<PAGE>   1
                                UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                      
                                      
                                  FORM 10-Q
                                      
                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                                      
                 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
                                      
                        Commission File No.  333-14713
                                      
                                      
                          TAYLOR CAPITAL GROUP, INC.
               Exact Name of Registrant as Specified in Charter
                                      
           DELAWARE                                             36-4108550
--------------------------------                          ---------------------
 State or Other Jurisdiction of                              I.R.S. Employer
 Incorporation or Organization                            Identification Number


                                      
                       350 EAST DUNDEE ROAD, SUITE 300
                        WHEELING, ILLINOIS 60090-3199
                    Address of Principal Executive Offices
                                      
                                (847) 459-1111
              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
                                             ---   ---

The number of shares outstanding of each of the Registrant's classes of common
stock, as of the latest practicable date:

          Class                                 Outstanding at August 11, 1997
----------------------------                    ------------------------------
Common Stock, $.01 Par Value                                4,500,000


<PAGE>   2
                      COLE TAYLOR FINANCIAL GROUP, INC.

                                    INDEX

<TABLE>
<CAPTION>
PART  I.  FINANCIAL INFORMATION .....................................................   PAGE
-------------------------------                                                         ----
<S>       <C>                                                                           <C>
Item 1.   Financial Statements

          Balance Sheets -
            Successor Basis - Taylor Capital Group, Inc. - Consolidated
            June 30, 1997;  Predecessor Basis - Cole Taylor Bank -
            December 31, 1996 .......................................................   3

          Statements of Income -
            Successor Basis - Taylor Capital Group, Inc. - Consolidated For the
            Three Months Ended June 30, 1997;  Predecessor Basis - Cole
            Taylor Bank - For the Three Months Ended June 30, 1996;
            Successor Basis - Taylor Capital Group, Inc. - Consolidated For
            the Period of February 12, 1997 to June 30, 1997;  Predecessor Basis
            - Cole Taylor Bank - For the Six Months Ended June 30, 1996 .............   4

          Statements of Cash Flows -
            Successor Basis - Taylor Capital Group, Inc. - Consolidated For the
            Period of February 12, 1997 to June 30, 1997;  Predecessor Basis
            - Cole Taylor Bank - For the Six Months Ended June 30, 1996 .............   5

          Notes to Financial Statements .............................................   6

Item 2.   Management's Discussion and Analysis of Financial Condition and
            Results of Operations ...................................................   12

PART II.  OTHER INFORMATION
---------------------------

Item 6.   Exhibits and Reports on Form 8-K ..........................................   22
</TABLE>

                                       
                                       2 
                                       
<PAGE>   3
                          TAYLOR CAPITAL GROUP, INC.
                          BALANCE SHEETS (Unaudited)
                                (in thousands)
                            ---------------------
<TABLE>
<CAPTION>
                                                                              Successor
                                                                            Basis - Taylor
                                                                            Capital Group,              Predecessor
                                                                                 Inc. -                 Basis - Cole
                                                                             Consolidated               Taylor Bank - 
                                                                               June 30,                 December 31,
                                                                                 1997                      1996
                                                                            -------------                -----------
<S>                                                                         <C>                          <C>
                                  ASSETS
Cash and due from banks                                                        $  100,334                 $   67,021
Interest-bearing deposits with banks                                                  106                     14,564
Federal funds sold                                                                    ---                      5,675
Investment securities:
   Available-for-sale, at fair value                                              419,818                    328,817
   Held-to-maturity, at amortized cost (fair value of $80,581 and $77,758 at
      June 30, 1997 and December 31, 1996, respectively)                           79,856                     74,972
Loans held for sale, net, at lower of cost or market                               28,466                     25,153
Loans, net of allowance for loan losses of $24,709, and $24,184, at June 30,
  1997 and December 31, 1996, respectively                                      1,190,076                  1,175,657
Premises, leasehold improvements and equipment, net                                21,571                     15,247
Other real estate and repossessed assets, net                                       1,848                      1,119
Auto loan sale proceeds receivable                                                    ---                     66,570
Goodwill and other intangibles                                                     37,312                      2,478
Other assets                                                                       31,628                     35,232
                                                                               ----------                 ----------
      Total assets                                                             $1,911,015                 $1,812,505
                                                                               ==========                 ==========
            LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
   Noninterest-bearing                                                         $  319,361                   $334,068
   Interest-bearing                                                             1,142,073                  1,072,832
                                                                               ----------                 ----------
      Total deposits                                                            1,461,434                  1,406,900
Short-term borrowings                                                             169,139                    162,182
Accrued interest, taxes and other liabilities                                      18,021                     16,788
Long-term borrowings                                                              126,000                     85,000
                                                                               ----------                 ----------
      Total liabilities                                                         1,774,594                  1,670,870
                                                                               ----------                 ----------
Stockholders' equity:
   Preferred stock, $.01 par value, 3,000,000 shares authorized,
      Series A 9% noncumulative perpetual, 1,530,000 shares issued and
      outstanding, $25 stated value                                                38,250                        ---
   Common stock, $.01 par value; 7,000,000 shares authorized, 4,500,000 shares
      issued and outstanding                                                           45                        ---
   Common stock, $10 par value; 1,500,000 shares authorized, issued and
      outstanding                                                                     ---                     15,000
   Surplus                                                                         96,143                     52,028
   Retained earnings                                                                2,282                     76,586
   Unrealized holding loss on securities available-for-sale, net of 
    income taxes                                                                     (299)                    (1,979)
                                                                               ----------                 ----------
      Total stockholders' equity                                                  136,421                    141,635
                                                                               ----------                 ----------
      Total liabilities and stockholders' equity                               $1,911,015                 $1,812,505
                                                                               ==========                 ==========
</TABLE>

                See accompanying notes to financial statements.


                                       3 
                                       
                                       
<PAGE>   4
                          TAYLOR CAPITAL GROUP, INC.
                       STATEMENTS OF INCOME (Unaudited)
                                (in thousands)
                       -------------------------------

