Edgar Filing: COMMERCE BANCSHARES INC /MO/

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



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
Part I	Financial Information
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of March 31, 2013 (unaudited) and December 31, 2012	3
		Consolidated Statements of Income for the Three Months Ended March 31, 2013 and 2012 (unaudited)	4
		Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2013 and 2012 (unaudited)	5
		Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2013, and 2012 (unaudited)	6
		Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012 (unaudited)	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	39
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	57
	Item 4.	Controls and Procedures	57

Part II	Other Information
	Item 1.	Legal Proceedings	58
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
	Item 6.	Exhibits	58
Signatures			59
Index to Exhibits			60

Table of Contents

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.

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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.

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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.

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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.

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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.

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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

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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

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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

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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

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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.

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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,

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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.

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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.

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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.

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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%

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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.

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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.

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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,

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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.

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		Pension Loss (2)			Total Accumulated Other Comprehensive Income
Balance January 1, 2013	$	3,245	$	160,263	$	(27,164	)	$	136,344
Other comprehensive income before reclassifications	1,392		(13,215