<PAGE>   1
                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549



                                   FORM 10-Q



                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999


                          Commission File No. 333-14713



                           TAYLOR CAPITAL GROUP, INC.
                Exact Name of Registrant as Specified in Charter



           DELAWARE                                          36-4108550
  ------------------------------                        ---------------------
  State or Other Jurisdiction of                           I.R.S. Employer
   Incorporation or Organization                        Identification Number




                        350 EAST DUNDEE ROAD, SUITE 300
                         WHEELING, ILLINOIS 60090-3199
                     Address of Principal Executive Offices


                                 (847) 808-6873
               Registrant's Telephone Number, Including Area Code





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


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



           Class                                     Outstanding at May 6, 1999
----------------------------                         --------------------------
Common Stock, $.01 Par Value                                   4,652,549




<PAGE>   2


                           TAYLOR CAPITAL GROUP, INC.
                           --------------------------

                                     INDEX
                                     -----



PART I. FINANCIAL INFORMATION ...........................................PAGE
-----------------------------                                            ----

  Item 1.  Financial Statements

           Consolidated Balance Sheets (Unaudited) -
              March 31, 1999 and December 31, 1998.......................  3

           Consolidated Statements of Income (Unaudited) -
              For the Three Months Ended March 31, 1999 and For the
              Three Months Ended March 31, 1998..........................  4

           Consolidated Statements of Cash Flows (Unaudited) -
              For the Three Months Ended March 31, 1999 and For the
              Three Months Ended March 31, 1998..........................  5

           Notes to Consolidated Financial Statements (Unaudited)........  6

  Item 2.  Management's Discussion and Analysis of Financial Condition 
              and Results of Operations.................................. 17

  Item 3.  Quantitative and Qualitative Disclosure About Market Risk..... 33


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

  Item 1.  Legal Proceedings............................................. 34

  Item 6.  Exhibits and Reports on Form 8-K.............................. 35

  Signatures............................................................. 36



                                       2


<PAGE>   3



          PART I. FINANCIAL INFORMATION - Item 1. Financial Statements


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

                                                  March 31,      December 31,
                                                    1999             1998
                                                -----------      -----------
                                     ASSETS

Cash and due from banks                         $    65,174      $    66,192
Interest-bearing deposits with banks                     44            1,200
Federal funds sold                                   37,300               31
Investment securities:
   Available-for-sale, at fair value                349,907          351,408
   Held-to-maturity, at amortized cost 
     (fair value of $89,379 and $91,620 at
       March 31, 1999 and December 31, 1998, 
         respectively)                               87,939           89,753
Loans held for sale, net, at lower of cost 
   or market                                         24,859           42,257
Loans, net of allowance for loan losses of 
   $24,834 and $24,599 at March 31, 1999
   and December 31, 1998, respectively            1,291,053        1,269,125
Premises, leasehold improvements and 
   equipment, net                                    24,530           22,702
Other real estate and repossessed assets, net         3,191            3,267
Goodwill, net of amortization of $5,295 
   and $4,683 at March 31, 1999 and December
   31, 1998, respectively                            30,791           32,053
Other assets                                         34,254           32,342
                                                -----------      -----------
            Total assets                        $ 1,949,042      $ 1,910,330
                                                ===========      ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:

   Noninterest-bearing                          $   324,293      $   350,711
   Interest-bearing                               1,151,377        1,089,026
                                                -----------      -----------
            Total deposits                        1,475,670        1,439,737

Short-term borrowings                               171,777          171,718
Accrued interest, taxes and other liabilities        24,963           22,242
Notes payable                                       130,500          131,500
                                                -----------      -----------
            Total liabilities                     1,802,910        1,765,197
                                                -----------      -----------

Stockholders' equity:
   Preferred stock, $.01 par value, 3,000,000 
     shares authorized, Series A 9% 
     noncumulative perpetual, 1,530,000
     shares issued and outstanding, $25 stated
     and redemptive value                            38,250           38,250

   Common stock, $.01 par value; 7,000,000
     shares authorized, 4,656,549 and 
     4,658,533 shares issued and outstanding
     at March 31, 1999 and December 31, 1998, 
     respectively                                        47               47
   Surplus                                          100,056           99,990
   Unearned compensation - stock grants              (2,026)          (2,083)
   Employee stock ownership plan loan                  (576)            (576)
   Retained earnings                                 10,283            9,434
   Accumulated other comprehensive income                98               71
                                                -----------      -----------
            Total stockholders' equity              146,132          145,133
                                                -----------      -----------
              Total liabilities and 
                stockholders' equity            $ 1,949,042      $ 1,910,330
                                                ===========      ===========

          See accompanying notes to consolidated financial statements.

                                       3


<PAGE>   4


                           TAYLOR CAPITAL GROUP, INC.
                 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                                 (in thousands)
                           ------------------------

                                                 For the Three Months Ended
                                                ----------------------------
                                               March 31, 1999   March 31, 1998
                                               -------------------------------
Interest income:
   Interest and fees on loans                   $    27,464      $    26,455
   Interest and dividends on investment 
     securities:
     Taxable                                          4,649            6,478
     Tax-exempt                                         898              785
   Interest on cash equivalents                          81               90
                                                -----------      -----------
            Total interest income                    33,092           33,808
                                                -----------      -----------

Interest expense:
   Deposits                                          11,440           11,942
   Short-term borrowings                              1,973            2,497
   Notes payable                                      1,749            1,865
                                                -----------      -----------
            Total interest expense                   15,162           16,304
                                                -----------      -----------

Net interest income                                  17,930           17,504
Provision for loan losses                             1,500              750
                                                -----------      -----------
            Net interest income after provision
            for loan losses                          16,430           16,754
                                                -----------      -----------

Noninterest income:
   Service charges                                    2,129            2,324
   Trust fees                                         1,080              945
   Gain on sales of loans, net                          807              801
   Gain on sale of mortgage servicing rights            ---            1,462
   Investment securities gains, net                     107              ---
   Other noninterest income                             686              395
                                                -----------      -----------
            Total noninterest income                  4,809            5,927
                                                -----------      -----------

Noninterest expense:
   Salaries and employee benefits                     9,480            9,125
   Occupancy of premises, net                         1,757            1,714
   Furniture and equipment                              758              809
   Computer processing                                  623              561
   Advertising and public relations                     152              158
   Goodwill and other intangible amortization           612              611
   Legal fees                                         1,147              314
   Other noninterest expense                          2,696            2,996
                                                -----------      -----------
            Total noninterest expense                17,225           16,288
                                                -----------      -----------

Income before income taxes and cumulative
   effect of change in accounting principle           4,014            6,393
Income taxes                                          1,632            2,512
                                                -----------      -----------
Income before cumulative effect of change in
   accounting principle                               2,382            3,881
Cumulative effect of change in accounting
   principle, net of tax                               (214)             ---
                                                -----------      -----------
            Net income                          $     2,168      $     3,881
                                                ===========      ===========
Preferred dividend requirements                        (861)            (861)
                                                -----------      -----------
Net income applicable to common stockholders    $     1,307      $     3,020
                                                ===========      ===========


          See accompanying notes to consolidated financial statements.


                                       4


<PAGE>   5


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

                                                 For the Three Months Ended
                                               ------------------------------
                                               March 31, 1999  March 31, 1998
                                               ------------------------------
Cash flows from operating activities:
   Net income                                   $     2,168      $     3,881
   Adjustments to reconcile net income to
     net cash provided by (used in)
     operating activities:
     Investment securities gains, net                  (107)             ---
     Amortization of premiums and 
       discounts, net                                   920              727
     Provision for loan losses                        1,500              750
     Gain on sales of loans originated for sale        (640)            (925)
     Loans originated and held for sale             (38,467)         (75,122)
     Proceeds from sales of loans originated 
       for sale                                      56,505           62,445
     Depreciation and amortization                    1,529            1,585
     Other adjustments to net income, net               425               70
     Net changes in other assets and 
       liabilities                                    1,566           (2,704)
                                                -----------      -----------
            Net cash provided by (used in) 
              operating activities                   25,399           (9,293)
                                                -----------      -----------

Cash flows from investing activities:
   Purchases of available-for-sale securities       (93,944)         (21,516)
   Purchases of held-to-maturity securities            (249)          (4,331)
   Proceeds from principal payments and 
     maturities of available-for-sale
     securities                                      44,672           21,389
   Proceeds from principal payments and 
     maturities of held-to-maturity securities        1,962            1,955
   Proceeds from sales of available-for-sale
     securities                                      50,102              ---
   Net (increase) decrease in loans                 (24,351)           2,615
   Disposition of reverse exchange assets               ---           18,757
   Other, net                                        (2,209)            (588)
                                                -----------      -----------
            Net cash provided by (used in) 
              investing activities                  (24,017)          18,281
                                                -----------      -----------

Cash flows from financing activities:
   Net increase (decrease) in deposits               35,933           (9,171)
   Net (decrease) increase in short-term 
     borrowings                                          59           (6,176)
   Repayments of notes payable                      (26,000)         (65,000)
   Proceeds from notes payable                       25,000           81,400
   Decrease in nonrecourse borrowings                   ---          (18,757)
   Dividends paid                                    (1,279)          (1,278)
                                                -----------      -----------
            Net cash provided by (used in) 
              financing activities                   33,713          (18,982)
                                                -----------      -----------

Net increase (decrease) in cash and 
   cash equivalents                                  35,095           (9,994)
Cash and cash equivalents, beginning of period       67,423           84,616
                                                -----------      -----------
Cash and cash equivalents, end of period        $   102,518      $    74,622
                                                ===========      ===========
Supplemental disclosure of cash flow 
   information:
   Cash paid during the period for:
     Interest                                   $    15,346      $    16,182
     Income taxes                                       ---              ---


          See accompanying notes to consolidated financial statements.