<TABLE>
<CAPTION>                                
                                             Successor                                  Successor                               
                                           Basis - Taylor                             Basis - Taylor                       
                                           Capital Group,      Predecessor            Capital Group,          Predecessor    
                                               Inc. -          Basis - Cole               Inc. -              Basis - Cole    
                                           Consolidated        Taylor Bank -          Consolidated            Taylor Bank -   
                                           For the Three       For the Three         For the Period of        For the Six    
                                           Months Ended        Months Ended          Feb. 12, 1997 to         Months Ended    
                                           Jun. 30, 1997       Jun. 30, 1996          Jun. 30, 1997           Jun. 30, 1996   
                                          ---------------      -------------         -----------------        -------------   
<S>                                       <C>                  <C>                   <C>                      <C>
Interest income:                                                                                                                   
    Interest and fees on loans               $ 27,018             $ 27,519                  $ 40,924               $ 54,376
    Interest on investment securities:                                                                                          
       Taxable                                  6,673                5,558                     9,917                 11,269  
       Tax-exempt                                 734                  961                     1,144                  1,943  
    Interest on cash equivalents                  214                  324                       458                    497  
                                             --------             --------                ----------             ----------
             Total interest income             34,639               34,362                    52,443                 68,085       
                                             --------             --------                ----------             ----------
Interest expense:                                                                                                               
    Deposits                                   12,851               13,574                    19,516                 26,229       
    Short-term borrowings                       2,397                1,951                     3,618                  4,468       
    Long-term borrowings                        1,847                  871                     2,604                  1,795       
                                             --------             --------                ----------             ----------
            Total interest expense             17,095               16,396                    25,738                 32,492       
                                             --------             --------                ----------             ----------
Net interest income                            17,544               17,966                    26,705                 35,593       
Provision for loan losses                         904                1,053                     1,388                  2,052       
                                             --------            ---------                ----------             ----------
            Net interest income after                                                                                             
             provision for loan losses         16,640               16,913                    25,317                 33,541       
                                             --------             --------                ----------             ----------
Noninterest income:                                                                                                             
    Service charges                             2,371                2,167                     3,635                  4,269       
    Trust fees                                    864                  913                     1,357                  1,774       
    Other noninterest income                    1,331                  883                     1,924                  1,621       
                                             --------             --------                ----------             ----------
           Total noninterest income             4,566                3,963                     6,916                  7,664       
                                             --------             --------                ----------             ----------
Noninterest expense:                                                                                                              
    Salaries and employee benefits              8,970                7,464                    13,542                 15,119       
    Occupancy of premises, net                  1,522                1,085                     2,397                  2,350       
    Furniture and equipment                       895                  857                     1,371                  1,673       
    Computer processing                           603                  521                       876                    999       
    Advertising and public relations              412                  500                       519                    917       
    Goodwill and other intangible                                                                                             
      amortization                                664                   50                       978                    100       
    Other real estate and repossessed                                                                                              
      asset expense                               192                  124                       198                    675       
    Other noninterest expense                   3,682                2,687                     5,243                  5,392       
                                             --------             --------               -----------             ----------
           Total noninterest expense           16,940               13,288                    25,124                 27,225       
                                             --------             --------               -----------             ----------
Income before income taxes                      4,266                7,588                     7,109                 13,980       
Income taxes                                    1,853                2,603                     2,688                  4,665       
                                             --------             --------               -----------             ----------
           Net income                        $  2,413             $  4,985                  $  4,421               $  9,315       
                                             ========             ========               ===========             ==========
Net income applicable to common                                                                                                    
stockholders                                 $  1,552                                       $  3,092                                
                                             ========                                    ===========
</TABLE>                                                                    
                                       
                                       
                See accompanying notes to financial statements.
                                       
                                       
                                       4
<PAGE>   5
                          TAYLOR CAPITAL GROUP, INC.
                     STATEMENTS OF CASH FLOWS (Unaudited)
                                (in thousands)
<TABLE>
<CAPTION>
                                                                           Successor
                                                                         Basis - Taylor
                                                                         Capital Group,                Predecessor
                                                                              Inc. -                   Basis - Cole
                                                                          Consolidated                 Taylor Bank -
                                                                        For the Period of               For the Six
                                                                        Feb. 12, 1997 to               Months Ended
                                                                         Jun. 30, 1997                 Jun. 30, 1996
                                                                       ------------------              -------------
<S>                                                                    <C>                             <C>
Cash flows from operating activities:
   Net income                                                               $   4,421                    $    9,315
   Provision for loan losses                                                    1,388                         2,052
   Gain on sales of loans originated for sale                                  (1,102)                         (447)
   Loans originated and held for sale                                         (94,933)                     (130,409)
   Proceeds from sales of loans originated for sale                            89,452                       104,586
   Other adjustments to net income, net                                         2,139                            22
   Net changes in other assets and liabilities                                (10,352)                        3,032
                                                                            ---------                    ----------
       Net cash used in operating activities                                   (8,987)                      (11,849)
                                                                            ---------                    ----------
Cash flows from investing activities:
   Purchases of available-for-sale securities                                (106,669)                      (49,811)
   Proceeds from principal payments and maturities of 
     available-for-sale securities                                             57,154                        60,327
   Purchases of held-to-maturity securities                                    (7,248)                       (1,077)
   Proceeds from principal payments and maturities of 
     held-to-maturity securities                                                2,830                         2,372
   Net increase in loans                                                      (39,969)                      (43,938)
   Net cash of Bank and Mortgage Company acquired in 
     Split-Off Transactions                                                    65,311                           ---
   Other, net                                                                    (352)                          203
                                                                            ---------                    ----------
       Net cash used in investing activities                                  (28,943)                      (31,924)
                                                                            ---------                    ----------
Cash flows from financing activities:
   Net increase in deposits                                                   110,628                       122,257
   Net decrease in short-term borrowings                                      (73,490)                      (55,660)
   Repayments of long-term borrowings                                         (10,000)                      (40,000)
   Proceeds from long-term borrowings                                          76,000                        50,000
   Net proceeds from issuance of preferred stock                               36,105                           ---
   Dividends paid                                                                (873)                       (7,900)
                                                                            ---------                    ----------
       Net cash provided by financing activities                              138,370                        68,697
                                                                            ---------                    ----------
Net increase in cash and cash equivalents                                     100,440                        24,924
Cash and cash equivalents, beginning of period                                    ---                        92,547
                                                                            ---------                    ----------
Cash and cash equivalents, end of period                                    $ 100,440                    $  117,471
                                                                            =========                    ==========
</TABLE>
                                       
                See accompanying notes to financial statements.
                                       
                                       5
                                       
<PAGE>   6

                          TAYLOR CAPITAL GROUP, INC.
                        NOTES TO FINANCIAL STATEMENTS
                                      
1. Basis of Presentation:

   The successor basis Taylor Capital Group, Inc. consolidated financial
   statements for the period February 12, 1997 to June 30, 1997 include the
   accounts of  Taylor Capital Group, Inc. (the "Parent Company" or the
   "Company") and its wholly owned subsidiaries, Cole Taylor Bank (the "Bank")
   and CT Mortgage Company, Inc. (the "Mortgage Company").  All intercompany
   balances and transactions have been eliminated in consolidation.  Taylor
   Capital Group, Inc. is a newly formed bank holding company which was formed
   to consummate the acquisition of the Bank and Mortgage Company.  Taylor
   Capital Group, Inc. acquired the Bank and the Mortgage Company on February
   12, 1997 in a split-off transaction (as defined below), which was accounted
   for by the purchase method of accounting.  Prior to February 12, 1997, the
   Bank and Mortgage Company were wholly owned subsidiaries of Cole Taylor
   Financial Group, Inc. ("CTFG").

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

   The predecessor basis Cole Taylor Bank financial statements report the
   financial position and results of operations of  Cole Taylor Bank on its
   historical accounting basis.

   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 generally accepted accounting principles are not
   included herein.  These interim statements should be read in conjunction
   with the financial statements and notes thereto included in the Company's
   Special Financial Report on Form 10-K for the year ended December 31, 1996,
   as filed with the Securities and Exchange Commission.

   Interim statements are subject to possible adjustment in connection with the
   annual audit of the Company for the year ended December 31, 1997.  In the
   opinion of management of the Company, the accompanying unaudited interim
   consolidated financial statements reflect all adjustments (consisting of
   normal recurring adjustments) necessary for a fair presentation of the
   consolidated financial position and consolidated results of operations for
   the periods presented.

   The results of operations for the period of February 12, 1997 to June 30,
   1997 are not necessarily indicative of the results to be expected for the
   full year.  Certain reclassifications were made to the predecessor basis
   Cole Taylor Bank 1996 financial statements to conform to the successor basis
   Taylor Capital Group, Inc. 1997 presentation.

