CHFC 2018 Annual Report

Note 23: Earnings Per Common Share The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participating rights in undistributed earnings. Average shares of common stock for diluted net income per common share include shares to be issued upon the exercise of stock options granted under the Corporation’s share-based compensation plans, restricted stock units that may be converted to stock, restricted stock awards and stock to be issued under the deferred stock compensation plan for non-employee directors. The factors used in the earnings per share computation follow: For the years ended December 31, (In thousands, except per share data) 2018 2017 2016 Net income $ 284,020 $ 149,523 $ 108,032 Net income allocated to participating securities 186 495 166 Net income allocated to common shareholders (1) $ 283,834 $ 149,028 $ 107,866 Weighted average common shares - issued 71,385 71,103 49,091 Average unvested restricted share awards (47) (238) (139) Weighted average common shares outstanding - basic 71,338 70,865 48,952 Effect of dilutive securities Weighted average common stock equivalents 687 648 651 Weighted average common shares outstanding - diluted 72,025 71,513 49,603 EPS available to common shareholders Basic earnings per common share $ 3.98 $ 2.11 $ 2.21 Diluted earnings per common share $ 3.94 $ 2.08 $ 2.17 (1) Net income allocated to common shareholders for basic and diluted earnings per share may differ under the two-class method as a result of adding common share equivalents for options and warrants to dilutive shares outstanding, which alters the ratio used to allocate net income to common shareholders and participating securities for the purposes of calculating diluted earnings per share. For the effect of dilutive securities, the assumed average stock valuation is $53.70 per share, $50.26 per share and $40.58 per share for the years ended December 31, 2018, 2017 and 2016, respectively. The average number of exercisable employee stock option awards outstanding that were "out-of-the-money," whereby the option exercise price per share exceeded the market price per share and, therefore, were not included in the computation of diluted earnings per common share because they would have been anti-dilutive, totaled 61,298 for the year ended December 31, 2018, 107,272 for the year ended December 31, 2017 and zero for the year ended December 31, 2016. Chemical Financial Corporation Notes to Consolidated Financial Statements December 31, 2018 164