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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q/A

Amendment No. 1 to 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 June 30, 2005



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 an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).    Yes  x    No ̈



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



Indicate the number of outstanding shares of each of the issuers classes
of common stock, as of the latest practicable date: At July 29, 2005, there were 9,761,061 shares of Common Stock, $0.01 par value, outstanding.



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TAYLOR CAPITAL GROUP, INC.



INDEX



|                                                        |  |         |  |                                                                                                                                   |  |     
|------------------------------------------------------- |  | ------- |  | --------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                        |  |         |  |                                                                                                                                   |  | Page
|EXPLANATORY NOTE  RESTATEMENT OF FINANCIAL INFORMATION |  | 1      
|                                                        | 
|PART I. FINANCIAL INFORMATION                           |  |        
|                                                        |  |         | 
|                                                        |  | Item 1. |  | Financial Statements                                                                                                              |  |     
|                                                        |  |         |  | Consolidated Balance Sheets (unaudited) (restated)-June 30, 2005 and December 31, 2004                                            |  | 3   
|                                                        |  |         |  | Consolidated Statements of Income (unaudited) (restated)-For the three and six months ended June 30, 2005 and 2004                |  | 4   
|                                                        |  |         |  | Consolidated Statements of Changes in Stockholders Equity (unaudited) (restated)-For the six months ended June 30, 2005 and 2004 |  | 5   
|                                                        |  |         |  | Consolidated Statements of Cash Flows (unaudited) (restated)-For the six months ended June 30, 2005 and 2004                      |  | 6   
|                                                        |  |         |  | Notes to Consolidated Financial Statements (unaudited) (restated)                                                                 |  | 8   
|                                                        |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                             |  | 20  
|                                                        |  | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                                        |  | 52  
|                                                        |  | Item 4. |  | Controls and Procedures                                                                                                           |  | 52  
|                                                        | 
|PART II. OTHER INFORMATION                              |  | 54     
|                                                        |  |         | 
|                                                        |  | Item 1. |  | Legal Proceedings                                                                                                                 |  | 54  
|                                                        |  | Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                       |  | 54  
|                                                        |  | Item 3. |  | Defaults Upon Senior Securities                                                                                                   |  | 54  
|                                                        |  | Item 4. |  | Submission of Matters to a Vote of Security Holders                                                                               |  | 54  
|                                                        |  | Item 5. |  | Other Information                                                                                                                 |  | 55  
|                                                        |  | Item 6. |  | Exhibits                                                                                                                          |  | 57  
|                                                        |  |         | 
|                                                        |  |         |  | Signatures                                                                                                                        |  | 60  



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EXPLANATORY NOTE  RESTATEMENT OF FINANCIAL INFORMATION



This Amendment No. 1 to Form 10-Q (Amendment No. 1) is being filed by Taylor Capital Group, Inc. to amend and restate its Quarterly Report on Form 10-Q for the quarter ended June 30, 2005
filed with the Securities and Exchange Commission (SEC) on August 3, 2005 (Initial Form 10-Q). This Amendment No. 1 is being filed to correct errors in the Initial Form 10-Q related to our derivative accounting
under Statement of Financial Accounting Standards 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), and to reflect a change in the amortization period of issuance costs relating to our junior
subordinated debentures. Amendment No. 1 restates the Consolidated Financial Statements and the other financial information as of June 30, 2005 and for the three and six months ended June 30, 2005 and 2004, previously reported in the
Initial Form 10-Q and supercedes our previously issued Consolidated Financial Statements and other financial information for the three and six months ended June 30, 2005 and 2004.



In 2005 and prior years, we applied a method of fair value hedge accounting under SFAS 133 to account for the interest rate
swap agreements (CD swaps) relating to certain of our brokered certificates of deposit (brokered CDs) that allowed us to assume no ineffectiveness in these transactions (the so-called short-cut method). We recently concluded that the CD
swaps did not qualify for this method in prior periods because the related CD broker placement fee was determined, in retrospect, to have caused the swap not to have a fair value of zero at inception (which is required under SFAS 133 to qualify for
the short-cut method). Furthermore, although historical effectiveness testing performed in November 2005 demonstrated that the CD swaps would have qualified for hedge accounting under the long-haul method, hedge accounting under SFAS 133
is not allowed retrospectively because the hedge documentation required for the long-haul method was not in place at the inception of the hedge. Eliminating the application of fair value hedge accounting reverses the fair value adjustments that were
made to the hedged items, the brokered CDs, and results in the recording and subsequent amortization of the CD broker placement fee, which was incorporated into the CD swap, as an adjustment to the par amount of the brokered CDs. In connection with
the determination of the appropriate amortization period for the brokered CD placement fees, we also determined that the issuance costs relating to our junior subordinated debentures should have been amortized through the maturity date of the
debentures, rather than their earlier call dates. The net cumulative effect of this non-cash restatement at June 30, 2005 was an increase to retained earnings of $549,000. For additional information regarding our restatement, see Note 2 to our
Consolidated Financial Statements contained herein.



Amendment
No. 1 includes restated financial information and related disclosures in Part I Items 1 through 4 including disclosures within Managements Discussion and Analysis of Financial Condition and Results of Operations and
Controls and Procedures, as a result of the restatement described above and managements restated assessment of our disclosure controls and procedures as of June 30, 2005. The restatement does not change any of the disclosures
previously reported in Part II Items 1 through 5 of the Initial Form 10-Q, however for the convenience of readers, those parts are included in this Amendment No. 1.



1



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Except as otherwise specifically noted, all information contained herein is as of June 30, 2005 and
does not reflect any events or changes that have occurred subsequent to that date. We are not required to and have not updated any forward-looking statements previously included in the Initial Form 10-Q filed with the SEC on August 3, 2005.



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TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

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



|                                                                                                                                                                                                                                                         |  |                        |           |   |                              |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | --------- | - | ---------------------------- | - | --------- | -
|                                                                                                                                                                                                                                                         |  | (Restated)June 30,2005 |           |   | (Restated) December 31, 2004 |  
|                                                                                                                                                                                                                                                         |  | (unaudited)            |           |   |                              |  
|ASSETS                                                                                                                                                                                                                                                   |  |                        |           |   |                              |   |           |  
|Cash and cash equivalents:                                                                                                                                                                                                                               |  |                        |           |   |                              |   |           |  
|Cash and due from banks                                                                                                                                                                                                                                  |  | $                      | 74,362    |   |                              | $ | 55,101    |  
|Federal funds sold                                                                                                                                                                                                                                       |  |                        | 105,800   |   |                              |   | 15,000    |  
|Short-term investments                                                                                                                                                                                                                                   |  |                        | 2,452     |   |                              |   | 9,149     |  
|                                                                                                                                                                                                                                                         |  |                        |           |   |                              |   |           |  
|Total cash and cash equivalents                                                                                                                                                                                                                          |  |                        | 182,614   |   |                              |   | 79,250    |  
|Investment securities:                                                                                                                                                                                                                                   |  |                        |           |   |                              |   |           |  
|Available-for-sale, at fair value                                                                                                                                                                                                                        |  |                        | 547,045   |   |                              |   | 533,344   |  
|Held-to-maturity, at amortized cost (fair value of $275 at June 30, 2005 and December 31, 2004)                                                                                                                                                          |  |                        | 275       |   |                              |   | 275       |  
|Loans, net of allowance for loan losses of $37,411 and $37,484 at June 30, 2005 and December 31, 2004, respectively                                                                                                                                      |  |                        | 2,241,154 |   |                              |   | 2,174,122 |  
|Premises, leasehold improvements and equipment, net                                                                                                                                                                                                      |  |                        | 12,364    |   |                              |   | 14,787    |  
|Investments in Federal Home Loan Bank and Federal Reserve Bank stock, at cost                                                                                                                                                                            |  |                        | 12,750    |   |                              |   | 12,516    |  
|Other real estate and repossessed assets, net                                                                                                                                                                                                            |  |                        | 585       |   |                              |   | 58        |  
|Goodwill                                                                                                                                                                                                                                                 |  |                        | 23,237    |   |                              |   | 23,354    |  
|Other assets                                                                                                                                                                                                                                             |  |                        | 55,086    |   |                              |   | 51,342    |  
|                                                                                                                                                                                                                                                         |  |                        |           |   |                              |   |           |  
|Total assets                                                                                                                                                                                                                                             |  | $                      | 3,075,110 |   |                              | $ | 2,889,048 |  
|                                                                                                                                                                                                                                                         |  |                        |           |   |                              |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                     |  |                        |           |   |                              |   |           |  
|Deposits:                                                                                                                                                                                                                                                |  |                        |           |   |                              |   |           |  
|Noninterest-bearing                                                                                                                                                                                                                                      |  | $                      | 459,672   |   |                              | $ | 519,158   |  
|Interest-bearing                                                                                                                                                                                                                                         |  |                        | 1,957,337 |   |                              |   | 1,765,539 |  
|                                                                                                                                                                                                                                                         |  |                        |           |   |                              |   |           |  
|Total deposits                                                                                                                                                                                                                                           |  |                        | 2,417,009 |   |                              |   | 2,284,697 |  
|Short-term borrowings                                                                                                                                                                                                                                    |  |                        | 266,825   |   |                              |   | 229,547   |  
|Accrued interest, taxes and other liabilities                                                                                                                                                                                                            |  |                        | 44,876    |   |                              |   | 46,093    |  
|Notes payable and FHLB advances                                                                                                                                                                                                                          |  |                        | 85,500    |   |                              |   | 85,500    |  
|Junior subordinated debentures                                                                                                                                                                                                                           |  |                        | 87,638    |   |                              |   | 87,638    |  
|                                                                                                                                                                                                                                                         |  |                        |           |   |                              |   |           |  
|Total liabilities                                                                                                                                                                                                                                        |  |                        | 2,901,848 |   |                              |   | 2,733,475 |  
|                                                                                                                                                                                                                                                         |  |                        |           |   |                              |   |           |  
|Stockholders equity:                                                                                                                                                                                                                                    |  |                        |           |   |                              |   |           |  
|Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued and outstanding                                                                                                                                                                |  |                        |          |   |                              |   |          |  
|Common stock, $.01 par value; 25,000,000 shares authorized; 10,084,068 and 9,976,556 shares issued at June 30, 2005 and December 31,
2004, respectively; 9,761,061 and 9,653,549 shares outstanding at June 30, 2005 and December 31, 2004, respectively |  |                        | 101       |   |                              |   | 100       |  
|Surplus                                                                                                                                                                                                                                                  |  |                        | 150,922   |   |                              |   | 147,682   |  
|Unearned compensation - stock grants                                                                                                                                                                                                                     |  |                        | (2,692    | ) |                              |   | (1,383    | )
|Retained earnings                                                                                                                                                                                                                                        |  |                        | 32,887    |   |                              |   | 16,698    |  
|Accumulated other comprehensive loss                                                                                                                                                                                                                     |  |                        | (899      | ) |                              |   | (467      | )
|Treasury stock, at cost, 323,007 shares at June 30, 2005 and December 31, 2004                                                                                                                                                                           |  |                        | (7,057    | ) |                              |   | (7,057    | )
|                                                                                                                                                                                                                                                         |  |                        |           |   |                              |   |           |  
|Total stockholders equity                                                                                                                                                                                                                               |  |                        | 173,262   |   |                              |   | 155,573   |  
|                                                                                                                                                                                                                                                         |  |                        |           |   |                              |   |           |  
|Total liabilities and stockholders equity                                                                                                                                                                                                               |  | $                      | 3,075,110 |   |                              | $ | 2,889,048 |  
|                                                                                                                                                                                                                                                         |  |                        |           |   |                              |   |           |  



See accompanying notes
to consolidated financial statements



3



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TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(dollars in thousands, except per share data)



|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|--------------------------------------------------- |  | --------------------------------------------- | ------ | ---- | ------------------------------------------- | ------ | ---- |  | ---- | ------ |  | - | ------ | -
|                                                    |  | (Restated) For the Three Months EndedJune 30, |        |      | (Restated) For the Six Months EndedJune 30, |       
|                                                    |  | 2005                                          |        | 2004 |                                             |        | 2005 |  | 2004 |       
|Interest income:                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Interest and fees on loans                          |  | $                                             | 36,968 |      | $                                           | 26,965 |      |  | $    | 70,895 |  | $ | 53,964 |  
|Interest and dividends on investment securities:    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Taxable                                             |  |                                               | 4,974  |      |                                             | 5,375  |      |  |      | 9,969  |  |   | 10,355 |  
|Tax-exempt                                          |  |                                               | 557    |      |                                             | 504    |      |  |      | 1,038  |  |   | 1,017  |  
|Interest on cash equivalents                        |  |                                               | 243    |      |                                             | 25     |      |  |      | 352    |  |   | 43     |  
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Total interest income                               |  |                                               | 42,742 |      |                                             | 32,869 |      |  |      | 82,254 |  |   | 65,379 |  
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Interest expense:                                   |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Deposits                                            |  |                                               | 12,159 |      |                                             | 7,209  |      |  |      | 22,142 |  |   | 14,264 |  
|Short-term borrowings                               |  |                                               | 1,210  |      |                                             | 522    |      |  |      | 2,185  |  |   | 1,021  |  
|Notes payable and FHLB advances                     |  |                                               | 1,026  |      |                                             | 1,078  |      |  |      | 2,028  |  |   | 2,172  |  
|Junior subordinated debentures                      |  |                                               | 1,763  |      |                                             | 1,224  |      |  |      | 3,468  |  |   | 1,770  |  
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Total interest expense                              |  |                                               | 16,158 |      |                                             | 10,033 |      |  |      | 29,823 |  |   | 19,227 |  
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Net interest income                                 |  |                                               | 26,584 |      |                                             | 22,836 |      |  |      | 52,431 |  |   | 46,152 |  
|Provision for loan losses                           |  |                                               | 917    |      |                                             | 2,750  |      |  |      | 2,751  |  |   | 5,500  |  
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Net interest income after provision for loan losses |  |                                               | 25,667 |      |                                             | 20,086 |      |  |      | 49,680 |  |   | 40,652 |  
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Noninterest income:                                 |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Deposit service charges                             |  |                                               | 2,408  |      |                                             | 2,848  |      |  |      | 4,815  |  |   | 5,631  |  
|Trust and wealth management services                |  |                                               | 1,157  |      |                                             | 1,333  |      |  |      | 2,341  |  |   | 2,573  |  
|Gain on sale of land trusts                         |  |                                               |       |      |                                             |       |      |  |      | 2,000  |  |   |       |  
|Gain on sale of branch                              |  |                                               |       |      |                                             |       |      |  |      | 1,572  |  |   |       |  
|Gain on sale of investment securities, net          |  |                                               |       |      |                                             |       |      |  |      | 127    |  |   |       |  
|Net cash settlements on CD swaps                    |  |                                               | 241    |      |                                             | 735    |      |  |      | 464    |  |   | 942    |  
|Change in fair value of CD swaps                    |  |                                               | 1,821  |      |                                             | (2,592 | )    |  |      | 245    |  |   | (1,634 | )
|Other noninterest income                            |  |                                               | 389    |      |                                             | 123    |      |  |      | 1,354  |  |   | 775    |  
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Total noninterest income                            |  |                                               | 6,016  |      |                                             | 2,447  |      |  |      | 12,918 |  |   | 8,287  |  
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Noninterest expense:                                |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Salaries and employee benefits                      |  |                                               | 9,962  |      |                                             | 9,594  |      |  |      | 19,962 |  |   | 20,325 |  
|Occupancy of premises                               |  |                                               | 1,716  |      |                                             | 2,054  |      |  |      | 3,441  |  |   | 3,861  |  
|Furniture and equipment                             |  |                                               | 1,005  |      |                                             | 919    |      |  |      | 1,889  |  |   | 2,054  |  
|Computer processing                                 |  |                                               | 438    |      |                                             | 478    |      |  |      | 871    |  |   | 912    |  
|Corporate insurance                                 |  |                                               | 347    |      |                                             | 650    |      |  |      | 717    |  |   | 1,272  |  
|Legal fees, net                                     |  |                                               | 609    |      |                                             | 674    |      |  |      | 781    |  |   | 1,003  |  
|Advertising and public relations                    |  |                                               | 164    |      |                                             | 745    |      |  |      | 273    |  |   | 1,167  |  
|Other noninterest expense                           |  |                                               | 3,283  |      |                                             | 3,302  |      |  |      | 6,330  |  |   | 6,605  |  
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Total noninterest expense                           |  |                                               | 17,524 |      |                                             | 18,416 |      |  |      | 34,264 |  |   | 37,199 |  
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Income before income taxes                          |  |                                               | 14,159 |      |                                             | 4,117  |      |  |      | 28,334 |  |   | 11,740 |  
|Income taxes                                        |  |                                               | 5,342  |      |                                             | 1,338  |      |  |      | 10,978 |  |   | 3,987  |  
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Net income                                          |  | $                                             | 8,817  |      | $                                           | 2,779  |      |  | $    | 17,356 |  | $ | 7,753  |  
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Preferred dividend requirements                     |  |                                               |       |      |                                             | (1,014 | )    |  |      |       |  |   | (1,875 | )
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Net income applicable to common stockholders        |  | $                                             | 8,817  |      | $                                           | 1,765  |      |  | $    | 17,356 |  | $ | 5,878  |  
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  
|Basic earnings per common share                     |  | $                                             | 0.92   |      | $                                           | 0.19   |      |  | $    | 1.81   |  | $ | 0.62   |  
|Diluted earnings per common share                   |  |                                               | 0.90   |      |                                             | 0.18   |      |  |      | 1.77   |  |   | 0.61   |  
|                                                    |  |                                               |        |      |                                             |        |      |  |      |        |  |   |        |  