                                      
                                      6
                                      

<PAGE>   7

                          TAYLOR CAPITAL GROUP, INC.
                        NOTES TO FINANCIAL STATEMENTS (Continued)
                                      
                                      
2. Acquisition of Cole Taylor Bank and CT Mortgage Company, Inc.:
   -------------------------------------------------------------

   The Company acquired the Bank and Mortgage Company in the Split-Off
   Transactions which were consummated on February 12, 1997.  The Bank is a
   $1.9 billion asset commercial bank.  The Mortgage Company began operations
   in early 1996 and competes in the subprime mortgage market for residential
   loans on a brokered basis.  The acquisition has been accounted for by the
   purchase method of accounting, and accordingly, the results of operations of
   the Bank and Mortgage Company are included in the Company's consolidated
   financial statements from February 12, 1997, the date of the Split-Off
   Transactions.

   The Company's cost of the acquired Bank consisted of three components:  (1)
   $17.2 million, which represented the proportionate interest in the Bank's
   book value based on the split-off stockholder group's proportionate
   ownership prior to the Split-Off Transactions,  (2) $81.1 million, which
   represented the proportionate fair value of the common stock of CTFG
   exchanged by the split-off stockholder group, and (3) $2.3 million, which
   represented estimated direct acquisition costs for accountants, attorneys,
   financial advisors and other professionals to consummate the transaction.
   The amount by which the purchase price exceeded the fair value of the net
   assets acquired approximates $37.8 million and is reflected as goodwill in
   the financial statements at June 30, 1997.  The goodwill is being amortized
   over 15 years using the straight-line method.

   The Company acquired the Mortgage Company through a cash payment of $1.1
   million which exceeded the fair value of the net assets acquired by
   $416,000.  The resulting goodwill is being amortized over 15 years using the
   straight-line method.

                                      
                                      7
                                      
<PAGE>   8
                                      
                          TAYLOR CAPITAL GROUP, INC.
                  NOTES TO FINANCIAL STATEMENTS (Continued)
                                      

3. Investment Securities:
   ---------------------

   The amortized cost and estimated fair values of investment securities at
   June 30, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
                                                  Successor Basis - Taylor Capital Group, Inc. -  Consolidated                 
                                                                            June 30, 1997                                    
                                              -----------------------------------------------------------------------------   
                                                                    Gross Unrealized      Gross Unrealized       Estimated     
                                              Amortized Cost             Gains                 Losses            Fair Value   
                                              --------------        ----------------      ----------------       ----------
                                                                                 (in thousands)
<S>                                           <C>                   <C>                   <C>                    <C>          
Available-for-Sale:                                                                                                            
    U.S. Treasury securities                     $233,539                      $461                 $(380)         $233,620    
    U.S. government agency securities              35,969                       ---                   (63)           35,906      
    Mortgage-backed securities                    150,752                       563                (1,023)          150,292    
                                              -----------                  --------              --------          --------
       Total Available-for-Sale                   420,260                     1,024                (1,466)          419,818    
                                              -----------                  --------              --------          --------
Held-to-Maturity:                                                                                                              
    State and municipal obligations                61,650                       739                   (15)           62,374 
    Other securities                               18,206                         1                   ---            18,207    
                                              -----------                  --------              --------          --------
       Total Held-to-Maturity                      79,856                       740                   (15)           80,581    
                                              -----------                  --------              --------          --------
            Total                                $500,116                    $1,764               $(1,481)         $500,399        
                                              ===========                  ========              ========          ========


                                                                  Predecessor Basis - Cole Taylor Bank                            
                                                                          December 31, 1996                                       
                                              -----------------------------------------------------------------------------
                                                                    Gross Unrealized      Gross Unrealized       Estimated       
                                              Amortized Cost             Gains                Losses             Fair Value      
                                              --------------        ----------------      ----------------       ----------    
                                                                                (in thousands)                                    
<S>                                           <C>                   <C>                   <C>                    <C>
Available-for-Sale:                                                                                                               
    U.S. Treasury securities                     $123,824                     $267                  $(353)         $123,738
    U.S. government agency securities              44,855                      256                    (36)           45,075
    Mortgage-backed securities                    163,479                      668                 (4,143)          160,004 
                                              -----------                  --------              --------          --------
         Total Available-for-Sale                 332,158                    1,191                 (4,532)          328,817 
                                              -----------                  --------              --------          --------
Held-to-Maturity:                                                                                                                 
    State and municipal obligations                62,948                    2,798                    (16)           65,730
    Other securities                               12,024                        4                    ---            12,028
                                              -----------                  --------              --------          --------
         Total Held-to-Maturity                    74,972                    2,802                    (16)           77,758
                                              -----------                  --------              --------          --------
               Total                             $407,130                   $3,993                $(4,548)         $406,575
                                              ===========                  =======               ========          ========
</TABLE>
                                       
                                       8
                                       

<PAGE>   9
                          TAYLOR CAPITAL GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (Continued)
                                       
4.   Loans:

     Loans classified by type at June 30, 1997 and December 31, 1996 were as
     follows:
<TABLE>
<CAPTION>
                                                     Successor                                    
                                                   Basis - Taylor                                   
                                                   Capital Group,                    Predecessor    
                                                        Inc. -                       Basis - Cole   
                                                    Consolidated                     Taylor Bank -  
                                                      June 30,                       December 31,   
                                                        1997                            1996        
                                                   ----------------                ---------------  
                                                                    (in thousands)                                 
       <S>                                         <C>                             <C>
        Commercial and industrial                        $  677,967                     $  655,919      
        Real estate-construction                            200,234                        192,759    
        Real estate-mortgage                                187,764                        176,819    
        Consumer                                            147,525                        171,270    
        Other loans                                           2,401                          4,622    
                                                         ----------                     ----------
            Gross loans                                   1,215,891                      1,201,389    
        Less:  Unearned discount                             (1,106)                        (1,548)    
                                                         ----------                     ----------
            Total loans                                   1,214,785                      1,199,841    
        Less:  Allowance for loan losses                    (24,709)                       (24,184)         
                                                         ----------                     ----------

            Loans, net                                   $1,190,076                     $1,175,657    
                                                         ==========                     ==========

5.   Interest-Bearing Deposits:

     Interest-bearing deposits at June 30, 1997 and December 31, 1996 were as follows:

                                                       Successor                                                 
                                                     Basis - Taylor                                              
                                                     Capital Group,                   Predecessor                
                                                         Inc. -                      Basis - Cole                
                                                      Consolidated                   Taylor Bank -               
                                                        June 30,                     December 31,      
                                                        1997                          1996             
                                                   ----------------                --------------- 
                                                                    (in thousands)                        
       <S>                                         <C>                             <C>
       NOW accounts                                      $   80,442                     $   77,693         
       Savings accounts                                     117,739                        118,056         
       Money market deposits                                227,918                        244,302         
       Certificates of deposit                              425,008                        408,681         
       Public time deposits                                 159,875                        143,415         
       Brokered certificates of deposit                     131,091                         80,685               
                                                         ----------                     ----------
           Total                                         $1,142,073                     $1,072,832         
                                                         ==========                     ==========

</TABLE>

                                       9
                                       
<PAGE>   10
                          TAYLOR CAPITAL GROUP, INC.
                  NOTES TO FINANCIAL STATEMENTS (Continued)
                                      

