Taylor Capital Reports Net Income of $14.2 Million for the Second Quarter of 2012

CHICAGO, July 18, 2012 /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 2012.

Net income for the second quarter of 2012 was $14.2 million, compared to $9.5 million for the first quarter of 2012. Net income applicable to common stockholders was $12.5 million, or $0.41 per diluted share, for the second quarter of 2012 as compared to $7.7 million, or $0.26 per diluted share, for the first quarter of 2012.

Net income for the six months ended June 30, 2012 was $23.7 million, compared to a net loss of $1.0 million for the six months ended June 30, 2011. Net income applicable to common stockholders was $20.2 million, or $0.66 per diluted share, for the six months ended June 30, 2012, compared to a net loss applicable to common stockholders of $5.9 million, or $0.32 per diluted share, for the six months ended June 30, 2011.

"I am very pleased with our strong and sustained progress, clearly demonstrated by another quarter of outstanding results," said Mark A. Hoppe, President and Chief Executive Officer of the Company. "It is the sixth consecutive quarter of net income at the Bank, which is a reflection of continued discipline and the successful execution of our strategy. While Cole Taylor Mortgage continued to benefit from the low interest rate environment, it has also made tremendous progress in diversifying its revenue base. Mortgage banking revenue was $23.0 million for the quarter, led by record origination volume, improved margins and increased servicing income. I am also pleased to report that our continued focus on asset quality has driven credit costs down substantially in the second quarter.  In addition, Cole Taylor Business Capital achieved its 10th consecutive quarter of strong loan growth."

"Despite a highly competitive Midwest market, we continue to establish new credit and deposit relationships," Hoppe continued.  "I attribute these results to our experienced banking staff and our ability to identify new opportunities. We've also recently announced steps to further diversify and enhance our overall revenue streams by adding seven retail mortgage offices, expanding commercial lending into the Southeastern Wisconsin market and launching a middle market equipment financing division.  Each of these initiatives is being led by highly experienced and proven teams who complement the Bank's existing business leaders and position us for continued success."    

SECOND QUARTER 2012 HIGHLIGHTS

Reported earnings per diluted share of $0.41 in the second quarter of 2012, up from $0.26 per diluted share in the first quarter of 2012

• Sixth consecutive quarter of net income at the Bank and fourth consecutive quarter for the Company
• Revenue(1) increased to a record $65.2 million for the second quarter of 2012, up $6.3 million or 10.7% from the first quarter of 2012
• Net interest margin on a tax equivalent basis declined by six basis points to 3.23% for the second quarter of 2012 from 3.29% for the first quarter of 2012
• Mortgage banking revenue grew to $23.0 million, up $5.5 million or 31.3% over the first quarter of 2012
• Loan fundings in the Bank's mortgage division, Cole Taylor Mortgage, totaled $960.1 million in the second quarter of 2012, compared to $894.9 million in the first quarter of 2012
• Cole Taylor Mortgage grew its mortgage servicing book to $4.02 billion in the second quarter of 2012, compared to $2.38 billion in the first quarter of 2012
• Cole Taylor Business Capital, our asset based lending division, had its 10th consecutive quarter of loan growth of $32.3 million in loans outstanding in the second quarter of 2012, an increase of 6.2% as compared to the first quarter of 2012
• Average deposits (excluding time and brokered deposits) grew by $194.2 million in the second quarter of 2012 to $2.01 Billion   
• As a result of the Company's performance, its regulatory capital ratios increased.  The Company's Tier I Risk Based Capital ratio was 12.59%, while its Total Risk Based Capital ratio was 16.03% and its Tier I Capital to Average Assets leverage ratio was 9.41% as of June 30, 2012. 

Credit quality indicators continued to improve, including a 20.7% reduction in nonperforming loans from the first quarter

• Credit costs(2) were $928,000 for the second quarter of 2012, down from $8.0 million for the first quarter of 2012
• Nonperforming loans were $74.1 million and 2.29% of total loans at June 30, 2012, down from $93.5 million and 3.00% of total loans at March 31, 2012
• At June 30, 2012, commercial criticized and classified loans(3) totaled $139.9 million, down from $161.0 million at March 31, 2012
• The allowance for loan losses as a percent of nonperforming loans was 117.39% at June 30, 2012, compared to 100.01% at March 31, 2012

SECOND QUARTER 2012 PERFORMANCE OVERVIEW

Results of Operations

Net income for the second quarter of 2012 was $14.2 million, compared to net income of $9.5 million for the first quarter of 2012. Net income applicable to common stockholders was $12.5 million, or $0.41 per diluted share, for the second quarter of 2012, as compared to net income applicable to common stockholders of $7.7 million, or $0.26 per diluted share, for the first quarter of 2012.

