Taylor Capital Group Reports Net Income of $15.6 Million for the Second Quarter of 2013

CHICAGO, July 15, 2013 /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 2013.

Net income for the quarter was $15.6 million, compared to $17.3 million for the first quarter of 2013. Net income applicable to common stockholders for the quarter was $11.8 million, or $0.39 per diluted share, compared to $13.6 million, or $0.44 per diluted share, for the first quarter of 2013. Net income for the second quarter included a $5.4 million pre-tax ($3.2 million after-tax) expense for the early extinguishment of debt costs related to prepaying $37.5 million of 8% subordinated notes. The following table compares selected financial information for the periods indicated:




















(dollars in thousands, except per share data)

2Q 2013


2Q 2013 adjusted for early extinguishment of sub debt (a)


1Q 2013


2Q 2012

Net income

$

15,617



$

18,845



$

17,257



$

14,225


Net income applicable to common stockholders

$

11,837



$

15,065



$

13,596



$

12,477


Diluted income per common share

$

0.39



$

0.49



$

0.44



$

0.41


Return on average assets

1.09

%


1.31

%


1.22

%


1.17

%

Return on average common equity

12.66

%


16.12

%


14.82

%


15.86

%









a) adjusted for $5.4 million early extinguishment of debt expense






"Our results for the second quarter of 2013 were outstanding and reflect sustained progress throughout the Bank," said Mark A. Hoppe, President and Chief Executive Officer of the Company. "Pre-tax, pre-provision operating earnings reached $31.1 million, up 6% from the prior quarter and up 24% from the prior-year period. From a shareholder perspective, our return on average common equity this quarter, adjusted for the one-time cost of retiring the subordinated notes, of over 16% reflects the tremendous accomplishments we have achieved. Commercial loans outstanding grew to over $3 billion, fueled by a more than 8% growth this quarter in Commercial and Industrial loans. This growth is noteworthy as it was achieved across multiple lending units despite significant competition in the markets we serve, and, importantly, as we continue to report solid credit quality metrics. Nonperforming loans declined this quarter, other real estate owned assets decreased to less than $20 million and the allowance as a percentage of nonperforming loans ratio increased to over 120%, all of which are reflective of our ongoing, dedicated effort to maintain strong credit standards."

Hoppe continued, "Total mortgage banking revenue increased 20% to $38.5 million this quarter. This accomplishment reflects the ability of our mortgage team to adapt to the significant interest rate volatility we saw this quarter. Our second quarter results demonstrate the success of our diversified model and the significant opportunities for future growth. We are extremely fortunate to have the right team in place to implement our strategy and achieve continuing strong results."

SECOND QUARTER 2013 HIGHLIGHTS - COMPARISON TO FIRST QUARTER 2013

  • Revenue(1) was $87.2 million for the second quarter of 2013, up $6.8 million, or 8.4%, from the first quarter of 2013
  • Net interest margin on a tax equivalent basis declined by 4 basis points to 3.16% for the second quarter of 2013 from 3.20% for the first quarter of 2013
  • Mortgage banking revenue was $38.5 million for the second quarter of 2013, up $6.5 million, or 20.3%, from the first quarter of 2013
  • $37.5 million of 8% subordinated notes originally due in 2020 was prepaid in full which resulted in a non-recurring, pre-tax charge of $5.4 million associated with the unamortized discount, original issuance costs and prepayment premium
  • Total commercial loans grew $182.9 million, or 6.5%, from March 31, 2013
  • The Company completed the purchase of mortgage servicing rights as well as certain office space, furniture and equipment from Liberty Savings Bank, FSB of Wilmington, Ohio
  • The Company's Tier I Risk Based Capital ratio was 13.96%, while its Total Risk Based Capital ratio was 15.22% and its Tier I Capital to Average Assets leverage ratio was 10.87% as of June 30, 2013
  • Return on Average Common Equity was 12.66% for the second quarter of 2013

Credit quality indicators as compared to the first quarter of 2013

  • Nonperforming loans were $69.5 million and 2.11% of total loans at June 30, 2013, down from $71.4 million and 2.22% of total loans at March 31, 2013
  • At June 30, 2013, commercial criticized and classified loans(2) totaled $134.2 million, down from $138.5 million at March 31, 2013
  • The allowance for loan losses as a percent of nonperforming loans was 120.19% at June 30, 2013, compared to 115.05% at March 31, 2013
  • Credit costs(3) were a negative $498,000 for the second quarter of 2013, down from $859,000 for the first quarter of 2013

SECOND QUARTER 2013 - COMPARISON TO SECOND QUARTER 2012

  • Revenue increased to $87.2 million for the second quarter of 2013, up $21.9 million, or 33.6%, from the second quarter of 2012
  • Pre-tax, pre-provision operating earnings(4) increased to $31.1 million for the second quarter of 2013, up $6.0 million, or 24.0%, as compared to the second quarter of 2012
  • Total commercial loans increased to $3.00 billion at June 30, 2013, up $397.6 million, or 15.3%, from June 30, 2012
  • Core deposits grew to $2.83 billion at June 30, 2013, up $764.3 million, or 37.1%, from June 30, 2012
  • Mortgage origination volume was $1.87 billion for the second quarter of 2013, up $914 million, or 95.2%, from the second quarter of 2012
  • At June 30, 2013, commercial criticized and classified loans(2) totaled $134.2 million, down from $139.9 million at June 30, 2012
  • Return on Average Common Equity was 12.66% for the second quarter of 2013 as compared to 15.86% for the second quarter of 2012

SECOND QUARTER 2013 PERFORMANCE OVERVIEW

Results of Operations - Comparisons to First Quarter 2013

Net income for the second quarter of 2013 was $15.6 million, compared to $17.3 million for the first quarter of 2013, a decrease of 9.8%. Net income applicable to common stockholders for the second quarter of 2013 was $11.8 million, compared to $13.6 million for the first quarter of 2013.

