Commerce Bancshares Inc Annual Report 2017

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FY2017 Annual Report · Commerce Bancshares Inc

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Financial Highlights

To our Shareholders

Challenge Accepted.™

Commerce by the Numbers

Customer Success Stories

A Better Life for All

Community Advisors

Officers and Directors

ABOUT THE COVER

Emmanual Obi, president of OBI Consulting Engineers (left), built his civil engineering business by developing
strong relationships both inside and outside the Southtown neighborhood he calls home. His community-focused
approach has yielded significant work for his firm, including the 3,000-square-foot exhibit that houses the Kansas
City Zoo’s two endangered Sumatran tigers. It also led him to the Commerce Bank around the corner from his
business. “There is value in starting small and building relationships for the long-term”, says Emmanuel, pictured
here with Aaron Bushell, Commerce small business banking specialist, and Theodis Watson, Commerce senior
branch manager. “That’s what I hoped to do with Commerce.”

Past Chairman’s EDGE in Action Award recipents and members of the Commerce Commercial Payments Campaign
team represented (from left) by Product Support Specialist Cole Spriggs; Sales Support Manager Diane Phillips; and
Product Support Specialists Odie Blakely and Jackie Holl. Not pictured: Product Support Specialist Matt Thompson.

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™F I N A N C I A L H I G H L I G H T S

(In thousands, except per share data)

2013

2014

2015

2016

2017

O P E R A T I N G R E S U L T S
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains (losses), net
Non-interest expense
Net income attributable to Commerce Bancshares, Inc.
Net income available to common shareholders
Cash dividends on common stock

619,372
20,353
418,865
(4,425)
629,147
260,961
260,961
82,104

620,204
29,531
436,506
14,124
656,870
261,754
257,704
84,241

634,320
28,727
448,139
6,320
676,487
263,730
254,730
84,961

680,049
36,318
474,392
(53)
717,065
275,391
266,391
87,070

733,679
45,244
486,604
25,051
769,684
319,383
310,383
91,619

A T Y E A R E N D
Total assets
Loans, including held for sale
Investment securities
Deposits
Equity
Non-performing assets
Common shares outstanding1
Tier I common risk-based capital ratio2
Tier I risk-based capital ratio
Total risk-based capital ratio
Tier I leverage ratio
Tangible common equity to tangible assets ratio
Efficiency ratio

$ 24,604,962
12,444,299
9,901,680
19,978,853
2,367,418
29,394
107,192

$ 25,641,424
13,427,192
9,770,986
21,101,095
2,501,132
14,649
106,534

$ 24,833,415
14,005,072
8,893,307
20,425,446
2,718,184
12,664
106,615

$ 23,994,280
11,469,238
9,645,792
19,475,778
2,334,246
46,251
111,511
NA

$ 23,072,036
10,956,836
9,042,997
19,047,348
2,214,397
55,439
116,544
NA
14.06%
15.28
9.43
9.00
60.42

13.74%
14.86
9.36
8.55
61.96

11.52%
12.33%
13.28
9.23
8.48
62.34

O T H E R F I N A N C I A L D A T A (based on average balances)
Return on total assets
Return on common equity
Loans to deposits
Equity to assets
Net yield on interest earning assets (T/E)

1.19%

1.15%

1.11%

11.99
57.12
9.95
3.11

11.65
59.91
10.10
3.00

11.43
61.44
10.00
2.94

11.62%
12.38%
13.32
9.55
8.66
61.98

1.12%
11.33
63.71
10.16
3.04

12.65%
13.41%
14.35
10.39
9.84
62.97

1.28%
12.46
66.18
10.53
3.20

P E R C O M M O N S H A R E D A T A
Net income - basic1

Net income - diluted1
Market price1
Book value1
Cash dividends1
Cash dividend payout ratio
1 Restated for the 5% stock dividend distributed December 2017.
2 New ratio under Basel III capital guidelines effective January 1, 2015.

2.24

2.27

2.33

2.50 $

2.90

2.23
36.95
19.00
.705
31.46%

2.26
37.57
19.63
.740

32.69%

2.32
38.59
20.74
.777
33.35%

2.49
55.06
22.12
.816
32.69%

2.89
55.84
24.14
.857
29.52%

Return on Average Common Equity

Return on Average Assets

1.5%

1.0%

0.5%

0.0%

-0.5%

Commerce

Peers

Large Banks

Commerce

Peers

Large Banks

Commerce 10-Year Average: 11.6% Peers’ 10-Year Average: 5.6%

Commerce 10-Year Average: 1.2% Peers’ 10-Year Average: .6%

Unless otherwise noted, the sources for this Annual Report are internal Commerce reports and S&P Global Market Intelligence.

15.0%

10.0%

5.0%

0.0%

-5.0%

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™

David Kemper
Chairman

C O M M E R C E B A N C S H A R E S , I N C .
F E B R U A R Y 2 2 , 2 0 1 8

To our shareholders.

Strong economic growth, rising interest rates and continued excellent credit
quality created a very strong operating environment for commercial banks in 2017.
Commerce Bancshares enjoyed record earnings performance with after-tax
profits rising 16% to $319 million and earnings per share increasing 16% to $2.89.
We remain focused on meeting our customers’ needs for advice and information
by investing in efficient and flexible digital and physical distribution systems. More
importantly, your Commerce team continued to execute on our key long-term
strategies. In an intensely competitive financial service sector, we believe our
seasoned and committed banking team, backed by a strong and complete array
of products, allows us to serve and continually expand our customer base.

We were particularly pleased with our steady expansion in national payments and
wealth management, and in the system-wide growth of our commercial business.
One of our key competitive advantages is our culture, particularly our focus on
establishing deep relationships with our customers and bringing solutions to
them. Our $25 billion asset size provides us with the substantial capital base
needed to meet our clients’ credit and operational needs, and we have the agility
to communicate across product lines to deliver unique products and services in a
timely fashion.

We look forward to a continued positive economic environment in 2018. A lower
corporate tax rate should stimulate the economy in the short term, helping loan
demand and business confidence. Bank earnings should also benefit from lower
tax rates. In January 2018, your directors approved a 10% increase in our quarterly
cash dividend, and this is the 50th consecutive year in which regular cash
dividends were increased.

Longer term, we will continue to face fierce competition from both bank and
non-bank financial service providers. Our commitment to invest in new products
and services and attract top talent to Commerce is unchanged, and we recognize
that our most important competitive advantage continues to be our people and
their teamwork. Our key stakeholders remain our shareholders, customers and
associates, and we are very proud of delivering some of the strongest returns in
our banking segment both last year and over the past two decades. Although
mid-cap banks produced more moderate stock returns in 2017 after an
extraordinary 2016, our 2017 return on average assets of 1.28% ranked us #7
among the top 50 U.S. banks on asset size. Over the past 10 years, annualized
return to our shareholders was 10%, handily outperforming both large and mid-
sized bank stock market returns.

As always, we thank our shareholders for their support and look forward to a
successful 2018.

10-Year Cumulative Total Return

$300

$250

$200

$150

$100

$50

2007

2009

Commerce (CBSH)

2011
KBW Bank Index

2013

2015

2017

S&P 500

NASDAQ Bank Index

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™The year 2017 was one of opportunity and challenge. Commerce seized the
opportunity to deliver record financial performance. Our results were made
possible by the concerted efforts of our 4,800 associates and reflect both the
quality of our core super-community operating model and also the maturation
of a number of growth initiatives in specialty areas like payments and wealth
management. In 2017, the banking industry as a whole was buoyed by a strong
economy, favorable interest rate environment and benign credit conditions. In an
environment like this it can sometimes be hard to discern earnings quality among
banks. As always, we try to take the long view and to build a franchise that will
perform through the economic cycle. Our diverse set of businesses, high levels of
fee income and prudent credit underwriting make this possible.

While our results continue to be strong, we are mindful of the challenges we face.
The financial services industry is one that is undergoing rapid change. This change
is enabled by technology but is fundamentally driven by the evolving challenges
faced by customers. At Commerce, our mission is to understand these challenges
and to accept them as our own. Recognizing the pace of change, we build
solutions with a truly agile mindset. We bring cross-functional teams together to
work in partnership with our customers, move quickly, and deliver value early and
often. Our super-community operating model allows us to stay close to customers
and affords the capital and capabilities to address their challenges. And so, we see
opportunity on the horizon as we say to our customers, “Challenge Accepted.™”

How We Operate

Commerce operates as a super-community banking organization offering a broad
array of sophisticated products that address the needs of consumer, business and
wealth management customers.

The Markets We Serve

While our largest markets are in St. Louis and Kansas City, we also operate throughout
the Midwest, including Springfield, Missouri; Wichita; Denver; Tulsa; Oklahoma City;
Central Missouri and Central Illinois. In addition, we operate commercial offices in
Dallas, Nashville, Cincinnati, Indianapolis, Des Moines and Grand Rapids.

For many years Commerce has been a leader in payment systems, offering a
comprehensive suite of payment solutions to both consumer and business customers.
While focusing primarily on our local markets, Commerce also offers a suite of
business-to-business payments products to customers across the U.S.

Strength of Our Banking Business

Throughout our long history, we have offered a wide range of loan, deposit and
fee-based products and services. Fully 40% of our revenue stems from fee-based
businesses and products that together provide solid profit margins and excellent
returns on capital, with low volatility through economic and interest rates cycles. Our
Wealth Management business is ranked 20th in assets under management among
domestic bank-owned trust companies and has experienced 10% compounded
growth over the past five years.

Our payments business offers innovative products, including commercial cash
management, commercial card products and merchant services. Revenue from these
businesses totaled over $194 million in 2017. We continue to develop a robust set of
business-to-business payments capabilities, including a new claims payment product
for insurance customers.

continued on page 6

John W. Kemper
President and Chief Operating Officer

C O M M E R C E B A N C S H A R E S , I N C .
F E B R U A R Y 2 2 , 2 0 1 8

Earnings per Share

$2.89

$2.49

$2.32

$3.00

$ 2.80

$ 2.60

$ 2.40

$2.20

$2.00

Net Income
Attributable to Commerce Bancshares
$350

$ 300

$319

$264

$275

s
n
o

i
l
l
i

M
n

$ 250

$200

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™

Performance Highlights

• This year net income attributable to Commerce increased 16% to a record
$319 million, while earnings per share totaled $2.89 per share, also a new

Commerce record.