6. Long-Term Borrowings:

   Long-term borrowings consisted of the following at June 30, 1997 and
   December 31, 1996:
<TABLE>
<CAPTION>
                                                                                Successor
                                                                             Basis - Taylor
                                                                             Capital Group,         Predecessor
                                                                                 Inc. -             Basis - Cole
                                                                             Consolidated           Taylor Bank -
                                                                               June 30,             December 31,
                                                                                 1997                   1996
                                                                             ------------           -------------
                                                                                       (in thousands)
<S>                                                                          <C>                    <C>
COLE TAYLOR BANK:
----------------
Federal Home Loan Bank (FHLB) - various advances ranging from $10
million to $25 million due at various dates through May 8, 1998,
collateralized by qualified first mortgage residential loans and  
FHLB stock; weighted average interest rates at June 30, 1997 
and December 31, 1996 were 6.00% and 5.91%, respectively.                        $ 95,000                $ 85,000

TAYLOR CAPITAL GROUP, INC.:
--------------------------
Unsecured $25 million term loan bearing interest at prime rate or
LIBOR plus 1.25%, annual principal reductions of $1 million
commencing 1999 and a balloon payment of $22 million on February
12, 2002; interest rate at June 30, 1997 was 7.06%.                                25,000                     ---

Unsecured $7 million revolving credit facility bearing interest
at prime rate or LIBOR plus 1.25%, maturing February 12, 1998;
interest rate at June 30, 1997 was 8.5%.                                            6,000                     ---
                                                                                 --------                 -------
   Total                                                                         $126,000                 $85,000
                                                                                 ========                 =======
</TABLE>

On February 12, 1997, the Parent Company executed a loan agreement with
LaSalle National Bank ("LaSalle") for a $25 million term loan and a $5 million
revolving credit facility.  On February 27, 1997 the loan agreement was amended,
increasing the revolving credit facility amount from $5 million to $7 million. 
The loan agreement includes certain defined financial covenants relating to the
Bank with respect to regulatory capital, return on average assets, nonperforming
assets and Parent Company leverage.  In addition, the Bank's common stock is
held in safekeeping at LaSalle and, in the event of default under the loan
agreement, the Company must pledge the Bank's stock to LaSalle.  As of June 30,
1997, the Company was in compliance with the provisions of the loan agreement.



                                      10
                                       
                                       
<PAGE>   11
                                      
                          TAYLOR CAPITAL GROUP, INC.
                  NOTES TO FINANCIAL STATEMENTS (Continued)
                                      
                                       

7. Financial Instruments with Off-Balance Sheet Risk:

   The Company is a party to various financial instruments with off-balance
   sheet risk.  The Company uses these financial instruments in the normal
   course of business to meet the financing needs of customers and to
   effectively manage exposure to interest rate risk.  These financial
   instruments include commitments to extend credit, standby letters of credit,
   interest-rate exchange contracts (swaps) and forward commitments to sell
   loans.

   At June 30, 1997, the contractual or notional amounts are as follows:


<TABLE>
<CAPTION>
                                                                                                  Amount
                                                                                               ------------
                                                                                              (in thousands)
<S>                                                                                           <C>
     Financial instruments wherein contract amounts represent credit risk:
         Commitments to extend credit                                                             $350,444
         Standby letters of credit                                                                  55,969
     Financial instruments wherein notional amounts exceed the amount of credit risk:
         Interest rate exchange agreements (swaps)                                                 $25,000
         Forward commitments to sell loans                                                          17,000
</TABLE>

8. Subsequent Event:

   On August 5, 1997 the Mortgage Company entered into an agreement to sell its
   operations headquartered in Florida.  The purchaser of the Mortgage
   Company's Florida assets acquired substantially all of the outstanding loans
   held for sale, the pipeline of loan commitments outstanding and the
   furniture and equipment.  In addition, the purchaser agreed to assume the
   obligations for the facilities' leases and hired all of the related Mortgage
   Company employees.  Management estimates that the proceeds from the sale,
   after all related disposition expenses, approximates the Mortgage Company's
   carrying value for the assets, including the impact of this transaction to
   the goodwill recorded at the acquisition of the Mortgage Company on February
   12, 1997.


                                      11
                                       
                                       
<PAGE>   12
                          TAYLOR CAPITAL GROUP, INC.
              MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                     CONDITION AND RESULTS OF OPERATIONS
                                      

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Taylor Capital
Group, Inc. (the "Parent Company" or the "Company") and its wholly owned
subsidiaries, Cole Taylor Bank (the "Bank") and CT Mortgage Company, Inc. (the
"Mortgage Company").  The Company is a newly formed bank holding company which
was formed to consummate the acquisition of the Bank and Mortgage Company on
February 12, 1997 in a split-off transaction (as defined below) which was
accounted for by the purchase method of accounting.  Management's discussion
and analysis compares the results of operations and financial condition of the
consolidated Company with the results of operations and financial condition of
the Bank on a stand alone predecessor basis for prior periods.  This discussion
should be read in conjunction with the Company's Special Financial Report on
Form 10-K for the year ended December 31, 1996, which contains the audited
financial statements of Cole Taylor Bank on a stand alone predecessor basis for
the years ended December 31, 1996 and 1995.

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


RESULTS OF OPERATIONS

Overview

Generally, the financial results of the consolidated Company in comparison to
the Bank on a stand alone predecessor basis,  present reduced profitability.
The primary reasons for the decline in consolidated profitability include:  (1)
the application of purchase accounting which resulted in the recording of
substantial goodwill and the related goodwill amortization expense,  (2) the
inclusion of approximately $31 million in debt and the related interest expense
and  (3)  the addition of salary and operating expenses of the newly formed
Parent Company.  Additionally, the 1997 consolidated financial results of the
Company on a successor basis, which commenced operations on February 12, 1997,
include less than a full six months of operations.

For the second quarter of 1997, consolidated net income was $2.4 million.
Annualized return on average assets and return on average equity were .52% and
7.23%, respectively.  For the period of February 12, 1997 to June 30, 1997,
consolidated net income was $4.4 million.  For this period, annualized return
on average assets and return on average equity were .63% and 8.58%,
respectively.  Net income for the Bank on the predecessor basis for the stub
period January 1, 1997 to February 11, 1997 was $2.3 million.

Net income for the Bank on the predecessor basis for the quarter ended
June 30, 1996 was $5.0 million.  Annualized return on average assets and return
on average equity for the Bank during the second quarter of 1996 were 1.11% and
15.36%, respectively.  Net income for the Bank on the predecessor basis for the
first six months ended June 30, 1996 was $9.3 million.  For this period,
annualized return on average assets and return on average equity were 1.05% and
14.18%, respectively.


                                      12
                                      
<PAGE>   13

                                      
                          TAYLOR CAPITAL GROUP, INC.
              MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS (Continued)
                                      
                                      
Net Interest Income

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

Consolidated net interest income (with an adjustment for tax-exempt income) for
the second quarter of 1997 was $18.1 million.  For the period of February 12,
1997 to June 30, 1997 consolidated net interest income (with an adjustment for
tax-exempt income) was $27.6 million.  Net interest income (with an adjustment
for tax-exempt income) for the Bank on the predecessor basis for the second
quarter of 1996 and for the first six months of 1996 was $18.6 million and
$36.8 million, respectively.  The lower net interest income  for the first half
of the year reported on the successor basis was due to the consolidated
reporting period for 1997 consisting of 43 fewer days of interest earned than
the Bank's 1996 predecessor basis period.

