Taylor Capital Group Reports $33.4 Million Net Income for Third Quarter 2010

CHICAGO, Oct. 21 /PRNewswire-FirstCall/ -- Taylor Capital Group, Inc. (the "Company") (Nasdaq: TAYC), the parent company of Cole Taylor Bank (the "Bank"), today reported encouraging results for the third quarter of 2010.  

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Net income for the third quarter of 2010 was $33.4 million, compared to a net loss of $30.9 million for the second quarter of 2010.  Net income applicable to common stockholders was $30.7 million, or $1.57 per diluted share, for the third quarter of 2010, compared to a net loss applicable to common stockholders of $48.3 million, or $3.35 per diluted share, for the second quarter of 2010.  Net income included $32.8 million in gains from the sale of investment securities in the third quarter of 2010.  It is important to note that income before income taxes excluding these securities gains was $931,000.

"We are pleased to report net income of $33.4 million in the third quarter of 2010," said Mark A. Hoppe, President and Chief Executive Officer of Taylor Capital Group and Cole Taylor Bank.  "These results show strong evidence of success in pursuing our two prong strategy of asset quality improvement and core business growth – what we are now referring to as our 'fix and grow' strategy.  Although gains from the sale of investment securities were the primary contributor to the bottom line, we also had positive earnings as a result of the performance of our key business lines."  

Hoppe continued, "Credit quality also improved this quarter, including realizing the full benefit of the bulk loan sale we announced last quarter.  We remain cautious in the face of a stagnant Chicago area real estate market and continue to closely manage credit quality.  However, we are heartened by some positive trends, including hearing more positive outlooks among some of our clients.  We ended the third quarter with strong pre-tax, pre-provision earnings from core operations, improved asset quality – including loan loss reserve coverage of nonperforming loans of almost 80% – and an improved capital position."

THIRD QUARTER 2010 HIGHLIGHTS

Pre-tax, pre-provision earnings from core operations(1) grew by 19.2% from the second quarter

• Pre-tax, pre-provision earnings from core operations totaled $20.6 million for the third quarter of 2010, up from $17.3 million for the second quarter of 2010, representing an increase of 19.2%.
• Total revenue (net interest income plus noninterest income less gains on investment securities) was $45.7 million in the third quarter of 2010, up from $40.7 million in the second quarter of 2010.  
• Net interest margin increased to 3.25% for the third quarter of 2010, up eight basis points from 3.17% for the second quarter of 2010 and the eighth consecutive quarterly improvement in net interest margin.

Credit quality improved despite lagging economic recovery in the Chicago market

• Nonperforming loans were $118.4 million and 3.90% of total loans at September 30, 2010, compared to $154.4 million and 5.08% of total loans at June 30, 2010.  This is a 23.3% reduction in nonperforming loans.
• Provision for loan losses for the third quarter of 2010 was $18.1 million, a decrease of 58.8% from the provision of $43.9 million for the second quarter of 2010.
• Allowance for loan losses was $94.1 million at September 30, 2010, down from $100.5 million at June 30, 2010.  Despite the reduction in the allowance, the ratio of allowance for loan losses to nonperforming loans increased to 79.5% at September 30, 2010, compared to 65.1% at June 30, 2010.
• At September 30, 2010, total commercial criticized and classified loans(2) totaled $322.3 million, compared to $381.1 million at June 30, 2010.  

Company received regulatory approval for remaining $9.1 million capital investment

• During the second quarter of 2010, the Company raised $75 million of new capital, $9.1 million of which was held in escrow pending regulatory approval.  The Company obtained regulatory approval in October of 2010 and expects to complete that remaining portion of its second quarter capital raise transaction shortly.

THIRD QUARTER 2010 PERFORMANCE OVERVIEW

Results of Operations

Net Income and Net Income Applicable to Common Stockholders

Net income for the third quarter of 2010 was $33.4 million, compared to a net loss of $30.9 million for second quarter of 2010.  Net income applicable to common stockholders was $30.7 million, or $1.57 per diluted share, for the third quarter of 2010 compared to a net loss applicable to common stockholders of $48.3 million, or $3.35 per diluted share, for the second quarter of 2010.

The main drivers of the change in net income from second quarter 2010 to third quarter 2010 were improvement in pre-tax, pre-provision earnings from core operations, reduction in credit costs (provision plus nonperforming asset expense), and gains on the sale of investment securities.  Pre-tax net income excluding gains on the sale of investment securities was $931,000.

