Wintrust Financial Corp. Q3 2007 Earnings Call Transcript

| About: Wintrust Financial (WTFC)
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Wintrust Financial Corp. (NASDAQ:WTFC) Q3 2007 Earnings Call October 22, 2007 12:00 PM ET

Executives

Edward Wehmer - Chief Executive Officer and President

Dave Dykstra - Chief Operating Officer and Senior ExecutiveVice President

Dave Stoehr - Chief Financial Officer and Executive VicePresident

Analysts

Brad Vander Ploeg - Raymond James & Associates

Leo Harmon - Fiduciary Management Associates

Jon Arfstrom - RBC Capital Markets

Mac Hodgson - SunTrust Robinson Humphrey

Kenneth James - Robert W. Baird

Ben Crabtree - Stifel Nicolaus

Brad Milsaps - Sandler O'Neill

Steve Vancurova - Analyst

Peyton Green - FTN Midwest Securities

Ron Peterson - Sterne, Agee & Leach

Operator

Good morning. My name is Calia and I will be your conferenceoperator today. At this time, I would like to welcome everyone to the WintrustFinancial Corporation Third Quarter Earnings Conference call.

All lines have been placed on mute to prevent any backgroundnoise. After the speaker’s remarks, there will be a question-and-answersession. (Operator Instructions).

Mr. Wehmer, you may begin your conference.

Edward Wehmer

Thank you. Good morning. Third quarter conference call forWintrust. Welcome, everybody. A little disappointing quarter for Wintrust, thethird quarter was. We’ll keep our comments relatively short. I think our pressrelease was very informative, and I think we would like to get to questions, asI am sure you all have some.

Really, if you look at the quarter on a core basis, thebusiness was pretty good. The margin was up, good growth in the loan side. Allthe fundamentals are pretty good. The real two issues, as you noted by readingthe press release, related to the mortgage side of the business.

The fickle finger of the mortgage situation did not pass usover and on the credit side of things, where our provision was a little bithigher.

Talk first about the mortgage side of the business. If yougo line-by-line, quarter-to-quarter, it cost us $0.25. It was really kind ofthe perfect storm for the mortgage, with really three major components takingthat into, adding into that number, the biggest of which was a reserve we setaside for put-backs from our wholesale mortgage business.

This was an area we substantially exited. We were not in itbig time to begin with. We substantially exited it in the middle of the secondquarter.

As you know, the mortgage companies out there are beingvery, very aggressive in terms of what they are trying to put back. Ourobjective is to deal with this issue just once and move on. There are numbersof other, number of claimants.

Also, you should know that there are also some other tacticswe're looking at to deal with this issue. But we are in negotiation with anumber of these people, and so sometimes if our comments seem a bit nebulous onthat, I think you'll understand why. We are dealing with it as we have, andagain, we do have a number of alternatives to deal with that.

The other side of the business, on the credit side, we havebeen saying for over two years right now that we thought that credit wouldturn. We underwrite our portfolio at least historically we always think weunderwrite it about 25 basis points of loss.

Over the past few years, credit has been absolutelyterrific, and we have been at 7 or 8 or 9 basis points of losses. This quarter,the losses were up a little and the provision was up a little to cover that.That cost us about $0.05.

So, if you take the $0.30 on the mortgage, and then deductthe BOLI income we had from that we lost during the quarter our good friend andchief marketing fellow, Bob Key. He was a 20-year friend of mine, and 13 yearswith the Company.

He's a great loss to us, and but when that occurred, therewas BOLI income on it that came back. But I think if you add those back andtake a normalization of it, the $0.25 line-to-line on the mortgage and the$0.05, that the core earnings are actually basically very good.

On the loan side, growth has been good. You've got toremember the real estate side of the equation again we have a lot of realestate loans kind of paying off and we are making up for that. So thequarter-to-quarter growth in loans has been very good when you take that intoconsideration.

On the credit side, just one more comment and then I'll turnit over to Dave Dykstra, who will go through some of the numbers. You know, asI said, for the last couple of years we have kind of been planning for thiseventuality on the credit side of things.

It is going to take time when your charge-offs, even if wego up to 25 basis points, which would be a doubling, more than a doubling fromour historical run rates over the last two years, it is still very, veryconservative, given the market where it stands now.

The problem is that the margin, although up, is not keepingpace with this. It is going to take time for credit spreads to work their wayback through to cover that. I think everybody would admit that there is a pointto 1.25 points to 1.5 points of credit spreads that have exited the market dueto liquidity and competition out there.

It’s going to take some time for those to come back. We haveseen them come back. More the bigger spreads have come back, obviously,selectively in the real estate side of the business.

On the commercial side of the business, we do not see thespreads coming back as well as they should. I think from the herd mentality,people have moved away from real estate and now the competition is prettyheavy, given the competitive market in Chicago and what is going on there.

But you've seen those spreads not move yet. I think you'regoing to see some more pain before those move. But our margin keeps going up, acouple basis points, a couple basis points. It is going to take time to filterthat through the whole portfolio on the spread side of things.

But, I would gladly give up another 8 or 9, go from 9 to 25basis points in losses to get a point or 1.25 points in spreads. It is going totake some events like this in the overall market to make this happen. We'vesaid that for a couple of years. We've tried to keep our powder dry,conservatively, that we can be the first out of this.

On a prospective basis, I said the core earnings are good.Expenses were very much under control and flat, almost three quarters in a rowright now. So, I think we have got a good handle on expenses. Ourloan-to-deposit ratio has moved up from its low of around 79% to 92%. We'regoing to turn the growth machine back on to some extent.

On the other side, we are looking at the option of sellingpremium finance loans again. We will only do that and we're talking to a numberof people who do it. We'll only do it if we can get capital relief, because wewould like to balance growth in earnings and buying our stock back.

We still have over 400,000 shares under our currentauthorization to buy stock back and we would like to be able to do that. Socapital is going to be king going forward, in terms of our balancing buyingstock back with required growth to support the growth we're seeing back againin the market and rebuilding from here.

So with that, I'll turn it over to Dave, and take somecomments on the numbers themselves. Dave Dykstra.

Dave Dykstra

Thanks, Ed. Just a few things. As Ed mentioned, the corebusiness is pretty stable with the prior quarter, and pretty much I think inline with what we've talked about in the past. The net interest margin was up abasis point from 313 to 314.

Our core net interest margin, if you exclude the impact ofthe trust preferreds and the stock buyback program that we did, was up 3 basispoints this quarter from 340 to 343.

We did buy back some shares during the third quarter,579,000 shares. So as Ed mentioned, about 421,000 shares available under ourprogram that we can buy back at. That does put some pressure on the margin,simply because we are borrowing to buy those shares back.

On the Other income side, pretty steady in most of the majorcategories. The wealth management area was down slightly, but that was prettymuch related to the brokerage side of the business. Our asset management andour trust business increased again and we continue to see nice growth there.The brokerage side is usually a little quiet in the third quarter as a lot ofour customers are on vacation and some of our brokers too.

