Taylor Capital Group Reports Net Income of $388,000 for the First Quarter of 2011

CHICAGO, April 28, 2011 /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 2011.

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Net income for the first quarter of 2011 was $388,000, compared to a net loss of $45.6 million for the fourth quarter of 2010.  Net loss applicable to common stockholders was $2.1 million, or $0.12 per diluted share, for the first quarter of 2011, compared to net loss applicable to common stockholders of $48.1 million, or $2.76 per diluted share, for the fourth quarter of 2010.

"We are pleased to report net income for the quarter, largely due to a significant reduction in the provision for loan losses and lower nonperforming asset expense," said Mark A. Hoppe, President and Chief Executive Officer of Taylor Capital Group.  "A key indicator of our improving asset quality is the level of commercial criticized and classified loans, which were down from December 31, 2010 by approximately $26 million to $278 million at March 31, 2011.  Moreover, commercial criticized and classified loans are down approximately $175 million from their peak at June 30, 2009, and at their lowest level since December 31, 2007.  We are encouraged by this trend, despite the slight increase in nonperforming loans this quarter.  Although slow economic growth in the Chicago area may continue to have an unpredictable impact on asset quality, we are pleased with the improvements this quarter."  

Hoppe continued, "Our pre-tax, pre-provision earnings from core operations were down as mortgage revenue dropped in the face of rising interest rates, compounded by uncertainty surrounding future broker and mortgage loan officer compensation due to regulatory changes brought on by Dodd-Frank.  We continue to invest in Cole Taylor Mortgage as we build a complete national platform and achieve appropriate scale. This unit diversifies our revenue streams and complements our other lines of business. In our commercial banking and asset based lending businesses, loan originations have slowed as we continue to focus on pricing discipline and solid underwriting, and on shifting our loan mix further toward middle-market commercial loans."

FIRST QUARTER 2011 HIGHLIGHTS

Significant reductions in provision and commercial criticized and classified loans, despite slight increase in nonperforming loans

• Provision for loan losses was $10.2 million for the first quarter of 2011, down from $59.9 million for the fourth quarter of 2010.  
• At March 31, 2011, commercial criticized and classified loans(1) totaled $277.9 million, down from $303.9 million at December 31, 2010.  
• Nonperforming loans were $168.2 million and 5.93% of total loans at March 31, 2011, up from $159.7 million and 5.16% of total loans at December 31, 2010.
• At March 31, 2011, the allowance for loan losses was $115.0 million, compared to $124.6 million at December 31, 2010.
• The allowance for loan losses as a percent of nonperforming loans was 68.35% at March 31, 2011, compared to 77.98% at December 31, 2010.

Pre-tax, pre-provision earnings from core operations down due to lower mortgage results and reduced net interest income

• Pre-tax, pre-provision earnings from core operations(2) totaled $13.8 million for the first quarter of 2011, down from $16.9 million for the fourth quarter of 2010.  
• Revenue(3) was $39.1 million for the first quarter of 2011, down from $44.6 million for the fourth quarter of 2010.
• Net interest margin decreased five basis points to 3.07% for the first quarter of 2011 from 3.12% for the fourth quarter of 2010.

Company completed its previously disclosed $25 million capital raise

• At March 31, 2011, the Company's Total Risk Based Capital ratio was 14.24%, up from 12.98% at December 31, 2010, and at its highest level since the Company went public in 2002.

FIRST QUARTER 2011 PERFORMANCE OVERVIEW

Results of Operations

Net Income and Net Income Applicable to Common Stockholders

Net income for the first quarter of 2011 was $388,000, compared to a net loss of $45.6 million for the fourth quarter of 2010.  Net loss applicable to common stockholders was $2.1 million, or $0.12 per diluted share, for the first quarter of 2011 as compared to a net loss applicable to common stockholders of $48.1 million, or $2.76 per diluted share, for the fourth quarter of 2010.

Income before income taxes was $282,000 for the first quarter of 2011, compared to a loss before income taxes of $45.3 million in the fourth quarter of 2010.  The improvement from the fourth quarter of 2010 to the first quarter of 2011 was primarily due to a $55.7 million decrease in credit costs (provision for loan losses plus nonperforming asset expense), partially offset by a $7.0 million decrease in gains on the sales of investment securities and a $3.1 million decrease in pre-tax, pre-provision earnings from core operations.

