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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

Commission File No. 0-50034



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TAYLOR CAPITAL GROUP, INC.

(Exact
name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|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)



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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 October 31, 2006, there were
11,138,238 shares of Common Stock, $0.01 par value, outstanding.



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

INDEX



|                              |  |                                                                                                                               |  |     
|----------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                               |  | Page
|PART I. FINANCIAL INFORMATION |  |                                                                                                                              
|                              |  |                                                                                                                              
|Item 1.                       |  | Financial Statements                                                                                                          |  |     
|                              |  |                                                                                                                              
|                              |  | Consolidated Balance Sheets (unaudited) -September 30, 2006 and December 31, 2005                                             |  | 1   
|                              |  |                                                                                                                              
|                              |  | Consolidated Statements of Income (unaudited) -For the three and nine months ended September 30, 2006 and 2005                |  | 2   
|                              |  |                                                                                                                              
|                              |  | Consolidated Statements of Changes in Stockholders Equity (unaudited) -For the nine months ended September 30, 2006 and 2005 |  | 3   
|                              |  |                                                                                                                              
|                              |  | Consolidated Statements of Cash Flows (unaudited) -For the nine months ended September 30, 2006 and 2005                      |  | 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                                                                    |  | 45  
|                              |  |                                                                                                                              
|Item 4.                       |  | Controls and Procedures                                                                                                       |  | 45  
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                              
|                              |  |                                                                                                                              
|Item 1.                       |  | Legal Proceedings                                                                                                             |  | 47  
|                              |  |                                                                                                                              
|Item 1A.                      |  | Risk Factors                                                                                                                  |  | 47  
|                              |  |                                                                                                                              
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                   |  | 47  
|                              |  |                                                                                                                              
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                               |  | 47  
|                              |  |                                                                                                                              
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                           |  | 47  
|                              |  |                                                                                                                              
|Item 5.                       |  | Other Information                                                                                                             |  | 47  
|                              |  |                                                                                                                              
|Item 6.                       |  | Exhibits                                                                                                                      |  | 47  
|                              |  |                                                                                                                              
|                              |  | Signatures                                                                                                                    |  | 50  



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS (unaudited)

(dollars in thousands, except share and per share data)



|                                                                                                                                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | - | ----------------- | - | --------- | -
|                                                                                                                                                                                                                                                                      |  | September 30, 2006 |           |   | December 31, 2005 |  
|ASSETS                                                                                                                                                                                                                                                                |  |                    |           |   |                   |   |           |  
|Cash and cash equivalents:                                                                                                                                                                                                                                            |  |                    |           |   |                   |   |           |  
|Cash and due from banks                                                                                                                                                                                                                                               |  | $                  | 55,111    |   |                   | $ | 57,171    |  
|Federal funds sold                                                                                                                                                                                                                                                    |  |                    | 75,000    |   |                   |   | 1,900     |  
|Short-term investments                                                                                                                                                                                                                                                |  |                    | 2,752     |   |                   |   | 101,994   |  
|                                                                                                                                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Total cash and cash equivalents                                                                                                                                                                                                                                       |  |                    | 132,863   |   |                   |   | 161,065   |  
|Investment securities:                                                                                                                                                                                                                                                |  |                    |           |   |                   |   |           |  
|Available-for-sale, at fair value                                                                                                                                                                                                                                     |  |                    | 686,910   |   |                   |   | 656,478   |  
|Held-to-maturity, at amortized cost (fair value of $275 at September 30, 2006 and December 31, 2005, respectively)                                                                                                                                                    |  |                    | 275       |   |                   |   | 275       |  
|Loans, net of allowance for loan losses of $36,892 and $37,481 at September 30, 2006 and December 31, 2005,
respectively                                                                                                                                              |  |                    | 2,450,429 |   |                   |   | 2,347,450 |  
|Premises, leasehold improvements and equipment, net                                                                                                                                                                                                                   |  |                    | 14,380    |   |                   |   | 15,105    |  
|Investments in Federal Home Loan Bank and Federal Reserve Bank stock, at cost                                                                                                                                                                                         |  |                    | 12,138    |   |                   |   | 12,946    |  
|Other real estate and repossessed assets, net                                                                                                                                                                                                                         |  |                    | 473       |   |                   |   | 1,139     |  
|Goodwill                                                                                                                                                                                                                                                              |  |                    | 23,237    |   |                   |   | 23,237    |  
|Other assets                                                                                                                                                                                                                                                          |  |                    | 63,005    |   |                   |   | 62,977    |  
|                                                                                                                                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Total assets                                                                                                                                                                                                                                                          |  | $                  | 3,383,710 |   |                   | $ | 3,280,672 |  
|                                                                                                                                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                                  |  |                    |           |   |                   |   |           |  
|Deposits:                                                                                                                                                                                                                                                             |  |                    |           |   |                   |   |           |  
|Noninterest-bearing                                                                                                                                                                                                                                                   |  | $                  | 390,123   |   |                   | $ | 464,289   |  
|Interest-bearing                                                                                                                                                                                                                                                      |  |                    | 2,262,340 |   |                   |   | 2,079,355 |  
|                                                                                                                                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Total deposits                                                                                                                                                                                                                                                        |  |                    | 2,652,463 |   |                   |   | 2,543,644 |  
|Other borrowings                                                                                                                                                                                                                                                      |  |                    | 264,157   |   |                   |   | 298,426   |  
|Accrued interest, taxes and other liabilities                                                                                                                                                                                                                         |  |                    | 40,895    |   |                   |   | 56,646    |  
|Notes payable and FHLB advances                                                                                                                                                                                                                                       |  |                    | 80,000    |   |                   |   | 75,000    |  
|Junior subordinated debentures                                                                                                                                                                                                                                        |  |                    | 86,607    |   |                   |   | 87,638    |  
|                                                                                                                                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Total liabilities                                                                                                                                                                                                                                                     |  |                    | 3,124,122 |   |                   |   | 3,061,354 |  
|                                                                                                                                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Stockholders equity:                                                                                                                                                                                                                                                 |  |                    |           |   |                   |   |           |  
|Preferred stock, $.01 par value, 5,000,000 shares authorized, no shares outstanding                                                                                                                                                                                   |  |                    |          |   |                   |   |          |  
|Common stock, $.01 par value; 18,000,000 shares authorized; 11,441,245 and 11,296,836 shares issued at September 30, 2006 and
December 31, 2005, respectively; 11,118,238 and 10,973,829 shares outstanding at September 30, 2006 and December 31, 2005, respectively |  |                    | 114       |   |                   |   | 113       |  
|Surplus                                                                                                                                                                                                                                                               |  |                    | 193,902   |   |                   |   | 191,816   |  
|Unearned compensation - stock grants                                                                                                                                                                                                                                  |  |                    |          |   |                   |   | (2,322    | )
|Retained earnings                                                                                                                                                                                                                                                     |  |                    | 78,051    |   |                   |   | 45,988    |  
|Accumulated other comprehensive loss                                                                                                                                                                                                                                  |  |                    | (5,422    | ) |                   |   | (9,220    | )
|Treasury stock, at cost, 323,007 shares                                                                                                                                                                                                                               |  |                    | (7,057    | ) |                   |   | (7,057    | )
|                                                                                                                                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Total stockholders equity                                                                                                                                                                                                                                            |  |                    | 259,588   |   |                   |   | 219,318   |  
|                                                                                                                                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                            |  | $                  | 3,383,710 |   |                   | $ | 3,280,672 |  
|                                                                                                                                                                                                                                                                      |  |                    |           |   |                   |   |           |  

See accompanying notes to consolidated financial statements



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(dollars in thousands, except per share data)



|                                                    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|--------------------------------------------------- |  | ---------------------------------------- | ------ | - | --------------------------------------- | - | ------ | ---- |  | ---- | ------- |  | - | ------- | -
|                                                    |  | For the Three Months Ended September 30, |        |   | For the Nine Months Ended September 30, |  
|                                                    |  | 2006                                     |        |   | 2005                                    |   |        | 2006 |  | 2005 |        
|Interest income:                                    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Interest and fees on loans                          |  | $                                        | 49,289 |   |                                         | $ | 39,471 |      |  | $    | 139,549 |  | $ | 110,366 |  
|Interest and dividends on investment securities:    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Taxable                                             |  |                                          | 6,317  |   |                                         |   | 5,260  |      |  |      | 18,659  |  |   | 15,229  |  
|Tax-exempt                                          |  |                                          | 1,372  |   |                                         |   | 696    |      |  |      | 4,004   |  |   | 1,734   |  
|Interest on cash equivalents                        |  |                                          | 415    |   |                                         |   | 255    |      |  |      | 1,189   |  |   | 607     |  
|                                                    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Total interest income                               |  |                                          | 57,393 |   |                                         |   | 45,682 |      |  |      | 163,401 |  |   | 127,936 |  
|                                                    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Interest expense:                                   |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Deposits                                            |  |                                          | 23,573 |   |                                         |   | 13,757 |      |  |      | 63,007  |  |   | 35,899  |  
|Other borrowings                                    |  |                                          | 2,670  |   |                                         |   | 1,632  |      |  |      | 7,986   |  |   | 3,817   |  
|Notes payable and FHLB advances                     |  |                                          | 1,076  |   |                                         |   | 1,003  |      |  |      | 3,016   |  |   | 3,031   |  
|Junior subordinated debentures                      |  |                                          | 1,986  |   |                                         |   | 1,810  |      |  |      | 5,829   |  |   | 5,278   |  
|                                                    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Total interest expense                              |  |                                          | 29,305 |   |                                         |   | 18,202 |      |  |      | 79,838  |  |   | 48,025  |  
|                                                    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Net interest income                                 |  |                                          | 28,088 |   |                                         |   | 27,480 |      |  |      | 83,563  |  |   | 79,911  |  
|Provision for loan losses                           |  |                                          | 2,100  |   |                                         |   |       |      |  |      | 5,100   |  |   | 2,751   |  
|                                                    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Net interest income after provision for loan losses |  |                                          | 25,988 |   |                                         |   | 27,480 |      |  |      | 78,463  |  |   | 77,160  |  
|                                                    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Noninterest income:                                 |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Service charges                                     |  |                                          | 1,995  |   |                                         |   | 2,177  |      |  |      | 5,777   |  |   | 6,992   |  
|Trust and investment management fees                |  |                                          | 1,036  |   |                                         |   | 1,085  |      |  |      | 2,995   |  |   | 3,426   |  
|Loan syndication fees                               |  |                                          |       |   |                                         |   | 850    |      |  |      | 500     |  |   | 1,550   |  
|Other derivative income (expense)                   |  |                                          | 59     |   |                                         |   | (2,351 | )    |  |      | 536     |  |   | (1,642  | )
|Other noninterest income                            |  |                                          | 635    |   |                                         |   | 361    |      |  |      | 1,754   |  |   | 1,015   |  
|Gain on sale of land trusts                         |  |                                          |       |   |                                         |   |       |      |  |      |        |  |   | 2,000   |  
|Gain on sale of branch                              |  |                                          |       |   |                                         |   |       |      |  |      |        |  |   | 1,572   |  
|Gain on sale of investment securities, net          |  |                                          |       |   |                                         |   |       |      |  |      |        |  |   | 127     |  
|                                                    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Total noninterest income                            |  |                                          | 3,725  |   |                                         |   | 2,122  |      |  |      | 11,562  |  |   | 15,040  |  
|                                                    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Noninterest expense:                                |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Salaries and employee benefits                      |  |                                          | 10,005 |   |                                         |   | 10,480 |      |  |      | 30,605  |  |   | 30,442  |  
|Occupancy of premises                               |  |                                          | 1,964  |   |                                         |   | 1,736  |      |  |      | 5,943   |  |   | 5,177   |  
|Furniture and equipment                             |  |                                          | 832    |   |                                         |   | 984    |      |  |      | 2,766   |  |   | 2,873   |  
|Computer processing                                 |  |                                          | 446    |   |                                         |   | 472    |      |  |      | 1,341   |  |   | 1,343   |  
|Corporate insurance                                 |  |                                          | 307    |   |                                         |   | 345    |      |  |      | 932     |  |   | 1,062   |  
|Legal fees, net                                     |  |                                          | 501    |   |                                         |   | 473    |      |  |      | 1,319   |  |   | 1,254   |  
|Advertising and public relations                    |  |                                          | 429    |   |                                         |   | 77     |      |  |      | 1,002   |  |   | 350     |  
|Other noninterest expense                           |  |                                          | 3,683  |   |                                         |   | 3,230  |      |  |      | 10,644  |  |   | 9,560   |  
|                                                    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Total noninterest expense                           |  |                                          | 18,167 |   |                                         |   | 17,797 |      |  |      | 54,552  |  |   | 52,061  |  
|                                                    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Income before income taxes                          |  |                                          | 11,546 |   |                                         |   | 11,805 |      |  |      | 35,473  |  |   | 40,139  |  
|Income tax expense (benefit)                        |  |                                          | (7,347 | ) |                                         |   | 4,408  |      |  |      | 1,417   |  |   | 15,386  |  
|                                                    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Net income                                          |  | $                                        | 18,893 |   |                                         | $ | 7,397  |      |  | $    | 34,056  |  | $ | 24,753  |  
|                                                    |  |                                          |        |   |                                         |   |        |      |  |      |         |  |   |         |  
|Basic earnings per common share                     |  | $                                        | 1.72   |   |                                         | $ | 0.73   |      |  | $    | 3.12    |  | $ | 2.53    |  
|Diluted earnings per common share                   |  |                                          | 1.70   |   |                                         |   | 0.71   |      |  |      | 3.07    |  |   | 2.47    |  

See accompanying notes to consolidated financial statements



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (unaudited)

(dollars in thousands, except per share data)



|                                                                                                                    |  |                                                  |   |             |   |         |  |   |                                    |   |  |                   |        |   |                                      |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------ | - | ----------- | - | ------- |  | - | ---------------------------------- | - |  | ----------------- | ------ | - | ------------------------------------ | - | ------ | ------------- |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                                                                                                    |  | Series A
9%NoncumulativePerpetualPreferred Stock |   | CommonStock |   | Surplus |  |   | UnearnedCompensation -Stock Grants |   |  | Retained Earnings |        |   | Accumulated Other Comprehensive Loss |   |        | TreasuryStock |  |   | Total  |  
|Balance at December 31, 2005                                                                                        |  | $                                                |  |             | $ | 113     |  | $ | 191,816                            |   |  | $                 | (2,322 | ) |                                      | $ | 45,988 |               |  | $ | (9,220 | ) |  | $ | (7,057 | ) |  | $ | 219,318 |  
|Adoption of FAS 123R                                                                                                |  |                                                  |  |             |   |        |  |   | (2,322                             | ) |  |                   | 2,322  |   |                                      |   |       |               |  |   |       |   |  |   |       |   |  |   |        |  
|Amortization of stock based compensation awards                                                                     |  |                                                  |  |             |   |        |  |   | 1,599                              |   |  |                   |       |   |                                      |   |       |               |  |   |       |   |  |   |       |   |  |   | 1,599   |  
|Forfeiture of stock grants                                                                                          |  |                                                  |  |             |   |        |  |   | (68                                | ) |  |                   |       |   |                                      |   |       |               |  |   |       |   |  |   |       |   |  |   | (68     | )
|Exercise of stock options                                                                                           |  |                                                  |  |             |   | 1       |  |   | 2,114                              |   |  |                   |       |   |                                      |   |       |               |  |   |       |   |  |   |       |   |  |   | 2,115   |  
|Tax benefit on stock options exercised and stock awards                                                             |  |                                                  |  |             |   |        |  |   | 763                                |   |  |                   |       |   |                                      |   |       |               |  |   |       |   |  |   |       |   |  |   | 763     |  
|Comprehensive income:                                                                                               |  |                                                  |   |             |   |         |  |   |                                    |   |  |                   |        |   |                                      |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Net income                                                                                                          |  |                                                  |  |             |   |        |  |   |                                   |   |  |                   |       |   |                                      |   | 34,056 |               |  |   |       |   |  |   |       |   |  |   | 34,056  |  
|Change in unrealized loss on available-for-sale investment securities, net of income taxes                          |  |                                                  |  |             |   |        |  |   |                                   |   |  |                   |       |   |                                      |   |       |               |  |   | 2,567  |   |  |   |       |   |  |   | 2,567   |  
|Change in unrealized loss from cash flow hedging instruments, net of income taxes                                   |  |                                                  |  |             |   |        |  |   |                                   |   |  |                   |       |   |                                      |   |       |               |  |   | 2,362  |   |  |   |       |   |  |   | 2,362   |  
|Changes in deferred gains and losses from termination of cash flow hedging instruments, net of income taxes         |  |                                                  |  |             |   |        |  |   |                                   |   |  |                   |       |   |                                      |   |       |               |  |   | (1,131 | ) |  |   |       |   |  |   | (1,131  | )
|                                                                                                                    |  |                                                  |   |             |   |         |  |   |                                    |   |  |                   |        |   |                                      |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Total comprehensive income                                                                                          |  |                                                  |   |             |   |         |  |   |                                    |   |  |                   |        |   |                                      |   |        |               |  |   |        |   |  |   |        |   |  |   | 37,854  |  
|                                                                                                                    |  |                                                  |   |             |   |         |  |   |                                    |   |  |                   |        |   |                                      |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Common stock dividends  $0.18 per share                                                                            |  |                                                  |  |             |   |        |  |   |                                   |   |  |                   |       |   |                                      |   | (1,993 | )             |  |   |       |   |  |   |       |   |  |   | (1,993  | )
|                                                                                                                    |  |                                                  |   |             |   |         |  |   |                                    |   |  |                   |        |   |                                      |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at September 30, 2006                                                                                       |  | $                                                |  |             | $ | 114     |  | $ | 193,902                            |   |  | $                 |       |   |                                      | $ | 78,051 |               |  | $ | (5,422 | ) |  | $ | (7,057 | ) |  | $ | 259,588 |  
|                                                                                                                    |  |                                                  |   |             |   |         |  |   |                                    |   |  |                   |        |   |                                      |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2004                                                                                        |  | $                                                |  |             | $ | 100     |  | $ | 147,682                            |   |  | $                 | (1,383 | ) |                                      | $ | 16,698 |               |  | $ | (467   | ) |  | $ | (7,057 | ) |  | $ | 155,573 |  
|Issuance of common stock, net of issuance costs                                                                     |  |                                                  |  |             |   | 12      |  |   | 38,938                             |   |  |                   |       |   |                                      |   |       |               |  |   |       |   |  |   |       |   |  |   | 38,950  |  
|Issuance of stock grants                                                                                            |  |                                                  |  |             |   |        |  |   | 1,791                              |   |  |                   | (1,791 | ) |                                      |   |       |               |  |   |       |   |  |   |       |   |  |   |        |  
|Forfeiture of stock grants                                                                                          |  |                                                  |  |             |   |        |  |   | (477                               | ) |  |                   | 201    |   |                                      |   |       |               |  |   |       |   |  |   |       |   |  |   | (276    | )
|Amortization of stock grants                                                                                        |  |                                                  |  |             |   |        |  |   |                                   |   |  |                   | 609    |   |                                      |   |       |               |  |   |       |   |  |   |       |   |  |   | 609     |  
|Exercise of stock options                                                                                           |  |                                                  |  |             |   | 1       |  |   | 1,982                              |   |  |                   |       |   |                                      |   |       |               |  |   |       |   |  |   |       |   |  |   | 1,983   |  
|Tax benefit on stock options exercised and stock awards                                                             |  |                                                  |  |             |   |        |  |   | 785                                |   |  |                   |       |   |                                      |   |       |               |  |   |       |   |  |   |       |   |  |   | 785     |  
|Comprehensive income:                                                                                               |  |                                                  |   |             |   |         |  |   |                                    |   |  |                   |        |   |                                      |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Net income                                                                                                          |  |                                                  |  |             |   |        |  |   |                                   |   |  |                   |       |   |                                      |   | 24,753 |               |  |   |       |   |  |   |       |   |  |   | 24,753  |  
|Change in unrealized loss on available-for-sale investment securities, net of reclassification, net of income taxes |  |                                                  |  |             |   |        |  |   |                                   |   |  |                   |       |   |                                      |   |       |               |  |   | (4,108 | ) |  |   |       |   |  |   | (4,108  | )
|Change in unrealized loss from cash flow hedging instruments, net of income taxes                                   |  |                                                  |  |             |   |        |  |   |                                   |   |  |                   |       |   |                                      |   |       |               |  |   | (827   | ) |  |   |       |   |  |   | (827    | )
|Changes in deferred gain from termination of cash flow hedging instruments, net of income taxes                     |  |                                                  |  |             |   |        |  |   |                                   |   |  |                   |       |   |                                      |   |       |               |  |   | (129   | ) |  |   |       |   |  |   | (129    | )
|                                                                                                                    |  |                                                  |   |             |   |         |  |   |                                    |   |  |                   |        |   |                                      |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Total comprehensive income                                                                                          |  |                                                  |   |             |   |         |  |   |                                    |   |  |                   |        |   |                                      |   |        |               |  |   |        |   |  |   |        |   |  |   | 19,689  |  
|                                                                                                                    |  |                                                  |   |             |   |         |  |   |                                    |   |  |                   |        |   |                                      |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Common stock dividends  $0.18 per share                                                                            |  |                                                  |  |             |   |        |  |   |                                   |   |  |                   |       |   |                                      |   | (1,823 | )             |  |   |       |   |  |   |       |   |  |   | (1,823  | )
|                                                                                                                    |  |                                                  |   |             |   |         |  |   |                                    |   |  |                   |        |   |                                      |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at September 30, 2005                                                                                       |  | $                                                |  |             | $ | 113     |  | $ | 190,701                            |   |  | $                 | (2,364 | ) |                                      | $ | 39,628 |               |  | $ | (5,531 | ) |  | $ | (7,057 | ) |  | $ | 215,490 |  
|                                                                                                                    |  |                                                  |   |             |   |         |  |   |                                    |   |  |                   |        |   |                                      |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  