• The new tax legislation signed in December 2017 will significantly lower
tax expense to Commerce in 2018 and beyond. Partly in response,
Commerce announced the payment of discretionary bonuses to all non-
incented employees. In addition, contributions of more than $32 million
were made in 2017 to the Commerce Bancshares Foundation, which will
allow this foundation to operate for many years in support of the
communities in which we operate.

• Higher net income resulted from 8% growth in net interest income, steady
growth in fee businesses and disciplined expense management.

• The increase in net interest income this year was fueled by growth in
average loans, higher loan interest rates and stable funding costs. We
expect the Federal Reserve Bank will continue to raise rates in 2018, which
should drive revenue growth into the future.

• Total shareholders’ equity grew this year to $2.7 billion, and the Tier 1
common risk-based capital ratio reached 12.7%. The market value of our
common stock totaled $6.0 billion at year end.

Return on Average Assets

1.28%

1.11%

1.12%

1.40%

1.20%

1.00%

0.90%

TOTAL LOANS

$14.0

BILLION

Total Loans

$ 15.0

$ 13.0

$12.4

$14.0

$13.4

s
n
o

i
l
l
i

B
n

• We paid a regular cash dividend on common shares of $.857 per share
(restated) in 2017, and announced a 10% increase in this dividend in 2018,
marking the 50th consecutive year in which regular cash dividends were
increased. We also paid a 5% stock dividend for the 24th year in a row
in 2017.

$ 11.0

$ 9.0

• Total loans grew 4% this year to $14.0 billion. Over the past two years we

increased our loan portfolio $1.6 billion, or 13%.

• Loan growth of 16% in our geographic expansion markets outpaced
the Company as a whole. Of these markets, Dallas experienced the
strongest demand.

• Fee income from our Wealth Management businesses grew 9% to $158
million. Commerce Trust Company assets under administration now total
more than $48 billion.

• With a focus on operating efficiently, expense control was solid this year
with core expenses up only 2%. (Excludes the one-time discretionary
bonus and Foundation contribution.)

• Credit quality remains strong. While net loan charge-offs grew to $42
million on higher consumer losses and lower commercial loan recoveries,
net credit losses totaled only .31% of total loans. In addition, non-

performing assets declined and delinquencies remain low.

TOTAL DEPOSITS

$20.4

BILLION

Cash Dividends
per Common Share

$1.00

$0.940

$0.80

$0.816

$0.857

$ 0.60

$0.40

*Based on 1st quarter 2018 declared dividend

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™

STRENGTH

2017 Revenue Mix

13%

15%

60%

■ Net Interest Income
■ Card Income
■ Wealth Management
■ Deposit Service Charges
■ Fees & Commissions
■ Other

CULTURE

2017 Employee Engagement
as ranked by Korn Ferry

80%

70%

60%

$150

$100

74%

75%

78%

U.S. Financial
Services Norm

U.S. High
Performance
Norm

Commerce

INNOVATION

Health Services
Financing Loans

$145

$75

s
n
o

i
l
l
i

M
n

$50

$41

Core Deposit System Project

As one of the nation’s fastest-growing
industries, healthcare is an important
vertical market for Commerce. We have
been investing in specialty healthcare
capabilities for over a decade and
currently serve nearly 350 hospital
customers across the country. We
have helped hospitals and healthcare
providers address complex financial
needs with low-cost lending solutions
and payment products and services,
including commercial card products that
can reduce operating costs significantly.
More recently, we have begun offering
solutions that help simplify receivables
management and collection on
insurance claims.

Commerce Culture

We know our culture is the single
biggest determinant of our long-term
success. Five years ago, we launched
the Commerce EDGE, a comprehensive
program to reinforce and shape our
culture to support future growth.

At its core, a bank is in the business of
risk management. At Commerce, we
are known for strong risk management
practices that produce not only
consistent loan growth, but also best-
in-class credit results. Our culture also
emphasizes great customer service,
continuous improvement, and product
and delivery system innovations that add
value and lower costs.

Our greatest asset continues to be our
employees, and we have been successful
in attracting top banking talent in the
markets we serve. We have also sought
fresh perspectives by engaging and
recruiting specialists from outside the
banking industry. We have invested in
training our staff, bolstering our culture
through EDGE reinforcement and learning
new Agile methods of bringing products
to market more quickly and efficiently.

We are also committed to serving
and investing in the geographic
markets where we operate. Commerce
employees have contributed countless
hours and resources in support of
local charitable organizations. In 2017
Commerce also contributed more than
$32 million to the Commerce Bancshares
Foundation, ensuring our ability to
support community needs for many years
to come.

Underscoring these
efforts, Forbes
named Commerce
to its 2017 list of
America’s Best Mid-
Size Employers, and

Korn Ferry recognized Commerce with an
award for achieving the highest levels of
employee engagement in a global study.

Innovation and Investment
into the Future

We continue to make significant
investments in technology, branch
delivery and new products to keep
pace with our customers’ evolving
expectations. We made major
improvements to our online banking
application this year to make it easier to
set up new accounts, obtain alerts and
access account information.

In early 2018, we released a new mobile
banking application with a number of new
capabilities. We continue to refine our
branch designs, and in 2017 we rebuilt
one branch in Kansas City, remodeled
two branches in St. Louis and opened
a new branch in Lebanon, Missouri – all
designed with refreshed layouts to
provide an elevated experience, reflect
our brand and offer new ways for
customers to interact with our staff.

We invested heavily in technology during
the year to develop a number of new
payment products for the healthcare
and insurance industries. Working with
a consortium of national insurance
companies, we designed a claims
payment product that directly addresses
the needs of both insurance companies
and their customers. In a market where
patient out-of-pocket expenses continue
to rise, our health services financing
solution continues to experience strong
growth, with year-over-year funding
increasing by 92% this year.

Commerce is an active member of the
Federal Reserve Bank’s “Faster Payments
Task Force,” placing us at the center of
discussions regarding new technologies
to improve the national payments
network. Commerce was also recently
selected by Visa® to be the first U.S. bank
to initiate test transactions with its new
product, Visa B2B Connect. The product,
built on blockchain technology,

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™

will enable financial institutions to
complete fast and secure processing
of international corporate business-to-
business payments worldwide.

In addition, we are making a significant
investment in a new core deposit system.
Expected to be in place in mid- to late-
2019, this new system brings real-time
processing to customer transactions,
improved bank efficiencies and the
technology needed to accommodate
faster processing speeds now and in
the future.

Commerce External Voice

This year we introduced a new marketing
campaign under the banner “Challenge
Accepted.™” This campaign focuses on
the everyday challenges affecting our
consumer, business and wealth customers
and demonstrates how our solutions can
make their lives better.

More than 150 years of helping customers
have taught us that life comes with
complications. Whether a customer is a
first-time parent, a new business owner
or the president of a respected institution,
change can be overwhelming. We have
always tried to be accessible to our
customers and to help them anticipate,
plan for and address these challenges.
We do so by empathizing with their
unique situation, giving customized
advice and recommending the right
products and services to help them move
forward. We have been living this
promise since 1865, and in 2017 we
launched a new brand and website to
send this message, loudly and clearly:
Your financial goals are as unique as you
are. “Challenge Accepted.™”

Commercial Banking

As of December 31, 2017, our Commercial
Banking division had $8.9 billion in loans
and $7.9 billion in customer deposits,
while serving more than 12,000 clients.
We offer a wide array of traditional
lending products, including working
capital, equipment and real estate
loans. Our experienced professionals
help customers with both commercial
construction loans and tax-advantaged
financing alternatives. We also have
specialists who can assist our customers
with interest rate swaps to hedge against

rising rates and help lock in fixed interest
rates. We offer letters of credit and
sales of fixed income securities to
banks and businesses alike. With
the sophisticated capabilities of our
International Department, we can support
customers engaged in global trade.

Our Commercial Banking division employs
payment specialists offering numerous
innovative solutions to enable efficient
processing of customer payments. Our
commercial card business is among the
largest in the U.S. with payment solutions
tailored to commercial businesses,
healthcare, non-profits and municipal
entities. Each solution offers convenient
ways to process payments at lower costs.
We also serve nearly 10,000 merchant
locations across the U.S. with customized
solutions for processing credit card
payments. Additionally, our large cash
management business offers critical
functions needed by corporate treasurers,
including lock box services, remote
deposit, online banking and many
other products.

We have specialty experience in
a number of industries, including
agribusiness and food processing,
healthcare, aviation, energy and senior
living. We have developed significant
product presence and knowledge to
address the evolving needs of our
2,700 healthcare clients. This year we
partnered with insurance companies
to develop a claims payment product
specifically tailored to the needs of the
insurance industry.

Our newer expansion markets1,
which mainly focus on commercial
banking, continue to provide
opportunities to expand our customer
base through new lending and payment
opportunities. Total loans in these markets
grew 16% in 2017 and now comprise 20%
of total commercial banking loans. These
markets should continue to represent
opportunities for solid growth in
the future.

Consumer Banking

In our Consumer Banking division, we
maintain a strong product offering of
consumer deposit accounts, lending
alternatives and payment products.
We offer these products to customers

1Denver, Oklahoma City, Tulsa, Dallas, Cincinnati, Nashville, Grand Rapids, Des Moines and Indianapolis.

