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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Commission file number 0-50034

TAYLOR CAPITAL GROUP, INC.

(Exact name of registrant as specified in its charter)

9550 West Higgins Road

Rosemont, Illinois 60018

(Address, including zip code, of principal executive offices)

(847) 653-7978

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per share

9.75% Trust Preferred Securities Issued by TAYC Capital Trust I and the

Guarantee With Respect Thereto

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes    x    No  ¨.

The aggregate market value of the voting stock held by non-affiliates of the registrant, i.e., persons other than directors and executive officers of the registrant is $126,707,406 and is based upon the last sales price as quoted on the Nasdaq National Market on March 2, 2005.

At March 2, 2005, there were 9,659,549 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III – Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on June 16, 2005 are incorporated by reference into Part III hereof.

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TAYLOR CAPITAL GROUP, INC.

INDEX

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TAYLOR CAPITAL GROUP, INC.

PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual 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,” “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 2005 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 any imbalances in the interest rate sensitivities of our assets and liabilities; 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 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; changes in general economic conditions, interest rates, deposit flows, loan demand, competition, legislation or regulatory and accounting principles, policies or guidelines, as well as 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 this annual report under the caption “Risk Factors.”

You should not place undue reliance on any forward-looking statements. Except as otherwise required by federal securities laws, 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 annual report.

Item 1. Business

Overview

We are a bank holding company headquartered in Rosemont, Illinois, a suburb of Chicago. We derive substantially all of our revenue from our wholly-owned subsidiary, Cole Taylor Bank. We provide a range of products and services to both commercial and consumer customers primarily in the Chicago metropolitan area. At December 31, 2004, we had assets of approximately $2.9 billion, deposits of approximately $2.3 billion, and stockholders’ equity of $155.3 million.

Cole Taylor Bank was founded in 1929 by forefathers of the Taylor family. Taylor Capital Group, Inc. was formed in 1996 in connection with the split-off of the Bank from Cole Taylor Financial Group, Inc. (later renamed Reliance Acceptance Group, Inc.).

We also own all of the stock of TAYC Capital Trust I and TAYC Capital Trust II. Both Trusts are Delaware statutory trusts that we formed solely to issue trust preferred securities. See Note 12 of the Notes to the Consolidated Financial Statements for additional information.

Our Products and Services

Our primary business is commercial banking. As of December 31, 2004, approximately 87% of our loan portfolio was comprised of commercial loans. We also offer wealth management, community banking and certain trust products and services.

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Business Banking

Our commercial banking business is comprised of commercial lending and real estate construction and investment lending activities. Our targeted commercial customers are middle-market and small companies. Our commercial lending activities consist of providing loans for the following customer needs: working capital, business expansion or acquisition, owner-occupied commercial real estate financing, revolving lines of credit and stand-by and commercial letters of credit. Additionally, we offer asset-based credit facilities, including, in some cases, where strong asset values and financial controls support businesses with otherwise minimally acceptable operating performance or experience. We offer products and services to a wide variety of commercial customers involved with manufacturing, wholesale and retail distribution, transportation, construction contracting and professional services. Our real estate lending activities consist of providing loans to professional home builders, condominium and commercial real estate developers and investors. Our real estate development customers seek acquisition, development and construction loans and standby letters of credit for terms generally from 18 to 36 months. The majority of our development and construction lending is for residential home development, primarily in the suburban communities of Chicago. Our real estate investment customers seek term financing on selected income producing properties, including multi-family, retail, office and industrial properties.

We offer collateralized as well as unsecured commercial banking loans. Typical collateral includes accounts receivable, inventory, equipment and real estate. Commercial real estate loans are generally collateralized by owner-occupied properties used for business purposes or property to be developed or acquired for investment. Commercial real estate construction loans are structured primarily to fund construction of pre-sold homes or units.

We also offer our commercial banking customers deposit products such as checking, savings and money market accounts, time deposits and repurchase agreements. We offer corporate cash management options, including internet balance reporting, automated clearing house products, lock-box processing, controlled disbursement accounts and an account reconciliation and positive pay feature to help them meet their cash management needs.

Wealth Management

We cross-sell products and services to the owners and executives of our business customers designed to help them meet their personal financial goals. Our product offerings currently include personal customized credit and cash management, personal financial planning and investment management services, including customized residential real estate loans and home equity lines of credit and specially designed deposit products. Through third-party providers, we also offer insurance products and brokerage services.

Community Banking

We also provide services and offer banking products to community-based customers located near our banking centers. These customers, typically individuals and municipalities, seek credit and deposit products from a convenient, reliable and stable institution with reasonably competitive products and automated delivery channels such as automated teller machines, telephone and internet banking. Our community banking products include checking, savings and money market accounts, certificates of deposit, personal lines of credit and vehicle loans. We provide portfolio management expertise, offering stocks, bonds, mutual funds, annuities and insurance products through a third party broker-dealer with representatives located in our banking centers.

Residential Real Estate Lending

Residential mortgages and home equity lending are primarily offered through our wealth management services. As of December 31, 2004, we held $65 million of mortgage loans and $207 million of home equity loans. We ceased acquiring home equity loans through mortgage brokers at the end of 2002. As of December 31, 2004, we held $66 million of home equity loans and lines of credit sourced through brokers prior to the end of 2002.

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Trust Services

Trust services offered by our trust professionals have historically included corporate trust, asset management, land trust and tax-deferred exchange services, as well as fiduciary services for personal and employee benefit trusts. During 2002, we elected to discontinue offering fiduciary services for personal and employee benefit trusts. We have signed a letter of intent to potentially sell our land trust business in 2005.

Competition

We encounter intense competition for all of our products and services, including substantial competition in attracting and retaining deposits and in obtaining loan customers. The principal competitive factors in the banking and financial services industry are quality of services to customers, ease of access to services and pricing of services, including interest rates paid on deposits, interest rates charged on loans and fees charged for trust, investment and other professional services. Our principal competitors are numerous and include other commercial banks, savings and loan associations, mutual funds, money market funds, finance companies, credit unions, mortgage companies, the United States Government, private issuers of debt obligations and suppliers of other investment alternatives, such as securities firms.

Many of our competitors are significantly larger than us and have access to greater financial and other resources. In addition, many of our non-bank competitors are not subject to the same federal regulations that govern bank holding companies and federally insured banks or the state regulations governing state chartered banks. As a result, our non-bank competitors may have advantages over us in providing some services.

The Gramm-Leach-Bliley Act, enacted in November 1999, expanded the permissible activities of a bank holding company and eliminated restrictions imposed by the Glass-Steagall Act, in the 1930s, which prevented banking, insurance and securities firms from fully entering each other’s business. It is anticipated that the financial services industry will experience further consolidation and intensified competition. This consolidation could result in a growing number of larger financial institutions that offer a wider variety of financial services than we currently offer and that can aggressively compete in the markets we currently serve. For more information on the Gramm-Leach-Bliley Act, see the section of this annual report captioned “Supervision and Regulation — The Bank — Gramm-Leach-Bliley Act.”

Employees

Together with the Bank, we had approximately 431 full-time equivalent employees as of December 31, 2004. None of our employees is subject to a collective bargaining agreement. We consider our relationships with our employees to be good.