Income before income taxes was $26.2 million for the second quarter of 2013, compared to $28.3 million for the first quarter of 2013, a decrease of 7.4%. The decrease was primarily due to the $5.4 million of early extinguishment of debt cost this quarter.

Pre-tax, pre-provision operating earnings totaled $31.1 million for the second quarter of 2013, compared to $29.2 million for the first quarter of 2013, an increase of 6.5%.

Revenue

Revenue totaled $87.2 million for the second quarter of 2013, compared to $80.4 million for the first quarter of 2013, an increase of 8.5%.

Net interest income was $41.1 million for the second quarter of 2013, as compared to $40.7 million for the first quarter of 2013. The overall tax equivalent net interest margin was down 4 basis points, from 3.20% for the first quarter of 2013 to 3.16% for the second quarter of 2013, primarily as a result of a 10 basis point decrease in the yield on commercial loans to 3.96%, which was partially offset by a 7 basis point decrease in the cost of interest bearing liabilities to 0.71%.

Noninterest income, excluding investment security gains and losses, was $46.1 million for the second quarter of 2013, compared to $39.7 million for the first quarter of 2013, an increase of 16.1%. The increase was primarily due to an increase in mortgage banking revenue comprised of a $2.9 million increase in origination revenue and a $3.6 million increase in mortgage servicing revenue. The increase in mortgage origination revenue was primarily the result of a favorable shift in the mix of loans originated along with an increase in the servicing value of loans self-originated, partially offset by a 2.0% decline in mortgage origination volume in the second quarter. The increase in mortgage servicing revenue was the result of growth in the mortgage servicing rights ("MSR") portfolio from both purchased as well as self-originated MSR. In addition, mortgage servicing revenue increased due to growth in the fair market value of the MSR asset, net of hedging, as a result of the increase in interest rates this quarter.

Noninterest Expense

Noninterest expense, excluding nonperforming asset expense and early extinguishment of debt expense, was $56.1 million for the second quarter of 2013, compared to $51.2 million for the first quarter of 2013. The increase of $4.9 million, or 9.6%, was primarily the result of a $3.3 million increase in performance-based incentives as a result of improved performance, as well as an increase in salary cost related to an increase in the total number of employees at Cole Taylor Mortgage.

Results of Operations - Comparisons to Second Quarter 2012

Net income for the second quarter of 2013 was $15.6 million, compared to $14.2 million for the second quarter of 2012, an increase of 9.9%. Net income applicable to common stockholders for the second quarter of 2013 was $11.8 million, compared to $12.5 million for the second quarter of 2012.

Income before income taxes was $26.2 million for the second quarter of 2013, compared to $24.2 million for the second quarter of 2012, an increase of 8.3%.

Pre-tax, pre-provision operating earnings totaled $31.1 million for the second quarter of 2013, as compared to $25.1 million in the second quarter of 2012, an increase of 23.9%.

Revenue

Revenue totaled $87.2 million for the second quarter of 2013, compared to $65.2 million in the second quarter of 2012, an increase of 33.7%.

Net interest income was $41.1 million for the second quarter of 2013, compared to $36.4 million for the second quarter of 2012, an increase of 12.9%. The increase was primarily due to growth in loan balances, the repayment of the Bank's $60 million of 10% subordinated notes in the third quarter of 2012 and lower deposit funding costs.

Noninterest income, excluding investment security gains and losses, was $46.1 million for the second quarter of 2013, compared to $28.9 million for the second quarter of 2012, an increase of 59.5%. The increase was primarily due to a $15.5 million increase in mortgage banking revenue. The increase in mortgage banking revenue was in both originations and servicing. Mortgage loan origination income increased $8.9 million between the periods as mortgage loan origination volume increased 95.2% to $1.87 billion. Net mortgage servicing revenue increased 259.1% to $9.2 million in the period as the mortgage servicing book more than doubled.

Noninterest Expense

Noninterest expense, excluding nonperforming asset expense and early extinguishment of debt expense, was $56.1 million for the second quarter of 2013, compared to $40.2 million in the second quarter of 2012, an increase of 39.6%. The increase of $15.9 million is primarily due to a $9.0 million increase in salaries and employee benefits due to growth in the number of employees, as well as volume-related loan and outside service expenses as a result of increased expenses resulting from increased loan origination volumes and servicing at Cole Taylor Mortgage.

Credit Quality

Loan Portfolio Performance and Credit Quality

Total commercial criticized and classified loans were $134.2 million at June 30, 2013, down from $138.5 million at March 31, 2013 and $139.9 million at June 30, 2012.

Nonperforming loans were $69.5 million at June 30, 2013, down from $71.4 million at March 31, 2013, and $74.1 million at June 30, 2012. The overall decrease in nonperforming loans is reflective of the continued focus to strengthen credit quality combined with an active resolution process.

Other real estate owned ("OREO") and repossessed assets were $19.8 million at June 30, 2013, down from $27.2 million at March 31, 2013 and $32.6 million at June 30, 2012. The decrease in OREO assets compared to the prior quarter was primarily due to sales.

Total nonperforming assets were $89.3 million at June 30, 2013, down from $98.6 million at March 31, 2013 and $106.7 million at June 30, 2012. Nonperforming assets to total assets were 1.51% at June 30, 2013, compared to 1.71% at March 31, 2013 and 2.22% at June 30, 2012.

Allowance and Provision for Loan Losses

The allowance for loan losses was $83.6 million at June 30, 2013 compared to $82.2 million at March 31, 2013 and $87.0 million at June 30, 2012. The allowance for loan losses as a percent of nonperforming loans was 120.19% at June 30, 2013, as compared to 115.05% at March 31, 2013 and 117.39% at June 30, 2012.

