Taylor Capital Group Reports Net Loss of $1.4 Million for the Second Quarter of 2011

CHICAGO, July 21, 2011 /PRNewswire/ -- Taylor Capital Group, Inc. (the "Company") (NASDAQ: TAYC), the parent company of Cole Taylor Bank (the "Bank"), today reported results for the second quarter of 2011.

(Logo:  http://photos.prnewswire.com/prnh/20060605/CGM055LOGO )

Net loss for the second quarter of 2011 was $1.4 million, compared to net income of $388,000 for the first quarter of 2011.  Net loss applicable to common stockholders was $3.9 million, or $0.19 per diluted share, for the second quarter of 2011, compared to net loss applicable to common stockholders of $2.1 million, or $0.12 per diluted share, for the first quarter of 2011.

"The second quarter of 2011 saw positive movement on our 'fix' strategy of asset quality improvement as evidenced by a 15% reduction in nonperforming loans," said Mark A. Hoppe, President and Chief Executive Officer of Taylor Capital Group.  "In addition to the lower levels of nonperforming loans, we saw reductions in other real estate owned, commercial criticized and classified loans and loans past due 30 to 89 days.  Credit costs remained relatively flat as compared to the first quarter of 2011 and are substantially lower than in the first half of 2010.  Further, our coverage ratio of the allowance for loan losses to nonperforming loans improved from last quarter to over 76%.  These results reflect our continued focus on improving asset quality."

Hoppe continued, "While revenue growth remains a challenge, we did see an uptick in commercial and industrial loans, which grew this quarter by approximately $60 million.  Our national asset based lending business, Cole Taylor Business Capital, drove this growth, as lending in the Chicago area remained slow in the face of weak economic expansion.  Our other national business, Cole Taylor Mortgage, also grew this quarter, with mortgage origination revenue increasing modestly by $726,000 as that business continued to build out its national platform.  Our national businesses remain an important part of our overall growth strategy, especially as the Chicago banking market remains fiercely competitive."

SECOND QUARTER 2011 HIGHLIGHTS

Asset quality indicators improved, including a 15% reduction in nonperforming loans

• Nonperforming loans were $143.1 million and 4.91% of total loans at June 30, 2011, down from $168.2 million and 5.93% of total loans at March 31, 2011, respectively.
• At June 30, 2011, commercial criticized and classified loans(1) totaled $258.5 million, down from $277.9 million at March 31, 2011.  
• Provision for loan losses was $11.8 million for the second quarter of 2011, up from $10.2 million for the first quarter of 2011.
• At June 30, 2011, the allowance for loan losses was $109.0 million, compared to $115.0 million at March 31, 2011.
• The allowance for loan losses as a percent of nonperforming loans increased to 76.22% at June 30, 2011, from 68.35% at March 31, 2011.
• Loans contractually past due 30 through 89 days and still accruing were $5.7 million at June 30, 2011, compared to $28.3 million at March 31, 2011.  

Pre-tax, pre-provision earnings from core operations down due to higher noninterest expense

• Pre-tax, pre-provision earnings from core operations(2) totaled $13.2 million for the second quarter of 2011, down from $13.8 million for the first quarter of 2011.  
• Revenue(3) was $39.0 million for the second quarter of 2011, flat from $39.1 million for the first quarter of 2011.
• Noninterest expense, excluding nonperforming asset expense, was $25.8 million for the second quarter of 2011, compared to $25.3 million in the first quarter of 2011.
• Net interest margin was 3.09% for the second quarter of 2011, up from 3.07% for the first quarter of 2011.

SECOND QUARTER 2011 PERFORMANCE OVERVIEW

Results of Operations

Net Income and Net Income Applicable to Common Stockholders

Net loss for the second quarter of 2011 was $1.4 million, compared to net income of $388,000 for the first quarter of 2011.  Net loss applicable to common stockholders was $3.9 million, or $0.19 per diluted share, for the second quarter of 2011 as compared to a net loss applicable to common stockholders of $2.1 million, or $0.12 per diluted share, for the first quarter of 2011.

Net loss for the six months ended June 30, 2011 was $1.0 million, down from a net loss of $41.6 million for the six months ended June 30, 2010.  Net loss applicable to common stockholders was $5.9 million for the six months ended June 30, 2011, down from a net loss applicable to common stockholders of $62.0 million for the six months ended June 30, 2010.

Loss before income taxes was $1.0 million for the second quarter of 2011, compared to income before income taxes of $282,000 in the first quarter of 2011.  This decrease was due to a $622,000 decrease in pre-tax, pre-provision earnings from core operations, a $317,000 increase in credit costs (provision for loan losses and nonperforming asset expense) and a $381,000 impairment loss on an investment security.