COMMERCIAL

$7.9B

Commercial - Total Revenue

$540

$523

$511

s $520
n
o

i
l
l
i

M
n

$500

$480

$491

s
n
o

i
l
l
i

B
n

Commercial - Total Loans

Other Markets Expansion Markets

$12

$10

COMMERCIAL
CARD PURCHASE
VOLUME

$7.9

BILLION

Loan Growth 2017 vs. 2016

20%

15%

10%

16.2%

4.3%

Total
Company

Expansion
Markets

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™

CONSUMER

AUTO LOANS

$1.0B

AVG. FICO 751

Banking Channel Preferences
Monthly Banking Sessions

s
d
n
a
s
u
o
h
t
n

8,000

6,000

4,000

2,000

■Branch

■Online

■Mobile

THOUSAND

Card Products - A Leader
Amongst Top U.S. Banks

Consumer
Card

Prepaid
Card

Debit
Card

#14 #16 #20

Consistently ranked among the
top issuers in Nilson Reports.

through our 176 branches and more
than 330 ATMs located throughout
our markets. Our consumer banking
businesses serve more than 600,000
banking households with $10.3 billion in
deposits and $2.5 billion in loans, as of
December 31, 2017. The debit and credit
cards we offer to our customer base have
strong usage.

We focus on making banking easy for
our customers by allowing them to
bank when, where and how they want.
We offer sophisticated online banking
and mobile applications, and we made
significant investments this year in both,
adding a number of new features to make
banking even more convenient.

To address changing customer
preferences, we continue to innovate
with new ideas for branch design. While
reducing our overall branch presence,
we transformed four locations this year.
Our re-designed facilities include more
technology and brighter, more inviting
designs. Additional enhancements are
planned for other locations as we find
ways to better engage our customers.

We have more than 275,000 active credit
card users and offer competitive rewards
programs. We also have unique card
offerings, including Special Connections®,
which combines the benefits of a debit
card and a credit card, and toggle™,
which enables customers to choose the
payment method for each transaction,
allowing them to pay now or pay later
as they spend on their Commerce Bank
credit card. We also now offer Apple
Pay®, Android Pay™, Samsung Pay®, Garmin
Pay™ and Fitbit Pay™. We have established
new purchase alerts and Card Control
(on/off) functionality to our mobile
application. Furthermore, we have added
a number of new co-branded cards
this year.

Over the last several years we have made
substantial investments in our residential
mortgage business, adding origination
staff and growing our outbound direct-
to-consumer channel. We have become
more competitive in our markets as a
result, with new loan originations growing
63% over the past three years. While
mortgage originations slowed across the
industry in 2017, we continue to make

significant progress in increasing our
share of new loans in the communities
we serve.

We have a significant business in making
direct and indirect automobile and
motorcycle loans in and around our
Midwest markets. Direct loans are made
in our branch network or through our
website, and we maintain a large network
of dealers from whom we purchase
loans. We maintain tight control over
underwriting, resulting in a very high
quality auto portfolio.

Wealth Management

Commerce Trust Company, a
division of Commerce Bank, provides
a comprehensive set of wealth
management services and objective
financial advice to clients seeking
exceptional service. We offer our clients
private banking services, investment
management and advisory services,
financial and estate planning, tax, risk
management and family office services.

Commerce Trust Company is a
recognized leader in providing wealth
management services and is ranked
as the 20th largest domestic bank-
owned trust company in assets under
management. Total customer trust
assets under administration exceeded
$48 billion. Over the past five years,
wealth management revenues grew
at a compounded average rate of 7%,
while client assets grew 10%. Further,
in 2017, we achieved a new record in
asset management sales for the fourth
consecutive year.

Clients of Commerce Trust Company
are served by an experienced, proactive
team of professionals who take the time
to listen to their client’s unique needs and
objectives and then help them define and
achieve their long-term goals. Whether
working with private clients and their
families, or institutional clients, our goal is
to create a trusted relationship that helps
clients feel confident and secure about
meeting their financial goals.

A separate division of Commerce Trust
Company, Commerce Family Office,
serves the more complex needs of a
select group of clients with significant
wealth. These clients have broader needs

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™
for guidance in family wealth stewardship,
risk management, investment counseling
and personal financial administration.
Commerce Family Office ranks among the
largest in the U.S. and it continues to be a
growing part of our practice.

We also provide brokerage services,
including transactional and insurance
services and managed account products
to more than 20,000 clients. Over the
past five years, brokerage revenues grew
6% on average and totaled almost $15
million in 2017. Our Commerce Horizons
managed account continues to generate
strong client interest, and over the past
five years our managed brokerage assets
have nearly doubled to $475 million.

Over the past several years, Commerce
Trust Company has delivered strong
financial performance, growing our client
base and expanding our presence in the
markets we serve. With an experienced,
professional staff and a strong, advice-
based business model, we are committed
to delivering superior returns now and in
the future.

Looking Ahead to 2018 -
Challenge Accepted.™
Overall, Commerce had a very strong
year in 2017. Net income and earnings
per share both grew 16%. Financial
performance, as measured by return on
average assets and return on average
common equity – 1.28% and 12.46%,
respectively – was in the top 15% relative
to peer institutions. Revenues grew
6%, aided by a healthy increase in net
interest income. We expect further rate
increases by the Federal Reserve Bank in
2018 will continue to benefit Commerce.
Credit losses remain low, and controlled
expense growth reflects a commitment to
thoughtful resource allocation.

We continue to focus on both new
customer acquisition and on expanding
our existing relationships with new
solutions. We operate in a rapidly
evolving financial services industry and
continuously invest in technology and
innovative products and services in all of
our businesses. Offsetting some of this
investment, we have taken steps in recent
years to right-size our physical distribution
network and to make our branches
more appealing for customers to visit.

WEALTH

Wealth Management Revenue
$210

$205

s $190
n
o

i
l
l
i

M
n

$189

$179

$170

$150

Client Assets
Under Administration

$50

$49

$43

$38

s $40
n
o

i
l
l
i

B
n

$30

$20

Complementing this physical retail
delivery channel, we continue to enhance
our mobile and online banking platforms

Our Wealth Management business
continues to experience solid revenue
and profit growth, and Commerce Trust
Company is increasingly seen as the
preferred, local provider of holistic wealth
management advice in the geographies
we serve. Our payments businesses offer
important, differentiated products to
our commercial customers and generate
significant, stable fee revenue each year.
We are committed to innovation and
ongoing investment in this area so as to
continue to meet the evolving needs of
our customers and to keep pace with a
very competitive landscape of traditional
and non-traditional providers.

Looking into 2018 we see reason for
optimism. Growth in interest rates should
help interest margins, and our investment
in new payment products should help
grow fees. The recently-passed tax
legislation will lower our tax expense,
provide improved profitability and further
cement our ability to reinvest in our
business and serve our customers. We
expect that it will also help provide clarity
to our business customers, creating
conditions for increased borrowing
and expansion.

Competition is a constant, but
regardless of the pressures we see, we
are committed to keeping our banking
culture strong and our risk underwriting
consistent. Our focus, every day, is
on helping our customers meet the
challenges of their financial lives. Our
fortunes as a bank are intertwined
inextricably with theirs, and we look
forward to our shared success in 2018.

e
c
i
r
P
k
c
o
t
S

$70

$ 60

$ 50

$ 40

$ 30

$ 20

$ 10

$ 0

Growth in EPS and Stock Price

11
Stock Price

Earnings per Share

$3.50

$ 3.00

$ 2.50

$ 2.00

$ 1.50

$1.00

e
r
a
h
S
r
e
p
s
g
n
n
r
a
E

$0.50

$0.00

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™

Commerce by the Numbers

46th

LARGEST U.S. BANK
BASED ON ASSET
SIZE

7 th

ROA FOR THE TOP 50
U.S. BANKS BASED
ON ASSET SIZE

$6.0

BILLION
MARKET
CAPITALIZATION

20th

LARGEST AMONG
BANK-OWNED
TRUST COMPANIES

N I N E K E Y M A R K E T S

1. St. Louis
2. Kansas City
3. Springfield
4. Central Missouri
5. Central Illinois
6. Wichita
7. Tulsa
8. Oklahoma City
9. Denver

C O M M E R C I A L O F F I C E S

1. Cincinnati
2. Nashville
3. Dallas
4. Des Moines
5. Indianapolis
6. Grand Rapids

U. S . P R E S E N C E

Branch Footprint

Extended Commercial Market Area

Commercial Payments Services

441

THOUSAND
ACTIVE ONLINE
BANKING CUSTOMERS

376

ATMS

176

BRANCHES

247

THOUSAND
ACTIVE MOBILE
APP USERS

153

YEARS IN BUSINESS

4,800

EMPLOYEES

$32m

CONTRIBUTED TO
COMMERCE BANCSHARES
FOUNDATION

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™

Customer Success Stories

Community building.

When you are an engineer who believes in building up economically disadvantaged communities,
it helps to have a bank with a strong local presence. That is just one of the reasons OBI Consulting
Engineers has banked with Commerce since 2013.

A foundation for higher learning.

Over the past decade, both the enrollment at Colorado Mesa
University and the endowment that funds the university’s
scholarships have doubled. With so much at stake, the university
foundation decided to consolidate its funds with a single source.
It chose Commerce Trust Company.

A seasonal business success.

Operating a successful seasonal products company for nearly 150 years takes a whole lot more
than a wide selection of patio furniture and outdoor grilling stations. Just ask the Forshaw family
of St. Louis.

Just what the family doctor ordered.

More than 125,000 family doctors turn to the American Academy
of Family Physicians for educational and advocacy services. The
Academy, in turn, turned to Commerce after launching a plan to
transform its six-story headquarters into a working asset.

A healthy approach to saving.

As one of America’s Healthiest Employers, Samaritan Health Services in Corvallis, Oregon, believes
in rewarding employees who make good choices. After choosing an electronic accounts payable
solution from Commerce, the nonprofit health network is now reaping rewards of its own.

Not school business as usual.

Peoria Public Schools is undergoing important changes in its
quest to reshape education and boost achievement among its
13,000 students. But one thing hasn’t changed in the past four
decades: It still banks with Commerce.

Partners in health.

The physicians of Urologic Specialists are known to patients in four states for their experience and
service quality. So when the 70-year-old practice sought a new banking partner in 2017, it
expected nothing less.

Investing in a greener community.

When the O’Reilly family developed a mixed-use, LEED-certified
community around a new, locally-sourced farmers market in
Springfield, Missouri, it was motivated by more than profits. “We
invest in things we believe are good for the community,” says
family patriarch, David O’Reilly.

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™Community building.

OBI Consulting Engineers, Inc.
Kansas City, Missouri

A civil and structural engineering firm.