Supervision and Regulation

General

As a holding company that owns an Illinois-chartered bank that is a member of the Federal Reserve, our activities are extensively regulated under federal and state law. As a result, our growth and earnings performance can be affected not only by management decisions and general economic conditions, but also by the requirements of applicable state and federal statutes and regulations and the policies of various governmental regulatory authorities, including the Illinois Commissioner of Banks, the Federal Reserve, the Federal Deposit Insurance Corporation, referred to as the FDIC, the Internal Revenue Service, state taxing authorities and the Securities and Exchange Commission, referred to as the SEC. The effect of applicable statutes, regulations and regulatory policies can be significant, and cannot be predicted with a high degree of certainty.

Federal and state laws and regulations generally applicable to financial institutions govern, among other things, our scope of business, investments, reserves against deposits, capital levels relative to operations, the

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nature and amount of collateral for loans, the establishment of branches, mergers, consolidations and the declaration and payment of dividends, both at the bank and holding company levels. The system of supervision and regulation applicable to financial institutions establishes a comprehensive framework for their respective operations and is intended primarily for the protection of the FDIC’s deposit insurance funds and the depositors, rather than the shareholders, of financial institutions.

The following is a summary of the material elements of the regulatory framework that applies to us. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of the statutes, regulations and regulatory policies that are described. As such, the following is qualified in its entirety by reference to the applicable statutes, regulations and regulatory policies. During the last decade, the laws governing bank holding companies and financial institutions have changed substantially. Any future changes in applicable laws, regulations or regulatory policies, many of which (if not all) are unpredictable, may have a material effect on our business.

The Company

General. As a bank holding company, we are registered with, and are subject to regulation, supervision and examination by, the Federal Reserve under the Bank Holding Company Act. Under the Bank Holding Company Act, we are subject to periodic examination by the Federal Reserve and are required to file with the Federal Reserve periodic reports and such additional information as the Federal Reserve may require. We are also subject to regulation, supervision and examination by the Illinois Commissioner of Banks.

The Federal Reserve takes the position that, we must serve as a source of financial strength to the Bank. This support may be expected at times when, absent this Federal Reserve policy, we may not be inclined, or able, to provide it. The failure of a bank holding company to serve as a source of strength to its subsidiary bank will generally be considered an unsafe or unsound banking practice or a violation of regulations, or both by the Federal Reserve. In addition, as discussed below under “Capital Requirements,” the Federal Reserve has broad remedial powers to take various actions when the capital level of an insured institution falls below certain levels.

Importance of Regulatory Relationships. As a regulated financial services firm, our relationships and good standing with our regulators are of fundamental importance to the continuation and growth of our business. The Federal Reserve, SEC, and other domestic regulators have broad enforcement powers, and powers to approve, deny, or refuse to act upon our applications or notices to conduct new activities, acquire or divest businesses or assets, or reconfigure existing operations. In addition, we are subject to examination by various regulators, which result in examination reports and ratings (which are not publicly available) that can impact the conduct and growth of our business. These examinations consider not only our compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors. An examination downgrade by any of our federal or state bank regulators potentially can result in the imposition of significant limitations on our activities and growth.

Investments and Activities. Under the Bank Holding Company Act, a bank holding company must obtain Federal Reserve approval before: (1) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after the acquisition, it would own or control more than 5% of the shares of the other bank or bank holding company (unless it already owns or controls the majority of such shares); (2) acquiring all or substantially all of the assets of another bank; or (3) merging or consolidating with another bank holding company. Subject to certain conditions (including certain deposit concentration limits established by the Bank Holding Company Act), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States without regard to whether the acquisition is prohibited by the law of the state in which the target bank is located. In approving interstate acquisitions, however, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository

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institutions or their holding companies) and state laws which require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.

The Bank Holding Company Act also generally prohibits us from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve to be “so closely related to banking . . . as to be a proper incident thereto.” Under current regulations of the Federal Reserve, we are permitted to engage in a variety of banking-related businesses, including the operation of a thrift, sales and consumer finance, equipment leasing, the operation of a computer service bureau (including software development), and mortgage banking and brokerage. The Bank Holding Company Act generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank holding companies.

An eligible bank holding company may elect (with the approval of the Federal Reserve) to become a “financial holding company.” Financial holding companies are permitted to engage in certain financial activities through affiliates that had previously been prohibited activities for bank holding companies. Such financial activities include securities and insurance underwriting and merchant banking. At this time, the Company has not elected to become a financial holding company, but may choose to do so at some time in the future.

Control of a Bank Holding Company. Federal law also prohibits any person or company from acquiring control of a bank or bank holding company without prior notice to the appropriate federal bank regulator. Control is generally defined as the acquisition of 10% of the outstanding shares of a bank or bank holding company.

Minimum Capital Requirements. Bank holding companies are required to maintain minimum levels of capital in accordance with Federal Reserve capital adequacy guidelines. Specifically, the Federal Reserve has adopted risk-based capital adequacy and minimum capital to total assets (leverage ratio) guidelines for assessing bank holding company capital adequacy. These standards define capital and establish minimum capital ratios in relation to assets, both on an aggregate basis and as adjusted for credit risks and off-balance sheet exposures. Under the Federal Reserve’s risk-based guidelines applicable to us, capital is classified into two categories, Tier 1 and Tier 2, which, when combined, comprise total capital.

Effective March 1, 2005, Tier 1 capital for purposes of both the risk-weighted asset tests and the leverage ratio test consists of common equity, minority interest in the equity accounts of consolidated subsidiaries, qualifying perpetual preferred stock and trust preferred securities (subject to limitations). In addition, as a general matter, Tier 1 capital excludes goodwill, and subject to various limitations, also excludes certain amounts of mortgage and nonmortgage servicing assets, purchased credit card relationships, credit-enhancing interest-only strips, all other identifiable intangible assets, deferred tax assets, and a percentage of the organization’s nonfinancial equity investments. The Federal Reserve may also exclude certain other investments in subsidiaries or associated companies as appropriate.

Tier 2 capital, known as supplementary capital, consists of allowances for loan and lease losses (subject to certain limitations), perpetual preferred stock and related surplus, hybrid capital instruments, perpetual debt and mandatory convertible debt securities, term subordinated debt and intermediate-term preferred stock, including related surplus and unrealized holding gains on equity securities.

The maximum amount of Tier 2 capital that may be included in an organization’s qualifying total capital is limited to 100% of Tier 1 capital, net of the required deductions discussed above.

The Federal Reserve’s capital adequacy guidelines require bank holding companies to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8%, at least half of which must be in the form of Tier 1

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capital. Risk-weighted assets include assets and credit equivalent amounts of off-balance sheet items of bank holding companies that are assigned to one of several risk categories, based on the obligor or the nature of the collateral. The Federal Reserve has established a minimum ratio of Tier 1 capital (less any intangible capital items) to total assets (less any intangible assets), or leverage ratio, of 3% for strong bank holding companies (those rated a composite “1” under the Federal Reserve’s rating system). For all other bank holding companies, the minimum ratio of Tier 1 capital to total assets is 4%. Also, the Federal Reserve continues to consider the Tier 1 leverage ratio in evaluating proposals for expansion or new activities.

