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 13.



	For the Three Months Ended June 30				For the Six Months Ended June 30
(In thousands, except per share data)	2014		2013		2014		2013
Basic income per common share:
Net income attributable to Commerce Bancshares, Inc.	$	66,531	$	65,805	$	130,844	$	126,822
Less preferred stock dividends	—		—		—		—
Net income available to common shareholders	66,531		65,805		130,844		126,822
Less income allocated to nonvested restricted stock	856		750		1,658		1,344
Net income allocated to common stock	$	65,675	$	65,055	$	129,186	$	125,478
Weighted average common shares outstanding	93,529		94,273		94,148		94,496
Basic income per common share	$	.70	$	.69	$	1.37	$	1.33
Diluted income per common share:
Net income available to common shareholders	$	66,531	$	65,805	$	130,844	$	126,822
Less income allocated to nonvested restricted stock	854		747		1,653		1,340
Net income allocated to common stock	$	65,677	$	65,058	$	129,191	$	125,482
Weighted average common shares outstanding	93,529		94,273		94,148		94,496
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	384		394		402		320
Weighted average diluted common shares outstanding	93,913		94,667		94,550		94,816
Diluted income per common share	$	.70	$	.69	$	1.37	$	1.32

Unexercised stock options and stock appreciation rights of 131 thousand and 93 thousand were excluded in the computation of diluted income per share for the six month periods ended June 30, 2014 and 2013, respectively, because their inclusion would have been anti-dilutive.

In the Annual Meeting of the Shareholders, held on April 16, 2014, a proposal to increase the shares of Company common stock authorized for issuance under its articles of incorporation was approved. This approval increased the authorized shares from 100,000,000 to 120,000,000.

On June 19, 2014, the Company issued and sold 6,000,000 depositary shares, representing 6,000 shares of 6.00% Series B Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share, having an aggregate liquidation preference of $150.0 million (“Series B Preferred Stock”). Each depositary share has a liquidation preference of $25 per share. Dividends on the Series B Preferred Stock, if declared, accrue and are payable quarterly, in arrears, at a rate of 6.00%. The Series B Preferred Stock qualifies as Tier 1 capital for the purposes of the regulatory capital calculations. The net proceeds from the issuance and sale of the Series B Preferred Stock, after deducting underwriting discount and commissions, and the payment of expenses were approximately $144.8 million. The net proceeds from the offering were used to fund the accelerated share repurchase program discussed below.

Concurrent with the issuance and sale of the Series B Preferred Stock, on June 19, 2014, the Company entered into an accelerated share repurchase agreement (the “ASR agreement”) with Morgan Stanley & Co. LLC (“Morgan Stanley”). Under the ASR agreement, the Company paid $200.0 million to Morgan Stanley and received from Morgan Stanley 3,055,434 shares of the Company’s common stock, representing approximately 70% of the estimated total number of shares to be delivered by Morgan Stanley at the conclusion of the accelerated stock repurchase program. Upon final settlement, which is expected to occur on or before June 2015, the Company expects to receive the balance of the shares repurchased under the ASR agreement. The specific number of shares that the Company ultimately will repurchase will be based on the volume-weighted-average price per share of the Company’s common stock during the repurchase period. During the term of the ASR agreement, the Company may only make repurchases of Company common stock with the consent of Morgan Stanley.

The ASR agreement is part of a stock repurchase program that was authorized by the Company’s board of directors in June 2014 to buy up to 5,000,000 shares of the Company's common stock. The Company accounted for the repurchase as two separate transactions: (i) as shares of common stock acquired in a treasury stock transaction recorded on the acquisition date; and (ii) as a forward contract indexed to the Company’s common stock that is classified as equity and reported as a component of surplus.

In the event that the Company does not declare and pay dividends on the Series B Preferred Stock for the most recent dividend period, the ability of the Company to declare or pay dividends on, purchase, redeem or otherwise acquire shares of its common stock or any securities of the Company that rank junior to the Series B Preferred Stock is subject to certain restrictions under the terms of the Series B Preferred Stock. The Company declared its first dividend on the Series B Preferred Stock on July 25, 2014.