10-Q 1 cbsh331201310q.htm 10-Q CBSH 3.31.2013 10Q
 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
_________________________________________________________

For the quarterly period ended March 31, 2013

OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
____________________________________________________________

For the transition period from           to          
Commission File No. 0-2989
 
COMMERCE BANCSHARES, INC.
 
(Exact name of registrant as specified in its charter)
Missouri
 
43-0889454
(State of Incorporation)
 
(IRS Employer Identification No.)
 
 
 
1000 Walnut,
Kansas City, MO
 
64106
(Address of principal executive offices)
 
(Zip Code)
 
 
 
(816) 234-2000
 
 
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o     No þ
As of April 30, 2013, the registrant had outstanding 90,680,284 shares of its $5 par value common stock, registrant’s only class of common stock.



Commerce Bancshares, Inc. and Subsidiaries

Form 10-Q
 

 
 
 
Page
INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
 
 
March 31, 2013
 
December 31, 2012
 
(Unaudited)
 
 
 
(In thousands)
ASSETS
 
 
 
Loans
$
9,982,686

 
$
9,831,384

  Allowance for loan losses
(168,032
)
 
(172,532
)
Net loans
9,814,654

 
9,658,852

Loans held for sale
9,085

 
8,827

Investment securities:
 
 
 

 Available for sale ($733,496,000 and $736,183,000 pledged in 2013 and 2012,
 
 
 
  respectively, to secure repurchase agreements)
9,572,751

 
9,522,248

 Trading
23,400

 
28,837

 Non-marketable
118,620

 
118,650

Total investment securities
9,714,771

 
9,669,735

Short-term federal funds sold and securities purchased under agreements to resell
7,820

 
27,595

Long-term securities purchased under agreements to resell
1,200,000

 
1,200,000

Interest earning deposits with banks
199,956

 
179,164

Cash and due from banks
413,019

 
573,066

Land, buildings and equipment, net
355,464

 
357,612

Goodwill
125,585

 
125,585

Other intangible assets, net
4,870

 
5,300

Other assets
381,984

 
353,853

Total assets
$
22,227,208

 
$
22,159,589

LIABILITIES AND EQUITY
 
 
 
Deposits:
 
 
 

   Non-interest bearing
$
6,170,274

 
$
6,299,903

   Savings, interest checking and money market
9,802,838

 
9,817,943

   Time open and C.D.'s of less than $100,000
1,061,350

 
1,074,618

   Time open and C.D.'s of $100,000 and over
1,480,405

 
1,156,189

Total deposits
18,514,867

 
18,348,653

Federal funds purchased and securities sold under agreements to repurchase
1,126,858

 
1,083,550

Other borrowings
102,783

 
103,710

Other liabilities
303,509

 
452,102

Total liabilities
20,048,017

 
19,988,015

Commerce Bancshares, Inc. stockholders’ equity:
 
 
 

   Preferred stock, $1 par value
 
 
 
      Authorized and unissued 2,000,000 shares

 

   Common stock, $5 par value
 
 
 

 Authorized 100,000,000 shares; issued 91,729,235 shares in 2013 and 2012
458,646

 
458,646

   Capital surplus
1,101,445

 
1,102,507

   Retained earnings
517,792

 
477,210

   Treasury stock of 870,391 shares in 2013 and 196,922 shares in 2012, at cost
(32,501
)
 
(7,580
)
   Accumulated other comprehensive income
129,763

 
136,344

Total Commerce Bancshares, Inc. stockholders' equity
2,175,145

 
2,167,127

Non-controlling interest
4,046

 
4,447

Total equity
2,179,191

 
2,171,574

Total liabilities and equity
$
22,227,208

 
$
22,159,589

See accompanying notes to consolidated financial statements.

3


Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME
 
For the Three Months Ended March 31
(In thousands, except per share data)
2013
2012
 
(Unaudited)
INTEREST INCOME
 
 
Interest and fees on loans
$
107,786

$
111,756

Interest and fees on loans held for sale
85

105

Interest on investment securities
44,959

53,758

Interest on short-term federal funds sold and securities purchased under
 
 
   agreements to resell
9

17

Interest on long-term securities purchased under agreements to resell
5,829

4,275

Interest on deposits with banks
77

55

Total interest income
158,745

169,966

INTEREST EXPENSE
 
 
Interest on deposits:
 
 
   Savings, interest checking and money market
3,924

5,081

   Time open and C.D.'s of less than $100,000
1,749

2,106

   Time open and C.D.'s of $100,000 and over
1,699

1,911

Interest on federal funds purchased and securities sold under
 
 
   agreements to repurchase
218

225

Interest on other borrowings
812

906

Total interest expense
8,402

10,229

Net interest income
150,343

159,737

Provision for loan losses
3,285

8,165

Net interest income after provision for loan losses
147,058

151,572

NON-INTEREST INCOME
 
 
Bank card transaction fees
38,550

34,733

Trust fees
25,169

22,814

Deposit account charges and other fees
18,712

19,336

Capital market fees
4,391

6,871

Consumer brokerage services
2,686

2,526

Loan fees and sales
1,473

1,561

Other
8,896

6,742

Total non-interest income
99,877

94,583

INVESTMENT SECURITIES GAINS (LOSSES), NET
 
 
Impairment reversals on debt securities
1,389

5,587

Noncredit-related reversals on securities not expected to be sold
(1,831
)
(5,907
)
Net impairment losses
(442
)
(320
)
Realized gains (losses) on sales and fair value adjustments
(1,723
)
4,360

Investment securities gains (losses), net
(2,165
)
4,040

NON-INTEREST EXPENSE
 
 
Salaries and employee benefits
90,881

89,543

Net occupancy
11,235

11,260

Equipment
4,683

5,189

Supplies and communication
5,589

5,613

Data processing and software
18,951

17,469

Marketing
3,359

3,822

Deposit insurance
2,767

2,520

Other
17,572

15,045

Total non-interest expense
155,037

150,461

Income before income taxes
89,733

99,734

Less income taxes
28,925

32,920

Net income
60,808

66,814

Less non-controlling interest expense (income)
(209
)
1,015

Net income attributable to Commerce Bancshares, Inc.
$
61,017

$
65,799

Net income per common share — basic
$
.67

$
.70

Net income per common share — diluted
$
.67

$
.70

See accompanying notes to consolidated financial statements.

