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Article by DailyStocks_admin    (10-14-08 08:14 AM)

Filed with the SEC from Oct 2 to Oct 8:

Taylor Capital Group (TAYC)
A group including Prairie Capital IV reported ownership of 1,145,000 shares (9.4%). Prairie Capital said that the group is holding the stock for investment purposes, and that it might discuss the company's performance, business, strategic direction, prospects and management with other shareholders or with directors or management, with the aim of maximizing value for stockholders.

BUSINESS OVERVIEW

Our Business



We are a bank holding company headquartered in Rosemont, Illinois, a suburb of Chicago, and we derive substantially all of our revenue from our wholly-owned subsidiary, Cole Taylor Bank. Cole Taylor Bank was founded in 1929 by forefathers of the Taylor family and has served the Chicago metropolitan area for over 75 years. Taylor Capital Group, Inc. was formed in 1996 and acquired Cole Taylor Bank in 1997. We provide a range of products and services primarily to closely-held commercial customers and their owner operators in the Chicago metropolitan area. At December 31, 2007, we had assets of approximately $3.6 billion, deposits of approximately $2.6 billion, and stockholders’ equity of $254.3 million.



Our primary business is commercial banking and, as of December 31, 2007, over 90% of our loan portfolio was comprised of commercial loans. Our targeted commercial lending customers are closely-held, Chicago-area businesses in industries such as manufacturing, wholesale and retail distribution, transportation, construction contracting and professional services. Our commercial lending activities primarily consist of providing loans for working capital, business expansion or acquisition, owner-occupied commercial real estate financing, revolving lines of credit and stand-by and commercial letters of credit.



Our real estate lending activities primarily consist of providing loans to professional homebuilders, condominium and commercial real estate developers and investors. Our real estate development customers typically seek acquisition, development and construction loans and stand-by letters of credit. The majority of our development and construction lending is for residential home development, primarily in the Chicago metropolitan area, although we will lend to our existing homebuilder customers in connection with development projects outside of the Chicago metropolitan area. Our real estate investment customers typically seek term financing on selected income producing properties, including multi-family, retail, office and industrial properties.



In addition to our lending activities, we offer corporate treasury cash management services and corporate trust services to our commercial customers. Our treasury cash management services, which include internet balance reporting, remote deposit capture, automated clearing house products, imaged lock-box processing, controlled disbursement, and account reconciliation, help our commercial banking customers meet their treasury cash management needs.



We also cross-sell products and services to the owners and executives of our business customers designed to help them meet their personal financial goals. Our product offerings currently include personal customized credit and wealth management services. We use third-party providers to augment our offerings to include investment management, and brokerage services.



We offer deposit products such as checking, savings and money market accounts, time deposits and repurchase agreements to our business customers and community-based customers, typically individuals and small, local businesses, located near our banking centers.



Our Strategy



Our strategy to build stockholder value is based on a focused plan to be Chicago’s banking specialists for closely-held businesses and the people who own and manage them. Providing commercial banking services to this market niche has been an integral part of Cole Taylor Bank’s strategy since it was founded in 1929. Our strategy is comprised of the following elements:


•

Relationship-oriented customer experience . Our customers are the center of what we do, so we partner with our customers to understand the dynamics of the businesses that we serve. Speed and responsiveness are critical elements of the customer experience and we do our utmost to be available



anytime and any place to meet their needs. We believe closely-held business owners value a long-term relationship with a quality banker who provides innovative advice and creative ideas and understands the challenges and opportunities they face. For this reason, we believe our relationship managers are the number one “product” we bring to the market and that our customers value their access to our top management.


•

Focus on our targeted customers. We focus our time and resources on closely-held businesses and the owners and managers of these businesses. We identify and pursue customer niches as a natural extension of our focused strategy. We also seek to leverage our commercial relationships by cross-selling products and services to address the personal financial needs of these business owners and managers. Expanding on the relationships we have built with these key decision-makers by helping them meet their personal financial goals through products such as personal customized credit, financial planning and wealth management services, in addition to our array of deposit products, is an opportunity for us.


•

Optimal position in our market. We believe we are well positioned to meet the needs of our target market. We are large enough to handle more complex credit facilities and treasury cash management services, yet small enough to provide more personalized customer service. We also believe it is important to our customers to have access to senior management who understand what it means to run an owner-operated business. This relationship banking approach, coupled with our ability to offer customized products and financial solutions, is what we believe sets us apart from our competition.


•

Efficient, organic growth. Historically, we have increased our total loans through organic growth and we expect to continue to grow our business principally by developing new customer relationships and cross-selling other products and services to our commercial customers and the owners and managers of those businesses. One of our strategies is our ongoing recruitment of additional talented relationship managers. We actively pursue high quality relationship managers to extend our reach in the market place.


•

Effective credit risk management . A disciplined underwriting and credit administration and monitoring process is critical to our success. Credit risk is the primary risk we face in our business model, and therefore, significant resources are dedicated to monitoring and protecting our asset quality. The current downturn in the real estate market will continue to require greater attention from senior management to minimize potential losses arising from that collateral category.