But it tends to be quiet in the third quarter, but prettygood growth on the asset management side. Service charges on deposit account,administrative services from our Tricom area and the other miscellaneous incomeareas are all fairly flat.

As Ed mentioned, we had a death claim on the bank-owned lifeinsurance, so that boosted that line item a little bit. Fees from covered callswere at their lowest point in a long, long time, probably since we reallystarted the program.

As interest rates rise and volatility is low, the marketreally does not present itself with many opportunities to generate proceedsfrom that program, and with rates falling and volatility increasing a littlebit on interest rates, the market probably is changing there a little bit. And weshould hopefully see if market conditions stay that way, some opportunities inthe future.

On the expense side of the equation, as Ed mentioned, it’sbasically flat. Salaries and employee benefits were down a little bit. So wemaintained those fairly stable despite some growth over the last quarters withbranches.

Part of that, as we mentioned in the release, relates tocommission on mortgage banking business and a little bit to commission on thebrokerage business under our wealth management side, that those commissions aredown a little bit, which helped keep that number under control.

All the other categories are basically flat. And we did notein this press release this time, we're starting to break out it separate, isthe FDIC insurance. Those assessments are increasing. There were some creditsout there that we've used up in the past, that were available to certain of ourbanks and those are expiring.

So, that number has increased a little bit and without thatnumber, actually, I think we kept expenses very much in line and actuallyreduced them $932,000 during the quarter. So, pretty much a steady quarter onthe expense side and a decent quarter on the margin side, and the Other incomesides are pretty much in line with what we would do for our core businesses.

On the balance sheet side, again, we’ve been working on ourdeposit mix and deposits stayed relatively flat during the quarter. But we areworking on getting the certificates of deposit down a little bit and movingthose to other deposit classes where we can help control our deposit costs, andwe continued to do that a little bit during the quarter.

So with that…

Edward Wehmer

Just there is one thing I forgot to mention, it's Ed again.We mentioned in the press release that in the fourth quarter we will haveapproximately $5 million of pre-tax onetime gains.

In my mind, that pretty much offsets the reserve we put outthere. Those gains relate to, we had taken up kind of a stakeout position in abank that was acquired by one of our competitors and we were able to record again on that.

We also had some land that we had acquired for futuredevelopment where we got an offer we could not refuse, and we did not refuseit, and it is under contract right now. So we anticipate that those onetimersthat probably would have gotten credit for in the fourth quarter pretty muchoffset the reserve that we have had to put in place for the mortgage side ofthe business.

So, I did want to mention that those two will technicallyoffset pretty close, and we can concentrate then on the core business and dealwith these one-offs, as one-offs when is a one-off not a one-off? We hope thesetruly are one-offs. On the income side, we will take all the income we can get.

With that, we can turn it over to questions.

Questions-and-Answers Session

Operator

(Operator Instructions) Your first question comes form theline of Brad Vander Ploeg.

Brad Vander Ploeg - Raymond James &Associates

Good morning guys, how are you?

Dave Dykstra

Hello Brad.

Brad Vander Ploeg - Raymond James &Associates

That was close. A couple questions, maybe just firststarting on sort of a smaller item. The gain on sale of premium finance loans.I know you guys have been portfolioing more of those lately, and I see thatthird quarter looks like you kept them all. I'm just curious what your outlookis for that going forward.

Edward Wehmer

Okay, really we've been keeping them all for over the lastyear. And what that gain line has been has been the cleanup of previous sales.We've always tried to be conservative in our recording of those gains and therehave been cleanup provisions that required providing more income, but those arepretty much all off the books.

So that number has been zero. As I stated in my comments,with up to 92% loan-to-deposit, we would like to start the growth engine goingin our banks. Again, we have a growing the smaller banks while shrinking someof the bigger banks and bringing our cost of funds down. I think there is abalance here. We would like to find a way to sell whole loans where we do getcapital relief, because we do still want to run at 85% to 90% loan-to-deposit.

We do have very good loan backlogs rate now with the marketwhere it is and with some of the people we have hired. There's good loanbacklogs. And what we would like to do is find that balance, maybe startingwith slower growth, but sell off some premium finance loans, which obviouslywould put us in an optimal position, recording some gain on sales but stillhaving the margin increase due to mix purposes. So that’s something we'reworking very, very hard on in the fourth quarter.

Critical to it, though, is capital relief, because we wouldlike to take that extra money and continue to buy our stock back, but rightnow, as we said, we have 400,000 shares, plus 400 available to acquire, but wedo have to manage our capital and our growth, and selling premium finance loansin the future can be an integral part of that.

We're hoping to close in the fourth quarter the acquisitionof Broadway Premium Finance, which should bring about $65 million more ofpremium finance loans on the books. Those are usually yields that are higher.

The Broadway business is the business that is one lower thanthe business we're in right now in terms of average ticket size, but the yieldson those are probably 600 basis points higher than what we're getting rightnow.

So, that ought to be very beneficial to us, and I think thatwe can get a nice mix of the premium finance loans on the books, sell somepremium finance loans, get the gain, fill the hole that is left there by thebacklog that we have.

So that would bring earnings up and we can also then keepcapital embedded to buy our stock back and supports getting back on the growthtreadmill.

Brad Vander Ploeg - Raymond James &Associates

Okay. And then in terms of the margin outlook, maybe, Dave,it seems like there are a few countervailing factors. Your balance sheet is alittle bit liability sensitive, which should be good in this environment, butthen you've got increasing non-performers, which doesn’t help. And, I’m justcurious, what your outlook is for the margin. Is it stable? Is it modestpressure?

Dave Dykstra

Well, although our non-performers went up, they didn’t go updramatically. I mean, it’s still just a handful of loans, and we're stilltrying to push them through. So, I'm not so certain that, we’ll have tremendouspressure from the non-performers.

We are slightly liability sensitive, so a drop in rateswould put a little bit of pressure on the margin in the short run. But, Iguess, we work really hard to try to get that mix changed or our annualtransaction by transaction on the loan side and the deposit side, we're workinghard.

So, we would hope that, as we've seen in the past, we wouldbe in a fairly narrow band here, if, we can accomplish all those objectives.So, I don’t see dramatic changes in the short-run either direction right now.

Edward Wehmer

Right there, we would like to see it keep in, even if it’sonly a couple basis points a quarter. We certainly would like to see that, andwe're working on deposit mix issues. I think we've been very successful there,and I think, all of our marketing is geared towards that on the retail side ofthings with…

Dave Dykstra

And with the Broadway acquisition coming on there's $65million worth of assets, that are in the low teens sort of range. Andcertainly, that would offset anything that’s in the non-performers side, Iwould think.

