Taylor Capital Group reports income before income taxes of $15.8 million for the first quarter of 2012

CHICAGO, April 19, 2012 /PRNewswire/ -- Taylor Capital Group, Inc. (the "Company") (NASDAQ: TAYC), the parent company of Cole Taylor Bank (the "Bank"), today reported results for the first quarter of 2012.

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Net income for the first quarter of 2012 was $9.5 million, compared to $82.3 million for the fourth quarter of 2011.  Income before income taxes was $15.8 million for the first quarter of 2012, compared to $9.0 million for the fourth quarter of 2011. Net income applicable to common stockholders was $7.7 million, or $0.26 per diluted share, for the first quarter of 2012 as compared to $70.1 million, or $3.20 per diluted share, for the fourth quarter of 2011. Net income for the fourth quarter of 2011 included a $73.2 million reversal of the valuation allowance on the Company's net deferred tax asset.

"I am pleased to report net income at the Bank for the fifth consecutive quarter and a record quarter for pre-tax, pre-provision operating earnings," said Mark A. Hoppe, President and Chief Executive Officer of the Company. "These results demonstrate the strength of our core businesses and the positive effect of our efforts to diversify our earnings stream. In the first quarter, we continued to see impressive growth in our national business lines and continued improvement in credit quality. In particular the performance of our mortgage division has been outstanding as we continue to build a sustainable business model that is not hindered by historical mortgage concerns. The mortgage business is gaining market share and is experiencing improving margins on mortgage sales in the secondary market. In the first quarter, mortgage banking revenue nearly doubled as compared to the fourth quarter of 2011. Our asset based lending portfolio has also shown strong and consistent quarter over quarter growth since the Bank started the division. In the first quarter, the division's loans outstanding grew by $42 million, or 9%, and since March 31, 2011, loans outstanding have grown by $130 million, or 33%."

Hoppe continued, "We have been, and continue to be, highly focused on improving credit quality, and the Bank's credit quality metrics are the best they've been since the end of 2007. Both the provision for loan losses and nonperforming loans continued to decline in the first quarter. Overall, I am extremely proud of what the Bank has accomplished. Despite the continued slow economic recovery and a highly competitive market, I am optimistic about our ability to meet these challenges and profit from the opportunities that lie ahead."

FIRST QUARTER 2012 HIGHLIGHTS

Posted record setting pre-tax, pre-provision operating earnings(1) of $24.0 million in the first quarter of 2012, up from $21.8 million for the fourth quarter of 2011

• Fifth consecutive quarter of net income at the Bank and third consecutive quarter for the Company
• Revenue(2) was $58.9 million for the first quarter of 2012, up from $52.0 million for the fourth quarter of 2011
• Net interest margin grew by four basis points to 3.29% for the first quarter of 2012 up from 3.25% for the fourth quarter of 2011
• Mortgage banking revenue grew to $17.5 million, up 93.6% over the fourth quarter of 2011
• Loan fundings in the Bank's mortgage division, Cole Taylor Mortgage, totaled $894.9 million in the first quarter of 2012, up from $782.1 million in the fourth quarter of 2011, an increase of 14.4%
• Cole Taylor Mortgage grew its mortgage servicing book to $2.4 billion in the first quarter of 2012, compared to $1.0 billion in the fourth quarter of 2011
• Average in-market deposits (excluding time deposits) grew by $100.6 million in the first quarter of 2012, compared to the fourth quarter of 2011
• Average commercial deposits (excluding time deposits) grew by approximately $185 million in the first quarter of 2012 as compared to the first quarter 2011
• As a result of the Company's strong performance, capital ratios increased to: 9.08% leverage ratio, 11.95% Tier 1 risk based capital ratio, 15.46% Total risk based capital ratio

Credit quality indicators continued to improve, including a 9.3% reduction in nonperforming loans

• Provision for loan losses was $7.4 million for the first quarter of 2012, down from $11.0 million for the fourth quarter of 2011
• Nonperforming loans were $93.5 million and 3.00% of total loans at March 31, 2012, down from $103.1 million and 3.31% of total loans at December 31, 2011 and down from $168.2 million and 5.93% of total loans at March 31, 2011
• At March 31, 2012, commercial criticized and classified loans(3) totaled $161.0 million, down from $182.6 million at December 31, 2011 and down from $277.9 million at March 31, 2011 
• The allowance for loan losses as a percent of nonperforming loans was 100.01% at March 31, 2012, compared to 100.66% at December 31, 2011