4


Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
For the Three Months Ended March 31
(In thousands)
 
2013
2012
 
 
(Unaudited)
Net income
 
$
60,808

$
66,814

Other comprehensive income (loss):
 
 
 
Net unrealized gains on securities for which a portion of an other-than-temporary impairment has been recorded in earnings
 
1,137

3,360

Net unrealized gains (losses) on other securities
 
(8,193
)
3,706

Pension loss amortization
 
475

452

Other comprehensive income (loss)
 
(6,581
)
7,518

Comprehensive income
 
54,227

74,332

Less non-controlling interest expense (income)
 
(209
)
1,015

Comprehensive income attributable to Commerce Bancshares, Inc.
$
54,436

$
73,317

See accompanying notes to consolidated financial statements.














5


Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
Commerce Bancshares, Inc. Shareholders
 
 
 
 

(In thousands, except per share data)
Common Stock
Capital Surplus
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Income (Loss)
Non-Controlling Interest
Total
 
(Unaudited)
Balance January 1, 2013
$
458,646

$
1,102,507

$
477,210

$
(7,580
)
$
136,344

$
4,447

$
2,171,574

Net income




61,017





(209
)
60,808

Other comprehensive loss








(6,581
)


(6,581
)
Distributions to non-controlling interest










(192
)
(192
)
Purchase of treasury stock






(29,993
)




(29,993
)
Issuance of stock under purchase and equity compensation plans


(1,146
)


3,752





2,606

Net tax benefit related to equity compensation plans


181









181

Stock-based compensation


1,223









1,223

Issuance of nonvested stock awards


(1,320
)


1,320






Cash dividends ($.225 per share)




(20,435
)






(20,435
)
Balance March 31, 2013
$
458,646

$
1,101,445

$
517,792

$
(32,501
)
$
129,763

$
4,046

$
2,179,191

Balance January 1, 2012
$
446,387

$
1,042,065

$
575,419

$
(8,362
)
$
110,538

$
4,314

$
2,170,361

Net income




65,799





1,015

66,814

Other comprehensive income








7,518



7,518

Distributions to non-controlling interest










(1,459
)
(1,459
)
Purchase of treasury stock






(31,600
)




(31,600
)
Issuance of stock under purchase and equity compensation plans


(3,065
)


9,019





5,954

Net tax benefit related to equity compensation plans


649









649

Stock-based compensation


1,407









1,407

Issuance of nonvested stock awards


(8,071
)


8,071






Cash dividends ($.219 per share)




(20,438
)






(20,438
)
Balance March 31, 2012
$
446,387

$
1,032,985

$
620,780

$
(22,872
)
$
118,056

$
3,870

$
2,199,206

See accompanying notes to consolidated financial statements.



6


Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the Three Months Ended March 31
(In thousands)
2013
 
2012
 
(Unaudited)
OPERATING ACTIVITIES:
 
 
 
Net income
$
60,808

 
$
66,814

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
  Provision for loan losses
3,285

 
8,165

  Provision for depreciation and amortization
10,424

 
11,021

  Amortization of investment security premiums, net
12,539

 
11,987

  Investment securities (gains) losses, net(A)
2,165

 
(4,040
)
  Net gains on sales of loans held for sale

 
(358
)
  Proceeds from sales of loans held for sale

 
21,699

  Net (increase) decrease in trading securities
9,609

 
(11,300
)
  Stock-based compensation
1,223

 
1,407

  (Increase) decrease in interest receivable
(5
)
 
3,825

  Increase in interest payable
246

 
114

  Increase in income taxes payable
26,894

 
23,496

  Net tax benefit related to equity compensation plans
(181
)
 
(649
)
  Other changes, net
(28,936
)
 
(12,036
)
Net cash provided by operating activities
98,071

 
120,145

INVESTING ACTIVITIES:
 
 
 
Proceeds from sales of investment securities(A)
52

 
6,986

Proceeds from maturities/pay downs of investment securities(A)
674,270

 
643,378

Purchases of investment securities(A)
(934,142
)
 
(558,651
)
Net increase in loans
(159,087
)
 
(81,658
)
Long-term securities purchased under agreements to resell
(50,000
)
 

Repayments of long-term securities purchased under agreements to resell
50,000

 

Purchases of land, buildings and equipment
(5,867
)
 
(5,393
)
Sales of land, buildings and equipment
404

 
701

Net cash provided by (used in) investing activities
(424,370
)
 
5,363

FINANCING ACTIVITIES:
 
 
 
Net decrease in non-interest bearing, savings, interest checking and money market deposits
(138,419
)
 
(84,876
)
Net increase in time open and C.D.'s
310,948

 
35,703

Net increase (decrease) in short-term federal funds purchased and securities sold under
 
 
 
  agreements to repurchase
43,308

 
(133,093
)
Repayment of long-term borrowings
(927
)
 
(297
)
Purchases of treasury stock
(29,993
)
 
(31,600
)
Issuance of stock under stock purchase and equity compensation plans
2,606

 
5,954

Net tax benefit related to equity compensation plans
181

 
649

Cash dividends paid on common stock
(20,435
)
 
(1,074
)
Net cash provided by (used in) financing activities
167,269

 
(208,634
)
Decrease in cash and cash equivalents
(159,030
)
 
(83,126
)
Cash and cash equivalents at beginning of year
779,825

 
517,551

Cash and cash equivalents at March 31
$
620,795

 
$
434,425

(A) Available for sale and non-marketable securities
 
 
 
Income tax payments, net
$
2,031

 
$
9,271

Interest paid on deposits and borrowings
$
8,156

 
$
10,115

Loans transferred to foreclosed real estate
$
3,925

 
$
1,311

Cash dividends payable on common stock at end of period
$

 
$
19,364

See accompanying notes to consolidated financial statements.

