12.	EARNINGS PER SHARE

The Company has granted stock compensation awards with nonforfeitable dividend rights which are considered participating securities. As such, earnings per share is computed using the two-class method as required by ASC 206-10-45. Basic earnings per common share is computed 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 includes the dilutive effect of additional potential common shares from stock compensation awards, but also excludes awards considered participating securities. Stock options for 75,008 shares were anti-dilutive for the three months ended September 30, 2014 and stock options for 685,272 shares were anti-dilutive for the three months ended September 30, 2013. Stock options for 78,220 shares were anti-dilutive for the nine months ended September 30, 2014 and stock options for 681,962 shares were anti-dilutive for the nine months ended September 30, 2013.

	Three months ended September 30, 2014			Three months ended September 30, 2013
	(Dollars in thousands, except per share data)
Net income per consolidated statements of income	$	2,900		$	1,717
Net income allocated to participating securities		(19	)		(4	)
Net income allocated to common stock	$	2,881		$	1,713
Basic earnings per common share computation:
Distributed earnings allocated to common stock	$	500		$	—
Undistributed earnings allocated to common stock		2,381			1,713
Net income allocated to common stock	$	2,881		$	1,713
Weighted average common shares outstanding, including shares considered participating securities		50,031			50,219
Less: Average participating securities		(333	)		(109	)
Weighted average shares		49,698			50,110
Basic earnings per common share	$	0.06		$	0.03
Diluted earnings per common share computation:
Net income allocated to common stock	$	2,881		$	1,713
Weighted average common shares outstanding for basic earnings per common share		49,698			50,110
Add: Dilutive effects of assumed exercises of stock options		260			272
Weighted average shares and dilutive potential common shares		49,958			50,382
Diluted earnings per common share	$	0.06		$	0.03

	Nine months ended September 30, 2014			Nine months ended September 30, 2013
	(Dollars in thousands, except per share data)
Net income per consolidated statements of income	$	47,398		$	7,788
Net income allocated to participating securities		(247	)		(22	)
Amortization of discount on preferred stock		—			(6,751	)
Net income allocated to common stock	$	47,151		$	1,015
Basic earnings per common share computation:
Distributed earnings allocated to common stock	$	500		$	—
Undistributed earnings allocated to common stock		46,651			1,015
Net income allocated to common stock	$	47,151		$	1,015
Weighted average common shares outstanding, including shares considered participating securities		50,329			42,455
Less: Average participating securities		(263	)		(118	)
Weighted average shares		50,066			42,337
Basic earnings per common share	$	0.94		$	0.02
Diluted earnings per common share computation:
Net income allocated to common stock	$	47,151		$	1,015
Weighted average common shares outstanding for basic earnings per common share		50,066			42,337
Add: Dilutive effects of assumed exercises of stock options		234			275
Weighted average shares and dilutive potential common shares		50,300			42,612
Diluted earnings per common share	$	0.94		$	0.02

As previously announced and described under Note 16 below, United Community sold 7,942 preferred shares to various investors. In accordance with U.S. GAAP, United Community recorded a beneficial conversion feature (“BCF”) related to the issuance of these preferred shares because they contain a conversion feature at a fixed rate that was in-the-money when issued. A BCF is “in-the-money” when the investor is deemed to be able to obtain the underlying common shares at a below-market price upon conversion of the preferred shares. The BCF was recognized in United Community’s Shareholders’ Equity and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The effective purchase price of the common shares into which the preferred shares were convertible was deemed to be $2.75, which was used to compute the intrinsic value. The intrinsic value was calculated as the difference between the deemed purchase price of the common shares ($2.75 per share) and the market value ($3.60 per share) on the date the preferred shares were issued (March 22, 2013), multiplied by the number of shares into which the preferred shares were convertible.

The BCF resulting from the issuance of the preferred shares of United Community is calculated as follows:

Total common shares that may be issued upon conversion of preferred shares		7,942,000
Intrinsic value (difference between consideration allocated to preferred stock upon conversion at $2.75 per share and market price of $3.60 per share on March 22, 2013)	$	0.85
Beneficial conversion feature	$	6,750,700

The BCF has no effect on net income. The BCF calculated above is deemed to be an implied dividend for purposes of determining earnings per common share in accordance with U.S. GAAP, and is amortized over the period the preferred shares were outstanding. The preferred shares converted to common shares upon shareholder approval which was obtained in the second quarter of 2013. This amortization resulted in a reduction to retained earnings and thus net income available to common shareholders for earnings per common share purposes. Therefore, United Community took into account the BCF discount when computing earnings per common share in 2013.