Edgar Filing: COMMERCE BANCSHARES INC /MO/

CBSH 3.31.2015 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, 2015



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, 2015, the registrant had outstanding 96,551,575 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, 2015 (unaudited) and December 31, 2014	3
		Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014 (unaudited)	4
		Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014 (unaudited)	5
		Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2015, and 2014 (unaudited)	6
		Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014 (unaudited)	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	37
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	55
	Item 4.	Controls and Procedures	56

Part II	Other Information
	Item 1.	Legal Proceedings	57
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
	Item 6.	Exhibits	57
Signatures			58
Index to Exhibits			59

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PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS



	March 31, 2015			December 31, 2014
	(Unaudited)
	(In thousands)
ASSETS
Loans	$	11,721,960		$	11,469,238
Allowance for loan losses	(153,532		)	(156,532		)
Net loans	11,568,428			11,312,706
Loans held for sale, at fair value	2,770			—
Investment securities:
Available for sale ($468,843,000 pledged at March 31, 2015 and $467,143,000 at
December 31, 2014 to secure swap and repurchase agreements)	9,917,242			9,523,560
Trading	15,501			15,357
Non-marketable	110,560			106,875
Total investment securities	10,043,303			9,645,792
Federal funds sold and short-term securities purchased under agreements to resell	12,450			32,485
Long-term securities purchased under agreements to resell	1,050,000			1,050,000
Interest earning deposits with banks	123,712			600,744
Cash and due from banks	416,109			467,488
Land, buildings and equipment, net	356,309			357,871
Goodwill	138,921			138,921
Other intangible assets, net	7,143			7,450
Other assets	330,338			380,823
Total assets	$	24,049,483		$	23,994,280
LIABILITIES AND EQUITY
Deposits:
Non-interest bearing	$	6,785,221		$	6,811,959
Savings, interest checking and money market	10,656,139			10,541,601
Time open and C.D.'s of less than $100,000	853,842			878,433
Time open and C.D.'s of $100,000 and over	1,281,297			1,243,785
Total deposits	19,576,499			19,475,778
Federal funds purchased and securities sold under agreements to repurchase	1,610,463			1,862,518
Other borrowings	103,854			104,058
Other liabilities	353,260			217,680
Total liabilities	21,644,076			21,660,034
Commerce Bancshares, Inc. stockholders’ equity:
Preferred stock, $1 par value
Authorized 2,000,000 shares; issued 6,000 shares	144,784			144,784
Common stock, $5 par value
Authorized 120,000,000 shares;
issued 96,830,977 shares	484,155			484,155
Capital surplus	1,223,125			1,229,075
Retained earnings	463,701			426,648
Treasury stock of 154,567 shares at March 31, 2015
and 367,487 shares at December 31, 2014, at cost	(6,868		)	(16,562		)
Accumulated other comprehensive income	91,717			62,093
Total Commerce Bancshares, Inc. stockholders' equity	2,400,614			2,330,193
Non-controlling interest	4,793			4,053
Total equity	2,405,407			2,334,246
Total liabilities and equity	$	24,049,483		$	23,994,280

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)	2015			2014
	(Unaudited)
INTEREST INCOME
Interest and fees on loans	$	111,286		$	110,702
Interest and fees on loans held for sale	21			—
Interest on investment securities	38,436			45,019
Interest on federal funds sold and short-term securities purchased under
agreements to resell	9			26
Interest on long-term securities purchased under agreements to resell	3,051			4,151
Interest on deposits with banks	179			100
Total interest income	152,982			159,998
INTEREST EXPENSE
Interest on deposits:
Savings, interest checking and money market	3,308			3,306
Time open and C.D.'s of less than $100,000	880			1,120
Time open and C.D.'s of $100,000 and over	1,410			1,452
Interest on federal funds purchased and securities sold under
agreements to repurchase	367			203
Interest on other borrowings	879			851
Total interest expense	6,844			6,932
Net interest income	146,138			153,066
Provision for loan losses	4,420			9,660
Net interest income after provision for loan losses	141,718			143,406
NON-INTEREST INCOME
Bank card transaction fees	42,299			41,717
Trust fees	29,586			26,573
Deposit account charges and other fees	18,499			18,590
Capital market fees	3,002			3,870
Consumer brokerage services	3,188			2,747
Loan fees and sales	2,089			1,209
Other	7,763			7,921
Total non-interest income	106,426			102,627
INVESTMENT SECURITIES GAINS (LOSSES), NET
Change in fair value of other-than-temporarily impaired securities	(227		)	(63		)
Portion recognized in other comprehensive income	210			(283		)
Net impairment losses recognized in earnings	(17		)	(346		)
Realized gains on sales and fair value adjustments	6,052			10,383
Investment securities gains, net	6,035			10,037
NON-INTEREST EXPENSE
Salaries and employee benefits	98,074			94,263
Net occupancy	11,561			11,616
Equipment	4,703			4,504
Supplies and communication	5,581			5,699
Data processing and software	19,506			19,087
Marketing	3,918			3,681
Deposit insurance	3,001			2,894
Other	17,353			20,218
Total non-interest expense	163,697			161,962
Income before income taxes	90,482			94,108
Less income taxes	28,468			29,987
Net income	62,014			64,121
Less non-controlling interest expense (income)	959			(192		)
Net income attributable to Commerce Bancshares, Inc.	61,055			64,313
Less preferred stock dividends	2,250			—
Net income available to common shareholders	$	58,805		$	64,313
Net income per common share — basic	$	.61		$	.64
Net income per common share — diluted	$	.61		$	.64

