Earnings per Common Share

LCNB has granted restricted stock awards with non-forfeitable dividend rights, which are considered participating securities. Accordingly, earnings per share is computed using the two-class method as required by FASB ASC 260-10-45. Basic earnings per common share is calculated by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period, which excludes the participating securities. Diluted earnings per common share is adjusted for the dilutive effects of stock options, warrants, and restricted stock. The diluted average number of common shares outstanding has been increased for the assumed exercise of stock options and warrants with proceeds used to purchase treasury shares at the average market price for the period.

Earnings per share for the three and nine months ended September 30, 2017 and 2016 were calculated as follows (dollars in thousands, except share and per share data):



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2017		2016		2017		2016
Net income	$	3,106	$	2,896	$	9,355	$	8,828
Less allocation of earnings and dividends to participating securities	2		—		6		—
Net income allocated to common shareholders	$	3,104	$	2,896	$	9,349	$	8,828

Weighted average common shares outstanding, gross	10,014,840		9,962,571		10,008,845		9,930,182
Less average participating securities	6,033		—		6,033		—
Weighted average number of shares outstanding used in the calculation of basic earnings per common share	10,008,807		9,962,571		10,002,812		9,930,182
Add dilutive effect of:
Stock options	6,397		10,052		7,130		15,360
Stock warrants	—		—		—		22,093
Adjusted weighted average number of shares outstanding used in the calculation of diluted earnings per common share	10,015,204		9,972,623		10,009,942		9,967,635

Earnings per common share:
Basic	$	0.31	$	0.29	$	0.93	$	0.89
Diluted	0.31		0.29		0.93		0.88

Options to purchase 0 and 2,516 shares of common stock at a weighted average price of $0.00 and $17.88 per share were outstanding at September 30, 2017 and 2016, respectively, but were not included in the computation of diluted earnings per common share because the exercise prices of the options were greater than the average market price of the common shares.