                                       5


<PAGE>   6

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

1.   Basis of Presentation:
     ----------------------

     The Taylor Capital Group, Inc. consolidated financial statements include
     the accounts of Taylor Capital Group, Inc. (the "Parent Company") and its
     wholly owned subsidiaries (collectively, with the Parent Company, the
     "Company"), Cole Taylor Bank and its subsidiaries (the "Bank") and CT
     Mortgage Company, Inc. (the "Mortgage Company").

     Taylor Capital Group, Inc. acquired the Bank and the Mortgage Company on
     February 12, 1997 in the Split-Off Transactions (as defined below), which
     were accounted for by the purchase method of accounting. Prior to February
     12, 1997, the Bank and Mortgage Company were wholly-owned subsidiaries of
     Cole Taylor Financial Group, Inc. ("CTFG"), now known as Reliance
     Acceptance Group, Inc. The Split-Off Transactions were a series of
     transactions pursuant to which CTFG transferred the common stock of the
     Bank and the Mortgage Company to the Parent Company and then transferred
     all of the common stock of the Parent Company to certain CTFG stockholders
     in exchange for 4.5 million shares of CTFG common stock, a dividend from
     the Bank to CTFG consisting of cash and loans totaling approximately $84
     million and a cash payment of approximately $1.1 million for the Mortgage
     Company.

     The unaudited interim financial statements have been prepared pursuant to
     the rules and regulations for reporting on Form 10-Q. Accordingly, certain
     disclosures required by generally accepted accounting principles are not
     included herein. These interim statements should be read in conjunction
     with the financial statements and notes thereto included in the Company's
     Annual Report on Form 10-K for the year ended December 31, 1998, as filed
     with the Securities and Exchange Commission.

     Interim statements are subject to possible adjustment in connection with
     the annual audit of the Company for the year ended December 31, 1999. In
     the opinion of management of the Company, the accompanying unaudited
     interim consolidated financial statements reflect all adjustments
     (consisting of normal recurring adjustments) necessary for a fair
     presentation of the consolidated financial position and consolidated
     results of operations as of the dates and for the periods presented.

     The results of operations for the three months ended March 31, 1999 are not
     necessarily indicative of the results to be expected for the full year.


                                       6




<PAGE>   7


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

2.   Investment Securities:
     ----------------------

     The amortized cost and estimated fair values of investment securities at
     March 31, 1999 and December 31, 1998 were as follows:

                                                  March 31, 1999
                                   --------------------------------------------
                                                Gross       Gross
                                   Amortized  Unrealized  Unrealized Estimated
                                      Cost      Gains       Losses   Fair Value
                                   ---------   --------   ---------   ---------
                                                  (in thousands)
     Available-for-sale:
       U.S. Treasury securities     $ 65,425   $    407   $     (20)  $ 65,812
       U.S. government agency 
         securities                   66,429         91        (113)    66,407
       Collateralized mortgage 
         obligations                 105,919         90      (1,151)   104,858
       Mortgage-backed securities    111,983      1,424        (577)   112,830
                                    --------   --------   ---------   --------
         Total available-for-sale    349,756      2,012      (1,861)   349,907
                                    --------   --------   ---------   --------

     Held-to-maturity:
       State and municipal 
         obligations                  72,776      2,284        (905)    74,155
       Federal Reserve Bank and 
         Federal Home Loan Bank
         equity securities            14,338        ---         ---     14,338
       Other debt securities             825         61         ---        886
                                    --------   --------   ---------   --------
         Total held-to-maturity       87,939      2,345        (905)    89,379
                                    --------   --------   ---------   --------

            Total                   $437,695   $  4,357   $  (2,766)  $439,286
                                    ========   ========   =========   ========



                                                December 31, 1998
                                   --------------------------------------------
                                                Gross       Gross
                                   Amortized  Unrealized  Unrealized Estimated
                                      Cost      Gains       Losses   Fair Value
                                   ---------   --------   ---------   ---------
                                                  (in thousands)
     Available-for-sale:
       U.S. Treasury securities     $110,019   $    859   $     ---   $110,878
       U.S. government agency
         securities                   51,287        125         (86)    51,326
       Collateralized mortgage 
         obligations                  91,696         52      (2,054)    89,694
       Mortgage-backed securities     98,296      1,466        (252)    99,510
                                    --------   --------   ---------   --------
         Total available-for-sale    351,298      2,502      (2,392)   351,408
                                    --------   --------   ---------   --------
     Held-to-maturity:
       State and municipal 
         obligations                  74,609      2,752        (947)    76,414
       Federal Reserve Bank and 
         Federal Home Loan Bank 
         equity securities            14,319        ---         ---     14,319
       Other debt securities             825         62         ---        887
                                    --------   --------   ---------   --------
         Total held-to-maturity       89,753      2,814        (947)    91,620
                                    --------   --------   ---------   --------

            Total                   $441,051   $  5,316   $  (3,339)  $443,028
                                    ========   ========   =========   ========


                                       7

<PAGE>   8


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


3.   Loans:
     ------

     Loans classified by type at March 31, 1999 and December 31, 1998 were as
     follows:

                                                       March 31,   December 31,
                                                         1999         1998
                                                      ----------   ------------
                                                            (in thousands)
     Commercial and industrial                        $  753,902    $  749,984
     Real estate-construction                            246,331       232,018
     Residential real estate-mortgages                   147,349       150,930
     Home equity lines of credit                         105,014       106,521
     Consumer                                             62,879        53,751
     Other loans                                           1,636         1,806
                                                      ----------    ----------
       Gross loans                                     1,317,111     1,295,010
 
     Less:  Unearned discount                             (1,224)       (1,286)
                                                      ----------    ----------
       Total loans                                     1,315,887     1,293,724

     Less: Allowance for loan losses                     (24,834)      (24,599)
                                                      ----------    ----------
         Loans, net                                   $1,291,053    $1,269,125
                                                      ==========    ==========


4.   Interest-Bearing Deposits:
     --------------------------

     Interest-bearing deposits at March 31, 1999 and December 31, 1998 were as
     follows:

                                                 March 31,  December 31,
                                                    1999        1998
                                                ----------   ----------
                                                     (in thousands)
            NOW accounts                        $  131,256   $  120,900
            Savings accounts                       108,059      107,274
            Money market deposits                  230,439      234,197
            Certificates of deposit                470,532      448,773
            Public time deposits                   131,535      121,614
            Brokered certificates of deposit        79,556       56,268
                                                ----------   ----------
               Total                            $1,151,377   $1,089,026
                                                ==========   ==========


                                       8

<PAGE>   9


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

5.   Notes Payable:
     --------------

     Notes payable at March 31, 1999 and December 31, 1998 were as follows:

                                                       March 31,   December 31,
                                                         1999         1998
                                                      ----------   ------------
                                                            (in thousands)
     TAYLOR CAPITAL GROUP, INC.:
     ---------------------------
     $25 million term loan bearing interest at prime 
         rate or LIBOR plus 1.15%, annual principal 
         reductions of $1 million commencing in
         February 1999 and a balloon payment of 
         $22 million on February 12, 2002; interest
         rates at March 31, 1999 and December 31, 
         1998 were 6.12% and 6.42% respectively.      $   24,000    $   25,000

     $12 million revolving credit facility bearing 
         interest at prime rate or LIBOR plus 1.15%,
         maturing September 1, 1999;  interest rates
         at March 31, 1999 and December 31, 1998 
         were 6.12% and 6.43% respectively.                1,500         1,500

     COLE TAYLOR BANK:
     -----------------
     Federal Home Loan Bank (FHLB) - various 
         advances ranging from $25 million to $30 
         million due at various dates through
         October 2000 and $30 million due February
         2008, callable by the FHLB quarterly 
         beginning February 1999; collateralized 
         by qualified first mortgage residential 
         loans and FHLB stock; weighted average 
         interest rates at March 31, 1999 and
         December 31, 1998 were 5.08% and 5.23%  
         respectively.                                   105,000       105,000
                                                      ----------    ----------
         Total                                        $  130,500    $  131,500
                                                      ==========    ==========

     In October 1998, the Taylor Capital Group, Inc. loan agreement was
     extended, effective September 1, 1998 to September 1, 1999. In exchange for
     an increase in the revolving credit facility to $12 million from $7 million
     and a reduction in the interest rate, the loan agreement, including the $25
     million term loan, is now secured by the common stock of the Bank. The loan
     agreement requires compliance with certain defined financial covenants
     relating to the Bank, including covenants related to regulatory capital,
     return on average assets, nonperforming assets and Parent Company leverage.
     As of March 31, 1999, the Company was not aware of any instances of
     non-compliance.

6.   Incentive Compensation Plan:
     ----------------------------

     The Company has an Incentive Compensation Plan (the "Plan") that allows for
     the granting of stock options and other stock awards. During the three
     months ended March 31, 1999, stock options were granted with respect to
     103,570 shares of common stock at an exercise price of $27.00 per share,
     the fair market value of the common stock on the grant date, as determined
     by an independent appraisal. Stock options with respect to 17,957 shares of
     common stock were forfeited during the period. As of 



                                       9


<PAGE>   10


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


     March 31, 1999 total stock options outstanding, net of forfeitures, were
     for 316,049 shares of common stock at a weighted average exercise price of
     $24.39.

     In addition during the first quarter of 1999, 13,925 shares of common stock
     were awarded and 15,909 shares of common stock were forfeited under
     restricted stock agreements.