Edward Wehmer

If you think about it, Brad. If, we are able to sell -- takea hunk of premium finance loans and take them off the balance sheet and open upcapacity for the loan pipeline, we have, that are coming at marginally betterand hopefully better and better spreads, that will be -- it will be quicker toget the spreads back into the portfolio.

In other words, to take the portfolio over its normalduration and get re-priced at higher spreads, to the extent, we can do thatthrough new loans and creating capacity for new loans that could happen sooner.So, if we keep working on the mix and we keep working on the mix of the assetside, we would want, we've got to get the margin back up.

We've been increasing, if you look at the core margin, Imean both of these are higher than they’ve been for three or four years rightnow, the core and the stated margins. So, we would like to continue that goingup over the next few quarters, but time will tell.

Brad Vander Ploeg - Raymond James & Associates

And that is mostly the asset side. How about the depositside? I mean, even shifting the mix there, is there any pricing flexibility orour prices pretty sticky on the deposit side right now?

Edward Wehmer

There is pricing flexibility right now. And we’ve beentaking advantage of the pricing flexibility that’s out there. There is stillsome outliers out there, there's some guys that need funding, like the creditunions in some of our markets are still pricing rather high. Some of the mortgagerelated banks, national mortgage related banks are in the market pricing very,very high.

But other than that, our competition, everybody is kind afeeling the same pain. So, it is not as across the board tough as it used tobe, and that’s why we have been able to relatively improve our position there.Mix is the biggest issue there for us too. When rates were one, fed funds wereone, everybody was running to CDs for rate.

And what we've got to do is reverse and what we have beendoing is reverse that trend and bring more of the traditional retail coredeposits back into play, where you do have better pricing flexibility.

Brad Vander Ploeg - Raymond James &Associates

And maybe lastly, I’ll start this I'm sure. Others may havequestions on this as well, but in terms of the mortgage banking income, maybe Idon't think, can you give some color on how things were in September or howthey’ve been since the end of the quarter, to give us an indication of maybewhat we ought to expect that line to look like in the fourth quarter andbeyond?

Are origination volumes better? Do you feel like all thatpushback is behind you or is there possibly some more to come?

Edward Wehmer

Well, like I said, there's three components to really that$0.25 number. One is, the wholesale side of the business issue, which was thelargest. We having exited to that business, substantially exited that businessin the middle of the second quarter, most of those –and you got to remembereverybody's being very aggressive in trying to do what they are doing.

And we hope that we have to just deal with that issue once,and hopefully that’s the case. The other issues with the rates going down inmortgage servicing rates. It is silly accounting again, but you've got to dealwith that, and that is what it is and that will be a function of rates goingforward.

The derivative number is one that quite frankly justbefuddles me why it's in there anyhow. But, that fluctuates back and forthdepending on what day and how much you have in inventory, when that closes; andit always reverses itself.

So, because it should reverse itself because it’s just onwhile you are holding the loans in the portfolio that are already in our cases,they are already sold. They're all sold on a best case, best efforts basis. Wedon’t really take a position that’s an accounting entry.

So, if you take those out and you look at the overallmortgage business. In the overall mortgage business, those applications areactually up, I don't know about closings, but we have to be in the mortgagebusiness. As the community banking alternative, we need to be in that business,and we will be in that business. This was the perfect storm where all three ofthose components hit going the wrong way. One of them was a one-timer.

So, we will be in that business, maybe not the business togot us here on the wholesale side, but certainly on the retail side, we willcontinue to push that because its a very profitable business for usstrategically and it is strategically important. So, to try to predict what itwill be -- we don’t do that sort of thing. But we are in the mortgage business,but hopefully -- at least that one big issue is hopeful behind us and we don'twant to deal with it again.

Dave Dykstra

And Brad, as we broke it out in the press release, the partreally related to the volume was $1.1 million decrease from the second quarter.You got to remember that about half of that is commissions that go out, andthen you have expenses on top of that. So, the net impact to the bottom line asa result of the volume changes in the mortgage business is not the significantdriving factor here.

And with rates down, you would expect the volume to pick up,and we certainly had a decent set of application volumes in August andSeptember. But as Ed said, how many of those actually will end up closing? Weare optimistic, but we do not make a projection.

Brad Vander Ploeg - Raymond James &Associates

All right. Thanks very much.

Dave Dykstra

Thanks, Brad.

Operator

Your next question comes from the line of Leo Harmon.

Leo Harmon - Fiduciary ManagementAssociates

Hi, good morning. I was wondering if you could talk a littlebit about the nature of the puts coming back to you from the mortgage side,whether that was related to early payment default or whether that was relatedto you non-performing assets, and whether that was related to types ofmortgages, subprime, Alt-A, and that sort of thing.

Dave Dykstra

Well, there's a variety of factors, some of which we agreewith and we don’t agree with. So, we're negotiating with a number of them. But,there is some early payment default claims in any of there’s certain otherfactors, such as reps and warranties, if the income levels were accurate andthe like.

Some of those we really are in disagreement on. But at thispoint, we are being conservative, and if there is a claim from anyone outthere, we're trying to make a reasonable estimate of where we think we can fallout. But a number of them were early payment defaults on businesses, as Edsaid, that we basically exited.

Some of these were higher loan-to-value -- were higherloan-to-value loans that were out there, that early payment defaulted, and wejust really aren’t doing that product mix anymore. And we really exited itearlier in the second quarter as something we did want to be in, but this ishopefully what we think is the tail end of the…

Edward Wehmer

Hopefully, usually, they're 90 days, and it has been a lotmore than 90 days, since we did any last business.

Dave Dykstra

Yes, the majority of them were early payment defaults.

Leo Harmon - Fiduciary ManagementAssociates

So, this was business that was written in the first quarter,or this was business that was written in the May/June timeframe that's comingback to you now, since there is only 90 days to make those claims?

Edward Wehmer

Pretty much, I guess that would be the math of it, yes. But,as I said before, as you can imagine these mortgage companies were beingextremely aggressive. Like Dave said, may be a number of them were earlypayment defaults, but there's also a lot of other issues that, for example, howcan you understate income on a non-verified income loan?

There's lots of issues that everybody is looking for I's andT's to cross, and they're coming back. So there is plenty of room to negotiateand work with these, and they're all based on a number of them too. So, we'regoing to play it hard. We have a number of alternatives and tactics that we canuse, and we're going to work this hard.

But again, we want to deal with this issue once. And sotiming, I think, is on our side, and there's some other things that we willnegotiate very hard, but hopefully we've put it behind us.

Leo Harmon - Fiduciary ManagementAssociates

Okay. Next question was, we saw a little bit of a tick up incredit cost during the quarter, not -- certainly, actually pretty good relativeto what we’ve been seeing from some other banks. But, can you talk a little bitabout, where your expect credit cost to normalize, where you expect charge-offto normalize, and where you expect provisioning to normalize on that basis?

