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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended June 30, 2008

Commission File No. 0-50034





TAYLOR CAPITAL GROUP, INC.

(Exact name of registrant as specified in its charter)







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

9550 West Higgins Road

Rosemont, IL 60018

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

(847) 653-7978

(Registrants telephone number, including area code)





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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer
and large accelerated filer in Rule 12b-2 of the Exchange Act).

Large accelerated filer   ̈    Accelerated filer  x    Non-accelerated filer   ̈

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

Indicate the number of outstanding shares of each
of the issuers classes of common stock, as of the latest practicable date: At July 31, 2008, there were 10,965,986 shares of Common Stock, $0.01 par value, outstanding.









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TAYLOR CAPITAL GROUP, INC.

INDEX



|                              |  |                                                                                                                         |  |   
|----------------------------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | --
|                              |  | Page                                                                                                                   
|PART I. FINANCIAL INFORMATION |  |                                                                                                                        
|                              |  |                                                                                                                        
|Item 1.                       |  | Financial Statements                                                                                                    |  |   
|                              |  |                                                                                                                        
|                              |  | Consolidated Balance Sheets (unaudited) -June 30, 2008 and December 31, 2007                                            |  | 1 
|                              |  |                                                                                                                        
|                              |  | Consolidated Statements of Operations (unaudited) -For the three and six months ended June 30, 2008 and 2007            |  | 2 
|                              |  |                                                                                                                        
|                              |  | Consolidated Statements of Changes in Stockholders Equity (unaudited) -For the six months ended June 30, 2008 and 2007 |  | 3 
|                              |  |                                                                                                                        
|                              |  | Consolidated Statements of Cash Flows (unaudited) -For the six months ended June 30, 2008 and 2007                      |  | 4 
|                              |  |                                                                                                                        
|                              |  | Notes to Consolidated Financial Statements (unaudited)                                                                  |  | 6 
|                              |  |                                                                                                                        
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                   |  | 17
|                              |  |                                                                                                                        
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                              |  | 52
|                              |  |                                                                                                                        
|Item 4.                       |  | Controls and Procedures                                                                                                 |  | 53
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                        
|                              |  |                                                                                                                        
|Item 1.                       |  | Legal Proceedings                                                                                                       |  | 54
|                              |  |                                                                                                                        
|Item 1A.                      |  | Risk Factors                                                                                                            |  | 54
|                              |  |                                                                                                                        
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                             |  | 55
|                              |  |                                                                                                                        
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                         |  | 56
|                              |  |                                                                                                                        
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                     |  | 56
|                              |  |                                                                                                                        
|Item 5.                       |  | Other Information                                                                                                       |  | 56
|                              |  |                                                                                                                        
|Item 6.                       |  | Exhibits                                                                                                                |  | 57
|                              |  |                                                                                                                        
|                              |  | Signatures                                                                                                              |  | 59



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TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS (unaudited)

(dollars in thousands, except per share data)



|                                                                                                                                                                                                                                                            |  |              |           |   |                  |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                                                                                            |  | June 30,2008 |           |   | December 31,2007 |  
|ASSETS                                                                                                                                                                                                                                                      |  |              |           |   |                  |   |           |  
|Cash and cash equivalents:                                                                                                                                                                                                                                  |  |              |           |   |                  |   |           |  
|Cash and due from banks                                                                                                                                                                                                                                     |  | $            | 89,129    |   |                  | $ | 74,353    |  
|Federal funds sold                                                                                                                                                                                                                                          |  |              | 65,960    |   |                  |   | 4,550     |  
|Short-term investments                                                                                                                                                                                                                                      |  |              | 156       |   |                  |   | 4,658     |  
|                                                                                                                                                                                                                                                            |  |              |           |   |                  |   |           |  
|Total cash and cash equivalents                                                                                                                                                                                                                             |  |              | 155,245   |   |                  |   | 83,561    |  
|Investment securities:                                                                                                                                                                                                                                      |  |              |           |   |                  |   |           |  
|Available-for-sale, at fair value                                                                                                                                                                                                                           |  |              | 818,217   |   |                  |   | 892,346   |  
|Held-to-maturity, at amortized cost (fair value of $25 at June 30, 2008 and December 31, 2007)                                                                                                                                                              |  |              | 25        |   |                  |   | 25        |  
|Loans, net of allowance for loan losses of $104,742 and $54,681 at June 30, 2008 and December 31, 2007, respectively                                                                                                                                        |  |              | 2,621,113 |   |                  |   | 2,478,652 |  
|Premises, leasehold improvements and equipment, net                                                                                                                                                                                                         |  |              | 15,708    |   |                  |   | 16,109    |  
|Investments in Federal Home Loan Bank and Federal Reserve Bank stock, at cost                                                                                                                                                                               |  |              | 15,335    |   |                  |   | 15,310    |  
|Other real estate and repossessed assets, net                                                                                                                                                                                                               |  |              | 4,280     |   |                  |   | 2,606     |  
|Other assets                                                                                                                                                                                                                                                |  |              | 89,211    |   |                  |   | 67,854    |  
|                                                                                                                                                                                                                                                            |  |              |           |   |                  |   |           |  
|Total assets                                                                                                                                                                                                                                                |  | $            | 3,719,134 |   |                  | $ | 3,556,463 |  
|                                                                                                                                                                                                                                                            |  |              |           |   |                  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                        |  |              |           |   |                  |   |           |  
|Deposits:                                                                                                                                                                                                                                                   |  |              |           |   |                  |   |           |  
|Noninterest-bearing                                                                                                                                                                                                                                         |  | $            | 424,440   |   |                  | $ | 471,770   |  
|Interest-bearing                                                                                                                                                                                                                                            |  |              | 2,495,194 |   |                  |   | 2,108,422 |  
|                                                                                                                                                                                                                                                            |  |              |           |   |                  |   |           |  
|Total deposits                                                                                                                                                                                                                                              |  |              | 2,919,634 |   |                  |   | 2,580,192 |  
|Other borrowings                                                                                                                                                                                                                                            |  |              | 300,567   |   |                  |   | 389,054   |  
|Accrued interest, taxes and other liabilities                                                                                                                                                                                                               |  |              | 43,928    |   |                  |   | 41,354    |  
|Notes payable and FHLB advances                                                                                                                                                                                                                             |  |              | 147,000   |   |                  |   | 205,000   |  
|Junior subordinated debentures                                                                                                                                                                                                                              |  |              | 86,607    |   |                  |   | 86,607    |  
|                                                                                                                                                                                                                                                            |  |              |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                                                                                                           |  |              | 3,497,736 |   |                  |   | 3,302,207 |  
|                                                                                                                                                                                                                                                            |  |              |           |   |                  |   |           |  
|Stockholders equity:                                                                                                                                                                                                                                       |  |              |           |   |                  |   |           |  
|Preferred stock, $.01 par value, 5,000,000 shares authorized, no shares issued and outstanding                                                                                                                                                              |  |              |          |   |                  |   |          |  
|Common stock, $.01 par value; 18,000,000 shares authorized; 11,918,654 and 11,504,662 shares issued at June 30, 2008 and
December 31, 2007, respectively; 10,965,986 and 10,551,994 shares outstanding at June 30, 2008 and December 31, 2007, respectively |  |              | 119       |   |                  |   | 115       |  
|Surplus                                                                                                                                                                                                                                                     |  |              | 198,175   |   |                  |   | 197,214   |  
|Retained earnings                                                                                                                                                                                                                                           |  |              | 44,908    |   |                  |   | 75,145    |  
|Accumulated other comprehensive income, net                                                                                                                                                                                                                 |  |              | 2,832     |   |                  |   | 6,418     |  
|Treasury stock, at cost, 952,668 shares at June 30, 2008 and December 31, 2007                                                                                                                                                                              |  |              | (24,636   | ) |                  |   | (24,636   | )
|                                                                                                                                                                                                                                                            |  |              |           |   |                  |   |           |  
|Total stockholders equity                                                                                                                                                                                                                                  |  |              | 221,398   |   |                  |   | 254,256   |  
|                                                                                                                                                                                                                                                            |  |              |           |   |                  |   |           |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                  |  | $            | 3,719,134 |   |                  | $ | 3,556,463 |  
|                                                                                                                                                                                                                                                            |  |              |           |   |                  |   |           |  

See accompanying notes to consolidated financial statements (unaudited)



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TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(dollars in thousands, except per share data)



|                                                           |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|---------------------------------------------------------- |  | ---------------------------------- | ------- | - | -------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                           |  | For the Three MonthsEnded June 30, |         |   | For the Six MonthsEnded June 30, |  
|                                                           |  | 2008                               |         |   | 2007                             |   |        | 2008 |  |   | 2007    |  
|Interest income:                                           |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Interest and fees on loans                                 |  | $                                  | 35,749  |   |                                  | $ | 49,208 |      |  | $ | 76,978  |   |  | $ | 97,388  |  
|Interest and dividends on investment                       |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Taxable                                                    |  |                                    | 8,954   |   |                                  |   | 5,640  |      |  |   | 18,355  |   |  |   | 11,415  |  
|Tax-exempt                                                 |  |                                    | 1,456   |   |                                  |   | 1,524  |      |  |   | 2,938   |   |  |   | 3,054   |  
|Interest on cash equivalents                               |  |                                    | 247     |   |                                  |   | 319    |      |  |   | 789     |   |  |   | 840     |  
|                                                           |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Total interest income                                      |  |                                    | 46,406  |   |                                  |   | 56,691 |      |  |   | 99,060  |   |  |   | 112,697 |  
|                                                           |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Interest expense:                                          |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Deposits                                                   |  |                                    | 19,606  |   |                                  |   | 24,158 |      |  |   | 41,579  |   |  |   | 47,882  |  
|Other borrowings                                           |  |                                    | 2,355   |   |                                  |   | 2,748  |      |  |   | 5,090   |   |  |   | 5,547   |  
|Notes payable and FHLB advances                            |  |                                    | 1,173   |   |                                  |   | 1,356  |      |  |   | 2,747   |   |  |   | 2,420   |  
|Junior subordinated debentures                             |  |                                    | 1,707   |   |                                  |   | 1,973  |      |  |   | 3,605   |   |  |   | 3,937   |  
|                                                           |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Total interest expense                                     |  |                                    | 24,841  |   |                                  |   | 30,235 |      |  |   | 53,021  |   |  |   | 59,786  |  
|                                                           |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Net interest income                                        |  |                                    | 21,565  |   |                                  |   | 26,456 |      |  |   | 46,039  |   |  |   | 52,911  |  
|Provision for loan losses                                  |  |                                    | 49,355  |   |                                  |   | 1,900  |      |  |   | 61,105  |   |  |   | 5,500   |  
|                                                           |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Net interest income (loss) after provision for loan losses |  |                                    | (27,790 | ) |                                  |   | 24,556 |      |  |   | (15,066 | ) |  |   | 47,411  |  
|                                                           |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Noninterest income:                                        |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Service charges                                            |  |                                    | 2,255   |   |                                  |   | 1,895  |      |  |   | 4,421   |   |  |   | 3,705   |  
|Trust and investment management fees                       |  |                                    | 1,035   |   |                                  |   | 1,005  |      |  |   | 1,842   |   |  |   | 1,957   |  
|Loan syndication fees                                      |  |                                    |        |   |                                  |   | 400    |      |  |   | 116     |   |  |   | 400     |  
|Other derivative income (expense)                          |  |                                    | 65      |   |                                  |   | (61    | )    |  |   | 952     |   |  |   | (37     | )
|Other noninterest income                                   |  |                                    | 675     |   |                                  |   | 765    |      |  |   | 801     |   |  |   | 1,241   |  
|                                                           |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Total noninterest income                                   |  |                                    | 4,030   |   |                                  |   | 4,004  |      |  |   | 8,132   |   |  |   | 7,266   |  
|                                                           |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Noninterest expense:                                       |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Salaries and employee benefits                             |  |                                    | 11,096  |   |                                  |   | 9,916  |      |  |   | 22,799  |   |  |   | 19,530  |  
|Occupancy of premises                                      |  |                                    | 1,883   |   |                                  |   | 2,080  |      |  |   | 3,830   |   |  |   | 3,966   |  
|Furniture and equipment                                    |  |                                    | 850     |   |                                  |   | 825    |      |  |   | 1,668   |   |  |   | 1,699   |  
|Non-performing asset expense                               |  |                                    | 2,471   |   |                                  |   | 141    |      |  |   | 3,479   |   |  |   | 432     |  
|Legal fees, net                                            |  |                                    | 769     |   |                                  |   | 649    |      |  |   | 1,354   |   |  |   | 1,456   |  
|Early extinguishment of debt                               |  |                                    | 384     |   |                                  |   |       |      |  |   | 1,194   |   |  |   |        |  
|FDIC assessment                                            |  |                                    | 586     |   |                                  |   | 81     |      |  |   | 1,112   |   |  |   | 162     |  
|Other professional services                                |  |                                    | 404     |   |                                  |   | 503    |      |  |   | 1,050   |   |  |   | 1,184   |  
|Other noninterest expense                                  |  |                                    | 4,180   |   |                                  |   | 3,457  |      |  |   | 7,953   |   |  |   | 7,285   |  
|                                                           |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Total noninterest expense                                  |  |                                    | 22,623  |   |                                  |   | 17,652 |      |  |   | 44,439  |   |  |   | 35,714  |  
|                                                           |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Income (loss) before income taxes                          |  |                                    | (46,383 | ) |                                  |   | 10,908 |      |  |   | (51,373 | ) |  |   | 18,963  |  
|Income tax expense (benefit)                               |  |                                    | (21,067 | ) |                                  |   | 3,756  |      |  |   | (22,217 | ) |  |   | 6,489   |  
|                                                           |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Net income (loss)                                          |  | $                                  | (25,316 | ) |                                  | $ | 7,152  |      |  | $ | (29,156 | ) |  | $ | 12,474  |  
|                                                           |  |                                    |         |   |                                  |   |        |      |  |   |         |   |  |   |         |  
|Basic earnings (loss) per common share                     |  | $                                  | (2.42   | ) |                                  | $ | 0.65   |      |  | $ | (2.79   | ) |  | $ | 1.14    |  
|Diluted earnings (loss) per common share                   |  |                                    | (2.42   | ) |                                  |   | 0.65   |      |  |   | (2.79   | ) |  |   | 1.12    |  

See accompanying notes to consolidated financial statements (unaudited)



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TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (unaudited)

(dollars in thousands, except per share data)



|                                                                                                            |  |                |   |             |   |         |  |   |                  |   |  |                                            |         |   |               |   |         |       |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------- |  | -------------- | - | ----------- | - | ------- |  | - | ---------------- | - |  | ------------------------------------------ | ------- | - | ------------- | - | ------- | ----- |  | - | ------- | - |  | - | ------- | -
|                                                                                                            |  | PreferredStock |   | CommonStock |   | Surplus |  |   | RetainedEarnings |   |  | AccumulatedOtherComprehensiveIncome (Loss) |         |   | TreasuryStock |   |         | Total | 
|Balance at December 31, 2007                                                                                |  | $              |  |             | $ | 115     |  | $ | 197,214          |   |  | $                                          | 75,145  |   |               | $ | 6,418   |       |  | $ | (24,636 | ) |  | $ | 254,256 |  
|Amortization of stock based compensation awards                                                             |  |                |  |             |   |        |  |   | 1,111            |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | 1,111   |  
|Issuance of restricted stock grants                                                                         |  |                |  |             |   | 4       |  |   | (4               | ) |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   |        |  
|Exercise of stock options                                                                                   |  |                |  |             |   |        |  |   | 30               |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | 30      |  
|Tax benefit on stock options exercised and stock awards                                                     |  |                |  |             |   |        |  |   | (176             | ) |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | (176    | )
|Comprehensive income (loss):                                                                                |  |                |   |             |   |         |  |   |                  |   |  |                                            |         |   |               |   |         |       |  |   |         |   |  |   |         |  
|Net loss                                                                                                    |  |                |  |             |   |        |  |   |                 |   |  |                                            | (29,156 | ) |               |   |        |       |  |   |        |   |  |   | (29,156 | )
|Change in unrealized gains and losses on available-for-sale investment securities, net of income taxes      |  |                |  |             |   |        |  |   |                 |   |  |                                            |        |   |               |   | (4,149  | )     |  |   |        |   |  |   | (4,149  | )
|Change in unrealized gains and losses from cash flow hedging instruments, net of income taxes               |  |                |  |             |   |        |  |   |                 |   |  |                                            |        |   |               |   | 1,543   |       |  |   |        |   |  |   | 1,543   |  
|Changes in deferred gains and losses from termination of cash flow hedging instruments, net of income taxes |  |                |  |             |   |        |  |   |                 |   |  |                                            |        |   |               |   | (980    | )     |  |   |        |   |  |   | (980    | )
|                                                                                                            |  |                |   |             |   |         |  |   |                  |   |  |                                            |         |   |               |   |         |       |  |   |         |   |  |   |         |  
|Total comprehensive loss                                                                                    |  |                |   |             |   |         |  |   |                  |   |  |                                            |         |   |               |   |         |       |  |   |         |   |  |   | (32,742 | )
|                                                                                                            |  |                |   |             |   |         |  |   |                  |   |  |                                            |         |   |               |   |         |       |  |   |         |   |  |   |         |  
|Common stock dividends $0.10 per share                                                                     |  |                |  |             |   |        |  |   |                 |   |  |                                            | (1,081  | ) |               |   |        |       |  |   |        |   |  |   | (1,081  | )
|                                                                                                            |  |                |   |             |   |         |  |   |                  |   |  |                                            |         |   |               |   |         |       |  |   |         |   |  |   |         |  
|Balance at June 30, 2008                                                                                    |  | $              |  |             | $ | 119     |  | $ | 198,175          |   |  | $                                          | 44,908  |   |               | $ | 2,832   |       |  | $ | (24,636 | ) |  | $ | 221,398 |  
|                                                                                                            |  |                |   |             |   |         |  |   |                  |   |  |                                            |         |   |               |   |         |       |  |   |         |   |  |   |         |  
|Balance at December 31, 2006                                                                                |  | $              |  |             | $ | 115     |  | $ | 194,687          |   |  | $                                          | 89,045  |   |               | $ | (5,598  | )     |  | $ | (7,057  | ) |  | $ | 271,192 |  
|Amortization of stock based compensation awards                                                             |  |                |  |             |   |        |  |   | 806              |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | 806     |  
|Exercise of stock options                                                                                   |  |                |  |             |   |        |  |   | 228              |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | 228     |  
|Tax benefit on stock options exercised and stock awards                                                     |  |                |  |             |   |        |  |   | 98               |   |  |                                            |        |   |               |   |        |       |  |   |        |   |  |   | 98      |  
|Purchase of treasury stock                                                                                  |  |                |  |             |   |        |  |   |                 |   |  |                                            |        |   |               |   |        |       |  |   | (9,944  | ) |  |   | (9,944  | )
|Comprehensive income:                                                                                       |  |                |   |             |   |         |  |   |                  |   |  |                                            |         |   |               |   |         |       |  |   |         |   |  |   |         |  
|Net income                                                                                                  |  |                |  |             |   |        |  |   |                 |   |  |                                            | 12,474  |   |               |   |        |       |  |   |        |   |  |   | 12,474  |  
|Change in unrealized loss on available-for-sale investment securities, net of income taxes                  |  |                |  |             |   |        |  |   |                 |   |  |                                            |        |   |               |   | (4,498  | )     |  |   |        |   |  |   | (4,498  | )
|Change in unrealized gains and losses from cash flow hedging instruments, net of income taxes               |  |                |  |             |   |        |  |   |                 |   |  |                                            |        |   |               |   | (917    | )     |  |   |        |   |  |   | (917    | )
|Changes in deferred gains and losses from termination of cash flow hedging instruments, net of income taxes |  |                |  |             |   |        |  |   |                 |   |  |                                            |        |   |               |   | 272     |       |  |   |        |   |  |   | 272     |  
|                                                                                                            |  |                |   |             |   |         |  |   |                  |   |  |                                            |         |   |               |   |         |       |  |   |         |   |  |   |         |  
|Total comprehensive income                                                                                  |  |                |   |             |   |         |  |   |                  |   |  |                                            |         |   |               |   |         |       |  |   |         |   |  |   | 7,331   |  
|                                                                                                            |  |                |   |             |   |         |  |   |                  |   |  |                                            |         |   |               |   |         |       |  |   |         |   |  |   |         |  
|Common stock dividends $0.20 per share                                                                     |  |                |  |             |   |        |  |   |                 |   |  |                                            | (2,195  | ) |               |   |        |       |  |   |        |   |  |   | (2,195  | )
|                                                                                                            |  |                |   |             |   |         |  |   |                  |   |  |                                            |         |   |               |   |         |       |  |   |         |   |  |   |         |  
|Balance at June 30, 2007                                                                                    |  | $              |  |             | $ | 115     |  | $ | 195,819          |   |  | $                                          | 99,324  |   |               | $ | (10,741 | )     |  | $ | (17,001 | ) |  | $ | 267,516 |  
|                                                                                                            |  |                |   |             |   |         |  |   |                  |   |  |                                            |         |   |               |   |         |       |  |   |         |   |  |   |         |  

See accompanying notes to consolidated financial statements (unaudited)



