##### Table of Contents



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 September 30, 2002

Commission File No. 0-50034

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

(847) 537-0020
(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) Yes X     No
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | has been subject to such filing requirements for the past 90 days Yes          No X                                                                                                                                                    

Indicate the number of outstanding shares of each of the issuers classes of
common stock, as of the latest practicable date: At November 14, 2002, there
were 9,398,780 shares of Common Stock, $0.01 par value, outstanding.





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TABLE OF CONTENTS



|                                                           |                                                                                               |                                                            |  |  |  |  |  | 
|---------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------- |  |  |  |  |  | 
|                                                           |                                                                                               | CONSOLIDATED BALANCE SHEETS                               
|                                                           |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME                         
|                                                           |                                                                                               | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
|                                                           |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                     
|                                                           |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                           | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
|                                                           | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                           | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                                
|PART II. OTHER INFORMATION                                
|                                                           | Item 1. Legal Proceedings                                                                    
|                                                           | Item 2. Changes in Securities and Use of Proceeds                                            
|                                                           | Item 3. Defaults Upon Senior Securities                                                      
|                                                           | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                                           | Item 5. Other Information                                                                    
|                                                           | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                
|Certification                                             
|Certification                                             



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##### Table of Contents



TAYLOR CAPITAL GROUP, INC.

INDEX

|        |        |                                                                         |                                                                 |      |    |    |  |  | 
|------- | ------ | ----------------------------------------------------------------------- | --------------------------------------------------------------- | ---- | -- | -- |  |  | 
|PART I. |        | FINANCIAL INFORMATION                                                   |                                                                 | Page
|        |        |                                                                         |                                                                 |     
|        | Item 1 |                                                                         | Financial Statements                                            |      |    |    | 
|       
|       
|       
|       
|        |        | Consolidated Balance Sheets (unaudited) -                               |                                                                 |      |    |   
|       
|       
|       
|       
|        |        | September 30, 2002 and December 31, 2001                                |                                                                 |      | 1  |   
|       
|       
|       
|       
|        |        | Consolidated Statements of Income (unaudited) -                         |                                                                 |      |    |   
|       
|       
|       
|       
|        |        | For the three and nine months ended September 30, 2002 and 2001         |                                                                 |      | 2  |   
|       
|       
|       
|       
|        |        | Consolidated Statement of Changes in Stockholders' Equity (unaudited) - |                                                                 |      |    |   
|       
|       
|       
|       
|        |        | For the nine months ended September 30, 2002 and 2001                   |                                                                 |      | 3  |   
|       
|       
|       
|       
|        |        | Statements of Cash Flows (unaudited) -                                  |                                                                 |      |    |   
|       
|       
|       
|       
|        |        | For the nine months ended September 30, 2002 and 2001                   |                                                                 |      | 4  |   
|       
|       
|       
|       
|        |        | Notes to Consolidated Financial Statements (unaudited)                  |                                                                 |      | 6  |   
|       
|       
|       
|       
|        | Item 2 |                                                                         | Management's Discussion and Analysis of Financial Condition and |      |    |    | 
|       
|       
|       
|       
|        |        | Results of Operations                                                   |                                                                 |      | 16 |   
|       
|       
|       
|       
|        | Item 3 |                                                                         | Quantitative and Qualitative Disclosure About Market Risk       |      |    | 39 | 
|       
|       
|       
|       
|        | Item 4 |                                                                         | Controls and Procedures                                         |      |    | 39 | 
|       
|       
|       
|       
|PART II |        | OTHER INFORMATION                                                       |                                                                 |      |    |   
|       
|       
|       
|       
|        | Item 1 |                                                                         | Legal Proceedings                                               |      |    | 40 | 
|       
|       
|       
|       
|        | Item 2 |                                                                         | Changes in Securities and Use of Proceeds                       |      |    | 40 | 
|       
|       
|       
|       
|        | Item 3 |                                                                         | Defaults Upon Senior
Securities                                 |      |    | 40 | 
|       
|       
|       
|       
|        | Item 4 |                                                                         | Submission of Matters to a Vote of Security Holders             |      |    | 40 | 
|       
|       
|       
|       
|        | Item 5 |                                                                         | Other Information                                               |      |    | 41 | 
|       
|       
|       
|       
|        | Item 6 |                                                                         | Exhibits and Reports on Form 8-K                                |      |    | 41 | 
|       
|       
|       
|       
|        |        | Signatures                                                              |                                                                 |      | 43 |   
|       
|       
|       
|       
|        |        | Certifications                                                          |                                                                 |      | 44 |   





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##### Table of Contents






TAYLOR CAPITAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except share and per share data)

|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |              |           |        |           | 
|------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------------------------------- | ------------------------------------------ | --------- | ------------- | --------- | ------------ | --------- | ------ | --------- | 
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           | September 30, |           | December 31,
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           | 2002          |           | 2001        
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |             
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 | ASSETS                                     |           |               |           |              |           |        |           | 
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Cash and cash equivalents:                                                                                               |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Cash and due from banks                                                                                                                                                                                                                                                                 |                | $                               | 77,956                                     |           |               | $         | 70,501       |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Short-term investments                                                                                                                                                                                                                                                                  |                |                                 | 8,451                                      |           |               |           | 17,397       |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Federal funds sold                                                                                                                                                                                                                                                                      |                |                                 | 15,000                                     |           |               |           | 350          |          
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |              |          
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                | Total cash and cash equivalents |                                            |           | 101,407       |           |              |           | 88,248 |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Investment securities:                                                                                                   |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Available-for-sale, at fair value                                                                                                                                                                                                                                                       |                |                                 | 499,259                                    |           |               |           | 493,358      |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Held-to-maturity, at amortized cost (fair value of $914 and $900 at
September 30, 2002 and December 31, 2001, respectively)                                                                                                                                                             |                |                                 | 850                                        |           |               |           | 850          |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Loans held for sale at lower of cost or market                                                                           |                                                                                                                                                                                                                                                                                         |                |                                |                                            |           |               | 1,147     |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Loans, net of allowance for loan losses of $34,305 and $31,118 at
September 30, 2002 and December 31, 2001, respectively |                                                                                                                                                                                                                                                                                         |                | 1,811,545                       |                                            |           |               | 1,709,372 |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Premises, leasehold improvements and equipment, net                                                                      |                                                                                                                                                                                                                                                                                         |                | 19,717                          |                                            |           |               | 20,786    |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Investment in Federal Home Loan Bank and Federal Reserve Bank stock, at cost                                             |                                                                                                                                                                                                                                                                                         |                | 10,863                          |                                            |           |               | 10,633    |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Other real estate and repossessed assets, net                                                                            |                                                                                                                                                                                                                                                                                         |                | 107                             |                                            |           |               | 569       |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Goodwill, net of amortization of $11,696 at September 30, 2002 and December
31, 2001                                     |                                                                                                                                                                                                                                                                                         |                | 23,354                          |                                            |           |               | 23,354    |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Other intangible assets, net of amortization of $604 and $359 at September
30, 2002 and December 31, 2001, respectively  |                                                                                                                                                                                                                                                                                         |                | 549                             |                                            |           |               | 1,031     |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Other assets                                                                                                             |                                                                                                                                                                                                                                                                                         |                | 37,482                          |                                            |           |               | 41,322    |             
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |              |          
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 | Total assets                               |           | $             | 2,505,133 |              |           | $      | 2,390,670 | 
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |              |          
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                     |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Deposits:                                                                                                                |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Noninterest-bearing                                                                                                                                                                                                                                                                     |                | $                               | 424,930                                    |           |               | $         | 346,188      |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Interest-bearing                                                                                                                                                                                                                                                                        |                |                                 | 1,536,330                                  |           |               |           | 1,487,501    |          
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |              |          
|                                                                                                                         |                                                                                                                                                                                                                                                                                         | Total deposits |                                 |                                            | 1,961,260 |               |           |              | 1,833,689 |       
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Short-term borrowings                                                                                                    |                                                                                                                                                                                                                                                                                         |                | 195,917                         |                                            |           |               | 244,993   |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Accrued interest, taxes and other liabilities                                                                            |                                                                                                                                                                                                                                                                                         |                | 31,607                          |                                            |           |               | 30,072    |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Accrued litigation settlement                                                                                            |                                                                                                                                                                                                                                                                                         |                | 61,900                          |                                            |           |               |          |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Notes payable and FHLB advances                                                                                          |                                                                                                                                                                                                                                                                                         |                | 127,200                         |                                            |           |               | 111,000   |             
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |              |          
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 | Total liabilities                          |           |               | 2,377,884 |              |           |        | 2,219,754 | 
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |              |          
|Stockholders equity:                                                                                                    |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |             
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Preferred stock, $.01 par value, 5,000,000 shares authorized at
September 30, 2002, Series A 9% noncumulative perpetual, 1,530,000
shares issued and outstanding, $25 stated and redemption value                                                                                       |                |                                 | 38,250                                     |           |               |           | 38,250       |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Common stock, $.01 par value; 25,000,000 shares authorized at
September 30, 2002; 7,141,152 and 7,067,508 shares issued at
September 30, 2002 and December 31, 2001, respectively; 6,819,454 and
6,836,028 shares outstanding at September 30, 2002 and December 31,
2001, respectively |                |                                 | 71                                         |           |               |           | 71           |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Surplus                                                                                                                                                                                                                                                                                 |                |                                 | 103,475                                    |           |               |           | 102,253      |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Unearned compensation  stock grants                                                                                                                                                                                                                                                    |                |                                 | (1,258                                     | )         |               |           | (655         | )        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Retained earnings (deficit)                                                                                                                                                                                                                                                             |                |                                 | (17,630                                    | )         |               |           | 31,511       |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Accumulated other comprehensive income                                                                                                                                                                                                                                                  |                |                                 | 11,425                                     |           |               |           | 4,826        |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Treasury stock, at cost, 321,698 and 231,480 shares at September 30,
2002 and December 31, 2001, respectively                                                                                                                                                                           |                |                                 | (7,084                                     | )         |               |           | (5,340       | )        
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |              |          
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 | Total stockholders equity                 |           |               | 127,249   |              |           |        | 170,916   | 
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |              |          
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 | Total liabilities and stockholders equity |           | $             | 2,505,133 |              |           | $      | 2,390,670 | 
|                                                                                                                         |                                                                                                                                                                                                                                                                                         |                |                                 |                                            |           |               |           |              |          

See accompanying notes to consolidated financial statements

1



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##### Table of Contents






TAYLOR CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(in thousands, except per share data)

|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |        |         | 
|--------------------------------------------------- | --------------------------------------------------- | ---------- | ------------------------- | ------ | -------------------- | ------ | ------------------- | ------ | ----- | ------ | ------- | ------ | ------ | ------- | ------ | ------- | ------ | ------- | 
|                                                    |                                                     |            |                           |        | For the Three Months |        | For the Nine Months
|                                                    |                                                     |            |                           |        | Ended September 30,  |        | Ended September 30,
|                                                    |                                                     |            |                           |        |                      |        |                    
|                                                    |                                                     |            |                           |        | 2002                 |        | 2001                |        | 2002  |        | 2001   
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |        
|Interest income:                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Interest and fees on loans                          |            | $                         | 30,233 |                      |        | $                   | 32,885 |       |        | $       | 88,990 |        |         | $      | 103,647 |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Interest and dividends on investment securities:    |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                     | Taxable    |                           |        | 6,174                |        |                     |        | 6,628 |        |         |        | 18,659 |         |        |         | 21,036 |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                     | Tax-exempt |                           |        | 657                  |        |                     |        | 807   |        |         |        | 2,120  |         |        |         | 2,499  |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Interest on cash equivalents                        |            |                           | 120    |                      |        |                     | 516    |       |        |         | 304    |        |         |        | 1,781   |       
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|                                                    |                                                     |            | Total interest income     |        |                      | 37,184 |                     |        |       | 40,836 |         |        |        | 110,073 |        |         |        | 128,963 | 
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|Interest expense:                                   |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Deposits                                            |            |                           | 9,043  |                      |        |                     | 14,500 |       |        |         | 27,198 |        |         |        | 48,445  |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Short-term borrowings                               |            |                           | 820    |                      |        |                     | 1,842  |       |        |         | 2,688  |        |         |        | 7,833   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Notes payable and FHLB advances                     |            |                           | 1,320  |                      |        |                     | 1,702  |       |        |         | 3,837  |        |         |        | 5,227   |       
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|                                                    |                                                     |            | Total interest expense    |        |                      | 11,183 |                     |        |       | 18,044 |         |        |        | 33,723  |        |         |        | 61,505  | 
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|Net interest income                                 |                                                     |            | 26,001                    |        |                      |        | 22,792              |        |       |        | 76,350  |        |        |         | 67,458 |        
|                                                   
|                                                   
|                                                   
|                                                   
|Provision for loan losses                           |                                                     |            | 2,475                     |        |                      |        | 2,450               |        |       |        | 7,425   |        |        |         | 6,700  |        
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|                                                    | Net interest income after provision for loan losses |            |                           | 23,526 |                      |        |                     | 20,342 |       |        |         | 68,925 |        |         |        | 60,758  |       
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|Noninterest income:                                 |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Service charges                                     |            |                           | 3,128  |                      |        |                     | 3,052  |       |        |         | 9,174  |        |         |        | 8,928   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Trust fees                                          |            |                           | 1,473  |                      |        |                     | 1,666  |       |        |         | 4,283  |        |         |        | 4,900   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Mortgage-banking activities                         |            |                           | 64     |                      |        |                     | 625    |       |        |         | 338    |        |         |        | 1,743   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Gain on sale of investment securities, net          |            |                           | 2,068  |                      |        |                     | 70     |       |        |         | 2,076  |        |         |        | 2,311   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other noninterest income                            |            |                           | 412    |                      |        |                     | 135    |       |        |         | 1,582  |        |         |        | 1,008   |       
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|                                                    |                                                     |            | Total noninterest income  |        |                      | 7,145  |                     |        |       | 5,548  |         |        |        | 17,453  |        |         |        | 18,890  | 
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|Noninterest expense:                                |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Salaries and employee benefits                      |            |                           | 9,945  |                      |        |                     | 9,888  |       |        |         | 32,916 |        |         |        | 29,863  |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Occupancy of premises                               |            |                           | 1,738  |                      |        |                     | 1,787  |       |        |         | 4,904  |        |         |        | 5,102   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Furniture and equipment                             |            |                           | 791    |                      |        |                     | 1,220  |       |        |         | 2,656  |        |         |        | 3,287   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Computer processing                                 |            |                           | 570    |                      |        |                     | 571    |       |        |         | 1,724  |        |         |        | 1,694   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Legal fees, net                                     |            |                           | 1,167  |                      |        |                     | 1,634  |       |        |         | 3,013  |        |         |        | 4,003   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Consulting                                          |            |                           | 473    |                      |        |                     | 665    |       |        |         | 993    |        |         |        | 1,681   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Advertising and public relations                    |            |                           | 491    |                      |        |                     | 335    |       |        |         | 1,375  |        |         |        | 635     |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Goodwill amortization                               |            |                           |       |                      |        |                     | 580    |       |        |         |       |        |         |        | 1,742   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other intangible amortization                       |            |                           | 139    |                      |        |                     | 64     |       |        |         | 270    |        |         |        | 179     |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Litigation settlement charge                        |            |                           | (2,609 | )                    |        |                     |       |       |        |         | 61,900 |        |         |        |        |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other noninterest expense                           |            |                           | 5,323  |                      |        |                     | 3,438  |       |        |         | 12,381 |        |         |        | 10,151  |       
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|                                                    |                                                     |            | Total noninterest expense |        |                      | 18,028 |                     |        |       | 20,182 |         |        |        | 122,132 |        |         |        | 58,337  | 
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|Income (loss) before income taxes                   |                                                     |            | 12,643                    |        |                      |        | 5,708               |        |       |        | (35,754 | )      |        |         | 21,311 |        
|                                                   
|                                                   
|                                                   
|                                                   
|Income taxes                                        |                                                     |            | 3,754                     |        |                      |        | 2,077               |        |       |        | 9,576   |        |        |         | 7,609  |        
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|                                                    |                                                     |            | Net income (loss)         |        | $                    | 8,889  |                     |        | $     | 3,631  |         |        | $      | (45,330 | )      |         | $      | 13,702  | 
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|Preferred dividend requirements                     |                                                     |            | (861                      | )      |                      |        | (861                | )      |       |        | (2,582  | )      |        |         | (2,582 | )      
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|Net income (loss) applicable to common stockholders |                                                     | $          | 8,028                     |        |                      | $      | 2,770               |        |       | $      | (47,912 | )      |        | $       | 11,120 |        
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       
|Basic earnings (loss) per common share              |                                                     | $          | 1.18                      |        |                      | $      | 0.40                |        |       | $      | (7.01   | )      |        | $       | 1.62   |        
|                                                   
|                                                   
|                                                   
|                                                   
|Diluted earnings (loss) per common share            |                                                     |            | 1.17                      |        |                      |        | 0.40                |        |       |        | (7.01   | )      |        |         | 1.60   |        
|                                                    |                                                     |            |                           |        |                      |        |                     |        |       |        |         |        |        |         |        |         |       

See accompanying notes to consolidated financial statements

2



---



##### Table of Contents






TAYLOR CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (unaudited)
(in thousands, except per share data)

