Stock-Based Compensation Plans

In May 2015, the Company’s shareholders approved the 2015 Stock Incentive Plan (“the 2015 Plan”) which provides for the issuance of up to 5,485,000 shares of common stock. The 2015 Plan replaced the 2007 Stock Incentive Plan (“the 2007 Plan”) which replaced the 1997 Stock Incentive Plan (“the 1997 Plan”). The 2015 Plan, the 2007 Plan and the 1997 Plan are collectively referred to as “the Plans.” The 2015 Plan has substantially similar terms to the 2007 Plan and the 1997 Plan. Outstanding awards under the Plans for which common shares are not issued by reason of cancellation, forfeiture, lapse of such award or settlement of such award in cash, are again available under the 2015 Plan. All grants made after the approval of the 2015 Plan are made pursuant to the 2015 Plan. As of June 30, 2017, approximately 4.0 million shares were available for future grants assuming the maximum number of shares are issued for the performance awards outstanding. 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 Plans permit the grant of incentive stock options, non-qualified stock options, stock appreciation rights, stock awards, restricted share or unit awards, performance awards and other incentive awards valued in whole or in part by reference to the Company’s common stock, all on a stand alone, combination or tandem basis. The Company historically awarded stock-based compensation in the form of time-vested non-qualified stock options and time-vested restricted share unit awards (“restricted shares”). The grants of options provide for the purchase of shares of the Company’s common stock at the fair market value of the stock on the date the options are granted. Stock options under the 2015 Plan and 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.

Beginning in 2011, the Company has awarded annual grants under the Long-Term Incentive Program (“LTIP”), which is administered under the Plans. The LTIP 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 with a target long-term incentive opportunity. It is anticipated that LTIP awards will continue to be granted annually. LTIP grants generally consist of a combination of time-vested non-qualified stock options, performance-based stock awards and performance-based cash awards. Performance-based stock and cash awards granted under the LTIP are contingent upon the achievement of pre-established long-term performance goals set in advance by the Compensation Committee over a three-year period starting at the beginning of each calendar year. These performance awards are granted at a target level, and based on the Company’s achievement of the pre-established long-term goals, the actual payouts can range from 0% to a maximum of 150% (for awards granted after 2014) or 200% (for awards granted prior to 2015) of the target award. The awards vest in the quarter after the end of the performance period upon certification of the payout by the Compensation Committee of the Board of Directors. Holders of performance-based stock awards are entitled to receive, at no cost, the shares earned based on the achievement of the pre-established long-term goals.

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 and issued. Shares that are vested but not issuable pursuant to deferred compensation arrangements accrue additional shares based on the value of dividends otherwise paid. 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 share 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. Options granted since the inception of the LTIP in 2011 were primarily granted as LTIP awards. Expected life of options granted since the inception of the LTIP awards has been 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 six month period ended June 30, 2016. No options were granted in the six month period ended June 30, 2017.



	Six Months Ended
	June 30,
	2016
Expected dividend yield	0.9	%
Expected volatility	25.2	%
Risk-free rate	1.3	%
Expected option life (in years)	4.5

Stock based compensation is recognized based upon the number of awards that are ultimately expected to vest, taking into account expected forfeitures. In addition, for performance-based awards, an estimate is made of the number of shares expected to vest as a result of actual 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 $2.8 million in the second quarter of 2017 and $2.3 million in the second quarter of 2016, and $5.7 million and $4.8 million for the 2017 and 2016 year-to-date periods, respectively.

A summary of the Company's stock option activity for the six months ended June 30, 2017 and June 30, 2016 is presented below:



Stock Options	Common Shares		Weighted Average Strike Price		Remaining Contractual Term⁽¹⁾	Intrinsic Value ⁽²⁾ ($000)
Outstanding at January 1, 2017	1,698,912		$	41.50
Granted	—		—
Exercised	(374,046	)	40.28
Forfeited or canceled	(8,173	)	42.49
Outstanding at June 30, 2017	1,316,693		$	41.84	4.4	$	45,561
Exercisable at June 30, 2017	765,711		$	41.56	3.7	$	26,707


(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 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 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.



Stock Options	Common Shares		Weighted Average Strike Price		Remaining Contractual Term ⁽¹⁾	Intrinsic Value ⁽²⁾ ($000)
Outstanding at January 1, 2016	1,551,734		$	41.32
Granted	558,411		40.96
Exercised	(99,760	)	37.56
Forfeited or canceled	(84,750	)	49.03
Outstanding at June 30, 2016	1,925,635		$	41.07	4.9	$	19,159
Exercisable at June 30, 2016	896,155		$	39.08	3.6	$	10,695


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

(2)

The weighted average grant date fair value per share of options granted during the six months ended June 30, 2016 was $8.61. The aggregate intrinsic value of options exercised during the six months ended June 30, 2017 and 2016, was $11.9 million and $1.2 million, respectively. Cash received from option exercises under the Plan for the six months ended June 30, 2017 and 2016 were $15.1 million and $3.7 million, respectively.

A summary of the Plans' restricted share activity for the six months ended June 30, 2017 and June 30, 2016 is presented below:



	Six months ended June 30, 2017				Six months ended June 30, 2016
Restricted Shares	Common Shares		Weighted Average Grant-Date Fair Value		Common Shares		Weighted Average Grant-Date Fair Value
Outstanding at January 1	133,425		$	49.94	137,593		$	49.63
Granted	13,385		72.36		14,546		43.95
Vested and issued	(10,104	)	45.55		(8,523	)	44.10
Forfeited or canceled	—		—		(504	)	44.26
Outstanding at June 30	136,706		$	52.46	143,112		$	49.40
Vested, but not issuable at June 30	89,391		$	51.55	88,696		$	51.43

A summary of the Plans' performance-based stock award activity, based on the target level of the awards, for the six months ended June 30, 2017 and June 30, 2016 is presented below:



	Six months ended June 30, 2017				Six months ended June 30, 2016
Performance-based Stock	Common Shares		Weighted Average Grant-Date Fair Value		Common Shares		Weighted Average Grant-Date Fair Value
Outstanding at January 1	298,180		$	43.64	276,533		$	43.01
Granted	143,439		72.55		117,409		40.95
Vested and issued	(68,712	)	46.85		(78,410	)	37.90
Forfeited	(8,438	)	49.47		(13,064	)	41.13
Outstanding at June 30	364,469		$	54.28	302,468		$	43.62
Vested, but deferred at June 30	13,590		$	42.60	6,646		$	37.89

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