7


Commerce Bancshares, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 (Unaudited)
 
1. Principles of Consolidation and Presentation

The accompanying consolidated financial statements include the accounts of Commerce Bancshares, Inc. and all majority-owned subsidiaries (the Company). Most of the Company's operations are conducted by its subsidiary bank, Commerce Bank (the Bank). The consolidated financial statements in this report have not been audited. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications were made to 2012 data to conform to current year presentation. In the opinion of management, all adjustments necessary to present fairly the financial position and the results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. The results of operations for the three month period ended March 31, 2013 are not necessarily indicative of results to be attained for the full year or any other interim periods.

The significant accounting policies followed in the preparation of the quarterly financial statements are disclosed in the 2012 Annual Report on Form 10-K.

2. Loans and Allowance for Loan Losses

Major classifications within the Company’s held to maturity loan portfolio at March 31, 2013 and December 31, 2012 are as follows:

(In thousands)
 
March 31, 2013
 
December 31, 2012
Commercial:
 
 
 
 
Business
 
$
3,206,594

 
$
3,134,801

Real estate – construction and land
 
353,659

 
355,996

Real estate – business
 
2,213,353

 
2,214,975

Personal Banking:
 
 
 
 
Real estate – personal
 
1,626,106

 
1,584,859

Consumer
 
1,408,246

 
1,289,650

Revolving home equity
 
420,219

 
437,567

Consumer credit card
 
750,671

 
804,245

Overdrafts
 
3,838

 
9,291

Total loans
 
$
9,982,686

 
$
9,831,384


At March 31, 2013, loans of $3.3 billion were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. Additional loans of $1.3 billion were pledged at the Federal Reserve Bank as collateral for discount window borrowings.

Allowance for loan losses    

A summary of the activity in the allowance for loan losses during the three months ended March 31, 2013 and 2012 follows:

 
 
For the Three Months Ended March 31, 2013
 
For the Three Months Ended March 31, 2012
(In thousands)
 
Commercial
Personal Banking

Total
 
Commercial
Personal Banking

Total
Balance at January 1
$
105,725

$
66,807

$
172,532

 
$
122,497

$
62,035

$
184,532

Provision
(6,590
)
9,875

3,285

 
(3,198
)
11,363

8,165

Deductions:
 
 
 
 
 
 
 
   Loans charged off
705

11,801

12,506

 
2,528

13,389

15,917

   Less recoveries on loans
1,391

3,330

4,721

 
703

4,049

4,752

Net loan charge-offs (recoveries)
(686
)
8,471

7,785

 
1,825

9,340

11,165

Balance at March 31
$
99,821

$
68,211

$
168,032

 
$
117,474

$
64,058

$
181,532

    

8


The following table shows the balance in the allowance for loan losses and the related loan balance at March 31, 2013 and December 31, 2012, disaggregated on the basis of impairment methodology. Impaired loans evaluated under ASC 310-10-35 include loans on non-accrual status, which are individually evaluated for impairment, and other impaired loans discussed below, which are deemed to have similar risk characteristics and are collectively evaluated. All other loans are collectively evaluated for impairment under ASC 450-20.
 
Impaired Loans
 
All Other Loans

(In thousands)
Allowance for Loan Losses
Loans Outstanding
 
Allowance for Loan Losses
Loans Outstanding
March 31, 2013
 
 
 
 
 
Commercial
$
8,345

$
79,857

 
$
91,476

$
5,693,749

Personal Banking
2,772

31,241

 
65,439

4,177,839

Total
$
11,117

$
111,098

 
$
156,915

$
9,871,588

December 31, 2012
 
 
 
 
 
Commercial
$
5,434

$
80,807

 
$
100,291

$
5,624,965

Personal Banking
2,051

36,111

 
64,756

4,089,501

Total
$
7,485

$
116,918

 
$
165,047

$
9,714,466



Impaired loans

The table below shows the Company’s investment in impaired loans at March 31, 2013 and December 31, 2012. These loans consist of all loans on non-accrual status and other restructured loans whose terms have been modified and classified as troubled debt restructurings under ASC 310-40. These restructured loans are performing in accordance with their modified terms, and because the Company believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an accrual basis. They are discussed further in the "Troubled debt restructurings" section on page 13.
(In thousands)
 
Mar. 31, 2013
 
Dec. 31, 2012
Non-accrual loans
 
$
44,739

 
$
51,410

Restructured loans (accruing)
 
66,359

 
65,508

Total impaired loans
 
$
111,098

 
$
116,918




9


The following table provides additional information about impaired loans held by the Company at March 31, 2013 and December 31, 2012, segregated between loans for which an allowance for credit losses has been provided and loans for which no allowance has been provided.


(In thousands)
Recorded Investment
Unpaid Principal
Balance
 Related
Allowance
March 31, 2013
 
 
 
With no related allowance recorded:
 
 
 
Business
$
8,563

$
9,000

$

Real estate – construction and land
10,975

19,528


Real estate – business
5,692

8,776


 
$
25,230

$
37,304

$

With an allowance recorded:
 
 
 
Business
$
20,222

$
24,477

$
3,082

Real estate – construction and land
20,611

21,838

2,808

Real estate – business
13,794

20,119

2,455

Real estate – personal
11,952

14,930

1,536

Consumer
4,548

4,548

116

Revolving home equity
810

810

35

Consumer credit card
13,931

13,931

1,085

 
$
85,868

$
100,653

$
11,117

Total
$
111,098

$
137,957

$
11,117

December 31, 2012
 
 
 
With no related allowance recorded:
 
 
 
Business
$
9,964

$
12,697

$

Real estate – construction and land
8,440

15,102


Real estate – business
5,484

8,200


Real estate – personal
1,166

1,380


Revolving home equity
$
510

$
843


 
$
25,564

$
38,222

$

With an allowance recorded:
 
 
 
Business
$
19,358

$
22,513

$
1,888

Real estate – construction and land
20,446

25,808

1,762

Real estate – business
17,115

23,888

1,784

Real estate – personal
14,157

17,304

857

Consumer
4,779

4,779

93

Revolving home equity
779

779

18

Consumer credit card
14,720

14,720

1,083

 
$
91,354

$
109,791

$
7,485

Total
$
116,918

$
148,013

$
7,485


















10


Total average impaired loans for the three month periods ending March 31, 2013 and 2012, respectively, are shown in the table below.