The provision for loan losses was $700,000 for the second quarter of 2013, compared to $300,000 for the first quarter of 2013 and $100,000 in the second quarter of 2012. The $400,000 increase this quarter in the loan loss provision reflected an increase in the specific reserve and growth in the loan portfolio, partially offset by net recoveries during the second quarter of 2013.

Balance Sheet

Assets

Total assets at June 30, 2013 were $5.90 billion, compared to $5.77 billion at March 31, 2013.

Investment securities were $1.43 billion at June 30, 2013, flat to $1.43 billion at March 31, 2013. While the overall portfolio was essentially unchanged, there was an increase in certain tax exempt investment securities with attractive tax equivalent yields, partially offset by a reduction in the unrealized gain position of the available for sale investment securities portfolio due to an increase in interest rates this quarter.

Loans held for sale were $693.9 million at June 30, 2013, an increase of 3.7% from March 31, 2013. The increase was primarily the result of the transfer of $113.3 million of the residential jumbo mortgages from the portfolio held for investment to loans held for sale partially offset by the timing of mortgage loan sales.

Net loans at June 30, 2013 were $3.22 billion, up $78.3 million from $3.14 billion at March 31, 2013. Commercial and Industrial loans were $1.71 billion at June 30, 2013, an increase of 8.3% from $1.58 billion at March 31, 2013. Our Chicago-based middle market lending, asset based lending and equipment financing groups all contributed significantly to this increase. Commercial real estate secured loans were $1.04 billion at June 30, 2013, an increase of 2.3% from March 31, 2013. Consumer loans were $311.1 million at June 30, 2013, down $100.8 million from March 31, 2013 as a portion of this portfolio was transferred to loans held for sale.

Mortgage servicing rights increased $39.2 million in the second quarter to $145.7 million as of June 30, 2013. The unpaid principal balance of loans serviced was $12.7 billion as of June 30, 2013, up 21.0% from March 31, 2013. As part of our strategy to diversify the revenue streams of Cole Taylor Mortgage, we continue to invest in mortgage servicing and to retain servicing of most mortgage loans we originate. The increase also reflects the purchase of $5.6 million of MSR related to approximately 4,600 loans as part of the Liberty transaction as well as an increase in the value of the asset due to a rise in rates.

Liabilities and Stockholders' Equity

Total liabilities at June 30, 2013 were $5.34 billion, as compared to $5.20 billion at March 31, 2013.

Total deposits were $3.69 billion at June 30, 2013, compared to $3.79 billion at March 31, 2013. The decrease was largely due to an expected decline in consumer demand deposit account balances, partially offset by on-going deposit raising efforts.

Average total deposits for the second quarter of 2013 decreased to $3.69 billion from $3.76 billion in the first quarter of 2013, primarily due to the previously mentioned decrease in noninterest-bearing deposit balances.

Short term borrowings increased $292.3 million in the second quarter to $1.43 billion as of June 30, 2013, due to increased funding needs, primarily as a result of a commercial loan growth.

Subordinated notes decreased $33.5 million due to the full repayment of the 8% subordinated notes originally due in 2020.

Total stockholders' equity decreased from $573.3 million at March 31, 2013 to $560.3 million at June 30, 2013, primarily due to a $25.8 million decrease in accumulated other comprehensive income resulting from a reduction in the unrealized gain on available for sale securities due to an increase in interest rates this quarter. This decline was partially offset by retaining the net income available to common stockholders earned in the second quarter of 2013.

Capital

At June 30, 2013, the Company's Tier I Risk Based Capital ratio was 13.96%, while its Total Risk Based Capital ratio was 15.22% and its Tier I Capital to Average Assets leverage ratio was 10.87%.

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

A conference call hosted by Taylor Capital Group President & CEO Mark A. Hoppe will be held on Monday, July 15, 2013 at 9:00 a.m. Central Time (10:00 a.m. Eastern Time). Investors, news media and others may access the call by telephone at 866-515-2915 and entering the passcode 95046331.  Participants are encouraged to dial into the call approximately 10 minutes prior to the start time.

This call is being webcast and the investor slides can be accessed via a live Internet broadcast at http://www.taylorcapitalgroup.com.

A replay of the conference call will be made available after approximately 11:00 a.m. Central Time on July 15, 2013 through August 15, 2013 by telephone by dialing 888-286-8010 and entering the passcode 12001306.

Accompanying Financial Statements and Tables
This press release is accompanied by the following unaudited financial information:

  • Condensed Consolidated Balance Sheets
  • Consolidated Statements of Income
  • 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 Aging
  • Funding Liabilities
  • Reconciliation of U.S. GAAP Financial Measures

About Taylor Capital Group, Inc. (NASDAQ: TAYC)
Taylor Capital Group, Inc. is the holding company of Cole Taylor Bank, a commercial bank headquartered in Chicago with assets of $5.9 billion as of June 30, 2013. Cole Taylor specializes in serving the banking needs of closely held businesses and the people who own and manage them. With its national businesses, the Bank also provides asset-based lending, residential mortgage lending and commercial equipment leasing 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 investment securities gains and losses and impairment of investment securities.
(2) Commercial criticized and classified loans are defined as special mention, substandard, and nonaccrual loans in commercial and industrial, commercial real estate, residential construction and land, and commercial construction and land, excluding consumer loans.
(3) Credit costs are defined as provision for loan losses plus nonperforming asset expense.
(4) Schedules reconciling earnings in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") to the non-GAAP measurement of revenue and pre-tax, pre-provision operating earnings 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", "predict", "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 2013 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:

  • We may be materially and adversely affected by the highly regulated environment in which we operate.
  • Increasing dependence on our mortgage business may increase volatility in our consolidated revenues and earnings, and our residential mortgage lending profitability could be significantly reduced if we are not able to originate and sell mortgage loans at profitable margins.
  • Changes in interest rates may change the value of our mortgage servicing rights ("MSRs") portfolio, which may increase the volatility of our earnings.
  • Certain hedging strategies that we use to manage investment in MSRs, mortgage loans held for sale and interest rate lock commitments 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 mortgage loan repurchase reserve for losses could be insufficient.
  • A significant increase in certain loan balances associated with our mortgage business may result in liquidity risk related to the funding of these loans.
  • We are subject to interest rate risk, including interest rate fluctuations that could have a material adverse effect on us.
  • Competition from financial institutions and other financial services providers may adversely affect our growth and profitability and have a material adverse effect on us.
  • Our business is subject to the conditions of the economies in which we operate and continued weakness in those economies and the real estate markets may materially and 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 materially and adversely affect us.
  • The preparation of our consolidated financial statements requires us to make estimates and judgments, including the use of models, which are subject to an inherent degree of uncertainty and which may differ from actual results.
  • We must manage credit risk and, if we are unable to do so, our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio, which could have a material adverse effect on us.
  • 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 repeal of federal prohibitions on payment of interest on business demand deposits could increase our interest expense and have a material adverse effect on us.
  • Changes in certain ratings related to us or our credit could increase our financing costs or make it more difficult for us to obtain funding or capital on commercially acceptable terms.
  • As a bank holding company, our sources of funds are limited.
  • We are subject to certain operational risks, including, but not limited to, data processing system failures and errors and customer or employee fraud. Our controls and procedures may fail or be circumvented.
  • We are dependent on outside third parties for processing and handling of our 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 have counterparty risk and therefore we may be materially and adversely affected by the soundness of other financial institutions.
  • We are subject to lending concentration risks.
  • We are subject to mortgage asset concentration risks.
  • 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, new products and services or new customer relationships may subject us to certain additional risks.
  • We may experience difficulties in managing our future growth.
  • We and our subsidiaries are subject to changes in federal and state tax laws and changes in interpretation of existing laws.
  • Regulatory requirements, including rules jointly proposed (and subsequently indefinitely delayed) by the U.S. federal bank regulatory agencies to implement Basel III, 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, 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 8, 2013, as updated by our quarterly reports on Form 10-Q, Current Reports on Form 8-K and other filings we have made with the SEC. 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.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)















(Unaudited)


(Unaudited)




June 30,
2013


March 31,
2013


December 31,
2012

ASSETS






Cash and cash equivalents

$

97,832



$

135,880



$

166,385


Investment securities

1,434,326



1,429,971



1,267,757


Loans held for sale

693,937



668,937



938,379


Loans, net of allowance for loan losses of $83,576 at June 30, 2013, $82,150 at
March 31, 2013 and $82,191 at December 31, 2012

3,218,972



3,140,644



3,086,112


Premises, leasehold improvements and equipment, net

23,941



19,193



16,062


Investment in Federal Home Loan Bank and Federal Reserve Bank stock

79,726



64,976



74,950


Mortgage servicing rights

145,729



106,576



78,917


Other real estate and repossessed assets, net

19,794



27,218



24,259


Other assets

187,113



177,037



149,589


Total assets

$

5,901,370



$

5,770,432



$

5,802,410








LIABILITIES AND STOCKHOLDERS' EQUITY






Deposits:






Noninterest-bearing

$

1,138,839



$

1,326,483



$

1,179,724


Interest-bearing

2,553,587



2,467,911



2,348,618


Total deposits

3,692,426



3,794,394



3,528,342


Accrued interest, taxes and other liabilities

133,208



146,053



131,473


Short-term borrowings

1,428,855



1,136,586



1,463,019


Long-term borrowings






Junior subordinated debentures

86,607



86,607



86,607


Subordinated notes, net



33,460



33,366


Total liabilities

5,341,096



5,197,100



5,242,807








Stockholders' equity:






Preferred stock, Series A

100,000



100,000



100,000


Preferred stock, Series B

104,745



104,275



103,813


Nonvoting preferred stock

13



13



13


Common stock

305



304



302


Surplus

416,420



415,975



412,391


Accumulated deficit

(38,104)



(49,941)



(63,537)


Accumulated other comprehensive income, net

6,480



32,291



36,206


Treasury stock

(29,585)



(29,585)



(29,585)


Total stockholders' equity

560,274



573,332



559,603


Total liabilities and stockholders' equity

$

5,901,370



$

5,770,432



$

5,802,410


 

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(dollars in thousands, except per share data)























For the Three Months Ended


For the Six Months Ended


June 30, 2013


March 31, 2013


June 30, 2012


June 30, 2013


June 30, 2012

Interest income:










Interest and fees on loans

$

37,499



$

37,629



$

35,422



$

75,128



$

70,705


Interest and dividends on investment securities:










Taxable

8,398



8,617



9,889



17,015



20,207


Tax-exempt

2,077



1,427



691



3,504



1,354


Interest on cash equivalents

1



1



3



2



6


Total interest income

47,975



47,674



46,005



95,649



92,272












Interest expense:










Deposits

4,213



4,264



4,938



8,477



10,349


Short-term borrowings

473



420



629



893



1,192


Long-term borrowings





69





569


Junior subordinated debentures

1,444



1,443



1,464



2,887



2,936


Subordinated notes

763



864



2,527



1,627



5,046


Total interest expense

6,893



6,991



9,627



13,884



20,092












Net interest income

41,082



40,683



36,378



81,765



72,180


Provision for loan losses

700



300



100



1,000



7,450


Net interest income after provision for loan losses

40,382



40,383



36,278



80,765



64,730












Noninterest income:










Service charges

3,505



3,491



3,355



6,996



6,646


Mortgage banking revenue

38,533



32,030



23,014



70,563



40,544


Gain on sales of investment securities

6



1



3,020



7



3,976


Other derivative income

1,704



1,560



815



3,264



1,376


Other noninterest income

2,353



2,637



1,685



4,990



3,293


Total noninterest income

46,101



39,719



31,889



85,820



55,835












Noninterest expense:










Salaries and employee benefits

37,322



34,028



28,278



71,350



51,915


Occupancy of premises, furniture and equipment

3,519



3,305



2,922



6,824



5,712


Nonperforming asset expense

(1,198)



559



828



(639)



1,522


Early extinguishment of debt

5,380





2,987



5,380



3,988


FDIC assessment

1,759



2,024



1,497



3,783



3,199


Legal fees, net

1,117



858



757



1,975



1,613


Loan expense, net

2,895



2,371



1,425



5,266



2,543


Outside services

2,818



2,496



708



5,314



1,287


Other noninterest expense

6,659



6,114



4,584



12,773



8,775


Total noninterest expense

60,271



51,755



43,986



112,026



80,554












Income before income taxes

26,212



28,347



24,181



54,559



40,011


Income tax expense

10,595



11,090



9,956



21,685



16,317


Net income

15,617



17,257



14,225



32,874



23,694


Preferred dividends and discounts

(3,780)



(3,661)



(1,748)



(7,441)



(3,490)


Net income applicable to common stockholders

$

11,837



$

13,596



$

12,477



$

25,433



$

20,204












Basic income per common share

$

0.39



$

0.45



$

0.42



$

0.84



$

0.68


Diluted income per common share

0.39



0.44



0.41



0.83



0.66


Weighted-average common shares outstanding

28,687,406



28,595,562



28,158,304



28,641,738



28,114,855


Weighted-average diluted common shares outstanding

28,995,753



28,961,395



29,094,079



28,977,242



28,870,106


 

SUMMARY OF KEY QUARTERLY FINANCIAL DATA

(dollars in thousands)

Unaudited























2013


2012


Second Quarter


First Quarter


Fourth

Quarter


Third

Quarter


Second

Quarter

Condensed Income Data:










Net interest income

$

41,082



$

40,683



$

40,510



$

37,196



$

36,378


Provision for loan losses

700



300



1,200



900



100


Total noninterest income

46,101



39,719



51,962



47,250



31,889


Total noninterest expense

60,271



51,755



55,284



55,899



43,986


Income before income taxes

26,212



28,347



35,988



27,647



24,181


Income tax expense

10,595



11,090



14,530



10,898



9,956


Net income

15,617



17,257



21,458



16,749



14,225


Preferred dividends and discounts

(3,780)



(3,661)



(1,765)



(1,757)



(1,748)


Net income applicable to common stockholders

$

11,837



$

13,596



$

19,693



$

14,992



$

12,477












Non-GAAP Measures of Performance: (1)










Revenue

$

87,177



$

80,401



$

90,984



$

84,446



$

65,247


Pre-tax, pre-provision operating earnings

31,088



29,205



38,579



32,830



25,076












Per Share Data:










Basic income per common share

$

0.39



$

0.45



$

0.66



$

0.50



$

0.42


Diluted income per common share

0.39



0.44



0.65



0.49



0.41


Tangible book value per common share

12.22



12.69



12.36



11.97



11.66


Weighted average common shares-basic

28,687,406



28,595,562



28,515,040



28,430,871



28,158,304


Weighted average common shares-diluted

28,995,753



28,961,395



28,895,719



28,931,931



29,094,079


Common shares outstanding-end of period

29,098,639



29,088,735



28,792,042



28,756,717



28,602,394












Performance Ratios (annualized):










Return on average assets

1.09

%


1.22

%


1.59

%


1.33

%


1.17

%

Return on average common equity

12.66

%


14.82

%


22.40

%


17.62

%


15.86

%

Efficiency ratio (2)

69.14

%


64.37

%


60.76

%


66.19

%


67.41

%











Average Balance Sheet Data: (3)










Total assets

$

5,747,219



$

5,642,192



$

5,389,566



$

5,026,706



$

4,867,810


Investments

1,472,316



1,360,213



1,213,422



1,230,953



1,292,129


Cash equivalents

237



555



985



304



709


Loans held for sale

634,327



691,134



663,759



424,508



324,245


Loans

3,254,918



3,177,615



3,090,019



2,997,346



2,947,156


Total interest-earning assets

5,361,798



5,229,517



4,968,185



4,653,111



4,564,239


Interest-bearing deposits

2,494,537



2,424,772



2,282,290



2,193,790



2,260,395


Borrowings

1,397,300



1,219,977



1,241,905



1,224,884



1,214,391


Total interest-bearing liabilities

3,891,837



3,644,749



3,524,195



3,418,674



3,474,786


Noninterest-bearing deposits

1,195,709



1,333,958



1,257,811



1,081,568



892,945


Total stockholders' equity

578,142



570,652



500,727



441,133



417,261












Tax Equivalent Net Interest Margin:










Net interest income as stated

$

41,082



$

40,683



$

40,510



$

37,196



$

36,378


Add: Tax equivalent adjust. - investment (4)

1,119



769



545



395



372


Tax equivalent adjust. - loans (4)

29



29



30



30



32


Tax equivalent net interest income

$

42,230



$

41,481



$

41,085



$

37,621



$

36,782


Net interest margin without tax adjust. (5)

3.07

%


3.14

%


3.25

%


3.19

%


3.20

%

Net interest margin - tax equivalent (4) (5)

3.16

%


3.20

%


3.30

%


3.22

%


3.24

%

Yield on earning assets without tax adjust. (5)

3.59

%


3.68

%


3.83

%


3.96

%


4.05

%

Yield on earning assets - tax equivalent (4) (5)

3.67

%


3.74

%


3.87

%


3.99

%


4.08

%

Yield on interest-bearing liabilities (5)

0.71

%


0.78

%


0.81

%


1.05

%


1.11

%

Net interest spread without tax adjust. (5)

2.88

%


2.90

%


3.02

%


2.91

%


2.93

%

Net interest spread - tax equivalent (4) (5)

2.96

%


2.96

%


3.06

%


2.95

%


2.97

%

Footnotes:

(1)

Refer to Reconciliation of U.S. GAAP Financial Measures for a reconciliation to GAAP.