See accompanying notes
to consolidated financial statements



4



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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(Deficit) |        |   | Accumulated Other Comprehensive Income/(Loss) |   |        | TreasuryStock |  |   | Total  |  
|Balance at December 31, 2004, as previously stated                                                                             |  | $                                                |       |             | $ | 100     |  | $ | 147,682                            |   |  | $                          | (1,383 | ) |                                               | $ | 16,386 |               |  | $ | (467   | ) |  | $ | (7,057 | ) |  | $ | 155,261 |  
|Cumulative effect of restatement                                                                                               |  |                                                  |       |             |   |        |  |   |                                   |   |  |                            |       |   |                                               |   | 312    |               |  |   |       |   |  |   |       |   |  |   | 312     |  
|                                                                                                                               |  |                                                  |        |             |   |         |  |   |                                    |   |  |                            |        |   |                                               |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2004, as restated                                                                                      |  |                                                  |       |             |   | 100     |  |   | 147,682                            |   |  |                            | (1,383 | ) |                                               |   | 16,698 |               |  |   | (467   | ) |  |   | (7,057 | ) |  |   | 155,573 |  
|Issuance of stock grants                                                                                                       |  |                                                  |       |             |   |        |  |   | 1,791                              |   |  |                            | (1,791 | ) |                                               |   |       |               |  |   |       |   |  |   |       |   |  |   |        |  
|Forfeiture of stock grants                                                                                                     |  |                                                  |       |             |   |        |  |   | (325                               | ) |  |                            | 109    |   |                                               |   |       |               |  |   |       |   |  |   |       |   |  |   | (216    | )
|Amortization of stock grants                                                                                                   |  |                                                  |       |             |   |        |  |   |                                   |   |  |                            | 373    |   |                                               |   |       |               |  |   |       |   |  |   |       |   |  |   | 373     |  
|Exercise of stock options                                                                                                      |  |                                                  |       |             |   | 1       |  |   | 1,328                              |   |  |                            |       |   |                                               |   |       |               |  |   |       |   |  |   |       |   |  |   | 1,329   |  
|Tax benefit on stock options exercised and stock awards                                                                        |  |                                                  |       |             |   |        |  |   | 446                                |   |  |                            |       |   |                                               |   |       |               |  |   |       |   |  |   |       |   |  |   | 446     |  
|Comprehensive income:                                                                                                          |  |                                                  |        |             |   |         |  |   |                                    |   |  |                            |        |   |                                               |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Net income (Restated)                                                                                                          |  |                                                  |       |             |   |        |  |   |                                   |   |  |                            |       |   |                                               |   | 17,356 |               |  |   |       |   |  |   |       |   |  |   | 17,356  |  
|Change in unrealized loss on available-for-sale investment securities, net of reclassification adjustment, net of income taxes |  |                                                  |       |             |   |        |  |   |                                   |   |  |                            |       |   |                                               |   |       |               |  |   | (114   | ) |  |   |       |   |  |   | (114    | )
|Change in unrealized loss from cash flow hedging instruments, net of income taxes                                              |  |                                                  |       |             |   |        |  |   |                                   |   |  |                            |       |   |                                               |   |       |               |  |   | (232   | ) |  |   |       |   |  |   | (232    | )
|Changes in deferred gain from termination of cash flow hedging instruments, net of income taxes                                |  |                                                  |       |             |   |        |  |   |                                   |   |  |                            |       |   |                                               |   |       |               |  |   | (86    | ) |  |   |       |   |  |   | (86     | )
|                                                                                                                               |  |                                                  |        |             |   |         |  |   |                                    |   |  |                            |        |   |                                               |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Total comprehensive income (Restated)                                                                                          |  |                                                  |        |             |   |         |  |   |                                    |   |  |                            |        |   |                                               |   |        |               |  |   |        |   |  |   |        |   |  |   | 16,924  |  
|                                                                                                                               |  |                                                  |        |             |   |         |  |   |                                    |   |  |                            |        |   |                                               |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Common stock dividends $0.12 per share                                                                                        |  |                                                  |       |             |   |        |  |   |                                   |   |  |                            |       |   |                                               |   | (1,167 | )             |  |   |       |   |  |   |       |   |  |   | (1,167  | )
|                                                                                                                               |  |                                                  |        |             |   |         |  |   |                                    |   |  |                            |        |   |                                               |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at June 30, 2005 (Restated)                                                                                            |  | $                                                |       |             | $ | 101     |  | $ | 150,922                            |   |  | $                          | (2,692 | ) |                                               | $ | 32,887 |               |  | $ | (899   | ) |  | $ | (7,057 | ) |  | $ | 173,262 |  
|                                                                                                                               |  |                                                  |        |             |   |         |  |   |                                    |   |  |                            |        |   |                                               |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2003                                                                                                   |  | $                                                | 38,250 |             | $ | 98      |  | $ | 143,918                            |   |  | $                          | (1,138 | ) |                                               | $ | (2,106 | )             |  | $ | 4,520  |   |  | $ | (7,057 | ) |  | $ | 176,485 |  
|Issuance of stock grants                                                                                                       |  |                                                  |       |             |   |        |  |   | 150                                |   |  |                            | (150   | ) |                                               |   |       |               |  |   |       |   |  |   |       |   |  |   |        |  
|Forfeiture of stock grants                                                                                                     |  |                                                  |       |             |   |        |  |   | (68                                | ) |  |                            | 19     |   |                                               |   |       |               |  |   |       |   |  |   |       |   |  |   | (49     | )
|Amortization of stock grants                                                                                                   |  |                                                  |       |             |   |        |  |   |                                   |   |  |                            | 257    |   |                                               |   |       |               |  |   |       |   |  |   |       |   |  |   | 257     |  
|Exercise of stock options                                                                                                      |  |                                                  |       |             |   |        |  |   | 480                                |   |  |                            |       |   |                                               |   |       |               |  |   |       |   |  |   |       |   |  |   | 480     |  
|Tax benefit on stock options exercised and stock awards                                                                        |  |                                                  |       |             |   |        |  |   | 92                                 |   |  |                            |       |   |                                               |   |       |               |  |   |       |   |  |   |       |   |  |   | 92      |  
|Comprehensive income:                                                                                                          |  |                                                  |        |             |   |         |  |   |                                    |   |  |                            |        |   |                                               |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Net income (Restated)                                                                                                          |  |                                                  |       |             |   |        |  |   |                                   |   |  |                            |       |   |                                               |   | 7,753  |               |  |   |       |   |  |   |       |   |  |   | 7,753   |  
|Change in unrealized gain (loss) on available-for-sale investment securities, net of income taxes                              |  |                                                  |       |             |   |        |  |   |                                   |   |  |                            |       |   |                                               |   |       |               |  |   | (7,059 | ) |  |   |       |   |  |   | (7,059  | )
|Changes in deferred gain from termination of cash flow hedging instruments, net of income taxes                                |  |                                                  |       |             |   |        |  |   |                                   |   |  |                            |       |   |                                               |   |       |               |  |   | (86    | ) |  |   |       |   |  |   | (86     | )
|                                                                                                                               |  |                                                  |        |             |   |         |  |   |                                    |   |  |                            |        |   |                                               |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Total comprehensive income (Restated)                                                                                          |  |                                                  |        |             |   |         |  |   |                                    |   |  |                            |        |   |                                               |   |        |               |  |   |        |   |  |   |        |   |  |   | 608     |  
|                                                                                                                               |  |                                                  |        |             |   |         |  |   |                                    |   |  |                            |        |   |                                               |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Dividends:                                                                                                                     |  |                                                  |        |             |   |         |  |   |                                    |   |  |                            |        |   |                                               |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Preferred  $1.225 per share                                                                                                   |  |                                                  |       |             |   |        |  |   |                                   |   |  |                            |       |   |                                               |   | (1,875 | )             |  |   |       |   |  |   |       |   |  |   | (1,875  | )
|Common  $0.12 per share                                                                                                       |  |                                                  |       |             |   |        |  |   |                                   |   |  |                            |       |   |                                               |   | (1,141 | )             |  |   |       |   |  |   |       |   |  |   | (1,141  | )
|                                                                                                                               |  |                                                  |        |             |   |         |  |   |                                    |   |  |                            |        |   |                                               |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at June 30, 2004 (Restated)                                                                                            |  | $                                                | 38,250 |             | $ | 98      |  | $ | 144,572                            |   |  | $                          | (1,012 | ) |                                               | $ | 2,631  |               |  | $ | (2,625 | ) |  | $ | (7,057 | ) |  | $ | 174,857 |  
|                                                                                                                               |  |                                                  |        |             |   |         |  |   |                                    |   |  |                            |        |   |                                               |   |        |               |  |   |        |   |  |   |        |   |  |   |         |  



See accompanying notes
to consolidated financial statements



5



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(dollars in thousands)



|                                                                                  |  |                                              |         |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | -------------------------------------------- | ------- | - | ---- | - | -------- | -
|                                                                                  |  | (Restated) For the Six Months Ended June 30, |        
|                                                                                  |  | 2005                                         |         |   | 2004 |  
|Cash flows from operating activities:                                             |  |                                              |         |   |      |   |          |  
|Net income                                                                        |  | $                                            | 17,356  |   |      | $ | 7,753    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                              |         |   |      |   |          |  
|Amortization of premiums and discounts, net                                       |  |                                              | 1,080   |   |      |   | 1,164    |  
|Gain on sale of available-for-sale securities, net                                |  |                                              | (127    | ) |      |   |         |  
|Deferred loan fee amortization                                                    |  |                                              | (2,270  | ) |      |   | (1,321   | )
|Provision for loan losses                                                         |  |                                              | 2,751   |   |      |   | 5,500    |  
|Depreciation and amortization                                                     |  |                                              | 1,621   |   |      |   | 1,785    |  
|Deferred income taxes                                                             |  |                                              | 1,086   |   |      |   | (1,414   | )
|Loss on sales of other real estate                                                |  |                                              |        |   |      |   | 10       |  
|Provision for losses on other real estate                                         |  |                                              | 69      |   |      |   | 66       |  
|Gain on sale of land trusts                                                       |  |                                              | (2,000  | ) |      |   |         |  
|Gain on sale of branch                                                            |  |                                              | (1,572  | ) |      |   |         |  
|Other, net                                                                        |  |                                              | 128     |   |      |   | 232      |  
|Changes in other assets and liabilities:                                          |  |                                              |         |   |      |   |          |  
|Accrued interest receivable                                                       |  |                                              | (1,935  | ) |      |   | (1,824   | )
|Other assets                                                                      |  |                                              | (2,487  | ) |      |   | 4,770    |  
|Accrued interest, taxes and other liabilities                                     |  |                                              | (2,364  | ) |      |   | 1,878    |  
|                                                                                  |  |                                              |         |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                                              | 11,336  |   |      |   | 18,599   |  
|                                                                                  |  |                                              |         |   |      |   |          |  
|Cash flows from investing activities:                                             |  |                                              |         |   |      |   |          |  
|Purchases of available-for-sale securities                                        |  |                                              | (53,790 | ) |      |   | (123,377 | )
|Proceeds from principal payments and maturities of available-for-sale securities  |  |                                              | 36,393  |   |      |   | 35,387   |  
|Proceeds from sale of available-for-sale securities                               |  |                                              | 2,725   |   |      |   |         |  
|Proceeds from principal payments and maturities of held-to-maturity securities    |  |                                              |        |   |      |   | 250      |  
|Net increase in loans                                                             |  |                                              | (73,411 | ) |      |   | (101,231 | )
|Investment in TAYC Capital Trust II                                               |  |                                              |        |   |      |   | (1,239   | )
|Net additions to premises, leasehold improvements and equipment                   |  |                                              | (1,215  | ) |      |   | (896     | )
|Proceed from sale of premises, leasehold improvements and equipment               |  |                                              |        |   |      |   | 2,095    |  
|Net cash paid on sale of branch                                                   |  |                                              | (10,853 | ) |      |   |         |  
|Proceeds from sale of land trusts                                                 |  |                                              | 2,050   |   |      |   |         |  
|Proceeds from sales of other real estate                                          |  |                                              | (15     | ) |      |   | 132      |  
|                                                                                  |  |                                              |         |   |      |   |          |  
|Net cash used in investing activities                                             |  |                                              | (98,116 | ) |      |   | (188,879 | )
|                                                                                  |  |                                              |         |   |      |   |          |  
|Cash flows from financing activities:                                             |  |                                              |         |   |      |   |          |  
|Net increase in deposits                                                          |  |                                              | 152,697 |   |      |   | 159,096  |  
|Net increase (decrease) in short-term borrowings                                  |  |                                              | 37,278  |   |      |   | (21,981  | )
|Repayments of notes payable and FHLB advances                                     |  |                                              |        |   |      |   | (15,000  | )
|Proceeds from issuance of junior subordinated debentures                          |  |                                              |        |   |      |   | 41,238   |  
|Trust preferred issuance costs                                                    |  |                                              |        |   |      |   | (390     | )
|Proceeds from exercise of employee stock options                                  |  |                                              | 1,329   |   |      |   | 480      |  
|Dividends paid                                                                    |  |                                              | (1,160  | ) |      |   | (2,861   | )
|                                                                                  |  |                                              |         |   |      |   |          |  
|Net cash provided by financing activities                                         |  |                                              | 190,144 |   |      |   | 160,582  |  
|                                                                                  |  |                                              |         |   |      |   |          |  
|Net increase (decrease) in cash and cash equivalents                              |  |                                              | 103,364 |   |      |   | (9,698   | )
|Cash and cash equivalents, beginning of period                                    |  |                                              | 79,250  |   |      |   | 88,504   |  
|                                                                                  |  |                                              |         |   |      |   |          |  
|Cash and cash equivalents, end of period                                          |  | $                                            | 182,614 |   |      | $ | 78,806   |  
|                                                                                  |  |                                              |         |   |      |   |          |  



Consolidated Statements
of Cash Flows continued on the next page



See accompanying notes
to consolidated financial statements



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

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

(dollars in
thousands)



|                                                                              |  |                                             |        |   |      |   |        |  
|----------------------------------------------------------------------------- |  | ------------------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                              |  | (Restated) For the Six Months EndedJune 30, |       
|                                                                              |  | 2005                                        |        |   | 2004 |  
|Supplemental disclosure of cash flow information:                             |  |                                             |        |   |      |   |        |  
|Cash paid during the period for:                                              |  |                                             |        |   |      |   |        |  
|Interest                                                                      |  | $                                           | 27,248 |   |      | $ | 18,679 |  
|Income taxes                                                                  |  |                                             | 9,916  |   |      |   | 3,614  |  
|                                                                              |  |                                            
|Supplemental disclosures of noncash investing and financing activities:       |  |                                             |        |   |      |   |        |  
|Change in fair value of available-for-sale investments securities, net of tax |  | $                                           | (114   | ) |      | $ | (7,059 | )
|Tax benefit on stock options exercised and stock awards                       |  |                                             | 446    |   |      |   | 92     |  
|Real estate acquired through foreclosure                                      |  |                                             | 581    |   |      |   | 1,551  |  



See accompanying notes
to consolidated financial statements



7



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



1. Basis of Presentation:



These consolidated financial statements contain unaudited information as of
June 30, 2005 and for the three and six month periods ended June 30, 2005 and 2004. 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 balance sheet at December 31, 2004 reflects restated balances as a result of the restatement described in
Note 2. The income statement data for the three and six month period ended June 30, 2005 are not necessarily indicative of the results that the Company may achieve for the full year.



2. Restated Results of Operations and Financial Condition:



The Company is restating its previously reported financial information as of
June 30, 2005 and for the three and six months ended June 30, 2005 and 2004 to correct errors in those consolidated financial statements relating to its derivative accounting under Statement of Financial Accounting Standards 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS 133), and to reflect a change in the amortization period of issuance costs related to its junior subordinated debentures. In addition, the following Notes to the
Consolidated Financial Statements have been restated: 6, 9, 10 and 11. These restated consolidated financial statements supercede the Companys previously issued consolidated financial statements reported in the Companys Initial Form 10-Q
filed with the SEC on August 3, 2005.



In 2005 and prior years,
the Company entered into interest rate swap agreements (CD swaps) to hedge the interest rate risk inherent in certain of its brokered certificates of deposit (brokered CDs). From the inception of the hedging program, the Company applied a method of
fair value hedge accounting under SFAS 133 to account for the CD swaps that allowed the Company to assume no ineffectiveness in these transactions (the so-called short-cut method). The Company has recently concluded that the CD swaps did
not qualify for this method in prior periods because the related CD broker placement fee was determined, in retrospect, to have caused the swap not to have a fair value of zero at inception (which is required under SFAS 133 to qualify for the
short-cut method).



Fair value hedge accounting allows a
company to record the effective portion of the change in fair value of the hedged item (in this case, the brokered CDs) as an adjustment to income that offsets the fair value adjustment on the related interest rate swaps. Eliminating the application
of fair value hedge accounting reverses the fair value adjustments that were made to the brokered CDs. Therefore, while the interest rate swap is recorded on the consolidated balance sheet at its fair value, the related hedged item, the brokered
CDs, are required to be carried at par, net of the unamortized balance of the CD broker placement fee. In addition, the CD broker placement fee, which was incorporated into the swap, is now separately recorded as an adjustment to the par amount of
the brokered CDs and amortized through the maturity date of the related CDs.



8



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



The net cumulative pre-tax effect of eliminating the fair value adjustment to the brokered CDs at June 30, 2005 is $572,000 (representing a $2.5
million elimination of the fair value adjustment to the brokered CDs less a $2.0 million adjustment to record the unamortized CD broker placement fees). The cumulative after-tax impact was a $347,000 reduction to retained earnings.



In connection with the determination of the appropriate amortization period
for the brokered CD placement fees, the Company also determined that the issuance costs relating to its junior subordinated debentures should have been amortized through the maturity date of the debentures, rather than their earlier call dates. The
cumulative effect through June 30, 2005 of amortization of the debt issuance costs through the maturity date of the related debt is an increase to retained earnings of $896,000 ($1.5 million pre-tax).



The combined impact of the errors in derivative accounting and debt issuance
cost increased retained earnings at June 30, 2005 by $549,000. The changes to previously reported net income and retained earnings in any of the restated quarterly periods did not cause any violation of the Companys debt covenants and did
not cause either Cole Taylor Banks or Taylor Capital Groups regulatory capital ratios to fall below the well-capitalized levels as of the end of any of these periods.



The following tables reflect the previously reported amounts, the adjustments
made to eliminate hedge accounting for the CD swaps and the change in the amortization of the issuance costs related to the junior subordinated debentures, and the restated results by financial statement line item for the consolidated statement of
income for the three and six months ended June 30, 2005 and 2004 and the consolidated balance sheet at June 30, 2005 and statement of stockholders equity as of June 30, 2005 and 2004. The restatement did not affect previously
reported cash flows from operating activities, investing activities or financing activities.



9



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



|                                                    |  |                                       |        |                                     |   |       |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|--------------------------------------------------- |  | ------------------------------------- | ------ | ----------------------------------- | - | ----- | ----------- |  | -------------------- | ------ | ----------- | - | ------ | ----------- | - | ------ | ---- |  | - | ------ | -
|                                                    |  | For the Quarter Ended June 30, 2005   |        | For the Quarter Ended June 30, 2004 |  
|                                                    |  | AsOriginallyReported                  |        | Adjustments                         |   |       | As Restated |  | AsOriginallyReported |        | Adjustments |   |        | As Restated |  
|                                                    |  | (in thousands, expect per share data) |       
|Interest income                                     |  | $                                     | 42,742 |                                     | $ |      |             |  | $                    | 42,742 |             | $ | 32,869 |             | $ |       |      |  | $ | 32,869 |  
|Interest expense:                                   |  |                                       |        |                                     |   |       |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Deposits                                            |  |                                       | 11,825 |                                     |   | 334   | (1)         |  |                      | 12,159 |             |   | 6,415  |             |   | 794    | (1)  |  |   | 7,209  |  
|Short-term borrowings                               |  |                                       | 1,210  |                                     |   |      |             |  |                      | 1,210  |             |   | 522    |             |   |       |      |  |   | 522    |  
|Notes payable and FHLB advances                     |  |                                       | 1,026  |                                     |   |      |             |  |                      | 1,026  |             |   | 1,078  |             |   |       |      |  |   | 1,078  |  
|Junior subordinated debentures                      |  |                                       | 1,914  |                                     |   | (151  | )(2)        |  |                      | 1,763  |             |   | 1,361  |             |   | (137   | )(2) |  |   | 1,224  |  
|                                                    |  |                                       |        |                                     |   |       |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Total interest expense                              |  |                                       | 15,975 |                                     |   | 183   |             |  |                      | 16,158 |             |   | 9,376  |             |   | 657    |      |  |   | 10,033 |  
|                                                    |  |                                       |        |                                     |   |       |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Net interest income                                 |  |                                       | 26,767 |                                     |   | (183  | )           |  |                      | 26,584 |             |   | 23,493 |             |   | (657   | )    |  |   | 22,836 |  
|Provision for loan losses                           |  |                                       | 917    |                                     |   |      |             |  |                      | 917    |             |   | 2,750  |             |   |       |      |  |   | 2,750  |  
|                                                    |  |                                       |        |                                     |   |       |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Net interest income after provision for loan losses |  |                                       | 25,850 |                                     |   | (183  | )           |  |                      | 25,667 |             |   | 20,743 |             |   | (657   | )    |  |   | 20,086 |  
|                                                    |  |                                       |        |                                     |   |       |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Noninterest income:                                 |  |                                       |        |                                     |   |       |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Service charges                                     |  |                                       | 2,408  |                                     |   |      |             |  |                      | 2,408  |             |   | 2,848  |             |   |       |      |  |   | 2,848  |  
|Trust and investment management fees                |  |                                       | 1,157  |                                     |   |      |             |  |                      | 1,157  |             |   | 1,333  |             |   |       |      |  |   | 1,333  |  
|Gain on sale of land trusts                         |  |                                       |       |                                     |   |      |             |  |                      |       |             |   |       |             |   |        |      |  |   |       |  
|Gain on sale of branch                              |  |                                       |       |                                     |   |      |             |  |                      |       |             |   |       |             |   |        |      |  |   |       |  
|Gain on sale of investment securities, net          |  |                                       |       |                                     |   |      |             |  |                      |       |             |   |       |             |   |       |      |  |   |       |  
|Net cash settlements on CD swaps                    |  |                                       |       |                                     |   | 241   | (1)         |  |                      | 241    |             |   |       |             |   | 735    | (1)  |  |   | 735    |  
|Change in fair value of CD swaps                    |  |                                       |       |                                     |   | 1,821 | (3)         |  |                      | 1,821  |             |   |       |             |   | (2,592 | )(3) |  |   | (2,592 | )
|Other noninterest income                            |  |                                       | 389    |                                     |   |      |             |  |                      | 389    |             |   | 123    |             |   |       |      |  |   | 123    |  
|                                                    |  |                                       |        |                                     |   |       |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Total noninterest income                            |  |                                       | 3,954  |                                     |   | 2,062 |             |  |                      | 6,016  |             |   | 4,304  |             |   | (1,857 | )    |  |   | 2,447  |  
|                                                    |  |                                       |        |                                     |   |       |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Noninterest expense                                 |  |                                       | 17,524 |                                     |   |      |             |  |                      | 17,524 |             |   | 18,416 |             |   |       |      |  |   | 18,416 |  
|                                                    |  |                                       |        |                                     |   |       |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Income before income taxes                          |  |                                       | 12,280 |                                     |   | 1,879 |             |  |                      | 14,159 |             |   | 6,631  |             |   | (2,514 | )    |  |   | 4,117  |  
|Income taxes                                        |  |                                       | 4,603  |                                     |   | 739   | (4)         |  |                      | 5,342  |             |   | 2,324  |             |   | (986   | )(4) |  |   | 1,338  |  
|                                                    |  |                                       |        |                                     |   |       |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Net income                                          |  | $                                     | 7,677  |                                     | $ | 1,140 |             |  | $                    | 8,817  |             | $ | 4,307  |             | $ | (1,528 | )    |  | $ | 2,779  |  
|                                                    |  |                                       |        |                                     |   |       |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Basic earnings per common share                     |  | $                                     | 0.80   |                                     | $ | 0.12  |             |  | $                    | 0.92   |             | $ | 0.35   |             | $ | (0.16  | )    |  | $ | 0.19   |  
|Diluted earnings per common share                   |  | $                                     | 0.78   |                                     | $ | 0.12  |             |  | $                    | 0.90   |             | $ | 0.34   |             | $ | (0.16  | )    |  | $ | 0.18   |  



