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Note 12 - Stock-based Compensation | 12 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Share-based Payment Arrangement [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. During 2014 and 2015, stock option and restricted stock grants were provided to certain employees from the Stock Incentive Plan of 2006. During the years 2016 through 2019, restricted stock grants were provided to certain employees from the Stock Incentive Plan of 2016. Stock option grants were also provided to certain employees during 2016 from the Stock Incentive Plan of 2016, as well as stock grants to directors as retainer payments during the years 2016 through 2019. 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 the years 2014 through 2019 fully vest after three years and, in the case of performance-based restricted stock issued to executive officers in 2018 and 2019, are subject to the attainment of pre-determined performance goals. 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 2019, there were approximately 102,000 shares authorized for future incentive awards. 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:
|  | 2019 |  |  | 2018 |  |  | 2017 |
|  | Shares |  |  | Weighted Average Fair Value |  |  | Shares |  |  | Weighted Average Fair Value |  |  | Shares |  |  | Weighted Average Fair Value |
Nonvested at beginning of year |  |  | 262,967 |  |  | $ | 33.97 |  |  |  | 239,637 |  |  | $ | 32.37 |  |  |  | 228,343 |  |  | $ | 26.09 |
Granted |  |  | 84,596 |  |  |  | 35.29 |  |  |  | 91,400 |  |  |  | 31.82 |  |  |  | 94,592 |  |  |  | 37.11 |
Vested |  |  | (81,772 | ) |  |  | 32.19 |  |  |  | (55,792 | ) |  |  | 25.14 |  |  |  | (74,979 | ) |  |  | 20.17 |
Forfeited |  |  | (3,531 | ) |  |  | 34.85 |  |  |  | (12,278 | ) |  |  | 31.62 |  |  |  | (8,319 | ) |  |  | 23.75 |
Nonvested at end of year |  |  | 262,260 |  |  | $ | 34.91 |  |  |  | 262,967 |  |  | $ | 33.97 |  |  |  | 239,637 |  |  | $ | 32.37 |
Of the restricted stock shares granted in 2019 and 2018, a total of 23,596 and 24,633 (at the target level), respectively, are performance-based awards made to our Named Executive Officers and are subject to the attainment of pre-determined performance goals. A summary of stock option activity from grants issued under Mercantile plans during the past three years is as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
|  | Shares |  |  | Weighted Average Exercise Price |  |  | Shares |  |  | Weighted Average Exercise Price |  |  | Shares |  |  | Weighted Average Exercise Price |
Outstanding at beginning of year |  |  | 13,700 |  |  | $ | 30.51 |  |  |  | 15,808 |  |  | $ | 29.62 |  |  |  | 16,808 |  |  | $ | 29.17 |
Granted |  |  | 0 |  |  | NA |  |  |  | 0 |  |  | NA |  |  |  | 0 |  |  | NA |
Exercised |  |  | (4,000 | ) |  |  | 24.91 |  |  |  | (2,108 | ) |  |  | 23.77 |  |  |  | (1,000 | ) |  |  | 22.15 |
Forfeited or expired |  |  | 0 |  |  | NA |  |  |  | 0 |  |  | NA |  |  |  | 0 |  |  | NA |
Outstanding at end of year |  |  | 9,700 |  |  | $ | 32.83 |  |  |  | 13,700 |  |  | $ | 30.51 |  |  |  | 15,808 |  |  | $ | 29.62 |
Options exercisable at year-end |  |  | 9,700 |  |  | $ | 32.83 |  |  |  | 13,700 |  |  | $ | 30.51 |  |  |  | 9,308 |  |  | $ | 25.00 |
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. No stock option grants were made during the past three years. Options issued under Mercantile plans outstanding at year-end 2019 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 |
$22.00 | - | $23.00 |  |  |  | 1,000 |  |  | 1.9 |  |  | $ | 22.15 |  |  |  | 1,000 |  |  |  | 22.15 |
$27.00 | - | $28.00 |  |  |  | 2,200 |  |  | 2.9 |  |  |  | 27.66 |  |  |  | 2,200 |  |  |  | 27.66 |
$36.00 | - | $37.00 |  |  |  | 6,500 |  |  | 3.9 |  |  |  | 36.22 |  |  |  | 6,500 |  |  |  | 36.22 |
Outstanding at year end |  |  | 9,700 |  |  | 3.4 |  |  | $ | 32.83 |  |  |  | 9,700 |  |  |  | 32.83 |
Information related to options issued under various Mercantile plans outstanding at year-end 2019, 2018 and 2017 is as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Minimum exercise price |  | $ | 22.15 |  |  | $ | 22.15 |  |  | $ | 22.15 |
Maximum exercise price |  |  | 36.22 |  |  |  | 36.22 |  |  |  | 36.22 |
Average remaining option term (years) |  |  | 3.4 |  |  |  | 4.1 |  |  |  | 5.0 |