Net interest margin, which is determined by dividing taxable-equivalent net
interest income by average earning assets, was 4.24% for the second quarter of
1997 for the consolidated Company.  Consolidated net interest margin for the
period of February 12, 1997 to June 30, 1997 was 4.26%.  Net interest margin
for the Bank on the predecessor basis for the second quarter of 1996 and for
the first six months of 1996 was 4.37% and 4.38%, respectively.  The net
interest margin on a consolidated successor basis was lower than that of the
predecessor Bank on a stand alone basis because of the addition of the Parent
Company's term loan and revolving credit facility, which increased the
consolidated Company's cost of long-term borrowings, and the recording of
approximately $37.8 million of goodwill, which resulted in the Company's
consolidated nonearning assets increasing as a percentage of total assets.

Net interest margin at the Bank was essentially flat with the prior year's
period.  An increase in yield resulting from the net write-down of investment
securities related to the Split-Off Transactions, along with a decline in total
funding costs, were offset by an overall reduction in earning asset yield
brought about by a change in asset mix.

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

                                      
                                      13
                                      
<PAGE>   14

                                      
                                      
                                      
                          TAYLOR CAPITAL GROUP, INC.
              MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS (Continued)
                                      
   ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT INTEREST AND YIELDS / RATES
<TABLE>
<CAPTION>
                                            SUCCESSOR BASIS -  TAYLOR CAPITAL GROUP,     PREDECESSOR BASIS - COLE TAYLOR       
                                               INC. - CONSOLIDATED FOR THE THREE              BANK - FOR THE THREE 
                                                  MONTHS ENDED JUN. 30, 1997                MONTHS ENDED JUN. 30, 1996 
                                            ---------------------------------------      -------------------------------  
                                                                             Yield/                               Yield/
                                              Average                          Rate        Average                   Rate
                                              Balance         Interest        (%)(3)       Balance     Interest    (%)(3)
                                            -----------     -----------     --------     ----------   ----------  -------
INTEREST-EARNING ASSETS:                                                                  (dollars in thousands)
<S>                                         <C>             <C>             <C>          <C>          <C>         <C>
Investment securities (1):
  Taxable                                    $419,219           $6,673          6.38%     $353,316       $5,557      6.33% 
  Non-taxable (tax equivalent)                 62,139            1,214          7.84        64,890        1,478      9.16 
                                           ----------      -----------                   ---------   ----------   
    Total investment securities               481,358            7,887          6.57       418,206        7,035      6.77    
                                           ----------      -----------                   ---------   ----------   

Interest-bearing cash equivalents              15,412              214          5.57        24,849          324      5.24      
                                           ----------      -----------                   ---------   ----------   
Loans (2):
  Commercial and industrial                   860,421           19,655          9.16       804,078       18,098      9.05 
  Real estate mortgages                       208,636            3,759          7.23       227,157        4,210      7.45       
  Consumer and other                          148,238            3,284          8.89       233,498        4,857      8.37 
  Fees on loans                                                    412                                      440        
  Less:  Allowance for loan losses            (24,737)                                     (24,900)                   
                                           ----------      -----------                   ---------                 
    Net loans (tax equivalent)              1,192,558           27,110          9.12     1,239,833       27,605      8.95         
                                           ----------      -----------                   ---------   ----------   
      Total earning assets                  1,689,328           35,211          8.36     1,682,888       34,964      8.36
                                           ----------      -----------                   ---------   ----------   
NONEARNING ASSETS:
  Cash and due from banks                      73,058                                       67,729                                 
  Premises and equipment, net                  22,253                                       17,180                                 
  Accrued interest and other assets            67,062                                       30,435                                 
                                           ----------                                   ----------   
    Total nonearning assets                   162,373                                      115,344                                 
                                           ----------                                   ----------   
TOTAL ASSETS                               $1,851,701           35,211          7.63    $1,798,232       34,964      7.82
                                           ==========      -----------                  ==========   ==========   
INTEREST-BEARING LIABILITIES:
  Interest-bearing deposits:
    Interest-bearing demand deposits         $313,565            2,733          3.50      $342,247        3,034      3.57 
    Savings deposits                          118,600              757          2.56       123,031          784      2.56  
    Time deposits                             675,447            9,361          5.56       706,215        9,756      5.56 
                                            ---------      -----------                   ---------   ----------   
      Total deposits                        1,107,612           12,851          4.65     1,171,493       13,574      4.66       
                                            ---------      -----------                   ---------   ----------   
  Short-term borrowings                       184,343            2,397          5.22       143,327        1,950      5.47  
  Long-term borrowings                        114,244            1,847          6.48        60,330          871      5.81
                                            ---------      -----------                   ---------   ----------   
      Total interest-bearing liabilities    1,406,199           17,095          4.88     1,375,150       16,395      4.80
                                            ---------      -----------                   ---------   ----------   
NONINTEREST-BEARING LIABILITIES:
  Noninterest-bearing deposits                294,201                                      277,303                               
  Accrued interest and other liabilities       17,390                                       15,234                   
                                            ---------                                     --------     
  Total noninterest-bearing liabilities       311,591                                      292,537             
                                            ---------                                     --------     
STOCKHOLDERS' EQUITY                          133,911                                      130,545                      
                                            ---------                                     --------     
TOTAL LIABILITIES AND 
 STOCKHOLDERS' EQUITY                      $1,851,701           17,095                  $1,798,232       16,395 
                                           ==========      -----------                  ==========   ----------  
Net interest income (tax equivalent)                           $18,116                                  $18,569            
                                                           ===========                               ==========
Net interest spread                                                             3.48%                                3.56%    
Net interest margin                                                             4.24%                                4.37%
                                                                            ========                              ======= 