|                              |                                                         |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         |         |         |        |   | 
|----------------------------- | ------------------------------------------------------- | ------------------------------------------------------ | ----------------------------- | - | - | ------------- | -- | ------ | - | ------- | ------- | ------ | - | ---------- | ------ | ------------ | - | ------------- | ------- | -------- | ------- | ----------- | ------ | - | ----- | - | ------ | ------ | - | - | ------- | ------- | ------- | ------ | - | 
|                              |                                                         |                                                        |                               |   |   | Series A 9%   |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         |         |         |       
|                              |                                                         |                                                        |                               |   |   | Noncumulative |    |        |   |         |         |        |   |            |        | Unearned     |   |               |         |          |         | Accumulated |        |   |       |   |        |        |   |  
|                              |                                                         |                                                        |                               |   |   | Perpetual     |    |        |   |         |         |        |   |            |        | Compensation |   | Retained      |         | Other    |         |             |        |   |       |   |        |       
|                              |                                                         |                                                        |                               |   |   | Preferred     |    | Common |   |         |         |        |   | - Stock    |        | Earnings     |   | Comprehensive |         | Treasury |         |             |        |  
|                              |                                                         |                                                        |                               |   |   | Stock         |    | Stock  |   | Surplus |         | Grants |   | /(Deficit) |        | Income       |   | Stock         |         | Total   
|                              |                                                         |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |         
|Balance at December 31, 2001  |                                                         | $                                                      | 38,250                        |   |   | $             | 71 |        |   | $       | 102,253 |        |   | $          | (655   | )            |   | $             | 31,511  |          |         | $           | 4,826  |   |       | $ | (5,340 | )      |   | $ | 170,916 |        
|                             
|                             
|                             
|                             
|                              | Issuance of stock grants                                |                                                        |                               |  |   |               |    |       |   |         |         | 950    |   |            |        | (950         | ) |               |         |         |         |             |        |  |       |   |        |       |   |   |         |        |        
|                             
|                             
|                             
|                             
|                              | Forfeiture of stock grants                              |                                                        |                               |  |   |               |    |       |   |         |         | (113   | ) |            |        | 24           |   |               |         |         |         |             |        |  |       |   |        |       |   |   |         | (89     | )      
|                             
|                             
|                             
|                             
|                              | Amortization of stock grants                            |                                                        |                               |  |   |               |    |       |   |         |         |       |   |            |        | 323          |   |               |         |         |         |             |        |  |       |   |        |       |   |   |         | 323     |        
|                             
|                             
|                             
|                             
|                              | Exercise of stock options                               |                                                        |                               |  |   |               |    |       |   |         |         | 331    |   |            |        |             |   |               |         |         |         |             |        |  |       |   |        |       |   |   |         | 331     |        
|                             
|                             
|                             
|                             
|                              | Tax benefit on stock options exercised
and stock award  |                                                        |                               |  |   |               |    |       |   |         |         | 54     |   |            |        |             |   |               |         |         |         |             |        |  |       |   |        |       |   |   |         | 54      |        
|                             
|                             
|                             
|                             
|                              | Purchase of treasury stock                              |                                                        |                               |  |   |               |    |       |   |         |         |       |   |            |        |             |   |               |         |         |         |             |        |  |       |   |        | (1,744 | ) |   |         | (1,744  | )      
|                             
|                             
|                             
|                             
|                              | Comprehensive income:                                   |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         |         |        
|                             
|                             
|                             
|                             
|                              |                                                         | Net income (loss)                                      |                               |   |  |               |    |        |  |         |         |        |  |            |        |              |  |               |         |          | (45,330 | )           |        |   |      |   |        |        |  |   |         |         | (45,330 | )     
|                             
|                             
|                             
|                             
|                              |                                                         | Other comprehensive income (loss),
net of income taxes |                               |   |  |               |    |        |  |         |         |        |  |            |        |              |  |               |         |          |        |             |        |   | 6,599 |   |        |        |  |   |         |         | 6,599   |       
|                              |                                                         |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         |        
|                              | Total comprehensive income (loss)                       |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         | (38,731 | )      
|                              |                                                         |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         |        
|                              | Dividends:                                              |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         |         |        
|                             
|                             
|                             
|                             
|                              |                                                         |                                                        | Preferred  $1.6875 per share |   |   |              |    |        |   |        |         |        |   |           |        |              |   |              |         |          |         | (2,582      | )      |   |       |  |        |        |   |  |         |         |         | (2,582 | )
|                             
|                             
|                             
|                             
|                              |                                                         |                                                        | Common  $0.18 per share      |   |   |              |    |        |   |        |         |        |   |           |        |              |   |              |         |          |         | (1,229      | )      |   |       |  |        |        |   |  |         |         |         | (1,229 | )
|                              |                                                         |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         |        
|Balance at September 30, 2002 |                                                         | $                                                      | 38,250                        |   |   | $             | 71 |        |   | $       | 103,475 |        |   | $          | (1,258 | )            |   | $             | (17,630 | )        |         | $           | 11,425 |   |       | $ | (7,084 | )      |   | $ | 127,249 |        
|                              |                                                         |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         |        
|Balance at December 31, 2000  |                                                         | $                                                      | 38,250                        |   |   | $             | 70 |        |   | $       | 101,231 |        |   | $          | (1,084 | )            |   | $             | 19,136  |          |         | $           | 3,000  |   |       | $ | (3,292 | )      |   | $ | 157,311 |        
|                             
|                             
|                             
|                             
|                              | Amortization of preferred stock issuance costs          |                                                        |                               |  |   |               |    |       |   |         |         | 126    |   |            |        |             |   |               |         | (126     | )       |             |        |  |       |   |        |       |   |   |         |        |        
|                             
|                             
|                             
|                             
|                              | Forfeiture of stock grants                              |                                                        |                               |  |   |               |    |       |   |         |         | (19    | ) |            |        | 4            |   |               |         |         |         |             |        |  |       |   |        |       |   |   |         | (15     | )      
|                             
|                             
|                             
|                             
|                              | Amortization of stock grants                            |                                                        |                               |  |   |               |    |       |   |         |         |       |   |            |        | 398          |   |               |         |         |         |             |        |  |       |   |        |       |   |   |         | 398     |        
|                             
|                             
|                             
|                             
|                              | Exercise of stock options                               |                                                        |                               |  |   |               |    |       |   |         |         | 510    |   |            |        |             |   |               |         |         |         |             |        |  |       |   |        |       |   |   |         | 510     |        
|                             
|                             
|                             
|                             
|                              | Tax benefit on stock options exercised
and stock awards |                                                        |                               |  |   |               |    |       |   |         |         | 77     |   |            |        |             |   |               |         |         |         |             |        |  |       |   |        |       |   |   |         | 77      |        
|                             
|                             
|                             
|                             
|                              | Purchase of treasury stock                              |                                                        |                               |  |   |               |    |       |   |         |         |       |   |            |        |             |   |               |         |         |         |             |        |  |       |   |        | (1,464 | ) |   |         | (1,464  | )      
|                             
|                             
|                             
|                             
|                              | Comprehensive income:                                   |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         |         |        
|                             
|                             
|                             
|                             
|                              |                                                         | Net income                                             |                               |   |  |               |    |        |  |         |         |        |  |            |        |              |  |               |         |          | 13,702  |             |        |   |      |   |        |        |  |   |         |         | 13,702  |       
|                             
|                             
|                             
|                             
|                              |                                                         | Other comprehensive income, net
of income taxes        |                               |   |  |               |    |        |  |         |         |        |  |            |        |              |  |               |         |          |        |             |        |   | 6,358 |   |        |        |  |   |         |         | 6,358   |       
|                              |                                                         |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         |        
|                              | Total comprehensive income                              |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         | 20,060  |        
|                              |                                                         |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         |        
|                              | Dividends:                                              |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         |         |        
|                             
|                             
|                             
|                             
|                              |                                                         |                                                        | Preferred  $1.6875 per share |   |   |              |    |        |   |        |         |        |   |           |        |              |   |              |         |          |         | (2,582      | )      |   |       |  |        |        |   |  |         |         |         | (2,582 | )
|                             
|                             
|                             
|                             
|                              |                                                         |                                                        | Common  $0.18 per share      |   |   |              |    |        |   |        |         |        |   |           |        |              |   |              |         |          |         | (1,235      | )      |   |       |  |        |        |   |  |         |         |         | (1,235 | )
|                              |                                                         |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         |        
|Balance at September 30, 2001 |                                                         | $                                                      | 38,250                        |   |   | $             | 70 |        |   | $       | 101,925 |        |   | $          | (682   | )            |   | $             | 28,895  |          |         | $           | 9,358  |   |       | $ | (4,756 | )      |   | $ | 173,060 |        
|                              |                                                         |                                                        |                               |   |   |               |    |        |   |         |         |        |   |            |        |              |   |               |         |          |         |             |        |   |       |   |        |        |   |   |         |        

See accompanying notes to consolidated financial statements

3



---



##### Table of Contents






TAYLOR CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)

|                                               |                                       |                   |                                                                                   |                                                                                  |         |                     |          |      |        |  |          |  
|---------------------------------------------- | ------------------------------------- | ----------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------- | ------------------- | -------- | ---- | ------ |  | -------- | -
|                                               |                                       |                   |                                                                                   |                                                                                  |         | For the Nine Months
|                                               |                                       |                   |                                                                                   |                                                                                  |         | Ended September 30,
|                                               |                                       |                   |                                                                                   |                                                                                  |         |                    
|                                               |                                       |                   |                                                                                   |                                                                                  |         | 2002                |          | 2001
|                                               |                                       |                   |                                                                                   |                                                                                  |         |                     |          |     
|                                               | Cash flows from operating activities: |                   |                                                                                   |                                                                                  |         |                     |          |      |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                       | Net income (loss) |                                                                                   | $                                                                                | (45,330 | )                   |          | $    | 13,702 | 
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                                  |         |                     |          |      |        | 
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Accrued litigation settlement                                                    |         |                     | 61,900   |      |        |  |         |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Investment securities gains, net                                                 |         |                     | (2,076   | )    |        |  | (2,311   | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Amortization of premiums and discounts, net                                      |         |                     | 523      |      |        |  | (86      | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Deferred loan fee amortization                                                   |         |                     | (1,615   | )    |        |  | (1,440   | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Provision for loan losses                                                        |         |                     | 7,425    |      |        |  | 6,700    |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Loss (gain) on sales of loans originated for sale                                |         |                     | 21       |      |        |  | (1,008   | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Loans originated and held for sale                                               |         |                     |         |      |        |  | (95,963  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Proceeds from sales of loans originated for sale                                 |         |                     | 258      |      |        |  | 96,883   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Depreciation and amortization                                                    |         |                     | 2,669    |      |        |  | 3,258    |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Amortization of goodwill and intangible assets                                   |         |                     | 270      |      |        |  | 1,921    |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Deferred income taxes                                                            |         |                     | (662     | )    |        |  | (1,416   | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Loss (gain) on sales of other real estate                                        |         |                     | 3        |      |        |  | (7       | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Gain on the sale of trust business                                               |         |                     | (400     | )    |        |  |         |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Provision for other real estate                                                  |         |                     |         |      |        |  | 47       |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Other, net                                                                       |         |                     | 432      |      |        |  | 737      |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Changes in other assets and liabilities:                                         |         |                     |          |      |        |  |          |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Accrued interest receivable                                                      |         |                     | (1,240   | )    |        |  | 2,706    |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Other assets                                                                     |         |                     | 2,427    |      |        |  | (1,124   | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Accrued interest, taxes and other liabilities                                    |         |                     | 1,535    |      |        |  | (7,561   | )
|                                               |                                       |                   |                                                                                   |                                                                                  |         |                     |          |      |        | 
|                                               |                                       |                   |                                                                                   | Net cash provided by operating activities                                        |         |                     | 26,140   |      |        |  | 15,038   |  
|                                               |                                       |                   |                                                                                   |                                                                                  |         |                     |          |      |        | 
|                                               | Cash flows from investing activities: |                   |                                                                                   |                                                                                  |         |                     |          |      |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Purchases of available-for-sale securities                                       |         |                     | (140,308 | )    |        |  | (165,751 | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Proceeds from principal payments and maturities of available-for-sale securities |         |                     | 53,124   |      |        |  | 130,457  |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Proceeds from sales of available-for-sale securities                             |         |                     | 92,988   |      |        |  | 77,142   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Net increase in loans                                                            |         |                     | (107,115 | )    |        |  | (81,854  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Net additions to premises, leasehold improvements and equipment                  |         |                     | (1,600   | )    |        |  | (3,472   | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Acquisition of trust business                                                    |         |                     |         |      |        |  | (166     | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Proceeds from sales of other real estate                                         |         |                     | 459      |      |        |  | 202      |  
|                                               |                                       |                   |                                                                                   |                                                                                  |         |                     |          |      |        | 
|                                               |                                       |                   |                                                                                   | Net cash used in investing activities                                            |         |                     | (102,452 | )    |        |  | (43,442  | )
|                                               |                                       |                   |                                                                                   |                                                                                  |         |                     |          |      |        | 
|                                               | Cash flows from financing activities: |                   |                                                                                   |                                                                                  |         |                     |          |      |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Net increase in deposits                                                         |         |                     | 127,571  |      |        |  | 76,154   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Net decrease in short-term borrowings                                            |         |                     | (49,076  | )    |        |  | (58,915  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Repayments of notes payable and FHLB advances                                    |         |                     | (12,000  | )    |        |  | (26,500  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Proceeds from notes payable and FHLB advances                                    |         |                     | 28,200   |      |        |  | 77,250   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Proceeds from exercise of employee stock options                                 |         |                     | 331      |      |        |  | 510      |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Purchase of treasury stock                                                       |         |                     | (1,744   | )    |        |  | (1,464   | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                       |                   |                                                                                   | Dividends paid                                                                   |         |                     | (3,811   | )    |        |  | (3,817   | )
|                                               |                                       |                   |                                                                                   |                                                                                  |         |                     |          |      |        | 
|                                               |                                       |                   |                                                                                   | Net cash provided by financing activities                                        |         |                     | 89,471   |      |        |  | 63,218   |  
|                                               |                                       |                   |                                                                                   |                                                                                  |         |                     |          |      |        | 
|Net increase in cash and cash equivalents      |                                       |                   | 13,159                                                                            |                                                                                  |         |                     | 34,814   |     
|                                              
|                                              
|                                              
|                                              
|Cash and cash equivalents, beginning of period |                                       |                   | 88,248                                                                            |                                                                                  |         |                     | 67,272   |     
|                                               |                                       |                   |                                                                                   |                                                                                  |         |                     |          |      |        | 
|Cash and cash equivalents, end of period       |                                       | $                 | 101,407                                                                           |                                                                                  |         | $                   | 102,086  |     
|                                               |                                       |                   |                                                                                   |                                                                                  |         |                     |          |      |        | 

Consolidated Statements of Cash Flows continued on next page

See accompanying notes to consolidated financial statements

4



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##### Table of Contents



TAYLOR CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Continued)
(in thousands)

|                                                                        |                                                                               |              |  |                     |        |      |  |        |        | 
|----------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------------ |  | ------------------- | ------ | ---- |  | ------ | ------ | 
|                                                                        |                                                                               |              |  | For the Nine Months
|                                                                        |                                                                               |              |  | Ended September 30,
|                                                                        |                                                                               |              |  |                    
|                                                                        |                                                                               |              |  | 2002                |        | 2001
|                                                                        |                                                                               |              |  |                     |        |     
|Supplemental disclosure of cash flow information:                       |                                                                               |              |  |                     |        |      |  |       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Cash paid during the period for:                                              |              |  |                     |        |      |  |        |       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                                                               | Interest     |  | $                   | 33,588 |      |  | $      | 66,350 | 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                                                               | Income taxes |  |                     | 7,628  |      |  |        | 12,076 | 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Supplemental disclosures of noncash investing and financing activities: |                                                                               |              |  |                     |        |      |  |       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Unrealized holding gain on investment securities, net of income taxes         |              |  | 6,599               |        |      |  | 6,358  |       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Mortgage servicing rights originated                                          |              |  |                    |        |      |  | 66     |       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Loans transferred to other real estate                                        |              |  |                    |        |      |  | 769    |       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Tax benefit associated with exercise of common stock options and stock grants |              |  | 54                  |        |      |  | 77     |       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Investment securities transferred from held-to-maturity to available-for-sale |              |  |                    |        |      |  | 69,108 |       

See accompanying notes to consolidated financial statements

5



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##### Table of Contents






TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Basis of Presentation:

These financial statements contain unaudited information as of September 30,
2002 and for the three month and nine month periods ended September 30, 2002
and 2001. The unaudited interim financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly,
certain disclosures required by accounting principles generally accepted in the
United States of America are not included herein. In Managements opinion,
these unaudited financial statements include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
information when read in conjunction with our audited financial statements and
the related notes. The income statement data for the three month and nine
month periods ended September 30, 2002 are not necessarily indicative of the
results we may achieve for the full year.

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

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

2. Litigation and Settlement

Overview

In a series of split-off transactions completed on February 12, 1997, the
Taylor family acquired a controlling interest in Taylor Capital Group, Inc.
(the Company) from Reliance (formerly, Cole Taylor Financial Group, Inc.).
On February 9, 1998, Reliance filed for bankruptcy. Thereafter, numerous
lawsuits were filed that named as defendants the Company, Cole Taylor Bank (the
Bank), certain directors and officers of the Company and members of the
Taylor family (the Company-related defendants). From 1998 through October
21, 2002, the Company incurred significant expense and devoted a substantial
amount of time in defense of these suits.

The lawsuits relating to the split-off transactions and Reliance included:



| |  |  | Class actions brought by Reliance stockholders in
District Courts in Texas (consolidated under Sabbia) and Illinois
(entitled Graham) in early 1998 (the Federal court class
actions).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Consolidated class action brought by Reliance
stockholders in Delaware Chancery Court in September 1998 (the
Delaware suit).                                                          
|
| |  |  | A suit brought by Irwin Cole and members of his family in
Delaware Chancery Court in August 1998 (the Cole suit).                                                                     
|
| |  |  | Adversary proceedings brought by the Reliance bankruptcy
Estate Representative in the Delaware District Court in September
1998 (the Estate Representative proceedings).              

6



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##### Table of Contents



TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)



| |  |  | A suit brought by Reliance stockholders in the Circuit
Court of Cook County, Illinois in October 1999 (the Cook County,
Illinois suit).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------

In addition, in connection with the split-off transactions, the Taylor family
agreed to indemnify Reliance for 25% of any losses incurred by Reliance as a
result of stock option terminations or litigation related to the split-off
transactions. In accordance with the terms of an agreement dated February 6,
1997, the Company agreed to indemnify the Taylor family for losses that the
Taylor family may incur as a result of their indemnification agreement with
Reliance.

Agreements to Settle Litigation

The Company entered into certain settlement agreements with the plaintiffs and
other parties in these cases to halt the substantial expense, inconvenience,
and distraction of continued litigation and to eliminate any exposure and
uncertainty that may have existed as a result of such litigation.


On May 24, 2002, the Company-related defendants entered into an amended and
restated settlement agreement with the Reliance bankruptcy Estate
Representative (the Estate Representative Agreement). The amended agreement
provided that, subject to the Companys completion of a public offering of
trust preferred and common securities and the dismissal of the lawsuits, the
Company would pay an amount equal to (1) $65 million, plus (2) a contingent
amount based on the offering price of the common shares, minus (3) a minimum of
$3.1 million as a partial reimbursement to the Company of offering expenses.

On May 24, 2002, an Effectiveness Agreement was entered into by the Company,
the Taylor Defendants, the Estate Representative, the plaintiff class, and the
Coles that revised the conditions necessary to declare the Class Settlement
Agreement effective. Under the Class Settlement Agreement, the plaintiffs
agreed to dismiss with prejudice the Federal court class actions, the Delaware
suit, and the Cole suit against the Company-related defendants in exchange for
a portion of the Estate Representative settlement proceeds described above.

Our financial statements in 2002 reflect a loss contingency for $61.9 million
based upon the actual amount paid under the settlement agreements.

Subsequent Events

On October 21, 2002, the Company completed a concurrent offering of common
stock and trust preferred securities. The Company issued 2,250,000 shares of
common stock at an initial public offering price of $16.50 per share.
Concurrently, the Company raised $45.0 million of gross proceeds through the
issuance of $45.0 million aggregate principal amount of 9.75% cumulative,
mandatory redeemable preferred trust preferred securities by TAYC Capital Trust
I, a Delaware statutory trust formed by the Company to issue the trust
preferred securities (the Trust). The Trust is a wholly owned subsidiary of
the Company. The trust preferred securities have a liquidation amount of
$25.00 per trust preferred security. Proceeds from the sale of the trust
preferred securities were invested by the Trust in the 9.75% junior
subordinated debentures due 2032 of Taylor Capital Group, Inc. The sole assets
of the Trust are these debentures. The trust preferred securities are subject
to mandatory redemption, in whole or in part, upon repayment of the debentures
at the stated maturity in the year 2032 or their earlier redemption, in each
case at a redemption price equal to 100% of the aggregate liquidation amount of
the trust preferred


7



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##### Table of Contents



TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

securities plus any accumulated and unpaid distributions thereon to the date of
redemption. Prior redemption is permitted under certain circumstances. Our
obligations with respect to the trust preferred securities and the debentures,
in the aggregate, constitute a full, irrevocable and unconditional guarantee on
a subordinated basis by us of the obligations of the Trust under the trust
preferred securities. In the future, trust preferred securities will appear on
the Companys balance sheet as Guaranteed preferred beneficial interest in the
9.75% junior subordinated debentures of Taylor Capital Group, Inc., or other
similar caption.

Because (i) we own all of the Trusts voting securities, (ii) the Trust has no
independent operations and (iii) we guarantee the payments on the trust
preferred securities to the extent described above, under the current
accounting rules of the SEC, we are not required to include separate financial
statements of the Trust in this Form 10-Q.

From the net proceeds of these offerings the Company paid $61.9 million to the
Estate Representative in full satisfaction of the Estate Representative
Agreement and Class Settlement Agreement.

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

The following unaudited pro-forma table shows the impact on our balance sheet
and capital ratios as if the stock offerings had occurred on September 30,
2002. The stock offerings include the issuance of the 2,250,000 shares of
common stock on October 21st, the additional 337,500 shares of common stock
issued on November 6th and the $45.0 million trust preferred offering completed
on October 21, 2002.

8



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##### Table of Contents



TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

|                                                                                                                             |              |                                        |                            |                                            |         |                |           |             |        |                |           |           |         |         |           | 
|---------------------------------------------------------------------------------------------------------------------------- | ------------ | -------------------------------------- | -------------------------- | ------------------------------------------ | ------- | -------------- | --------- | ----------- | ------ | -------------- | --------- | --------- | ------- | ------- | --------- | 
|                                                                                                                             |              |                                        |                            |                                            |         | Sept. 30, 2002 |           | Pro-forma   |        | Pro-forma     
|                                                                                                                             |              |                                        |                            |                                            |         | As Stated      |           | Adjustments |        | Sept. 30, 2002
|                                                                                                                             |              |                                        |                            |                                            |         |                |           |             |        |               
|                                                                                                                             |              |                                        |                            |                                            |         | (in thousands)
|ASSETS                                                                                                                       |              |                                        |                            |                                            |         |                |           |             |        |                |           |          
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             | Total Assets |                                        | $                          | 2,505,133                                  |         |                | $         | 21,783      |        |                | $         | 2,526,916 |        
|                                                                                                                             |              |                                        |                            |                                            |         |                |           |             |        |                |           |           |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                         |              |                                        |                            |                                            |         |                |           |             |        |                |           |          
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Total Liabilities                                                                                                            |              | $                                      | 2,377,884                  |                                            |         | $              | (61,900   | )           |        | $              | 2,315,984 |          
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Guaranteed preferred beneficial interest in the 9.75% junior
subordinated debentures due 2032 of Taylor Capital, Group, Inc. |              |                                        |                           |                                            |         |                | 45,000    |             |        |                | 45,000    |          
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Stockholders equity:                                                                                                        |              |                                        |                            |                                            |         |                |           |             |        |                |           |          
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             |              | Preferred stock                        |                            |                                            | 38,250  |                |           |             |       |                |           |           | 38,250  |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             |              | Common stock                           |                            |                                            | 71      |                |           |             | 26     |                |           |           | 97      |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             |              | Surplus                                |                            |                                            | 103,475 |                |           |             | 38,657 |                |           |           | 142,132 |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             |              | Unearned compensation  stock grants   |                            |                                            | (1,258  | )              |           |             |       |                |           |           | (1,258  | )      
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             |              | Retained deficit                       |                            |                                            | (17,630 | )              |           |             |       |                |           |           | (17,630 | )      
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             |              | Accumulated other comprehensive income |                            |                                            | 11,425  |                |           |             |       |                |           |           | 11,425  |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             |              | Treasury stock                         |                            |                                            | (7,084  | )              |           |             |       |                |           |           | (7,084  | )      
|                                                                                                                             |              |                                        |                            |                                            |         |                |           |             |        |                |           |           |        
|                                                                                                                             |              |                                        | Total stockholders equity |                                            |         | 127,249        |           |             |        | 38,683         |           |           |         | 165,932 |          
|                                                                                                                             |              |                                        |                            |                                            |         |                |           |             |        |                |           |           |        
|                                                                                                                             |              |                                        |                            | Total liabilities and stockholders equity |         | $              | 2,505,133 |             |        | $              | 21,783    |           |         | $       | 2,526,916 | 
|                                                                                                                             |              |                                        |                            |                                            |         |                |           |             |        |                |           |           |        
|Total capital to risk-weighted assets                                                                                        |              |                                        | 5.88                       | %                                          |         |                |           |             |        |                | 10.22     | %        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Tier 1 capital to risk-weighted assets                                                                                       |              |                                        | 4.63                       | %                                          |         |                |           |             |        |                | 8.89      | %        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Leverage to average assets                                                                                                   |              |                                        | 3.71                       | %                                          |         |                |           |             |        |                | 7.14      | %        

The trust preferred securities are included in Tier I capital, up to certain
limits, under regulatory guidelines.