(In thousands)
Commercial
Personal Banking
Total
Average Impaired Loans:
 
 
 
For the three months ended March 31, 2013
 
 
 
Non-accrual loans
$
41,108

$
6,059

$
47,167

Restructured loans (accruing)
38,642

27,291

65,933

Total
$
79,750

$
33,350

$
113,100

For the three months ended March 31, 2012
 
 
 
Non-accrual loans
$
67,564

$
7,409

$
74,973

Restructured loans (accruing)
40,226

23,554

63,780

Total
$
107,790

$
30,963

$
138,753


The table below shows interest income recognized during the three month periods ending March 31, 2013 and 2012 for impaired loans held at the end of each respective period. This interest relates to accruing restructured loans, as discussed in the "Troubled debt restructurings" section on page 13.
 
For the Three Months Ended March 31
(In thousands)
2013
2012
Interest income recognized on impaired loans:
 
 
Business
$
397

$
105

Real estate – construction and land
202

250

Real estate – business
61

54

Real estate – personal
73

14

Consumer
93


Revolving home equity
9


Consumer credit card
240

326

Total
$
1,075

$
749



















11


Delinquent and non-accrual loans

The following table provides aging information on the Company’s past due and accruing loans, in addition to the balances of loans on non-accrual status, at March 31, 2013 and December 31, 2012.




(In thousands)
Current or Less Than 30 Days Past Due

30 – 89
Days Past Due
90 Days Past Due and Still Accruing
Non-accrual



Total
March 31, 2013
 
 
 
 
 
Commercial:
 
 
 
 
 
Business
$
3,178,043

$
15,387

$
1,085

$
12,079

$
3,206,594

Real estate – construction and land
328,115

12,570


12,974

353,659

Real estate – business
2,194,179

4,709

176

14,289

2,213,353

Personal Banking:
 
 
 
 
 
Real estate – personal
1,608,631

9,721

2,368

5,386

1,626,106

Consumer
1,392,285

13,838

2,112

11

1,408,246

Revolving home equity
413,731

5,551

937


420,219

Consumer credit card
733,293

9,041

8,337


750,671

Overdrafts
2,684

1,154



3,838

Total
$
9,850,961

$
71,971

$
15,015

$
44,739

$
9,982,686

December 31, 2012
 
 
 
 
 
Commercial:
 
 
 
 
 
Business
$
3,110,403

$
10,054

$
1,288

$
13,056

$
3,134,801

Real estate – construction and land
325,541

16,721

56

13,678

355,996

Real estate – business
2,194,395

3,276


17,304

2,214,975

Personal Banking:
 
 
 
 
 
Real estate – personal
1,564,281

10,862

2,854

6,862

1,584,859

Consumer
1,273,581

13,926

2,143


1,289,650

Revolving home equity
433,437

2,121

1,499

510

437,567

Consumer credit card
786,081

10,657

7,507


804,245

Overdrafts
8,925

366



9,291

Total
$
9,696,644

$
67,983

$
15,347

$
51,410

$
9,831,384



Credit quality

The following table provides information about the credit quality of the Commercial loan portfolio, using the Company’s internal rating system as an indicator. The internal rating system is a series of grades reflecting management’s risk assessment, based on its analysis of the borrower’s financial condition. The “pass” category consists of a range of loan grades that reflect increasing, though still acceptable, risk. Movement of risk through the various grade levels in the “pass” category is monitored for early identification of credit deterioration. The “special mention” rating is attached to loans where the borrower exhibits negative financial trends due to borrower specific or systemic conditions that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. It is a transitional grade that is closely monitored for improvement or deterioration. The “substandard” rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment.

12


Commercial Loans


(In thousands)


Business
Real
 Estate-Construction
Real
Estate-
Business


Total
March 31, 2013
 
 
 
 
Pass
$
3,080,972

$
296,540

$
2,101,294

$
5,478,806

Special mention
69,708

8,660

46,436

124,804

Substandard
43,835

35,485

51,334

130,654

Non-accrual
12,079

12,974

14,289

39,342

Total
$
3,206,594

$
353,659

$
2,213,353

$
5,773,606

December 31, 2012
 
 
 
 
Pass
$
3,018,062

$
297,156

$
2,103,913

$
5,419,131

Special mention
58,793

11,400

38,396

108,589

Substandard
44,890

33,762

55,362

134,014

Non-accrual
13,056

13,678

17,304

44,038

Total
$
3,134,801

$
355,996

$
2,214,975

$
5,705,772


The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided in the table in the above "Delinquent and non-accrual loans" section. In addition, FICO scores are obtained and updated on a quarterly basis for most of the loans in the Personal Banking portfolio. This is a published credit score designed to measure the risk of default by taking into account various factors from a borrower's financial history. The Bank normally obtains a FICO score at the loan's origination and renewal dates, and updates are obtained on a quarterly basis. Excluded from the table below are certain Personal Banking loans for which FICO scores are not obtained because they generally pertain to commercial customer activities and are often underwritten with other collateral considerations. At March 31, 2013, these were comprised of $222.3 million in personal real estate loans and $95.3 million in consumer loans, or 7.5% of the Personal Banking portfolio. At December 31, 2012, these were comprised of $224.5 million in personal real estate loans and $87.4 million in consumer loans, or 7.6% of the Personal Banking portfolio. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at March 31, 2013 and December 31, 2012 by FICO score.
   Personal Banking Loans
 
% of Loan Category
 
Real Estate - Personal
Consumer
Revolving Home Equity
Consumer Credit Card
March 31, 2013
 
 
 
 
FICO score:
 
 
 
 
Under 600
2.0
%
6.0
%
2.3
%
4.5
%
600 - 659
3.4

11.6

5.2

12.3

660 - 719
9.8

24.5

16.1

33.6

720 - 779
27.0

27.1

30.6

28.3

780 and Over
57.8

30.8

45.8

21.3

Total
100.0
%
100.0
%
100.0
%
100.0
%
December 31, 2012
 
 
 
 
FICO score:
 
 
 
