Select the correctly punctuated sentence.

"Easy now, buckaroo," Lily warned him, "There's a less painful way of doing that."
"Easy now, buckaroo," Lily warned him. "There's a less painful way of doing that."
"Easy now, buckaroo," Lily warned him. There's a less painful way of doing that.
Easy now, buckaroo, Lily warned him, there's a less painful way of doing that.