Edward Wehmer

I start to wonder what is normal anymore. The whole world isreacting in ways that they should not react to certain things. But anyhow, wehave always said that we underwrite our portfolio over time to you 25 basispoints in losses. And we said this from day one. And given how the market hasworked in the past few years, credit quality has been exemplary. We were at 7,8, 9 basis points. We're very conservative on the credit side of things; wethink we are.

So to go -- because we go from 7 to 18 basis points, it’smore than doubling. So, it’s a big number, but it is a big number on a smallnumber. We would expect our portfolio to average out in normal time periodsaround 25 basis points in losses. We do not expect to go back and average that.We don’t expect that we're going to have to fill the area over the curve forthe last three years, but you never know in this market, I don’t know what isnormal anymore and what is it not normal anymore.

But for the last two years, almost two and a half yearsright now, you've heard us on this conference call saying that we pulled backon the lending side when the market moved away. We did not want to follow theherd as they were doing things that we didn’t think were appropriate or on thelending side of the business. So we, our loan to deposit ratio went from over90% down to 79% because we pulled back.

We are firm believers of the two-year rule, that you're onlyas good as you are today two years ago. And you're starting to see, we made thecall two and a half years ago. You're starting to see this stuff work throughthe system.

We didn’t think that we would be totally unblemished bythis. The brush is going to have to hit us somewhere, just because nobody isbigger than the market. But, we would hope that and we planned the fact that wewill go back to our kind of our normal 25 basis points, which would again be alittle bit more of an increase; but again, don't be in denial. Push the itemsthrough, get good flow to identify things early and move them on.

So, that will be our approach, and I think that is about allI can say about that.

Leo Harmon - Fiduciary ManagementAssociates

Okay. Thank you.

Operator

Your next question comes from the line of Jon Arfstrom.

Jon Arfstrom - RBC Capital Markets

Good morning guys.

Edward Wehmer

Hello Arf.

Jon Arfstrom - RBC Capital Markets

Hi, a couple questions, what do you need to do to getcapital relief on the premium finance sale?

Edward Wehmer

Well, that's an interesting question. Whole loan sales arethe best way to go the, what we used to do with LaSalle, we had to keep capitalavailable because there was, we had some liability on those things.

If you go to a securitization or some sort of conduit, therestill is four-year residual, unless you sell the residual off. There you haveto keep capital against that residual in varying degrees.

So we would really like to find a more optimum source andthat would be a whole loan sale, where we could limit the amount of capitalthat we would have to keep against any sale that we put through.

The yields are still, that market, you talk about theperfect storm on the premium finance side. We are holding our own there butwe're having to do, premiums are down 19% in this soft market.

Our volumes are up 19% in the business, but in terms of unitsprocessed, but we're keeping everything is just steady right now. We're runningreal hard just to tread water because of the soft insurance market that’s goingon right now, and those guys are doing a great job holding their own.

There still continues to be pressure on the interest ratesin that business also, we tried to do, had a tactic a little while ago where wesaid, let's just raise some rates with some of our agents because you know,bring the spreads back in. And we figured it would be a little bit of ratedétente, where we would raise and everybody else would go shoo, and raise theirrates. Were one of our biggest competitors who took a week and they were in themarkets of our customers in there saying, we will give you a lower rate. So,that didn't really work. So, that business right now is doing extremely well.But we're having to run a lot harder to stay where we are. We could use a nice,hard insurance market, would raise, we would get about 30% to 35% moreoutstandings, if we went back to a normalized insurance market right now. But,as the capital relief it's just got to be the structure of the deal.

And we can do that, I think it really, it really pushes thebalance sheet, it pushes earnings, because we do see good, solid loan flow atreasonable pricing in our pipelines right now.

Jon Arfstrom - RBC Capital Markets

Okay. Couple more questions. I hate to keep talking aboutmortgage banking, but it is clearly the topic of the quarter. Can you justremind us what you have in terms of mortgage banking operation?

I think we all remember the acquisition, but can you talkabout wholesale versus retail, prime, non-prime servicing, just give us a quickoverview of what you have?

Edward Wehmer

Well, I think we have done about, if you look at all of ourmortgage banking operation, we do about, I think about $1.7 billion inproduction so far this year. Historically, we probably did 75% to 80% of it injust prime conforming, A-paper mixes.

You always had somebody that would come with Alt-A type ofpaper, where you could find a couple investors in the end market that would buythat paper. But, it was a small piece of our business.

I’d say right now, we’re probably doing virtually allA-prime rated paper, and we might do a little bit of Alt-A if the credit scoresare high enough and the loan to values are low enough, and if you are willingto keep it in your portfolio if an end investor went away.

But, it has to meet some very strict criteria to get intothat. And we're doing virtually none of that right now, but, we might do alittle bit if the credit scores are high enough and the borrower is strongenough and the loan to values are there.

But, that is what we were talking about basically exitingthe business. We're really not doing the high loan to values. We're really notdoing that kind of paper anymore. And we are really just focusing on the A typeof paper out there.

There are not many end investors out there that are buyingthe other paper anyway. So, I’d say probably now we're closer to 95% good stuffas far as what people would deem to be A, and maybe a little bit of Alt-A if itmeans very strict criteria.

Dave Dykstra

On the wholesale, retail side, you're probably 60%wholesale, 40% retail right now.

Jon Arfstrom - RBC Capital Markets

Just last question…

Edward Wehmer

One thing, we weren't in that business for that long,either. That was like a six months that the business that got us in trouble wasabout maybe a five or six month hiatus into that business, and we jumped out ofit pretty quickly, since it doesn't make a lot of sense.

And it was a mistake and it is what it is. Fortunately, wehad the offsets that are going to come in on the other side, that are going tocover it from an earnings standpoint pretty much. The rest of it is just marketand accounting driven stuff.

Jon Arfstrom - RBC Capital Markets

Okay. This is probably the number one question from theinvestors that I spoke with this morning. And I think you’ve covered it but howconfident are you that this is it in terms of the recourse obligation? Itsounds like you're highly confident that you've got it all. Is that a fairassumption?

Dave Dykstra

We believe we’ve encapsulated it now.

Jon Arfstrom - RBC Capital Markets

Okay.

Edward Wehmer

You don't know what you don't know Jon, but we did its likeI said, I want to deal with this issue once.

Jon Arfstrom - RBC Capital Markets

Okay. All right. Thanks, guys.

Operator

Your next question comes from the line of Mac Hodgson.

Mac Hodgson - SunTrust Robinson Humphrey

Hi, good morning.

Dave Dykstra

Good morning.

Mac Hodgson - SunTrust Robinson Humphrey

On the mortgage business, sorry to add a couple of questionsthere. These, the $6.7 million or so that you took reserve for, what was thedollar amount of loans that that was against? Just trying to figure out whatkind of a haircut you took?

Dave Dykstra

I am not sure, I really want to answer that Mac, only becausewe are in negotiation with a number of people and I do not want to play ourhand out right now.

