------------- |  | ---------------------------------- | ------ | - | -------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                               |  | For the Three MonthsEnded June 30, |        |   | For the Six MonthsEnded June 30, |  
|                                               |  | 2009                               |        |   | 2008                             |   |        | 2009 |  |   | 2008   |  
|                                               |  | (dollars in thousands)             |       
|Net interest income as stated                  |  | $                                  | 30,380 |   |                                  | $ | 21,565 |      |  | $ | 57,726 |   |  | $ | 46,039 |  
|Tax equivalent adjustment-investments          |  |                                    | 763    |   |                                  |   | 785    |      |  |   | 1,531  |   |  |   | 1,583  |  
|Tax equivalent adjustment-loans                |  |                                    | 29     |   |                                  |   | 31     |      |  |   | 57     |   |  |   | 64     |  
|                                               |  |                                    |        |   |                                  |   |        |      |  |   |        |   |  |   |        |  
|Tax equivalent net interest income             |  | $                                  | 31,172 |   |                                  | $ | 22,381 |      |  | $ | 59,314 |   |  | $ | 47,686 |  
|                                               |  |                                    |        |   |                                  |   |        |      |  |   |        |   |  |   |        |  
|                                               |  |                                    |        |  
|Yield on earning assets without tax adjustment |  |                                    | 4.93   | % |                                  |   | 5.40   | %    |  |   | 4.96   | % |  |   | 5.78   | %
|Yield on earning assets  tax equivalent       |  |                                    | 5.00   | % |                                  |   | 5.50   | %    |  |   | 5.03   | % |  |   | 5.87   | %
|                                               |  |                                    |        |  
|Net interest margin without tax adjustment     |  |                                    | 2.69   | % |                                  |   | 2.51   | %    |  |   | 2.60   | % |  |   | 2.68   | %
|Net interest margin  tax equivalent           |  |                                    | 2.76   | % |                                  |   | 2.60   | %    |  |   | 2.67   | % |  |   | 2.78   | %
|                                               |  |                                    |        |  
|Net interest spread without tax adjustment     |  |                                    | 2.11   | % |                                  |   | 1.88   | %    |  |   | 2.01   | % |  |   | 2.02   | %
|Net interest spread  tax equivalent           |  |                                    | 2.18   | % |                                  |   | 1.98   | %    |  |   | 2.08   | % |  |   | 2.11   | %

The following table presents, for the periods indicated, certain information relating to our
consolidated average balances and reflect our yield on average interest-earning assets and costs of average interest-bearing liabilities. The table contains certain non-GAAP financial measures to adjust tax-exempt interest income on a tax-equivalent
basis assuming a tax rate of 35.0%.



35



---

##### Table of Contents

|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|---------------------------------------------- |  | ----------------------------------- | --------- | - | -------- | - | ---------------- |  | ----- | -------------- |  | - | --------- | - | ---------------- | - | ------ |  | ---- | -
|                                               |  | For the Three Months Ended June 30, |          
|                                               |  | 2009                                |           |   | 2008     |  
|                                               |  | AVERAGEBALANCE                      |           |   | INTEREST |   | YIELD/RATE(%)(6) |  |       | AVERAGEBALANCE |  |   | INTEREST  |   | YIELD/RATE(%)(6) |  
|                                               |  | (dollars in thousands)              |          
|INTEREST-EARNING ASSETS:                       |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Investment securities (1):                     |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Taxable                                        |  | $                                   | 1,205,166 |   |          | $ | 14,745           |  | 4.89  | %              |  | $ | 703,314   |   |                  | $ | 8,954  |  | 5.09 | %
|Tax-exempt (tax-equivalent) (2)                |  |                                     | 136,597   |   |          |   | 2,179            |  | 6.38  |                |  |   | 140,749   |   |                  |   | 2,241  |  | 6.37 |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Total investment securities                    |  |                                     | 1,341,763 |   |          |   | 16,924           |  | 5.05  |                |  |   | 844,063   |   |                  |   | 11,195 |  | 5.31 |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Cash Equivalents                               |  |                                     | 527       |   |          |   | 2                |  | 1.50  |                |  |   | 46,516    |   |                  |   | 247    |  | 2.10 |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|                                               |  |                                     |           |   |          |  
|Loans (2) (3):                                 |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Commercial and commercial real estate          |  |                                     | 3,031,816 |   |          |   | 37,483           |  | 4.89  |                |  |   | 2,393,130 |   |                  |   | 33,249 |  | 5.50 |  
|Residential real estate mortgages              |  |                                     | 53,892    |   |          |   | 779              |  | 5.78  |                |  |   | 57,504    |   |                  |   | 818    |  | 5.69 |  
|Home equity and consumer                       |  |                                     | 102,032   |   |          |   | 1,076            |  | 4.23  |                |  |   | 107,772   |   |                  |   | 1,465  |  | 5.47 |  
|Fees on loans                                  |  |                                     |           |   |          |   | 243              |  |       |                |  |   |           |   |                  |   | 248    |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Net loans (tax-equivalent) (2)                 |  |                                     | 3,187,740 |   |          |   | 39,581           |  | 4.98  |                |  |   | 2,558,406 |   |                  |   | 35,780 |  | 5.62 |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-earning assets (2)              |  |                                     | 4,530,030 |   |          |   | 56,507           |  | 5.00  |                |  |   | 3,448,985 |   |                  |   | 47,222 |  | 5.50 |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|NON-EARNING ASSETS:                            |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Allowance for loan losses                      |  |                                     | (136,438  | ) |          |   |                  |  |       |                |  |   | (66,626   | ) |                  |   |        |  |      |  
|Cash and due from banks                        |  |                                     | 58,567    |   |          |   |                  |  |       |                |  |   | 53,953    |   |                  |   |        |  |      |  
|Accrued interest and other assets              |  |                                     | 118,375   |   |          |   |                  |  |       |                |  |   | 90,456    |   |                  |   |        |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|TOTAL ASSETS                                   |  |                                     | 4,570,534 |   |          |   |                  |  |       |                |  | $ | 3,526,768 |   |                  |   |        |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|INTEREST-BEARING LIABILITIES:                  |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Interest-bearing deposits:                     |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Interest-bearing demand deposits               |  | $                                   | 655,118   |   |          | $ | 1,928            |  | 1.18  |                |  | $ | 772,224   |   |                  | $ | 3,023  |  | 1.57 |  
|Savings deposits                               |  |                                     | 42,227    |   |          |   | 8                |  | 0.08  |                |  |   | 45,695    |   |                  |   | 16     |  | 0.14 |  
|Time deposits                                  |  |                                     | 1,883,058 |   |          |   | 16,287           |  | 3.47  |                |  |   | 1,494,097 |   |                  |   | 16,567 |  | 4.46 |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-bearing deposits                |  |                                     | 2,580,403 |   |          |   | 18,223           |  | 2.83  |                |  |   | 2,312,016 |   |                  |   | 19,606 |  | 3.41 |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Other borrowings                               |  |                                     | 387,221   |   |          |   | 2,232            |  | 2.28  |                |  |   | 306,523   |   |                  |   | 2,355  |  | 3.04 |  
|Notes payable and FHLB advances                |  |                                     | 497,735   |   |          |   | 1,719            |  | 1.37  |                |  |   | 133,550   |   |                  |   | 1,173  |  | 3.47 |  
|Subordinated notes                             |  |                                     | 55,447    |   |          |   | 1,620            |  | 11.69 |                |  |   |          |   |                  |   |       |  |     |  
|Junior subordinated debentures                 |  |                                     | 86,607    |   |          |   | 1,541            |  | 7.12  |                |  |   | 86,607    |   |                  |   | 1,707  |  | 7.88 |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-bearing liabilities             |  |                                     | 3,607,413 |   |          |   | 25,335           |  | 2.82  |                |  |   | 2,838,696 |   |                  |   | 24,841 |  | 3.52 |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|NONINTEREST-BEARING LIABILITIES:               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Noninterest-bearing deposits                   |  |                                     | 578,020   |   |          |   |                  |  |       |                |  |   | 393,341   |   |                  |   |        |  |      |  
|Accrued interest, taxes, and other liabilities |  |                                     | 77,124    |   |          |   |                  |  |       |                |  |   | 42,843    |   |                  |   |        |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Total noninterest-bearing liabilities          |  |                                     | 655,144   |   |          |   |                  |  |       |                |  |   | 436,184   |   |                  |   |        |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|STOCKHOLDERS EQUITY                           |  |                                     | 307,977   |   |          |   |                  |  |       |                |  |   | 251,888   |   |                  |   |        |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY     |  |                                     | 4,570,534 |   |          |   |                  |  |       |                |  | $ | 3,526,768 |   |                  |   |        |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Net interest income (tax-equivalent) (2)       |  |                                     |           |   |          | $ | 31,172           |  |       |                |  |   |           |   |                  | $ | 22,381 |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Net interest spread (tax-equivalent) (2) (4)   |  |                                     |           |   |          |   |                  |  | 2.18  | %              |  |   |           |   |                  |   |        |  | 1.98 | %
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  
|Net interest margin (tax-equivalent) (2) (5)   |  |                                     |           |   |          |   |                  |  | 2.76  | %              |  |   |           |   |                  |   |        |  | 2.60 | %
|                                               |  |                                     |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |        |  |      |  



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

|(2) | Calculations are computed on a tax-equivalent basis using a tax rate of 35%.
|--- | ----------------------------------------------------------------------------