See accompanying notes to consolidated financial statements



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TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(dollars in thousands)



|                                                                                  |  |                                         |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | --------------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                  |  | For the Nine Months Ended
September 30, |         
|                                                                                  |  | 2006                                    |          |   | 2005 |  
|Cash flows from operating activities:                                             |  |                                         |          |   |      |   |          |  
|Net income                                                                        |  | $                                       | 34,056   |   |      | $ | 24,753   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                         |          |   |      |   |          |  
|Other derivative (income) expense                                                 |  |                                         | (536     | ) |      |   | 2,304    |  
|Amortization of premiums and discounts, net                                       |  |                                         | 657      |   |      |   | 1,639    |  
|Gain on sale of available-for-sale securities, net                                |  |                                         |         |   |      |   | (127     | )
|Deferred loan fee amortization                                                    |  |                                         | (3,677   | ) |      |   | (3,548   | )
|Provision for loan losses                                                         |  |                                         | 5,100    |   |      |   | 2,751    |  
|Depreciation and amortization                                                     |  |                                         | 2,626    |   |      |   | 2,494    |  
|Deferred income taxes                                                             |  |                                         | 3,034    |   |      |   | (2,048   | )
|Losses on other real estate                                                       |  |                                         | 221      |   |      |   | 84       |  
|Gain on sale of land trusts                                                       |  |                                         |         |   |      |   | (2,000   | )
|Gain on sale of branch                                                            |  |                                         |         |   |      |   | (1,572   | )
|Tax benefit on stock options exercised or stock awards                            |  |                                         | 763      |   |      |   | 785      |  
|Excess tax benefit on stock options exercised and stock awards                    |  |                                         | (561     | ) |      |   |         |  
|Cash paid to terminate derivative instruments                                     |  |                                         | (12,239  | ) |      |   |         |  
|Other, net                                                                        |  |                                         | 334      |   |      |   | (230     | )
|Changes in other assets and liabilities:                                          |  |                                         |          |   |      |   |          |  
|Accrued interest receivable                                                       |  |                                         | (809     | ) |      |   | (3,918   | )
|Other assets                                                                      |  |                                         | (2,657   | ) |      |   | 307      |  
|Accrued interest, taxes and other liabilities                                     |  |                                         | (4,401   | ) |      |   | 2,826    |  
|                                                                                  |  |                                         |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                                         | 21,911   |   |      |   | 24,500   |  
|                                                                                  |  |                                         |          |   |      |   |          |  
|Cash flows from investing activities:                                             |  |                                         |          |   |      |   |          |  
|Purchases of available-for-sale securities                                        |  |                                         | (112,566 | ) |      |   | (164,395 | )
|Proceeds from principal payments and maturities of available-for-sale securities  |  |                                         | 85,426   |   |      |   | 50,946   |  
|Proceeds from sale of available-for-sale securities                               |  |                                         |         |   |      |   | 2,725    |  
|Net increase in loans                                                             |  |                                         | (104,891 | ) |      |   | (146,824 | )
|Net additions to premises, leasehold improvements and equipment                   |  |                                         | (1,901   | ) |      |   | (3,086   | )
|Net cash paid on sale of branch                                                   |  |                                         |         |   |      |   | (10,853  | )
|Proceeds from sale of land trusts                                                 |  |                                         |         |   |      |   | 2,050    |  
|Net proceeds from sales of other real estate                                      |  |                                         | 934      |   |      |   | 279      |  
|                                                                                  |  |                                         |          |   |      |   |          |  
|Net cash used in investing activities                                             |  |                                         | (132,998 | ) |      |   | (269,158 | )
|                                                                                  |  |                                         |          |   |      |   |          |  
|Cash flows from financing activities:                                             |  |                                         |          |   |      |   |          |  
|Net increase in deposits                                                          |  |                                         | 112,493  |   |      |   | 110,644  |  
|Net increase (decrease) in other borrowings                                       |  |                                         | (34,269  | ) |      |   | 103,576  |  
|Proceeds from FHLB advances                                                       |  |                                         | 105,000  |   |      |   |         |  
|Repayments of FHLB advances                                                       |  |                                         | (100,000 | ) |      |   | (10,500  | )
|Repayment of junior subordinated debentures                                       |  |                                         | (1,031   | ) |      |   |         |  
|Proceeds from issuance of common stock, net of issuance costs                     |  |                                         |         |   |      |   | 38,950   |  
|Proceeds from exercise of employee stock options                                  |  |                                         | 2,115    |   |      |   | 1,983    |  
|Excess tax benefit on stock options exercised and stock awards                    |  |                                         | 561      |   |      |   |         |  
|Dividends paid                                                                    |  |                                         | (1,984   | ) |      |   | (1,746   | )
|                                                                                  |  |                                         |          |   |      |   |          |  
|Net cash provided by financing activities                                         |  |                                         | 82,885   |   |      |   | 242,907  |  
|                                                                                  |  |                                         |          |   |      |   |          |  
|Net decrease in cash and cash equivalents                                         |  |                                         | (28,202  | ) |      |   | (1,751   | )
|Cash and cash equivalents, beginning of period                                    |  |                                         | 161,065  |   |      |   | 79,250   |  
|                                                                                  |  |                                         |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                          |  | $                                       | 132,863  |   |      | $ | 77,499   |  
|                                                                                  |  |                                         |          |   |      |   |          |  

Consolidated Statements of Cash Flows continued on the next page

See accompanying notes to consolidated financial statements



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TAYLOR CAPITAL GROUP, INC.

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

(dollars in
thousands)



|                                                                              |  |                                         |        |      |   |        |  
|----------------------------------------------------------------------------- |  | --------------------------------------- | ------ | ---- | - | ------ | -
|                                                                              |  | For the Nine Months Ended
September 30, |       
|                                                                              |  | 2006                                    |        | 2005 |  
|Supplemental disclosure of cash flow information:                             |  |                                         |        |      |   |        |  
|Cash paid during the period for:                                              |  |                                         |        |      |   |        |  
|Interest                                                                      |  | $                                       | 74,561 |      | $ | 44,649 |  
|Income taxes                                                                  |  |                                         | 9,793  |      |   | 13,081 |  
|                                                                              |  |                                        
|Supplemental disclosures of noncash investing and financing activities:       |  |                                         |        |      |   |        |  
|Change in fair value of available-for-sale investments securities, net of tax |  | $                                       | 2,567  |      | $ | (4,108 | )

See accompanying notes to consolidated financial statements



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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 September 30, 2006 and for the three and nine month periods ended September 30, 2006 and 2005. 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 income statement data for the three and nine month
periods ended September 30, 2006 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
September 30, 2006 and December 31, 2005 were as follows:



|                                    |  |                    |         |                      |   |                       |  |   |                    |   |  |   |        
|----------------------------------- |  | ------------------ | ------- | -------------------- | - | --------------------- |  | - | ------------------ | - |  | - | -------
|                                    |  | September 30, 2006
|                                    |  | AmortizedCost      |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFairValue
|                                    |  | (in thousands)    
|Available-for-sale:                 |  |                    |         |                      |   |                       |  |   |                    |   |  |   |        
|U.S. government agency securities   |  | $                  | 157,846 |                      | $ |                      |  | $ | (2,678             | ) |  | $ | 155,168
|Collateralized mortgage obligations |  |                    | 173,699 |                      |   | 44                    |  |   | (4,314             | ) |  |   | 169,429
|Mortgage-backed securities          |  |                    | 215,290 |                      |   | 967                   |  |   | (4,750             | ) |  |   | 211,507
|State and municipal obligations     |  |                    | 148,741 |                      |   | 2,138                 |  |   | (73                | ) |  |   | 150,806
|                                    |  |                    |         |                      |   |                       |  |   |                    |   |  |   |        
|Total available-for-sale            |  |                    | 695,576 |                      |   | 3,149                 |  |   | (11,815            | ) |  |   | 686,910
|                                    |  |                    |         |                      |   |                       |  |   |                    |   |  |   |        
|Held-to-maturity:                   |  |                    |         |                      |   |                       |  |   |                    |   |  |   |        
|Other debt securities               |  |                    | 275     |                      |   |                      |  |   |                   |   |  |   | 275    
|                                    |  |                    |         |                      |   |                       |  |   |                    |   |  |   |        
|Total held-to-maturity              |  |                    | 275     |                      |   |                      |  |   |                   |   |  |   | 275    
|                                    |  |                    |         |                      |   |                       |  |   |                    |   |  |   |        
|Total                               |  | $                  | 695,851 |                      | $ | 3,149                 |  | $ | (11,815            | ) |  | $ | 687,185
|                                    |  |                    |         |                      |   |                       |  |   |                    |   |  |   |        



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|                                    |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|----------------------------------- |  | ----------------- | ------- | -------------------- | - | --------------------- |  | - | ------------------ | - |  | - | -------
|                                    |  | December 31, 2005
|                                    |  | AmortizedCost     |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFairValue
|                                    |  | (in thousands)   
|Available-for-sale:                 |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|U.S. government agency securities   |  | $                 | 203,753 |                      | $ |                      |  | $ | (3,396             | ) |  | $ | 200,357
|Collateralized mortgage obligations |  |                   | 187,368 |                      |   | 92                    |  |   | (4,360             | ) |  |   | 183,100
|Mortgage-backed securities          |  |                   | 166,592 |                      |   | 136                   |  |   | (4,830             | ) |  |   | 161,898
|State and municipal obligations     |  |                   | 111,380 |                      |   | 1,357                 |  |   | (1,614             | ) |  |   | 111,123
|                                    |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Total available-for-sale            |  |                   | 669,093 |                      |   | 1,585                 |  |   | (14,200            | ) |  |   | 656,478
|                                    |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Held-to-maturity:                   |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Other debt securities               |  |                   | 275     |                      |   |                      |  |   |                   |   |  |   | 275    
|                                    |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Total held-to-maturity              |  |                   | 275     |                      |   |                      |  |   |                   |   |  |   | 275    
|                                    |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Total                               |  | $                 | 669,368 |                      | $ | 1,585                 |  | $ | (14,200            | ) |  | $ | 656,753
|                                    |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        

3. Loans:

Loans classified by type at September 30, 2006 and December 31, 2005 were as follows:



|                                      |  |                   |           |   |                   |   |           |  
|------------------------------------- |  | ----------------- | --------- | - | ----------------- | - | --------- | -
|                                      |  | September 30,2006 |           |   | December 31, 2005 |  
|                                      |  | (in thousands)    |          
|Commercial and industrial             |  | $                 | 747,555   |   |                   | $ | 665,023   |  
|Commercial real estate secured        |  |                   | 782,908   |   |                   |   | 793,965   |  
|Real estate-construction              |  |                   | 752,549   |   |                   |   | 684,737   |  
|Residential real estate mortgages     |  |                   | 63,426    |   |                   |   | 63,789    |  
|Home equity loans and lines of credit |  |                   | 125,947   |   |                   |   | 161,058   |  
|Consumer                              |  |                   | 13,552    |   |                   |   | 14,972    |  
|Other loans                           |  |                   | 1,452     |   |                   |   | 1,497     |  
|                                      |  |                   |           |   |                   |   |           |  
|Gross loans                           |  |                   | 2,487,389 |   |                   |   | 2,385,041 |  
|Less: Unearned discount               |  |                   | (68       | ) |                   |   | (110      | )
|                                      |  |                   |           |   |                   |   |           |  
|Total loans                           |  |                   | 2,487,321 |   |                   |   | 2,384,931 |  
|Less: Allowance for loan losses       |  |                   | (36,892   | ) |                   |   | (37,481   | )
|                                      |  |                   |           |   |                   |   |           |  
|Loans, net                            |  | $                 | 2,450,429 |   |                   | $ | 2,347,450 |  
|                                      |  |                   |           |   |                   |   |           |  

Nonaccrual and impaired loans at September 30, 2006 were $19.9 million and $26.4 million,
respectively, as compared to $10.8 million and $35.8 million at December 31, 2005, respectively.