Income before income taxes was $24.2 million for the second quarter of 2012, as compared to income before income taxes of $15.8 million for the first quarter of 2012, an increase of 53.2%. The improvement from the first quarter of 2012 to the second quarter of 2012 was primarily led by mortgage banking revenue and lower credit costs. The second quarter of 2012 also included $3.0 million of gains on the sale of investment securities, compared to $1.0 million in the first quarter.  Offsetting these gains were expenses related to the early extinguishment of debt.  The early extinguishments of debt were completed as part of an ongoing effort to lower overall funding costs.

Pre-tax, Pre-provision Operating Earnings(4)

Pre-tax, pre-provision operating earnings totaled a record $25.1 million for the second quarter of 2012, compared to $24.0 million for the first quarter of 2012. The increase was primarily due to mortgage banking revenue primarily offset by an increase in performance-based incentive compensation expense. 

Revenue

Revenue totaled $65.2 million for the second quarter of 2012, compared to $58.9 million for the first quarter of 2012, a 10.7% increase.

Net interest income was $36.4 million for the second quarter of 2012, compared to $35.8 million for the first quarter of 2012.  The net interest margin was down six basis points, from 3.29% for the first quarter of 2012 to 3.23% for the second quarter of 2012, primarily as a result of lower commercial loan prepayment fees.

Noninterest income was $28.9 million for the second quarter of 2012, compared to $23.1 million for the first quarter of 2012, excluding investment security gains, losses and impairments. The increase was primarily due to a $5.5 million increase in mortgage banking revenue.  The increase in mortgage banking revenue, from $17.5 million in the first quarter of 2012 to $23.0 million in the second quarter of 2012, was primarily a result of increased margins on mortgage originations and sales in the secondary market and a 7.3% increase in loan fundings in the second quarter. Loan fundings were $960.1 million in the second quarter of 2012, up from $894.9 million in the first quarter of 2012.

Noninterest Expense

Noninterest expense was $40.2 million for the second quarter of 2012, compared to $34.9 million for the first quarter of 2012, excluding nonperforming asset expense and early extinguishment of debt expense. The increase was primarily the result of an increase in performance-based incentive compensation expense and salary costs related to additional headcount primarily in the mortgage division.

Credit Quality

Loan Portfolio Performance and Credit Quality

Credit quality continued its steady pace of improvement in the second quarter. Total commercial criticized and classified loans declined $21.1 million to $139.9 million at June 30, 2012, compared to $161.0 million at March 31, 2012. These results were indicative of our continued focus on the loan portfolio performance and credit quality, as criticized and classified loans moved through the remediation process to resolution or charge-off, while the migration of new loans to criticized and classified status continued to slow.

Nonperforming loans decreased to $74.1 million at June 30, 2012, compared to $93.5 million at March 31, 2012. The total decline of $19.4 million in nonperforming loans was primarily due to the payoff of commercial construction nonaccrual loans primarily related to one borrower. 

Other real estate owned ("OREO") and repossessed assets decreased to $32.6 million at June 30, 2012, compared to $36.9 million at March 31, 2012.  The OREO assets declined $4.3 million primarily due to sales.

Nonperforming assets were $106.7 million at June 30, 2012, compared to $130.4 million at March 31, 2012. Nonperforming assets to total assets were 2.22% at June 30, 2012, compared to 2.78% at March 31, 2012.