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

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

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

|(6) | Yield/Rates are annualized.
|--- | ---------------------------



36



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##### Table of Contents

|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|---------------------------------------------- |  | --------------------------------- | --------- | - | -------- | - | ---------------- |  | ----- | -------------- |  | - | --------- | - | ---------------- | - | ------- |  | ---- | -
|                                               |  | For the Six Months Ended June 30, |          
|                                               |  | 2009                              |           |   | 2008     |  
|                                               |  | AVERAGEBALANCE                    |           |   | INTEREST |   | YIELD/RATE(%)(6) |  |       | AVERAGEBALANCE |  |   | INTEREST  |   | YIELD/RATE(%)(6) |  
|                                               |  | (dollars in thousands)            |          
|INTEREST-EARNING ASSETS:                       |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Investment securities (1):                     |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Taxable                                        |  | $                                 | 1,109,430 |   |          | $ | 28,258           |  | 5.10  | %              |  | $ | 720,792   |   |                  | $ | 18,355  |  | 5.09 | %
|Tax-exempt (tax-equivalent) (2)                |  |                                   | 137,273   |   |          |   | 4,374            |  | 6.37  |                |  |   | 141,544   |   |                  |   | 4,521   |  | 6.39 |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Total investment securities                    |  |                                   | 1,246,703 |   |          |   | 32,632           |  | 5.24  |                |  |   | 862,336   |   |                  |   | 22,876  |  | 5.31 |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Cash Equivalents                               |  |                                   | 1,495     |   |          |   | 12               |  | 1.60  |                |  |   | 59,136    |   |                  |   | 789     |  | 2.64 |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|                                               |  |                                   |           |   |          |  
|Loans (2) (3):                                 |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Commercial and commercial real estate          |  |                                   | 3,057,063 |   |          |   | 74,700           |  | 4.86  |                |  |   | 2,353,935 |   |                  |   | 71,029  |  | 5.97 |  
|Residential real estate mortgages              |  |                                   | 53,869    |   |          |   | 1,556            |  | 5.78  |                |  |   | 59,018    |   |                  |   | 1,711   |  | 5.80 |  
|Home equity and consumer                       |  |                                   | 102,066   |   |          |   | 2,166            |  | 4.28  |                |  |   | 108,764   |   |                  |   | 3,229   |  | 5.97 |  
|Fees on loans                                  |  |                                   |           |   |          |   | 554              |  |       |                |  |   |           |   |                  |   | 1,073   |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Net loans (tax-equivalent) (2)                 |  |                                   | 3,212,998 |   |          |   | 78,976           |  | 4.96  |                |  |   | 2,521,717 |   |                  |   | 77,042  |  | 6.14 |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Total interest-earning assets (2)              |  |                                   | 4,461,196 |   |          |   | 111,620          |  | 5.03  |                |  |   | 3,443,189 |   |                  |   | 100,707 |  | 5.87 |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|NON-EARNING ASSETS:                            |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Allowance for loan losses                      |  |                                   | (133,851  | ) |          |   |                  |  |       |                |  |   | (61,184   | ) |                  |   |         |  |      |  
|Cash and due from banks                        |  |                                   | 58,510    |   |          |   |                  |  |       |                |  |   | 53,763    |   |                  |   |         |  |      |  
|Accrued interest and other assets              |  |                                   | 116,935   |   |          |   |                  |  |       |                |  |   | 90,168    |   |                  |   |         |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|TOTAL ASSETS                                   |  |                                   | 4,502,790 |   |          |   |                  |  |       |                |  | $ | 3,525,936 |   |                  |   |         |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|INTEREST-BEARING LIABILITIES:                  |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Interest-bearing deposits:                     |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Interest-bearing demand deposits               |  | $                                 | 660,077   |   |          | $ | 3,556            |  | 1.09  |                |  | $ | 814,713   |   |                  | $ | 8,465   |  | 2.09 |  
|Savings deposits                               |  |                                   | 42,183    |   |          |   | 16               |  | 0.08  |                |  |   | 47,325    |   |                  |   | 40      |  | 0.17 |  
|Time deposits                                  |  |                                   | 1,904,277 |   |          |   | 34,710           |  | 3.68  |                |  |   | 1,430,220 |   |                  |   | 33,074  |  | 4.65 |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Total interest-bearing deposits                |  |                                   | 2,606,537 |   |          |   | 38,282           |  | 2.96  |                |  |   | 2,292,258 |   |                  |   | 41,579  |  | 3.65 |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Other borrowings                               |  |                                   | 363,949   |   |          |   | 4,408            |  | 2.41  |                |  |   | 320,402   |   |                  |   | 5,090   |  | 3.14 |  
|Notes payable and FHLB advances                |  |                                   | 462,657   |   |          |   | 3,238            |  | 1.39  |                |  |   | 136,308   |   |                  |   | 2,747   |  | 3.99 |  
|Subordinated notes                             |  |                                   | 55,399    |   |          |   | 3,237            |  | 11.69 |                |  |   |          |   |                  |   |        |  |     |  
|Junior subordinated debentures                 |  |                                   | 86,607    |   |          |   | 3,141            |  | 7.25  |                |  |   | 86,607    |   |                  |   | 3,605   |  | 8.32 |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Total interest-bearing liabilities             |  |                                   | 3,575,149 |   |          |   | 52,306           |  | 2.95  |                |  |   | 2,835,575 |   |                  |   | 53,021  |  | 3.76 |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|NONINTEREST-BEARING LIABILITIES:               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Noninterest-bearing deposits                   |  |                                   | 548,766   |   |          |   |                  |  |       |                |  |   | 392,828   |   |                  |   |         |  |      |  
|Accrued interest, taxes, and other liabilities |  |                                   | 72,323    |   |          |   |                  |  |       |                |  |   | 42,738    |   |                  |   |         |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Total noninterest-bearing liabilities          |  |                                   | 621,089   |   |          |   |                  |  |       |                |  |   | 435,566   |   |                  |   |         |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|STOCKHOLDERS EQUITY                           |  |                                   | 306,552   |   |          |   |                  |  |       |                |  |   | 254,795   |   |                  |   |         |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY     |  |                                   | 4,502,790 |   |          |   |                  |  |       |                |  | $ | 3,525,936 |   |                  |   |         |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Net interest income (tax-equivalent) (2)       |  |                                   |           |   |          | $ | 59,314           |  |       |                |  |   |           |   |                  | $ | 47,686  |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Net interest spread (tax-equivalent) (2) (4)   |  |                                   |           |   |          |   |                  |  | 2.08  | %              |  |   |           |   |                  |   |         |  | 2.11 | %
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  
|Net interest margin (tax-equivalent) (2) (5)   |  |                                   |           |   |          |   |                  |  | 2.67  | %              |  |   |           |   |                  |   |         |  | 2.78 | %
|                                               |  |                                   |           |   |          |   |                  |  |       |                |  |   |           |   |                  |   |         |  |      |  



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

|(2) | Calculations are computed on a tax-equivalent basis using a tax rate of 35%.
|--- | ----------------------------------------------------------------------------

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

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

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

|(6) | Yield/Rates are annualized.
|--- | ---------------------------



37



---

##### Table of Contents

Noninterest Income

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



|                                     |  |                            |        |                          |   |              |  |              |        |  |   |      
|------------------------------------ |  | -------------------------- | ------ | ------------------------ | - | ------------ |  | ------------ | ------ |  | - | -----
|                                     |  | For the Three Months Ended |        | For the Six Months Ended
|                                     |  | June 30,2009               |        | June 30,2008             |   | June 30,2009 |  | June 30,2008
|Service charges                      |  | $                          | 2,768  |                          | $ | 2,255        |  | $            | 5,589  |  | $ | 4,421
|Trust and investment management fees |  |                            | 475    |                          |   | 1,035        |  |              | 1,009  |  |   | 1,842
|Gains on investment sales            |  |                            | 7,595  |                          |   |             |  |              | 8,259  |  |   |     
|Other derivative income              |  |                            | 153    |                          |   | 65           |  |              | 1,272  |  |   | 952  
|Standby letter of credit fees        |  |                            | 507    |                          |   | 78           |  |              | 713    |  |   | 177  
|Other noninterest income             |  |                            | 639    |                          |   | 597          |  |              | 638    |  |   | 740  
|                                     |  |                            |        |                          |   |              |  |              |        |  |   |      
|Total noninterest income             |  | $                          | 12,137 |                          | $ | 4,030        |  | $            | 17,480 |  | $ | 8,132
|                                     |  |                            |        |                          |   |              |  |              |        |  |   |      

Total noninterest income was $12.1 million during the second quarter of 2009, compared to $4.0
million in the second quarter of 2008. Gains on the sale of investment securities, along with an increase in service charges and standby letter of credit fees, were partially offset by a decrease in trust and investment management fees. For the
first six months of 2009, total noninterest income increased $9.3 million to $17.5 million, as compared to $8.1 million during the corresponding six month period in 2008. Noninterest income was higher as decreased trust and investment management
fees were more than offset by gains on the sale of investment securities, higher service charges and increases in other derivative income and standby letter of credit fees.

Service charges, principally from deposit accounts, were $2.8 million during the second quarter of 2009, compared to $2.3 million during the second
quarter in 2008, an increase of $513,000, or 22.8%. On a year-to-date basis, service charges increased $1.2 million, or 26.4%, to $5.6 million during the first six months of 2009, as compared to $4.4 million during the same six month period in 2008.
The increase in service charge revenue in 2009 was primarily caused by an increase in gross activity charges, primarily associated with the increase in commercial banking clients caused by the growth strategy implemented in 2008, a decrease in the
amount of fee waivers and refunds given to customers, and lower earnings credit rate given to customers on their collected account balances. Our earnings credit rate was approximately 45 basis points lower on average during the second quarter of
2009 as compared to the second quarter of 2008.

Trust and investment management fees in 2009 decreased in both the quarterly and six month
comparisons. Trust fees declined because of a reduced volume of business and a decrease in the spread income we earn on invested trust funds. Fees earned from investment management services also declined in 2009 because of fewer assets under
management. During the second quarter of 2009, we expanded our strategic partnership with the third-party investment management firm that had been providing sub-advisory services to the Banks clients. This third party investment management
firm became the primary investment advisor and assumed all portfolio management responsibilities for our wealth management and retirement services customers going forward.



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Gains on the sale of available-for-sale investment securities were $7.6 million during the second quarter
of 2009 and $8.3 million in the first six months of 2009. There were no gains in the second quarter or first six months of 2008. See Financial Condition  Investment Securities following for further details.

Standby letter of credit fees totaled $507,000 during the second quarter of 2009, compared to $78,000 during the same quarter a year ago. On a
year-to-date basis, standby letter of credit fees totaled $713,000 during the first six months of 2009, as compared to $177,000 during the first six months of 2008. An increase in fees from our expanded asset based lending operations primarily
caused the increase in fee revenue during both the quarterly and year-to-date 2009 periods.

Other noninterest income includes fees for
non-customer usage of our automated teller machines, gains (losses) from equity or partnership investments, changes in the market value of the assets in our employees deferred compensation plans, and other miscellaneous items.

Noninterest Expense

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



|                                                  |  |                            |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ------------ |  | - | ------------ | - |  | - | ------ | -
|                                                  |  | For the Three Months Ended |        |   | For the Six Months Ended |  
|                                                  |  | June 30,2009               |        |   | June 30,2008             |   |        | June 30,2009 |  |   | June 30,2008 |  
|                                                  |  | (dollars in thousands)     |       
|Salaries and employee benefits:                   |  |                            |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Salaries, employment taxes, and medical insurance |  | $                          | 9,711  |   |                          | $ | 9,405  |              |  | $ | 19,074       |   |  | $ | 17,750 |  
|Sign-on bonuses and severance                     |  |                            | 20     |   |                          |   | 513    |              |  |   | 279          |   |  |   | 1,883  |  
|Incentives, commissions, and retirement benefits  |  |                            | 1,273  |   |                          |   | 1,178  |              |  |   | 2,183        |   |  |   | 3,166  |  
|                                                  |  |                            |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Total salaries and employee benefits              |  |                            | 11,004 |   |                          |   | 11,096 |              |  |   | 21,536       |   |  |   | 22,799 |  
|Occupancy of premises, furniture and equipment    |  |                            | 2,539  |   |                          |   | 2,733  |              |  |   | 5,156        |   |  |   | 5,498  |  
|FDIC assessment                                   |  |                            | 4,368  |   |                          |   | 586    |              |  |   | 5,899        |   |  |   | 1,112  |  
|Legal fees, net                                   |  |                            | 1,655  |   |                          |   | 769    |              |  |   | 2,795        |   |  |   | 1,354  |  
|Nonperforming asset expense                       |  |                            | 224    |   |                          |   | 2,471  |              |  |   | 978          |   |  |   | 3,479  |  
|Early extinguishment of debt                      |  |                            |       |   |                          |   | 384    |              |  |   | 527          |   |  |   | 1,194  |  
|Other noninterest expense                         |  |                            | 3,917  |   |                          |   | 4,584  |              |  |   | 7,981        |   |  |   | 9,003  |  
|                                                  |  |                            |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Total noninterest expense                         |  | $                          | 23,707 |   |                          | $ | 22,623 |              |  |   | 44,872       |   |  | $ | 44,439 |  
|                                                  |  |                            |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Efficiency Ratio                                  |  |                            | 67.89  | % |                          |   | 88.39  | %            |  |   | 67.03        | % |  |   | 82.03  | %
|                                                  |  |                            |        |   |                          |   |        |              |  |   |              |   |  |   |        |  

Noninterest expense increased $1.1 million, or 4.8%, to $23.7 million in the second quarter of
2009, as compared to $22.6 million during the second quarter of 2008. Noninterest expense during the second quarter of 2009 included $3.8 million of higher Federal Deposit Insurance Corporation (FDIC) insurance assessments which included
an industry-wide special assessment, which amounted to $2.1 million for our bank, and a general increase in FDIC premiums for all financial institutions. For the first six months of 2009, noninterest expense increased $433,000, or 9.7%, to $44.9
million, as compared to $44.4 million during the first six months of 2008.



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Total salaries and employee benefits expense decreased slightly to $11.0 million during the second
quarter of 2009 from $11.1 million during the second quarter of 2008. For the first six months of 2009, total salaries and benefits were $21.5 million, a decrease of $1.3 million, or 5.5%, compared to $22.8 million of expense in the first six months
of 2008. The higher amounts of expense in 2008 largely resulted from providing cash sign-on bonuses and stock-based awards to attract senior management and a number of commercial relationship managers as part of a growth strategy initiated in 2008.
As the additional hiring throughout 2008 caused an increase in base salaries, we reduced the number of full time equivalent employees by eliminating certain positions at the end of 2008 and into the first half of 2009 to control expenses. The number
of full-time equivalent employees increased from 418 at the December 31, 2007 to 451 at December 31, 2008, but has been reduced to 425 at June 30, 2009.

Total salaries, employment taxes, and medical insurance expenses were $9.7 million for the second quarter of 2009 as compared to $9.4 million for the second quarter of 2008. An increase in the market value of assets
held in the employee deferred compensation plan and a slight increase in base salaries resulted in the increase in the second quarter of 2009. On a year-to-date basis, total salaries, employment taxes, and medical insurance expenses salary expense
increased $1.3 million, or 7.5%, to $19.1 million for the first half of 2009, as compared to $17.8 million for the first six months of 2008. Most of the increase during the first six months of 2009 was due to higher base salaries associated the
growth strategy initiated during the second and third quarters of 2008.

Sign-on bonuses and severance expense decreased significantly to
$20,000 for the second quarter of 2009 from $513,000 for the second quarter a year ago. For the first six months of 2009, sign-on bonuses and severance decreased to $279,000, compared to $1.9 million for the first half of 2008. The expense in the
first six months of 2009 was primarily severance expense related to our cost control measures. The expense in the first six months of 2008 was primarily signing bonuses to attract new employees and also included severance related to senior
management changes and the repositioning of certain of our supporting staff.