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)	2015			2014
	(Unaudited)
Net income	$	62,014		$	64,121
Other comprehensive income (loss):
Net unrealized gains (losses) on securities for which a portion of an other-than-temporary impairment has been recorded in earnings	(128		)	166
Net unrealized gains on other securities	29,346			30,379
Pension loss amortization	406			223
Other comprehensive income	29,624			30,768
Comprehensive income	91,638			94,889
Less non-controlling interest expense (income)	959			(192		)
Comprehensive income attributable to Commerce Bancshares, Inc.	$	90,679		$	95,081

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)	Preferred Stock		Common Stock		Capital Surplus			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)		Non-Controlling Interest			Total
	(Unaudited)
Balance January 1, 2015	$	144,784	$	484,155	$	1,229,075		$	426,648		$	(16,562	)	$	62,093	$	4,053		$	2,334,246
Net income								61,055								959			62,014
Other comprehensive income														29,624					29,624
Distributions to non-controlling interest																(219		)	(219		)
Purchases of treasury stock											(1,718		)						(1,718		)
Issuance of stock under purchase and equity compensation plans					(1,312		)				3,177								1,865
Net tax benefit related to equity compensation plans					857														857
Stock-based compensation					2,740														2,740
Issuance of nonvested stock awards					(8,235		)				8,235								—
Cash dividends on common stock ($.225 per share)								(21,752		)									(21,752		)
Cash dividends on preferred stock ($.375 per share)								(2,250		)									(2,250		)
Balance March 31, 2015	$	144,784	$	484,155	$	1,223,125		$	463,701		$	(6,868	)	$	91,717	$	4,793		$	2,405,407
Balance January 1, 2014	$	—	$	481,224	$	1,279,948		$	449,836		$	(10,097	)	$	9,731	$	3,755		$	2,214,397
Net income								64,313								(192		)	64,121
Other comprehensive income														30,768					30,768
Distributions to non-controlling interest																(431		)	(431		)
Purchases of treasury stock											(20,900		)						(20,900		)
Issuance of stock under purchase and equity compensation plans					(2,897		)				6,982								4,085
Net tax benefit related to equity compensation plans					800														800
Stock-based compensation					2,261														2,261
Issuance of nonvested stock awards					(6,822		)				6,822								—
Cash dividends on common stock ($.214 per share)								(21,590		)									(21,590		)
Balance March 31, 2014	$	—	$	481,224	$	1,273,290		$	492,559		$	(17,193	)	$	40,499	$	3,132		$	2,273,511