In its capital adequacy guidelines, the Federal Reserve emphasizes that the standards discussed above are minimums and that banking organizations generally are expected to operate well above these minimum levels or face supervisory action. Most bank holding companies maintain regulatory capital levels well in excess of these minimum requirements and thereby qualify as “well-capitalized” organizations under Federal Reserve regulations. Under the regulations, well-capitalized bank holding companies must maintain a total risk-based capital ratio of at least 10% and a Tier 1 capital ratio of at least 6%. These guidelines also state that banking organizations experiencing growth, whether internally or by making acquisitions, are expected to maintain strong capital positions substantially above the minimum levels.

As of December 31, 2004, we had regulatory capital in excess of the Federal Reserve’s minimum levels. Our ratio of total capital to risk-weighted assets at December 31, 2004 was 10.25%, our ratio of Tier 1 capital to risk-weighted assets was 7.27%, and our Tier 1 leverage ratio was 6.48%. As of December 31, 2004, we were “well-capitalized” pursuant to Federal Reserve regulations.

Dividends. As a corporation incorporated in Delaware, we are subject to the Delaware General Corporation Law, referred to as the DGCL, which allows us to pay dividends only out of our surplus (as defined and computed in accordance with the provisions of the DGCL) or if we have no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Additionally, the Federal Reserve has issued a policy statement with regard to the payment of cash dividends by bank holding companies. The policy statement provides that, as a matter of prudent banking, a bank holding company should not maintain a rate of cash dividends unless its net income available to common stockholders has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears to be consistent with the holding company’s capital needs, asset quality and overall financial condition. Accordingly, a bank holding company should not pay cash dividends that exceed its net income or can only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing. In addition, as noted in the “General” section above, bank holding companies are expected, under Federal Reserve policy, to serve as a source of financial strength for their depository institution subsidiaries. The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to prohibit the payment of dividends by banks and bank holding companies.

As a bank holding company, we are a legal entity separate and distinct from the Bank. Our principal asset is the outstanding capital stock of the Bank. As a result, we must rely on payments from the Bank to meet our obligations. Dividend payments from the Bank are subject to Illinois law and to regulatory limitations, generally based on capital levels and current and retained earnings, imposed by various regulatory agencies with authority over the Bank. The ability of the Bank to pay dividends is also subject to regulatory restrictions if paying dividends would impair its profitability, financial condition or other cash flow requirements. As of December 31, 2004, the holding company was under no special regulatory restrictions that would prohibit it from declaring or paying a dividend.

See Note 16 of Notes to Consolidated Financial Statements for regulatory disclosures.

The Bank

The Bank is an Illinois-chartered bank, the deposit accounts of which are insured by the FDIC’s Bank Insurance Fund, referred to as the BIF. The Bank is also a member of the Federal Reserve and as such is a

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“member bank.” As an Illinois-chartered, FDIC-insured member bank, the Bank is subject to the supervision, regulation and examination of the Illinois Commissioner of Banks, as the chartering authority for Illinois banks, the Federal Reserve, as the primary federal regulator of member banks, and the FDIC, as administrator of the BIF.

Deposit Insurance. As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their respective levels of capital and results of supervisory evaluations. Institutions classified as well-capitalized (as defined by the FDIC) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (as defined by the FDIC) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period.

During the year ended December 31, 2004, BIF assessments ranged from 0% of deposits to 0.27% of deposits. For the semi-annual assessment period beginning January 1, 2005, BIF assessment rates will continue to range from 0% of deposits to 0.27% of deposits.

The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution (1) has engaged or is engaging in unsafe or unsound practices, (2) is in an unsafe or unsound condition to continue operations or (3) has violated any applicable law, regulation, order, or any condition imposed in writing by, or written agreement with, the FDIC. The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance, if the institution has no tangible capital. We are not aware of any activity or condition that could result in termination of the deposit insurance of the Bank.

Financing Corporation Assessments. Since 1987, a portion of the deposit insurance assessments paid by members of the FDIC’s Savings Association Insurance Fund, referred to as the SAIF, has been used to cover interest payments due on the outstanding obligations of the Financing Corporation. The Financing Corporation was created in 1987 to finance the recapitalization of the Federal Savings and Loan Insurance Corporation, the SAIF’s predecessor insurance fund. As a result of federal legislation enacted in 1996, beginning as of January 1, 1997, both SAIF members and BIF members such as the Bank became subject to assessments to cover the interest payments on outstanding Financing Corporation obligations. These Financing Corporation assessments are in addition to amounts assessed by the FDIC for deposit insurance. Between January 1, 2000 and the final maturity of the outstanding Financing Corporation obligations in 2019, BIF members, including the Bank, and SAIF members will share the cost of the interest on the Financing Corporation bonds on a pro rata basis. During the year ended December 31, 2004, the Bank paid Financing Corporation assessments totaling approximately $307,000.

Supervisory Assessments. All Illinois banks are required to pay supervisory assessments to the Illinois Commissioner of Banks to fund the operations of the Illinois Commissioner of Banks. The amount of the assessment is calculated based on the institution’s total assets, including consolidated subsidiaries, as reported to the Illinois Commissioner of Banks. During the year ended December 31, 2004, the Bank paid supervisory assessments to the Illinois Commissioner of Banks totaling approximately $231,000.

Capital Requirements. The Federal Reserve has established the following minimum capital standards for state-chartered Federal Reserve member banks, such as the Bank: a leverage requirement consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated banks with a minimum requirement of at least 4% for all others, and a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital. For purposes of these capital standards, Tier 1 capital and total capital may consist of essentially the same components as Tier 1 capital and total capital under the Federal Reserve’s capital guidelines for bank holding companies.

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The capital requirements described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual institutions. For example, the regulations of the Federal Reserve provide that additional capital may be required to take adequate account of, among other things, interest rate risk or the risks posed by concentrations of credit, nontraditional activities or securities trading activities.

During 2004, the Bank was not required by the Federal Reserve to increase its capital to an amount in excess of the minimum regulatory requirement. As of December 31, 2004, the Bank’s ratio of total capital to risk-weighted assets was 10.57%, its ratio of Tier 1 capital to risk-weighted assets was 9.31%, and its Tier 1 leverage ratio was 8.30%. As such, the Bank as of December 31, 2004 was “well-capitalized” under federal regulations. See Note 16 of Notes to Consolidated Financial Statements.

Prompt Corrective Action. Federal law provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators’ powers depends on whether the institution in question is “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: requiring the institution to submit a capital restoration plan (which must be guaranteed by the institution’s holding company); limiting the institution’s asset growth and restricting its activities; requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; restricting transactions between the institution and its affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election of directors of the institution; requiring that senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and ultimately, appointing a receiver for the institution. To be considered well-capitalized under the regulations, a bank must maintain a total risk-based capital ratio in excess of 10%, Tier 1 risk-based capital ratio of 6% or more and a Tier 1 leverage ratio in excess of 5%. As of December 31, 2004, the Bank was well-capitalized pursuant to Federal Reserve regulations.

Additionally, institutions insured by the FDIC may be liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with the default of commonly controlled FDIC insured depository institutions or any assistance provided by the FDIC to commonly controlled FDIC insured depository institutions in danger of default.

Dividends. Under the Illinois Banking Act, Illinois-chartered banks may not pay, without prior regulatory approval, dividends in excess of their net profits. The Federal Reserve Act also imposes limitations on the amount of dividends that may be paid by a state member bank, such as the Bank. Generally, a member bank may pay dividends out of its undivided profits, in such amounts and at such times as the member bank’s board of directors deems prudent. Without prior Federal Reserve approval, however, a state member bank may not pay dividends in any calendar year which, in the aggregate, exceed the member bank’s calendar year-to-date net income plus the member bank’s retained net income for the two preceding calendar years.