Incentives, commissions, and retirement benefits increased
slightly during the second quarter of 2009 to $1.3 million, as compared to $1.2 million during the second quarter of 2008, as a result of an increase in sales incentives. For the first six months of 2009, incentives, commissions, and retirement
benefit expense were $2.2 million, compared to $3.2 million for the first half of 2008, a decrease of $983,000, or 31.0%. The lower expense in 2009 was caused by a decrease in employee benefit plan accruals and expense in the first half of 2008,
including accruals for our cash-based employee incentive program.

Our FDIC insurance premium increased in 2009, compared to 2008 because
of an industry wide special assessment and a general increase in premiums for all financial institutions. FDIC insurance premiums were $4.4 million in the second quarter of 2009, compared to $586,000 in the same quarter a year ago, and increase of
$3.8 million. Our FDIC insurance expense for the first half of 2009 was $5.9 million compared with $1.1 million for the first six months of 2008, an increase of $4.8 million. FDIC insurance premiums in the second quarter of 2009 included an
industry-wide special assessment to help recapitalize the FDICs Deposit



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Insurance Fund. Our share of the special assessment was $2.1 million. The FDIC has indicated that an additional special assessment may also occur in the
third or fourth quarter of 2009, but no such assessment has been approved by the FDIC. In addition to the special assessments and the general increase in the assessment rates, we have also elected to participate in the FDICs Transaction
Account Guarantee Program, which has and is likely to continue to cause an increase in our insurance premiums.

Legal fees were $1.7
million in the second quarter of 2009, compared to $769,000 in the same quarter in 2008. For the first six months of 2009, legal fees totaled $2.8 million, as compared to $1.4 million during the same six month period a year ago. Higher legal fees
were incurred due to the elevated level of nonperforming assets and loans in our work-out area.

Nonperforming asset expenses totaled
$224,000 during the second quarter of 2009 compared to $2.5 million during the second quarter of 2008. The decrease was primarily due to the second quarter 2008 recognition of a $2.2 million liability for unfunded loan commitments associated with
certain of our impaired loans. For the first six months of 2009, nonperforming asset expense was $978,000, as compared to $3.5 million during the first six months of 2008, a decrease of $2.5 million. The decrease was due to the $2.2 million
liability for unfunded commitments recognized in 2008 and a decrease in the provisions to reduce the carrying value of certain other real estate owned. We expect that our nonperforming asset expense will continue to be significant in future periods
because of the current high level of nonperforming assets and other real estate owned.

During the first six months of 2009, we incurred
$527,000 of expense for the early redemption of approximately $29.0 million of above market rate brokered certificates of deposits, compared to $1.2 million of expense for the early redemption of approximately $115 million of above market rate
brokered certificates of deposits in the first six months of 2008. The unamortized issuance costs and fair value adjustments on these deposits were written off at the time of redemption. As of June 30, 2009, we do not have any additional
brokered CDs that we can call at our option.

Other noninterest expense principally includes external audit and tax services, business
development and entertainment expenses, computer software license fees, and other operating expenses such as telephone, postage, office supplies and printing. Other noninterest expense was $3.9 million in the second quarter of 2009, a decrease of
$667,000 as compared to the $4.6 million of expense during the second quarter of 2008. For the first six months of 2009, other noninterest expense was $8.0 million, compared to $9.0 million during the first six months of 2008, a decrease of $1.0
million, or 11.4%. The decline in expense during 2009 was largely due to a lower advertising, professional fees, business development, and decreases in other overhead expense categories as we focused on controlling costs in an effort to improve
operating results.



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Efficiency Ratio

An efficiency ratio is calculated by dividing total noninterest expense by total revenues (net interest income and noninterest income, less gains on the sale of investment securities). Generally, a lower efficiency
ratio indicated that the entity is operating more efficiently. Our efficiency ratio was 67.89% in the second quarter of 2009 and 67.03% during the first six months of 2009. Without the $2.1 million FDIC special assessment, our efficiency ratio would
have been 61.80% during the second quarter of 2009 and 63.85% during the first six months of 2009. In comparison, our efficiency ratio was 88.39% and 82.03% during the second quarter and first six months of 2008, respectively. The lower ratio in
2009 was primarily a result of an increase in total net interest income.

Income Taxes

Despite a pre-tax loss, we recorded income tax expense of $2.6 million during the second quarter of 2009 and $1.3 million for the first six months of
2009. Because of the valuation allowance on our deferred tax asset, we do not expect to be able to record an income tax benefit during 2009 related to the pre-tax loss incurred.

During the third quarter of 2008, we established a valuation allowance on our deferred tax assets when we concluded that based upon the weight of all
available evidence, it was more likely than not that the deferred tax asset would not be realized. We evaluate the valuation allowance each period taking into account our inventory of deferred tax assets and liabilities, including those
recorded on items included in equity as other comprehensive income, which are recorded net of tax. The valuation allowance increased $12.2 million during the first six months of 2009 to $58.6 million at June 30, 2009 as compared to $46.4
million at December 31, 2008. At June 30, 2009, the net deferred tax asset, after considering the $58.6 million valuation allowance, was $5.8 million, which was supported by remaining carry backs of income taxes paid in prior years and
available tax planning strategies. See Notes to Consolidated Financial Statements  Income Taxes for additional details.

A current income tax benefit that would normally result from a pre-tax loss was offset by additional deferred tax expense due to an increase in the required valuation allowance. Additional contributing factors to the income tax expense
recorded in 2009 include the release of the residual tax effects of changes in the beginning of the year valuation allowance previously allocated to other comprehensive income. These residual tax effects resulted from changes in the deferred
tax liability associated with deferred gains on terminated cash flow hedges recorded in other comprehensive income. We expect additional expense of $1.1 million during the last six months of 2009 associated with the release of these residual
tax effects.

During the second quarter of 2008 and the first six months of 2008, we recorded income tax benefits of $21.1 million and $22.2
million, respectively. At the end of the second quarter of 2008, we made the determination that we would realize the tax benefit associated with the pre-tax losses through the ability to carry back losses to recover taxes paid in previous years
and through the generation of future taxable income.



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FINANCIAL CONDITION

Overview

Total assets increased $159.4 million, or 3.6%, to $4.55 billion at June 30, 2009 from total assets of $4.39
billion at December 31, 2008, primarily the result of an increase in investment securities. Investment securities totaled $1.31 billion at June 30, 2009, an increase of $211.6 million, or 19.3% from year-end 2008. Total loans decreased
$55.5 million, or 1.7%, to $3.18 billion at June 30, 2009. During the first six months of 2009, total deposits increased $73.5 million, or 2.3%, to $3.20 billion at June 30, 2009. In addition, other borrowings increased $39.7 million and
notes payable and FHLB advances increased $55.0 million during the first half of 2009. Total stockholders equity at June 30, 2009 was $271.6 million, compared to $307.1 million at December 31, 2008, a decrease of $35.5 million, or
11.5%.

Investment Securities

Investment securities totaled $1.31 billion at June 30, 2009, compared to $1.09 billion at December 31, 2008, an increase of $211.6 million, or 19.3%. During the first six months of 2009, we increased our investment portfolio in
an effort to increase interest-earning assets and enhance our net interest margin by extending the duration of the portfolio. Since year-end 2008, we purchased $654.8 million of investment securities, including $60.0 million of government agency
securities and $594.0 million of mortgage-backed securities, primarily issued by government sponsored enterprises. A portion of the securities purchased were funded with proceeds from the sale of $206.9 million of mortgage-backed securities during
the second quarter of 2009. During that quarter, we elected to sell certain of our higher rate, mortgage-back securities, at a gain of $7.6 million, which had been experiencing higher than anticipated prepayments and that were no longer consistent
with our asset and liability management strategy. We reinvested the proceeds from the sales in other agency mortgage-backed securities which had expected prepayments that better fit our strategy. In addition, during the first quarter of 2009, we
sold $47.8 million of short duration mortgage-related securities, at a gain of $664,000, to provide additional funding for the purchase of the longer duration securities. The overall weighted-average life of our investment portfolio at June 30,
2009 was approximately 6.5 years, compared to approximately 6.0 years at December 31, 2008.

As of June 30, 2009,
mortgage-related securities comprised approximately 82% of our investment portfolio, of which, over 97% were securities issued by government and government-sponsored enterprises. The following table shows the composition of our mortgage-related
securities as of June 30, 2009 by type of issuer.



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|                                                          |  |                     |         |            |   |         |  |                     |           |      |   |         |  |   |         |  |   |          
|--------------------------------------------------------- |  | ------------------- | ------- | ---------- | - | ------- |  | ------------------- | --------- | ---- | - | ------- |  | - | ------- |  | - | ---------
|                                                          |  | Amortized Cost      |         | Fair Value
|                                                          |  | Pass ThruSecurities |         | CMOs       |   | Total   |  | Pass ThruSecurities |           | CMOs |   | Total  
|                                                          |  | (in thousands)     
|Government and government sponsored-enterprise securities |  | $                   | 931,552 |            | $ | 89,552  |  | $                   | 1,021,104 |      | $ | 947,740 |  | $ | 93,423  |  | $ | 1,041,163
|Private Issuers                                           |  |                     | 11,967  |            |   | 23,513  |  |                     | 35,480    |      |   | 6,860   |  |   | 21,758  |  |   | 28,618   
|                                                          |  |                     |         |            |   |         |  |                     |           |      |   |         |  |   |         |  |   |          
|                                                          |  | $                   | 943,519 |            | $ | 113,065 |  | $                   | 1,056,584 |      | $ | 954,600 |  | $ | 115,181 |  | $ | 1,069,781
|                                                          |  |                     |         |            |   |         |  |                     |           |      |   |         |  |   |         |  |   |          

At June 30, 2009, we had a net unrealized gain of $14.4 million in our available-for-sale
investment portfolio, which was comprised of $25.1 million of gross unrealized gains and $10.7 million of gross unrealized losses. The gross unrealized losses at June 30, 2009 related to 85 investment securities with a carrying value of $415.7
million. Each quarter we analyze each of these securities to determine if other-than-temporary impairment has occurred. The factors we consider include the magnitude of the unrealized loss in comparison to the securitys carrying value, the
length of time the security has been in an unrealized loss position and the current independent bond rating for the security. Those securities with unrealized losses for more than 12 months or for more than 10% of their carrying value are analyzed
further to determine if it is probable that not all the contractual cash flows will be received. We obtain fair value estimates from additional independent sources and perform cash flow analysis to determine if other-than-temporary impairment has
occurred. Of the 85 securities with gross unrealized losses at June 30, 2009, only 20 securities have been in a loss position for 12 months or more and none had other-than-temporary impairment.

In comparison, at December 31, 2008, we had a net unrealized gain of $20.2 million, which was comprised of $27.9 million of gross unrealized gains
and $7.7 million of gross unrealized losses. In addition, during the fourth quarter of 2008, as part of our quarterly evaluation, we recognized a charge of $2.4 million for other-than-temporary impairment on one private-label mortgage-related
security to write-down this security to the estimated fair value.

On April 1, 2009, we adopted FASB Staff Position FAS No. 115-2
and 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. This FSP amends existing other-than-temporary impairment guidance and requires the retroactive application, as an adjustment through retained earnings, for any
security for which other-than-temporary impairment had been recognized in the consolidated statement of operations for the cumulative effect of applying this FSP with a corresponding adjustment to accumulated other comprehensive income. See
Notes to Consolidated Financial Statements  Investment Securities for additional details. We did not recognize any additional credit loss on this private-label mortgage-related security or any other investment security in our
portfolio during the second quarter of 2009.



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As a member of Federal Home Loan Bank (FHLB), we are required to hold FHLB stock, based on
the Banks asset size and the amount of borrowings from the FHLB. In recent quarters, the Bank has increased its use of FHLB advances to support asset growth. As a result, we have been required to increase our stock holdings. At June 30,
2009, we held $27.3 million of FHLB stock and maintained $505.0 million of FHLB advances. Currently, we do not have any FHLB debt securities in our investment portfolio. The FHLB of Chicago is under a formal written agreement with its regulator
requiring the regulators prior approval for the payment of dividends or redemptions of capital stock. We have assessed the ultimate recoverability of our FHLB stock and we believe no impairment has occurred.

In the third quarter of 2009, we purchased a participation interest in 20 pools of residential mortgage loans in four tranches with an aggregate
outstanding principal balance of approximately $100.8 million. As of the date of this filing, certain of the mortgage loans have been pooled into pass-through certificates to be issued by a mortgage originator and guaranteed by the Government
National Mortgage Association, otherwise known as Ginnie Mae. These certificates have been purchased by investors and we have received payments of approximately $16.9 million from these investors. We learned that Ginnie Mae has removed the
originator of the residential mortgage loans from its list of eligible issuers, which may impact the ability of the remaining mortgage loans to be sold to investors in Ginnie Mae pass-through certificate offerings as originally contemplated. We are
currently exploring the use of alternate issuers eligible under Ginnie Mae as well as other disposition strategies for the remaining mortgage loans.