In exchange for a reduction in our existing senior debt from a portion of the
proceeds of the common and trust preferred offerings, our lender has agreed to
provide, in partial replacement of such senior debt, a $10.0 million
subordinated term loan. Subordinated notes payable with maturities greater
than five years are included in total capital under regulatory guidelines.
Giving effect to the subordination of the term debt as of September 30, 2002,
the Companys pro-forma total capital to risk-weighted assets would be 10.73%.
The Company expects to complete the subordinated debt transaction prior to the
end of 2002.

9



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##### Table of Contents



TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

3. Investment Securities:

The amortized cost and estimated fair values of investment securities at
September 30, 2002 and December 31, 2001 were as follows:

|                    |                                     |                          |       |         |                    |         |            |       |                |        |            |     |     |     |   |         |         |         | 
|------------------- | ----------------------------------- | ------------------------ | ----- | ------- | ------------------ | ------- | ---------- | ----- | -------------- | ------ | ---------- | --- | --- | --- | - | ------- | ------- | ------- | 
|                    |                                     |                          |       |         | September 30, 2002
|                    |                                     |                          |       |         |                   
|                    |                                     |                          |       |         |                    |         |            |       | Gross          |        | Gross      |     |     |     |  
|                    |                                     |                          |       |         | Amortized          |         | Unrealized |       | Unrealized     |        | Estimated 
|                    |                                     |                          |       |         | Cost               |         | Gains      |       | Losses         |        | Fair Value
|                    |                                     |                          |       |         |                    |         |            |       |                |        |           
|                    |                                     |                          |       |         |                    |         |            |       | (in thousands) |        |            |     |    
|Available-for-sale: |                                     |                          |       |         |                    |         |            |       |                |        |            |     |     |     |   |        
|                   
|                   
|                   
|                   
|                    | U.S. government agency securities   |                          | $     | 152,264 |                    |         | $          | 4,425 |                |        | $          |    |     |     | $ | 156,689 |        
|                   
|                   
|                   
|                   
|                    | Collateralized mortgage obligations |                          |       | 213,263 |                    |         |            | 7,108 |                |        |            |    |     |     |   | 220,371 |        
|                   
|                   
|                   
|                   
|                    | Mortgage-backed securities          |                          |       | 60,691  |                    |         |            | 3,312 |                |        |            |    |     |     |   | 64,003  |        
|                   
|                   
|                   
|                   
|                    | State and municipal obligations     |                          |       | 55,464  |                    |         |            | 2,805 |                |        |            | (73 | )   |     |   | 58,196  |        
|                    |                                     |                          |       |         |                    |         |            |       |                |        |            |     |     |     |   |         |        
|                    |                                     | Total available-for-sale |       |         | 481,682            |         |            |       | 17,650         |        |            |     | (73 | )   |   |         | 499,259 |        
|                    |                                     |                          |       |         |                    |         |            |       |                |        |            |     |     |     |   |         |        
|Held-to-maturity:   |                                     |                          |       |         |                    |         |            |       |                |        |            |     |     |     |   |        
|                   
|                   
|                   
|                   
|                    | Other debt securities               |                          |       | 850     |                    |         |            | 64    |                |        |            |    |     |     |   | 914     |        
|                    |                                     |                          |       |         |                    |         |            |       |                |        |            |     |     |     |   |         |        
|                    |                                     | Total held-to-maturity   |       |         | 850                |         |            |       | 64             |        |            |     |    |     |   |         | 914     |        
|                    |                                     |                          |       |         |                    |         |            |       |                |        |            |     |     |     |   |         |        
|                    |                                     |                          | Total |         | $                  | 482,532 |            |       | $              | 17,714 |            |     | $   | (73 | ) |         | $       | 500,173 | 
|                    |                                     |                          |       |         |                    |         |            |       |                |        |            |     |     |     |   |         |        

|                    |                                     |                          |       |         |                   |         |            |       |                |       |            |        |        |        |   |         |         |         | 
|------------------- | ----------------------------------- | ------------------------ | ----- | ------- | ----------------- | ------- | ---------- | ----- | -------------- | ----- | ---------- | ------ | ------ | ------ | - | ------- | ------- | ------- | 
|                    |                                     |                          |       |         | December 31, 2001
|                    |                                     |                          |       |         |                  
|                    |                                     |                          |       |         |                   |         |            |       | Gross          |       | Gross      |        |        |        |  
|                    |                                     |                          |       |         | Amortized         |         | Unrealized |       | Unrealized     |       | Estimated 
|                    |                                     |                          |       |         | Cost              |         | Gains      |       | Losses         |       | Fair Value
|                    |                                     |                          |       |         |                   |         |            |       |                |       |           
|                    |                                     |                          |       |         |                   |         |            |       | (in thousands) |       |            |        |       
|Available-for-sale: |                                     |                          |       |         |                   |         |            |       |                |       |            |        |        |        |   |        
|                   
|                   
|                   
|                   
|                    | U.S. Treasury securities            |                          | $     | 10,013  |                   |         | $          | 65    |                |       | $          |       |        |        | $ | 10,078  |        
|                   
|                   
|                   
|                   
|                    | U.S. government agency securities   |                          |       | 140,710 |                   |         |            | 3,631 |                |       |            | (330   | )      |        |   | 144,011 |        
|                   
|                   
|                   
|                   
|                    | Collateralized mortgage obligations |                          |       | 192,073 |                   |         |            | 3,351 |                |       |            | (1,439 | )      |        |   | 193,985 |        
|                   
|                   
|                   
|                   
|                    | Mortgage-backed securities          |                          |       | 80,820  |                   |         |            | 1,827 |                |       |            |       |        |        |   | 82,647  |        
|                   
|                   
|                   
|                   
|                    | State and municipal obligations     |                          |       | 62,317  |                   |         |            | 954   |                |       |            | (634   | )      |        |   | 62,637  |        
|                    |                                     |                          |       |         |                   |         |            |       |                |       |            |        |        |        |   |         |        
|                    |                                     | Total available-for-sale |       |         | 485,933           |         |            |       | 9,828          |       |            |        | (2,403 | )      |   |         | 493,358 |        
|                    |                                     |                          |       |         |                   |         |            |       |                |       |            |        |        |        |   |         |        
|Held-to-maturity:   |                                     |                          |       |         |                   |         |            |       |                |       |            |        |        |        |   |        
|                   
|                   
|                   
|                   
|                    | Other debt securities               |                          |       | 850     |                   |         |            | 50    |                |       |            |       |        |        |   | 900     |        
|                    |                                     |                          |       |         |                   |         |            |       |                |       |            |        |        |        |   |         |        
|                    |                                     | Total held-to-maturity   |       |         | 850               |         |            |       | 50             |       |            |        |       |        |   |         | 900     |        
|                    |                                     |                          |       |         |                   |         |            |       |                |       |            |        |        |        |   |         |        
|                    |                                     |                          | Total |         | $                 | 486,783 |            |       | $              | 9,878 |            |        | $      | (2,403 | ) |         | $       | 494,258 | 
|                    |                                     |                          |       |         |                   |         |            |       |                |       |            |        |        |        |   |         |        

Gross gains totaling $2.1 million and $2.3 million were realized on the sale of
available for sale investment securities during the nine month periods ended
September 30, 2002 and 2001, respectively. There were no losses realized on
the sale of available for sale investment securities during the nine month
periods ended September 30, 2002 and 2001.

Investment securities do not include the Banks investment in Federal Home Loan
Bank (FHLB), and Federal Reserve Bank stock of $10.9 million and $10.6
million at September 30, 2002 and December 31, 2001, respectively. These
investments are required for membership and are carried at cost.

10



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TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

4. Loans:

Loans classified by type at September 30, 2002 and December 31, 2001 were as
follows:

|                                      |             |            |         |                |           |          |         |           |           | 
|------------------------------------- | ----------- | ---------- | ------- | -------------- | --------- | -------- | ------- | --------- | --------- | 
|                                      |             |            |         | Sept. 30,      |           | Dec. 31,
|                                      |             |            |         | 2002           |           | 2001    
|                                      |             |            |         |                |           |         
|                                      |             |            |         | (in thousands)
|Commercial and industrial             |             | $          | 575,043 |                |           | $        | 521,592 |          
|                                     
|                                     
|                                     
|                                     
|Commercial real estate                |             |            | 458,501 |                |           |          | 354,214 |          
|                                     
|                                     
|                                     
|                                     
|Real estate-construction              |             |            | 306,499 |                |           |          | 380,674 |          
|                                     
|                                     
|                                     
|                                     
|Residential real estate mortgages     |             |            | 129,888 |                |           |          | 160,699 |          
|                                     
|                                     
|                                     
|                                     
|Home equity loans and lines of credit |             |            | 337,685 |                |           |          | 273,133 |          
|                                     
|                                     
|                                     
|                                     
|Consumer                              |             |            | 37,764  |                |           |          | 47,572  |          
|                                     
|                                     
|                                     
|                                     
|Other loans                           |             |            | 1,065   |                |           |          | 3,461   |          
|                                      |             |            |         |                |           |          |         |          
|                                      | Gross loans |            |         | 1,846,445      |           |          |         | 1,741,345 |          
|                                     
|                                     
|                                     
|                                     
|Less: Unearned discount               |             |            | (595    | )              |           |          | (855    | )        
|                                      |             |            |         |                |           |          |         |          
|                                      | Total loans |            |         | 1,845,850      |           |          |         | 1,740,490 |          
|                                     
|                                     
|                                     
|                                     
|Less: Allowance for loan losses       |             |            | (34,305 | )              |           |          | (31,118 | )        
|                                      |             |            |         |                |           |          |         |          
|                                      |             | Loans, net |         | $              | 1,811,545 |          |         | $         | 1,709,372 | 
|                                      |             |            |         |                |           |          |         |          

Nonaccrual and impaired loans at
September 30, 2002 were $11.4 million and
$15.3 million, respectively.

5. Interest-Bearing Deposits:

Interest-bearing deposits at September 30, 2002 and December 31, 2001 were
as follows:

|                                 |       |   |                |           |          |   |         |           | 
|-------------------------------- | ----- | - | -------------- | --------- | -------- | - | ------- | --------- | 
|                                 |       |   | Sept. 30       |           | Dec. 31,
|                                 |       |   | 2002           |           | 2001    
|                                 |       |   |                |           |         
|                                 |       |   | (in thousands)
|NOW accounts                     |       | $ | 136,135        |           |          | $ | 128,515 |          
|                                
|                                
|                                
|                                
|Savings accounts                 |       |   | 89,248         |           |          |   | 88,181  |          
|                                
|                                
|                                
|                                
|Money market deposits            |       |   | 477,809        |           |          |   | 568,120 |          
|                                
|                                
|                                
|                                
|Certificates of deposit          |       |   | 551,870        |           |          |   | 517,991 |          
|                                
|                                
|                                
|                                
|Public time deposits             |       |   | 58,371         |           |          |   | 72,878  |          
|                                
|                                
|                                
|                                
|Brokered certificates of deposit |       |   | 222,897        |           |          |   | 111,816 |          
|                                 |       |   |                |           |          |   |         |          
|                                 | Total |   | $              | 1,536,330 |          |   | $       | 1,487,501 | 
|                                 |       |   |                |           |          |   |         |          

11



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TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

6. Notes Payable and FHLB Advances:

Notes payable and FHLB advances consisted of the following at September 30,
2002 and December 31, 2001:

|                                                                                                                                                                                                                                                                |                                       |   |                |         |          |   |        |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | - | -------------- | ------- | -------- | - | ------ | ------- | 
|                                                                                                                                                                                                                                                                |                                       |   | Sept. 30,      |         | Dec. 31,
|                                                                                                                                                                                                                                                                |                                       |   | 2002           |         | 2001    
|                                                                                                                                                                                                                                                                |                                       |   |                |         |         
|                                                                                                                                                                                                                                                                |                                       |   | (in thousands)
|Taylor Capital Group, Inc.:                                                                                                                                                                                                                                     |                                       |   |                |         |          |   |        |        
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|Term loan bearing interest at prime rate or LIBOR plus 1.15%, with a
minimum rate of 3.50%, and a balloon payment of $23 million due on April
30, 2003; interest rates at September 30, 2002 and December 31, 2001
were 3.50% and 3.54%, respectively           |                                       | $ | 23,000         |         |          | $ | 23,000 |        
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                |                                       |   |                |         |          |   |        |        
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|$12 million revolving credit facility bearing interest at prime rate or
LIBOR plus 1.15%, with a minimum rate of 3.50%, maturing April 30, 2003;
weighted average interest rates at September 30, 2002 and December 31,
2001 were 3.50% and 3.05%, respectively |                                       |   | 4,200          |         |          |   | 3,000  |        
|                                                                                                                                                                                                                                                                |                                       |   |                |         |          |   |        |        
|                                                                                                                                                                                                                                                                | Total notes payable                   |   |                | 27,200  |          |   |        | 26,000  | 
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|Cole Taylor Bank:                                                                                                                                                                                                                                               |                                       |   |                |         |          |   |        |        
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|FHLB advance  4.30%, due January 8, 2011, callable after January 8, 2002                                                                                                                                                                                       |                                       |   | 25,000         |         |          |   | 25,000 |        
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|FHLB advance  4.55%, due January 8, 2011, callable after January 8, 2003                                                                                                                                                                                       |                                       |   | 25,000         |         |          |   | 25,000 |        
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|FHLB advance  4.83%, due February 1, 2011, callable after January 8,
2004                                                                                                                                                                                      |                                       |   | 25,000         |         |          |   | 25,000 |        
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|FHLB advance  3.94%, due November 23, 2004                                                                                                                                                                                                                     |                                       |   | 10,000         |         |          |   | 10,000 |        
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                               
|FHLB advance  2.66%, due January 29, 2003                                                                                                                                                                                                                      |                                       |   | 15,000         |         |          |   |       |        
|                                                                                                                                                                                                                                                                |                                       |   |                |         |          |   |        |        
|                                                                                                                                                                                                                                                                | Total FHLB advances                   |   |                | 100,000 |          |   |        | 85,000  | 
|                                                                                                                                                                                                                                                                |                                       |   |                |         |          |   |        |        
|                                                                                                                                                                                                                                                                | Total notes payable and FHLB advances |   | $              | 127,200 |          |   | $      | 111,000 | 
|                                                                                                                                                                                                                                                                |                                       |   |                |         |          |   |        |        

As a result of the litigation settlement charge recorded in the second quarter
of 2002, the Company was not in compliance with a financial covenant in the
loan agreement related to holding company leverage. The lender waived
compliance with the holding company leverage covenant as of June 30 and
September 30, 2002 and suspended compliance with it from June 30, 2002 through
completion of the Companys initial public offering. Absent this waiver, the
Companys ability to declare and pay dividends would have been restricted.
After giving effect to the concurrent offerings of the common stock and trust
preferred securities completed in October 2002, the Company is in compliance
with this financial covenant.

On July 1, 2002, the Company received a commitment from the lender to provide a
$10.0 million subordinated term loan upon completion of the concurrent common
stock and trust preferred securities offerings and repayment of the existing
term debt. Prior to the end of 2002, we expect to reduce our term notes
payable to $500,000 and draw on our subordinated debt commitment in the amount
of $10.0 million. The subordinated debt will require interest-only payments
until 2009, with a balloon payment at maturity.

12



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TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

7. Comprehensive Income:

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

|                                  |                                                                    |   |                      |        |                     |   |                |       |      |   |         |        |   |   |        |        |  
|--------------------------------- | ------------------------------------------------------------------ | - | -------------------- | ------ | ------------------- | - | -------------- | ----- | ---- | - | ------- | ------ | - | - | ------ | ------ | -
|                                  |                                                                    |   | For the Three Months |        | For the Nine Months
|                                  |                                                                    |   | Ended September 30,  |        | Ended September 30,
|                                  |                                                                    |   |                      |        |                    
|                                  |                                                                    |   | 2002                 |        | 2001                |   | 2002           |       | 2001
|                                  |                                                                    |   |                      |        |                     |   |                |       |     
|                                  |                                                                    |   |                      |        |                     |   | (in thousands) |       |      |   |        
|Net income (loss), as reported    |                                                                    | $ | 8,889                |        |                     | $ | 3,631          |       |      | $ | (45,330 | )      |   | $ | 13,702 |       
|                                 
|                                 
|                                 
|                                 
|Other comprehensive income:       |                                                                    |   |                      |        |                     |   |                |       |      |   |         |        |   |   |        |       
|                                 
|                                 
|                                 
|                                 
|                                  | Change in unrealized gains on
available-for-sale securities        |   |                      | 5,097  |                     |   |                | 5,372 |      |   |         | 12,228 |   |   |        | 12,093 |  
|                                 
|                                 
|                                 
|                                 
|                                  | Less: reclassification adjustment
for gains included in net income |   |                      | (2,068 | )                   |   |                | (70   | )    |   |         | (2,076 | ) |   |        | (2,311 | )
|                                  |                                                                    |   |                      |        |                     |   |                |       |      |   |         |        |   |   |        |       
|                                  |                                                                    |   | 3,029                |        |                     |   | 5,302          |       |      |   | 10,152  |        |   |   | 9,782  |       
|                                 
|                                 
|                                 
|                                 
|                                  | Income tax expense related
to other comprehensive income           |   |                      | 1,060  |                     |   |                | 1,856 |      |   |         | 3,553  |   |   |        | 3,424  |  
|                                  |                                                                    |   |                      |        |                     |   |                |       |      |   |         |        |   |   |        |       
|                                  | Other comprehensive income, net
of tax                             |   |                      | 1,969  |                     |   |                | 3,446 |      |   |         | 6,599  |   |   |        | 6,358  |  
|                                  |                                                                    |   |                      |        |                     |   |                |       |      |   |         |        |   |   |        |       
|Total comprehensive income (loss) |                                                                    | $ | 10,858               |        |                     | $ | 7,077          |       |      | $ | (38,731 | )      |   | $ | 20,060 |       
|                                  |                                                                    |   |                      |        |                     |   |                |       |      |   |         |        |   |   |        |       

8. Earnings per Share

The following table sets forth the computation of basic and diluted earnings
per common share. Stock options are the only potential common shares for
diluted earnings per share. During the periods presented, our common stock was
not publicly traded. Therefore, the estimated market value of our common
shares was based upon semiannual, independent third party appraisals prepared
in connection with the employee benefit plans. Stock options to purchase
504,454 and 383,483 common shares during the three months ended September 30,
2002 and 2001, respectively, and 153,752 common shares during the nine months
ended September 30, 2001 were outstanding but were not included in the
computation of diluted earnings per common share because the exercise prices of
the options were greater than or equal to the average common share price and,
therefore, the effect would have been antidilutive. Because of the net loss
during the nine-month period ended September 30, 2002, there is no dilutive
effect of stock options for diluted earnings per share.

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TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

|                                                   |  |                                                    |           |                     |  |      |           |      |  |   |           |   |  |   |           |  
|-------------------------------------------------- |  | -------------------------------------------------- | --------- | ------------------- |  | ---- | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                   |  | For the Three Months                               |           | For the Nine Months
|                                                   |  | Ended September 30,                                |           | Ended September 30,
|                                                   |  |                                                    |           |                    
|                                                   |  | 2002                                               |           | 2001                |  | 2002 |           | 2001
|                                                   |  |                                                    |           |                     |  |      |           |     
|                                                   |  | (in thousands, except share and per share amounts)
|Net income (loss)                                  |  | $                                                  | 8,889     |                     |  | $    | 3,631     |      |  | $ | (45,330   | ) |  | $ | 13,702    |  
|                                                  
|                                                  
|                                                  
|                                                  
|Less preferred dividend requirements               |  |                                                    | (861      | )                   |  |      | (861      | )    |  |   | (2,582    | ) |  |   | (2,582    | )
|                                                   |  |                                                    |           |                     |  |      |           |      |  |   |           |   |  |   |           |  
|Net income (loss) available to common stockholders |  | $                                                  | 8,028     |                     |  | $    | 2,770     |      |  | $ | (47,912   | ) |  | $ | 11,120    |  
|                                                   |  |                                                    |           |                     |  |      |           |      |  |   |           |   |  |   |           |  
|Weighted average common shares outstanding         |  |                                                    | 6,815,267 |                     |  |      | 6,847,500 |      |  |   | 6,830,825 |   |  |   | 6,869,981 |  
|                                                  
|                                                  
|                                                  
|                                                  
|Dilutive effect of stock options                   |  |                                                    | 28,747    |                     |  |      | 19,052    |      |  |   |          |   |  |   | 60,067    |  
|                                                   |  |                                                    |           |                     |  |      |           |      |  |   |           |   |  |   |           |  
|Diluted weighted average common shares outstanding |  |                                                    | 6,844,014 |                     |  |      | 6,866,552 |      |  |   | 6,830,825 |   |  |   | 6,930,048 |  
|                                                   |  |                                                    |           |                     |  |      |           |      |  |   |           |   |  |   |           |  
|Basic earnings (loss) per common share             |  | $                                                  | 1.18      |                     |  | $    | 0.40      |      |  | $ | (7.01     | ) |  | $ | 1.62      |  
|                                                   |  |                                                    |           |                     |  |      |           |      |  |   |           |   |  |   |           |  
|Diluted earnings (loss) per common share           |  | $                                                  | 1.17      |                     |  | $    | 0.40      |      |  | $ | (7.01     | ) |  | $ | 1.60      |  
|                                                   |  |                                                    |           |                     |  |      |           |      |  |   |           |   |  |   |           |  

9. Goodwill and Intangible Assets

The Company adopted Statement of Financial Accounting Standard, or SFAS, No.
142 Goodwill and Other Intangible Assets on January 1, 2002. See the section
captioned Managements Discussion and Analysis of Financial Condition and
Results of Operation  New Accounting Pronouncements for additional details.
As of September 30, 2002, we had approximately $23.4 million of goodwill,
created from our 1997 acquisition of the Bank, which is no longer subject to
amortization beginning on January 1, 2002. Amortization expense related to
this goodwill totaled $580,000 during the third quarter of 2001 and $1.7
million during the first nine months of 2001. We tested the goodwill for
impairment as of January 1, 2002, and determined that no impairment charge was
necessary. We will test the goodwill balance for impairment annually. If at
any time impairment exists, pursuant to SFAS No. 142, we will record an
impairment loss. No additions, disposals, or impairment charges were recorded
to goodwill during the first nine months of 2002.