 
Under 600
2.3
%
6.7
%
2.6
%
4.4
%
600 - 659
3.2

11.3

5.3

11.7

660 - 719
10.4

24.4

15.2

32.1

720 - 779
26.6

26.4

30.0

28.2

780 and Over
57.5

31.2

46.9

23.6

Total
100.0
%
100.0
%
100.0
%
100.0
%

Troubled debt restructurings

As mentioned previously, the Company's impaired loans include loans which have been classified as troubled debt restructurings. Total restructured loans amounted to $92.8 million at March 31, 2013. Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a concession. Restructured loans are placed on non-accrual status if the Company does not believe it probable that amounts due under the contractual terms will be collected, and those non-accrual loans totaled $26.4 million at March 31, 2013. Other performing restructured loans totaled $66.4 million at March 31, 2013. These are are partly comprised of certain business, construction and business real estate loans classified as substandard. Upon maturity,

13


the loans renewed at interest rates judged not to be market rates for new debt with similar risk and as a result were classified as troubled debt restructurings. These commercial loans totaled $42.3 million at March 31, 2013. These restructured loans are performing in accordance with their modified terms, and because the Company believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an accrual basis. Troubled debt restructurings also include certain credit card loans under various debt management and assistance programs, which totaled $13.9 million at March 31, 2013. Modifications to credit card loans generally involve removing the available line of credit, placing loans on amortizing status, and lowering the contractual interest rate. The Company has classified additional loans as troubled debt restructurings because they were not reaffirmed by the borrower in bankruptcy proceedings. At March 31, 2013, these loans totaled $10.2 million in personal real estate, revolving home equity, and consumer loans. Interest on these loans is being recognized on an accrual basis, as the borrowers are continuing to make payments.

The following table shows the outstanding balances of loans classified as troubled debt restructurings at March 31, 2013, in addition to the outstanding balances of these restructured loans which the Company considers to have been in default at any time during the past twelve months. For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal.
(In thousands)
March 31, 2013
Balance 90 days past due at any time during previous 12 months
Commercial:
 
 
Business
$
25,520

$
106

Real estate - construction and land
29,586

2,664

Real estate - business
10,204

3,906

Personal Banking:
 
 
Real estate - personal
8,178

46

Consumer
4,537

209

Revolving home equity
810

163

Consumer credit card
13,931

881

Total restructured loans
$
92,766

$
7,975


For those loans on non-accrual status also classified as restructured, the modification did not create any further financial effect on the Company as those loans were already recorded at net realizable value. For those performing commercial loans classified as restructured, there were no concessions involving forgiveness of principal or interest and, therefore, there was no financial impact to the Company as a result of modification to these loans. No financial impact resulted from those performing loans where the debt was not reaffirmed in bankruptcy, as no changes to loan terms occurred in that process. However, the effects of modifications to consumer credit card loans were estimated to decrease interest income by approximately $1.5 million on an annual, pre-tax basis, compared to amounts contractually owed.

The allowance for loan losses related to troubled debt restructurings on non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as troubled debt restructurings. Those performing loans classified as troubled debt restructurings are accruing loans which management expects to collect under contractual terms. Performing commercial loans have had no other concessions granted other than being renewed at an interest rate judged not to be market. As such, they have similar risk characteristics as non-troubled debt commercial loans and are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience and current economic factors. Performing personal banking loans classified as troubled debt restructurings resulted from the borrower not reaffirming the debt during bankruptcy and have had no other concession granted, other than the Bank's future limitations on collecting payment deficiencies or in pursuing foreclosure actions. As such, they have similar risk characteristics as non-troubled debt personal banking loans and are evaluated collectively based on loan type, delinquency, historical experience and current economic factors.

If a troubled debt restructuring defaults and is already on non-accrual status, the allowance for loan losses continues to be based on individual evaluation, using discounted expected cash flows or the fair value of collateral. If an accruing troubled debt restructuring defaults, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for loan losses is determined based on individual evaluation, or if necessary, the loan is charged off and collection efforts begun.

The Company had commitments of $14.9 million at March 31, 2013 to lend additional funds to borrowers with restructured loans.


14


The Company’s holdings of foreclosed real estate totaled $14.2 million and $13.5 million at March 31, 2013 and December 31, 2012, respectively. Personal property acquired in repossession, generally autos and marine and recreational vehicles, totaled $2.6 million and $3.5 million at March 31, 2013 and December 31, 2012, respectively. These assets are carried at the lower of the amount recorded at acquisition date or the current fair value less estimated costs to sell.

3. Investment Securities

Investment securities, at fair value, consisted of the following at March 31, 2013 and December 31, 2012.
 
(In thousands)
Mar. 31, 2013
Dec. 31, 2012
Available for sale
$
9,572,751

$
9,522,248

Trading
23,400

28,837

Non-marketable
118,620

118,650

Total investment securities
$
9,714,771

$
9,669,735


Most of the Company’s investment securities are classified as available for sale, and this portfolio is discussed in more detail below. Securities which are classified as non-marketable include Federal Home Loan Bank (FHLB) stock and Federal Reserve Bank stock held for debt and regulatory purposes, which totaled $45.4 million at both March 31, 2013 and December 31, 2012. Investment in Federal Reserve Bank stock is based on the capital structure of the investing bank, and investment in FHLB stock is tied to the level of borrowings from the FHLB. Non-marketable securities also include private equity investments, which amounted to $73.2 million at both March 31, 2013 and December 31, 2012.


