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Note 11 - Stock-based Compensation | 12 Months Ended
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Dec. 31, 2020
Notes to Financial Statements |
Share-based Payment Arrangement [Text Block] | NOTE 1 1 – 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. During 2020, restricted stock grants were provided to certain employees from the Stock Incentive Plan of 2020. Stock option grants were provided to certain employees during 2016 from the Stock Incentive Plan of 2016. Stock grants to directors as retainer payments during the years 2016 through 2019 were from the Stock Incentive Plan of 2016, while stock grants to directors as retainer payments during 2020 were from the Stock Incentive Plan of 2020. 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. The Stock Incentive Plan of 2016 was effectively replaced with the Stock Incentive Plan of 2020 that was approved by shareholders in May, 2020. Under the Stock Incentive Plan of 2006, the Stock Incentive Plan of 2016 and the Stock Incentive Plan of 2020, 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 2020 fully vest after three years and, in the case of performance-based restricted stock issued to executive officers in 2018, 2019 and 2020, 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 2020, there were approximately 361,000 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 during the past three years is as follows:
|  | 2020 |  |  | 2019 |  |  | 2018 |
|  | Shares |  |  | Weighted Average Fair Value |  |  | Shares |  |  | Weighted Average Fair Value |  |  | Shares |  |  | Weighted Average Fair Value |
Nonvested at beginning of year |  |  | 262,260 |  |  | $ | 34.91 |  |  |  | 262,967 |  |  | $ | 33.97 |  |  |  | 239,637 |  |  | $ | 32.37 |
Granted |  |  | 121,518 |  |  |  | 24.65 |  |  |  | 84,596 |  |  |  | 35.29 |  |  |  | 91,400 |  |  |  | 31.82 |
Vested |  |  | (85,445 | ) |  |  | 37.08 |  |  |  | (81,772 | ) |  |  | 32.19 |  |  |  | (55,792 | ) |  |  | 25.14 |
Forfeited |  |  | (35,997 | ) |  |  | 33.71 |  |  |  | (3,531 | ) |  |  | 34.85 |  |  |  | (12,278 | ) |  |  | 31.62 |
Nonvested at end of year |  |  | 262,336 |  |  | $ | 29.42 |  |  |  | 262,260 |  |  | $ | 34.91 |  |  |  | 262,967 |  |  | $ | 33.97 |
Of the restricted stock shares granted in 2020, 2019 and 2018, a total of 31,295 shares, 23,596 shares and 24,633 shares, respectively, are performance-based awards made to our Named Executive Officers at the target level and are subject to the attainment of pre-determined performance goals. Of the forfeited shares during 2020, a total of 13,709 shares and 14,681 shares reflect reductions in performance-based grants to our Named Executive Officers that were awarded in 2019 and 2018, respectively. These forfeitures were based on an analysis of the pre-determined performance goals, taking into account actual performance since the grant date and forecasts for the remainder of the three-year performance period. A summary of stock option activity during the past three years is as follows:
|  | 2020 |  |  | 2019 |  |  | 2018 |
|  | Shares |  |  | Weighted Average Exercise Price |  |  | Shares |  |  | Weighted Average Exercise Price |  |  | Shares |  |  | Weighted Average Exercise Price |
Outstanding at beginning of year |  |  | 10,700 |  |  | $ | 30.25 |  |  |  | 18,900 |  |  | $ | 23.92 |  |  |  | 30,908 |  |  | $ | 18.67 |
Granted |  |  | 0 |  |  | NA |  |  |  | 0 |  |  | NA |  |  |  | 0 |  |  | NA |
Exercised |  |  | (1,000 | ) |  |  | 5.19 |  |  |  | (8,200 | ) |  |  | 15.69 |  |  |  | (12,008 | ) |  |  | 10.38 |
Forfeited or expired |  |  | 0 |  |  | NA |  |  |  | 0 |  |  | NA |  |  |  | 0 |  |  | NA |
Outstanding at end of year |  |  | 9,700 |  |  | $ | 32.83 |  |  |  | 10,700 |  |  | $ | 30.25 |  |  |  | 18,900 |  |  | $ | 23.92 |
Options exercisable at year-end |  |  | 9,700 |  |  | $ | 32.83 |  |  |  | 10,700 |  |  | $ | 30.25 |  |  |  | 18,900 |  |  | $ | 23.92 |
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 at year-end 2020 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 |  |  |  | 0.9 |  |  | $ | 22.15 |  |  |  | 1,000 |  |  |  | 22.15 |
$27.00 | - | $28.00 |  |  | 2,200 |  |  |  | 1.9 |  |  |  | 27.66 |  |  |  | 2,200 |  |  |  | 27.66 |
$36.00 | - | $37.00 |  |  | 6,500 |  |  |  | 2.9 |  |  |  | 36.22 |  |  |  | 6,500 |  |  |  | 36.22 |
Outstanding at year end |  |  | 9,700 |  |  |  | 2.4 |  |  | $ | 32.83 |  |  |  | 9,700 |  |  |  | 32.83 |
Information related to options outstanding at year-end 2020, 2019 and 2018 is as follows:
|  | 2020 |  |  | 2019 |  |  | 2018 |
Minimum exercise price |  | $ | 22.15 |  |  | $ | 5.19 |  |  | $ | 5.19 |
Maximum exercise price |  |  | 36.22 |  |  |  | 36.22 |  |  |  | 36.22 |
Average remaining option term (years) |  |  | 2.4 |  |  |  | 3.2 |  |  |  | 3.4 |
Information related to stock option grants and exercises during 2020, 2019 and 2018 is as follows:
|  | 2020 |  |  | 2019 |  |  | 2018 |
Aggregate intrinsic value of stock options exercised |  | $ | 17,000 |  |  | $ | 157,000 |  |  | $ | 317,000 |
Cash received from stock option exercises |  |  | 3,000 |  |  |  | 126,000 |  |  |  | 141,000 |
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, 2020 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. 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 was expensed on a straightline basis over the respective twelve month period. On June 1, 2020, we granted about 16,000 shares of common stock to our Corporate, Bank and Regional Advisory Boards of Directors for retainer payments for the period of June 1, 2020 through May 31, 2021. The associated $0.3 million cost is being expensed on a straightline basis over the respective twelve month period. On August 27, 2020, we granted about 2,000 shares of common stock to newly appointed Corporate and Bank Board members for retainer payments for the period of September 1, 2020 through May 31, 2021. The associated less than $0.1 million cost is being expensed over the respective nine-month period.

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