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)	2015			2014
	(Unaudited)
OPERATING ACTIVITIES:
Net income	$	62,014		$	64,121
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	4,420			9,660
Provision for depreciation and amortization	10,694			10,508
Amortization of investment security premiums, net	15,099			6,675
Investment securities gains, net(A)	(6,035		)	(10,037		)
Net gains on sales of loans held for sale	(467		)	—
Originations of loans held for sale	(17,806		)	—
Proceeds from sales of loans held for sale	15,575			—
Net (increase) decrease in trading securities	(4,361		)	16,597
Stock-based compensation	2,740			2,261
Increase in interest receivable	(788		)	(1,421		)
Increase in interest payable	27			25
Increase in income taxes payable	24,904			30,410
Net tax benefit related to equity compensation plans	(857		)	(800		)
Other changes, net	(9,642		)	(6,524		)
Net cash provided by operating activities	95,517			121,475
INVESTING ACTIVITIES:
Proceeds from sales of investment securities(A)	185,732			31,666
Proceeds from maturities/pay downs of investment securities(A)	609,144			456,956
Purchases of investment securities(A)	(1,125,969		)	(628,237		)
Net increase in loans	(260,799		)	(275,036		)
Long-term securities purchased under agreements to resell	—			(100,000		)
Repayments of long-term securities purchased under agreements to resell	—			300,000
Purchases of land, buildings and equipment	(8,575		)	(3,954		)
Sales of land, buildings and equipment	3			5
Net cash used in investing activities	(600,464		)	(218,600		)
FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits	218,837			(132,858		)
Net increase in time open and C.D.'s	12,921			167,862
Repayment of long-term securities sold under agreements to repurchase	—			(150,000		)
Net decrease in federal funds purchased and short-term securities sold under agreements to repurchase	(252,055		)	(269,406		)
Repayment of other long-term borrowings	(204		)	(196		)
Net decrease in other short-term borrowings	—			(2,000		)
Purchases of treasury stock	(1,718		)	(20,900		)
Issuance of stock under equity compensation plans	1,865			4,085
Net tax benefit related to equity compensation plans	857			800
Cash dividends paid on common stock	(21,752		)	(21,590		)
Cash dividends paid on preferred stock	(2,250		)	—
Net cash used in financing activities	(43,499		)	(424,203		)
Decrease in cash and cash equivalents	(548,446		)	(521,328		)
Cash and cash equivalents at beginning of year	1,100,717			1,269,514
Cash and cash equivalents at March 31	$	552,271		$	748,186
(A) Available for sale and non-marketable securities
Income tax net payments (refunds)	$	2,953		$	(807	)
Interest paid on deposits and borrowings	$	6,817		$	6,869
Loans transferred to foreclosed real estate	$	482		$	836

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015 (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 by an independent registered public accounting firm, but 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. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications were made to 2014 data to conform to current year presentation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Management has evaluated subsequent events for potential recognition or disclosure. The results of operations for the three month period ended March 31, 2015 are not necessarily indicative of results to be attained for the full year or any other interim period.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company's most recent Annual Report on Form 10-K, containing the latest audited consolidated financial statements and notes thereto.

The Company invests in low-income housing partnerships which supply funds for the construction and operation of apartment complexes that provide affordable housing to lower income families. As permitted by ASU 2014-01, "Accounting for Investments in Qualified Affordable Housing Projects", issued by the Financial Accounting Standards Board, the Company adopted a new method of accounting for these investments on January 1, 2015. The new method is the practical expedient to the proportional amortization method, which allows the Company to record the amortization of its investments in income tax expense, rather than in non-interest expense. The Company made this change because it believes that presenting the investment performance net of taxes more fairly represents the economics and returns on such investments. The amortization recognized as a component of income tax expense for the three months ended March 31, 2015 was $497 thousand. As required by the ASU, all prior period information in this report has been revised to reflect the adoption, resulting in a decrease to non-interest expense and an increase to income tax expense (as originally reported) of $378 thousand for the three months ended March 31, 2014.

2. Loans and Allowance for Loan Losses

Major classifications within the Company’s held for investment loan portfolio at March 31, 2015 and December 31, 2014 are as follows:



(In thousands)	March 31, 2015		December 31, 2014
Commercial:
Business	$	4,183,977	$	3,969,952
Real estate – construction and land	423,928		403,507
Real estate – business	2,282,988		2,288,215
Personal Banking:
Real estate – personal	1,887,557		1,883,092
Consumer	1,766,888		1,705,134
Revolving home equity	426,964		430,873
Consumer credit card	739,543		782,370
Overdrafts	10,115		6,095
Total loans	$	11,721,960	$	11,469,238

At March 31, 2015, loans of $3.6 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.