7.   Comprehensive Income:
     ---------------------

     Statement of Financial Accounting Standards No. 130, "Reporting of
     Comprehensive Income," requires disclosure of all components of
     comprehensive income. Comprehensive income has been defined as changes in
     stockholders' equity arising from transactions and other economic events
     from non-stockholder sources. For the Company, comprehensive income
     includes net income and unrealized holding gains or losses on
     available-for-sale investment securities. The following table presents
     comprehensive income for the periods indicated:

                                                   For the Three Months Ended
                                                   --------------------------
                                                 March 31, 1999  March 31, 1998
                                                 --------------  --------------
                                                         (in thousands)

            Net income, as reported                $    2,168     $    3,881

            Other comprehensive income:
              Change in unrealized gains 
                (losses) on available-for-sale 
                securities                                148           (985)

              Less: reclassification adjustment 
                for gains included in net income         (107)           ---
                                                   ----------     ----------
                                                           41           (985)

              Income tax expense (benefit) 
                related to other comprehensive
                income                                     14           (335)
                                                   ----------     ----------
              Other comprehensive income, net 
                of tax                                     27           (650)
                                                   ----------     ----------
            Total comprehensive income             $    2,195     $    3,231
                                                   ==========     ==========

8.   Litigation:
     -----------

     Jeffrey W. Taylor, Chairman of the Board and Chief Executive Officer of the
     Company, Bruce W. Taylor, President of the Company, Iris A. Taylor, Sidney
     J. Taylor, Cindy Taylor Bleil, related trusts and a related partnership
     (collectively, the "Taylor Family") have been named as defendants in the
     lawsuits described below relating to (1) the Split-Off Transactions and (2)
     the financial and public reporting of Reliance. Certain of the lawsuits
     also named other current or former officers and directors of the Company
     and Reliance, other stockholders of the Company, Reliance's public
     accountants at the time of the Split-Off Transactions (who continue to
     serve as the Company's public accountants), the investment banks that were
     involved in the Split-Off Transactions, Reliance and the Company as
     additional defendants. The filing dates of these lawsuits ranged from
     October 1997 to September 1998.



                                       10


<PAGE>   11


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

     The Split-Off Transactions were a series of transactions completed on
     February 12, 1997 in accordance with the Share Exchange Agreement, dated
     June 12, 1996 (the "Share Exchange Agreement") between Reliance and the
     Taylor Family, which owned approximately 25% of the outstanding common
     stock of Reliance prior to the Split-Off Transactions. Pursuant to the
     Split-Off Transactions, the Taylor Family and certain other stockholders of
     Reliance exchanged all of their common stock of Reliance for all of the
     outstanding common stock of the Company. On February 9, 1998, Reliance
     filed a voluntary petition under Chapter 11 of the Bankruptcy Code.

     In September 1998, five class actions, brought on behalf of current and
     former stockholders of Reliance and pending in Delaware Chancery Court,
     were consolidated into one class action. The consolidated class action
     alleges that the Taylor Family, certain directors and officers of the
     Company, and certain other defendants breached their fiduciary duties in
     connection with disclosures made to the stockholders prior to the vote
     which approved the Split-Off Transactions. The case seeks relief in the
     form of unspecified damages, attorneys' fees and recision of the Split-Off
     Transactions. On September 9, 1998 the Delaware Chancery Court stayed this
     consolidated class action indefinitely pending resolution of the
     consolidated class action in Texas that is described below.

     In August 1998, nine class actions, brought on behalf of current and former
     stockholders of Reliance and pending in the United States District Court
     for the Western District of Texas, were consolidated into one class action.
     One class action, brought on behalf of current and former stockholders of
     Reliance, is also pending in the Northern District of Illinois. These cases
     allege that the Taylor Family, certain directors and officers of the
     Company, and certain other defendants violated the federal securities laws
     and breached common law fiduciary duties. In addition, the cases allege
     that the Company and certain other defendants violated ERISA and breached
     certain fiduciary duties, including fiduciary duties owed to a subclass
     consisting of participants in Reliance's ESOP and 401(k) Profit Sharing
     Plan. The Texas and Illinois cases seek unspecified damages and attorneys'
     fees. Cole Taylor Bank is named as an additional defendant in the Illinois
     action. A motion is pending to transfer the Texas case to Illinois, and a
     motion is pending to transfer the Illinois case to Texas.

     On August 19, 1998, Irwin Cole and other members of his family, who
     collectively owned approximately 25% of the outstanding common stock of
     Reliance prior to the Split-Off Transactions, brought suit in Delaware
     Chancery Court against members of the Taylor Family, the Company, other
     current and/or former officers and directors of Reliance and the Company,
     and other stockholders of the Company. The suit alleges that the Taylor
     Family, certain directors and officers of the Company, and certain other
     defendants breached their fiduciary duties, committed fraud and/or engaged
     in self-dealing in connection with the operation of Reliance and the
     Split-Off Transactions. The lawsuit seeks unspecified damages and
     attorneys' fees and requests that the Court place all of the shares of the
     Company held by the Taylor Family in a constructive trust.

     On October 5, 1998, the United States Bankruptcy Court of the District of
     Delaware (the "Bankruptcy Court") entered an order preliminarily enjoining
     the plaintiffs in most of the above 



                                       11


<PAGE>   12

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

     lawsuits from prosecuting their cases on account of the pending adversary
     proceedings by the Reliance Estate Representative that are described below.
     The Company expects that the Bankruptcy Court's order will be amended in
     the near future to preliminarily enjoin the remaining plaintiffs from
     prosecuting their cases.

     On July 6, 1998, the Bankruptcy Court entered a confirmation order that
     discharged the liability of Reliance and its subsidiaries in connection
     with all of the lawsuits described above and permanently enjoined the
     filing of similar new suits against them. The Bankruptcy Court also
     appointed an Estate Representative (the "Estate Representative") for the
     Post-Confirmation Chapter 11 Estate of Reliance and its subsidiaries. On
     September 4, 1998, the Estate Representative filed two adversary proceeding
     complaints which named as defendants members of the Taylor Family, certain
     other directors and officers of the Company, one of Reliance's former legal
     counsel and Reliance's former public accountants (both of whom continue to
     serve the Company), the Company and Cole Taylor Bank, as trustee. The
     complaints allege fraudulent conveyance and breaches of fiduciary duties
     and contract with respect to the Taylor Family, the Company and Cole Taylor
     Bank, as trustee. The complaints charge certain of the other defendants
     with alleged breaches of fiduciary duty, breaches of contract, malpractice
     and negligent misrepresentation and aiding and abetting the Taylor Family's
     and the Company's alleged breaches. These complaints seek unspecified
     damages and attorneys' fees and avoidance of the Split-Off Transactions by
     the transfer to the Estate Representative of either the assets exchanged in
     the Split-Off Transactions or the value of such assets. One of the
     complaints demands monetary damages pursuant to the Taylor Family's
     obligation under the Share Exchange Agreement to indemnify Reliance for
     certain losses resulting from the Split-Off Transactions, and asks the
     court to disallow any claims for indemnification that any of the defendants
     have against Reliance or, in the alternative, to equitably subordinate such
     claims to all other creditor claims against Reliance. Motions to
     consolidate the two adversary proceedings and to have the adversary cases
     heard by the District Court, as opposed to the Bankruptcy Court, are
     pending.

     On December 7, 1998, the Estate Representative filed a motion for a
     preliminary injunction which seeks to enjoin the Company and Cole Taylor
     Bank from paying directly or indirectly any dividends to any of their
     respective shareholders and from paying any of the litigation defense costs
     of the Taylor Family or any other co-defendants with respect to any
     litigation arising out of the Split-Off Transactions. On March 3, 1999, the
     Company filed a memorandum in opposition that opposes such preliminary
     injunction. This motion for a preliminary injunction is currently pending.

     In accordance with the terms and conditions of the Share Exchange Agreement
     relating to the Split-Off Transactions, the Taylor Family has agreed to
     indemnify Reliance for certain losses incurred by Reliance, including
     certain losses relating to the Split-Off Transactions ("Taylor Family
     Indemnification Obligations"). In accordance with the terms of an agreement
     dated February 6, 1997 between the Taylor Family and the Company, the
     Company agreed to indemnify the Taylor Family for certain losses that the
     Taylor Family may incur as a result of the Split-Off Transactions,
     including a portion of the Taylor Family Indemnification Obligations under
     the Share Exchange Agreement. The Company is unable at this time to predict
     the extent to which it will be required to pay any amounts under its
     indemnification obligation to the Taylor Family. The Company and its



                                       12


<PAGE>   13


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

     subsidiaries have paid and may continue to pay defense and other legal
     costs of the lawsuits described above that are not otherwise advanced by
     insurance carriers on behalf of the Taylor Family and other directors,
     officers and stockholders of the Company who are defendants in these
     lawsuits.

     The Company believes that it has meritorious defenses to all of the actions
     against the Company, and the Company intends to defend itself and its
     subsidiaries vigorously. However, the Company is unable to predict, at this
     time, the potential impact of the litigation, the indemnification
     obligations and the payment of legal fees described above on the
     management, business, financial condition, liquidity and operating results
     of the Company. Even if the Taylor Family, the Company and the other
     defendants are successful in defending themselves in the lawsuits, the
     Company has incurred and will continue to incur significant costs with
     respect to such lawsuits.

     The Company is from time to time a party to various other legal actions
     arising in the normal course of business. Management knows of no such other
     threatened or pending legal actions against the Company that are likely to
     have a material adverse impact on the business, financial condition,
     liquidity or operating results of the Company.