Pre-tax, Pre-provision Earnings from Core Operations

Pre-tax, pre-provision earnings from core operations totaled $13.2 million for the second quarter of 2011, compared to $13.8 million for the first quarter of 2011.  This decrease was due to a reduction in other derivative income of $559,000 and an increase in noninterest expense, excluding nonperforming asset expense, of $561,000, which was partially offset by an increase in mortgage origination revenue of $726,000.

Commercial lending results continue to be impacted by slow economic growth in the Chicago area, compounded by competitive pricing pressures.  During the second quarter of 2011, lower average commercial loan balances hindered interest income growth.  However, at June 30, 2011, commercial and industrial loans and commercial owner-occupied real estate loans increased $57.2 million from $1.75 billion at March 31, 2011 to $1.81 billion at June 30, 2011.  Cole Taylor Business Capital, the Company's national asset based lending arm, drove this loan growth in the second quarter of 2011, as this unit's loans outstanding increased by approximately $45 million. As previously reported, Cole Taylor Business Capital expanded its national reach by opening three new offices in April.  Noninterest income was impacted in the second quarter of 2011 by lower fee income from reduced volumes of commercial customer interest rate swap agreements.

Cole Taylor Mortgage posted an increase in mortgage origination revenue from $1.5 million in the first quarter of 2011 to $2.2 million in the second quarter of 2011.  This was the result of increased loan fundings in the second quarter of 2011, which were $318.3 million, compared to $257.8 million in the first quarter of 2011.  Overall mortgage volumes picked up modestly in the second quarter following a slow first quarter.  In its continued effort to build a national platform, Cole Taylor Mortgage added six additional states in which it does business, bringing the total number of states to 26, allowing the unit to further expand its broker network.  It also added retail offices during the second quarter of 2011 bringing the total number of offices to 10.

Revenue

Revenue was $39.0 million for the second quarter of 2011, compared to $39.1 million for the first quarter of 2011.  

Net interest income was flat at $32.2 million for the second quarter of 2011, compared to the first quarter of 2011.  The net interest margin was 3.09% for the second quarter of 2011, up from 3.07% for the first quarter of 2011.  Despite higher period end balances at June 30, 2011, average total loan balances were lower in the second quarter.  When combined with a reduction in the yield on earning assets, interest income was reduced.  This reduction in interest income, however, was offset by a reduction in interest expense as average total deposits were down, including planned run-off of certificates of deposits, thereby reducing the yield on interest-bearing liabilities.  

For the second quarter of 2011, noninterest income, excluding a $381,000 impairment loss on an investment security included in other noninterest income, was $6.8 million, and was flat compared to $6.9 million for the first quarter of 2011. Decreases in other derivative income and service charges were offset by an increase in mortgage origination revenue.

Noninterest Expense

Noninterest expense was $27.8 million for the second quarter of 2011, compared to $28.5 million for the first quarter of 2011. This decrease was primarily the result of a reduction in nonperforming asset expense of $1.3 million as a result of higher recoveries on other real estate and repossessed assets in the second quarter of 2011.  Noninterest expense, excluding nonperforming asset expense, increased from the first quarter of 2011 to the second quarter of 2011, largely due to increases in other noninterest expense and salaries and employee benefit expense and partially offset by a decline in the FDIC assessment.

Credit Quality

Loan Portfolio Performance and Credit Quality

Credit quality metrics improved across the board.  Nonperforming loans decreased 15% and nonperforming assets were down 17% from the first quarter of 2011 to the second quarter of 2011.  These improvements were the result of resolutions, including pay downs, charge-offs and loan sales during the second quarter and indicated continued progress in moving challenged credits though the remediation process to resolution.  The watch list of commercial criticized and classified loans decreased for the fourth consecutive quarter, from $277.9 million in the first quarter of 2011 to $258.5 million in the second quarter of 2011 and was down $194.6 million from the peak of $453.1 million at June 30, 2009.  

Credit costs in the first quarter of 2011 were largely unchanged from $13.5 million as compared to $13.8 million for the second quarter of 2011.  However, credit costs declined 63% from $74.1 million for the six months ended June 30, 2010 to $27.4 million for the six months ended June 30, 2011.  

Nonaccrual loans decreased to $143.1 million at June 30, 2011, compared to $168.2 million at March 31, 2011. The largest decline was in commercial real estate secured nonaccrual loans, the result of several resolutions and loan sales during the second quarter of 2011.  Residential construction and land nonaccrual loans, as well as commercial construction and land nonaccrual loans, also declined.  These reductions were partially offset by an increase in commercial and industrial nonaccrual loans.  

Other real estate and repossessed assets decreased to $27.9 million at June 30, 2011 from $38.2 million at March 31, 2011, the result of several property sales during the second quarter.  The net proceeds from these sales during the second quarter of 2011 were higher than their total net book value.  