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TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(dollars in thousands)



|                                                                                         |  |                                 |          |   |      |   |          |  
|---------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                         |  | For the Six Months EndedJune 30 |         
|                                                                                         |  | 2008                            |          |   | 2007 |  
|Cash flows from operating activities:                                                    |  |                                 |          |   |      |   |          |  
|Net income (loss)                                                                        |  | $                               | (29,156  | ) |      | $ | 12,474   |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                 |          |   |      |   |          |  
|Other derivative (income) expense                                                        |  |                                 | (952     | ) |      |   | 37       |  
|Amortization of premiums and discounts, net                                              |  |                                 | (495     | ) |      |   | 41       |  
|Deferred loan fee amortization                                                           |  |                                 | (1,121   | ) |      |   | (2,301   | )
|Provision for loan losses                                                                |  |                                 | 61,105   |   |      |   | 5,500    |  
|Depreciation and amortization                                                            |  |                                 | 1,688    |   |      |   | 1,704    |  
|Deferred income taxes                                                                    |  |                                 | (21,230  | ) |      |   | (1,283   | )
|Losses on other real estate                                                              |  |                                 | 814      |   |      |   | 21       |  
|Tax benefit (expense) on stock options exercised or stock awards                         |  |                                 | (176     | ) |      |   | 98       |  
|Excess tax benefit on stock options exercised and stock awards                           |  |                                 | 155      |   |      |   | (61      | )
|Cash received on termination of derivative instruments                                   |  |                                 | 3,934    |   |      |   |         |  
|Other, net                                                                               |  |                                 | (244     | ) |      |   | 1,047    |  
|Changes in other assets and liabilities:                                                 |  |                                 |          |   |      |   |          |  
|Accrued interest receivable                                                              |  |                                 | 3,596    |   |      |   | 345      |  
|Other assets                                                                             |  |                                 | (2,068   | ) |      |   | 1,010    |  
|Accrued interest, taxes and other liabilities                                            |  |                                 | 2,082    |   |      |   | (4,020   | )
|                                                                                         |  |                                 |          |   |      |   |          |  
|Net cash provided by operating activities                                                |  |                                 | 17,932   |   |      |   | 14,612   |  
|                                                                                         |  |                                 |          |   |      |   |          |  
|Cash flows from investing activities:                                                    |  |                                 |          |   |      |   |          |  
|Purchases of available-for-sale securities                                               |  |                                 | (39,994  | ) |      |   | (30,011  | )
|Proceeds from principal payments and maturities of available-for-sale securities         |  |                                 | 107,759  |   |      |   | 81,180   |  
|Proceeds from principal payments and maturities of held-to-maturity securities           |  |                                 |         |   |      |   | 250      |  
|Net increase in loans                                                                    |  |                                 | (207,142 | ) |      |   | (62,886  | )
|Net additions to premises, leasehold improvements and equipment                          |  |                                 | (1,287   | ) |      |   | (548     | )
|Net cash paid on sale of branch                                                          |  |                                 | (6,444   | ) |      |   |         |  
|Additions to foreclosed property                                                         |  |                                 | (179     | ) |      |   |         |  
|Net proceeds from sales of other real estate                                             |  |                                 | 2,284    |   |      |   | 103      |  
|                                                                                         |  |                                 |          |   |      |   |          |  
|Net cash used by investing activities                                                    |  |                                 | (145,003 | ) |      |   | (11,912  | )
|                                                                                         |  |                                 |          |   |      |   |          |  
|Cash flows from financing activities:                                                    |  |                                 |          |   |      |   |          |  
|Net increase (decrease) in deposits                                                      |  |                                 | 346,448  |   |      |   | (128,200 | )
|Net increase (decrease) in other borrowings                                              |  |                                 | (88,487  | ) |      |   | 28,776   |  
|Proceeds from notes payable and FHLB advances                                            |  |                                 | 122,000  |   |      |   | 25,000   |  
|Repayments of notes payable and FHLB advances                                            |  |                                 | (180,000 | ) |      |   |         |  
|Proceeds from exercise of employee stock options                                         |  |                                 | 30       |   |      |   | 228      |  
|Purchase of treasury stock                                                               |  |                                 |         |   |      |   | (9,944   | )
|Excess tax benefit on stock options exercised and stock awards                           |  |                                 | (155     | ) |      |   | 61       |  
|Dividends paid                                                                           |  |                                 | (1,081   | ) |      |   | (2,226   | )
|                                                                                         |  |                                 |          |   |      |   |          |  
|Net cash provided by (used in) financing activities                                      |  |                                 | 198,755  |   |      |   | (86,305  | )
|                                                                                         |  |                                 |          |   |      |   |          |  
|Net increase (decrease) in cash and cash equivalents                                     |  |                                 | 71,684   |   |      |   | (83,605  | )
|Cash and cash equivalents, beginning of period                                           |  |                                 | 83,561   |   |      |   | 134,920  |  
|                                                                                         |  |                                 |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                                 |  | $                               | 155,245  |   |      | $ | 51,315   |  
|                                                                                         |  |                                 |          |   |      |   |          |  

Consolidated Statements of Cash Flows continued on the next page

See accompanying notes to consolidated financial statements (unaudited)



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TAYLOR CAPITAL GROUP, INC.

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

(dollars in
thousands)



|                                                                              |  |                                 |        |   |      |   |        |  
|----------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                              |  | For the Six Months EndedJune 30 |       
|                                                                              |  | 2008                            |        |   | 2007 |  
|Supplemental disclosure of cash flow information:                             |  |                                 |        |   |      |   |        |  
|Cash paid during the period for:                                              |  |                                 |        |   |      |   |        |  
|Interest                                                                      |  | $                               | 52,181 |   |      | $ | 61,036 |  
|Income taxes                                                                  |  |                                 | 244    |   |      |   | 8,010  |  
|                                                                              |  |                                
|Supplemental disclosures of noncash investing and financing activities:       |  |                                 |        |   |      |   |        |  
|Change in fair value of available-for-sale investments securities, net of tax |  | $                               | (4,149 | ) |      | $ | (4,498 | )
|Loans transferred to other real estate                                        |  |                                 | 4,772  |   |      |   | 655    |  

See accompanying notes to consolidated financial statements (unaudited)



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1.
Basis of Presentation:

These consolidated financial statements contain unaudited information as of June 30, 2008 and for
the three and six month periods ended June 30, 2008 and 2007. The unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by
accounting principles generally accepted in the United States of America are not included herein. In managements opinion, these unaudited financial statements include all adjustments necessary for a fair presentation of the information when
read in conjunction with the Companys audited consolidated financial statements and the related notes. The statement of operations data for the three and six month periods ended June 30, 2008 are not necessarily indicative of the results
that the Company may achieve for the full year.

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

2. Investment Securities:

The amortized cost and estimated fair values of investment securities at June 30, 2008 and December 31, 2007 were as follows:



|                                            |  |                |         |                      |   |                       |  |   |                     |   |  |   |        
|------------------------------------------- |  | -------------- | ------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | -------
|                                            |  | June 30, 2008 
|                                            |  | AmortizedCost  |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|                                            |  | (in thousands)
|Available-for-sale:                         |  |                |         |                      |   |                       |  |   |                     |   |  |   |        
|U.S. government sponsored agency securities |  | $              | 84,993  |                      | $ | 817                   |  | $ | (103                | ) |  | $ | 85,707 
|Collateralized mortgage obligations         |  |                | 160,211 |                      |   | 354                   |  |   | (2,673              | ) |  |   | 157,892
|Mortgage-backed securities                  |  |                | 435,999 |                      |   | 2,577                 |  |   | (3,321              | ) |  |   | 435,255
|State and municipal obligations             |  |                | 140,504 |                      |   | 787                   |  |   | (1,928              | ) |  |   | 139,363
|                                            |  |                |         |                      |   |                       |  |   |                     |   |  |   |        
|Total available-for-sale                    |  |                | 821,707 |                      |   | 4,535                 |  |   | (8,025              | ) |  |   | 818,217
|                                            |  |                |         |                      |   |                       |  |   |                     |   |  |   |        
|Held-to-maturity:                           |  |                |         |                      |   |                       |  |   |                     |   |  |   |        
|Other debt securities                       |  |                | 25      |                      |   |                      |  |   |                    |   |  |   | 25     
|                                            |  |                |         |                      |   |                       |  |   |                     |   |  |   |        
|Total held-to-maturity                      |  |                | 25      |                      |   |                      |  |   |                    |   |  |   | 25     
|                                            |  |                |         |                      |   |                       |  |   |                     |   |  |   |        
|Total                                       |  | $              | 821,732 |                      | $ | 4,535                 |  | $ | (8,025              | ) |  | $ | 818,242
|                                            |  |                |         |                      |   |                       |  |   |                     |   |  |   |        



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|                                            |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|------------------------------------------- |  | ----------------- | ------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | -------
|                                            |  | December 31, 2007
|                                            |  | AmortizedCost     |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|                                            |  | (in thousands)   
|Available-for-sale:                         |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|U.S. government sponsored agency securities |  | $                 | 105,720 |                      | $ | 629                   |  | $ | (44                 | ) |  | $ | 106,305
|Collateralized mortgage obligations         |  |                   | 167,509 |                      |   | 691                   |  |   | (2,623              | ) |  |   | 165,577
|Mortgage-backed securities                  |  |                   | 472,477 |                      |   | 5,655                 |  |   | (2,008              | ) |  |   | 476,124
|State and municipal obligations             |  |                   | 143,271 |                      |   | 1,304                 |  |   | (235                | ) |  |   | 144,340
|                                            |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total available-for-sale                    |  |                   | 888,977 |                      |   | 8,279                 |  |   | (4,910              | ) |  |   | 892,346
|                                            |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Held-to-maturity:                           |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Other debt securities                       |  |                   | 25      |                      |   |                      |  |   |                    |   |  |   | 25     
|                                            |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total held-to-maturity                      |  |                   | 25      |                      |   |                      |  |   |                    |   |  |   | 25     
|                                            |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total                                       |  | $                 | 889,002 |                      | $ | 8,279                 |  | $ | (4,910              | ) |  | $ | 892,371
|                                            |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        

3. Loans:

Loans classified by type at June 30, 2008 and December 31, 2007 were as follows:



|                                      |  |                |           |   |                  |   |            |  
|------------------------------------- |  | -------------- | --------- | - | ---------------- | - | ---------- | -
|                                      |  | June 30,2008   |           |   | December 31,2007 |  
|                                      |  | (in thousands) |          
|Commercial and industrial             |  | $              | 1,044,520 |   |                  | $ | 850,196    |  
|Commercial real estate secured        |  |                | 918,161   |   |                  |   | 839,629    |  
|Real estate-construction              |  |                | 601,204   |   |                  |   | 671,678    |  
|Residential real estate mortgages     |  |                | 55,479    |   |                  |   | 60,195     |  
|Home equity loans and lines of credit |  |                | 94,725    |   |                  |   | 99,696     |  
|Consumer                              |  |                | 9,655     |   |                  |   | 10,551     |  
|Other loans                           |  |                | 2,135     |   |                  |   | 1,421      |  
|                                      |  |                |           |   |                  |   |            |  
|Gross loans                           |  |                | 2,725,879 |   |                  |   | 2 ,533,366 |  
|Less: Unearned discount               |  |                | (24       | ) |                  |   | (33        | )
|                                      |  |                |           |   |                  |   |            |  
|Total loans                           |  |                | 2,725,855 |   |                  |   | 2,533,333  |  
|Less: Allowance for loan losses       |  |                | (104,742  | ) |                  |   | (54,681    | )
|                                      |  |                |           |   |                  |   |            |  
|Loans, net                            |  | $              | 2,621,113 |   |                  | $ | 2,478,652  |  
|                                      |  |                |           |   |                  |   |            |  

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



|                                                    |  |                |         |                  |   |       
|--------------------------------------------------- |  | -------------- | ------- | ---------------- | - | ------
|                                                    |  | June 30,2008   |         | December31, 2007
|                                                    |  | (in thousands)
|Nonaccrual loans                                    |  | $              | 152,872 |                  | $ | 71,412
|Recorded balance of impaired loans                  |  |                | 176,730 |                  |   | 90,972
|Allowance for loan losses related to impaired loans |  |                | 51,298  |                  |   | 9,375 



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4. Interest-Bearing Deposits:

Interest-bearing deposits at June 30, 2008 and December 31, 2007 were as follows:



|                                              |  |                |           |                  |   |          
|--------------------------------------------- |  | -------------- | --------- | ---------------- | - | ---------
|                                              |  | June 30,2008   |           | December 31,2007
|                                              |  | (in thousands)
|NOW accounts                                  |  | $              | 69,048    |                  | $ | 76,572   
|Savings accounts                              |  |                | 44,823    |                  |   | 49,386   
|Money market deposits                         |  |                | 682,311   |                  |   | 763,336  
|Time deposits:                                |  |                |           |                  |   |          
|Certificates of deposit of less than $100,000 |  |                | 282,321   |                  |   | 229,474  
|Certificates of deposit of $100,000 or more   |  |                | 432,549   |                  |   | 313,969  
|Out-of-local-market certificates of deposit   |  |                | 171,550   |                  |   | 117,159  
|Brokered certificates of deposit              |  |                | 736,259   |                  |   | 505,631  
|Public time deposits                          |  |                | 76,333    |                  |   | 52,895   
|                                              |  |                |           |                  |   |          
|Total time deposits                           |  |                | 1,699,012 |                  |   | 1,219,128
|                                              |  |                |           |                  |   |          
|Total interest-bearing deposits               |  | $              | 2,495,194 |                  | $ | 2,108,422
|                                              |  |                |           |                  |   |          

Brokered CDs are carried net of the related broker placement fees and fair value adjustments at
the date those brokered CDs were no longer accounted for as fair value hedges. The broker placement fees and fair value adjustment are amortized to the maturity date of the related brokered CDs. The amortization is included in deposit interest
expense. During the first six months of 2008, the Company called $115 million of brokered CDs before their stated maturity that were at rates higher than current market rates. These brokered CDs were replaced with other CDs at lower interest rates.
In connection with these early redemptions, the Company recorded expense of $384,000 and $1.2 million during the second quarter of 2008 and the first six months, respectively, to write-off the unamortized broker placement fees and fair value
adjustments on these CDs. This expense is reported as early extinguishment of debt and included in noninterest expense on the statement of operations. Brokered CDs callable by us totaled $137.5 million at June 30, 2008. The composition of
brokered CDs at June 30, 2008 and December 31, 2007 was as follows:



|                                  |  |                |         |   |                  |   |         |  
|--------------------------------- |  | -------------- | ------- | - | ---------------- | - | ------- | -
|                                  |  | June 30,2008   |         |   | December 31,2007 |  
|                                  |  | (in thousands) |        
|Par value of brokered CDs         |  | $              | 740,479 |   |                  | $ | 509,561 |  
|Unamortized broker placement fees |  |                | (2,936  | ) |                  |   | (1,733  | )
|Fair value adjustment             |  |                | (1,284  | ) |                  |   | (2,197  | )
|                                  |  |                |         |   |                  |   |         |  
|Total                             |  | $              | 736,259 |   |                  | $ | 505,631 |  
|                                  |  |                |         |   |                  |   |         |  



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5. Other Borrowings:

Other borrowings at June 30, 2008 and December 31, 2007 consisted of the following:



|                                                |  |                        |         |                     |                   |   |                |   |                     |  |      |  
|----------------------------------------------- |  | ---------------------- | ------- | ------------------- | ----------------- | - | -------------- | - | ------------------- |  | ---- | -
|                                                |  | June 30, 2008          |         |                     | December 31, 2007 |  
|                                                |  | AmountBorrowed         |         | WeightedAverageRate |                   |   | AmountBorrowed |   | WeightedAverageRate | 
|                                                |  | (dollars in thousands) |        
|Securities sold under agreements to repurchase: |  |                        |         |                     |                   |   |                |   |                     |  |      |  
|Overnight                                       |  | $                      | 86,293  |                     | 0.84              | % |                | $ | 125,461             |  | 2.67 | %
|Term                                            |  |                        | 200,000 |                     | 4.05              |   |                |   | 200,000             |  | 4.05 |  
|Federal funds purchased                         |  |                        | 14,149  |                     | 1.88              |   |                |   | 23,468              |  | 4.00 |  
|U.S. Treasury tax and loan note option          |  |                        | 125     |                     | 1.76              |   |                |   | 40,125              |  | 4.25 |  
|                                                |  |                        |         |                     |                   |   |                |   |                     |  |      |  
|Total                                           |  | $                      | 300,567 |                     | 3.03              | % |                | $ | 389,054             |  | 3.62 | %
|                                                |  |                        |         |                     |                   |   |                |   |                     |  |      |  

6. Notes Payable & FHLB Advances:

Notes Payable and FHLB advances at June 30, 2008 and December 31, 2007 consisted of the following:



|                                                                                                                                                                                                                                                    |  |                |         |              |   |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ------------ | - | -------
|                                                                                                                                                                                                                                                    |  | June 30,2008   |         | Dec. 31,2007
|                                                                                                                                                                                                                                                    |  | (in thousands)
|Taylor Capital Group, Inc.:                                                                                                                                                                                                                         |  |                |         |              |   |        
|Revolving Credit Facility  $20.0 million maximum available; interest, at the Companys election, at the prime rate or LIBOR plus
1.15%, with a minimum interest rate of 3.50%; interest rate at June 30, 2008 was 5.11%; matures November 27, 2008 |  | $              | 12,000  |              | $ |       
|                                                                                                                                                                                                                                                    |  |                |         |              |   |        
|Total notes payable                                                                                                                                                                                                                                 |  |                | 12,000  |              |   |       
|                                                                                                                                                                                                                                                    |  |                |         |              |   |        
|Cole Taylor Bank:                                                                                                                                                                                                                                   |  |                |         |              |   |        
|FHLB Advance  interest determined daily at the Fed Funds rate minus 3 basis points, interest rate at December 31, 2007 was 3.68%,
matured January 14, 2008                                                                                         |  |                |        |              |   | 100,000
|FHLB advance  interest determined quarterly at the 3-month LIBOR plus 0.23%, with maximum interest rate of 5.48%; interest rate at
December 31, 2007 was 5.47%; matured April 7, 2008                                                              |  |                |        |              |   | 30,000 
|FHLB advance  4.83%, due February 1, 2011, callable after January 8, 2004                                                                                                                                                                          |  |                | 25,000  |              |   | 25,000 
|FHLB advance  4.59%, due April 5, 2010, callable after April 4, 2008                                                                                                                                                                               |  |                | 25,000  |              |   | 25,000 
|FHLB advance  2.48%, due July 7, 2008                                                                                                                                                                                                              |  |                | 10,000  |              |   |       
|FHLB advance  interest determined quarterly at the 3-month LIBOR plus 0.255%, with maximum interest rate of 5.76%; interest rate at
June 30, 2008 and December 31, 2007 was 2.97% and 5.50% respectively, due July 13, 2008                        |  |                | 25,000  |              |   | 25,000 
|FHLB advance  2.29%, due April 7, 2011, callable after April 7, 2009                                                                                                                                                                               |  |                | 25,000  |              |   |       
|FHLB advance  2.57%, due April 8, 2013, callable after April 7, 2010                                                                                                                                                                               |  |                | 25,000  |              |   |       
|                                                                                                                                                                                                                                                    |  |                |         |              |   |        
|Total FHLB advances                                                                                                                                                                                                                                 |  |                | 135,000 |              |   | 205,000
|                                                                                                                                                                                                                                                    |  |                |         |              |   |        
|Total notes payable and FHLB advances                                                                                                                                                                                                               |  | $              | 147,000 |              | $ | 205,000
|                                                                                                                                                                                                                                                    |  |                |         |              |   |        

The Company has a $20.0 million revolving line of credit. As of June 30, 2008, $12.0 million
of the revolver was outstanding. The notes payable require compliance with certain defined financial covenants. As of June 30, 2008, the Company is in compliance with these covenants.