Loans

During the first six months of 2009, total loans decreased $55.5 million, or 1.7%, to $3.18 billion at June 30,
2009. Commercial loans, which includes commercial and industrial (C&I), commercial real estate secured, and real estate-construction loans, decreased $64.5 million, or 2.1%, while consumer-oriented loans increased $9.0 million. The
decrease in commercial loans during the first half of 2009 consisted of a $106.1 million, or 7.1%, decrease in C&I loans, a $37.0 million, or 10.6%, decrease in residential construction and land loans and a $17.5 million, or 9.6%, decrease in
commercial construction and land loans. These decreases were partly offset by a $96.0 million, or 9.1%, increase in commercial real estate secured loans.

The composition of our loan portfolio as of June 30, 2009 and December 31, 2008 was as follows:



|                                |  |                        |           |                         |                   |   |        |   |                         |  |     |  
|------------------------------- |  | ---------------------- | --------- | ----------------------- | ----------------- | - | ------ | - | ----------------------- |  | --- | -
|                                |  | June 30, 2009          |           |                         | December 31, 2008 |  
|                                |  | Amount                 |           | Percentageof GrossLoans |                   |   | Amount |   | Percentageof GrossLoans | 
|                                |  | (dollars in thousands) |          
|Commercial and industrial       |  | $                      | 1,379,615 |                         | 44                | % |        | $ | 1,485,673               |  | 46  | %
|Commercial real estate secured  |  |                        | 1,154,971 |                         | 36                |   |        |   | 1,058,930               |  | 33  |  
|Residential construction & land |  |                        | 312,978   |                         | 10                |   |        |   | 349,998                 |  | 11  |  
|Commercial construction & land  |  |                        | 163,965   |                         | 5                 |   |        |   | 181,454                 |  | 5   |  
|Consumer-oriented loans         |  |                        | 166,220   |                         | 5                 |   |        |   | 157,222                 |  | 5   |  
|                                |  |                        |           |                         |                   |   |        |   |                         |  |     |  
|Gross loans                     |  | $                      | 3,177,749 |                         | 100               | % |        | $ | 3,233,277               |  | 100 | %
|                                |  |                        |           |                         |                   |   |        |   |                         |  |     |  

At June 30, 2009, C&I loans accounted for 44% of the loan portfolio and totaled $1.38
billion, a decrease of $106.1 million, or 7.1%, compared to $1.49 billion at December 31, 2008. C&I loans include all loans for commercial purposes (other than real estate construction) that are either unsecured or secured by collateral
other than commercial real estate. These loans are generally made to operating companies in a variety of businesses, excluding commercial real estate investment. We continue to actively develop new customer relationships and originate C&I loans,
as part of a larger, strategic realignment of our balance sheet. At the same time, we began to reduce our credit exposure to certain types of customers where we did not feel the risk/return characteristics were consistent with new opportunities in
the market place. This realignment, along with a decline in the usage rates on available lines of credits, has caused a reduction in our C&I loan balances.

Our commercial real estate secured loans increased $96.0 million, or 9.1%, to $1.15 billion at June 30, 2009, as compared to $1.06 billion at December 31, 2008. The increase was due to increases in loans
secured by both owner and non-owner occupied commercial properties. Approximately 87% of the total commercial real estate secured portfolio is loan secured by owner and non-owner occupied commercial properties. The remainder of this portfolio
consists of loans secured by residential income properties.



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Real estate-construction loans consist primarily of loans to professional real estate developers for the
construction of single-family homes, town-homes, condominium conversions and commercial property. The portion of this portfolio related to residential construction and land decreased by $37.0 million, or 10.6%, to $313.0 million at June 30,
2009, as compared to $350.0 million at December 31, 2008. The residential real estate construction portfolio accounted for 10% of the total loan portfolio at June 30, 2009, down from 11% of the total loan portfolio at December 31,
2008. We expect that the slow down in the residential real estate market will continue to impact the amount of loans in this portion of our commercial loan portfolio, and we are actively trying to reduce our exposure to this portion of the loan
portfolio. Our commercial construction and land portfolio declined $17.5 million, or 9.6%, to $164.0 million at June 30, 2009, as compared to $181.5 million at December 31, 2008, and comprised 5% of the total loan portfolio.

The composition of our residential real estate-construction portfolio was as follows as of the dates indicated:



|                                            |  |                        |         |                                     |                   |   |                          |    |   |         |   |                                     |  |     |                          |  |    |  
|------------------------------------------- |  | ---------------------- | ------- | ----------------------------------- | ----------------- | - | ------------------------ | -- | - | ------- | - | ----------------------------------- |  | --- | ------------------------ |  | -- | -
|                                            |  | June 30, 2009          |         |                                     | December 31, 2008 |  
|                                            |  | Balance                |         | Percentage ofTotalConstructionLoans |                   |   | Percentage ofGross Loans |    |   | Balance |   | Percentage ofTotalConstructionLoans |  |     | Percentage ofGross Loans | 
|                                            |  | (dollars in thousands) |        
|Residential properties:                     |  |                        |         |                                     |                   |   |                          |    |   |         |   |                                     |  |     |                          |  |    |  
|Single family attached and detached housing |  | $                      | 100,086 |                                     | 32                | % |                          | 3  | % |         | $ | 105,526                             |  | 30  | %                        |  | 3  | %
|Condo (new & conversions)                   |  |                        | 81,812  |                                     | 26                |   |                          | 3  |   |         |   | 95,705                              |  | 27  |                          |  | 3  |  
|Multi-family                                |  |                        | 58,909  |                                     | 19                |   |                          | 2  |   |         |   | 57,495                              |  | 17  |                          |  | 1  |  
|Completed for sale                          |  |                        | 8,858   |                                     | 3                 |   |                          | *  |   |         |   | 16,830                              |  | 5   |                          |  | 1  |  
|                                            |  |                        |         |                                     |                   |   |                          |    |   |         |   |                                     |  |     |                          |  |    |  
|Total residential construction              |  |                        | 249,665 |                                     | 80                |   |                          | 8  |   |         |   | 275,556                             |  | 79  |                          |  | 8  |  
|Land  unimproved & farmland                |  |                        | 43,050  |                                     | 14                |   |                          | 1  |   |         |   | 52,321                              |  | 15  |                          |  | 2  |  
|Land  improved & entitled                  |  |                        | 3,282   |                                     | 1                 |   |                          | *  |   |         |   | 3,921                               |  | 1   |                          |  | *  |  
|Land  under development                    |  |                        | 16,981  |                                     | 5                 |   |                          | 1  |   |         |   | 18,200                              |  | 5   |                          |  | 1  |  
|                                            |  |                        |         |                                     |                   |   |                          |    |   |         |   |                                     |  |     |                          |  |    |  
|Total land                                  |  |                        | 63,313  |                                     | 20                |   |                          | 2  |   |         |   | 74,442                              |  | 21  |                          |  | 3  |  
|                                            |  |                        |         |                                     |                   |   |                          |    |   |         |   |                                     |  |     |                          |  |    |  
|Total residential construction and land     |  | $                      | 312,978 |                                     | 100               | % |                          | 10 | % |         | $ | 349,998                             |  | 100 | %                        |  | 11 | %
|                                            |  |                        |         |                                     |                   |   |                          |    |   |         |   |                                     |  |     |                          |  |    |  



|* | Represents less than 1%
|- | -----------------------

Total consumer-oriented loans,
which include residential real estate mortgages, home equity loans and lines of credit, and other consumer loans, totaled $166.2 million at June 30, 2009. Consumer-oriented loans account for approximately 5% of the total loan portfolio. At
June 30, 2009, the largest categories of consumer-oriented loans are home equity loans and lines of credit, which totaled $94.5 million, and residential real estate mortgage loans, which totaled $55.0 million.



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##### Table of Contents

Loan Quality and Nonperforming Assets

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



|                                                                         |  |                        |         |   |              |   |         |              |  |   |         |  
|------------------------------------------------------------------------ |  | ---------------------- | ------- | - | ------------ | - | ------- | ------------ |  | - | ------- | -
|                                                                         |  | June 30,2009           |         |   | Dec. 31,2008 |   |         | June 30,2008 | 
|                                                                         |  | (dollars in thousands) |        
|Loans contractually past due 90 days or more but still accruing interest |  | $                      | 379     |   |              | $ | 153     |              |  | $ | 1,588   |  
|Nonaccrual loans                                                         |  |                        |         |   |              |   |         |              |  |   |         |  
|Commercial and industrial                                                |  |                        | 38,554  |   |              |   | 42,263  |              |  |   | 12,759  |  
|Commercial real estate secured                                           |  |                        | 30,856  |   |              |   | 23,068  |              |  |   | 14,246  |  
|Residential construction & land                                          |  |                        | 101,921 |   |              |   | 114,160 |              |  |   | 116,376 |  
|Commercial construction & land                                           |  |                        | 11,266  |   |              |   | 14,934  |              |  |   | 7,388   |  
|All other loan types                                                     |  |                        | 6,840   |   |              |   | 5,802   |              |  |   | 2,103   |  
|                                                                         |  |                        |         |   |              |   |         |              |  |   |         |  
|Total nonaccrual loans                                                   |  |                        | 189,437 |   |              |   | 200,227 |              |  |   | 152,872 |  
|                                                                         |  |                        |         |   |              |   |         |              |  |   |         |  
|Total nonperforming loans                                                |  |                        | 189,816 |   |              |   | 200,380 |              |  |   | 154,460 |  
|Other real estate owned                                                  |  |                        | 20,049  |   |              |   | 13,179  |              |  |   | 4,280   |  
|Other repossessed assets                                                 |  |                        | 3,021   |   |              |   |        |              |  |   |        |  
|                                                                         |  |                        |         |   |              |   |         |              |  |   |         |  
|Total nonperforming assets                                               |  | $                      | 212,886 |   |              | $ | 213,559 |              |  | $ | 158,740 |  
|                                                                         |  |                        |         |   |              |   |         |              |  |   |         |  
|Restructured loans not included in nonperforming assets                  |  | $                      | 4,375   |   |              | $ |        |              |  | $ |        |  
|Nonperforming loans to total loans                                       |  |                        | 5.97    | % |              |   | 6.20    | %            |  |   | 5.67    | %
|Nonperforming assets to total loans plus repossessed property            |  |                        | 6.65    | % |              |   | 6.58    | %            |  |   | 5.81    | %
|Nonperforming assets to total assets                                     |  |                        | 4.68    | % |              |   | 4.87    | %            |  |   | 4.27    | %

Nonperforming assets were $212.9 million, or 4.68% of total assets on June 30, 2009, compared
to $213.6 million, or 4.87% of total assets on December 31, 2008, and $158.7 million, or 4.27% of total assets on June 30, 2008. Within total nonperforming assets at June 30, 2009, nonperforming loans decreased $10.6 million to $189.8
million, while other real estate owned and repossessed assets increased $9.9 million to $23.1 million at June 30, 2009. While total nonperforming assets were relatively unchanged during the first six months of 2009, we charged-off $51.3 million
of nonperforming commercial loans and transferred $15.9 million of loans to other real estate owned and repossessed assets.

Residential
construction and land loans continue to be the largest category of nonaccrual loans and comprise approximately 54% of all nonaccrual loans. The continued downturn in the residential housing market has negatively impacted many of our residential real
estate development customers and resulted in the high level of nonperforming loans. Nonperforming residential construction and loan loans totaled $101.9 million at June 30, 2009 as compared to $114.2 million at December 31, 2008.

Commercial and industrial loans, the second largest category of nonperforming loans, decreased to $38.6 million at June 30, 2009 from
$42.3 million at year-end 2008. Charge-offs and loan pay downs during the first six months of 2009 were partly offset by new commercial and industrial loans transferred to a nonaccrual status. Nonperforming commercial real estate secured loans
increased $7.8 million during the first six months of 2009 to $30.9 million from $23.1 million at December 31, 2008. New nonaccrual loans, partly offset by charge-offs and loan pay downs produced the increase in this category.



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##### Table of Contents

Impaired loans include all nonaccrual loans, accruing loans judged to have higher risk of noncompliance
with the present contractual repayment schedule for both interest and principal, as well as troubled debt restructurings. While impaired loans exhibit weaknesses that may inhibit repayment in compliance with the original note terms, the measurement
of impairment may not always result in an allowance for loan loss for every impaired loan. For impaired loans that are secured by real estate, our general practice is to use current appraisals to determine the appropriate allowance. Impaired loans
at June 30, 2009 were $197.7 million, as compared to $206.7 million at December 31, 2008. While total impaired loans decreased during the first six months of 2009, the allowance for loan losses related to impaired loans increased to $69.0
million at June 30, 2009, as compared to $41.5 million at December 31, 2008.