Nonperforming assets were $170.9 million at June 30, 2011, compared to $206.4 million at March 31, 2011.  Nonperforming assets to total assets were 3.89% at June 30, 2011, compared to 4.81% at March 31, 2011.  

Loans contractually past due 30 through 89 days and still accruing were $5.7 million at June 30, 2011, compared to $28.3 million at March 31, 2011.  The decrease was largely the result of fewer commercial loans being past due at June 30, 2011, with consumer loans past due remaining flat.

Commercial criticized and classified loans were $258.5 million at June 30, 2011, compared to $277.9 million at March 31, 2011.  This decrease was largely the result of pay downs and charge-offs during the second quarter of 2011, partially offset by new loans being placed on criticized and classified status.

Provision and Allowance for Loan Losses

The provision for loan losses was $11.8 million for the second quarter of 2011, up slightly from $10.2 million for the first quarter of 2011.  

The allowance for loan losses was $109.0 million at June 30, 2011, compared to $115.0 million at March 31, 2011 largely due to a reduction in specific reserves.  The allowance for loan losses as a percent of nonperforming loans was 76.22% at June 30, 2011, compared to 68.35% at March 31, 2011.

Balance Sheet

Assets

Total assets at June 30, 2011 were $4.40 billion, compared to $4.29 billion at March 31, 2011.

Investment securities were $1.33 billion at June 30, 2011, compared to $1.31 billion at March 31, 2011.  Loans held for sale were $86.1 million at June 30, 2011, compared to $52.9 million at March 31, 2011, a result of higher loan origination activity at Cole Taylor Mortgage in the second quarter of 2011.

Loans, net of allowance for loan losses, were $2.72 billion at June 30, 2011, compared to $2.67 billion at March 31, 2011. Total loans increased due to growth in commercial and industrial loans and in consumer-oriented loans.  The increase in commercial and industrial loans was largely the result of growth in Cole Taylor Business Capital's loans outstanding. The rise in consumer-oriented loans was the result of mortgages originated by Cole Taylor Mortgage being held in portfolio, rather than sold to the secondary market.  Offsetting these increases was a decline in real estate related loans due to pay-downs and loan sales, as well as substantial nonperforming loan resolutions, during the second quarter of 2011.

Liabilities and Stockholders' Equity

Total liabilities at June 30, 2011 were $4.15 billion, compared to $4.06 billion at March 31, 2011.  

Total deposits were $2.91 billion at June 30, 2011, compared to $3.08 billion at March 31, 2011. The decrease was driven by a planned reduction in CDARS time deposits, customer certificates of deposit, brokered certificates of deposit and out-of-local-market certificates of deposit.  Partially offsetting these decreases were increases in non-interest bearing deposits and money market accounts.  Other borrowings also decreased from $491.0 million at March 31, 2011 to $270.4 million at June 30, 2011.  

The decreases in deposits and in other borrowings were offset by an increase in notes payable and other advances due to higher Federal Home Loan Bank advances, which was done to shift the funding mix to benefit the overall cost of funds.

Total stockholders' equity increased to $242.6 million at June 30, 2011 from $229.0 million at March 31, 2011.  The increase was the result of a reduction in accumulated other comprehensive loss due to an improvement in the unrealized loss position of the investment securities portfolio.

Capital

At June 30, 2011, the Company's Tier I Risk Based Capital ratio was 9.90%, while its Total Risk Based Capital ratio was 13.80% and its Tier I Capital to Average Assets leverage ratio was 7.78%.  

All the Company's ratios exceed the regulatory requirements for well-capitalized bank holding companies of 6.00% for Tier I Risk Based Capital, 10.00% for Total Risk Based Capital and 5.00% for Tier I Capital to Average Assets.

Conference Call and Slide Presentation

The Company will host a webcast and conference call on Thursday, July 21, 2011, at 10:00 am Central Time (11:00 am Eastern Time) to discuss the second quarter of 2011 results and other matters.  To access the call, please dial 1-866-804-6929 (toll-free) or 1-857-350-1675, and enter the pass code 96428403.  To access streaming audio, please go to www.taylorcapitalgroup.com.  

The Company will also provide a slide presentation, which management will speak to during the discussion.  A copy of the presentation will be available for download prior to the start of the call at www.taylorcapitalgroup.com. The presentation will not be webcast live. If you have any trouble obtaining a copy of the presentation, please call Investor Relations at 1-847-653-7166.

Accompanying Financial Statements and Tables

This press release is accompanied by the following unaudited financial information:

• Condensed Consolidated Balance Sheets
• Consolidated Statements of Operations
• Summary of Key Quarterly Financial Data
• Summary of Key Year-To-Date Financial Data
• Summary of Key Period-End Financial Data
• Composition of Loan Portfolio
• Credit Quality
• Loan Portfolio and Held for Sale Aging
• Funding Liabilities
• Reconciliation of U.S. GAAP Financial Measures

About Taylor Capital Group, Inc.  (NASDAQ: TAYC)

Taylor Capital Group, Inc. is a $4.4 billion bank holding company for Cole Taylor Bank, a Chicago-based commercial bank specializing in serving the banking needs of closely held businesses and the people who own and manage them. Cole Taylor is a member of the FDIC and an Equal Housing Lender.