The following table shows the impact of goodwill amortization expense on net
income (loss) and basic and diluted earnings (loss) per common share for the
three month and nine month periods ending September 30, 2002 and 2001.

14



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TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

|                                                            |                                                   |   |                                                    |      |                     |   |       |      |      |   |         |       |   |   |        |      | 
|----------------------------------------------------------- | ------------------------------------------------- | - | -------------------------------------------------- | ---- | ------------------- | - | ----- | ---- | ---- | - | ------- | ----- | - | - | ------ | ---- | 
|                                                            |                                                   |   | For The Three Months                               |      | For The Nine Months
|                                                            |                                                   |   | Ended September 30,                                |      | Ended September 30,
|                                                            |                                                   |   |                                                    |      |                    
|                                                            |                                                   |   | 2002                                               |      | 2001                |   | 2002  |      | 2001
|                                                            |                                                   |   |                                                    |      |                     |   |       |      |     
|                                                            |                                                   |   | (in thousands, except share and per share amounts)
|Reported net income (loss)                                  |                                                   | $ | 8,889                                              |      |                     | $ | 3,631 |      |      | $ | (45,330 | )     |   | $ | 13,702 |     
|                                                           
|                                                           
|                                                           
|                                                           
|Add back: Goodwill amortization                             |                                                   |   |                                                   |      |                     |   | 580   |      |      |   |        |       |   |   | 1,742  |     
|                                                            |                                                   |   |                                                    |      |                     |   |       |      |      |   |         |       |   |   |        |     
|Adjusted net income (loss)                                  |                                                   |   | 8,889                                              |      |                     |   | 4,211 |      |      |   | (45,330 | )     |   |   | 15,444 |     
|                                                           
|                                                           
|                                                           
|                                                           
|Less preferred dividend requirements                        |                                                   |   | (861                                               | )    |                     |   | (861  | )    |      |   | (2,582  | )     |   |   | (2,582 | )   
|                                                            |                                                   |   |                                                    |      |                     |   |       |      |      |   |         |       |   |   |        |     
|Adjusted net income (loss) available to common
stockholders |                                                   | $ | 8,028                                              |      |                     | $ | 3,350 |      |      | $ | (47,912 | )     |   | $ | 12,862 |     
|                                                            |                                                   |   |                                                    |      |                     |   |       |      |      |   |         |       |   |   |        |     
|Basic earnings (loss) per common share:                     |                                                   |   |                                                    |      |                     |   |       |      |      |   |         |       |   |   |        |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Reported basic earnings (loss) per share          |   | $                                                  | 1.18 |                     |   | $     | 0.40 |      |   | $       | (7.01 | ) |   | $      | 1.62 | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Effect of goodwill amortization                   |   |                                                    |     |                     |   |       | 0.09 |      |   |         |      |   |   |        | 0.25 | 
|                                                            |                                                   |   |                                                    |      |                     |   |       |      |      |   |         |       |   |   |        |     
|                                                            | Adjusted basic earnings (loss) per common share   |   | $                                                  | 1.18 |                     |   | $     | 0.49 |      |   | $       | (7.01 | ) |   | $      | 1.87 | 
|                                                            |                                                   |   |                                                    |      |                     |   |       |      |      |   |         |       |   |   |        |     
|Diluted earnings (loss) per common share:                   |                                                   |   |                                                    |      |                     |   |       |      |      |   |         |       |   |   |        |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Reported diluted earnings (loss) per share        |   | $                                                  | 1.17 |                     |   | $     | 0.40 |      |   | $       | (7.01 | ) |   | $      | 1.60 | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Effect of goodwill amortization                   |   |                                                    |     |                     |   |       | 0.09 |      |   |         |      |   |   |        | 0.25 | 
|                                                            |                                                   |   |                                                    |      |                     |   |       |      |      |   |         |       |   |   |        |     
|                                                            | Adjusted diluted earnings (loss) per common share |   | $                                                  | 1.17 |                     |   | $     | 0.49 |      |   | $       | (7.01 | ) |   | $      | 1.85 | 
|                                                            |                                                   |   |                                                    |      |                     |   |       |      |      |   |         |       |   |   |        |     

At September 30, 2002, the Company also had a net balance of $549,000
consisting of other intangible assets that relate to the purchase of certain
lines of trust business. The gross carrying amount totaled $1.2 million as of
September 30, 2002 with accumulated amortization of $604,000. The intangible
asset was reduced by $212,000 during the third quarter of 2002 because of the
sale of a portion of the trust line of business. Amortization expense for
these intangible assets was $270,000 during the first nine months of 2002. The
estimated amortization expense for these assets is expected to be $96,000 from
the period of October 1, 2002 to December 31, 2002, $385,000 during the year
ending December 31, 2003, and $13,000 annually for the years ended December 31,
2004, 2005, and 2006.

15



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TAYLOR CAPITAL GROUP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS




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

We are a bank holding company headquartered in Wheeling, Illinois, a suburb of
Chicago. We derive virtually all of our revenue from our commercial bank
subsidiary, Cole Taylor Bank. The following discussion and analysis presents
our consolidated financial condition and results of operations as of and for
the dates and periods indicated. This discussion should be read in conjunction
with our Consolidated Financial Statements and the Notes thereto appearing
elsewhere in this Form 10-Q and Registration Statement on Form S-1 (Reg. No.
333-89158) which contain audited financial statements of Taylor Capital Group,
Inc. as of December 31, 2001 and 2000 and for each of the years in the
three-year period ended December 31, 2001. All share and per share information
for all periods presented has been adjusted for a three-for-two split of our
common stock that was effected as a dividend to stockholders of record as of
October 2, 2002.

Event Subsequent to September 30, 2002

On October 21, 2002, we completed a concurrent offering of common stock and
trust preferred securities. In the common stock offering, we issued 2,250,000
shares of our $0.01 par value common stock at an initial public offering price
of $16.50 per share. On November 6, 2002, our underwriters exercised an option
to purchase 337,500 additional shares to cover over-allotments. This option
was granted in connection with our initial public offering, and we received
additional net proceeds of $5.2 million in connection with this sale. In the
trust preferred securities offering, our wholly-owned subsidiary, TAYC Capital
Trust I issued $45.0 million of trust preferred securities. Owners of the
trust preferred securities are entitled to quarterly cumulative cash
distributions on the securities at an annual rate of 9.75%, and the securities
have a $25.00 liquidation amount per security. After allowing for the
underwriters discount and estimated offering expenses, we expect net proceeds
from the concurrent offerings and exercise of the underwriters over-allotment
option to be $80.8 million. We used $61.9 million of the net proceeds from the
offerings on October 21, 2002 to fully satisfy our obligations under the
litigation settlement agreements described in the section captioned Notes to
Consolidated Financial Statements  Litigation and Settlement. We expect to
use $16.7 million of the net proceeds to reduce our outstanding indebtedness
under our notes payable. The remainder of the net proceeds will be used for
general corporate purposes. The net proceeds will be invested in short-term,
investment grade, interest-earning instruments until the proceeds are used.

OVERVIEW

Net income for the third quarter of 2002 was $8.9 million, or $1.17 per diluted
common share, compared to $3.6 million, or $0.40 per common share for the same
period in 2001. The increase in net income during the third quarter of 2002
was largely due to a $3.2 million increase in net interest income, a $2.6
million adjustment to the litigation settlement charge, and a $2.1 million gain
on the sale of available-for-sale investment securities.

16



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##### Table of Contents



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

We recorded a net loss of $45.3 million, or $7.01 per common share, for the
first nine months of 2002. Net income for the first nine months of 2001 was
$13.7 million, or $1.60 per diluted common share. The net loss for the
year-to-date 2002 period was due to the $61.9 million litigation settlement
charge. Additionally, a number of other matters arising in 2002 and 2001
impact the comparability of net income between the two year-to-date periods.
Net income in 2002 was positively impacted by the adoption of a new accounting
standard on January 1, 2002, that eliminated the amortization expense on our
goodwill. Goodwill amortization for the first nine months of 2001 was $1.7
million. See the section of this discussion and analysis captioned New
Accounting Pronouncements for additional details. Net income in 2002 was also
impacted by the execution to date of our strategic plan adopted in the fall of
2001. Non-interest income in 2002 declined $1.6 million as a result of the
reduced revenues from mortgage banking activities and fiduciary trust services.
Non-interest expense in 2002 was also negatively impacted by the recognition
of $1.7 million of severance and outplacement costs relating to our internal
reorganization. The impact of these matters is described in more detail below.

Excluding the settlement charge, our annualized return on assets was 1.02% and
0.91% during the third quarter of 2002 and the nine months ended September 30,
2002, respectively. In addition, the annualized return on equity, without
considering the settlement charge, was 20.6% and 14.0% during the third quarter
and the first nine months of 2002, respectively. In comparison, the annualized
return on assets was 0.62% and 0.78% during the third quarter of 2001 and the
first nine months of 2001, respectively, while the annualized return on equity
was 8.7% during the third quarter of 2001 and 11.2% during the year-to-date
2001 period.

Total assets were $2.51 billion at September 30, 2002, an increase of $114.5
million, or 4.8%, over year-end 2001. During the first nine months of 2002,
total gross loans grew to $1.85 billion, an increase of $105.1 million, or
6.0%, compared to total gross loans of $1.74 billion at December 31, 2001.
Total deposits were $1.96 billion, an increase of $127.6 million, or 7.0%,
compared to total deposits of $1.83 billion at December 31, 2001.
Stockholders equity was $127.2 million at September 30, 2002, a decrease of
$43.7 million compared to $171.0 million at December 31, 2001.

RESULTS OF OPERATIONS

Net Interest Income

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

Three Months Ended September 30, 2002 as Compared to Three Months Ended
September 30, 2001. Net interest income was $26.0 million during the third
quarter of 2002 compared to $22.8 million during the third quarter of 2001, an
increase of $3.2 million or 14.1%. With an
17Table of ContentsTAYLOR CAPITAL GROUP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)adjustment for tax-exempt income, our consolidated net interest income for the
three month period ended September 30, 2002 was $26.4 million as compared to
$23.3 million during the same three month period in 2001, an increase of $3.1
million, or 13.2%. An increase in average interest-earning assets as well as a
higher net interest margin produced the increase in both the net interest
income and the tax-equivalent net interest income. Net interest margin, which
is determined by dividing taxable equivalent net interest income by average
interest-earning assets, increased to 4.50% during the third quarter of 2002 as
compared to 4.20% during the same quarter in 2001. The significant decline in
market interest rates between the two periods caused both the yield on
interest-earning assets and the cost of interest-bearing liabilities to fall.
However, the decline in the cost of interest-bearing liabilities was larger,
resulting in an overall increase in the net interest margin. Between the two
periods, the cost of interest-bearing liabilities declined 159 basis points,
while the yield on interest-earning assets declined by 104 basis points. The
larger decline in the cost of interest-bearing liabilities also caused the net
interest spread, which is the difference between the weighted average yield on
interest-earning assets and the rate paid on interest-bearing liabilities, to
increase to 4.02% in the third quarter of 2002 as compared to 3.47% during the
same quarter in 2001.Average interest-earning assets during the third quarter of 2002 totaled $2.34
billion, an increase of $125.0 million, or 5.7%, as compared to average
interest-earning assets of $2.21 billion during the third quarter of 2001. The
growth in average interest-earning assets occurred in the loan portfolio as
average loan balances increased $151.7 million, or 9.1%, to $1.81 billion
during the third quarter of 2002 from $1.66 billion during the third quarter of
2001. Higher average commercial and commercial real estate loans of $97.9
million and home equity and consumer loans of $105.7 million produced the
growth in total loans. The yield on loans declined to 6.64% during the third
quarter of 2002 as compared to 7.89% during the third quarter of 2001.
Declining market interest rates, including a 475 basis point decline in the
Banks prime lending rate during 2001, caused the decline in the yield because
much of the commercial loan and home equity line portfolios are indexed to the
Banks prime lending rate. On the funding side, the rapidly declining interest
rate environment also lowered our cost of funds. The cost of interest-bearing
liabilities decreased to 2.38% during the three months ended September 30, 2002
as compared to 3.97% during the same period in 2001, with both the cost of
deposits and borrowing declining by 159 basis points between the two periods.
As interest rates declined, the Bank was able to lower interest rates on
deposit products and replace some maturing certificates of deposit and
borrowings with lower costing funds.Nine Months Ended September 30, 2002 as Compared to Nine Months Ended September
30, 2001. Net interest income was $76.4 million during the first nine months
of 2002 compared to $67.5 million during the same nine month period in 2001, an
increase of $8.9 million or 13.2%. With an adjustment for tax-exempt income,
consolidated net interest income, for the year-to-date 2002 period was $77.7
million as compared to $69.1 million during the same period in 2001, an
increase of $8.6 million, or 12.5%. Similar to the quarterly comparison, an
increase in both average interest-earning assets and the net interest margin
combined to produce the increase. The net interest margin increased to 4.50%
during the first nine months of 2002 as compared to 4.16% during the same nine
month period in 2001. With the decline in market interest rates between the
two periods, a larger decrease in the cost of interest-bearing liabilities, as
compared18Table of ContentsTAYLOR CAPITAL GROUP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)to interest-earning assets, produced the increase in the net interest margin.
On the asset side, the yield earned on average interest-earning assets declined
by 141 basis points, with the loan yield declining by 174 basis points. On the
funding side, the cost of interest-bearing liabilities declined 209 basis
points to 2.43% during the nine month period ended September 30, 2002 from
4.52% during the same period in 2001. Between the two periods, the cost of
deposits declined by 207 basis points, while the cost of borrowings declined by
220 basis points. The larger decline in the cost of interest-bearing
liabilities also caused the net interest spread to increase to 4.03% in the
first nine months of 2002 as compared to 3.35% during the same period in 2001.Average interest-earning assets during the nine month period ended September
30, 2002 totaled $2.31 billion, an increase of $88.4 million, or 4.0%, as
compared to average interest-earning assets of $2.22 billion during the same
period in 2001. As with the quarterly comparison, the growth in average
interest-earning assets occurred in average loan balances, which increased by
$133.7 million, or 8.1%, during the year-to-date 2002 period. Higher average
commercial and commercial real estate loans of $85.0 million and home equity
and consumer loans of $97.8 million produced the growth in total loans.On November 6, 2002, the Federal Reserve Bank lowered the federal funds target
rate by 50 basis points. Shortly thereafter, we lowered our internal Prime
rate that is the index for a large portion of our loan portfolio. Our internal
analysis at September 30, 2002 indicated that a decrease in market interest
rates could have a negative impact on our net interest margin and, therefore,
our net interest income. Accordingly, we expect downward pressure on our net
interest margin and are currently evaluating strategies to minimize that
impact. Our simulation analysis at September 30, 2002 indicated net interest
income at risk in a 100 basis point falling rate scenario at $2.9 million over
a one-year horizon. See the section captioned Quantitative and Qualitative
Disclosure about Market Interest Rates for a discussion of our simulation
analysis.The following tables present, for the periods indicated, certain information
relating to our consolidated average balances and reflect our yield on average
interest-earning assets and costs of average interest-bearing liabilities.
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% tax rate.19Table of ContentsTAYLOR CAPITAL GROUP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)

|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |        |      |      |      | 
|------------------------------------------ | ------------------------------------- | ---------------------------------- | -------------------------------- | -------------------------------------- | --------- | ------------------------------------ | --------- | -------- | ------ | ------ | ------ | ------- | ---- | -------- | --------- | --------- | --------- | -------------- | --------- | ------ | ------ | ------ | ------ | ------ | ---- | ---- | ---- | 
|                                           |                                       |                                    |                                  |                                        |           | For Three Months Ended September 30,
|                                           |                                       |                                    |                                  |                                        |           |                                     
|                                           |                                       |                                    |                                  |                                        |           | 2002                                 |           | 2001    
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |         
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      | YIELD/   |           |           |           |                |           |        |        |        |        | YIELD/
|                                           |                                       |                                    |                                  |                                        |           | AVERAGE                              |           |          |        |        |        | RATE    |      | AVERAGE  |           |           |           |                |           | RATE  
|                                           |                                       |                                    |                                  |                                        |           | BALANCE                              |           | INTEREST |        | (%)(6) |        | BALANCE |      | INTEREST |           | (%)(6)   
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |          
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           | (in thousands) |           |        |        |       
|INTEREST-EARNING ASSETS:                   |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|                                          
|                                          
|                                          
|                                          
|Investment securities(1):                  |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|                                          
|                                          
|                                          
|                                          
|                                           | Taxable                               |                                    | $                                | 442,083                                |           |                                      | $         | 6,174    |        |        |        | 5.59    | %    |          | $         | 426,828   |           |                | $         | 6,628  |        |        |        | 6.21   | %   
|                                          
|                                          
|                                          
|                                          
|                                           | Tax-exempt (tax equivalent)(2)        |                                    |                                  | 55,460                                 |           |                                      |           | 1,021    |        |        |        | 7.36    |      |          |           | 65,359    |           |                |           | 1,265  |        |        |        | 7.74   |     
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|                                           |                                       |                                    | Total investment securities      |                                        |           | 497,543                              |           |          |        | 7,195  |        |         |      | 5.78     |           |           |           | 492,187        |           |        |        | 7,893  |        |        |      | 6.41 |     
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|Cash Equivalents                           |                                       |                                    | 28,022                           |                                        |           |                                      | 120       |          |        |        | 1.68   |         |      |          | 60,087    |           |           |                | 516       |        |        |        | 3.36   |       
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|Loans(3):                                  |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|                                          
|                                          
|                                          
|                                          
|                                           | Commercial and commercial real estate |                                    |                                  | 1,304,377                              |           |                                      |           | 21,829   |        |        |        | 6.55    |      |          |           | 1,206,456 |           |                |           | 23,666 |        |        |        | 7.68   |     
|                                          
|                                          
|                                          
|                                          
|                                           | Residential real estate mortgages     |                                    |                                  | 132,998                                |           |                                      |           | 2,305    |        |        |        | 6.93    |      |          |           | 184,893   |           |                |           | 3,510  |        |        |        | 7.59   |     
|                                          
|                                          
|                                          
|                                          
|                                           | Home equity and consumer              |                                    |                                  | 373,187                                |           |                                      |           | 5,358    |        |        |        | 5.70    |      |          |           | 267,512   |           |                |           | 5,051  |        |        |        | 7.49   |     
|                                          
|                                          
|                                          
|                                          
|                                           | Fees on loans                         |                                    |                                  |                                        |           |                                      |           | 787      |        |        |        |         |      |          |           |           |           |                |           | 733    |        |        |        |        |     
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|                                           |                                       |                                    | Net loans (tax equivalent)       |                                        |           | 1,810,562                            |           |          |        | 30,279 |        |         |      | 6.64     |           |           |           | 1,658,861      |           |        |        | 32,960 |        |        |      | 7.89 |     
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|                                           |                                       |                                    |                                  | Total interest-earning assets          |           |                                      | 2,336,127 |          |        |        | 37,594 |         |      |          | 6.40      |           |           |                | 2,211,135 |        |        |        | 41,369 |        |      |      | 7.44 | 
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|Allowance for loan losses                  |                                       |                                    | (33,701                          | )                                      |           |                                      |           |          |        |        |        |         |      |          | (32,243   | )         |           |                |           |        |        |        |        |       
|                                          
|                                          
|                                          
|                                          
|NON-EARNING ASSETS:                        |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|                                          
|                                          
|                                          
|                                          
|                                           | Cash and due from banks               |                                    |                                  | 60,546                                 |           |                                      |           |          |        |        |        |         |      |          |           | 58,653    |           |                |           |        |        |        |        |        |     
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued interest and other assets     |                                    |                                  | 97,578                                 |           |                                      |           |          |        |        |        |         |      |          |           | 95,621    |           |                |           |        |        |        |        |        |     
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|TOTAL ASSETS                               |                                       | $                                  | 2,460,550                        |                                        |           |                                      |           |          |        |        |        |         |      | $        | 2,333,166 |           |           |                |           |        |        |        |        |       
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|INTEREST-BEARING LIABILITIES:              |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|                                          
|                                          
|                                          
|                                          
|                                           | Interest-bearing deposits:            |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |        |     
|                                          
|                                          
|                                          
|                                          
|                                           |                                       |                                    | Interest-bearing demand deposits |                                        | $         | 593,559                              |           |          |        | 2,097  |        |         |      | 1.40     |           |           | $         | 584,359        |           |        |        | 4,114  |        |        |      | 2.79 |     
|                                          
|                                          
|                                          
|                                          
|                                           |                                       |                                    | Savings deposits                 |                                        |           | 89,427                               |           |          |        | 210    |        |         |      | 0.93     |           |           |           | 88,540         |           |        |        | 299    |        |        |      | 1.34 |     
|                                          
|                                          
|                                          
|                                          
|                                           |                                       |                                    | Time deposits                    |                                        |           | 837,583                              |           |          |        | 6,736  |        |         |      | 3.19     |           |           |           | 784,301        |           |        |        | 10,087 |        |        |      | 5.10 |     
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|                                           |                                       |                                    |                                  | Total interest-bearing deposits        |           |                                      | 1,520,569 |          |        |        | 9,043  |         |      |          | 2.36      |           |           |                | 1,457,200 |        |        |        | 14,500 |        |      |      | 3.95 | 
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|Short-term borrowings                      |                                       |                                    | 218,521                          |                                        |           |                                      | 820       |          |        |        | 1.49   |         |      |          | 218,779   |           |           |                | 1,842     |        |        |        | 3.34   |       
|                                          
|                                          
|                                          
|                                          
|Notes payable and FHLB advances            |                                       |                                    | 127,228                          |                                        |           |                                      | 1,320     |          |        |        | 4.06   |         |      |          | 128,310   |           |           |                | 1,702     |        |        |        | 5.19   |       
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|                                           |                                       | Total interest-bearing liabilities |                                  |                                        | 1,866,318 |                                      |           |          | 11,183 |        |        |         | 2.38 |          |           |           | 1,804,289 |                |           |        | 18,044 |        |        |        | 3.97 |     
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|NONINTEREST-BEARING LIABILITIES:           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|                                          
|                                          
|                                          
|                                          
|                                           | Noninterest-bearing deposits          |                                    |                                  | 377,220                                |           |                                      |           |          |        |        |        |         |      |          |           | 329,750   |           |                |           |        |        |        |        |        |     
|                                          
|                                          
|                                          
|                                          
|                                           |                                       |                                    |                                  | Accrued interest and other liabilities |           |                                      | 94,844    |          |        |        |        |         |      |          |           |           |           |                | 31,125    |        |        |        |        |        |      |      |      | 
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|                                           |                                       |                                    |                                  | Total noninterest-bearing liabilities  |           |                                      | 472,064   |          |        |        |        |         |      |          |           |           |           |                | 360,875   |        |        |        |        |        |      |      |      | 
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|STOCKHOLDERS EQUITY                       |                                       |                                    | 122,168                          |                                        |           |                                      |           |          |        |        |        |         |      |          | 168,002   |           |           |                |           |        |        |        |        |       
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                                       | $                                  | 2,460,550                        |                                        |           |                                      |           |          |        |        |        |         |      | $        | 2,333,166 |           |           |                |           |        |        |        |        |       
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|Net interest income (tax equivalent)       |                                       |                                    |                                  |                                        |           | $                                    | 26,411    |          |        |        |        |         |      |          |           |           |           | $              | 23,325    |        |        |        |        |       
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|Net interest spread(4)                     |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        | 4.02   | %       |      |          |           |           |           |                |           |        |        |        | 3.47   | %     
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       
|Net interest margin(5)                     |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        | 4.50   | %       |      |          |           |           |           |                |           |        |        |        | 4.20   | %     
|                                           |                                       |                                    |                                  |                                        |           |                                      |           |          |        |        |        |         |      |          |           |           |           |                |           |        |        |        |        |       