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7. Other Comprehensive Income:

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



|                                                                                     |  |                                         |         |   |                                         |   |        |           |  |   |                 |   |  |           |         |   |           |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------ |  | --------------------------------------- | ------- | - | --------------------------------------- | - | ------ | --------- |  | - | --------------- | - |  | --------- | ------- | - | --------- | - | ----- | - |  | - | ------ | -
|                                                                                     |  | For the Three Months EndedJune 30, 2008 |         |   | For the Three Months EndedJune 30, 2007 |  
|                                                                                     |  | BeforeTaxAmount                         |         |   | TaxEffect                               |   |        | Net ofTax |  |   | BeforeTaxAmount |   |  | TaxEffect |         |   | Net ofTax |  
|                                                                                     |  |                                         |         |   |                                        
|                                                                                     |  |                                         |         |   |                                        
|                                                                                     |  | (in thousands)                          |        
|Change in unrealized gain (loss) on available-for-sale securities                    |  | $                                       | (16,006 | ) |                                         | $ | 6,324  |           |  | $ | (9,682          | ) |  | $         | (10,317 | ) |           | $ | 4,034 |   |  | $ | (6,283 | )
|Change in net unrealized gain (loss) from cash flow hedging instruments              |  |                                         | 822     |   |                                         |   | (325   | )         |  |   | 497             |   |  |           | (2,059  | ) |           |   | 806   |   |  |   | (1,253 | )
|Change in net deferred gain/(loss) from termination of cash flow hedging instruments |  |                                         | (1,062  | ) |                                         |   | 417    |           |  |   | (645            | ) |  |           | 208     |   |           |   | (72   | ) |  |   | 136    |  
|                                                                                     |  |                                         |         |   |                                         |   |        |           |  |   |                 |   |  |           |         |   |           |   |       |   |  |   |        |  
|Other comprehensive loss                                                             |  | $                                       | (16,246 | ) |                                         | $ | 6,416  |           |  | $ | (9,830          | ) |  | $         | (12,168 | ) |           | $ | 4,768 |   |  | $ | (7,400 | )
|                                                                                     |  |                                         |         |   |                                         |   |        |           |  |   |                 |   |  |           |         |   |           |   |       |   |  |   |        |  
|                                                                                     |  |                                        
|                                                                                     |  | For the Six Months EndedJune 30, 2008   |         |   | For the Six Months EndedJune 30, 2007   |  
|                                                                                     |  | BeforeTaxAmount                         |         |   | TaxEffect                               |   |        | Net ofTax |  |   | BeforeTaxAmount |   |  | TaxEffect |         |   | Net ofTax |  
|                                                                                     |  |                                         |         |   |                                        
|                                                                                     |  |                                         |         |   |                                        
|                                                                                     |  | (in thousands)                          |        
|Change in unrealized gain/(loss) on available-for-sale securities                    |  | $                                       | (6,859  | ) |                                         | $ | 2,710  |           |  | $ | (4,149          | ) |  | $         | (7,387  | ) |           | $ | 2,889 |   |  | $ | (4,498 | )
|Change in net unrealized gain/(loss) from cash flow hedging instruments              |  |                                         | 2,545   |   |                                         |   | (1,002 | )         |  |   | 1,543           |   |  |           | (1,510  | ) |           |   | 593   |   |  |   | (917   | )
|Change in net deferred gain/(loss) from termination of cash flow hedging instruments |  |                                         | (1,589  | ) |                                         |   | 609    |           |  |   | (980            | ) |  |           | 418     |   |           |   | (146  | ) |  |   | 272    |  
|                                                                                     |  |                                         |         |   |                                         |   |        |           |  |   |                 |   |  |           |         |   |           |   |       |   |  |   |        |  
|Other comprehensive loss                                                             |  | $                                       | (5,903  | ) |                                         | $ | 2,317  |           |  | $ | (3,586          | ) |  | $         | (8,479  | ) |           | $ | 3,336 |   |  | $ | (5,143 | )
|                                                                                     |  |                                         |         |   |                                         |   |        |           |  |   |                 |   |  |           |         |   |           |   |       |   |  |   |        |  

8. Earnings Per Share:

The following table sets forth the computation of basic and diluted earnings (loss) per common share for the periods indicated. Due to the net loss for both the three and six month periods ended June 30, 2008,
all of the 690,998 options outstanding to purchase shares of common stock were considered antidilutive and not included in the computation of diluted earnings per share. For both the three and six month periods ended June 30, 2007, stock
options outstanding to purchase 297,557 common shares were not included in the computation of diluted earnings per share because the effect would have been antidilutive.



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|                                                   |  |                                                  |            |                                  |      |   |            |  |   |            |   |  |   |           
|-------------------------------------------------- |  | ------------------------------------------------ | ---------- | -------------------------------- | ---- | - | ---------- |  | - | ---------- | - |  | - | ----------
|                                                   |  | For the Three MonthsEnded June 30,               |            | For the Six MonthsEnded June 30,
|                                                   |  | 2008                                             |            |                                  | 2007 |   | 2008       |  |   | 2007      
|                                                   |  | (dollars in thousands, except per share amounts)
|Net income (loss)                                  |  | $                                                | (25,316    | )                                |      | $ | 7,152      |  | $ | (29,156    | ) |  | $ | 12,474    
|                                                   |  |                                                  |            |                                  |      |   |            |  |   |            |   |  |   |           
|Weighted average common shares outstanding         |  |                                                  | 10,446,512 |                                  |      |   | 10,921,043 |  |   | 10,442,573 |   |  |   | 10,965,754
|Dilutive effect of common stock equivalents        |  |                                                  |           |                                  |      |   | 122,466    |  |   |           |   |  |   | 129,976   
|                                                   |  |                                                  |            |                                  |      |   |            |  |   |            |   |  |   |           
|Diluted weighted average common shares outstanding |  |                                                  | 10,446,512 |                                  |      |   | 11,043,509 |  |   | 10,442,573 |   |  |   | 11,095,730
|                                                   |  |                                                  |            |                                  |      |   |            |  |   |            |   |  |   |           
|Basic earnings (loss) per common share             |  | $                                                | (2.42      | )                                |      | $ | 0.65       |  | $ | (2.79      | ) |  | $ | 1.14      
|Diluted earnings (loss) per common share           |  |                                                  | (2.42      | )                                |      |   | 0.65       |  |   | (2.79      | ) |  |   | 1.12      
|                                                   |  |                                                  |            |                                  |      |   |            |  |   |            |   |  |   |           

9. Stock-Based Compensation:

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

Stock options are granted with an
exercise price equal to the last reported sales price of the common stock on the date of grant. The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options issued to employees and directors. The stock options
granted during 2008 had a weighted average grant date fair value of $5.61 per share. The weighted average assumptions used in the determination of the grant date fair value included a risk-free interest rate of 2.93%, an expected stock price
volatility of 33.00%, an expected dividend payout of 2.00%, and an expected option life of 5.25 years. The stock options granted in 2008 vest over a four-year term (vesting 25% per year) and expire eight years following the grant date.
Compensation expense associated with stock options is recognized over the vesting period, or until the employee or director becomes retirement eligible if that time period is shorter.

The following is a summary of stock option activity for the six month period ended June 30, 2008:



|                               |  |         |   |  |                               |      
|------------------------------ |  | ------- | - |  | ----------------------------- | -----
|                               |  | Shares  |   |  | Weighted-AverageExercisePrice
|Outstanding at January 1, 2008 |  | 744,986 |   |  | $                             | 26.17
|Granted                        |  | 50,000  |   |  |                               | 19.99
|Exercised                      |  | (1,800  | ) |  |                               | 16.67
|Forfeited                      |  | (64,428 | ) |  |                               | 32.36
|Expired                        |  | (37,760 | ) |  |                               | 21.50
|                               |  |         |   |  |                               |      
|Outstanding at June 30, 2008   |  | 690,998 |   |  | $                             | 25.43
|                               |  |         |   |  |                               |      
|Exercisable at June 30, 2008   |  | 506,854 |   |  | $                             | 24.50
|                               |  |         |   |  |                               |      



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During 2008, the Company has granted restricted stock awards that vest upon completion of future service
requirements. The fair value of these awards is equal to the last reported sales price of the Companys common stock on the date of grant. The Company recognizes stock-based compensation expense for these awards over the vesting period based
upon the number of awards ultimately expected to vest.

The following table provides information regarding nonvested restricted stock for
the six month period ended June 30, 2008:



|                             |  |         |   |  |                                      |      
|---------------------------- |  | ------- | - |  | ------------------------------------ | -----
|Nonvested Restricted Stock   |  | Shares  |   |  | Weighted-AverageGrant-Date FairValue
|Nonvested at January 1, 2008 |  | 115,979 |   |  | $                                    | 33.37
|Granted                      |  | 427,924 |   |  |                                      | 16.09
|Vested                       |  | (18,728 | ) |  |                                      | 32.16
|Forfeited                    |  | (15,733 | ) |  |                                      | 25.16
|                             |  |         |   |  |                                      |      
|Nonvested at June 30, 2008   |  | 509,442 |   |  |                                      | 19.15
|                             |  |         |   |  |                                      |      

10. Derivative Financial Instruments:

At times, the Company uses derivative financial instruments, including interest rate exchange contracts (swaps) and interest rate floor and collar
agreements, to assist in interest rate risk management. The following table describes the derivative instruments outstanding at June 30, 2008:



|                                              |  |                        |         |              |                        |                  |          |           |   |      |  
|--------------------------------------------- |  | ---------------------- | ------- | ------------ | ---------------------- | ---------------- | -------- | --------- | - | ---- | -
|Product                                       |  | NotionalAmount         |         | Strike Rates |                        | Wt. Avg.Maturity |          | FairValue |  
|                                              |  | (dollars in thousands) |        
|Cash flow hedging derivative instrument:      |  |                        |         |              |                        |                  |          |           |   |      |  
|Interest Rate Swapreceive fixed/pay variable |  | $                      | 100,000 |              | Receive 6.64%Pay 5.00% |                  | 3.0 yrs. |           | $ | 822  |  
|Non-hedging derivative instruments:           |  |                        |         |              |                        |                  |          |           |   |      |  
|Interest Rate Swappay fixed/receive variable |  |                        | 23,980  |              | Pay 5.92%Receive 3.61% |                  | 4.3 yrs  |           |   | (660 | )
|Interest Rate Swapreceive fixed/pay variable |  |                        | 23,980  |              | Receive 5.92%Pay 3.61% |                  | 4.3 yrs  |           |   | 728  |  
|                                              |  |                        |         |              |                        |                  |          |           |   |      |  
|Total non-hedging derivative instruments      |  |                        | 47,960  |              |                        |                  |          |           |   |      |  
|                                              |  |                        |         |              |                        |                  |          |           |   |      |  
|Total                                         |  | $                      | 147,960 |              |                        |                  |          |           |   |      |  
|                                              |  |                        |         |              |                        |                  |          |           |   |      |  

During the second quarter of 2008, the Company entered into a $100.0 million notional amount
interest rate swap agreement that is designated as a cash flow hedge against interest receipts from prime-base loans. Under this agreement, the Company will receive payments at a fixed rate of 6.64% computed on the notional amount and pay a variable
rate, based upon the prime lending rate, computed on the notional amount. The fair value of cash flow hedging derivative instruments are recorded as an asset or liability with the effective portion of the corresponding unrealized gain or loss
recorded in other comprehensive income in stockholders equity, net of tax. This cash flow hedge was highly effective during the second quarter of 2008.



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As of June 30, 2008, the Company also had $48.0 million notional amount of interest rate swap
agreements related to customer transactions. The Company entered into certain interest rate swap agreements with our customers to accommodate their borrowing needs. At the same time, in order to offset the exposure and manage it own interest rate
risk, the Company enters into interest rate swap with a different counterparty with offsetting terms. These derivative instruments are not designated as accounting hedges and changes in fair value of these instruments, as well as any net cash
settlements, are recognized in noninterest income as other derivative income or expense.

During March 2008, the Company terminated two
interest rate floor agreements with notional amounts totaling $200.0 million. One of these floor agreements, with a notional amount of $100.0 million, was not designated as an accounting hedge. During the first quarter of 2008, other derivative
income, reported in noninterest income, included $843,000 of income from changes in the fair value from this non-designated floor agreement, up to the date of termination.

The second floor agreement, with a notional amount of $100.0 million, was designated as a cash flow hedge. Upon termination, $1.1 million of unrealized
gains that had been accumulated in other comprehensive income, which consisted of the increase in fair value since inception less the cumulative amortization of the floor premium, is being amortized to loan interest income over what would have been
the remaining life of the floor agreement. This floor agreement was scheduled to mature in July 2010.

11. Fair Value:

On January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, (SFAS 157) and SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities, (SFAS 159). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands
disclosure related to the use of fair value measures in financial statements. SFAS 157 establishes a fair value hierarchy from observable market data as the highest level to fair value based on an entitys own fair value assumptions as the
lowest level. In February 2008, the Financial Accounting Standards Board issued Financial Accounting Standards Board Staff Position No. 157-2, Effective Date of FASB Statement No. 157, (FSP 157-2). FSP 157-2 delays
the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008. In
accordance with FSP 157-2, the Company has delayed application of SFAS 157 for non-financial assets, such as the Companys other real estate owned assets, and non-financial liabilities. The impact of the adoption of SFAS 157 was not
material.

SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. The objective
of SFAS 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings



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caused by measuring related assets and liabilities differently without having to apply complex hedge accounting. SFAS 159 was effective for the Company on
January 1, 2008, however, the Company did not elect the fair value option for any financial assets or liabilities as of that date.

Fair Value
Measurement

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

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

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

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

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

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

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

Derivatives:The Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. The valuation of these instruments is determined using widely accepted valuation
techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including
interest rate curves, and implied volatilities. To comply with the provisions of SFAS No. 157, the Company incorporates credit valuation adjustments to appropriately reflect both its own



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nonperformance risk and the respective counterpartys nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative
contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Loans:The Company does not record loans at their fair value on a recurring basis. However, the Company will evaluate certain loans for impairment
when it is probable the payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. Once a loan has been determined to be impaired, it is measured to establish the amount of the impairment, if
any, based on the present value of expected future cash flows discounted at the loans effective interest rate, except that collateral-dependent loans may be measured for impairment based on the fair value of the collateral, less cost to sell.
If the measure of the impaired loan is less than the recorded investment in the loan, a valuation allowance is recognized. At June 30, 2008, a significant portion of the Companys total impaired loans were evaluated based on the fair value
of the collateral. In accordance with SFAS 157, only impaired loans for which an allowance for loan loss has been established based on the fair value of collateral require classification in the fair value hierarchy. As a result, a portion, but not
all, of the Companys impaired loans are classified in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or an estimate of fair value from an independent third-party real estate professional,
the Company classifies the impaired loan as nonrecurring Level 2 in the fair value hierarchy. When an independent valuation is not available or there is no observable market price and fair value is based upon Managements assessment of
liquidation of collateral, the Company classifies the impaired loan as nonrecurring Level 3 in the fair value hierarchy.

Assets and Liabilities
Measured on a Recurring Basis

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



|                                                    |  |                 |         |                                       |   |                                           |  |                                        |         |  |   |  
|--------------------------------------------------- |  | --------------- | ------- | ------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | ------- |  | - | -
|                                                    |  | Total FairValue |         | QuotedPrices inActiveMarkets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level
3)
|                                                    |  | (in thousands) 
|Assets:                                             |  |                 |         |                                       |   |                                           |  |                                        |         |  |   |  
|Available for sale securities                       |  | $               | 818,217 |                                       | $ |                                          |  | $                                      | 818,217 |  | $ | 
|Assets held in employee deferred compensation plans |  |                 | 5,562   |                                       |   | 5,562                                     |  |                                        |        |  |   | 
|Derivative instruments                              |  |                 | 1,550   |                                       |   |                                          |  |                                        | 1,550   |  |   | 
|Liabilities:                                        |  |                 |         |                                       |   |                                           |  |                                        |         |  |   |  
|Derivative Instruments                              |  |                 | 660     |                                       |   |                                          |  |                                        | 660     |  |   | 



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Assets Measured on a Nonrecurring Basis

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



|        |  |                 |        |                                       |   |                                           |  |                                        |        |  |   |      
|------- |  | --------------- | ------ | ------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | ------ |  | - | -----
|        |  | Total FairValue |        | QuotedPrices inActiveMarkets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level
3)
|        |  | (in thousands) 
|Assets: |  |                 |        |                                       |   |                                           |  |                                        |        |  |   |      
|Loans   |  | $               | 71,998 |                                       | $ |                                          |  | $                                      | 64,934 |  | $ | 7,064



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

Introduction

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

The following discussion and analysis presents our consolidated financial condition and results of
operations as of and for the dates and periods indicated. This discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this document. In addition to the historical information
provided below, we have made certain estimates and forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these estimates and forward-looking statements as a result of
certain factors, including those discussed in the section captioned Risk Factors in our 2007 Annual Report on Form 10-K filed with the SEC on March 13, 2008.

Application of Critical Accounting Policies

Our accounting and reporting policies conform to
accounting principles generally accepted in the United States of America and general reporting practices within the financial services industry. Our accounting policies are described in the section captioned Notes to Consolidated Financial
StatementsSummary of Significant Accounting and Reporting Policies in our 2007 Annual Report on Form 10-K.

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

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



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Allowance for Loan Losses

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

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

Income Taxes

The Company has recorded significant deferred tax assets for deductible
temporary differences, the largest of which relates to the allowance for loan losses. For income tax return purposes only net charge-offs are deductible, not the provision for loan losses. A valuation allowance is required to be recognized if it is
more likely than not that the deferred tax asset will not be realized. Evidence of the realizability of the deferred tax asset includes the existence of taxes paid in available carry-back years as well as the



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probability that taxable income will be generated in future periods. At June 30, 2008, the Company determined that no valuation allowance relating to
its deferred tax asset was necessary. This determination was based, in part, on the Companys internal earnings projections which reflect that future taxable income will be sufficient to realize the deferred tax asset. These future earning
projections are based on numerous assumptions and are complicated by the uncertainty of future economic conditions. Because of the sensitivity of the underlying assumptions to general economic conditions, our actual taxable income may vary from our
current projections and we might not realize the benefit of this deferred tax asset.

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

Derivative Financial Instruments

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

At the inception of the hedge and quarterly thereafter, a formal assessment is performed to determine whether changes in the fair values
or cash flows of the derivatives have been highly effective in offsetting the changes in the fair values or cash flows of the hedged item and whether they are expected to be highly effective in the future. If it is determined that the derivative is
not highly



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effective as a hedge, hedge accounting is discontinued for the period. Once hedge accounting is terminated, all changes in fair value of the derivative flow
through the consolidated statements of operations in other noninterest income, which results in greater volatility in our earnings.

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

RESULTS OF OPERATIONS

Overview

Our earnings in 2008 have been negatively
impacted by the downturn in the residential real estate market, which has led us to increase our provision for loan losses, nonperforming loans, other real estate owned, and nonperforming asset expense. In addition, our noninterest expense during
2008 has increased as a result of our recently implemented growth strategy. Since the beginning of the year, we have hired nearly 40 experienced, Chicago-area commercial bankers, nearly doubling the size of our commercial banking team. This
recruiting has increased noninterest expense during 2008 through additional salary, sign-on bonuses, and associated expenses.

We reported
a net loss of $25.3 million, or ($2.42) per diluted share outstanding, for the second quarter of 2008, compared to net income of $7.2 million, or $0.65 per diluted share, in the second quarter of 2007. A $47.5 million increase in the provision for
loan losses primarily produced the decline in earnings between the two periods. In addition, a decrease in net interest income and higher noninterest expense reduced earnings.

For the first six months of 2008, we reported a net loss of $29.2 million, or ($2.79) per diluted share, compared to earnings of $12.5 million, or $1.12
per diluted share, during the first six months of 2007. A $55.6 million increase in the provision for loan losses, along with lower net interest income and higher noninterest expense, produced the decline in earnings between the two year-to-date
periods.



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In July 2008, we announced that we have signed a non-binding letter of intent and exclusivity
agreement with Harrison I. Steans and Jennifer W. Steans for a proposed private placement to accredited investors led by them of $50 million in convertible preferred stock. The preferred stock would be entitled to dividends at a
regular annual rate of 8% of the liquidation preference and, subject to stockholder approval to the extent required by Nasdaq Marketplace Rules, would be convertible into shares of the Companys common stock at a conversion price of $10.00 per
share. We also announced that we intend to pursue a private placement of up to $50 million of subordinated debt by our wholly-owned subsidiary, Cole Taylor Bank. We anticipate that the proceeds from the preferred stock and subordinated debt would be
used to strengthen our balance sheet to help fund our growth strategy. The non-binding letter of intent is subject to a number of conditions, including further due diligence and the negotiation and execution of mutually acceptable investment
documents. This investment also will require Federal and State regulatory approval prior to closing. We can provide no assurances that such approvals will be obtained, or that the transaction will be consummated on the terms described above, or at
all.

Net Interest Income

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

Quarter Ended June 30, 2008 as Compared to the Quarter Ended June 30, 2007

Net interest income was $21.6 million for the second quarter of 2008, a decrease of $4.9 million, or 18.5%, from $26.5 million of net interest income in
the second quarter of 2007. With an adjustment for tax-exempt income, our consolidated net interest income for the second quarter of 2008 was $22.4 million, compared to $27.3 million for the same quarter a year ago. This non-GAAP presentation is
discussed further below. Net interest income for the second quarter of 2008 was lower due to a decline in net interest margin, partly offset by higher average interest earning assets.

Our net interest margin, which is determined by dividing taxable equivalent net interest income by average interest-earning assets, was 2.60% for the
second quarter of 2008, compared to 3.44% for the same quarter a year ago, a decrease of 84 basis points. The net interest margin was lower in the second quarter of 2008 as declining asset yields outpaced the reductions in our funding costs. Between
the two quarterly periods, the yield on our interest-earning assets decreased 175 basis points from 7.25% for the second quarter of 2007 to 5.50% for the second quarter of 2008. The lower asset yields were due primarily to declining market interest
rates between the two quarterly periods, including a 325 basis point reduction in the prime lending rate between June 30, 2007 and June 30, 2008. Approximately 62% of our loan portfolio is based upon a floating or variable rate. In
addition, lost interest on nonaccrual loans reduced total interest income by $2.2 million, or 26 basis points.



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For the second quarter of 2008, the cost of our interest-bearing liabilities was 3.52%, compared to 4.68%
during the second quarter of 2007, a decrease of 116 basis points. In response to the decline in asset yields, we lowered the pricing on certain customer deposits. However, because term deposits generally take longer to reprice to current market
rates than floating and variable rate assets, the overall decline in the cost of our interest bearing liabilities lags the decrease in total earning asset yield.

Our current interest rate risk simulation modeling, using market interest rates in effect at June 30, 2008, indicates that our net interest margin in the third quarter would likely decline as compared to the
second quarter if market rates remain unchanged. Because of uncertainty in the market place, we have maintained higher liquidity, including prefunding certain term deposits that are scheduled to mature over the next six months. Our models indicate
that maintaining the higher level of liquidity will negatively impact our net interest margin during the third quarter of 2008. In addition, if market rates were to continue to decline, we would expect further compression of our net interest margin
as some of our non-maturity deposits have or would have reached their implied floors. See the section of this discussion and analysis captioned Quantitative and Qualitative Disclosure About Market Risks for further discussion of the
impact of changes in interest rates on our results of operations.