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



|                                                    |  |                                        |        |                                        |   |      |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|--------------------------------------------------- |  | -------------------------------------- | ------ | -------------------------------------- | - | ---- | ----------- |  | -------------------- | ------ | ----------- | - | ------ | ----------- | - | ------ | ---- |  | - | ------ | -
|                                                    |  | For the Six Months Ended June 30, 2005 |        | For the Six Months Ended June 30, 2004 |  
|                                                    |  | AsOriginallyReported                   |        | Adjustments                            |   |      | As Restated |  | AsOriginallyReported |        | Adjustments |   |        | As Restated |  
|                                                    |  | (in thousands, expect per share data)  |       
|Interest income                                     |  | $                                      | 82,254 |                                        | $ |     |             |  | $                    | 82,254 |             |   | 65,379 |             | $ |       |      |  |   | 65,379 |  
|Interest expense:                                   |  |                                        |        |                                        |   |      |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Deposits                                            |  |                                        | 21,521 |                                        |   | 621  | (1)         |  |                      | 22,142 |             |   | 12,942 |             |   | 1,322  | (1)  |  |   | 14,264 |  
|Short-term borrowings                               |  |                                        | 2,185  |                                        |   |     |             |  |                      | 2,185  |             |   | 1,021  |             |   |       |      |  |   | 1,021  |  
|Notes payable and FHLB advances                     |  |                                        | 2,028  |                                        |   |     |             |  |                      | 2,028  |             |   | 2,172  |             |   |       |      |  |   | 2,172  |  
|Junior subordinated debentures                      |  |                                        | 3,770  |                                        |   | (302 | )(2)        |  |                      | 3,468  |             |   | 2,649  |             |   | (879   | )(2) |  |   | 1,770  |  
|                                                    |  |                                        |        |                                        |   |      |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Total interest expense                              |  |                                        | 29,504 |                                        |   | 319  |             |  |                      | 29,823 |             |   | 18,784 |             |   | 443    |      |  |   | 19,227 |  
|                                                    |  |                                        |        |                                        |   |      |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Net interest income                                 |  |                                        | 52,750 |                                        |   | (319 | )           |  |                      | 52,431 |             |   | 46,595 |             |   | (443   | )    |  |   | 46,152 |  
|Provision for loan losses                           |  |                                        | 2,751  |                                        |   |     |             |  |                      | 2,751  |             |   | 5,500  |             |   |       |      |  |   | 5,500  |  
|                                                    |  |                                        |        |                                        |   |      |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Net interest income after provision for loan losses |  |                                        | 49,999 |                                        |   | (319 | )           |  |                      | 49,680 |             |   | 41,095 |             |   | (443   | )    |  |   | 40,652 |  
|                                                    |  |                                        |        |                                        |   |      |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Noninterest income:                                 |  |                                        |        |                                        |   |      |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Service charges                                     |  |                                        | 4,815  |                                        |   |     |             |  |                      | 4,815  |             |   | 5,631  |             |   |       |      |  |   | 5,631  |  
|Trust and investment management fees                |  |                                        | 2,341  |                                        |   |     |             |  |                      | 2,341  |             |   | 2,573  |             |   |       |      |  |   | 2,573  |  
|Gain on sale of land trusts                         |  |                                        | 2,000  |                                        |   |      |             |  |                      | 2,000  |             |   |       |             |   |        |      |  |   |       |  
|Gain on sale of branch                              |  |                                        | 1,572  |                                        |   |      |             |  |                      | 1,572  |             |   |       |             |   |        |      |  |   |       |  
|Gain on sale of investment securities, net          |  |                                        | 127    |                                        |   |     |             |  |                      | 127    |             |   |       |             |   |       |      |  |   |       |  
|Net cash settlements on CD swaps                    |  |                                        |       |                                        |   | 464  | (1)         |  |                      | 464    |             |   |       |             |   | 942    | (1)  |  |   | 942    |  
|Change in fair value of CD swaps                    |  |                                        |       |                                        |   | 245  | (3)         |  |                      | 245    |             |   |       |             |   | (1,634 | )(3) |  |   | (1,634 | )
|Other noninterest income                            |  |                                        | 1,354  |                                        |   |     |             |  |                      | 1,354  |             |   | 775    |             |   |       |      |  |   | 775    |  
|                                                    |  |                                        |        |                                        |   |      |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Total noninterest income                            |  |                                        | 12,209 |                                        |   | 709  |             |  |                      | 12,918 |             |   | 8,979  |             |   | (692   | )    |  |   | 8,287  |  
|                                                    |  |                                        |        |                                        |   |      |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Noninterest expense                                 |  |                                        | 34,264 |                                        |   |     |             |  |                      | 34,264 |             |   | 37,199 |             |   |       |      |  |   | 37,199 |  
|                                                    |  |                                        |        |                                        |   |      |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Income before income taxes                          |  |                                        | 27,944 |                                        |   | 390  |             |  |                      | 28,334 |             |   | 12,875 |             |   | (1,135 | )    |  |   | 11,740 |  
|Income taxes                                        |  |                                        | 10,825 |                                        |   | 153  | (4)         |  |                      | 10,978 |             |   | 4,432  |             |   | (445   | )(4) |  |   | 3,987  |  
|                                                    |  |                                        |        |                                        |   |      |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Net income                                          |  | $                                      | 17,119 |                                        | $ | 237  |             |  | $                    | 17,356 |             | $ | 8,443  |             | $ | (690   | )    |  | $ | 7,753  |  
|                                                    |  |                                        |        |                                        |   |      |             |  |                      |        |             |   |        |             |   |        |      |  |   |        |  
|Basic earnings per common share                     |  | $                                      | 1.79   |                                        | $ | 0.02 |             |  | $                    | 1.81   |             | $ | 0.69   |             | $ | (0.07  | )    |  | $ | 0.62   |  
|Diluted earnings per common share                   |  | $                                      | 1.75   |                                        | $ | 0.02 |             |  | $                    | 1.77   |             | $ | 0.68   |             | $ | (0.07  | )    |  | $ | 0.61   |  



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



|                                                                    |  |                       |           |   |             |   |       |             |  |   |           |  
|------------------------------------------------------------------- |  | --------------------- | --------- | - | ----------- | - | ----- | ----------- |  | - | --------- | -
|                                                                    |  | As of June 30, 2005   |          
|                                                                    |  | As OriginallyReported |           |   | Adjustments |   |       | As Restated | 
|                                                                    |  | (in thousands)        |          
|ASSETS                                                              |  |                       |           |   |             |   |       |             |  |   |           |  
|Cash and cash equivalents                                           |  | $                     | 182,614   |   |             | $ |      |             |  | $ | 182,614   |  
|Investment securities                                               |  |                       | 547,320   |   |             |   |      |             |  |   | 547,320   |  
|Loans, net of allowance for loan losses                             |  |                       | 2,241,154 |   |             |   |      |             |  |   | 2,241,154 |  
|Premises, leasehold improvements and equipment, net                 |  |                       | 12,364    |   |             |   |      |             |  |   | 12,364    |  
|Investment in Federal Home Loan Bank and Federal Reserve Bank stock |  |                       | 12,750    |   |             |   |      |             |  |   | 12,750    |  
|Other real estate and repossessed assets, net                       |  |                       | 585       |   |             |   |      |             |  |   | 585       |  
|Goodwill                                                            |  |                       | 23,237    |   |             |   |      |             |  |   | 23,237    |  
|Other assets                                                        |  |                       | 53,965    |   |             |   | 1,121 | (5)         |  |   | 55,086    |  
|                                                                    |  |                       |           |   |             |   |       |             |  |   |           |  
|Total assets                                                        |  | $                     | 3,073,989 |   |             | $ | 1,121 |             |  | $ | 3,075,110 |  
|                                                                    |  |                       |           |   |             |   |       |             |  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                |  |                       |           |   |             |   |       |             |  |   |           |  
|Deposits:                                                           |  |                       |           |   |             |   |       |             |  |   |           |  
|Noninterest-bearing                                                 |  | $                     | 459,672   |   |             | $ |      |             |  | $ | 459,672   |  
|Interest-bearing                                                    |  |                       | 1,956,765 |   |             |   | 572   | (6)         |  |   | 1,957,337 |  
|                                                                    |  |                       |           |   |             |   |       |             |  |   |           |  
|Total deposits                                                      |  |                       | 2,416,437 |   |             |   | 572   |             |  |   | 2,417,009 |  
|Short-term borrowings                                               |  |                       | 266,825   |   |             |   |      |             |  |   | 266,825   |  
|Accrued interest, taxes and other liabilities                       |  |                       | 44,876    |   |             |   |      |             |  |   | 44,876    |  
|Notes payable and FHLB advances                                     |  |                       | 85,500    |   |             |   |      |             |  |   | 85,500    |  
|Junior subordinated debentures                                      |  |                       | 87,638    |   |             |   |      |             |  |   | 87,638    |  
|                                                                    |  |                       |           |   |             |   |       |             |  |   |           |  
|Total liabilities                                                   |  |                       | 2,901,276 |   |             |   | 572   |             |  |   | 2,901,848 |  
|                                                                    |  |                       |           |   |             |   |       |             |  |   |           |  
|Stockholders equity:                                               |  |                       |           |   |             |   |       |             |  |   |           |  
|Common stock                                                        |  |                       | 101       |   |             |   |      |             |  |   | 101       |  
|Surplus                                                             |  |                       | 150,922   |   |             |   |      |             |  |   | 150,922   |  
|Unearned compensation - stock grants                                |  |                       | (2,692    | ) |             |   |      |             |  |   | (2,692    | )
|Retained earnings                                                   |  |                       | 32,338    |   |             |   | 549   | (7)         |  |   | 32,887    |  
|Accumulated other comprehensive loss                                |  |                       | (899      | ) |             |   |      |             |  |   | (899      | )
|Treasury stock                                                      |  |                       | (7,057    | ) |             |   |      |             |  |   | (7,057    | )
|                                                                    |  |                       |           |   |             |   |       |             |  |   |           |  
|Total stockholders equity                                          |  |                       | 172,713   |   |             |   | 549   |             |  |   | 173,262   |  
|                                                                    |  |                       |           |   |             |   |       |             |  |   |           |  
|Total liabilities and stockholders equity                          |  | $                     | 3,073,989 |   |             | $ | 1,121 |             |  | $ | 3,075,110 |  
|                                                                    |  |                       |           |   |             |   |       |             |  |   |           |  



|                                       |  |                                        |         |                                        |   |             |  |                      |         |             |   |         |             |   |      |   |  |   |        
|-------------------------------------- |  | -------------------------------------- | ------- | -------------------------------------- | - | ----------- |  | -------------------- | ------- | ----------- | - | ------- | ----------- | - | ---- | - |  | - | -------
|                                       |  | For the Six Months Ended June 30, 2005 |         | For the Six Months Ended June 30, 2004
|                                       |  | AsOriginallyReported                   |         | Adjustments                            |   | As Restated |  | AsOriginallyReported |         | Adjustments |   |         | As Restated
|                                       |  | (in thousands)                        
|Total stockholders equity, January 1  |  | $                                      | 155,261 |                                        | $ | 312         |  | $                    | 155,573 |             | $ | 176,485 |             | $ |     |   |  | $ | 176,485
|Net income                             |  |                                        | 17,119  |                                        |   | 237         |  |                      | 17,356  |             |   | 8,443   |             |   | (690 | ) |  |   | 7,753  
|Total comprehensive income, net of tax |  |                                        | 16,687  |                                        |   | 237         |  |                      | 16,924  |             |   | 1,298   |             |   | (690 | ) |  |   | 608    
|Total stockholders equity, June 30    |  |                                        | 172,713 |                                        |   | 549         |  |                      | 173,262 |             |   | 175,547 |             |   | (690 | ) |  |   | 174,857

---

|(1) | The net cash settlements under the CD swaps that were originally reported in deposit interest expense, with the interest expense of the hedged item (the brokered CDs), have been
reclassified to noninterest income from net interest income. In addition, deposit interest expense has been restated to include the amortization of the CD broker placement fee.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The amortization of the issuance costs for the junior subordinated debentures has been reduced to reflect the period to maturity rather than the period to the call date.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The change in the fair value of the CD swaps during the period that was originally off-set by the change in the fair value of the associated brokered CDs is reported in noninterest
income.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



|(4) | Income tax expense (benefit) for the adjustments reflect the Companys statutory rate of approximately 39%.
|--- | -----------------------------------------------------------------------------------------------------------

|(5) | The adjustments result in changes in deferred tax assets and deferred debt issuance costs, both of which are reported in other assets.
|--- | --------------------------------------------------------------------------------------------------------------------------------------

|(6) | The fair value adjustments to the brokered CDs have been eliminated and the unamortized CD broker placement fees have been recorded.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(7) | The adjustment to stockholders equity reflects the cumulative impact of the adjustments, net of income taxes at approximately 39%, at the balance sheet date.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



3. Investment
Securities:



The amortized cost and estimated fair values
of investment securities at June 30, 2005 and December 31, 2004 were as follows:



|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|----------------------------------- |  | ----------------- | ------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | -------
|                                    |  | June 30, 2005    
|                                    |  | AmortizedCost     |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|                                    |  | (in thousands)   
|Available-for-sale:                 |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|U.S. government agency securities   |  | $                 | 204,102 |                      | $ | 65                    |  | $ | (1,147              | ) |  | $ | 203,020
|Collateralized mortgage obligations |  |                   | 111,271 |                      |   | 279                   |  |   | (1,158              | ) |  |   | 110,392
|Mortgage-backed securities          |  |                   | 176,790 |                      |   | 479                   |  |   | (2,015              | ) |  |   | 175,254
|State and municipal obligations     |  |                   | 56,286  |                      |   | 2,123                 |  |   | (30                 | ) |  |   | 58,379 
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total available-for-sale            |  |                   | 548,449 |                      |   | 2,946                 |  |   | (4,350              | ) |  |   | 547,045
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Held-to-maturity:                   |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Other debt securities               |  |                   | 275     |                      |   |                      |  |   |                    |   |  |   | 275    
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total held-to-maturity              |  |                   | 275     |                      |   |                      |  |   |                    |   |  |   | 275    
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total                               |  | $                 | 548,724 |                      | $ | 2,946                 |  | $ | (4,350              | ) |  | $ | 547,320
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|                                    | 
|                                    |  | December 31, 2004
|                                    |  | AmortizedCost     |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|                                    |  | (in thousands)   
|Available-for-sale:                 |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|U.S. government agency securities   |  | $                 | 194,370 |                      | $ | 76                    |  | $ | (753                | ) |  | $ | 193,693
|Collateralized mortgage obligations |  |                   | 117,020 |                      |   | 207                   |  |   | (1,534              | ) |  |   | 115,693
|Mortgage-backed securities          |  |                   | 181,515 |                      |   | 735                   |  |   | (1,899              | ) |  |   | 180,351
|State and municipal obligations     |  |                   | 41,668  |                      |   | 1,939                 |  |   |                    |   |  |   | 43,607 
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total available-for-sale            |  |                   | 534,573 |                      |   | 2,957                 |  |   | (4,186              | ) |  |   | 533,344
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Held-to-maturity:                   |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Other debt securities               |  |                   | 275     |                      |   |                      |  |   |                    |   |  |   | 275    
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total held-to-maturity              |  |                   | 275     |                      |   |                      |  |   |                    |   |  |   | 275    
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        
|Total                               |  | $                 | 534,848 |                      | $ | 2,957                 |  | $ | (4,186              | ) |  | $ | 533,619
|                                    |  |                   |         |                      |   |                       |  |   |                     |   |  |   |        



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)



4. Loans:



Loans classified by type at June 30, 2005 and December 31, 2004 were as follows:



|                                      |  |                |           |   |               |   |           |  
|------------------------------------- |  | -------------- | --------- | - | ------------- | - | --------- | -
|                                      |  | June 30, 2005  |           |   | Dec. 31, 2004 |  
|                                      |  | (in thousands) |          
|Commercial and industrial             |  | $              | 637,866   |   |               | $ | 656,099   |  
|Commercial real estate secured        |  |                | 722,926   |   |               |   | 732,251   |  
|Real estate-construction              |  |                | 652,785   |   |               |   | 531,868   |  
|Residential real estate mortgages     |  |                | 58,878    |   |               |   | 64,569    |  
|Home equity loans and lines of credit |  |                | 189,511   |   |               |   | 207,164   |  
|Consumer                              |  |                | 15,761    |   |               |   | 18,386    |  
|Other loans                           |  |                | 986       |   |               |   | 1,460     |  
|                                      |  |                |           |   |               |   |           |  
|Gross loans                           |  |                | 2,278,713 |   |               |   | 2,211,797 |  
|Less: Unearned discount               |  |                | (148      | ) |               |   | (191      | )
|                                      |  |                |           |   |               |   |           |  
|Total loans                           |  |                | 2,278,565 |   |               |   | 2,211,606 |  
|Less: Allowance for loan losses       |  |                | (37,411   | ) |               |   | (37,484   | )
|                                      |  |                |           |   |               |   |           |  
|Loans, net                            |  | $              | 2,241,154 |   |               | $ | 2,174,122 |  
|                                      |  |                |           |   |               |   |           |  



Nonaccrual and
impaired loans at June 30, 2005 were $13.8 million and $34.0 million, respectively, as compared to $12.3 million and $18.3 million at December 31, 2004, respectively.



5. Premises, Leasehold Improvements, and Equipment:



Premises, leasehold improvements, and equipment at June 30, 2005 and
December 31, 2004 were as follows:



|                                               |  |                |         |   |              |   |         |  
|---------------------------------------------- |  | -------------- | ------- | - | ------------ | - | ------- | -
|                                               |  | June 30, 2005  |         |   | Dec. 31,2004 |  
|                                               |  | (in thousands) |        
|Land and improvements                          |  | $              | 1,140   |   |              | $ | 2,414   |  
|Buildings and improvements                     |  |                | 2,260   |   |              |   | 3,931   |  
|Leasehold improvements                         |  |                | 5,378   |   |              |   | 4,525   |  
|Furniture, fixtures and equipment              |  |                | 17,540  |   |              |   | 17,256  |  
|                                               |  |                |         |   |              |   |         |  
|Total cost                                     |  |                | 26,318  |   |              |   | 28,126  |  
|Less accumulated depreciation and amortization |  |                | (13,954 | ) |              |   | (13,339 | )
|                                               |  |                |         |   |              |   |         |  
|Net book value                                 |  | $              | 12,364  |   |              | $ | 14,787  |  
|                                               |  |                |         |   |              |   |         |  



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)



6. Interest-Bearing Deposits:



Interest-bearing deposits at June 30, 2005 and December 31, 2004 were as follows:



|                                            |  |                          |           |                         |   |          
|------------------------------------------- |  | ------------------------ | --------- | ----------------------- | - | ---------
|                                            |  | (Restated) June 30, 2005 |           | (Restated)Dec. 31, 2004
|                                            |  | (in thousands)          
|NOW accounts                                |  | $                        | 106,182   |                         | $ | 124,015  
|Savings accounts                            |  |                          | 78,761    |                         |   | 85,371   
|Money market deposits                       |  |                          | 508,074   |                         |   | 421,529  
|Time deposits:                              |  |                          |           |                         |   |          
|Certificates of deposit                     |  |                          | 556,701   |                         |   | 525,173  
|Out-of-local-market certificates of deposit |  |                          | 145,952   |                         |   | 124,005  
|Brokered certificates of deposit            |  |                          | 484,649   |                         |   | 415,811  
|Public time deposits                        |  |                          | 77,018    |                         |   | 69,635   
|                                            |  |                          |           |                         |   |          
|Total time deposits                         |  |                          | 1,264,320 |                         |   | 1,134,624
|                                            |  |                          |           |                         |   |          
|Total                                       |  | $                        | 1,957,337 |                         | $ | 1,765,539
|                                            |  |                          |           |                         |   |          



At June 30, 2005
and December 31, 2004, time deposits in amounts of $100,000 or more totaled $346.8 million and $331.3 million, respectively.