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|(1) |  | Investment securities average balances are based on amortized cost.                                                                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
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|   
|   
|(2) |  | Calculations are computed on a taxable-equivalent basis using a tax rate of 35%.                                                                        
|   
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|   
|(3) |  | Nonaccrual loans are included in the above stated average balances.                                                                                     
|   
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|   
|(4) |  | Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
|   
|   
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|   
|(5) |  | Net interest margin is determined by dividing taxable equivalent net interest income by average interest-earning assets.                                
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|(6) |  | Yield/Rates are annualized.                                                                                                                             

20



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##### Table of Contents



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

|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |        |      |      |      | 
|------------------------------------------ | ------------------------------------- | ---------------------------------- | -------------------------------- | -------------------------------------- | --------- | ----------------------------------- | --------- | -------- | ------ | ------ | ------- | ------- | ---- | -------------- | --------- | --------- | --------- | --------- | --------- | ------ | ------ | ------- | ------- | ------ | ---- | ---- | ---- | 
|                                           |                                       |                                    |                                  |                                        |           | For Nine Months Ended September 30,
|                                           |                                       |                                    |                                  |                                        |           |                                    
|                                           |                                       |                                    |                                  |                                        |           | 2002                                |           | 2001    
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |         
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      | YIELD/         |           |           |           |           |           |        |        |         |         | YIELD/
|                                           |                                       |                                    |                                  |                                        |           | AVERAGE                             |           |          |        |        |         | RATE    |      | AVERAGE        |           |           |           |           |           | RATE  
|                                           |                                       |                                    |                                  |                                        |           | BALANCE                             |           | INTEREST |        | (%)(6) |         | BALANCE |      | INTEREST       |           | (%)(6)   
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |          
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      | (in thousands) |           |           |           |           |           |        |        |        
|INTEREST-EARNING ASSETS:                   |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|                                          
|                                          
|                                          
|                                          
|Investment securities (1):                 |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|                                          
|                                          
|                                          
|                                          
|                                           | Taxable                               |                                    | $                                | 443,112                                |           |                                     | $         | 18,659   |        |        |         | 5.62    | %    |                | $         | 445,380   |           |           | $         | 21,036 |        |         |         | 6.30   | %   
|                                          
|                                          
|                                          
|                                          
|                                           | Tax-exempt (tax equivalent) (2)       |                                    |                                  | 58,275                                 |           |                                     |           | 3,292    |        |        |         | 7.53    |      |                |           | 66,631    |           |           |           | 3,915  |        |         |         | 7.83   |     
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|                                           |                                       |                                    | Total investment securities      |                                        |           | 501,387                             |           |          |        | 21,951 |         |         |      | 5.84           |           |           |           | 512,011   |           |        |        | 24,951  |         |        |      | 6.50 |     
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|Cash Equivalents                           |                                       |                                    | 23,421                           |                                        |           |                                     | 304       |          |        |        | 1.71    |         |      |                | 58,070    |           |           |           | 1,781     |        |        |         | 4.04    |       
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|Loans (3):                                 |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|                                          
|                                          
|                                          
|                                          
|                                           | Commercial and commercial real estate |                                    |                                  | 1,279,488                              |           |                                     |           | 63,450   |        |        |         | 6.54    |      |                |           | 1,194,491 |           |           |           | 74,997 |        |         |         | 8.28   |     
|                                          
|                                          
|                                          
|                                          
|                                           | Residential real estate mortgages     |                                    |                                  | 142,396                                |           |                                     |           | 7,632    |        |        |         | 7.15    |      |                |           | 191,512   |           |           |           | 10,853 |        |         |         | 7.56   |     
|                                          
|                                          
|                                          
|                                          
|                                           | Home equity and consumer              |                                    |                                  | 358,450                                |           |                                     |           | 15,652   |        |        |         | 5.84    |      |                |           | 260,669   |           |           |           | 15,969 |        |         |         | 8.19   |     
|                                          
|                                          
|                                          
|                                          
|                                           | Fees on loans                         |                                    |                                  |                                        |           |                                     |           | 2,399    |        |        |         |         |      |                |           |           |           |           |           | 2,018  |        |         |         |        |     
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|                                           |                                       |                                    | Net loans (tax equivalent)       |                                        |           | 1,780,334                           |           |          |        | 89,133 |         |         |      | 6.69           |           |           |           | 1,646,672 |           |        |        | 103,837 |         |        |      | 8.43 |     
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|                                           |                                       |                                    |                                  | Total interest-earning assets          |           |                                     | 2,305,142 |          |        |        | 111,388 |         |      |                | 6.46      |           |           |           | 2,216,753 |        |        |         | 130,569 |        |      |      | 7.87 | 
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|Allowance for loan losses                  |                                       |                                    | (32,939                          | )                                      |           |                                     |           |          |        |        |         |         |      |                | (31,416   | )         |           |           |           |        |        |         |         |       
|                                          
|                                          
|                                          
|                                          
|NON-EARNING ASSETS:                        |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|                                          
|                                          
|                                          
|                                          
|                                           | Cash and due from banks               |                                    |                                  | 59,169                                 |           |                                     |           |          |        |        |         |         |      |                |           | 57,882    |           |           |           |        |        |         |         |        |     
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued interest and other assets     |                                    |                                  | 95,005                                 |           |                                     |           |          |        |        |         |         |      |                |           | 94,826    |           |           |           |        |        |         |         |        |     
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|TOTAL ASSETS                               |                                       | $                                  | 2,426,377                        |                                        |           |                                     |           |          |        |        |         |         |      | $              | 2,338,045 |           |           |           |           |        |        |         |         |       
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|INTEREST-BEARING LIABILITIES:              |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|                                          
|                                          
|                                          
|                                          
|                                           | Interest-bearing deposits:            |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |        |     
|                                          
|                                          
|                                          
|                                          
|                                           |                                       |                                    | Interest-bearing demand deposits |                                        | $         | 630,855                             |           |          |        | 6,959  |         |         |      | 1.47           |           |           | $         | 494,642   |           |        |        | 11,322  |         |        |      | 3.06 |     
|                                          
|                                          
|                                          
|                                          
|                                           |                                       |                                    | Savings deposits                 |                                        |           | 89,500                              |           |          |        | 610    |         |         |      | 0.91           |           |           |           | 88,626    |           |        |        | 971     |         |        |      | 1.46 |     
|                                          
|                                          
|                                          
|                                          
|                                           |                                       |                                    | Time deposits                    |                                        |           | 779,914                             |           |          |        | 19,629 |         |         |      | 3.37           |           |           |           | 859,149   |           |        |        | 36,152  |         |        |      | 5.63 |     
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|                                           |                                       |                                    |                                  | Total interest-bearing deposits        |           |                                     | 1,500,269 |          |        |        | 27,198  |         |      |                | 2.42      |           |           |           | 1,442,417 |        |        |         | 48,445  |        |      |      | 4.49 | 
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|Short-term borrowings                      |                                       |                                    | 233,306                          |                                        |           |                                     | 2,688     |          |        |        | 1.54    |         |      |                | 250,246   |           |           |           | 7,833     |        |        |         | 4.18    |       
|                                          
|                                          
|                                          
|                                          
|Notes payable and FHLB advances            |                                       |                                    | 125,503                          |                                        |           |                                     | 3,837     |          |        |        | 4.03    |         |      |                | 126,446   |           |           |           | 5,227     |        |        |         | 5.45    |       
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|                                           |                                       | Total interest-bearing liabilities |                                  |                                        | 1,859,078 |                                     |           |          | 33,723 |        |         |         | 2.43 |                |           |           | 1,819,109 |           |           |        | 61,505 |         |         |        | 4.52 |     
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|NONINTEREST-BEARING LIABILITIES:           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|                                          
|                                          
|                                          
|                                          
|                                           | Noninterest-bearing deposits          |                                    |                                  | 359,747                                |           |                                     |           |          |        |        |         |         |      |                |           | 323,316   |           |           |           |        |        |         |         |        |     
|                                          
|                                          
|                                          
|                                          
|                                           |                                       |                                    |                                  | Accrued interest and other liabilities |           |                                     | 49,928    |          |        |        |         |         |      |                |           |           |           |           | 32,044    |        |        |         |         |        |      |      |      | 
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|                                           |                                       |                                    |                                  | Total noninterest-bearing liabilities  |           |                                     | 409,675   |          |        |        |         |         |      |                |           |           |           |           | 355,360   |        |        |         |         |        |      |      |      | 
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|STOCKHOLDERS EQUITY                       |                                       |                                    | 157,624                          |                                        |           |                                     |           |          |        |        |         |         |      |                | 163,576   |           |           |           |           |        |        |         |         |       
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                                       | $                                  | 2,426,377                        |                                        |           |                                     |           |          |        |        |         |         |      | $              | 2,338,045 |           |           |           |           |        |        |         |         |       
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|Net interest income (tax equivalent)       |                                       |                                    |                                  |                                        |           | $                                   | 77,665    |          |        |        |         |         |      |                |           |           |           | $         | 69,064    |        |        |         |         |       
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|Net interest spread (4)                    |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        | 4.03    | %       |      |                |           |           |           |           |           |        |        |         | 3.35    | %     
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       
|Net interest margin (5)                    |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        | 4.50    | %       |      |                |           |           |           |           |           |        |        |         | 4.16    | %     
|                                           |                                       |                                    |                                  |                                        |           |                                     |           |          |        |        |         |         |      |                |           |           |           |           |           |        |        |         |         |       



---

|(1) |  | Investment securities average balances are based on amortized cost.                                                                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Calculations are computed on a taxable-equivalent basis using a tax rate of 35%.                                                                        
|   
|   
|   
|   
|(3) |  | Nonaccrual loans are included in the above stated average balances.                                                                                     
|   
|   
|   
|   
|(4) |  | Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
|   
|   
|   
|   
|(5) |  | Net interest margin is determined by dividing taxable equivalent net interest income by average interest-earning assets.                                
|   
|   
|   
|   
|(6) |  | Yield/Rates are annualized.                                                                                                                             

21



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##### Table of Contents



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

Noninterest Income

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

|                                           |                          |   |                      |       |                     |   |                |       |      |   |       |        |  |   |       |        | 
|------------------------------------------ | ------------------------ | - | -------------------- | ----- | ------------------- | - | -------------- | ----- | ---- | - | ----- | ------ |  | - | ----- | ------ | 
|                                           |                          |   | For the Three Months |       | For the Nine Months
|                                           |                          |   | Ended September 30,  |       | Ended September 30,
|                                           |                          |   |                      |       |                    
|                                           |                          |   | 2002                 |       | 2001                |   | 2002           |       | 2001
|                                           |                          |   |                      |       |                     |   |                |       |     
|                                           |                          |   |                      |       |                     |   | (in thousands) |       |      |   |      
|Service charges                            |                          | $ | 3,128                |       |                     | $ | 3,052          |       |      | $ | 9,174 |        |  | $ | 8,928 |       
|                                          
|                                          
|                                          
|                                          
|Trust fees                                 |                          |   | 1,473                |       |                     |   | 1,666          |       |      |   | 4,283 |        |  |   | 4,900 |       
|                                          
|                                          
|                                          
|                                          
|Mortgage-banking activities                |                          |   | 64                   |       |                     |   | 625            |       |      |   | 338   |        |  |   | 1,743 |       
|                                          
|                                          
|                                          
|                                          
|Gain on sale of trust assets               |                          |   | 400                  |       |                     |   |               |       |      |   | 400   |        |  |   |      |       
|                                          
|                                          
|                                          
|                                          
|Gain on sale of investment securities, net |                          |   | 2,068                |       |                     |   | 70             |       |      |   | 2,076 |        |  |   | 2,311 |       
|                                          
|                                          
|                                          
|                                          
|Other noninterest income                   |                          |   | 12                   |       |                     |   | 135            |       |      |   | 1,182 |        |  |   | 1,008 |       
|                                           |                          |   |                      |       |                     |   |                |       |      |   |       |        |  |   |       |       
|                                           | Total noninterest income |   | $                    | 7,145 |                     |   | $              | 5,548 |      |   | $     | 17,453 |  |   | $     | 18,890 | 
|                                           |                          |   |                      |       |                     |   |                |       |      |   |       |        |  |   |       |       

Our noninterest income was $7.1 million during the third quarter of 2002, a
$1.6 million or 28.8% increase over the $5.5 million of noninterest income
during the third quarter of 2001. This increase primarily resulted from a $2.0
million increase in gains on the sale of investment securities and a $400,000
gain on the sale of certain fiduciary trust accounts from our trust services
area. These increases were partly offset by lower revenues from trust and
mortgage-banking operations. On a year-to-date basis, our noninterest income
was $17.5 million, or $1.4 million less than the $18.9 million of noninterest
income during the first nine months of 2001. Lower trust and mortgage-banking
revenues mainly produced the decrease.

Service charges earned on deposit accounts increased a modest 2.4% and 2.7% in
the three and nine-month periods ended September 30, 2002, respectively, as
compared to the same periods in 2001. The increases were primarily a result of
the continued decline in the earnings credit rate in 2002. The earnings credit
rate determines the amount of credit given to customers for their collected
balances and is available to offset account service charges incurred. The
earnings credit rate over the nine months ended September 30, 2002 was
approximately 250 basis points, or 58%, lower than during the comparable period
in 2001. Some business customers increased their demand deposit balances to
offset the decline in the earnings credit rate, as the increase in demand
deposits during 2002 illustrates.

An upgrade in our service charge application system has resulted in certain
customer ATM fees now being included with and reported as deposit service
charges. Previously, these fees were reported separately from deposit service
charges. Customer ATM fees totaling $301,000 for the nine months ended
September 30, 2001 have been reclassified to deposit service charges to
maintain comparability between periods.

Our noninterest income has been and will continue to be impacted by the
execution of our strategic plan adopted in the fall of 2001. To focus on our
targeted customers, we have reduced our mortgage-banking and trust activities.
We discontinued originating non-customer first

22



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##### Table of Contents



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

mortgage loans for sale into the secondary market in the fall of 2001. That
caused a sharp decline in revenues from mortgage-banking activities during the
third quarter of 2002 and the year-to-date 2002 period when compared to the
same periods in 2001. Mortgage-banking revenues declined to $64,000 in the
third quarter of 2002 from $625,000 in the third quarter of 2001, while
year-to-date mortgage-banking revenues dropped to $338,000 in 2002 from $1.7
million in the first nine months of 2001.

We also have de-emphasized and exited some trust activities, including
fiduciary personal trust and employee benefit trust services. During the third
quarter, we sold a portion of our personal trust and employee benefit trust
services and recorded a gain of $400,000. We are also in negotiation to sell
additional fiduciary personal trust accounts. We anticipate that this sale
will occur prior to the end of 2002. We will continue to offer corporate
trust, land trust and tax deferred exchange lines of business. Trust revenues
declined by $193,000 to $1.5 million during the third quarter of 2002 as
compared to the same quarter in 2001, while year-to-date 2002 trust revenues
declined by $617,000 to $4.3 million as compared to the same period in 2001.
Most of the decline was produced by higher than expected run-off in the trust
business acquired in October 2000.

During the third quarter of 2002, we sold approximately $80 million of U.S.
government agency securities at a gain of $2.1 million and reinvested the
proceeds in U.S. government agency securities with longer maturities to extend
the duration of the investment portfolio. The securities sales in the
year-to-date 2001 period resulted from a restructuring of a portion of the
investment portfolio in which U.S. government agency securities that were
maturing within two years were sold at a gain and replaced with longer-term
mortgage related securities.

Other noninterest income principally includes automatic teller machine
interchange and surcharge fees earned from non-customers use of bank-owned
ATMs, stand-by letter of credit fees, safe deposit rentals and fees from
financial services. Other noninterest income during the year-to-date 2002
period also included $590,000 of proceeds received from key man life insurance
policies.