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Allowance for loan losses

A summary of the activity in the allowance for loan losses during the three months ended March 31, 2015 and 2014, respectively, follows:



	For the Three Months Ended March 31, 2015							For the Three Months Ended March 31, 2014
(In thousands)	Commercial			Personal Banking		Total		Commercial		Personal Banking		Total
Balance at January 1	$	89,622		$	66,910	$	156,532	$	94,189	$	67,343	$	161,532
Provision	(1,752		)	6,172		4,420		4,067		5,593		9,660
Deductions:
Loans charged off	724			11,576		12,300		1,130		12,751		13,881
Less recoveries on loans	1,760			3,120		4,880		755		3,466		4,221
Net loan charge-offs (recoveries)	(1,036		)	8,456		7,420		375		9,285		9,660
Balance at March 31	$	88,906		$	64,626	$	153,532	$	97,881	$	63,651	$	161,532

The following table shows the balance in the allowance for loan losses and the related loan balance at March 31, 2015 and December 31, 2014, 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, 2015
Commercial	$	3,390	$	53,067	$	85,516	$	6,837,826
Personal Banking	1,918		25,742		62,708		4,805,325
Total	$	5,308	$	78,809	$	148,224	$	11,643,151
December 31, 2014
Commercial	$	4,527	$	55,551	$	85,095	$	6,606,123
Personal Banking	2,314		25,537		64,596		4,782,027
Total	$	6,841	$	81,088	$	149,691	$	11,388,150

Impaired loans

The table below shows the Company’s investment in impaired loans at March 31, 2015 and December 31, 2014. 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, 2015		Dec. 31, 2014
Non-accrual loans	$	35,818	$	40,775
Restructured loans (accruing)	42,991		40,313
Total impaired loans	$	78,809	$	81,088

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The following table provides additional information about impaired loans held by the Company at March 31, 2015 and December 31, 2014, 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, 2015
With no related allowance recorded:
Business	$	7,685	$	10,372	$	—
Real estate – construction and land	3,441		8,804		—
Real estate – business	10,588		14,403		—
Real estate – personal	1,007		1,187		—
	$	22,721	$	34,766	$	—
With an allowance recorded:
Business	$	16,921	$	18,569	$	1,615
Real estate – construction and land	8,165		11,978		791
Real estate – business	6,267		10,931		984
Real estate – personal	9,338		12,564		1,111
Consumer	5,260		5,260		64
Revolving home equity	532		532		20
Consumer credit card	9,605		9,605		723
	$	56,088	$	69,439	$	5,308
Total	$	78,809	$	104,205	$	5,308
December 31, 2014
With no related allowance recorded:
Business	$	9,237	$	11,532	$	—
Real estate – construction and land	4,552		8,493		—
Real estate – business	13,453		17,258		—
Revolving home equity	1,227		1,384		—
	$	28,469	$	38,667	$	—
With an allowance recorded:
Business	$	12,326	$	13,846	$	1,844
Real estate – construction and land	8,148		9,610		1,081
Real estate – business	7,835		15,025		1,602
Real estate – personal	9,096		12,465		1,441
Consumer	4,244		4,244		50
Revolving home equity	529		529		9
Consumer credit card	10,441		10,441		814
	$	52,619	$	66,160	$	6,841
Total	$	81,088	$	104,827	$	6,841

Total average impaired loans for the three month periods ended March 31, 2015 and 2014, respectively, are shown in the table below.



(In thousands)	Commercial		Personal Banking		Total
Average Impaired Loans:
For the three months ended March 31, 2015
Non-accrual loans	$	31,281	$	6,258	$	37,539
Restructured loans (accruing)	22,280		19,386		41,666
Total	$	53,561	$	25,644	$	79,205
For the three months ended March 31, 2014
Non-accrual loans	$	40,302	$	7,565	$	47,867
Restructured loans (accruing)	38,393		21,431		59,824
Total	$	78,695	$	28,996	$	107,691

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The table below shows interest income recognized during the three month periods ended March 31, 2015 and 2014, respectively, for impaired loans held at the end of each respective period. This interest all 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)	2015		2014
Interest income recognized on impaired loans:
Business	$	135	$	163
Real estate – construction and land	80		161
Real estate – business	15		30
Real estate – personal	53		63
Consumer	52		75
Revolving home equity	4		8
Consumer credit card	174		202
Total	$	513	$	702

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, 2015 and December 31, 2014.