The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines and had approximately $57.1 million available to be paid as dividends to us as of December 31, 2004. Notwithstanding the availability of funds for dividends, however, the Federal Reserve may prohibit the payment of any dividends by the Bank if the Federal Reserve determines such payment would constitute an unsafe or unsound practice. As of December 31, 2004, the Bank was under no special regulatory restriction that would prohibit it from declaring or paying a dividend.

Restrictions on Transactions with Affiliates and Insiders. The Bank is subject to restrictions under federal law, including Regulation W, which became effective on April 1, 2003, which limits certain transactions with the

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holding company, including loans, other extensions of credit, investments or asset purchases. The Regulation unifies and updates staff interpretations issued over the years, incorporates several new interpretative proposals (such as to clarify when transactions with an unrelated third party will be attributed to an affiliate) and addresses new issues arising as a result of the expanded scope of non-banking activities engaged in by banks and bank holding companies in recent years and authorized for financial holding companies under the Financial Services Modernization Act of 1999. Such transactions by a banking subsidiary with any one affiliate are limited in amount to 10 percent of the bank’s capital and surplus and, with all affiliates together, to an aggregate of 20 percent of the bank’s capital and surplus. Furthermore, such loans and extensions of credit, as well as certain other transactions, are required to be secured in specified amounts. These and certain other transactions, including any payment of money to the holding company, must be on terms and conditions that are or in good faith would be offered to nonaffiliated companies.

The restrictions on loans to directors, executive officers, principal stockholders and their related interests, referred to as insiders, contained in the Federal Reserve Act and Regulation O apply to all federally insured institutions and their subsidiaries and holding companies. These restrictions include limits on loans to one borrower and conditions that must be met before such a loan can be made. There is also an aggregate limitation on all loans to insiders and their related interests. These loans cannot exceed the institution’s total unimpaired capital and surplus, and regulatory authorities may determine that a lesser amount is appropriate. Insiders are subject to enforcement actions for knowingly accepting loans in violation of applicable restrictions.

Safety and Soundness Standards. The federal banking agencies have adopted guidelines which establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings. In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. If an institution fails to comply with any of the standards set forth in the guidelines, the institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the institution’s rate of growth, require the institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal banking regulators, including cease and desist orders and civil money penalty assessments.

Branching Authority. Illinois banks, such as the Bank, have the authority under Illinois law to establish branches anywhere in the State of Illinois, subject to receipt of all required regulatory approvals. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, or the Riegle-Neal Act, both state and national banks are allowed to establish interstate branch networks through acquisitions of other banks, subject to certain conditions, including certain limitations on the aggregate amount of deposits that may be held by the surviving bank and all of its insured depository institution affiliates. The establishment of new interstate branches or the acquisition of individual branches of a bank in another state, rather than the acquisition of an out-of-state bank in its entirety, is allowed by the Riegle-Neal Act only if specifically authorized by state law. The legislation allowed individual states to “opt-out” of certain provisions of the Riegle-Neal Act by enacting appropriate legislation prior to June 1, 1997. Illinois enacted legislation permitting interstate mergers beginning on June 1, 1997, subject to certain conditions, including a prohibition against interstate mergers involving an Illinois bank that has been in existence and continuous operation for fewer than five years.

State Bank Activities. Under federal law and FDIC regulations, FDIC insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not

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permissible for a national bank. Federal law and FDIC regulations also prohibit FDIC insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank or its subsidiary, respectively, unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines the activity would not pose a significant risk to the deposit insurance fund of which the bank is a member. These restrictions have not had, and are not currently expected to have, a material impact on the operations of the Bank.

Federal Reserve System. Federal Reserve regulations, as presently in effect, require depository institutions to maintain non-interest earning reserves against their transaction accounts (primarily NOW and regular checking accounts), as follows: for transaction accounts aggregating $42.8 million or less, the reserve requirement is 3% of total transaction accounts; and for transaction accounts aggregating in excess of $42.8 million, the reserve requirement is $1.284 million plus 10% of the aggregate amount of total transaction accounts in excess of $42.8 million. The first $5.5 million of otherwise reservable balances are exempted from the reserve requirements. These reserve requirements are subject to annual adjustment by the Federal Reserve. Reserves must be maintained in the form of vault cash or a non-interest bearing account at the Bank’s Federal Reserve Bank, and therefore reduce the Bank’s level of earning assets. The Bank is in compliance with the foregoing requirements.

Federal Home Loan Bank System. The Bank is a member of the FHLB of Chicago, which is one of 12 regional FHLBs. The FHLBs serve as reserve or central banks for their members. The FHLBs are funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. They make loans, known as advances, to members in accordance with policies and procedures established by the board of directors of each FHLB, which is subject to the oversight of the Federal Housing Finance Board, an agency of the United States government. All advances from the FHLBs are required to be fully secured by sufficient collateral as determined by the FHLBs.

As a member, the Bank is required to purchase and maintain stock in the FHLB of Chicago. At December 31, 2004, the Bank had $7.6 million in FHLB stock, which was in compliance with this requirement. In past years, the Bank has received both stock and cash dividends on its FHLB stock.

Under federal law, the FHLBs are required to provide funds for the resolution of troubled savings associations and to contribute to low- and moderately-priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in value of the Bank’s FHLB stock may result in a corresponding reduction in its capital.

Recent legislative changes have required the FHLB to change the characteristics and amount of FHLB stock held by its members. It is also anticipated that these changes will restrict the ability of FHLB to redeem their shares of FHLB stock. In addition, the federal agency that regulates the FHLBs has required each FHLB to register its stock with the SEC, which will increase the costs of each FHLB and may have other effects that are not possible to predict at this time.

Community Reinvestment. Under the Community Reinvestment Act, or the CRA, a financial institution has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, or limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community that are consistent with the CRA. Institutions are rated on their performance in meeting the needs of their communities. Performance is tested in three areas: (1) lending, which evaluates the institution’s record of making loans in its assessment areas; (2) investment, which evaluates the institution’s record of investing in community development projects, affordable housing and programs benefiting low- or moderate-income individuals and business; and (3) service, which evaluates the institution’s delivery of services through its branches, ATMs and

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other offices. The CRA requires each federal banking agency, in connection with its examination of a financial institution, to assess and assign one of four ratings to the institution’s record of meeting the credit needs of its community and to take this record into account in evaluating certain applications by the institution, including applications for charters, branches and other deposit facilities, relocations, mergers, consolidations, acquisitions of assets or assumptions of liabilities, and savings and loan holding company acquisitions. The CRA also requires that all institutions publicly disclose their CRA ratings. The Bank received an “outstanding” rating on its most recent CRA performance evaluation.

Brokered Deposits. Brokered deposits include funds obtained, directly or indirectly, by or through a deposit broker for deposit into one or more deposit accounts. Well-capitalized institutions are not subject to limitations on brokered deposits, while an adequately capitalized institution is able to accept, renew or rollover brokered deposits only with a waiver from the FDIC and subject to certain restrictions on the yield paid on such deposits. Undercapitalized institutions are not permitted to accept brokered deposits. The Bank is permitted to accept brokered deposits.

