Taylor Capital Reports Second Quarter Results

CHICAGO, July 29 /PRNewswire-FirstCall/ -- Taylor Capital Group, Inc. (the “Company”) (Nasdaq: TAYC), the parent company of Cole Taylor Bank, one of Chicago’s leading middle market commercial banks (the “Bank”), today reported results for the second quarter of 2010.  

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For the three months ended June 30, 2010, the Company posted a net loss of $30.9 million, compared to a net loss of $10.7 million for the first quarter of 2010. The net loss applicable to common stockholders for the second quarter of 2010 was $48.3 million, or $3.35 per diluted common share, compared to a net loss applicable to common stockholders of $13.6 million, or $1.30 per diluted share common share, for the first quarter of 2010.  The second quarter 2010 loss applicable to common shareholders included a one-time, non-cash charge of $15.8 million, or $1.09 per diluted share, representing an inducement to the holders of all of the Company’s Series A preferred stock who converted their Series A preferred shares into common stock as part of the recently completed exchange offer.  The inducement did not reduce total stockholders’ equity.  

The Company’s asset quality faced ongoing challenges in the second quarter of 2010 due to persistent weakness in the Chicago-area real estate market.  These challenges were the primary factor contributing to the Company’s provision and increased quarterly loss during the second quarter of 2010.   However, the Company did experience ongoing revenue and core operating earning growth which shows continued strength in core operations.  As part of its efforts to offset increased migration to nonaccrual loans, the Company successfully executed multiple asset disposition strategies during the second quarter of 2010.

Financial Highlights

• Pre-tax, pre-provision earnings from core operations totaled $17.3 million for the three months ended June 30, 2010, as compared to $14.2 million for the three months ended March 31, 2010, and $11.4 million for the three months ended June 30, 2009.
• In the second quarter of 2010, total revenue (net interest income plus noninterest income less securities gains or losses) was $40.7 million, up from $36.4 million in the first quarter of 2010.
• Net interest income for the second quarter of 2010 increased to $34.7 million, up from $33.5 million in the first quarter of 2010, marking the Company’s eighth consecutive quarterly increase in net interest income.
• The Company’s net interest margin for the second quarter of 2010 was 3.17%, up from 3.15% for the first quarter of 2010.
• Noninterest expense was $27.5 million for the three months ended June 30, 2010, up slightly from $27.2 million for the three months ended March 31, 2010.
• Asset quality remained challenged in the second quarter of 2010.
  • Nonaccrual loans totaled $154.3 million at June 30, 2010, as compared with $141.1 million at March 31, 2010.
  • Nonperforming assets were $182.5 million, or 3.98% of total assets, at June 30, 2010, as compared to $168.5 million, or 3.73% of total assets, at March 31, 2010.
  • The allowance for loan losses was $100.5 million, or 3.31% as a percent of total loans at June 30, 2010, as compared to $100.2 million or 3.33% at March 31, 2010.
  • These figures are not adjusted to account for a bulk loan sale that closed in early July, after which total nonaccrual and nonperforming assets would be reduced.
• The second quarter 2010 provision for loan losses rose to $43.9 million, up from $21.1 million for the first quarter of 2010.
• During the second quarter of 2010, as part of its overall capital plan, the Company raised $75 million in new regulatory capital through the private placement of non-cumulative, convertible preferred stock and subordinated debt.  Of the $75 million in new capital, $9.1 million remains in escrow pending regulatory approval and is not included in total regulatory capital.
• The Company’s capital ratios remain above all regulatory requirements for well-capitalized banks.

Mark A. Hoppe, President and Chief Executive Officer of Taylor Capital Group and Cole Taylor Bank, said, “We are encouraged by our sustained growth in revenue and core earnings.  We remain committed to promptly addressing the impact of the continued weakness in the Chicago-area real estate market on our loan portfolio.”

Hoppe continued, “Our efforts in the second quarter resulted in continued strong core earnings growth.  Revenue grew by 12% in the second quarter of 2010, with earnings from our core operations increasing $3 million from first quarter of 2010.  Primarily fueled by increased net interest income, revenue growth also came from our new residential mortgage origination group.  That group began doing business in January of 2010 and became profitable in the second quarter of 2010. We continue to see growth in new clients and new loans in both our core commercial banking group and in asset based lending.  Together, those groups brought in approximately 30 new clients and $180 million in new commitments in the second quarter.  Another significant accomplishment of the second quarter of 2010 was our successful raise of $75 million in new capital through the private placement of new non-cumulative, convertible preferred stock and subordinated debt.  This raise is a strong endorsement of our strategic plan.  Ultimately, while we are still facing a tough real estate market, we continue to make strong progress against our goals and are proud of the accomplishments of the second quarter.”

Pre-tax, Pre-Provision Earnings from Core Operations

The Company’s pre-tax, pre-provision earnings from core operations totaled $17.3 million for the three months ended June 30, 2010, as compared to $14.2 million for the three months ended March 31, 2010, and $11.4 million for the three months ended June 30, 2009.  The improved second quarter results were due to increased net interest income and noninterest income, along with essentially flat noninterest expense.  As compared to the second quarter of 2009, pre-tax, pre-provision earnings from core operations for the second quarter of 2010 rose as a result of increases in net interest income and noninterest income.  This was partially offset by higher operating expenses including costs for the new mortgage origination group, somewhat mitigated by reduced FDIC assessments. A schedule 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 is provided in the attached tables.