Mac Hodgson - SunTrust Robinson Humphrey

Okay.

Dave Dykstra

If you can appreciate that.

Mac Hodgson - SunTrust Robinson Humphrey

Sure.

Dave Dykstra

But again, we think we’ve encapsulated it so.

Mac Hodgson - SunTrust Robinson Humphrey

Okay. I was going to ask next if you expected these loans tocome back on the balance sheet. Obviously, increase in non-performers, but itsounds like there is a couple of things you are trying to do to make sure theydon't come back on?

Edward Wehmer

We would hope that they do not come back on the balancesheet. But we are in negotiations now and…

Dave Dykstra

At a price they could come back on the balance sheet.

Edward Wehmer

Right. But we're hopeful now.

Mac Hodgson - SunTrust Robinson Humphrey

Okay. Any update you could give us on, I know you'replanning on opening up an LPO downtown. If you could talk a little bit aboutthat, and any update on kind of your ability to hire some people from LaSalle.Obviously, we saw Private Bancorp announce some hires this morning. I did notknow if you were trying to be aggressive in hiring some more people.

Edward Wehmer

We're always in interested in hiring very good people. Thefirst part of your question, the LPO is proceeding, there is a couple ofoptions we're taking there; we're talking to a number of people regarding thateventuality. As it relates, Private Banc is a winner in the Derby, so far as itrelates to the LaSalle folks and I'm interested, congratulations to Ralph, hehas done some stuff. We'll see how it’s going to shake out in his financialsand how it’s going to work?

But we are very active and we’ve hired the number of people,and we still are looking to hire people not just LaSalle, but in our othercompetitors also, we think, we still have a great positioning right here withthe best footprint in Chicago to build off of. And, I think that we are veryattractive to a number of folks and we're working very hard to bring them in.

Some people are turned off by our distributive style and ourentrepreneurial style and some people are turned on by it. We need the peoplewho are turned on by it, sometimes you take a guy from a big bank and you bringthem into run something and it's like bringing home a prisoner of war fromNorth Korea. You've got to take them through and reindoctrinate them; they'vebeen so indoctrinated in the big stuff.

But it, we’ve been very successful so far in bringing folksin and I think, you see it in our lending numbers, and we will continue to lookfor good people who are our type of people, so.

Mac Hodgson - SunTrust Robinson Humphrey

Any specific numbers you could give on kind of new hires todate?

Edward Wehmer

I do not have them handy, but it’s been, we’ve done justfine. I do not have the numbers handy, really, to date. But I would, in termsof from maybe from over the last two quarters, I would say 15 people have comeup.

Mac Hodgson - SunTrust Robinson Humphrey

Okay, great. Thanks, guys.

Operator

Your next question comes from the line of Kenneth James.

Kenneth James - Robert W. Baird

Hi, good morning.

Edward Wehmer

Good morning.

Kenneth James - Robert W. Baird

I have some questions on your non-performers. They were upabout $19 million, but the press release says excluding premium financereceivables, they were only up $8 million. So, I was curious if you could talkabout the current position of that $8 million and then, why such a large chunkof premium finance receivables this quarter, and are those related to a singlecounterparty?

Edward Wehmer

No, they are not related to a single counterparty, premiumfinance first; premium finance has been operating at a very, very low numbers.We actually like to see those numbers go up a little, because that late feeincome, that means late fee income will be moving up, which we had seendecrease by 50 to 75 basis points during this period of no credit losses atanytime.

So, when a premium finance loan goes to non-performaners, itjust means it's 90 days past due. We have confirmed 99% of the time, we haveconfirmed with the insurance company that the return premium is coming in. Ifthere is any deficiency, we charge it off at that period of time.

So, what happens is, in California, its 90 days from thedate that you cancel the policy that the insurance company can give you themoney back, and I'll guarantee you they wait until the 89th day to send you thecheck. So, that's usually 30 days. It takes you 30 or 45 days to cancel; 90days for them to pay you back.

But we look at the premium financing, on thenon-performings, most of the losses are taken right when they go onnon-performing. And again, 99% of the time we have confirmed the return premiumto cover the rest of it.

So, that's why we kind of -- you have to look at that alittle bit differently. We technically, they’re over 90 days, so we include itin there, but much -- the loss has been rung-out of that at the time that it’s90 days. Does that make sense to you?

Kenneth James - Robert W. Baird

Yes. I just wanted to make sure that was not a singlecounter-party, where you've got $10 million that were problematic all of asudden?

Edward Wehmer

No, there's thousands of loans.

Kenneth James - Robert W. Baird

Okay. And then on the $8 million piece, is that a singlecredit, multiple credits?

Dave Dykstra

I’d characterize that as a handful of additional credits.Actually, if you go back Ken, to December of last year, we were at similarlevels on the commercial and consumer side at that line item, and that $22.6million -- we were at $21 million in last December. So, that number sort ofjust fluctuates a little bit depending on, what stage of pushing these thingsout the door, where they’re at.

We have to be fairly, timely and aggressive in taking thecharge-offs, so we wouldn’t expect that we would have substantially more losson those. Because when they get to non-performing, we're looking at them andwe're trying to make assessments on them, and taking those charge-offs upfront.

But again, that number was $19 million a year ago. It’s $22million now, and for a $9.5 billion company, that’s – you know it’s a prettysmall amount. It could really be one or two loans, in reality.

Edward Wehmer

That being you said, for your last question on credit costs,as I said all along here, we see – and this is just Ed, talking. I cannot -- itappears that credit is starting and we’re bigger -- we're not bigger than themarket.

We think we'll be less than there, but it does not surpriseme that they are going up a little, and they might go up a little bit more. Thereal issue is we've got to the spreads back to cover it.

Again, I would give up to get that 100 to 150 basis pointsback that we were used to, when people actually priced risk, I’d gladly give up18 basis points more in charge-offs to do that.

But as I've said, for two years or 2.5 years, we've beentrying to be extremely conservative. Most of -- these were a handful of deals.But a lot of our deals are really legacy deals from the last two acquisitionsthat we made.

It takes time to kind of move some of those deals out thatmight not have been done in our style or fashion, and we’re working throughthose. But I think the trend is for them to go up, not down.

Kenneth James - Robert W. Baird

Okay. And then question pilot in to kind of provisioning,you talked about the number this quarter being a little elevated. It seems liketo me, if the charge-offs you reported this quarter, if we're going to besomewhere between 15 and 20 basis points.

And you think that you can grow the loan portfolio 8 to 10%at least, which I know you do, it seems like provisions of $4 million, or inthat neighborhood are going to become the norm not the exception here goingforward. Is that fair, unless you're talking about running your reserve down toin the 60 basis points?

Edward Wehmer

I cannot imagine that’s going to happen in this market. But,the actual reserve calculation is so mechanical right now. I mean, theregulators, the SEC, this is a very mechanical calculation that comes throughbased on our loan grading systems and our non-performings and our charge-offs.