Competition



We encounter intense competition for all of our products and services, including substantial competition in attracting and retaining deposits and in obtaining loan customers. The principal competitive factors in the banking and financial services industry are quality of services to customers, ease of access to services and pricing of services, including interest rates paid on deposits, interest rates charged on loans, as well as credit terms and underwriting criteria, and fees charged for trust, investment and other professional services. Our principal competitors are numerous and include other commercial banks, savings and loan associations, mutual funds, money market funds, finance companies, credit unions, mortgage companies, the United States Government, private issuers of debt obligations and suppliers of other investment alternatives, such as securities firms. We may also face a competitive disadvantage as a result of our smaller size, limited branch network or narrower product offerings. Many of our competitors are significantly larger than us and have access to greater financial and other resources. In addition, many of our non-bank competitors are not subject to the same federal regulations that govern bank holding companies and federally insured banks or the state regulations governing state chartered banks. As a result, our non-bank competitors may have advantages over us in providing some services.

Employees



Together with the Bank, we had approximately 418 full-time equivalent employees as of December 31, 2007. None of our employees is subject to a collective bargaining agreement. We consider our relationships with our employees to be good.



Supervision and Regulation



General



Financial institutions, their holding companies and their affiliates are extensively regulated under federal and state law. As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory authorities, including the Illinois Department of Financial and Professional Regulation (the “DFPR”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Federal Deposit Insurance Corporation (the “FDIC”). Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities and securities laws administered by the Securities and Exchange Commission (the “SEC”) and state securities authorities have an impact on our business. The effect of these statutes, regulations and regulatory policies may be significant, and cannot be predicted with a high degree of certainty.



Federal and state laws and regulations generally applicable to financial institutions regulate, among other things, the scope of business, the kinds and amounts of investments, reserve requirements, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers and consolidations and the payment of dividends. This system of supervision and regulation establishes a comprehensive framework for our operations and those of our subsidiaries and is intended primarily for the protection of the FDIC-insured deposits and depositors of the Bank, rather than stockholders.



The following is a summary of the material elements of the regulatory framework that applies to us and our banking subsidiary. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described. As such, the following is qualified in its entirety by reference to applicable law. Any change in statutes, regulations or regulatory policies may have a material effect on our business and the business of our subsidiaries.



The Company



General. We, as the sole stockholder of the Bank, are a bank holding company. As a bank holding company, we are registered with, and are subject to regulation by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended (the “BHCA”). In accordance with Federal Reserve policy, we are expected to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances where we might not otherwise do so. Under the BHCA, we are subject to periodic examination by the Federal Reserve. We are required to file with the Federal Reserve periodic reports of our operations and such additional information regarding us and our subsidiaries as the Federal Reserve may require. We are also subject to regulation by the DFPR under Illinois law.



Acquisitions, Activities and Change in Control. The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company. Subject to certain conditions (including deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States. In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.



The BHCA generally prohibits us from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve to be “so closely related to banking … as to be a proper incident thereto.” This authority would permit us to engage in a variety of banking-related businesses, including the operation of a thrift, consumer finance, equipment leasing, the operation of a computer service bureau (including software development), and mortgage banking and brokerage. The BHCA generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank holding companies.



Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature, incidental to any such financial activity or complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. As of the date of this filing, we have not applied for approval to operate as a financial holding company.



Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator. “Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances at 10% ownership.



Capital Requirements. Bank holding companies are required to maintain minimum levels of capital in accordance with Federal Reserve capital adequacy guidelines. If capital levels fall below the minimum required levels, a bank holding company, among other things, may be denied approval to acquire or establish additional banks or non-bank businesses.



The Federal Reserve’s capital guidelines establish the following minimum regulatory capital requirements for bank holding companies: (i) a risk-based requirement expressed as a percentage of total assets weighted according to risk; and (ii) a leverage requirement expressed as a percentage of total assets. The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8% and a minimum ratio of Tier 1 capital to total risk-weighted assets of 4%. The leverage requirement consists of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly rated companies, with a minimum requirement of 4% for all others. For purposes of these capital standards, Tier 1 capital consists primarily of permanent stockholders’ equity less intangible assets (other than certain loan servicing rights and purchased credit card relationships). Total capital consists primarily of Tier 1 capital plus certain other debt and equity instruments that do not qualify as Tier 1 capital and a portion of the company’s allowance for loan and lease losses.



The risk-based and leverage standards described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions ( i.e. , Tier 1 capital less all intangible assets), well above the minimum levels. As of December 31, 2007, we had regulatory capital in excess of the Federal Reserve’s minimum requirements.



Dividend Payments . Our ability to pay dividends to our stockholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies . As a Delaware corporation, we are subject to the limitations of the Delaware General Corporation Law (the “DGCL”). The DGCL allows us to pay dividends only out of our surplus (as defined and computed in accordance with the provisions of the DGCL) or if we have no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Additionally, policies of the Federal Reserve caution that a bank holding company should not pay cash dividends that exceed its net income or that can only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing. The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.



Federal Securities Regulation. Our common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Consequently, we are subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act.



The Bank



General. The Bank is an Illinois-chartered bank, the deposit accounts of which are insured by the FDIC’s Deposit Insurance Fund (“DIF”). The Bank is also a member of the Federal Reserve System (“member bank”). As an Illinois-chartered, FDIC-insured member bank, the Bank is presently subject to the examination, supervision, reporting and enforcement requirements of the DFPR, the chartering authority for Illinois banks; the Federal Reserve, as the primary federal regulator of member banks; and the FDIC, as administrator of the DIF.