7. Short-Term Borrowings:



Short-term borrowings at June 30, 2005 and December 31, 2004 consisted of the following:



|                                               |  |                |         |              |   |        
|---------------------------------------------- |  | -------------- | ------- | ------------ | - | -------
|                                               |  | June 30,2005   |         | Dec. 31,2004
|                                               |  | (in thousands)
|Securities sold under agreements to repurchase |  | $              | 203,705 |              | $ | 185,737
|Federal funds purchased                        |  |                | 38,005  |              |   | 43,685 
|U.S. Treasury tax and loan note option         |  |                | 25,115  |              |   | 125    
|                                               |  |                |         |              |   |        
|Total                                          |  | $              | 266,825 |              | $ | 229,547
|                                               |  |                |         |              |   |        



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)



8. Other Comprehensive Income/(Loss):



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



|                                                                                                      |  |                 |         |   |           |   |           |  |   |        |  
|----------------------------------------------------------------------------------------------------- |  | --------------- | ------- | - | --------- | - | --------- |  | - | ------ | -
|                                                                                                      |  | BeforeTaxAmount |         |   | TaxEffect |   | Net ofTax | 
|                                                                                                      |  | (in thousands)  |        
|For the Six Months Ended June 30, 2005:                                                               |  |                 |         |   |           |   |           |  |   |        |  
|Unrealized gain/(loss) from securities:                                                               |  |                 |         |   |           |   |           |  |   |        |  
|Change in unrealized gain/(loss) on available-for-sale securities                                     |  | $               | (48     | ) |           | $ | 17        |  | $ | (31    | )
|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 |  |                 | (175    | ) |           |   | 61        |  |   | (114   | )
|Change in net unrealized loss from cash flow hedging instruments                                      |  |                 | (356    | ) |           |   | 124       |  |   | (232   | )
|Change in deferred gain from termination of cash flow hedging instruments                             |  |                 | (132    | ) |           |   | 46        |  |   | (86    | )
|                                                                                                      |  |                 |         |   |           |   |           |  |   |        |  
|Other comprehensive loss                                                                              |  | $               | (663    | ) |           | $ | 231       |  | $ | (432   | )
|                                                                                                      |  |                 |         |   |           |   |           |  |   |        |  
|For the Six Months Ended June 30, 2004:                                                               |  |                 |         |   |           |   |           |  |   |        |  
|Change in unrealized gain/(loss) on available-for-sale securities                                     |  | $               | (10,860 | ) |           | $ | 3,801     |  | $ | (7,059 | )
|Change in deferred gain from termination of cash flow hedging instruments                             |  |                 | (132    | ) |           |   | 46        |  |   | (86    | )
|                                                                                                      |  |                 |         |   |           |   |           |  |   |        |  
|Other comprehensive loss                                                                              |  | $               | (10,992 | ) |           | $ | 3,847     |  | $ | (7,145 | )
|                                                                                                      |  |                 |         |   |           |   |           |  |   |        |  



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)



9. Earnings per Share:



The following table sets forth the computation of basic and diluted earnings per common share. For the quarterly and six month periods ended June 30,
2004, stock options outstanding to purchase 336,480 and 225,600 common shares, respectively, were not included in the computation of diluted earnings per share because the effect would have been antidilutive.



|                                                   |  |                                                            |           |      |                                             |           |      |  |      |           |  |   |           |  
|-------------------------------------------------- |  | ---------------------------------------------------------- | --------- | ---- | ------------------------------------------- | --------- | ---- |  | ---- | --------- |  | - | --------- | -
|                                                   |  | (Restated) For the Three Months EndedJune 30,              |           |      | (Restated) For the Six Months EndedJune 30, |          
|                                                   |  | 2005                                                       |           | 2004 |                                             |           | 2005 |  | 2004 |          
|                                                   |  | (dollars in thousands, except share and per share amounts) |          
|Net income                                         |  | $                                                          | 8,817     |      | $                                           | 2,779     |      |  | $    | 17,356    |  | $ | 7,753     |  
|Less preferred dividend requirements               |  |                                                            |          |      |                                             | (1,014    | )    |  |      |          |  |   | (1,875    | )
|                                                   |  |                                                            |           |      |                                             |           |      |  |      |           |  |   |           |  
|Net income applicable to common stockholders       |  | $                                                          | 8,817     |      | $                                           | 1,765     |      |  | $    | 17,356    |  | $ | 5,878     |  
|                                                   |  |                                                            |           |      |                                             |           |      |  |      |           |  |   |           |  
|Weighted average common shares outstanding         |  |                                                            | 9,585,338 |      |                                             | 9,500,486 |      |  |      | 9,570,041 |  |   | 9,495,701 |  
|Dilutive effect of common stock equivalents        |  |                                                            | 232,987   |      |                                             | 56,620    |      |  |      | 227,521   |  |   | 95,758    |  
|                                                   |  |                                                            |           |      |                                             |           |      |  |      |           |  |   |           |  
|Diluted weighted average common shares outstanding |  |                                                            | 9,818,325 |      |                                             | 9,557,106 |      |  |      | 9,797,562 |  |   | 9,591,459 |  
|                                                   |  |                                                            |           |      |                                             |           |      |  |      |           |  |   |           |  
|Basic earnings per common share                    |  | $                                                          | 0.92      |      | $                                           | 0.19      |      |  | $    | 1.81      |  | $ | 0.62      |  
|Diluted earnings per common share                  |  |                                                            | 0.90      |      |                                             | 0.18      |      |  |      | 1.77      |  |   | 0.61      |  
|                                                   |  |                                                            |           |      |                                             |           |      |  |      |           |  |   |           |  



10. Stock-based Compensation:



The Company accounts for the stock-based compensation plans
under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. For the stock option program, no compensation cost is recognized in connection with the granting of stock options with an exercise price
equal to the fair market value of the stock on the date of the grant. For the restricted stock program, the Company uses the fixed method of accounting and records compensation expense, over the vesting period of the grant, based upon the fair
market value of the stock at the date of grant. In accordance with the disclosure requirements of Statement of Financial Accounting Standard, or SFAS, No. 123, Accounting for Stock-Based Compensation, as amended by SFAS
No. 148, Accounting for Stock-Based CompensationTransition and DisclosureAn amendment of FASB Statement No. 123, the following table provides the pro forma effect on net income and earnings per share if the fair
value method of accounting for stock-based compensation had been used for all awards:



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)



|                                                                                                                                          |  |                                                  |       |   |                                  |   |        |               |  |   |               |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------ | ----- | - | -------------------------------- | - | ------ | ------------- |  | - | ------------- | - |  | - | ------ | -
|                                                                                                                                          |  | For the Three Months EndedJune 30,               |       |   | For the Six Months EndedJune 30, |  
|                                                                                                                                          |  | Restated 2005                                    |       |   | Restated 2004                    |   |        | Restated 2005 |  |   | Restated 2004 |  
|                                                                                                                                          |  | (dollars in thousands, except per share amounts) |      
|Net income as reported                                                                                                                    |  | $                                                | 8,817 |   |                                  | $ | 2,779  |               |  | $ | 17,356        |   |  | $ | 7,753  |  
|Add: Stock-based compensation, net of tax, included in the determination of net income, as reported                                       |  |                                                  | (9    | ) |                                  |   | 49     |               |  |   | 95            |   |  |   | 124    |  
|Deduct: Stock-based compensation, net of tax, that would have been reported if the fair value based method had been applied to all
awards |  |                                                  | (117  | ) |                                  |   | (171   | )             |  |   | (387          | ) |  |   | (409   | )
|                                                                                                                                          |  |                                                  |       |   |                                  |   |        |               |  |   |               |   |  |   |        |  
|Pro forma net income                                                                                                                      |  |                                                  | 8,691 |   |                                  |   | 2,657  |               |  |   | 17,064        |   |  |   | 7,468  |  
|Less preferred dividend requirements                                                                                                      |  |                                                  |      |   |                                  |   | (1,014 | )             |  |   |              |   |  |   | (1,875 | )
|                                                                                                                                          |  |                                                  |       |   |                                  |   |        |               |  |   |               |   |  |   |        |  
|Pro forma net income available to common stockholders                                                                                     |  | $                                                | 8,691 |   |                                  | $ | 1,643  |               |  | $ | 17,064        |   |  | $ | 5,593  |  
|                                                                                                                                          |  |                                                  |       |   |                                  |   |        |               |  |   |               |   |  |   |        |  
|Basic earnings per common share                                                                                                           |  |                                                  |       |   |                                  |   |        |               |  |   |               |   |  |   |        |  
|As reported                                                                                                                               |  | $                                                | 0.92  |   |                                  | $ | 0.19   |               |  | $ | 1.81          |   |  | $ | 0.62   |  
|Pro forma                                                                                                                                 |  |                                                  | 0.91  |   |                                  |   | 0.17   |               |  |   | 1.78          |   |  |   | 0.59   |  
|Diluted earnings per common share                                                                                                         |  |                                                  |       |   |                                  |   |        |               |  |   |               |   |  |   |        |  
|As reported                                                                                                                               |  | $                                                | 0.90  |   |                                  | $ | 0.18   |               |  | $ | 1.77          |   |  | $ | 0.61   |  
|Pro forma                                                                                                                                 |  |                                                  | 0.89  |   |                                  |   | 0.17   |               |  |   | 1.74          |   |  |   | 0.58   |  



11. Derivative Financial
Instruments:



The Company uses derivative financial
instruments, including interest rate exchange agreements and floors, to assist in interest rate risk management. The following table sets forth the activity in the notional amounts of derivative financial instruments during the first six months of
2005.



|                             |  |                                   |         |   |                     |   |        |       |  |   |                |   |  |   |        
|---------------------------- |  | --------------------------------- | ------- | - | ------------------- | - | ------ | ----- |  | - | -------------- | - |  | - | -------
|                             |  | Interest Rate Exchange Agreements |         |   | Interest RateFloors
|                             |  | CD Swaps                          |         |   | Cash FlowHedge      |   |        | Total |  |   | Cash FlowHedge
|                             |  | (dollars in thousands)           
|Balance at December 31, 2004 |  | $                                 | 130,000 |   |                     | $ | 50,000 |       |  | $ | 180,000        |   |  | $ |       
|Additions                    |  |                                   | 90,000  |   |                     |   |       |       |  |   | 90,000         |   |  |   | 100,000
|Terminations/calls           |  |                                   |        |   |                     |   |       |       |  |   |               |   |  |   |       
|Maturities                   |  |                                   |        |   |                     |   |       |       |  |   |               |   |  |   |       
|                             |  |                                   |         |   |                     |   |        |       |  |   |                |   |  |   |        
|Balance at June 30, 2005     |  | $                                 | 220,000 |   |                     | $ | 50,000 |       |  | $ | 270,000        |   |  | $ | 100,000
|                             |  |                                   |         |   |                     |   |        |       |  |   |                |   |  |   |        
|Fair value at June 30, 2005  |  | $                                 | (2,538  | ) |                     | $ | (876   | )     |  | $ | (3,414         | ) |  | $ | 590    
|                             |  |                                   |         |   |                     |   |        |       |  |   |                |   |  |   |        



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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)



Below is summary information regarding the interest rate exchange agreements outstanding at June 30, 2005.



|                |  |                               |         |                   |         |   |  |              |   |  |    
|--------------- |  | ----------------------------- | ------- | ----------------- | ------- | - |  | ------------ | - |  | ---
|                |  | Notional Amount(in thousands) |         | Weighted Averages
|                |  | ReceiveRate                   |         |                   | PayRate |   |  | Life inYears
|CD swaps        |  | $                             | 220,000 |                   | 3.76    | % |  | 3.29         | % |  | 5.0
|Cash Flow Hedge |  |                               | 50,000  |                   | 6.04    | % |  | 6.25         | % |  | 2.2
|                |  |                               |         |                   |         |   |  |              |   |  |    
|Total           |  | $                             | 270,000 |                   | 3.83    | % |  | 4.18         | % |  | 4.5
|                |  |                               |         |                   |         |   |  |              |   |  |    



During the first six
months of 2005, we entered into additional interest rate exchange agreements with notional amounts totaling $90.0 million related to newly issued brokered certificates of deposit of $90.0 million.



At the end of June 2005, the Company entered into a $100.0 million notional
amount interest rate floor, with a floor rate of 5.50% based upon the prime lending rate. The Company uses this interest rate floor as a cash flow hedge of $100.0 million of its commercial loans, tied to the prime lending rate, to protect interest
income in the event that the prime lending rate declines below 5.50%. This interest rate floor agreement expires in June 2010. During July 2005, the Company entered into another $100.0 million notional amount interest rate floor agreement. This
agreement will also be a cash flow hedge on the Companys commercial loan portfolio that is tied to the prime lending rate. This agreement has a floor amount of 6.25% and will expire in July 2010.



12. Common Stock Offering:



On July 25, 2005, the Company filed a registration statement with the
Securities and Exchange Commission (SEC) for a public offering of up to $66 million of common stock, including shares of common stock to be offered by members of the Taylor family. The Company expects to use the net proceeds from its
offering of shares for general corporate purposes, which may include working capital needs and investments in the Companys subsidiary bank to support future growth. The Company will not receive any proceeds from the sale of shares by the
Taylor family. It is anticipated that the Taylor family will be selling less than 10% of their aggregate holdings and will continue to own greater than 40% of the Companys outstanding common stock, in the aggregate, upon completion of the
offering. For a more complete description refer to the Registration Statement on Form S-3 (Registration No. 333-126864) filed with the SEC on July 25, 2005.



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS



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



We are a bank holding company headquartered in 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 Amendment No. 1 to our Registration Statement on Form S-3 (Registration No. 333-126864) filed with
the SEC on August 5, 2005.



Restatements of Results of Operations and
Financial Condition



We are restating our previously
reported financial information as of June 30, 2005 and for the three and six months ended June 30, 2005 and 2004 to correct errors in those consolidated financial statements relating to our derivative accounting under Statement of
Financial Accounting Standards 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), and to reflect a change in the amortization period of issuance costs related to our junior subordinated debentures.



In 2005 and prior years, we entered into interest rate swap
agreements (CD swaps) to hedge the interest rate risk inherent in certain of our brokered certificates of deposit (brokered CDs). We believe using interest rate swaps to convert the interest expense on brokered CDs from fixed to variable is prudent
from a risk management standpoint. The brokered CDs are typically structured with terms of 5 to 7 years with a call option on our part, but no surrender option for the CD holder, other than death. The extended term of the brokered CDs minimize
liquidity risk while our option to call the CDs after 1 year provides us with funding flexibility. This variable rate funding matches well with our large floating rate loan portfolio. We consider these CD swaps to be valuable economic transactions
that benefit our Company.



From the inception of the hedging
program, we applied a method of fair value hedge accounting under SFAS 133 to account for the CD swaps that allowed us to assume no ineffectiveness in these transactions (the so-called short-cut method). We recently concluded that the CD
swaps did not qualify for this method in prior periods because the related CD broker placement fee was determined, in retrospect, to have caused the swap not to have a fair value of zero at inception (which is required under SFAS 133 to qualify for
the short-cut method). Furthermore, although historical effectiveness testing performed in November 2005



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS



demonstrated that the CD swaps would have qualified for hedge
accounting under the long-haul method, hedge accounting under SFAS 133 is not allowed retrospectively because the hedge documentation required for the long-haul method was not in place at the inception of the hedge.



Fair value hedge accounting allows a company to record the effective portion
of the change in fair value of the hedged item (in this case, the brokered CDs) as an adjustment to income that offsets the fair value adjustment on the related interest rate swaps. Eliminating the application of fair value hedge accounting reverses
the fair value adjustments that were made to the brokered CDs. Therefore, while the interest rate swap is recorded on the consolidated balance sheet at its fair value, the related hedged item, the brokered CDs, are required to be carried at par, net
of the unamortized balance of the CD broker placement fee. In addition, the CD broker placement fee, which was incorporated into the swap, is now separately recorded as an adjustment to the par amount of the brokered CDs and amortized through the
maturity date of the related CDs. Because the majority of the swaps and the brokered CDs have mirror call options after one year, the call of a brokered CD prior to maturity will now result in the expensing of the unamortized CD broker placement fee
on the call date.



The net cumulative pre-tax effect of
eliminating the fair value adjustment to the brokered CDs at June 30, 2005 is $572,000 (representing a $2.5 million elimination of the fair value adjustment to the brokered CDs less a $2.0 million adjustment to record the unamortized CD broker
placement fees). The cumulative after-tax impact was a $347,000 reduction to retained earnings. Although these CD swaps cannot retrospectively qualify for hedge accounting under SFAS 133, there is no effect on cash flows for these changes and the
effectiveness of the CD swaps as economic hedge transactions has not been affected by these changes in accounting treatment.



On November 18, 2005, we re-designated our interest rate swaps relating to our brokered CDs utilizing the long-haul method and completed
new contemporaneous hedging documentation. Accordingly, we believe these CD swaps should qualify for fair value hedge accounting in future periods under SFAS 133.



In connection with the determination of the appropriate amortization period for the brokered CD placement fees, we also
determined that the issuance costs relating to our junior subordinated debentures should have been amortized through the maturity date of the debentures, rather than their earlier call dates. The cumulative effect through June 30, 2005 of
amortization of the debt issuance costs through the maturity date of the related debt is an increase to retained earnings of $896,000 ($1.5 million pre-tax).



The combined impact of the errors in derivative accounting and debt issuance cost increased retained earnings at June 30, 2005 by $549,000. The
changes to previously reported net income and retained earnings in any of the restated quarterly periods did not cause any violation of our debt covenants and did not cause either Cole Taylor Banks or Taylor Capital Groups regulatory
capital ratios to fall below the well-capitalized levels as of the end of any of these periods.



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS



Further information regarding the impact of these
restatements to our results of operations, financial condition, and stockholders equity and comprehensive income can be found in Note 2 to the consolidated financial statements. The following discussion and tables include the adjustments made to
correct for the incorrect application of fair value hedge accounting under SFAS 133 and the amortization period for the debt issuance costs.



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. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
these estimates.



Certain accounting policies require us to use
significant judgment and estimates, which can have a material impact on the carrying value of certain assets and liabilities. We consider these policies to be critical accounting policies. The judgments and assumptions made by us are based upon
historical experience or other factors that we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions, actual results could differ from these judgments and estimates which could have a material
affect on our financial condition and results of operations.



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



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. 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



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



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 that could affect the ability of the borrowers in our portfolio to successfully execute their business models through
changing economic environments and competitive challenges, as well as management and other changes that affect our borrowers, complicate the estimate of the risk of loss and amount of loss on any loan. Because of the degree of uncertainty and
susceptibility of all of the above 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 typically larger in amount than loans to
individual consumers and generally are viewed as having more risk of default than residential real estate loans and 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. Our current credit risk rating and loss estimate with respect to a single sizable loan can have a material impact on our reported impaired loans and related loss exposure
estimates. 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 Cole Taylor Bank. We test this goodwill annually for impairment, or whenever events or significant changes in circumstances indicate that the carrying value may not be recoverable. Most recently, we tested goodwill for impairment
as of July 1, 2005 and we determined that no impairment charge was necessary. The evaluation for impairment includes comparing the estimated fair market value of Cole Taylor Bank to our carrying value for Cole Taylor Bank. Because there is not
a readily observable market value for Cole Taylor 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 obligations of the holding
company.



Income Taxes



At times, we apply different tax treatment for selected transactions for tax
return purposes than for 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 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.



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



Derivative Financial Instruments



We use derivative financial instruments, including
interest rate exchange and floor agreements to assist in our interest rate risk management. In accordance with SFAS 133, all derivative financial instruments are measured and reported at fair value on our balance sheet as either an asset or a
liability. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in
current earnings during the period of the change in the fair values. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument 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 derivative instruments that do not qualify for hedge accounting under
SFAS 133 are also reported currently in earnings.



With the
exception of hedges that qualify under the short-cut method, 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 derivative
instruments 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 instrument is not highly
effective as a hedge, hedge accounting is discontinued prospectively. Once hedge accounting is terminated, all changes in fair value of the derivative instrument 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 derivative instruments are obtained from dealer quotes. The dealers calculate the fair value of derivatives using valuation models to estimate mid-market valuations. The fair values produced by these proprietary valuation
models may be theoretical in whole or part and therefore can vary between 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.



RESULTS OF OPERATIONS



Overview



We recorded
net income applicable to common stockholders for the quarter ended June 30, 2005 of $8.8 million, or $0.90 per diluted common share, compared to $1.8 million, or $0.18 per diluted common share, for the second quarter of 2004. For the first six
months of 2005, net income applicable to common stockholders was $17.4 million or $1.77 per diluted share,



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



compared to $5.9 million, or $0.61 per diluted share,
for the first six months of 2004. For both the quarterly and year to date periods, net income applicable to common stockholders increased as a result of increased net interest income and noninterest income and decreased provision for loan losses and
noninterest expense. Additionally, pre-tax income during the first quarter of 2005 included pre-tax gains of $3.6 million from the sales of our land trust operations and our Broadview, Illinois branch.



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.



Three Months Ended June 30, 2005 as Compared to the Three Months Ended June 30, 2004



Net interest income was $26.6 million during the second quarter of 2005, a
$3.7 million, or 16.4%, increase over the $22.8 million of net interest income during the second quarter a year ago. With an adjustment for tax-exempt income, our consolidated net interest income for the second quarter of 2005 was $26.9 million as
compared to $23.2 million during the same quarter in 2004. Net interest income during the second quarter of 2005 has benefited from both a higher net interest margin and an increase in interest-earning assets.



The net interest margin, which is determined by dividing taxable equivalent
net interest income by average interest-earning assets, was 3.79% during the second quarter of 2005 compared to 3.56% during the same quarter a year ago, an increase of 23 basis points. Our net interest margin benefited from the increase in market
interest rates that began at the end of the second quarter of 2004. The yield on our interest-earning assets increased 96 basis points to 6.06% during the second quarter of 2005 from 5.10% during the same quarter in 2004. The cost of our
interest-bearing liabilities increased 85 basis points to 2.80% during the second quarter of 2005 from 1.95% during the same quarter in 2004.



The rise in short-term market interest rates over the last 12 months, including fed funds and LIBOR, produced an increase in both our yield on earning
assets and the cost of our interest-bearing liabilities. The increase in market rates triggered a 225 basis point increase in our prime lending rate. The yield earned on our loans was 6.58% during the second quarter of 2005, an increase of 119 basis
points over the loan yield of 5.39% during the second quarter in 2004. The change in mix of our interest-bearing liabilities also contributed to the increase in our interest costs. The issuance of $41.2 million of junior subordinated debentures in
June 2004, increased interest expense by $604,000, or five basis points, for the second quarter of 2005, as compared to the second quarter in 2004. In addition, we experienced declines in the balances of our lower-rate deposit products and increased
balances in our higher-rate deposit products. The yield on our investment securities was largely unchanged between the second quarters of 2005 and 2004, in



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



part because the market interest rates for investments
with terms approximating five years did not increase to the same degree as short-term interest rates. Additionally, only approximately one-third of the investment portfolio was reinvested over the past year.



The volume of interest-earning assets is a key driver of net interest income
earned. Average interest-earning assets increased $236.1 million, or 9.0%, to $2.85 billion for the second quarter of 2005 compared to $2.61 billion for the second quarter in 2004, primarily due to increased loans. Average loans increased $240.9
million, or 11.9%, to $2.26 billion during the second quarter of 2005 compared to $2.02 billion for the same quarter a year ago.



The $240.9 million increase in average loans between the second quarters of 2005 and 2004 was funded primarily with the $238.4 million increase in
deposits. Between the two quarterly periods, average brokered and out-of-local-market certificates of deposits increased $140.3 million and average money market accounts increased $94.7 million. Deposits in lower rate products, including NOW and
savings accounts, declined, while balances in promotional money market accounts and certificates of deposit increased. In addition, the redemption of our Series A preferred stock in July 2004 reduced average stockholders equity and increased
junior subordinated debentures.



The interest rate risk
position of our overall balance sheet is asset sensitive, which means more assets are expected to re-price than liabilities over a one-year horizon. This balance sheet structure provides opportunity for an increase in net interest margin during
periods of rising interest rates, such as we experienced over the last year. We have been successful in widening our net interest margin over the last year in part by actively managing the increases in rates paid to depositors. However, our
markets impatience with the degree to which deposit rates have not kept pace with the increases in prime appears to have waxed considerably. We expect less opportunity for an increased net interest margin, even if interest rates were to rise
in future periods, because of the increasing upward pressure on funding costs. If interest rates remain unchanged in future periods, we would expect to be exposed to the negative impact of a large percentage of our interest-bearing liabilities
repricing at current market rates, while a large portion of our interest-earning assets have already repriced. Our net interest margin would also be negatively impacted by a decline in market interest rates. See the section of this discussion and
analysis captioned Quantitative and Qualitative Disclosure About Market Risks for further discussion on the impact of interest rates.



