Note 2. Earnings and Dividends per Share

We compute earnings per share pursuant to the two-class method. Under the two-class method, unvested restricted shares that contain non-forfeitable rights to dividends are participating securities and therefore, are included in the computation of basic earnings per share. The two-class method includes an earnings allocation formula to determine earnings per share for common stock and participating securities according to dividends and their respective participation rights in undistributed earnings. Our unvested restricted shares issued under the Long-Term Executive Incentive Program ("LTEIP"), which contain the non-forfeitable right to receive dividends, are considered participating securities.

Basic earnings per share ("EPS") is calculated by dividing net income applicable to common shares by the weighted average number of shares of common stock outstanding during each respective period. Any dividends paid on participating securities and any undistributed earnings considered to be attributable to participating securities are excluded from the numerator. The related participating securities are similarly excluded from the denominator. Diluted earnings per share are calculated by dividing net income applicable to common shares by the weighted average number of shares outstanding during the period increased by potentially dilutive common equivalent shares. Potentially dilutive common shares include stock options, stock subscribed under the HickoryTech Corporation Amended and Restated Employee Stock Purchase Plan ("ESPP"), retention stock awards and stock awarded under the LTEIP.

The computation of basic and diluted earnings per share for the three months ended March 31, 2014 and 2013 using the two-class method is as follows:

	Three Months Ended March 31
(Dollars in thousands, except share and earnings per share amounts)	2014			2013

Net income	$	2,073		$	1,626
Less: net income allocable to participating securities		(4	)		(4	)
Net income attributable to common shares	$	2,069		$	1,622

Weighted average shares outstanding		13,596,296			13,556,515
Stock options (dilutive only)		16,691			4,788
Stock subscribed ("ESPP")		1,196			-
Retention awards		17,452			8,349
Stock subscribed ("LTEIP")		28,192			8,777
Total dilutive shares outstanding		13,659,827			13,578,429

Earnings per share:
Basic and diluted	$	0.15		$	0.12

Dividends per share	$	0.15		$	0.145

The diluted earnings per share computation excluded 82,150 shares for the three months ended March 31, 2013, because their effect on earnings per share would have been anti-dilutive. There were no anti-dilutive shares for the three months ended March 31, 2014.

Cash dividends are based on the number of common shares outstanding at their respective record dates. The number of shares outstanding as of the record date for the first quarter of 2014 and 2013, respectively, are as follows:

Shares outstanding on record date	2014	2013
First quarter (February 15)	13,612,913	13,586,903

Dividends per share are based on the quarterly dividend per share as declared by our Board of Directors. During the first three months of 2014 and 2013, shareholders have elected to reinvest $79,000 and $78,000, respectively, of dividends into HickoryTech common stock pursuant to the Hickory Tech Corporation Dividend Reinvestment Plan.

There were no share repurchases in the first quarter of 2014. In March 2013, we acquired and retired 52,647 shares as part of our stock repurchase plan.