Deposit Insurance. As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system under which all insured depository institutions are placed into one of four risk categories and assessed insurance premiums based upon their capital group and supervisory group designations within such category. Institutions classified in the highest capital group (i.e., those with a “well capitalized” capital group designation) and in the highest supervisory group (i.e., those with CAMELS ratings of 1 or 2) pay the lowest premium while institutions that are in the lowest (i.e., undercapitalized) capital group and lowest supervisory group (i.e., those with CAMELS ratings of 4 or 5) pay the highest premium. Capital group assignments are made by the FDIC quarterly.



During the year ended December 31, 2007, DIF assessments ranged from 5 cents to 43 cents per $100 of assessable deposits. Under the Federal Deposit Insurance Reform Act of 2005, certain one-time deposit insurance assessment credits were authorized for eligible institutions.



FICO Assessments. DIF members are subject to assessments to cover the interest payments on outstanding Financing Corporation (“FICO”) obligations until the final maturity of such bond obligations in 2019. These FICO assessments are in addition to amounts assessed by the FDIC for deposit insurance. For the third and fourth quarters of 2007 as well as for the first quarter of 2008, the assessment for these obligations was 1.14 basis points.



Supervisory Assessments. All Illinois banks are required to pay supervisory assessments to the DFPR to fund the operations of the DFPR. The amount of the assessment is calculated on the basis of the bank’s total assets. During the year ended December 31, 2007, the Bank paid supervisory assessments to the DFPR totaling $359,000.

Capital Requirements. The regulations of the Federal Reserve establish the following minimum capital standards for the banks regulated by the Federal Reserve: (i) a leverage requirement consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated banks with a minimum requirement of at least 4% for all others; and (ii) a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8% and a minimum ratio of Tier 1 capital to total risk-weighted assets of 4%. In general, the components of Tier 1 capital and total capital are the same as those for bank holding companies discussed above.



The capital requirements described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual institutions. For example, regulations of the Federal Reserve provide that additional capital may be required to take adequate account of, among other things, interest rate risk or the risks posed by concentrations of credit, nontraditional activities or securities trading activities.



Further, federal law and regulations provide various incentives for financial institutions to maintain regulatory capital at levels in excess of minimum regulatory requirements. For example, a financial institution that is “well-capitalized” may qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities and may qualify for expedited processing of other required notices or applications. Additionally, one of the criteria that determines a bank holding company’s eligibility to operate as a financial holding company is a requirement that all of its financial institution subsidiaries be “well-capitalized.” Under the regulations of the Federal Reserve, in order to be “well-capitalized” a financial institution must maintain a ratio of total capital to total risk-weighted assets of 10% or greater, a ratio of Tier 1 capital to total risk-weighted assets of 6% or greater and a ratio of Tier 1 capital to total assets of 5% or greater.



Federal law also provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators’ powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.



As of December 31, 2007: (i) the Bank was not subject to a directive from the Federal Reserve to increase its capital to an amount in excess of the minimum regulatory capital requirements; (ii) the Bank exceeded its minimum regulatory capital requirements under Federal Reserve capital adequacy guidelines; and (iii) the Bank was “well-capitalized,” as defined by Federal Reserve regulations.



Dividend Payments. Our primary source of funds is dividends from the Bank. Under the Illinois Banking Act, Illinois-chartered banks generally may not pay dividends in excess of their net profits. Without Federal Reserve approval, a state member bank may not pay dividends in any calendar year that, in the aggregate, exceed the bank’s calendar year-to-date net income plus the bank’s retained net income for the two preceding calendar years.



The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of December 31, 2007. As of December 31, 2007, approximately $46.4 million was available to be paid as dividends by the Bank. Notwithstanding the availability of funds for dividends, however, the Federal Reserve may prohibit the payment of any dividends by the Bank if the Federal Reserve determines such payment would constitute an unsafe or unsound practice.



Insider Transactions. The Bank is subject to certain restrictions imposed by federal law on extensions of credit to us, on investments in our stock or other securities and the acceptance of our stock or other securities as collateral for loans made by the Bank. Certain limitations and reporting requirements are also placed on extensions of credit by the Bank to its directors and officers, to our directors and officers, to our principal stockholders and to “related interests” of such directors, officers and principal stockholders. In addition, federal law and regulations may affect the terms upon which any person who is one of our directors or officers, a director or officer of the Bank or one of our principal stockholders may obtain credit from banks with which the Bank maintains a correspondent relationship.



Safety and Soundness Standards. The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.



In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. If an institution fails to comply with any of the standards set forth in the guidelines, the institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the institution’s rate of growth, require the institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal banking regulators, including cease and desist orders and civil money penalty assessments.



Branching Authority. Illinois banks, such as the Bank, have the authority under Illinois law to establish branches anywhere in the State of Illinois, subject to receipt of all required regulatory approvals.



Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger. The establishment of new interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is permitted only in those states the laws of which expressly authorize such expansion.



State Bank Investments and Activities. The Bank generally is permitted to make investments and engage in activities directly or through subsidiaries as authorized by Illinois law. However, under federal law and FDIC regulations, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank. Federal law and FDIC regulations also prohibit FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines the activity would not pose a significant risk to the deposit insurance fund of which the bank is a member. These restrictions have not had, and are not currently expected to have, a material impact on the operations of the Bank.