Six Months Ended June 30, 2005 as Compared to the Six Months Ended June 30, 2004



Net interest income was $52.4 million during the first six months of 2005, a $6.3 million, or 13.6%, increase over the $46.2
million of net interest income during the same period a year ago. With an adjustment for tax-exempt income, our consolidated net interest income for the first six months of 2005 was $53.1 million as compared to $46.8 million during the same period
in 2004. Net interest income during the first six months of 2005 has benefited from both a higher net interest margin and an increase in interest-earning assets.



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



The net interest margin was 3.81%
during the first six months of 2005 compared to 3.66% during the same period a year ago, an increase of 15 basis points. Our net interest margin benefited from the increase in market interest rates over the last 12 months. Our net interest spread
increased three basis points. The yield on our interest-earning assets increased 78 basis points to 5.95% during the first six months of 2005 from 5.17% during the same period in 2004. The cost of our interest-bearing liabilities increased 75 basis
points to 2.65% during the first six months of 2005 from 1.90% during the same period in 2004. The change in the mix of our interest-bearing liabilities also contributed to the increase in our interest costs. The issuance of $41.2 million of junior
subordinated debentures in June 2004, increased interest expense by $1.2 million, or five basis points, for the first six months of 2005, as compared to the same period a year ago.



Average interest-earning assets increased $239.3 million, or 9.3%, to $2.81 billion for the first six months of 2005
compared to $2.57 billion for the first six months of 2004. Average loans increased $233.0 million, or 11.7%, to $2.23 billion during the first six months of 2005 compared to $1.99 billion for the same period a year ago.



The $233.0 million increase in average loans between the first six months of
2005 and 2004 was funded primarily with the $230.9 million increase in deposits. Between the two six month periods, average brokered and out-of-local-market certificates of deposits increased $151.8 million and average money market accounts
increased $60.2 million. Deposits in lower rate products, including NOW and savings accounts, declined, while balances in promotional money market accounts and certificates of deposit increased. In addition, the redemption of our Series A preferred
stock in July 2004 reduced average stockholders equity and increased junior subordinated debentures.



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 income or expense by the average balance of assets or liabilities. Because management reviews net interest income on a taxable 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 an equivalent
before-tax 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.



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



|                                               |  |                                               |        |   |                                             |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------------- |  | --------------------------------------------- | ------ | - | ------------------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                               |  | (Restated) For the Three Months EndedJune 30, |        |   | (Restated) For the Six Months EndedJune 30, |  
|                                               |  | 2005                                          |        |   | 2004                                        |   |        | 2005 |  |   | 2004   |  
|                                               |  | (dollars in thousands)                        |       
|Net interest income as stated                  |  | $                                             | 26,584 |   |                                             | $ | 22,836 |      |  | $ | 52,431 |   |  | $ | 46,152 |  
|Tax equivalent adjustment-investments          |  |                                               | 300    |   |                                             |   | 274    |      |  |   | 559    |   |  |   | 553    |  
|Tax equivalent adjustment-loans                |  |                                               | 47     |   |                                             |   | 47     |      |  |   | 86     |   |  |   | 91     |  
|                                               |  |                                               |        |   |                                             |   |        |      |  |   |        |   |  |   |        |  
|Tax equivalent net interest income             |  | $                                             | 26,931 |   |                                             | $ | 23,157 |      |  | $ | 53,076 |   |  | $ | 46,796 |  
|                                               |  |                                               |        |   |                                             |   |        |      |  |   |        |   |  |   |        |  
|Yield on earning assets without tax adjustment |  |                                               | 6.01   | % |                                             |   | 5.05   | %    |  |   | 5.90   | % |  |   | 5.12   | %
|Yield on earning assets - tax equivalent       |  |                                               | 6.06   | % |                                             |   | 5.10   | %    |  |   | 5.95   | % |  |   | 5.17   | %
|                                               |  |                                               |        |  
|Net interest margin without tax adjustment     |  |                                               | 3.74   | % |                                             |   | 3.51   | %    |  |   | 3.76   | % |  |   | 3.61   | %
|Net interest margin - tax equivalent           |  |                                               | 3.79   | % |                                             |   | 3.56   | %    |  |   | 3.81   | % |  |   | 3.66   | %
|                                               |  |                                               |        |  
|Net interest spread - without tax adjustment   |  |                                               | 3.21   | % |                                             |   | 3.10   | %    |  |   | 3.25   | % |  |   | 3.22   | %
|Net interest spread - tax equivalent           |  |                                               | 3.26   | % |                                             |   | 3.15   | %    |  |   | 3.30   | % |  |   | 3.27   | %



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 an equivalent before-tax basis assuming a tax rate of 35%.



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|---------------------------------------------- |  | ---------------------------------------------- | --------- | - | -------- | - | ---------------- |  | ---- | -------------- |  | - | --------- | - | ---------------- | - | ------ |  | ---- | -
|                                               |  | (Restated) For the Three Months Ended June 30, |          
|                                               |  | 2005                                           |           |   | 2004     |  
|                                               |  | AVERAGEBALANCE                                 |           |   | INTEREST |   | YIELD/RATE(%)(6) |  |      | AVERAGEBALANCE |  |   | INTEREST  |   | YIELD/RATE(%)(6) |  
|                                               |  | (dollars in thousands)                         |          
|INTEREST-EARNING ASSETS:                       |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Investment securities (1):                     |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Taxable                                        |  | $                                              | 507,640   |   |          | $ | 4,974            |  | 3.92 | %              |  | $ | 542,280   |   |                  | $ | 5,375  |  | 3.97 | %
|Tax-exempt (tax equivalent) (2)                |  |                                                | 49,611    |   |          |   | 857              |  | 6.91 |                |  |   | 43,869    |   |                  |   | 778    |  | 7.09 |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total investment securities                    |  |                                                | 557,251   |   |          |   | 5,831            |  | 4.19 |                |  |   | 586,149   |   |                  |   | 6,153  |  | 4.20 |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Cash Equivalents                               |  |                                                | 33,993    |   |          |   | 243              |  | 2.84 |                |  |   | 9,902     |   |                  |   | 25     |  | 1.00 |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Loans (2) (3):                                 |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Commercial and commercial real estate          |  |                                                | 1,985,700 |   |          |   | 32,562           |  | 6.49 |                |  |   | 1,689,051 |   |                  |   | 22,487 |  | 5.27 |  
|Residential real estate mortgages              |  |                                                | 60,680    |   |          |   | 760              |  | 5.01 |                |  |   | 70,875    |   |                  |   | 942    |  | 5.32 |  
|Home equity and consumer                       |  |                                                | 211,304   |   |          |   | 3,113            |  | 5.91 |                |  |   | 256,885   |   |                  |   | 3,073  |  | 4.81 |  
|Fees on loans                                  |  |                                                |           |   |          |   | 580              |  |      |                |  |   |           |   |                  |   | 510    |  |      |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net loans (tax equivalent) (2)                 |  |                                                | 2,257,684 |   |          |   | 37,015           |  | 6.58 |                |  |   | 2,016,811 |   |                  |   | 27,012 |  | 5.39 |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-earning assets (2)              |  |                                                | 2,848,928 |   |          |   | 43,089           |  | 6.06 |                |  |   | 2,612,862 |   |                  |   | 33,190 |  | 5.10 |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Allowance for loan losses                      |  |                                                | (39,379   | ) |          |   |                  |  |      |                |  |   | (35,871   | ) |                  |   |        |  |      |  
|                                               |  |                                                |           |   |          |  
|NON-EARNING ASSETS:                            |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Cash and due from banks                        |  |                                                | 69,522    |   |          |   |                  |  |      |                |  |   | 60,435    |   |                  |   |        |  |      |  
|Accrued interest and other assets              |  |                                                | 83,805    |   |          |   |                  |  |      |                |  |   | 89,774    |   |                  |   |        |  |      |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|TOTAL ASSETS                                   |  | $                                              | 2,962,876 |   |          |   |                  |  |      |                |  | $ | 2,727,200 |   |                  |   |        |  |      |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|INTEREST-BEARING LIABILITIES:                  |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Interest-bearing deposits:                     |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Interest-bearing demand deposits               |  | $                                              | 631,568   |   |          |   | 2,540            |  | 1.61 |                |  | $ | 553,908   |   |                  |   | 901    |  | 0.65 |  
|Savings deposits                               |  |                                                | 79,840    |   |          |   | 58               |  | 0.29 |                |  |   | 91,547    |   |                  |   | 72     |  | 0.32 |  
|Time deposits                                  |  |                                                | 1,205,660 |   |          |   | 9,561            |  | 3.18 |                |  |   | 1,028,656 |   |                  |   | 6,236  |  | 2.44 |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-bearing deposits                |  |                                                | 1,917,068 |   |          |   | 12,159           |  | 2.54 |                |  |   | 1,674,111 |   |                  |   | 7,209  |  | 1.73 |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Short-term borrowings                          |  |                                                | 222,227   |   |          |   | 1,210            |  | 2.15 |                |  |   | 244,476   |   |                  |   | 522    |  | 0.86 |  
|Notes payable and FHLB advances                |  |                                                | 85,500    |   |          |   | 1,026            |  | 4.75 |                |  |   | 95,500    |   |                  |   | 1,078  |  | 4.54 |  
|Junior subordinated debentures                 |  |                                                | 87,638    |   |          |   | 1,763            |  | 8.05 |                |  |   | 52,744    |   |                  |   | 1,224  |  | 9.28 |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-bearing liabilities             |  |                                                | 2,312,433 |   |          |   | 16,158           |  | 2.80 |                |  |   | 2,066,831 |   |                  |   | 10,033 |  | 1.95 |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|NONINTEREST-BEARING LIABILITIES:               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Noninterest-bearing deposits                   |  |                                                | 437,721   |   |          |   |                  |  |      |                |  |   | 442,258   |   |                  |   |        |  |      |  
|Accrued interest, taxes, and other liabilities |  |                                                | 48,192    |   |          |   |                  |  |      |                |  |   | 40,475    |   |                  |   |        |  |      |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total noninterest-bearing liabilities          |  |                                                | 485,913   |   |          |   |                  |  |      |                |  |   | 482,733   |   |                  |   |        |  |      |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|STOCKHOLDERS EQUITY                           |  |                                                | 164,530   |   |          |   |                  |  |      |                |  |   | 177,636   |   |                  |   |        |  |      |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY     |  | $                                              | 2,962,876 |   |          |   |                  |  |      |                |  | $ | 2,727,200 |   |                  |   |        |  |      |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net interest income (tax equivalent) (2)       |  |                                                |           |   |          | $ | 26,931           |  |      |                |  |   |           |   |                  | $ | 23,157 |  |      |  
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net interest spread (tax equivalent) (2) (4)   |  |                                                |           |   |          |   |                  |  | 3.26 | %              |  |   |           |   |                  |   |        |  | 3.15 | %
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net interest margin (tax equivalent) (2) (5)   |  |                                                |           |   |          |   |                  |  | 3.79 | %              |  |   |           |   |                  |   |        |  | 3.56 | %
|                                               |  |                                                |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  

---

|(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 taxable equivalent net interest income by average interest-earning assets.
|--- | ------------------------------------------------------------------------------------------------------------------------

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



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|---------------------------------------------- |  | -------------------------------------------- | --------- | - | -------- | - | ---------------- |  | ---- | -------------- |  | - | --------- | - | ---------------- | - | ------ |  | ---- | -
|                                               |  | (Restated) For the Six Months Ended June 30, |          
|                                               |  | 2005                                         |           |   | 2004     |  
|                                               |  | AVERAGEBALANCE                               |           |   | INTEREST |   | YIELD/RATE(%)(6) |  |      | AVERAGEBALANCE |  |   | INTEREST  |   | YIELD/RATE(%)(6) |  
|                                               |  | (dollars in thousands)                       |          
|INTEREST-EARNING ASSETS:                       |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Investment securities (1):                     |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Taxable                                        |  | $                                            | 506,858   |   |          | $ | 9,969            |  | 3.93 | %              |  | $ | 519,789   |   |                  | $ | 10,355 |  | 3.99 | %
|Tax-exempt (tax equivalent) (2)                |  |                                              | 45,722    |   |          |   | 1,597            |  | 6.99 |                |  |   | 44,200    |   |                  |   | 1,570  |  | 7.10 |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total investment securities                    |  |                                              | 552,580   |   |          |   | 11,566           |  | 4.19 |                |  |   | 563,989   |   |                  |   | 11,925 |  | 4.23 |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Cash Equivalents                               |  |                                              | 26,297    |   |          |   | 352              |  | 2.67 |                |  |   | 8,582     |   |                  |   | 43     |  | 0.99 |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Loans (2) (3):                                 |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Commercial and commercial real estate          |  |                                              | 1,949,017 |   |          |   | 62,217           |  | 6.35 |                |  |   | 1,651,540 |   |                  |   | 44,393 |  | 5.32 |  
|Residential real estate mortgages              |  |                                              | 62,404    |   |          |   | 1,614            |  | 5.17 |                |  |   | 76,469    |   |                  |   | 2,066  |  | 5.40 |  
|Home equity and consumer                       |  |                                              | 215,473   |   |          |   | 6,104            |  | 5.71 |                |  |   | 265,865   |   |                  |   | 6,450  |  | 4.88 |  
|Fees on loans                                  |  |                                              |           |   |          |   | 1,046            |  |      |                |  |   |           |   |                  |   | 1,146  |  |      |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net loans (tax equivalent) (2)                 |  |                                              | 2,226,894 |   |          |   | 70,981           |  | 6.43 |                |  |   | 1,993,874 |   |                  |   | 54,055 |  | 5.45 |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-earning assets (2)              |  |                                              | 2,805,771 |   |          |   | 82,899           |  | 5.95 |                |  |   | 2,566,445 |   |                  |   | 66,023 |  | 5.17 |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Allowance for loan losses                      |  |                                              | (38,972   | ) |          |   |                  |  |      |                |  |   | (35,316   | ) |                  |   |        |  |      |  
|NON-EARNING ASSETS:                            |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Cash and due from banks                        |  |                                              | 67,354    |   |          |   |                  |  |      |                |  |   | 58,339    |   |                  |   |        |  |      |  
|Accrued interest and other assets              |  |                                              | 84,787    |   |          |   |                  |  |      |                |  |   | 92,003    |   |                  |   |        |  |      |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|TOTAL ASSETS                                   |  | $                                            | 2,918,940 |   |          |   |                  |  |      |                |  | $ | 2,681,471 |   |                  |   |        |  |      |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|INTEREST-BEARING LIABILITIES:                  |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Interest-bearing deposits:                     |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Interest-bearing demand deposits               |  | $                                            | 602,583   |   |          |   | 4,330            |  | 1.45 |                |  | $ | 557,527   |   |                  |   | 1,863  |  | 0.67 |  
|Savings deposits                               |  |                                              | 81,183    |   |          |   | 118              |  | 0.29 |                |  |   | 91,354    |   |                  |   | 144    |  | 0.32 |  
|Time deposits                                  |  |                                              | 1,181,353 |   |          |   | 17,694           |  | 3.02 |                |  |   | 1,002,545 |   |                  |   | 12,257 |  | 2.46 |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-bearing deposits                |  |                                              | 1,865,119 |   |          |   | 22,142           |  | 2.39 |                |  |   | 1,651,426 |   |                  |   | 14,264 |  | 1.74 |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Short-term borrowings                          |  |                                              | 228,430   |   |          |   | 2,185            |  | 1.90 |                |  |   | 237,755   |   |                  |   | 1,021  |  | 0.86 |  
|Notes payable and FHLB advances                |  |                                              | 85,500    |   |          |   | 2,028            |  | 4.72 |                |  |   | 97,808    |   |                  |   | 2,172  |  | 4.39 |  
|Junior subordinated debentures                 |  |                                              | 87,638    |   |          |   | 3,468            |  | 7.91 |                |  |   | 49,572    |   |                  |   | 1,770  |  | 7.14 |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total interest-bearing liabilities             |  |                                              | 2,266,687 |   |          |   | 29,823           |  | 2.65 |                |  |   | 2,036,561 |   |                  |   | 19,227 |  | 1.90 |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|NONINTEREST-BEARING LIABILITIES:               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Noninterest-bearing deposits                   |  |                                              | 442,784   |   |          |   |                  |  |      |                |  |   | 425,540   |   |                  |   |        |  |      |  
|Accrued interest, taxes, and other liabilities |  |                                              | 48,243    |   |          |   |                  |  |      |                |  |   | 40,899    |   |                  |   |        |  |      |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Total noninterest-bearing liabilities          |  |                                              | 491,027   |   |          |   |                  |  |      |                |  |   | 466,439   |   |                  |   |        |  |      |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|STOCKHOLDERS EQUITY                           |  |                                              | 161,226   |   |          |   |                  |  |      |                |  |   | 178,471   |   |                  |   |        |  |      |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY     |  | $                                            | 2,918,940 |   |          |   |                  |  |      |                |  | $ | 2,681,471 |   |                  |   |        |  |      |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net interest income (tax equivalent) (2)       |  |                                              |           |   |          | $ | 53,076           |  |      |                |  |   |           |   |                  | $ | 46,796 |  |      |  
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net interest spread (tax equivalent) (2) (4)   |  |                                              |           |   |          |   |                  |  | 3.30 | %              |  |   |           |   |                  |   |        |  | 3.27 | %
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  
|Net interest margin (tax equivalent) (2) (5)   |  |                                              |           |   |          |   |                  |  | 3.81 | %              |  |   |           |   |                  |   |        |  | 3.66 | %
|                                               |  |                                              |           |   |          |   |                  |  |      |                |  |   |           |   |                  |   |        |  |      |  

---

|(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 taxable equivalent net interest income by average interest-earning assets.
|--- | ------------------------------------------------------------------------------------------------------------------------

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



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



Noninterest Income



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



|                                           |  |                                            |       |      |                                         |        |      |  |      |        |  |   |        |  
|------------------------------------------ |  | ------------------------------------------ | ----- | ---- | --------------------------------------- | ------ | ---- |  | ---- | ------ |  | - | ------ | -
|                                           |  | (Restated) For Three Months Ended June 30, |       |      | (Restated) For Six Months EndedJune 30, |       
|                                           |  | 2005                                       |       | 2004 |                                         |        | 2005 |  | 2004 |       
|                                           |  | (dollars in thousands)                     |      
|Deposit service charges                    |  | $                                          | 2,408 |      | $                                       | 2,848  |      |  | $    | 4,815  |  | $ | 5,631  |  
|Trust services                             |  |                                            | 778   |      |                                         | 1,045  |      |  |      | 1,627  |  |   | 2,020  |  
|Wealth management services                 |  |                                            | 379   |      |                                         | 288    |      |  |      | 714    |  |   | 553    |  
|Gain on sale of land trusts                |  |                                            |      |      |                                         |       |      |  |      | 2,000  |  |   |       |  
|Gain on sale of branch                     |  |                                            |      |      |                                         |       |      |  |      | 1,572  |  |   |       |  
|Gain on sale of investment securities, net |  |                                            |      |      |                                         |       |      |  |      | 127    |  |   |       |  
|Loan syndication fees                      |  |                                            |      |      |                                         |       |      |  |      | 700    |  |   |       |  
|Net cash settlements on CD swaps           |  |                                            | 241   |      |                                         | 735    |      |  |      | 464    |  |   | 942    |  
|Change in fair value of CD swaps           |  |                                            | 1,821 |      |                                         | (2,592 | )    |  |      | 245    |  |   | (1,634 | )
|Other noninterest income                   |  |                                            | 389   |      |                                         | 123    |      |  |      | 654    |  |   | 775    |  
|                                           |  |                                            |       |      |                                         |        |      |  |      |        |  |   |        |  
|Total noninterest income                   |  | $                                          | 6,016 |      | $                                       | 2,447  |      |  | $    | 12,918 |  | $ | 8,287  |  
|                                           |  |                                            |       |      |                                         |        |      |  |      |        |  |   |        |  



Noninterest income
increased by $3.6 million to $6.0 million for the second quarter of 2005, as compared to $2.4 million for the second quarter in 2004. The change in the fair value of the CD swaps produced most of the increase in noninterest income during the
quarter. Deposit service charges and trust fees were lower in the second quarter of 2005 as compared to the second quarter a year ago.



Noninterest income increased by $4.6 million to $12.9 million for the first six months of 2005, as compared to $8.3 million for the first six months of
2004. Noninterest income in 2005 included $3.6 million in gains from the sales of our land trust operations and our Broadview, Illinois branch, a $1.9 million higher gain from the change in the fair value of the CD swaps, and $700,000 of loan
syndication fees. Deposit service charges, trust fees, and other noninterest income were lower in the first six months of 2005 as compared to the same period a year ago.



Deposit service charges were $2.4 million during the second quarter of 2005, $440,000 or 15.4% less than the deposit
service charges of $2.8 million during the same quarter a year ago. Deposit service charges were $4.8 million during the first six months of 2005, $816,000 or 14.5% less than the deposit service charges of $5.6 million during the same period a
year ago. The decrease in service charge revenue during 2005 was primarily caused by a lower volume of deposit services rendered and an increase in the earnings credit rate given to customers on their collected account balances to offset gross
activity charges. We believe increasing deposit service charge income in future periods will continue to be challenged by possible increases in the earnings credit rate, competitive pricing pressures for cash management services and the decline in
the volume of paper checks clearing the banking system as a whole.