Our average interest-earning assets during the second quarter of 2008
were $3.45 billion, an increase of $264.9 million, or 8.3%, as compared to the same quarter in 2007. A $200.5 million, or 31.2%, increase in average investment securities and a $42.2 million increase in average loan balances combined to produce the
higher interest earning assets. The higher average investment securities mainly resulted from the purchase of $314 million of investment securities, primarily mortgage-related securities, during the second half of 2007 in a strategy designed to
reduce the impact to our net interest income from declining interest rates. Average loans outstanding increased to $2.56 billion during the second quarter of 2008 compared to $2.52 billion during the second quarter of 2007. An increase in average
commercial loans, partly offset by lower mortgage and consumer loans, caused the increase in average loan balances.

Six Months Ended June 30, 2008
as Compared to the Six Months Ended June 30, 2007

Net interest income was $46.0 million for the first six months of 2008, compared
to $52.9 million during the same six month period a year ago, a decrease of $6.9 million, or 13.0%. With an adjustment for tax-exempt income, our consolidated net interest income for the first six months of 2008 was $47.7 million, compared to $54.7
million for the first six months of 2007. This non-GAAP presentation is discussed further below. Similar to the quarterly comparison, net interest income for the first six months of 2008 was lower due to a decline in net interest margin, partly
offset by higher average interest earning assets.

Our net interest margin declined 68 basis points to 2.78% during the first half of 2008
as compared to 3.46% during the first half of 2007. Between the two six month periods, declining earning-asset yields outpaced the decline in our interest-bearing funding cost. Our total earning asset yield during the first half of 2008 was 5.87%
compared to 7.24% during the first half of 2007, a decrease of 137 basis points. At the same time, the cost of our interest-bearing liabilities decreased 88 basis points to 3.76% during the first half of 2008 from 4.64% during the first half of
2007. As with the quarterly comparison, our asset yields have declined with the reductions in market interest rates between the two year-to-date periods.



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Our average interest-earning assets during the first half of 2008 were $3.44 billion, an increase of
$258.4 million, or 8.1%, as compared to the $3.18 billion of average interest earning assets during the first half of 2007. Most of the increase in average interest-earning assets was a result of the purchase of investment securities in the second
half of 2007. Average investment securities increased $211.2 million, or 32.4%, in the first half of 2008 as compared to the same six month period a year ago. In addition, average loan balances increased $20.1 million, as a $36.5 million increase in
average commercial loans was partly offset by lower mortgage and consumer loans.



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Rate vs. Volume Analysis of Net Interest Income

The following table presents, for the periods indicated, a summary of the changes in interest earned and interest paid resulting from changes in volume
and rates for the major components of interest-earning assets and interest-bearing liabilities on a tax-equivalent basis using a tax rate of 35%.



|                                    |  |                                                                                |       |      |                                                                                      |         |     |  |   |         |   |      |   |       |        |   |         |   |  |   |     |  |   |         |  
|----------------------------------- |  | ------------------------------------------------------------------------------ | ----- | ---- | ------------------------------------------------------------------------------------ | ------- | --- |  | - | ------- | - | ---- | - | ----- | ------ | - | ------- | - |  | - | --- |  | - | ------- | -
|                                    |  | Quarter Ended June 30, 2008 OverQuarter Ended June 30, 2007INCREASE/(DECREASE) |       |      | Six Months Ended June 30, 2008 OverSix Months Ended
June 30, 2007INCREASE/(DECREASE) |        
|                                    |  | VOLUME                                                                         |       | RATE |                                                                                      |         | NET |  |   | VOLUME  |   | RATE |   |       | DAY(1) |   | NET     |  
|                                    |  | (in thousands)                                                                 |      
|INTEREST EARNED ON:                 |  |                                                                                |       |      |                                                                                      |         |     |  |   |         |   |      |   |       |        |   |         |   |  |   |     |  |   |         |  
|Investment securities               |  | $                                                                              | 2,470 |      | $                                                                                    | 740     |     |  | $ | 3,210   |   |      | $ | 5,207 |        | $ | 1,556   |   |  | $ |    |  | $ | 6,763   |  
|Cash equivalents                    |  |                                                                                | 184   |      |                                                                                      | (256    | )   |  |   | (72     | ) |      |   | 485   |        |   | (541    | ) |  |   | 5   |  |   | (51     | )
|Loans                               |  |                                                                                | 813   |      |                                                                                      | (14,303 | )   |  |   | (13,490 | ) |      |   | 780   |        |   | (21,786 | ) |  |   | 539 |  |   | (20,467 | )
|                                    |  |                                                                                |       |      |                                                                                      |         |     |  |   |         |   |      |   |       |        |   |         |   |  |   |     |  |   |         |  
|Total interest-earning assets       |  |                                                                                |       |      |                                                                                      |         |     |  |   | (10,352 | ) |      |   |       |        |   |         |   |  |   |     |  |   | (13,755 | )
|                                    |  |                                                                                |       |      |                                                                                      |         |     |  |   |         |   |      |   |       |        |   |         |   |  |   |     |  |   |         |  
|INTEREST PAID ON:                   |  |                                                                                |       |      |                                                                                      |         |     |  |   |         |   |      |   |       |        |   |         |   |  |   |     |  |   |         |  
|Interest-bearing deposits           |  |                                                                                | 2,178 |      |                                                                                      | (6,730  | )   |  |   | (4,552  | ) |      |   | 3,573 |        |   | (10,141 | ) |  |   | 265 |  |   | (6,303  | )
|Total borrowings                    |  |                                                                                | 873   |      |                                                                                      | (1,715  | )   |  |   | (842    | ) |      |   | 2,238 |        |   | (2,766  | ) |  |   | 66  |  |   | (462    | )
|                                    |  |                                                                                |       |      |                                                                                      |         |     |  |   |         |   |      |   |       |        |   |         |   |  |   |     |  |   |         |  
|Total interest-bearing liabilities  |  |                                                                                |       |      |                                                                                      |         |     |  |   | (5,394  | ) |      |   |       |        |   |         |   |  |   |     |  |   | (6,765  | )
|                                    |  |                                                                                |       |      |                                                                                      |         |     |  |   |         |   |      |   |       |        |   |         |   |  |   |     |  |   |         |  
|Net interest income, tax-equivalent |  | $                                                                              | 1,816 |      | $                                                                                    | (6,774  | )   |  | $ | (4,958  | ) |      | $ | 3,644 |        | $ | (10,847 | ) |  | $ | 213 |  | $ | (6,990  | )
|                                    |  |                                                                                |       |      |                                                                                      |         |     |  |   |         |   |      |   |       |        |   |         |   |  |   |     |  |   |         |  



|(1) | The six months ended June 30, 2008 had 182 days compared to 181 days in the six months ended June 30, 2007.
|--- | -----------------------------------------------------------------------------------------------------------

Tax-Equivalent Adjustments to Yields and Margins

As part of our evaluation of net interest income, we review our consolidated average balances, our yield on average interest-earning assets, and the costs of average interest-bearing liabilities. Such yields and costs
are derived by dividing annualized income or expense by the average balance of assets or liabilities. Because management reviews net interest income on a tax-equivalent basis, the analysis contains certain non-GAAP financial measures. In these
non-GAAP financial measures, investment interest income, loan interest income, total interest income, and net interest income are adjusted to reflect tax-exempt interest income on a tax-equivalent basis assuming a tax rate of 35%. This assumed rate
may differ from our actual effective income tax rate. In addition, the earning asset yield, net interest margin, and the net interest rate spread are adjusted to a fully taxable equivalent basis. We believe that these measures and ratios present a
more meaningful measure of the performance of interest-earning assets because they provide a better basis for comparison of net interest income regardless of the mix of taxable and tax-exempt instruments.



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



|                                               |  |                                    |        |   |                                  |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------------- |  | ---------------------------------- | ------ | - | -------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                               |  | For the Three MonthsEnded June 30, |        |   | For the Six MonthsEnded June 30, |  
|                                               |  | 2008                               |        |   | 2007                             |   |        | 2008 |  |   | 2007   |  
|                                               |  | (dollars in thousands)             |       
|Net interest income as stated                  |  | $                                  | 21,565 |   |                                  | $ | 26,456 |      |  | $ | 46,039 |   |  | $ | 52,911 |  
|Tax equivalent adjustment-investments          |  |                                    | 785    |   |                                  |   | 820    |      |  |   | 1,583  |   |  |   | 1,644  |  
|Tax equivalent adjustment-loans                |  |                                    | 31     |   |                                  |   | 63     |      |  |   | 64     |   |  |   | 121    |  
|                                               |  |                                    |        |   |                                  |   |        |      |  |   |        |   |  |   |        |  
|Tax equivalent net interest income             |  | $                                  | 22,381 |   |                                  | $ | 27,339 |      |  | $ | 47,686 |   |  | $ | 54,676 |  
|                                               |  |                                    |        |   |                                  |   |        |      |  |   |        |   |  |   |        |  
|Yield on earning assets without tax adjustment |  |                                    | 5.40   | % |                                  |   | 7.14   | %    |  |   | 5.78   | % |  |   | 7.13   | %
|Yield on earning assets - tax equivalent       |  |                                    | 5.50   | % |                                  |   | 7.25   | %    |  |   | 5.87   | % |  |   | 7.24   | %
|                                               |  |                                    |        |  
|Net interest margin without tax adjustment     |  |                                    | 2.51   | % |                                  |   | 3.33   | %    |  |   | 2.68   | % |  |   | 3.34   | %
|Net interest margin - tax equivalent           |  |                                    | 2.60   | % |                                  |   | 3.44   | %    |  |   | 2.78   | % |  |   | 3.46   | %
|                                               |  |                                    |        |  
|Net interest spread without tax adjustment     |  |                                    | 1.88   | % |                                  |   | 2.46   | %    |  |   | 2.02   | % |  |   | 2.48   | %
|Net interest spread - tax equivalent           |  |                                    | 1.98   | % |                                  |   | 2.57   | %    |  |   | 2.11   | % |  |   | 2.60   | %

The following table presents, for the periods indicated, certain information relating to our
consolidated average balances and reflect our yield on average interest-earning assets and costs of average interest-bearing liabilities. The table contains certain non-GAAP financial measures to adjust tax-exempt interest income on a tax-equivalent
basis assuming a tax rate of 35%.



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|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|---------------------------------------------- |  | ----------------------------------- | --------- | - | -------- | - | ---------------- |  | ---- | -------------- |  | - | --------- | - | ---------------- | - | ------ |  | ---- | -
|                                               |  | For the Three Months Ended June 30, |          
|                                               |  | 2008                                |           |   | 2007     |  
|                                               |  | AVERAGEBALANCE                      |           |   | INTEREST |   | YIELD/RATE(%)(6) |  |      | AVERAGEBALANCE |  |   | INTEREST  |   | YIELD/RATE(%)(6) |  
|                                               |  | (dollars in thousands)              |          
|INTEREST-EARNING ASSETS:                       |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Investment securities (1):                     |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Taxable                                        |  | $                                   | 703,314   |   |          | $ | 8,954            |  | 5.09 | %              |  | $ | 496,634   |   |                  | $ | 5,640  |  | 4.54 | %
|Tax-exempt (tax-equivalent) (2)                |  |                                     | 140,749   |   |          |   | 2,241            |  | 6.37 |                |  |   | 146,917   |   |                  |   | 2,345  |  | 6.39 |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total investment securities                    |  |                                     | 844,063   |   |          |   | 11,195           |  | 5.31 |                |  |   | 643,551   |   |                  |   | 7,985  |  | 4.96 |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Cash Equivalents                               |  |                                     | 46,516    |   |          |   | 247              |  | 2.10 |                |  |   | 24,261    |   |                  |   | 319    |  | 5.19 |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Loans (2) (3):                                 |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Commercial and commercial real estate          |  |                                     | 2,393,130 |   |          |   | 33,249           |  | 5.50 |                |  |   | 2,335,535 |   |                  |   | 45,546 |  | 7.71 |  
|Residential real estate mortgages              |  |                                     | 57,504    |   |          |   | 818              |  | 5.69 |                |  |   | 60,708    |   |                  |   | 906    |  | 5.97 |  
|Home equity and consumer                       |  |                                     | 107,772   |   |          |   | 1,465            |  | 5.47 |                |  |   | 119,993   |   |                  |   | 2,401  |  | 8.03 |  
|Fees on loans                                  |  |                                     |           |   |          |   | 248              |  |      |                |  |   |           |   |                  |   | 417    |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net loans (tax-equivalent) (2)                 |  |                                     | 2,558,406 |   |          |   | 35,780           |  | 5.62 |                |  |   | 2,516,236 |   |                  |   | 49,270 |  | 7.85 |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-earning assets (2)              |  |                                     | 3,448,985 |   |          |   | 47,222           |  | 5.50 |                |  |   | 3,184,048 |   |                  |   | 57,574 |  | 7.25 |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|NON-EARNING ASSETS:                            |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Allowance for loan losses                      |  |                                     | (66,626   | ) |          |   |                  |  |      |                |  |   | (39,016   | ) |                  |   |        |  |      |  
|Cash and due from banks                        |  |                                     | 53,953    |   |          |   |                  |  |      |                |  |   | 52,044    |   |                  |   |        |  |      |  
|Accrued interest and other assets              |  |                                     | 90,456    |   |          |   |                  |  |      |                |  |   | 90,260    |   |                  |   |        |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|TOTAL ASSETS                                   |  | $                                   | 3,526,768 |   |          |   |                  |  |      |                |  | $ | 3,287,336 |   |                  |   |        |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|INTEREST-BEARING LIABILITIES:                  |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Interest-bearing deposits:                     |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Interest-bearing demand deposits               |  | $                                   | 772,224   |   |          |   | 3,023            |  | 1.57 |                |  | $ | 878,050   |   |                  |   | 8,881  |  | 4.06 |  
|Savings deposits                               |  |                                     | 45,695    |   |          |   | 16               |  | 0.14 |                |  |   | 55,108    |   |                  |   | 39     |  | 0.28 |  
|Time deposits                                  |  |                                     | 1,494,097 |   |          |   | 16,567           |  | 4.46 |                |  |   | 1,220,132 |   |                  |   | 15,238 |  | 5.01 |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-bearing deposits                |  |                                     | 2,312,016 |   |          |   | 19,606           |  | 3.41 |                |  |   | 2,153,290 |   |                  |   | 24,158 |  | 4.50 |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Other borrowings                               |  |                                     | 306,523   |   |          |   | 2,355            |  | 3.04 |                |  |   | 248,037   |   |                  |   | 2,748  |  | 4.38 |  
|Notes payable and FHLB advances                |  |                                     | 133,550   |   |          |   | 1,173            |  | 3.47 |                |  |   | 104,176   |   |                  |   | 1,356  |  | 5.15 |  
|Junior subordinated debentures                 |  |                                     | 86,607    |   |          |   | 1,707            |  | 7.88 |                |  |   | 86,607    |   |                  |   | 1,973  |  | 9.11 |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-bearing liabilities             |  |                                     | 2,838,696 |   |          |   | 24,841           |  | 3.52 |                |  |   | 2,592,110 |   |                  |   | 30,235 |  | 4.68 |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|NONINTEREST-BEARING LIABILITIES:               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Noninterest-bearing deposits                   |  |                                     | 393,341   |   |          |   |                  |  |      |                |  |   | 379,243   |   |                  |   |        |  |      |  
|Accrued interest, taxes, and other liabilities |  |                                     | 42,843    |   |          |   |                  |  |      |                |  |   | 39,677    |   |                  |   |        |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total noninterest-bearing liabilities          |  |                                     | 436,184   |   |          |   |                  |  |      |                |  |   | 418,920   |   |                  |   |        |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|STOCKHOLDERS EQUITY                           |  |                                     | 251,888   |   |          |   |                  |  |      |                |  |   | 276,306   |   |                  |   |        |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY     |  | $                                   | 3,526,768 |   |          |   |                  |  |      |                |  | $ | 3,287,336 |   |                  |   |        |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net interest income (tax-equivalent) (2)       |  |                                     |           |   |          | $ | 22,381           |  |      |                |  |   |           |   |                  | $ | 27,339 |  |      |  
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net interest spread (tax-equivalent) (2) (4)   |  |                                     |           |   |          |   |                  |  | 1.98 | %              |  |   |           |   |                  |   |        |  | 2.57 | %
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net interest margin (tax-equivalent) (2) (5)   |  |                                     |           |   |          |   |                  |  | 2.60 | %              |  |   |           |   |                  |   |        |  | 3.44 | %
|                                               |  |                                     |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  



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

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

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

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

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

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



26



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##### Table of Contents

|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|---------------------------------------------- |  | --------------------------------- | --------- | - | -------- | - | ---------------- |  | ---- | -------------- |  | - | --------- | - | ---------------- | - | ------- |  | ---- | -
|                                               |  | For the Six Months Ended June 30, |          
|                                               |  | 2008                              |           |   | 2007     |  
|                                               |  | AVERAGEBALANCE                    |           |   | INTEREST |   | YIELD/RATE(%)(6) |  |      | AVERAGEBALANCE |  |   | INTEREST  |   | YIELD/RATE(%)(6) |  
|                                               |  | (dollars in thousands)            |          
|INTEREST-EARNING ASSETS:                       |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Investment securities (1):                     |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Taxable                                        |  | $                                 | 720,792   |   |          | $ | 18,355           |  | 5.09 | %              |  | $ | 503,897   |   |                  | $ | 11,415  |  | 4.53 | %
|Tax-exempt (tax-equivalent) (2)                |  |                                   | 141,544   |   |          |   | 4,521            |  | 6.39 |                |  |   | 147,239   |   |                  |   | 4,698   |  | 6.38 |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Total investment securities                    |  |                                   | 862,336   |   |          |   | 22,876           |  | 5.31 |                |  |   | 651,136   |   |                  |   | 16,113  |  | 4.95 |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Cash Equivalents                               |  |                                   | 59,136    |   |          |   | 789              |  | 2.64 |                |  |   | 32,048    |   |                  |   | 840     |  | 5.21 |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Loans (2) (3):                                 |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Commercial and commercial real estate          |  |                                   | 2,353,935 |   |          |   | 71,029           |  | 5.97 |                |  |   | 2,317,421 |   |                  |   | 90,087  |  | 7.73 |  
|Residential real estate mortgages              |  |                                   | 59,018    |   |          |   | 1,711            |  | 5.80 |                |  |   | 61,335    |   |                  |   | 1,778   |  | 5.80 |  
|Home equity and consumer                       |  |                                   | 108,764   |   |          |   | 3,229            |  | 5.97 |                |  |   | 122,885   |   |                  |   | 4,811   |  | 7.89 |  
|Fees on loans                                  |  |                                   |           |   |          |   | 1,073            |  |      |                |  |   |           |   |                  |   | 833     |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Net loans (tax-equivalent) (2)                 |  |                                   | 2,521,717 |   |          |   | 77,042           |  | 6.14 |                |  |   | 2,501,641 |   |                  |   | 97,509  |  | 7.86 |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Total interest-earning assets (2)              |  |                                   | 3,443,189 |   |          |   | 100,707          |  | 5.87 |                |  |   | 3,184,825 |   |                  |   | 114,462 |  | 7.24 |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|NON-EARNING ASSETS:                            |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Allowance for loan losses                      |  |                                   | (61,184   | ) |          |   |                  |  |      |                |  |   | (38,429   | ) |                  |   |         |  |      |  
|Cash and due from banks                        |  |                                   | 53,763    |   |          |   |                  |  |      |                |  |   | 56,569    |   |                  |   |         |  |      |  
|Accrued interest and other assets              |  |                                   | 90,168    |   |          |   |                  |  |      |                |  |   | 89,114    |   |                  |   |         |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|TOTAL ASSETS                                   |  | $                                 | 3,525,936 |   |          |   |                  |  |      |                |  | $ | 3,292,079 |   |                  |   |         |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|INTEREST-BEARING LIABILITIES:                  |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Interest-bearing deposits:                     |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Interest-bearing demand deposits               |  | $                                 | 814,713   |   |          |   | 8,465            |  | 2.09 |                |  | $ | 899,568   |   |                  |   | 18,146  |  | 4.07 |  
|Savings deposits                               |  |                                   | 47,325    |   |          |   | 40               |  | 0.17 |                |  |   | 56,647    |   |                  |   | 79      |  | 0.28 |  
|Time deposits                                  |  |                                   | 1,430,220 |   |          |   | 33,074           |  | 4.65 |                |  |   | 1,207,828 |   |                  |   | 29,657  |  | 4.95 |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Total interest-bearing deposits                |  |                                   | 2,292,258 |   |          |   | 41,579           |  | 3.65 |                |  |   | 2,164,043 |   |                  |   | 47,882  |  | 4.46 |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Other borrowings                               |  |                                   | 320,402   |   |          |   | 5,090            |  | 3.14 |                |  |   | 252,896   |   |                  |   | 5,547   |  | 4.36 |  
|Notes payable and FHLB advances                |  |                                   | 136,308   |   |          |   | 2,747            |  | 3.99 |                |  |   | 92,155    |   |                  |   | 2,420   |  | 5.22 |  
|Junior subordinated debentures                 |  |                                   | 86,607    |   |          |   | 3,605            |  | 8.32 |                |  |   | 86,607    |   |                  |   | 3,937   |  | 9.09 |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Total interest-bearing liabilities             |  |                                   | 2,835,575 |   |          |   | 53,021           |  | 3.76 |                |  |   | 2,595,701 |   |                  |   | 59,786  |  | 4.64 |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|NONINTEREST-BEARING LIABILITIES:               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Noninterest-bearing deposits                   |  |                                   | 392,828   |   |          |   |                  |  |      |                |  |   | 380,450   |   |                  |   |         |  |      |  
|Accrued interest, taxes, and other liabilities |  |                                   | 42,738    |   |          |   |                  |  |      |                |  |   | 41,385    |   |                  |   |         |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Total noninterest-bearing liabilities          |  |                                   | 435,566   |   |          |   |                  |  |      |                |  |   | 421,835   |   |                  |   |         |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|STOCKHOLDERS EQUITY                           |  |                                   | 254,795   |   |          |   |                  |  |      |                |  |   | 274,543   |   |                  |   |         |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY     |  | $                                 | 3,525,936 |   |          |   |                  |  |      |                |  | $ | 3,292,079 |   |                  |   |         |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Net interest income (tax-equivalent) (2)       |  |                                   |           |   |          | $ | 47,686           |  |      |                |  |   |           |   |                  | $ | 54,676  |  |      |  
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Net interest spread (tax-equivalent) (2) (4)   |  |                                   |           |   |          |   |                  |  | 2.11 | %              |  |   |           |   |                  |   |         |  | 2.60 | %
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Net interest margin (tax-equivalent) (2) (5)   |  |                                   |           |   |          |   |                  |  | 2.78 | %              |  |   |           |   |                  |   |         |  | 3.46 | %
|                                               |  |                                   |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  



