Note 20—Earnings Per Share of Common Stock

Basic earnings per share of common stock is determined using net income attributable to the Company’s common stockholders divided by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock is determined by dividing net income attributable to the Company’s common stockholders by the weighted average number of shares of common stock outstanding, assuming all dilutive shares of common stock were issued.

Potentially dilutive shares of common stock include non-vested stock-based compensation awards and PennyMac Class A units. The Company applies the treasury stock method to determine the diluted weighted average shares of common stock outstanding represented by the non-vested stock-based compensation awards. The diluted earnings per share calculation includes an evaluation of whether the exchange of PennyMac Class A units for shares of common stock is dilutive. Accordingly, in this evaluation, earnings attributable to the Company’s common stockholders is also adjusted to include the earnings allocated to the PennyMac Class A units after taking into account the income taxes that would be applicable to such earnings.

The following table summarizes the basic and diluted earnings per share calculations:


	Quarter ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
	(in thousands, except per share amounts)
Basic earnings per share of common stock:
Net income attributable to common stockholders	$	14,489	$	17,081	$	48,945	$	38,439
Weighted average shares of common stock outstanding		25,125		23,426		24,644		23,147
Basic earnings per share of common stock	$	0.58	$	0.73	$	1.99	$	1.66

Diluted earnings per share of common stock:
Net income attributable to common stockholders	$	14,489	$	17,081	$	48,945	$	38,439
Net income attributable to dilutive stock-based compensation units		552		888		2,435		1,816
Effect of net income attributable to PennyMac Class A units exchangeable to Class A common stock, net of income taxes		29,580		37,996		101,921		86,473
Net income attributable to common stockholders for diluted earnings per share	$	44,621	$	55,965	$	153,301	$	126,728
Weighted average shares of common stock outstanding applicable to basic earnings per share		25,125		23,426		24,644		23,147
Effect of dilutive shares:
Common shares issuable under stock-based compensation plan		1,476		1,751		1,818		1,684
PennyMac Class A units exchangeable to Class A common stock		52,312		53,239		52,492		53,400
Weighted average shares of common stock applicable to diluted earnings per share		78,913		78,416		78,954		78,231
Diluted earnings per share of common stock	$	0.57	$	0.71	$	1.94	$	1.62

Calculations of diluted earnings per share require certain potentially dilutive shares to be excluded when their inclusion in the diluted earnings per share calculation would be anti-dilutive. The following table summarizes the weighted-average number of anti-dilutive restricted stock units (“RSUs”) and stock options excluded from the calculation of diluted earnings per share:


	Quarter ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
	(in thousands except for weighted-average exercise price)
Performance-based RSUs (1)		1,172		—		1,060		475
Time-based RSUs		86		1		68		1
Stock options (2)		1,208		2,622		705		2,434
Total anti-dilutive stock-based compensation units		2,466		2,623		1,833		2,910
Weighted average exercise price of anti-dilutive stock options (2)	$	17.79	$	16.39	$	17.79	$	16.39

(1)

Certain performance-based RSUs were outstanding but not included in the computation of earnings per share because the performance thresholds included in such RSUs have not been achieved.

(2)

Certain stock options were outstanding but not included in the computation of diluted earnings per share because the weighted-average exercise prices were above the average stock price for the period.