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



Trust service fees were $778,000 during
the second quarter of 2005 compared to $1,045,000 during the second quarter a year ago, a decrease of $267,000, or 25.6%. For the first six months of 2005, trust fees were $1.6 million as compared to $2.0 million in the first six months of 2004, a
decline of $393,000. Beginning April 1, 2005, our trust fees did not include land trust fees because our land trust operations were sold on March 31, 2005. Land trust fees for the second quarter and first six months of 2004 totaled
$277,000 and $535,000, respectively.



Wealth management
services consist primarily of asset management consulting services. Wealth management fees increased $91,000, or 31.6%, to $379,000 during the second quarter of 2005 compared to $288,000 during the same quarter a year ago. Wealth management fees for
the first six months of 2005 increased $161,000, or 29%, to $714,000 for the first six months of 2005, compared to $553,000 for the same period a year ago. The market value of assets under management has increased approximately 19% over the past
year.



On March 31, 2005, we sold our land trust
operations and recorded a gain on the sale of $2.0 million. We elected to capitalize on the current value of our land trust operations by selling it to an existing land trustee who can apply greater economies of scale. Our decision to sell such
operations was consistent with our focus on our products and services that best meet the needs of our business customers.



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. This sale allows us to redeploy our investment in banking facilities into geographic markets more aligned with our targeted
customers.



In March 2005, we recorded a $127,000 gain on the
sale of $2.7 million of available-for-sale investment securities. We sold eleven low-balance, mortgage-backed securities to improve the operating efficiency of the portfolio. No sales of investment securities occurred during the first half of 2004.



We received $700,000 of loan syndication fees in March 2005.
We earn these fees through the syndication of certain commercial real estate development loans for our customers. We expect the opportunity to provide this service to recur, but not necessarily on a routine, predictable basis. We did not receive any
similar fees during the first six months of 2004.



We use
certain interest rate exchange agreements, or swaps, to convert fixed rate brokered certificates of deposits to a variable rate. Under these swaps, we receive a fixed rate and pay a variable rate based upon LIBOR. The net cash settlements from these
CD swaps were $241,000 during the second quarter of 2005 compared to $735,000 during the same quarter in 2004. On a year-to-date basis, the net cash settlements were $464,000 during the first six months of 2005 compared to $942,000 during the same
period in 2004. The increase in market interest rates that began in mid-2004 caused the decrease in the net cash settlement as the rates paid on the variable leg of the swaps increased.



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



The change in the fair value of the CD
swaps can vary greatly from quarter to quarter based upon market interest rates, the total notional amount and the terms of swap transactions that we have entered into. For the second quarter of 2005, we had an increase in fair value from these CD
swaps of $1.8 million compared to a loss in fair value of $2.6 million during the second quarter of 2004. For the first six months of 2005, we had a gain of fair value of $245,000 compared to a decrease in fair value of $1.6 million during the same
six month period in 2004. For additional information concerning the accounting treatment for these CD swaps, please see Application of Critical Accounting PoliciesDerivative Financial Instruments and Notes 2 and 11 to our
consolidated financial statements in this Amendment No. 1 to Form 10-Q.



Other noninterest income includes fees received from the issuance of standby letters of credit, fees for non-customer usage of our automated teller machines, revenues (losses) from mortgage banking operations, 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. The increase in other noninterest income during the second
quarter of 2005 as compared to the year ago quarter was primarily due to the timing of recognition of losses from our investment in low-income housing partnerships.



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



Noninterest Expense



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



|                                                  |  |                                 |        |                              |   |        |  |      |        |  |   |       
|------------------------------------------------- |  | ------------------------------- | ------ | ---------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                  |  | For Three Months Ended June 30, |        | For Six Months EndedJune 30,
|                                                  |  | 2005                            |        | 2004                         |   | 2005   |  | 2004
|                                                  |  | (dollars in thousands)         
|Salaries and employee benefits:                   |  |                                 |        |                              |   |        |  |      |        |  |   |       
|Salaries, employment taxes, and medical insurance |  | $                               | 7,844  |                              | $ | 8,072  |  | $    | 15,741 |  | $ | 17,102
|Incentives, commissions, and retirement benefits  |  |                                 | 2,118  |                              |   | 1,522  |  |      | 4,221  |  |   | 3,223 
|                                                  |  |                                 |        |                              |   |        |  |      |        |  |   |       
|Total salaries and employee benefits              |  |                                 | 9,962  |                              |   | 9,594  |  |      | 19,962 |  |   | 20,325
|Occupancy of premises                             |  |                                 | 1,716  |                              |   | 2,054  |  |      | 3,441  |  |   | 3,861 
|Furniture and equipment                           |  |                                 | 1,005  |                              |   | 919    |  |      | 1,889  |  |   | 2,054 
|Computer processing                               |  |                                 | 438    |                              |   | 478    |  |      | 871    |  |   | 912   
|Corporate insurance                               |  |                                 | 347    |                              |   | 650    |  |      | 717    |  |   | 1,272 
|Legal fees, net                                   |  |                                 | 609    |                              |   | 674    |  |      | 781    |  |   | 1,003 
|Advertising and public relations                  |  |                                 | 164    |                              |   | 745    |  |      | 273    |  |   | 1,167 
|Other noninterest expense                         |  |                                 | 3,283  |                              |   | 3,302  |  |      | 6,330  |  |   | 6,605 
|                                                  |  |                                 |        |                              |   |        |  |      |        |  |   |       
|Total noninterest expense                         |  | $                               | 17,524 |                              | $ | 18,416 |  | $    | 34,264 |  | $ | 37,199
|                                                  |  |                                 |        |                              |   |        |  |      |        |  |   |       



Noninterest expense
declined $892,000, or 4.8%, to $17.5 million during the second quarter of 2005, as compared to the $18.4 million of noninterest expense during the second quarter in 2004. Noninterest expense declined $2.9 million, or 7.9%, to $34.3 million during
the first six months of 2005, as compared to the $37.2 million of noninterest expense during the same period in 2004. The decrease in noninterest expense in 2005 as compared to 2004 was principally a result of our efforts to reduce our operating
expenses. The lower level of noninterest expense was primarily due to lower salaries, occupancy of premises, corporate insurance and advertising.



Salaries, employment taxes, and medical insurance expense decreased $228,000, or 2.8%, to $7.8 million during the second quarter of 2005 compared to $8.1
million for the second quarter of 2004. Salaries, employment taxes, and medical insurance expense decreased $1.4 million, or 8.0%, to $15.7 million during the first six months of 2005 compared to $17.1 million for the first six months of 2004. The
decline in total base salaries was a result of the reduction in the number of full-time equivalent employees. The number of full-time equivalent employees declined to 434 at June 30, 2005 from 467 at June 30, 2004 and 483 at
December 31, 2003. Severance expense was $434,000 during the second quarter 2005, compared to $497,000 for the second quarter 2004. Severance expense was $495,000 during the first six months of 2005, compared to $952,000 for the first six
months of 2004.



Incentives, commissions, and retirement
benefits increased $596,000, or 39.2%, to $2.1 million during the second quarter of 2005 as compared to the second quarter of 2004. For the first six months of 2005, incentives, commissions, and retirement benefits increased $1.0 million, or 31.0%,
to $4.2 million, compared to the same period a year ago. The increase reflects the improved financial performance of the Bank in 2005 as compared to 2004 and the intense competition for the retention and recruitment of experienced and successful
commercial lending officers.



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



Beginning January 1, 2006, our
salaries and employee benefits expense will be impacted by the implementation of Statement of Financial Accounting Standard No. 123, Share-Based Payment (SFAS 123R), which is revised and reissued guidance on the
accounting for stock-based compensation. SFAS 123R eliminates the intrinsic value method that we currently use to account for the granting of employee stock options. Beginning in 2006, we will be required to record compensation expense in the future
for all existing stock options that have not vested as of date of adoption and for all future grants of employee stock options. We expect to record increased salary and employee benefit expense as a result of the implementation of SFAS 123R. See the
section of this discussion and analysis captioned New Accounting Pronouncements for additional details concerning our implementation of SFAS 123R.



Occupancy of premises expense was $1.7 million during the second quarter of 2005 compared to $2.1 million during the same quarter a year ago, a
decrease of $338,000, or 16.5%. For the first six months of 2005, occupancy expense was $420,000, or 10.9%, lower than occupancy expense for the comparable period the prior year. Lower building depreciation, real estate taxes and repair and
maintenance expense, partly offset by an increase in rent expense, combined to produce the lower occupancy expense in 2005. The lower depreciation on buildings was primarily due to the January 2005 sale of our Broadview branch and the June 2004 sale
of our Burbank facility. New leases for our Burbank, Itasca and Orland Park facilities caused the increase in rent expense between 2005 and 2004.



The expense for furniture and equipment was $1.0 million during the second quarter of 2005, compared to $919,000 during the same quarter in 2004, and $1.9
million for the first six months of 2005 as compared to $2.1 million in 2004. The decrease in expense for the six month period was mainly due to lower depreciation expense and a reduction in equipment repairs and maintenance.



Corporate insurance expense declined for both the second quarter and the
first six months of 2005 as compared to the same periods in 2004. For the second quarter of 2005, corporate insurance expense declined $303,000, or 46.6%. For the first six months of 2005, corporate insurance expense declined $555,000, or 43.6%. An
adjustment to our directors and officers insurance coverage and a more favorable insurance market, among other factors, caused the decrease in expense for 2005 as compared to 2004.



We incur legal fees for the holding company and for Cole Taylor Bank. Legal
fees at Cole Taylor Bank relate to collection activities as well as contract and compliance matters. Holding company legal fees are for general corporate matters, including securities law compliance and other costs associated with being a
publicly-traded company. Net legal fees totaled $609,000 during the second quarter of 2005 compared to $674,000 during the same period in 2004. Legal fees for the first six months of 2005 were $781,000 as compared to $1.0 million for the same period
in 2004. Legal fees in 2005 included a $330,000 reimbursement of legal fees to Cole Taylor Bank from a legal action we instituted in 1999.



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



Advertising and public relations
expense was $164,000 during the second quarter of 2005 as compared to $745,000 during the same quarter in 2004, a decrease of $581,000, or 78.0%. The second quarter of 2004 included the write-off of $398,000 of remaining capitalized production costs
of television commercials. For the first six months of 2005, advertising expense totaled $273,000 as compared to $1.2 million for the same period in 2004. The timing of our marketing activities can cause advertising expense to vary from period to
period. Although we plan to increase our marketing expense in the second half of 2005, we do not expect our marketing expense for all of 2005 to exceed the amount of our marketing expense for all of 2004.



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 $3.3 million during the second quarters of both 2005 and 2004 and $6.3 million
and $6.6 million for the six month periods ended June 30, 2005 and 2004, respectively. Lower telephone expense, outside services, computer software charges and costs related to other real estate owned assets caused the decrease in expense
between the two periods.



Income Taxes



We recorded income tax expense of $5.3 million during the second quarter of
2005, resulting in an effective income tax rate of 37.7%. In comparison, we recorded income tax expense of $1.3 million during the second quarter of 2004 resulting in an effective income tax rate of 32.5%. The higher pre-tax income coupled with a
higher effective income tax rate produced the increase in income tax expense between the two quarterly periods. Income tax expense in 2005 includes the accrual of interest for unresolved tax positions. Without the accrual of the interest in 2005,
the effective tax rate would have been approximately 37% in 2005. The lower effective tax rate in 2004 is also a result of the increased impact of tax-exempt items because of the lower pretax income and the recognition of $46,000 in capital loss
carry-back claims.



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



FINANCIAL CONDITION



Overview



Total assets were $3.1 billion at June 30, 2005, an increase of $186.1 million, or 6.4%, over total assets of $2.9
billion at December 31, 2004. Total loans increased $67.0 million, or 3.0%, and federal funds sold on June 30, 2005 were $90.8 million higher than federal funds sold on December 31, 2004. Total deposits increased by $132.3 million to
$2.42 billion at June 30, 2005 compared to $2.28 billion at December 31, 2004. Total stockholders equity at June 30, 2005 was $173.3 million compared to $155.6 million at December 31, 2004.



Cash and Cash Equivalents



Period-end cash and cash equivalents were $182.6 million at June 30,
2005 compared to $79.3 million at December 31, 2004. Cash and due from banks totaling $74.4 million at June 30, 2005 consisted of cash on hand at branches, balances at correspondent banks and cash letters in process of collection. Cash
equivalents consist of short-term, interest-bearing investments and federal funds sold. The increase in cash equivalents to $108.3 million on June 30, 2005 was a result of short-term excess liquidity. Average short-term investments for the
second quarter 2005 were $34.0 million.



Interest-Earning Assets



Investment securities totaled $547.3 million at
June 30, 2005 compared to $533.6 million at December 31, 2004. During the first six months of 2005, we purchased $53.8 million in securities, including $20.1 million of U.S. government agency securities, $18.6 million of mortgage-backed
securities and $15.1 million of tax-exempt municipal securities. These purchases were partially offset by $36.4 million in repayments and maturities and the sale of $2.7 million of securities. At June 30, 2005, we owned 34 investment securities
in an unrealized loss position. Of these securities, 12 securities have been in a loss position for more than twelve months. We believe that none of these unrealized losses represents other-than-temporary impairments of our investment portfolio. 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.



Period-end total loans increased $67.0 million, or 3.0%, to $2.28 billion at June 30, 2005 compared to $2.21 billion at December 31, 2004. Our
commercial loan portfolio, which includes commercial and industrial, commercial real estate secured, and real estate  construction loans, increased $93.4 million, or 4.9%, during the first six months of 2005. The increase was attributable to
growth in real estate - construction loans. Our real estate construction portfolio increased $120.9 million, or 22.7%, to $652.8 million at June 30, 2005, as compared to $531.9 million at December 31, 2004. The majority of the increase in
real estate - construction lending related to residential developments.



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



As of June 30, 2005 the
composition of our loan portfolio was as follows:



|                               |  |                |           |                           |     |  
|------------------------------ |  | -------------- | --------- | ------------------------- | --- | -
|                               |  | Amount         |           | Percentage of Gross Loans |    
|                               |  | (in thousands) |           |                           |    
|Commercial real estate secured |  | $              | 722,926   |                           | 31  | %
|Real estate - construction     |  |                | 652,785   |                           | 29  | %
|Commercial and industrial      |  |                | 637,866   |                           | 28  | %
|Consumer-oriented loans        |  |                | 265,136   |                           | 12  | %
|                               |  |                |           |                           |     |  
|Gross loans                    |  | $              | 2,278,713 |                           | 100 | %
|                               |  |                |           |                           |     |  



Our commercial real
estate secured loans declined $9.3 million, or 1.3%, to $722.9 million at June 30, 2005, as compared to $732.3 million at December 31, 2004. The decline was primarily due to reduced financing of owner-occupied real estate. As of
June 30, 2005 the composition of our commercial real estate secured portfolio was approximately as follows:



|                                     |  |                                                |   |  |                          |  
|------------------------------------ |  | ---------------------------------------------- | - |  | ------------------------ | -
|                                     |  | Percentage ofTotalCommercialReal EstateSecured |   |  | Percentage ofGross Loans |  
|Commercial properties:               |  |                                                |   |  |                          |  
|Non-owner occupied                   |  | 54                                             | % |  | 17                       | %
|Owner occupied                       |  | 23                                             | % |  | 7                        | %
|                                     |  |                                                |   |  |                          |  
|Subtotal                             |  | 77                                             | % |  | 24                       | %
|Residential income property          |  | 23                                             | % |  | 7                        | %
|                                     |  |                                                |   |  |                          |  
|Total commercial real estate secured |  | 100                                            | % |  | 31                       | %
|                                     |  |                                                |   |  |                          |  



As of June 30,
2005 the composition of our real estate - construction portfolio was approximately as follows:



|                                 |  |                                     |   |  |                          |  
|-------------------------------- |  | ----------------------------------- | - |  | ------------------------ | -
|                                 |  | Percentage ofTotalConstructionLoans |   |  | Percentage ofGross Loans |  
|Residential properties:          |  |                                     |   |  |                          |  
|Single family                    |  | 26                                  | % |  | 7                        | %
|Multifamily                      |  | 20                                  | % |  | 6                        | %
|Condominiums                     |  | 20                                  | % |  | 6                        | %
|                                 |  |                                     |   |  |                          |  
|Subtotal                         |  | 66                                  | % |  | 19                       | %
|Commercial property              |  | 17                                  | % |  | 5                        | %
|Land and land development        |  | 17                                  | % |  | 5                        | %
|                                 |  |                                     |   |  |                          |  
|Total real estate  construction |  | 100                                 | % |  | 29                       | %
|                                 |  |                                     |   |  |                          |  



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



Our commercial and industrial loans
declined by $18.2 million, or 2.8%, to $637.9 million at June 30, 2005, as compared to $656.1 million at December 31, 2004. The decline was a result of the amount of loans extended to new customers not being sufficient to offset portfolio
runoff. We believe that both external and internal factors, including such things as seasonal paydowns and increasing competition as well as our restructuring of our commercial banking division affected our results.



Total consumer-oriented loans, which include residential real estate
mortgages, home equity loans and lines of credit, and other consumer loans, decreased $26.4 million, or 9.1% to $265.1 million at June 30, 2005. The reduction in consumer-oriented loans included the sale of $3.65 million of mortgage, home
equity and other consumer loans in connection with the sale of our Broadview banking facility. A significant portion of the consumer-oriented loan portfolio includes loans we originated through brokers in prior years, a practice we discontinued in
2001 and 2002. As expected, the broker-related loan portfolios have declined from $110 million at December 31, 2004 to $87 million at June 30, 2005.



Loan Quality and Nonperforming Assets



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



|                                                                         |  |                        |        |   |              |   |        |              |  |   |        |  
|------------------------------------------------------------------------ |  | ---------------------- | ------ | - | ------------ | - | ------ | ------------ |  | - | ------ | -
|                                                                         |  | June 30,2005           |        |   | Dec. 31,2004 |   |        | June 30,2004 | 
|                                                                         |  | (dollars in thousands) |       
|Loans contractually past due 90 days or more but still accruing interest |  | $                      | 10,561 |   |              | $ | 1,807  |              |  | $ | 4,243  |  
|Nonaccrual loans                                                         |  |                        | 13,793 |   |              |   | 12,286 |              |  |   | 18,542 |  
|                                                                         |  |                        |        |   |              |   |        |              |  |   |        |  
|Total nonperforming loans                                                |  |                        | 24,354 |   |              |   | 14,093 |              |  |   | 22,785 |  
|Other real estate owned                                                  |  |                        | 558    |   |              |   | 46     |              |  |   | 1,506  |  
|Other repossessed assets                                                 |  |                        | 27     |   |              |   | 12     |              |  |   |       |  
|                                                                         |  |                        |        |   |              |   |        |              |  |   |        |  
|Total nonperforming assets                                               |  | $                      | 24,939 |   |              | $ | 14,151 |              |  | $ | 24,291 |  
|                                                                         |  |                        |        |   |              |   |        |              |  |   |        |  
|Restructured loans not included in nonperforming assets                  |  | $                      | 2,309  |   |              | $ | 1,777  |              |  | $ |       |  
|Impaired loans                                                           |  | $                      | 34,016 |   |              | $ | 18,327 |              |  | $ | 19,698 |  
|                                                                         |  |                        |       
|Nonperforming loans to total loans                                       |  |                        | 1.07   | % |              |   | 0.64   | %            |  |   | 1.11   | %
|Nonperforming assets to total loans plus repossessed property            |  |                        | 1.09   | % |              |   | 0.64   | %            |  |   | 1.18   | %
|Nonperforming assets to total assets                                     |  |                        | 0.81   | % |              |   | 0.49   | %            |  |   | 0.88   | %



The level of
nonperforming loans increased $10.3 million to $24.4 million at June 30, 2005, compared to $14.1 million at December 31, 2004. The ratio of nonperforming loans as a percentage of total loans was 1.07% at June 30, 2005 compared to
0.64% at December 31, 2004. The increase in nonperforming loans related primarily to loans past due 90 days or more, but still accruing interest. Loans to a single customer totaling $8.7 million became past due more than 90 days at
June 30, 2005. We believe that the loans to this customer are adequately collateralized by commercial real estate that is currently generating cash flow sufficient to service the debt.



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



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 $34.0 million at June 30, 2005 compared to $18.3 million at December 31, 2004 and
$19.7 million at June 30, 2004. The increase in impaired loans was primarily due to the increase in nonperforming loans. Certain homogenous loans, including residential mortgage and consumer loans, are collectively evaluated for impairment and
therefore are excluded from impaired loans. Not included in the impaired loan amount are $12.6 million of loans to consumers secured by manufactured homes that we continue to monitor closely.



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, there can be no assurance that our allowance will prove sufficient to cover actual loan
losses in the future. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the adequacy of our allowance for loan losses. Such agencies may require us to make additional provisions to the
allowance based upon their judgments about information available to them at the time of their examinations.