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

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

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

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

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

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



27



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##### Table of Contents

Noninterest Income

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



|                                  |  |                            |       |              |                          |       |              |  |              |       |  |   |       |  
|--------------------------------- |  | -------------------------- | ----- | ------------ | ------------------------ | ----- | ------------ |  | ------------ | ----- |  | - | ----- | -
|                                  |  | For the Three Months Ended |       |              | For the Six Months Ended |      
|                                  |  | June 30,2008               |       | June 30,2007 |                          |       | June 30,2008 |  | June 30,2007 |      
|Service charges                   |  | $                          | 2,255 |              | $                        | 1,895 |              |  | $            | 4,421 |  | $ | 3,705 |  
|Trust services                    |  |                            | 696   |              |                          | 643   |              |  |              | 1,187 |  |   | 1,129 |  
|Investment management fees        |  |                            | 339   |              |                          | 362   |              |  |              | 655   |  |   | 828   |  
|Loan syndication fees             |  |                            |      |              |                          | 400   |              |  |              | 116   |  |   | 400   |  
|Other noninterest income          |  |                            | 675   |              |                          | 765   |              |  |              | 801   |  |   | 1,241 |  
|                                  |  |                            |       |              |                          |       |              |  |              |       |  |   |       |  
|                                  |  |                            | 3,965 |              |                          | 4,065 |              |  |              | 7,180 |  |   | 7,303 |  
|Other derivative income (expense) |  |                            | 65    |              |                          | (61   | )            |  |              | 952   |  |   | (37   | )
|                                  |  |                            |       |              |                          |       |              |  |              |       |  |   |       |  
|Total noninterest income          |  | $                          | 4,030 |              | $                        | 4,004 |              |  | $            | 8,132 |  | $ | 7,266 |  
|                                  |  |                            |       |              |                          |       |              |  |              |       |  |   |       |  

Total noninterest income was $4.0 million during the second quarter of 2008, relatively unchanged
from the second quarter of 2007. A $360,000 increase in service charges and higher trust fees were mostly offset by lower loan syndication fees. For the first six months of 2008, total noninterest income increased $866,000, or 11.9%, to $8.1
million, as compared to $7.3 million during the same six month period in 2007. A $989,000 increase in other derivative income and a $716,000 increase in service charges, partly offset by lower investment management and loan syndication fees, combine
to produce the higher level of noninterest income

Service charges, principally derived from deposit accounts, were $2.3 million during the
second quarter of 2008, compared to $1.9 million during the second quarter in 2007, an increase of $360,000, or 19.0%. On a year-to-date basis, service charges increased $716,000, or 19.3%, to $4.4 million during the first six months of 2008, as
compared to $3.7 million during the same six month period in 2007. The increase in service charge revenue in 2008 was primarily caused by a lower earnings credit rate given to customers on their collected account balances and a 2% increase in gross
activity fees. Our earnings credit rate was approximately 200 basis points lower on average during the first half of 2008 as compared to the first half of 2007.

Trust revenues increased in both the quarterly and year-to date comparisons. During the second quarter of 2008, trust fees increased $53,000, or 8.2%, to $696,000, as compared to $643,000 during the second quarter of
2007. For the first six months of 2008, trust fees were $1.2 million, an increase of $58,000, or 5.1%, as compared to the $1.1 million of trust fees during the first six months of 2007.

Investment management fees decreased in both the quarterly and year-to date comparisons. Investment management fees decreased $23,000, or 6.4%, to
$339,000 in second quarter of 2008, as compared to $362,000 during the same quarter a year ago. Investment management fees were $655,000 during the first six months of 2008, a decrease of $173,000, or 20.9%, as compared to the $828,000 during the
first six months of 2007. The lower fee income was primarily a result of reduced assets under management.



28



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##### Table of Contents

Syndication fees totaled $116,000 during the first six months of 2008, as compared to $400,000 during the
first six months of 2007. Loan syndication fees are an opportunistic revenue source that has been largely dependent on the level of activity in the real estate development market as well as our balance sheet and credit risk management.

Currently, we derive other derivative income or expense from changes in the fair value of the customer-related interest rate swap agreements, which
are not designated as accounting hedges, and from any ineffectiveness in our interest rate swap that is currently designated as cash flow hedge. Throughout 2007 and up to March 2008, other derivative income also included changes in the fair value
and net cash settlement of an interest rate floor agreement which was not designated as an accounting hedge. This floor agreement was terminated in March 2008. Our other derivative income was $65,000 during the second quarter of 2008 compared to
other derivative expense of $61,000 during the second quarter of 2007. The other derivative income in 2008 resulted from the changes in the fair value of our customer-related interest rate swaps, while the other derivative expense in the second
quarter of 2007 resulted from decrease in the value of our non-designated floor agreement. On a year-to-date basis, we recorded other derivative income of $952,000 during the first half of 2008, as compared to $37,000 of other derivative expense
during the first half of 2007. The higher income in 2008 was primarily due to the increase in the fair value of our undesignated interest rate floor agreement as the prime interest rate declined.

Other noninterest income includes fees from standby letters of credit, fees for non-customer usage of our automated teller machines, gains (losses) from
equity or partnership investments, changes in the market value of the assets in our employees deferred compensation plans, and other miscellaneous items. Other noninterest income was $675,000 during the second quarter of 2008, as compared to
$765,000 during the second quarter a year ago. Other noninterest expense was $801,000 during the first six months of 2008, as compared to $1.2 million during the first six months of 2007, a decrease of $440,000. In both the quarterly and the
year-to-date comparisons, most of the decrease in other noninterest income was caused by changes in the fair value of assets held in our employees deferred compensation plans.



29



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##### Table of Contents

Noninterest Expense

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



|                                                  |  |                            |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ------------ |  | - | ------------ | - |  | - | ------ | -
|                                                  |  | For the Three Months Ended |        |   | For the Six Months Ended |  
|                                                  |  | June 30,2008               |        |   | June 30,2007             |   |        | June 30,2008 |  |   | June 30,2007 |  
|                                                  |  | (dollars in thousands)     |       
|Salaries and employee benefits:                   |  |                            |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Salaries, employment taxes, and medical insurance |  | $                          | 9,405  |   |                          | $ | 8,309  |              |  | $ | 17,750       |   |  | $ | 16,415 |  
|Sign-on bonuses and severance                     |  |                            | 513    |   |                          |   | 118    |              |  |   | 1,883        |   |  |   | 223    |  
|Incentives, commissions, and retirement benefits  |  |                            | 1,178  |   |                          |   | 1,489  |              |  |   | 3,166        |   |  |   | 2,892  |  
|                                                  |  |                            |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Total salaries and employee benefits              |  |                            | 11,096 |   |                          |   | 9,916  |              |  |   | 22,799       |   |  |   | 19,530 |  
|Occupancy of premises, furniture and equipment    |  |                            | 2,733  |   |                          |   | 2,905  |              |  |   | 5,498        |   |  |   | 5,665  |  
|Nonperforming asset expense                       |  |                            | 2,471  |   |                          |   | 141    |              |  |   | 3,479        |   |  |   | 432    |  
|Legal fees, net                                   |  |                            | 769    |   |                          |   | 649    |              |  |   | 1,354        |   |  |   | 1,456  |  
|Early extinguishment of debt                      |  |                            | 384    |   |                          |   |       |              |  |   | 1,194        |   |  |   |       |  
|FDIC assessment                                   |  |                            | 586    |   |                          |   | 81     |              |  |   | 1,112        |   |  |   | 162    |  
|Other professional services                       |  |                            | 404    |   |                          |   | 503    |              |  |   | 1,050        |   |  |   | 1,184  |  
|Other noninterest expense                         |  |                            | 4,180  |   |                          |   | 3,457  |              |  |   | 7,953        |   |  |   | 7,285  |  
|                                                  |  |                            |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Total noninterest expense                         |  | $                          | 22,623 |   |                          | $ | 17,652 |              |  | $ | 44,439       |   |  | $ | 35,714 |  
|                                                  |  |                            |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Efficiency Ratio                                  |  |                            | 88.39  | % |                          |   | 57.95  | %            |  |   | 82.03        | % |  |   | 59.35  | %
|                                                  |  |                            |        |   |                          |   |        |              |  |   |              |   |  |   |        |  

Noninterest expense during the second quarter of 2008 increased $5.0 million, or 28.2%, to $22.6
million, as compared to $17.7 million during the second quarter of 2008. For the first six months of 2008, noninterest expense increased $8.7 million, or 24.4%, to $44.4 million, as compared to $35.7 million during the first six months of 2008. The
increases in noninterest expenses were caused by higher salaries and benefits, nonperforming asset expense, FDIC assessments, and expenses related to the early extinguishment of above market rate brokered certificates of deposit.

Total salaries and employee benefits expense increased as we hired nearly 40 individuals during the first half of 2008. We added to the number of
commercial relationship managers and replaced and augmented our existing credit administration staff. Our recruiting increased salaries and benefit expense from increased salary expense, cash sign-on bonuses and stock based awards to attract the new
employees. Total salaries and benefits during the second quarter of 2008 were $11.1 million, an increase of $1.2 million, or 11.9%, as compared to the $9.9 million of expense during the same quarter a year ago. For the first six months of 2008,
total salaries and benefits were $22.8 million, an increase of $3.3 million, or 16.7%, as compared to $19.5 million of expense in the first six months of 2007.

Total salaries, employment taxes, and medical insurance expenses increased $1.1 million, or 13.2%, to $9.4 million for the second quarter of 2008, as compared to $8.3 million for the second quarter of 2007. On a
year-to-date basis, total salaries, employment taxes, and medical insurance expenses salary expense increased $1.3 million, or 8.1%, to $17.8 million for the first half of 2008, as compared to $16.4 million for the first six months of 2007. For both
the quarterly and year-to-date periods, the increase was primarily a result of increased salaries. Total full-time equivalent employees were 440 at June 30, 2008 compared to 418 and 421 at December 31, 2007 and June 30, 2007,
respectively.



30



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##### Table of Contents

Sign-on bonuses totaled $502,000 for the second quarter of 2008 compared to $110,000 for the second
quarter a year ago. For the first six months of 2008, sign-on bonuses totaled $1.3 million, compared to $158,000 for the first half of 2007. We expect to incur additional one-time sign on bonuses for the new hires that started employment in the
third quarter related to expansions to our asset based lending program. Year-to-date 2008 severance expense totaled $627,000, compared with $65,000 for the first half of 2007.

Incentives, commissions, and retirement benefits decreased $311,000 during the second quarter of 2008 to $1.2 million, as compared to $1.5 million during
the second quarter of 2007. Lower accruals for performance based incentives and employee retirement programs primarily produced the decline in expense between the quarterly periods. For the first six months of 2008, incentives, commissions, and
retirement benefit expense was $3.2 million, as compared to $2.9 million for the first half of 2007, an increase of $274,000, or 9.5%. Expense related to restricted stock grants, primarily in connection with recruiting activities, increased $364,000
in the first six months of 2008, compared with the first half of 2007. We expect to incur additional stock grant expense in future quarters related to recruiting activities.

Nonperforming asset expenses increased $2.3 million in the second quarter of 2008, compared to the second quarter of 2007, primarily from the recognition
of a $2.2 million liability for unfunded loan commitments associated with certain of our impaired loans. For the first six months of 2008, nonperforming asset expense was $3.5 million, as compared to $432,000 during the first six months of 2007. In
addition to the $2.2 million increase described above, we recognized an $807,000 provision to reduce the carrying value of certain other real estate owned. We expect that our nonperforming asset expense will continue to be significant in future
periods because of the current high level of nonperforming assets and other real estate owned.

Legal fees were $769,000 in the second
quarter of 2008, compared to $649,000 in the same quarter in 2007. An increase in legal fees associated with our employee benefit plans and other employee related matters, primarily produced the increase in expense. For the first six months of 2008,
legal fees totaled $1.4 million, as compared to $1.5 million during the same six month period a year ago.

During the first six months of
2008, we incurred $1.2 million of expense, for the early redemption of approximately $115 million of above market rate brokered certificates of deposits. Of the total expense, $384,000 was incurred during the second quarter of 2008. The unamortized
issuance costs and fair value adjustments on these deposits were written off at the time of redemption.

Our Federal Deposit Insurance
Corporation (FDIC) insurance premium has increased in 2008 as compared to 2007 as the FDIC increase premiums for all financial institutions. FDIC insurance premiums were $586,000 in the second quarter of 2008, compared with $81,000 for
the second quarters of 2007. FDIC insurance expense for the first half of 2008 was $1.1 million



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##### Table of Contents

compared with $162,000 for the first six months of 2007. Beginning in 2007, the FDIC increased the rates paid for deposit insurance, but, at the same time,
allowed eligible insured institutions to share in an one-time assessment credit for institutions in existence at December 31, 1996 that had paid deposit insurance assessments prior to that date. The Bank received a one-time credit and utilized
the credit during 2007 and the first quarter of 2008 to offset its deposit insurance assessment. The Bank fully utilized the credit during the first quarter of 2008, and, therefore, FDIC insurance premiums have increased. We expect deposit insurance
premiums for the full year 2008 to be approximately $2.4 million higher than for the full year 2007.

Other noninterest expense principally
includes external audit and tax services, business development and entertainment expenses, computer software license fees, and other operating expenses such as telephone, postage, office supplies and printing. Other noninterest expense was $4.2
million in the second quarter of 2008, an increase of $723,000 as compared to the $3.5 million of expense during the second quarter of 2007. For the first six months of 2008, other noninterest expense was $8.0 million, as compared to $7.3 million
during the first six months of 2007, an increase of $668,000, or 9.2%.

An efficiency ratio is calculated by dividing total noninterest
expense by total revenues (net interest income and noninterest income). Generally, the lower the efficiency ratio the more efficient the entity is operating. Our efficiency ratio was 88.39% in the second quarter of 2008 and 82.03% during the first
six months of 2008. In comparison, the efficiency ratio was 57.95% and 59.35% during the second quarter and first six months of 2007, respectively. The higher level of noninterest expense and the lower net interest income produced the higher ratio
in 2008.

Income Taxes

Because of our
pre-tax loss, we recorded an income tax benefit of $21.1 million for the second quarter of 2008, resulting in an effective income tax rate of 45.4%. For the first half of 2008, we recorded an income tax benefit of $22.2 million, resulting in an
effective income tax rate of 43.2%. In comparison, we recorded income tax expense of $3.8 million for the second quarter of 2007 and $6.5 million for the first half of 2007, resulting in effective tax rates of 34.4% and 34.2%, respectively. In each
of the 2008 periods, our pre-tax loss combined with the impact of our permanent differences, such as tax exempt securities, caused the higher effective income tax benefit.

As of June 30, 2008, our recorded net deferred tax asset totaled $48.6 million, the largest portion of which relates to our $104.7 million allowance
for loan losses. A valuation allowance is required to be recognized if it is determined more likely than not that the deferred tax asset will not be realized. We evaluated the deferred tax asset at June 30, 2008 and determined that
no valuation allowance is required. We believe that the deferred tax asset will be realized through both the existence of approximately $22 million of income taxes paid in the available carry-back years and through the generation of future taxable
income.



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FINANCIAL CONDITION

Overview

Total assets increased $162.7 million, or 4.6%, to $3.72 billion at June 30, 2008 from total assets of $3.56
billion at December 31, 2007. Loans increased $142.5 million, or 5.7%, to $2.62 billion at June 30, 2008 from $2.48 billion at December 31, 2007. While total deposits increased $339.4 million, or 13.2%, other borrowings decreased
$88.5 million and notes payable and FHLB advances decreased $58.0 million. Total stockholders equity at June 30, 2008 was $221.4 million, compared to $254.3 million at December 31, 2007, a decrease of $32.9 million.

Cash and Cash Equivalents

Period-end cash and cash
equivalents were $155.2 million at June 30, 2008, compared to $83.6 million at December 31, 2007. The Bank increased its short-term liquidity in 2008 to prudently respond to the more volatile credit and deposit markets.

Investment Securities

Investment securities totaled
$818.2 million at June 30, 2008, compared to $892.4 million at December 31, 2007, a decrease of $74.1 million, or 8.3%. Cash flows from maturies and payments on investment securities were not reinvested in the securities portfolio. The
overall weighted average life of our investment portfolio at June 30, 2008 was approximately 5.5 years, compared to approximately 5.4 years at December 31, 2007.

At June 30, 2008, the net unrealized loss on the available for sale securities totaled $3.5 million, compared to a net unrealized gain of $3.4
million from December 31, 2007. At June 30, 2008, we had gross unrealized losses of $8.0 million, primarily in the mortgage-related and municipal securities portfolios. We believe that none of these unrealized losses represented
other-than-temporary impairment of our investment portfolio. We have both the intent and ability to hold all of these securities for the time necessary to recover the amortized cost.

No impairment losses have been incurred in connection with our investment securities portfolio in either 2008 or 2007.



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The following table shows the composition of our mortgage-related securities as of June 30, 2008 by
type of issuer.



|                                                          |  |                     |         |            |   |         |  |                     |         |      |   |         |  |   |         |  |   |        
|--------------------------------------------------------- |  | ------------------- | ------- | ---------- | - | ------- |  | ------------------- | ------- | ---- | - | ------- |  | - | ------- |  | - | -------
|                                                          |  | Amortized Cost      |         | Fair Value
|                                                          |  | Pass ThruSecurities |         | CMOs       |   | Total   |  | Pass ThruSecurities |         | CMOs |   | Total  
|                                                          |  | (in thousands)     
|Government and government sponsored-enterprise securities |  | $                   | 421,215 |            | $ | 132,647 |  | $                   | 553,862 |      | $ | 421,453 |  | $ | 131,395 |  | $ | 552,848
|Private Issuers                                           |  |                     | 14,784  |            |   | 27,564  |  |                     | 42,348  |      |   | 13,802  |  |   | 26,497  |  |   | 40,299 
|                                                          |  |                     |         |            |   |         |  |                     |         |      |   |         |  |   |         |  |   |        
|                                                          |  | $                   | 435,999 |            | $ | 160,211 |  | $                   | 596,210 |      | $ | 435,255 |  | $ | 157,892 |  | $ | 593,147
|                                                          |  |                     |         |            |   |         |  |                     |         |      |   |         |  |   |         |  |   |        

On October 10, 2007, the Federal Home Loan Bank of Chicago (FHLBC) filed a Form
8-K in which it reported that the FHLBC had entered into a consensual cease and desist order with its regulator. Under the terms of the order, capital stock repurchases, redemptions of FHLBC stock and dividend declarations are subject to prior
written approval from FHLBCs regulator. The FHLBC has not paid dividends for the past four quarters and have announced that dividend payments are unlikely at least through 2008. At June 30, 2008, we held, at cost, $10.25 million of FHLBC
stock, all of which we believe we will ultimately be able to recover.

Loans

During the first six months of 2008, total loans increased $192.5 million, or 7.6%, to $2.73 billion at June 30, 2008 from total loans of $2.53
billion at December 31, 2007. Commercial loans, which includes commercial and industrial (C&I), commercial real estate secured, and real estate-construction loans, increased $202.4 million, or 8.6%, while consumer-oriented loans
declined $9.9 million. A $194.3 million, or 22.9%, increase in C&I loans produced most of the growth in total loans. Additionally, commercial real estate secured loans increased by $78.5 million, or 9.4%. These increases were partly offset by a
$70.0 million, or 14.2%, decrease in residential construction and land loans.

The composition of our loan portfolio as of June 30, 2008 and
December 31, 2007 was as follows:



|                                |  |                        |           |                         |                   |   |        |   |                         |  |     |  
|------------------------------- |  | ---------------------- | --------- | ----------------------- | ----------------- | - | ------ | - | ----------------------- |  | --- | -
|                                |  | June 30, 2008          |           |                         | December 31, 2007 |  
|                                |  | Amount                 |           | Percentageof GrossLoans |                   |   | Amount |   | Percentageof GrossLoans | 
|                                |  | (dollars in thousands) |          
|Commercial and industrial       |  | $                      | 1,044,520 |                         | 38                | % |        | $ | 850,196                 |  | 34  | %
|Commercial real estate secured  |  |                        | 918,161   |                         | 34                |   |        |   | 839,629                 |  | 33  |  
|Residential construction & land |  |                        | 422,801   |                         | 15                |   |        |   | 492,780                 |  | 19  |  
|Commercial construction & land  |  |                        | 178,403   |                         | 7                 |   |        |   | 178,898                 |  | 7   |  
|Consumer-oriented loans         |  |                        | 161,994   |                         | 6                 |   |        |   | 171,863                 |  | 7   |  
|                                |  |                        |           |                         |                   |   |        |   |                         |  |     |  
|Gross loans                     |  | $                      | 2,725,879 |                         | 100               | % |        | $ | 2,533,366               |  | 100 | %
|                                |  |                        |           |                         |                   |   |        |   |                         |  |     |  



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At June 30, 2008 total C&I loans accounted for 38% of the total loan portfolio. Total C&I
loans were $1.04 billion at June 30, 2008, an increase of $194.3 million, or 22.9%, as compared to $850.2 million at December 31, 2007. C&I loans include all loans for commercial purposes that are either unsecured or secured by
collateral other than commercial real estate. These loans are generally made to operating companies in a variety of businesses, excluding commercial real estate investment. We believe the growth in our C&I portfolio demonstrates the progress of
our strategy to expand our business with operating companies.