15


A summary of the available for sale investment securities by maturity groupings as of March 31, 2013 is shown below. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as the FHLMC, FNMA, GNMA and FDIC, in addition to non-agency mortgage-backed securities, which have no guarantee. Also included are certain other asset-backed securities, which are primarily collateralized by credit cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt securities primarily in that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying collateral. The Company does not have exposure to subprime originated mortgage-backed or collateralized debt obligation instruments.
(In thousands)
Amortized Cost
Fair Value
U.S. government and federal agency obligations:
 
 
After 1 but within 5 years
$
245,326

$
274,127

After 5 but within 10 years
79,911

93,321

After 10 years
72,452

69,860

Total U.S. government and federal agency obligations
397,689

437,308

Government-sponsored enterprise obligations:
 
 
Within 1 year
12,637

12,734

After 1 but within 5 years
97,483

100,759

After 5 but within 10 years
169,711

168,919

After 10 years
171,279

171,290

Total government-sponsored enterprise obligations
451,110

453,702

State and municipal obligations:
 
 
Within 1 year
105,160

105,961

After 1 but within 5 years
683,255

710,447

After 5 but within 10 years
559,371

570,030

After 10 years
280,828

272,730

Total state and municipal obligations
1,628,614

1,659,168

Mortgage and asset-backed securities:
 
 
  Agency mortgage-backed securities
3,152,708

3,268,377

  Non-agency mortgage-backed securities
229,520

243,907

  Asset-backed securities
3,271,145

3,285,310

Total mortgage and asset-backed securities
6,653,373

6,797,594

Other debt securities:
 
 
Within 1 year
38,213

39,484

After 1 but within 5 years
45,774

46,724

After 5 but within 10 years
86,381

85,811

Total other debt securities
170,368

172,019

Equity securities
19,255

52,960

Total available for sale investment securities
$
9,320,409

$
9,572,751


Investments in U.S. government securities are comprised mainly of U.S. Treasury inflation-protected securities (TIPS), which totaled $437.2 million, at fair value, at March 31, 2013. Interest paid on these securities increases with inflation and decreases with deflation, as measured by the Consumer Price Index. Included in state and municipal obligations are $128.1 million, at fair value, of auction rate securities, which were purchased from bank customers in 2008. Included in equity securities is common stock held by the holding company, Commerce Bancshares, Inc. (the Parent), with a fair value of $37.0 million at March 31, 2013.


16


For securities classified as available for sale, the following table shows the unrealized gains and losses (pre-tax) in accumulated other comprehensive income, by security type.
 
 
(In thousands)
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
March 31, 2013
 
 
 
 
U.S. government and federal agency obligations
$
397,689

$
42,212

$
(2,593
)
$
437,308

Government-sponsored enterprise obligations
451,110

4,119

(1,527
)
453,702

State and municipal obligations
1,628,614

46,279

(15,725
)
1,659,168

Mortgage and asset-backed securities:
 
 
 
 
  Agency mortgage-backed securities
3,152,708

117,875

(2,206
)
3,268,377

  Non-agency mortgage-backed securities
229,520

14,595

(208
)
243,907

  Asset-backed securities
3,271,145

15,967

(1,802
)
3,285,310

Total mortgage and asset-backed securities
6,653,373

148,437

(4,216
)
6,797,594

Other debt securities
170,368

2,333

(682
)
172,019

Equity securities
19,255

33,705


52,960

Total
$
9,320,409

$
277,085

$
(24,743
)
$
9,572,751

December 31, 2012
 
 
 
 
U.S. government and federal agency obligations
$
399,971

$
40,395

$
(1,607
)
$
438,759

Government-sponsored enterprise obligations
467,063

5,188

(677
)
471,574

State and municipal obligations
1,585,926

46,076

(16,295
)
1,615,707

Mortgage and asset-backed securities:
 
 
 
 
  Agency mortgage-backed securities
3,248,007

132,953

(5
)
3,380,955

  Non-agency mortgage-backed securities
224,223

12,906

(118
)
237,011

  Asset-backed securities
3,152,913

15,848

(1,367
)
3,167,394

Total mortgage and asset-backed securities
6,625,143

161,707

(1,490
)
6,785,360

Other debt securities
174,727

3,127

(102
)
177,752

Equity securities
5,695

27,401


33,096

Total
$
9,258,525

$
283,894

$
(20,171
)
$
9,522,248


The Company’s impairment policy requires a review of all securities for which fair value is less than amortized cost. Special emphasis and analysis is placed on securities whose credit rating has fallen below A3/A-, whose fair values have fallen more than 20% below purchase price for an extended period of time, or have been identified based on management’s judgment. These securities are placed on a watch list, and for all such securities, detailed cash flow models are prepared which use inputs specific to each security. Inputs to these models include factors such as cash flow received, contractual payments required, and various other information related to the underlying collateral (including current delinquencies), collateral loss severity rates (including loan to values), expected delinquency rates, credit support from other tranches, and prepayment speeds. Stress tests are performed at varying levels of delinquency rates, prepayment speeds and loss severities in order to gauge probable ranges of credit loss. At March 31, 2013, the fair value of securities on this watch list was $214.8 million compared to $220.7 million at December 31, 2012.

As of March 31, 2013, the Company had recorded other-than-temporary impairment (OTTI) on certain non-agency mortgage-backed securities, part of the watch list mentioned above, which had an aggregate fair value of $96.4 million. The cumulative credit-related portion of the impairment initially recorded on these securities totaled $12.0 million and was recorded in earnings. The Company does not intend to sell these securities and believes it is not likely that it will be required to sell the securities before the recovery of their amortized cost.

The credit-related portion of the loss on these securities was based on the cash flows projected to be received over the estimated life of the securities, discounted to present value, and compared to the current amortized cost bases of the securities. Significant inputs to the cash flow models used to calculate the credit losses on these securities included the following:

Significant Inputs
Range
Prepayment CPR
2%
-
25%
Projected cumulative default
15%
-
58%
Credit support
0%
-
16%
Loss severity
17%
-
95%

17


The following table shows changes in the credit losses recorded in earnings during the during the three months ended March 31, 2013 and 2012, for which a portion of an OTTI was recognized in other comprehensive income.
 
For the Three Months Ended March 31
(In thousands)
2013
2012
Balance at January 1
$
11,306

$
9,931

Credit losses on debt securities for which impairment was previously recognized
442

320

Increase in expected cash flows that are recognized over remaining life of security
(20
)
(38
)
Balance at March 31
$
11,728

$
10,213


Securities with unrealized losses recorded in accumulated other comprehensive income are shown in the table below, along with the length of the impairment period.
 
