Stock-Based Compensation Plans

The 2007 Stock Incentive Plan (“the 2007 Plan”), which was approved by the Company’s shareholders in January 2007, permits the grant of incentive stock options, nonqualified stock options, rights and restricted stock, as well as the conversion of outstanding options of acquired companies to Wintrust options. The 2007 Plan initially provided for the issuance of up to 500,000 shares of common stock. In May 2009 and May 2011, the Company’s shareholders approved an additional 325,000 shares and 2,860,000 shares, respectively, of common stock that may be offered under the 2007 Plan. All grants made after 2006 have been made pursuant to the 2007 Plan, and as of March 31, 2013, assuming all performance-based shares will be issued at the maximum levels, 686,256 shares were available for future grants. The 2007 Plan replaced the Wintrust Financial Corporation 1997 Stock Incentive Plan (“the 1997 Plan”) which had substantially similar terms. The 2007 Plan and the 1997 Plan are collectively referred to as “the Plans.” The Plans cover substantially all employees of Wintrust. The Compensation Committee of the Board of Directors administers all stock-based compensation programs and authorizes all awards granted pursuant to the Plans.

The Company historically awarded stock-based compensation in the form of nonqualified stock options and time-vested restricted share awards (“restricted shares”.) In general, the grants of options provide for the purchase shares of Wintrust’s common stock at the fair market value of the stock on the date the options are granted. Options under the 2007 Plan generally vest ratably over periods of three to five years and have a maximum term of seven years from the date of grant. Stock options granted under the 1997 Plan provided for a maximum term of 10 years. Restricted shares entitle the holders to receive, at no cost, shares of the Company’s common stock. Restricted shares generally vest over periods of one to five years from the date of grant.

The Long-Term Incentive Program (“LTIP”), which is designed in part to align the interests of management with the interests of shareholders, foster retention, create a long-term focus based on sustainable results and provide participants a target long-term incentive opportunity, is administered under the 2007 Plan. LTIP grants to date have consisted of time vested nonqualified stock options and performance-based stock and cash awards. The first grant of these awards was made in August 2011 and subsequent grants were made in January 2012 and January 2013. It is anticipated that LTIP awards will be granted annually. Stock options granted under the LTIP have a term of seven years and will generally vest equally over three years based on continued service. Performance-based stock and cash awards are contingent upon the achievement of pre-established long-term performance goals set in advance by the Compensation Committee over a three-year period with overlapping performance periods starting at the beginning of each calendar year. The actual payouts of performance-based awards will vary based on the achievement of the pre-established targets and can range from 0% to 200% of the target award.

Holders of restricted share awards and performance-based stock awards received under the Plans are not entitled to vote or receive cash dividends (or cash payments equal to the cash dividends) on the underlying common shares until the awards are vested. Except in limited circumstances, these awards are canceled upon termination of employment without any payment of consideration by the Company.

Stock-based compensation is measured as the fair value of an award on the date of grant, and the measured cost is recognized over the period which the recipient is required to provide service in exchange for the award. The fair values of restricted shares and performance-based stock awards are determined based on the average of the high and low trading prices on the grant date, and the fair value of stock options is estimated using a Black-Scholes option-pricing model that utilizes the assumptions outlined in the following table. Option-pricing models require the input of highly subjective assumptions and are sensitive to changes in the option’s expected life and the price volatility of the underlying stock, which can materially affect the fair value estimate. Expected life has been based on historical exercise and termination behavior as well as the term of the option, but the expected life of the options granted pursuant to the LTIP awards was based on the safe harbor rule of the SEC Staff Accounting Bulletin No. 107 “Share-Based Payment” as the Company believes historical exercise data may not provide a reasonable basis to estimate the expected term of these options. Expected stock price volatility is based on historical volatility of the Company’s common stock, which correlates with the expected life of the options, and the risk-free interest rate is based on comparable U.S. Treasury rates. Management reviews and adjusts the assumptions used to calculate the fair value of an option on a periodic basis to better reflect expected trends.

The following table presents the weighted average assumptions used to determine the fair value of options granted in the three month periods ending March 31, 2013 and 2012.