(2)

Efficiency ratio is determined by dividing noninterest expense by an amount equal to net interest income plus noninterest income, adjusted for gains or losses from investment securities.

(3)

Average balances are daily averages.

(4)

Adjustment reflects tax-exempt interest income on an equivalent before-tax basis assuming a tax rate of 35.0%

(5)

During the second quarter 2013, the Company revised its methodology for calculating these metrics to exclude the valuation adjustment on mortgages held at fair value. Prior period ratios have been adjusted to reflect this change.

 

SUMMARY OF KEY YEAR-TO-DATE FINANCIAL DATA

(dollars in thousands)

Unaudited













For the Six Months Ended June 30,



2013


2012

Condensed Income Data:





Net interest income


$

81,765



$

72,180


Provision for loan losses


1,000



7,450


Total noninterest income


85,820



55,835


Total noninterest expense


112,026



80,554


Income before income taxes


54,559



40,011


Income tax expense


21,685



16,317


Net income


32,874



23,694


Preferred dividends and discounts


(7,441)



(3,490)


Net income applicable to common stockholders


$

25,433



$

20,204







Non-GAAP Measures of Performance: (1)





Revenue


$

167,578



$

124,164


Pre-tax, pre-provision operating earnings


60,293



49,120







Per Share Data:





Basic income per common share


$

0.84



$

0.68


Diluted income per common share


0.83



0.66


Tangible book value per common share


12.22



11.66


Weighted average common shares-basic


28,641,738



28,114,855


Weighted average common shares-diluted


28,977,242



28,870,106


Common shares outstanding-end of period


29,098,639



28,602,395







Performance Ratios (Annualized):





Return on average assets


1.15

%


0.99

%

Return on average common equity


13.73

%


11.50

%

Efficiency ratio (2)


66.85

%


64.88

%






Average Balance Sheet Data: (3)





Total assets


$

5,694,995



$

4,763,916


Investments


1,416,575



1,286,787


Cash equivalents


395



835


Loans held for sale


662,573



257,878


Loans


3,216,480



2,942,162


Total interest-earning assets


5,296,023



4,487,662


Interest-bearing deposits


2,459,847



2,273,344


Borrowings


1,309,129



1,182,815


Total interest-bearing liabilities


3,768,976



3,456,159


Noninterest-bearing deposits


1,264,451



823,470


Total stockholders' equity


574,418



411,910







Tax Equivalent Net Interest Margin:





Net interest income as stated


$

81,765



$

72,180


Add: Tax equivalent adjust. - investment (4)


1,888



729


Tax equivalent adjust. - loans (4)


58



64


Tax equivalent net interest income


$

83,711



$

72,973


Net interest margin without tax adjust. (5)


3.10

%


3.23

%

Net interest margin - tax equivalent (4) (5)


3.18

%


3.26

%

Yield on earning assets without tax adjust. (5)


3.63

%


4.13

%

Yield on earning assets - tax equivalent (4) (5)


3.70

%


4.16

%

Yield on interest-bearing liabilities (5)


0.74

%


1.17

%

Net interest spread - without tax adjust. (5)


2.89

%


2.96

%

Net interest spread - tax equivalent (4) (5)


2.96

%


2.99

%

Footnotes:

(1)

Refer to Reconciliation of U.S. GAAP Financial Measures for a reconciliation to GAAP.

(2)

Efficiency ratio is determined by dividing noninterest expense by an amount equal to net interest income plus noninterest income, adjusted for gains or losses from investment securities.

(3)

Average balances are daily averages.

(4)

Adjustment reflects tax-exempt interest income on an equivalent before-tax basis assuming a tax rate of 35.0%

(5)

During the second quarter 2013, the Company revised its methodology for calculating these metrics to exclude the valuation adjustment on mortgages held at fair value. Prior period ratios have been adjusted to reflect this change.

 

SUMMARY OF KEY PERIOD-END FINANCIAL DATA

(dollars in thousands)

Unaudited























June 30,
2013


March 31,
2013


Dec. 31,

2012


Sept. 30, 2012


June 30,
2012

Condensed Balance Sheet Data:










Investment securities

$

1,434,326



$

1,429,971



$

1,267,757



$

1,212,139



$

1,240,405


Loans held for sale

693,937



668,937



938,379



422,621



255,693


Loans

3,302,548



3,222,794



3,168,303



3,085,693



2,981,827


Allowance for loan losses

83,576



82,150



82,191



79,667



86,992


Total assets

5,901,370



5,770,432



5,802,410



5,136,975



4,797,101


Total deposits

3,692,426



3,794,394



3,528,342



3,558,682



3,184,610


Total borrowings

1,515,462



1,256,653



1,582,992



1,010,315



1,097,836


Total stockholders' equity

560,274



573,332



559,603



447,574



436,408












Asset Quality Ratios:










Nonperforming loans

$

69,539



$

71,404



$

59,537



$

62,096



$

74,104


Nonperforming assets

89,333



98,622



83,796



90,955



106,731


Allowance for loan losses to total loans (excluding loans held for sale)

2.53

%


2.55

%


2.59

%


2.58

%


2.92

%

Allowance for loan losses to nonperforming loans

120.19

%


115.05

%


138.05

%


128.30

%


117.39

%

Nonperforming assets to total loans plus repossessed property (1)

2.69

%


3.03

%


2.62

%


2.92

%


3.54

%





















Capital Resources (Taylor Capital Group, Inc.):










Total Capital (to Risk Weighted Assets)

15.22

%


16.50

%


16.27

%


14.41

%


16.03

%

Tier I Capital (to Risk Weighted Assets)

13.96

%


14.45

%


14.21

%


12.29

%


12.59

%

Leverage (to average assets)

10.87

%


10.91

%


11.14

%


9.43

%


9.41

%

Total Capital

$

679,379



$

701,381



$

685,998



$

553,977



$

579,618


Tier I Capital

623,221



614,382



599,504



472,221



455,144

















(1) During the fourth quarter of 2012, the Company revised its methodology for calculating this metric to exclude loans held for sale from total loans. Prior period ratios have been adjusted to reflect this change.