Pre-tax, Pre-provision Earnings from Core Operations

Pre-tax, pre-provision earnings from core operations totaled $13.8 million for the first quarter of 2011, compared to $16.9 million for the fourth quarter of 2010.  The decrease from the fourth quarter of 2010 to the first quarter of 2011 was due to lower mortgage origination revenue and net interest income, offset by a reduction in salaries and benefits.

Cole Taylor Mortgage's loan fundings were down in the first quarter of 2011 to $257.8 million from $493.5 million in the fourth quarter of 2010 as the rising interest rate environment slowed refinance activity even further over last quarter.  In the face of lower volumes and tighter margins, this unit posted a decrease in mortgage origination revenue from $5.8 million in the fourth quarter of 2010 to $1.5 million in the first quarter of 2011.

Cole Taylor Commercial Banking and Cole Taylor Business Capital, the Bank's asset based lending group, both had modest results for the first quarter of 2011.  Results from these business units were impacted in the first quarter of 2011 as slow economic expansion in Chicago challenged loan growth compared to the fourth quarter of 2010, compounded by the Company's focus on resisting downward competitive pricing pressure and maintaining high credit standards.  Total commercial and industrial loans, including commercial owner-occupied real estate loans, were essentially flat from December 31, 2010 to March 31, 2011.  

Revenue

Revenue was $39.1 million for the first quarter of 2011, compared to $44.6 million in the fourth quarter of 2010.  The decrease was due to reductions in net interest income and mortgage origination revenue.

Net interest income was $32.2 million for the first quarter of 2011, compared to $33.6 million for the fourth quarter of 2010.  The net interest margin was down five basis points, from 3.12% for the fourth quarter of 2010 to 3.07% for the first quarter of 2011.  The reductions in both net interest income and the net interest margin were due to lower average total loan balances, including average loans held for sale which are mortgage originations pending sale, as well as increased nonaccrual loans and related interest reversals in the first quarter of 2011.  The lower average total loan balances resulted in lower short-term funding needs, which helped drive an eight basis point decrease in yield on interest bearing liabilities.  However, this reduction in funding costs was not enough to offset the decrease in yield on interest earning assets.

Noninterest income for the first quarter of 2011 was $6.9 million, compared to $18.0 million for the fourth quarter of 2010.  The decrease was due to a reduction of $7.0 million in gains from the sales of investment securities, as well as a $4.3 million decrease in mortgage origination revenue.

Noninterest Expense

Noninterest expense was $28.6 million for the first quarter of 2011, compared to $37.0 million for the fourth quarter of 2010. The decrease was primarily due to a reduction in nonperforming asset expense of $6.0 million as a result of lower write-downs on other real estate and repossessed assets in the first quarter of 2011.  In addition, salaries and employee benefits decreased $1.7 million due to a reduction in sales commissions and other incentives in the first quarter of 2011 compared to the fourth quarter of 2010, largely due to lower mortgage originations.

Credit Quality

Loan Portfolio Performance and Credit Quality

Credit quality showed signs of improvement.  The watch list of commercial criticized and classified loans decreased $26.0 million, and there were significant reductions in the provision for loan losses and nonperforming asset expense from the first quarter of 2011 as compared to the fourth quarter of 2010.  These results indicated continued progress as challenged credits moved though the remediation process to resolution, while at the same time the migration of new credits to criticized and classified status slowed.  

Despite this progress, nonaccrual loans increased to $168.2 million at March 31, 2011, compared to $159.7 million at December 31, 2010.  This increase was due to higher commercial real estate secured nonaccrual loans at March 31, 2011 as compared to December 31, 2010.  The increase of $33.9 million was largely comprised of loans to three clients already on the watch list of criticized and classified loans. Partially offsetting this increase was a decrease of $13.9 million in commercial and industrial nonaccrual loans, as well as reductions in residential construction and land nonaccrual loans and commercial construction and land nonaccrual loans.

The portfolio of loans to banks and bank holding companies declined from $92.9 million at December 31, 2010 to $86.0 million at March 31, 2011, as a result of charge-offs and pay downs.  There were no migrations to nonaccrual status in this portfolio during the first quarter of 2011.

Other real estate and repossessed assets increased to $38.2 million at March 31, 2011, compared to $31.5 million at December 31, 2010.  The increase was largely the result of additions to other real estate and repossessed assets as the foreclosure process was completed for several properties.  

Nonperforming assets were $206.4 million at March 31, 2011, compared to $191.2 million at December 31, 2010.  Nonperforming assets to total assets were 4.81% at March 31, 2011, compared to 4.26% at December 31, 2010.  