9.   Segment Reporting
     -----------------

     Effective January 1, 1998, the Company adopted Statement of Financial
     Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
     and Related Information" ("SFAS No. 131"). SFAS No. 131 provides guidance
     for the way enterprises report information about operating segments in
     annual and interim financial statements.

     The Company's operations include two primary segments: banking and mortgage
     banking. Through its 12 banking branches located in the Chicago
     metropolitan area, the Company provides a full range of commercial and
     consumer banking services to small and mid size businesses. The mortgage
     banking segment originates residential mortgage and home equity loans from
     approved mortgage brokers and other financial intermediaries, as well as
     employee loan originators who are compensated on a full commission basis.
     The majority of the first mortgage loans originated are conforming loans
     which are generally sold into the secondary market. The home equity loans
     are retained by the Bank and included in the Company's mortgage banking
     segment.

     The Company's two reportable segments are separately managed as they offer
     different products and services and have different marketing strategies. In
     addition, the mortgage banking segment, through its wholesale origination
     operation, services a different customer base than the banking segment.

     The segment financial information provided below has been derived from the
     internal profitability reporting system used by management to monitor and
     manage the financial performance of the Bank. The Bank evaluates segment
     performance based on profit or loss before income taxes. Certain indirect
     expenses have been allocated based on actual volume measurements and other


                                       13


<PAGE>   14



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

     criteria, as the Bank considers appropriate. The Bank accounts for
     intersegment revenue at current market prices.

     The following table presents reportable segment information for the periods
     indicated:
<TABLE>
<CAPTION>
                                             For the Three Months Ended
                          ----------------------------------------------------------------
                                  March 31, 1999                   March 31, 1998
                                     Mortgage                         Mortgage
                           Banking    Banking    Total       Banking   Banking    Total
                          ----------------------------------------------------------------
                                                  (in thousands)
     <S>                  <C>         <C>      <C>         <C>         <C>      <C>
     Net interest income  $   17,365  $   964  $   18,329  $   17,413  $   567  $   17,980

     Noninterest income        3,857      101       3,958       3,692       44       3,736

     Depreciation and 
       amortization            1,523        6       1,529       1,558       27       1,585
   
     Other significant 
       noncash items:
         Provision for 
            loan losses        1,458       42       1,500         750      ---         750
         Gain on sales of
            loans, net           ---      807         807         ---      801         801
         Gain on sale of 
            mortgage 
            servicing 
            rights               ---      ---         ---         ---    1,462       1,462
         Impairment of
            mortgage 
            servicing 
            rights               ---      ---         ---         ---       53          53
         Reduction of 
            impairment
            reserve on 
            mortgage 
            servicing 
            rights               ---       47          47         ---      ---         ---

     Income taxes              2,421      (68)      2,353       2,706      485       3,191

     Segment net income 
       (loss)             $    3,959  $  (163) $    3,796  $    4,277  $   898  $    5,175
                          ==========  =======  ==========  ==========  =======  ==========
     Segment average 
       assets             $1,816,637  $87,801  $1,904,438  $1,779,077  $56,642  $1,835,719
                          ==========  =======  ==========  ==========  =======  ==========
</TABLE>




                                       14




<PAGE>   15


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


     The following table reconciles segment information to the consolidated
     financial statements for the periods indicated:

<TABLE>
<CAPTION>
                                                  For the Three Months Ended
                          -----------------------------------------------------------------------
                                  March 31, 1999                   March 31, 1998
                          -----------------------------------------------------------------------
                          Reportable          Consolidated     Reportable           Consolidated
                           Segments    Other     Totals        Segments    Other     Totals
                          -----------------------------------------------------------------------
                                                  (in thousands)
     <S>                  <C>         <C>      <C>            <C>         <C>      <C>
     Net interest income  $   18,329  $  (399) $   17,930     $   17,980  $  (476) $   17,504

     Noninterest income        3,958       (3)      3,955          3,736      (19)      3,717

     Depreciation and
       amortization            1,529      ---       1,529          1,585      ---       1,585

     Other significant
       noncash items:
         Provision for
            loan losses        1,500      ---       1,500            750      ---         750
         Gain on sales
            of loans, net        807      ---         807            801      ---         801
         Gain on sale of
            mortgage             ---      ---         ---
            servicing
              rights             ---      ---         ---          1,462      ---       1,462
         Impairment of
            mortgage
            servicing
            rights               ---      ---         ---             53      ---          53
         Reduction of
            impairment
            reserve on
            mortgage
            servicing
            rights                47      ---          47            ---      ---        ---

     Income taxes              2,353     (721)      1,632          3,191     (679)      2,512

     Net income (loss)    $    3,796  $(1,628) $    2,168     $    5,175  $(1,294) $    3,881
                          ==========  =======  ==========     ==========  =======  ==========
     Average assets       $1,904,438  $ 3,653  $1,908,091     $1,835,719  $18,667  $1,854,386
                          ==========  =======  ==========     ==========  =======  ==========
</TABLE>

     For the three months ended March 31, 1999 and 1998, respectively, amounts
     presented in the other columns represent the operations of the Parent
     Company, the Mortgage Company, and CTRE, Inc. which have not been defined
     as reportable segments.



                                       15


<PAGE>   16
                           TAYLOR CAPITAL GROUP, INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(Continued)


10.  Cumulative Effect of Change in Accounting Principle
     ---------------------------------------------------

     As of January 1, 1999, the Company adopted Statement of Position 98-5 (SOP
     98-5), "Reporting on the Costs of Start-Up Activities," which requires that
     the cost of start-up activities and organization costs be expensed as
     incurred. The initial adoption of SOP 98-5 resulted in a charge of $214,000
     (net of a tax benefit of $146,000) and is reported in the Consolidated
     Statements of Income as a cumulative effect of change in accounting
     principle. The charge represents remaining organization costs in connection
     with the Split-Off Transactions which had not yet been fully amortized.



                                       16




<PAGE>   17


                           TAYLOR CAPITAL GROUP, INC.
                MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following presents management's discussion and analysis of financial
condition and results of operations of the Company as of and for the dates and
periods indicated. This discussion should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto, appearing
elsewhere in this Form 10-Q.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Taylor Capital
Group, Inc. (the "Parent Company") and its wholly owned subsidiaries
(collectively, with the Parent Company, the "Company"), Cole Taylor Bank and its
subsidiaries (the "Bank") and CT Mortgage Company, Inc. (the "Mortgage
Company"). This discussion should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.

OVERVIEW

The Company's first quarter 1999 financial results reflected a decline in
profitability in comparison to the financial results for the first quarter of
1998. Major factors contributing to this decline include: 1) the decrease in
total interest income to $33.1 million from $33.8 million for the same period in
1998, 2) the increase in the provision for loan losses to $1.5 million in 1999
from $750,000 in 1998, 3) the $1.5 million gain on the sale of mortgage
servicing rights which occurred during the first quarter of 1998, 4) the
increase in noninterest expenses to $17.2 million in 1999 from $16.3 million in
1998, and 5) the adoption of SOP 98-5, "Reporting on the Costs of Start-Up
Activities," which resulted in a charge of $214,000 (net of a tax benefit of
$146,000) during the first quarter of 1999. These factors were partially offset
by a decrease in interest expense to $15.2 million during the first quarter of
1999 from $16.3 million for the same period in 1998.

For the first quarter of 1999, consolidated net income was $2.2 million.
Annualized return on average assets and return on average equity were 0.46% and
6.03%, respectively. For the first quarter of 1998, consolidated net income was
$3.9 million. For this period, annualized return on average assets and return on
average equity were 0.85% and 11.07%, respectively. Total assets of the Company
were $1.95 billion and $1.91 billion at March 31, 1999 and December 31, 1998,
respectively. Loans were $1.34 billion at both March 31, 1999 and December 31,
1998, and total deposits grew to $1.48 billion at March 31, 1999 from $1.44
billion at December 31, 1998. Stockholders' equity increased to $146.1 million
at March 31, 1999 as compared to $145.1 million at December 31, 1998.



                                       17



<PAGE>   18

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

RESULTS OF OPERATIONS

Net Interest Income

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

Net interest income (with an adjustment for tax-exempt income) for the first
quarter of 1999 was $18.6 million, compared to $18.1 million for the first
quarter of 1998.

Net interest margin, which is determined by dividing taxable-equivalent net
interest income by average interest-earning assets, decreased to 4.22% during
the first quarter of 1999 from 4.30% (on an annualized basis) for the same
period in 1998. The decline in net interest margin was primarily a result of
reduced yields on sequential-paying collateralized mortgage obligations, as
described below, and commercial loans, partially offset by a decline in the cost
of interest-bearing liabilities and a change in asset mix from investment
securities and into loans.

The yield on earning assets declined to 7.67% from 8.19% for the first quarter
1999, as compared to the same period in 1998. In late 1997 and January 1998, the
Bank purchased approximately $92 million of sequential-paying collateralized
mortgage obligations at a premium of $7.5 million. The decline in mortgage
interest rates and higher refinancing activity experienced during 1998 required
that the Bank amortize the purchase premium at a rate faster than originally
expected. Accordingly, in the third and fourth quarter of 1998, adjustments were
recorded to reduce the yields of the securities to an expected yield given
actual payments received to date and the future expected prepayment rate for
these securities. At March 31, 1999, these securities totaled $41 million, with
$2.1 million of premium remaining and an expected yield of 1.1%. These
securities are backed by pools of single-family mortgage loans and guaranteed,
as to principal and interest, by certain agencies, including the Federal
National Mortgage Association (FNMA) and the Federal Home Loan Mortgage
Corporation (FHLMC). The decreased yield on commercial loans was reflected by
the 75 basis point reduction in the Company's prime rate during the fourth
quarter of 1998, as well as increased competitive pressure on loan pricing. The
yield on real estate mortgages decreased as mortgage prepayments increased and
new mortgage production rates were lower due to the lower interest rate
environment.