Information about our impaired loans and the
related allowance for loan losses for impaired loans is as follows:



|                                                    |  |                |         |              |   |              |  |   |        
|--------------------------------------------------- |  | -------------- | ------- | ------------ | - | ------------ |  | - | -------
|                                                    |  | June 30,2009   |         | Dec. 31,2008 |   | June 30,2008
|                                                    |  | (in thousands)
|Recorded balance of impaired loans                  |  | $              | 197,675 |              | $ | 206,705      |  | $ | 176,730
|Allowance for loan losses related to impaired loans |  |                | 68,963  |              |   | 41,451       |  |   | 51,298 

The composition of our impaired loans and the related allowance at June 30, 2009 was as
follows:



|                                   |  |                |         |                     |   |       
|---------------------------------- |  | -------------- | ------- | ------------------- | - | ------
|                                   |  | ImpairedLoans  |         | Allowancefor Losses
|                                   |  | (in thousands)
|Commercial and industrial          |  | $              | 47,451  |                     | $ | 22,563
|Commercial real estate secured     |  |                | 30,856  |                     |   | 3,513 
|Residential construction and land  |  |                | 108,102 |                     |   | 40,497
|Commercial construction and land   |  |                | 11,266  |                     |   | 2,390 
|                                   |  |                |         |                     |   |       
|Total Impaired loans and allowance |  | $              | 197,675 |                     | $ | 68,963
|                                   |  |                |         |                     |   |       

Allowance for Loan Losses

We have established an allowance for loan losses to provide for loans in our portfolio that may not be repaid in their entirety. The allowance is based on our regular, quarterly assessments of the probable estimated
losses inherent in the loan portfolio. Our methodology for measuring the appropriate level of the allowance includes identifying problem loans, estimating the amount of probable loss related to those loans, estimating probable losses from specific
portfolio segments and evaluating the impact to our loan portfolio of a number of economic and qualitative factors. Although management believes that the allowance for loan losses is adequate to absorb probable losses on existing loans that may
become uncollectible at this point in time, there can be no assurance that our allowance will prove sufficient to cover actual loan losses in the future.



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##### Table of Contents

The following table includes an analysis of our allowance for loan losses and other related data for the
periods indicated:



|                                                     |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|---------------------------------------------------- |  | ---------------------- | --------- | - | -------------------- | - | --------- | ------------ |  | - | ------------ | - |  | - | --------- | -
|                                                     |  | For Three Months Ended |           |   | For Six Months Ended |  
|                                                     |  | June 30,2009           |           |   | June 30,2008         |   |           | June 30,2009 |  |   | June 30,2008 |  
|                                                     |  | (dollars in thousands) |          
|Average total loans                                  |  | $                      | 3,187,740 |   |                      | $ | 2,558,406 |              |  | $ | 3,212,998    |   |  | $ | 2,521,717 |  
|                                                     |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|Total loans at end of period                         |  | $                      | 3,177,739 |   |                      | $ | 2,725,855 |              |  | $ | 3,177,739    |   |  | $ | 2,725,855 |  
|                                                     |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|Allowance for loan losses:                           |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|Allowance at beginning of period                     |  | $                      | 130,282   |   |                      | $ | 64,193    |              |  | $ | 128,548      |   |  | $ | 54,681    |  
|Net (charge-offs) recoveries:                        |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|Commercial and commercial real estate                |  |                        | (21,691   | ) |                      |   | (4,191    | )            |  |   | (27,003      | ) |  |   | (4,355    | )
|Real estateconstruction                             |  |                        | (15,110   | ) |                      |   | (4,237    | )            |  |   | (23,558      | ) |  |   | (5,924    | )
|Residential real estate mortgages and consumer loans |  |                        | (61       | ) |                      |   | (378      | )            |  |   | (130         | ) |  |   | (765      | )
|                                                     |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|Total net charge-offs                                |  |                        | (36,862   | ) |                      |   | (8,806    | )            |  |   | (50,691      | ) |  |   | (11,044   | )
|Provision for loan losses                            |  |                        | 39,507    |   |                      |   | 49,355    |              |  |   | 55,070       |   |  |   | 61,105    |  
|                                                     |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|Allowance at end of period                           |  | $                      | 132,927   |   |                      | $ | 104,742   |              |  | $ | 132,927      |   |  | $ | 104,742   |  
|                                                     |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|Annualized net charge-offs to average total loans    |  |                        | 4.63      | % |                      |   | 1.38      | %            |  |   | 3.16         | % |  |   | 0.88      | %
|Allowance to total loans at end of period            |  |                        | 4.18      | % |                      |   | 3.84      | %            |  |   | 4.18         | % |  |   | 3.84      | %
|Allowance to nonperforming loans                     |  |                        | 70.03     | % |                      |   | 67.81     | %            |  |   | 70.03        | % |  |   | 67.81     | %

Our allowance for loan losses was $132.9 million at June 30, 2009, or 4.18% of end-of-period
loans and 70.03% of nonperforming loans. At June 30, 2008, the allowance for loan losses was $104.7 million, which represented 3.84% of end-of-period loans and 67.81% of nonperforming loans. Net charge-offs during the second quarter of 2009
were $36.9 million, or 4.63% of average loans on an annualized basis. In comparison, net charge-offs during the second quarter of 2008 were $8.8 million, or 1.38% of average loans on an annualized basis. For the first six months of 2009, net
charge-offs totaled $50.7 million, or 3.16% of average loans on an annualized basis, as compared to net charge-offs of $11.0 million, or 0.88% of average loans, during the first six months of 2008. Net charge-offs have increased as a result of the
increase in the volume of nonperforming and impaired loans.

Provision for Loan Losses

We determine a provision for loan losses that we consider sufficient to maintain an allowance covering probable losses inherent in our portfolio as of the
balance sheet date. Our provision for loan losses was $39.5 million for the second quarter of 2009, compared to $49.4 million for the second quarter of 2008. The provision for loan losses was $55.1 million during the first half of 2009 compared to
$61.1 million during the first half of 2008. The persistent weak economic environment and the continued high level of nonperforming loans, impaired loans, and charge-offs and the amount of performing loans that have been assessed by us as having
higher credit risk, and, therefore, receiving heightened monitoring, all factored into the continued high level of the provision for loan losses in recent periods. Our provision for loan losses in any individual accounting period is not an indicator
of provisioning in subsequent reporting periods.



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##### Table of Contents

Deposits

Total deposits at June 30, 2009 increased $73.5 million to $3.20 billion at June 30, 2009 from $3.13 billion at December 31, 2008. During 2009, we began an in-market deposit initiative designed to increase our core in-market
deposits and reduce our reliance on brokered and out-of-market deposits. Total in-market deposits were $2.35 billion at June 30, 2009, an increase of $336.4 million, or 16.7%, as compared to December 31, 2008. Total in-market deposits
represent 73% of total deposits at June 30, 2009, up from 64% at December 31, 2008.

Total in-market deposits were $2.35 billion
at June 30, 2009 as compared to $2.01 billion at December 31, 2008. Noninterest-bearing deposits increased $126.7 million to $597.7 million at June 30, 2009, primarily due to our efforts to increase our relationship-based core
deposits. In addition, time deposits maintained through the CDARS network increased $161.6 million and money market accounts increased $79.9 million. These increases were partly offset by lower customer certificates of deposits, which decreased
$39.9 million. Total out-of-market deposits decreased $262.9 million to $855.4 million at June 30, 2009 from $1.12 billion at year-end 2008. Higher funding provided by in-market deposits allowed us to reduce reliance on brokered funds, such as
brokered and out-of-local market CDs. As a result, brokered and out-of-market CDs decreased by $198.8 million and brokered money market accounts were lower by $63.8 million.

The following table sets forth the period end balances of total deposits as of each of the dates indicated below, as well as categorizes our deposits as
in-market and out-of-market deposits:



|                                            |  |                |           |              |   |          
|------------------------------------------- |  | -------------- | --------- | ------------ | - | ---------
|                                            |  | June 30,2009   |           | Dec. 31,2008
|                                            |  | (in thousands)
|In-market deposits:                         |  |                |           |              |   |          
|Noninterest bearing deposits                |  | $              | 597,734   |              | $ | 470,990  
|NOW accounts                                |  |                | 237,617   |              |   | 218,146  
|Savings accounts                            |  |                | 41,784    |              |   | 42,275   
|Money market accounts                       |  |                | 400,591   |              |   | 320,691  
|Customer certificates of deposit            |  |                | 830,268   |              |   | 870,183  
|CDARS time deposits                         |  |                | 167,315   |              |   | 5,670    
|Public time deposits                        |  |                | 73,867    |              |   | 84,831   
|                                            |  |                |           |              |   |          
|Total in-market deposits                    |  |                | 2,349,176 |              |   | 2,012,786
|                                            |  |               
|Out-of-market deposits:                     |  |                |           |              |   |          
|Brokered NOW accounts                       |  |                |          |              |   | 305      
|Brokered money market deposits              |  |                | 9,584     |              |   | 73,352   
|Out-of-local-market certificates of deposit |  |                | 107,525   |              |   | 136,470  
|Brokered certificates of deposit            |  |                | 738,289   |              |   | 908,133  
|                                            |  |                |           |              |   |          
|Total out-of-market deposits                |  |                | 855,398   |              |   | 1,118,260
|                                            |  |                |           |              |   |          
|Total deposits                              |  | $              | 3,204,574 |              | $ | 3,131,046
|                                            |  |                |           |              |   |          



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##### Table of Contents

Average deposits for the first six months of 2009 increased $470.2 million to $3.15 billion, compared to
$2.66 billion for the first six months of 2008. Total time deposits increased $474.1 million during the first half of 2009 as compared to the first half of 2008. The increase was comprised of higher local-market certificates of deposit of $254.7
million and brokered certificates of deposit of $190.3 million, as we increased both of these sources of funds during the second half of 2008 to fund asset growth. In addition, between the two year-to-date periods, NOW accounts increased by $154.3
million, while money market accounts declined by $265.7 million primarily due to the transfer of a large depositors balances from money market to a NOW account and a reduction in balances by another large depositor during the latter half of
2008.

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



|                                            |  |                                       |           |                    |                                       |   |      |      |   |                |   |                    |  |       |      |  |      |  
|------------------------------------------- |  | ------------------------------------- | --------- | ------------------ | ------------------------------------- | - | ---- | ---- | - | -------------- | - | ------------------ |  | ----- | ---- |  | ---- | -
|                                            |  | For the Six Months EndedJune 30, 2009 |           |                    | For the Six Months EndedJune 30, 2008 |  
|                                            |  | AverageBalance                        |           | Percent OfDeposits |                                       |   | Rate |      |   | AverageBalance |   | Percent OfDeposits |  |       | Rate | 
|                                            |  | (dollars in thousands)                |          
|Noninterest-bearing demand deposits         |  | $                                     | 548,766   |                    | 17.4                                  | % |      |     | % |                | $ | 392,828            |  | 14.6  | %    |  |     | %
|NOW accounts                                |  |                                       | 228,024   |                    | 7.2                                   |   |      | 1.58 |   |                |   | 73,380             |  | 2.7   |      |  | 0.41 |  
|Money market accounts                       |  |                                       | 432,053   |                    | 13.7                                  |   |      | 0.83 |   |                |   | 741,333            |  | 27.7  |      |  | 2.26 |  
|Savings deposits                            |  |                                       | 42,183    |                    | 1.3                                   |   |      | 0.08 |   |                |   | 47,325             |  | 1.8   |      |  | 0.17 |  
|Time deposits:                              |  |                                       |           |                    |                                       |   |      |      |   |                |   |                    |  |       |      |  |      |  
|Certificates of deposit                     |  |                                       | 851,811   |                    | 27.0                                  |   |      | 3.71 |   |                |   | 597,147            |  | 22.2  |      |  | 4.49 |  
|Out-of-local-market certificates of deposit |  |                                       | 117,256   |                    | 3.7                                   |   |      | 3.74 |   |                |   | 157,171            |  | 5.9   |      |  | 4.76 |  
|Brokered certificates of deposit            |  |                                       | 795,380   |                    | 25.3                                  |   |      | 3.93 |   |                |   | 605,056            |  | 22.5  |      |  | 4.86 |  
|CDARS time deposits                         |  |                                       | 67,267    |                    | 2.1                                   |   |      | 1.49 |   |                |   |                   |  |      |      |  |     |  
|Public Funds                                |  |                                       | 72,563    |                    | 2.3                                   |   |      | 2.42 |   |                |   | 70,846             |  | 2.6   |      |  | 3.87 |  
|                                            |  |                                       |           |                    |                                       |   |      |      |   |                |   |                    |  |       |      |  |      |  
|Total time deposits                         |  |                                       | 1,904,277 |                    | 60.4                                  |   |      | 3.68 |   |                |   | 1,430,220          |  | 53.2  |      |  | 4.65 |  
|                                            |  |                                       |           |                    |                                       |   |      |      |   |                |   |                    |  |       |      |  |      |  
|Total deposits                              |  | $                                     | 3,155,303 |                    | 100.0                                 | % |      |      |   |                | $ | 2,685,086          |  | 100.0 | %    |  |      |  
|                                            |  |                                       |           |                    |                                       |   |      |      |   |                |   |                    |  |       |      |  |      |  

Other Borrowings

Other borrowings include securities sold under agreements to repurchase, federal funds purchased and U.S. Treasury tax and loan note option borrowings. Period-end other borrowings increased $39.7 million to $315.2
million at June 30, 2009, as compared to $275.6 million at December 31, 2008. Most of the increase was a result of higher federal funds purchased which increased by $28.8 million to $83.3 million at June 30, 2009. In addition,
overnight securities sold under agreements to repurchase increased by $8.3 million during the first six months of 2009 and represent collateralized financing transactions executed primarily with local Bank customers.

