Shareholders’ Equity

Earnings per Share

COB filed articles of amendment to its articles of incorporation on October 31, 2011 to effect a one-for-one hundred reverse stock split (the “Reverse Stock Split”) of its common stock. The amendment became effective following the close of trading on October 31, 2011. A purpose of the Reverse Stock Split was to increase the per share trading price of COB's common stock to satisfy the $1.00 minimum bid price requirement for continued listing on The Nasdaq Capital Market. As a result of the Reverse Stock Split, every 100 shares of COB's common stock issued and outstanding prior to the opening of trading on November 1, 2011 were consolidated into one issued and outstanding share. No fractional shares were issued as a result of the Reverse Stock Split. Instead, any fractional share resulting from the Reverse Stock Split was rounded up to the next largest whole share. All share and per share amounts have been retroactively adjusted in the financial statements and footnotes to account for the impact of the Reverse Stock Split.

During the years ended December 31, 2014, 2013 and 2012, COB had no preferred stock outstanding.

Basic net income (loss) per share, or basic earnings (loss) per share (“EPS”), is computed by dividing net income (loss) to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if COB’s potential common stock, which consists of dilutive stock options and a common stock warrant held by the U.S. Treasury, were issued. As required for entities with complex capital structures, a dual presentation of basic and diluted EPS is included on the face of the income statement. During 2014, the Company had 21,852,023 weighted average basic shares outstanding and 21,864,320 weighted average diluted shares outstanding.

Due to a net loss for the twelve month periods ended December 31, 2013 and 2012, all stock options and the common stock warrant were considered antidilutive and thus are not included in this calculation for those years. For the periods ended December 31, 2014, December 31, 2013 and December 31, 2012, there were 22,127, 22,738 and 23,197 antidilutive shares, respectively. Of the antidilutive shares, the number of shares relating to stock options were 55 at December 31, 2014, 666 at December 31, 2013, and 1,125 at December 31, 2012. Average antidilutive shares relating to the common stock warrant were 22,072 for each of the three years. During the periods for which the exercise price exceeded the average market price for the period, the stock options and common stock warrant were omitted from the calculation of diluted earnings per share for their respective periods.

Common Stock Issuance

On December 30, 2014, we raised $25.0 million of additional capital, net of costs, through the issuance of 2,367,425 shares of common stock in a private placement offering to certain “accredited investors,” at an average price of $10.56. Of this amount, $19.4 million was contributed to the Bank. During 2012, we raised additional capital through the issuance of 485,788 shares of common stock in an “At the Market” or ATM offering, at an average price of $15.01, for total proceeds of $7.29 million. Net proceeds from the offering of $6.7 million were contributed to the Bank. In addition, during July 2012, COB sold a further 186 shares to holders of warrants issued in connection with the Merger, yielding net proceeds of approximately $3,000.

Stock Based Compensation

For the years ended December 31, 2014, 2013 and 2012, COB had five share-based compensation plans in effect. The compensation expense charged against income for those plans was $853,000, $628,000, and $3,000, respectively, and the related income tax benefit was $326,000, $250,000 and $1,000, respectively.

On June 21, 2012, COB shareholders approved the FNB 2012 Incentive Plan. The 2012 Incentive Plan, which was intended to replace the 2003 plan, provides for the grant of stock options, restricted stock and other stock-based awards, as well as cash-based performance awards. An amended and restated Incentive Plan was approved by the shareholders on June 20, 2013. As amended, a total of 1,800,000 shares have been authorized for issuance under the 2012 Incentive Plan, and the maximum number of shares of COB common stock with respect to which an employee may be granted awards under the 2012 Incentive Plan during any calendar year period is 100,000 shares.

During 2014, a total of 223,503 shares of long-term restricted stock were granted to certain employees and directors, while during 2013 a total of 158,302 shares of such restricted stock were granted to employees and directors. In December 2012, a total of 110,059 shares of restricted stock were granted to the top six officers of COB. All awards were made pursuant to the 2012 Incentive Plan. With the U.S. Treasury sale of its shares in May 2014 and in compliance with the U.S. Treasury’s TARP regulations, the Company cancelled 269,946 shares of restricted stock awards granted to certain senior executives.

COB adopted stock compensation plans in 1993 and 2003 that allow for the granting of incentive and nonqualified stock options to key employees and directors. The 2003 stock compensation plan also allows for the granting of restricted stock. Under terms of both the 1993 and 2003 plans, options are granted at prices equal to the fair market value of the common stock on the date of grant. Options become exercisable after one year in equal, cumulative installments over a five-year period. No option shall expire later than ten years from the date of grant. No further grants can be made under the 1993 stock compensation plan after March 10, 2003. Based on the stock options outstanding at December 31, 2014, no shares of common stock have been reserved for issuance under the 1993 stock compensation plan. No shares of common stock has been reserved for issuance under the 2003 stock compensation plan. At December 31, 2014, there were no shares available under the 2003 plan for the granting of additional options or stock awards.

With the completion of the Merger, each outstanding option to purchase shares of Granite Corp. common stock, whether or not exercisable, was converted into options to purchase COB common stock. After adjusting for the Reverse Stock Split and rounding up to the nearest whole share, there were 78 stock options assumed from Granite Corp. All of those options expired during 2013, and none remain exercisable at December 31, 2014.