(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, 2015
Commercial:
Business	$	4,167,679	$	5,893	$	444	$	9,961	$	4,183,977
Real estate – construction and land	413,150		6,032		258		4,488		423,928
Real estate – business	2,261,667		6,293		—		15,028		2,282,988
Personal Banking:
Real estate – personal	1,874,779		5,092		1,345		6,341		1,887,557
Consumer	1,750,328		14,965		1,595		—		1,766,888
Revolving home equity	423,984		2,241		739		—		426,964
Consumer credit card	724,023		7,720		7,800		—		739,543
Overdrafts	9,909		206		—		—		10,115
Total	$	11,625,519	$	48,442	$	12,181	$	35,818	$	11,721,960
December 31, 2014
Commercial:
Business	$	3,946,144	$	11,152	$	1,096	$	11,560	$	3,969,952
Real estate – construction and land	397,488		827		35		5,157		403,507
Real estate – business	2,266,688		3,661		—		17,866		2,288,215
Personal Banking:
Real estate – personal	1,868,606		6,618		1,676		6,192		1,883,092
Consumer	1,687,285		16,053		1,796		—		1,705,134
Revolving home equity	428,478		1,552		843		—		430,873
Consumer credit card	764,599		9,559		8,212		—		782,370
Overdrafts	5,721		374		—		—		6,095
Total	$	11,365,009	$	49,796	$	13,658	$	40,775	$	11,469,238

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 applied to loans where the borrower exhibits negative financial

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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.



Commercial Loans
(In thousands)	Business		Real Estate-Construction		Real Estate- Business		Total
March 31, 2015
Pass	$	4,075,346	$	406,042	$	2,186,965	$	6,668,353
Special mention	65,335		5,395		34,757		105,487
Substandard	33,335		8,003		46,238		87,576
Non-accrual	9,961		4,488		15,028		29,477
Total	$	4,183,977	$	423,928	$	2,282,988	$	6,890,893
December 31, 2014
Pass	$	3,871,569	$	385,831	$	2,184,541	$	6,441,941
Special mention	62,904		3,865		40,668		107,437
Substandard	23,919		8,654		45,140		77,713
Non-accrual	11,560		5,157		17,866		34,583
Total	$	3,969,952	$	403,507	$	2,288,215	$	6,661,674

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, 2015, these were comprised of $241.9 million in personal real estate loans, or 5.0% of the Personal Banking portfolio, compared to $244.3 million at December 31, 2014. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at March 31, 2015 and December 31, 2014 by FICO score.



Personal Banking Loans
	% of Loan Category
	Real Estate - Personal		Consumer		Revolving Home Equity		Consumer Credit Card
March 31, 2015
FICO score:
Under 600	1.6	%	5.2	%	1.9	%	4.3	%
600 - 659	3.2		10.6		4.6		12.4
660 - 719	9.7		23.0		13.6		33.2
720 - 779	26.6		26.7		28.0		27.9
780 and over	58.9		34.5		51.9		22.2
Total	100.0	%	100.0	%	100.0	%	100.0	%
December 31, 2014
FICO score:
Under 600	1.4	%	5.2	%	1.8	%	4.1	%
600 - 659	3.1		10.2		4.4		11.8
660 - 719	9.9		22.9		13.7		32.4
720 - 779	26.7		28.0		32.8		27.8
780 and over	58.9		33.7		47.3		23.9
Total	100.0	%	100.0	%	100.0	%	100.0	%

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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 $65.9 million at March 31, 2015. 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 $23.0 million at March 31, 2015. Other performing restructured loans totaled $43.0 million at March 31, 2015. These are primarily comprised of certain business, construction and business real estate loans classified as substandard. Upon maturity, 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 $24.4 million at March 31, 2015. 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 $9.6 million at March 31, 2015. 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, 2015, these loans totaled $9.0 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 under the terms of the loan agreements.

The following table shows the outstanding balances of loans classified as troubled debt restructurings at March 31, 2015, 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, 2015		Balance 90 days past due at any time during previous 12 months
Commercial:
Business	$	22,457	$	—
Real estate - construction and land	11,154		181
Real estate - business	10,786		—
Personal Banking:
Real estate - personal	5,732		—
Consumer	6,124		123
Revolving home equity	85		85
Consumer credit card	9,605		761
Total restructured loans	$	65,943	$	1,150

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. The effects of modifications to consumer credit card loans were estimated to decrease interest income by approximately $1.1 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.

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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 $6.4 million at March 31, 2015 to lend additional funds to borrowers with restructured loans.