At June 30, 2009, subject to available collateral, the Bank had pre-approved repurchase agreement lines of $200 million and pre-approved overnight
federal funds borrowing lines of $105 million. In comparison, at December 31, 2008 we had pre-approved repurchase agreement lines of $390 million and pre-approved overnight federal funds borrowing lines of $95 million. The decrease in our
pre-approved repurchased agreement lines during the first six months of 2009 was primarily due to reduced availability industry-wide as a result of general market conditions.



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Notes Payable and FHLB Advances

At both June 30, 2009 and December 31, 2008, we had $12.0 million outstanding under our $15.0 million revolving credit facility. The facility is scheduled to mature on March 31, 2010. The underlying
loan agreement requires that the Bank remain well capitalized and the holding company remain adequately capitalized as defined by regulatory guidelines. As of June 30, 2009, we were in compliance with these covenants.

Borrowings from the FHLBC increased $55.0 million during the first six months of 2009 to $505.0 million at June 30, 2009, compared to $450.0 million
as of December 31, 2008. We have increased our use of FHLB advances in recent periods to fund asset growth and the increase in our investment portfolio. We have primarily used overnight or short-term FHLB advances with rates that float daily,
taking advantage of the low interest rate environment. At June 30, 2009 and December 31, 2008 the Company had additional borrowing capacity at the FHLB of $196.6 million and $146.7 million, respectively.

Junior Subordinated Debentures

At June 30,
2009, we had $45.4 million of 9.75% fixed rate junior subordinated debentures issued to TAYC Capital Trust I, our wholly-owned statutory trust, which are currently callable at par, at our option. Unamortized issuance costs relating to these
debentures were $2.4 million on June 30, 2009. Unamortized issuance costs would be recognized as noninterest expense if the debentures were called by us.

At June 30, 2009, we also had $41.2 million of junior subordinated debentures issued to TAYC Capital Trust II, our wholly-owned statutory trust. These junior subordinated debentures pay a variable interest rate
based upon the 3 month LIBOR plus 2.68%. We can redeem all or part of the debentures at any time, subject to regulatory approval, at par.

Subordinated
Notes

In September 2008, the Bank issued $60.0 million of eight year, 10% subordinated notes, pre-payable at the Banks option
after three years. The notes were issued with detachable warrants to purchase up to 900,000 shares of our common stock at an exercise price of $10.00 per share. At June 30, 2009, the subordinated notes reported on the Consolidated Balance Sheet
totaled $55.5 million, which was net of $4.5 million of unamortized discount. The discount consists primarily of the fair value allocated to the warrants and was reported as an addition to surplus in the equity portion of the Consolidated Balance
Sheet. The discount is being amortized as an additional interest expense of the subordinated notes, over the remaining contractual life of the notes.



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CAPITAL RESOURCES

At June 30, 2009 and December 31, 2008, both the Company and Cole Taylor Bank were considered well capitalized under capital guidelines for bank holding companies and banks. The Companys
and Cole Taylor Banks capital ratios were as follows as of the dates indicated:



|                                         |  |                        |         |       |                             |   |        |                                                              |       |       |   |        |           |       |        |  
|---------------------------------------- |  | ---------------------- | ------- | ----- | --------------------------- | - | ------ | ------------------------------------------------------------ | ----- | ----- | - | ------ | --------- | ----- | ------ | -
|                                         |  | ACTUAL                 |         |       | FOR CAPITALADEQUACYPURPOSES |   |        | TO BE WELLCAPITALIZED UNDERPROMPTCORRECTIVE ACTIONPROVISIONS |      
|                                         |  | AMOUNT                 |         | RATIO |                             |   | AMOUNT |                                                              | RATIO |       |   | AMOUNT |           | RATIO |       
|                                         |  | (dollars in thousands) |        
|As of June 30, 2009:                     |  |                        |         |       |                             |   |        |                                                              |       |       |   |        |           |       |        |  
|Total Capital (to Risk Weighted Assets)  |  |                        |         |       |                             |   |        |                                                              |       |       |   |        |           |       |        |  
|Taylor Capital Group, Inc.               |  | $                      | 444,805 |       | 12.51                       | % |        | >$284,460                                                    |       | >8.00 | % |        | >$355,575 |       | >10.00 | %
|Cole Taylor Bank                         |  |                        | 399,328 |       | 11.24                       |   |        | 284,137                                                      |       | >8.00 |   |        | 355,171   |       | >10.00 |  
|Tier I Capital (to Risk Weighted Assets) |  |                        |         |       |                             |   |        |                                                              |       |       |   |        |           |       |        |  
|Taylor Capital Group, Inc.               |  |                        | 343,747 |       | 9.67                        |   |        | 142,230                                                      |       | >4.00 |   |        | 213,345   |       | >6.00  |  
|Cole Taylor Bank                         |  |                        | 298,319 |       | 8.40                        |   |        | 142,069                                                      |       | >4.00 |   |        | 213,103   |       | >6.00  |  
|Leverage (to average assets)             |  |                        |         |       |                             |   |        |                                                              |       |       |   |        |           |       |        |  
|Taylor Capital Group, Inc.               |  |                        | 343,747 |       | 7.52                        |   |        | 182,821                                                      |       | >4.00 |   |        | 228,526   |       | >5.00  |  
|Cole Taylor Bank                         |  |                        | 298,319 |       | 6.54                        |   |        | 182,506                                                      |       | >4.00 |   |        | 228,132   |       | >5.00  |  
|                                         |  |                        |         |       |                             |  
|As of December 31, 2008:                 |  |                        |         |       |                             |   |        |                                                              |       |       |   |        |           |       |        |  
|Total Capital (to Risk Weighted Assets)  |  |                        |         |       |                             |   |        |                                                              |       |       |   |        |           |       |        |  
|Taylor Capital Group, Inc.               |  | $                      | 474,287 |       | 13.02                       | % |        | >$291,497                                                    |       | >8.00 | % |        | >$364,371 |       | >10.00 | %
|Cole Taylor Bank                         |  |                        | 404,480 |       | 11.12                       |   |        | >290,864                                                     |       | >8.00 |   |        | >363,580  |       | >10.00 |  
|Tier I Capital (to Risk Weighted Assets) |  |                        |         |       |                             |   |        |                                                              |       |       |   |        |           |       |        |  
|Taylor Capital Group, Inc.               |  |                        | 372,377 |       | 10.22                       |   |        | >145,748                                                     |       | >4.00 |   |        | >218,622  |       | >6.00  |  
|Cole Taylor Bank                         |  |                        | 302,668 |       | 8.32                        |   |        | >145,432                                                     |       | >4.00 |   |        | >218,148  |       | >6.00  |  
|Leverage (to average assets)             |  |                        |         |       |                             |   |        |                                                              |       |       |   |        |           |       |        |  
|Taylor Capital Group, Inc.               |  |                        | 372,377 |       | 8.73                        |   |        | >170,682                                                     |       | >4.00 |   |        | >213,352  |       | >5.00  |  
|Cole Taylor Bank                         |  |                        | 302,668 |       | 7.11                        |   |        | >170,285                                                     |       | >4.00 |   |        | >212,857  |       | >5.00  |  

All of our capital ratios declined during the first six months of 2009 primarily due to a decrease
in regulatory capital caused by our net loss. However, a decrease in risk-weighted assets partly offset the impact of lower regulatory capital for the total capital and Tier I capital to risk-weighted assets ratios. During the first half of 2009,
total risk weighted assets decreased, despite an increase in total assets, because of a shift in the mix of our total asset to lower risk-weighted investment securities from the higher risk-weighted loans. Our ratio of Tier I capital to average
assets decreased to a larger extent than the total capital and Tier I capital to risk-weighted asset ratios due to both the decline in regulatory capital and an increase in average assets.

The Banks total and Tier I capital to risk-weighted asset ratios increased during the first six months of 2009 primarily due to the decrease in
risk-weighted assets caused by a shift in the composition of assets towards the lower risk-weighted assets investment balances from the higher risk-weighted loan balances. The Banks regulatory capital declined slightly during the first six
months of 2009 as the Banks net loss was partly offset by a $15.0 million capital contribution made by us to the Bank. The Banks Tier I capital to average asset ratio declined due to both an increase in average assets and the slight
decrease in regulatory capital.



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The Bank is subject to dividend restrictions established by regulatory authorities. The Bank did not pay
any dividends to us during the first six months of 2009 or during all of 2008. Because of the recent net losses, the Bank could not declare and pay dividends to us without the approval of regulatory authorities.

We did not pay a dividend on our common stock during the first two quarters of 2009. We declared a $0.10 per share common dividend during the first
quarter of 2008 totaling $1.1 million. During the first half of 2009, we declared each of the quarterly dividends on each of our Series A and Series B Preferred stock, totaling $4.9 million in the aggregate.

Our ability to pay common dividends has been impacted by the recent issuance of preferred stock. The Series B Preferred stock requires the consent of the
U.S. Treasury Department to pay any dividend on our common stock prior to November 21, 2011, unless the Series B Preferred has been redeemed or the Treasury has transferred all of the Series B Preferred to third parties. In addition, under the
terms of the junior subordinated debentures and the Series A Preferred, any deferral of the payment of interest or dividends results in a defined restriction in the payment of common dividends.

LIQUIDITY

We have taken steps to strengthen our
liquidity position during the first six months of 2009 and reduce our reliance on out-of-market deposit balances. As total deposits increased during the first half of 2009, in-market deposits increased $336.4 million, while total out-of-market
deposits decreased by $262.9 million. In addition, we increased our borrowings from the FHLB by $55.0 million and other borrowings increased by $39.7 million. Other cash inflows included $254.8 million from the sale of available for sale investment
securities and $193.0 million of maturities and repayments of investment securities.

Cash outflows during the six months included $618.2
million for the purchase of available for sale investment securities and the payment of $5.1 million in dividends on our Series A and Series B Preferred stock.

In connection with our liquidity risk management, we evaluate and closely monitor significant customer deposit balances for stability and average life. In order to maintain sufficient liquidity to meet all of our loan
and deposit customers withdrawal and funding demands, we routinely measure and monitor the volume of our liquid assets and available funding sources. Additional sources of liquidity for Cole Taylor Bank include Federal Home Loan Bank advances,
the Federal Reserve Banks Borrower-in-Custody Program, federal funds borrowing lines from larger correspondent banks and pre-approved repurchase agreement availability with major brokers and banks.

At the holding company level, cash and cash equivalents totaled $55.0 million at June 30, 2009, as compared to $76.5 million at December 31,
2008. Cash outflows during the first half of 2009 included a $15.0 capital contribution to the Bank, $5.1 million for the payment of dividends on our Series A and Series B Preferred stock, and $3.4 million of interest paid on our junior subordinated
debentures. The Company also had $3.0 million of availability under its revolving line of credit.



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Off-Balance Sheet Arrangements

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

At June 30, 2009, we had $800 million of undrawn commitments to extend credit and $97 million of financial and performance standby letters of
credit. In comparison, at December 31, 2008, we had $928 million of undrawn commitments to extend credit and $87 million of financial and performance standby letters of credit. We expect most of these letters of credit to expire undrawn and we
expect no significant loss from our obligation under financial guarantees to the extent not already recognized as a liability on the Companys Consolidated Balance Sheets. At June 30, 2009 and December 31, 2008, a liability for $2.1
million and $2.9 million, respectively, was established for commitments under standby letters of credit for which we believed funding and loss were probable.