FIRST QUARTER 2012 PERFORMANCE OVERVIEW

Results of Operations

Net income for the first quarter of 2012 was $9.5 million, compared to net income of $82.3 million for the fourth quarter of 2011.  Net income applicable to common stockholders was $7.7 million, or $0.26 per diluted share, for the first quarter of 2012 as compared to net income applicable to common stockholders of $70.1 million, or $3.20 per diluted share, for the fourth quarter of 2011. The fourth quarter of 2011 included a one-time income tax benefit that resulted from the reversal of the $73.2 million valuation allowance on the Company's net deferred tax asset. As the Company returned to profitability in 2011, improved asset quality significantly and bolstered its capital ratios, management concluded these assets are likely to be recovered and thus maintaining a valuation allowance for deferred tax assets was no longer necessary.

Income before income taxes was $15.8 million for the first quarter of 2012, compared to income before income taxes of $9.0 million in the fourth quarter of 2011, an increase of 75.6%. The improvement from the fourth quarter of 2011 to the first quarter of 2012 was primarily led by strong mortgage banking revenue, higher net interest income and steady improvements in credit quality. The first quarter of 2012 included $1.0 million of gains on the sale of investment securities offset by $1.0 million in expenses for the early extinguishment of debt. The early extinguishment of debt was completed to lower funding costs.

Pre-tax, Pre-provision Operating Earnings

Pre-tax, pre-provision operating earnings totaled $24.0 million for the first quarter of 2012, compared to $21.8 million for the fourth quarter of 2011. The increase from the fourth quarter of 2011 to the first quarter of 2012 was primarily due to strong mortgage banking revenue and steady improvements in credit quality partially offset by an increase in incentive compensation expense and other employee related costs.

Revenue

Revenue was $58.9 million for the first quarter of 2012, compared to $52.0 million in the fourth quarter of 2011, a 13.3% increase. 

Net interest income was $35.8 million for the first quarter of 2012, compared to $35.3 million for the fourth quarter of 2011.  The net interest margin was up 4 basis points, from 3.25% for the fourth quarter of 2011 to 3.29% for the first quarter of 2012.  The increase in both net interest income and the net interest margin was due to the Company's lower funding costs. The lower funding costs were primarily a result of higher priced certificates of deposit and brokered certificates of deposit maturing. A portion of these deposits was successfully transferred into money market and other lower rate core deposit accounts.

Noninterest income was $23.1 million for the first quarter of 2012, compared to $16.7 million for the fourth quarter of 2011, excluding gains or losses on investment securities and an impairment loss on investment securities.  The increase was primarily due to an $8.4 million increase in mortgage banking revenue partially offset by $2.8 million of lower derivative income from customer swap agreements.

The increase in mortgage banking revenue, from $9.1 million in the fourth quarter of 2011 to $17.5 million in the first quarter of 2012 was primarily a result of improvement in margins on mortgage originations and sales in the secondary market and a 14.4% growth in loan fundings in the first quarter. Loan fundings were $894.9 million in the first quarter of 2012, up from $782.1 million in the fourth quarter of 2011.

Noninterest Expense

Noninterest expense was $34.9 million for the first quarter of 2012, compared to $30.2 million for the fourth quarter of 2011, excluding nonperforming asset expense and early extinguishment of debt expense. The increase was primarily the result of incentive compensation expense and other employee related costs.

Credit Quality

Loan Portfolio Performance and Credit Quality

Credit quality continued its steady pace of improvement in the first quarter. Total commercial criticized and classified loans declined $21.6 million to $161.0 million at March 31, 2012, compared to $182.6 million at December 31, 2011. Nonperforming loans decreased to $93.5 million at March 31, 2012, compared to $103.1 million at December 31, 2011. These results were indicative of the continued focus on strengthening the balance sheet, 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.

The total decline of $9.6 million in nonperforming loans largely consisted of $21.8 million reduction in commercial and industrial nonaccrual loans and $5.0 million reduction in commercial real estate nonaccrual loans offset by an increase of $20.8 million in commercial construction nonaccrual loans largely related to one borrower. This loan had previously been identified as a commercial criticized and classified loan. Other real estate owned ("OREO") and repossessed assets increased to $36.9 million at March 31, 2012, compared to $35.6 million at December 31, 2011.  Despite active resolution of nonperforming assets, the balance of OREO increased slightly as of March 31, 2012.

Nonperforming assets were $130.4 million at March 31, 2012, compared to $138.7 million at December 31, 2011.  Nonperforming assets to total assets were 2.78% at March 31, 2012, compared to 2.96% at December 31, 2011. 