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4. Interest-Bearing Deposits:

Interest-bearing deposits at September 30, 2006 and December 31, 2005 were as follows:



|                                              |  |                   |           |                   |   |          
|--------------------------------------------- |  | ----------------- | --------- | ----------------- | - | ---------
|                                              |  | September 30,2006 |           | December 31, 2005
|                                              |  | (in thousands)   
|NOW accounts                                  |  | $                 | 84,034    |                   | $ | 104,269  
|Savings accounts                              |  |                   | 62,554    |                   |   | 73,173   
|Money market deposits                         |  |                   | 728,587   |                   |   | 645,523  
|Time deposits:                                |  |                   |           |                   |   |          
|Certificates of deposit of less than $100,000 |  |                   | 179,411   |                   |   | 206,951  
|Certificates of deposit of $100,000 or more   |  |                   | 353,091   |                   |   | 342,842  
|Out-of-local-market certificates of deposit   |  |                   | 122,486   |                   |   | 131,116  
|Brokered certificates of deposit              |  |                   | 651,134   |                   |   | 505,802  
|Public time deposits                          |  |                   | 81,043    |                   |   | 69,679   
|                                              |  |                   |           |                   |   |          
|Total time deposits                           |  |                   | 1,387,165 |                   |   | 1,256,390
|                                              |  |                   |           |                   |   |          
|Total                                         |  | $                 | 2,262,340 |                   | $ | 2,079,355
|                                              |  |                   |           |                   |   |          

Brokered CDs are carried net of the related broker placement fees and fair value adjustments
related to those brokered CDs formerly 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.
The composition of brokered CDs at September 30, 2006 and December 31, 2005 was as follows:



|                                  |  |                   |         |   |                  |   |         |  
|--------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                  |  | September 30,2006 |         |   | December 31,2005 |  
|                                  |  | (in thousands)    |        
|Par value of brokered CDs         |  | $                 | 656,932 |   |                  | $ | 508,435 |  
|Unamortized broker placement fees |  |                   | (2,443  | ) |                  |   | (3,084  | )
|Fair value adjustment             |  |                   | (3,355  | ) |                  |   | 451     |  
|                                  |  |                   |         |   |                  |   |         |  
|Total                             |  | $                 | 651,134 |   |                  | $ | 505,802 |  
|                                  |  |                   |         |   |                  |   |         |  

5. Other Borrowings:

Other borrowings at September 30, 2006 and December 31, 2005 consisted of the following:



|                                                |  |                |         |              |   |        
|----------------------------------------------- |  | -------------- | ------- | ------------ | - | -------
|                                                |  | Sept. 30,2006  |         | Dec. 31,2005
|                                                |  | (in thousands)
|Securities sold under agreements to repurchase: |  |                |         |              |   |        
|Overnight                                       |  | $              | 131,369 |              | $ | 150,746
|Term                                            |  |                | 100,000 |              |   | 100,000
|Federal funds purchased                         |  |                | 32,663  |              |   | 47,567 
|U.S. Treasury tax and loan note option          |  |                | 125     |              |   | 113    
|                                                |  |                |         |              |   |        
|Total                                           |  | $              | 264,157 |              | $ | 298,426
|                                                |  |                |         |              |   |        



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6. Other Comprehensive Income/(Loss):

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



|                                                                                                      |  |                                              |        |   |                                               |   |        |           |  |   |                 |   |  |           |        |           |  |   |       |  |   |        |  
|----------------------------------------------------------------------------------------------------- |  | -------------------------------------------- | ------ | - | --------------------------------------------- | - | ------ | --------- |  | - | --------------- | - |  | --------- | ------ | --------- |  | - | ----- |  | - | ------ | -
|                                                                                                      |  | For the Three Months EndedSeptember 30, 2006 |        |   | For the Three Months Ended September 30, 2005 |  
|                                                                                                      |  | BeforeTaxAmount                              |        |   | TaxEffect                                     |   |        | Net ofTax |  |   | BeforeTaxAmount |   |  | TaxEffect |        | Net ofTax | 
|                                                                                                      |  | (in thousands)                               |       
|Unrealized gain/(loss) from securities:                                                               |  |                                              |        |  
|Change in unrealized gain/(loss) on available-for-sale securities                                     |  | $                                            | 18,444 |   |                                               | $ | (6,455 | )         |  | $ | 11,989          |   |  | $         | (6,145 | )         |  | $ | 2,151 |  | $ | (3,994 | )
|Less: reclassification adjustment for gains included in net income                                    |  |                                              |       |   |                                               |   |       |           |  |   |                |   |  |           |       |           |  |   |      |  |   |       |  
|                                                                                                      |  |                                              |        |   |                                               |   |        |           |  |   |                 |   |  |           |        |           |  |   |       |  |   |        |  
|Change in unrealized gain/(loss) on available-for-sale securities, net of reclassification adjustment |  |                                              | 18,444 |   |                                               |   | (6,455 | )         |  |   | 11,989          |   |  |           | (6,145 | )         |  |   | 2,151 |  |   | (3,994 | )
|Change in net unrealized gain/(loss) from cash flow hedging instruments                               |  |                                              | 3,261  |   |                                               |   | (1,132 | )         |  |   | 2,129           |   |  |           | (916   | )         |  |   | 321   |  |   | (595   | )
|Change in net deferred gain/(loss) from termination of cash flow hedging instruments                  |  |                                              | 207    |   |                                               |   | (73    | )         |  |   | 134             |   |  |           | (66    | )         |  |   | 23    |  |   | (43    | )
|                                                                                                      |  |                                              |        |   |                                               |   |        |           |  |   |                 |   |  |           |        |           |  |   |       |  |   |        |  
|Other comprehensive income/(loss)                                                                     |  | $                                            | 21,912 |   |                                               | $ | (7,660 | )         |  | $ | 14,252          |   |  | $         | (7,127 | )         |  | $ | 2,495 |  | $ | (4,632 | )
|                                                                                                      |  |                                              |        |   |                                               |   |        |           |  |   |                 |   |  |           |        |           |  |   |       |  |   |        |  
|                                                                                                      |  |                                             
|                                                                                                      |  | For the Nine Months EndedSeptember 30, 2006  |        |   | For the Nine Months EndedSeptember 30, 2005   |  
|                                                                                                      |  | BeforeTaxAmount                              |        |   | TaxEffect                                     |   |        | Net ofTax |  |   | BeforeTaxAmount |   |  | TaxEffect |        | Net ofTax | 
|                                                                                                      |  | (in thousands)                               |       
|Unrealized gain/(loss) from securities:                                                               |  |                                              |        |  
|Change in unrealized gain/(loss) on available-for-sale securities                                     |  | $                                            | 3,949  |   |                                               | $ | (1,382 | )         |  | $ | 2,567           |   |  | $         | (6,193 | )         |  | $ | 2,168 |  | $ | (4,025 | )
|Less: reclassification adjustment for gains included in net income                                    |  |                                              |       |   |                                               |   |       |           |  |   |                |   |  |           | (127   | )         |  |   | 44    |  |   | (83    | )
|                                                                                                      |  |                                              |        |   |                                               |   |        |           |  |   |                 |   |  |           |        |           |  |   |       |  |   |        |  
|Change in unrealized gain/(loss) on available-for-sale securities, net of reclassification adjustment |  |                                              | 3,949  |   |                                               |   | (1,382 | )         |  |   | 2,567           |   |  |           | (6,320 | )         |  |   | 2,212 |  |   | (4,108 | )
|Change in net unrealized gain/(loss) from cash flow hedging instruments                               |  |                                              | 3,613  |   |                                               |   | (1,251 | )         |  |   | 2,362           |   |  |           | (1,272 | )         |  |   | 445   |  |   | (827   | )
|Change in net deferred gain/(loss) from termination of cash flow hedging instruments                  |  |                                              | (1,740 | ) |                                               |   | 609    |           |  |   | (1,131          | ) |  |           | (199   | )         |  |   | 70    |  |   | (129   | )
|                                                                                                      |  |                                              |        |   |                                               |   |        |           |  |   |                 |   |  |           |        |           |  |   |       |  |   |        |  
|Other comprehensive income/(loss)                                                                     |  | $                                            | 5,822  |   |                                               | $ | (2,024 | )         |  | $ | 3,798           |   |  | $         | (7,791 | )         |  | $ | 2,727 |  | $ | (5,064 | )
|                                                                                                      |  |                                              |        |   |                                               |   |        |           |  |   |                 |   |  |           |        |           |  |   |       |  |   |        |  



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7. Earnings Per Share:

The following table sets forth the computation of basic and diluted earnings per common share. For both the three and nine month periods ended September 30, 2006, stock options outstanding to purchase 227,076 and
224,376 shares, respectively, were not included in the computation of diluted earnings per share because the effect would have been antidilutive. For the three and nine month periods ended September 30, 2005, all stock options outstanding were
included in the computation of diluted earnings per share.



|                                                   |  |                                                  |            |                                        |   |            |  |      |            |  |   |           
|-------------------------------------------------- |  | ------------------------------------------------ | ---------- | -------------------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                   |  | For the Three Months EndedSeptember 30,          |            | For the Nine Months EndedSeptember 30,
|                                                   |  | 2006                                             |            | 2005                                   |   | 2006       |  | 2005
|                                                   |  | (dollars in thousands, except per share amounts)
|Net income                                         |  | $                                                | 18,893     |                                        | $ | 7,397      |  | $    | 34,056     |  | $ | 24,753    
|                                                   |  |                                                  |            |                                        |   |            |  |      |            |  |   |           
|Weighted average common shares outstanding         |  |                                                  | 10,965,144 |                                        |   | 10,176,266 |  |      | 10,921,909 |  |   | 9,774,337 
|Dilutive effect of common stock equivalents        |  |                                                  | 140,537    |                                        |   | 254,160    |  |      | 180,313    |  |   | 239,308   
|                                                   |  |                                                  |            |                                        |   |            |  |      |            |  |   |           
|Diluted weighted average common shares outstanding |  |                                                  | 11,105,681 |                                        |   | 10,430,426 |  |      | 11,102,222 |  |   | 10,013,645
|                                                   |  |                                                  |            |                                        |   |            |  |      |            |  |   |           
|Basic earnings per common share                    |  | $                                                | 1.72       |                                        | $ | 0.73       |  | $    | 3.12       |  | $ | 2.53      
|Diluted earnings per common share                  |  |                                                  | 1.70       |                                        |   | 0.71       |  |      | 3.07       |  |   | 2.47      
|                                                   |  |                                                  |            |                                        |   |            |  |      |            |  |   |           

8. Stock-Based Compensation:

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
(SFAS 123R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options. SFAS 123R supersedes the Companys previous
accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), which was applied to periods prior to 2006. In March 2005, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 107 (SAB 107) relating to SFAS 123R. The Company has applied the provisions of SAB 107 in its adoption of SFAS 123R.

The Company adopted SFAS 123R using the modified prospective transition method. Under the modified prospective transition method, the Companys Consolidated Financial Statements as of and for the three and nine
month periods ended September 30, 2006 reflect the impact of SFAS 123R, however, prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R. Prior to the adoption of SFAS 123R, the Company accounted for
stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123). Under the intrinsic value method, no stock-based compensation expense had been recognized in the Companys Consolidated Statements of Income for stock options granted to employees and directors because the exercise price of the
Companys stock options equaled the fair market value of the underlying stock at the date of grant.



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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. As of January 1, 2006, 329,215 shares of Company common stock were available for future grants
under the Plan. The Company uses newly-issued shares of common stock for grants of restricted stock or upon the exercise of stock options.

Stock-based compensation expense recognized under SFAS 123R for the third quarter of 2006 was $525,000 ($207,000 income tax benefit). Included in this expense was $223,000 ($88,000 income tax benefit) related to stock options and $302,000
($119,000 income tax benefit) related to grants of restricted stock. For the first nine months of 2006, stock-based compensation expense recognized under SFAS 123R was $1.5 million ($602,000 income tax benefit). Included in this expense was $737,000
($290,000 income tax benefit) related to stock options and $794,000 ($312,000 income tax benefit) related to grants of restricted stock. In comparison, during the third quarter of 2005, the Company recorded expense of $176,000 ($69,000 income tax
benefit) related to the grants of restricted stock. During the first nine months of 2005, the Company recorded an expense of $332,000 ($130,000 income tax benefit) related to the granting of restricted stock. In addition, had the Company not applied
the intrinsic value method of accounting for stock options during 2005, the Company would have had compensation expense related to stock options of $185,000 ($73,000 income tax benefit) during the third quarter of 2005 and $665,000 ($261,000 income
tax benefit) during the first nine months of 2005.

The following table illustrates the effect on net income and earnings per share as if
SFAS 123R had been applied to all outstanding share-based payment awards for the periods indicated. The amounts reported for 2005 are as if the provisions of SFAS 123R had been applied and the amounts reported for 2006 are as reported on the
Consolidated Statement of Income:



|                                                                                                                                          |  |                                                  |        |   |                                        |   |       |                 |  |   |              |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------ | ------ | - | -------------------------------------- | - | ----- | --------------- |  | - | ------------ | - |  | - | ------ | -
|                                                                                                                                          |  | For the Three MonthsEnded September 30,          |        |   | For the Nine MonthsEnded September 30, |  
|                                                                                                                                          |  | AsReported 2006                                  |        |   | ProForma2005                           |   |       | AsReported 2006 |  |   | ProForma2005 |  
|                                                                                                                                          |  | (dollars in thousands, except per share amounts) |       
|Net income as reported                                                                                                                    |  | $                                                | 18,893 |   |                                        | $ | 7,397 |                 |  | $ | 34,056       |   |  | $ | 24,753 |  
|Add: Stock-based compensation, net of tax, included in the determination of net income, as reported                                       |  |                                                  | 318    |   |                                        |   | 107   |                 |  |   | 929          |   |  |   | 202    |  
|Deduct: Stock-based compensation, net of tax, that would have been reported if the fair value based method had been applied to all
awards |  |                                                  | (318   | ) |                                        |   | (219  | )               |  |   | (929         | ) |  |   | (606   | )
|                                                                                                                                          |  |                                                  |        |   |                                        |   |       |                 |  |   |              |   |  |   |        |  
|Net income                                                                                                                                |  | $                                                | 18,893 |   |                                        | $ | 7,285 |                 |  | $ | 34,056       |   |  | $ | 24,349 |  
|                                                                                                                                          |  |                                                  |        |   |                                        |   |       |                 |  |   |              |   |  |   |        |  
|Basic earnings per common share                                                                                                           |  |                                                  |        |   |                                        |   |       |                 |  |   |              |   |  |   |        |  
|As reported                                                                                                                               |  | $                                                | 1.72   |   |                                        | $ | 0.73  |                 |  | $ | 3.12         |   |  | $ | 2.53   |  
|Pro forma                                                                                                                                 |  |                                                  | 1.72   |   |                                        |   | 0.72  |                 |  |   | 3.12         |   |  |   | 2.49   |  
|Diluted earnings per common share                                                                                                         |  |                                                  |        |   |                                        |   |       |                 |  |   |              |   |  |   |        |  
|As reported                                                                                                                               |  | $                                                | 1.70   |   |                                        | $ | 0.71  |                 |  | $ | 3.07         |   |  | $ | 2.47   |  
|Pro forma                                                                                                                                 |  |                                                  | 1.70   |   |                                        |   | 0.70  |                 |  |   | 3.07         |   |  |   | 2.43   |  



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Stock Options:

SFAS 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Companys Consolidated Statements of Income. The Company recognized compensation costs for these awards over the
requisite service period for the entire award on a straight-line basis. Stock-based compensation expense recognized in the Companys Consolidated Statements of Income for the three and nine month periods ended September 30, 2006 included
compensation expense for share-based payment awards granted prior to, but not yet vested as of January 1, 2006 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123 and compensation expense for the
share-based payment awards granted subsequent to January 1, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. As stock-based compensation expense recognized in the Consolidated Statements of
Income during 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. In the Companys pro forma information required under SFAS 123 for the periods prior to 2006, the Company accounted for forfeitures as they occurred.

Stock options are granted with an exercise price equal to the fair market value of the common stock on the date of grant. The stock options that were
granted prior to 2006 vest over a five year period (vesting at 20% per year) and expire 10 years following the grant date. The stock options that were granted in 2006 vest over a four year period (vesting at 25% per year) and expire eight
years following grant date. In either case, upon death, disability, retirement or change of control of the Company (as defined in the Plan) vesting may be accelerated to 100%.

The following is a summary of stock option activity for the nine month period ended September 30, 2006:



|                                  |  |         |   |  |                               |       |                                                  |     |                               |   |      
|--------------------------------- |  | ------- | - |  | ----------------------------- | ----- | ------------------------------------------------ | --- | ----------------------------- | - | -----
|                                  |  | Shares  |   |  | Weighted-AverageExercisePrice |       | Weighted-AverageRemainingContractualTerm inYears |     | AggregateIntrinsicValue($000)
|Outstanding at January 1, 2006    |  | 765,088 |   |  | $                             | 23.30 |                                                  |     |                               |   |      
|Granted                           |  | 114,122 |   |  |                               | 37.51 |                                                  |     |                               |   |      
|Exercised                         |  | (98,877 | ) |  |                               | 21.42 |                                                  |     |                               |   |      
|Forfeited                         |  | (35,566 | ) |  |                               | 29.51 |                                                  |     |                               |   |      
|Expired                           |  | (474    | ) |  |                               | 29.13 |                                                  |     |                               |   |      
|                                  |  |         |   |  |                               |       |                                                  |     |                               |   |      
|Outstanding at September 30, 2006 |  | 744,293 |   |  | $                             | 25.42 |                                                  | 6.4 |                               | $ | 4,138
|                                  |  |         |   |  |                               |       |                                                  |     |                               |   |      
|Exercisable at September 30, 2006 |  | 368,722 |   |  | $                             | 21.43 |                                                  | 5.3 |                               | $ | 3,042
|                                  |  |         |   |  |                               |       |                                                  |     |                               |   |      

In connection with stock options exercised during 2006, the Company received $298,000 and $2.1
million during the three and nine month periods ended September 30, 2006, respectively, of cash from the settlement of the options on the exercised awards. In addition, the



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Company recorded $69,000 and $691,000 of tax benefit from these exercises during the three and nine month
periods ended September 30, 2006, respectively. Plan participants realized an intrinsic value of $189,000 and $1.8 million from the exercise of these stock options during the third quarter and year-to-date periods of 2006, respectively. In
comparison, Plan participants realized an intrinsic value of $655,000 and $1.6 million from the exercise of these stock options during the third quarter and year-to-date periods of 2005, respectively. As of September 30, 2006, the total
compensation cost related to nonvested stock options that have not yet been recognized totaled $2.5 million and the weighted average period which these costs are expected to be recognized over is approximately 3.0 years.

Restricted Stock:

Under the Plan, the Company can grant restricted stock awards that vest upon completion of future service requirements or specified performance criteria. The fair value of these awards is equal to the market price at 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. Restricted stock awards based upon completion of future service requirements vest 50% at the
end of year three, 75% at the end of year four and 100% at the end of year five or upon death, disability, retirement or change of control (as defined in the Plan) of the Company. If a participant terminates employment prior to the end of the
continuous service period, the unearned portion of the stock award is forfeited. The Company may also issue awards that vest upon satisfaction of specified performance criteria. For these types of awards, the final measure of compensation cost is
based upon the number of shares that ultimately vest considering the performance criteria.

In conjunction with the adoption of SFAS 123R,
the Company changed its method of attributing the value of restricted stock to compensation expense for awards in 2006. Prior to 2006, the Company recognized compensation cost for restricted stock over the service period of each separately vesting
portion of the award, in effect treating each vesting portion as a separate award. For grants in 2006, compensation costs are recognized on a straight line basis over the vesting period for the entire award.