The cost of interest-bearing liabilities declined to 4.32% during the first
quarter of 1999 from 4.84% for the first quarter of 1998, primarily as a result
of a lowering of the rate paid on interest-bearing deposits and the
repositioning of a portion of the Federal Home Loan Bank (FHLB) short-term
borrowings to FHLB long-term callable notes.

Average earning assets for the three months ended March 31, 1999 increased $76.8
million, or 4.5% when compared to the 1998 reporting period.



                                       18


<PAGE>   19


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

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






                                       19


<PAGE>   20




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

     ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT INTEREST AND YIELD/RATES
 
<TABLE>
<CAPTION>
                            FOR THE THREE MONTHS ENDED       FOR THE THREE MONTHS ENDED
                                  MARCH 31, 1999                  MARCH 31, 1998 
                          -------------------------------  -------------------------------
                                                 YIELD/                           YIELD/
                           AVERAGE                RATE      AVERAGE                RATE
                           BALANCE   INTEREST    (%)(3)     BALANCE   INTEREST    (%)(3)
                          ----------  -------  ----------  ----------  -------  ----------
<S>                       <C>         <C>      <C>         <C>         <C>      <C>
INTEREST-EARNING ASSETS:                       (dollars in thousands)
Investment securities (1):
   Taxable                $  359,225  $ 4,649      5.20%   $  421,823  $ 6,478        6.23%
   Non-taxable (tax
     equivalent)              74,003    1,429      7.73        63,784    1,270        7.96
                          ----------  -------              ----------  -------
       Total investment
         securities          433,228    6,078      5.63       485,607    7,748        6.46
                          ----------  -------              ----------  -------
Cash equivalents               6,768       81      4.79         6,535       90        5.51
                          ----------  -------              ----------  -------
Loans (2):
   Commercial and
     industrial              987,899   20,761      8.41       859,393   19,224        8.95
   Real estate mortgages     184,713    3,274      7.09       193,402    3,608        7.46
   Consumer and other        164,302    3,290      8.12       155,182    3,414        8.92
   Fees on loans                          240                              301
                          ----------  -------              ----------  -------
     Net loans
       (tax equivalent)   1,336,914   27,565       8.35     1,207,977   26,547        8.90
                          ----------  -------              ----------  -------
         Total earning
            assets         1,776,910   33,724      7.67     1,700,119   34,385        8.19
                          ----------  -------              ----------  -------

Allowance for loan losses    (25,313)                         (25,780)

NONEARNING ASSETS:
   Cash and due from
     banks                    66,668                           72,370
   Accrued interest and
     other assets             89,826                          107,677
                          ----------                       ----------
TOTAL ASSETS              $1,908,091                       $1,854,386
                          ==========                       ==========

INTEREST-BEARING LIABILITIES:
   Interest-bearing deposits:
     Interest-bearing
       demand deposits       359,724    2,778      3.13    $  343,841    3,039        3.58
     Savings deposits        106,924      475      1.80       112,911      711        2.55
     Time deposits           648,592    8,187      5.12       589,008    8,192        5.64
                          ----------  -------              ----------  -------
         Total deposits    1,115,240   11,440      4.16     1,045,760   11,942        4.63
                          ----------  -------              ----------  -------
   Short-term borrowings     178,214    1,973      4.49       197,304    2,497        5.13
   Notes payable             131,122    1,749      5.34       123,638    1,865        6.03
                          ----------  -------              ----------  -------
         Total interest-
            bearing
            liabilities    1,424,576   15,162      4.32     1,366,702   16,304        4.84
                          ----------  -------              ----------  -------
NONINTEREST-BEARING LIABILITIES:
   Noninterest-bearing
     deposits                313,908                          309,236
   Nonrecourse
     borrowings (4)                                            16,256
   Accrued interest and
     other liabilities        23,689                           19,965

STOCKHOLDERS' EQUITY         145,918                          142,227
                          ----------                       ----------
TOTAL LIABILITIES AND
   STOCKHOLDERS' EQUITY   $1,908,091                       $1,854,386
                          ==========                       ==========
Net interest income
   (tax equivalent)                   $18,562                          $18,081
                                      =======                          =======
Net interest spread                                3.36%                              3.35%
Net interest margin                                4.22%                              4.30%
                                               ========                         ==========
</TABLE>

----------------------------------------

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

(2)  Nonaccrual loans are included in the above stated average balances.

(3)  Yields / rates are annualized.

(4)  Interest expense on nonrecourse borrowings is netted against trust fees on
     the income statement.



                                       20


<PAGE>   21




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


Provision for Loan Losses

Management determines a provision for loan losses which it considers sufficient
to maintain an adequate level of allowance for loan losses. In evaluating the
adequacy of the allowance for loan losses, consideration is given to historical
charge-off experience, growth of the loan portfolio, changes in the composition
of the loan portfolio, general economic conditions, information about specific
borrower situations, including their financial position and collateral values,
and other factors and estimates which are subject to change over time.
Estimating the risk of loss and amount of loss on any loan is subjective.
Ultimate losses may vary from current estimates. These estimates are reviewed
quarterly and, as changes in estimates are identified by management, the amounts
are reflected in income through the provision for loan losses in the appropriate
period.

The provision for loan losses in the first quarter of 1999 was $1.5 million as
compared to $750,000 for the first quarter of 1998. The $750,000 increase in the
provision for loan losses in 1999 over 1998 was a result of an increase in net
charge-off activity and loan volume in 1998 and early 1999. Net charge-offs were
$1.3 million in the first quarter of 1999 as compared to $921,000 for the same
1998 period. If the commercial loan portfolio continues to grow and/or future
net charge-offs do not decline, and/or nonperforming loans increase, the Company
expects that the provision for loan losses will continue to increase over the
1998 level. As of March 31, 1999, management believes that the allowance for
loan losses is adequate. See "Financial Condition -- Nonperforming Loans and
Assets".

Noninterest Income

The following table shows noninterest income for the periods indicated:

                               NONINTEREST INCOME

                                                   For the Three Months Ended
                                                   --------------------------
                                               March 31, 1999   March 31, 1998
                                               --------------   --------------
                                                       (in thousands)

          Deposit service charges                $2,074              $2,090
          Retail credit card service charges         53                 130
          Merchant credit card processing fees        2                 104
          Trust fees                              1,080                 945
          Gain on sale of loans, net                807                 801
          Mortgage loan servicing income, net       141                 (10)
          ATM fees                                  257                 193
          Gain on sale of mortgage 
            servicing rights                        ---               1,462
          Investment securities gains, net          107                 ---
          Other noninterest income                  288                 212
                                                 ------              ------
               Total noninterest income          $4,809              $5,927
                                                 ======              ======



                                       21


<PAGE>   22



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

Total noninterest income for the first quarter of 1999 was $4.8 million as
compared to $5.9 million for the first quarter of 1998. The decrease in first
quarter 1999 noninterest income as compared to the first quarter of 1998 was
primarily due to the 1998 reporting period including a gain on sale of mortgage
servicing rights of $1.5 million. In addition, retail credit card service
charges and merchant credit card processing fees decreased during 1999 due to
the Bank's sale of the majority of its credit card portfolio and merchant credit
card deposit program in November 1998 and September 1997, respectively.

Trust fees increased 14% due to an increase in corporate trust business. The
increase in mortgage loan servicing income was primarily a result of a $47,000
reduction in the valuation reserve related to capitalized mortgage servicing
rights during the first quarter of 1999, as mortgage prepayment activity slowed
modestly. An impairment provision of $53,000 had been recognized during the
first quarter of 1998. The Company's higher ATM fee income during the first
quarter of 1999 was due to an increase in the surcharge fee during the fourth
quarter of 1998.

Noninterest Expense

The following table shows noninterest expense for the periods indicated:

                              NONINTEREST EXPENSE

                                                For the Three Months Ended
                                                --------------------------
                                             March 31, 1999    March 31, 1998
                                             --------------    --------------
                                                   (dollars in thousands)

          Salaries and employee benefits        $ 9,480              $9,125
          Occupancy of premises, net              1,757               1,714
          Furniture and equipment                   758                 809
          Computer processing                       623                 561
          Advertising and public relations          152                 158
          Goodwill and other intangible 
            amortization                            612                 611
          Legal fees                              1,147                 314
          Other real estate and repossessed 
            asset expense                            95                  98
          Other noninterest expense               2,601               2,898
                                                -------             -------
              Total noninterest expense         $17,225             $16,288
                                                =======             =======
          Efficiency ratio (1)                    75.75%              69.51%
                                                =======             =======

          ------------------------
          (1) Noninterest expense divided by an amount equal to net interest
              income plus noninterest income.

Total noninterest expense for the first quarter of 1999 was $17.2 million as
compared to $16.3 million for the first quarter of 1998. The primary reason for
the higher expense in 1999 was an increase in salaries and benefit expenses and
increased litigation expenses associated with the Split-Off Transactions.



                                       22


<PAGE>   23



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

Salaries and benefit expense increased 4% during the first quarter of 1999. The
primary reasons for this increase were routine annual salary increases and
increased number of full-time equivalent employees. The number of full-time
equivalent employees averaged 630 in the first quarter of 1999 as compared to
617 during the 1998 reporting period.

Occupancy expense increased 3% during the first quarter of 1999. The increase in
occupancy expense was due to the addition of the West Washington banking
facility, which opened in March 1998.