Allowance and Provision for Loan Losses

The allowance for loan losses was $87.0 million at June 30, 2012, down from $93.5 million at March 31, 2012, as credit quality trends continued to improve as demonstrated by declines in nonperforming loans and other commercial criticized and classified loans. The decline in the allowance for loan losses resulted from net charge-offs exceeding the provision for loan losses during the second quarter of 2012 by $6.5 million. Despite this decline, the allowance for loan losses as a percent of nonperforming loans was 117.39% at June 30, 2012, compared to 100.01% at March 31, 2012. The provision for loan losses was $100,000 for the second quarter of 2012, down from $7.4 million for the first quarter of 2012.  This decrease was primarily due to a reduction in specific reserves. 

Balance Sheet

Assets

Total assets at June 30, 2012 were $4.80 billion, compared to $4.70 billion at March 31, 2012.

Loans at June 30, 2012, excluding allowance for loan losses and loans held for sale, were $2.89 billion, compared to $2.81 billion at March 31, 2012. Cole Taylor Business Capital and Cole Taylor Mortgage had solid loan growth, partially offset by reductions in commercial and residential construction loans.  Cole Taylor Business Capital increased loans outstanding by $32.3 million in the second quarter of 2012.  Commercial construction loans decreased in the second quarter of 2012 primarily due to the partial payoff of certain nonaccrual loans primarily related to one borrower.  The reduction in residential construction loans is the result of the Company's continued focus on reducing its overall exposure to these types of loans.  Consumer-oriented loans were $379.2 million at June 30, 2012, up from $343.9 million at March 31, 2012. This increase was primarily the result of certain mortgages originated by Cole Taylor Mortgage being held in the loan portfolio as part of our diversification strategy.

Investment securities were $1.24 billion at June 30, 2012, compared to $1.30 billion at March 31, 2012. 

Loans held for sale were $255.7 million at June 30, 2012, compared to $210.0 million at March 31, 2012. Loans held for sale are a result of continued growth in mortgage originations in the second quarter of 2012 and the timing of loan sales.

Liabilities and Stockholders' Equity

Total liabilities at June 30, 2012 were $4.36 billion, as compared to $4.28 billion at March 31, 2012.

Total deposits were $3.18 billion at June 30, 2012, compared to $2.99 billion at March 31, 2012. The increase is primarily due to an increase in noninterest-bearing deposits. 

Average total deposits for the second quarter of 2012 increased by $113.1 million compared to the first quarter of 2012, primarily due to an increase in noninterest-bearing deposits, partially offset by a decrease in certificates of deposit.  Average deposits, excluding time and brokered deposits, grew by $194.2 million or 10.7% from the first quarter of 2012.

Total stockholders' equity increased from $416.8 million at March 31, 2012 to $436.4 million at June 30, 2012 due to an increase in net income available to common stockholders and accumulated other comprehensive income in the second quarter of 2012.

Capital

At June 30, 2012, the Company's Tier I Risk Based Capital ratio was 12.59%, while its Total Risk Based Capital ratio was 16.03% and its Tier I Capital to Average Assets leverage ratio was 9.41%.

Each of these Company ratios exceeded the regulatory requirements for well-capitalized banks of 6.00% for the Tier I Risk Based Capital ratio, 10.00% for the Total Risk Based Capital ratio and 5.00% for the Tier I Capital to Average Assets leverage ratio.

Conference Call and Slide Presentation

A conference call hosted by Taylor Capital Group President & CEO Mark A. Hoppe will be held on Wednesday, July 18, 2012 at 10:00 a.m. Central Time (11:00 a.m. Eastern Time). Investors, news media and others may access the call by telephone at 866-450-8367 (toll-free) or 412-317-5427 and entering the code 3495231. Participants are encouraged to dial into the call approximately 10 minutes prior to the start time.

This call is being webcast and can be accessed via a live Internet audio broadcast at Taylor Capital Group's website at www.taylorcapitalgroup.com.

Taylor Capital Group will post presentation slides on its website to be addressed by management during the call. The slides will be available for download on the Company's Investor Relations web page at www.taylorcapitalgroup.com.

A replay of the conference call will be made available after approximately 1:00 p.m. Central Time (2:00 p.m. Eastern Time) on July 18, 2012 through August 20, 2012, and the instructions for accessing the replay will be available on the Company's website at that time.