Federal Reserve System. Federal Reserve regulations, as presently in effect, require depository institutions to maintain non-interest earning reserves against their transaction accounts (primarily NOW and regular checking accounts), as follows: for transaction accounts aggregating $48.3 million or less, the reserve requirement is 3% of total transaction accounts; and for transaction accounts aggregating in excess of $48.3 million, the reserve requirement is $1.215 million plus 10% of the aggregate amount of total transaction accounts in excess of $48.3 million. The first $7.8 million of otherwise reservable balances are exempted from the reserve requirements. These reserve requirements are subject to annual adjustment by the Federal Reserve. The Bank is in compliance with the foregoing requirements.



Sarbanes-Oxley Act. The Sarbanes-Oxley Act of 2002 implemented a broad range of corporate governance and accounting measures to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investor by improving the accuracy and reliability of disclosures under federal securities laws. The Company is subject to Sarbanes-Oxley because it is required to file periodic reports with the SEC under the Securities Exchange Act of 1934. Among other things, Sarbanes-Oxley and/or its implementing regulations have established new membership requirements and additional responsibilities for the Company’s audit committee, imposed restrictions on the relationship between the Company and its outside auditors (including restrictions on the types of non-audit services our auditors may provide to us), imposed additional responsibilities for external financial statements on our chief executive officer and chief financial officer, expanded the disclosure requirements for corporate insiders, required management to evaluate the Company’s disclosure controls and procedures and our internal controls over financial reporting and required auditors to issue a report on the Company’s internal control over financial reporting.



Department of Defense Credit Regulations. On October 1, 2007, pursuant to Department of Defense regulations, new rules went into effect that impose restrictions on creditors, including the Bank, with respect to permissible provisions in loans made to covered borrowers (generally, active duty service members and their dependents). It also includes a new “Military Annual Percentage Rate” of 36%.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview



We reported a net loss for the year ended December 31, 2007 of $9.6 million, or ($0.89) per share, compared with net income of $46.2 million, or $4.15 per diluted common share, for the year ended December 31, 2006. The net loss in 2007 included a non-cash, after-tax charge of $23.2 million, or $2.14 per share, for the write-off of our goodwill. Excluding this one-time charge, net operating earnings for 2007 would have been $13.7 million, or $1.25 per diluted share. This non-GAAP measure of net operating earnings is discussed more fully below. The largest component of the decline in net operating earnings in 2007 was a $31.9 million provision for loan losses in 2007, compared with a provision of $6.0 million in 2006. In addition, lower net interest margin caused a $6.5 million, or 5.8%, decline in net interest income during 2007. Net income in 2006 included $15.5 million, or $1.39 per share, of tax benefits associated with the resolution of particular tax uncertainties. These tax benefits were recognized in the second half of 2006 because of the expiration of the statute of limitations on our 2002 income tax return and the completion of certain taxing authority examinations. Total assets at December 31, 2007 were $3.56 billion, compared to $3.38 billion at December 31, 2006, an increase of $176.8 million, or 5.2%.



We reported net income for the year ended December 31, 2006 of $46.2 million, or $4.15 per diluted common share, compared with $31.8 million, or $3.09 per diluted common share, for the year ended December 31, 2005. The increased net income in 2006 was primarily a result of the $15.5 million, or $1.39 per share, of tax benefits associated with the resolution of particular tax uncertainties. Excluding this tax benefit, net operating earnings for 2006 would have been $30.7 million, or $2.76 per diluted common share. This non-GAAP measure is discussed more fully below. Pre-tax income decreased $3.1 million, or 6.0%, during 2006 to $48.2 million, compared to $51.3 million during 2005. The decrease in pre-tax income was largely due to an increase in noninterest expense of $3.6 million, or 5.2%, and a decrease in noninterest income of $1.6 million, or 9.0%. These decreases in pre-tax income were partly offset by higher net interest income of $2.6 million, or 2.4%. Total assets increased by $99.0 million, or 3.0%, from year-end 2005 to $3.38 billion at December 31, 2006.



Management uses certain non-GAAP financial measures and ratios in evaluating our performance. Specifically, for 2007, Management reviewed net income and the related earnings per share amount excluding the goodwill impairment charge recorded in the fourth quarter of 2007. We believe that excluding the non-recurring charge to write-off our entire goodwill provides a clearer indication of the results of our core businesses for purposes of comparisons to other periods. The following table reconciles net income and earnings Overview



We reported a net loss for the year ended December 31, 2007 of $9.6 million, or ($0.89) per share, compared with net income of $46.2 million, or $4.15 per diluted common share, for the year ended December 31, 2006. The net loss in 2007 included a non-cash, after-tax charge of $23.2 million, or $2.14 per share, for the write-off of our goodwill. Excluding this one-time charge, net operating earnings for 2007 would have been $13.7 million, or $1.25 per diluted share. This non-GAAP measure of net operating earnings is discussed more fully below. The largest component of the decline in net operating earnings in 2007 was a $31.9 million provision for loan losses in 2007, compared with a provision of $6.0 million in 2006. In addition, lower net interest margin caused a $6.5 million, or 5.8%, decline in net interest income during 2007. Net income in 2006 included $15.5 million, or $1.39 per share, of tax benefits associated with the resolution of particular tax uncertainties. These tax benefits were recognized in the second half of 2006 because of the expiration of the statute of limitations on our 2002 income tax return and the completion of certain taxing authority examinations. Total assets at December 31, 2007 were $3.56 billion, compared to $3.38 billion at December 31, 2006, an increase of $176.8 million, or 5.2%.