Less than 12 months
 
12 months or longer
 
Total
 
(In thousands)
   Fair Value
Unrealized
Losses
 
Fair Value
Unrealized
Losses
 
Fair Value
Unrealized
Losses
March 31, 2013
 
 
 
 
 
 
 
 
U.S. government and federal agency obligations
$
69,860

$
2,593

 
$

$

 
$
69,860

$
2,593

Government-sponsored enterprise obligations
177,432

1,527

 


 
177,432

1,527

State and municipal obligations
165,614

3,500

 
82,492

12,225

 
248,106

15,725

Mortgage and asset-backed securities:
 
 
 
 
 
 
 
 
   Agency mortgage-backed securities
463,362

2,206

 


 
463,362

2,206

   Non-agency mortgage-backed securities
22,953

131

 
8,026

77

 
30,979

208

   Asset-backed securities
594,084

988

 
114,122

814

 
708,206

1,802

Total mortgage and asset-backed securities
1,080,399

3,325

 
122,148

891

 
1,202,547

4,216

Other debt securities
71,722

682

 


 
71,722

682

Total
$
1,565,027

$
11,627

 
$
204,640

$
13,116

 
$
1,769,667

$
24,743

December 31, 2012
 
 
 
 
 
 
 
 
U.S. government and federal agency obligations
$
71,464

$
1,607

 
$

$

 
$
71,464

$
1,607

Government-sponsored enterprise obligations
102,082

677

 


 
102,082

677

State and municipal obligations
173,600

2,107

 
80,530

14,188

 
254,130

16,295

Mortgage and asset-backed securities:
 
 
 
 
 
 
 
 
   Agency mortgage-backed securities
5,874

5

 


 
5,874

5

   Non-agency mortgage-backed securities


 
12,609

118

 
12,609

118

   Asset-backed securities
338,007

976

 
78,684

391

 
416,691

1,367

Total mortgage and asset-backed securities
343,881

981

 
91,293

509

 
435,174

1,490

Other debt securities
39,032

102

 


 
$
39,032

$
102

Total
$
730,059

$
5,474

 
$
171,823

$
14,697

 
$
901,882

$
20,171


The total available for sale portfolio consisted of approximately 1,700 individual securities at March 31, 2013. The portfolio included 197 securities, having an aggregate fair value of $1.8 billion, that were in an unrealized loss position at March 31, 2013, compared to 144 securities, with a fair value of $901.9 million, at December 31, 2012. The total amount of unrealized loss on these securities increased $4.6 million to $24.7 million at March 31, 2013, which was partly related to recent acquisitions of mortgage and asset-backed securities. At March 31, 2013, securities in an unrealized loss position for 12 months or longer included those with temporary impairment totaling $202.2 million, or 2.1% of the total portfolio value, and other securities identified as other-than-temporarily impaired totaling $2.4 million.



18


The Company’s holdings of state and municipal obligations included gross unrealized losses of $15.7 million at March 31, 2013. Of these losses, $12.2 million related to auction rate securities, which are discussed above, and $3.5 million related to other state and municipal obligations. This portfolio, exclusive of ARS, totaled $1.5 billion at fair value, or 16.0% of total available for sale securities. The average credit quality of the portfolio, excluding ARS, is Aa2 as rated by Moody’s. The portfolio is diversified in order to reduce risk, and information about the top five largest holdings, by state and economic sector, is shown in the table below.
 

% of
Portfolio
Average
Life
(in years)
Average
Rating
(Moody’s)
At March 31, 2013
 
 
 
Texas
10.0
%
5.5
      Aa1
Florida
9.5

5.0
      Aa2
Ohio
5.8

5.5
      Aa2
Washington
5.6

5.1
      Aa2
New York
5.1

7.0
      Aa2
General obligation
31.9
%
5.0
      Aa2
Housing
17.6

6.6
      Aa1
Lease
15.4

5.0
      Aa3
Transportation
13.2

4.6
      Aa3
Limited tax
5.1

5.7
      Aa1
    
The following table presents proceeds from sales of securities and the components of investment securities gains and losses which have been recognized in earnings.
 
For the Three Months Ended March 31
(In thousands)
2013
2012
Proceeds from sales of available for sale securities
$

$
4,951

Proceeds from sales of non-marketable securities
52

2,035

Total proceeds
$
52

$
6,986

Available for sale:
 
 
Gains realized on sales
$

$
342

Other-than-temporary impairment recognized on debt securities
(442
)
(320
)
 Non-marketable:
 

         

 Gains realized on sales
52

93

 Losses realized on sales

(200
)
Fair value adjustments, net
(1,775
)
4,125

Investment securities gains (losses), net
$
(2,165
)
$
4,040


At March 31, 2013, securities totaling $4.8 billion in fair value were pledged to secure public fund deposits, securities sold under agreements to repurchase, trust funds, and borrowings at the Federal Reserve Bank and FHLB. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated $733.5 million, while the remaining securities were pledged under agreements pursuant to which the secured parties may not sell or re-pledge the collateral. Except for obligations of various government-sponsored enterprises such as FNMA, FHLB and FHLMC, no investment in a single issuer exceeded 10% of stockholders’ equity.


19


4. Goodwill and Other Intangible Assets

The following table presents information about the Company's intangible assets which have estimable useful lives.
 
March 31, 2013
 
December 31, 2012
 
 
(In thousands)
Gross Carrying Amount
Accumulated Amortization
Valuation Allowance
Net Amount
 
Gross Carrying Amount
Accumulated Amortization
Valuation Allowance
Net Amount
Amortizable intangible assets:
 
 
 
 
 
 
 
 
 
Core deposit premium
$
25,720

$
(21,353
)
$

$
4,367

 
$
25,720

$
(20,892
)
$

$
4,828

Mortgage servicing rights
3,202

(2,363
)
(336
)
503

 
3,132

(2,267
)
(393
)
472

Total
$
28,922

$
(23,716
)
$
(336
)
$
4,870

 
$
28,852

$
(23,159
)
$
(393
)
$
5,300


Aggregate amortization expense on intangible assets was $557 thousand and $684 thousand, respectively, for the three month periods ended March 31, 2013 and 2012. The following table shows the estimated annual amortization expense for the next five fiscal years. This expense is based on existing asset balances and the interest rate environment as of March 31, 2013. The Company’s actual amortization expense in any given period may be different from the estimated amounts depending upon the acquisition of intangible assets, changes in mortgage interest rates, prepayment rates and other market conditions.
 (In thousands)
 
2013
$
1,740

2014
1,265

2015
923

2016
613

2017
343



Changes in the carrying amount of goodwill and net other intangible assets for the three month period ended March 31, 2013 is as follows.
(In thousands)
Goodwill
Core Deposit Premium
Mortgage Servicing Rights
Balance January 1, 2013
$
125,585

$
4,828

$
472

Originations


70

Amortization

(461
)
(96
)
Impairment reversal


57

Balance March 31, 2013
$
125,585

$
4,367

$
503



Goodwill allocated to the Company’s operating segments at March 31, 2013 and December 31, 2012 is shown below.