In late 1998 and the first quarter of 1999, the Bank implemented significant
technology enhancements within the Bank's operations center and replaced certain
hardware and software applications with ones of greater functionality. Capital
expenditures related to the replacement of hardware and software are expected to
total approximately $2.5 million. The Company anticipates these enhancements and
replacements will increase furniture and equipment expenses in future periods.

Legal expenses for the first quarter of 1999 increased significantly from 1998.
This increase was primarily due to $308,000 in reimbursements received during
the first quarter of 1998 from the Bank's insurance carrier for certain 1997
Bank-related defense costs and increased Parent Company legal costs ,in the
first quarter of 1999, relating to the bankruptcy of Reliance Acceptance Group,
Inc. The legal costs relating to the bankruptcy of Reliance Acceptance Group,
Inc. and the defense of the various lawsuits relating to the Split-Off
Transactions totaled approximately $1.1 million and $500,000 during the 1999 and
1998 reporting periods. The Company expects to continue to incur significant
legal expenses in connection with the Split-Off Transactions litigation, which
will continue to adversely affect profitability. A portion of these defense
costs have been and will be submitted to insurance carriers for reimbursement.
The Company, however, cannot predict to what extent such costs will be
reimbursed or when such reimbursement could occur. See " - Litigation" below.

Income Taxes

The income tax expense of $1.6 million for the first quarter of 1999 reflected
an effective tax rate of 41%. The income tax expense of $2.5 million for the
first quarter of 1998 reflected an effective tax rate of 39%. The higher
effective tax rate in 1999 was primarily due to certain employee benefit costs
that were not fully deductible for tax purposes.

Cumulative Effect of Change in Accounting Principle

As of January 1, 1999, the Company adopted Statement of Position 98-5 (SOP
98-5), "Reporting on the Costs of Start-Up Activities," which requires that the
cost of start-up activities and organization costs be expensed as incurred. The
initial adoption of SOP 98-5 resulted in a charge of $214,000 (net of a tax
benefit of $146,000) and is reported in the Consolidated Statements of Income as
a cumulative effect of change in accounting principle. The charge represents
remaining organization costs in connection with the Split-Off Transactions which
had not yet been fully amortized.



                                       23


<PAGE>   24



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


FINANCIAL CONDITION

Overview

Early in the first quarter of 1999, the Company's commercial and real estate
construction loan growth was funded with out-of- market and brokered
certificates of deposit. Noninterest-bearing deposits declined due to the
recurring seasonal increase at each year-end. As the quarter progressed,
customer deposits increased, providing additional liquidity that was deployed
into short-term investments in expectation of continued loan growth. Both
mortgage loans and mortgage loans held-for-sale declined due to continued
refinancing activity and an increase in the volume of mortgage loans delivered
for sale.

In March 1999, the Company executed a modest restructuring of the
available-for-sale investment portfolio. Approximately $50 million of
short-maturity U.S. Treasury securities were sold and the proceeds were
reinvested in longer-term Treasury, government agency and mortgage-backed
securities, thereby lengthening the duration of the investment portfolio.

Premises and equipment expenses increased approximately $1.8 million during the
first quarter of 1999 primarily as a result of the purchase of operations and
technology hardware and software.

Goodwill may be reduced by the utilization of acquired state net operating loss
carryforwards in connection with the Split-Off Transactions. The state income
tax benefit of these items is applied against goodwill when recognized, rather
than as a reduction of income tax expense.

Nonperforming Loans and Assets

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



                                       24





<PAGE>   25




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


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


                              NONPERFORMING ASSETS

                                               March 31,         December 31,
                                                 1999                1998
                                               ---------         ------------
                                                   (dollars in thousands)

     Loans contractually past due 90 days 
       or more but still accruing               $ 2,698             $ 2,618
     Nonaccrual loans                             9,067              11,365
                                                -------             -------
            Total nonperforming loans            11,765              13,983
     Other real estate                            3,199               3,185
     Other repossessed assets                        82                  83
                                                -------             -------
            Total nonperforming assets          $15,046             $17,251
                                                =======             =======

     Nonperforming loans to total loans            0.88%               1.05%
     Nonperforming assets to total loans 
       plus repossessed property                   1.06%               1.29%
     Nonperforming assets to total assets          0.77%               0.90%


Allowance for Loan Losses

An allowance for loan losses has been established to provide for those loans
which may not be repaid in their entirety. The allowance for loan losses is
increased by provisions charged to expense and decreased by charge-offs, net of
recoveries. The allowance is maintained by management at a level it considers
adequate to cover losses that are currently anticipated based on past loss
experience, general economic conditions, information about specific borrower
situations, including their financial position, collateral values, and other
factors and estimates which are subject to change over time. These estimates are
reviewed quarterly and, as changes in estimates are identified by management,
the resulting amounts are reflected through the provision for loan losses in the
appropriate period. Although management believes that the Company's allowance
for loan losses is adequate to absorb any losses on existing loans that may
become uncollectible, there can be no assurance that the allowance will prove
sufficient to cover actual loan losses in the future. See "Results of Operations
--Provision for Loan Losses".

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



                                       25



<PAGE>   26



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

                     ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

                                                 For the Three Months Ended
                                                 --------------------------
                                            March 31, 1999     March 31, 1998
                                            --------------     --------------
                                                  (dollars in thousands)

     Average total loans                      $1,336,914          $1,207,977
                                              ==========          ==========
     Total loans at end of period             $1,340,746          $1,214,294
                                              ==========          ==========

     ALLOWANCE FOR LOAN LOSSES:

     Allowance at beginning of period         $   24,599          $   25,813
     Charge-offs                                  (2,100)             (1,140)
     Recoveries                                      835                 219
                                              ----------          ----------
         Net charge-offs                          (1,265)               (921)
                                              ----------          ----------
     Provisions for loan losses                    1,500                 750
                                              ----------          ----------
     Allowance at end of period               $   24,834          $   25,642
                                              ==========          ==========

     Net charge-offs to average total 
       loans (annualized)                           0.38%               0.31%
     Allowance to total loans at end of 
       period                                       1.85%               2.11%
     Allowance to nonperforming loans             211.08%             173.05%


Net charge-offs for the first quarter 1999 as compared to the first quarter 1998
increased $344,000. The increase was primarily a result of charge-offs within
the Bank's commercial loan portfolio. The amount of nonperforming loans was
$11.8 million at March 31, 1999 as compared to $14.0 million at December 31,
1998. The allowance as a percentage of nonperforming loans increased to 211.08%
at March 31, 1999 from 175.92% at December 31, 1998. The ratio of allowance to
nonperforming loans increased from December 31, 1998 primarily due to a 16%
decrease in the amount of nonperforming loans.

Capital Resources

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



                                       26


<PAGE>   27



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


The Company's and the Bank's capital ratios were as follows for the dates
indicated:
<TABLE>
<CAPTION>
                                                                                         To Be Well
                                                                                      Capitalized Under
                                                                      For Capital     Prompt Corrective
                                                      Actual        Adequacy Purpose   Action Provision
                                                 ---------------   -----------------  ------------------
                                                  Amount   Ratio     Amount   Ratio    Amount      Ratio
                                                 --------  -----   ---------  ------  ---------   ------
                                                                      (dollars in thousands)
<S>                                              <C>       <C>     <C>        <C>     <C>         <C>
As of March 31, 1999:
   Total Capital (to Risk Weighted Assets)
     Taylor Capital Group, Inc. - Consolidated   $133,709   9.07%  >$117,963  >8.00%      NA
     Cole Taylor Bank                             155,882  10.53   > 118,476  >8.00   >$148,096   >10.00%
   Tier I Capital (to Risk Weighted Assets)
     Taylor Capital Group, Inc. - Consolidated    115,198   7.81%  >  58,982  >4.00       NA
     Cole Taylor Bank                             137,293   9.27   >  59,238  >4.00   >  88,857   > 6.00
   Leverage (1)
     Taylor Capital Group, Inc. - Consolidated    115,198   6.14%  >  75,089  >4.00       NA
     Cole Taylor Bank                             137,293   7.33   >  74,943  >4.00   >  93,680   > 5.00


As of December 31, 1998:
   Total Capital (to Risk Weighted Assets)
     Taylor Capital Group, Inc. - Consolidated   $131,218   9.02%  $ 116,405  >8.00%      NA
     Cole Taylor Bank                             154,943  10.67   > 116,144  >8.00   >$145,507   >10.00%
   Tier I Capital (to Risk Weighted Assets)
     Taylor Capital Group, Inc. - Consolidated    112,951   7.76      58,203              NA
     Cole Taylor Bank                             136,717   9.42   >  58,072  >4.00   >  87,304   > 6.00
   Leverage (1)
     Taylor Capital Group, Inc. - Consolidated    112,951   6.17      73,204              NA
     Cole Taylor Bank                             136,717   7.33   >  74,655  >4.00   >  91,506   > 5.00

---------------------
</TABLE>

(1) The leverage ratio is defined as Tier 1 capital divided by average quarterly
    assets.


During the first quarter of 1999, the Parent Company's capital ratios remained
stable and above regulatory guidelines. The cash flow requirements at the Parent
Company, which have increased significantly as a result of the legal defense
costs related to the Split-Off Transactions, continue to result in increased
dividends from the Bank. As a result, the Bank's capital ratios declined at
March 31, 1999 in comparison to December 31, 1998.

Management of the Company recognizes the need to effectively manage capital
levels to remain above the regulatory "well capitalized" guidelines as it
relates to asset growth. In order to avoid declining capital levels, management
will continue to evaluate options, including utilizing the Parent Company's
revolving credit facility to fund Parent Company legal costs and other expenses.