Noninterest Expense

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

23



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##### Table of Contents



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

|                                                |  |                      |        |                           |  |      |        |      |  |   |         |  |  |   |        | 
|----------------------------------------------- |  | -------------------- | ------ | ------------------------- |  | ---- | ------ | ---- |  | - | ------- |  |  | - | ------ | 
|                                                |  | For the Three Months |        | For the Nine Months Ended
|                                                |  | Ended September 30,  |        | September 30,            
|                                                |  |                      |        |                          
|                                                |  | 2002                 |        | 2001                      |  | 2002 |        | 2001
|                                                |  |                      |        |                           |  |      |        |     
|                                                |  | (in thousands)      
|Salaries and employee benefits                  |  | $                    | 9,945  |                           |  | $    | 9,888  |      |  | $ | 32,916  |  |  | $ | 29,863 | 
|                                               
|                                               
|                                               
|                                               
|Occupancy of premises                           |  |                      | 1,738  |                           |  |      | 1,787  |      |  |   | 4,904   |  |  |   | 5,102  | 
|                                               
|                                               
|                                               
|                                               
|Furniture and equipment                         |  |                      | 791    |                           |  |      | 1,220  |      |  |   | 2,656   |  |  |   | 3,287  | 
|                                               
|                                               
|                                               
|                                               
|Computer processing                             |  |                      | 570    |                           |  |      | 571    |      |  |   | 1,724   |  |  |   | 1,694  | 
|                                               
|                                               
|                                               
|                                               
|Holding company legal fees, net                 |  |                      | 400    |                           |  |      | 1,110  |      |  |   | 1,395   |  |  |   | 2,799  | 
|                                               
|                                               
|                                               
|                                               
|Bank legal fees, net                            |  |                      | 767    |                           |  |      | 524    |      |  |   | 1,618   |  |  |   | 1,204  | 
|                                               
|                                               
|                                               
|                                               
|Consulting                                      |  |                      | 473    |                           |  |      | 665    |      |  |   | 993     |  |  |   | 1,681  | 
|                                               
|                                               
|                                               
|                                               
|Advertising and public relations                |  |                      | 491    |                           |  |      | 335    |      |  |   | 1,375   |  |  |   | 635    | 
|                                               
|                                               
|                                               
|                                               
|Goodwill amortization                           |  |                      |       |                           |  |      | 580    |      |  |   |        |  |  |   | 1,742  | 
|                                               
|                                               
|                                               
|                                               
|Other intangible amortization                   |  |                      | 139    |                           |  |      | 64     |      |  |   | 270     |  |  |   | 179    | 
|                                               
|                                               
|                                               
|                                               
|Other real estate and repossessed asset expense |  |                      | 54     |                           |  |      | 166    |      |  |   | 298     |  |  |   | 166    | 
|                                               
|                                               
|                                               
|                                               
|Litigation settlement charge                    |  |                      | (2,609 | )                         |  |      |       |      |  |   | 61,900  |  |  |   |       | 
|                                               
|                                               
|                                               
|                                               
|Other noninterest expense                       |  |                      | 5,269  |                           |  |      | 3,272  |      |  |   | 12,083  |  |  |   | 9,985  | 
|                                                |  |                      |        |                           |  |      |        |      |  |   |         |  |  |   |        | 
|Total noninterest expense                       |  | $                    | 18,028 |                           |  | $    | 20,182 |      |  | $ | 122,132 |  |  | $ | 58,337 | 
|                                                |  |                      |        |                           |  |      |        |      |  |   |         |  |  |   |        | 

Noninterest expense was $18.0 million during the third quarter of 2002, a $2.2
million decrease from the $20.2 million of noninterest expense during the third
quarter of 2001. The $2.6 million adjustment recorded in the third quarter of
2002 to the litigation settlement charge, a $710,000 decline in holding company
legal fees, the elimination of amortization expense on goodwill of $580,000,
and lower furniture and equipment expense mainly produced the lower noninterest
expense. These decreases were partly offset by higher other noninterest
expense.

Noninterest expense was $122.1 million during the first nine months of 2002,
compared to $58.3 million during the same year-to-date period in 2001. The
$61.9 million litigation settlement charge produced the majority of the
increase. Excluding this charge, noninterest expense during 2002 would have
been $60.2 million, or $1.9 million higher than the 2001 period. Higher
salaries and benefits, advertising and public relations, and other noninterest
expense produced the increase. These increases were partly offset by the
elimination of goodwill amortization of $1.7 million, a decrease in furniture
and equipment expense, lower holding company legal expenses and a reduction in
consulting expense.

Salaries and employee benefits expense was $9.9 million during the third
quarter of 2002, an increase of $57,000 from the same quarter in 2001 as an
increase in base salaries was partly offset by lower incentive compensation
accruals. On a year-to-date basis, salaries and benefits were $32.9 million
during 2002, a $3.1 million increase over the same nine-month period in 2001.
Included in this expense during 2002 was $1.6 million for severance related to
the decision to exit some trust lines of business and other executive level
management changes. In addition, an increase in base compensation and higher
costs associated with the employee benefit

24



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##### Table of Contents



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

plans contributed to the increase in expense. For the first nine months of
2002, we had an average of 533 full-time equivalent employees as compared to an
average of 551 full-time equivalent employees during the first nine months of
2001.

Expense relating to occupancy of premises was $1.7 million during the third
quarter of 2002, or $49,000 less than during the same quarter in 2001.
Year-to-date occupancy expense in 2002 was $4.9 million compared to $5.1
million during the first nine months of 2001. In January 2002, we closed our
Cicero branch facility when the lease expired and our customers have been
directed to another of our branches located less than one mile from the Cicero
facility. We are exploring the option of consolidating our administrative and
operational functions into a centralized corporate center. Any such
plan might impact our occupancy expense. See the section
captioned Financial ConditionNon-earning Assets for additional details.

Furniture and equipment expense was $791,000 during the third quarter of 2002,
a decrease of $429,000 compared to the expense of $1.2 million during the same
period in 2001. For the first nine months of 2002, furniture and equipment
expense was $2.7 million, a $631,000 decrease compared to the same period in
2001. Lower depreciation expense produced most of the decrease, as certain
technology and computer equipment that was placed in service for year 2000
readiness became fully depreciated during 2002.

Holding company legal fees include our costs related to the defense of
litigation relating to the split-off transactions described under the caption
Notes to Consolidated Financial Statements  Litigation and Settlement, as
well as general corporate matters. Legal fees have declined in 2001 and 2002
as we discussed a possible settlement of this litigation. Holding company
legal fees declined $710,000 to $400,000 in the third quarter of 2002, as
compared to $1.1 million during the same quarter in 2001. For the nine month
period ended September 30, 2002, holding company legal fees were $1.4 million,
as compared to $2.8 million of expense in the same period during 2001. A
portion of our defense costs has been submitted to insurance carriers for
reimbursement. Although we cannot predict to what extent such costs will be
reimbursed, we are expecting additional reimbursements. As a result of the
satisfaction of the litigation settlement agreements in October 2002, we expect
holding company legal fees for the foreseeable future to consist primarily of
general corporate matters.

Bank legal fees relate to collection activities as well as general corporate
operations. During the third quarter of 2002, Bank legal fees totaled $767,000
compared to $524,000 in the same quarter a year ago, while year-to-date 2002
legal fees totaled $1.6 million compared to $1.2 million during the same nine
month period in 2001. The higher legal fees in 2002 were primarily caused by
increased collection activity.

Consulting expense was $473,000 during the first three months ended September
30, 2002, compared to $665,000 during the same period in 2001. For the first
nine months of 2002, consulting expense was $993,000, a $688,000 decrease from
the same period in 2001. The lower expense in 2002 was due to projects
undertaken in 2001 that related to information technology, strategic and
facilities planning, and marketing consultation.

25



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##### Table of Contents



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

Our advertising expense has increased in 2002 and is expected to increase in
the future as a result of a new program to increase the visibility of the Bank
and public awareness and understanding of our business and product
capabilities. Our marketing program also includes a new corporate identity, a
more contemporary logo and increased direct advertising in 2003. The expense
increased to $491,000 during the third quarter of 2002 from $335,000 during the
same quarter in 2001, while the year-to-date expense increased to $1.4 million
in 2002 from $635,000 during the first nine months of 2001.

Goodwill amortization expense relates to the goodwill created when we acquired
the Bank in 1997. A new accounting standard adopted on January 1, 2002
eliminated the amortization expense on goodwill. At September 30, 2002, we had
$23.4 million of goodwill that will no longer be subject to amortization but
will be subject to possible write-downs based upon annual impairment testing.
Amortization expense on goodwill was $580,000 during the third quarter of 2001
and $1.7 million during the first nine months of 2001. See the section of this
discussion and analysis captioned New Accounting Pronouncements for
additional information.

Our results of operations during the first nine months of 2002 reflect a $61.9
million charge related to our settlement of the split-off litigation. This
settlement was funded with a portion of the net proceeds from the concurrent
offerings of common stock and trust preferred securities completed in October
2002. See the section captioned Notes to Consolidated Financial
StatementsLitigation and Settlement for additional details. The amount of
the settlement was based, in part, on the anticipated initial public offering
price of our common stock. We recorded an estimated charge of $64.5 million
during the second quarter of 2002 when we determined that the settlement of
this litigation was probable. When the initial public offering was completed
in October 2002, the initial offering price was less than the price assumed in
the second quarter. As a result, we recorded a $2.6 million reduction in the
charge in the third quarter of 2002 to reflect the difference between the
second quarter charge and the amount actually paid.

Other noninterest expense principally includes certain professional fees, FDIC
insurance, corporate insurance, outside services, operating losses and other
operating expenses such as telephone, postage, office supplies and printing.
Two actions caused the increase in this expense during the third quarter of
2002 and, as a result, the year-to-date 2002 period. First, during the third
quarter of 2002, we recorded a $1.0 million charge to establish a reserve
related to interest receivable carried in connection with our indirect
manufactured housing loan portfolio. Because of negative trends in the
manufactured housing industry, we expect that a portion of this asset may not
be collectable. Second, we recorded an $856,000 charge related to the
termination of a revenue sharing agreement associated with the trust business
acquired in October 2000. As part of that acquisition, we had agreed to share
a portion of the trust revenues earned on the accounts purchased over the
following five years. In connection with our exit of certain fiduciary trust
activities we have sold, or are negotiating the sale of, some of the trust
accounts that were subject to this revenue sharing agreement.

We also expect our noninterest expense to increase as a result of us becoming a
publicly-traded company. Specifically, we expect increases in audit fees,
legal fees associated with public
26Table of Contents

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

reporting, printing costs, proxy solicitation costs, additional directors and
officers insurance cost and other expenses generally associated with
publicly-traded companies.

Income Taxes

We recorded income tax expense of $3.8 million during the third quarter of
2002, resulting in an effective income tax rate of 30%, compared to income tax
expense of $2.1 million, or an effective income tax rate of 36% during the same
quarter in 2001. No income tax expense was recorded on the $2.6 million
reduction in the litigation settlement charge in the third quarter of 2002,
resulting in the lower effective income tax rate for that quarter. The higher
level of pre-tax income produced the higher tax expense. Despite a net loss
during the first nine months of 2002 due to the settlement of litigation, we
had income tax expense of $9.6 million. No income tax benefit was recorded
with respect to the litigation settlement charge of $61.9 million. During the
first nine months of 2001, income tax expense totaled $7.6 million, or a 36%
effective income tax rate.

FINANCIAL CONDITION

Overview

Our total assets increased $114.5 million during the first nine months of 2002
to reach $2.51 billion at September 30, 2002. A $102.2 million increase in
loans produced most of the increase in total assets. Because of the $61.9
million litigation settlement charge recorded in 2002, stockholders equity
declined to $127.2 million at September 30, 2002 from $170.9 million at
December 31, 2002. After giving effect to the completion of our common stock
offering in fourth quarter of 2002, the Companys stockholders equity as of
September 30, 2002 would have increased by $38.7 million on a pro forma basis.

Interest-Earning Assets

For the third quarter of 2002, average interest-earning assets increased $125.0
million, or 5.7%, to total $2.34 billion, as compared to $2.21 billion during
the same quarter of 2001. For the nine month period ended September 30, 2002,
average interest-earning assets increased $88.4 million, or 4.0% to $2.31
billion from $2.22 billion during the same period in 2001. Loan growth was the
primary contributor to the expanded level of interest-earning assets.

Total investment securities increased modestly to $500.2 million at September
30, 2002 from $494.3 million at December 31, 2001. During the third quarter of
2002, we sold approximately $80 million of U.S. government agency securities,
at a gain of $2.1 million, and reinvested the proceeds in other U.S. government
agency securities with longer maturities to extend the duration of the
portfolio.

Total loans increased to $1.85 billion at September 30, 2002, an increase of
$105.4 million or 6.1% from year-end 2001. Commercial and industrial and
commercial real estate loans increased $157.7 million, or 18.0%, as a result of
our continued focus on the business banking
27Table of ContentsTAYLOR CAPITAL GROUP, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)market. Real estate construction declined $74.2 million, or 19.5%, as a result
of softness in the construction market. Residential real estate mortgages
declined $30.8 million, or 19.2%, as low interest rates increased mortgage
refinancing and we de-emphasized our mortgage business. Home equity loans and
lines of credit increased $64.6 million, or 23.6%, which were primarily sourced
through mortgage brokers. Consumer loans declined $9.8 million, or 20.6%, as
we discontinued origination of indirect auto and manufactured home loans. The
percentage of loans extended to consumers, whether as a mortgage, line of
credit or other purpose, approximated 27% of the portfolio at both September
30, 2002 and December 31, 2001.Loan Quality and Nonperforming AssetsThe following table sets forth the amounts of nonperforming assets as of the
dates indicated:

|                                                                         |                            |   |                |        |          |   |        |        | 
|------------------------------------------------------------------------ | -------------------------- | - | -------------- | ------ | -------- | - | ------ | ------ | 
|                                                                         |                            |   | Sept 30,       |        | Dec. 31,
|                                                                         |                            |   | 2002           |        | 2001    
|                                                                         |                            |   |                |        |         
|                                                                         |                            |   | (in thousands)
|Loans contractually past due 90 days or
more but still accruing interest |                            | $ | 4,786          |        |          | $ | 3,744  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Nonaccrual loans                                                         |                            |   | 11,439         |        |          |   | 13,656 |       
|                                                                         |                            |   |                |        |          |   |        |       
|                                                                         | Total nonperforming loans  |   |                | 16,225 |          |   |        | 17,400 | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Other real estate                                                        |                            |   | 54             |        |          |   | 322    |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Other repossessed assets                                                 |                            |   | 53             |        |          |   | 247    |       
|                                                                         |                            |   |                |        |          |   |        |       
|                                                                         | Total nonperforming assets |   | $              | 16,332 |          |   | $      | 17,969 | 
|                                                                         |                            |   |                |        |          |   |        |       
|Nonperforming loans to total loans                                       |                            |   | 0.88           | %      |          |   | 1.00   | %     
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Nonperforming assets to total loans plus
repossessed property            |                            |   | 0.88           | %      |          |   | 1.03   | %     
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Nonperforming assets to total assets                                     |                            |   | 0.65           | %      |          |   | 0.75   | %     

At September 30, 2002, our consumer loan portfolio included $21.0 million of
loans to consumers secured by manufactured homes. To date, the delinquency and
loss experience of our portfolio has not deteriorated materially. However, we
are aware of recent industry reports of rising delinquency rates and declining
resale values for repossessed units. Therefore, we anticipate that the quality
of our manufactured housing loan portfolio may decline in the future, which
could lead to higher charge-offs and additional provisions for loan losses.

Allowance for Loan Losses

We have established an allowance for loan losses to provide for loans in our
portfolio that may not be repaid in their entirety. The allowance is based on
our regular, quarterly assessments of the probable estimated losses inherent in
the loan portfolio. Although management believes that the allowance for loan
losses is adequate to absorb probable losses on existing loans that may become
uncollectable, there can be no assurance that our allowance will prove to be
sufficient to cover actual loan losses in the future. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the adequacy of our allowance for loan losses. Such
agencies may require us to make additional provisions to the allowance based
upon their judgment about information available to them at the time of their
examinations.

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##### Table of Contents



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

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

|                                                  |                 |   |                            |        |                           |   |           |        |      |   |           |        |   |   |           |        |  
|------------------------------------------------- | --------------- | - | -------------------------- | ------ | ------------------------- | - | --------- | ------ | ---- | - | --------- | ------ | - | - | --------- | ------ | -
|                                                  |                 |   | For the Three Months Ended |        | For the Nine Months Ended
|                                                  |                 |   | September 30,              |        | September 30,            
|                                                  |                 |   |                            |        |                          
|                                                  |                 |   | 2002                       |        | 2001                      |   | 2002      |        | 2001
|                                                  |                 |   |                            |        |                           |   |           |        |     
|                                                  |                 |   | (in thousands)            
|Average total loans                               |                 | $ | 1,810,562                  |        |                           | $ | 1,658,861 |        |      | $ | 1,780,334 |        |   | $ | 1,646,672 |       
|                                                  |                 |   |                            |        |                           |   |           |        |      |   |           |        |   |   |           |       
|Total loans at end of period                      |                 | $ | 1,845,850                  |        |                           | $ | 1,690,465 |        |      | $ | 1,845,850 |        |   | $ | 1,690,465 |       
|                                                  |                 |   |                            |        |                           |   |           |        |      |   |           |        |   |   |           |       
|Allowance for loan losses:                        |                 |   |                            |        |                           |   |           |        |      |   |           |        |   |   |           |       
|                                                 
|                                                 
|                                                 
|                                                 
|Allowance at beginning of period                  |                 | $ | 32,918                     |        |                           | $ | 32,623    |        |      | $ | 31,118    |        |   | $ | 29,568    |       
|                                                 
|                                                 
|                                                 
|                                                 
|Total charge-offs                                 |                 |   | (1,553                     | )      |                           |   | (2,772    | )      |      |   | (5,571    | )      |   |   | (4,412    | )     
|                                                 
|                                                 
|                                                 
|                                                 
|Total recoveries                                  |                 |   | 465                        |        |                           |   | 68        |        |      |   | 1,333     |        |   |   | 513       |       
|                                                  |                 |   |                            |        |                           |   |           |        |      |   |           |        |   |   |           |       
|                                                  | Net charge-offs |   |                            | (1,088 | )                         |   |           | (2,704 | )    |   |           | (4,238 | ) |   |           | (3,899 | )
|                                                 
|                                                 
|                                                 
|                                                 
|Provision for loan losses                         |                 |   | 2,475                      |        |                           |   | 2,450     |        |      |   | 7,425     |        |   |   | 6,700     |       
|                                                  |                 |   |                            |        |                           |   |           |        |      |   |           |        |   |   |           |       
|Allowance at end of period                        |                 | $ | 34,305                     |        |                           | $ | 32,369    |        |      | $ | 34,305    |        |   | $ | 32,369    |       
|                                                  |                 |   |                            |        |                           |   |           |        |      |   |           |        |   |   |           |       
|Annualized net charge-offs to average total loans |                 |   | 0.24                       | %      |                           |   | 0.65      | %      |      |   | 0.32      | %      |   |   | 0.32      | %     
|                                                 
|                                                 
|                                                 
|                                                 
|Allowance to total loans at end of period         |                 |   | 1.86                       | %      |                           |   | 1.91      | %      |      |   | 1.86      | %      |   |   | 1.91      | %     
|                                                 
|                                                 
|                                                 
|                                                 
|Allowance to nonperforming loans                  |                 |   | 211.43                     | %      |                           |   | 127.30    | %      |      |   | 211.43    | %      |   |   | 127.30    | %     

Net charge-offs for the third quarter of 2002 were $1.1 million, or 0.24% of
average loans, while in the year-to-date period, net charge-offs totaled $4.2
million, or 0.32% of average loans. These charge-offs related primarily to
loans extended in prior years to companies we believe were adversely impacted
by a weakened economy. We recorded a provision for loan losses of $2.5 million
during the third quarter and $7.4 million during the first nine months of 2002.
Our allowance for loan losses was $34.3 million at September 30, 2002, which
represents 1.86% of the end-of-period loan balances and 211.43% of
non-performing loans.

Net charge-offs were $2.7 million during third quarter of 2001, or 0.65% of
average loans. Net charge-offs were $3.9 million, or 0.32% of average loans,
during the first nine months of 2001. We recorded a provision for loan losses
of $2.5 million during the third quarter of 2001 and $6.7 million during the
nine month period ended September 30, 2001. As a result, the allowance for
loan losses was $32.4 million at September 30, 2001, which represented 1.91% of
total loan balances and 127.30% of nonperforming loans. Approximately half of
the charge-offs in the first nine months of 2001 related to two loans. We also
began to experience charge-offs related to loans granted under a nationwide
program to finance the acquisition of dental practices. Consistent with our
strategic focus on business banking in the Chicago metropolitan area, we
discontinued offering that product on a national basis in the fall of 2001.

Provision for Loan Losses

We determine a provision for loan losses that we consider sufficient to
maintain an allowance covering probable losses inherent in our portfolio as of
the balance sheet date. Our provision for loan losses was $2.5 million during
the third quarter of 2002. For the year-to-date 2002 period, our provision for
loan losses was $7.4 million, an increase of $725,000, or 10.8%, compared to
the same period in 2001. Loan portfolio growth and increased net charge-offs
were the primary

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

drivers of the increase in the provision. We expect that our provision for
loan losses will increase with continued growth in our loan portfolio and any
increase in the future level of our net charge-offs. We are closely monitoring
the credit quality trends in the manufactured housing industry and its
potential impact on our portfolio of approximately $21 million in loans secured
by manufactured homes.

Non-earning Assets

Our investment in premises, leasehold improvements, and equipment was $19.7
million at September 30, 2002, as compared to $20.8 million at December 31,
2001. During 2001, we engaged a national real estate consulting firm to
evaluate the efficiency of our current facilities. The consulting firm is
currently exploring the consolidation of our back-office operations, as well as
some sales functions, into a centralized corporate center. The consultants
have recommended possible sites for a corporate center, options for disposing
of or reducing space at our current facilities and opportunities to relocate
certain branch facilities. While we have no definitive agreements regarding
the acquisition or disposition of owned or leased facilities, our senior
management has recommended, and our board of directors has agreed, to pursue a
plan of centralization. We are continuing to review the costs and
benefits of such a plan. If we implemented a plan of centralization,
we would expect to report significant nonrecurring
costs in connection with the physical move and the abandonment of certain owned
and leased facilities that could exceed $5 million.

