Shareholders’ Equity

Earnings per Share

FNB 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. With the filing of this annual Report on Form 10-K, share and per share amounts have been retrospectively adjusted for the Reverse Stock Split. A purpose of the Reverse Stock Split is to increase the per share trading price of FNB'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 FNB'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 were 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.

Basic net loss per share, or basic earnings/(loss) per share (“EPS”), is computed by dividing net loss to common shareholders by the weighted average number of common shares outstanding for the period.

During the year ended December 31, 2012, the Company had no preferred stock outstanding. During the year ended December 31, 2011, and in order the complete the Recapitalization, FNB paid dividends and deferred interest of approximately $4.5 million on Series A preferred stock, in addition to the $0.6 million accretion of the discount on the preferred stock. At December 31, 2012 and December 31, 2011, FNB had no unpaid cumulative dividends.

The following table represents the impact of preferred stock activity on the Consolidated Statement of Operations for the years ended December 31, 2012, 2011, and 2010:



(dollars in thousands)	December 31,
	2012		2011			2010
Gain on the retirement of Series A preferred stock	$	—	$	38,625		$	—
Gain on retirement of Bank preferred stock	—		9,375			—
Total gain on the retirement of preferred stock	—		48,000			—
Dividends and accretion on Series A preferred stock	—		(2,652		)	(3,294		)
Dividends on Bank preferred stock	—		(756		)	—
Total dividends on preferred stock	—		(3,408		)	(3,294		)
Preferred stock gain on retirement, net of accretion, and dividends	$	—	$	44,592		$	(3,294	)

For the twelve months of 2010, FNB paid dividends of approximately $0.3 million on Series A preferred stock, in addition to the $0.7 million accretion of the discount on the preferred stock. At December 31, 2010, FNB had $2.3 million of unpaid cumulative dividends. These amounts combined increased the net loss to common shareholders by $3.3 million.

Diluted EPS reflects the potential dilution that could occur if FNB’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.

Due to a net loss for the twelve month periods ended December 31, 2012, 2011 and 2010; all stock options and the common stock warrant were considered antidilutive and thus are not included in this calculation. Additionally, for the periods ended December 31, 2012, December 31, 2011 and December 31, 2010, there were 23,197, 24,818 and 27,051 antidilutive shares, respectively. Of the antidilutive shares, the number of shares relating to stock options were 1,125 at December 31, 2012, 2,746 at December 31, 2011, and 4,980 at December 31, 2010. Average antidilutive shares relating to the common stock warrant were 22,072 for December 31, 2012, 2011 and 2010. Because the exercise price exceeded the average market price for the periods discussed and because of the net loss, the stock options and common stock warrant were omitted from the calculation of diluted earnings per share for their respective periods.

Stock Based Compensation

For the years ended December 31, 2012, 2011 and 2010, FNB had five share-based compensation plans in effect. The compensation expense charged against income for those plans was $3,000, $23,000, and $50,000, respectively, and the related income tax benefit was $1,000, $9,000 and $7,000, respectively.

On June 21, 2012, FNB 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. A total of 600,000 shares have been authorized for issuance under the 2012 Incentive Plan, and the maximum number of shares of FNB common stock with respect to which an employee may be granted awards under the 2012 Incentive Plan during any calendar year period is 50,000 shares. On December 28, 2012, a total of 110,059 shares of restricted stock were issued under the 2012 Incentive Plan to the top six officers of FNB, valued at the closing price of FNB common stock on the grant date.

FNB 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, 2011, a maximum of 729 shares of common stock has been reserved for issuance under the 1993 stock compensation plan. A maximum of 10,985 shares of common stock has been reserved for issuance under the 2003 stock compensation plan. At December 31, 2011, there were 8,243 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 FNB 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 2012, and none remain exercisable at December 31, 2012.

FNB 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, 2012, a maximum of 235 shares of common stock has 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 the Black-Scholes option pricing model. 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 FNB’s common stock over approximately the previous 6 years. The expected life of the options has historically been considered to be approximately 6 years. The expected dividend yield is based upon the current yield in effect at the date of grant. There were no stock options granted in 2012, 2011, or 2010, respectively.

The following is a summary of stock option activity:



	For the Years Ended December 31,
	2012				2011				2010
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of year	2,742		$	1,821.79	3,658		$	1,857.00	5,353		$	1,701.00
Granted	—		—		—		—		—		—
Assumed	—		—		78		267.53		—		—
Exercised	—		—		—		—		—		—
Forfeited/expired	(1,617	)	1,723.34		(994	)	1,829.09		(1,695	)	1,363.00
Outstanding at end of year	1,125		1,963.29		2,742		1,821.79		3,658		1,857.00
Options exercisable at end of year	1,125		1,963.29		2,711		1,825.85		3,596		1,863.00

At December 31, 2012, 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 Exercise Price
$1,290 - $1,620	195	2.01	$	1,429.99	195	$	1,429.99
$1,621 - $1,890	30	4.01	1,723.00		30	1,723.00
$1,890 - $2,160	465	1.92	1,982.39		465	1,982.39
$2,161 - $2,603	435	0.96	2,198.52		435	2,198.52

In 2012, 2011 and 2010, there was no intrinsic value of options exercised, and the grant-date fair value of options vested was $0 in each of the three years. There were no options exercised in 2012.

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



	For the Years Ended December 31,
	2012				2011
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Non-vested at beginning of year	4		$	260.00	8		$	260.00
Granted	110,059		11.13		—		—
Vested	(4	)	260.00		(4	)	260.00
Forfeited/Expired	—		—		—		—
Non-vested at end of year	110,059		$	11.13	4		$	260.00

The fair value of restricted stock vested in 2012, 2011 and 2010 was $1,040, $1,040, and $114,600 respectively.

On December 28, 2012, a total of 110,059 shares of long term restricted stock was granted by the FNB Board of Directors to the top six officers of FNB. Under the terms of the awards, 2/3rds 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 vests on the later of the lifting of the Consent Orders or the third anniversary of the date of grant.

As of December 31, 2012, unrecognized compensation cost related to non-vested share-based compensation arrangements granted under FNB’s stock benefit plans totaled $1.2 million, which will be fully recognized by December 2015.

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