For the first quarter of 1999, the Parent Company declared $861,000 and $419,000
in preferred and common stock dividends, respectively.


                                       27


<PAGE>   28




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

Liquidity

The Company's liquidity position remained stable during the first quarter of
1999. Asset growth was supported through the issuance of brokered certificates
of deposit, as well as increased customer deposits. Cash flow was also provided
through increased delivery of loans held for sale. The Parent Company paid $1
million on its term loan during the quarter. The Company believes that its
current sources of funds are adequate to meet all of the Company's financial
commitments and asset growth targets for 1999.

On December 7, 1998 a motion was filed for a preliminary injunction which seeks
to prevent the Company and the Bank from paying any dividends to any of their
respective shareholders. In March 1999, the Company filed a memorandum in
opposition that opposes such preliminary injunction. See Part II - Item 1.-
"Legal Proceedings."

As described in Footnote 8 to the consolidated financial statements included in
Part I, Item 1, and under the caption "Litigation" in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
Company and its subsidiaries continue to pay defense and other legal costs
related to certain significant litigation. As these costs are being paid
primarily by the Parent Company, the Parent Company's cash needs have increased.
The liquidity uses of the Parent Company on a standalone basis consist primarily
of dividends to shareholders and expenses for general corporate purposes
including legal costs. The primary source of Parent Company cash flow is
dividends received from the Bank. The Bank currently has adequate capital to
allow continued dividends, out of earnings, to support the expected liquidity
demands of the Parent Company.

YEAR 2000 COMPLIANCE

The Company continues to be actively addressing its Year 2000 ("Y2K") compliance
issues. A comprehensive Y2K plan (the "Plan") has been prepared which includes
awareness, assessment, renovation, validation/testing, implementation and
contingency planning. A Y2K oversight committee is responsible for ensuring that
the Plan is executed on a timely basis.

The Company has substantially completed the awareness, assessment, renovation,
and validation phases of the Plan. The Plan called for the replacement or
upgrade of non-compliant systems and validation of those replacements or
upgrades during the fourth quarter of 1998 and early 1999. The Company currently
expects all replacements and upgrades to be tested and implemented by June 30,
1999.

The majority of the Company's mission critical systems (specifically those that
process loans, deposits, and general ledger transactions) are provided by third
party processors. At this time, the primary data processing provider reports
that it is on target to meet all required dates to provide compliant systems.
All core applications provided by the Company's primary data processing provider
have been tested for Y2K readiness and the majority of the remediated core
applications have already been implemented. The Company anticipates that the
remaining core applications provided by the Company's primary data processing
provider will be implemented by May 31, 1999.



                                       28


<PAGE>   29


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


The Company's contingency plans relative to Y2K issues have not yet been
finalized and are being developed as the testing of all systems proceeds. Upon
completion of testing during 1999, appropriate contingency plans will be
finalized. As the Company's primary data processing provider is currently on
target to meet all required dates to provide compliant systems, a contingency
plan covering this element has not yet been developed.

The Company expensed approximately $121,000 during the first quarter of 1999,
and expects to incur additional costs throughout the remainder of 1999 for its
Y2K compliance program. With respect to certain technology applications, the
Company has elected to replace the existing applications with applications
having greater functionality, rather than limit its response only to remediation
of the Y2K issue. For that reason, the Company's technology expenditures have
materially increased from historical levels. The Company expects the additional
costs incurred related to Y2K to represent only a small portion of its overall
technology expenditures.

Regardless of the Y2K compliance of the Company's systems, there can be no
assurance that the Company will not be adversely affected by the failure of
others to become Y2K compliant. Other risks may include potential losses related
to major loan or deposit customers, vendors or other counterparties. The Company
has been evaluating , in accordance with the guidelines outlined by the Federal
Financial Institutions Examination Council, the potential credit and liquidity
risk associated with Y2K as it relates to the Company's customer base. The
Company's analysis performed to date has not identified major credit exposure
within the high risk category of customers; in-depth analysis will continue to
be performed during 1999. The Company has developed a liquidity strategy for Y2K
in order to meet expected currency demands at the Bank's branches and ATM's.
This strategy will be fully implemented during 1999.

Based on the Company's progress to date in executing its Plan, the Company
expects no significant disruption of business activities resulting from Y2K.

As a regulated financial institution, the Company is subject to possible
supervisory or enforcement action if the governing regulatory agency deems the
Company's response and progress with respect to the Y2K issue to be of serious
concern. At this time, management believes its progress with respect to Y2K
compliance to be satisfactory.

LITIGATION

Jeffrey W. Taylor, Chairman of the Board and Chief Executive Officer of the
Company, Bruce W. Taylor, President of the Company, Iris A. Taylor, Sidney J.
Taylor, Cindy Taylor Bleil, related trusts and a related partnership
(collectively, the "Taylor Family") have been named as defendants in the
lawsuits described below relating to (1) the Split-Off Transactions and (2) the
financial and public reporting of Reliance. Certain of the lawsuits also named
other current or former officers and directors of the Company and Reliance,
other stockholders of the Company, Reliance's public accountants at the time of
the Split-Off Transactions (who continue to serve as the Company's public
accountants), the investment 




                                       29


<PAGE>   30


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


banks that were involved in the Split-Off Transactions, Reliance and the Company
as additional defendants. The filing dates of these lawsuits ranged from October
1997 to September 1998.

The Split-Off Transactions were a series of transactions completed on February
12, 1997 in accordance with the Share Exchange Agreement, dated June 12, 1996
(the "Share Exchange Agreement") between Reliance and the Taylor Family, which
owned approximately 25% of the outstanding common stock of Reliance prior to the
Split-Off Transactions. Pursuant to the Split-Off Transactions, the Taylor
Family and certain other stockholders of Reliance exchanged all of their common
stock of Reliance for all of the outstanding common stock of the Company. On
February 9, 1998, Reliance filed a voluntary petition under Chapter 11 of the
Bankruptcy Code.

In September 1998, five class actions, brought on behalf of current and former
stockholders of Reliance and pending in Delaware Chancery Court, were
consolidated into one class action. The consolidated class action alleges that
the Taylor Family, certain directors and officers of the Company, and certain
other defendants breached their fiduciary duties in connection with disclosures
made to the stockholders prior to the vote which approved the Split-Off
Transactions. The case seeks relief in the form of unspecified damages,
attorneys' fees and recision of the Split-Off Transactions. On September 9, 1998
the Delaware Chancery Court stayed this consolidated class action indefinitely
pending resolution of the consolidated class action in Texas that is described
below.

In August 1998, nine class actions, brought on behalf of current and former
stockholders of Reliance and pending in the United States District Court for the
Western District of Texas, were consolidated into one class action. One class
action, brought on behalf of current and former stockholders of Reliance, is
also pending in the Northern District of Illinois. These cases allege that the
Taylor Family, certain directors and officers of the Company, and certain other
defendants violated the federal securities laws and breached common law
fiduciary duties. In addition, the cases allege that the Company and certain
other defendants violated ERISA and breached certain fiduciary duties, including
fiduciary duties owed to a subclass consisting of participants in Reliance's
ESOP and 401(k) Profit Sharing Plan. The Texas and Illinois cases seek
unspecified damages and attorneys' fees. Cole Taylor Bank is named as an
additional defendant in the Illinois action. A motion is pending to transfer the
Texas case to Illinois, and a motion is pending to transfer the Illinois case to
Texas.

On August 19, 1998, Irwin Cole and other members of his family, who collectively
owned approximately 25% of the outstanding common stock of Reliance prior to the
Split-Off Transactions, brought suit in Delaware Chancery Court against members
of the Taylor Family, the Company, other current and/or former officers and
directors of Reliance and the Company, and other stockholders of the Company.
The suit alleges that the Taylor Family, certain directors and officers of the
Company, and certain other defendants breached their fiduciary duties, committed
fraud and/or engaged in self-dealing in connection with the operation of
Reliance and the Split-Off Transactions. The lawsuit seeks unspecified damages
and attorneys' fees and requests that the Court place all of the shares of the
Company held by the Taylor Family in a constructive trust.




                                       30


<PAGE>   31





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


On October 5, 1998, the United States Bankruptcy Court of the District of
Delaware (the "Bankruptcy Court") entered an order preliminarily enjoining the
plaintiffs in most of the above lawsuits from prosecuting their cases on account
of the pending adversary proceedings by the Reliance Estate Representative that
are described below. The Company expects that the Bankruptcy Court's order will
be amended in the near future to preliminarily enjoin the remaining plaintiffs
from prosecuting their cases.

On July 6, 1998, the Bankruptcy Court entered a confirmation order that
discharged the liability of Reliance and its subsidiaries in connection with all
of the lawsuits described above and permanently enjoined the filing of similar
new suits against them. The Bankruptcy Court also appointed an Estate
Representative (the "Estate Representative") for the Post-Confirmation Chapter
11 Estate of Reliance and its subsidiaries. On September 4, 1998, the Estate
Representative filed two adversary proceeding complaints which named as
defendants members of the Taylor Family, certain other directors and officers of
the Company, one of Reliance's former legal counsel and Reliance's former public
accountants (both of whom continue to serve the Company), the Company and Cole
Taylor Bank, as trustee. The complaints allege fraudulent conveyance and
breaches of fiduciary duties and contract with respect to the Taylor Family, the
Company and Cole Taylor Bank, as trustee. The complaints charge certain of the
other defendants with alleged breaches of fiduciary duty, breaches of contract,
malpractice and negligent misrepresentation and aiding and abetting the Taylor
Family's and the Company's alleged breaches. These complaints seek unspecified
damages and attorneys' fees and avoidance of the Split-Off Transactions by the
transfer to the Estate Representative of either the assets exchanged in the
Split-Off Transactions or the value of such assets. One of the complaints
demands monetary damages pursuant to the Taylor Family's obligation under the
Share Exchange Agreement to indemnify Reliance for certain losses resulting from
the Split-Off Transactions, and asks the court to disallow any claims for
indemnification that any of the defendants have against Reliance or, in the
alternative, to equitably subordinate such claims to all other creditor claims
against Reliance. Motions to consolidate the two adversary proceedings and to
have the adversary cases heard by the District Court, as opposed to the
Bankruptcy Court, are pending.