Revenue

For the three months ended June 30, 2010, the Company’s net interest income increased to $34.7 million, up from $33.5 million reported for the three months ended March 31, 2010.

For the second quarter of 2010, the net interest margin was 3.17%, increased from 3.15% in the first quarter of 2010.  A seven basis point decline in the Company’s yield on interest-earning assets was more than offset by a 14 point decline in the cost of funds, both due primarily to the effects of a lower interest rate environment.

Noninterest income for the second quarter of 2010 totaled $6.2 million, up from $4.4 million at March 31, 2010.  This increase was primarily the result of $1.6 million in additional revenue from the Bank’s new residential mortgage origination group. This increase was also the result of a $2.0 million reduction in losses on the disposition of bulk purchased mortgage loans that were not related to the Company’s new residential mortgage origination group.  Offsetting these favorable changes was a reduction of $1.3 million in gains on investment securities in the second quarter of 2010.  The Bank’s other sources of noninterest income, including service charges and other fee income, were relatively unchanged.

Expense

For the second quarter of 2010, noninterest expense totaled $27.5 million as compared to $27.2 million for the first quarter of 2010.  Excluding costs associated with the new mortgage origination unit, noninterest expense would have declined by approximately $500,000 between the first quarter of 2010 and the second quarter of 2010.  Reduced levels of nonperforming asset expense and FDIC assessments were partially offset by higher legal fees.  

Balance Sheet

At June 30, 2010, the Company’s assets increased to $4.6 billion from $4.5 billion at March 31, 2010.  

Investment securities remained flat at $1.4 billion between June 30, 2010 and March 31, 2010.

Total loans in the portfolio were $2.9 billion as of June 30, 2010, and March 31, 2010. Loan growth from new and existing clients was offset by historically low levels of client line utilization and charge-offs.

At June 30, 2010, the Company’s total deposits remained at $3.0 billion, unchanged from March 31, 2010.  Decreases in noninterest bearing deposits and out-of-market deposits were offset by growth in NOW and money market accounts. This shift in the deposit mix resulted in a 4.7% increase for in-market deposits from March 31, 2010 to June 30, 2010.

Reduced levels of other borrowings and notes payable and other advances were partially offset by an increase in subordinated debt as a result of the Company’s capital raise during the second quarter of 2010.

Credit Quality

For the second quarter of 2010, the Company’s provision for loan losses was $43.9 million, up sharply from the $21.1 million recorded in the first quarter.  The primary reason for the increase in provision was to cover the losses incurred on significant sales of real estate related nonaccrual loans.  All of these sales closed during the second quarter of 2010, except for one that was completed on July 15, 2010.  

Nonaccrual loans totaled $154.3 million as of June 30, 2010, an increase of $13.2 million from March 31, 2010.  New nonaccrual loans during the second quarter included a $25 million well secured single commercial real estate relationship.

The sale of loans on July 15, 2010 reduced total nonaccrual loans to $136.1 million, approximately $5 million lower than the balance at March 31, 2010.  The reduction in nonaccrual loans resulting from this sale was primarily in residential construction and land loans as well as loans secured by commercial real estate.

At June 30, 2010, other real estate owned totaled $28.2 million, up slightly from $27.4 million at March 31, 2010.  Loans contractually past due 30 through 89 days increased to $35.9 million at June 30, 2010, up from $13.2 million at March 31, 2010, as a result of one large commercial credit that was past due at June 30, 2010.

The allowance for loan losses was $100.5 million at June 30, 2010, compared to $100.2 million at March 31, 2010.  The loan loss allowance represented 3.31% of total loans at June 30, 2010, down slightly from 3.33% at March 31, 2010.  As a percent of nonperforming loans, the allowance was 65.10% at June 30, 2010, down from 70.93% at March 31, 2010.  After including the impact of the July 15, 2010 sale of loans, the ratio of the allowance for loan loss to nonperforming loans increases to 73.8%.    

Capital

During the second quarter of 2010, the Company completed two transactions intended to further strengthen its capital position.  First, it raised $75 million of new regulatory capital, which includes $9.1 million held in escrow pending regulatory approval.  This capital included a private placement of non-cumulative, convertible preferred stock (Series C) and subordinated debt.  The Company infused $25 million of the new capital into the Bank to better align its capital position to its peers and to support future growth.  Second, it retired its Series A preferred shares, converting all $60 million to 7.2 million shares of common stock.

At June 30, 2010, the Company’s Tier I Risk Based Capital ratio was 9.34%, while its Total Risk Based Capital ratio was 13.20% and its Tier I Capital to Average Assets leverage ratio was 6.98%.  These ratios exceed all regulatory requirements for well-capitalized banks, which are 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.

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

Taylor Capital Group, Inc. is a $4.6 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 following tables provide details of the Company's commercial real estate and residential construction and land portfolios:

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 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 measure of pre-tax, pre-provision earnings from core operations.  In this 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.  Management believes that this measure is useful because it provides a more comparable basis for evaluating financial performance from core operations period to period.

SOURCE Taylor Capital Group, Inc.