Funding Liabilities

Total deposits increased to $1.96 billion at September 30, 2002, an increase of
$127.6 million or 7.0% from the $1.83 billion of deposits at December 31, 2001.
The increase primarily occurred in brokered and out-of-market certificates of
deposit. Brokered certificates of deposit increased $111.1 million to $222.9
million at September 30, 2002, as compared to $111.8 million at December 31,
2001. In addition, our out-of-market certificates of deposit rose by $22.4
million over the same period. Money market account balances decreased from
year-end 2001 to September 30, 2002 primarily related to a large-deposit
commercial customer. We have experienced only modest deposit growth in most
types of customer deposits in 2002.

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

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##### Table of Contents



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

|                                    |              |                                  |                |        |                            |           |                            |      |       |        |                 |      |                     |  |      |  |  |   |         |        |         |           |       |      |       |        |      |      |      |  | 
|----------------------------------- | ------------ | -------------------------------- | -------------- | ------ | -------------------------- | --------- | -------------------------- | ---- | ----- | ------ | --------------- | ---- | ------------------- |  | ---- |  |  | - | ------- | ------ | ------- | --------- | ----- | ---- | ----- | ------ | ---- | ---- | ---- |  | 
|                                    |              |                                  |                |        | For the Three Months Ended |           | For the Three Months Ended
|                                    |              |                                  |                |        | September 30, 2002         |           | September 30, 2001        
|                                    |              |                                  |                |        |                            |           |                           
|                                    |              |                                  |                |        | Average Balance            |           | Percent Of Deposits        |      | Rate  |        | Average Balance |      | Percent Of Deposits |  | Rate
|                                    |              |                                  |                |        |                            |           |                            |      |       |        |                 |      |                     |  |     
|                                    |              |                                  |                |        | (dollars in thousands)    
|Noninterest-bearing demand
deposits |              | $                                | 377,220        |        |                            |           | 19.88                      | %    |       |        |                | %    |                     |  |      |  |  | $ | 329,750 |        |         |           | 18.05 | %    |       |        |     | %   
|                                   
|                                   
|                                   
|                                   
|Interest-bearing demand deposits    |              |                                  | 593,559        |        |                            |           | 31.28                      |      |       |        | 1.40            |      |                     |  |      |  |  |   | 584,359 |        |         |           | 31.99 |      |       |        | 2.79 |     
|                                   
|                                   
|                                   
|                                   
|Savings deposits                    |              |                                  | 89,427         |        |                            |           | 4.71                       |      |       |        | 0.93            |      |                     |  |      |  |  |   | 88,540  |        |         |           | 4.85  |      |       |        | 1.34 |     
|                                   
|                                   
|                                   
|                                   
|Time deposits:                      |              |                                  |                |        |                            |           |                            |      |       |        |                 |      |                     |  |      |  |  |   |         |        |         |           |       |      |       |        |      |     
|                                   
|                                   
|                                   
|                                   
|Certificates of deposit             |              |                                  | 557,916        |        |                            |           | 29.39                      |      |       |        | 3.29            |      |                     |  |      |  |  |   | 566,841 |        |         |           | 31.04 |      |       |        | 5.02 |     
|                                   
|                                   
|                                   
|                                   
|                                    |              | Brokered certificates of
deposit |                |        | 206,494                    |           |                            |      | 10.88 |        |                 |      | 3.31                |  |      |  |  |   |         |        | 159,470 |           |       |      | 8.73  |        |      |      | 5.84 | 
|                                   
|                                   
|                                   
|                                   
|                                    | Public Funds |                                  |                | 73,173 |                            |           |                            | 3.86 |       |        |                 | 2.10 |                     |  |      |  |  |   |         | 97,578 |         |           |       | 5.34 |       |        |      | 4.51 |     
|                                    |              |                                  |                |        |                            |           |                            |      |       |        |                 |      |                     |  |      |  |  |   |         |        |         |           |       |      |       |        |      |     
|                                    |              | Total time deposits              |                |        | 837,583                    |           |                            |      | 44.13 |        |                 |      | 3.19                |  |      |  |  |   |         |        | 823,889 |           |       |      | 45.11 |        |      |      | 5.10 | 
|                                    |              |                                  |                |        |                            |           |                            |      |       |        |                 |      |                     |  |      |  |  |   |         |        |         |           |       |      |       |        |      |     
|                                    |              |                                  | Total deposits |        | $                          | 1,897,789 |                            |      |       | 100.00 | %               |      |                     |  |      |  |  |   |         |        | $       | 1,826,538 |       |      |       | 100.00 | %    |      |      |  | 
|                                    |              |                                  |                |        |                            |           |                            |      |       |        |                 |      |                     |  |      |  |  |   |         |        |         |           |       |      |       |        |      |     

Our short-term borrowings include federal funds purchased, securities sold
under agreements to repurchase and U.S. Treasury tax and loan note option
accounts. Short-term borrowings declined $49.1 million to $195.9 million at
September 30, 2002 as compared to $245.0 million at year-end December 31, 2001.
Lower volumes of securities sold under agreements to repurchase produced the
decrease. On a year-to-date basis, average short-term borrowings in 2002 were
$233.3 million, a decline of $16.9 million as compared to the same nine month
period in 2001.

Our notes payable and FHLB advances consist of our revolving and term debt and
the Banks Federal Home Loan Bank (FHLB) advances. Borrowings from the FHLB
totaled $100.0 million and $85.0 million at September 30, 2002 and December 31,
2001, respectively. At September 30, 2002, we had a $23.0 million term loan
outstanding and a $12.0 million revolving credit facility, of which $4.2
million was outstanding. In comparison, at December 31, 2001, the outstanding
balance of our term loan was $23.0 million and $3.0 million was outstanding
under the revolving credit facility.

On July 1, 2002, the Company received a commitment from our lender to provide a
$10.0 million subordinated term loan upon completion of the concurrent common
stock and trust preferred securities offerings and repayment of the existing
term debt. Prior to the end of 2002, we expect to reduce our term notes
payable to $500,000 and draw on our subordinated debt commitment in the amount
of $10.0 million. The subordinated debt will require interest only payments
until 2009 with a balloon payment at maturity.

As a result of the litigation settlement charge recorded in the second quarter
of 2002, we were not in compliance with a financial covenant in the loan
agreement related to holding company leverage. Our lender waived compliance
with the holding company leverage covenant as of June 30 and September 30, 2002
and suspended compliance with it from June 30, 2002 through completion of our
initial public offering. Absent this waiver, our ability to declare and pay
dividends would have been restricted. After giving effect to the concurrent
offerings of the
31Table of Contents

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

common stock and trust preferred securities completed in October 2002, we are
in compliance with this financial covenant.

CAPITAL RESOURCES

We monitor compliance with bank regulatory capital requirements, focusing
primarily on the risk-based capital guidelines. Under the risk-based capital
method of capital measurement, the ratio computed is dependent on the amount
and composition of assets recorded on the balance sheet and the amount and
composition of off-balance sheet items, in addition to the level of capital.
Generally, Tier I capital includes common stockholders equity and our
noncumulative perpetual preferred stock less goodwill. Total capital
represents Tier I capital plus the allowance for loan loss, subject to certain
limits, and qualifying subordinated debt.

The litigation settlement charge recorded in the second quarter of 2002 caused
our capital to fall below minimum capital guidelines for bank holding companies
as set by the Federal Reserve. Even though the Bank is well capitalized, we
were considered undercapitalized at the holding company level at September 30,
2002. In connection therewith, the Federal Reserve informed us in August 2002
that we needed its prior approval before we could pay any dividends on
our common and preferred stock. The Federal Reserve approved the payment of
our scheduled quarterly dividends on our common stock and our Series A
preferred stock in October 2002.

After giving effect to the completion of the concurrent offering of common
stock and trust preferred securities in fourth quarter of 2002, regulatory
capital levels at the holding company will reach the well capitalized levels.
We have provided that information to the Federal Reserve, who notified us on
November 8, 2002 that we no longer need their approval before paying
dividends.

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

32



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##### Table of Contents



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

|                          |                                          |  |   |                        |  |          |  |                  |   |       |   |             |  |            |  |       |   |  |   |                   |  |  |  |        |   | 
|------------------------- | ---------------------------------------- |  | - | ---------------------- |  | -------- |  | ---------------- | - | ----- | - | ----------- |  | ---------- |  | ----- | - |  | - | ----------------- |  |  |  | ------ | - | 
|                          |                                          |  |   |                        |  |          |  |                  |   |       |   |             |  |            |  |       |   |  |   | TO BE WELL       
|                          |                                          |  |   |                        |  |          |  |                  |   |       |   |             |  |            |  |       |   |  |   | CAPITALIZED UNDER
|                          |                                          |  |   |                        |  |          |  |                  |   |       |   | FOR CAPITAL |  | PROMPT    
|                          |                                          |  |   |                        |  |          |  |                  |   |       |   | ADEQUACY    |  | CORRECTIVE
|                          |                                          |  |   | ACTUAL                 |  | PURPOSES |  | ACTION PROVISION
|                          |                                          |  |   |                        |  |          |  |                 
|                          |                                          |  |   | AMOUNT                 |  | RATIO    |  | AMOUNT           |   | RATIO |   | AMOUNT      |  | RATIO     
|                          |                                          |  |   |                        |  |          |  |                  |   |       |   |             |  |           
|                          |                                          |  |   | (dollars in thousands)
|As of September 30, 2002: |                                          |  |   |                        |  |          |  |                  |   |       |   |             |  |            |  |       |   |  |   |                   |  |  |  |       
|                         
|                         
|                         
|                         
|                          | Total Capital (to Risk Weighted Assets)  |  |   |                        |  |          |  |                  |   |       |   |             |  |            |  |       |   |  |   |                   |  |  |  |        |  
|                         
|                         
|                         
|                         
|                          | Taylor Capital Group, Inc.               |  | $ | 114,957                |  |          |  | 5.88             | % |       | > | $156,355    |  |            |  | >8.00 | % |  |   | N/A               |  |  |  |        |  
|                         
|                         
|                         
|                         
|                          | Cole Taylor Bank                         |  |   | 206,273                |  |          |  | 10.56            |   |       |   | >156,260    |  |            |  | >8.00 |   |  | > | $195,325          |  |  |  | >10.00 | %
|                         
|                         
|                         
|                         
|                          | Tier I Capital (to Risk Weighted Assets) |  |   |                        |  |          |  |                  |   |       |   |             |  |            |  |       |   |  |   |                   |  |  |  |        |  
|                         
|                         
|                         
|                         
|                          | Taylor Capital Group, Inc.               |  |   | 90,405                 |  |          |  | 4.63             |   |       |   | >78,177     |  |            |  | >4.00 |   |  |   | N/A               |  |  |  |        |  
|                         
|                         
|                         
|                         
|                          | Cole Taylor Bank                         |  |   | 181,735                |  |          |  | 9.30             |   |       |   | >78,130     |  |            |  | >4.00 |   |  |   | >117,195          |  |  |  | >6.00  |  
|                         
|                         
|                         
|                         
|                          | Leverage (to average assets)             |  |   |                        |  |          |  |                  |   |       |   |             |  |            |  |       |   |  |   |                   |  |  |  |        |  
|                         
|                         
|                         
|                         
|                          | Taylor Capital Group, Inc.               |  |   | 90,405                 |  |          |  | 3.71             |   |       |   | >97,383     |  |            |  | >4.00 |   |  |   | N/A               |  |  |  |        |  
|                         
|                         
|                         
|                         
|                          | Cole Taylor Bank                         |  |   | 181,735                |  |          |  | 7.47             |   |       |   | >97,341     |  |            |  | >4.00 |   |  |   | >121,676          |  |  |  | >5.00  |  
|                         
|                         
|                         
|                         
|As of December 31, 2001:  |                                          |  |   |                        |  |          |  |                  |   |       |   |             |  |            |  |       |   |  |   |                   |  |  |  |       
|                         
|                         
|                         
|                         
|                          | Total Capital (to Risk Weighted Assets)  |  |   |                        |  |          |  |                  |   |       |   |             |  |            |  |       |   |  |   |                   |  |  |  |        |  
|                         
|                         
|                         
|                         
|                          | Taylor Capital Group, Inc.               |  | $ | 162,446                |  |          |  | 8.96             | % |       | > | $145,070    |  |            |  | >8.00 | % |  |   | N/A               |  |  |  |        |  
|                         
|                         
|                         
|                         
|                          | Cole Taylor Bank                         |  |   | 194,409                |  |          |  | 10.72            |   |       |   | >145,114    |  |            |  | >8.00 |   |  | > | $181,392          |  |  |  | >10.00 | %
|                         
|                         
|                         
|                         
|                          | Tier I Capital (to Risk Weighted Assets) |  |   |                        |  |          |  |                  |   |       |   |             |  |            |  |       |   |  |   |                   |  |  |  |        |  
|
|                          | Taylor Capital Group, Inc.               |  |   | 139,674                |  |          |  | 7.70             |   |       |   | >72,535     |  |            |  | >4.00 |   |  |   | N/A               |  |  |  |        |  
|                         
|                         
|                         
|                         
|                          | Cole Taylor Bank                         |  |   | 171,631                |  |          |  | 9.46             |   |       |   | >72,557     |  |            |  | >4.00 |   |  |   | >108,835          |  |  |  | >6.00  |  
|                         
|                         
|                         
|                         
|                          | Leverage (to average assets)             |  |   |                        |  |          |  |                  |   |       |   |             |  |            |  |       |   |  |   |                   |  |  |  |        |  
|
|                          | Taylor Capital Group, Inc.               |  |   | 139,674                |  |          |  | 5.99             |   |       |   | >93,252     |  |            |  | >4.00 |   |  |   | N/A               |  |  |  |        |  
|                         
|                         
|                         
|                         
|                          | Cole Taylor
 Bank                        |  |   | 171,631                |  |          |  | 7.37             |   |       |   | >93,190     |  |            |  | >4.00 |   |  |   | >116,488          |  |  |  | >5.00  |  

During the first nine months of 2002, we declared preferred stock dividends of
$1.6875 per share, totaling $2.6 million, and common stock dividends of $0.18
per share, totaling $1.2 million.

At September 30, 2002, we had purchased 321,698 shares of our common stock, at
a cost of $7.1 million, which are held as treasury shares. Under the terms of
our employee stock ownership plan, stock option agreements and the restricted
stock programs, we were obligated to purchase shares of our common stock from
terminated employees related to put rights. We purchased 90,218 common
shares at a cost of $1.7 million during the first nine months of 2002.
Following the completion of our common stock offering, we are no longer
obligated to purchase shares of our stock under any of these plans.

LIQUIDITY

During the first nine months of 2002, loan growth was primarily funded with
wholesale funds. During 2002, we increased brokered certificates of deposit
balances by $111.1 million to $222.9 million at September 30, 2002. We also
increased our out-of-market certificates of deposit balances by $22.4 million
to $73.1 million. These increases were partly offset by lower money market
account balances and reduced volumes of securities sold under agreements to
repurchase.

33



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##### Table of Contents



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

At the holding company level, we increased the amount outstanding under our
revolving credit facility by $1.2 million during the first nine months of 2002
to $4.2 million. In October 2002, after the completion of our public
offerings, we paid the $4.2 million balance in full. Prior to the end of 2002,
we expect to reduce our term notes payable to $500,000 and draw on our subordinated debt
commitment in the amount of $10 million.

During the first nine months of 2002, cash inflows from operating activities
exceeded cash outflows by $26.1 million. The litigation settlement charge
required no cash until the completion of our public offering in October 2002.

The following table shows, as of September 30, 2002, our obligations and
commitments to make future payments under contracts, debt and lease agreements
and for maturing time deposits by the earlier of call or contracted maturity.

|                                |       |   |                    |         |              |   |            |         |            |   |        |        |  |   |       |       |  |   |         |         | 
|------------------------------- | ----- | - | ------------------ | ------- | ------------ | - | ---------- | ------- | ---------- | - | ------ | ------ |  | - | ----- | ----- |  | - | ------- | ------- | 
|                                |       |   | September 30, 2002
|                                |       |   |                   
|                                |       |   | Within One         |         | One to Three |   | Four to    |         | After      |   |        |        | 
|                                |       |   | Year               |         | Years        |   | Five Years |         | Five Years |   | Total 
|                                |       |   |                    |         |              |   |            |         |            |   |       
|                                |       |   | (in thousands)    
|Notes Payable and FHLB advances |       | $ | 92,200             |         |              | $ | 35,000     |         |            | $ |       |        |  | $ |      |       |  | $ | 127,200 |        
|                               
|                               
|                               
|                               
|Time Deposits                   |       |   | 594,411            |         |              |   | 184,628    |         |            |   | 53,829 |        |  |   | 270   |       |  |   | 833,138 |        
|                               
|                               
|                               
|                               
|Operating Leases (1)            |       |   | 2,257              |         |              |   | 3,755      |         |            |   | 3,307  |        |  |   | 8,319 |       |  |   | 17,638  |        
|                                |       |   |                    |         |              |   |            |         |            |   |        |        |  |   |       |       |  |   |         |        
|                                | Total |   | $                  | 688,868 |              |   | $          | 223,383 |            |   | $      | 57,136 |  |   | $     | 8,589 |  |   | $       | 977,976 | 
|                                |       |   |                    |         |              |   |            |         |            |   |        |        |  |   |       |       |  |   |         |        



---

|(1) |  | Operating lease data is as of December 31, 2001, which is not
materially different from September 30, 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------

At September 30, 2002, we also had commitments to extend credit totaling $693.3
million and $62.6 million of standby letters of credit. The commitments to
extend credit include commitments to originate loans in addition to unused
portions of lines of credit. These commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn upon, the
total commitment amount does not necessarily represent future cash
requirements. Standby letters of credit are conditional commitments issued by
us to guarantee the performance of a third party. Such instruments are
generally issued for one year or less. Management expects most of our standby
letters of credit to expire undrawn.

Our primary source of funds are the dividends we receive from the Bank. These
dividends totaled $10.5 million during the first nine months of both 2002 and
2001. The Bank is subject to dividend restrictions set forth by regulatory
authorities, whereby the Bank may not, without prior approval of regulatory
authorities, declare dividends in excess of the sum of the current years
earnings plus the retained earnings from the prior two years. The dividends,
as of September 30, 2002, that the Bank could declare and pay to us, without
the approval of regulatory authorities, amounts to approximately $27.2 million.
We also have a $12 million revolving credit facility, of which $4.2 million
was outstanding at September 30, 2002. Our liquidity uses at the holding
company level consist primarily of dividends to stockholders and expenses for
general corporate purposes. After the issuance of the trust preferred stock,
liquidity will be used to service the
34Table of Contents

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

debentures issued to TAYC Capital Trust I. We believe that the Bank currently
has adequate capital to allow continued dividends out of earnings to support
our expected liquidity demands arising from normal operations.




QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

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

Our primary measurement of interest rate risk is earnings at risk, which is
determined through computerized simulation modeling. The primary simulation
model assumes a static balance sheet, using the balances, rates, maturities and
repricing characteristics of all of the Banks existing assets and liabilities,
including off-balance sheet financial instruments. Net interest income is
computed by the model assuming market rates remaining unchanged and compares
those results to other interest rate scenarios with changes in the magnitude,
timing, and relationship between various interest rates. At both September 30,
2002 and December 31, 2001, the Bank modeled a 200 basis point parallel rising
rate ramp simulation and a 100 basis point parallel declining rate simulation
over a twelve-month period. The impact of imbedded options in such products as
callable and mortgage-backed securities, real estate mortgage loans and
callable borrowings were considered. Changes in net interest income in the
rising and declining rate scenarios are then measured against the net interest
income in the rates unchanged scenario. ALCO utilizes the results of the model
to quantify the estimated exposure of net interest income to sustained interest
rate changes.

