CHICAGO - California businessman Larry Castro admits that his industry - temporary staffing - is not an easy one for banks to understand.

So instead of wasting time trying to explain the complexities of the business to local bankers, Mr. Castro prefers to borrow from Wintrust Financial Corp. - some 2,000 miles away. Wintrust, a $1.8 billion-asset company in Lake Forest, Ill., operates a subsidiary dedicated solely to the temporary-help industry. "Traditional banks locally could offer the financing I need and probably be less expensive," said Mr. Castro, president of CareerStaff in Anaheim. "But we'd have to continually reeducate them on what we do and how we do business. It's hard to explain that even to my accountant."

Loyal niche customers like Mr. Castro have powered Wintrust's 35%-a-year asset growth since its formation in 1996 through a merger of four Chicago-area start-up banks. Wintrust now generates 40% of its assets through national or regional specialties including insurance-premium financing, indirect-automobile leasing, and condominium-association financing.

Wintrust's growing diversity also has fueled talk that it is a takeover target, analysts say. Old Kent Financial Corp. of Grand Rapids, Mich.; Fifth Third Bancorp in Cincinnati; and First Midwest Bancorp Inc. of Itasca, Ill., are rumored as possible buyers.

"Everybody has commercial lending and a mortgage business, but Wintrust has these niche lines of business that a lot of possible acquirers don't have," said Chris Bamman, an analyst with Advest Inc. in New York. "They could use Wintrust's product lines and maybe even extend them to more clients."

But if Wintrust stays independent, analysts say, its specialty businesses put it ahead of the curve in an era that finds community banks increasingly pressed to branch into more-lucrative product lines and generate more fee income.

"From day one, we knew we needed these 'asset factories' to grow our balance sheet," said Edward J. Wehmer, Wintrust's chief executive officer. "It works because your local bankers don't have to stretch to find loans that they wouldn't otherwise offer."

Wintrust's loan quality is reflected in its numbers. Its loan-loss ratio was only 0.7% in 1999, compared with 1.8% for other banks with $1 billion to $10 billion of assets, according to the Federal Deposit Insurance Corp.

In addition, Wintrust has driven down its efficiency ratio - from 95.2% in 1996 to 61.6% by last year. Its FDIC peer group's ratio is 55.7%, but analysts say they expect Wintrust's to fall as the young company continues to streamline and expand.

"Their deposit base initially grew faster than their loan base, so they looked for alternative ways to deploy deposits," said Daniel E. Cardenas, of Howe Barnes Investments Inc. in Chicago. "They're a little different animal than your typical bank or thrift."

Mr. Wehmer said he is open to takeover offers. But in the meantime, he plans to search for new specialty lending businesses and to acquire or start community banks.

"Everybody talks about someone coming in and buying us, but we're going to play this game like we're going to be the last bank standing," he said.

The niche products also foster loyalty and command a premium above typical financing, Mr. Bamman said.

Few companies are interested in financing temporary staffing, Mr. Castro said, because the businesses require large revolving lines of credit to pay hundreds of employees' salaries while the agencies wait to be reimbursed. Therefore, the agencies never pay off the loan - unlike a typical operating loan to a small business.

Bob Powell uses a $100,000 line of credit through Wintrust for his temporary-staffing agency. He also pays 5% in fees for them to cut paychecks and prepare tax forms for the 700 temps his business places each year.

"If they ever stop doing business with me, I will close my doors," said Mr. Powell, co-owner of Group Powell One in Santa Fe. "I couldn't afford the stress of doing the kinds of things they do for me, or the cost."

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