There is a little bit of sway in there in terms of where isthe market going, where are your trends going and that sort of thing. But itjust -- that number just kind of pops out now, based upon reality, and that’s agood thing. I think, it’s fair to say that, if the market keeps going like itis, that our number would be up a little, but I don't know.

Again, it just depends at that point in time where thingsare. The trend obviously across the Board is for credit issues to pop. We don’t think oursare going to -- we do not think, we have as many past sins to pay for as maybethe industry does.

Kenneth James - Robert W. Baird

Okay. Thank you.

Operator

Your next question comes from the line of Ben Crabtree.

Ben Crabtree - Stifel, Nicolaus &Company

Hi. Yes, I just have one remaining question. On the taxrate, it was definitely lower than I thought and wondering what’s behind thatand wondering what we should think about going forward?

Dave Stoehr

Well, Ben, the life insurance proceeds we got are --tax-free to us. So, that’s an issue with the tax rate. So, I think you can kindof go back to prior quarters and get a good idea of the reasonable level ofthat…

Ben Crabtree - Stifel, Nicolaus &Company

Okay.

Dave Stoehr

You can back out the life insurance proceeds and calculateit.

Ben Crabtree - Stifel, Nicolaus &Company

Okay, good. Thank you.

Operator

Your next question comes from the line of Brad Milsaps.

Brad Milsaps - Sandler O'Neill

Hi, good morning.

Dave Stoehr

Good morning, Brad.

Brad Milsaps - Sandler O'Neill

Just a couple quick questions related to premium finance. Iknow you guys have been out of selling the loans, but have the premiums, asyou’ve been able to --– that, do you think you would be able to get on thoseloans changed at all versus a year ago when you're more aggressive sellingthose?

Dave Dykstra

Well, we're talking to a number of parties right now. Wehave not got down to final pricing as to indications from them, yet. But, wewould hope that they would be at better than they were a year ago when we gotout. But until we get sort of final bids from people, I'm not sure we can answerthat definitively.

Edward Wehmer

We are looking at it totally different. We used to sell themthrough LaSalle to LaSalle's correspondents, so there was -- there were a lotof middleman taking pieces. If we get rid of the middleman, then that would begood for us.

And with the blend we can bring in with Broadway coming onwith higher rates, we can blend it out a little bit better, and it should be amore attractive package. That's what we're shooting for.

Brad Milsaps - Sandler O'Neill

And Ed, has that market got -- obviously, you talked aboutit being competitive on rate. Have people gotten more competitive on terms interms of doing more of those loans on an unsecured basis at this point?

Edward Wehmer

No. More competitive? No, it never really -- premium financeloan on an unsecured basis would be something that I do not think we would lookat. Sometimes you do take some risk in some of the deals. So I guess whereyou're looking back to the company is the obligor. But we have not seen thattaking place.

That industry is -- premium dollars are down and the ratesare highly competitive right now, as they have been for the last three years.

Brad Milsaps - Sandler O'Neill

Okay, and final question. Any additional color on the loanreclassification that you guys had in the quarter?

Dave Dykstra

You mean from commercial down into the other section?

Brad Milsaps - Sandler O'Neill

Yes.

Dave Dykstra

We're doing a little bit of, as we do from time to time,scrubbing. But that actually related -- we have some loans that arestock-secured, and in the past we've had them up sort of in the commercialarea, depending on the nature of the borrower.

And based upon some of the regulatory classifications andstock-secured loans, we're putting down in other now. So that is not all of it,but that's primarily what that is.

Brad Milsaps - Sandler O'Neill

Okay, great. Thank you.

Operator

Your next question comes from Steve Vancurova (ph).

Steve Vancurova - Analyst

Hi, guys. Just hoping you could help me reconcile thisquarter and some of the comments as you look ahead as to what is core earnings?So I just want to be crystal clear that, Ed, are you steering us to kind of amid-60s kind of core quarterly EPS as we look into the future?

Edward Wehmer

Steve, we do not steer anymore. I think you have to actuallyjust go through the numbers, and we have tried to give all of the elements ofthe numbers and contrast them versus core and the one timer sort of things andgive you enough detail to actually do that.

I think if you look at this quarter and you take the BOLIout and you add back the mortgage line and the provision line. So the marginwas up almost $1 million. And keeping our expenses where they are going, Ithink you should be able to go in on that.

We did say next quarter we will have $5 million pretax, plusor minus, of one timers that will pop up, too, that should offset some of this.So you should have all the data you need in the press release to come to yourown conclusion as to what core earnings are.

Steve Vancurova - Analyst

Just something I have been wrestling with over the pastcouple quarters, and I thought basically saying add that $0.25 back, and I justwanted to double check, make sure that you're comfortable with that as well.And that's what I'm hearing. I just wanted to check in.

And maybe just on another topic, I know you can't give outtoo many specifics on the $6.7 million accrual, but I mean, what is it thatdoes give you the confidence that it is going to be a one timer on that?

Dave Dykstra

I think that, I guess it is just the rate of the claimscoming in and what we are seeing from our investors out there. We are notcontinuing to see a big flow coming through. And just our negotiating stancethat we're taking and the reality of the negotiating stance is that we arepretty comfortable that, that should be enough to encapsulize it.

Edward Wehmer

As shareholders, you should know we are being extremelyaggressive on this, and we do have a number of approaches and tactics, and wethink some of you guys are way off base on a number of issues. So you don'twant to get my dander up.

But there are a number of ways that we're dealing with thisthat make us feel comfortable that we can say that we do not have to deal withthis anymore. But you never know and this market is still very volatile onthat.

But I think if you look at the timing and you look whenwe're in and when we are out, and look at where we are at and not wanting todeal with it again, I hope you take some comfort in that. But it is still kindof fluid out there, and we are ready to go to the mat with anybody, anytime,anywhere if we think they're off base, and take drastic measures if we have to.

Steve Vancurova - Analyst

And then just lastly, I just was looking to get youropinion. I mean clearly you guys are not getting the credit for your valuablefranchise that you have in Chicago. I mean right now, you're less than twotimes tangible book, as I'm looking at my screen here.

Does this type of thing and you know maybe these challengingmarket condition make you maybe more likely to -- for you and the Board topursue more strategic options and sell to a larger, bigger player?

Edward Wehmer

As you know, we don’t comment on those types of issues.We're not allowed to. They'd string me up by my toes, if we commented on that.You do know that we were grant that in cattle (ph) guys and we're going to runthis thing --- I got my net worth invested in this. We think we knew 2.5 yearsago.

We’ve talked for a long time, Steve. We said 2.5 years ago,boy, we're going to do this. We're going to pull back because as we think themarket is getting goofy, and we're going to pay the price for it. And when itdoes get goofy, we're going pay the price again, even though we did not followthe herd. And the idea is that we have to be first out of this.