The following table provides information regarding nonvested restricted stock:



|                                |  |         |   |  |                                      |      
|------------------------------- |  | ------- | - |  | ------------------------------------ | -----
|Nonvested Restricted Stock      |  | Shares  |   |  | Weighted-AverageGrant-Date FairValue
|Nonvested at January 1, 2006    |  | 113,908 |   |  | $                                    | 29.42
|Granted                         |  | 52,800  |   |  |                                      | 36.48
|Vested                          |  | (14,013 | ) |  |                                      | 19.48
|Forfeited                       |  | (7,268  | ) |  |                                      | 31.77
|                                |  |         |   |  |                                      |      
|Nonvested at September 30, 2006 |  | 145,427 |   |  | $                                    | 32.42
|                                |  |         |   |  |                                      |      

In the first nine months of 2006, the Company recorded a $72,000 tax benefit from the vesting of
restricted stock awards. The fair value of restricted stock awards that vested during



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the first nine months of 2006 was $501,000, compared to $735,000 during the same nine month period in 2005. As of
September 30, 2006, the total compensation cost related to nonvested restricted stock that has not yet been recognized totaled $3.2 million, and the weighted average period during which these costs are expected to be recognized over is
approximately 3.5 years.

Valuation Information:

The Company uses the modified Black-Scholes option-pricing model (Black-Scholes model) for determining the fair value of stock options issued to employees and directors. The determination of the fair value
of share-based payment awards using the Black-Scholes model is impacted by the Companys stock price on the date of grant as well as several assumptions used as inputs into the model. The significant assumptions include the risk-free interest
rate at grant date, expected stock price volatility, expected dividend payout, and expected option life.

The risk-free interest rate
assumption is based upon observed interest rates for the expected term of the Companys stock options. For grants in 2006, the expected volatility input into the model takes into account the historical volatility of the Company common stock
over the period that it has been publicly traded and the historical volatility over the expected term of the option of a peer group. The expected volatility for grants prior to 2006 was based upon estimates of volatility of Company common stock
considering that prior to October 2002 the common stock was not publicly traded. The expected dividend yield assumption is based upon the Companys historical dividend payout. For options granted in 2006, the Company used the methodology used
in SAB 107 in determining the expected life of the awards. This methodology takes into account the vesting periods and the contractual term of the award. For grants prior to 2006, the expected life was estimated considering that exercise behaviors
were impacted by the limited history of public trading of the Companys common stock.

The following are the significant assumptions
used to determine the fair value of stock option awards, using the Black-Scholes model, for each of the periods indicated:



|                                      |  |                                        |       |   |      |   |       |  
|------------------------------------- |  | -------------------------------------- | ----- | - | ---- | - | ----- | -
|                                      |  | For the Nine Months EndedSeptember 30, |      
|                                      |  | 2006                                   |       |   | 2005 |  
|Grant date fair value per share       |  | $                                      | 11.76 |   |      | $ | 9.12  |  
|Significant assumptions:              |  |                                        |       |   |      |   |       |  
|Risk-free interest rate at grant date |  |                                        | 4.40  | % |      |   | 4.23  | %
|Expected stock price volatility       |  |                                        | 27.50 | % |      |   | 19.47 | %
|Expected dividend payout              |  |                                        | 0.64  | % |      |   | 0.77  | %
|Expected option life, in years        |  |                                        | 5.25  |   |      |   | 7.00  |  



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9. Derivative Financial Instruments:

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 September 30, 2006 (dollars in thousands):



|             |  |                |         |              |                  |          |           |            |   |      
|------------ |  | -------------- | ------- | ------------ | ---------------- | -------- | --------- | ---------- | - | -----
|Product      |  | NotionalAmount |         | Strike Rates |                  | Maturity |           | Fair Value
|Prime Floor  |  | $              | 100,000 |              | 5.50%            |          | 6/30/2010 |            | $ | 117  
|Prime Floor  |  |                | 100,000 |              | 6.25%            |          | 7/12/2010 |            |   | 284  
|Prime Collar |  |                | 150,000 |              | 7.75% and 8.505% |          | 5/5/2009  |            |   | 814  
|Prime Collar |  |                | 150,000 |              | 7.75% and 8.585% |          | 5/5/2010  |            |   | 1,300
|             |  |                |         |              |                  |          |           |            |   |      
|Total        |  | $              | 500,000 |              |                  |          |           |            |   |      
|             |  |                |         |              |                  |          |           |            |   |      

At inception in June 2005, the $100.0 million notional amount 5.50% Prime floor was designated as
a cash flow hedge against interest receipts from Prime-based loans. In May 2006, the Company de-designated this floor. The fair value of the floor on the date of de-designation was $39,000. Upon de-designation, the balance in accumulated other
comprehensive income, which was comprised of the change in fair value since inception less amortization of the original floor cost, net of tax, will be amortized to loan interest income over the remaining four year term of the floor. Changes in the
fair value of the floor subsequent to its de-designation are reported in noninterest income. During the third quarter 2006 and the year-to-date 2006 period, the increases in the fair value of the floor of $59,000 and $77,000, respectively, were
reflected in noninterest income.

The Company is party to one Prime floor and two Prime collars that are currently designated as cash flow
hedges against interest receipts from Prime-based loans. The fair values of these derivatives are recorded as an asset or liability with the effective portion of the corresponding gain or loss recorded in other comprehensive income in
stockholders equity net of tax. All of our cash flow hedges have been highly effective.

In May 2006, the Company terminated $330.0
million notional amount of LIBOR-based swaps that had been used as fair value hedges against brokered CDs and $50.0 million notional amount of Prime-based swaps that had been used as a cash flow hedge against interest received from Prime-based
loans. The termination of the swaps resulted in a $100,000 charge that was recorded in other derivative expense included in noninterest income. The associated cumulative fair value adjustment to the hedged brokered CDs is being amortized into
deposit interest expense over the remaining life of the CDs. The accumulated other comprehensive loss associated with the Prime-based swaps is being amortized into loan interest income over what would have been the remaining term of the swap.



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##### Table of Contents

10. Income Taxes:

Income tax expense for the nine month period ended September 30, 2006 included the recognition of an $11.4 million tax benefit relating to deductions taken on prior year tax returns that had not been recognized
previously for financial reporting purposes. During the third quarter of 2006, tax liabilities established for tax uncertainties were no longer required primarily as a result of the expiration of the statute of limitations for the Companys
2002 federal income tax return. The expiration of the statute of limitations removes the uncertainty and allows recognition of the deduction for financial reporting purposes. The recognition of the tax benefit is a non-cash event with the reversal
of the tax liability being reflected in earnings. The total amount of the tax benefit that will be recognized in 2006 is $15.1 million. In accordance with the Companys income tax accounting policies, the remaining $3.7 million of the tax
benefits will be recognized in the fourth quarter of 2006.



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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 2005 Annual Report on Form 10-K filed with the SEC on March 13, 2006.

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 2005 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. The significant uncertainties surrounding our portfolio of borrowers abilities
to successfully execute their business models through changing economic environments and competitive challenges as well as management and other changes greatly complicate the estimate of the risk of loss and amount of loss on any loan. Because of
the degree of uncertainty and susceptibility of these factors to change, actual losses may vary from current estimates.

As a business
bank, our loan portfolio is comprised primarily of commercial loans to businesses, which are inherently larger in amount than loans to individual consumers. 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 material loan can have a material impact on our reported impaired loans and related loss exposure
estimates. 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.

Goodwill Impairment

We have goodwill of $23.2
million that we recognized in connection with our 1997 acquisition of the Bank. We test this goodwill annually on July 1 for impairment, or whenever events or significant changes in circumstances indicate that the carrying value may not be
recoverable. We tested goodwill for impairment as of July 1, 2006 and we determined that no impairment charge was necessary. The evaluation for impairment includes comparing the estimated fair market value of the Bank to our carrying value for
the Bank. Because there is not a readily observable market value for the Bank, the estimation of the fair market value is based on the market price of our common stock adjusted for the junior subordinated debentures and the notes payable at the
holding company.



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Income Taxes

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. A reserve is utilized or reversed once the applicable statute of limitations has expired or the matter is otherwise resolved. It is likely that
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. In accordance with 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 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
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 income 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 mid-market valuations. The 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 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 income statement volatility.



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RESULTS OF OPERATIONS

Overview

Net income for the quarter ended
September 30, 2006 totaled $18.9 million, up $11.5 million, from the third quarter of 2005 net income of $7.4 million. The increase in net income resulted primarily from the recognition in 2006 of an $11.4 million income tax benefit relating to
the reversal of previously established income tax liabilities associated with tax uncertainties in prior years. The majority of the tax benefit was triggered by the expiration of the statute of limitations on our 2002 income tax return during the
third quarter of 2006. Income before income taxes for the third quarter of 2006 was $11.5 million, compared to $11.8 million for the third quarter of 2005, a decrease of $259,000, or 2.2%. A higher provision for loan losses in 2006 of $2.1 million
was more than offset by lower derivative expense of $2.4 million.

Net income for the nine months ended September 30, 2006 totaled
$34.1 million, an increase of $9.3 million, from the first nine months of 2005 net income of $24.8 million. The recognition of the $11.4 million income tax benefit in 2006 was the primary reason for the increase in net income. Income before income
taxes for the nine months ended September 30, 2006 was $35.5 million, compared to $40.1 million for the same period in 2005, a decrease of $4.7 million, or 11.6%. A $3.7 million increase in net interest income in 2006 was more than offset by a
$3.5 million decline in noninterest income, a $2.3 million increase in the provision for loan losses and a $2.5 million increase in noninterest expense.

Net income per diluted common share was $1.70 for the third quarter of 2006 as compared to $0.71 for the third quarter of 2005. Net income per diluted common share was $3.07 for the first nine months of 2006, compared
to $2.47 for the first nine months of 2005. The increase in the earnings per share in each of the 2006 periods was primarily caused by the recognition of the $11.4 million income tax benefit in 2006.

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 September 30, 2006 as Compared to the Quarter Ended September 30, 2005:

Net interest income was $28.1 million during the third quarter of 2006, an increase of $608,000, or 2.2%, from $27.5 million of net interest income during
the third quarter a year ago. With an adjustment for tax-exempt income, our consolidated net interest income for the third quarter of 2006 was $28.9 million, compared to $27.9 million during the same quarter in 2005. This non-GAAP presentation is
discussed further below. Net interest income during the third quarter of 2006 was higher as a result of increased interest-earning assets, largely offset by a decline in net interest margin.



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Average interest-earning assets increased $295.8 million, or 10.2%, to $3.21 billion for the third
quarter of 2006, compared to $2.91 billion for the third quarter in 2005. Average total loans increased $180.4 million, or 7.9%, and average investment securities increased $113.8 million. Average commercial loans increased $231.2 million, or 11.4%,
from the third quarter of 2005 to the third quarter of 2006, while consumer-oriented loans declined $50.9 million. The increase in average interest earning assets between the third quarters of 2005 and 2006 was funded primarily with out-of-market
funding sources. See the section of this discussion and analysis captioned Deposits for further information on our funding.

Our net interest margin, which is determined by dividing taxable equivalent net interest income by average interest-earning assets, was 3.58% during the third quarter of 2006, compared to 3.80% during the same quarter a year ago, a decrease
of 22 basis points. These non-GAAP tax equivalent measures are discussed more fully below. The margin in 2006 was negatively impacted by competitive pricing pressure for loans and deposits, as well as changes in our earning asset and funding mix in
2006 as compared to 2005.

Between the third quarters of 2006 and 2005, deposits in lower rate products, including noninterest-bearing
demand deposits, NOW and savings accounts, declined, while balances in market priced money market accounts and certificates of deposit, including brokered certificates of deposit, increased. In addition, our investment portfolio, the yield on which
is lower than the yield on loans, was higher in 2006. We also experienced a decline in the spread to Prime of our Prime-based loans due to competitive pressures within our marketplace.

During the third quarter of 2006, $256,000 of interest was received on commercial loans which were previously on nonaccrual, compared to $32,000 of
interest received on nonaccrual commercial loans during the third quarter of 2005.

Our current internal modeling using our balance sheet
at September 30, 2006 indicates that our net interest margin would likely decline over the next year if our balance sheet remained static and there were no further increases in the Prime rate. Our modeling of the September 30, 2006 balance
sheet, using the market interest rates in effect at September 30th, indicates a decline in our net interest
margin as more of our interest-bearing liabilities would reprice to current rates, while the yield on our interest earning assets largely reflects current rates. Additional factors, including those described above that negatively impacted the third
quarter, could bring about further pressure on our net interest margin. 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.

Nine Months Ended September 30, 2006 as Compared to the Nine Months Ended September 30, 2005:

Net interest income was $83.6 million during the first nine months of 2006, a $3.7 million, or 4.6%, increase over the $79.9 million of
net interest income during the first nine months a year ago. With an adjustment for tax-exempt income, our consolidated net interest income for the



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first nine months of 2006 was $86.0 million as compared to $81.0 million during the same nine months in 2005. Net
interest income during the first nine months of 2006 increased as a result of increased interest-earning assets, partially offset by a decline in net interest margin.

Average interest-earning assets increased $324.7 million, or 11.4%, to $3.17 billion for the first nine months of 2006, compared to $2.84 billion for the first nine months in 2005. Average total loans increased $175.1
million, or 7.8%, and average investment securities increased $144.3 million. Average commercial loans increased $225.3 million, or 11.4%, from the first nine months of 2005 as compared to the first nine months of 2006, while consumer-oriented loans
declined $50.2 million. The increase in average interest-earning assets between the first nine months of 2006 and 2005 was funded primarily with out-of-market funding sources. See the sections of this discussion and analysis captioned
Deposits and Liquidity for further information about our funding.

Our net interest margin was 3.63% during the
first nine months of 2006, compared to 3.81% during the same nine months a year ago, a decrease of 18 basis points. The margin was negatively impacted by thinner loan spreads, changes in our earning asset mix and the cost and mix of our funding. The
factors contributing to the decline in the net interest margin in the first nine months of 2006 as compared to 2005 were largely the same as those that impacted the third quarter of 2006 as compared to the third quarter of 2005.

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, rates and reporting period. Interest income is measured on a
tax-equivalent basis using a 35% rate.



|                                   |  |                                                                                            |       |                                                                                          |      |   |        |     |  |        |        |      |   |       |     |   |        |   |  |   |       
|---------------------------------- |  | ------------------------------------------------------------------------------------------ | ----- | ---------------------------------------------------------------------------------------- | ---- | - | ------ | --- |  | ------ | ------ | ---- | - | ----- | --- | - | ------ | - |  | - | ------
|                                   |  | Three Months Ended Sept. 30, 2006 overThree Months Ended Sept. 30,
2005INCREASE/(DECREASE) |       | Nine Months Ended Sept. 30, 2006 overNine Months Ended Sept. 30,
2005INCREASE/(DECREASE)
|                                   |  | (in thousands)                                                                            
|                                   |  | VOLUME                                                                                     |       |                                                                                          | RATE |   |        | NET |  | VOLUME |        | RATE |   |       | NET
|INTEREST EARNED ON:                |  |                                                                                            |       |                                                                                          |      |   |        |     |  |        |        |      |   |       |     |   |        |   |  |   |       
|Investment securities (1)          |  | $                                                                                          | 1,573 |                                                                                          |      | $ | 524    |     |  | $      | 2,097  |      | $ | 5,807 |     | $ | 1,115  |   |  | $ | 6,922 
|Cash equivalents                   |  |                                                                                            | 17    |                                                                                          |      |   | 143    |     |  |        | 160    |      |   | 133   |     |   | 449    |   |  |   | 582   
|Loans (1)                          |  |                                                                                            | 3,262 |                                                                                          |      |   | 6,601  |     |  |        | 9,863  |      |   | 9,086 |     |   | 20,237 |   |  |   | 29,323
|                                   |  |                                                                                            |       |                                                                                          |      |   |        |     |  |        |        |      |   |       |     |   |        |   |  |   |       
|Total interest-earning assets      |  |                                                                                            |       |                                                                                          |      |   |        |     |  |        | 12,120 |      |   |       |     |   |        |   |  |   | 36,827
|                                   |  |                                                                                            |       |                                                                                          |      |   |        |     |  |        |        |      |   |       |     |   |        |   |  |   |       
|INTEREST PAID ON:                  |  |                                                                                            |       |                                                                                          |      |   |        |     |  |        |        |      |   |       |     |   |        |   |  |   |       
|Interest-bearing deposits          |  |                                                                                            | 2,205 |                                                                                          |      |   | 7,611  |     |  |        | 9,816  |      |   | 5,296 |     |   | 21,812 |   |  |   | 27,108
|Total borrowings                   |  |                                                                                            | (52   | )                                                                                        |      |   | 1,339  |     |  |        | 1,287  |      |   | 513   |     |   | 4,192  |   |  |   | 4,705 
|                                   |  |                                                                                            |       |                                                                                          |      |   |        |     |  |        |        |      |   |       |     |   |        |   |  |   |       
|Total interest-bearing liabilities |  |                                                                                            |       |                                                                                          |      |   |        |     |  |        | 11,103 |      |   |       |     |   |        |   |  |   | 31,813
|                                   |  |                                                                                            |       |                                                                                          |      |   |        |     |  |        |        |      |   |       |     |   |        |   |  |   |       
|Net interest income                |  | $                                                                                          | 2,712 |                                                                                          |      | $ | (1,695 | )   |  | $      | 1,017  |      | $ | 9,053 |     | $ | (4,039 | ) |  | $ | 5,014 
|                                   |  |                                                                                            |       |                                                                                          |      |   |        |     |  |        |        |      |   |       |     |   |        |   |  |   |       

---

|(1) | Adjusted to reflect tax-exempt interest income on an equivalent before-tax basis assuming an income tax rate of 35%.
|--- | --------------------------------------------------------------------------------------------------------------------



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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.