Derivative Financial Instruments

The following table describes the derivative instruments outstanding at June 30,
2009:



|                                              |  |                        |         |              |                         |                  |         |           |   |         |  
|--------------------------------------------- |  | ---------------------- | ------- | ------------ | ----------------------- | ---------------- | ------- | --------- | - | ------- | -
|Product                                       |  | NotionalAmount         |         | Strike Rates |                         | Wt. Avg.Maturity |         | FairValue |  
|                                              |  | (dollars in thousands) |        
|Non-hedging derivative instruments:           |  |                        |         |              |                         |                  |         |           |   |         |  
|Interest Rate Swappay fixed/receive variable |  | $                      | 181,589 |              | Pay 4.32%Receive 0.583% |                  | 3.6 yrs |           | $ | (10,348 | )
|Interest Rate Swapreceive fixed/pay variable |  |                        | 181,589 |              | Receive 4.32%Pay 0.583% |                  | 3.6 yrs |           |   | 10,522  |  
|                                              |  |                        |         |              |                         |                  |         |           |   |         |  
|Total                                         |  | $                      | 363,178 |              |                         |                  |         |           |   |         |  
|                                              |  |                        |         |              |                         |                  |         |           |   |         |  

We use derivative financial instruments to accommodate customer needs and to assist in interest
rate risk management. At June 30, 2009, our only derivative instruments were interest rate exchange agreements related to customer transactions, which are not designated as hedges.

In January 2009, we terminated a $100 million notional amount interest rate swap that was not designated as an accounting hedge at the time of
termination. Previously, we had designed this derivative as a cash flow hedge, however, we had discontinued hedge accounting in December 2008 when we determined the hedge would no longer be effective. The unrealized gain of $6.4 million upon
de-designation, which had accumulated in other comprehensive income (net of tax), is being amortized to loan interest income over what would have been the life of the hedge. Changes in fair value of the swap from the period that the hedge
designations were removed until the swap was sold in January 2009 were included in other derivative income in noninterest income. Other derivative income during the first six months of 2009 included a $33,000 loss because of a decrease in fair value
from December 31, 2008 to the date of the sale.



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For additional information concerning the accounting treatment for our derivative instruments, please see
Application of Critical Accounting PoliciesDerivative Financial Instruments and Notes to Consolidated Financial Statements  Derivative Financial Instruments included in this Quarterly Report on Form 10-Q.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

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

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

Our primary measurement of interest rate risk is earnings at risk, which is determined through
computerized simulation modeling. The primary simulation model assumes a static balance sheet, a parallel interest rate rising or declining ramp and uses the balances, rates, maturities and repricing characteristics of all of our existing assets and
liabilities, including derivative instruments. These models are built with the sole objective of measuring the volatility of the embedded interest rate risk as of the balance sheet date and, as such, do not provide for growth or changes in balance
sheet composition. Projected net interest income is computed by the model assuming market rates remain unchanged and compares those results to other interest rate scenarios with changes in the magnitude, timing, and relationship between various
interest rates. The impact of embedded options in products, such as callable agencies and mortgage-backed securities, real estate mortgage loans, and callable borrowings, are also considered. Changes in net interest income in the rising and
declining rate scenarios are then measured against the net interest income in the rates unchanged scenario. ALCO utilizes the results of the model to quantify the estimated exposure of our net interest income to sustained interest rate changes.



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Net interest income for year one in a 200 basis points rising rate scenario was calculated to be $2.0
million, or 1.7%, lower than the net interest income in the rates unchanged scenario at June 30, 2009. Because of the use of actual or implied interest rate floors in our loan portfolio, as rates increase in the rising rate scenario, a portion
of our portfolio of variable rate loans may not adjust to the initial increase in market rates. As a result, our interest bearing liabilities may be more sensitive to the higher rates than our interest-earning assets, resulting in a decrease in net
interest income in the rising rate scenario. At December 31, 2008, the projected variance in the rising rate scenario was $6.8 million, or 6.3%, higher than the rates unchanged scenario. These exposures were within our policy guidelines of 10%.
No simulation for net interest income at risk in a falling rate scenario was calculated because of the low level of market interest rates at both June 30, 2009 and December 2008.

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



|                                 |  |                                                                     |        |   |                      |      |    |              |   |                  |  |     |  
|-------------------------------- |  | ------------------------------------------------------------------- | ------ | - | -------------------- | ---- | -- | ------------ | - | ---------------- |  | --- | -
|                                 |  | Change in Future Net Interest Incomefrom Rates Unchanged
Simulation |       
|                                 |  | June 30, 2009                                                       |        |   | At December 31, 2008 |     
|                                 |  | (dollars in thousands)                                              |       
|Change in interest rates         |  | DollarChange                                                        |        |   | PercentageChange     |      |    | DollarChange |   | PercentageChange | 
|+200 basis points over one year  |  | $                                                                   | (2,040 | ) |                      | (1.7 | %) |              | $ | 6,805            |  | 6.3 | %
|- 200 basis points over one year |  |                                                                     | N/A    |   |                      | N/A  |    |              |   | N/A              |  | N/A |  

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

NEW ACCOUNTING PRONOUNCEMENTS

In June 2009, Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 (SFAS 168). SFAS 168 establishes the FASB Accounting Standards Codification (ASC) as the only source of authoritative
U.S. generally accepted accounting principles (GAAP) recognized by FASB. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under the authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. This statement is effective for interim and annual periods ending after September 15, 2009. The adoption of SFAS 168 will not have a material financial impact on our consolidated financial statements,
however, all future references to authoritative literature will reference the ASC. (FASB ASC 105-10).



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In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R),
Consolidation of Variable Interest Entities (SFAS 167). SFAS No. 167 significantly changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entitys purpose and design and the reporting entitys ability to direct
the activities of the other entity that most significantly impact the other entitys economic performance. SFAS No. 167 is effective for interim and annual reporting periods that begin after November 15, 2009. We are currently
assessing the impact the adoption of SFAS No. 167 will have on our consolidated financial statements.

In June 2009, the FASB issued
SFAS No. 166, Accounting for Transfers of Financial Assets  an amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS 166).
SFAS No. 166 amends SFAS No. 140 to improve the relevance and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and the transferors continuing involvement, if any, in transferred financial assets. SFAS No. 166 is effective for interim and annual reporting periods that begin after November 15,
2009. We are currently assessing the impact the adoption of SFAS 166 will have on our consolidated financial statements.

In May 2009, FASB
issued SFAS No. 165, Subsequent Events, (SFAS 165). SFAS 165 establishes general standards for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available
to be issued. This statement is effective for financial statements issued for interim or annual financial periods ending after June 15, 2009. We adopted SFAS 165 on April 1, 2009 and the adoption had no material impact on our consolidated
financial statements. (FASB ASC 855-10)

In April 2009, FASB issued FASB Staff Position FAS 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 amends SFAS 107 to require disclosures about fair value of financial instruments for interim reporting periods as well as in annual
financial statements. This FSP is effective for interim reporting periods ending after June 15, 2009. We adopted FSP FAS 107-1 and APB 28-1 as of April 1, 2009 and the adoption had no material impact on our consolidated financial
statements. See Notes to Consolidated Financial Statements  Fair Value for additional details. (FASB ASC 825-10-65)

In
April 2009, FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS 157-4).
FSP FAS 157-4 provides additional guidance for estimating fair value (in accordance with SFAS 157, Fair Value Measurements) when the volume and level of activity for the asset or liability have significantly decreased. This FSP also
provides guidance on identifying circumstances that indicate if a transaction is not orderly. We adopted FSP FAS 157-4 as of April 1, 2009 and the adoption had no material impact on our consolidated financial statements. (FASB ASC 820-10-65).



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In April 2009, FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2). FAS FSP 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance currently included in U.S. GAAP for debt securities to improve presentation and
disclosure. We adopted FSP FAS 115-2 and FAS 124-2 as of April 1, 2009. Upon adoption, we were required to apply this FSP to any securities that had previously had other-than-temporary impairment recognized through the Statement of Operations
and recognize the cumulative effect of initially applying this FSP as an adjustment to the opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive income. See Notes to Consolidated Financial
Statements  Investment Securities for additional details on the adoption of this FSP. (FASB ASC 320-10-65)

In June 2008, FASB
issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1 provides guidance that unvested share-based payment awards that
contain nonforfeitable rights to dividends or equivalents shall be included in the computation of EPS pursuant to the two-class method under FASB Statement 128. We adopted FSP EITF 03-6-1 on January 1, 2009 and the adoption had no impact on our
consolidated financial statements. (FASB ASC 260-10)

In June 2008, FASB issued EITF 07-5, Determining Whether an Instrument (or
Embedded Feature) Is Indexed to an Entitys Own Stock (EITF 07-5). EITF 07-5 clarifies whether certain conversion features of freestanding financial instruments should be accounted for as derivative instruments under the
provisions of FASB 133. We adopted EITF 07-5 on January 1, 2009 and the adoption had no impact on our consolidated financial statements. (FASB ASC 815-40)

In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161 amends SFAS 133 and requires qualitative disclosures about how
and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and how derivative instruments and the related hedged items affect an entitys
financial position, financial performance, and cash flows. We adopted SFAS 161 on January 1, 2009 and the adoption did not have a material impact on our consolidated financial statements. (FASB ASC 815-10)

In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Financial Statements (SFAS 160). SFAS 160
establishes accounting and reporting standards for the noncontrolling interest in a subsidiary, formerly referred to as minority interest, and provides guidance on accounting for changes in the parents ownership interest in a subsidiary. In
addition, SFAS 160 establishes standards of accounting for the deconsolidation of a subsidiary due to loss of control. We adopted SFAS 160 on January 1, 2009 and the adoption did not have a material impact on our consolidated financial
statements. (FASB ASC 810-10).



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Quarterly Financial Information

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



|                                                   |  |                                       |         |   |                    |   |        |                    |  |   |         |   |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |   |  |   |       
|-------------------------------------------------- |  | ------------------------------------- | ------- | - | ------------------ | - | ------ | ------------------ |  | - | ------- | - |  | ------- | ------- | - | ------- | - | ------- | ------- |  | - | ------- | - |  | - | ------- | - |  | - | ------
|                                                   |  | 2009 Quarter Ended                    |         |   | 2008 Quarter Ended |   |        | 2007 Quarter Ended
|                                                   |  | Jun. 30                               |         |   | Mar. 31            |   |        | Dec. 31            |  |   | Sep. 30 |   |  | Jun. 30 |         |   | Mar. 31 |   |         | Dec. 31 |  |   | Sep. 30
|                                                   |  | (in thousands, except per share data)
|Interest income                                    |  | $                                     | 55,715  |   |                    | $ | 54,317 |                    |  | $ | 54,624  |   |  | $       | 50,764  |   |         | $ | 46,406  |         |  | $ | 52,654  |   |  | $ | 56,879  |   |  | $ | 57,483
|Interest expense                                   |  |                                       | 25,335  |   |                    |   | 26,971 |                    |  |   | 30,210  |   |  |         | 28,866  |   |         |   | 24,841  |         |  |   | 28,180  |   |  |   | 31,392  |   |  |   | 31,176
|                                                   |  |                                       |         |   |                    |   |        |                    |  |   |         |   |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |   |  |   |       
|Net interest income                                |  |                                       | 30,380  |   |                    |   | 27,346 |                    |  |   | 24,414  |   |  |         | 21,898  |   |         |   | 21,565  |         |  |   | 24,474  |   |  |   | 25,487  |   |  |   | 26,307
|Provision for loan losses                          |  |                                       | 39,507  |   |                    |   | 15,563 |                    |  |   | 30,353  |   |  |         | 52,700  |   |         |   | 49,355  |         |  |   | 11,750  |   |  |   | 23,000  |   |  |   | 3,400 
|Noninterest income                                 |  |                                       | 12,137  |   |                    |   | 5,343  |                    |  |   | 1,085   |   |  |         | 3,220   |   |         |   | 4,030   |         |  |   | 4,102   |   |  |   | 3,882   |   |  |   | 5,563 
|Noninterest expense                                |  |                                       | 23,707  |   |                    |   | 21,165 |                    |  |   | 21,630  |   |  |         | 27,301  |   |         |   | 22,623  |         |  |   | 21,816  |   |  |   | 17,515  |   |  |   | 18,059
|Goodwill impairment                                |  |                                       |        |   |                    |   |       |                    |  |   |        |   |  |         |        |   |         |   |        |         |  |   |        |   |  |   | 23,237  |   |  |   |      
|                                                   |  |                                       |         |   |                    |   |        |                    |  |   |         |   |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |   |  |   |       
|Income (loss)before income taxes                   |  |                                       | (20,697 | ) |                    |   | (4,039 | )                  |  |   | (26,484 | ) |  |         | (54,883 | ) |         |   | (46,383 | )       |  |   | (4,990  | ) |  |   | (34,383 | ) |  |   | 10,411
|Income taxes (benefit)                             |  |                                       | 2,558   |   |                    |   | (1,221 | )                  |  |   | (11,648 | ) |  |         | 25,653  |   |         |   | (21,067 | )       |  |   | (1,150  | ) |  |   | (5,118  | ) |  |   | 3,190 
|                                                   |  |                                       |         |   |                    |   |        |                    |  |   |         |   |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |   |  |   |       
|Net income (loss)                                  |  |                                       | (23,255 | ) |                    |   | (2,818 | )                  |  |   | (14,836 | ) |  |         | (80,536 | ) |         |   | (25,316 | )       |  |   | (3,840  | ) |  |   | (29,265 | ) |  |   | 7,221 
|Preferred dividends and discounts                  |  |                                       | (2,868  | ) |                    |   | (2,862 | )                  |  |   | (2,150  | ) |  |         | (16,680 | ) |         |   |        |         |  |   |        |   |  |   |        |   |  |   |      
|                                                   |  |                                       |         |   |                    |   |        |                    |  |   |         |   |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |   |  |   |       
|Net income (loss) available to common stockholders |  | $                                     | (26,123 | ) |                    | $ | (5,680 | )                  |  | $ | (16,986 | ) |  | $       | (97,216 | ) |         | $ | (25,316 | )       |  | $ | (3,840  | ) |  | $ | (29,265 | ) |  | $ | 7,221 
|                                                   |  |                                       |         |   |                    |   |        |                    |  |   |         |   |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |   |  |   |       
|Earnings (loss) per share:                         |  |                                       |         |   |                    |   |        |                    |  |   |         |   |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |   |  |   |       
|Basic                                              |  | $                                     | (2.49   | ) |                    | $ | (0.54  | )                  |  | $ | (1.62   | ) |  | $       | (9.30   | ) |         | $ | (2.42   | )       |  | $ | (0.37   | ) |  | $ | (2.78   | ) |  | $ | 0.68  
|Diluted                                            |  |                                       | (2.49   | ) |                    |   | (0.54  | )                  |  |   | (1.62   | ) |  |         | (9.30   | ) |         |   | (2.42   | )       |  |   | (0.37   | ) |  |   | (2.78   | ) |  |   | 0.67  
|                                                   |  |                                       |         |   |                    |   |        |                    |  |   |         |   |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |   |  |   |       