Gramm-Leach-Bliley Act. On November 12, 1999, the Gramm-Leach-Bliley Act was enacted, which amended or repealed certain provisions of the Glass-Steagall Act and other legislation that restricted the ability of bank holding companies, securities firms and insurance companies to affiliate with one another. The Gramm-Leach-Bliley Act establishes a comprehensive framework to permit affiliations among commercial banks, insurance companies and securities firms. The Gramm-Leach-Bliley Act contains provisions intended to safeguard consumer financial information in the hands of financial service providers by, among other things, requiring these entities to disclose their privacy policies to their customers and allowing customers to “opt out” of having their financial service providers disclose their confidential financial information to non-affiliated third parties, subject to certain exceptions. Final regulations implementing the new financial privacy regulations became effective during 2001. Similar to most other consumer-oriented laws, the regulations contain some specific prohibitions and require timely disclosure of certain information. We have devoted what we believe are sufficient resources to comply with these new requirements. We do not anticipate that the Gramm-Leach-Bliley Act in and of itself will have a material adverse effect on our operations or prospects or those of the Bank. However, to the extent the Gramm-Leach-Bliley Act permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation and intensified competition. This consolidation could result in a growing number of larger financial institutions that offer a wider variety of financial services than we currently offer and that can aggressively compete in the markets we currently serve.

Bank Secrecy Act/USA Patriot Act. The federal Bank Secrecy Act and related laws and regulations generally require insured institutions to disclose suspicious activity related to their customers’ accounts to the United States government. Filings are required for numerous reasons including known or suspected cases of money laundering, illegally obtained funds, or transactions with no apparent business or legal purpose. In addition, the Bank Secrecy Laws require the use of a customer identification program and other actions to ensure that insured institutions “know their customers.” On October 26, 2001, the President signed into law the USA PATRIOT Act of 2001, which contains the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. That Act contains anti-money laundering measures affecting insured depository institutions, broker-dealers and certain other financial institutions. The Act requires U.S. financial institutions to adopt new policies and procedures to combat money laundering and grants the Secretary of the Treasury broad authority to establish regulations and to impose requirements and restrictions on financial institutions’ operations. The Bank has in place policies and procedures designed to ensure its compliance with the Bank Secrecy Laws and the USA PATRIOT Act. However, as regulation in this area continues to evolve, the Bank’s costs related to compliance may increase.

Consumer Laws and Regulations

Federal Laws. In addition to the laws and regulations discussed herein, the Bank is also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. While the list set forth herein is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in

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Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Fair Credit Reporting Act and the Real Estate Settlement Procedures Act among others. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans to or engaging in other types of transactions with such customers. Failure to comply with these laws and regulations could lead to substantial penalties, operating restrictions and reputational damage to the financial institution.

State Consumer Protection Laws. In addition to the federal consumer protection laws discussed above, the Bank is also subject to state consumer protection laws that regulate its mortgage origination and lending businesses. Through 2002, the Bank originated home equity loans and lines of credit through mortgage brokers as well as through our branches. The Bank ceased acquiring home equity loans through mortgage brokers at the end of 2002. However, the Bank does continue to offer home equity loans and lines of credit as part of its wealth management product offering. The Bank uses interest rates and loan terms in its home equity loans and lines of credit that are authorized by Illinois law, but might not be authorized by the laws of the states in which the borrowers are located. As an FDIC-insured, state member bank, the Bank is authorized by Section 27 of the Federal Deposit Insurance Act, or FDIA, to charge interest at rates allowed by the laws of the state where the Bank is located regardless of any inconsistent state law, and to apply these rates to loans to borrowers in other states. The FDIC has opined that a state bank with branches outside of the state in which it is chartered may also be located in a state in which it maintains an interstate branch. The Bank relies on Section 27 of the FDIA and the FDIC opinion in conducting its home equity lending business described above. From time to time, state regulators have questioned the application of Section 27 of the FDIA to credit practices affecting citizens of their states. Any change in Section 27 of the FDIA or in the FDIC’s interpretation of this provision, or any successful challenge as to the permissibility of these activities, could require that we change the terms of some of our loans or the manner in which we conduct our home equity loan business.

Future Legislation. Various legislation is from time to time introduced in Congress, and state legislatures with respect to the regulation of financial institutions. Such legislation may change the banking statutes and our operating environment in substantial and unpredictable ways. We cannot determine the ultimate effect that potential legislation, or implementing regulations, if enacted, would have upon our financial condition or results of operations.

Available Information

Our website is www.taylorcapitalgroup.com. We make available on this website under the caption “Financial Reports”, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange Commission.

Item 2. Properties

In recent periods, we have taken steps to better rationalize the use of our physical space. These steps have included consolidating administrative and operating departments to a corporate center, disposing of owned properties, terminating existing operating leases, and modifying the locations of our banking centers to better fit our customers’ needs.

In October 2003, we moved our principal offices from our facility in Wheeling, Illinois to our new Corporate Center at 9550 West Higgins Road, Rosemont, Illinois. We lease our Corporate Center under an operating lease that commenced on September 10, 2003 and expires on August 31, 2014. We have the option to renew the lease for up to two additional five-year terms, which would extend the lease to August 31, 2024. In connection with this new corporate center consolidation, we abandoned two of the three floors at our leased Wheeling facility, two of the four floors at our owned Burbank facility and all of our Ashland facility. We have taken steps to reduce the space at each of these facilities.

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We had recorded a $3.5 million lease abandonment charge during 2003 when we abandoned the second and third floor of our Wheeling location, a 58,310 square feet leased facility. This lease was scheduled to end in March 2010. This charge was comprised of a $976,000 write-off of leasehold improvements, furniture and other equipment and a $2.6 million charge for the liability related to the operating lease. This $2.6 million represented the estimated liability for the lease payments that we would incur for the remaining term of the lease for which we would receive no economic benefit other than through subleasing. During the fourth quarter of 2004, we reached an agreement to terminate the existing operating lease for this facility in exchange for a $3.3 million cash payment plus the transfer of a small parcel of land we owned near the site. In connection with this agreement, we recorded an additional charge of $984,000 in the fourth quarter of 2004 to increase our lease termination liability to $3.3 million, write-off the small parcel of land, and accrue other transaction costs. In February 2005, we closed this transaction and terminated the lease. No additional expense was recorded in the first quarter of 2005 related to this lease termination transaction. Upon termination of our obligation under the existing lease, we signed a new 10 year operating lease for 8,274 square feet on the first floor of the facility for a smaller banking center. This lease is scheduled to run through February 2015, with an optional five-year renewal term that could extend the term to February 2020.

In June 2004, we sold our Burbank facility. Previously, we had owned the 37,500 square foot facility that was used for administrative offices and a banking center. Upon sale of this facility, we agreed to lease-back space on the lower level and the first and fourth floors for the banking center and operating departments still at that location. We had vacated the second and third floors during the corporate center consolidation. The gain of $245,000 realized from the sale was deferred and is being amortized over the ten-year life of the lease.

In December 2004, we also completed the sale of our Ashland banking center. We agreed to sell this property in 2002 and, at that time, recorded a $386,000 loss to reduce the net book value to the estimated net sales price. We retained a portion of the land at the site to build a smaller banking facility and expect that this facility to be operational by late 2005. Until the new facility is complete, we have relocated the customer banking center to the temporary Bishop location. The Bishop customer banking center is a 980 square foot store-front location with a lease that is scheduled to expire in July 2005.

