Note 10 - Stock-based Compensation

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 10 – 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. Stock-based compensation, reported as noninterest expense in the Consolidated Statements of Income, totaled $3.4 million, $3.4 million and $3.8 million in 2023, 2022 and 2021, respectively. 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. The Stock Incentive Plan of 2020 was effectively replaced with the Stock Incentive Plan of 2023 that was approved by shareholders in May, 2023.

Grants included on the following tables were made under the various Stock Incentive Plans as follows:

● Stock Incentive Plan of 2006

o Stock option grants in 2015

● Stock Incentive Plan of 2016

o Stock option grants in 2016

o Restricted stock grants in 2018 and 2019

● Stock Incentive Plan of 2020

o Restricted stock grants in 2020, 2021 and 2022

● Stock Incentive Plan of 2023

o Restricted stock grants in 2023

In addition, stock grants to directors as retainer payments during the years 2020 through 2022 were from the Stock Incentive Plan of 2020, while stock grants to directors as retainer payments during 2023 were from the Stock Incentive Plan of 2023.

Under the Stock Incentive Plan of 2006, the Stock Incentive Plan of 2016, the Stock Incentive Plan of 2020 and the Stock Incentive Plan of 2023, 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 2018 through 2023 fully vest after three years and, in the case of performance-based restricted stock issued to executive officers in 2019 through 2023, are subject to the attainment of pre-determined performance goals.  At year-end 2023, there were approximately 393,000 shares authorized for future incentive awards.

A summary of restricted stock activity during the year ended December 31, 2023 is as follows:

				Weighted
				Average
	Shares			Fair Value
Nonvested at beginning of year		374,771		$	30.49
Granted		95,084			40.23
Vested		(109,414	)		27.01
Forfeited		(4,551	)		28.70
Nonvested at end of year		355,890		$	34.18

NOTE 10 – STOCK-BASED COMPENSATION (Continued)

Of the restricted stock shares granted in 2023, 2022 and 2021, a total of 25,239 shares, 26,112 shares and 22,703 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 shares granted in 2022, a total of 11,350, 2,778 and 690 shares reflect increases in performance-based grants to our Named Executive Officers that were awarded in 2021, 2020 and 2019, respectively.  Of the granted shares during 2021, a total of 11,454, 23,053 and 22,836 shares reflect increases in performance-based grants to our Named Executive Officers that were awarded in 2020, 2019 and 2018, respectively.  These adjustments were based on an analysis of the pre-determined performance goals taking into account actual performance since the grant date and updated forecasts for the remainder of the three-year performance period.  There were no such adjustments made in 2023.

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 during the year ended December 31, 2023 is as follows:

				Weighted
				Average
				Exercise
	Shares			Price
Outstanding at beginning of year		5,000		$	36.22
Granted		0			0.00
Exercised		0			0.00
Forfeited or expired		(5,000	)		34.89
Outstanding at end of year		0		$	0
Options exercisable at year end		0		$	0

NOTE 10– STOCK-BASED COMPENSATION (Continued)

Information related to options outstanding at year end 2022 and 2021 is as follows:

	2022		2021
Minimum exercise price	$	36.22	$	27.66
Maximum Exercise Price		36.22		36.22
Average Remaining Option Term		0.9		1.7

Information related to options outstanding at year end 2022 and 2021 is as follows:

(Dollars in thousands)	2022		2021
Aggregate intrinsic value of stock options exercised	$	16	$	13
Cash received from stock option exercises		36		50
Tax benefit realized from stock option exercises		0		0
Weighted average per share fair value of stock options granted		NA		NA

We periodically grant shares of common stock to our Corporate and Bank Board Directors for retainer payments with the related expense being recorded over the period of the Directors' service, as summarized below:

			Total Cost
Grant Year	Shares Granted		(in thousands)		Covered Period
2020		17,716	$	394	June 1, 2020 - May 31, 2021
2021		10,489		344	June 1, 2021 - May 31, 2022
2022		11,166		359	June 1, 2022 - May 31, 2023
2023		11,529		350	June 1, 2023 - May 31, 2024