COB assumed three stock compensation plans in its acquisition of Integrity Financial Corporation in 2006. Qualified and nonqualified stock options are outstanding under these plans for grants issued from 1997 to 2004 to key employees and directors at a price equal to fair market value on the date of grant. No additional grants will be made under these plans. Based on the stock options outstanding at December 31, 2014, no shares of common stock have been reserved for issuance under these stock compensation plans.

The fair market value of each option award is estimated on the date of grant using either the Monte Carlo option pricing model or the Black-Scholes option pricing model, depending on the vesting terms. The risk-free interest rate is based on a U.S. Treasury instrument with a life that is similar to the expected life of the option grant. Expected volatility is based on the historical volatility of the COB’s common stock over approximately the previous 6 years, except for the options granted in 2013 and 2014, which are based on the historical volatility of COB's common stock since July 1, 2012. The expected life of the options has historically been considered to be approximately 6 years. The expected dividend yield is zero, based upon the current yield in effect at the date of grant, as the Company has not declared a dividend since 2009. There were 255,227 options granted during 2014, with a volatility ranging between 30% and 40% and a risk-free rate ranging between 2.14% and 2.59%. There were 54,060 options granted to employees during 2013, with a volatility of 29.60% and a risk-free rate of 2.60%. There were no stock options granted in 2012.

The following is a summary of stock option activity:



	For the Years Ended December 31,
	2014				2013				2012
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of year	52,812		$	30.75	1,125		$	1,963.29	2,742		$	1,821.79
Granted	255,227		15.20		54,060		7.86		—		—
Exercised	—		—		—		—		—		—
Forfeited or expired	(4,767	)	242.98		(2,373	)	425.40		(1,617	)	1,723.34
Outstanding at end of year	303,272		14.33		52,812		30.75		1,125		1,963.29
Options exercisable at end of year	12,712		15.02		666		1,823.23		1,125		1,963.29

At December 31, 2014, information concerning stock options outstanding and exercisable is as follows:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Shares	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price
$1.00 - $7.99	49,153	8.22	$	7.86	12,657	8.22	$	7.86
$8.00 - $15.99	32,690	9.37	9.93		—	9.37	—
$16.00 - $17.00	221,374	9.76	16.00		—	9.76	—
$1,350.00 - $1,890.00	55	1.72	1,662.55		55	1.72	1,662.55

In 2014, 2013 and 2012, there was no intrinsic value of options exercised, and the grant-date fair value of options vested was $46,000 in 2014 and zero in both 2013 and 2012. There were no options exercised in 2014.

The following is a summary of non-vested restricted stock activity:



	For the Years Ended December 31,
	2014				2013
	Shares		Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value
Non-vested at beginning of year	268,361		$	10.14	110,059	$	11.13
Granted	223,503		7.60		158,302	9.45
Vested	(31,516	)	10.25		—	—
Cancelled	(267,937	)	9.38		—	—
Forfeited or expired	(5,278	)	9.49		—	—
Unvested at end of year	187,133		$	8.19	268,361	$	10.14

The fair value of restricted stock vested in 2014, 2013 and 2011 was $323,000, $0, and $1,000 respectively.

During 2014, a total of 223,503 shares of restricted stock were granted by the COB Board of Directors to the top six officers, eight of the nine non-executive directors and a larger group of employees. The awards to the top officers and directors constituted restricted stock, some of which were time vesting only, with 1/4 of the stock vesting on each of the first, second, third and fourth anniversary of the date of grant and a portion of which also require COB common stock to reach a certain stock price target. The awards to the larger group of employees vest over time, with 1/4 of the stock vesting on each of the first, second, third and fourth anniversary of the date of the grant. During 2013 a total of 158,302 shares were granted to similar groups of top officers, directors and other employees. The awards to the top officers constituted long-term restricted stock, some of which were time vesting only, with 2/3 of the stock vesting on the second anniversary of the date of grant and the final 1/3 vesting on the third anniversary of the date of grant, and a portion of which also require COB common stock to reach a certain stock price target. The awards to the directors constituted restricted stock, some of which were time vesting only, with 1/3 of the stock vesting on the first anniversary of the date of grant, the second 1/3 vesting on the second anniversary of the date of grant, and the final 1/3 vesting on the third anniversary of the date of grant, and a portion of which also require COB common stock to reach a certain stock price target. The awards to the larger group of employees vest over time, with 1/4 of the stock vesting on each of the first, second, third and fourth anniversary of the date of the grant. On December 28, 2012, a total of 110,059 shares of long-term restricted stock were granted to the top six officers of COB at the closing price of COB common stock on the grant date. Under the terms of the awards, 2/3 of the restricted stock vests on the later of the lifting of the Consent Orders or the second anniversary of the date of grant and the final 1/3 of the stock vesting on the later of the lifting of the Consent Order or the third anniversary of the date of grant. As indicated previously, all of the Consent Orders have been lifted. As described above, with the US Treasury sale of its shares in May 2014 and in compliance with the U.S. Treasury’s TARP regulations, the Company cancelled 267,937 shares of restricted stock awards granted to certain senior executives.

As of December 31, 2014, unrecognized compensation cost related to non-vested share-based compensation arrangements granted under COB’s stock benefit plans totaled $1.8 million, which will be fully recognized by November 2018.

COB funds the option shares and restricted stock from authorized but unissued shares. COB does not typically purchase shares to fulfill the obligations of the stock benefit plans. COB’s policy does allow option holders under certain plans to exercise options with seasoned shares.