We reported net income for the year ended December 31, 2006 of $46.2 million, or $4.15 per diluted common share, compared with $31.8 million, or $3.09 per diluted common share, for the year ended December 31, 2005. The increased net income in 2006 was primarily a result of the $15.5 million, or $1.39 per share, of tax benefits associated with the resolution of particular tax uncertainties. Excluding this tax benefit, net operating earnings for 2006 would have been $30.7 million, or $2.76 per diluted common share. This non-GAAP measure is discussed more fully below. Pre-tax income decreased $3.1 million, or 6.0%, during 2006 to $48.2 million, compared to $51.3 million during 2005. The decrease in pre-tax income was largely due to an increase in noninterest expense of $3.6 million, or 5.2%, and a decrease in noninterest income of $1.6 million, or 9.0%. These decreases in pre-tax income were partly offset by higher net interest income of $2.6 million, or 2.4%. Total assets increased by $99.0 million, or 3.0%, from year-end 2005 to $3.38 billion at December 31, 2006.



Management uses certain non-GAAP financial measures and ratios in evaluating our performance. Specifically, for 2007, Management reviewed net income and the related earnings per share amount excluding the goodwill impairment charge recorded in the fourth quarter of 2007. We believe that excluding the non-recurring charge to write-off our entire goodwill provides a clearer indication of the results of our core businesses for purposes of comparisons to other periods. The following table reconciles net income and earnings per share as reported under generally accepted accounting principles, or GAAP, on our Consolidated Statements of Operations for the year ended December 31, 2007 to the non-GAAP pro forma measures.

Stock Repurchase Programs



During 2007, we repurchased an aggregate of 629,661 shares of our common stock under stock repurchase programs at a total cost of $17.6 million, or an average price of $27.92 per share. The decline in total shares outstanding, which were 10,551,994 at December 31, 2007, compared with 11,131,059 at December 31, 2006, was primarily a result of these programs. At December 31, 2007, our stock repurchase program would permit us to repurchase an additional $12.4 million of our common stock through August 13, 2008. While we have continued authorization, we have not repurchased any of our common shares since November 2007.



Application of Critical Accounting Policies



Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America and general reporting practices within the financial services industry. Our accounting policies are described in the section of this annual report captioned “Notes to Consolidated Financial Statements–Summary of Significant Accounting and Reporting Policies.”



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



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



Allowance for Loan Losses



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



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



Goodwill Impairment



We had $23.2 million of goodwill that was created from our 1997 acquisition of the Bank. We test this goodwill for impairment on July 1 of each year, or between annual assessment dates whenever events or significant changes in circumstances indicate that the carrying value may be impaired. Because of adverse changes in the business climate that impacted the Bank during the fourth quarter of 2007, we performed an additional goodwill impairment test as of December 31, 2007. As a result of a decline in the market price of our common stock to levels significantly below our book value, we determined that the entire amount of our goodwill was impaired, and we recorded a $23.2 million goodwill impairment charge to write-off the remaining balance in the fourth quarter of 2007.



Income Taxes



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

Results of Operations as of and for the years ended December 31, 2007, 2006, and 2005



Net Interest Income



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



Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006. Net interest income was $104.7 million for the year ended December 31, 2007, as compared to $111.2 million for 2006, a decrease of $6.5 million, or 5.8%. With an adjustment for tax-exempt income, our consolidated net interest income was $108.2 million, $6.3 million, or 5.5%, less than tax equivalent net interest income of $114.5 million during 2006. These non-GAAP tax-equivalent measures are discussed more fully below. The decrease in net interest income was a result of a decline in our net interest margin.



Our tax-equivalent net interest margin was 3.33% during 2007, 27 basis points lower than the net interest margin of 3.60% during 2006. The decline in the net interest margin resulted from our funding cost outpacing the increase in our total earning asset yield. While investment yields during 2007 benefited from increases in term

market interest rates that occurred during 2007, competitive pricing pressure for loans and the impact of higher nonaccrual loans resulted in a decline in the yield on total loans. Our funding costs increased as a result of changes in funding mix and the repricing of term deposits to higher interest rates.



Our tax-equivalent net interest spread, which is determined by subtracting the yield on interest-earning assets from the cost of interest-bearing liabilities, declined 36 basis points during 2007 to 2.47%, compared to 2.83% in 2006. During 2007, our yield on our interest-earning assets increased 4 basis points to 7.09% from 7.05% during 2006. However, over the same time period, the cost of our interest-bearing liabilities increased 40 basis points to 4.62% during 2007 from 4.22% during 2006.



Average interest-earning assets increased $70.5 million, or 2.2%, to $3.25 billion during 2007, compared to $3.18 billion during 2006. Higher average loans accounted for most of the increase in average-earning assets during 2007. Average loans were $2.51 billion in 2007, an increase of $76.8 million, or 3.2%, as compared to average loans of $2.43 billion in 2006. Average commercial loans increased $114.0 million, or 5.1%, to $2.33 billion during 2007, compared to $2.21 billion during 2006. Decreases in consumer related loans of $37.1 million, or 17.2%, partly offset this increase.