The following table reconciles the tax equivalent net interest income to net interest income as reported on
the consolidated statements of income. 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 September 30, |        |   | For the Nine MonthsEnded September 30, |  
|                                               |  | 2006                                    |        |   | 2005                                   |   |        | 2006 |  |   | 2005   |  
|                                               |  | (dollars in thousands)                  |       
|Net interest income as stated                  |  | $                                       | 28,088 |   |                                        | $ | 27,480 |      |  | $ | 83,563 |   |  | $ | 79,911 |  
|Tax equivalent adjustment-investments          |  |                                         | 739    |   |                                        |   | 375    |      |  |   | 2,156  |   |  |   | 934    |  
|Tax equivalent adjustment-loans                |  |                                         | 87     |   |                                        |   | 42     |      |  |   | 268    |   |  |   | 128    |  
|                                               |  |                                         |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Tax equivalent net interest income             |  | $                                       | 28,914 |   |                                        | $ | 27,897 |      |  | $ | 85,987 |   |  | $ | 80,973 |  
|                                               |  |                                         |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Yield on earning assets without tax adjustment |  |                                         | 7.10   | % |                                        |   | 6.23   | %    |  |   | 6.90   | % |  |   | 6.02   | %
|Yield on earning assets - tax equivalent       |  |                                         | 7.21   | % |                                        |   | 6.29   | %    |  |   | 7.00   | % |  |   | 6.07   | %
|                                               |  |                                         |        |  
|Net interest margin without tax adjustment     |  |                                         | 3.48   | % |                                        |   | 3.75   | %    |  |   | 3.53   | % |  |   | 3.76   | %
|Net interest margin - tax equivalent           |  |                                         | 3.58   | % |                                        |   | 3.80   | %    |  |   | 3.63   | % |  |   | 3.81   | %
|                                               |  |                                         |        |  
|Net interest spread without tax adjustment     |  |                                         | 2.68   | % |                                        |   | 3.17   | %    |  |   | 2.77   | % |  |   | 3.22   | %
|Net interest spread - tax equivalent           |  |                                         | 2.79   | % |                                        |   | 3.23   | %    |  |   | 2.88   | % |  |   | 3.28   | %

The following tables present, for the periods indicated, certain information relating to our
consolidated average balances and reflect our yield on average interest-earning assets and costs of average interest-bearing liabilities. 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 September 30, |          
|                                               |  | 2006                                     |           |   | 2005     |  
|                                               |  | AVERAGEBALANCE                           |           |   | INTEREST |   | YIELD/RATE(%)(6) |  |      | AVERAGEBALANCE |  |   | INTEREST  |   | YIELD/RATE(%)(6) |  
|                                               |  | (dollars in thousands)                   |          
|INTEREST-EARNING ASSETS:                       |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Investment securities (1):                     |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Taxable                                        |  | $                                        | 575,152   |   |          | $ | 6,317            |  | 4.39 | %              |  | $ | 529,184   |   |                  | $ | 5,260  |  | 3.98 | %
|Tax-exempt (tax equivalent) (2)                |  |                                          | 131,571   |   |          |   | 2,111            |  | 6.42 |                |  |   | 63,761    |   |                  |   | 1,071  |  | 6.72 |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total investment securities                    |  |                                          | 706,723   |   |          |   | 8,428            |  | 4.77 |                |  |   | 592,945   |   |                  |   | 6,331  |  | 4.27 |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Cash Equivalents                               |  |                                          | 31,684    |   |          |   | 415              |  | 5.12 |                |  |   | 30,056    |   |                  |   | 255    |  | 3.31 |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Loans (2) (3):                                 |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Commercial and commercial real estate          |  |                                          | 2,262,505 |   |          |   | 45,260           |  | 7.83 |                |  |   | 2,031,261 |   |                  |   | 35,156 |  | 6.77 |  
|Residential real estate mortgages              |  |                                          | 64,108    |   |          |   | 889              |  | 5.55 |                |  |   | 60,081    |   |                  |   | 807    |  | 5.37 |  
|Home equity and consumer                       |  |                                          | 144,337   |   |          |   | 2,905            |  | 7.98 |                |  |   | 199,248   |   |                  |   | 3,197  |  | 6.36 |  
|Fees on loans                                  |  |                                          |           |   |          |   | 322              |  |      |                |  |   |           |   |                  |   | 353    |  |      |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net loans (tax equivalent) (2)                 |  |                                          | 2,470,950 |   |          |   | 49,376           |  | 7.93 |                |  |   | 2,290,590 |   |                  |   | 39,513 |  | 6.84 |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-earning assets (2)              |  |                                          | 3,209,357 |   |          |   | 58,219           |  | 7.21 |                |  |   | 2,913,591 |   |                  |   | 46,099 |  | 6.29 |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Allowance for loan losses                      |  |                                          | (37,125   | ) |          |   |                  |  |      |                |  |   | (37,783   | ) |                  |   |        |  |      |  
|                                               |  |                                          |           |   |          |  
|NON-EARNING ASSETS:                            |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Cash and due from banks                        |  |                                          | 57,278    |   |          |   |                  |  |      |                |  |   | 67,938    |   |                  |   |        |  |      |  
|Accrued interest and other assets              |  |                                          | 78,901    |   |          |   |                  |  |      |                |  |   | 88,426    |   |                  |   |        |  |      |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|TOTAL ASSETS                                   |  | $                                        | 3,308,411 |   |          |   |                  |  |      |                |  | $ | 3,032,172 |   |                  |   |        |  |      |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|INTEREST-BEARING LIABILITIES:                  |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Interest-bearing deposits:                     |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Interest-bearing demand deposits               |  | $                                        | 740,802   |   |          |   | 6,861            |  | 3.67 |                |  | $ | 624,565   |   |                  |   | 2,810  |  | 1.78 |  
|Savings deposits                               |  |                                          | 64,452    |   |          |   | 46               |  | 0.28 |                |  |   | 78,468    |   |                  |   | 59     |  | 0.30 |  
|Time deposits                                  |  |                                          | 1,411,520 |   |          |   | 16,666           |  | 4.68 |                |  |   | 1,243,922 |   |                  |   | 10,888 |  | 3.47 |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-bearing deposits                |  |                                          | 2,216,774 |   |          |   | 23,573           |  | 4.22 |                |  |   | 1,946,955 |   |                  |   | 13,757 |  | 2.80 |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Other borrowings                               |  |                                          | 246,220   |   |          |   | 2,670            |  | 4.24 |                |  |   | 244,087   |   |                  |   | 1,632  |  | 2.62 |  
|Notes payable and FHLB advances                |  |                                          | 79,185    |   |          |   | 1,076            |  | 5.32 |                |  |   | 82,875    |   |                  |   | 1,003  |  | 4.73 |  
|Junior subordinated debentures                 |  |                                          | 86,607    |   |          |   | 1,986            |  | 9.17 |                |  |   | 87,638    |   |                  |   | 1,810  |  | 8.26 |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-bearing liabilities             |  |                                          | 2,628,786 |   |          |   | 29,305           |  | 4.42 |                |  |   | 2,361,555 |   |                  |   | 18,202 |  | 3.06 |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|NONINTEREST-BEARING LIABILITIES:               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Noninterest-bearing deposits                   |  |                                          | 395,243   |   |          |   |                  |  |      |                |  |   | 426,922   |   |                  |   |        |  |      |  
|Accrued interest, taxes, and other liabilities |  |                                          | 50,170    |   |          |   |                  |  |      |                |  |   | 51,943    |   |                  |   |        |  |      |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total noninterest-bearing liabilities          |  |                                          | 445,413   |   |          |   |                  |  |      |                |  |   | 478,865   |   |                  |   |        |  |      |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|STOCKHOLDERS EQUITY                           |  |                                          | 234,212   |   |          |   |                  |  |      |                |  |   | 191,752   |   |                  |   |        |  |      |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY     |  | $                                        | 3,308,411 |   |          |   |                  |  |      |                |  | $ | 3,032,172 |   |                  |   |        |  |      |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net interest income (tax equivalent) (2)       |  |                                          |           |   |          | $ | 28,914           |  |      |                |  |   |           |   |                  | $ | 27,897 |  |      |  
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net interest spread (tax equivalent) (2) (4)   |  |                                          |           |   |          |   |                  |  | 2.79 | %              |  |   |           |   |                  |   |        |  | 3.23 | %
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net interest margin (tax equivalent) (2) (5)   |  |                                          |           |   |          |   |                  |  | 3.58 | %              |  |   |           |   |                  |   |        |  | 3.80 | %
|                                               |  |                                          |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  

---

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

|(2) | Adjusted to reflect tax-exempt interest income on an equivalent before-tax basis assuming an income 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.
|--- | ---------------------------



24



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##### Table of Contents

|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|---------------------------------------------- |  | --------------------------------------- | --------- | - | -------- | - | ---------------- |  | ---- | -------------- |  | - | --------- | - | ---------------- | - | ------- |  | ---- | -
|                                               |  | For the Nine Months Ended September 30, |          
|                                               |  | 2006                                    |           |   | 2005     |  
|                                               |  | AVERAGEBALANCE                          |           |   | INTEREST |   | YIELD/RATE(%)(6) |  |      | AVERAGEBALANCE |  |   | INTEREST  |   | YIELD/RATE(%)(6) |  
|                                               |  | (dollars in thousands)                  |          
|INTEREST-EARNING ASSETS:                       |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Investment securities (1):                     |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Taxable                                        |  | $                                       | 582,609   |   |          | $ | 18,659           |  | 4.27 | %              |  | $ | 514,382   |   |                  | $ | 15,229  |  | 3.95 | %
|Tax-exempt (tax equivalent) (2)                |  |                                         | 127,886   |   |          |   | 6,160            |  | 6.42 |                |  |   | 51,801    |   |                  |   | 2,668   |  | 6.87 |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Total investment securities                    |  |                                         | 710,495   |   |          |   | 24,819           |  | 4.66 |                |  |   | 566,183   |   |                  |   | 17,897  |  | 4.21 |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Cash Equivalents                               |  |                                         | 32,853    |   |          |   | 1,189            |  | 4.77 |                |  |   | 27,564    |   |                  |   | 607     |  | 2.90 |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Loans (2) (3):                                 |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Commercial and commercial real estate          |  |                                         | 2,202,040 |   |          |   | 127,167          |  | 7.62 |                |  |   | 1,976,733 |   |                  |   | 97,374  |  | 6.50 |  
|Residential real estate mortgages              |  |                                         | 64,192    |   |          |   | 2,640            |  | 5.48 |                |  |   | 61,621    |   |                  |   | 2,421   |  | 5.24 |  
|Home equity and consumer                       |  |                                         | 157,273   |   |          |   | 8,889            |  | 7.56 |                |  |   | 210,005   |   |                  |   | 9,301   |  | 5.92 |  
|Fees on loans                                  |  |                                         |           |   |          |   | 1,121            |  |      |                |  |   |           |   |                  |   | 1,398   |  |      |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Net loans (tax equivalent) (2)                 |  |                                         | 2,423,505 |   |          |   | 139,817          |  | 7.71 |                |  |   | 2,248,359 |   |                  |   | 110,494 |  | 6.57 |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Total interest-earning assets (2)              |  |                                         | 3,166,853 |   |          |   | 165,825          |  | 7.00 |                |  |   | 2,842,106 |   |                  |   | 128,998 |  | 6.07 |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Allowance for loan losses                      |  |                                         | (37,343   | ) |          |   |                  |  |      |                |  |   | (38,571   | ) |                  |   |         |  |      |  
|                                               |  |                                         |           |   |          |  
|NON-EARNING ASSETS:                            |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Cash and due from banks                        |  |                                         | 59,375    |   |          |   |                  |  |      |                |  |   | 67,551    |   |                  |   |         |  |      |  
|Accrued interest and other assets              |  |                                         | 83,837    |   |          |   |                  |  |      |                |  |   | 86,012    |   |                  |   |         |  |      |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|TOTAL ASSETS                                   |  | $                                       | 3,272,722 |   |          |   |                  |  |      |                |  | $ | 2,957,098 |   |                  |   |         |  |      |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|INTEREST-BEARING LIABILITIES:                  |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Interest-bearing deposits:                     |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Interest-bearing demand deposits               |  | $                                       | 748,088   |   |          |   | 18,660           |  | 3.34 |                |  | $ | 609,991   |   |                  |   | 7,140   |  | 1.56 |  
|Savings deposits                               |  |                                         | 68,466    |   |          |   | 145              |  | 0.28 |                |  |   | 80,268    |   |                  |   | 177     |  | 0.29 |  
|Time deposits                                  |  |                                         | 1,334,687 |   |          |   | 44,202           |  | 4.43 |                |  |   | 1,202,439 |   |                  |   | 28,582  |  | 3.18 |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Total interest-bearing deposits                |  |                                         | 2,151,241 |   |          |   | 63,007           |  | 3.92 |                |  |   | 1,892,698 |   |                  |   | 35,899  |  | 2.54 |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Other borrowings                               |  |                                         | 270,639   |   |          |   | 7,986            |  | 3.89 |                |  |   | 233,706   |   |                  |   | 3,817   |  | 2.15 |  
|Notes payable and FHLB advances                |  |                                         | 80,733    |   |          |   | 3,016            |  | 4.93 |                |  |   | 84,615    |   |                  |   | 3,031   |  | 4.72 |  
|Junior subordinated debentures                 |  |                                         | 87,223    |   |          |   | 5,829            |  | 8.91 |                |  |   | 87,638    |   |                  |   | 5,278   |  | 8.03 |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Total interest-bearing liabilities             |  |                                         | 2,589,836 |   |          |   | 79,838           |  | 4.12 |                |  |   | 2,298,657 |   |                  |   | 48,025  |  | 2.79 |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|NONINTEREST-BEARING LIABILITIES:               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Noninterest-bearing deposits                   |  |                                         | 399,535   |   |          |   |                  |  |      |                |  |   | 437,439   |   |                  |   |         |  |      |  
|Accrued interest, taxes, and other liabilities |  |                                         | 56,246    |   |          |   |                  |  |      |                |  |   | 49,490    |   |                  |   |         |  |      |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Total noninterest-bearing liabilities          |  |                                         | 455,781   |   |          |   |                  |  |      |                |  |   | 486,929   |   |                  |   |         |  |      |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|STOCKHOLDERS EQUITY                           |  |                                         | 227,105   |   |          |   |                  |  |      |                |  |   | 171,512   |   |                  |   |         |  |      |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY     |  | $                                       | 3,272,722 |   |          |   |                  |  |      |                |  | $ | 2,957,098 |   |                  |   |         |  |      |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Net interest income (tax equivalent) (2)       |  |                                         |           |   |          | $ | 85,987           |  |      |                |  |   |           |   |                  | $ | 80,973  |  |      |  
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Net interest spread (tax equivalent) (2) (4)   |  |                                         |           |   |          |   |                  |  | 2.88 | %              |  |   |           |   |                  |   |         |  | 3.28 | %
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  
|Net interest margin (tax equivalent) (2) (5)   |  |                                         |           |   |          |   |                  |  | 3.63 | %              |  |   |           |   |                  |   |         |  | 3.81 | %
|                                               |  |                                         |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |         |  |      |  

---

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

|(2) | Adjusted to reflect tax-exempt interest income on an equivalent before-tax basis assuming an income 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.
|--- | ---------------------------



25



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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 Nine Months Ended |       
|                                           |  | Sept. 30,2006              |       | Sept. 30,2005 |                           |        | Sept. 30,2006 |  | Sept. 30,2005 |       
|                                           |  | (in thousands)             |      
|Service charges                            |  | $                          | 1,995 |               | $                         | 2,177  |               |  | $             | 5,777  |  | $ | 6,992  |  
|Trust services                             |  |                            | 553   |               |                           | 720    |               |  |               | 1,605  |  |   | 2,347  |  
|Investment management services             |  |                            | 483   |               |                           | 365    |               |  |               | 1,390  |  |   | 1,079  |  
|Loan syndication fees                      |  |                            |      |               |                           | 850    |               |  |               | 500    |  |   | 1,550  |  
|Other noninterest income                   |  |                            | 635   |               |                           | 361    |               |  |               | 1,754  |  |   | 1,015  |  
|                                           |  |                            |       |               |                           |        |               |  |               |        |  |   |        |  
|                                           |  |                            | 3,666 |               |                           | 4,473  |               |  |               | 11,026 |  |   | 12,983 |  
|                                           |  |                            |       |              
|Gain on sale of land trusts                |  |                            |      |               |                           |       |               |  |               |       |  |   | 2,000  |  
|Gain on sale of branch                     |  |                            |      |               |                           |       |               |  |               |       |  |   | 1,572  |  
|Gain on sale of investment securities, net |  |                            |      |               |                           |       |               |  |               |       |  |   | 127    |  
|                                           |  |                            |       |               |                           |        |               |  |               |        |  |   |        |  
|                                           |  |                            |      |               |                           |       |               |  |               |       |  |   | 3,699  |  
|Other derivative income (expense)          |  |                            | 59    |               |                           | (2,351 | )             |  |               | 536    |  |   | (1,642 | )
|                                           |  |                            |       |               |                           |        |               |  |               |        |  |   |        |  
|Total noninterest income                   |  | $                          | 3,725 |               | $                         | 2,122  |               |  | $             | 11,562 |  | $ | 15,040 |  
|                                           |  |                            |       |               |                           |        |               |  |               |        |  |   |        |  

Total noninterest income was $3.7 million during the third quarter of 2006, compared to $2.1
million during the same quarter a year ago, an increase of $1.6 million largely driven by a decrease in other derivative expense of $2.4 million. Partially offsetting the decrease in derivative expense were lower loan syndication fees of $850,000.

For the first nine months of 2006, noninterest income decreased by $3.5 million from the $15.0 million earned during the same nine month
period in 2005. The first nine months of 2005 included $3.6 million in gains from the sales of a branch and our land trust operations. Lower service charges and loan syndication fees in 2006 were partially offset by a decline in derivative expense.