Loans contractually past due 30 through 89 days and still accruing were $28.3 million at March 31, 2011, compared to $11.9 million at December 31, 2010.  The increase was largely the result of three commercial and real estate related loans that were less than 60 days past due at March 31, 2011.

Commercial criticized and classified loans were $277.9 million at March 31, 2011, compared to $303.9 million at December 31, 2010.  This decrease was largely the result of charge-offs, pay downs, and transfers to other real estate owned during the first quarter of 2011, partially offset by new loans being placed on criticized and classified status. Commercial criticized and classified loans were down approximately $175 million from their peak of $453.1 million at June 30, 2009, and were at their lowest levels since December 31, 2007 when commercial criticized and classified loans were $247.8 million.  

Provision and Allowance for Loan Losses

The provision for loan losses was $10.2 million for the first quarter of 2011, down significantly from $59.9 million for the fourth quarter of 2010 due to lower reserve requirements.  A substantial part of the higher provision for loan losses taken in the fourth quarter of 2010 was due to deterioration in the portfolio of loans to banks and bank holding companies.  

The allowance for loan losses was $115.0 million at March 31, 2011, compared to $124.6 million at December 31, 2010.  The allowance for loan losses as a percent of nonperforming loans was 68.35% at March 31, 2011, compared to 77.98% at December 31, 2010.

Credit Quality Performance Summary  

Balance Sheet

Assets

Total assets at March 31, 2011 were $4.29 billion, compared to $4.48 billion at December 31, 2010.

Investment securities were $1.31 billion at March 31, 2011, compared to $1.25 billion at December 31, 2010.  Loans held for sale were $52.9 million at March 31, 2011, compared to $259.0 million at December 31, 2010.  The decrease resulted from significantly lower origination activity at Cole Taylor Mortgage in the first quarter of 2011.

Loans, net of allowance for loan losses, at March 31, 2011 were $2.67 billion, compared to $2.71 billion at December 31, 2010. Loan growth slowed in the first quarter of 2011, which contributed to a reduction in total loan balances, as did resolutions of nonperforming loans from pay downs and charge-offs.

Liabilities and Stockholders' Equity

Total liabilities at March 31, 2011 were $4.06 billion, compared to $4.28 billion at December 31, 2010.  

Total deposits were $3.08 billion at March 31, 2011, compared to $3.03 billion at December 31, 2010. The largest increases in deposits were in-market money market accounts and CDARS time deposits, as well as out-of-market certificates of deposit.  Offsetting the increase in total deposits was a $245.0 million decrease in notes payable and other advances due to a decrease in Federal Home Loan Bank advances resulting from lower short-term funding needs.

Total stockholders' equity increased from $208.8 million at December 31, 2010 to $229.0 million at March 31, 2011, largely due to the completion of the previously disclosed $25 million capital raise, which was partially offset by the net loss applicable to common stockholders in the first quarter of 2011.

Capital

At March 31, 2011, the Company's Tier I Risk Based Capital ratio was 10.26%, while its Total Risk Based Capital ratio was 14.24% and its Tier I Capital to Average Assets leverage ratio was 7.72%.  

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.

Conference Call and Slide Presentation

The Company will host a webcast and conference call on Thursday, April 28, 2011, at 11:00 am Central Time (12:00 pm Eastern Time) to discuss the first quarter of 2011 results and other matters.  To access the call, please dial 1-866-788-0547, and enter the passcode 84217500.  To access streaming audio, please go to www.taylorcapitalgroup.com.  

The Company will also provide a slide presentation, which management will speak to during the discussion.  A copy of the presentation will be available for download prior to the start of the call at www.taylorcapitalgroup.com. The presentation will not be webcast live. If you have any trouble obtaining a copy of the presentation, please call Investor Relations at (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 Period-End Financial Data
• Composition of Loan Portfolio
• Credit Quality
• Loan Portfolio and Held for Sale Aging
• Funding Liabilities
• Reconciliation of U.S. GAAP Financial Measures

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

Taylor Capital Group, Inc. is a $4.3 billion bank holding company for Cole Taylor Bank, a Chicago-based commercial bank specializing in serving the banking needs of closely held businesses and the people who own and manage them. Cole Taylor is a member of the FDIC and an Equal Housing Lender.

Endnotes:

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

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

(3) Defined as net interest income plus noninterest income less gains on the sales of investment securities.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

SOURCE Taylor Capital Group, Inc.