The growth in average earning assets during 2007 was largely funded with wholesale funding sources. Average FHLB borrowings were $124.1 million during 2007 as compared to $80.5 million during 2006, and average interest-bearing deposits balances were $2.18 billion during 2007, compared to $2.17 billion during 2006. Increases in interest-bearing demand deposits, primarily higher rate money market accounts, were offset by decreases in average time deposit and savings account balances. See “Deposits” below for further discussion of the changes in our deposit balances during 2007.



Actions by the Federal Reserve resulted in a 125 basis point decline in the prime interest rate in January 2008. We believe, based on our internal modeling, that our net interest margin will likely decline over the next six months because during a falling interest rate environment, our portfolio of prime-based loans is expected to reprice faster than our term deposits. Additional factors, including those described above that negatively impacted our 2007 net interest margin, may put further pressure on our net interest margin in 2008. See “Quantitative and Qualitative Disclosure About Market Risks” below for further discussion of the impact of changes in interest rates.



Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005. Net interest income was $111.2 million for the year ended December 31, 2006, as compared to $108.6 million for 2005, an increase of $2.6 million, or 2.4%. With an adjustment for tax-exempt income, our consolidated net interest income was $114.5 million, an increase of $4.3 million, or 3.9%, as compared to $110.2 million during 2005. These non-GAAP tax-equivalent measures are discussed more fully below. The net interest income increased as a result of higher average interest-earning assets, partly offset by a decline in our net interest margin.



The tax-equivalent net interest margin was 3.60% during 2006, compared to 3.80% during 2005, a decrease of 20 basis points. The margin in 2006 was negatively impacted by competitive pricing pressure for loans and deposits, as well as changes in our earning asset and funding mix in 2006 as compared to 2005.



The tax-equivalent net interest spread declined 40 basis points during 2006 to 2.83%, compared to 3.23% in 2005. While our yield on our interest-earning assets increased 86 basis points to 7.05% during 2006 from 6.19% during 2005, the cost of our interest-bearing liabilities increased to a greater extent. The cost of our interest-bearing liabilities increased 126 basis points to 4.22% during 2006 from 2.96% during 2005.



Average interest-earning assets increased $284.1 million, or 9.8%, to $3.18 billion for 2006, compared to $2.90 billion for 2005. Average loans increased $158.9 million, or 7.0%, to $2.43 billion during 2006, compared to $2.27 billion for 2005. Average commercial loans accounted for most of the increase, as these balances increased $208.0 million, or 10.4%, between the two periods. Our portfolio of home equity and consumer loans decreased by $51.5 million, or 25.3%. The yield earned on our loan portfolios benefited from the rising interest rate environment and the increase in the prime lending rate from June 2004 to June 2006. However, we experienced a decline in the interest rate spread above the prime lending rate on our prime-based loans due to competitive pressures within our marketplace. In addition, our investment portfolio, the yield on which is generally lower than the yield on our loans, was higher in 2006. Average investment balances increased $116.8 million, or 19.8%, to $707.9 million in 2006, compared to $591.1 million in 2005.



The growth in average earning assets during 2006 was funded primarily with interest-bearing deposits. Average interest-bearing deposits balances were $2.17 billion during 2006, a $246.0 million, or 12.8%, increase from average interest-bearing deposit balances of $1.92 billion in 2005. During 2006, average money market balances increased $168.0 million, or 33.0%, and average brokered certificates of deposits (“CDs”) increased $128.7 million, or 27.8%. While these balances increased, the balances of our lower cost deposits, such as NOW accounts, savings accounts, and non-interest bearing deposits, all decreased. The shift in balances towards the higher rate deposit products contributed to the downward pressure on our net interest margin during 2006.



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



The following table reconciles the tax-equivalent net interest income to net interest income as reported in our Consolidated Statements of Operations. In addition, the earning asset yield, net interest margin and net interest spread are shown with and without the tax equivalent adjustment.

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

Provision for Loan Losses



We determine a provision for loan losses that we consider sufficient to maintain an allowance to absorb probable losses inherent in our portfolio as of the balance sheet date. For additional information concerning this determination, see “Application of Critical Accounting Policies—Allowance for Loan Losses,” “Nonperforming Assets and Impaired Loans” and “Allowance for Loan Losses.”



Our provision for loan losses was $31.9 million during 2007, compared to $6.0 million during 2006. Increases in net charge-offs, nonperforming loans and the amount of performing loans that have been assessed by us as having higher credit risk, and therefore receiving heighten monitoring, caused us to significantly increase our allowance for loans losses through the provision for loan losses in 2007, particularly in the fourth quarter of 2007. Net charge-offs totaled $14.7 million, or 0.59% of average total loans, during 2007 compared to $6.0 million, or 0.25% of average total loans, in 2006. In addition, the level of nonperforming loans increased to $75.7 million, or 2.99% of total loans, at December 31, 2007, compared to nonperforming loans of $33.2 million, or 1.33% of total loans, at December 31, 2006. See “Nonperforming Assets and Impaired Loans” and “Allowance for Loan Losses” for further discussion on the credit quality of our loan portfolio and our allowance for loan losses.



Our provision for loan losses was $6.0 million during 2006, an increase of $477,000, or 8.7%, compared to a provision for loan losses of $5.5 million during 2005. Net charge-offs increased slightly to $6.0 million, or 0.25% of average total loans, in 2006 from $5.5 million, or 0.24% of average total loans, in 2005. The increase in net charge-offs in 2006 was a factor in the increase in the provision in 2006 as compared to 2005.