                                            SUCCESSOR BASIS -  TAYLOR CAPITAL GROUP,     PREDECESSOR BASIS - COLE TAYLOR       
                                             INC. - CONSOLIDATED FOR THE PERIOD OF       BANK - FOR THE SIX MONTHS ENDED 
                                                 FEB. 12, 1997 TO JUN. 30, 1997                  JUN. 30, 1996 
                                            ---------------------------------------      -------------------------------  
                                                                             Yield/                               Yield/
                                              Average                          Rate        Average                   Rate
                                              Balance         Interest        (%)(3)       Balance     Interest    (%)(3)
                                            -----------     -----------     --------     ----------   ----------  -------
INTEREST-EARNING ASSETS:                                                                  (dollars in thousands)
<S>                                         <C>             <C>             <C>          <C>          <C>         <C>
Investment securities (1):
  Taxable                                    $405,519           $9,917          6.42%     $357,845      $11,269      6.33% 
  Non-taxable (tax equivalent)                 62,566            1,890          7.93        65,422        2,989      9.19 
                                           ----------      -----------                   ---------   ----------   
    Total investment securities               468,085           11,807          6.62       423,267       14,258      6.77    
                                           ----------      -----------                   ---------   ----------   
Interest-bearing cash equivalents              22,867              458          5.26        18,872          497      5.30      
                                           ----------      -----------                   ---------   ----------   
Loans (2):
  Commercial and industrial                   857,712           29,764          9.11       790,770       35,777      9.10 
  Real estate mortgages                       205,717            5,697          7.27       227,700        8,392      7.41       
  Consumer and other                          147,821            4,992          8.87       230,218        9,525      8.32 
  Fees on loans                                                    611                                      853        
  Less:  Allowance for loan losses            (24,806)                                     (24,574)                          
                                           ----------      -----------                   ---------   ----------
    Net loans (tax equivalent)              1,186,444           41,064          9.09     1,224,114       54,547      8.96         
                                           ----------      -----------                   ---------   ----------   
      Total earning assets                  1,677,396           53,329          8.35     1,666,253       69,302      8.36
                                           ----------      -----------                   ---------   ----------   
NONEARNING ASSETS:
  Cash and due from banks                      70,844                                       67,331                                 
  Premises and equipment, net                  21,122                                       17,093                                 
  Accrued interest and other assets            64,145                                       32,530                                 
                                           ----------                                   ----------   
    Total nonearning assets                   156,111                                      116,954                                 
                                           ----------                                   ----------   
TOTAL ASSETS                               $1,833,507           53,329          7.64    $1,783,207       69,302      7.82
                                           ==========      -----------                  ==========   ----------   
INTEREST-BEARING LIABILITIES:
  Interest-bearing deposits:
    Interest-bearing demand deposits         $316,003            4,196          3.49      $338,143        5,991      3.56 
    Savings deposits                          118,376            1,153          2.56       123,029        1,564      2.56  
    Time deposits                             668,394           14,167          5.57       669,716       18,674      5.61 
                                            ---------      -----------                   ---------   ----------   
      Total deposits                        1,102,773           19,516          4.65     1,130,888       26,229      4.66       
                                            ---------      -----------                   ---------   ----------  
  Short-term borrowings                       182,365            3,618          5.21       164,161        4,468      5.47  
  Long-term borrowings                        101,910            2,604          6.71        60,165        1,795      6.00
                                            ---------      -----------                   ---------   ----------  
      Total interest-bearing liabilities    1,387,048           25,738          4.87     1,355,214       32,492      4.82
                                            ---------      -----------                   ---------   ----------  
NONINTEREST-BEARING LIABILITIES:
  Noninterest-bearing deposits                294,473                                      280,982                               
  Accrued interest and other liabilities       16,651                                       14,912                            
                                            ---------                                   ----------
  Total noninterest-bearing liabilities       311,124                                      295,894    
                                            ---------                                   ----------
STOCKHOLDERS' EQUITY                          135,335                                      132,099    
                                            ---------                                   ----------
TOTAL LIABILITIES AND 
 STOCKHOLDERS' EQUITY                      $1,833,507           25,738                  $1,783,207       32,492 
                                           ==========      -----------                  ==========   ----------  
Net interest income (tax equivalent)                           $27,591                                  $36,810            
                                                           ===========                               ==========
Net interest spread                                                             3.48%                                3.54%    
Net interest margin                                                             4.26%                                4.38%
                                                                             =======                              ======= 
</TABLE>                                                                
___________________________________________
(1)  Investment securities average balances are based on amortized cost.
(2)  Nonaccrual loans are included in the above stated average balances.
(3)  Yields / rates are annualized.    

                                       
                                      14
                                       

<PAGE>   15
                          TAYLOR CAPITAL GROUP, INC.
              MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS (Continued)
                                      
Noninterest Income

The following table shows the noninterest income for the periods indicated:
<TABLE>
<CAPTION>
                                     Successor                                            Successor
                                   Basis - Taylor                                       Basis - Taylor
                                   Capital Group,              Predecessor               Capital Group,            Predecessor
                                        Inc. -                 Basis - Cole                  Inc. -                Basis - Cole
                                    Consolidated               Taylor Bank -              Consolidated             Taylor Bank -
                                    For the Three              For the Three           For the Period of           For the Six
                                     Months Ended              Months Ended            Feb. 12, 1997 to            Months Ended
                                    Jun. 30, 1997              Jun. 30, 1996             Jun. 30, 1997             Jun. 30, 1996
                                 --------------------          -------------          --------------------         -------------
<S>                              <C>                          <C>                    <C>                          <C>
Deposit service charges                $2,148                  $1,988                        $3,308                 $3,932
Retail and merchant credit card      
  service charges                         223                     178                           327                    337
Trust fees                                864                     913                         1,357                  1,774
Mortgage banking income                   910                     558                         1,191                    896
ATM fees                                  176                      64                           272                    126
Other noninterest income                  245                     262                           461                    599
                                       ------                  ------                        ------                 ------
      Total noninterest income         $4,566                  $3,963                        $6,916                 $7,664
                                       ======                  ======                        ======                 ======
</TABLE>                             
                                     
Total noninterest income for the consolidated Company was $4.6 million for the
second quarter of 1997  and $6.9 million for the period of February 12, 1997 to
June 30, 1997.  Total noninterest income for the Bank on the predecessor basis
for the second quarter of 1996 was $4.0 million, and for the first six months
of 1996 was $7.7 million.   The lower noninterest income reported on the
successor basis for the period of February 12, 1997 to June 30, 1997 was due to
the consolidated Company's 1997 reporting period having 43 fewer days than the
Bank's predecessor basis 1996 reporting period.

Included in the consolidated Company's mortgage banking income are gains on the 
sale of mortgage loans relating to the Mortgage Company's operations.  These
gains were $336,000 for the three months ended June 30, 1997, and $451,000 for
the period of February 12, 1997 to June 30, 1997.  No Mortgage Company gains
are included in the Bank's predecessor basis 1996 results.  The Florida-based
operations generated the majority of the Mortgage Company's loan origination
volume and resultant profits.  Therefore the sale of the Florida-based
operations is expected to significantly reduce the Mortgage Company's income
for the remainder of 1997.

Noninterest Expense

Total noninterest expense for the consolidated Company was $16.9 million for
the second quarter of 1997  and $25.1 million for the period of February 12,
1997 to June 30, 1997.  Total noninterest expense for the Bank on the
predecessor basis for the second quarter of 1996 was $13.3 million, and for the
first six months of 1996 was $27.2 million.  The lower noninterest expense on
the successor basis for the period of February 12, 1997 to June 30, 1997 was
due to the consolidated Company's 1997 reporting period having 43 fewer days
than the Bank's  predecessor basis 1996 reporting period.


                                      15

<PAGE>   16

                          TAYLOR CAPITAL GROUP, INC.
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS (Continued)
                                      
Salaries and employee benefits represent the largest category of noninterest
expense, accounting for 53.0% and 53.9% of total noninterest expense for the
consolidated Company's three months ended June 30, 1997, and for the period of
February 12, 1997 to June 30, 1997, respectively.  Included in the consolidated
Company's salaries and employee benefits for the three months ended June 30,
1997 is $1.0 million of expense relating to the Mortgage and Parent Companies.
For the period of February 12, 1997 to June 30, 1997, the salaries and employee
benefits expense relating to the Mortgage and Parent Companies totaled $1.4
million.  Total average headcount at the Bank for 1997 was 630 as compared to
650 for 1996.  The implementation of a new long-term incentive compensation
plan in 1997 increased total salary and benefits expense.

Noninterest expense other than salaries and benefits expense totaled
$8.0 million for the consolidated Company for the second quarter of 1997 and
$11.6 million for the period of February 12, 1997 to June 30, 1997.  Noninterest
expense other than salaries and benefits expense for the Bank on the predecessor
basis for the second quarter of 1996 and the first six months of 1996 totaled
$5.8 million and $12.1 million, respectively.  The consolidated Company's
reporting period for the three months ended June 30, 1997 and for the period of
February 12, 1997 to June 30, 1997 includes $664,000 and $978,000, respectively,
of goodwill amortization and $590,000 and $799,000, respectively, of other
noninterest expense relating to the Mortgage and  Parent Companies. Occupancy
expenses increased approximately $320,000 as a result of the increased
amortization of purchase accounting adjustments from the write-up of the
premises, leasehold improvements and equipment to their fair value in connection
with the Split-Off Transactions.  In addition, 1997 occupancy costs include land
rent for the new branch facility opening in the fall of 1997.