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 the $4.8 billion bank holding company of Cole Taylor Bank, a commercial bank headquartered in Chicago. Cole Taylor specializes in serving the banking needs of closely held businesses and the people who own and manage them. Through its divisions, Cole Taylor Business Capital, Cole Taylor Equipment Finance and Cole Taylor Mortgage, the Bank also provides asset based lending, residential mortgage loan, commercial equipment lease and depository services products through a growing network of offices throughout the United States. Cole Taylor is a member of the FDIC and is an Equal Housing Lender.

Endnotes:
(1) Revenue is defined as net interest income plus noninterest income less gain or loss on investment securities
(2) Credit costs are defined as provision for loan losses plus nonperforming asset expense
(3) Commercial criticized and classified loans (special mention, substandard, and nonaccrual loans) in commercial and industrial, commercial real estate, residential construction and land, and commercial construction and land, excludes consumer loans.
(4) Schedules reconciling earnings in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") to the non-GAAP measurement of pre-tax, pre-provision operating earnings and revenue are provided in the attached tables.

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 2012 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:

• Our business may be adversely affected by the highly regulated environment in which we operate.
• Competition from financial institutions and other financial services providers may adversely affect our growth and profitability.
• Our business is subject to the conditions of the local economy in which we operate and continued weakness in the local economy and the real estate markets may adversely affect us.
• Our business is subject to domestic and to a lesser extent, international economic conditions and other factors, many of which are beyond our control and could adversely affect our business.
• The preparation of our consolidated financial statements requires us to make estimates and judgments, which are subject to an inherent degree of uncertainty and which may differ from actual results.
• Our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio.
• Our mortgage loan repurchase reserve for losses could be insufficient.
• We are subject to interest rate risk, including interest rate fluctuations that could reduce our profitability.
• Certain hedging strategies that we use to manage investment in mortgage servicing rights may be ineffective to offset any adverse changes in the fair value of these assets due to changes in interest rates and market liquidity.
• Our residential mortgage lending profitability could be significantly reduced if we are not able to originate and resell a high volume of mortgage loans.
• We have counterparty risk and therefore we may be adversely affected by the soundness of other financial institutions.
• We are subject to certain operational risks, including, but not limited to, data processing system failures and errors and customer or employee fraud. The Company's controls and procedures may fail or be circumvented.
• The Company is dependent upon outside third parties for processing and handling of Company records and data.
• System failure or breaches of our network security, including with respect to our internet banking activities, could subject us to increased operating costs as well as litigation and other liabilities.
• We are subject to lending concentration risks.
• We may not be able to access sufficient and cost-effective sources of liquidity.
• We are subject to liquidity risk, including unanticipated deposit volatility.
• The recent repeal of federal prohibitions on payment of interest on business demand deposits could increase the Company's interest expense.
• Changes in our credit ratings could increase our financing costs or make it more difficult for us to obtain funding or capital on commercially acceptable terms.
• The Company is a bank holding company and its sources of funds are limited.
• Our business strategy is dependent on our continued ability to attract, develop and retain highly qualified and experienced personnel in senior management and customer relationship positions.
• Our reputation could be damaged by negative publicity.
• New lines of business or new products and services may subject us to certain additional risks.
• We may experience difficulties in managing our future growth.
• The Company and its subsidiaries are subject to changes in federal and state tax laws and changes in interpretation of existing laws.
• Regulatory requirements, growth plans or operating results may require us to raise additional capital, which may not be available on favorable terms or at all.
• We have not paid a dividend on our common stock since the second quarter of 2008. In addition, regulatory restrictions and liquidity constraints at the holding company level could impair our ability to make distributions on our outstanding securities.

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, 2011 Annual Report on Form 10-K filed with the SEC on March 9, 2012 as updated by our Quarterly Reports on Form 10-Q, current reports on Form 8-K and other filings we have made with the Securities and Exchange Commission. 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.

(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.  Excludes consumer loans.

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 operating earnings and of revenue.  In the pre-tax, pre-provision operating earnings non-GAAP financial measure, the provision for loan losses, nonperforming asset expense and certain non-recurring items, such as gains and losses on investment securities, derivative termination fees, early extinguishment of debt and impairment of 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 adjusted by investment securities gains and losses, derivative termination fees and impairment of investment securities.  Management believes that these measures are useful because they provide a more comparable basis for evaluating financial performance from period to period.

SOURCE Taylor Capital Group, Inc.