Emmanuel Obi first met Theodis Watson more than five years ago
at a meeting of Kansas City’s Southtown Council.

Emmanuel’s company, OBI Consulting Engineers, is located in
the Southtown neighborhood. So is the Commerce Bank where
Theodis served as branch manager.

Over the years, the City has contracted OBI Consulting Engineers
for everything from storm drainage systems to street light design.
OBI’s long association with the City paved the way to what is
arguably the firm’s best-known project: a 3,000-square-foot
exhibit – complete with a pond and waterfall – for the Kansas City
Zoo’s two Sumatran tigers, a critically endangered species.

Both men are active on the council and the Troost Ave.
Community
Improvement District, groups
promote development
disadvantaged community. Both also believe
in practicing what they preach.

in the economically

that

So when, in 2013, Emmanuel decided to
find a new bank that could offer a “better
business relationship,” he did what anyone
who tells others to “shop local” would do:
He moved his banking business to the
Commerce Bank around the corner.

“There is value in starting small and building
relationships for the long term,” explains
Emmanuel. “That’s what I hoped to do with
Commerce.”

The firm’s relationship with Commerce has similarly

evolved.

needs

After handling the Obis’ day-to-day banking
for several years, Commerce
refinanced the firm’s office building loan in
2017 using Small Business Administration-
backed financing. The new loan not only
lowered the monthly payment, it also
shortened the repayment period by four
years.

When Emmanuel’s wife, Stella Obi, started
a home health services business in 2017,
she opened a Small Business account with

Commerce, as well.

It’s an approach he had successfully used before.
Emmanuel worked as a civil engineer for the City of Kansas City
for a decade before founding his consulting engineering firm in
1996. Today the City is one of the firm’s clients.

“Commerce is very easy to work with,” says
Emmanuel. “They’ve demonstrated that they are open-

minded and truly want us to succeed. We are a good team.”

Pictured above: The strong ties Emmanuel Obi, president of OBI Consulting Engineers,
has built in Kansas City paved the way to a project at the Kansas City Zoo and a banking
relationship with Commerce.

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™

A foundation for higher learning.

Colorado Mesa University Foundation
Grand Junction, Colorado

The fundraising arm of one of Colorado’s
fastest growing public universities.

After the endowment for fast-growing Colorado Mesa University more than doubled, Liz Meyer, chief executive officer
of the Colorado Mesa University Foundation (left), contacted Walter White, a Commerce vice president and one of the
university’s most famous alums (right), for a proposal to manage the funds.

Few universities offer both a 10-month
certificate in welding AND a doctoral degree in
nursing. But few universities are like Colorado
Mesa University.

Located in Grand Junction, the university
primarily serves students from 14 counties
in western Colorado. Most are seeking an
affordable education that is close to home, and
Colorado Mesa aims to deliver it.

“What makes our university unique is the
community college tied to it,” explains Liz
Meyer, chief executive officer of the Colorado
Mesa University Foundation, which solicits
charitable gifts for the university. “By structuring
the community college as a division of the
university, we can provide programs students
want – from certificate-level vocational training
to advanced degrees – at a reasonable cost.”

The student-centered strategy has worked.
Over the past decade, enrollment more than
doubled to 11,000 students. The endowment
the Foundation uses to fund scholarships
followed suit, growing from $14 million to more
than $28 million.

As the endowment increased, so did the risk
associated with managing it. Historically, the
Foundation dispersed its funds among a pool
of asset managers. “With so many groups to
manage and so much money at stake, this was
no longer the most cost-effective or efficient
approach,” says Liz.

So in 2016, the Foundation issued a request for
proposal, with the goal of consolidating the
management of its investments. Among those
it sought a proposal from was Walter White,
an alumnus and former tight end for the Kansas
City Chiefs who is now a vice president at
Commerce Trust Company.

“We wanted

investment managers who
understood our challenges and had
experience with endowments similar in

size to ours,” says Liz.

“Commerce Trust Company had all
that,” she says, “but they also went
beyond investing and offered help
with everything from recommending
fundraising best practices
to
structuring planned gifts.”

Commerce Trust has now managed

the Foundation’s endowment for a year.

“From day one, the customer service
has been exceptional,” says Liz. “We feel
our account is valued, and Commerce has
delivered everything it promised, and more.”

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™

A seasonal business success.

Forshaw of St. Louis, Inc.
St. Louis, Missouri

A fifth-generation, family-owned seasonal
products company.

In 1871, Joseph Forshaw, a British cabinetmaker, saw a need and
founded what would become the largest supplier of coal stove
repair parts in the St. Louis area.

“We wanted tax-free municipal bond financing, and our bank
couldn’t provide it,” he explains. “But Commerce could. That’s
when we made the switch.”

The coal stove market has long since disappeared, but the
Forshaw family’s ability to recognize new business opportunities
remains strong. Joseph’s son added fireplaces to the product
line. The next generation expanded into patio furniture
and barbecues.

Since then? “It has been a busy couple of decades,” Rick says.

During that time, Forshaw acquired its largest local homebuilding
fireplace supply competitor, with Commerce financing
the purchase. Forshaw also called on the bank for
everything from truck loans to international wire

Today, Forshaw of St. Louis offers everything
from granite countertops to outdoor grilling
islands and other seasonal products
– many of which the company also
manufactures. The company operates
the nation’s single largest patio furniture
store and a wholesale business to local
homebuilders, as well as a distribution
network that spans 40 states.

It takes funding to fuel that kind of growth,
and since 2000, the Forshaws have relied on
Commerce to provide it.

“Our relationship started when we were consolidating
our manufacturing and distribution operations under one roof,”
explains Rick Forshaw, the founder’s great-grandson who, with
his brother Joe, has led the company for most of the past four
decades.

services.

Then came one of the largest economic
recessions in history.

“I didn’t see my bank taking TARP money,”
says Rick. “That meant something to me.”

rebounded,

the market

Since
the
company has turned to Commerce twice
more for acquisition financing, and then
again in 2015, when Joe was retiring and a

fifth generation was entering the business.

“I borrowed money from Commerce to buy Joe
out of the business, and then Joe invested that money

through the Commerce Trust Company,” recalls Rick.

“That’s what I like best about Commerce,” he adds. “They can do
it all.”

Pictured above: Forshaw of St. Louis has relied on financing from Commerce to help fuel the
company’s growth since 2000. From left, William White, senior vice president, Commerce
Bank; and Rick Forshaw, president and chief executive officer, Forshaw of St. Louis.

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™

“I proposed the amount and loan terms I thought were
fair, and Commerce came back with a solution that used
an interest rate swap to get us an attractive, fixed-rate loan,”

says Dale.

“The extra income helps reduce the pressure of running a
nonprofit, which is something Commerce understands,” adds
Dale, who first worked with the bank on a construction bond issue
at a previous employer and whose relationship with Kevin Barth,
president of Commerce Bank in Kansas City, dates back 25 years
to a chance meeting at the Kansas City Blues Festival.

Commerce’s personal approach, in fact, was one reason he
switched banks in the first place.

“I had been here two years,” he recalls, “and in that time I never
got a single call from our old bank,” says Dale. “After we decided
to move to Commerce, and I needed to let our old bank know, it
hit me: I had no idea who to call. We had no relationship.”

But he has one now. Today, Commerce provides the Academy
with everything from treasury services to investment
management. Says Dale, “It couldn’t have worked better.”

The American Academy of Family Physicians transformed its headquarters building into a
working asset with refinancing support from Commerce. From left, Betsy Green, senior
vice president, Commerce Healthcare Banking Division and, from
American Academy of Family Physicians, Todd Dicus,
chief operating officer; Doug Henley, M.D., chief executive
officer; and Dale Culver, chief financial officer

Everyone wants their hard-earned dollars to stretch further. That
includes the 129,000 family doctors who make up the American
Academy of Family Physicians.

“Dues make up one-third of our operating budget,” explains Dale
Culver, chief financial officer for the Academy, which supports
family physicians with educational and advocacy services.

“We wanted to do more – without placing a bigger financial
burden on our members,” he says. “So we began looking for an
additional source of revenue.”

In 2016, Dale looked around the Academy’s six-story headquarters
and found it.

“Right in front of us was a $30 million, member-owned asset,” he
says. “The mortgage was paid. Why not turn it into a working
asset?”

Dale later posed that same question to Commerce, which
had become the Academy’s banking partner a year earlier. He
described his plan to refinance the building and invest the loan
proceeds. The income generated would help fund the Academy’s
operating costs.

15
15

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™A healthy approach to saving.

Samaritan Health Services
Corvallis, Oregon

A not-for-profit healthcare network that serves a
1,000-square-mile region in Oregon.

In its quest to improve the health of people living in Oregon’s
beautiful Willamette Valley and Central Oregon Coast, Samaritan
Health Services leads by example.

The not-for-profit network of hospitals, clinics and health services
provides employees with gym memberships and other health
motivators like fitness trackers. Employees like Kenyon
Butler, Samaritan’s accounting manager,
financial rewards for running – rather than driving
– to and from work each day.

reap

Perks like these have helped make Samaritan
one of America’s Healthiest Employers. They
have also proven to be a wise investment
for a healthcare network eager to keep
healthcare costs in check.

Yet, when Commerce Bank approached
Samaritan in 2015 with a way to increase
rebate incentives, Samaritan wasn’t quite ready
to commit.

“Commerce wanted us to implement an accounts
payable (AP) solution where we’d pay participating vendors
electronically, rather than with checks, and then receive a revenue
share in return,” explains Kenyon.

The problem was, Samaritan had already implemented similar
programs with its primary bank and a credit card company. “Those
programs required a lot of work on our part, and the results were
marginal,” says Kenyon.

But that didn’t stop Portland, Oregon-based Commerce
representative, Julie Brock from calling.

“Julie explained that we were leaving thousands of dollars on the
table, and they could help us recover them with very little effort

on our part,” Kenyon says. “That got my attention.”

In March 2016, Samaritan invited Commerce
to fill the gaps in its existing AP payment
program. “Their staff went to work adding
vendors,” Kenyon says. “They quickly
became our most successful partner.”