Income Taxes

The effective income tax rate for the consolidated Company for the period of
February 12, 1997 to June 30, 1997 was 37.8%.  The effective income tax rate
for the Bank on the predecessor basis for the first six months of 1996 was
33.4%.  The Bank's lower effective income tax rate for 1996 was due to the
utilization for book purposes of state net operating loss carryforwards.


FINANCIAL CONDITION

Overview

The consolidated Company's total assets were $1.91 billion at June 30, 1997.
The Company's average earning assets for the second quarter of 1997 were $1.71
billion.  For the period of February 12, 1997 to June 30, 1997 the Company's
average earning assets were $1.70 billion.  In connection with the Split-Off
Transactions, the Company sold or transferred approximately $100 million in
consumer loans secured by automobiles.  Approximately $67 million of consumer
loans were sold on December 31, 1996.  The remaining $32 million of consumer
loans were transferred to CTFG on the date of the consummation of the Split-Off
Transactions.  In comparison to the second quarter of 1996 and the first six
months of 1996, the Bank's loan portfolio composition changed as a result of
the sale and transfer of the consumer loans, offset by growth in commercial
loans.


                                      16
                                      
<PAGE>   17


                          TAYLOR CAPITAL GROUP, INC.
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS (Continued)
                                      

Nonearning assets increased as a result of the recognition of approximately
$37.8 million in goodwill and the estimated $7.2 million write-up of the Bank's
premises, leasehold improvements and equipment using the purchase method of
accounting for the Split-Off Transactions.

The consolidated Company's long-term borrowings include the Parent Company's
$25 million term loan and $6 million outstanding under the revolving credit
facility, which were funded in connection with the Split-Off Transactions.


Nonperforming Loans and Assets

Management reviews the loan portfolio for problem loans through a loan review
function and various credit committees.  During the ordinary course of
business, management periodically becomes aware of borrowers that may not be
able to meet the contractual requirements of loan agreements.  Such loans are
placed under close supervision with consideration given to placing the loan on
a nonaccrual status, the need for an additional allowance for loan loss, and
(if appropriate) a partial or full charge-off.

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

<TABLE>
<CAPTION>
                           NONPERFORMING ASSETS                                   
                                                       Successor Basis - Taylor     Predecessor
                                                         Capital Group, Inc. -      Basis - Cole
                                                            Consolidated             Taylor Bank
                                                       ------------------------     ------------
                                                       June 30,       March 31,     December 31,
                                                        1997            1997            1996
                                                       --------       ---------     ------------
                                                                 (dollars in thousands)    
<S>                                                    <C>            <C>           <C>
Loans contractually past due 90 days or more but                                  
   still accruing                                     $ 2,323         $ 2,310            $ 2,820
Nonaccrual loans                                       10,969          11,261             10,898
                                                      -------         -------            -------
       Total nonperforming loans                       13,292          13,571             13,718
Other real estate                                       1,800           1,862                865
Other repossessed assets                                   48              39                254
                                                      -------         -------            -------
       Total nonperforming assets                     $15,140         $15,472            $14,837
                                                      =======         =======            =======
Nonperforming loans to total loans                       1.07%           1.12%              1.12%
Nonperforming assets to total loans plus                                          
 repossessed property                                    1.22            1.28               1.21
Nonperforming assets to total assets                     0.79            0.84               0.82
</TABLE>                                                                      
           

                                      17                                       
                                                 
<PAGE>   18
                          TAYLOR CAPITAL GROUP, INC.
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS (Continued)
                                      

Allowance for Loan Losses

An allowance for loan losses has been established to provide for those loans
which may not be repaid in their entirety.  Loan losses are primarily created
from the loan portfolio, but may also be generated from other sources, such as
commitments to extend credit, guarantees, and standby letters of credit.  The
allowance for loan losses is increased by provisions charged to expense and
decreased by charge-offs, net of recoveries.

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

<TABLE>
<CAPTION>
                              ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

                                            Successor                                        Successor
                                          Basis - Taylor                                   Basis - Taylor
                                          Capital Group,           Predecessor             Capital Group,             Predecessor
                                              Inc. -                Basis - Cole                Inc. -                Basis - Cole
                                           Consolidated             Taylor Bank -           Consolidated              Taylor Bank -
                                           For the Three            For the Three          For the Period of          For the Six
                                           Months Ended             Months Ended           Feb. 12, 1997 to           Months Ended
                                          Jun. 30, 1997             Jun. 30, 1996          Jun. 30, 1997              Jun. 30, 1996
                                          --------------            -------------          ------------------         -------------
                                                                            (dollars in thousands)
<S>                                       <C>                       <C>                    <C>                        <C>
                                                           
Average total loans                           $1,217,295               $1,264,733                  $1,211,250            $1,248,688
                                          ==============            =============          ==================         =============
Total loans at end of period                                                                       $1,243,251            $1,280,383
                                                                                           ==================         =============
ALLOWANCE FOR LOAN LOSSES:
Allowance at beginning of period                 $24,529                  $24,433                     $24,607               $23,869
Charge-offs                                         (954)                  (1,148)                     (1,709)               (1,814)
Recoveries                                           230                      137                         423                   368
                                          --------------            -------------          ------------------         -------------
   Net charge-offs                                  (724)                  (1,011)                     (1,286)               (1,446)
                                          --------------            -------------          ------------------         -------------
Provisions for loan losses                           904                    1,053                       1,388                 2,052
                                          --------------            -------------          ------------------         -------------
Allowance at end of period                       $24,709                  $24,475                     $24,709               $24,475
                                          ==============            =============          ==================         =============

Net charge-offs to average total loans
   (annualized)                                     0.24%                    0.32%                       0.28%                 0.23%
Allowance to total loans at end of period                                                                1.99                  1.91
Allowance to nonperforming loans                                                                       185.89                155.57
</TABLE>

                                       
                                      18
                                       

<PAGE>   19

                          TAYLOR CAPITAL GROUP, INC.
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS (Continued)
                                      

Deposits and Borrowed Funds

The Company's core deposits consist of noninterest and interest-bearing demand
deposits, savings deposits, certain certificates of deposit and certain public
funds and core customer repurchase agreements, which are reported as short term
borrowings.  Certificates of deposit distributed through the National CD
Network, brokered certificates of deposit and FHLB advances are also used by
the Company to support its asset base.

On an average basis core deposits increased modestly during the first six
months of 1997. The decline in demand deposits between December 1996 and June
1997 reflects the recurring seasonal increase in demand accounts at each year
end.  The mix of core deposits changed reflecting the Bank's marketing focus
during the period.  Increases in brokered certificates of deposit and FHLB
advances were utilized to fund growth in the Company's asset base during 1997
as asset growth outpaced core deposit growth. The balance of certificates of
deposit obtained through the National CD Network was $39.7 million  and  $46.9
at June 30, 1997 and December 31, 1996, respectively.