(In thousands)
 
Consumer segment
$
67,765

Commercial segment
57,074

Wealth segment
746

Total goodwill
$
125,585


5. Guarantees

The Company, as a provider of financial services, routinely issues financial guarantees in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by the Company generally to guarantee the payment or performance obligation of a customer to a third party. While these represent a potential outlay by the Company, a significant amount of the commitments may expire without being drawn upon. The Company has recourse against the customer for any amount it is required to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting standards and approval process as loans made by the Company. Most of the standby letters of credit are secured, and in the event of nonperformance by customers, the Company has rights to the underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities.

Upon issuance of standby letters of credit, the Company recognizes a liability for the fair value of the obligation undertaken, which is estimated to be equivalent to the amount of fees received from the customer over the life of the agreement. At March 31,

20


2013 that net liability was $4.3 million, which will be accreted into income over the remaining life of the respective commitments. The contractual amount of these letters of credit, which represents the maximum potential future payments guaranteed by the Company, was $334.2 million at March 31, 2013.

The Company periodically enters into risk participation agreements (RPAs) as a guarantor to other financial institutions, in order to mitigate those institutions’ credit risk associated with interest rate swaps with third parties. The RPA stipulates that, in the event of default by the third party on the interest rate swap, the Company will reimburse a portion of the loss borne by the financial institution. These interest rate swaps are normally collateralized (generally with real property, inventories and equipment) by the third party, which limits the credit risk associated with the Company’s RPAs. The third parties usually have other borrowing relationships with the Company. The Company monitors overall borrower collateral, and at March 31, 2013, believes sufficient collateral is available to cover potential swap losses. The RPAs are carried at fair value throughout their term, with all changes in fair value, including those due to a change in the third party’s creditworthiness, recorded in current earnings. The terms of the RPAs, which correspond to the terms of the underlying swaps, range from 4 to 10 years. At March 31, 2013, the liability recorded for guarantor RPAs was $139 thousand, and the notional amount of the underlying swaps was $39.2 million. The maximum potential future payment guaranteed by the Company cannot be readily estimated but is dependent upon the fair value of the interest rate swaps at the time of default.

6. Pension

The amount of net pension cost is shown in the table below:
 
For the Three Months Ended March 31
(In thousands)
2013
2012
Service cost - benefits earned during the period
$
132

$
103

Interest cost on projected benefit obligation
1,122

1,287

Expected return on plan assets
(1,609
)
(1,645
)
Amortization of unrecognized net loss
767

730

Net periodic pension cost
$
412

$
475


Substantially all benefits accrued under the Company’s defined benefit pension plan were frozen effective January 1, 2005, and the remaining benefits were frozen effective January 1, 2011. During 2012, the Company made a discretionary contribution of $1.5 million to its defined benefit pension plan in order to reduce pension guarantee premiums, but has made no subsequent contributions to the defined benefit plan in 2013. The Company also made minimal funding contributions to a supplemental executive retirement plan (the CERP), which carries no segregated assets. The Company has no plans to make any further contributions, other than those related to the CERP, during the remainder of 2013.



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7. Common Stock

Presented below is a summary of the components used to calculate basic and diluted income per share. The Company applies the two-class method of computing income per share, as nonvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. The two-class method requires the calculation of separate income per share amounts for the nonvested share-based awards and for common stock. Income per share attributable to common stock is shown in the table below. Nonvested share-based awards are further discussed in Note 12.
 
For the Three Months Ended March 31
 
(In thousands, except per share data)
2013
2012
 
Basic income per common share:
 
 
 
Net income attributable to Commerce Bancshares, Inc.
$
61,017

$
65,799

 
Less income allocated to nonvested restricted stockholders
594

562

 
  Net income available to common stockholders
$
60,423

$
65,237

 
Weighted average common shares outstanding
90,211

92,632

 
   Basic income per common share
$
.67

$
.70

 
Diluted income per common share:
 
 
 
Net income attributable to Commerce Bancshares, Inc.
$
61,017

$
65,799

 
Less income allocated to nonvested restricted stockholders
593

561

 
  Net income available to common stockholders
$
60,424

$
65,238

 
Weighted average common shares outstanding
90,211

92,632

 
  Net effect of the assumed exercise of stock-based awards - based on
 
 
 
    the treasury stock method using the average market price for the respective periods
233

352

 
  Weighted average diluted common shares outstanding
90,444

92,984

 
    Diluted income per common share
$
.67

$
.70

 

All unexercised stock options and stock appreciation rights were included in the computations of diluted income per share for the three month periods ended March 31, 2013 and 2012.


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8. Accumulated Other Comprehensive Income

The table below shows the activity and accumulated balances for components of other comprehensive income. The largest component is the unrealized holding gains and losses on available for sale securities. Unrealized gains and losses on debt securities for which an other-than-temporary impairment (OTTI) has been recorded in current earnings are shown separately below. The other component is the amortization from other comprehensive income of losses associated with pension benefits, which occurs as the losses are included in current net periodic pension cost.
 
Unrealized Gains (Losses) on Securities (1)
Pension Loss (2)
Total Accumulated Other Comprehensive Income
(In thousands)
OTTI
Other
Balance January 1, 2013
$
3,245

$
160,263

$
(27,164
)
$
136,344

Other comprehensive income before reclassifications
1,392

(13,215
)

(11,823
)
Amounts reclassified from accumulated other comprehensive income