Today, Commerce averages $1.5 million
in monthly payments through the
program. Revenue shares exceeded
first-year projections by 6 percent.

“The revenue share alone pays the
salaries of our four-person AP staff,
from a cost center
to a profit center,” says Kenyon. “That
doesn’t include the up-to-$50,000 a year that

transforming us

Commerce saves us in check processing costs.”

“Commerce now handles the majority of Samaritan’s electronic
payments,” adds Kenyon. “That was not our intention. But they
made it way too easy for us. It’s a terrific program.”

Pictured above: Samaritan Health Services’ revenue share from its new Commerce AP
payment program exceeded first-year projections by 6 percent. From left, Carmen Lasso,
officer and account manager, Commerce Bank; and Kenyon Butler, accounting manager,
Samaritan Health Services.

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™

Not school business as usual.

Peoria Public Schools
Peoria, Illinois

A central Illinois public school district
with 13,000 students.

Progress is impossible without change.

So believes Peoria Public Schools, one of 10
school districts currently involved in a pilot
program that is reshaping education in Illinois.

“Instead of awarding high school credits
earned solely through classroom experiences,
we’re exploring competency-based education,
which measures a student’s mastery of a
subject,” explains Dr. Sharon Desmoulin-Kherat,
superintendent of the 13,000-student district.
“That could mean earning credit through
internships or accelerated learning modules.
Our goal is to help students customize their
own path to college- or career-readiness.”

Student achievement isn’t the only thing Peoria
Public Schools is seeking to improve.

Today’s busy families, for example, want
convenient ways to pay for after-school care.
Employees without bank accounts want easy
access to their wages. Taxpayers want the
biggest bang for every tax dollar.

For many years, Peoria Public Schools faced an
additional challenge: managing accounts in 12
different banks.

“With so many accounts to reconcile, it was
hard to be innovative,” says Mike McKenzie, the
District’s comptroller.

All that changed in 2010 when the district
consolidated most funds at a single bank:
Commerce.

“You can do things with one bank that you
can’t do with 12,” says Mike. “Commerce sees
the big picture and is constantly identifying
ways for us to be more efficient.”

The district today relies on Commerce for
everything from short-term investments of
property tax revenues, to capital leases on
copy machines, to an electronic accounts
payment system. Online payment programs
are available for parents. In addition to a
traditional direct deposit payroll system, the
bank supplies reloadable payroll cards to
unbanked employees.

Commerce’s support goes beyond financial
services. The bank also plays a leadership role
in Alignment Peoria, a community organization
formed to support the school district’s efforts.

“Commerce understands that the innovations
we make today can have a great impact on
our region’s future,” says Dr. Desmoulin-Kherat.
“They’re all in.”

Peoria Public Schools looks to Commerce for solutions to the wide-ranging financial challenges that impact school
districts today. From left, Mike McKenzie, comptroller, Peoria Public Schools; Pam Howe, vice president, Commerce
Bank; and Dr. Sharon Desmoulin-Kherat, superintendent, Peoria Public Schools.

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™

Experience and service quality are important
to Urologic Specialists. Their patients depend
on the practice’s 21 board-certified urologists
to treat a wide range of medical issues.

Reputation also matters to the 70-year-old
practice, which has grown 10% annually each
of the past three years.

After meeting several times with Commerce
Bank, Urologic Specialists’ leaders felt like
they had found a banking partner with similar
values.

“We wanted a sophisticated banking partner
that understands healthcare and could
support our growth,” says Matt Keep, Urologic
Specialists’ chief executive officer. Since 1948,
the practice has expanded from Tulsa to
become the largest urology provider in the
region, serving communities in Oklahoma,
Missouri and Arkansas.

Marva Vann, controller, says they learned the
importance of working with a healthcare-
focused bank the hard way.

“Our old bank abruptly changed our lockbox
address, and
it delayed our Medicare
payments for a month,” she recalls. “We had
to advance funds from our line of credit daily
while waiting for our payers to adjust. The
bank didn’t anticipate that the change would
be disruptive.”

“Commerce brought in people with healthcare
experience and gave us the peace of mind we
were looking for,” says Matt.

One of Commerce’s first jobs was to refinance
the practice’s debt, saving the physician-
owners several hundred thousand dollars over
the life of the loan.

introduced a way to automate
Next,
insurance claim processing. “When we had
one location, automation wasn’t an issue,” says
Carrie Bowen, business office manager. “But
now it is.”

The efficiencies created by Commerce’s
electronic lockbox service are significant,
says Carrie. “Not only can we get funds up
to 20 days sooner, we can go online and get
projections of funds coming in from uploaded
claims.”

Most recently, Urologic Specialists has added
other Commerce services, ranging from
remote deposit to an online payment system
for patients. Perhaps the best news?

“The transition has been almost seamless,”
says Marva.

With its banking needs becoming more complex, Urologic Specialists found the healthcare banking expertise the
growing practice needed at Commerce. From left, Matt Keep, chief executive officer; Marva Vann, controller; and Carrie
Bowen, business office manager; all of Urologic Specialists; and Darren Walkup, senior vice president, Commerce Bank.

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™deal with a like-minded bank that also cares about and

invests in the community.”

There was another, more practical reason the O’Reillys chose
Commerce to provide permanent financing for both phases of
the Farmers Park’s development.

“The bank really hustled to put together attractive loan packages,”
says Matt. “Knowing our history as investors, they used interest
rate swaps to secure rates well below what’s available with
traditional financing.”

Executed in early 2018, the most recent loan, for example, involved
a variable-rate loan with a forward swap.

“We knew interest rates were going up but wanted to take
advantage of low variable rates as long as possible,” explains
Matt. “The forward swap enabled us to lock into a favorable fixed
rate almost a year before it took effect. It gave us the best of both
worlds.”

“Flexible terms like these remind us of the value of our long-
standing relationship with Commerce,” adds David. “They are
solid, dependable people we can turn to with a challenge.”

With the help of complex loan packages from Commerce, the O’Reilly family financed

Farmers Park, a green, multi-use development in Springfield,

Missouri, at below-market interest rates. From left,
David O’Reilly, chairman of the board, O’Reilly
Automotive, Inc.; Matt O’Reilly, president,
Green Circle Projects; and Keith Noble,
executive vice president, Commerce Bank.

Many real estate developers undertake a project with the goal of
selling it and moving on.

When conceiving Farmers Park – a self-contained community
with multi-family housing, offices, restaurants and retail shops in
Springfield, Missouri – Matt O’Reilly had other motives.

“Our vision was to create a LEED-certified development that
addressed a variety of social and environmental needs,” explains
Matt, who heads Green Circle Projects and whose partners
include other members of the O’Reilly family. “At the center
would be a farmers market that sold produce from area farms
and other locally made goods.”

“Our family is here for the long haul,” adds Matt’s father, David
O’Reilly, who is better known for his leadership of the national
auto parts business that bears his family’s name. “We take the long
view and invest in things we believe are good for the community.”

“That’s one reason why we like to work with Commerce to finance
projects like this,” David continues. “It means a lot to our family to

19
19

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™A better life for all.
Challenge Accepted.

Nowhere are the words “Challenge Accepted.™” truer than in the communities we serve.
Company-wide, we are actively involved as volunteers, board members and donors helping
to move our communities forward. From financial literacy to youth empowerment, we are
passionate about a wide range of causes, but we are dedicated to the same thing: improving
quality of life for others in our markets and throughout our region.

United Way Campaigns

In our markets, we are actively involved
with United Way campaigns. Team
members regularly launch donation
campaigns and rally engagement with
kick-off events, creative fundraisers and
volunteer days. A number of leaders at
Commerce also participate on United
Way boards.

Commerce teams volunteer for United
Way’s Day of Caring in Peoria, Illinois
(Left) and central Missouri (Center).
(Right) Oklahoma Market President
Shannon O’Doherty serves on the
Tulsa Area United Way Community
Investments Panel.

Community Reinvestment

The Community Reinvestment Act (CRA)
requires banks to help meet the credit
needs of the communities in which
they operate. To us, CRA is more than a
regulation – it’s a commitment. We lead
programs to foster financial literacy in
schools, sponsor nonprofits’ proposals
for housing grants, and invest funds and

time into nonprofits dedicated to fair
housing. As a result, we’ve maintained
an Outstanding Rating from the Federal
Bank of Kansas City for more than
20 years.

(Right) Students learn financial skills
through the interactive School of
Economics program in Kansas City.

Tulsa Area
United Way

STEM Outreach

In Kansas City, we support science,
technology, engineering and
mathematics (STEM) education and
outreach through a number of initiatives.
These include the annual Hour of Code
event, during which students from Girls
in Tech visit our downtown Kansas City
location for a day of mentorship and
coding activities.

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™Commerce in the
Community

Team members throughout the
organization and our markets dedicate
their time to and raise funds for a variety
of causes.

(Top left) To help develop confidence
in their reading skills, students practice
reading to Commerce volunteers as
part of the Lead to Read program in
Kansas City, Missouri.

(Top right) In Tulsa, a group of
Commerce team members ring bells for
the Salvation Army.

(Center left) Commerce team members
prepare lunch for guests at the Ronald
McDonald House in Denver.

(Center right) Commerce volunteers
greet visitors to “Kids Korner” at the St.
Louis Pride Festival.

(Bottom) Members of RISE raise funds
and awareness for breast cancer
research through the Susan G. Komen
foundation. RISE is an employee resource
group that promotes the advancement,
retention and recruitment of women at
Commerce Bank.

Board Membership

Leaders at Commerce Bank help nonprofits move their missions forward by serving as board members. Commerce
representatives support a variety of causes, but their service is concentrated in the following areas:

EDUCATION

COMMUNITY
DEVELOPMENT
& HOUSING

ECONOMIC
DEVELOPMENT

CHILD & FAMILY
SUPPORT

HEALTHCARE

ENVIRONMENTAL
SUSTAINABILITY

ARTS &
CULTURE

As a director of the Joint Executive Governing Board
for the Normandy Schools Collaborative, Sara Foster
(left), executive vice president of talent and corporate
administration, works to support and empower students
in the school district.