CONF CALL

Bruce Taylor

Thank you. Good morning everyone. With me today is our Chief Financial Officer, Robin VanCastle, who will review the financial highlights of the first quarter. I am also excited to introduce Mark Hoppe who joined us earlier this year as President of Taylor Capital Group and CEO of Cole Taylor Bank. Mark is here to provide his perspectives on the market and the opportunities that we have.

The first quarter's performance reflects two major factors impacting the company. The first is the consummation of the most significant external growth transaction in our core business since the last bank acquisition we made in 1984. Second is the ongoing challenge being faced by homebuilders in the market. We do not foresee any near term improvement in the housing market conditions which will continue to cause stress amongst our borrowers in that business.

It is no secret that a key component of building our company's long-term value is the growth of our business with closely-held companies. Continuing to build a force of talented, experienced and well-known commercial bankers is a prerequisite to accomplishing this. During the first quarter in addition to Mark joining us as President and CEO of Cole Taylor Bank, we hired Larry Ryan, a 27 year veteran over LaSalle Bank N.A. as our Executive Vice President of Commercial Banking and Mike Morton, formerly one of the top risk officers of LaSalle Bank as our Chief Credit Officer.

In late March and early April we hired 29 other commercial bankers and related support staff including six Group Senior Vice Presidents and our new head of asset-based lending. We made a substantial investment to recruit these people and will incur an increase in ongoing expense.

Robin will provide more details about the financial impact in her remarks.

I would like to note that some of the newly added expense is offset by our ongoing efficiency efforts. Some of the new personnel are filling vacant positions. We also eliminated some positions late last year and early this year as our ongoing planning and efficiency management which resulted in our recognizing severance expense during the quarter.

The business focus, cultural alignment and tactical execution of our growth strategy could not be more tightly aligned to our core business. This builds on our strong heritage in commercial banking and an infrastructure that's in place to support the needs of the companies we bank. Our efforts are now focused on quickly integrating our new staff and accelerating our growth in the relationships.

At the same time that we are planting these seeds for our future growth we've not lost sight of the importance of effectively working through the downturn in the residential market, improving asset quality and mitigating our exposure to potential losses. We are fortunate to have a strong capital base and substantial allowance for loan losses to help absorb losses we may face from the decline in home sales and related real estate values.

The first quarter loss provision of $11.8 million was half of what we provided in the fourth quarter. Non-performing assets now stand at 2.9% of total assets. This is a historically high amount and the result of the quick and sharp downturn in home sales.

First quarter new home sales in the Chicago area were 61% or what they were a year ago with only about 2,100 homes sold. As of March 31, residential real estate and related land exposures make up approximately 79% of our non-accrual loan totals. The majority of our non-accruals are represented by floor borrowers, including our single largest exposure that was put on non-accrual status during the first quarter.

We continue to add strength and experience to our staff charged with credit risk management. In addition to Mike Morton, Chief Credit Officer, we have added three other credit professionals to our staff since the beginning of the year. They include our head of loan reviews, Senior Vice President, a Senior Vice President in our special assets division, and also a Senior Vice President in commercial real estate administrative management. All of these individuals will add strength and experience to our credit support functions and allow us to work through the current economic environment while building the foundation needed to support our growth.

Mark will talk more about this in his comments. I will now turn the call over to Robin VanCastle who will provide more detail on our financial results for the quarter.

Robin VanCastle

Thank you, Bruce and good morning everyone. Continued weakness in the residential real estate market resulted in $11.8 million provision for loan losses in the first quarter. This provision represented a three-fold increase from the first quarter of last year, but was half the level we have provided last quarter.

Net charge-offs for the first quarter were $2.2 million or 36 basis points of average loans on an annualized basis compared with $2.8 million in the first quarter last year and $8.7 million in the fourth quarter. Non-performing loans increased $23.8 million or 31.5% primarily based on our assessment of a single borrower involved in residential real estate development with loans from us totaling $26.7 million.

These loans were current on interest and principle however the developer's obligations to other banks and the performance of the projects financed by those other banks was sufficient in our judgment to stop accruing interest and recognize the entire relationship as non-performing. Our accounting treatment for this loan is an example of how we are proactively recognizing and aggressively addressing weakness in the residential construction part of our portfolio.

While average non-accrual loan balances increased during the first quarter that impact was offset by interest we collected on a loan that we have placed on non-accrual last year. The interest we received when the non-accrual loan paid off during the first quarter more than offset the amount of interest reversals we recognized. As a result, the net effect of the non-accruals to our total loan yield was unchanged between the first and fourth quarters another example of how our proactive approach to recognizing potential credit weakness.

Our net interest margin in the first quarter declined 13 basis points on a linked quarter basis. We moved quickly during the quarter to reduce our funding costs and step with the declining prime rate and that supported our net interest spread which remained flat from the last quarter. One of the actions we took to reduce funding costs in the first quarter was to call above market rate brokered CD. We called approximately $70 million in CDs with average remaining terms of over three years and coupons between 4.85% and 6% and recognized early debt extinguishment expenses of $810,000. That early debt extinguishment expense is separately reported in non-interest expense. We funded the calls with additional brokered CDs.