Our commercial real estate secured loans increased $78.5 million, or 9.4%,
to $918.2 million at June 30, 2008, as compared to $839.6 million at December 31, 2007. The increase was due to an increase in loans secured by non-owner occupied commercial property. The composition of our commercial real estate secured
portfolio, which comprised 34% of the total loan portfolio at June 30, 2008, was approximately as follows as of the dates indicated:



|                                     |  |                                                |   |  |                          |   |  |                                                |   |  |                          |  
|------------------------------------ |  | ---------------------------------------------- | - |  | ------------------------ | - |  | ---------------------------------------------- | - |  | ------------------------ | -
|                                     |  | June 30, 2008                                  |   |  | December 31, 2007        |  
|                                     |  | Percentage ofTotalCommercialReal EstateSecured |   |  | Percentage ofGross Loans |   |  | Percentage ofTotalCommercialReal EstateSecured |   |  | Percentageof Gross Loans |  
|Commercial properties:               |  |                                                |   |  |                          |   |  |                                                |   |  |                          |  
|Non-owner occupied                   |  | 62                                             | % |  | 21                       | % |  | 59                                             | % |  | 20                       | %
|Owner occupied                       |  | 22                                             |   |  | 8                        |   |  | 25                                             |   |  | 8                        |  
|                                     |  |                                                |   |  |                          |   |  |                                                |   |  |                          |  
|Subtotal                             |  | 84                                             |   |  | 29                       |   |  | 84                                             |   |  | 28                       |  
|Residential income properties        |  | 16                                             |   |  | 5                        |   |  | 16                                             |   |  | 5                        |  
|                                     |  |                                                |   |  |                          |   |  |                                                |   |  |                          |  
|Total commercial real estate secured |  | 100                                            | % |  | 34                       | % |  | 100                                            | % |  | 33                       | %
|                                     |  |                                                |   |  |                          |   |  |                                                |   |  |                          |  

Real estate-construction loans consist primarily of loans to professional real estate developers
for the construction of single-family homes, town-homes, condominium conversions and commercial property. The portion of this portfolio related to residential construction and land decreased by $70.0 million, or 14.2%, to $422.8 million at
June 30, 2008, as compared to $492.8 million at December 31, 2007. The residential real estate construction portfolio accounted for 15% of the total loan portfolio at June 30, 2008, down from 19% of the total loan portfolio at
December 31, 2007. The downturn in the residential real estate construction market has caused this portfolio to decline. We expect that the slowing residential real estate market will continue to impact the amount of loans in this portion of
our commercial loan portfolio as declining home sales have reduced the demand for both new homes and the development of residential lots and vacant land. Our commercial construction and land portfolio remained relatively unchanged at $178.4 million
at June 30, 2008, as compared to $178.9 million at December 31, 2008, and comprised 7% of the total loan portfolio. The composition of our real estate-construction portfolio, including both residential and commercial, was as follows as of
the dates indicated:



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|                                            |  |                        |         |                                     |                   |   |                         |    |   |         |   |                                     |  |     |                         |  |    |  
|------------------------------------------- |  | ---------------------- | ------- | ----------------------------------- | ----------------- | - | ----------------------- | -- | - | ------- | - | ----------------------------------- |  | --- | ----------------------- |  | -- | -
|                                            |  | June 30, 2008          |         |                                     | December 31, 2007 |  
|                                            |  | Balance                |         | Percentageof TotalConstructionLoans |                   |   | Percentageof GrossLoans |    |   | Balance |   | Percentageof TotalConstructionLoans |  |     | Percentageof GrossLoans | 
|                                            |  | (dollars in thousands) |        
|Residential properties:                     |  |                        |         |                                     |                   |   |                         |    |   |         |   |                                     |  |     |                         |  |    |  
|Single family attached and detached housing |  | $                      | 149,744 |                                     | 25                | % |                         | 5  | % |         | $ | 176,739                             |  | 26  | %                       |  | 7  | %
|Condo (new & conversions)                   |  |                        | 102,379 |                                     | 17                |   |                         | 4  |   |         |   | 127,112                             |  | 19  |                         |  | 5  |  
|Multi-family                                |  |                        | 55,463  |                                     | 9                 |   |                         | 2  |   |         |   | 68,976                              |  | 10  |                         |  | 2  |  
|Completed for sale                          |  |                        | 23,201  |                                     | 4                 |   |                         | 1  |   |         |   | 28,436                              |  | 4   |                         |  | 1  |  
|                                            |  |                        |         |                                     |                   |   |                         |    |   |         |   |                                     |  |     |                         |  |    |  
|Total residential construction              |  |                        | 330,787 |                                     | 55                |   |                         | 12 |   |         |   | 401,263                             |  | 59  |                         |  | 15 |  
|Land  unimproved & farmland                |  |                        | 63,925  |                                     | 10                |   |                         | 2  |   |         |   | 68,188                              |  | 10  |                         |  | 3  |  
|Land  improved & entitled                  |  |                        | 5,399   |                                     | 1                 |   |                         | *  |   |         |   | 5,344                               |  | 1   |                         |  | *  |  
|Land  under development                    |  |                        | 22,690  |                                     | 4                 |   |                         | 1  |   |         |   | 17,985                              |  | 3   |                         |  | 1  |  
|                                            |  |                        |         |                                     |                   |   |                         |    |   |         |   |                                     |  |     |                         |  |    |  
|Total land                                  |  |                        | 92,014  |                                     | 15                |   |                         | 3  |   |         |   | 91,517                              |  | 14  |                         |  | 4  |  
|                                            |  |                        |         |                                     |                   |   |                         |    |   |         |   |                                     |  |     |                         |  |    |  
|Total residential construction and land     |  |                        | 422,801 |                                     | 70                |   |                         | 15 |   |         | $ | 492,780                             |  | 73  |                         |  | 19 |  
|                                            |  |                        |         |                                     |                   |   |                         |    |   |         |   |                                     |  |     |                         |  |    |  
|Commercial properties                       |  |                        | 178,403 |                                     | 30                |   |                         | 7  |   |         |   | 178,898                             |  | 27  |                         |  | 7  |  
|                                            |  |                        |         |                                     |                   |   |                         |    |   |         |   |                                     |  |     |                         |  |    |  
|Total real estate- construction             |  | $                      | 601,204 |                                     | 100               | % |                         | 22 | % |         | $ | 671,678                             |  | 100 | %                       |  | 26 | %
|                                            |  |                        |         |                                     |                   |   |                         |    |   |         |   |                                     |  |     |                         |  |    |  



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

Total consumer-oriented loans, which
include residential real estate mortgages, home equity loans and lines of credit, and other consumer loans, decreased $9.9 million, or 5.7%, to $162.0 million at June 30, 2008. Residential real estate loans decreased $4.7 million, or 7.8%, to
$55.5 million. Home equity loans and lines of credit declined $5.0 million, or 5.0%, to $94.7 million. The portion of home equity loans and lines of credit that was originally sourced through brokers totaled $14.9 million at June 30, 2008.



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##### Table of Contents

Loan Quality and Nonperforming Assets

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



|                                                                         |  |                        |         |   |              |   |        |              |  |   |        |  
|------------------------------------------------------------------------ |  | ---------------------- | ------- | - | ------------ | - | ------ | ------------ |  | - | ------ | -
|                                                                         |  | June 30,2008           |         |   | Dec. 31,2007 |   |        | June 30,2007 | 
|                                                                         |  | (dollars in thousands) |        
|Loans contractually past due 90 days or more but still accruing interest |  | $                      | 1,588   |   |              | $ | 4,253  |              |  | $ | 1,339  |  
|Nonaccrual loans                                                         |  |                        |         |   |              |   |        |              |  |   |        |  
|Commercial and industrial                                                |  |                        | 12,759  |   |              |   | 5,069  |              |  |   | 3,632  |  
|Commercial real estate secured                                           |  |                        | 14,246  |   |              |   | 10,935 |              |  |   | 6,333  |  
|Residential construction & land                                          |  |                        | 116,376 |   |              |   | 52,000 |              |  |   | 22,185 |  
|Commercial construction & land                                           |  |                        | 7,388   |   |              |   | 412    |              |  |   |       |  
|All other loan types                                                     |  |                        | 2,103   |   |              |   | 2,996  |              |  |   | 2,712  |  
|                                                                         |  |                        |         |   |              |   |        |              |  |   |        |  
|Total nonaccrual loans                                                   |  |                        | 152,872 |   |              |   | 71,412 |              |  |   | 34,862 |  
|                                                                         |  |                        |         |   |              |   |        |              |  |   |        |  
|Total nonperforming loans                                                |  |                        | 154,460 |   |              |   | 75,665 |              |  |   | 36,201 |  
|Other real estate owned                                                  |  |                        | 4,280   |   |              |   | 2,599  |              |  |   | 943    |  
|Other repossessed assets                                                 |  |                        |        |   |              |   | 7      |              |  |   |       |  
|                                                                         |  |                        |         |   |              |   |        |              |  |   |        |  
|Total nonperforming assets                                               |  | $                      | 158,740 |   |              | $ | 78,271 |              |  | $ | 37,144 |  
|                                                                         |  |                        |         |   |              |   |        |              |  |   |        |  
|Nonperforming loans to total loans                                       |  |                        | 5.67    | % |              |   | 2.99   | %            |  |   | 1.41   | %
|Nonperforming assets to total loans plus repossessed property            |  |                        | 5.81    | % |              |   | 3.09   | %            |  |   | 1.45   | %
|Nonperforming assets to total assets                                     |  |                        | 4.27    | % |              |   | 2.20   | %            |  |   | 1.13   | %

Nonperforming assets were $158.7 million, or 4.27% of total assets on June 30, 2008, compared
to $78.3 million, or 2.20% of total assets on December 31, 2007, and $37.1 million, or 1.13% of total assets on June 30, 2007. The majority of the increase in nonperforming assets during the first six months of 2008 related to loans to
real estate developers as the residential housing market continued to deteriorate during the second quarter of 2008. Non accrual residential real estate construction loans comprised 76.1% of total nonaccrual loans at June 30, 2008.
Additionally, 58.4% of total nonaccrual loans at June 30, 2008 represent loans to five borrowers.

The following table presents loans
past due 30 to 89 days and still accruing as of the dates indicated:



|                                                                   |  |                        |        |   |              |   |        |              |  |   |        |  
|------------------------------------------------------------------ |  | ---------------------- | ------ | - | ------------ | - | ------ | ------------ |  | - | ------ | -
|                                                                   |  | June 30,2008           |        |   | Dec. 31,2007 |   |        | June 30,2007 | 
|                                                                   |  | (dollars in thousands) |       
|Loans contractually past due 30 through 89 days and still accruing |  | $                      | 30,168 |   |              | $ | 63,553 |              |  | $ | 31,790 |  
|30  89 days past due to total loans                               |  |                        | 1.11   | % |              |   | 2.51   | %            |  |   | 1.24   | %



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##### Table of Contents

The following table presents data related to nonaccrual loans by dollar amount as of the dates indicated:



|                                 |  |                        |  |                   |  |        |         |                   |    |                |    |        |   |       
|-------------------------------- |  | ---------------------- |  | ----------------- |  | ------ | ------- | ----------------- | -- | -------------- | -- | ------ | - | ------
|                                 |  | June 30, 2008          |  | December 31, 2007
|Nonaccrual loans by dollar range |  | NumberofBorrowers      |  | Numberof Loans    |  | Amount |         | NumberofBorrowers |    | Numberof Loans |    | Amount
|                                 |  | (dollars in thousands)
|$15.0 million or more            |  | 3                      |  | 10                |  | $      | 64,215  |                   | 1  |                | 1  |        | $ | 19,083
|$10.0 million to $14.9 million   |  | 2                      |  | 5                 |  |        | 25,078  |                   | 2  |                | 5  |        |   | 26,333
|$5.0 million to $9.9 million     |  | 3                      |  | 10                |  |        | 19,700  |                   |   |                |   |        |   |      
|$1.0 million to $4.9 million     |  | 13                     |  | 24                |  |        | 31,388  |                   | 8  |                | 15 |        |   | 19,235
|Under $1.0 million               |  | 76                     |  | 79                |  |        | 12,491  |                   | 56 |                | 58 |        |   | 6,761 
|                                 |  |                        |  |                   |  |        |         |                   |    |                |    |        |   |       
|Total nonaccrual loans           |  | 97                     |  | 128               |  | $      | 152,872 |                   | 67 |                | 79 |        | $ | 71,412
|                                 |  |                        |  |                   |  |        |         |                   |    |                |    |        |   |       

The residential housing market continued to deteriorate in the second quarter of 2008, placing
continued financial stress on customers, particularly those engaged in residential development. This downturn in the residential housing market has reduced demand and market prices for developed residential lots and vacant land as well as homes.
Where there is reduced demand for new homes, residential developers may be required to hold their properties for longer periods of time or sell their properties at reduced prices, which can lead to greater holding costs and lower or deferred cash
inflows. These factors may result in higher credit risk for the lender. In addition, we believe the recent turmoil in the sub-prime lending market has caused tightened credit standards throughout the mortgage industry and has taken some potential
home buyers out of the market. We viewed the increase in our nonperforming loans as a reflection of increased credit risk in our loan portfolio, and we incorporated those trends into our evaluation of the adequacy of the allowance for loan losses. A
continued downturn in the residential real estate market in 2008 could result in additional defaults by our real estate developers, and therefore, additional provision for loan losses.

Impaired loans include all nonaccrual loans as well as accruing loans judged to have higher risk of noncompliance with the present contractual repayment
schedule for both interest and principal. While impaired loans exhibit weaknesses that may inhibit repayment in compliance with the original note terms, the measurement of impairment may not always result in an allowance for loan loss for every
impaired loan. For impaired loans that are secured by real estate, our general practice is to use current appraisals to determine the appropriate allowance. Impaired loans at June 30, 2008 were $176.7 million, an increase of $85.8 million, or
94.3%, as compared with December 31, 2007. The allowance for loan losses related to impaired loans was $51.3 million at June 30, 2008, an increase of $41.9 million from year-end 2007.



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##### Table of Contents

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



|                                                    |  |                |         |              |   |              |  |   |       
|--------------------------------------------------- |  | -------------- | ------- | ------------ | - | ------------ |  | - | ------
|                                                    |  | June 30,2008   |         | Dec. 31,2007 |   | June 30,2007
|                                                    |  | (in thousands)
|Recorded balance of impaired loans                  |  | $              | 176,730 |              | $ | 90,972       |  | $ | 36,045
|Allowance for loan losses related to impaired loans |  |                | 51,298  |              |   | 9,375        |  | $ | 4,249 

The composition of our impaired loans and the related allowance at June 30, 2008 was as
follows:



|                                   |  |                |         |                     |   |       
|---------------------------------- |  | -------------- | ------- | ------------------- | - | ------
|                                   |  | ImpairedLoans  |         | Allowancefor Losses
|                                   |  | (in thousands)
|Commercial and industrial          |  | $              | 25,791  |                     | $ | 3,037 
|Commercial real estate secured     |  |                | 14,246  |                     |   | 1,948 
|Residential construction and land  |  |                | 129,306 |                     |   | 46,156
|Commercial construction and land   |  |                | 7,387   |                     |   | 157   
|                                   |  |                |         |                     |   |       
|Total Impaired loans and allowance |  | $              | 176,730 |                     | $ | 51,298
|                                   |  |                |         |                     |   |       

Allowance for Loan Losses

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



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##### Table of Contents

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



|                                                     |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|---------------------------------------------------- |  | ---------------------- | --------- | - | -------------------- | - | --------- | ------------ |  | - | ------------ | - |  | - | --------- | -
|                                                     |  | For Three Months Ended |           |   | For Six Months Ended |  
|                                                     |  | June 30,2008           |           |   | June 30,2007         |   |           | June 30,2008 |  |   | June 30,2007 |  
|                                                     |  | (dollars in thousands) |          
|Average total loans                                  |  | $                      | 2,558,406 |   |                      | $ | 2,516,236 |              |  | $ | 2,521,717    |   |  | $ | 2,501,641 |  
|                                                     |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|Total loans at end of period                         |  | $                      | 2,725,855 |   |                      | $ | 2,562,000 |              |  | $ | 2,725,855    |   |  | $ | 2,562,000 |  
|                                                     |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|Allowance for loan losses:                           |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|Allowance at beginning of period                     |  | $                      | 64,193    |   |                      | $ | 38,330    |              |  | $ | 54,681       |   |  | $ | 37,516    |  
|Net (charge-offs) recoveries:                        |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|Commercial and commercial real estate                |  |                        | (4,191    | ) |                      |   | (215      | )            |  |   | (4,355       | ) |  |   | (1,390    | )
|Real estate - construction                           |  |                        | (4,237    | ) |                      |   | (10       | )            |  |   | (5,924       | ) |  |   | (1,064    | )
|Residential real estate mortgages and consumer loans |  |                        | (378      | ) |                      |   | (206      | )            |  |   | (765         | ) |  |   | (763      | )
|                                                     |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|Total net charge-offs                                |  |                        | (8,806    | ) |                      |   | (431      | )            |  |   | (11,044      | ) |  |   | (3,217    | )
|Provision for loan losses                            |  |                        | 49,355    |   |                      |   | 1,900     |              |  |   | 61,105       |   |  |   | 5,500     |  
|                                                     |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|Allowance at end of period                           |  | $                      | 104,742   |   |                      | $ | 39,799    |              |  | $ | 104,742      |   |  | $ | 39,799    |  
|                                                     |  |                        |           |   |                      |   |           |              |  |   |              |   |  |   |           |  
|Annualized net charge-offs to average total loans    |  |                        | 1.38      | % |                      |   | 0.07      | %            |  |   | 0.88         | % |  |   | 0.26      | %
|Allowance to total loans at end of period            |  |                        | 3.84      | % |                      |   | 1.55      | %            |  |   | 3.84         | % |  |   | 1.55      | %
|Allowance to nonperforming loans                     |  |                        | 67.81     | % |                      |   | 109.94    | %            |  |   | 67.81        | % |  |   | 109.94    | %

Our allowance for loan losses was $104.7 million at June 30, 2008, or 3.84% of end-of-period
loans and 67.81% of nonperforming loans. At June 30, 2007, the allowance for loan losses was $39.8 million, which represented 1.55% of end-of-period loans and 109.94% of nonperforming loans. Net charge-offs during the second quarter of 2008
were $8.8 million, or 1.38% of average loans on an annualized basis. In comparison, net charge-offs during the first quarter of 2007 were $431,000, or 0.07% of average loans on an annualized basis. For the first six months of 2008, net charge-offs
were $11.0 million, or 0.88% of average loans on an annualized basis, as compared to net charge-offs of $3.2 million, or 0.26% of average loans, during the first six months of 2007. We expect that net charge-offs in the second half of 2008 will be
higher than during the first six months of 2008.

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 $49.4 million for the second quarter of 2008, compared to $1.9 million for the second quarter of 2007. The provision for loan losses was $61.1 million during the first half of 2008 compared to
$5.5 million during the first half of 2007. The continued weak economic environment surrounding residential development primarily produced the increase in the provision for loan losses. The continued high level of nonperforming loans, impaired loans
and the amount of performing loans that have been assessed by us as having higher credit risk, and therefore receiving heightened monitoring, all factored into the increase of our provision for loan losses in 2008 as compared to 2007. Our provision
for loan losses in any individual accounting period is not an indicator of provisioning in subsequent reporting periods.



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Deposits

Total deposits at June 30, 2008 increased $339.4 million to $2.92 billion at June 30, 2008 from $2.58 billion at December 31, 2007, mostly as a result of increased out-of-market deposits. Total in-market deposits were $1.91
billion at June 30, 2008, an increased of $7.0 million, or 0.4%, as compared to December 31, 2007. Total in-market certificates of deposit increased $171.4 million as a result of more local market CD promotions. Money market balances
declined $128.8 million primarily due to lower balances maintained by a single large money market account holder. Non-interest-bearing deposits declined $47.3 million, as seasonal corporate trust deposits declined $52.8 million. Total out-of-market
deposits increased $332.8 million, to $1.1 billion, or 34.6% of total deposits at June 30, 2008. Brokered money market deposits, out-of-local-market certificates of deposit and brokered certificates of deposit increased $47.7 million, $54.4
million and $230.6 million, respectively, as compared to December 31, 2007.

