10. OUTSTANDING SHARES AND EARNINGS PER SHARE

On January 25, 2018, the Board of Directors of the Company declared a 4% stock dividend payable March 29, 2018 to shareholders of record as of February 28, 2018. All income per share amounts have been adjusted to give retroactive effect to stock dividends.

Earnings Per Share (EPS)

Basic EPS includes no dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the respective period. Diluted EPS is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding plus dilutive shares for the quarter. Diluted shares include all common stock equivalents ("in-the-money" stock options, unvested restricted stock, stock units, warrants and rights, convertible bonds and preferred stock), which reflects the potential dilution of securities that could share in the earnings of the Company.

The following table presents a reconciliation of basic and diluted EPS for the three and six months ended June 30, 2018 and 2017 (dollars in thousands except per share amounts):

	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
Basic earnings per share:
Net income	$	3,003	$	2,548	$	5,736	$	5,061

Weighted average common shares outstanding		11,548,148		11,507,913		11,540,458		11,502,729
Basic EPS	$	0.26	$	0.22	$	0.50	$	0.44

Diluted earnings per share:
Net income	$	3,003	$	2,548	$	5,736	$	5,061

Weighted average common shares outstanding		11,548,148		11,507,913		11,540,458		11,502,729

Effect of dilutive shares		160,695		144,615		161,669		143,943

Adjusted weighted average common shares outstanding		11,708,843		11,652,528		11,702,127		11,646,672
Diluted EPS	$	0.26	$	0.22	$	0.49	$	0.43

Stock options which were not included in the computation of diluted earnings per share because they would have had an anti-dilutive effect amounted to 69,868 shares and 71,134 shares for the three months ended June 30, 2018 and 2017, respectively. Stock options which were not included in the computation of diluted earnings per share because they would have had an anti-dilutive effect amounted to 101,163 shares and 71,134 shares for the six months ended June 30, 2018 and 2017, respectively.