Loans held for sale

Beginning January 1, 2015, certain long-term fixed rate personal real estate loan originations have been designated as held for sale, and the Company has elected the fair value option for these loans. The election of the fair value option aligns the accounting for these loans with the related economic hedges discussed in Note 10. At March 31, 2015, the fair value of these loans was $2.8 million, and the unpaid principal balance was $2.7 million. The unrealized gain in fair value was recognized in loan fees and sales in the consolidated statement of income. None of these loans were on non-accrual status or 90 days or more past due. Interest income with respect to loans held for sale is accrued based on the principal amount outstanding and the loan's contractual interest rate.

Foreclosed real estate/repossessed assets

The Company’s holdings of foreclosed real estate totaled $5.0 million and $5.5 million at March 31, 2015 and December 31, 2014, respectively. Personal property acquired in repossession, generally autos and marine and recreational vehicles, totaled $2.2 million and $2.4 million at March 31, 2015 and December 31, 2014, 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, 2015 and December 31, 2014.



(In thousands)	Mar. 31, 2015		Dec. 31, 2014
Available for sale	$	9,917,242	$	9,523,560
Trading	15,501		15,357
Non-marketable	110,560		106,875
Total investment securities	$	10,043,303	$	9,645,792

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 $46.7 million at March 31, 2015 and $46.6 million at December 31, 2014. 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 $63.8 million at March 31, 2015 and $60.2 million at December 31, 2014.

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A summary of the available for sale investment securities by maturity groupings as of March 31, 2015 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.



(In thousands)	Amortized Cost		Fair Value
U.S. government and federal agency obligations:
Within 1 year	$	89,740	$	91,306
After 1 but within 5 years	165,330		174,362
After 5 but within 10 years	115,646		120,640
After 10 years	52,174		50,084
Total U.S. government and federal agency obligations	422,890		436,392
Government-sponsored enterprise obligations:
Within 1 year	48,054		48,504
After 1 but within 5 years	537,133		541,462
After 5 but within 10 years	428,623		427,923
After 10 years	50,834		50,878
Total government-sponsored enterprise obligations	1,064,644		1,068,767
State and municipal obligations:
Within 1 year	167,015		168,215
After 1 but within 5 years	647,803		667,497
After 5 but within 10 years	809,242		821,062
After 10 years	157,225		154,771
Total state and municipal obligations	1,781,285		1,811,545
Mortgage and asset-backed securities:
Agency mortgage-backed securities	2,626,920		2,709,914
Non-agency mortgage-backed securities	478,285		490,233
Asset-backed securities	3,156,146		3,162,824
Total mortgage and asset-backed securities	6,261,351		6,362,971
Other debt securities:
Within 1 year	3,997		4,006
After 1 but within 5 years	56,061		56,765
After 5 but within 10 years	136,950		137,247
Total other debt securities	197,008		198,018
Equity securities	5,678		39,549
Total available for sale investment securities	$	9,732,856	$	9,917,242

Investments in U.S. government and federal agency obligations are comprised mainly of U.S. Treasury inflation-protected securities, which totaled $436.3 million, at fair value, at March 31, 2015. 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 $93.3 million, at fair value, of auction rate securities, which were purchased from bank customers in 2008. Included in equity securities is common and preferred stock held by the holding company, Commerce Bancshares, Inc. (the Parent), with a fair value of $39.5 million at March 31, 2015.

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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, 2015
U.S. government and federal agency obligations	$	422,890	$	16,427	$	(2,925	)	$	436,392
Government-sponsored enterprise obligations	1,064,644		7,224		(3,101		)	1,068,767
State and municipal obligations	1,781,285		36,872		(6,612		)	1,811,545
Mortgage and asset-backed securities:
Agency mortgage-backed securities	2,626,920		86,710		(3,716		)	2,709,914
Non-agency mortgage-backed securities	478,285		12,226		(278		)	490,233
Asset-backed securities	3,156,146		9,287		(2,609		)	3,162,824
Total mortgage and asset-backed securities	6,261,351		108,223		(6,603		)	6,362,971
Other debt securities	197,008		1,496		(486		)	198,018
Equity securities	5,678		33,871		—			39,549
Total	$	9,732,856	$	204,113	$	(19,727	)	$	9,917,242
December 31, 2014
U.S. government and federal agency obligations	$	497,336	$	9,095	$	(5,024	)	$	501,407
Government-sponsored enterprise obligations	968,574		2,593		(8,040		)	963,127
State and municipal obligations	1,789,215		32,340		(8,354		)	1,813,201
Mortgage and asset-backed securities:
Agency mortgage-backed securities	2,523,377		75,923		(5,592		)	2,593,708
Non-agency mortgage-backed securities	372,911		11,061		(1,228		)	382,744
Asset-backed securities	3,090,174		6,922		(5,103		)	3,091,993
Total mortgage and asset-backed securities	5,986,462		93,906		(11,923		)	6,068,445
Other debt securities	140,784		420		(2,043		)	139,161
Equity securities	3,931		34,288		—			38,219
Total	$	9,386,302	$	172,642	$	(35,384	)	$	9,523,560

