Shareholders’ Equity and Earnings Per Share

Tangible Equity Units

In December 2010, the Company sold 4.6 million 7.50% TEUs at a public offering price of $50.00 per unit. The Company received net proceeds of $222.7 million after deducting underwriting discounts and commissions and estimated offering expenses. Each tangible equity unit was composed of a prepaid common stock purchase contract and a junior subordinated amortizing note due December 15, 2013. The prepaid stock purchase contracts were recorded as surplus (a component of shareholders’ equity), net of issuance costs, and the junior subordinated amortizing notes were recorded as debt within other borrowings. Issuance costs associated with the debt component were recorded as a discount within other borrowings and were amortized over the term of the instrument to December 15, 2013 at which time they were paid in full. The Company allocated the proceeds from the issuance of the TEU to equity and debt based on the relative fair values of the respective components of each unit.

The aggregate fair values assigned to each component of the TEU offering at the issuance date were as follows:



(Dollars in thousands, except per unit amounts)	Equity Component		Debt Component		TEU Total
Units issued ⁽¹⁾	4,600		4,600		4,600
Unit price	$	40.271818	$	9.728182	$	50.00
Gross proceeds	185,250		44,750		230,000
Issuance costs, including discount	5,934		1,419		7,353
Net proceeds	$	179,316	$	43,331	$	222,647

Balance sheet impact
Other borrowings	—		43,331		43,331
Surplus	179,316		—		179,316


(1)	TEUs consisted of two components: one unit of the equity component and one unit of the debt component.

The fair value of the debt component was determined using a discounted cash flow model using the following assumptions: (1) quarterly cash payments of 7.5%; (2) a maturity date of December 15, 2013; and (3) an assumed discount rate of 9.5%. The discount rate used for estimating the fair value was determined by obtaining yields for comparably-rated issuers trading in the market. The debt component was recorded at fair value, and the discount was amortized using the level yield method over the term of the instrument to the settlement date of December 15, 2013.

The fair value of the equity component was determined using Black-Scholes valuation models applied to the range of stock prices contemplated by the terms of the TEU and used the following assumptions: (1) risk-free interest rate of 0.95%; (2) expected stock price volatility in the range of 35%-45%; (3) dividend yield plus stock borrow cost of 0.85%; and (4) term of 3.02 years.

Each junior subordinated amortizing note, which had an initial principal amount of $9.728182, had a stated interest rate of 9.50% per annum, and had a scheduled final installment payment date of December 15, 2013. On each March 15, June 15, September 15 and December 15, the Company paid equal quarterly installments of $0.9375 on each amortizing note. The quarterly installment payable at March 15, 2011, however, was $0.989583. Each payment constituted a payment of interest and a partial repayment of principal. The issuance costs were amortized to interest expense using the effective-interest method.

Each prepaid common stock purchase contract automatically settled on December 15, 2013 and the Company delivered 1.3333 shares of its common stock based on the applicable market value (the average of the volume weighted average price of Company common stock for the twenty (20) consecutive trading days ending on the third trading day immediately preceding December 15, 2013). Upon settlement, an amount equal to $1.00 per common share issued was reclassified from surplus to common stock.

Series A Preferred Stock

In August 2008, the Company issued and sold 50,000 shares of non-cumulative perpetual convertible preferred stock, Series A, liquidation preference $1,000 per share (the “Series A Preferred Stock”) for $50 million in a private transaction. Dividends on the Series A Preferred Stock were paid quarterly in arrears at a rate of 8.00% per annum. The Series A Preferred Stock was convertible into common stock at the option of the holder at a conversion rate of 38.88 shares of common stock per share of Series A Preferred Stock. On July 19, 2013, pursuant to such terms, the holder of the Series A Preferred Stock elected to convert all 50,000 shares of the Series A Preferred Stock into 1,944,000 shares of the Company's common stock, no par value.

Series C Preferred Stock

In March 2012, the Company issued and sold 126,500 shares of non-cumulative perpetual convertible preferred stock, Series C, liquidation preference $1,000 per share (the “Series C Preferred Stock”) for $126.5 million in an equity offering. If declared, dividends on the Series C Preferred Stock are payable quarterly in arrears at a rate of 5.00% per annum. The Series C Preferred Stock is convertible into common stock at the option of the holder at a conversion rate of 24.3132 shares of common stock per share of Series C Preferred Stock. In the fourth quarter of 2013, 23 shares of the Series C Preferred Stock were converted at the option of the respective holders into 558 shares of the Company's common stock. On and after April 15, 2017, the Company will have the right under certain circumstances to cause the Series C Preferred Stock to be converted into common stock if the closing price of the Company’s common stock exceeds a certain amount.

Common Stock Warrant

Pursuant to the U.S. Department of the Treasury’s (the “U.S. Treasury”) Capital Purchase Program, on December 19, 2008, the Company issued to the U.S. Treasury a warrant to purchase 1,643,295 shares of Wintrust common stock at a per share exercise price of $22.82 and with a term of 10 years. In February 2011, the U.S. Treasury sold all of its interest in the warrant issued to it in a secondary underwritten public offering. At March 31, 2014, the warrant to purchase 1,643,295 shares remains outstanding.