Our net interest margin declined in spite of our flat net interest spread because the calculation for net interest margin factors in the effects of interest earning assets that are being supported by non-interest bearing funding, our so called free-funding. The lower average interest bearing liability cost reduces the value attributed to the free funding in the margin calculation.

CNI lending continues to increase as a percentage of our portfolio. While our real estate construction loan portfolio continues to decline on both the real and proportional basis. CNI loans increased $29 million or 3.4% in the first quarter, 14% on an annualized basis to comprise 35% of our total portfolio at March 31. Our real estate construction loans decreased $61.5 million or 9%, declining to 24% of our portfolio. In total our loan portfolio decreased $21 million or about 1% during the first quarter.

Non-interest expense was higher in the first quarter on both a linked quarter and year-over-year basis. The provision for losses and other real estate FDIC insurance and early debt extinguishment expenses and easily identified in our earnings release. The impact of our significant recruiting however is less apparent. So let me break that down for you.

Since mid March, we have recruited 22 commercial banking officers dedicated to business development and 7 new credit professionals, including our new Chief Credit Officer. Including our new President, Mark Hoppe and our Executive Vice President of Commercial Lending, Larry Ryan, incremental compensation expense for the first quarter totaled $1.1 million. Because approximately half of our new hires started with us after March 31, the estimated impact in future quarters is expected to be higher. Based on our recruiting to date, we estimate that the incremental recurring compensation expense will approximate $2 million per quarter.

Both the holding company and Cole Taylor Bank remain well-capitalized with total capital to risk weighted rated assets of 12.67% and 11.92% respectively at quarter end. Given the current economy and our strategic growth initiative we believe it is prudent to preserve capital and liquidity. Therefore, in spite of our stock trading at a significant discount to book value, we did not repurchase any shares during the quarter.

I look forward to your questions and now, I will hand off our conference call to Mark.

Mark Hoppe

Thank you, Robin. Good morning, everyone. First, I would like to express that I am really excited about joining Cole Taylor. What drew me to the company is its unwavering commitment to middle market commercial banking strategy and commitment to closely held business orders. I have been here for about 90 days now, which is long enough to confirm what I have always thought about Cole Taylor. This is a strong company with talented people and it is as competitive as any bank in our existing markets.

The commercial banking market in Chicago is very dynamic right now. Relationships are shifting and clients and commercial bankers as well are considering their options. My first priority is to position the bank to move quickly and to capture as many opportunities as possible during this period of market disruption.

We have the advantage of working from a position of strength. Cole Taylor has the strategic focus, a full suite of competitive products, an engaged and accessible management team and talented bankers. As a further description of that as Bruce mentioned, last month, we hired Larry Ryan, who is a well-known middle market commercial banker in the Chicago area. Larry had a 27 year career at LaSalle Bank dealing primarily with closely-held businesses.

In the 30 days that Larry has been here, he has done a great job of ramping up our commercial banking team with experienced relationship driven producers who have middle market banking skills and strong deep client relationships.

Our commercial banking business unit has doubled in size over the past few months and today there are a total of 41 relationship managers in commercial banking. Larry may hire a few more people going forward but for now, his senior commercial banking team is in place and they are focused on market development. The strong, strategic, and cultural fit of the new hires makes it possible for us to become quickly and efficiently as a unified team working toward a common goal, winning in the marketplace.

In addition I've been assessing our infrastructure. We have to make sure that our bankers have the support and products they need to maximize our new business opportunities. I am pleased to say that with some modest enhancements to our existing products we can improve our delivery capability in treasury management, foreign exchange, international services, as well as interest rate risk management products.

We are committed to provide these products to our clients in an efficient and cost effective manner which will increase our fee income. I have also taken this opportunity to enhance our credit operations in ways that will support our commercial banking growth strategy. Commercial lending, particularly in the relationship banking model, must balance underwriting with an appreciation for getting deals done along with credit administration processes that protect against the risk of loss.

Mike Morton, who joined Cole Taylor from LaSalle where he was a Senior Vice President and one of the Senior Credit Officers, was a commercial banking lender before becoming a credit officer a number of years ago. He has the benefit of hands on experience working with clients and has seen a wide range of scenarios. Also, Mike has worked with most of the new RMs who have joined Cole Taylor and this familiarity should increase underwriting and credit administration efficiency and effectiveness.

In credit monitoring as Bruce alluded to before, we've added senior staff in loan review special assets and commercial real estate administration. When I arrived at Cole Taylor, I found sound underwriting and practices that are common in banking. That said, we are building a credit management infrastructure that will support the accelerated growth we expect to experience over the next several quarters.

The individuals we have recruited are experienced and successful credit professionals who are familiar working in a larger environment. Their skills will not only enhance our current practices, but also put in place those processes required to manage a larger, more diverse and complex portfolio.

I look forward to your questions and will hand the mic back to Bruce.

Bruce Taylor

Thank you very much, Mark. During the first quarter, we took advantage of a unique, maybe once in a lifetime opportunity in the market. Net-net, we made an $8 million annual investment in our company's core business and future growth. We are not the only bank in the market seeking this opportunity and yet our success in attracting this talent to our company exceeded our expectations. I expect the successful execution of this phase of our growth plan will lead into successfully executing the next phase, building our market share.

In turn, this will improve our competitive position, diversify our portfolio, improve financial performance and build long-term value.

I will ask the operator to open up the line for your questions. Thank you.

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