We have also modified the physical profile of our banking center locations by opening two new locations and closing or selling two others. In June 2004, we opened a 2,470 square foot banking center located in an office building in Itasca, Illinois, a northwest suburb of Chicago. The facility is leased under an operating lease with a 39-month term. We also signed a 39-month operating lease for a 2,790 square feet banking center located in Orland Park, Illinois, a southern suburb of Chicago. Construction of the facility is under way and we expect the banking center to be operational by mid-2005. We have the option of extending the lease for two additional five-year terms that could extend the maturity to March 2017.

During the fourth quarter of 2003, we closed our leased Jackson customer banking facility. The lease was scheduled to expire in the first quarter of 2004. On January 27, 2005, we completed the sale of our Broadview banking center. In addition to selling the physical land and building, we sold approximately $19.7 million of deposit balances and $5.3 million of loans associated with the banking center. We will record a $1.6 million gain on the sale of this banking center during the first quarter of 2005.

Of our eleven banking center locations, we own four of the buildings from which the banking center are operated, including Skokie, Yorktown, Old Orchard, and Milwaukee. We lease the land under the buildings at Yorktown, Old Orchard and Milwaukee. We lease the buildings for our Wheeling, Burbank, Woodlawn, West Washington, Bishop, Itasca, and Orland Park banking facilities. The current leases for the Woodlawn and West Washington facilities are set to expire in May 2013 and December 2007, respectively.

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The following is a list of our administrative and customer banking locations:

On an ongoing basis we evaluate additional potential sites for new banking center locations. We carefully assess the local market opportunity and explore facility options from leasing to acquisition and construction. In connection with those activities, we sometimes enter into non-binding letters of intent. No firm commitments have been executed for additional sites at this time.

Item 3. Legal Proceedings

We are from time to time a party to litigation arising in the normal course of business. As of the date of this annual report, management knows of no threatened or pending legal actions against us that are likely to have a material adverse effect on our business, financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of 2004.

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TAYLOR CAPITAL GROUP, INC.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock trades on the Nasdaq National Market under the symbol “TAYC”. The high and low sales price of our common stock for the periods indicated is set forth below:

As of March 2, 2005, the closing price of our common stock was $31.41.

As of March 2, 2005, there were 58 stockholders of record of the common stock, based upon securities position listings furnished to us by our transfer agent. We believe the number of beneficial owners is greater than the number of record holders because a large portion of our common stock is held of record through brokerage firms in “street name”.

The following table sets forth, for each quarter in 2004 and 2003, the dividends declared on our common stock:

Holders of our common stock are entitled to receive any cash dividends that may be declared by our Board of Directors. Since 1997, we have paid regular cash dividends on our common stock. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend upon our earnings and financial condition, the capital requirements of our subsidiaries, regulatory conditions and considerations and other factors as our Board of Directors may deem relevant.

It is our intention to continue to pay cash dividends on the common stock to the extent permitted by our loan agreement, applicable banking regulations and the terms of the trust preferred securities. As a holding company, we ultimately are dependent upon the Bank to provide funding for our operating expenses, debt service, and dividends. Various banking laws applicable to the Bank limit the payment of dividends, management fees and other distributions by the Bank to us, and may therefore limit our ability to pay dividends on our common stock. We will also be prohibited from paying dividends on our common stock if we fail to make distributions or required payments on the trust preferred securities. In addition, our loan agreement also limits our ability to pay dividends on our common stock. See the section of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation, captioned “Liquidity” for additional details of restrictions on our ability to pay dividends and the ability of the Bank to pay dividends to us.

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We did not repurchase any shares of our common stock during the fourth quarter of 2004. We currently do not have any Board of Director authorized share repurchase programs.

In 2004, we did not make any unregistered sales of equity securities.

Item 6. Selected Financial Data

The selected consolidated financial data presented below under the caption “Taylor Capital Group, Inc.” as of and for five years ended December 31, 2004, is derived from our historical financial statements. The selected financial information presented below under the caption of “Cole Taylor Bank” is derived from unaudited financial statements of the Bank or from the audited consolidated financial statements of Taylor Capital Group, Inc. You should read this information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this annual report. Results from past periods are not necessarily indicative of results that may be expected for any future period. All share and per share information for all periods presented has been adjusted for a three-for-two split of our common stock that was effected as a dividend to stockholders of record as of October 2, 2002.

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Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

The following discussion and analysis presents our consolidated financial condition at December 31, 2004 and 2003 and the results of operations for the years ended December 31, 2004, 2003 and 2002. This discussion should be read together with the “Selected Consolidated Financial Data”, our audited consolidated financial statements and the notes thereto and other financial data contained elsewhere in this annual report. In addition to the historical information provided below, we have made certain estimates and forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these estimates and forward-looking statements as a result of certain factors, including those discussed in the section captioned “Risk Factors” and elsewhere in this annual report. Amounts in prior years’ Annual Reports are reclassified when necessary to conform to the current year’s presentation. All share and per share information for all periods presented has been adjusted for a three-for-two split of our common stock that was effected as a dividend to stockholders of record as of October 2, 2002.

Overview

We are a bank holding company headquartered in Rosemont, Illinois, a suburb of Chicago. We derive substantially all of our revenue from our subsidiary, Cole Taylor Bank. We provide a range of products and services to our commercial and consumer customers, and currently operate 10 banking facilities throughout the Chicago metropolitan area.

We reported net income applicable to common stockholders for the year ended December 31, 2004 of $20.8 million or $2.16 per diluted common share, compared with $15.3 million or $1.61 per diluted common share for the year ended December 31, 2003. The increased net income applicable to common stockholders was a result of reduced noninterest expense and reduced preferred stock dividends. Noninterest expense declined $7.6 million, or 9.5%, for the year ended December 31, 2004 as compared with 2003. We achieved the reduction in noninterest expense through reduced salary and advertising expense as well as a lower charge relating to our facilities initiatives. We also lowered our cost of capital by redeeming our Series A, 9% preferred stock with the proceeds from junior subordinated debentures in mid-2004. The lower interest rate and the tax deductibility of the interest on the debentures, as compared to the preferred stock dividends, resulted in after-tax savings of approximately $870,000 in 2004.

We reported net income applicable to common stockholders of $15.3 million, or $1.61 per diluted common share, during 2003, compared to a net loss applicable to common stockholders of $44.9 million, or $6.12 per common share, during 2002. Our net loss applicable to common stockholders during 2002 resulted from a charge of $61.9 million in connection with the settlement of litigation associated with the Company’s acquisition of the Bank in 1997. See the section of this discussion and analysis captioned “Litigation and Settlement” for further details of the litigation settlement charge. Without the net $61.9 million litigation settlement charge, the Company would have recorded net income applicable to common stockholders in 2002 of $17.0 million, or $2.32 per diluted common share. Net income applicable to common stockholders in 2003, was $1.7 million less than 2002 net income exclusive of the litigation settlement charge. The lower level of income was primarily a result of decreased net interest income and noninterest income. The decline in diluted earnings per share was also a result of an increase in the number of common shares outstanding. In October 2002, the Company issued 2,587,500 additional shares in an initial public offering.