Service charges, principally derived from deposit accounts, were $2.0 million during the third quarter of 2006, $182,000, or 8.4%, less
than service charges of $2.2 million during the same quarter a year ago. On a year-to-date basis, service charges declined $1.2 million, or 17.4%, to $5.8 million during the first nine months of 2006, from $7.0 million during the same period in
2005. The decrease in service charge revenue during 2006 was primarily caused by the increase in the earnings credit rate given to customers on their collected account balances to offset gross activity charges. Our earnings credit rate increased
approximately 110 basis points from September 2005 to September 2006.

Trust service fees during the third quarter of 2006 declined
$167,000, or 23.2%, to $553,000, compared to $720,000 during the third quarter of 2005. For the first nine months of 2006, trust service fees were $1.6 million, compared to $2.3 million during the same nine month period in 2005, a decline of
$742,000, or 31.6%. Beginning April 1, 2005, our trust fees have not included land trust fees because we sold our land trust operations on March 31, 2005, resulting in an one-time gain of $2.0 million, but a decline in future revenue from
that line of



26



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##### Table of Contents

business. In addition, in the third quarter of 2005, we discontinued directly providing tax-deferred exchange services.
Land trust and exchange fee income included in trust fees totaled $220,000 during the third quarter of 2005 and $920,000 for the first nine months of 2005. These decreases were partly offset by an increase in revenues from our corporate trust line
of business in both the quarter and year-to-date 2006 periods.

Investment management services consist primarily of asset management
consulting services. Investment management fees increased $118,000, or 32.3%, to $483,000 during the third quarter of 2006, compared to $365,000 during the same quarter a year ago. For the first nine months of 2006, investment management fees
increased $311,000, or 28.8%, to $1.4 million from $1.1 million during the same period a year ago, primarily as a result of increased assets under management. The market value of assets under management increased $111 million, or 30.9%, to $470.0
million at September 30, 2006, from $359.0 million at September 30, 2005.

In January 2005, we recorded a $1.6 million gain in
connection with the sale of our Broadview, Illinois branch. In addition to selling the land and building, we sold approximately $19.7 million of deposit balances and $5.3 million of loans associated with the branch.

We received $500,000 of loan syndication fees during the first nine months of 2006 as compared to $1.6 million during the first nine months of 2005. We
did not receive any loan syndication fees in the third quarter of 2006. We have earned these fees through the syndication of commercial real estate development loans for our customers. While professional real estate developers have for years been a
significant part of our commercial banking business, our activity in loan syndication has been intermittent and can fluctuate between periods.

Other derivative expense reported in noninterest income in 2005 included $2.5 million during the third quarter and $2.3 million for the nine months, from changes in fair value of our CD swaps that did not qualify for hedge accounting. In
May 2006, we terminated all of our CD swaps and we de-designated the accounting hedge relating to our $100.0 million notional amount 5.50% Prime floor. During the third quarter of 2006, other derivative income included $59,000 for the increase in
the fair value of the de-designated 5.50% Prime floor. Based on our current derivative holdings, going forward, we expect that other derivative income will primarily consist of changes in the fair value of this interest rate floor.

Our CD swaps did not qualify for hedge accounting during the first nine months of 2005 and therefore, other derivative expense also included net cash
settlement receipts of $198,000 in the third quarter of 2005 and $662,000 for the first nine months of 2005.

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 sources of revenues. Other noninterest income during the third quarter of 2006 was higher than during the same quarter a year ago primarily due to a $175,000 decline in estimated losses for low-income housing
partnership investments. The increase in other noninterest income during the first nine months of 2006 as compared to the same period in 2005 was positively affected by a $429,000 decline in the estimated loss for low-income housing partnership
investments.



27



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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 Nine Months Ended |  
|                                                  |  | Sept. 30, 2006             |        |   | Sept. 30,2005             |   |        | Sept. 30,2006 |  |   | Sept. 30, 2005 |  
|                                                  |  | (in thousands)             |       
|Salaries and employee benefits:                   |  |                            |        |   |                           |   |        |               |  |   |                |   |  |   |        |  
|Salaries, employment taxes, and medical insurance |  | $                          | 7,853  |   |                           | $ | 7,480  |               |  | $ | 24,353         |   |  | $ | 23,221 |  
|Incentives, commissions, and retirement benefits  |  |                            | 2,152  |   |                           |   | 3,000  |               |  |   | 6,252          |   |  |   | 7,221  |  
|                                                  |  |                            |        |   |                           |   |        |               |  |   |                |   |  |   |        |  
|Total salaries and employee benefits              |  |                            | 10,005 |   |                           |   | 10,480 |               |  |   | 30,605         |   |  |   | 30,442 |  
|Occupancy of premises, furniture and equipment    |  |                            | 2,796  |   |                           |   | 2,720  |               |  |   | 8,709          |   |  |   | 8,050  |  
|Computer processing                               |  |                            | 446    |   |                           |   | 472    |               |  |   | 1,341          |   |  |   | 1,343  |  
|Corporate insurance                               |  |                            | 307    |   |                           |   | 345    |               |  |   | 932            |   |  |   | 1,062  |  
|Legal fees, net                                   |  |                            | 501    |   |                           |   | 473    |               |  |   | 1,319          |   |  |   | 1,254  |  
|Advertising and public relations                  |  |                            | 429    |   |                           |   | 77     |               |  |   | 1,002          |   |  |   | 350    |  
|Other noninterest expense                         |  |                            | 3,683  |   |                           |   | 3,230  |               |  |   | 10,644         |   |  |   | 9,560  |  
|                                                  |  |                            |        |   |                           |   |        |               |  |   |                |   |  |   |        |  
|Total noninterest expense                         |  | $                          | 18,167 |   |                           | $ | 17,797 |               |  | $ | 54,552         |   |  | $ | 52,061 |  
|                                                  |  |                            |        |   |                           |   |        |               |  |   |                |   |  |   |        |  
|Efficiency Ratio                                  |  |                            | 57.11  | % |                           |   | 60.12  | %             |  |   | 57.35          | % |  |   | 54.83  | %
|                                                  |  |                            |        |   |                           |   |        |               |  |   |                |   |  |   |        |  

Noninterest expense increased $370,000, or 2.1%, to $18.2 million during the third quarter of 2006
from $17.8 million during the same quarter in 2005. On a year-to-date basis, noninterest expense was $54.6 million during the first nine months of 2006, compared to $52.1 million during the same period in 2005, an increase of $2.5 million, or 4.8%.
Increases in advertising, consulting, professional fees and occupancy costs contributed to the increases.

For the third quarter of 2006,
total salaries and employee benefits expense decreased $475,000, or 4.5%, compared to the third quarter of 2005. For the first nine months of 2006, total salaries and employee benefits expense increased $163,000, or 0.5%, compared to the same period
a year ago. Total full-time equivalent employees were 421 at September 30, 2006, compared to 434 at September 30, 2005.

For the
third quarter of 2006 salaries, employment taxes and medical insurance expense increased $373,000 as a result of increases in each of those expenses. Incentives, commissions and retirement benefits expense decreased $848,000, primarily due to a
lower accrual for cash-based incentives in 2006.

For the nine months ended September 30, 2006, salaries, employment taxes and medical
insurance expense increased $1.1 million, or 4.9%, compared to the same nine month period in 2005. The increase was primarily caused by higher salary expense of $727,000. Included in salary expense in 2006 was severance expense of $85,000, compared
to severance expense of $495,000 for the same period in 2005.



28



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##### Table of Contents

For the nine months ended September 30, 2006, incentives, commissions and retirement benefits
expense decreased $930,000. Increases in equity-based compensation of $1.2 million were more than offset by a decrease in estimated cash-based incentive awards of $2.1 million.

Included in incentives in 2006, but not in 2005, was stock option expense recognized in connection with our implementation of the new stock option
accounting under FAS 123R. On January 1, 2006, we adopted SFAS 123R which requires us to record compensation expense for all stock options issued to employees and directors. Prior to 2006, we did not record compensation expense associated with
stock options. Because of the adoption of SFAS 123R, we recorded stock-based compensation expense related to stock options of $737,000 for the first nine months of 2006. Stock option expense for the third quarter of 2006 was $223,000. See
Stock-Based Compensation included in the Notes to our Consolidated Financial Statements included herein for further information regarding our adoption of SFAS 123R.

For the first nine months of 2006, compensation expense relating to restricted stock grants totaled $794,000, an increase of $462,000 over the same
period in 2005. The expense increased as a result of an increase in the number of shares granted. Stock grant expense for the third quarter of 2006 totaled $302,000, as compared to $176,000 during the third quarter of 2005.

Our accrual for estimated cash-based incentive awards declined $2.1 million for the first nine months of 2006 compared to the same period in 2005 as our
financial performance in 2006 fell below our targets.

Occupancy of premises and furniture and equipment expense was $2.8 million for the
third quarter of 2006, compared to $2.7 million of expense in the same quarter a year ago. Occupancy and furniture and equipment expense totaled $8.7 million during the first nine months of 2006, an increase of $659,000, or 8.2%, from $8.1 million
during the same period in 2005. An increase in real estate taxes as well as higher depreciation and amortization cost, driven in part by the opening of our Orland Park and Rosemont banking facilities and the remodeling of our Wheeling facility,
primarily produced the increase.

We plan to close our banking facility in Itasca on January 31, 2007. Total deposits and loans on
September 30, 2006 at our Itasca banking center were $6.4 million and $2.4 million, respectively. Total Itasca banking center operating expenses were $260,000 for the nine months ended September 30, 2006. The estimated expense to close the
banking center is not expected to be material. We have invited our customers to use our Rosemont banking center for their banking center transactions.

Legal fees relate to collection activities, loan documentation, contract and compliance matters, securities law compliance and other costs associated with being a publicly-traded company. Legal fees are reported net
of reimbursements received from borrowers. Legal fees in the first quarter of 2005 included a $330,000 reimbursement of legal fees to the Bank from a legal action we instituted in 1999.

Advertising and public relations expense was $429,000 during the third quarter of 2006 as compared to $77,000 during the same quarter in 2005.
Advertising and public relations expense was $1.0 million during the first nine months of 2006, compared to $350,000 during the same period in 2005. Beginning in April 2006, we began to increase our advertising and marketing activities to enhance
the recognition of the Banks brand and its offering of products and services.



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Other noninterest expense principally includes certain professional fees, FDIC insurance, outside
services, operating losses and other operating expenses such as telephone, postage, office supplies and printing. Other noninterest expense was $3.7 million during the third quarter of 2006, compared to $3.2 million during the third quarter of 2005.
For the first nine months of 2006, other noninterest expense totaled $10.6 million, compared to $9.6 million during the same nine month period in 2005. Increases in other noninterest expense included consulting and other professional fees of
$625,000 and higher nonperforming asset expense of $227,000. Significant consulting and professional service fees were incurred for assistance in the implementation of enhanced cash management product capability and outsourced human resources and
tax-deferred exchange support.

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 decreased from 60.1% in the third quarter of 2005 to 57.1% in the third quarter of 2006. Our efficiency ratio
increased for the nine months ended September 30thfrom 54.8% in 2005 to 57.4% in 2006. The more favorable
efficiency ratio for the nine months in 2005 primarily reflects higher income from the gains on the sales of the land trust operations and the branch as well as higher noninterest expense in 2006.

Income Taxes

We recorded a net income tax benefit of
$7.3 million for the third quarter of 2006. Tax expense of $4.1 million associated with taxable income during the quarter was offset principally by the recognition of an $11.4 million tax benefit relating to deductions taken on prior year tax
returns that had not been recognized previously for financial reporting purposes. During the third quarter of 2006, tax liabilities established for tax uncertainties were no longer required primarily as a result of the expiration of the statute of
limitations for our 2002 federal income tax return. The expiration of the statute of limitations removes the uncertainty and allows recognition of the deduction for financial reporting purposes. The recognition of the tax benefit is a non-cash event
with the reversal of the tax liability being reflected in earnings.

For the first nine months of 2006, income tax expense was $1.4
million, resulting in an effective income tax rate of 4.0%. In comparison, the effective income tax rate for the first nine months of 2005 was 38.3%. The recognition of the income tax benefit discussed above was the primary reason for the decrease
in tax expense in 2006. The total amount of the tax benefit that will be recognized in 2006 is $15.1 million. In accordance with our tax accounting policies, the remaining $3.7 million of the tax benefit will be recognized in the fourth quarter of
2006. The lower effective tax rate in 2006 was also impacted by the increased tax-exempt municipal securities portfolio and income tax refunds received on prior year state income tax returns.



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FINANCIAL CONDITION

Overview

Total assets increased $103.0 million, or 3.1%, to $3.38 billion at September 30, 2006 from total assets of
$3.28 billion at December 31, 2005, primarily fueled by an increase in loans and investment securities. Total investment securities increased $30.4 million and total loans increased $102.4 million. Total deposits increased by $108.8 million to
$2.65 billion at September 30, 2006, compared to $2.54 billion at December 31, 2005, while total borrowings, which includes notes payable and FHLB advances, our junior subordinated debentures, and other borrowings, decreased by $30.3
million. Total stockholders equity at September 30, 2006 was $259.6 million, compared to $219.3 million at December 31, 2005.

Cash and Cash Equivalents

Period-end cash and cash equivalents were $132.9 million at
September 30, 2006, compared to $161.1 million at December 31, 2005. The higher period-end balances, in comparison to an average balance of $92.2 million for the nine months ended September 30, 2006, results from larger short-term
deposits at the quarter ends.

Investment Securities

Investment securities totaled $687.2 million at September 30, 2006, compared to $656.8 million at December 31, 2005, an increase of $30.4 million, or 4.6%. During the first nine months of 2006, we purchased
$112.6 million in mortgage-backed and tax-exempt municipal securities which included reinvestment of $85.4 million in proceeds from repayments and maturities of securities. These purchases were completed for liquidity and interest rate risk
management purposes. The weighted average life of the investment portfolio at September 30, 2006 was approximately 4.8 years, compared to approximately 5 years at December 31, 2005.

At September 30, 2006, the net unrealized loss on the available for sale securities totaled $8.7 million, a decrease of $3.9 million from
December 31, 2005. We believe that the unrealized losses arose from increased market interest rates, not credit deterioration, and that no other than temporary impairment exists. We have the intent and believe we have the ability to hold all of
these securities for the time necessary to recover the amortized cost.

Loans

Total loans at September 30, 2006 increased $102.4 million, compared to December 31, 2005 as the increase in total commercial loans of $139.3
million was partially offset by a decrease in consumer-oriented loans of $36.9 million. The increase in total commercial loans resulted primarily from growth in commercial and industrial (C&I) and real estate-construction loans.



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The composition of our loan portfolio as of September 30, 2006 and December 31, 2005 was as
follows:



|                               |  |                        |           |                         |                   |   |        |   |                         |  |     |  
|------------------------------ |  | ---------------------- | --------- | ----------------------- | ----------------- | - | ------ | - | ----------------------- |  | --- | -
|                               |  | September 30, 2006     |           |                         | December 31, 2005 |  
|                               |  | Amount                 |           | Percentageof GrossLoans |                   |   | Amount |   | Percentageof GrossLoans | 
|                               |  | (dollars in thousands) |          
|Commercial real estate secured |  | $                      | 782,908   |                         | 31                | % |        | $ | 793,965                 |  | 33  | %
|Real estate - construction     |  |                        | 752,549   |                         | 30                |   |        |   | 684,737                 |  | 29  |  
|Commercial and industrial      |  |                        | 747,555   |                         | 30                |   |        |   | 665,023                 |  | 28  |  
|Consumer-oriented loans        |  |                        | 204,377   |                         | 9                 |   |        |   | 241,316                 |  | 10  |  
|                               |  |                        |           |                         |                   |   |        |   |                         |  |     |  
|Gross loans                    |  | $                      | 2,487,389 |                         | 100               | % |        | $ | 2,385,041               |  | 100 | %
|                               |  |                        |           |                         |                   |   |        |   |                         |  |     |  

Our commercial real estate secured loans decreased $11.1 million, or 1.4%, to $782.9 million at
September 30, 2006, as compared to $794.0 million at December 31, 2005. Loans secured by non-owner occupied commercial property increased while the financing of owner-occupied commercial real estate and residential income property
declined. The composition of our commercial real estate secured portfolio was approximately as follows as of the dates indicated:



|                                     |  |                                                |   |  |                         |   |  |                                                |   |  |                         |  
|------------------------------------ |  | ---------------------------------------------- | - |  | ----------------------- | - |  | ---------------------------------------------- | - |  | ----------------------- | -
|                                     |  | September 30, 2006                             |   |  | December 31, 2005       |  
|                                     |  | Percentageof TotalCommercialReal EstateSecured |   |  | Percentageof GrossLoans |   |  | Percentageof TotalCommercialReal EstateSecured |   |  | Percentageof GrossLoans |  
|Commercial properties:               |  |                                                |   |  |                         |   |  |                                                |   |  |                         |  
|Non-owner occupied                   |  | 61                                             | % |  | 19                      | % |  | 57                                             | % |  | 18                      | %
|Owner occupied                       |  | 24                                             | % |  | 7                       | % |  | 25                                             | % |  | 9                       | %
|                                     |  |                                                |   |  |                         |   |  |                                                |   |  |                         |  
|Subtotal                             |  | 85                                             | % |  | 26                      | % |  | 82                                             | % |  | 27                      | %
|Residential income properties        |  | 15                                             | % |  | 5                       | % |  | 18                                             | % |  | 6                       | %
|                                     |  |                                                |   |  |                         |   |  |                                                |   |  |                         |  
|Total commercial real estate secured |  | 100                                            | % |  | 31                      | % |  | 100                                            | % |  | 33                      | %
|                                     |  |                                                |   |  |                         |   |  |                                                |   |  |                         |  

Our real estate-construction loans increased by $67.8 million, or 9.9%, to $752.5 million at
September 30, 2006, as compared to $684.7 million at December 31, 2005. Loans for the development of both commercial and residential properties increased. The composition of our real estate-construction portfolio was approximately as
follows as of the dates indicated:



|                               |  |                                     |   |  |                         |   |  |                                     |   |  |                         |  
|------------------------------ |  | ----------------------------------- | - |  | ----------------------- | - |  | ----------------------------------- | - |  | ----------------------- | -
|                               |  | September 30, 2006                  |   |  | December 31, 2005       |  
|                               |  | Percentageof TotalConstructionLoans |   |  | Percentageof GrossLoans |   |  | Percentageof TotalConstructionLoans |   |  | Percentageof GrossLoans |  
|Residential properties         |  |                                     |   |  |                         |   |  |                                     |   |  |                         |  
|Single family                  |  | 26                                  | % |  | 8                       | % |  | 26                                  | % |  | 8                       | %
|Multifamily                    |  | 18                                  | % |  | 5                       | % |  | 19                                  | % |  | 5                       | %
|Condominiums                   |  | 26                                  | % |  | 8                       | % |  | 26                                  | % |  | 8                       | %
|                               |  |                                     |   |  |                         |   |  |                                     |   |  |                         |  
|Subtotal                       |  | 70                                  | % |  | 21                      | % |  | 71                                  | % |  | 21                      | %
|Commercial properties          |  | 13                                  | % |  | 4                       | % |  | 11                                  | % |  | 3                       | %
|Land and land development      |  | 17                                  | % |  | 5                       | % |  | 18                                  | % |  | 5                       | %
|                               |  |                                     |   |  |                         |   |  |                                     |   |  |                         |  
|Total real estate-construction |  | 100                                 | % |  | 30                      | % |  | 100                                 | % |  | 29                      | %
|                               |  |                                     |   |  |                         |   |  |                                     |   |  |                         |  



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Our C&I loans increased by $82.5 million, or 12.4%, to $747.6 million at September 30, 2006, as
compared to $665.0 million at December 31, 2005. C&I loans include all loans for commercial purposes (other than real estate construction) that are either unsecured or secured by collateral other than commercial real estate. These loans are
generally made to operating companies in a variety of businesses excluding commercial real estate investment.