On December 7, 1998, the Estate Representative filed a motion for a preliminary
injunction which seeks to enjoin the Company and Cole Taylor Bank from paying
directly or indirectly any dividends to any of their respective shareholders and
from paying any of the litigation defense costs of the Taylor Family or any
other co-defendants with respect to any litigation arising out of the Split-Off
Transactions. On March 3, 1999, the Company filed a memorandum in opposition
that opposes such preliminary injunction. This motion for a preliminary
injunction is currently pending.

In accordance with the terms and conditions of the Share Exchange Agreement
relating to the Split-Off Transactions, the Taylor Family has agreed to
indemnify Reliance for certain losses incurred by Reliance, including certain
losses relating to the Split-Off Transactions ("Taylor Family Indemnification
Obligations"). In accordance with the terms of an agreement dated February 6,
1997 between the Taylor Family and the Company, the Company agreed to indemnify
the Taylor Family for certain losses that the Taylor Family may incur as a
result of the Split-Off Transactions, including a portion of the Taylor Family
Indemnification Obligations under the Share Exchange Agreement. The Company is
unable


                                       31
<PAGE>   32

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

this time to predict the extent to which it will be required to pay any amounts
under its indemnification obligation to the Taylor Family. The Company and its
subsidiaries have paid and may continue to pay defense and other legal costs of
the lawsuits described above that are not otherwise advanced by insurance
carriers on behalf of the Taylor Family and other directors, officers and
stockholders of the Company who are defendants in these lawsuits.

The Company believes that it has meritorious defenses to all of the actions
against the Company, and the Company intends to defend itself and its
subsidiaries vigorously. However, the Company is unable to predict, at this
time, the potential impact of the litigation, the indemnification obligations
and the payment of legal fees described above on the management, business,
financial condition, liquidity and operating results of the Company. Even if the
Taylor Family, the Company and the other defendants are successful in defending
themselves in the lawsuits, the Company has incurred and will continue to incur
significant costs with respect to such lawsuits.

The Company is from time to time a party to various other legal actions arising
in the normal course of business. Management knows of no such other threatened
or pending legal actions against the Company that are likely to have a material
adverse impact on the business, financial condition, liquidity or operating
results of the Company.

NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," was issued in June 1998. This Statement
standardizes the accounting for derivative instruments. Under the standard,
entities are required to carry all derivative instruments in the statement of
financial condition at fair value. The accounting for changes in fair value
(i.e., gains or losses) of the derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship and, if so, the
reason for holding it. If certain conditions are met, entities may elect to
designate the derivative instrument as a hedge of exposure to changes in fair
values, cash flows or foreign currencies. If the hedged exposure is a fair value
exposure, the gain or loss on the derivative instrument is recognized in
earnings in the period of change, together with the offsetting gain or loss on
the hedged item attributable to the risk being hedged. If the hedged exposure is
a cash flow exposure, the effective portion of the gain or loss on the
derivative instrument is reported initially as a component of other
comprehensive income (outside earnings) and subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any amounts excluded
from the assessment of hedge effectiveness, as well as the ineffective portion
of the gain or loss, are reported in earnings immediately. Accounting for
foreign currency hedged is similar to the accounting for fair value and cash
flow hedges. If the derivative instrument is not designated as a hedge, the gain
or loss is recognized in earnings in the period of change. The Company must
adopt the Statement by January 1, 2000; however, early adoption is permitted.
Upon adoption, the provisions of the Statement must be applied prospectively.
The Company plans to adopt the Statement during 1999. The Company has not yet
quantified the impact of its adoption of the Statement.

                                       32



<PAGE>   33


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

SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Form 10-Q,
including the statements in Part I, Item 3 "Quantitative and Qualitative
Disclosures About Market Risk," are forward-looking statements that are based on
the beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. Such
forward-looking statements are subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995. When used in this Form 10-Q, the words
"anticipates," "believes," "estimates," "expects" and similar expressions, as
they relate to the Company or its management, are intended to identify such
forward-looking statements but are not the exclusive means of identifying such
statements. The Company cautions readers of this Quarterly Report on Form 10-Q
that a number of risks, uncertainties and other factors could cause the
Company's actual results, performance or achievements in 1999 and beyond to
differ materially from the results, performance or achievements expressed in, or
implied by, such forward-looking statements. These risks, uncertainties and
other factors include, without limitation, the general economic and business
conditions affecting the Company's customers; the ability of the Bank to
maintain sufficient funds to respond to the needs of depositors and borrowers;
changes in interest rates; changes in customer response to the Bank's pricing
strategies; the effects of the Year 2000 compliance issue on the computer
systems of the Company, its service providers and its loan customers;
competition from the Company's principal competitors; changes in federal and
state legislation or regulatory requirements; the adequacy of the Company's
allowance for loan losses; contractual, statutory or regulatory restrictions on
the Bank's ability to pay dividends to the Company; and continuing obligations
or potential liabilities or restrictions arising from or relating to the
Split-Off Transactions, including pending legal actions. Certain of these risks,
uncertainties and other factors are more fully described elsewhere in this Form
10-Q. Except as specifically required by the federal securities laws the
Company does not undertake any obligation to update or revise any forward
looking statements to reflect new events or circumstances or for any other
reason.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk is the most significant market risk affecting the Company.
Other types of market risk, such as foreign currency risk and commodity price
risk, do not arise in the normal course of the Company's business activities.
Interest rate risk can be defined as the exposure to a movement in interest
rates that could have an adverse effect on the Company's net interest income or
the market value of its financial instruments. The ongoing monitoring and
management of this risk is an important component of the Company's asset and
liability management process, which is governed by policies established by the
Board of Directors and carried out by the Company's Asset/Liability Management
Committee ("ALCO"). ALCO's objectives are to manage, to the degree prudently
possible, the Company's 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.



                                       33


<PAGE>   34


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

The Company uses various interest rate contracts (floors and swaps) and forward
sale commitments to manage interest rate and market risk. These contracts are
designated as hedges of specific existing assets and liabilities. The Company's
asset and liability management and investment policies do not allow the use of
derivative financial instruments for trading purposes.

The Company's primary measurement of interest rate risk is earnings at risk,
which is determined through computerized simulation modeling. The simulation
model assumes a static balance sheet, using the balances, rates, maturities and
repricing characteristics of all of the Bank's existing assets and liabilities,
including off-balance sheet financial instruments. Net interest income is
computed by the model assuming market rates remaining unchanged and there is a
parallel shift of market interest rates both up and down 200 basis points. The
impact of imbedded options in such products as callable and mortgage-backed
securities, real estate mortgage loans and callable borrowings is considered.
Changes in net interest income in the rising and declining rate scenarios are
then measured against the net interest income in the rates unchanged scenario.
ALCO utilizes the results of the model to quantify the estimated exposure of net
interest income to sustained interest rate changes.

The first quarter 1999 simulation model indicated a continued exposure to
declining rates in the one-year horizon. At February 28, 1999 the net interest
income at risk for year one in the declining rate scenario was calculated at
$573,000, or 0.75% lower than the net interest income in the rates unchanged
scenario. This exposure was well within the Bank's policy guidelines of 10%. The
net interest income for year one in the rising rate scenario was calculated as
$1.3 million, or 1.7% higher than the net interest income in the rates unchanged
scenario. Computation of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, loan and security prepayments, deposit decay, and pricing and
reinvestment strategies and should not be relied upon as indicative of actual
results. Further, the computations do not contemplate any actions the Company
may take in response to changes in interest rates. No assurance can be given
that the actual net interest income would increase or decrease by the amounts
computed in response to a 200 basis point parallel increase in market rates.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Footnote 8 to the Consolidated Financial Statements, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Litigation" included in this Form 10-Q and the Company's Annual Report on Form
10-K for the year ended December 31, 1998 discusses certain significant
litigation relating to the Split-Off Transactions. Such discussion is
incorporated in this Part II. Item 1. by reference.



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<PAGE>   35



                            TAYLOR CAPITAL GROUP, INC

Item 6. Exhibits and Reports on Form 8-K

        (a) Exhibits - Exhibit 10.1 - First Amendment of Taylor Capital 
                                     Group, Inc. Deferred Compensation Plan 
                      Exhibit 27 -   Financial Data Schedule
        (b) Reports on Form 8-K - No reports on Form 8-K were filed during 
            the period covered by this report.


                                       35


<PAGE>   36


                            TAYLOR CAPITAL GROUP, INC

                                   SIGNATURES

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

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

Date: May 13,1999                            /s/  Jeffrey W. Taylor
                                            -------------------------
                                                  Jeffrey W. Taylor*
                                       Chairman and Chief Executive Officer

Date: May 13,1999                          /s/ J. Christopher Alstrin
                                          ---------------------------
                                               J. Christopher Alstrin*
                                               Chief Financial Officer


* Duly authorized to sign on behalf of the Registrant