Management uses certain non-GAAP financial measures and ratios to evaluate the Company’s performance. Specifically, management reviews net income and the related earnings per share amounts excluding the $61.9 million litigation settlement charge during 2002. We believe that excluding the non-recurring litigation settlement charge from both net income and earnings per share presents a more suitable comparison of our period-to-period results because of the extraordinary nature of the litigation that led to the settlement charge and

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the likelihood that such a significant event will not reoccur. The following table reconciles net income as reported under generally accepted accounting principles, or GAAP, on the Company’s Consolidated Statements of Income to the non-GAAP pro forma net income.

Total assets increased $284.4 million, or 10.9%, during 2004 to total $2.89 billion at December 31, 2004, as compared to $2.60 billion at December 31, 2003. The increase in total assets during 2004 was due to loan growth and the higher amount of investment securities. Net loans increased $246.5 million, or 12.8%, to $2.17 billion at December 31, 2004 as compared to $1.93 billion at year-end 2003. Investment securities increased $45.3 million, or 9.3%, to $533.6 million at the end of 2004. Total deposits increased $271.0 million, or 13.5%, to $2.28 billion at December 31, 2004 as compared to total deposits at December 31, 2003 of $2.01 billion. Total stockholders’ equity was $155.3 million at December 31, 2004 compared to $176.5 million at year-end 2003, a decrease of $21.2 million. The lower stockholders’ equity reflects the redemption of the $38.25 million Series A preferred stock in mid-2004.

Capital Transactions

On June 17, 2004, TAYC Capital Trust II, our wholly owned (non-consolidated) subsidiary, issued $40.0 million of trust preferred securities in a private placement. The trust preferred securities were sold under an exemption from registration under the Securities Act of 1933, as amended, and have not been registered under the Securities Act or any state securities laws. TAYC Capital Trust II invested the proceeds, along with $1.2 million received from us for the purchase of its common equity securities, in $41.2 million of junior subordinated debentures issued by Taylor Capital Group, Inc. On July 16, 2004, we used the proceeds from the junior subordinated debentures to redeem all of our outstanding shares of Series A 9% noncumulative perpetual preferred stock. The redemption price was the stated liquidation value of the Series A preferred stock of $25.00 per share, totaling $38.25 million, plus $153,000 of accrued and unpaid dividends since the last dividend distribution date. The remaining proceeds from the issuance of the junior subordinated debentures after issuance costs and redemption of the Series A preferred stock were used for general corporate purposes.

On October 21, 2002, we completed a concurrent offering of common stock and trust preferred securities. We issued 2,250,000 shares of common stock at an initial public offering price of $16.50 per share. Concurrently, we raised $45.0 million of gross proceeds through the issuance of $45.0 million aggregate principal amount of 9.75% trust preferred securities by TAYC Capital Trust I, our wholly owned (non-consolidated) subsidiary. On November 6, 2002, we sold an additional 337,500 shares of common stock to our underwriters pursuant to an option granted in connection with the initial public offering to cover over allotments and received additional net proceeds of $5.2 million. The total net amount raised from the 2002 initial public offering of common stock and the trust preferred securities and the subsequent exercise by our underwriters of the over allotment option was $80.3 million. We used $61.9 million to settle the litigation described below. In

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addition, we used $17.0 million to restructure and reduce our outstanding indebtedness. See the section of this annual report captioned “Notes to Consolidated Financial Statements – Junior Subordinated Debentures” for additional details.

Litigation and Settlement

During 2002, we agreed to settle outstanding litigation concerning our 1997 acquisition of the Bank. We entered into certain settlement agreements with the plaintiffs and other parties in the cases to halt the substantial expense, inconvenience, and distraction of continued litigation and to eliminate any exposure and uncertainty that may have existed as a result of such litigation. These agreements provided that, subject to our completion of a public offering of trust preferred and common securities and the dismissal of the lawsuits, we would pay an amount equal to (1) $65 million, plus (2) a contingent amount based on the offering price of the common shares, minus (3) a minimum of $3.1 million as a partial reimbursement to us of offering expenses.

The settlement of this litigation was completed on October 21, 2002 following our initial public offering of common stock and trust preferred securities. From the net proceeds of these offerings, we paid $61.9 million in full satisfaction of our obligation under the settlement agreements. We recorded a $61.9 million charge to earnings in 2002 to reflect the cost of settling this litigation.

Application of Critical Accounting Policies

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America and general reporting practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Our accounting policies are contained in the section of this annual report captioned “Notes to Consolidated Financial Statements–Summary of Significant Accounting and Reporting Policies”. Certain accounting policies require us to use significant judgment and estimates, which can have a material impact on the carrying value of certain assets and liabilities. We consider these policies to be critical accounting policies. The judgment and assumptions made by us are based upon historical experience or other factors that we believe to be reasonable under the circumstances. Because of the nature of the judgment and assumptions, actual results could differ from these judgments and estimates which could have a material affect on our financial condition and results of operations.

The following accounting policies materially affect our reported earnings and financial condition and require significant judgments and estimates.

Allowance for Loan Losses

We have established an allowance for loan losses to provide for loans in our portfolio that may not be repaid in their entirety. The allowance is based on our regular, quarterly assessments of the probable estimated losses inherent in the loan portfolio. Our methodology for measuring the appropriate level of the allowance relies on several key elements, which include a general allowance computed by applying loss factors to categories of loans outstanding in the portfolio, specific allowances for identified problem loans and portfolio segments, and the unallocated allowance. We maintain the allowance for loan losses at a level considered adequate to absorb probable losses inherent in our portfolio as of the balance sheet date. In evaluating the adequacy of our allowance for loan losses, we consider numerous quantitative factors including historical charge-off experience, growth of our loan portfolio, changes in the composition of our loan portfolio and the volume of delinquent and criticized loans. In addition, we use information about specific borrower situations, including their financial position, work- out plans and estimated collateral values under various liquidation scenarios to estimate the risk and amount of

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loss for those borrowers. Finally, we also consider many qualitative factors including general and economic business conditions, duration of the current business cycle, the impact of competition on our underwriting terms, current general market collateral valuations, trends apparent in any of the factors we take into account and other matters, which are by nature more subjective and fluid. The significant uncertainties surrounding our portfolio of borrowers’ abilities to successfully execute their business models through changing economic environments and competitive challenges as well as management and other changes greatly complicate the estimate of the risk of loss and amount of loss on any loan. Because of the degree of uncertainty and susceptibility of these factors to change, actual losses may vary from current estimates.

As a business bank, our loan portfolio is comprised primarily of commercial loans to businesses, which are inherently larger in amount than loans to individual consumers. The individually larger commercial loans can cause greater volatility in reported credit quality performance measures, such as total impaired or nonperforming loans. Our current credit risk rating and loss estimate with respect to a single material loan can have a material impact on our reported impaired loans and related loss exposure estimates. We review our estimates on a quarterly basis and, as we identify changes in estimates, the allowance for loan losses is adjusted through the recording of a provision for loan losses.

Goodwill Impairment

We have goodwill of $23.4 million that we recognized in connection with our 1997 acquisition of the Bank. We test this goodwill annually for impairment, or whenever events or significant changes in circumstances indicate that the carry value may not be recoverable. Most recently, we tested goodwill for impairment as of July 1, 2004 and we determined that no impairment charge was necessary. The evaluation for impairment includes comparing the estimated fair market value of the Bank to our carrying value for the Bank. Because there is not a readily observable market value for the Bank, the estimation of the fair market value is based on the market price of our common stock adjusted for the junior subordinated debentures and the notes payable at the holding company.

