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Note 12 - Stock-based Compensation | 12 Months Ended
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Dec. 31, 2016
Notes to Financial Statements |
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] | NOTE 12 – STOCK-BASED COMPENSATION Stock-based compensation plans are used to provide directors and employees with an increased incentive to contribute to our long-term performance and growth, to align the interests of directors and employees with the interests of our shareholders through the opportunity for increased stock ownership and to attract and retain directors and employees. No stock option or restricted stock grants were made during 2013 due to the pending merger with Firstbank. During 2014 and 2015, stock option and restricted stock grants were provided to certain employees through the Stock Incentive Plan of 2006. During 2016, stock option and restricted stock grants were provided to certain employees through the Stock Incentive Plan of 2016. Stock grants were provided to directors as retainer payments during 2014 and 2015 through the Stock Incentive Plan of 2006, and during 2016 through the Stock Incentive Plan of 2016. The Stock Incentive Plan of 2006 expired on January 18, 2016, and was effectively replaced with the Stock Incentive Plan of 2016 that was approved by shareholders in May, 2016. Under the Stock Incentive Plan of 2006 and the Stock Incentive Plan of 2016, incentive awards may include, but are not limited to, stock options, restricted stock, stock appreciation rights and stock awards. Incentive awards that are stock options or stock appreciation rights are granted with an exercise price not less than the closing price of our common stock on the date of grant. Price, vesting and expiration date parameters are determined by Mercantile’s Compensation Committee on a grant-by-grant basis. No payments are required from employees for restricted stock awards. The restricted stock awards granted during 2014, 2015 and 2016 fully vest after three years. The stock options granted during 2014, 2015 and 2016, which were at 110% of the market price on the date of grant, fully vest after two years and expire after seven years. At year-end 2016, there were approximately 407,000 shares authorized for future incentive awards. In conjunction with the Firstbank merger, all of our outstanding restricted stock awards, which were scheduled to vest in full in November, 2014, became fully vested on June 1, 2014, resulting in the recognition of compensation expense of $0.2 million in the second quarter of 2014 to reflect the accelerated vesting of the restricted stock awards. The unrecognized compensation cost related to unvested stock options was less than $0.1 million as of December 31, 2016, which will be recognized as expense in 2017. The unrecognized compensation cost related to restricted stock grants was $4.3 million as of December 31, 2016, which will be recognized as expense over the next three years. Also in conjunction with the Firstbank merger, we issued Mercantile stock options in replacement of all outstanding Firstbank stock option grants that had been previously issued to Firstbank employees under the Firstbank Corporation Stock Option and Restricted Stock Plan of 1997 and the Firstbank Corporation 2006 Stock Compensation Plan. In general, stock option grants for 50 shares or less fully vested after one year from date of grant, while stock option grants for more than 50 shares vested over a five -year period at 20% of the grant per annum starting one year from date of grant. The stock option grants expire ten years from date of grant. There were approximately 282,200 Mercantile stock options issued as a result of the merger, with about 258,400 of the stock option grants fully vested and exercisable on the date of merger. The remaining 23,800 stock option grants vested during 2015. A summary of restricted stock activity from grants issued under Mercantile plans during the past three years is as follows:
|  | 2016 |  |  | 2015 |  |  | 2014 |
|  | Shares |  |  | Weighted Average Fair Value |  |  | Shares |  |  | Weighted Average Fair Value |  |  | Shares |  |  | Weighted Average Fair Value |
Nonvested at beginning of year |  |  | 155,501 |  |  | $ | 22.25 |  |  |  | 101,490 |  |  | $ | 20.13 |  |  |  | 63,800 |  |  | $ | 14.30 |
Granted |  |  | 86,250 |  |  |  | 32.19 |  |  |  | 65,933 |  |  |  | 25.14 |  |  |  | 101,490 |  |  |  | 20.13 |