Information related to stock option grants and exercises issued under various Mercantile plans during 2019, 2018 and 2017 is as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Aggregate intrinsic value of stock options exercised |  | $ | 43,000 |  |  | $ | 17,000 |  |  | $ | 15,000 |
Cash received from stock option exercises |  |  | 97,000 |  |  |  | 33,000 |  |  |  | 0 |
Tax benefit realized from stock option exercises |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Weighted average per share fair value of stock options granted |  | NA |  |  | NA |  |  | NA |
The aggregate intrinsic value of in-the-money stock options issued under Mercantile plans outstanding and exercisable at December 31, 2019 was less than $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:
|  | 2019 |  |  | 2018 |  |  | 2017 |
|  | Shares |  |  | Weighted Average Exercise Price |  |  | Shares |  |  | Weighted Average Exercise Price |  |  | Shares |  |  | Weighted Average Exercise Price |
Outstanding at beginning of year |  |  | 5,200 |  |  | $ | 6.57 |  |  |  | 15,100 |  |  | $ | 7.20 |  |  |  | 44,275 |  |  | $ | 9.86 |
Granted |  |  | 0 |  |  | NA |  |  |  | 0 |  |  | NA |  |  |  | 0 |  |  | NA |
Exercised |  |  | (4,200 | ) |  |  | 6.90 |  |  |  | (9,900 | ) |  |  | 7.53 |  |  |  | (27,675 | ) |  |  | 11.50 |
Forfeited or expired |  |  | 0 |  |  | NA |  |  |  | 0 |  |  | NA |  |  |  | (1,500 | ) |  |  | 6.33 |
Outstanding at end of year |  |  | 1,000 |  |  | $ | 5.19 |  |  |  | 5,200 |  |  | $ | 6.57 |  |  |  | 15,100 |  |  | $ | 7.20 |
Options exercisable at year-end |  |  | 1,000 |  |  | $ | 5.19 |  |  |  | 5,200 |  |  | $ | 6.57 |  |  |  | 15,100 |  |  | $ | 7.20 |
Options issued under Firstbank plans outstanding at year-end 2019 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 |
$ 5.00 | - | $ 6.00 |  |  |  | 1,000 |  |  | 0.9 |  |  |  | 5.19 |  |  |  | 1,000 |  |  |  | 5.19 |
Outstanding at year end |  |  | 1,000 |  |  | 0.9 |  |  | $ | 5.19 |  |  |  | 1,000 |  |  | $ | 5.19 |
Information related to options issued under Firstbank plans outstanding at year-end 2019, 2018 and 2017 is as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Minimum exercise price |  | $ | 5.19 |  |  | $ | 5.19 |  |  | $ | 5.19 |
Maximum exercise price |  |  | 5.19 |  |  |  | 8.60 |  |  |  | 8.60 |
Average remaining option term (years) |  |  | 0.9 |  |  |  | 1.5 |  |  |  | 1.7 |
Information related to stock option grants and exercises issued under Firstbank plans during 2018, 2017 and 2016 is as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Aggregate intrinsic value of stock options exercised |  | $ | 114,000 |  |  | $ | 300,000 |  |  | $ | 594,000 |
Cash received from stock option exercises |  |  | 29,000 |  |  |  | 108,000 |  |  |  | 318,000 |
Tax benefit realized from stock option exercises |  |  | 0 |  |  |  | 0 |  |  |  | 208,000 |
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, 2019 was less than $0.1 million. Shares issued as a result of the exercise of stock option grants have been authorized and previously unissued shares. On June 6, 2016, we granted about 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 was expensed on a straightline basis over the respective twelve month period. On May 25, 2017, we granted about 12,000 shares of common stock to our Corporate, Bank and Regional Advisory Boards of Directors for retainer payments for the period of June 1, 2017 through May 31, 2018. The associated $0.4 million cost was expensed on a straightline basis over the respective twelve month period. On May 24, 2018, we granted about 11,000 shares of common stock to our Corporate, Bank and Regional Advisory Boards of Directors for retainer payments for the period of June 1, 2018 through May 31, 2019. The associated $0.4 million cost was expensed on a straightline basis over the respective twelve month period. On October 25, 2018, we granted about 1,000 shares of common stock to newly appointed Bank Board members for retainer payments for the period of October 1, 2018 through May 31, 2019. The associated less than $0.1 million cost was expensed over the respective eight -month period. On May 23, 2019, we granted about 12,000 shares of common stock to our Corporate, Bank and Regional Advisory Boards of Directors for retainer payments for the period of June 1, 2019 through May 31, 2020. The associated $0.4 million cost is being expensed on a straightline basis over the respective twelve month period.

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