Income Taxes

At times, we apply different tax treatment for selected transactions for tax return purposes than for income tax financial reporting purposes. The different positions result from the varying application of statutes, rules, regulations, and interpretations, and our accruals for income taxes include reserves for these differences in position. Our estimate of the value of these reserves contains assumptions based upon our past experience and judgments about potential actions by taxing authorities, and we believe that the level of these reserves is reasonable. A reserve is utilized or reversed once the applicable statute of limitations has expired or the matter is otherwise resolved. It is likely that the ultimate resolution of these matters may be greater or less than the amounts we have accrued.

Results of Operations as of and for the years ended December 31, 2004, 2003, and 2002

Net Interest Income

Net interest income is the difference between total interest income earned on interest-earning assets, including investment securities and loans, and total interest expense paid on interest-bearing liabilities, including deposits and other borrowed funds. Net interest income is our principal source of earnings. The amount of net interest income is affected by changes in the volume and mix of earning assets and interest-bearing liabilities, and the level of rates earned or paid on those assets and liabilities.

Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003. Net interest income was $96.2 million during 2004, as compared to $95.7 million during 2003, an increase of $471,000, or 0.5%. With an adjustment for tax-exempt income, our consolidated net interest income was $97.5 million, a slight increase from the $97.2 million of net interest income in 2003. Net interest income increased less than half of one percent, as

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the benefit from the 7.3% increase in interest-earning assets was largely offset by a 26 basis point decline in our net interest margin. The tax-equivalent net interest margin was 3.71% for all of 2004 compared to 3.97% for 2003. Our net interest margin declined during the first six months of 2004, as the yield on our interest-earning assets declined more than the cost of interest-bearing liabilities. However, with the increase in short-term interest rates during the last six months of 2004, the yield on our loan portfolio increased. Our interest-earning asset yields were 5.23%, 5.10%, 5.30% and 5.49% for the first through the fourth quarters of 2004, respectively. Over that same time period, the costs of funds, including the impact of noninterest-bearing demand deposits, were 1.56%, 1.50%, 1.65% and 1.78% for the first through the fourth quarters of 2004, respectively. The third and fourth quarters of 2004 included the incremental interest expense of approximately $500,000 arising from the $41.2 million of junior subordinated debentures issued in June 2004, which increased interest expense by 5 basis points each quarter.

Average interest-earning assets during 2004 increased $177.5 million, or 7.3%, to $2.62 billion as compared to $2.45 billion during 2003. An increase in average loans, primarily in our commercial portfolio, produced the increase in average earning assets. Average commercial loans increased $256.9 million, or 17.5%, during 2004 to $1.72 billion as compared to $1.47 billion during 2003. This increase was partly offset by lower consumer-related loans. A $56.4 million increase in average investment securities also contributed to the increase in average earning assets. The asset growth was funded primarily with time deposits. Total average time deposits were $1.04 billion during 2004, a $115.9 million increase from average time deposits of $927.5 million during 2003. Higher average brokered and customer certificates of deposit produced the majority of the increase. Additional funding was also provided by a $52.8 million increase in average non-interest bearing demand deposits.

The interest rate risk position of our overall balance sheet is asset sensitive, which means our assets are expected to re-price before our liabilities over the one-year horizon. This balance sheet structure provides opportunity for an increase in net interest margin during periods of rising interest rates, such as we experienced during the last half of 2004, as the Bank’s prime lending rate increased 125 basis points over that period. If interest rates remain unchanged in future periods, we would expect to be exposed to the negative impact of a large percentage of our interest-bearing liabilities repricing at current market rates, while a large portion of our assets has already repriced. If interest rates continue to gradually rise in future periods, we would expect our net interest margin to increase. See the section of this discussion and analysis captioned “Quantitative and Qualitative Disclosure About Market Risks” for further discussion on the impact of interest rates.

Year Ended December 31, 2003 as Compared to Year Ended December 31, 2002. Net interest income was $95.7 million during the year ended December 31, 2003, as compared to $101.3 million during 2002, a decrease of $5.6 million, or 5.5%. With an adjustment for tax-exempt income, our consolidated net interest income was $97.2 million, a decrease of $5.9 million, or 5.7%, as compared to $103.1 million during 2002. The net interest income declined because of compression in our net interest margin, despite an increase in average interest-earning assets. The tax equivalent net interest margin was 3.97% during 2003 compared to 4.44% during 2002. The low interest rate environment negatively impacted our net interest margin during 2003. Our interest-earning asset yield declined 76 basis points to 5.61% during 2003 from 6.37% during 2002. However, the cost of interest-bearing liabilities declined only 35 basis points from 2.40% during 2002 to 2.05% during 2003. The $45.0 million of 9.75% junior subordinated debentures, which were issued in October 2002, caused approximately 17 basis points of the decline in the net interest margin between the two annual periods. The tax equivalent net interest spread was 3.56% during 2003 as compared to 3.97% during 2002.

Average interest-earning assets during 2003 rose to $2.45 billion, an increase of $126.7 million, or 5.5%, as compared to average interest-earning assets of $2.32 billion during 2002. Growth in the loan portfolio accounted for the majority of the increase in average interest earning assets. An increase in cash equivalent balances of $21.5 million accounted for the remainder of the increase in average interest-earning assets. Average total loans were $1.90 billion during 2003 compared to $1.80 billion during 2002. A $165.9 million, or 12.8%, increase in

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average commercial and commercial real estate loans produced most of the loan growth. The increase in commercial loans was partly offset by lower residential mortgage, home equity and consumer loans, products that we chose to de-emphasize. Between the two annual periods, the yield on loans declined 68 basis points to 5.91% during 2003 as compared to 6.59% during 2002. The asset growth was funded with interest-bearing deposit balances, with time deposit balances comprising the majority of the increase. Average time deposit balances increased to $927.5 million during 2003 compared to $794.7 million during 2002. Higher average brokered and out-of-local-market certificates of deposit produced the majority of the increase.

As part of our evaluation of net interest income, we review our consolidated average balances, our yield on average interest-earning assets, and the costs of average interest-bearing liabilities. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities. Because management reviews net interest income on a taxable equivalent basis, the analysis contains certain non-GAAP financial measures. In these non-GAAP financial measures, interest income and net interest income are adjusted to reflect tax-exempt interest income on an equivalent before-tax basis assuming an effective tax rate of 35%. This assumed rate may differ from our actual effective income tax rate. In addition, the earning asset yield, net interest margin, and the net interest rate spread are adjusted to a fully taxable equivalent basis. We believe that these measures and ratios present a more meaningful measure of the performance of interest-earning assets because they provide a better basis for comparison of net interest income regardless of the mix of taxable and tax-exempt instruments.

The following table reconciles the tax equivalent net interest income to net interest income as reported on the Consolidated Statements of Income. In addition, the earning asset yield, net interest margin and net interest spread are shown with and without the tax equivalent adjustment.

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The following tables present, for the periods indicated, certain information relating to our consolidated average balances and reflect our yield on average interest-earning assets and costs of average interest-bearing liabilities. The table contains certain non-GAAP financial measures to adjust tax-exempt interest income on an equivalent before-tax basis assuming an effective tax rate of 35%.