In Peoria, Beth Jones (right), private banking relationship
manager, serves on the board for EP!C, an organization
providing care, education and opportunity to individuals
with disabilities.

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™Co m m u n i t y Ad v i s o rs

In each of our markets, our Community Advisors help us understand the unique needs and
challenges of our customers and communities. They are business owners, educators, professionals
and civic leaders who take on the challenges of their organizations and communities every day.
We’re continually impressed by their hard work and grateful to them for sharing their valuable
insights. It is because of our Community Advisors that we’re able to say “Challenge Accepted.™” in
each of our markets.

Missouri
BARRY COUNTY
Donald Cupps
Ellis Cupps & Cole

Phil Hutchens
Hutchens Construction

Mike McCracken
Commerce Bank

Douglas D. Neff
Commerce Bank

Clive C. Veri
Commerce Bank

Jerry Watley
Able 2 Products Company, Inc.

CAPE GIRARDEAU
Alan Gregory
Gregory Construction, Inc.

Gregg E. Hollabaugh
Commerce Bancshares, Inc.

Mike Kasten
Beef Alliance
Quality Beef by the Numbers

Richard R. Kennard
Coad Chevrolet, Inc.
Coad Toyota

Adam Kidd
Kidd’s Gas &
Convenience Store

Frank Kinder
Red Letter
Communications, Inc.

Teresa Maledy
Commerce Bank
Steve Sowers
Commerce Bank

Susan Layton Tomlin
Layton & Southard, LLC

Allen Toole
Schaefer’s Electrical Enclosures

Timothy D. Woodard
Commerce Bank

CENTRAL MISSOURI
Dan Atwill
Atwill & Montgomery,
Attorneys

Dr. Holly Bondurant
Tiger Pediatrics

Brent Bradshaw
Orscheln Management Co.

Philip Burger
Burgers' Smokehouse

Brad Clay
Commerce Bank

Mark Fenner
MFA Oil

Joe Hartman
Retired,
Commerce Bank

Gregg E. Hollabaugh
Commerce Bancshares, Inc.

Robert S. Holmes
Commerce Bancshares, Inc.

Ron Hopkins
Commerce Bank

George M. Huffman
Pearl Motor Company

Jack W. Knipp
Knipp Enterprises

Rick Kruse
Retired,
Boone National
Savings & Loan Assoc.

Dr. Mike Lutz
Mike Lutz, DDS

Teresa Maledy
Commerce Bank

Dr. Clifford J. Miller
Green Hills Veterinary Clinic

Robby Miller
Mexico Heating Company

Todd Norton
Commerce Bank

Mike Petrie
Commerce Bancshares, Inc

Robert K. Pugh

Retired,
MBS Textbook Exchange

Jim Rolls
Retired,
Associated Electric
Cooperative

Steve Sowers
Commerce Bank

Mel Toellner
Gold Crest Distributing
& Songbird Station

David Townsend
Agents National Title
Insurance Company

Andy Waters
AW Holdings, LLC

Larry Webber
Webber Pharmacy

Dave Whelan
Commerce Bank

Dr. John S. Williams
Retired,
Horton Animal Hospital

HANNIBAL
C. Todd Ahrens
Hannibal Regional
Healthcare System

David M. Bleigh
Bleigh Construction
Company,
Bleigh Ready Mix Company

Jim Humphreys
Luck, Humphreys and
Associates, CPA, PC

Teresa Maledy
Commerce Bank

Darin D. Redd
Commerce Bank

Mike Scholes
Reliable Termite
& Pest Control, Inc.

Steve Sowers
Commerce Bank

HARRISONVILLE
Aaron Aurand
Crouch, Spangler & Douglas

Connie Aversman
Commerce Bank

Larry Dobson
Real Estate Investments

Mark Hense
iFIL USA, LLC

Scott Milner
Max Ford

Brent Probasco
Cass Regional
Medical Center, Inc.

Aaron Rains
Commerce Bank

Laurence Smith
ReeceNichols Smith Realty

Dr. Larry Snider
Retired,
Insight Eyecare Specialties

Timothy Soulis
Gaslight Properties

JOPLIN
Jerrod Hogan
Anderson Engineering

David C. Humphreys
TAMKO Building
Products, Inc.

Dr. Richard E. LaNear
Missouri Southern

State University

Barbara J. Majzoub
Yorktown Properties

Douglas D. Neff
Commerce Bank

Eric Schnelle
S & H Farm Supply, Inc.

Todd Stout
Standard Transportation
Services, Inc.

Clive C. Veri
Commerce Bank

KANSAS CITY
Kevin G. Barth
Commerce Bancshares, Inc.
Commerce Bank

Clay C. Blair, III
Clay Blair Services Corp.

Stephen D. Dunn
J.E. Dunn Construction Co., Inc.

Jon Ellis
Paradise Park, Inc.

Stephen Gound
Labconco Corp.

Jonathan M. Kemper
Commerce Bancshares, Inc.
Commerce Bank

David Kiersznowski
DEMDACO

Michael McCoy
Intercontinental Engineering-
Manufacturing Corporation

Stephen G. Mos
Central States Beverage Company

Edward J. Reardon, II
Commerce Bank

Ora H. Reynolds
Hunt Midwest Enterprises, Inc.

Dr. Nelson R. Sabates
Sabates Eye Centers

Charles S. Sosland
Sosland Publishing
Company

Thomas R. Willard
Tower Properties

POPLAR BLUFF
John A. Clark
Attorney at Law

Bob Greer
Retired

Charles R. Hampton, Jr.
Charles R. Hampton & Son
Construction Co.

Gregg E. Hollabaugh
Commerce Bancshares, Inc.

Richard Landers
Botkin Lumber Company, Inc.

Teresa Maledy
Commerce Bank

Steve Sowers
Commerce Bank
Ben Traxel
Dille & Traxel, LLC

Gregory West
Mills Iron & Supply

Sandy Wood
Commerce Bank

Timothy Woodard
Commerce Bank

ST. JOSEPH
Royce Balak
Commerce Bank
Robert J. Brown, Jr.
Robert J. Brown
Lumber Company

Brett Carolus
Hillyard, Inc.

James H. Counts
Morton, Reed, Counts & Briggs,
LLC

David Cripe
Attorney at Law

Richard N. DeShon
Civic Leader

Pat Dillon
Mosaic Life Care

Corky Marquart
Commerce Bank

Shane McDonald
Commerce Trust Company

Todd Meierhoffer
Meierhoffer Funeral Home
& Crematory

Dr. Scott Murphy
Murphy-Watson-Burr
Eye Center

Mike Petrie
Commerce Bancshares, Inc

Edward J. Reardon, II

Commerce Bank

Matt Robertson
CliftonLarsonAllen LLP

Amy Ryan
Commerce Bank

Judy Sabbert
Retired,
Heartland Foundation

Heidi Walker
CBIZ Insurance Services

Julie Walker
Commerce Bank

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™Missouri continued
ST. LOUIS METRO
Blackford F. Brauer
Hunter Engineering Co.

Kyle Chapman
BW Forsyth Partners
Charles L. Drury, Jr.
Drury Hotels

Frederick D. Forshaw
Forshaw of St. Louis

James G. Forsyth, III
Moto, Inc.

David S. Grossman
Grossman Iron & Steel

Tom Harmon
Commerce Bank

Juanita Hinshaw
H & H Advisors

Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank

Donald A. Jubel
Spartan Light Metal Products

David W. Kemper
Commerce Bancshares, Inc.

John W. Kemper
Commerce Bancshares, Inc.

Alois J. Koller, III
Koller Enterprises, Inc.

Kristopher G. Kosup
Buckeye International, Inc.

James B. Morgan
Subsurface Constructors, Inc.

Victor L. Richey, Jr.
ESCO Technologies, Inc.

Steven F. Schankman
Contemporary
Productions, LLC

James E. Schiele
St. Louis Screw & Bolt Co.

Paul J. Shaughnessy
BSI Constructors, Inc.

Thomas H. Stillman
Summit Distributing

Christine Taylor
Enterprise Holdings, Inc.

Andrew Thome
J.W. Terrill

Gregory Twardowski
Whelan Security Co.

Kelvin R. Westbrook
KRW Advisors, LLC

ST. LOUIS METRO EAST
Harlan Ferry
Retired,
Commerce Bank

Matthew Gomric
Commerce Bank
Jared Katt
Chelar Tool & Die, Inc.

Thomas Lippert
Liese Lumber Company, Inc.

Robert McClellan
Retired,
Hortica

James Rauckman
Rauckman High Voltage
Sales, LLC

Dr. James T. Rosborg
McKendree University

SPRINGFIELD
Roger Campbell, Jr.
Campbell Ford

Brian Esther
Commerce Bank

James P. Ferguson
Heart of America
Beverage Co.

Charles R. Greene
Husch Blackwell, LLP

Bunch Greenwade
Rancher

Robert A.
Hammerschmidt, Jr.
Commerce Bank

Dr. Hal L. Higdon
Ozarks Technical Community
College
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Robert S. Holmes
Commerce Bancshares, Inc.

Craig Lehman
Shelter Insurance Agency

Michael Meek
Meek Lumber Yard, Co.

Alvin D. Meeker
Retired,
Commerce Bank

James F. Moore
Retired,
American Products

Robert Moreland
Commerce Bank

David Murray
R.B. Murray Company

Douglas D. Neff
Commerce Bank

Keith Noble
Commerce Bank

Richard Ollis
Ollis/Akers/Arney Insurance &
Business Advisors

Mike Petrie
Commerce Bancshares, Inc.

Doug Russell

The Durham Company

Rusty Shadel
Shadel’s Colonial Chapel

Dr. C. Pat Taylor
Southwest Baptist
University

David Waugh
Independent Stave
Company

Jack Schmitt
Jack Schmitt Family
of Dealerships

Kurt Schroeder
Greensfelder, Hemker
& Gale, PC

Joe Wiley
Quest Management
Consultants

Dr. Charles J. Willey
Innovare Health Advocates

ST. LOUIS BUSINESS BANKING
Richard K. Brunk
Attorney at Law

James N. Foster
McMahon Berger

J.L. (Juggie) Hinduja
Sinclair Industries, Inc.