Vested |  |  | (7,622 | ) |  |  | 20.23 |  |  |  | (4,666 | ) |  |  | 20.13 |  |  |  | (63,300 | ) |  |  | 14.30 |
Forfeited |  |  | (5,786 | ) |  |  | 21.90 |  |  |  | (7,256 | ) |  |  | 20.13 |  |  |  | (500 | ) |  |  | 14.30 |
Nonvested at end of year |  |  | 228,343 |  |  | $ | 26.09 |  |  |  | 155,501 |  |  | $ | 22.25 |  |  |  | 101,490 |  |  | $ | 20.13 |
A summary of stock option activity from grants issued under Mercantile plans during the past three years is as follows:
|  | 2016 |  |  | 2015 |  |  | 2014 |
|  | Shares |  |  | Weighted Average Exercise Price |  |  | Shares |  |  | Weighted Average Exercise Price |  |  | Shares |  |  | Weighted Average Exercise Price |
Outstanding at beginning of year |  |  | 11,308 |  |  | $ | 24.50 |  |  |  | 35,335 |  |  | $ | 31.09 |  |  |  | 60,876 |  |  | $ | 33.11 |
Granted |  |  | 6,500 |  |  |  | 36.22 |  |  |  | 4,820 |  |  |  | 27.66 |  |  |  | 6,488 |  |  |  | 22.15 |
Exercised |  |  | (1,000 | ) |  |  | 22.15 |  |  |  | (2,700 | ) |  |  | 6.21 |  |  |  | (2,845 | ) |  |  | 17.74 |
Forfeited or expired |  |  | 0 |  |  |  | NA |  |  |  | (26,147 | ) |  |  | 35.88 |  |  |  | (29,184 | ) |  |  | 34.60 |
Outstanding at end of year |  |  | 16,808 |  |  | $ | 29.17 |  |  |  | 11,308 |  |  | $ | 24.50 |  |  |  | 35,335 |  |  | $ | 31.09 |
Options exercisable at year-end |  |  | 5,488 |  |  | $ | 22.15 |  |  |  | 0 |  |  | $ | NA |  |  |  | 28,847 |  |  | $ | 33.11 |
The fair value of each stock option award is estimated on the date of grant using a closed option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities on our common stock. Historical data is used to estimate stock option expense and post-vesting termination behavior. The expected term of stock options granted is based on historical data and represents the period of time that stock options granted are expected to be outstanding, which takes into account that the stock options are not transferable. The risk-free interest rate for the expected term of the stock option is based on the U.S. Treasury yield curve in effect at the time of the stock option grant. The fair value of stock options granted during 2016, 2015 and 2014 was determined using the following weighted-average assumptions as of the grant date.
|  | 2016 |  |  | 2015 |  |  | 2014 |
Risk-free interest rate |  |  | 1.78 | % |  |  | 1.67 | % |  |  | 1.56 | %
Expected option life (years) |  |  | 5 |  |  |  | 5 |  |  |  | 5 |
Expected stock price volatility |  |  | 26 | % |  |  | 29 | % |  |  | 26 | %
Dividend yield |  |  | 2.5 | % |  |  | 2.5 | % |  |  | 2.5 | %
Options issued under Mercantile plans outstanding at year-end 2016 were as follows:
|  |  |  | Outstanding |  |  | Exercisable |
|  |  |  |  |  |  |  | Weighted Average |  |  | Weighted |  |  |  |  |  |  | Weighted |
Range of |  |  |  |  |  | Remaining |  |  | Average |  |  |  |  |  |  | Average |
Exercise |  |  |  |  |  | Contractual |  |  | Exercise |  |  |  |  |  |  | Exercise |
Prices |  | Number |  |  | Life (Years) |  |  | Price |  |  | Number |  |  | Price |
$20.0 0 | - | $24.00 |  |  | 5,488 |  |  |  | 4.9 |  |  | $ | 22.15 |  |  |  | 5,488 |  |  | $ | 22.15 |
$24.01 | - | $28 .00 |  |  | 4,820 |  |  |  | 5.9 |  |  |  | 27.66 |  |  |  | 0 |  |  |  | NA |
$36.00 | - | $40 .00 |  |  | 6,500 |  |  |  | 6.9 |  |  |  | 36.22 |  |  |  | 0 |  |  |  | NA |
Outstanding at year end |  |  | 16,808 |  |  |  | 6.0 |  |  | $ | 29.17 |  |  |  | 5,488 |  |  | $ | 22.15 |
Information related to options issued under various Mercantile plans outstanding at year-end 2016, 2015 and 2014 is as follows:
|  | 2016 |  |  | 2015 |  |  | 2014 |
Minimum exercise price |  | $ | 22.15 |  |  | $ | 22.15 |  |  | $ | 6.21 |
Maximum exercise price |  |  | 36.22 |  |  |  | 27.66 |  |  |  | 35.88 |
Average remaining option term (years) |  |  | 6.7 |  |  |  | 6.3 |  |  |  | 2.0 |
Information related to stock option grants and exercises issued under various Mercantile plans during 2016, 2015 and 2014 is as follows:
|  | 2016 |  |  | 2015 |  |  | 2014 |
Aggregate intrinsic value of stock options exercised |  | $ | 6,000 |  |  | $ | 36,000 |  |  | $ | 11,000 |
Cash received from stock option exercises |  |  | 22,000 |  |  |  | 17,000 |  |  |  | 50,000 |
Tax benefit realized from stock option exercises |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Weighted average per share fair value of stock options granted |  |  | 5.25 |  |  |  | 4.41 |  |  |  | 2.72 |