Capital Resources

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

The Bank's Tier 1 risk-based capital ratios were 9.57% and 10.23% at June 30,
1997 and December 31, 1996, respectively.  The Bank's total risk-based capital
ratios were 10.82% and 11.48% at June 30, 1997 and December 31,  1996,
respectively.  The declines in these ratios were due to the decrease in
tangible capital resulting from the dividend of approximately $84.0 million to
CTFG in connection with the Split-Off Transactions.  The Bank's capital was
immediately supplemented with a capital contribution of $58.7 million from the
Parent Company on the date of the consummation of the Split-Off Transactions.
As a result of the capital contribution, the Bank remained above the regulatory
"well capitalized" guidelines subsequent to the Split-Off Transactions.

For the period of February 12, 1997 to June 30, 1997 the Parent Company
declared $1.3 million and $810,000 in preferred stock and common stock
dividends, respectively.


                                      
                                      19
                                      
<PAGE>   20

                          TAYLOR CAPITAL GROUP, INC.
              MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS (Continued)
                                      
                                      
The Company's and the Bank's capital ratios were as follows for the dates
indicated:
<TABLE>
<CAPTION>
                                                                                                                  To Be Well
                                                                                                               Capitalized Under
                                                                                For Capital                       Prompt Corrective
                                                 Actual                       Adequacy Purpose                    Action Provision
                                           -----------------                ---------------------              --------------------
                                           Amount      Ratio                Amount          Ratio              Amount         Ratio
                                           -----------------                ---------------------              --------------------
                                                                               (in thousands)
<S>                                        <C>         <C>                  <C>             <C>                <C>            <C>
As of June 30, 1997:
  Total Capital (to Risk Weighted Assets)
    Successor Basis - Taylor Capital
      Group, Inc. - Consolidated           $115,682     8.81%              >$105,006       >8.00%                NA     
    Cole Taylor Bank                        142,231    10.82               > 105,113       >8.00              >$131,392      >10.00%
  Tier I Capital (to Risk Weighted Assets)
    Successor Basis - Taylor Capital
      Group, Inc. - Consolidated             99,172     7.56%              >  52,503       >4.00                 NA
    Cole Taylor Bank                        125,705     9.57               >  52,557       >4.00              >  78,835      > 6.00
  Leverage (1)
    Successor Basis - Taylor Capital
      Group, Inc. - Consolidated             99,172     5.47%              >  72,566       >4.00                 NA
    Cole Taylor Bank                        125,705     6.94               >  72,404       >4.00              >  90,505      > 5.00
   
As of December 31, 1996:
  Total Capital (to Risk Weighted Assets)
    Predecessor Basis - Cole Taylor Bank   $158,874    11.48%              >$110,702       >8.00%             >$138,338      >10.00%
  Tier I Capital (to Risk Weighted Assets)
    Predecessor Basis - Cole Taylor Bank    141,492    10.23               >  55,351       >4.00              >  83,027      > 6.00
  Leverage (1)
    Predecessor Basis - Cole Taylor Bank    141,492     7.63               >  74,158       >4.00              >  92,698      > 5.00
</TABLE>
__________________________________
(1)  The leverage ratio is defined as Tier 1 capital divided by average
     quarterly assets.


Liquidity and Asset/Liability Management

In connection with the Split-Off Transactions, the Bank's liquidity
temporarily increased as the Bank sold certain loans and received a capital
contribution from the Parent Company.  During 1997, this cash was redeployed
into investment securities and loans and asset growth exceeded core deposit
growth.  In addition, the mix of core deposit growth changed to consist of
shorter term deposits and certain deposits which require collateralization.  As
a result, the Company's liquidity at June 30, 1997 tightened as compared to
February 12, 1997 and additional wholesale funding was obtained to support the
Company's continued growth.  The Company's liquidity at June 30, 1997 remains
within target levels maintained in prior years as the Company continues to
utilize prudent levels of wholesale borrowings to support its growth and
profitability.

                                       
                                      20
                                       

<PAGE>   21

                                      
                          TAYLOR CAPITAL GROUP, INC.
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS (Continued)
                                      

Safe Harbor Provisions of the Private Securities Reform Act of 1995

Certain statements contained in this Management's Discussion and Analysis of   
Financial Condition and Results of Operations are certain forward-looking
statements that are based on the beliefs of the Company's management, as well
as assumptions made by and information currently available to the company's
management, and that are subject to certain risks or uncertainties. Such
forward-looking statements are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1996.  When used in this document
and the documents incorporated by reference, the word "anticipate", "believe",
"estimate", "expect" and similar expressions, as they relate to the Company or
its management, are intended to identify such forward-looking statements.  Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions.  The
Company cautions readers of this Quarterly Report on Form 10-Q that a number of
important factors could cause the Company's actual results, performance or
achievements in 1997 and beyond to differ materially from the results,
performance or achievements expressed in, or implied by, such forward-looking
statements.  These factors include, without limitation, the general economic
and business conditions affecting the Company's customers; the ability of the
Bank to maintain sufficient funds to respond to the needs of depositors and
borrowers; changes in interest rates; competition from its principal 
competitors; changes in federal and state legislation or regulatory
requirements; the adequacy of the Company's allowance for loan losses;
contractual, statutory or regulatory restrictions on the Bank's ability to pay
dividends to the Company; and continuing obligations or potential liabilities
arising from the Split-Off Transactions. These and other factors are more fully
described in the Company's previous filings with the Securities and Exchange
Commission including, without limitation, the Company's Prospectus dated
February 7, 1997.

                                      
                                      21
                                      
<PAGE>   22
                                      
                          TAYLOR CAPITAL GROUP, INC.
                         PART II - OTHER INFORMATION
                                      
                                       

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

        (a) The Annual Meeting of the Stockholders of the Company was held on 
            June 24, 1997.
        (b) The Common Stockholders voted to elect nine directors to the 
            Company's Board of Directors, with the following vote:
                                                                    Authority
                          Directors                For              Withheld
                          ---------                ---              ---------
                    Jeffrey W. Taylor           3,528,506               0     
                    Bruce W. Taylor             3,528,506               0
                    Sidney J Taylor             3,528,506               0
                    Richard W. Tinberg          3,528,506               0
                    Melvin E. Pearl             3,528,506               0
                    John Christopher Alstrin    3,528,506               0
                    Ronald D. Emanuel           3,528,506               0
                    Edward McGowan              3,528,506               0
                    Mark L. Yeager              3,528,506               0

        (c) The Preferred Stockholders voted to elect one director to the
            Company's Board of Directors, with the following vote:
                                                                    Authority
                          Director                 For              Withheld
                          --------                 ---              --------- 
                    Adelyn Dougherty            1,449,005             6,910

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a) Exhibits - See Exhibit Index on page 24.
        (b) Form 8-K - No reports on Form 8-K were filed during the period
            covered by this report.


                                      
                                      22
                                      

<PAGE>   23


                                  SIGNATURES
                                      
                                      

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



                                            Taylor Capital Group, Inc.
                                         --------------------------------
                                                   (Registrant)



Date: August 11, 1997                       /s/  J. Christopher Alstrin
      ---------------                       -----------------------------
                                                 J. Christopher Alstrin*
                                                 Chief Financial Officer





* Duly authorized to sign on behalf of the Registrant


                                      
                                      23
                                      

<PAGE>   24



                                      
                          TAYLOR CAPITAL GROUP, INC.
                                      
                                EXHIBIT INDEX

<TABLE>
<CAPTION>

 Exhibit
 Number   Description of Documents
 -------  ------------------------
 <S>      <C>
 11       Statement regarding computation of primary earnings per share

 12       Statement regarding computation of ratio of earnings to fixed charges

 27       Financial Data Schedule
</TABLE>




                                      24