	Three Months Ended		Three Months Ended
	March 31,		March 31,
	2013		2012
Expected dividend yield	0.5	%	0.6	%
Expected volatility	59.7	%	62.7	%
Risk-free rate	0.7	%	0.7	%
Expected option life (in years)	4.5		4.5

Stock based compensation is recognized based upon the number of awards that are ultimately expected to vest. Forfeitures are estimated based on historical forfeiture experience. For performance-based awards, an estimate is made of the number of shares expected to vest as a result of projected performance against the performance criteria in the award to determine the amount of compensation expense to recognize. The estimate is reevaluated periodically and total compensation expense is adjusted for any change in estimate in the current period. Stock-based compensation expense recognized in the Consolidated Statements of Income was $2.3 million in the first quarter of 2013 and in the first quarter of 2012.

A summary of the Plans' stock option activity for the three months ended March 31, 2013 and March 31, 2012 is presented below:



Stock Options	Common Shares		Weighted Average Strike Price		Remaining Contractual Term⁽¹⁾	Intrinsic Value ⁽²⁾ ($000)
Outstanding at January 1, 2013	1,745,427		$	42.31
Granted	219,695		37.85
Exercised	(8,336	)	24.98
Forfeited or canceled	(6,330	)	41.49
Outstanding at March 31, 2013	1,950,456		$	41.89	3.3	$	3,975
Exercisable at March 31, 2013	1,437,240		$	44.64	2.3	$	2,318



Stock Options	Common Shares		Weighted Average Strike Price		Remaining Contractual Term ⁽¹⁾	Intrinsic Value ⁽²⁾ ($000)
Outstanding at January 1, 2012	2,064,534		$	38.83
Granted	243,116		30.98
Exercised	(388,390	)	19.74
Forfeited or canceled	(14,250	)	33.64
Outstanding at March 31, 2012	1,905,010		$	41.75	3.5	$	4,059
Exercisable at March 31, 2012	1,407,357		$	45.38	2.6	$	1,889


(1)	Represents the remaining weighted average contractual life in years.

(2)

Aggregate intrinsic value represents the total pre-tax intrinsic value (i.e., the difference between the Company’s average of the high and low stock price on the last trading day of the quarter and the option exercise price, multiplied by the number of shares) that would have been received by the option holders if they had exercised their options on the last day of the quarter. Options with exercise prices above the average of the high and low stock price on the last trading day of the quarter are excluded from the calculation of intrinsic value. The intrinsic value will change based on the fair market value of the Company’s stock.

The weighted average grant date fair value per share of options granted during the three months ended March 31, 2013 and March 31, 2012 was $17.59 and $14.91, respectively. The aggregate intrinsic value of options exercised during the three months ended March 31, 2013 and 2012, was $102,000 and $4.5 million, respectively.

A summary of the Plans' restricted share and performance-based stock award activity for the three months ended March 31, 2013 and March 31, 2012 is presented below:



	Three months ended March 31, 2013				Three months ended March 31, 2012
Restricted Shares	Common Shares		Weighted Average Grant-Date Fair Value		Common Shares		Weighted Average Grant-Date Fair Value
Outstanding at January 1	314,226		$	37.99	336,709		$	38.29
Granted	—		—		84,851		30.98
Vested and issued	(109,725	)	31.67		(93,825	)	34.94
Forfeited	(674	)	32.10		(959	)	30.98
Outstanding at March 31	203,827		$	41.40	326,776		$	37.38
Vested, but not issuable at March 31	85,000		$	51.88	85,000		$	51.88

Performance-based Shares
Outstanding at January 1	153,915		$	31.78	72,158		$	33.25
Granted	102,160		37.84		116,939		30.98
Vested and issued	—		—		—		—
Net change due to estimated performance	—		—		—		—
Forfeited	(1,785	)	$	33.07	(3,481	)	$	31.91
Outstanding at March 31	254,290		$	34.21	185,616		$	31.85

The number of performance-based shares granted is reflected in the above table at the target performance level. The actual performance-based award payouts will vary based on the achievement of the pre-established goals and can range from 0% to 200% of the target award. The outstanding number of performance-based shares reflected in the table represents the number of shares expected to be awarded based on management's current assessment of the achievement of the goals. However, the maximum number of performance-based shares that could be issued based on the grants made to date is approximately 629,000 shares.

The Company issues new shares to satisfy its obligation to issue shares granted pursuant to the Plans.