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



|                                            |  |                |           |              |   |          
|------------------------------------------- |  | -------------- | --------- | ------------ | - | ---------
|                                            |  | June 30,2008   |           | Dec. 31,2007
|                                            |  | (in thousands)
|In-market deposits:                         |  |                |           |              |   |          
|Non-interest bearing deposits               |  | $              | 424,440   |              | $ | 471,770  
|NOW accounts                                |  |                | 69,048    |              |   | 76,572   
|Savings accounts                            |  |                | 44,823    |              |   | 49,386   
|Money market accounts                       |  |                | 579,056   |              |   | 707,829  
|Customer certificates of deposit            |  |                | 714,870   |              |   | 543,443  
|Public time deposits                        |  |                | 76,333    |              |   | 52,895   
|                                            |  |                |           |              |   |          
|Total in-market deposits                    |  |                | 1,908,570 |              |   | 1,901,895
|Out-of-market deposits:                     |  |                |           |              |   |          
|Brokered money market deposits              |  |                | 103,255   |              |   | 55,507   
|Out-of-local-market certificates of deposit |  |                | 171,550   |              |   | 117,159  
|Brokered certificates of deposit            |  |                | 736,259   |              |   | 505,631  
|                                            |  |                |           |              |   |          
|Total out-of-market deposits                |  |                | 1,011,064 |              |   | 678,297  
|                                            |  |                |           |              |   |          
|Total deposits                              |  | $              | 2,919,634 |              | $ | 2,580,192
|                                            |  |                |           |              |   |          

Average deposits for the first six months of 2008 increased $140.6 million to $2.69 billion,
compared to $2.54 billion for the first six months of 2007. Total time deposits increased $222.4 million during the first half of 2008 as compared to the first half of 2007. The increased was comprised of higher local-market certificates of deposit
of $92.5 million and out of market certificates of deposit of $126.3 million. The increase in term deposits was partly offset by lower money market deposits of $75.5 million.



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##### Table of Contents

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



|                                            |  |                                       |           |                    |                                       |   |      |      |   |                |   |                    |  |       |      |  |      |  
|------------------------------------------- |  | ------------------------------------- | --------- | ------------------ | ------------------------------------- | - | ---- | ---- | - | -------------- | - | ------------------ |  | ----- | ---- |  | ---- | -
|                                            |  | For the Six Months EndedJune 30, 2008 |           |                    | For the Six Months EndedJune 30, 2007 |  
|                                            |  | AverageBalance                        |           | Percent OfDeposits |                                       |   | Rate |      |   | AverageBalance |   | Percent OfDeposits |  |       | Rate | 
|                                            |  | (dollars in thousands)                |          
|Noninterest-bearing demand deposits         |  | $                                     | 392,828   |                    | 14.6                                  | % |      |     | % |                | $ | 380,450            |  | 15.0  | %    |  |     | %
|NOW accounts                                |  |                                       | 73,380    |                    | 2.7                                   |   |      | 0.41 |   |                |   | 82,784             |  | 3.3   |      |  | 0.75 |  
|Money market accounts                       |  |                                       | 741,333   |                    | 27.7                                  |   |      | 2.26 |   |                |   | 816,784            |  | 32.1  |      |  | 4.40 |  
|Savings deposits                            |  |                                       | 47,325    |                    | 1.8                                   |   |      | 0.17 |   |                |   | 56,647             |  | 2.2   |      |  | 0.28 |  
|Time deposits:                              |  |                                       |           |                    |                                       |   |      |      |   |                |   |                    |  |       |      |  |      |  
|Certificates of deposit                     |  |                                       | 597,147   |                    | 22.2                                  |   |      | 4.49 |   |                |   | 504,612            |  | 19.8  |      |  | 4.72 |  
|Out-of-local-market certificates of deposit |  |                                       | 157,171   |                    | 5.9                                   |   |      | 4.76 |   |                |   | 109,604            |  | 4.3   |      |  | 5.41 |  
|Brokered certificates of deposit            |  |                                       | 605,056   |                    | 22.5                                  |   |      | 4.86 |   |                |   | 526,331            |  | 20.7  |      |  | 5.05 |  
|Public Funds                                |  |                                       | 70,846    |                    | 2.6                                   |   |      | 3.87 |   |                |   | 67,281             |  | 2.6   |      |  | 5.14 |  
|                                            |  |                                       |           |                    |                                       |   |      |      |   |                |   |                    |  |       |      |  |      |  
|Total time deposits                         |  |                                       | 1,430,220 |                    | 53.2                                  |   |      | 4.65 |   |                |   | 1,207,828          |  | 47.4  |      |  | 4.95 |  
|                                            |  |                                       |           |                    |                                       |   |      |      |   |                |   |                    |  |       |      |  |      |  
|Total deposits                              |  | $                                     | 2,685,086 |                    | 100.0                                 | % |      |      |   |                | $ | 2,544,493          |  | 100.0 | %    |  |      |  
|                                            |  |                                       |           |                    |                                       |   |      |      |   |                |   |                    |  |       |      |  |      |  

Other Borrowings

Other borrowings include securities sold under agreements to repurchase, federal funds purchased and U.S. Treasury tax and loan note option (TT&L note) borrowings. Period-end other borrowings decreased
$88.5 million to $300.6 million at June 30, 2008, as compared to $389.1 million at December 31, 2007. A $40.0 million decrease in borrowings under the TT&L note program combined with a $39.2 million decrease in overnight securities
sold under agreements to repurchase produced the majority of the decrease.

Notes Payable and FHLB Advances

At June 30, 2008, we had outstanding $12.0 million under our $20.0 million revolving credit facility.

Borrowings from the FHLBC decreased $70.0 million during the first six months of 2008 to $135.0 million at June 30, 2008.

Junior Subordinated Debentures

At June 30,
2008, we had $45.4 million of junior subordinated debentures issued to TAYC Capital Trust I, our wholly-owned statutory trust, that are currently callable at par, at our option. We continue to monitor the trust preferred securities market for an
opportunity to refinance the 9.75% fixed-rate trust preferred securities and the related junior subordinated debentures. Unamortized issuance costs relating to these debentures were $2.5 million on June 30, 2008. Unamortized issuance costs
would be recognized as noninterest expense if the debentures were called by us.



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At June 30, 2008, we also had $41.2 million of junior subordinated debentures issued to TAYC Capital
Trust II, our wholly-owned statutory trust. These junior subordinated debentures pay a variable interest rate based upon the 3 month LIBOR plus 2.68%. We may redeem all or part of the debentures at any time on or after June 17, 2009, subject to
regulatory approval, at par.

CAPITAL RESOURCES

At June 30, 2008 and December 31, 2007, both the Company and Cole Taylor Bank were considered well capitalized under capital guidelines for bank holding companies and banks. The Companys and Cole Taylor
Banks capital ratios were as follows as of the dates indicated:



|                                         |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|---------------------------------------- |  | ---------------------- | ------- | ----- | --------------------------- | - | ------ | ------------------------------------------------------------ | -------- |  | ----- | ------ |  | ----- | -------- |  | ------ | -
|                                         |  | ACTUAL                 |         |       | FOR CAPITALADEQUACYPURPOSES |   |        | TO BE WELLCAPITALIZED UNDERPROMPTCORRECTIVE ACTIONPROVISIONS |         
|                                         |  | AMOUNT                 |         | RATIO |                             |   | AMOUNT |                                                              | RATIO    |  |       | AMOUNT |  | RATIO |         
|                                         |  | (dollars in thousands) |        
|As of June 30, 2008:                     |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Total Capital (to Risk Weighted Assets)  |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  | $                      | 321,237 |       | 10.26                       | % |        | >$                                                           | 250,513  |  | >8.00 | %      |  | >$    | 313,141  |  | >10.00 | %
|Cole Taylor Bank                         |  |                        | 314,824 |       | 10.06                       |   |        |                                                              | >250,336 |  | >8.00 |        |  |       | >312,921 |  | >10.00 |  
|Tier I Capital (to Risk Weighted Assets) |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  |                        | 270,140 |       | 8.63                        |   |        |                                                              | >125,256 |  | >4.00 |        |  |       | >187,884 |  | >6.00  |  
|Cole Taylor Bank                         |  |                        | 274,899 |       | 8.78                        |   |        |                                                              | >125,168 |  | >4.00 |        |  |       | >187,752 |  | >6.00  |  
|Leverage (to average assets)             |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  |                        | 270,140 |       | 7.71                        |   |        |                                                              | >140,220 |  | >4.00 |        |  |       | >175,274 |  | >5.00  |  
|Cole Taylor Bank                         |  |                        | 274,899 |       | 7.85                        |   |        |                                                              | >140,078 |  | >4.00 |        |  |       | >175,098 |  | >5.00  |  
|                                         |  |                        |         |       |                             |  
|As of December 31, 2007:                 |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Total Capital (to Risk Weighted Assets)  |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  | $                      | 368,188 |       | 12.74                       | % |        | >$                                                           | 231,175  |  | >8.00 | %      |  | >$    | 288,968  |  | >10.00 | %
|Cole Taylor Bank                         |  |                        | 342,607 |       | 11.88                       |   |        |                                                              | >230,677 |  | >8.00 |        |  |       | >288,346 |  | >10.00 |  
|Tier I Capital (to Risk Weighted Assets) |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  |                        | 330,451 |       | 11.44                       |   |        |                                                              | >115,587 |  | >4.00 |        |  |       | >173,381 |  | >6.00  |  
|Cole Taylor Bank                         |  |                        | 306,333 |       | 10.62                       |   |        |                                                              | >115,339 |  | >4.00 |        |  |       | >173,008 |  | >6.00  |  
|Leverage (to average assets)             |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  |                        | 330,451 |       | 9.40                        |   |        |                                                              | >140,567 |  | >4.00 |        |  |       | >175,709 |  | >5.00  |  
|Cole Taylor Bank                         |  |                        | 306,333 |       | 8.74                        |   |        |                                                              | >140,232 |  | >4.00 |        |  |       | >175,290 |  | >5.00  |  

Our regulatory capital ratios declined at June 30, 2008 as compared to December 31, 2007
as a result of the following three factors:



| |  |  | We recognized a net loss for the first half of 2008,
| | - |  | ----------------------------------------------------



| |  |  | total risk-weighted and average assets increased, and
| | - |  | -----------------------------------------------------



| |  |  | a portion of our deferred tax asset was disallowed under regulatory capital rules.
| | - |  | ----------------------------------------------------------------------------------

At June 30, 2008, the portion of the deferred tax asset that was disallowed for regulatory capital purposes (but not for GAAP reporting purposes)
was $16.0 million at the Bank and $21.3 million at the consolidated level.



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On June 27, 2008, the Company contributed $10.0 million in capital to the Bank. On July 18,
2008, the Company contributed an additional $12.0 million in capital to the Bank. The Banks total risk-based capital ratio on July 31, 2008 was 10.17%.

The Bank did not pay any dividends to the Company during the first half of 2008. The Bank is subject to dividend restrictions established by regulatory authorities. As of June 30, 2008, the Bank could declare and
pay to the Company, without the approval of regulatory authorities, $4.0 million in dividends.

On July 29, 2008, we announced that we
had signed a non-binding letter of intent and exclusivity agreement with Harrison I. Steans and Jennifer W. Steans for a proposed private placement to accredited investors led by them of $50.0 million of convertible preferred stock. We also
announced a concurrent private placement of $50.0 million of subordinated debt by the Bank. If completed, we anticipate that the proceeds from the preferred stock offering and the subordinated debt would be used to strengthen our balance sheet to
help fund our growth strategy. The consummation of the preferred stock sale is subject to a number of conditions, including further due diligence and the negotiation and execution of mutually acceptable investment documents. This transaction also
will require Federal and State regulatory approval prior to closing. We can provide no assurances that such approvals will be obtained, or that the transaction will be consummated on the terms described above, or at all.

During the first quarter of 2008, we declared common stock dividends of $0.10 per share, totaling $1.1 million. We did not declare a dividend during the
second quarter of 2008. Because of our expectations for future asset growth, we do not expect to declare common stock dividends for the remainder of 2008 or 2009.

In addition, our expected growth strategy in commercial and industrial lending is expected to require significant additional regulatory capital and is the primary driver behind our plans for a private placement of
preferred stock and subordinated debt. If we are not successful in executing these private placements, we would be required to significantly reduce our earning asset growth in future periods.

LIQUIDITY

We increased our liquidity in 2008,
primarily through a $346.4 million increase in deposit balances and $107.8 million of principal repayments from our investment portfolio. During the first half of 2008, cash balances were used to fund a $207.1 million increase in loan balances and
reduce our borrowing balances. Other borrowing balances decreased by $88.5 million and our notes payable and FHLB advances decreased by $58.0 million during the first six months of 2008.

In connection with our liquidity risk management, we evaluate and closely monitor significant customer deposit balances for stability and average life.
In order to maintain sufficient liquidity to meet all of our loan and deposit customers withdrawal and funding demands, we routinely measure and monitor the volume of our liquid assets and available funding sources. Additional



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sources of liquidity for Cole Taylor Bank include Federal Home Loan Bank advances, the Federal Reserve Banks Borrower-in-Custody Program, federal funds
borrowing lines from larger correspondent banks and pre-approved repurchase agreement availability with major brokers and banks.

At the
holding company level, cash and cash equivalents totaled $17.7 million at June 30, 2008, as compared to $22.0 million at December 31, 2007. Cash outflows during the first half of 2008 included a $10.0 million capital contribution to the
Bank, $3.6 million of interest paid on our junior subordinated debentures, and $2.1 million of dividends paid to our common shareholders, representing quarterly dividends declared in the fourth quarter of 2007 and the first quarter of 2008. Cash
inflows during the first six months of 2008 primarily consisted of a $12.0 million draw on our $20 million revolving line of credit. On July 18, 2008, the Company used $12.0 million of its cash for a capital contribution to the Bank

Our adverse operating results and our reduced regulatory total risk-based capital ratio may place greater challenges on our ability to retain or
acquire new deposits and borrowings. Some deposit sources utilize independent bank ratings to select where they maintain their deposits and our ratings from certain independent rating companies has declined in 2008. Some deposit sources monitor
regulatory capital ratios in selecting where to place their deposits and our total risk-based capital ratios declined in 2008.

In
addition, banks must obtain regulatory approval from the FDIC to utilize brokered deposits if they are not considered well-capitalized under the regulatory capital guidelines. Although we are well-capitalized at June 30, 2008, a
reduction in our total capital ratio as a result of either future adverse operating results or asset growth could prevent us from utilizing the brokered deposit market if we could not obtain the FDICs approval. Banks less than well-capitalized
may request a waiver from the FDIC to continue to utilize brokered deposits. However, deposit brokers may choose not to place deposits in less than well-capitalized institutions or may require significantly higher interest rates for those deposits.
At June 30, 2008, we had $839.5 million of brokered deposits.

Additionally, our revolving credit facility at the holding company level
requires the Bank be well-capitalized and the holding company be adequately capitalized.

Off-Balance Sheet Arrangements

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

At June 30, 2008, we had $852 million of undrawn commitments to extend credit and
$81 million of financial and performance standby letters of credit. In comparison, at December 31, 2007, we had $962 million of undrawn commitments to extend credit and $97 million of financial and performance standby letters of credit. We
expect most of these letters of credit to expire undrawn. We have, however, established a $2.2 million liability for losses on unfunded commitments related to certain nonperforming loans.



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Derivative Financial Instruments

The following table describes the derivative instruments outstanding at June 30, 2008:



|                                              |  |                        |         |              |                        |                  |         |           |   |      |  
|--------------------------------------------- |  | ---------------------- | ------- | ------------ | ---------------------- | ---------------- | ------- | --------- | - | ---- | -
|Product                                       |  | NotionalAmount         |         | Strike Rates |                        | Wt. Avg.Maturity |         | FairValue |  
|                                              |  | (dollars in thousands) |        
|Cash flow hedging derivative instrument:      |  |                        |         |              |                        |                  |         |           |   |      |  
|Interest Rate Swapreceive fixed/pay variable |  | $                      | 100,000 |              | Receive 6.64%Pay 5.00% |                  | 3.0 yrs |           | $ | 822  |  
|Non-hedging derivative instruments:           |  |                        |         |              |                        |                  |         |           |   |      |  
|Interest Rate Swappay fixed/receive variable |  |                        | 23,980  |              | Pay 5.92%Receive 3.61% |                  | 4.3 yrs |           |   | (660 | )
|Interest Rate Swapreceive fixed/pay variable |  |                        | 23,980  |              | Receive 5.92%Pay 3.61% |                  | 4.3 yrs |           |   | 728  |  
|                                              |  |                        |         |              |                        |                  |         |           |   |      |  
|Total non-hedging derivative instrument       |  |                        | 47,960  |              |                        |                  |         |           |   |      |  
|                                              |  |                        |         |              |                        |                  |         |           |   |      |  
|Total                                         |  | $                      | 147,960 |              |                        |                  |         |           |   |      |  
|                                              |  |                        |         |              |                        |                  |         |           |   |      |  

During the second quarter of 2008, we entered into a $100.0 million notional amount interest rate
swap agreement that is designated as a cash flow hedge against interest receipts from prime-base loans. Under this agreement, we will receive payments at a fixed rate of 6.64%, computed on the notional amount, and pay a variable rate based upon the
prime lending rate, computed on the notional amount. The fair value of cash flow hedging derivative instruments are recorded as an asset or liability with the effective portion of the corresponding unrealized gain or loss recorded in other
comprehensive income in stockholders equity, net of tax. This cash flow hedge was highly effective during the second quarter of 2008.

As of June 30, 2008, we also had $48.0 million notional amount of interest rate swap agreements related to customer transactions. We have entered into interest rate swap agreements with our customers to accommodate their borrowing
needs. At the same time, in order to offset our exposure and manage our own interest rate risk, we enter into an interest rate swap with a different counterparty with offsetting terms. These derivative instruments are not designated as accounting
hedges and changes in fair value of these instruments, as well as any net cash settlements, are recognized in noninterest income as other derivative income or expense.

During March 2008, we terminated two interest rate floor agreements with a notional amount of $200.0 million. One of the floor agreements, with a notional amount of $100.0 million, was not designated as an accounting
hedge. During the first quarter of 2008, other derivative income, reported in noninterest income, included $843,000 of income from changes in the fair value from this non-designated floor agreement. The other floor agreement, with a notional amount
of $100.0 million was designated as a cash flow hedge. Upon termination, $1.1 million of unrealized gains that had been accumulated in other comprehensive income, which consisted of the increase in fair value since inception less the cumulative
amortization of the floor premium, will be amortized over what would have been the remaining life of the floor agreement. This floor was scheduled to mature in July 2010.



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

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

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

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

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



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Our simulation modeling of the June 30, 2008 balance sheet, using the market interest rates in
effect at period-end (the rates unchanged scenario), indicated that our net interest margin would likely decline in the third quarter of 2008 if market interest rates remain unchanged. In response to uncertainty in the market place, we
have maintained higher liquidity including prefunding certain term deposits that are expected to mature in the next six months. Maintaining higher liquidity targets generally places downward pressure on a net interest margin. Additional critical
factors affecting our net interest margin that are not specifically measured as part of interest rate risk are the impact of competition on loan and deposit pricing as well as changes in our balance sheet such as the mix of our funding.

The following table indicates the estimated change in future net interest income from the rates unchanged simulation for the 12 months following the
indicated dates, assuming a gradual shift up or down in market rates reflecting a parallel change in rates across the entire yield curve. In our modeling, we typically evaluate scenarios assuming a 200 basis point shift up or down in market interest
rates. However, because of the relatively low level of market rates at June 30, 2008, a 100 basis point down scenario was used:



|                                 |  |                                                                     |        |   |                      |       |    |              |   |        |                  |  |       |   
|-------------------------------- |  | ------------------------------------------------------------------- | ------ | - | -------------------- | ----- | -- | ------------ | - | ------ | ---------------- |  | ----- | --
|                                 |  | Change in Future Net Interest Incomefrom Rates Unchanged
Simulation |       
|                                 |  | June 30, 2008                                                       |        |   | At December 31, 2007 |      
|                                 |  | (dollars in thousands)                                              |       
|Change in interest rates         |  | DollarChange                                                        |        |   | PercentageChange     |       |    | DollarChange |   |        | PercentageChange | 
|+200 basis points over one year  |  | $                                                                   | 6,344  |   |                      | 6.75  | %  |              | $ | 2,433  |                  |  | 2.36  | % 
|- 100 basis points over one year |  |                                                                     | (3,141 | ) |                      | (3.34 | )% |              |   |       |                  |  |      |   
|- 200 basis points over one year |  |                                                                     |       |   |                      |      |    |              |   | (1,926 | )                |  | (1.87 | )%

Our simulation modeling at June 30, 2008 indicated that future net interest income in a
rising rate environment would be higher than that projected in a rates unchanged environment. Net interest income in year one in a 200 basis point rising rate scenario was calculated to be $6.3 million, or 6.8%, higher than net interest income in a
rates unchanged scenario. That opportunity for increased net interest income would be diminished, however, if market forces negatively impacted our loan and deposit pricing and our funding mix were to change.

Conversely, our simulation modeling of a falling interest rate environment indicated that future net interest income would be lower than that projected
in the rates unchanged environment. Our net interest income in year one in a 100 basis point falling rate scenario was calculated to be $3.1 million, or 3.3%, lower than in a rates unchanged scenario.

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



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NEW ACCOUNTING PRONOUNCEMENTS

In May 2008, the FASB issued SFAS No. 162 The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS 162 will be effective
60 days following the Securities and Exchange Commissions approval of amendments to certain Public Company Accounting Oversight Board standards. The hierarchical guidance provided by SFAS 162 will not have a significant impact on our
financial statements.

In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161). SFAS 161 will amend SFAS 133 and requires qualitative disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133
and its related interpretations, and how derivative instruments and the related hedged items affect an entitys financial position, financial performance, and cash flows. SFAS 161 will be effective for fiscal years beginning after
November 15, 2008. While we have not completed our evaluation of SFAS 161, the adoption in 2009 is not expected to have a material impact on our consolidated financial statements.