Jack Hoffmann
Milestone Solutions

Greg Kendall
Commerce Bank

Myron J. Klevens
Organizational
Development Strategies
Stuart Krawll
Beam of St. Louis, Inc.

Patrick N. Lawlor
Lawlor Corporation

Scott Lively
CliftonLarsonAllen LLP

Stephen Mattis
Allied Industrial Equipment
Corporation
Lisa D. McLaughlin
Reilly & McLaughlin

McGraw Milhaven
KTRS

Sue Prapaisilp
Global Foods Market

Dennis Scharf
Scharf Tax Services

ST. CHARLES COUNTY/NORTH
Kevin Bray
Commerce Bank

Peter J. Mihelich, Jr.
Goellner Promotions

Duane A. Mueller
Cissell Mueller Construction
Company

Howard A. Nimmons, cpa, cfp
Nimmons Wealth
Management

Tarlton J. Pitman
Pitman Funeral Home, Inc.

Michael D. Shonrock
Lindenwood University

Lisle J. Wescott
SSM St. Joseph Hospital West

William J. Zollmann, III
Attorney at Law

Don Zykan
Zykan Properties

Kansas
BUTLER COUNTY (EL DORADO)
Vince Haines
Gravity :: Works
Architecture

Ryan T. Murry
ICI

Marilyn B. Pauly
Commerce Bank

Jeremy Sundgren
Sundgren Realty, Inc.

Mark Utech
Commerce Bank

COLUMBUS
Jay Hatfield
Jay Hatfield Chevrolet

Wesley C. Houser
Retired,
Commerce Bank

Don Kirk
H & K Camper Sales, Inc.

Douglas D. Neff
Commerce Bank

Jane Rhinehart
Commerce Bank

Clive C. Veri
Commerce Bank

GARDEN CITY
Richard Harp
Commerce Bank

Gerald Miller
Commerce Bank

Mike Petrie
Commerce Bancshares, Inc.
Lee Reeve

Reeve Cattle Company

Patrick Rooney
Rooney Farms

Tamara Roth
Brungardt Hower Ward Elliott &
Pfeifer, LC

Pat Sullivan
Retired,
Sullivan Analytical
Service, Inc.

HAYS
D.G. Bickle, Jr.
Warehouse, Inc.

Brian Dewitt
Adams, Brown, Beran & Ball,
CPAs

Earnest A. Lehman
Midwest Energy, Inc.

Stuart Lowry
Sunflower Electric Power
Corporation

Deron O’Connor
Commerce Bank

Marty Patterson
Rome Corporation

Mike Petrie
Commerce Bancshares, Inc

Kevin Royer

Midland Marketing Coop

Thomas L. Thomas
Retired,
Commerce Bank

LAWRENCE
Michele Hammann
SS&C Solutions, Inc.

Mark Heider
Commerce Bank

Russ Johnson
Lawrence Memorial Hospital

Eugene W. Meyer
Retired,
Lawrence Memorial Hospital

Allison Vance Moore
Colliers International

Martin W. Moore
Advanco, Inc.

Kevin J. O’Malley
O’Malley Beverage
of Kansas, Inc.

Edward J. Reardon, II
Commerce Bank

Dan C. Simons
The World Company

Michael Treanor
Treanor Architects, PA

LEAVENWORTH
J. Sanford Bushman
DeMaranville & Associate
CPAs, LLC

Norman B. Dawson
Retired,
Commerce Bancshares, Inc

Sherry DeMaranville

DeMaranville & Associate
CPAs, LLC

Mark Denney
J.F. Denney Plumbing
& Heating

Jeremy Greenamyre
Greenamyre Rentals

Chris Klimek
Central Bag, Co.

Lawrence W.
O’Donnell, Jr.
Lawrence W. O’Donnell, Jr.,
CPA Chartered

Bill Petrie
Commerce Bank

Edward J. Reardon, II
Commerce Bank

Robert D. Schmitt, II
Mama Mia’s, Inc.

Kurt Seelbach
Armed Forces Insurance
Exchange

MANHATTAN
Mark Bachamp
Olsson Associates

Monte A. Cook
Commerce Bank
Shawn Drew
Commerce Bank

Tom Giller
Manhattan Catholic Schools

Dr. Jackie L. Hartman
Kansas State University

Neal Helmick
Griffith Lumber Co.

Dr. David Pauls
Surgical Associates

Mike Petrie
Commerce Bancshares, Inc.

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™

Denver
DENVER
Robert L. Cohen
The IMA Financial Group, Inc.

Thomas A. Cycyota
AlloSource

Joseph Freund, Jr.
Running Creek Ranch

R. Allan Fries
i2 Construction, LLP

Darren Lemkau
Commerce Bank

James C. Lewien
Retired,
Commerce Bank

Randall H. Lortscher, M.D.
Rocky Mountain Gamma Knife
Center, LLC

Jason Zickerman
The Alternative Board

Oklahoma
OKLAHOMA CITY
Gary Bridwell
Orange Power Group

Steve Brown
Red Rock Distributing, Co.

Clay Cockrill
Manhattan Construction
Company
Sherry Dale
The Mettise Group

Mark Fischer
Fischer Investments
Retired,
Chaparral Energy

Zane Fleming
Eagle Drilling Fluids

Mike McDonald
Triad Energy

Vince Orza
Retired,
Family Broadcasting
Corporation

Kathy Potts
Rees Associates, Inc.

Reeder Ratliff
Mason Harrison Ratliff
Enterprises

Kelly Sachs
Commerce Bank

Joe Warren
Cimarron Production

TULSA
Jack Allen
HUB International Limited

R. Scott Case
Case & Associates
Properties, Inc.

Gary Christopher
Christoper Energy

Wade Edmundson
Commerce Bank

Dr. John Frame
Breast Health Specialists
of Oklahoma

Gip Gibson
Commerce Bank

Kent Harrell
Retired,
Harrell Energy

Carl Hudgins
Commerce Bank

Ed Keller
Titan Properties, LLC

Teresa Knox
Community HigherEd

P. Ken Lackey
The NORDAM Group, Inc.

Dr. George Mauerman
Eastern Oklahoma
Orthopedic Center

Tom Maxwell
Retired,
Flintco, LLC

Sanjay Meshri
Advanced Research Chemicals

John Neas
Neas Investments

Shannon O’Doherty
Commerce Bank

John Peters
Consultant
Tracy Poole
McAfee & Taft

John Turner
First Stuart Corporation

John Williams
John Williams Company

Daryl Woodard
SageNet

Kansas continued

PITTSBURG
Harvey R. Dean
Pitsco, Inc.

Joe Dellasega
U.S. Awards

Jeff Elliott
Commerce Bank

Adam Endicott
Unique Metal
Fabrication, Inc.

Douglas D. Neff
Commerce Bank

Steve W. Sloan
Midwest Minerals, Inc.

Brian Sutton
Commerce Bank

Clive C. Veri
Commerce Bank

Wendell L. Wilkinson
Retired,
Commerce Bank

WICHITA
Michael E. Bukaty
Retired,
Latshaw Enterprises, Inc.

Ray L. Connell
Connell & Connell

Monte A. Cook
Commerce Bank

Thomas E. Dondlinger
Dondlinger & Sons
Construction Co., Inc.

Craig Duerksen
Commerce Bank

Ronald W. Holt
Retired,
Sedgwick County

Paul D. Jackson
Vantage Point
Properties, Inc.

Brett Mattison
Decker & Mattison Co., Inc.

Gaylyn K. McGregor
Commerce Bank

Derek L. Park
Law Office of Derek Park, LLC

Marilyn B. Pauly
Commerce Bank

Mike Petrie
Commerce Bancshares, Inc.

Barry L. Schwan
House of Schwan, Inc.

Thomas D. White
White & Ellis Drilling, Inc.

Illinois
BLOOMINGTON-NORMAL

Al Bowman
Retired,
Illinois State University
Brent A. Eichelberger
Commerce Bank

Ron Greene
Afni, Inc.

Jared Hall
Commerce Bank

Gregg E. Hollabaugh
Commerce Bancshares, Inc.

Robert S. Holmes
Commerce Bancshares, Inc

Colleen Kannaday

Advocate BroMenn Medical
Center

Parker Kemp
Kemp Farms, Inc.

Aaron Quick
Farnsworth Group, Inc.

Jay Reece
Mueller, Reece & Hinch, LLC

Alan Sender
Retired,
Chestnut Health Systems

CHAMPAIGN-URBANA
Mark Arends
Arends Hogan Walker, LLC.

Brian Egeberg
Commerce Bank

Brent A. Eichelberger
Commerce Bank

Tim Harrington
Devonshire Group

Gregg E. Hollabaugh
Commerce Bancshares, Inc.

Kim Martin
Martin, Hood, Friese &
Associates, LLC

Roger Rhodes
Retired,
Horizon Hobby, Inc.

PEORIA
Bruce L. Alkire
Coldwell Banker Commercial
Devonshire Realty

David W. Altorfer
United Facilities, Inc.

Royal J. Coulter
Coulter Companies, Inc.
Peter T. Coyle
Gallagher Coyle

Dr. Michael A. Cruz
OSF Saint Francis
Medical Center

Brent A. Eichelberger
Commerce Bank

Gregg E. Hollabaugh
Commerce Bancshares, Inc.

Robert S. Holmes
Commerce Bancshares, Inc.

Dr. James W. Maxey

OSF Orthopaedics

Richard D. Moore
Caterpillar, Inc.

Janet M. Wright
Central Illinois Business
Publishers, Inc.