We want to be when everybody else is licking their woundsand coming out in denial. And I'm not saying everybody. You know what I'msaying here, I'm not pointing fingers at any competitor per say, but just thenature the industry right now.

We want to be first out because we think that this will beone heck of an opportunity. If we have kept our powder relatively dry comparedto everybody else. We're looking forward to full speed ahead. If we can sellthese premium finance loans, we can turn on the engine again to start growing.

When you look at our small banks, we’ve shrunk our biggerbanks by letting the higher priced CDs run-off, really working onrelationships, really working on building that franchise and making it really,really solid.

But boy, you look at our younger banks and the Old PlankTrail that’s down south, we just opened two of the permanent facilities andthey're growing like a weed. What we have still works and works very well. Butwhat we didn’t want to do was to go -- we could have put up two really goodyears over the last two years, if we had followed the herd and put pricing inand done terms. But I still believe I would do it the same way over again, thatwe would pay for it six times over.

I am of the opinion that we will be first out of this thing,and there is going to be one heck of a lot of opportunities for us. And youknow if we’re not and we've taken this pain for nothing, then it’s my fault.But I would run it the same way and do the same thing, and I still think ourfuture is extremely, extremely bright.

And we're going to play this thing like we're the last guysup. We think there is great opportunity and be advised that this Board hasalways been as responsible as any Board can possibly ever be. So we will leavethat at that, and hopefully that didn’t answer your question, but I'm notallowed to answer your question directly.

Dave Stoehr

We do appreciate the fact you think our franchise isattractive, though.

Steve Vancurova - Analyst

I am trying. But no thanks, guys, and I look forward toseeing that play out. Thanks again.

Operator

Your next question comes from the line of Peyton Green.

Peyton Green - FTN Midwest Securities

Hi, good morning. A couple questions that are around thingsthat seems pretty favorable in the quarter. Your wealth management andbrokerage business seemed to turn up pretty nicely year-over-year.

And I was wondering if you could give some color as towhether that's finally progressing as you would have expected and also do youhave more of an outlook for improved performance going forward.

Edward Wehmer

The wealth management business is, as you say, a shiningstar. Tom Zidar, who has come into take that over, has just done, I think, justa stupendous job. Our earnings are up substantially over previous years. And Iwould expect that that would continue as his leadership plays this out, and wecontinue to distribute through the banks.

I mean, the bank distribution numbers are, when we get goodpeople in there and we build it out, the bank distribution numbers are off thecharts amazing on the wealth management side.

We still have one issue left and that's really, reallybolstering up the asset management side. We've got a great asset managementcompany, but we have some opportunities to really bolster that side and reallymake a name. So we're looking at a number of those. But the wealth managementis -- knock on wood -- I mean it’s a perfect storm and that one's holding uppretty well right now.

They're doing terrific and that model is working well andTom is doing a great job there. So, thank you. I probably should have mentionedthat in my comments, but they are doing very, very well, and the prospects thatwe can keep getting really good people and put them into that distributionnetwork, the prospects remain very, very good.

Peyton Green - FTN Midwest Securities

Okay, great. And then, two other things of the wealthmanagement deposits, which I don’t guess are reflected in the non-interestincome side, they go through to the bank's margin, but they were up about 12%year-over-year versus your more typical money market balances up about 6%.

What -- I mean, why are you seeing the reason for success inthat now? And then, what is the cost differential?

Edward Wehmer

That's just growth in business. The basic metrics of thatare people keep 10% of their accounts pretty much liquid at any point in time,with dividends coming in and what have you. Those numbers are up basicallybecause our business is up.

And that business, that's one of the nice offsets of theoffshoots of that business, is that the more we grow, 10% of that becomes coredeposits for us at rates that are more like money market rates.

Peyton Green - FTN Midwest Securities

Okay.

Edward Wehmer

That’s good funding for us. So, the profitability on that,especially when we're at 92% loans and deposits, is very good. So most of thatis just growth in our overall business.

Peyton Green - FTN Midwest Securities

Okay. And then, in terms of the cost differential of thoseaccounts versus your more typical money market.

Dave Stoehr

Well, we price them reasonably competitively with standardmoney market accounts with other brokerages out there. We sort of do marketstudies. We look at what everybody else is paying and we try to be competitivewith them.

So, it moves around with market rates a little bit, but wetry to sort of average ours out with a large group of other participants in themarket and be competitive there.

Edward Wehmer

We're basically right on market for money market accounts.

Peyton Green - FTN Midwest Securities

Okay. And then third, your marginal cost of NOW and moneymarket balances, which increased for the overall bank very nicely versus CDs,which you were able to break down, how much of a benefit is there in that anddo you see a lot more opportunity going forward?

Edward Wehmer

There is two benefits that come out of it. One is theinitial nominal benefit of rates, which I will let our CFO look up while we'retalking, but you also get the flexibility there and always in a nice -- in alower rate environment, you get -- CDs will always be at market and they alwaysbring people to a decision point. Whereas, when you get people in the moneymarkets and to savings accounts and the like, they really become a non-decisionpoint issue.

They're just there and you pay a reasonable rate and you'regoing to keep that balance and not make your customer go out and keep lookingfor others, but they're looking that up. I’ll tell you, the biggest issue thatwe’ve got it and we're working on very hard, that the mix issue is coming alonggreat. As you can see, the CDs are coming down. The other aspects are comingup. So we are able to -- we empirically can show you the results whether that’shappening.

We only have 9% demand deposits. If you look at ourcompetitors, they are about 18 or 19%. We were really pushing hard on thecommercial side right now. That would be if you run the numbers almost 40 basispoints in the margin. If you look at our competitors, our asset yields arehigher than our competitors. It’s our cost of funds that hurts us. And our costof funds hurts us, because of that mix issue and lack of demand.

We really are pushing very hard with our cash management anddemand to build that business up. That is the biggest, most important thingthat we can do right now and that's what we're working on very hard. And thefree money contribution for us of 25 basis points or 26, whatever it is in themargin, we need to double that. And we do that, and that’s a good number forus.

Peyton Green - FTN Midwest Securities

No, I was just also asking on the money market/NOW side,because as you pointed out, it tends to be more of an administered rate. And Ijust didn't know, if you had more flexibility on that over the next couplequarters now that the Fed has cut rates versus CDs, which could still tend tolag, I guess, on the pricing.

Dave Stoehr

That's probably the best way I would characterize it,Peyton, and they are administered rate and we do have more flexibility there.We like those accounts more because the customer doesn't have a decision pointto come to at maturity.

And we try to be competitive with those, but clearly NOWaccounts and money market accounts have much more favorable rates than term CDsin this environment.

Peyton Green - FTN Midwest Securities

Okay. And then last question. What kind of success are youhaving with the Wintrust brand versus the individual banks?