Pre-tax, Pre-Provision Earnings from Core Operations

Pre-tax, pre-provision earnings from core operations totaled $20.6 million for the third quarter of 2010, as compared to $17.3 million for the second quarter of 2010.  This continued positive trend reflects improved business fundamentals and a diversified revenue stream.  The three key lines of business of Cole Taylor Bank that form the foundation of its growth strategy – Commercial Banking, Cole Taylor Business Capital (the asset based lending unit of the Bank), and Cole Taylor Mortgage – all experienced additional growth in the third quarter of 2010.

In the third quarter of 2010, the most significant contribution to the increase in earnings from core operations was from mortgage origination revenue produced by Cole Taylor Mortgage.  In only its third quarter of operations, Cole Taylor Mortgage generated $6.3 million in revenue from mortgage originations, a $4.4 million or 230% increase over the second quarter of 2010 revenue of $1.9 million.

Cole Taylor Mortgage originated $242.4 million of first mortgages in the third quarter of 2010, as compared to $76.4 million in the second quarter of 2010.  Cole Taylor Mortgage's success is partly attributable to its ability to take advantage of high volumes of mortgage refinancings in the current low rate environment.  Additionally, this unit continues to strategically grow its offices nationwide.  Currently, Cole Taylor Mortgage is qualified in 17 states, most recently adding Connecticut, Missouri and Wisconsin.  Cole Taylor Mortgage also opened two new retail mortgage offices during the third quarter of 2010 increasing the total branches offering mortgages to 16, including nine retail branches in the Chicago area.

The Bank's other derivative income also contributed to increased earnings from core operations, adding $1.2 million in revenue during the third quarter of 2010, largely the result of an increase in fees from interest rate exchange agreements as more of the Bank's commercial clients hedged against possible changes in interest rates.

Revenue

Revenue was $45.7 million for the third quarter of 2010, compared to $40.7 million for the second quarter of 2010.  

Net interest income declined slightly to $34.4 million for the third quarter of 2010, compared to $34.7 million for the second quarter of 2010.  The decrease in the total portfolio of investment securities negatively impacted net interest income, partially offset by increased volume of mortgage loans held for sale and lower cost deposits.

Noninterest income for the third quarter of 2010 totaled $44.1 million, up significantly from $6.2 million for the second quarter of 2010, mostly the result of $32.8 million in gains from the sale of investment securities.  These sales significantly reduced prepayment risk, and allowed the Company to capture unrealized gains on investment securities that had higher refinancing risk.  Increased noninterest income from the Bank's core businesses further bolstered total noninterest income, including increased mortgage origination revenue and other derivative income.  

Expenses

Noninterest expense declined to $26.6 million in the third quarter of 2010 from $27.5 million in the second quarter of 2010.  

Reductions in nonperforming asset expense were the primary reason noninterest expense declined. Nonperforming asset expense decreased from $4.1 million in the second quarter of 2010 to $1.5 million in the third quarter of 2010 due to higher nonperforming asset recoveries and lower write-downs on other real estate owned.  Partially offsetting this reduction was a $1.6 million increase in salaries and benefits as a result of additional headcount at Cole Taylor Mortgage.  

Credit Quality

Loan Portfolio Performance and Credit Quality

Credit quality improved in the third quarter of 2010 despite continued weakness in the Chicago real estate market.  Nonperforming loans have been trending down since the second quarter of 2009, though fluctuations may occur given the lagging economy.  The Company continues to pursue multiple strategies to reduce nonperforming assets, especially in the real estate portfolio, with a focus on pursuing the best economic outcome.

Nonperforming assets were $157.5 million at September 30, 2010, compared to $182.5 million at June 30, 2010.  Nonperforming assets to total assets decreased to 3.38% at September 30, 2010, from 3.98% at June 30, 2010.  

Nonaccrual loans totaled $118.4 million at September 30, 2010, as compared to $154.3 million at June 30, 2010.  Asset sales and charge-offs reduced nonaccrual residential construction and land loans by $33.5 million to $17.4 million at September 30, 2010.  Commercial real estate nonaccrual loans decreased $12.4 million to $46.4 million at September 30, 2010.  Partially offsetting these decreases was an increase of $10.0 million in commercial and industrial nonaccrual loans to $31.1 million at September 30, 2010, compared to $21.1 million at June 30, 2010.  

Other real estate and repossessed assets increased from $28.2 million at June 30, 2010 to $39.1 million at September 30, 2010 as a result of several completed foreclosures.

