Note 12: Net Income Per Common Share

In calculating earnings per share, the Company follows the two-class method, which distinguishes between the classes of securities based on the proportionate participation rights of each security type in the Company's undistributed income. The Series A Preferred Stock and the Series B Preferred Stock are treated as one class for purposes of applying the two-class method, because they have substantially equal rights and share equally on an as converted basis with respect to income available to WMIH common stockholders.

Basic net income per WMIH share attributable to common stockholders is computed by dividing net income attributable to WMIH’s common stockholders by the weighted-average number of common shares outstanding for the period after subtracting the weighted-average of any unvested restricted shares outstanding, as these shares are subject to repurchase. Basic net income attributable to common stockholders is computed by deducting preferred dividends and the basic calculation of undistributed earnings attributable to participating securities from net income.

Diluted net income per WMIH share is computed by dividing net income attributable to WMIH’s common stockholders for the period by the weighted-average number of common shares outstanding after subtracting the weighted-average of any incremental unvested restricted shares outstanding and adding any potentially dilutive common equivalent shares outstanding during the period, if dilutive. Potentially dilutive common equivalent shares are comprised of the incremental common shares issuable upon the exercise of warrants for WMIH’s common stock and the potential conversion of preferred shares to common shares and the dilutive effect of unvested restricted stock. Diluted net income attributable to common stockholders is computed by deducting preferred dividends and the diluted calculation of undistributed earnings attributable to participating securities from net income.

The dilutive effect of outstanding warrants and restricted stock subject to repurchase is reflected in diluted earnings per share by application of the treasury stock method. There would be no dilutive effects from any equity instruments for periods presented reflecting a net loss, therefore diluted net loss per share would be the same as basic net loss for periods that reflect a net loss attributable to common stockholders. Certain unvested restricted shares and convertible preferred stock are excluded from the calculation of diluted earnings per share until the non-market based contingency occurs.

The following table presents the calculation of basic net income per share for periods presented:

(in thousands, except per share data):

	Three months ended September 30, 2016			Three months ended September 30, 2015			Nine months ended September 30, 2016			Nine months ended September 30, 2015
Numerator for basic net (loss) income per share:
Net (loss) income	$	(16,645	)	$	(3,919	)	$	61,314		$	(71,901	)
Less: Series B preferred stock dividends		4,500			4,500			13,500			13,248
Less: undistributed earnings attributed to participating securities (basic calculation)		—			—			27,625			—
Basic net (loss) income attributable to common stockholders	$	(21,145	)	$	(8,419	)	$	20,189		$	(85,149	)
Denominator for basic net (loss) income per share:
Weighted-average shares outstanding		206,380,800			206,168,035			206,261,993			204,307,431
Weighted-average unvested restricted shares outstanding		(4,039,591	)		(4,197,396	)		(4,014,718	)		(2,636,314	)
Denominator for basic net (loss) income per share		202,341,209			201,970,639			202,247,275			201,671,117
Basic net (loss) income per share attributable to common stockholders	$	(0.10	)	$	(0.04	)	$	0.10		$	(0.42	)

The following table presents the calculation of diluted net income per share for periods presented:

(in thousands, except per share data):

	Three months ended September 30, 2016			Three months ended September 30, 2015			Nine months ended September 30, 2016			Nine months ended September 30, 2015
Numerator for diluted net (loss) income per share:
Net (loss) income	$	(16,645	)	$	(3,919	)	$	61,314		$	(71,901	)
Less: Series B preferred stock dividends		4,500			4,500			13,500			13,248
Less: undistributed earnings attributed to participating securities (diluted calculation)		—			—			26,241			—
Diluted net (loss) income attributable to common stockholders	$	(21,145	)	$	(8,419	)	$	21,573		$	(85,149	)
Denominator for diluted net (loss) income per share:
Weighted-average shares outstanding		206,380,800			206,168,035			206,261,993			204,307,431
Weighted-average unvested restricted shares outstanding		(4,039,591	)		(4,197,396	)		(4,014,718	)		(2,636,314	)
Effect of dilutive potential shares		—			—			35,327,739			—
Denominator for diluted net (loss) income per share		202,341,209			201,970,639			237,575,014			201,671,117
Diluted net (loss) income per share attributable to common stockholders	$	(0.10	)	$	(0.04	)	$	0.09		$	(0.42	)

The following table summarizes shares subject to exercise or vesting conditions as more fully described in Note 9: Capital Stock. These shares could potentially be dilutive in future periods if we realize net income attributable to common and participating stockholders and the contingent or unvested stock is converted to WMIH common stock. The cash payment of $84.4 million, which would be received upon exercise of the warrants, has not been considered as an offset to the dilutive shares under warrants outstanding below.

	Potential dilution to common
	Minimum shares		Maximum shares
Restricted shares subject to vesting		4,039,591		4,039,591
Series A Preferred Stock		10,065,629		10,065,629
Warrants outstanding		61,400,000		61,400,000
Dilutive shares to be issued if Series B conversion is below $2.25		—		1,015,872
Series B Preferred Stock		266,666,667		342,857,143
Potential dilutive shares if converted to common		342,171,887		419,378,235