The aggregate intrinsic value of all stock options issued under Mercantile plans outstanding and exercisable at December 31, 2016 was $0.1 million. Shares issued as a result of the exercise of stock option grants have been authorized and were previously unissued shares. A summary of stock option activity from grants issued under Firstbank plans that became part of Mercantile’s plans upon consummation of the merger on June 1, 2014 is as follows:
|  | 2016 |  |  | 2015 |  |  | 2014 |
|  | Shares |  |  | Weighted Average Exercise Price |  |  | Shares |  |  | Weighted Average Exercise Price |  |  | Shares |  |  | Weighted Average Exercise Price |
Outstanding at beginning of year |  |  | 123,887 |  |  | $ | 12.64 |  |  |  | 217,982 |  |  | $ | 14.89 |  |  |  | 0 |  |  | $ | NA |
Granted |  |  | 0 |  |  |  | NA |  |  |  | 0 |  |  |  | NA |  |  |  | 0 |  |  |  | NA |
Replaced as part of merger |  |  | 0 |  |  |  | NA |  |  |  | 0 |  |  |  | NA |  |  |  | 282,178 |  |  |  | 15.48 |
Exercised |  |  | (71,711 | ) |  |  | 13.33 |  |  |  | (56,417 | ) |  |  | 15.50 |  |  |  | (27,740 | ) |  |  | 8.34 |
Forfeited or expired |  |  | (7,901 | ) |  |  | 22.00 |  |  |  | (37,678 | ) |  |  | 21.39 |  |  |  | (36,456 | ) |  |  | 24.46 |
Outstanding at end of year |  |  | 44,275 |  |  | $ | 9.86 |  |  |  | 123,887 |  |  | $ | 12.64 |  |  |  | 217,982 |  |  | $ | 14.89 |
Options exercisable at year-end |  |  | 44,275 |  |  | $ | 9.86 |  |  |  | 123,887 |  |  | $ | 12.64 |  |  |  | 210,777 |  |  | $ | 15.22 |
Options issued under Firstbank plans outstanding at year-end 2016 were as follows:
|  |  |  | Outstanding |  |  | Exercisable |
|  |  |  |  |  |  |  | Weighted Average |  |  | Weighted |  |  |  |  |  |  | Weighted |
Range of |  |  |  |  |  | Remaining |  |  | Average |  |  |  |  |  |  | Average |
Exercise |  |  |  |  |  | Contractual |  |  | Exercise |  |  |  |  |  |  | Exercise |
Prices |  | Number |  |  | Life (Years) |  |  | Price |  |  | Number |  |  | Price |
$4.00 | - | $8.00 |  |  | 23,975 |  |  |  | 2.2 |  |  | $ | 6.73 |  |  |  | 23,975 |  |  | $ | 6.73 |
$8.01 | - | $12.00 |  |  | 6,700 |  |  |  | 2.7 |  |  |  | 8.60 |  |  |  | 6,700 |  |  |  | 8.60 |
$12.01 | - | $16.0 0 |  |  | 13,600 |  |  |  | 0.7 |  |  |  | 16.00 |  |  |  | 13,600 |  |  |  | 16.00 |
Outstanding at year end |  |  | 44,275 |  |  |  | 1.8 |  |  | $ | 9.86 |  |  |  | 44,275 |  |  | $ | 9.86 |
Information related to options issued under Firstbank plans outstanding at year-end 2016, 2015 and 2014 is as follows:
|  | 2016 |  |  | 2015 |  |  | 2014 |
Minimum exercise price |  | $ | 5.19 |  |  | $ | 5.19 |  |  | $ | 5.19 |
Maximum exercise price |  |  | 16.00 |  |  |  | 22.00 |  |  |  | 24.46 |
Average remaining option term (years) |  |  | 1.8 |  |  |  | 2.7 |  |  |  | 3.1 |
Information related to stock option grants and exercises issued under Firstbank plans during 2016, 2015 and 2014 is as follows:
|  | 2016 |  |  | 2015 |  |  | 2014 |
Aggregate intrinsic value of stock options exercised |  | $ | 1,945,000 |  |  | $ | 420,000 |  |  | $ | 333,000 |
Cash received from stock option exercises |  |  | 956,000 |  |  |  | 874,000 |  |  |  | 232,000 |
Tax benefit realized from stock option exercises |  |  | 681,000 |  |  |  | 147,000 |  |  |  | 116,000 |
Weighted average per share fair value of stock options granted |  |  | NA |  |  |  | NA |  |  |  | NA |
The aggregate intrinsic value of all stock options issued under various Firstbank plans outstanding and exercisable at December 31, 2016 was $1.2 million. Shares issued as a result of the exercise of stock option grants have been authorized and previously unissued shares. On January 2, 2015, we granted a total of 5,994 shares of common stock to our Corporate, Bank and Regional Advisory Boards of Directors for retainer payments for the period of January 1, 2015 through May 31, 2015. The associated $0.1 million cost was expensed on a straightline basis over the first five months of 2015. On May 28, 2015, we granted a total of 14,100 shares of common stock to our Corporate, Bank and Regional Advisory Boards of Directors for retainer payments for the period of June 1, 2015 through May 31, 2016. The associated $0.3 million cost was expensed on a straightline basis over the respective twelve month period. On June 6, 2016, we granted a total of 13,000 shares of common stock to our Corporate, Bank and Regional Advisory Boards of Directors for retainer payments for the period of June 1, 2016 through May 31, 2017. The associated $0.3 million cost is being expensed on a straightline basis over the respective twelve month period.

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