For a year and a half, Taylor Capital Group in Rosemont, Ill., has tried to distinguish the growth of its commercial and industrial lending from the credit problems in its residential real estate portfolio.

No more, said Mark A. Hoppe, the president and chief executive of the $4.5 billion-asset company's Cole Taylor Bank, during a tense conference call Thursday to discuss second-quarter results.

"There is no more of this 'legacy credits versus new credits,' " Hoppe said when asked about the age of loans that moved into nonperforming status. "We've been at this for 18 months now. We are one bank."

In early 2008, Taylor Capital launched an aggressive plan to expand commercial lending, hoping to capitalize on the disruption caused by Bank of America Corp.'s takeover of LaSalle Bank Corp. But on Thursday's call, Hoppe and the company's chairman, Bruce W. Taylor, described how the prolonged recession is hitting its C&I portfolio, which previously existed on a different plane from dicey residential credits. "As this historic recession continues, it is affecting harder and faster more industries and more of our clients," Taylor said.

Nonperforming commercial loans climbed by more than half from the first quarter, to $39 million. Still, most of the company's problems are driven by its $312 million exposure to residential real estate development, one-third of which is nonperforming. Overall, nonperforming assets totaled $212.8 million, up by slightly more than one-third from a year earlier.

The company lost $26.1 million in the second quarter, 3% more than a year earlier and four and a half times the loss for the first quarter. Driving the second-quarter loss was a $39.5 million provision, down 36%, from a year earlier.

During the call, investors grilled the executives on the increases in nonperforming assets, the prolonged losses, the outlook for the company's growth initiative and how Taylor Capital plans to remain well-capitalized.

"The problems it is reporting in C&I still seem rather manageable," said Daniel Cardenas, an analyst at Howe Barnes Hoefer & Arnett Inc. "But it does raise an eyebrow. You have to wonder if it is the beginning of things getting weaker."

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