Total consumer-oriented
loans, which include residential real estate mortgages, home equity loans and lines of credit, and other consumer loans, decreased $36.9 million to $204.4 million at September 30, 2006. A significant portion of the consumer-oriented loan
portfolio includes loans we sourced through brokers in prior years, a practice we discontinued in 2001 and 2002. As expected, the broker-related loan portfolios have declined from $41.2 million at December 31, 2005 to $29.1 million at
September 30, 2006.

Loan Quality and Nonperforming Assets

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



|                                                                         |  |                        |        |   |              |   |        |               |  |   |        |  
|------------------------------------------------------------------------ |  | ---------------------- | ------ | - | ------------ | - | ------ | ------------- |  | - | ------ | -
|                                                                         |  | Sept. 30,2006          |        |   | Dec. 31,2005 |   |        | Sept. 30,2005 | 
|                                                                         |  | (dollars in thousands) |       
|Loans contractually past due 90 days or more but still accruing interest |  | $                      | 2,131  |   |              | $ | 2,615  |               |  | $ | 1,339  |  
|Nonaccrual loans                                                         |  |                        | 19,863 |   |              |   | 10,834 |               |  |   | 12,818 |  
|                                                                         |  |                        |        |   |              |   |        |               |  |   |        |  
|Total nonperforming loans                                                |  |                        | 21,994 |   |              |   | 13,449 |               |  |   | 14,157 |  
|Other real estate owned                                                  |  |                        | 473    |   |              |   | 1,139  |               |  |   | 241    |  
|Other repossessed assets                                                 |  |                        |       |   |              |   |       |               |  |   | 35     |  
|                                                                         |  |                        |        |   |              |   |        |               |  |   |        |  
|Total nonperforming assets                                               |  | $                      | 22,467 |   |              | $ | 14,588 |               |  | $ | 14,433 |  
|                                                                         |  |                        |        |   |              |   |        |               |  |   |        |  
|Restructured loans not included in nonperforming assets                  |  |                        |       |   |              |   |       |               |  |   |       |  
|Impaired loans                                                           |  | $                      | 26,375 |   |              | $ | 35,764 |               |  | $ | 30,448 |  
|                                                                         |  |                        |       
|Nonperforming loans to total loans                                       |  |                        | 0.88   | % |              |   | 0.56   | %             |  |   | 0.60   | %
|Nonperforming assets to total loans plus repossessed property            |  |                        | 0.90   | % |              |   | 0.61   | %             |  |   | 0.61   | %
|Nonperforming assets to total assets                                     |  |                        | 0.66   | % |              |   | 0.44   | %             |  |   | 0.46   | %

Nonperforming assets increased to $22.5 million at September 30, 2006, compared to $14.6
million at December 31, 2005 and $14.4 million at September 30, 2005. The ratio of nonperforming loans as a percentage of total loans was 0.88% at September 30, 2006, compared to 0.56% at December 31, 2005 and 0.60% at
September 30, 2005. The increase in nonperforming assets was largely driven by the increase in nonaccrual loans, a significant portion of which related to two loans to a single real estate developer totaling $11.5 million.



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##### Table of Contents

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. Total impaired loans were $26.4 million at September 30, 2006, compared to $35.8 million at December 31, 2005 and $30.4 million at September 30, 2005. The allowance
for loan losses associated with impaired loans was $2.4 million at September 30, 2006, compared to $1.9 million at December 31, 2005 and $617,000 at September 30, 2005. Certain homogenous loans, including residential mortgage and
consumer loans, are collectively evaluated for impairment and therefore are excluded from impaired loans.

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 EndedSeptember 30, |           |   | For Nine Months EndedSeptember 30, |  
|                                                  |  | 2006                                |           |   | 2005                               |   |           | 2006 |  |   | 2005      |  
|                                                  |  | (dollars in thousands)              |          
|Average total loans                               |  | $                                   | 2,470,950 |   |                                    | $ | 2,290,590 |      |  | $ | 2,423,505 |   |  | $ | 2,248,359 |  
|                                                  |  |                                     |           |   |                                    |   |           |      |  |   |           |   |  |   |           |  
|Total loans at end of period                      |  | $                                   | 2,487,321 |   |                                    | $ | 2,352,560 |      |  | $ | 2,487,321 |   |  | $ | 2,352,560 |  
|                                                  |  |                                     |           |   |                                    |   |           |      |  |   |           |   |  |   |           |  
|Allowance for loan losses:                        |  |                                     |           |   |                                    |   |           |      |  |   |           |   |  |   |           |  
|Allowance at beginning of period                  |  | $                                   | 36,508    |   |                                    | $ | 37,411    |      |  | $ | 37,481    |   |  | $ | 37,484    |  
|Total charge-offs                                 |  |                                     | (1,830    | ) |                                    |   | (1,070    | )    |  |   | (6,496    | ) |  |   | (4,716    | )
|Total recoveries                                  |  |                                     | 114       |   |                                    |   | 374       |      |  |   | 807       |   |  |   | 1,196     |  
|                                                  |  |                                     |           |   |                                    |   |           |      |  |   |           |   |  |   |           |  
|Net charge-offs                                   |  |                                     | (1,716    | ) |                                    |   | (696      | )    |  |   | (5,689    | ) |  |   | (3,520    | )
|Provision for loan losses                         |  |                                     | 2,100     |   |                                    |   |          |      |  |   | 5,100     |   |  |   | 2,751     |  
|                                                  |  |                                     |           |   |                                    |   |           |      |  |   |           |   |  |   |           |  
|Allowance at end of period                        |  | $                                   | 36,892    |   |                                    | $ | 36,715    |      |  | $ | 36,892    |   |  | $ | 36,715    |  
|                                                  |  |                                     |           |   |                                    |   |           |      |  |   |           |   |  |   |           |  
|Annualized net charge-offs to average total loans |  |                                     | 0.28      | % |                                    |   | 0.12      | %    |  |   | 0.31      | % |  |   | 0.21      | %
|Allowance to total loans at end of period         |  |                                     | 1.48      | % |                                    |   | 1.56      | %    |  |   | 1.48      | % |  |   | 1.56      | %
|Allowance to nonperforming loans                  |  |                                     | 167.74    | % |                                    |   | 259.34    | %    |  |   | 167.74    | % |  |   | 259.34    | %

Net charge-offs during the third quarter of 2006 were $1.7 million, or an annualized 0.28% of
average loans. In comparison, net charge-offs during the third quarter of 2005 were $700,000, representing an annualized 0.12% of average loans. Net charge-offs during the first nine months of 2006 totaled $5.7 million, or an annualized 0.31% of
average loans, compared to net charge-offs of $3.5 million, or an annualized 0.21% of average loans, during the first nine months of 2005. As a business bank, our loan portfolio is comprised primarily of commercial loans to businesses, which are
typically larger in amount than loans to individual consumers and generally are viewed as having more risk of default than residential real estate loans or other secured consumer loans. The individually larger commercial loans can cause greater
volatility in reported credit quality performance measures, such as total impaired or nonperforming loans. For example, our current credit risk rating and loss estimate with respect to a single material loan can have a sizable impact on our reported
impaired loans and related loss exposure estimates. We review our estimates on a quarterly basis and, if necessary, adjust the allowance for loan losses through the recording of a provision for loan losses.

Our allowance for loan losses was $36.9 million at September 30, 2006, or 1.48% of end-of-period loans and 167.74% of nonperforming loans. At
September 30, 2005, the allowance for loan losses was $36.7 million, which represented 1.56% of end-of-period loans and 259.34% of nonperforming loans. The lower allowance for loan losses in relation to total loans in 2006 was influenced by
lower average annual net charge-offs during 2004 through 2006, in comparison to average net charge-offs during 2001 through 2003. Although total nonaccrual loans were higher at September 30, 2006 than at December 31, and September 30,
2005, the specific reserves for estimated losses on nonaccrual loans did not increase proportionately.



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Provision for Loan Losses

We determine a provision for loan losses that we consider sufficient to maintain an allowance covering probable losses inherent in our portfolio as of the balance sheet date. Our provision for loan losses was $2.1
million for the third quarter of 2006 and $5.1 million for the first nine months of 2006. In comparison, we recorded no provision for loan losses during the third quarter of 2005 and a provision of $2.8 million for the first nine months of 2005.
Factors affecting the level of provision during the periods was the level of net charge-offs and nonperforming loans. Our loan loss provision is determined based upon our analysis of our portfolio which incorporates the historical loss experience
within separate segments of the loan portfolio as well as our estimates with respect to specific identified troubled credits. The provision for loan losses in any individual accounting period is not an indicator of provisioning in subsequent
reporting periods.

Deposits

Deposits
totaled $2.65 billion at September 30, 2006, an increase of $108.8 million from year-end 2005. Total brokered and out-of-local-market certificates of deposit increased $136.7 million from December 31, 2005 to September 30, 2006, and
total brokered money market deposits increased to $64.2 million at September 30, 2006. Total in-market deposits decreased $92.1 million. From December 31, 2005 to September 30, 2006, balances in non-interest bearing deposits and lower
rate NOW, savings and money-market accounts declined, while balances in higher rate money market accounts increased. The increase in money market accounts was primarily a result of increased balances in our higher-rate market priced accounts. In
addition, a new funding source was added to obtain brokered money market accounts. The tax-deferred exchange money market account balances decreased $31.3 million to $216.6 million at September 30, 2006 as compared to $247.9 million at
December 31, 2005.



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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 Nine Months EndedSeptember 30, 2006 |           |                    | For the Nine Months EndedSeptember 30, 2005 |  
|                                            |  | AverageBalance                              |           | Percent OfDeposits |                                             |   | Rate |      |   | AverageBalance |   | Percent OfDeposits |  |       | Rate | 
|                                            |  | (dollars in thousands)                      |          
|Noninterest-bearing demand deposits         |  | $                                           | 399,535   |                    | 15.7                                        | % |      |     | % |                | $ | 437,439            |  | 18.8  | %    |  |     | %
|NOW accounts                                |  |                                             | 96,580    |                    | 3.8                                         |   |      | 0.55 |   |                |   | 120,345            |  | 5.2   |      |  | 0.45 |  
|Money market accounts                       |  |                                             | 651,508   |                    | 25.5                                        |   |      | 3.75 |   |                |   | 489,646            |  | 21.0  |      |  | 1.84 |  
|Savings deposits                            |  |                                             | 68,466    |                    | 2.7                                         |   |      | 0.28 |   |                |   | 80,268             |  | 3.4   |      |  | 0.29 |  
|Time deposits:                              |  |                                             |           |                    |                                             |   |      |      |   |                |   |                    |  |       |      |  |      |  
|Certificates of deposit                     |  |                                             | 546,106   |                    | 21.4                                        |   |      | 4.02 |   |                |   | 538,285            |  | 23.1  |      |  | 3.00 |  
|Out-of-local-market certificates of deposit |  |                                             | 126,927   |                    | 5.0                                         |   |      | 4.69 |   |                |   | 138,894            |  | 6.0   |      |  | 3.22 |  
|Brokered certificates of deposit            |  |                                             | 588,947   |                    | 23.1                                        |   |      | 4.74 |   |                |   | 451,720            |  | 19.4  |      |  | 3.41 |  
|Public Funds                                |  |                                             | 72,707    |                    | 2.8                                         |   |      | 4.43 |   |                |   | 73,540             |  | 3.1   |      |  | 2.89 |  
|                                            |  |                                             |           |                    |                                             |   |      |      |   |                |   |                    |  |       |      |  |      |  
|Total time deposits                         |  |                                             | 1,334,687 |                    | 52.3                                        |   |      | 4.43 |   |                |   | 1,202,439          |  | 51.6  |      |  | 3.18 |  
|                                            |  |                                             |           |                    |                                             |   |      |      |   |                |   |                    |  |       |      |  |      |  
|Total deposits                              |  | $                                           | 2,550,776 |                    | 100.0                                       | % |      |      |   |                | $ | 2,330,137          |  | 100.0 | %    |  |      |  
|                                            |  |                                             |           |                    |                                             |   |      |      |   |                |   |                    |  |       |      |  |      |  

Average deposits increased $220.6 million, or 9.5%, to $2.55 billion for the first nine months of
2006, as compared to the first nine months of 2005. The majority of the increase in deposits was obtained from increased money market account balances and brokered certificates of deposit. Average money market account balances increased $161.9
million, primarily in high rate market priced and tax-deferred exchange money market accounts. Average tax-deferred exchange deposits increased $104.4 million during the first nine months of 2006 as compared to the same period in 2005. In addition,
total average brokered and out-of-local-market certificates of deposit increased $125.3 million to $715.9 million for the first nine months of 2006 in comparison to the same period in 2005. Average noninterest-bearing demand deposits, NOW accounts
and savings deposits decreased $73.5 million, or 11.5%, to $564.6 million for the first nine months of 2006 in comparison to the same period a year ago.

Other Borrowings and Liabilities

Other borrowings include securities sold under agreements to repurchase, federal funds
purchased and U.S. Treasury tax and loan note option accounts. Period-end other borrowings decreased $34.3 million to $264.2 million at September 30, 2006, as compared to $298.4 million at December 31, 2005.

FHLB advances totaled $80.0 million at September 30, 2006 as compared to $75.0 million at December 31, 2005. In the second quarter of 2006, the
FHLB called a $25 million, 4.30% fixed-rate advance and a new $30 million, 2-year advance was obtained. The new advance has a floating rate equal to 3-month LIBOR plus 23 basis points with an embedded interest rate cap at 5.48%.

We had no outstanding balance under our $20.0 million revolving credit facility at September 30, 2006.



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At September 30, 2006, we had $86.6 million of junior subordinated debentures issued to our
wholly-owned subsidiaries, TAYC Capital Trust I (Trust I) and TAYC Capital Trust II, each of which used proceeds from the issuance of trust preferred securities to purchase our junior subordinated debentures. In the second quarter of
2006, we purchased $1.0 million of the 9.75% trust preferred securities issued by Trust I. We exchanged the trust preferred securities we had purchased and a proportional amount of common securities issued by Trust I, for $1.03 million of our junior
subordinated debentures issued to Trust I.

CAPITAL RESOURCES

At September 30, 2006 and December 31, 2005, 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 September 30, 2006:                |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Total Capital (to Risk Weighted Assets)  |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  | $                      | 360,964 |       | 12.83                       | % |        | >$                                                           | 225,086  |  | >8.00 | %      |  | >$    | 281,358  |  | >10.00 | %
|Cole Taylor Bank                         |  |                        | 333,994 |       | 11.89                       |   |        |                                                              | >224,643 |  | >8.00 |        |  |       | >280,804 |  | >10.00 |  
|Tier I Capital (to Risk Weighted Assets) |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  |                        | 325,773 |       | 11.58                       |   |        |                                                              | >112,543 |  | >4.00 |        |  |       | >168,815 |  | >6.00  |  
|Cole Taylor Bank                         |  |                        | 298,871 |       | 10.64                       |   |        |                                                              | >112,322 |  | >4.00 |        |  |       | >168,482 |  | >6.00  |  
|Leverage (to average assets)             |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  |                        | 325,773 |       | 9.92                        |   |        |                                                              | >131,407 |  | >4.00 |        |  |       | >164,259 |  | >5.00  |  
|Cole Taylor Bank                         |  |                        | 298,871 |       | 9.12                        |   |        |                                                              | >131,091 |  | >4.00 |        |  |       | >163,864 |  | >5.00  |  
|As of December 31, 2005:                 |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Total Capital (to Risk Weighted Assets)  |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  | $                      | 324,050 |       | 12.02                       | % |        | >$                                                           | 215,693  |  | >8.00 | %      |  | >$    | 269,617  |  | >10.00 | %
|Cole Taylor Bank                         |  |                        | 300,510 |       | 11.16                       |   |        |                                                              | >215,325 |  | >8.00 |        |  |       | >269,156 |  | >10.00 |  
|Tier I Capital (to Risk Weighted Assets) |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  |                        | 281,480 |       | 10.44                       |   |        |                                                              | >107,847 |  | >4.00 |        |  |       | >161,770 |  | >6.00  |  
|Cole Taylor Bank                         |  |                        | 266,818 |       | 9.91                        |   |        |                                                              | >107,662 |  | >4.00 |        |  |       | >161,494 |  | >6.00  |  
|Leverage (to average assets)             |  |                        |         |       |                             |   |        |                                                              |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  |                        | 281,480 |       | 8.90                        |   |        |                                                              | >126,475 |  | >4.00 |        |  |       | >158,094 |  | >5.00  |  
|Cole Taylor Bank                         |  |                        | 266,818 |       | 8.46                        |   |        |                                                              | >126,182 |  | >4.00 |        |  |       | >157,727 |  | >5.00  |  

During 2006, Cole Taylor Banks capital ratios increased as the increase in regulatory
capital exceeded the increase in risk-weighted and average assets. Cole Taylor Banks net income increased capital and the Bank did not pay any dividends to the Company during the first nine months of 2006. Cole Taylor Bank is subject to
dividend restrictions established by regulatory authorities. The dividends, as of September 30, 2006, that Cole Taylor Bank could declare and pay to the Company, without the approval of regulatory authorities, amounted to approximately $84.5
million. On October 26, 2006 the Board of Directors of Cole Taylor Bank declared a dividend in the amount of $10.0 million.



