Taylor Capital Group (TAYC)

Derivative Instruments Designated as Cash Flow Hedges:

We had derivative instruments with a notional amount of $100 million and $400 million at December 31, 2007 and 2006, respectively, designated as cash flow hedges against interest receipts from prime-based loans. The fair values of these derivatives are recorded as an asset or liability with the effective portion of the corresponding unrealized gain or loss recorded in other comprehensive income in stockholders’ equity, net of tax. All of the cash flow hedges have been highly effective.

At both December 31, 2007 and 2006, we had designated the floor agreement with a floor interest rate of 6.25%, as cash flow hedges against interest receipts from prime-based loans. We use the interest rate floor to help manage interest rate risk by protecting interest income in the event that the prime lending rate declines below the floor level. We did not receive payments under this floor in 2006 or 2007. The premium on the floor is amortized to loan interest income in proportion to the expected value of the floor, calculated at inception, in each of the future periods. During 2007 and 2006 loan interest income was reduced by $193,000 and $44,000, respectively, for amortization of the floor premium, and $298,000 of amortization is expected for 2008.

During 2006, we entered into two interest rate collars with a total notional amount of $300 million that were designated as a cash flow hedges against interest receipts from prime-based loans. The collars were obtained at no cost. During 2007, we received $69,000 of settlements under the collar agreements, when the floating rate decreased below the collar floor rate that were recorded as additions to loan interest income. We did not receive any payments in 2006 and did not make any payments in 2006 or 2007. In December 2007, we terminated these collars with the counterparty. The fair value of the collars at termination was $7.5 million. Because the forecasted hedged transactions were probable of occurring, the gain realized upon termination was deferred and is amortized as an increase of loan interest income over what would have been the remaining life of the derivatives, which were scheduled to mature in May 2009 and May 2010. During 2007, $58,000 of this deferred gain was amortized as an addition to loan interest income and $3.5 million of the deferred gain will be amortized in 2008.

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Derivative Instruments Designated as Cash Flow Hedges:

The Company had derivative instruments with a notional amount of $100 million and $400 million at December 31, 2007 and 2006, respectively, designated as cash flow hedges against interest receipts from Prime-based loans. The fair values of these derivatives are recorded as an asset or liability with the effective portion of the corresponding unrealized gain or loss recorded in other comprehensive income in stockholders’ equity, net of tax. All of the cash flow hedges have been highly effective.

At both December 31, 2007 and 2006, the Company had designated the floor agreement with a floor interest rate of 6.25%, as cash flow hedges against interest receipts from Prime-based loans. The Company did not received payments under this floor in 2006 or 2007. The premium on the floor is amortized to loan interest income in proportion to the expected value of the floor, calculated at inception, in each of the future periods. During 2007 and 2006, loan interest income was reduced by $193,000 and $44,000, respectively, for amortization of the floor premium, and $298,000 of amortization is expected for 2008.

During 2006, the Company entered into two interest rate collars with a total notional amount of $300 million that were designated as a cash flow hedges against interest receipts from Prime-based loans. The collars were obtained at no cost. During 2007, the Company received $69,000 of settlements under the collar agreements when the floating rate decreased below the collar floor rate. These settlements were recorded as additions to loan interest income. The Company did not receive any payments in 2006 and did not make any payments in 2006 or 2007. In December 2007, the Company terminated these collars with the counterparty. The fair value of the collars at termination was $7.5 million. Because the forecasted hedged transactions were probable of occurring, the gain realized upon termination was deferred and is amortized as an increase of loan interest income over what would have been the remaining life of the derivatives, which were scheduled to mature in May 2009 and May

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TAYLOR CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2010. The amount of the deferred gain included in accumulated other comprehensive income at December 31, 2007, was $4.5 million, net of tax. During 2007, $58,000 of this deferred gain was amortized as an addition to loan interest income and $3.5 million of the deferred gain will be amortized in 2008.

Derivative Instruments Designated
as Cash Flow Hedges:

The Company had derivative
instruments with a notional amount of $100 million and $400 million at December 31, 2007 and 2006, respectively, designated as cash flow hedges against interest receipts from Prime-based loans. The fair values of these derivatives are recorded
as an asset or liability with the effective portion of the corresponding unrealized gain or loss recorded in other comprehensive income in stockholders’ equity, net of tax. All of the cash flow hedges have been highly effective.