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 (Moody's) or A- (Standard & Poor's), 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, 2015, the fair value of securities on this watch list was $117.4 million compared to $123.9 million at December 31, 2014.

As of March 31, 2015, 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 $52.5 million. The cumulative credit-related portion of the impairment on these securities, which was recorded in earnings, totaled $13.7 million. 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 at March 31, 2015 included the following:



Significant Inputs	Range
Prepayment CPR	3%	-	23%
Projected cumulative default	20%	-	58%
Credit support	0%	-	19%
Loss severity	21%	-	70%

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The following table presents a rollforward of the cumulative OTTI credit losses recognized in earnings on all available for sale debt securities.



	For the Three Months Ended March 31
(In thousands)	2015			2014
Cumulative OTTI credit losses at January 1	$	13,734		$	12,499
Credit losses on debt securities for which impairment was previously recognized	17			346
Increase in expected cash flows that are recognized over remaining life of security	(29		)	(25		)
Cumulative OTTI credit losses at March 31	$	13,722		$	12,820

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, 2015
U.S. government and federal agency obligations	$	—	$	—	$	32,641	$	2,925	$	32,641	$	2,925
Government-sponsored enterprise obligations	11,439		35		159,458		3,066		170,897		3,101
State and municipal obligations	81,475		315		125,284		6,297		206,759		6,612
Mortgage and asset-backed securities:
Agency mortgage-backed securities	33,319		35		323,023		3,681		356,342		3,716
Non-agency mortgage-backed securities	29,873		47		43,981		231		73,854		278
Asset-backed securities	852,860		801		157,377		1,808		1,010,237		2,609
Total mortgage and asset-backed securities	916,052		883		524,381		5,720		1,440,433		6,603
Other debt securities	24,001		48		41,195		438		65,196		486
Total	$	1,032,967	$	1,281	$	882,959	$	18,446	$	1,915,926	$	19,727
December 31, 2014
U.S. government and federal agency obligations	$	90,261	$	818	$	32,077	$	4,206	$	122,338	$	5,024
Government-sponsored enterprise obligations	224,808		922		224,779		7,118		449,587		8,040
State and municipal obligations	172,980		646		215,702		7,708		388,682		8,354
Mortgage and asset-backed securities:
Agency mortgage-backed securities	55,128		429		381,617		5,163		436,745		5,592
Non-agency mortgage-backed securities	141,655		609		43,659		619		185,314		1,228
Asset-backed securities	1,424,457		2,009		159,098		3,094		1,583,555		5,103
Total mortgage and asset-backed securities	1,621,240		3,047		584,374		8,876		2,205,614		11,923
Other debt securities	16,434		55		80,203		1,988		96,637		2,043
Total	$	2,125,723	$	5,488	$	1,137,135	$	29,896	$	3,262,858	$	35,384

The total available for sale portfolio consisted of nearly 2,000 individual securities at March 31, 2015. The portfolio included 204 securities, having an aggregate fair value of $1.9 billion, that were in an unrealized loss position at March 31, 2015, compared to 363 securities, with a fair value of $3.3 billion, at December 31, 2014. The total amount of unrealized losses on these securities decreased $15.7 million to $19.7 million at March 31, 2015. At March 31, 2015, the fair value of securities in an unrealized loss position for 12 months or longer totaled $883.0 million, or 8.9% of the total portfolio value, and did not include any securities identified as other-than-temporarily impaired.