 

COMPOSITION OF LOAN PORTFOLIO (unaudited)

(dollars in thousands)


The following table presents the composition of the Company's loan portfolio as of the dates indicated:

























June 30, 2013


March 31, 2013


December 31, 2012

Loans


 

Balance


Percent of Gross Loans


 

Balance


Percent of Gross Loans


Balance


Percent of Gross Loans

Commercial and industrial


$

1,707,502



51.6

%


$

1,577,241



48.8

%


$

1,590,587



50.1

%

Commercial real estate secured


1,036,303



31.3



1,013,252



31.4



965,978



30.4


Residential construction and land


42,606



1.3



40,620



1.3



45,903



1.5


Commercial construction and land


119,839



3.6



121,212



3.7



103,715



3.3


Lease receivables


93,999



2.8



65,028



2.0



50,803



1.6


Total commercial loans


3,000,249



90.6



2,817,353



87.2



2,756,986



86.9


Consumer


311,115



9.4



411,905



12.8



416,635



13.1


Gross loans


3,311,364



100.0

%


3,229,258



100.0

%


3,173,621



100.0

%

Less: Unearned discount


(8,816)





(6,464)





(5,318)




Total loans


3,302,548





3,222,794





3,168,303




Less: Loan loss allowance


(83,576)





(82,150)





(82,191)




Net loans


$

3,218,972





$

3,140,644





$

3,086,112

















Loans Held for Sale


$

693,937





$

668,937





$

938,379




 

The following table provides details of the Company's commercial real estate portfolio:

























June 30, 2013


March 31, 2013


December 31, 2012

Commercial real estate secured:


 

Balance


Percent of Total


 

Balance


Percent of Total


 

Balance


Percent of Total

Commercial non-owner occupied:













Retail strip centers or malls


$

105,305



10.2

%


$

107,861



10.7

%


$

109,266



11.3

%

Office/mixed use property


110,174



10.6



124,542



12.3



113,216



11.7


Commercial properties


99,855



9.6



107,642



10.6



111,852



11.6


Specialized – other


73,133



7.1



70,271



6.9



69,827



7.2


Other commercial properties


24,806



2.4



27,140



2.7



28,870



3.0


Farmland


2,314



0.2










Subtotal commercial non-owner occupied


415,587



40.1



437,456



43.2



433,031



44.8


Commercial owner-occupied


498,057



48.1



463,166



45.7



425,723



44.1


Multi-family properties


122,659



11.8



112,630



11.1



107,224



11.1


Total commercial real estate

secured


$

1,036,303



100.0

%


$

1,013,252



100.0

%


$

965,978



100.0

%

 

CREDIT QUALITY (unaudited)

(dollars in thousands)
















At or for the Three Months Ended



June 30,
2013


March 31, 2013


Dec. 31, 2012

Nonperforming Assets:







Loans contractually past due 90 days or more but still accruing interest


$



$



$


Nonaccrual loans:







Commercial and industrial


16,577



16,010



16,705


Commercial real estate secured


20,900



23,096



14,530


Residential construction and land




742



4,495


Commercial construction and land


26,272



26,375



15,220


Consumer


5,790



5,181



8,587


Total nonaccrual loans


69,539



71,404



59,537


Total nonperforming loans


69,539



71,404



59,537


Other real estate owned and repossessed assets


19,794



27,218



24,259


Total nonperforming assets


$

89,333



$

98,622



$

83,796









Other Credit Quality Information:







Commercial criticized and classified loans (1)







Special mention


$

43,938



$

49,644



$

58,025


Substandard


26,514



22,649



22,608


Nonaccrual


63,749



66,223



50,950


Total commercial criticized and classified loans


$

134,201



$

138,516



$

131,583


Loans contractually past due 30 – 89 days and still accruing


$

4,522



$

4,293



$

6,111


Performing restructured loans


21,928



22,739



17,456


Recorded balance of impaired loans


86,700



90,113



70,343


Allowance for loan losses related to impaired loans


16,330



13,670



12,057









Allowance for Loan Losses Summary:







Allowance at beginning of period


$

82,150



$

82,191



$

79,667


(Charge-offs), net of recoveries:







Commercial and commercial real estate


870



114



1,793


Real estate – construction and land


48



174



125


Consumer


(192)



(629)



(594)


Total net (charge-offs) recoveries


726



(341)



1,324


Provision for loan losses


700



300



1,200


Allowance at end of period


$

83,576



$

82,150



$

82,191









Key Credit Ratios:







Nonperforming loans to total loans (2)


2.11

%


2.22

%


1.88

%

Nonperforming assets to total loans plus repossessed property (2)


2.69

%


3.03

%


2.62

%

Nonperforming assets to total assets


1.51

%


1.71

%


1.44

%

Annualized net charge-offs (recoveries) to average total loans (2)


(0.02)%



0.04

%


(0.17)%


Allowance to total loans at end of period (excluding loans held for sale)


2.53

%


2.55

%


2.59

%

Allowance to nonperforming loans


120.19

%


115.05

%


138.05

%

30 – 89 days past due to total loans (2)


0.14

%


0.13

%


0.19

%

(1)

Commercial criticized and classified loans excludes consumer loans.