Edward Wehmer

We have finished our second round of ads and the third roundis coming up. There are a number of marketing -- as I mentioned, we lost ourmarketing guy after a long battle with cancer. And as a result, we got a littlebit stagnant for a month or so in there. Matt Doubleday has taken over in thatbusiness. Matt was with First Insurance for over 11 years and really helpedbuild that business from 300 million to $3.5 billion in volume, a young guywith a lot of energy.

And we now are -- now that we’ve done the initial kind ofads, we'll go hitting hard on direct-mail to people. Our calling program isterrific right now. I mean, we've made hundreds and hundreds of calls per banksand they're now coming to fruition. I was talking to one of our bank presidentsout in a very industrial area, and 56 packages and live leads right now, thatwe had to send reinforcements into help them follow up on it.

So when we present this story to people, we tell them who weare and how we do it. Its uniqueness plus its capacity is a great sale, and weare getting good growth. I think I said in my comments, you’ve got a lot ofreal estate rolling off the books right now.

And we are replacing it with different types of business. Soloan demand has been pretty good, and so we got to get those demand balancesup. That’s very important.

Peyton Green - FTN Midwest Securities

Okay, great. Thank you very much.

Operator

Your next question comes from the line of Ron Peterson.

Ron Peterson - Sterne, Agee & Leach

Yeah. Thanks. Good morning. As far as the loans held forsale, could you give a breakdown of the amount that is, you would classify asmaybe either subprime or Alt-A?

Dave Dykstra

I am sorry, Ron. Could you say that again?

Ron Peterson - Sterne, Agee & Leach

See, what is an $105 million of loans held for sale, abouthow much of that would you consider to be subprime or Alt-A type various?

Dave Dykstra

At the minimums right now. And as I’ve said, we pretty muchchanged our approach to almost probably 95% high quality products that wouldn’tfit into any of these Alt-A categories right now.

Ron Peterson - Sterne, Agee & Leach

Okay. But then I guess previously, before the beginning ofthe second quarter, you're doing 20% to 25% subprime have Alt-A types?

Edward Wehmer

Not very much.

Dave Stoehr

I wouldn't know, not even much. I'm not sure to talk ofsubprime, but depending on what, how do you characterize some of this Alt-Astuff. But it might have been around 20% at some point, if you put in all thedifferent product types that aren’t sort of the conforming A products.

But now I’d say we're probably very close to 95% highquality stuff. And the only time we’ll actually even look at doing some ofthese other deals if we have two investors out there that are willing to takeit, and it’s something that if both investors want to wait, we would not mindfully in our own balance sheet.

Ron Peterson - Sterne, Agee & Leach

All right. And then in the commercial portfolio, about how muchexposure do you have to residential builders, or condos, or any kind of couldyou give some color of what's going on in those markets?

Dave Dykstra

Well, those are, I guess, distressed markets right now.We're not really seeing a lot of new business in those markets, as a lot of ourlenders have said that a while back, that that business has sort of fallen offthe face of the earth. And as Ed has mentioned earlier, we're seeing somerunoff in that.

So our loan growth that we're showing now is really runningpretty hard to make up for some of that runoff. But we haven’t disclosed thatnumber, Ron. But in the past, as we've done those types of loans. We reallylook to the strength of the borrower in those cases to be able to carry a loanfor two years or whatever, in the event that sales subsided.

And that’s generally how we try to look at those developmentloans. We're not doing it just on value and hoping a guy can complete it, sellit, and earn it out all. We look at it saying what happens if and can he carryit for a couple years? So other than a few of the deals that may be, as Edinferred before, that we inherited from a couple of the acquisitions, that wehopefully have priced it accordingly when we bought the bank and used purchaseaccounting on them.

The portfolio of those loans that we have, we feel fairlycomfortable that we underwrote them appropriately.

Ron Peterson - Sterne, Agee & Leach

Okay, good. Thanks.

Operator

And your last question comes from line of Brad Vander Ploeg.

Dave Dykstra

You're like the bread on a sandwich, Brad. You're the firstand the last.

Brad Vander Ploeg - Raymond James &Associates

Imagine that. I just wanted to clarify real quickly, whenyou were talking about the mortgage banking profile in terms of wholesaleversus retail originations, I think you’ve said it used to be, what you'resaying is that it used to be 60% wholesale. Is that what’s in portfolio or whatyou’ve sold year-to-date or…

Dave Dykstra

Volume. That’s volume.

Brad Vander Ploeg - Raymond James &Associates

Total volume. Okay. So now, it’s zero or close to it.

Edward Wehmer

No, no, no. Wholesale. We're just not doing the Alt-A stuff.I mean, very minimum Alt-A. They jumped in when the whole market jumped in onour mortgage banking side and the mortgage company and started doing thisstuff, just like the world did.

And we took a look at it and we went after a about a couplemonths, we said this is not worth it. Let's get out of this. So we got out ofit in the middle of the second quarter and so fortunately, we were not in it upuntil it all hit the fan. But, so our potential losses were minimal on that.

But our distribution system is we have retail operationsthroughout our banking network, we also have a wholesale operation that doesbusiness nationally. But we're dealing only the A-type paper.

Brad Vander Ploeg - Raymond James &Associates

Great. So it’s just the Alt-A that you shutdown or decreasedin the second quarter. Okay.

Edward Wehmer

Yes, sir.

Brad Vander Ploeg - Raymond James &Associates

And then just maybe one other quick thing, you mentionedbriefly the Old Plank Trail Bank, which…

Edward Wehmer

Are you banking there yet?

Brad Vander Ploeg - Raymond James &Associates

The one in Frankfort is not open yet, so…

Edward Wehmer

There is a temporary open.

Brad Vander Ploeg - Raymond James &Associates

I will get on that.

Edward Wehmer

Open a demand account. I don't want to pay any interest.

Brad Vander Ploeg - Raymond James &Associates

Okay, absolutely.

Dave Dykstra

Always the salesman, isn't he, Brad?

Brad Vander Ploeg - Raymond James &Associates

Yes. Well, that is what we like. So, two of the permanentones are open, and I'm just curious you said, was that after the quarter end,because I do not think I saw that in the press releases in terms of newopenings.

Edward Wehmer

Well no. As far as the total numbers, they would have shutdown the temporary one and opened the permanent one. So the total number wouldnot have changed.

Brad Vander Ploeg - Raymond James &Associates

It's just the replacements. Okay.

Edward Wehmer

But there's a lot of people that until you get thatpermanent facility open with an attached drive through and they can see thatyou're there to stay are not as interested in opening up a bank account in someof these temporary facilities.

Although they are nice temporary facilities, they are stilltemporary, and it is hard to get the real flow in to some of those until youget the attached drive-through and all the ancillary safe deposit boxes,etcetera.

Brad Vander Ploeg - Raymond James &Associates

All right. Thank you very much.

Edward Wehmer

Thanks everybody, and we look forward to better conferencecalls in the future.

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