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The Company’s holdings of state and municipal obligations included gross unrealized losses of $6.6 million at March 31, 2015. Of these losses, $5.7 million related to auction rate securities and $931 thousand related to other state and municipal obligations. This portfolio, exclusive of auction rate securities, totaled $1.7 billion at fair value, or 17.3% of total available for sale securities. The average credit quality of the portfolio, excluding auction rate securities, 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. The Company has processes and procedures in place to monitor its holdings, identify signs of financial distress and, if necessary, exit its positions in a timely manner.



	% of Portfolio		Average Life (in years)	Average Rating (Moody’s)
At March 31, 2015
Texas	11.1	%	5.1	Aa2
Florida	7.9		4.0	Aa3
Ohio	6.0		5.5	Aa2
New York	6.0		6.5	Aa2
Washington	5.5		5.5	Aa2
General obligation	33.7	%	5.3	Aa2
Lease	18.3		5.3	Aa3
Housing	12.6		3.5	Aa1
Transportation	12.6		4.8	A1
Limited tax	8.3		6.6	Aa2

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)	2015			2014
Proceeds from sales of available for sale securities	$	185,053		$	30,998
Proceeds from sales of non-marketable securities	679			668
Total proceeds	$	185,732		$	31,666
Available for sale:
Gains realized on sales	$	2,526		$	—
Losses realized on sales	—			(5,197		)
Other-than-temporary impairment recognized on debt securities	(17		)	(346		)
Non-marketable:
Gains realized on sales	226			2
Losses realized on sales	—			(134		)
Fair value adjustments, net	3,300			15,712
Investment securities gains, net	$	6,035		$	10,037

At March 31, 2015, securities totaling $4.7 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 $468.8 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, 2015										December 31, 2014
(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	$	31,270	$	(25,121	)	$	—		$	6,149	$	31,270	$	(24,698	)	$	—		$	6,572
Mortgage servicing rights	3,844		(2,768		)	(82		)	994		3,693		(2,718		)	(97		)	878
Total	$	35,114	$	(27,889	)	$	(82	)	$	7,143	$	34,963	$	(27,416	)	$	(97	)	$	7,450

Aggregate amortization expense on intangible assets was $473 thousand and $559 thousand, respectively, for the three month periods ended March 31, 2015 and 2014. 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, 2015. 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)
2015	$	1,694
2016	1,320
2017	985
2018	742
2019	610

Changes in the carrying amount of goodwill and net other intangible assets for the three month period ended March 31, 2015 is as follows.



(In thousands)	Goodwill		Core Deposit Premium			Mortgage Servicing Rights
Balance January 1, 2015	$	138,921	$	6,572		$	878
Originations	—		—			151
Amortization	—		(423		)	(50		)
Impairment reversal	—		—			15
Balance March 31, 2015	$	138,921	$	6,149		$	994

Goodwill allocated to the Company’s operating segments at March 31, 2015 and December 31, 2014 is shown below.



(In thousands)
Consumer segment	$	70,721
Commercial segment	67,454
Wealth segment	746
Total goodwill	$	138,921

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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2015, that net liability was $3.1 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 $313.8 million at March 31, 2015.

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, 2015, 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 3 to 11 years. At March 31, 2015, the fair value of the Company's guarantee liabilities for RPAs was $253 thousand, and the notional amount of the underlying swaps was $68.9 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)	2015			2014
Service cost - benefits earned during the period	$	126		$	133
Interest cost on projected benefit obligation	1,216			1,261
Expected return on plan assets	(1,523		)	(1,561		)
Amortization of unrecognized net loss	655			360
Net periodic pension cost	$	474		$	193

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 the first three months of 2015, the Company made no funding contributions to its defined benefit pension plan and 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 2015.

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7. Common and Preferred 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)	2015		2014
Basic income per common share:
Net income attributable to Commerce Bancshares, Inc.	$	61,055	$	64,313
Less preferred stock dividends	2,250		—
Net income available to common shareholders	58,805		64,313
Less income allocated to nonvested restricted stock	796		802
Net income allocated to common stock	$	58,009	$	63,511
Weighted average common shares outstanding	95,289		99,511
Basic income per common share	$	.61	$	.64
Diluted income per common share:
Net income available to common shareholders	$	58,805	$	64,313
Less income allocated to nonvested restricted stock	794		799
Net income allocated to common stock	$	58,011	$	63,514
Weighted average common shares outstanding	95,289		99,511
Net effect of the assumed exercise of stock-based awards - based on