(2)

During the fourth quarter 2012, the Company revised its methodology for calculating these metrics to exclude loans held for sale from total loans. Prior period ratios have been adjusted to reflect this change.

 

LOAN PORTFOLIO AGING (unaudited)

(dollars in thousands)































As of June 30, 2013



30-89 Days Past Due


>90 Days Past Due and Still Accruing


Nonaccrual


Current


Total Loans


% of Total Loans


Allowance for Loan Loss Allocation

Commercial and industrial


$



$



$

16,577



$

1,690,925



$

1,707,502



52

%


$

36,003

















Commercial real estate secured:















Commercial non-owner occupied:















Retail strip centers or malls






15,925



89,380



105,305



3

%


3,716


Office/mixed use property






1,325



108,849



110,174



3

%


2,094


Commercial properties






418



99,437



99,855



3

%


1,977


Specialized – other








73,133



73,133



2

%


1,215


Other commercial properties








24,806



24,806



1

%


412


Farmland








2,314



2,314



%


38


Subtotal commercial non-owner occupied






17,668



397,919



415,587



12

%


9,452


Commercial owner-occupied






1,555



496,502



498,057



15

%


9,172


Multi-family properties






1,677



120,982



122,659



4

%


2,322


Total commercial real

estate secured






20,900



1,015,403



1,036,303



31

%


20,946

















Residential construction and land:















Residential construction








26,329



26,329



1

%


3,628


Land








16,277



16,277



%


2,243


Total residential

construction and land








42,606



42,606



1

%


5,871

















Commercial construction and land






26,272



93,567



119,839



4

%


12,759

















Lease receivables, net of unearned discount








85,183



85,183



3

%


511


Total commercial loans






63,749



2,927,684



2,991,433



91

%


76,090

















Consumer loans


4,522





5,790



300,803



311,115



9

%


7,486


Total loans


$

4,522



$



$

69,539



$

3,228,487



$

3,302,548



100

%


$

83,576


 

FUNDING LIABILITIES (unaudited)

(dollars in thousands)


The following table presents the distribution of the Company's average deposit account balances for the periods indicated:























For the Three Months Ended


June 30, 2013


March 31, 2013


June 30, 2012


Average Balance


Percent of Deposits


Average Balance


Percent of Deposits


Average Balance


Percent of Deposits

Noninterest-bearing deposits

$

1,195,709



32.4

%


$

1,333,958



35.5

%


$

892,945



28.3

%













Interest-bearing deposits:












Commercial interest checking

159,627



4.3










NOW accounts

674,375



18.3



717,410



19.1



371,188



11.8


Savings deposits

40,920



1.1



40,255



1.1



39,603



1.2


Money market accounts

768,425



20.8



746,542



19.9



702,775



22.3


Brokered money market deposits





11,942



0.3



18,386



0.6


Certificates of deposit

550,454



14.9



550,430



14.6



596,784



18.9


Brokered certificates of deposit

162,299



4.4



181,740



4.8



325,952



10.3


CDARS time deposits

127,802



3.5



162,662



4.3



174,613



5.6


Public time deposits

10,635



0.3



13,791



0.4



31,094



1.0


Total interest-bearing deposits

2,494,537



67.6



2,424,772



64.5



2,260,395



71.7


Total deposits

$

3,690,246



100.0

%


$

3,758,730



100.0

%


$

3,153,340



100.0

%













 

The following table sets forth the period end balances of total deposits as of each of the dates indicated below.
















June 30, 2013


March 31, 2013


December 31, 2012

Noninterest-bearing deposits


$

1,138,839



$

1,326,483



$

1,179,724










Interest-bearing deposits:








Commercial interest checking


336,903






NOW accounts


537,103



819,101



573,133


Savings accounts


41,576



40,646



39,915


Money market accounts


771,382



741,818



744,791


Brokered money market deposits






27,840


Certificates of deposit


557,656



548,767



561,998


Brokered certificates of deposit


160,408



171,320



199,604


CDARS time deposits


132,552



135,630



186,187


Public time deposits


16,007



10,629



15,150


Total interest-bearing deposits


2,553,587



2,467,911



2,348,618


Total deposits


$

3,692,426



$

3,794,394



$

3,528,342


 

RECONCILIATION OF U.S. GAAP FINANCIAL MEASURES (unaudited)

(dollars in thousands)


The following, as of the dates indicated, reconciles the income before income taxes to pre-tax, pre-provision operating earnings.

























For the Three Months Ended



June 30, 2013


March 31, 2013


Dec. 31,

2012


Sept. 30,

2012


June 30,

2012



Income before income taxes


$

26,212



$

28,347



$

35,988



$

27,647



$

24,181



Add back (subtract):












Credit costs:












Provision for loan losses


700



300



1,200



900



100



Nonperforming asset expense


(1,198)



559



2,816



613



828



Credit costs subtotal


(498)



859



4,016



1,513



928



Other:












Gain on sales of investment securities


(6)



(1)



(1,488)





(3,020)



Early extinguishment of debt


5,380





63



3,670



2,987



Other subtotal


5,374



(1)



(1,425)



3,670



(33)



Pre-tax, pre-provision operating earnings


$

31,088



$

29,205



$

38,579



$

32,830



$

25,076



 

The following, as of the dates indicated, details the components of revenue.

























For the Three Months Ended



June 30, 2013


March 31,

2013


Dec. 31,

2012


Sept. 30, 2012


June 30, 2012


Net interest income


$

41,082



$

40,683



$

40,510



$

37,196



$

36,378



Noninterest income


46,101



39,719



51,962



47,250



31,889



Add back (subtract):












Gain on sales of investment securities


(6)



(1)



(1,488)





(3,020)



Revenue


$

87,177



$

80,401



$

90,984



$

84,446



$

65,247



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, 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 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.



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http://www.taylorcapitalgroup.com

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