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

The information contained in the section of this Quarterly Report on Form 10-Q captioned Managements Discussion and Analysis of Financial Condition and Results of OperationsQuantitative and Qualitative Disclosure About
Market Risks is incorporated herein by reference.



|Item 4. | Controls and Procedures
|------- | -----------------------

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

We have carried out an evaluation
under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30,
2009. Based upon their evaluation and subject to the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that such controls and procedures were effective as of the end of the period covered by this report, in all material
respects, to ensure that required information will be disclosed on a timely basis in our reports filed under the Exchange Act.



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In designing and evaluating the disclosure controls and procedures, our management recognized that any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply their judgment in evaluating the cost-benefit
relationship of possible controls and procedures. We believe that our disclosure controls and procedures provide reasonable assurance of achieving our control objectives.

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2009, that have materially affected, or are reasonably likely to materially affect our
internal control over financial reporting.



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PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------

We are from time to time a
party to litigation arising in the normal course of business. As of the date of this Quarterly Report on Form 10-Q, management knows of no threatened or pending legal actions against us that are likely to have a material adverse effect on our
business, financial condition or results of operations.



|Item 1A. | Risk Factors.
|-------- | -------------

There have been no material changes
in our risk factors from those disclosed in our 2008 Annual Report on Form 10-K.



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

None.



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

None.



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

We held our annual meeting of stockholders on June 11, 2009. The following matters were voted on at the meeting:



| | 1. | The election of thirteen directors by common stockholders set forth below:
| | -- | --------------------------------------------------------------------------



|                      |  |            |  |  |  |         
|--------------------- |  | ---------- |  |  |  | --------
|Director              |  | For        |  |  |  | Withheld
|Bruce W. Taylor       |  | 13,684,486 |  |  |  | 102,784 
|Mark A. Hoppe         |  | 13,724,106 |  |  |  | 63,164  
|Ronald L. Bliwas      |  | 13,684,977 |  |  |  | 102,293 
|Ronald D. Emanuel     |  | 13,682,814 |  |  |  | 104,456 
|M. Hill Hammock       |  | 13,330,495 |  |  |  | 456,775 
|Michael H. Moskow     |  | 13,735,120 |  |  |  | 52,150  
|Louise OSullivan     |  | 13,282,827 |  |  |  | 504,443 
|Melvin E. Pearl       |  | 13,280,389 |  |  |  | 506,881 
|Shepherd G. Pryor, IV |  | 13,714,098 |  |  |  | 73,172  
|Harrison I. Steans    |  | 13,746,670 |  |  |  | 40,600  
|Jennifer W. Steans    |  | 13,745,670 |  |  |  | 41,600  
|Jeffrey W. Taylor     |  | 13,680,291 |  |  |  | 106,979 
|Richard W. Tinberg    |  | 13,062,942 |  |  |  | 724,328 



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Each of these individuals will serve on our Board of Directors for a one-year term or until their
successor is elected and qualified.



| | 2. | Proposal to amend Section 3.2 of our Third Amended and Restated By-laws to establish that the number of directors constituting our Board of Directors shall be within a
permitted range of a minimum of eleven (11) directors up to a maximum of fifteen (15) directors:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|         |  |           
|-------- |  | ----------
|For:     |  | 13,717,694
|Against: |  | 24,064    
|Abstain: |  | 45,512    



| | 3. | Vote on the election of C. Bryan Daniels to our Board of Directors for a one-year term:
| | -- | ---------------------------------------------------------------------------------------



|         |  |           
|-------- |  | ----------
|For:     |  | 13,732,608
|Against: |  | 54,662    



| | 4. | Ratification of advisory proposal to approve the compensation of executive officers as described in the proxy statement:
| | -- | ------------------------------------------------------------------------------------------------------------------------



|        |  |           
|------- |  | ----------
|For     |  | 12,070,886
|Against |  | 868,803   
|Abstain |  | 847,581   



|Item 5. | Other Information.
|------- | ------------------

None.



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|Item 6. | Exhibits.
|------- | ---------

EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                           
|               | 
|3.1            |  | Form of Third Amended and Restated Certificate of Incorporation of Taylor Capital Group, Inc. (incorporated by reference to Appendix A of the Companys Definitive Proxy Statement filed
September 15, 2008).                                                                                                                                                                                                     
|               | 
|3.2            |  | Form of Third Amended and Restated Bylaws of Taylor Capital Group, Inc. (incorporated by reference to Appendix B of the Companys Definitive Proxy Statement filed September 15,
2008).                                                                                                                                                                                                                           
|               | 
|3.3            |  | Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock, Series B, dated November 19, 2008 (incorporated by reference to Exhibit 3.1 of the Companys Current Report
on Form 8-K filed November 24, 2008).                                                                                                                                                                                 
|               | 
|4              |  | Certain instruments defining the rights of the holders of long-term debt of the Company and certain of its subsidiaries, none of which authorize a total amount of indebtedness in excess of 10%
of the total assets of the Company and its subsidiaries on a consolidated basis, have not been filed as exhibits. The Company hereby agrees to furnish a copy of any of these agreements to the SEC upon request.
|               | 
|4.1            |  | Form of certificate representing Taylor Capital Group, Inc. common stock (incorporated by reference to Exhibit 4.3 of the Companys Amended Registration Statement on Form S-1/A filed
October 1, 2002 (Registration No. 333-89158)).                                                                                                                                                                             
|               | 
|4.2            |  | Loan and Subordinated Debenture Purchase Agreement, dated November 27, 2002, by and between LaSalle Bank National Association and Taylor Capital Group, Inc. (incorporated by reference to Exhibit
99.1 of the Companys Current Report on Form 8-K filed November 26, 2002).                                                                                                                                     
|               | 
|4.3            |  | First Amendment to Loan and Subordinated Debenture Purchase Agreement, dated as of November 27, 2003, by and between LaSalle Bank National Association and Taylor Capital Group, Inc.
(incorporated by reference to Exhibit 10.74 of the Companys Annual Report on Form 10-K filed March 11, 2004).                                                                                                              
|               | 
|4.4            |  | Second Amendment to Loan and Subordinated Debenture Purchase Agreement, dated June 8, 2004, by and between LaSalle Bank National Association and Taylor Capital Group, Inc. (incorporated by
reference to Exhibit 10.78 of the Companys Quarterly Report on Form 10-Q filed August 6, 2004).                                                                                                                     
|               | 
|4.5            |  | Third Amendment to Loan and Subordinated Debenture Purchase Agreement, dated December 9, 2004, by and between LaSalle Bank National Association and Taylor Capital Group, Inc. (incorporated by
reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed December 10, 2004).                                                                                                                   
|               | 
|4.6            |  | Fourth Amendment to Loan and Subordinated Debenture Purchase Agreement, dated January 12, 2006, by and between LaSalle Bank National Association and Taylor Capital Group, Inc. (incorporated by
reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed January 18, 2006).                                                                                                                   
|               | 
|4.7            |  | Fifth Amendment to Loan and Subordinated Debenture Purchase Agreement, dated December 28, 2006, by and between LaSalle Bank National Association and Taylor Capital Group, Inc. (incorporated by
reference to Exhibit 10.46 of the Companys Annual Report on Form 10-K filed March 15, 2007).                                                                                                                    
|               | 
|4.8            |  | Sixth Amendment to Loan and Subordinated Debenture Purchase Agreement, dated January 24, 2008, by and between LaSalle Bank National Association and Taylor Capital Group, Inc. (incorporated by
reference to Exhibit 10.50 of the Companys Annual Report on Form 10-K filed March 31, 2008).                                                                                                                     



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|               |  |                                                                                                                                                                                                                                                                                                                   
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibits                                                                                                                                                                                                                                                                                           
|               | 
|4.9            |  | Seventh Amendment to Loan and Subordinated Debenture Purchase Agreement, dated September 24, 2008, by and between Taylor Capital Group, Inc. and LaSalle Bank National Association (incorporated
by reference to Exhibit 99.2 of the Companys Current Report on Form 8-K filed September 30, 2008).              
|               | 
|4.10           |  | Eighth Amendment to Loan and Subordinated Debenture Purchase Agreement, dated March 2, 2009, by and between Bank of America, N.A. and Taylor Capital Group, Inc. (incorporated by reference to
Exhibit 4.10 of the Companys Quarterly Report on Form 10-Q filed May 14, 2009.)                                   
|               | 
|4.11           |  | Ninth Amendment to Loan and Subordinated Debenture Purchase Agreement, dated March 10, 2009, by and between Bank of America, N.A. and Taylor Capital Group, Inc. (incorporated by reference to
Exhibit 4.11 of the Companys Quarterly Report on Form 10-Q filed May 14, 2009.)                                   
|               | 
|4.12           |  | Form of Warrant issued by Taylor Capital Group, Inc. to Financial Investments Corporation (incorporated by reference to an exhibit to Exhibit 10.2 of the Companys Current Report on Form
8-K filed September 5, 2008).                                                                                          
|               | 
|4.13           |  | Form of Registration Rights Agreement by and among Taylor Capital Group, Inc., the parties listed on Exhibit A and Exhibit B attached thereto and Financial Investments Corporation (incorporated
by reference to an exhibit to Exhibit 10.2 of the Companys Current Report on Form 8-K filed September 5, 2008).
|               | 
|4.14           |  | Form of Stock Purchase Warrant issued by Taylor Capital Group, Inc. (incorporated by reference to Appendix F of the Companys Definitive Proxy Statement filed September 15,
2008).                                                                                                                               
|               | 
|4.15           |  | Warrant, dated November 21, 2008, issued by Taylor Capital Group, Inc. (incorporated by reference to Exhibit 4.1 of the Companys Current Report on Form 8-K filed November 24,
2008).                                                                                                                            
|               | 
|10.1           |  | Senior Officer Change in Control Severance Plan                                                                                                                                                                                                                                                                   
|               | 
|10.2           |  | Senior Officer Change in Control Agreement between Taylor Capital Group, Inc. and Lawrence Ryan, dated June 19, 2009.                                                                                                                                                                                             
|               | 
|31.1           |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Security Exchange Act of 1934.                                                                                                                                                                                                      
|               | 
|31.2           |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Security Exchange Act of 1934.                                                                                                                                                                                                      
|               | 
|32.1           |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                                



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SIGNATURES

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



|                      |  |  |  |                                                                                      
|--------------------- |  |  |  | -------------------------------------------------------------------------------------
|                      |  |  |  | TAYLOR CAPITAL GROUP, INC.                                                           
|Date: August 13, 2009 |  |  |  |                                                                                      
|                      |  |  |  | /s/ BRUCE W. TAYLOR                                                                  
|                      |  |  |  | Bruce W. Taylor Chairman and Chief Executive Officer (Principal Executive Officer)   
|                      |  | 
|                      |  |  |  | /s/ RANDALL T. CONTE                                                                 
|                      |  |  |  | Randall T. Conte Chief Financial Officer
(Principal Financial and Accounting Officer)



66