In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Financial Statements (SFAS 160). SFAS 160
establishes accounting and reporting standards for the noncontrolling interest in a subsidiary, formerly referred to as minority interest, and provides guidance on accounting for changes in the parents ownership interest in a subsidiary. In
addition, SFAS 160 establishes standards of accounting for the deconsolidation of a subsidiary due to loss of control. SFAS 160 will be effective for fiscal years beginning on or after December 15, 2008 and early adoption is prohibited. While
we have not completed our evaluation of this Statement, the adoption of SFAS 160 in 2009 is not expected to have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007) Business Combinations (SFAS 141R). This statement revises and
replaces SFAS No. 141 (Business Combinations), which was issued in June 2001. SFAS 141R establishes principles and requirements for how an acquirer in a business combination should recognize and measure in its financial statements
the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree, recognize and measure goodwill acquired, and determine what information to disclose to enable the users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008.



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In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159).SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting. This Statement also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The Statement was effective for financial statements issued for fiscal years beginning after
November 15, 2007. We adopted SFAS 159 on January 1, 2008 and did not elect the fair value option for any financial assets or liabilities as of that date.

The FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157) in September 2006. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosure related to the use of fair value measures in financial statements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, and does not expand the use
of fair value measures in financial statements, but standardizes its definition and guidance in generally accepted accounting principles. The Statement emphasizes that fair value is a market-based measurement, and not an entity-specific measurement,
based on an exchange transaction between market participants in which an entity sells an asset or transfers a liability. SFAS 157 also establishes a fair value hierarchy from observable market data as the highest level to fair value based on an
entitys own fair value assumptions as the lowest level. The Statement was effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS 157 on January 1, 2008 did not have a
material impact on our consolidated financial statements.



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Quarterly Financial Information

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



|                                  |  |                                       |         |   |                    |   |                    |         |  |   |         |   |         |   |        |         |   |         |   |  |         |        |  |   |        |   |  |   |        |  
|--------------------------------- |  | ------------------------------------- | ------- | - | ------------------ | - | ------------------ | ------- |  | - | ------- | - | ------- | - | ------ | ------- | - | ------- | - |  | ------- | ------ |  | - | ------ | - |  | - | ------ | -
|                                  |  | 2008 Quarter Ended                    |         |   | 2007 Quarter Ended |   | 2006 Quarter Ended |        
|                                  |  | Jun. 30                               |         |   | Mar. 31            |   |                    | Dec. 31 |  |   | Sep. 30 |   | Jun. 30 |   |        | Mar. 31 |   | Dec. 31 |   |  | Sep. 30 |       
|                                  |  | (in thousands, except per share data) |        
|Interest income                   |  | $                                     | 46,406  |   |                    | $ | 52,654             |         |  | $ | 56,879  |   |         | $ | 57,483 |         | $ | 56,691  |   |  | $       | 56,006 |  | $ | 57,599 |   |  | $ | 57,393 |  
|Interest expense                  |  |                                       | 24,841  |   |                    |   | 28,180             |         |  |   | 31,392  |   |         |   | 31,176 |         |   | 30,235  |   |  |         | 29,551 |  |   | 29,970 |   |  |   | 29,305 |  
|                                  |  |                                       |         |   |                    |   |                    |         |  |   |         |   |         |   |        |         |   |         |   |  |         |        |  |   |        |   |  |   |        |  
|Net interest income               |  |                                       | 21,565  |   |                    |   | 24,474             |         |  |   | 25,487  |   |         |   | 26,307 |         |   | 26,456  |   |  |         | 26,455 |  |   | 27,629 |   |  |   | 28,088 |  
|Provision for loan losses         |  |                                       | 49,355  |   |                    |   | 11,750             |         |  |   | 23,000  |   |         |   | 3,400  |         |   | 1,900   |   |  |         | 3,600  |  |   | 900    |   |  |   | 2,100  |  
|Noninterest income                |  |                                       | 3,965   |   |                    |   | 3,215              |         |  |   | 3,612   |   |         |   | 5,404  |         |   | 4,065   |   |  |         | 3,238  |  |   | 4,745  |   |  |   | 3,666  |  
|Other derivative income (expense) |  |                                       | 65      |   |                    |   | 887                |         |  |   | 270     |   |         |   | 159    |         |   | (61     | ) |  |         | 24     |  |   | (42    | ) |  |   | 59     |  
|Noninterest expense               |  |                                       | 22,623  |   |                    |   | 21,816             |         |  |   | 17,515  |   |         |   | 18,059 |         |   | 17,652  |   |  |         | 18,062 |  |   | 18,707 |   |  |   | 18,167 |  
|Goodwill impairment               |  |                                       |        |   |                    |   |                   |         |  |   | 23,237  |   |         |   |       |         |   |        |   |  |         |       |  |   |       |   |  |   |       |  
|                                  |  |                                       |         |   |                    |   |                    |         |  |   |         |   |         |   |        |         |   |         |   |  |         |        |  |   |        |   |  |   |        |  
|Income(loss)before income taxes   |  |                                       | (46,383 | ) |                    |   | (4,990             | )       |  |   | (34,383 | ) |         |   | 10,411 |         |   | 10,908  |   |  |         | 8,055  |  |   | 12,725 |   |  |   | 11,546 |  
|Income taxes (benefit)            |  |                                       | (21,067 | ) |                    |   | (1,150             | )       |  |   | (5,118  | ) |         |   | 3,190  |         |   | 3,756   |   |  |         | 2,733  |  |   | 618    |   |  |   | (7,347 | )
|                                  |  |                                       |         |   |                    |   |                    |         |  |   |         |   |         |   |        |         |   |         |   |  |         |        |  |   |        |   |  |   |        |  
|Net income (loss)                 |  | $                                     | (25,316 | ) |                    | $ | (3,840             | )       |  | $ | (29,265 | ) |         | $ | 7,221  |         | $ | 7,152   |   |  | $       | 5,322  |  | $ | 12,107 |   |  | $ | 18,893 |  
|                                  |  |                                       |         |   |                    |   |                    |         |  |   |         |   |         |   |        |         |   |         |   |  |         |        |  |   |        |   |  |   |        |  
|Earnings (loss) per share:        |  |                                       |         |   |                    |   |                    |         |  |   |         |   |         |   |        |         |   |         |   |  |         |        |  |   |        |   |  |   |        |  
|Basic                             |  | $                                     | (2.42   | ) |                    | $ | (0.37              | )       |  | $ | (2.78   | ) |         | $ | 0.68   |         | $ | 0.65    |   |  | $       | 0.48   |  | $ | 1.10   |   |  | $ | 1.72   |  
|Diluted                           |  |                                       | (2.42   | ) |                    |   | (0.37              | )       |  |   | (2.78   | ) |         |   | 0.67   |         |   | 0.65    |   |  |         | 0.48   |  |   | 1.09   |   |  |   | 1.70   |  
|                                  |  |                                       |         |   |                    |   |                    |         |  |   |         |   |         |   |        |         |   |         |   |  |         |        |  |   |        |   |  |   |        |  



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under Management Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this
Quarterly Report on Form 10-Q constitute forward-looking statements. We have tried to identify these forward-looking statements by using words including may, 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 2008 and beyond to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors
include, without limitation: the effect on our profitability if interest rates fluctuate as well as the effect of our customers changing use of our deposit products; the possibility that our wholesale funding sources may prove insufficient to
replace deposits at maturity and support our growth; the risk that our allowance for loan losses may prove insufficient to absorb probable losses in our loan portfolio; possible volatility in loan charge-offs and recoveries between periods; the
decline in residential real estate sales volume and the likely potential for continuing illiquidity in the real estate market, including within the Chicago metropolitan area; the risks associated with the high concentration of commercial real estate
loans in our portfolio; the uncertainties in estimating the fair value of developed real estate and undeveloped land in light of declining demand for such assets and continuing illiquidity in the real estate market; the risks associated with
management changes, employee turnover and our commercial banking growth initiative; the possibility that we will not be able to realize our deferred tax asset; the possibility that the Company will not be able to consummate the preferred stock and
subordinated debt offerings on reasonably acceptable terms, if at all; the possibility that we may not be able to maintain our well capitalized classification under regulatory capital guidelines; the effectiveness of our hedging
transactions and their impact on our future results of operations; the risks associated with implementing our business strategy and managing our growth effectively; changes in general economic and capital market conditions, interest rates, our debt
credit ratings, deposit flows, loan demand, including loan syndication opportunities, competition, legislation or regulatory and accounting principles, policies or guidelines, as well as other economic, competitive, governmental, regulatory and
technological factors impacting our operations.

For further information about these and other risks, uncertainties and factors, please
review the disclosure included in the sections captioned Risk Factors in our December 31, 2007 Annual Report on Form 10-K filed with the SEC on March 13, 2008. 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 of this Quarterly Report on Form 10-Q captioned Managements Discussion and Analysis of Financial Condition and Results of OperationsQuantitative and Qualitative Disclosure About
Market Risks is incorporated herein by reference.



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

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

We have carried out an evaluation
under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30,
2008. Based upon their evaluation and subject to the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that such controls and procedures were effective as of the end of the period covered by this report, in all material
respects, to ensure that required information will be disclosed on a timely basis in our reports filed under the Exchange Act.

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

There were no changes in our internal control over financial reporting that occurred during the quarter ended
June 30, 2008, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.



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PART II. OTHER INFORMATION



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

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



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

The following risk factors
supplement, and should be read in conjunction with, the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007. You should carefully consider the risks and uncertainties described below, together with the
other risk factors and information included in this Quarterly Report on Form 10-Q and our other reports filed with the SEC.

We will
need to raise additional capital in order to fund our strategic growth initiative and remain well-capitalized.

Our ability to raise
additional capital to support our growth initiative and meet minimum regulatory capital requirements at the holding company and at the Bank is dependent in part on us being able to efficiently and cost-effectively access the capital markets.
Accordingly, we must be able to issue additional equity securities, trust preferred securities and/or debt when and in the amounts we deem necessary, and there must be ready purchasers of our securities willing to invest in our company. Furthermore,
events or circumstances in the capital markets generally that are beyond our control may adversely affect our capital costs and our ability to raise capital at any given time. We recently announced our entry into a non-binding letter of intent to
raise $50,000,000 in capital through a private placement of preferred stock of the holding company, and a private placement of up to $50,000,000 in subordinated debt of the Bank. If we are unable to successfully consummate these private placements
on a timely basis or at all, we would be required to significantly reduce our earning asset growth in future periods and our business, reputation, ability to remain well-capitalized and ability to attract and retain qualified personnel may be
materially adversely affected.

Our strategic growth initiative may strain our ability to manage our operations and our financial
resources.

Our future financial performance and profitability may depend in part on our ability to execute our strategic growth
initiative. This growth may present operating and other challenges that could adversely affect our business, financial condition, results of operations and cash flows. The process of integrating our new commercial lending personnel and significantly
expanding our commercial lending business may take a significant amount of time. It may also place additional strain on our existing personnel and resources and require us to incur substantial expenses. We cannot assure you that we will be able to
manage our strategic growth successfully or in a timely manner, or that we will be able to effectively enhance our infrastructure in order to be able to support our continued growth. Finally, due to our current expectations of future asset growth,
we do not expect that our board of directors will declare a dividend on our common stock for the remainder of 2008 and 2009.



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Further negative operating results and a continued reduction in our regulatory total risk-based
capital ratio could materially impair our ability to retain or acquire new deposits and borrowings, and could otherwise have a material adverse effect on our business, financial condition and results of operations.

A reduction in our total capital ratio as a result of either future negative operating results or a significant increase in our earning asset growth,
absent new capital, could cause us not to be considered well-capitalized under applicable regulatory capital guidelines in future periods. For the six months ended June 30, 2008, our average brokered deposit balance was $605.1
million, or approximately 22.5% of our total average deposits during such period. If in the future, we are not considered well-capitalized, we would not be permitted to utilize brokered deposits without the approval of the FDIC. In addition, deposit
brokers may choose not to place deposits in less than well-capitalized institutions or may require significantly higher interest rates for those deposits. If we are unable to access the broker deposit market, or were required to pay significantly
higher interest rates for such deposits, our business, financial condition and results of operations would be harmed.

In addition, our
revolving credit facility at the holding company level requires the Bank be well-capitalized and the holding company be adequately capitalized. In the event that either the holding company or the Bank fail to meet these regulatory capital thresholds
in any future period, an event of default would be triggered under our revolving credit facility, which could result in an acceleration of amounts due under the facility, subject us to claims and materially harm our financial condition, business and
reputation.

We may not be able to access sufficient and cost-effective sources of liquidity necessary to fund our anticipated balance
sheet growth.

We depend on access to a variety of funding sources, both deposits and borrowings, to provide sufficient liquidity to
support our business operations, including funding our loan growth. Pursuant to our strategic growth initiative we expect to significantly grow our loan portfolio in future periods, especially in commercial and industrial loans. To the extent our
local deposit and customer borrowings do not grow commensurately with, or lag significantly behind our loan growth, we may not be able to fund our future growth, or may need to access alternative, more expensive funding sources, including increasing
our reliance on brokered deposits. Alternatively, if additional cost-effective funding is not available on terms satisfactory to us or at all, we may need to curtail our loan growth, which could adversely affect our results of operations and
earnings.



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

None.



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

None.



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

We held our
annual meeting of stockholders on June 12, 2008. The following matters were voted on at the meeting:



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



|                      |  |           |  |          |  |  |  | 
|--------------------- |  | --------- |  | -------- |  |  |  | 
|Director              |  | For       |  | Withheld |  |  |  | 
|Bruce W. Taylor       |  | 9,580,169 |  | 224,854  |  |  |  | 
|Mark A. Hoppe         |  | 9,263,468 |  | 541,555  |  |  |  | 
|Ronald L. Bliwas      |  | 9,683,838 |  | 121,185  |  |  |  | 
|Ronald D. Emanuel     |  | 9,677,329 |  | 127,694  |  |  |  | 
|Edward McGowan        |  | 9,677,329 |  | 127,694  |  |  |  | 
|Louise OSullivan     |  | 9,661,457 |  | 143,566  |  |  |  | 
|Melvin E. Pearl       |  | 9,654,948 |  | 150,075  |  |  |  | 
|Shepherd G. Pryor, IV |  | 9,683,838 |  | 121,185  |  |  |  | 
|Jeffrey W. Taylor     |  | 9,211,457 |  | 593,566  |  |  |  | 
|Richard W. Tinberg    |  | 9,653,948 |  | 151,075  |  |  |  | 
|Mark L. Yeager        |  | 9,359,618 |  | 445,405  |  |  |  | 

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



| | 2. | Approval of the amendment and restatement of the Taylor Capital Group, Inc. 2002 Incentive Compensation Plan:
| | -- | -------------------------------------------------------------------------------------------------------------



|         |  |           |  |  |  |  |  | 
|-------- |  | --------- |  |  |  |  |  | 
|For:     |  | 8,231,698 |  |  |  |  |  | 
|Against: |  | 1,080,006 |  |  |  |  |  | 
|Abstain: |  | 207       |  |  |  |  |  | 
|Non-vote |  | 493,112   |  |  |  |  |  | 



| | 3. | Ratification of the selection of KPMG LLP to serve as the Companys independent registered public accounting firm for the year ending December 31, 2008:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------



|         |  |           |  |  |  |  |  | 
|-------- |  | --------- |  |  |  |  |  | 
|For:     |  | 9,684,838 |  |  |  |  |  | 
|Against: |  | 120,185   |  |  |  |  |  | 



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

None.



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

EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                                                                                                                                                              
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                      
|3.1            |  | Second Amended and Restated Certificate of Incorporation of Taylor Capital Group, Inc. (incorporated by reference from Exhibit 3.1 of the Companys Current Report on Form 8-K filed
September 20, 2005).                                                                                                                                                                    
|               | 
|3.2            |  | Form of Second Amended and Restated Bylaws of Taylor Capital Group, Inc. (incorporated by reference from Exhibit 3.4 of the Companys Quarterly Report on Form 10-Q for the quarter ended
June 30, 2005).                                                                                                                                                                    
|               | 
|3.3            |  | Certificate of Elimination of 9% Noncumulative Perpetual Preferred Stock, Series A, of Registrant (incorporated by reference to Exhibit 3.2 of the Registration Statement on Form S-3 filed
July 25, 2005 (Registration No. 333-126864)).                                                                                                                                    
|               | 
|4.1            |  | Form of certificate representing Taylor Capital Group, Inc. Common Stock (incorporated by reference from Exhibit 4.3 of the Amended Registration Statement on Form S-1 filed October 10, 2002
(Registration No. 333-89158)).                                                                                                                                                 
|               | 
|4.2            |  | Indenture between Taylor Capital Group, Inc. and LaSalle Bank National Association, as trustee (incorporated by reference from Exhibit 4.4 of the Amended Registration Statement on Form S-1
filed October 10, 2002 (Registration No. 333-89158)).                                                                                                                           
|               | 
|4.3            |  | Form of Junior Subordinated Debenture due 2032 (incorporated by reference from Exhibit 4.5 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No.
333-89158)).                                                                                                                                                                           
|               | 
|4.4            |  | Certificate of Trust of TAYC Capital Trust I (incorporated by reference from Exhibit 4.6 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No.
333-89158)).                                                                                                                                                                             
|               | 
|4.5            |  | Amended and Restated Trust Agreement of TAYC Capital Trust I (incorporated by reference from Exhibit 4.8 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration
No. 333-89158)).                                                                                                                                                             
|               | 
|4.6            |  | Preferred Securities Guarantee Agreement (incorporated by reference from Exhibit 4.9 of the Amended Registration Statement on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).                                                                                                                                                                                 
|               | 
|4.7            |  | Agreement as to Expenses and Liabilities by and between Taylor Capital Group, Inc. and TAYC Capital Trust I (incorporated by reference from Exhibit 4.10 of the Amended Registration Statement
on Form S-1 filed October 10, 2002 (Registration No. 333-89158)).                                                                                                             
|               | 
|4.8            |  | Certificate representing TAYC Capital Trust I Trust Preferred Security (incorporated by reference from Exhibit 4.11 of the Amended Registration Statement on Form S-1 filed October 10, 2002
(Registration No. 333-89158)).                                                                                                                                                  
|               | 
|4.9            |  | Certificate of Trust of TAYC Capital Trust II (incorporated by reference from Exhibit 4.12 of the Companys Quarterly Report on Form 10-Q for the quarter ending June 30,
2004).                                                                                                                                                                                             
|               | 
|4.10           |  | Amended and Restated Declaration of Trust by and among Wilmington Trust Company, as Delaware and Institutional Trustee, Taylor Capital Group, Inc., as Sponsor, Jeffrey W. Taylor, Bruce W.
Taylor and Robin Van Castle, as Administrators (incorporated by reference from Exhibit 4.13 of the Companys Quarterly Report on Form 10-Q for the quarter ending June 30, 2004).



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##### Table of Contents

|               |  |                                                                                                                                                                                                                              
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibits                                                                                                                                                                                                      
|4.11           |  | Indenture between Taylor Capital Group, Inc. and Wilmington Trust Company, as trustee (incorporated by reference from Exhibit 4.14 of the Companys Quarterly Report on Form 10-Q for the
quarter ending June 30, 2004).     
|               | 
|4.12           |  | Guarantee Agreement by and between Taylor Capital Group, Inc. and Wilmington Trust Company (incorporated by reference from Exhibit 4.15 of the Companys Quarterly Report on Form 10-Q for
the quarter ending June 30, 2004).
|               | 
|4.13           |  | Certificate representing Floating Rate Capital Securities of TAYC Capital Trust II (incorporated by reference from Exhibit 4.16 of the Companys Quarterly Report on Form 10-Q for the
quarter ending June 30, 2004).        
|               | 
|4.14           |  | Certificate representing Floating Rate Common Securities of TAYC Capital Trust II (incorporated by reference from Exhibit 4.17 of the Companys Quarterly Report on Form 10-Q for the
quarter ending June 30, 2004).         
|               | 
|4.15           |  | Floating Rate Junior Subordinated Deferrable Interest Debenture due 2034 (incorporated by reference from Exhibit 4.18 of the Companys Quarterly Report on Form 10-Q for the quarter
ending June 30, 2004).                  
|               | 
|4.16           |  | Form of Registration Rights Agreement (incorporated by reference to Exhibit 4.16 of the Registration Statement on Form S-3 filed August 5, 2005 (Registration No.
333-126864)).                                              
|               | 
|10.55          |  | Thirteenth Amendment of Taylor Capital Group, Inc. Employee Stock Ownership Plan, effective as of May 31, 2008.                                                                                                              
|               | 
|10.56          |  | Fourteenth Amendment of Taylor Capital Group, Inc. Employee Stock Ownership Plan, effective as of May 31, 2008                                                                                                               
|               | 
|31.1           |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Security Exchange Act of 1934.                                                                                                                 
|               | 
|31.2           |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Security Exchange Act of 1934.                                                                                                                 
|               | 
|32.1           |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                           



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SIGNATURES

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



|                     |  |  |  |                                             
|-------------------- |  |  |  | --------------------------------------------
|                     |  |  |  | TAYLOR CAPITAL GROUP, INC.                  
|Date: August 8, 2008 |  |  |  |                                             
|                     |  |  |  | /s/ BRUCE W. TAYLOR                         
|                     |  |  |  | Bruce W. Taylor                             
|                     |  |  |  | Chairman and Chief Executive Officer        
|                     |  |  |  | (Principal Executive Officer)               
|                     |  | 
|                     |  |  |  | /s/ ROBIN VANCASTLE                         
|                     |  |  |  | Robin VanCastle                             
|                     |  |  |  | Chief Financial Officer                     
|                     |  |  |  | (Principal Financial and Accounting Officer)



59