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



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



|                                                  |  |                                |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|------------------------------------------------- |  | ------------------------------ | --------- | - | ----------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                  |  | For Three Months EndedJune 30, |           |   | For Six Months Ended June 30, |  
|                                                  |  | 2005                           |           |   | 2004                          |   |           | 2005 |  |   | 2004      |  
|                                                  |  | (dollars in thousands)         |          
|Average total loans                               |  | $                              | 2,257,684 |   |                               | $ | 2,016,811 |      |  | $ | 2,226,894 |   |  | $ | 1,993,874 |  
|                                                  |  |                                |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Total loans at end of period                      |  | $                              | 2,278,565 |   |                               | $ | 2,060,083 |      |  | $ | 2,278,565 |   |  | $ | 2,060,083 |  
|                                                  |  |                                |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Allowance for loan losses:                        |  |                                |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Allowance at beginning of period                  |  | $                              | 39,262    |   |                               | $ | 35,225    |      |  | $ | 37,484    |   |  | $ | 34,356    |  
|Total charge-offs                                 |  |                                | (3,144    | ) |                               |   | (1,739    | )    |  |   | (3,645    | ) |  |   | (3,945    | )
|Total recoveries                                  |  |                                | 376       |   |                               |   | 693       |      |  |   | 821       |   |  |   | 1,018     |  
|                                                  |  |                                |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Net charge-offs                                   |  |                                | (2,768    | ) |                               |   | (1,046    | )    |  |   | (2,824    | ) |  |   | (2,927    | )
|Provision for loan losses                         |  |                                | 917       |   |                               |   | 2,750     |      |  |   | 2,751     |   |  |   | 5,500     |  
|                                                  |  |                                |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Allowance at end of period                        |  | $                              | 37,411    |   |                               | $ | 36,929    |      |  | $ | 37,411    |   |  | $ | 36,929    |  
|                                                  |  |                                |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Annualized net charge-offs to average total loans |  |                                | 0.49      | % |                               |   | 0.21      | %    |  |   | 0.25      | % |  |   | 0.29      | %
|Allowance to total loans at end of period         |  |                                | 1.64      | % |                               |   | 1.79      | %    |  |   | 1.64      | % |  |   | 1.79      | %
|Allowance to nonperforming loans                  |  |                                | 153.61    | % |                               |   | 162.08    | %    |  |   | 153.61    | % |  |   | 162.08    | %



Net charge-offs during
the second quarter of 2005 were $2.8 million, or an annualized 0.49% of average loans. In comparison, net charge-offs during the second quarter of 2004 were $1.0 million representing an annualized 0.21% of average loans. Net charge-offs during the
first six months of 2005 were $2.8 million, or an annualized 0.25% of average loans. In comparison, net charge-offs during the first six months of 2004 were $2.9 million representing an annualized 0.29% of average loans. 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 $37.4 million at June 30, 2005, or 1.64% of end-of-period loans and 153.61% of nonperforming loans. At December 31, 2004, the allowance for loan losses was $37.5 million, which represented 1.69% of end-of-period loans and
265.98% of nonperforming loans.



Provision for Loan Losses



We determine a provision for loan losses that we consider sufficient to
maintain an allowance covering probable losses inherent in our portfolio as of the balance sheet date. Our provision for loan losses was $917,000 for the second quarter of 2005 and $2.8 million for the first six months of 2005. In comparison, the
provision for loan losses was $2.8 million for the



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



second quarter a year ago and $5.5 million for the
first six months of 2004. The lower level of provision for loan losses was due to slower loan growth, changes in historical loss factors and specific reserves among other factors. Our loan loss provision is determined based upon an analysis of our
portfolio performed on a quarterly basis, with ongoing monitoring by our Credit Policy Committee and our Credit Administration and Loan Review functions. We expect our provisioning to fluctuate as the circumstances of our individual commercial
borrowers and the economic environment changes. Accordingly, the provision for loan losses in any accounting period is not an indicator of provisioning in subsequent reporting periods.



Non-earning Assets



Premises, leasehold improvements and equipment, net of accumulated depreciation and amortization, totaled $12.4 million at June 30, 2005 compared to
$14.8 million at December 31, 2004, a decrease of $2.4 million. In January 2005, we sold our Broadview branch, which had a book value of $2.0 million. In February 2005, in connection with the termination of the 58,000 square-foot operating
lease for the Wheeling facility, we transferred a small parcel of land we owned near the facility, which had a book value of $195,000. Depreciation expense of $1.6 million during the first six months of 2005 produced the remainder of the decrease.



In April 2005, we opened a 2,800 square-foot branch located in
Orland Park, Illinois, a southern suburb of Chicago. We lease this facility under a 3-year operating lease. Additionally, we are currently building a 6,000 square-foot facility at the former location of our Ashland facility. We expect to be able to
move from our temporary Bishop facility into the new Ashland facility during the second half of 2005.



At December 31, 2004, the Company had $54,000 of other intangible assets, subject to amortization, that related to the purchase of land trust
business in 1998. This intangible asset was included in other assets on the Consolidated Balance Sheets. In the first quarter of 2005, the Company sold its land trust operations and the unamortized balance of this intangible asset was written off,
reducing the gain recognized on the sale.



Goodwill decreased
$117,000 to $23.2 million at June 30, 2005 from $23.4 million at December 31, 2004. In recording goodwill in 1997, the Company elected the composite useful life approach and aggregated existing intangible assets into goodwill. Intangible
assets consisting of relationships with land trust customers were therefore, included in the original recognition of goodwill. In connection with the sale of the land trust operations in 2005, the amount of the goodwill relating to land trusts was
written-off against the proceeds from the sale.



Deposits



During the first six months of 2005, total deposits increased by $132.3
million, or 5.8%, to $2.42 billion at June 30, 2005, as compared to $2.28 billion at December 31, 2004. In January 2005, we sold our Broadview branch, which included the sale of $19.7 million of deposit balances. Of the deposits sold,
$13.1 million were time deposits, $4.1 million were NOW, savings and money market accounts and $2.5 million were noninterest-bearing demand deposits. The gross increase in deposits of $152.0 million was primarily obtained from the issuance of



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



$90.8 million of brokered and out-of-local-market
certificates of deposit and from increased money market account balances of $86.5 million. While interest-bearing demand deposits increased $191.8 million during the first six months of 2005, noninterest-bearing demand deposits declined $59.5
million.



We obtain our funding through several deposit
generating sources, using a mix of wholesale and local customer funds based on cost effectiveness, fee income potential and liquidity dynamics. We manage potential liquidity risk associated with wholesale funding by extending and staggering
maturities, pledging collateral and maintaining multiple sources within the wholesale marketplace to obtain funding. We have historically used wholesale funding sources such as brokered CDs, especially when such funds can be obtained at a lower
overall cost than in-market deposits. We expect that the wholesale funds market will remain a significant funding source for us. The cost and availability of funding may be a factor in our evaluation of opportunities to grow our earning assets.



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:



|                                            |  |                                        |           |                    |                                        |   |      |      |   |                |   |                    |  |       |      |  |      |  
|------------------------------------------- |  | -------------------------------------- | --------- | ------------------ | -------------------------------------- | - | ---- | ---- | - | -------------- | - | ------------------ |  | ----- | ---- |  | ---- | -
|                                            |  | (Restated)                             |           |                    | (Restated)                             |  
|                                            |  | For the Six Months Ended June 30, 2005 |           |                    | For the Six Months Ended June 30, 2004 |  
|                                            |  | AverageBalance                         |           | Percent OfDeposits |                                        |   | Rate |      |   | AverageBalance |   | Percent OfDeposits |  |       | Rate | 
|                                            |  | (dollars in thousands)                 |          
|Noninterest-bearing demand deposits         |  | $                                      | 442,784   |                    | 19.2                                   | % |      |     | % |                | $ | 425,540            |  | 20.5  | %    |  |     | %
|NOW accounts                                |  |                                        | 123,582   |                    | 5.4                                    |   |      | 0.46 |   |                |   | 138,700            |  | 6.7   |      |  | 0.49 |  
|Money market accounts                       |  |                                        | 479,001   |                    | 20.7                                   |   |      | 1.70 |   |                |   | 418,827            |  | 20.1  |      |  | 0.73 |  
|Savings deposits                            |  |                                        | 81,183    |                    | 3.5                                    |   |      | 0.29 |   |                |   | 91,354             |  | 4.4   |      |  | 0.32 |  
|Time deposits:                              |  |                                        |           |                    |                                        |   |      |      |   |                |   |                    |  |       |      |  |      |  
|Certificates of deposit                     |  |                                        | 529,077   |                    | 23.0                                   |   |      | 2.85 |   |                |   | 509,461            |  | 24.5  |      |  | 2.32 |  
|Out-of-local-market certificates of deposit |  |                                        | 136,903   |                    | 5.9                                    |   |      | 3.07 |   |                |   | 88,613             |  | 4.3   |      |  | 2.64 |  
|Brokered certificates of deposit            |  |                                        | 441,262   |                    | 19.1                                   |   |      | 3.26 |   |                |   | 337,766            |  | 16.3  |      |  | 2.84 |  
|Public Funds                                |  |                                        | 74,111    |                    | 3.2                                    |   |      | 2.71 |   |                |   | 66,705             |  | 3.2   |      |  | 1.37 |  
|                                            |  |                                        |           |                    |                                        |   |      |      |   |                |   |                    |  |       |      |  |      |  
|Total time deposits                         |  |                                        | 1,181,353 |                    | 51.2                                   |   |      | 3.02 |   |                |   | 1,002,545          |  | 48.3  |      |  | 2.46 |  
|                                            |  |                                        |           |                    |                                        |   |      |      |   |                |   |                    |  |       |      |  |      |  
|Total deposits                              |  | $                                      | 2,307,903 |                    | 100.0                                  | % |      |      |   |                | $ | 2,076,966          |  | 100.0 | %    |  |      |  
|                                            |  |                                        |           |                    |                                        |   |      |      |   |                |   |                    |  |       |      |  |      |  



Average deposits
increased $230.9 million, or 11.1%, to $2.31 billion for the first six months of 2005, as compared to the first six months of 2004. Approximately two-thirds of the increase in deposits was obtained through issuance of brokered and
out-of-local-market certificates of deposit. Average brokered certificates of deposit increased $103.5 million to $441.3 million for the first six months of 2005 in comparison to the same period in 2004. Average out-of-local-market certificates of
deposits increased $48.3 million to $136.9 million for the first six months of 2005 compared to the same period in 2004. Average NOW accounts and savings deposits decreased $25.3 million, or 11.0%, to $204.8 million for the first six months of 2005
in comparison to the same period a year ago. Money market accounts increased $60.2



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



million or 14.4%, to $479.0 million during the first
six months of 2005, compared to $418.8 million during the year ago period. Average certificates of deposit increased $19.6 million or 3.9%, to $529.1 million during the first six months of 2005 primarily as a result of a deposit promotion in
connection with the new branch opening. Average noninterest-bearing demand deposits increased $17.2 million or 4.1%, to $442.8 million during the first six months of 2005, compared to $425.5 million during the year ago period.



Other Borrowings



Our short-term borrowings include federal funds purchased, securities sold under agreements to repurchase and U.S. Treasury
tax and loan note option accounts. Period-end, short-term borrowings increased $37.3 million to $266.8 million at June 30, 2005, as compared to $229.5 million at December 31, 2004. Borrowings under the Treasury note option program were
$25.0 million higher at June 30, 2005 than at December 31, 2004. The Treasury note option program is a source of funds for short-term liquidity management. Securities sold under agreements to repurchase were $18.0 million higher on
June 30, 2005 as compared to December 31, 2004. All of the repurchase agreements at June 30, 2005 were with bank customers, as opposed to broker/dealers.



FHLB advances totaled $75.0 million at both June 30, 2005 and December 31, 2004. In addition, borrowings at the
holding company level were $10.5 million at both June 30, 2005 and December 31, 2004. Our aggregate borrowings consist of a $10.0 million subordinated debt agreement and $500,000 term loan. We also have an $11.5 million revolving credit
facility that has not yet been drawn upon.



At both
June 30, 2005 and December 31, 2004, we had $87.6 million of junior subordinated debentures issued to two of our wholly owned subsidiaries. We had $46.4 million outstanding from the junior subordinated debentures, at a fixed interest rate
of 9.75%, issued to TAYC Capital Trust I. In addition, we had $41.2 million of junior subordinated debentures issued to TAYC Capital Trust II that have a floating interest rate, which adjusts quarterly, of the three-month LIBOR rate plus 2.68%. The
interest rate was 6.10% on June 30, 2005 and 5.18% at December 31, 2004. Each of these trusts used proceeds from the issuance of trust preferred securities to purchase our junior subordinated debentures.



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



CAPITAL RESOURCES



At June 30, 2005 and December 31, 2004, 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 for the dates indicated:



|                                         |  |                        |         |       |                             |   |        |                                                               |          |  |       |        |  |       |          |  |        |  
|---------------------------------------- |  | ---------------------- | ------- | ----- | --------------------------- | - | ------ | ------------------------------------------------------------- | -------- |  | ----- | ------ |  | ----- | -------- |  | ------ | -
|                                         |  | ACTUAL                 |         |       | FOR CAPITALADEQUACYPURPOSES |   |        | TO BE WELLCAPITALIZED UNDERPROMPTCORRECTIVE ACTION PROVISIONS |         
|                                         |  | AMOUNT                 |         | RATIO |                             |   | AMOUNT |                                                               | RATIO    |  |       | AMOUNT |  | RATIO |         
|                                         |  | (dollars in thousands) |        
|As of June 30, 2005 (Restated):          |  |                        |         |       |                             |   |        |                                                               |          |  |       |        |  |       |          |  |        |  
|Total Capital (to Risk Weighted Assets)  |  |                        |         |       |                             |   |        |                                                               |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  | $                      | 278,096 |       | 10.83                       | % |        | >$                                                            | 205,480  |  | >8.00 | %      |  | >$    | 256,850  |  | >10.00 | %
|Cole Taylor Bank                         |  |                        | 281,384 |       | 10.98                       |   |        |                                                               | >205,054 |  | >8.00 |        |  |       | >256,318 |  | >10.00 |  
|Tier I Capital (to Risk Weighted Assets) |  |                        |         |       |                             |   |        |                                                               |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  |                        | 208,978 |       | 8.14                        |   |        |                                                               | >102,740 |  | >4.00 |        |  |       | >154,110 |  | >6.00  |  
|Cole Taylor Bank                         |  |                        | 249,281 |       | 9.73                        |   |        |                                                               | >102,527 |  | >4.00 |        |  |       | >153,791 |  | >6.00  |  
|Leverage (to average assets)             |  |                        |         |       |                             |   |        |                                                               |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  |                        | 208,978 |       | 7.11                        |   |        |                                                               | >117,586 |  | >4.00 |        |  |       | >146,982 |  | >5.00  |  
|Cole Taylor Bank                         |  |                        | 249,281 |       | 8.50                        |   |        |                                                               | >117,260 |  | >4.00 |        |  |       | >146,575 |  | >5.00  |  
|                                         |  |                        |         |       |                             |  
|As of December 31, 2004 (Restated):      |  |                        |         |       |                             |   |        |                                                               |          |  |       |        |  |       |          |  |        |  
|Total Capital (to Risk Weighted Assets)  |  |                        |         |       |                             |   |        |                                                               |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  | $                      | 255,616 |       | 10.27                       | % |        | >$                                                            | 199,125  |  | >8.00 | %      |  | >$    | 248,906  |  | >10.00 | %
|Cole Taylor Bank                         |  |                        | 262,350 |       | 10.55                       |   |        |                                                               | >198,954 |  | >8.00 |        |  |       | >248,692 |  | >10.00 |  
|Tier I Capital (to Risk Weighted Assets) |  |                        |         |       |                             |   |        |                                                               |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  |                        | 181,437 |       | 7.29                        |   |        |                                                               | >99,563  |  | >4.00 |        |  |       | >149,344 |  | >6.00  |  
|Cole Taylor Bank                         |  |                        | 231,185 |       | 9.30                        |   |        |                                                               | >99,477  |  | >4.00 |        |  |       | >149,215 |  | >6.00  |  
|Leverage (to average assets)             |  |                        |         |       |                             |   |        |                                                               |          |  |       |        |  |       |          |  |        |  
|Taylor Capital Group, Inc.               |  |                        | 181,437 |       | 6.49                        |   |        |                                                               | >111,757 |  | >4.00 |        |  |       | >139,696 |  | >5.00  |  
|Cole Taylor Bank                         |  |                        | 231,185 |       | 8.29                        |   |        |                                                               | >111,611 |  | >4.00 |        |  |       | >139,514 |  | >5.00  |  



During the first six
months of 2005, 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 of $21.4 million less dividends paid to the Company
of $4.0 million created the increase in regulatory capital at the Cole Taylor Bank. Cole Taylor Bank is subject to dividend restrictions established by regulatory authorities and in the covenants of the Companys senior notes payable agreement.
The dividends, as of June 30, 2005, that Cole Taylor Bank could declare and pay to the Company, without the approval of regulatory authorities, amounted to approximately $61.8 million. The note payable covenant is measured on an annual basis
whereby the dividends should not exceed 60% of the total years net income at Cole Taylor Bank.



During the first six months of 2005, the Companys capital ratios also increased because the increase in regulatory capital exceeded the increase in
risk-weighted and average assets. During the first six months of 2005, we declared common stock dividends of $0.12 per share, totaling $1.2 million. The covenants in our senior notes payable agreement restrict the amount of common dividends that the
Company can pay to shareholders to 25% of that years annual consolidated net income. Management assesses the holding companys capital position on a



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



regular basis and remains cognizant of the degree to
which the holding company is leveraged. The factors that management will continue to evaluate are the sources and uses of additional capital in keeping with our overall strategic plan, as well as the potential dilutive nature of raising capital and
the related costs.



LIQUIDITY



During the first six months of 2005, our loan growth was funded by the
increase in total deposits. Deposit growth was attained both through the issuance of out-of-local market certificates of deposit and in-market deposit product promotions. Total deposits increased $152.7 million to fund $73.4 million in loan growth,
a $14.7 million increase in the investment portfolio, the sale of $19.7 million of Broadview deposits and an increase in federal funds sold. 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 were $6.8 million at
June 30, 2005, largely unchanged from the balance at December 31, 2004. The primary sources of holding company liquidity for the first six months of 2005 were the receipt of $4.0 million in dividends from Cole Taylor Bank, and $1.3 million
from the exercise of stock options. During the first six months of 2005, the holding company paid interest on the junior subordinated debentures and the notes payable of $3.4 million and $280,000, respectively, and dividends to common stockholders
of $1.2 million. Cash used for holding company operations during the first quarter of 2005 included the payment of salaries, year-end bonuses, insurance premiums and legal fees. The holding company did not increase its borrowings under its notes
payable and, at June 30, 2005, had an $11.5 million revolving line of credit that has not yet been drawn upon.



Off-Balance Sheet Arrangements



Off-balance sheet arrangements include commitments to extend credit, financial guarantees, and derivative financial instruments. Commitments to extend
credit and financial guarantees are used to meet the financial needs of our customers. Derivative financial instruments are used to manage interest rate risk.



At June 30, 2005, we had $886.0 million of undrawn commitments to extend credit and $101.5 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.



Derivative Financial Instruments



At June 30, 2005, we had $220 million of notional amount interest rate exchange contracts related to certain brokered certificates of deposit. Under
these CD swaps, we receive a fixed interest rate equal to the rate paid on the brokered CDs and pay a variable interest rate based



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##### Table of Contents

TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



upon 3-month LIBOR. During the first six months of
2005, we entered into additional interest rate exchange agreements with a notional amount totaling of $90.0 million related to newly issued brokered certificates of deposit of $90.0 million. Because these CD swaps did not qualify for fair value
hedge accounting under SFAS 133 during the periods, we reported the net cash settlements and the changes in fair value on the CD swaps as separate components of noninterest income.



We also have a $50.0 million interest rate exchange contract that qualifies for hedge accounting of the variability of cash
flows of prime-based commercial loans. Under the terms of this swap, we receive a fixed interest rate and pay a floating rate based upon the prime-lending rate based on a notional amount of $50.0 million



At the end of June 2005, we entered into a $100.0 million notional amount
interest rate floor. The floor interest rate is 5.50% and is based upon the prime lending rate. Under this agreement, in the event the prime lending rate decreases below 5.50%, we will receive an amount, from the counterparty, equal to the
difference between 5.50% and the current prime lending rate computed based upon the $100.0 million notional amount. We will use this interest rate floor as a cash flow hedge of $100.0 million of our commercial loans, tied to the prime lending rate,
to protect interest income in the event that the prime lending rate declines below 5.50%. This interest rate floor agreement expires in June 2010. During July 2005, we also entered into another $100.0 million notional amount interest rate floor
agreement. This agreement will also be a cash flow hedge on the Companys commercial loan portfolio that is tied to the prime lending rate. This agreement has a floor amount of 6.25% and will expire in July 2010.



For additional information concerning the accounting treatment for our
derivative instruments, please see Application of Critical Accounting Policies  Derivative Financial Instruments and Notes 2 and 11 to our consolidated financial statements in this Amendment No. 1 to 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.



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



We have used various interest rate
contracts, including swaps and floors, 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.



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 off-balance sheet financial instruments. 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 imbedded options in products such as callable 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 net interest margin began increasing during the second half of 2004 in response to increased market interest rates. The impact of the 225 basis point
increase in the Banks prime lending rate since June 2004 on our $1.2 billion in prime-indexed, floating-rate commercial loans significantly increased our loan interest income. Critical factors affecting our net interest margin in future
periods will be our pricing strategy on our deposit products as well as the sources of our funding and the spread to prime we are able to sustain on our commercial loans.



Our modeling of the June 30, 2005 balance sheet, using the market interest rates in effect at period-end (the rates
unchanged scenario), indicated increased pressure on our net interest margin in future periods as many of our interest-bearing liabilities will reprice to current rates as they mature. Our rates unchanged models that incorporate changes in deposit
mix indicate even greater downward pressure on our margin.



Our
simulation modeling of a rising rate environment indicates that net interest income would increase. Net interest income for year one in a 200 basis points rising rate scenario was calculated to be $1.4 million, or 1.40%, higher than the net interest
income in the rates unchanged scenario at June 30, 2005. That opportunity for increased net interest income would be diminished however, if market forces drive our deposit interest rates to increase at a faster velocity than assumed in our
model.



Conversely, at June 30, 2005, net interest income
at risk for year one in a 200 basis points falling rate scenario was calculated to be $7.1 million, or 6.86%, lower than the net interest income in the rates unchanged scenario. This exposure was within our policy guideline of 10%.



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



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.