Loans contractually past due 30 through 89 days decreased to $22.1 million at September 30, 2010 from $35.9 million at June 30, 2010.  Commercial criticized and classified loans(3) also decreased to $322.3 million, down from $381.1 million at June 30, 2010.

Provision and Allowance for Loan Losses

The provision for loan losses declined significantly from $43.9 million for the second quarter of 2010 to $18.1 million for the third quarter of 2010.  This decrease resulted from reduced loan migrations to nonperforming status in the third quarter of 2010 as compared to the second quarter of 2010.  In addition, a significant portion of the second quarter 2010 provision was the result of a bulk loan sale.

The allowance for loan losses was $94.1 million at September 30, 2010, compared to $100.5 million at June 30, 2010.  The loan loss allowance represented 3.10% of total loans at September 30, 2010, down from 3.31% at June 30, 2010.  However, as a percent of nonperforming loans, the allowance for loan losses was 79.50% at September 30, 2010, up from 65.10% at June 30, 2010.

Credit Quality Performance Summary

Balance Sheet

Assets

Total assets at September 30, 2010 increased to $4.66 billion from $4.59 billion at June 30, 2010.  

Investment securities declined $257.8 million to $1.17 billion at September 30, 2010, from $1.43 billion at June 30, 2010.  This decrease was partially offset by an increase in other assets of $232.6 million at September 30, 2010, primarily the result of the timing of settlement on investment securities sold.

Loans held for sale increased from $78.4 million at June 30, 2010 to $134.5 million at September 30, 2010 as a result of increased origination activity in Cole Taylor Mortgage.

Total loans in the portfolio were $2.80 billion at September 30, 2010, down $54.4 million from $2.86 billion at June 30, 2010.  Loan growth from new and existing relationships continued to be offset by historically low levels of client line utilization and resolutions of nonperforming loans which includes pay downs and charge-offs.

Liabilities

Total liabilities at September 30, 2010 increased to $4.38 billion from $4.30 billion at June 30, 2010.

Total deposits were down slightly at $2.97 billion at September 30, 2010 from $3.04 billion at June 30, 2010.  Increases in noninterest bearing deposits, NOW accounts and public time deposits were more than offset by decreases in CDARS time deposits, customer certificates of deposits and money market accounts, as well as out-of-market deposits.  The ratio of in-market deposits to total deposits remained relatively unchanged at approximately 82%.

Reduced levels of other borrowings were offset by increases in accrued interest, taxes and other liabilities, as well as in notes payable and other advances.  Similar to the fluctuations in other assets, the $182.8 million increase in other liabilities was a result of settlement timing on the purchase of investment securities.

Capital

At September 30, 2010, the Company's Tier I Risk Based Capital ratio was 10.39%, while its Total Risk Based Capital ratio was 14.15% and its Tier I Capital to Average Assets leverage ratio was 8.04%.  

These ratios are all improved over their respective June 30, 2010 levels and exceed the regulatory requirements 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 for well-capitalized banks.

Conference Call and Slide Presentation

Taylor Capital Group will host a webcast and conference call on October 21, 2010, at 10:00 am (Central Time) to discuss third quarter 2010 results and other matters.  To access the call, please dial (800) 561-2731 and enter the passcode 67310484.  To access streaming audio, please go to www.taylorcapitalgroup.com.  

New for third quarter 2010, 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 (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 Aging
• Funding Liabilities
• Reconciliation of U.S. GAAP Financial Measures

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

Taylor Capital Group, Inc. is a $4.7 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.

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 2010 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 effect on our profitability if interest rates fluctuate as well as the effect of our customers' changing use of our deposit products; the possibility that our wholesale funding sources may prove insufficient to replace deposits at maturity and support our growth; 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; the 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 concentration of commercial real estate loans 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 management changes, employee turnover and our commercial banking growth initiative, including our expansion of our asset-based lending operations and our entry into new geographical markets; negative developments and disruptions in the credit and lending markets, including the impact of the ongoing credit crisis on our business and on the businesses of our customers as well as other banks and lending institutions with which we have commercial relationships; a continuation of the recent unprecedented volatility in the capital markets; the effectiveness of our hedging transactions and their impact on our future results of operations; 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; changes in general economic and capital market conditions, interest rates, our debt credit ratings, deposit flows, loan demand, including loan syndication opportunities and competition; changes in legislation or regulatory and accounting principles, policies or guidelines affecting our business; 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, 2009 Annual Report on Form 10-K filed with the SEC on March 29, 2010. 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.