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During the first nine months of 2006, the Companys regulatory capital increased from the retention
of earnings. Regulatory capital ratios increased because the increase in capital exceeded the increase in risk-weighted and average assets. During 2006, we declared common stock dividends of $0.18 per share, totaling $2.0 million.

LIQUIDITY

During the first nine months of 2006,
growth in earning assets and a decline in in-market customer deposits were funded primarily with the issuance of brokered certificates of deposit. While total loans increased $104.9 million during the period, we also purchased $27.1
million of securities for liquidity risk management purposes, net of proceeds from maturities and principal payments. In connection with our liquidity risk management, we evaluate and closely monitor significant customer deposit balances for
stability and average life. In order to maintain sufficient liquidity to meet all of our loan and deposit customers withdrawal and funding demands, we routinely measure and monitor the volume of our liquid assets and available funding sources.
Additional sources of liquidity for Cole Taylor Bank include Federal Home Loan Bank advances, the Federal Reserve Banks Borrower-in-Custody Program, federal funds borrowing lines from larger correspondent banks and pre-approved repurchase
agreement availability with major brokers and banks.

At the holding company level, cash and cash equivalents totaled $27.7 million at
September 30, 2006 as compared to $34.5 million at December 31, 2005. Additional sources of holding company liquidity during the first nine months of 2006 included the receipt of $2.1 million from the exercise of stock options. During the
first nine months of 2006, the holding company paid interest on the junior subordinated debentures of $4.6 million and dividends to common stockholders of $2.0 million. Cash used for holding company operations during the first nine months of 2006
also included the payment of salaries and other operating expenses. The Company, as of September 30, 2006, had a $20.0 million revolving line of credit that has not been drawn upon.

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
September 30, 2006, we had $965 million of undrawn commitments to extend credit and $112 million of financial and performance standby letters of credit. In comparison, at December 31, 2005, we had $926 million of undrawn commitments to
extend credit and $111 million of financial and performance standby letters of credit. We expect most of these letters of credit to expire undrawn and we expect no significant loss from our obligation under financial guarantees.



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Derivative Financial Instruments

On May 4, 2006, we terminated all of our interest rate swaps and acquired $300.0 million notional amount zero-cost interest rate collars (simultaneous floor and caps).

The following table describes the derivative instruments outstanding at September 30, 2006 (dollars in thousands):



|             |  |                |         |              |                  |          |           |           |   |      
|------------ |  | -------------- | ------- | ------------ | ---------------- | -------- | --------- | --------- | - | -----
|Product      |  | NotionalAmount |         | Strike Rates |                  | Maturity |           | FairValue
|Prime Floor  |  | $              | 100,000 |              | 5.50%            |          | 6/30/2010 |           | $ | 117  
|Prime Floor  |  |                | 100,000 |              | 6.25%            |          | 7/12/2010 |           |   | 284  
|Prime Collar |  |                | 150,000 |              | 7.75% and 8.505% |          | 5/5/2009  |           |   | 814  
|Prime Collar |  |                | 150,000 |              | 7.75% and 8.585% |          | 5/5/2010  |           |   | 1,300
|             |  |                |         |              |                  |          |           |           |   |      
|Total        |  | $              | 500,000 |              |                  |          |           |           |   |      
|             |  |                |         |              |                  |          |           |           |   |      

Based on our current derivative instruments, going forward gains or losses on derivative
instruments included in noninterest income are limited to the change in the fair value of the 5.50% Prime floor that is not designated as a hedge. The 6.25% Prime floor and the Prime collars are designated as cash flow hedges against interest
receipts from Prime-based loans and therefore, changes in fair value are recorded in other comprehensive income, net of tax.

For
additional information concerning the accounting treatment for our derivative instruments, please see Application of Critical Accounting Policies  Derivative Financial Instruments and Note 9 to our Consolidated Financial
Statements included in this 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. These contracts are designated as hedges of specific existing assets and liabilities. Our asset and liability management and investment policies
do not allow the use of derivative financial instruments for trading purposes.



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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.

Our simulation modeling of the September 30, 2006 balance sheet, using the market interest rates in effect at period-end (the rates
unchanged scenario), indicated our net interest margin will decline in future periods as many of our interest-bearing liabilities will reprice to current rates as they mature or reprice. 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:



|                                 |  |                                                                      |        |   |                      |       |    |              |   |        |                  |  |       |   
|-------------------------------- |  | -------------------------------------------------------------------- | ------ | - | -------------------- | ----- | -- | ------------ | - | ------ | ---------------- |  | ----- | --
|                                 |  | Change in Future Net Interest Income from Rates Unchanged Simulation |       
|                                 |  | At September 30, 2006                                                |        |   | At December 31, 2005 |      
|                                 |  | (dollars in thousands)                                               |       
|Change in interest rates         |  | DollarChange                                                         |        |   | PercentageChange     |       |    | DollarChange |   |        | PercentageChange | 
|+200 basis points over one year  |  | $                                                                    | 2,398  |   |                      | 2.67  | %  |              | $ | 395    |                  |  | 0.36  | % 
|- 200 basis points over one year |  |                                                                      | (2,631 | ) |                      | (2.39 | )% |              |   | (3,026 | )                |  | (2.75 | )%

Our simulation modeling at September 30, 2006 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 $2.4 million or 2.7% 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 impact 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 even lower than that
projected in the rates unchanged environment. Our net interest income in year one in a 200 basis point falling scenario was calculated to be $2.6 million or 2.4% lower than in a rates unchanged scenario.



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

NEW ACCOUNTING PRONOUNCEMENTS

On January 1, 2006, we adopted SFAS 123, Share-Based Payment (SFAS 123R). This Statement revises the previously issued SFAS 123 and supersedes APB Opinion 25. SFAS 123R eliminated the
intrinsic value method that we had previously used use to account for the granting of employee stock options. We adopted SFAS 123R using the modified prospective method, recording compensation expense for all awards granted after the date of
adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. The adoption of SFAS 123R did not have a material effect on our results of operations or statement of condition. See Note 8 of our
Notes to the Consolidated Financial Statement included herein for further information.

In February 2006, FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial Instruments  an amendment of FASB Statements No. 133 and 140 (SFAS 155). SFAS 155 permits fair value re-measurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133, establishes a requirement to evaluate interests in securitized
financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, and clarifies that concentrations of credit risk in the form of
subordination are not embedded derivatives. SFAS 155 also amends Statement 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than
another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006. We do not believe that the adoption
of SFAS 155 will have a material effect on our results of operations or statement of condition.

In March 2006, FASB issued SFAS
No. 156 Accounting for Servicing of Financial Assets an amendment of FASB Statement No. 140 (SFAS 156), which amends the guidance in SFAS No. 140. SFAS No. 156 requires that an entity separately
recognize a servicing asset or a servicing liability when it undertakes an obligation to service a financial asset under a servicing contract in certain situations, and to initially record such servicing assets or servicing liabilities at fair
value, if practicable. SFAS No. 156 also allows an entity to measure its servicing assets and servicing liabilities subsequently using either the amortization method, which existed under SFAS No. 140, or the fair value measurement method.
SFAS No. 156 will be effective for the Company in the fiscal year beginning January 1, 2007. We do not expect the adoption of SFAS No. 156 will have a material impact on our financial condition, results of operations or cash flows.



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In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
157). This Statement 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 is to be effective for financial statements issued for
fiscal years beginning after November 15, 2007, however, earlier application is encouraged. We are currently evaluating the impact, if any, that adoption may have on our financial position or results of operations.

In September 2006, the FASB issued SFAS No.158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan
amendment of FASB Statements No. 87, 88, 106, and 132(R). This Statement requires an entity to recognize in its statement of financial position the overfunded or underfunded status of a defined benefit postretirement plan and to
recognize changes in the funded status in the year which the change occurs through other comprehensive income, net of tax. This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of
financial position. An entity will also be required to disclose additional information in the notes to financial statements about certain effects on net periodic benefit cost in the upcoming fiscal year that arise from delayed recognition of the
actuarial gains and losses and the prior service costs and credits. The requirement to recognize the funded status of a defined benefit postretirement plan and the related disclosure requirements is effective for fiscal years ending after
December 15, 2006. The requirement to change the measurement date to the year-end reporting date is for fiscal years ending after December 15, 2008. The adoption of this Statement will not have a material impact on our financial
position or results of operations.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the consolidated financial statements in accordance with SFAS
No. 109, Accounting for Income Taxes. This Interpretation prescribes the recognition threshold and measurement for the recognition in the financial statements of a tax position taken or expected to be taken in a tax return. This
Interpretation clarifies that an enterprise should recognize the financial statement effects of a tax position when that position will more-likely-than-not be sustained by a tax authority upon examination. FIN 48 also provides additional
guidance on derecognition, interest and penalties, and disclosure of uncertain tax positions. This Interpretation is effective for fiscal years beginning after December 15, 2006. We are in the process of evaluating the impact of this new
pronouncement on our consolidated financial statements.



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In September 2006, the FASB ratified Emerging Issues Task Force 06-4, Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (EITF 06-4). EITF 06-4 addresses accounting for split-dollar life insurance arrangements after the employer purchases a
life insurance policy on the covered employee, and will be effective for fiscal years beginning after December 15, 2007. The adoption of EITF 06-4 will not have a material impact on our financial position or results of operations.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (SAB No. 108) on
quantifying financial statement misstatements. SAB No. 108 was issued to provide guidance on how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB
No. 108 requires an entity to quantify misstatements using both a balance sheet and an income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of the relevant quantitative and
qualitative factors. SAB No. 108 is effective for our annual financial statements beginning January 1, 2007. We do not expect the adoption of SAB No. 108 will have a significant impact on our consolidated financial statements.

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.



|                                                  |  |                                       |        |                    |         |   |                          |         |  |         |        |  |         |        |   |         |   |         |   |  |   |        |  |   |        |   |  |   |        |  
|------------------------------------------------- |  | ------------------------------------- | ------ | ------------------ | ------- | - | ------------------------ | ------- |  | ------- | ------ |  | ------- | ------ | - | ------- | - | ------- | - |  | - | ------ |  | - | ------ | - |  | - | ------ | -
|                                                  |  | 2006 Quarter Ended                    |        | 2005 Quarter Ended |         |   | 2004QuarterEnded Dec. 31 |        
|                                                  |  | Sep. 30                               |        |                    | Jun. 30 |   |                          | Mar. 31 |  | Dec. 31 |        |  | Sep. 30 |        |   | Jun. 30 |   | Mar. 31 |   | 
|                                                  |  | (in thousands, except per share data) |       
|Interest income                                   |  | $                                     | 57,393 |                    |         | $ | 54,553                   |         |  | $       | 51,455 |  | $       | 49,873 |   |         | $ | 45,682  |   |  | $ | 42,742 |  | $ | 39,512 |   |  | $ | 37,002 |  
|Interest expense                                  |  |                                       | 29,305 |                    |         |   | 27,097                   |         |  |         | 23,436 |  |         | 21,177 |   |         |   | 18,202  |   |  |   | 16,158 |  |   | 13,665 |   |  |   | 12,341 |  
|                                                  |  |                                       |        |                    |         |   |                          |         |  |         |        |  |         |        |   |         |   |         |   |  |   |        |  |   |        |   |  |   |        |  
|Net interest income                               |  |                                       | 28,088 |                    |         |   | 27,456                   |         |  |         | 28,019 |  |         | 28,696 |   |         |   | 27,480  |   |  |   | 26,584 |  |   | 25,847 |   |  |   | 24,661 |  
|Provision for loan losses                         |  |                                       | 2,100  |                    |         |   | 2,100                    |         |  |         | 900    |  |         | 2,772  |   |         |   |        |   |  |   | 917    |  |   | 1,834  |   |  |   | 1,833  |  
|Noninterest income                                |  |                                       | 3,666  |                    |         |   | 3,452                    |         |  |         | 3,908  |  |         | 4,386  |   |         |   | 4,473   |   |  |   | 3,954  |  |   | 8,128  |   |  |   | 5,923  |  
|Other derivative income (expense)                 |  |                                       | 59     |                    |         |   | (105                     | )       |  |         | 582    |  |         | (1,561 | ) |         |   | (2,351  | ) |  |   | 2,062  |  |   | (1,353 | ) |  |   | 238    |  
|Gain (loss) on sale of investment securities, net |  |                                       |       |                    |         |   |                         |         |  |         |       |  |         |       |   |         |   |        |   |  |   |       |  |   | 127    |   |  |   | (201   | )
|Noninterest expense                               |  |                                       | 18,167 |                    |         |   | 18,599                   |         |  |         | 17,786 |  |         | 17,594 |   |         |   | 17,797  |   |  |   | 17,524 |  |   | 16,740 |   |  |   | 18,164 |  
|                                                  |  |                                       |        |                    |         |   |                          |         |  |         |        |  |         |        |   |         |   |         |   |  |   |        |  |   |        |   |  |   |        |  
|Income before income taxes                        |  |                                       | 11,546 |                    |         |   | 10,104                   |         |  |         | 13,823 |  |         | 11,155 |   |         |   | 11,805  |   |  |   | 14,159 |  |   | 14,175 |   |  |   | 10,624 |  
|Income taxes                                      |  |                                       | (7,347 | )                  |         |   | 3,799                    |         |  |         | 4,965  |  |         | 4,137  |   |         |   | 4,408   |   |  |   | 5,342  |  |   | 5,636  |   |  |   | 3,462  |  
|                                                  |  |                                       |        |                    |         |   |                          |         |  |         |        |  |         |        |   |         |   |         |   |  |   |        |  |   |        |   |  |   |        |  
|Net income                                        |  | $                                     | 18,893 |                    |         | $ | 6,305                    |         |  | $       | 8,858  |  | $       | 7,018  |   |         | $ | 7,397   |   |  | $ | 8,817  |  | $ | 8,539  |   |  | $ | 7,162  |  
|                                                  |  |                                       |        |                    |         |   |                          |         |  |         |        |  |         |        |   |         |   |         |   |  |   |        |  |   |        |   |  |   |        |  
|Earnings per share:                               |  |                                       |        |                    |         |   |                          |         |  |         |        |  |         |        |   |         |   |         |   |  |   |        |  |   |        |   |  |   |        |  
|Basic                                             |  | $                                     | 1.72   |                    |         | $ | 0.58                     |         |  | $       | 0.81   |  | $       | 0.65   |   |         | $ | 0.73    |   |  | $ | 0.92   |  | $ | 0.88   |   |  | $ | 0.75   |  
|Diluted                                           |  |                                       | 1.70   |                    |         |   | 0.57                     |         |  |         | 0.80   |  |         | 0.63   |   |         |   | 0.71    |   |  |   | 0.90   |  |   | 0.87   |   |  |   | 0.73   |  
|                                                  |  |                                       |        |                    |         |   |                          |         |  |         |        |  |         |        |   |         |   |         |   |  |   |        |  |   |        |   |  |   |        |  



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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 2006 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
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 conditions, interest rates,
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 2005 Annual Report on Form 10-K. 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.

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 Accounting Officer, as
appropriate, to allow timely decisions regarding required disclosures.



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We have carried out an evaluation under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2006. Based upon their evaluation and subject to the foregoing,
the Chief Executive Officer and Chief Accounting 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 September 30, 2006, that have
materially affected, or are reasonably likely to materially affect our internal control over financial reporting.



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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

There have been no material changes in our risk factors from those disclosed in
our 2005 Annual Report on Form 10-K.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                          
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | 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)).



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|              |  |                                                                                                                                                                                                                                                                                                                                                                              
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                      
|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).
|              | 
|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).                                                                                                                                                         



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|              |  |                                                                                                                                                                                                                                                                                         
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibits                                                                                                                                                                                                                                                                 
|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)).                                                                                                         
|              | 
|10.45         |  | Separation and Settlement Agreement and General Release by and between Daniel C. Stevens, Taylor Capital Group, Inc., and Cole Taylor Bank, dated October 5, 2006 (incorporated by reference
from Exhibit 99.1 of the Companys Current Report on Form 8-K filed as of October 5, 2006).
|              | 
|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 Accounting Officer Pursuant to Rule 13a-14(a) under the Security Exchange Act of 1934.                                                                                                                                                                           
|              | 
|32.1          |  | Certification of the Chief Executive Officer and Chief Accounting 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: November 3, 2006 |  |                                     
|                       | 
|                       |  | /s/ JEFFREY W. TAYLOR               
|                       |  | Jeffrey W. Taylor                   
|                       |  | Chairman and Chief Executive Officer
|                       |  | (Principal Executive Officer)       
|                       | 
|                       |  | /s/ ROBIN VANCASTLE                 
|                       |  | Robin VanCastle                     
|                       |  | Chief Accounting Officer            
|                       |  | (Principal Accounting Officer)      



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