The following table indicates the estimated impact on net interest income 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 |       
|                                 |  | At June 30, 2005 (1)                 |        |   | At March 31, 2005 |      
|                                 |  | (dollars in thousands)               |       
|Change in interest rates         |  | DollarChange                         |        |   | PercentageChange  |       |    | DollarChange |   |        | PercentageChange | 
|+200 basis points over one year  |  | $                                    | 1,449  |   |                   | 1.40  | %  |              | $ | 2,997  |                  |  | 2.94  | % 
|- 200 basis points over one year |  |                                      | (7,079 | ) |                   | (6.86 | )% |              |   | (8,018 | )                |  | (7.85 | )%

---

|(1) | Model at June 30, 2005 includes $100 million floor purchased July 2005.
|--- | -----------------------------------------------------------------------



LITIGATION



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



NEW ACCOUNTING PRONOUNCEMENTS



In 2004, the FASB released Emerging Issues Task Force (EITF) Issue No. 03-01, The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments. Issue No. 03-1 provides guidance for determining when an investment is impaired and whether the impairment is other than temporary as well as guidance for quantifying the impairment. The guidance
from Issue No. 03-01 was to become effective for annual financial statements for fiscal years ending after June 15, 2004. However, in September 2004, the FASB issued FASB Staff Position EITF Issue No. 03-01-1 Effective Date of
Paragraphs 10-20 of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, which delayed the effective date for certain measurement and recognition guidance of Issue 03-01. This
delay did not suspend the requirements to recognize other-than-temporary impairments as required by existing authoritative literature. In addition, the quantitative and qualitative disclosure requirements of Issue No. 03-1 remain in effect. We
will complete our evaluation of the impact upon issuance of final guidance from the FASB.



In December 2004, the FASB revised and reissued SFAS No. 123, Share-Based Payment (SFAS 123R). This Statement revises the previously issued SFAS No. 123 and supersedes APB Opinion
No. 25. SFAS 123R was to be effective for interim periods beginning after June 15, 2005. However, in April 2005 the Securities and Exchange Commission issued



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



guidance delaying the effective date to annual periods
beginning after June 14, 2005. Therefore, we will be required to adopt SFAS 123R beginning in the first quarter of 2006. SFAS 123R requires public entities to measure cost of employee services received in exchange for award of equity securities
based on the grant-date fair value of the award. The cost of the award will be recognized over the period during which an employee is required to provide service. Public entities are required to measure the cost of employee services received in
exchange for an award of liability instruments based upon the current fair value, adjusted at each reporting date through the settlement date. Changes in the fair value during the requisite service period will be recognized as compensation over that
period. SFAS 123R eliminates the intrinsic value method of accounting for employee stock options under APB Opinion No. 25. As a result, we will be required to record compensation expense in the future for all existing stock options that have
not vested as of January 1, 2006, and for all future grants of employee stock options.



While we have not yet completed our evaluation of the impact of adoption on the consolidated financial statements, including the transitional provisions of SFAS 123R, we expect to record increased expense as a result
of implementation. Had we adopted stock option expensing in prior periods, the impact would have been that as presented in the SFAS No. 123 disclosure of pro-forma net income and earnings per share for the three and six month periods ended
June 30, 2005 and 2004 included in Note 9, Stock-Based Compensation, of the Notes to Consolidated Financial Statement that are part of this Quarterly Report on Form 10-Q. For additional information regarding the full year disclosure
of pro-forma net income and earnings per share, refer to Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our December 31, 2004 Annual Report on Form 10-K. Future
levels of compensation cost recognized related to share-based compensation awards may be impacted by new awards and/or modifications, repurchases, and cancellations of existing awards, if any, before and after the adoption of this standard.



In May 2005, the FASB issued SFAS No. 154
Accounting Changes and Error Corrections. This Statement provides guidance on the accounting for and reporting of accounting changes and error corrections, and requires, unless impracticable, retrospective application for reporting a
change in accounting principle in the absence of explicit transition requirements specific to a newly issued accounting principle. This Statement also provides guidance on the reporting of a correction of an error by restating previously issued
financial statements. This Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, but early adoption is permitted. We applied the guidance in SFAS 154 for our restatement
of 2005 and 2004.



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



QUARTERLY FINANCIAL INFORMATION



The following table sets forth unaudited financial data regarding our
operations for 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.



|                                                  |  |                                          |        |         |                               |        |                    |  |   |         |   |         |   |        |         |   |         |   |         |   |        |  |   |        |  |   |       
|------------------------------------------------- |  | ---------------------------------------- | ------ | ------- | ----------------------------- | ------ | ------------------ |  | - | ------- | - | ------- | - | ------ | ------- | - | ------- | - | ------- | - | ------ |  | - | ------ |  | - | ------
|                                                  |  | (Restated) 2005 Quarter Ended            |        |         | (Restated) 2004 Quarter Ended |        | 2003 Quarter Ended
|                                                  |  | Jun. 30                                  |        | Mar. 31 |                               |        | Dec. 31            |  |   | Sep. 30 |   | Jun. 30 |   |        | Mar. 31 |   | Dec. 31 |   | Sep. 30
|                                                  |  | (in thousands, except per share amounts)
|Interest income                                   |  | $                                        | 42,742 |         | $                             | 39,512 |                    |  | $ | 37,002  |   |         | $ | 34,972 |         | $ | 32,869  |   |         | $ | 32,510 |  | $ | 32,648 |  | $ | 33,576
|Interest expense                                  |  |                                          | 16,158 |         |                               | 13,665 |                    |  |   | 12,341  |   |         |   | 11,262 |         |   | 10,033  |   |         |   | 9,194  |  |   | 9,123  |  |   | 9,856 
|                                                  |  |                                          |        |         |                               |        |                    |  |   |         |   |         |   |        |         |   |         |   |         |   |        |  |   |        |  |   |       
|Net interest income                               |  |                                          | 26,584 |         |                               | 25,847 |                    |  |   | 24,661  |   |         |   | 23,710 |         |   | 22,836  |   |         |   | 23,316 |  |   | 23,525 |  |   | 23,720
|Provision for loan losses                         |  |                                          | 917    |         |                               | 1,834  |                    |  |   | 1,833   |   |         |   | 2,750  |         |   | 2,750   |   |         |   | 2,750  |  |   | 2,700  |  |   | 2,700 
|Noninterest income                                |  |                                          | 3,954  |         |                               | 8,128  |                    |  |   | 5,923   |   |         |   | 4,280  |         |   | 4,304   |   |         |   | 4,675  |  |   | 4,939  |  |   | 5,590 
|Net cash settlements on CD swaps                  |  |                                          | 241    |         |                               | 223    |                    |  |   | 517     |   |         |   | 707    |         |   | 735     |   |         |   | 207    |  |   |       |  |   |      
|Change in fair value of CD swaps                  |  |                                          | 1,821  |         |                               | (1,576 | )                  |  |   | (279    | ) |         |   | 1,940  |         |   | (2,592  | ) |         |   | 958    |  |   |       |  |   |      
|Gain (loss) on sale of investment securities, net |  |                                          |       |         |                               | 127    |                    |  |   | (201    | ) |         |   | 345    |         |   |        |   |         |   |       |  |   |       |  |   |      
|Noninterest expense                               |  |                                          | 17,524 |         |                               | 16,740 |                    |  |   | 18,164  |   |         |   | 16,310 |         |   | 18,416  |   |         |   | 18,783 |  |   | 22,545 |  |   | 19,005
|                                                  |  |                                          |        |         |                               |        |                    |  |   |         |   |         |   |        |         |   |         |   |         |   |        |  |   |        |  |   |       
|Income before income taxes                        |  |                                          | 14,159 |         |                               | 14,175 |                    |  |   | 10,624  |   |         |   | 11,922 |         |   | 4,117   |   |         |   | 7,623  |  |   | 3,219  |  |   | 7,605 
|Income taxes                                      |  |                                          | 5,342  |         |                               | 5,636  |                    |  |   | 3,462   |   |         |   | 3,864  |         |   | 1,338   |   |         |   | 2,649  |  |   | 728    |  |   | 2,013 
|                                                  |  |                                          |        |         |                               |        |                    |  |   |         |   |         |   |        |         |   |         |   |         |   |        |  |   |        |  |   |       
|Net income                                        |  | $                                        | 8,817  |         | $                             | 8,539  |                    |  | $ | 7,162   |   |         | $ | 8,058  |         | $ | 2,779   |   |         | $ | 4,974  |  | $ | 2,491  |  | $ | 5,592 
|                                                  |  |                                          |        |         |                               |        |                    |  |   |         |   |         |   |        |         |   |         |   |         |   |        |  |   |        |  |   |       
|Earnings per share:                               |  |                                          |        |         |                               |        |                    |  |   |         |   |         |   |        |         |   |         |   |         |   |        |  |   |        |  |   |       
|Basic                                             |  | $                                        | 0.92   |         | $                             | 0.88   |                    |  | $ | 0.75    |   |         | $ | 0.84   |         | $ | 0.19    |   |         | $ | 0.43   |  | $ | 0.17   |  | $ | 0.50  
|Diluted                                           |  |                                          | 0.90   |         |                               | 0.87   |                    |  |   | 0.73    |   |         |   | 0.84   |         |   | 0.18    |   |         |   | 0.43   |  |   | 0.17   |  |   | 0.50  
|                                                  |  |                                          |        |         |                               |        |                    |  |   |         |   |         |   |        |         |   |         |   |         |   |        |  |   |        |  |   |       



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. These forward looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act reflect our current expectations and projections about our future results, performance, prospects and opportunities. We have tried to identify these
forward-looking statements by using words including may, will, expect, anticipate, believe, intend, could and estimate and similar expressions. These
forward-looking statements are based on information currently available to us and are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities in 2005 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 any imbalances in the interest rate sensitivities of our assets and liabilities; 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



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TAYLOR CAPITAL GROUP, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS (Continued)



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 in our market place and general conditions in the U.S. economy, interest rates, deposit flows, loan
demand, competition, legislation or regulatory and accounting principles, policies or guidelines, as well as other economic, competitive, governmental, regulatory and technological factors impacting our operations.



For further information about these and other risks, uncertainties and
factors, please review the disclosure included in the section captioned Risk Factors in Amendment No.1 to our Registration Statement on Form S-3 (Registration No. 333-126864) filed with the SEC on August 5, 2005.



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



We have carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2005. 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.



Based upon
our evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that such controls and procedures were not effective as of the end of the period covered by this report because of a material weakness in
internal control over



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financial reporting relating to our accounting for derivative financial instruments under Statement of Financial Accounting Standards 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS 133). Specifically, we lacked sufficient technical expertise as to the application of SFAS 133, and our procedures relating to hedging transactions were not
designed effectively such that each of the requirements for fair value hedge accounting treatment set forth in SFAS 133 were evaluated appropriately with respect to the CD swaps entered into to hedge the interest rate risk inherent in certain of our
brokered CDs. This deficiency resulted in accounting errors, the correction of which results in eliminating the application of fair value hedge accounting and separately recording the CD broker placement fee as an adjustment to the par amount of the
brokered CDs. As a result of the material weakness, we have restated our financial statements for the year ended December 31, 2004 and each of the quarters in 2004 and are restating our financial statements for the three and six months ended
June 30, 2005. In light of these errors and the resulting restatements, our management, including our Chief Executive Officer and Chief Financial Officer, has determined that this deficiency constituted a material weakness in our internal
control over financial reporting. The reader is therefore cautioned not to rely on managements conclusion set forth in Item 4 Controls and Procedures, included in our Initial Form 10-Q for the quarter ended June 30, 2005,
that was filed with the SEC on August 3, 2005, that as of June 30, 2005, our disclosure controls and procedures were effective.



There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2005, that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.



In late October 2005, prior to the foregoing deficiency being identified by management, we engaged external consultants with expertise in hedge accounting
requirements to assist us in complying with the requirements of SFAS 133, including the documentation and effectiveness testing requirements relating to current and future interest rate hedge transactions. We believe that the expertise to be
provided by these consultants will help us remediate the material weakness described above.



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



None.



Item 3. Defaults Upon Senior Securities.



None.



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



We held our annual meeting of stockholders on June 16, 2005. The following matter was voted on at the meeting:



|1. | The election of three Class III directors by common stockholders set forth below:
|-- | ---------------------------------------------------------------------------------



|                  |  |           |  |         
|----------------- |  | --------- |  | --------
|                  |  | For       |  | Withheld
|Bruce W. Taylor   |  | 8,909,517 |  | 31,074  
|Ronald Bliwas     |  | 8,909,538 |  | 31,053  
|Ronald D. Emanuel |  | 8,883,515 |  | 57,076  



The following are the names of the
directors who were not up for reelection at the annual meeting of stockholders whose terms continued after the meeting:



Jeffery W. Taylor

Adelyn Leander

Melvin E. Pearl

Richard W. Tinberg

Edward T. McGowan

Louise OSullivan

Shepherd G. Pryor, IV

Mark L. Yeager



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Item 5. Other Information.



Amendments to Amended and Restated By-laws



On July 29, 2005, our Board of Directors approved certain changes to our amended and restated by-laws that will become effective upon the closing of our pending public offering of shares of our common stock (the Offering).
The by-law amendments will generally give our stockholders greater influence over elections of directors, stockholder meetings and future issuances of equity.



Section 2.3 of our by-laws will provide that a special meeting of stockholders may be requested in writing by the holders of at least thirty-five
percent (35%) of the total voting power of our outstanding stock entitled to vote generally in the election of directors, where special meetings of stockholders could previously only be called by the Chairman of the Board of Directors, the
President or a majority of the Board of Directors then in office. Section 2.6 of our by-laws will provide that holders of at least thirty-five percent (35%) of the shares of our common stock issued and outstanding and entitled to vote at a
meeting of stockholders will constitute a quorum for the transaction of business at any meeting of stockholders, where a quorum used to require the representation of a majority of the shares. Section 3.2 of our by-laws will provide that our
Board of Directors must consist of no fewer than six (6) and no more than thirteen (13) directors, where the number of directors had previously been established by resolution of our Board of Directors. Section 8.1(b) will provide that
our directors, or our entire Board of Directors, may be removed with or without cause by the affirmative vote of a majority of the shares of stock entitled to vote in the election of our directors.



The by-law amendments will also change the procedures by which our
stockholders may recommend nominees to our Board of Directors and will allow the Taylor family a level of influence over certain significant corporate events that is proportionate with their ownership interest in us. Section 2.9 of our by-laws
will provide that so long as the Taylor family beneficially owns in the aggregate twenty-five percent (25%) or more of the total voting power of our outstanding stock entitled to vote generally in the election of directors, the Taylor family
will be entitled to nominate up to three (3) candidates for election to our Board of Directors. Nominations by stockholders with respect to any annual meeting of stockholders must be made in writing and delivered or mailed to our secretary
generally not less than one hundred twenty (120) nor more than one hundred fifty (150) days prior to the first anniversary of the date on which we mailed our proxy materials. Nominations by our stockholders with respect to any special
meeting of stockholders must be made in writing and delivered or mailed to our secretary not less than the tenth (10th) day following the day on which the public announcement of the date of the special meeting is made. Section 9.1 will
provide that any meeting at which our Board of Directors will authorize any issuance of capital stock will require five (5) days prior notice to each director stating that an issuance of shares of our capital stock will be presented for
approval at such meeting.



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Amendments to Amended and Restated Certificate of Incorporation



On July 29, 2005, our Board of Directors also approved certain amendments to our amended and restated certificate of
incorporation. On August 2, 2005, the Taylor Voting Trust U/A/D 11/30/98, of which Jeffrey W. Taylor, our Chairman and Chief Executive Officer, Bruce W. Taylor, our President and director, and Cindy Taylor Robinson, the sister of Jeffrey W.
Taylor and Bruce W. Taylor, each serve as trustees and which controls in excess of 53% of the voting power of our excess of our outstanding common stock, approved a second amended and restated certificate of incorporation that, among other things,
will amend our current amended and restated certificate of incorporation to:



| | (1) | reduce the number of shares of common stock authorized for issuance from 25 million to 18 million;
| | --- | --------------------------------------------------------------------------------------------------



| | (2) | limit the voting rights that our Board of Directors may grant to one or more classes of preferred stock designated by our Board of Directors;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | provide for the annual election of all of our directors rather than our current staggered board;
| | --- | ------------------------------------------------------------------------------------------------



| | (4) | provide that any action required or permitted to be taken by stockholders will be effected only at a duly called annual or special meeting of stockholders and may not be effected by
written consent; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | require that the affirmative vote of the holders of a majority of our total outstanding voting stock will be needed to amend, alter or repeal, or to adopt any provisions
inconsistent with, certain sections and subsections of our by-laws.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our second amended and restated certificate of incorporation will be filed with the Delaware Secretary of State, and will become effective, upon the later of the twentieth (20th) day after the date on which an
information statement on Schedule 14C is first sent to our stockholders, or the closing of the Offering of shares of our common stock.



The description contained above does not include all of the amendments to our amended and restated certificate of incorporation and amended and restated
by-laws that were approved by our Board of Directors and is qualified in its entirety by reference to the forms of our second amended and restated certificate of incorporation and second amended and restated by-laws attached hereto as Exhibits 3.3
and 3.4, respectively, and incorporated herein by reference.



Registration Rights Agreement



On
August 2, 2005, our Board of Directors authorized certain of our officers to enter into and deliver, on our behalf, a registration rights agreement (the Registration Rights Agreement), with certain members and affiliates of the
Taylor family identified therein (the Taylor Family Holders) pursuant to which the Taylor Family Holders will receive certain demand and piggyback registration rights. Under the Registration Rights Agreement, at any time
after



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March 31, 2006, a designated representative of the Taylor Family Holders (the Taylor Family Representative) will be
entitled to request one (1) registration under the Securities Act of 1933, as amended (the Securities Act), in each calendar year, of all or part of the Registrable Shares (as defined therein) (each, a Demand
Registration). Under circumstances described in the Registration Rights Agreement, we may have the right to postpone for up to three (3) months the filing or the effectiveness of a registration statement with respect to a Demand
Registration. Registration expenses incident to any Demand Registration will be paid by the holders of Registrable Shares to be registered under such demand.



The Registration Rights Agreement also contemplates indemnification of the Company by each holder of Registrable Shares in connection with any
registration statement in which a holder(s) of Registrable Shares is participating, and the indemnification of such holder(s) by the Company. The Registration Rights Agreement and our obligations under such agreement will terminate upon the date on
which the Taylor Family Holders, in the aggregate, no longer own 10% or more of our outstanding common stock.



Item 6. Exhibits.



|              |  |                                                                                                                                                                                                                                                   
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibits                                                                                                                                                                                                                           
|3.1           |  | Form of Amended and Restated Certificate of Incorporation of the Taylor Capital Group, Inc. (incorporated by reference from Exhibit 3.1 of the Amended Registration Statement on Form S-1 filed
October 10, 2002 (Registration No. 333-89158)).   
|              | 
|3.2           |  | Form of Amended and Restated Bylaws of the Taylor Capital Group, Inc. (incorporated by reference from Exhibit 3.2 of the Amended Registration Statement on Form S-1 filed October 10, 2002
(Registration No. 333-89158)).                         
|              | 
|3.3           |  | Form of Second Amended and Restated Certificate of Incorporation of Taylor Capital Group, Inc. (incorporated by reference from Exhibit 3.3 of the Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005 filed on August 3,2005).      
|              | 
|3.4           |  | Form of Second Amended and Restated Bylaws of Taylor Capital Group, Inc. (incorporated by reference from Exhibit 3.4 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2005
filed on August 3,2005).                            
|              | 
|3.5           |  | Certificate of Elimination of 9% Noncumulative Perpetual Preferred Stock, Series A, of Registrant (incorporated by reference to Exhibit 3.2 of the Registration Statement on Form S-3 filed July
25, 2005 (Registration No. 333-126864)).         
|              | 
|4.1           |  | Form of certificate representing Taylor Capital Group, Inc. Common Stock (incorporated by reference from Exhibit 4.3 of the Amended Registration Statement on Form S-1 filed October 10, 2002
(Registration No. 333-89158)).                      
|              | 
|4.2           |  | Indenture between Taylor Capital Group, Inc. and LaSalle Bank National Association, as trustee (incorporated by reference from Exhibit 4.4 of the Amended Registration Statement on Form S-1 filed
October 10, 2002 (Registration No. 333-89158)).



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|              |  |                                                                                                                                                                                                                                                                                                                                                                              
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                      
|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).                                
|              | 
|10.44         |  | Salary Continuation Following Death Benefit Letter to Jeffrey W. Taylor dated June 15, 2005 (incorporated by reference from Exhibit 10.44 of the Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005 filed on August 3,2005).
|              | 
|10.45         |  | Salary Continuation Following Death Benefit Letter to Bruce W. Taylor dated June 15, 2005 (incorporated by reference from Exhibit 10.45 of the Quarterly Report on Form 10-Q for the quarter ended
June 30, 2005 filed on August 3,2005).  
|              | 
|31.1          |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Security Exchange Act of 1934.                                                                                                                               
|              | 
|31.2          |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Security Exchange Act of 1934.                                                                                                                               
|              | 
|32.1          |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                         



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SIGNATURES



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



|                        |  |                                             
|----------------------- |  | --------------------------------------------
|                        |  | TAYLOR CAPITAL GROUP, INC.                  
|                        | 
|Date: December 30, 2005 |  |                                             
|                        | 
|                        |  | /s/ DANIEL C. STEVENS                       
|                        |  | Daniel C. Stevens                           
|                        |  | Chief Financial Officer                     
|                        |  | (Principal Financial and Accounting Officer)
|                        | 
|                        |  | /s/ JEFFREY W. TAYLOR                       
|                        |  | Jeffrey W. Taylor                           
|                        |  | Chairman and Chief Executive Officer        
|                        |  | (Principal Executive Officer)               



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