Endnotes:

(1) Commercial criticized and classified loans (special mention, substandard, and nonaccrual loans) in commercial & industrial, commercial real estate, residential construction and land, and commercial construction and land federal collateral codes. Excludes consumer loans.

(2) Schedules reconciling earnings in accordance with U.S. generally accepted accounting principles ("GAAP") to the non-GAAP measurement of pre-tax, pre-provision earnings from core operations and revenue are provided in the attached tables.

(3) Defined as net interest income plus noninterest income less gains or losses on investment securities.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release includes forward-looking statements that reflect our current expectations and projections about our future results, performance, prospects and opportunities. We have tried to identify these forward-looking statements by using words including "may," "might," "contemplate," "plan," "prudent," "potential," "should," "will," "expect," "anticipate," "believe," "intend," "could" and "estimate" and similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities in 2011 and beyond to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include, without limitation: the risk that our regulators could require us to maintain regulatory capital in excess of the levels needed to be considered well capitalized; the risk that our allowance for loan losses may prove insufficient to absorb probable losses in our loan portfolio; possible volatility in loan charge-offs and recoveries between periods; negative developments and further disruption in the credit and lending markets impacting our business and the businesses of our customers, as well as other banks and lending institutions with which we have commercial relationships; the continued decline in residential real estate sales volume and the likely potential for continuing illiquidity in the real estate market, including within the Chicago metropolitan area; the risks associated with the high volume of loans secured by commercial real estate in our portfolio; the uncertainties in estimating the fair value of developed real estate and undeveloped land in light of declining demand for such assets and continuing illiquidity in the real estate market; the risks associated with the planned growth of our new mortgage unit, including the expansion into new geographic markets and regulatory changes; lending concentration risks; the risks associated with attracting and retaining experienced and qualified personnel, including our senior management and other key personnel in our core business lines; uncertainty in estimating the fair value of loans held for sale and the possibility that we will not be able to dispose of these assets on terms acceptable to us; security risks relating to our internet banking activities that could damage our reputation and our business; the potential impact of certain operational risks, including, but not limited to, data processing system failures and errors and customer or employee fraud; the risks associated with implementing our business strategy and managing our growth effectively, including our ability to preserve and access sufficient capital to execute on our strategy; the effect on our profitability if interest rates fluctuate, as well as the effect of our customers' changing use of our deposit products; the ability to use net operating loss carryforwards to reduce future tax payments if an ownership change of the Company is deemed to have occurred for tax purposes; the possibility that our wholesale funding sources may prove insufficient to replace deposits at maturity and support our growth; continuation of volatility in the capital markets; the effectiveness of our hedging transactions and their impact on our future results of operations; the conditions of the local economy in which we operate and continued weakness in the local economy; changes in general economic and capital market conditions, interest rates, our debt credit ratings, deposit flows, loan demand, loan syndication opportunities and competition; regulatory restrictions and liquidity constraints at the holding company level that could impair our ability to pay dividends or interest on our outstanding securities; significant restrictions on our operations as a result of our participation in the TARP CPP; the impact of changes in legislation, including the Dodd-Frank Act, or regulatory and accounting principles, policies or guidelines affecting our business, including those relating to capital requirements; and other economic, competitive, governmental, regulatory and technological factors impacting our operations.

For further information about these and other risks, uncertainties and factors, please review the disclosure included in the section captioned "Risk Factors" in our December 31, 2010 Annual Report on Form 10-K filed with the SEC on March 22, 2011. You should not place undue reliance on any forward-looking statements.  We undertake no obligation to publicly update or revise any forward-looking statements or risk factors, whether as a result of new information, future events, changed circumstances or any other reason after the date of this press release.

The Company's accounting and reporting policies conform to U.S. generally accepted accounting principles ("GAAP") and general practice within the banking industry.  Management uses certain non-GAAP financial measures to evaluate the Company's financial performance and has provided the non-GAAP measures of pre-tax, pre-provision earnings from core operations and of revenue.  In the pre-tax, pre-provision earnings non-GAAP financial measure, the provision of loan losses, nonperforming asset expense and certain non-recurring items, such as gains and losses on investment securities, are excluded from the determination of operating results.  The non-GAAP measure of revenue is calculated as the sum of net interest income and noninterest income less investment securities gains and losses.  Management believes that these measures are useful because they provide a more comparable basis for evaluating financial performance from core operations period to period.

SOURCE Taylor Capital Group, Inc.