Allowance and Provision for Loan Losses

The allowance for loan losses was $93.5 million at March 31, 2012, down from $103.7 million at December 31, 2011, as credit quality trends continued to improve evidenced by declines in nonperforming loans and 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 first quarter of 2012 by $10.2 million. The allowance for loan losses as a percent of nonperforming loans was 100.01% at March 31, 2012, compared to 100.66% at December 31, 2011.

The provision for loan losses was $7.4 million for the first quarter of 2012, down from $11.0 million for the fourth quarter of 2011.

Credit Quality Performance Summary 

Balance Sheet

Assets

Total assets at March 31, 2012 were $4.70 billion, compared to $4.69 billion at December 31, 2011.

Investment securities were $1.30 billion at March 31, 2012, compared to $1.28 billion at December 31, 2011.  Loans held for sale were $210.0 million at March 31, 2012, compared to $186.0 million at December 31, 2011.  The increase resulted from higher mortgage loan originations in the first quarter of 2012.

Loans, net of allowance for loan losses, at March 31, 2012 were $2.81 billion, compared to $2.82 billion at December 31, 2011. Cole Taylor Mortgage and Cole Taylor Business Capital, the Company's asset based lending division, showed strong loan growth, which was offset by pay downs and charge-offs in commercial real estate and commercial and industrial loans. Cole Taylor Business Capital had strong loan growth of $42.2 million in the first quarter of 2012, compared to December 31, 2011. Consumer-oriented loans were $343.9 million at March 31, 2012, up from $300.3 million at December 31, 2011. This increase was primarily the result of certain mortgages originated by Cole Taylor Mortgage being held in the loan portfolio rather than sold in the secondary market.

Liabilities and Stockholders' Equity

Total liabilities at March 31, 2012 were $4.28 billion, substantially unchanged from December 31, 2011.

Total deposits were $2.99 billion at March 31, 2012, compared to $3.12 billion at December 31, 2011. The decrease primarily resulted from a decrease in certificates of deposit and time deposits. A portion of these deposits was successfully transferred into money market and other lower rate core deposit accounts.

Average deposits for the first quarter of 2012 decreased by $63.5 million, primarily due to a decrease in certificates of deposit and time deposits. Average in-market deposits excluding time deposits grew by $100.6 million or 5.9% from the fourth quarter of 2012.

Total stockholders' equity increased from $409.5 million at December 31, 2011 to $416.8 million at March 31, 2012. The increase represented net income available to common stockholders in the first quarter of 2012.

Capital

At March 31, 2012, the Company's Tier I Risk Based Capital ratio was 11.95%, while its Total Risk Based Capital ratio was 15.46% and its Tier I Capital to Average Assets leverage ratio was 9.08%. 

All the Company's ratios exceed the regulatory requirements for well-capitalized banks 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.

On March 26, 2012, the Company and Prairie Capital IV, L.P. and Prairie Capital IV QP, L.P. (together, the "Prairie Funds") entered into an Exchange Agreement to simplify the Company's capital structure through the consolidation of all outstanding shares of two series of the Company's preferred stock into a single newly-created series of preferred stock with substantially identical terms. Pursuant to the Exchange Agreement, the Company agreed to issue to each of the Prairie Funds, and each of the Prairie Funds agreed to acquire from the Company, one share of the Company's newly-created Nonvoting Convertible Preferred Stock (the "Nonvoting Preferred") in exchange for each share of the Company's Nonvoting Convertible Preferred Stock, Series D (the "Series D Preferred"), and Non-Voting Convertible Preferred Stock, Series G (the "Series G Preferred"), held by the Prairie Funds. The Series D Preferred, Series G Preferred and Nonvoting Preferred are each nonvoting common stock equivalents having substantially identical terms as one another.

Conference Call and Slide Presentation

A conference call hosted by Taylor Capital Group President & CEO Mark A. Hoppe will be held on Thursday, April 19, 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 7607716. 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), 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 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 $4.7 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 and Cole Taylor Mortgage, the Bank also provides asset based lending and residential mortgage loan 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) 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.

(2) Defined as net interest income plus noninterest income less gain or loss on investment securities

(3) 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.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report 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.
• Our participation in the TARP Capital Purchase Program may place significant restrictions on our operations.
• 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. 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 following table provides details of the Company's commercial real estate portfolio:

(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 following table sets forth the period end balances of total deposits as of each of the dates indicated below, as well as categorizes the Company's deposits as "in-market" and "out-of-market" deposits:

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