The Company previously issued other warrants to acquire common stock. These warrants entitled the holders to purchase one share of the Company’s common stock at a purchase price of $30.50 per share. Of the 19,000 warrants previously outstanding, 18,000 were exercised in March 2012 and 1,000 were exercised in February 2013. As a result, none of these warrants were outstanding at March 31, 2014.

Other

In May 2013, the Company issued 648,286 shares of its common stock in the acquisition of FLB.

At the January 2014 Board of Directors meeting, a quarterly cash dividend of $0.10 per share ($0.40 on an annualized basis) was declared. It was paid on February 20, 2014 to shareholders of record as of February 6, 2014.

Accumulated Other Comprehensive Income (Loss)

The following tables summarize the components of other comprehensive income (loss), including the related income tax effects, and the related amount reclassified to net income for the periods presented (in thousands).



	Accumulated Unrealized (Losses) Gains on Securities			Accumulated Unrealized Losses on Derivative Instruments			Accumulated Foreign Currency Translation Adjustments			Total Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2014	$	(53,665	)	$	(2,462	)	$	(6,909	)	$	(63,036	)
Other comprehensive income (loss) during the period, net of tax, before reclassifications	13,722			(356		)	(7,400		)	5,966
Amount reclassified from accumulated other comprehensive income (loss), net of tax	20			297			—			317
Net other comprehensive income (loss) during the period, net of tax	$	13,742		$	(59	)	$	(7,400	)	$	6,283
Balance at March 31, 2014	$	(39,923	)	$	(2,521	)	$	(14,309	)	$	(56,753	)

Balance at January 1, 2013	$	6,710		$	(5,292	)	$	6,293		$	7,711
Other comprehensive income (loss) during the period, net of tax, before reclassifications	(4,649		)	(39		)	(4,866		)	(9,554		)
Amount reclassified from accumulated other comprehensive income (loss), net of tax	(151		)	927			—			776
Net other comprehensive income (loss) during the period, net of tax	$	(4,800	)	$	888		$	(4,866	)	$	(8,778	)
Balance at March 31, 2013	$	1,910		$	(4,404	)	$	1,427		$	(1,067	)



	Amount Reclassified from Accumulated Other Comprehensive Income for the
Details Regarding the Component of	Three Months Ended March 31,						Impacted Line on the
Accumulated Other Comprehensive Income	2014			2013			Consolidated Statements of Income
Accumulated unrealized losses on securities
Gains included in net income	$	(33	)	$	251		(Losses) gains on available-for-sale securities, net
	(33		)	251			Income before taxes
Tax effect	$	13		$	(100	)	Income tax expense
Net of tax	$	(20	)	$	151		Net income

Accumulated unrealized losses on derivative instruments
Amount reclassified to interest expense on junior subordinated debentures	$	493		$	1,539		Interest on junior subordinated debentures
	(493		)	(1,539		)	Loss before taxes
Tax effect	$	196		$	612		Income tax benefit
Net of tax	$	(297	)	$	(927	)	Net loss

Earnings per Share

The following table shows the computation of basic and diluted earnings per share for the periods indicated:



		Three Months Ended March 31,
(In thousands, except per share data)		2014		2013
Net income		$	34,500	$	32,052
Less: Preferred stock dividends and discount accretion		1,581		2,616
Net income applicable to common shares—Basic	(A)	32,919		29,436
Add: Dividends on convertible preferred stock, if dilutive		1,581		2,581
Net income applicable to common shares—Diluted	(B)	34,500		32,017
Weighted average common shares outstanding	(C)	46,195		36,976
Effect of dilutive potential common shares
Common stock equivalents		1,434		7,443
Convertible preferred stock, if dilutive		3,075		5,020
Total dilutive potential common shares		4,509		12,463
Weighted average common shares and effect of dilutive potential common shares	(D)	50,704		49,439
Net income per common share:
Basic	(A/C)	$	0.71	$	0.80
Diluted	(B/D)	$	0.68	$	0.65

Potentially dilutive common shares can result from stock options, restricted stock unit awards, stock warrants, the Company’s convertible preferred stock, tangible equity unit shares and shares to be issued under the Employee Stock Purchase Plan and the Directors Deferred Fee and Stock Plan, being treated as if they had been either exercised or issued, computed by application of the treasury stock method. While potentially dilutive common shares are typically included in the computation of diluted earnings per share, potentially dilutive common shares are excluded from this computation in periods in which the effect would reduce the loss per share or increase the income per share. For diluted earnings per share, net income applicable to common shares can be affected by the conversion of the Company’s convertible preferred stock. Where the effect of this conversion would reduce the loss per share or increase the income per share, net income applicable to common shares is not adjusted by the associated preferred dividends.