In both the September 30, 2002 and December 31, 2001 simulations, our models
indicated an exposure to declining rates. The net interest income at risk for
year one in the falling rate scenario was calculated at $2.9 million, or 2.77%,
and $1.6 million, or 1.57%, lower than the net interest income in the rates
unchanged scenario at September 30, 2002 and December 31, 2001, respectively.
This exposure was well within the Banks policy guidelines of 10%. The net
interest income for year one in the rising rate scenario was calculated to be
$1.0 million, or 1.00%, higher than the net interest income in the rates
unchanged scenario at September 30, 2002, and $279,000, or 0.28%, higher at the
December 31, 2001 simulation. Computation of
35Table of Contents

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

prospective effects of hypothetical interest rate changes are based on numerous
assumptions, including relative levels of market interest rates, loan and
security prepayments, deposit decay and pricing and reinvestment strategies,
and should not be relied upon as indicative of actual results. Further, the
computations do not contemplate any actions we may take in response to changes
in interest rates. We cannot assure you that our actual net interest income
would increase or decrease by the amounts computed by the simulations. The
following table indicates the estimated impact on net interest income under
various interest rate scenarios at September 30, 2002 and December 31, 2001:

|                                |  |                                      |        |                      |  |        |       |            |  |   |        |   |  |  |       |   
|------------------------------- |  | ------------------------------------ | ------ | -------------------- |  | ------ | ----- | ---------- |  | - | ------ | - |  |  | ----- | --
|                                |  | Change in Future Net Interest Income
|                                |  |                                     
|                                |  | At September 30, 2002                |        | At December 31, 2001
|                                |  |                                      |        |                     
|                                |  | (dollars in thousands)              
|                                |  |                                     
|                                |  | Dollar                               |        | Percentage           |  | Dollar |       | Percentage
|Change in interest rates        |  | Change                               |        | Change               |  | Change |       | Change    
|                                |  |                                      |        |                      |  |        |       |           
|+200 basis points over one year |  | $                                    | 1,038  |                      |  |        | 1.00  | %          |  | $ | 279    |   |  |  | 0.28  | % 
|                               
|                               
|                               
|                               
|-100 basis points over one year |  |                                      | (2,881 | )                    |  |        | (2.77 | %)         |  |   | (1,579 | ) |  |  | (1.57 | %)

LITIGATION

We are from time to time a party to litigation arising in the normal course of
business. Management knows of no threatened or pending legal actions against
us that are likely to have a material adverse impact on our business, financial
condition, liquidity or operating results.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 141 Business Combinations and SFAS No.
142 Goodwill and Other Intangible Assets. SFAS No. 141 requires that all
business combinations be accounted for under the purchase method, thus
eliminating the pooling method of accounting for business combinations. It
also provides guidance on the creation of goodwill and other intangible assets
during business combinations. SFAS No. 142 addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized. It requires that goodwill no longer be amortized. Instead,
goodwill will be tested annually for impairment using specific guidance
provided in SFAS 142. SFAS 142 also requires that intangible assets that have
indefinite useful lives no longer be amortized. Intangibles that are not
amortized will be subject to annual impairment testing that will compare the
fair value of the intangible asset to the recorded value. Intangible assets
with finite lives will continue to be amortized over their estimated useful
lives and tested for impairment only when events or circumstances indicate that
the carrying value of the asset may not be recovered. Transition provisions of
these statements require that initial impairment testing on goodwill and
intangible assets with indefinite lives occur upon adoption and be completed
within six months after adoption. See the section captioned Notes to
Consolidated Financial Statements-Goodwill and intangible assets for further
details on the impact of the elimination of amortization of goodwill on our
results of operation and earnings per share.

36



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##### Table of Contents



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

In August 2001, the FASB issued SFAS No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets. This Statement addresses how and when to
measure impairment of long-lived assets and how to account for long-lived
assets that an entity plans to dispose of either through sale, abandonment,
exchange, or distribution to owners. The Statement is effective for financial
statements issued for fiscal years beginning after December 15, 2001, with
early application encouraged. The provisions of this Statement generally are
to be applied prospectively. The adoption of this Statement did not materially
impact our financial condition or results of operations.

In June 2002, the FASB issued SFAS No. 146 Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 nullifies Emerging Issues Task
Force Issue No. 94-3 Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred
in a Restructuring). This Statement requires the recognition of costs
associated with exit or disposal activities when the liability is incurred
rather than the date of a commitment to an exit or disposal plan. Examples of
costs covered by this Statement include lease termination costs and certain
employee severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. This Statement
is to be applied prospectively to exit or disposal activities initiated after
December 31, 2002, although early adoption is permitted.

In October 2002, the FASB issued SFAS No. 147 Acquisitions of Certain
Financial Institutions. This statement, which provides guidance on accounting
for the acquisition of a financial institution, applies to all acquisitions
except transactions between two or more mutual enterprises. The provisions of
this Statement that relate to the application of SFAS No. 144 apply to certain
long-term customer-relationship intangible assets recognized in an acquisition
of a financial institution, including those acquired in transactions between
mutual enterprises. The excess of the fair value of liabilities assumed over
the fair value of tangible and identifiable intangible assets acquired in a
business combination represents goodwill that should be accounted for under
SFAS No. 142. If certain criteria in this SFAS No. 147 are met, the amount of
the unidentifiable intangible asset will be reclassified to goodwill upon the
adoption of SFAS No. 142, and financial institutions meeting these conditions
will be required to restate previously issued financials. Provisions of this
statement that relate to the application of the purchase method of accounting
are effective for acquisitions on or after October 1, 2002. The provision of
this Statement relating to accounting for impairment or disposal of certain
long-term customer-relationship intangible assets are effective on October 1,
2002, with earlier application permitted. The adoption of this Statement is
not expected to materially impact our financial condition or results of
operation.

QUARTERLY FINANCIAL INFORMATION

The following table sets forth unaudited financial data regarding our
operations for the first three quarters of 2002 and each of the four quarters
of 2001. This information, in the opinion of management, includes all
adjustments necessary to present fairly our results of operations
for

37



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##### Table of Contents



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

such periods, consisting only of normal recurring adjustments for the periods
indicated. The operating results for any quarter are not necessarily
indicative of results for any future period.

|                             |                                   |   |                    |        |                    |   |         |         |         |   |         |        |         |   |         |        |  |   |        |        |  |   |        |        |  |   |        |        | 
|---------------------------- | --------------------------------- | - | ------------------ | ------ | ------------------ | - | ------- | ------- | ------- | - | ------- | ------ | ------- | - | ------- | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                             |                                   |   | 2002 Quarter Ended |        | 2001 Quarter Ended
|                             |                                   |   |                    |        |                   
|                             |                                   |   | Sep. 30            |        | Jun. 30            |   | Mar. 31 |         | Dec. 31 |   | Sep. 30 |        | Jun. 30 |   | Mar. 31
|                             |                                   |   |                    |        |                    |   |         |         |         |   |         |        |         |   |        
|                             |                                   |   | (in thousands)    
|Interest income              |                                   | $ | 37,184             |        |                    | $ | 36,775  |         |         | $ | 36,114  |        |         | $ | 37,571  |        |  | $ | 40,836 |        |  | $ | 43,665 |        |  | $ | 44,463 |       
|                            
|                            
|                            
|                            
|Interest expense             |                                   |   | 11,183             |        |                    |   | 11,186  |         |         |   | 11,354  |        |         |   | 13,311  |        |  |   | 18,044 |        |  |   | 21,189 |        |  |   | 22,272 |       
|                             |                                   |   |                    |        |                    |   |         |         |         |   |         |        |         |   |         |        |  |   |        |        |  |   |        |        |  |   |        |       
|                             | Net interest income               |   |                    | 26,001 |                    |   |         | 25,589  |         |   |         | 24,760 |         |   |         | 24,260 |  |   |        | 22,792 |  |   |        | 22,476 |  |   |        | 22,191 | 
|                            
|                            
|                            
|                            
|Provision for loan losses    |                                   |   | 2,475              |        |                    |   | 2,475   |         |         |   | 2,475   |        |         |   | 3,000   |        |  |   | 2,450  |        |  |   | 2,175  |        |  |   | 2,075  |       
|                            
|                            
|                            
|                            
|Noninterest income           |                                   |   | 5,077              |        |                    |   | 5,368   |         |         |   | 4,932   |        |         |   | 5,361   |        |  |   | 5,478  |        |  |   | 6,183  |        |  |   | 4,917  |       
|                            
|                            
|                            
|                            
|Securities gains, net        |                                   |   | 2,068              |        |                    |   |        |         |         |   | 8       |        |         |   | 22      |        |  |   | 70     |        |  |   | 2,241  |        |  |   |       |       
|                            
|                            
|                            
|                            
|Litigation settlement charge |                                   |   | (2,609             | )      |                    |   | 64,509  |         |         |   |        |        |         |   |        |        |  |   |       |        |  |   |       |        |  |   |       |       
|                            
|                            
|                            
|                            
|Noninterest expense          |                                   |   | 20,637             |        |                    |   | 20,794  |         |         |   | 18,801  |        |         |   | 20,795  |        |  |   | 20,182 |        |  |   | 19,100 |        |  |   | 19,055 |       
|                             |                                   |   |                    |        |                    |   |         |         |         |   |         |        |         |   |         |        |  |   |        |        |  |   |        |        |  |   |        |       
|                             | Income (loss) before
income taxes |   |                    | 12,643 |                    |   |         | (56,821 | )       |   |         | 8,424  |         |   |         | 5,848  |  |   |        | 5,708  |  |   |        | 9,625  |  |   |        | 5,978  | 
|                            
|                            
|                            
|                            
|Income taxes                 |                                   |   | 3,754              |        |                    |   | 2,651   |         |         |   | 3,171   |        |         |   | 1,919   |        |  |   | 2,077  |        |  |   | 2,935  |        |  |   | 2,597  |       
|                             |                                   |   |                    |        |                    |   |         |         |         |   |         |        |         |   |         |        |  |   |        |        |  |   |        |        |  |   |        |       
|Net income(loss)             |                                   | $ | 8,889              |        |                    | $ | (59,472 | )       |         | $ | 5,253   |        |         | $ | 3,929   |        |  | $ | 3,631  |        |  | $ | 6,690  |        |  | $ | 3,381  |       
|                             |                                   |   |                    |        |                    |   |         |         |         |   |         |        |         |   |         |        |  |   |        |        |  |   |        |        |  |   |        |       

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report includes forward-looking statements that reflect our
current expectations and projections about our future results, performance,
prospects and opportunities. We have tried to identify these forward-looking
statements by using words including may, will, expect, anticipate,
believe, intend, could and estimate and similar expressions. These
forward-looking statements are based on information currently available to us
and are subject to a number of risks, uncertainties and other factors that
could cause our actual results, performance, prospects or opportunities in 2002
and beyond to differ materially from those expressed in, or implied by, these
forward-looking statements. These risks, uncertainties and other factors
include, without limitation: the continued control by the Taylor family over
all fundamental matters affecting our business; the significant amount of cash
needed to service our indebtedness, which reduces cash available to finance
operations; our dependence, as a holding company, on receiving dividends from
the Bank in order to pay our dividends, and the restrictions on the Banks
ability to pay dividends to us; the possibility that our wholesale funding
sources may prove insufficient to replace deposits at maturity and support our
growth; the difficulty in relocating and consolidating our administrative and
operational functions; the risks associated with implementing our new business
strategy; the possibility that we may need additional capital, and adequate
financing may not be available to us on acceptable terms, or at all; the risks
associated with our reliance on third party professionals who provide certain
financial services to our customers; changes in general economic conditions,
interest rates, deposit flows, loan demand, competition, legislation or
regulatory and accounting principles, policies or guidelines, as well as other
economic, competitive, governmental, regulatory and technological factors
impacting our operations.

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

For further information about these and other risks, uncertainties and factors,
please review the disclosure included under Risk Factors in our prospectus
filed pursuant to Rule 424(B)(4) of the Securities Act of 1933, as amended, as
filed with the Securities and Exchange Commission.

You should not place undue reliance on any forward-looking statements. Except
as otherwise required by federal securities laws, we undertake no obligation to
publicly update or revise any forward-looking statements or risk factors,
whether as a result of new information, future events, changed circumstances or
any other reason after the date of this quarterly report.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information contained in the section captioned Managements Discussion and
AnalysisQuantitative and Qualitative Disclosure About Market Risks is
incorporated herein by reference.




Item 4. Controls and Procedures

We maintain a system of internal controls and procedures that are designed to
provide reasonable assurance that information required to be disclosed by us in
the reports that we file under the Exchange Act are recorded, processed,
summarized and reported within required time periods. Our Chief Executive
Officer and our Chief Financial Officer have evaluated the effectiveness of our
disclosure controls and procedures as of a date within 90 days before the
filing of this quarterly report and have each concluded that as of the
evaluation date, such controls and procedures were effective, in all material
respects, to ensure that required information will be disclosed on a timely
basis in our reports filed under the Exchange Act.

Subsequent to the date of our evaluation, there have been no significant
changes to our internal controls or in other factors that could significantly
affect our internal controls.

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TAYLOR CAPITAL GROUP, INC.




PART II. OTHER INFORMATION







Item 1. Legal Proceedings

See the section of this report captioned Notes to Consolidated Financial
Statements  Litigation and Settlement for a description of our material
outstanding litigation and our settlement of claims.




Item 2. Changes in Securities and Use of Proceeds

On October 21, 2002, we completed an initial public offering of common stock,
$0.01 par value, and trust preferred securities. These securities were
registered under our Registration Statements on Form S-1 (Reg. Nos. 333-89158,
333-89158-01, and 333-100560-01). The concurrent offerings were underwritten
by Keefe, Bruyette & Woods, Inc. and Stifel, Nicolaus & Company Incorporated.
Under the common stock offering, we registered 3,112,500 shares for sale, which
included an over-allotment option granted to our underwriters to purchase up to
337,500 additional common shares and 525,000 shares that were sold by existing
stockholders. We did not receive any of the proceeds from the shares sold by
existing stockholders. All the common shares were sold at an initial public
offering price of $16.50 per share, resulting in an aggregate gross offering
amount of $51.4 million. Under the concurrent trust preferred securities
offering TAYC Capital Trust I, a Delaware statutory trust we formed to issue
the trust preferred securities, issued 1,800,000 securities, with a liquidation
amount per security of $25, of 9.75% preferred securities, resulting in an
aggregated gross offering amount of $45.0 million. We paid underwriting
discounts of $3.0 million on the common share offering and $1.8 million on the
trust preferred securities offering. We estimate that other offering expenses
will total $2.1 million. After deducting anticipated offering expenses,
underwriting discounts, and proceeds due to the selling stockholders, we expect
to receive $80.8 million of net proceeds from the concurrent offerings. On
October 21, 2002, we used $61.9 million of the net proceeds to fully satisfy
our obligation under agreements to settle outstanding litigation against us.
We also will use $16.7 million of the net proceeds to reduce our existing
indebtedness. The remainder of the proceeds will be used for general corporate
purposes. We have invested the net proceeds in short-term, investment grade,
interest bearing instruments, pending their use.




Item 3. Defaults Upon Senior Securities

None.




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



|a) |  | The Annual Meeting of Stockholders of the Company was held on July 11,
2002. Proxies were solicited of the holders of the Companys Series A
Noncumulative Perpetual Preferred Stock. However, because the Company
had not yet completed its initial public offering, and because the Voting
Trust dated 11/30/98, of which Iris Tark Taylor, Cindy Taylor Bleil,
Jeffrey W. Taylor and Bruce W. Taylor are co-trustees, controlled a
sufficient number of Common Stock to elect these directors (67.14% of the
shares outstanding), proxies of the stockholders who owned the remaining
32.86% of the Common Stock outstanding at that time were not solicited.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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TAYLOR CAPITAL GROUP, INC.



|b) |  | A brief discussion of the matters voted upon at the Annual Meeting and
the number of votes cast is as follows:
|-- |  | --------------------------------------------------------------------------------------------------------------

|                                                                                                        |                          |  |     |            |  |      |       |  |          |  |  |   | 
|------------------------------------------------------------------------------------------------------- | ------------------------ |  | --- | ---------- |  | ---- | ----- |  | -------- |  |  | - | 
|                                                                                                        |                          |  |     |            |  |      | Votes |  |          |  | 
|Matter                                                                                                  |                          |  |     |            |  | Cast |       |  |          | 
|                                                                                                        |                          |  |     |            |  |      |       |  |          | 
|                                                                                                        |                          |  | For |            |  |      |       |  | Withheld
|                                                                                                        |                          |  |     |            |  |      |       |  |         
|Election of Director by Holders
of the Companys 9.0% Series A
Noncumulative Perpetual Preferred
Stock: |                          |  |     |            |  |      |       |  |          |  |  |  
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Adelyn Dougherty Leander |  |     | 4,025      |  |      |       |  |          |  |  | 0 | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Election of Directors by Holders
of the Companys Common Stock:                                         |                          |  |     |            |  |      |       |  |          |  |  |  
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Jeffrey W. Taylor        |  |     | 4,586,325* |  |      |       |  |          |  |  | 0 | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Bruce W. Taylor          |  |     | 4,586,325* |  |      |       |  |          |  |  | 0 | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | John Christopher Alstrin |  |     | 4,586,325* |  |      |       |  |          |  |  | 0 | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Cindy Taylor Bleil       |  |     | 4,586,325* |  |      |       |  |          |  |  | 0 | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Ronald Emanuel           |  |     | 4,586,325* |  |      |       |  |          |  |  | 0 | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Melvin E. Pearl          |  |     | 4,586,325* |  |      |       |  |          |  |  | 0 | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Richard T. Tinberg       |  |     | 4,586,325* |  |      |       |  |          |  |  | 0 | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Mark L. Yeager           |  |     | 4,586,325* |  |      |       |  |          |  |  | 0 | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Edward McGowan           |  |     | 4,586,325* |  |      |       |  |          |  |  | 0 | 

*Adjusted to reflect the three-for-two split of our Common Stock that was
effected as a dividend to stockholders of record as of October 2, 2002.




Item 5. Other Information

None.




Item 6. Exhibits and Reports on Form 8-K

a) We have filed the following exhibits with this quarterly report:

|               |  |                                                                                                                                                                                                                                     
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit                                                                                                                                                                                                                             
|               |  |                                                                                                                                                                                                                                     
|3.1            |  | Amended and Restated Certificate of Incorporation of Taylor
Capital Group, Inc. (incorporated by reference from Exhibit
3.1 of the Amended Registration Statement on Form S-1 filed
October 10, 2002 (Registration No. 333-89158)). 
|              
|              
|              
|              
|3.2            |  | Amended and Restated By-laws of Taylor Capital Group, Inc.
(incorporated by reference from Exhibit 3.2 of the Amended
Registration Statement on Form S-1 filed October 10, 2002
(Registration No. 333-89158)).                      
|              
|              
|              
|              
|4.1            |  | Certificate representing the Series A 9% Noncumulative
Perpetual Preferred Stock (incorporated by reference from
Exhibit 4.2 of the Amended Registration Statement on Form
S-1 filed October 10, 2002 (Registration No. 333-89158)).

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TAYLOR CAPITAL GROUP, INC.

|               |  |                                                                                                                                                                                                                                                                 
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit                                                                                                                                                                                                                                                         
|               |  |                                                                                                                                                                                                                                                                 
|4.2            |  | Certificate representing Taylor Capital Group, Inc. Common
Stock (incorporated by reference from Exhibit 4.3 of the
Amended Registration Statement on Form S-1 filed October
10, 2002 (Registration No. 333-89158)).                                            
|              
|              
|              
|              
|4.3            |  | Indenture between Taylor Capital Group, Inc. and LaSalle
Bank National Association, as trustee (incorporated by
reference from Exhibit 4.4 of the Amended Registration
Statement on Form S-1 filed October 10, 2002 (Registration
No. 333-89158)).              
|              
|              
|              
|              
|4.4            |  | Junior Subordinated Debenture due 2032 (incorporated by
reference from Exhibit 4.5 of the Amended Registration
Statement on Form S-1 filed October 10, 2002 (Registration
No. 333-89158)).                                                                      
|              
|              
|              
|              
|4.5            |  | Certificate of Trust of TAYC Capital Trust I (incorporated
by reference from Exhibit 4.6 of the Amended Registration
Statement on Form S-1 filed October 10, 2002 (Registration
No. 333-89158)).                                                                
|              
|              
|              
|              
|4.6            |  | Amended and Restated Trust Agreement of TAYC Capital Trust
I (incorporated by reference from Exhibit 4.8 of the
Amended Registration Statement on Form S-1 filed October
10, 2002 (Registration No. 333-89158)).                                                
|              
|              
|              
|              
|4.7            |  | Preferred Securities Guarantee Agreement (incorporated by
reference from Exhibit 4.9 of the Amended Registration
Statement on Form S-1 filed October 10, 2002 (Registration
No. 333-89158)).                                                                    
|              
|              
|              
|              
|4.8            |  | Agreement as to Expenses and Liabilities by and between
Taylor Capital Group, Inc. and TAYC Capital Trust I
(incorporated by reference from Exhibit 4.10 of the Amended
Registration Statement on Form S-1 filed October 10, 2002
(Registration No. 333-89158)).
|              
|              
|              
|              
|4.9            |  | Certificate representing TAYC Capital Trust I Trust
Preferred Security (incorporated by reference from Exhibit
4.11 of the Amended Registration Statement on Form S-1
filed October 10, 2002 (Registration No. 333-89158)).                                     
|              
|              
|              
|              
|99.1           |  | Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.                                                                                                          
|              
|              
|              
|              
|99.2           |  | Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.                                                                                                          

b) Reports on Form 8-K.

We did not file any Current Reports on Form 8-K during the third quarter
of 2002.

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TAYLOR CAPITAL GROUP, INC.




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.                                                                                            
|     
|     
|     
|     
|      |  |                   |  |                                                                                                                       
|     
|     
|     
|     
|Date: |  | November 22, 2002 |  | /s/ J. Christopher Alstrin

J. Christopher Alstrin
Chief Financial Officer(Principal Financial and Accounting
Officer)
|     
|     
|     
|     
|      |  |                   |  |                                                                                                                       
|     
|     
|     
|     
|      |  |                   |  | /s/ Jeffrey W. Taylor

Jeffrey W. Taylor
Chairman and Chief Executive Officer(Principal Executive Officer)            

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TAYLOR CAPITAL GROUP, INC.

Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey W. Taylor, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Taylor Capital Group,
Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
the registrants board of directors:



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        

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TAYLOR CAPITAL GROUP, INC.

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 22, 2002

/s/ Jeffrey W. Taylor
Jeffrey W. Taylor
Chief Executive Officer

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TAYLOR CAPITAL GROUP, INC.

Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, J. Christopher Alstrin, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Taylor Capital Group,
Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |  |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| |  |  | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
the registrants board of directors:



| |  |  | a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        

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TAYLOR CAPITAL GROUP, INC.

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 22, 2002

/s/ J. Christopher Alstrin
J. Christopher Alstrin
Chief Financial Officer

47