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™

Officers

David W. Kemper
Chairman of the Board
and Chief Executive Officer

Charles G. Kim
Chief Financial Officer
and Executive Vice President

Jonathan M. Kemper
Vice Chairman

Kevin G. Barth
Executive Vice President

John W. Kemper
President and
Chief Operating Officer

Daniel D. Callahan
Executive Vice President
and Chief Credit Officer

Sara E. Foster
Executive Vice President

John K. Handy
Executive Vice President

Robert S. Holmes
Executive Vice President

Jeffrey M. Burik
Senior Vice President

Patricia R. Kellerhals
Senior Vice President

Paula S. Petersen
Senior Vice President

Michael J. Petrie
Senior Vice President

David L. Roller
Senior Vice President

Thomas J. Noack
Vice President, Secretary
and General Counsel

Jeffery D. Aberdeen
Controller

Directors

Terry D. Bassham*
Chairman of the Board,
Chief Executive Officer
and President,
Great Plains Energy, KCP&L

John R. Capps*
Vice President,
BCJ Motors, Inc. and
Weiss Toyota

Karen L. Daniel*
Chief Financial Officer
and Executive Director,
Black & Veatch

Earl H. Devanny, III
Chief Executive Officer,
Tract Manager

W. Thomas Grant, II
President,
SelectQuote Senior
Insurance Services

David W. Kemper
Chairman of the Board
and Chief Executive Officer,
Commerce Bancshares, Inc.

John W. Kemper
President and Chief
Operating Officer,
Commerce Bancshares, Inc.

Jonathan M. Kemper
Vice Chairman,
Commerce Bancshares, Inc.

Benjamin F. Rassieur, III*
President,
Paulo Products Company

Todd R. Schnuck*
Chairman of the Board and
Chief Executive Officer,
Schnuck Markets, Inc.

Andrew C. Taylor
Executive Chairman,
Enterprise Holdings, Inc.

Kimberly G. Walker*
Executive in Residence,
Washington University
in St. Louis

*Audit and Risk Committee
Members

COMMERCE BANCSHARES, INC. | 2017 ANNUAL REPORT | Challenge Accepted.™Table of contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 2017 — Commission File No. 0-2989

COMMERCE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)

Missouri
(State of Incorporation)
1000 Walnut,
Kansas City, MO
(Address of principal executive offices)
(816) 234-2000
(Registrant’s telephone number, including area code)

43-0889454
(IRS Employer Identification No.)

64106
(Zip Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of class

$5 Par Value Common Stock

Depositary Shares, each representing a 1/1000th interest in a share of
6.0% Series B Non-Cumulative Perpetual Preferred Stock

Name of exchange on which registered

NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2
of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

(Do not check if a smaller
reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes

As of June 30, 2017, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $5,271,000,000.

As of February 9, 2018, there were 106,710,134 shares of Registrant’s $5 Par Value Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for its 2018 annual meeting of shareholders, which will be filed within 120 days of December 31, 2017,
are incorporated by reference into Part III of this Report.

Commerce Bancshares, Inc.

Form 10-K

INDEX

PART I

Item 1.

Business

Item 1a.

Risk Factors

Item 1b.

Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Mine Safety Disclosures

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

Item 6.

Selected Financial Data

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of
Operations

Item 7a.

Quantitative and Qualitative Disclosures about Market Risk

Item 8.

Financial Statements and Supplementary Data

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

Item 9a.

Controls and Procedures

Item 9b.

Other Information

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

Item 11.

Executive Compensation

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

Item 13.

Certain Relationships and Related Transactions, and Director Independence

Item 14.

Principal Accounting Fees and Services

PART IV

Item 15.

Exhibits and Financial Statement Schedules

Item 16.

Form 10-K Summary

Signatures

Page

119

121

122

123

124

Table of contents

Item 1. BUSINESS

General

PART I

Commerce Bancshares, Inc., a bank holding company as defined in the Bank Holding Company Act of 1956, as amended, was
incorporated under the laws of Missouri on August 4, 1966. Through a second tier wholly-owned bank holding company, it owns
all of the outstanding capital stock of Commerce Bank (the “Bank”), which is headquartered in Missouri. The Bank engages in
general banking business, providing a broad range of retail, mortgage banking, corporate, investment, trust, and asset management
products and services to individuals and businesses. Commerce Bancshares, Inc. also owns, directly or through the Bank, various
non-banking subsidiaries. Their activities include private equity investment, securities brokerage, insurance agency, and leasing
activities. A list of Commerce Bancshares, Inc.'s subsidiaries is included as Exhibit 21.

Commerce Bancshares, Inc. and its subsidiaries (collectively, the "Company") is one of the nation’s top 50 bank holding
companies, based on asset size. At December 31, 2017, the Company had consolidated assets of $24.8 billion, loans of $14.0
billion, deposits of $20.4 billion, and equity of $2.7 billion. All of the Company’s operations conducted by its subsidiaries are
consolidated for purposes of preparing the Company’s consolidated financial statements. The Company's principal markets, which
are served by 176 branch facilities, are located throughout Missouri, Kansas, and central Illinois, as well as Tulsa and Oklahoma
City, Oklahoma and Denver, Colorado. Its two largest markets include St. Louis and Kansas City, which serve as the central hubs
for the entire Company. The Company also has commercial loan production offices in Dallas, Nashville, Cincinnati, Des Moines,
Grand Rapids, and Indianapolis, and operates a national payments business with sales representatives covering 48 states.

The Company’s goal is to be the preferred provider of targeted financial services in its communities, based on strong customer
relationships. It believes in building long-term relationships based on top quality service, a strong risk management culture, and
a strong balance sheet with industry-leading capital levels. The Company operates under a super-community banking format
which incorporates large bank product offerings coupled with deep local market knowledge, augmented by experienced, centralized
support in select critical areas. The Company’s focus on local markets is supported by an experienced team of managers assigned
to each market and is also reflected in its financial centers and regional advisory boards, which are comprised of local business
persons, professionals and other community representatives, who assist the Company in responding to local banking needs. In
addition to this local market, community-based focus, the Company offers sophisticated financial products available at much larger
financial institutions.

The markets the Bank serves, being mainly located in the lower Midwest, provide natural sites for production and distribution
facilities and also serve as transportation hubs. The economy has been well-diversified in these markets with many major industries
represented, including telecommunications, automobile, technology, financial services, aircraft and general manufacturing, health
care, numerous service industries, and food and agricultural production. The real estate lending operations of the Bank are centered
in its lower Midwestern markets. Historically, these markets have tended to be less volatile than in other parts of the country.
Management believes the diversity and nature of the Bank’s markets has a mitigating effect on real estate loan losses in these
markets.

From time to time, the Company evaluates the potential acquisition of various financial institutions. In addition, the Company
regularly considers the potential disposition of certain assets and branches. The Company seeks merger or acquisition partners
that are culturally similar, have experienced management and either possess significant market presence or have potential for
improved profitability through financial management, economies of scale and expanded services. The Company has not completed
any significant transactions or sales during the past several years.

Employees

The Company employed 4,502 persons on a full-time basis and 355 persons on a part-time basis at December 31, 2017. The
Company provides a variety of benefit programs including a 401(k) savings plan with a company matching contribution, as well
as group life, health, accident, and other insurance. The Company also maintains training and educational programs designed to
address the significant and changing regulations facing the financial services industry and prepare employees for positions of
increasing responsibility. None of the Company's employees are represented by collective bargaining agreements.

Competition

The Company faces intense competition from hundreds of financial service providers in its markets and around the United
States. It competes with national and state banks for deposits, loans and trust accounts, and with savings and loan associations
and credit unions for deposits and consumer lending products. In addition, the Company competes with other financial
intermediaries such as securities brokers and dealers, personal loan companies, insurance companies, finance companies, and

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certain governmental agencies. Some of these competitors are not subject to the same regulatory restrictions as domestic banks
and bank holding companies. The Company generally competes by providing sophisticated financial products with a strong
commitment to customer service, convenience of locations, reputation, and price of service, including interest rates on loan and
deposit products. In its two largest markets, the Company has approximately 13% of the deposit market share in Kansas City and
approximately 7% of the deposit market share in St. Louis.

Operating Segments

The Company is managed in three operating segments. The Consumer segment includes the retail branch network, consumer
installment lending, personal mortgage banking, and consumer debit and credit bank card activities. It provides services through
a network of 176 full-service branches, a widespread ATM network of 376 machines, and the use of alternative delivery channels
such as extensive online banking, mobile, and telephone banking services. In 2017, this retail segment contributed 21% of total
segment pre-tax income. The Commercial segment provides a full array of corporate lending, merchant and commercial bank card
products, leasing, and international services, as well as business and government deposit and cash management services. Fixed-
income investments are sold to individuals and institutional investors through the Capital Markets Group, which is also included
in this segment. In 2017, the Commercial segment contributed 58% of total segment pre-tax income. The Wealth segment provides
traditional trust and estate planning services, brokerage services, and advisory and discretionary investment portfolio management
services to both personal and institutional corporate customers and contributed 21% of total segment 2017 pre-tax income. At
December 31, 2017, the Trust group managed investments with a market value of $30.0 billion and administered an additional
$18.8 billion in non-managed assets. This segment also manages the Company’s family of proprietary mutual funds, which are
available for sale to both trust and general retail customers. Additional information relating to operating segments can be found
on pages 48 and 95.

Government Policies

The Company's operations are affected by federal and state legislative changes, by the United States government, and by
policies of various regulatory authorities, including those of the numerous states in which they operate. These include, for example,
the statutory minimum legal lending rates, domestic monetary policies of the Board of Governors of the Federal Reserve System,
United States fiscal policy, international currency regulations and monetary policies, the U.S. Patriot Act, and capital adequacy
and liquidity constraints imposed by federal and state bank regulatory agencies.

Supervision and Regulation

The following information summarizes existing laws and regulations that materially affect the Company's operations. It does
not discuss all provisions of these laws and regulations, and it does not include all laws and regulations that affect the Company
presently or may affect the Company in the future.

General

The Company, as a bank holding company, is primarily regulated by the Board of Governors of the Federal Reserve System
under the Bank Holding Company Act of 1956, as amended (BHC Act). Under the BHC Act, the Federal Reserve Board’s prior
approval is required in any case in which the Company proposes to acquire all or substantially all of the assets of any bank, acquire
direct or indirect ownership or control of more than 5% of the voting shares of any bank, or merge or consolidate with any other
bank holding company. With certain exceptions, the BHC Act also prohibits the Company from acquiring direct or indirect
ownership or control of more than 5% of any class of voting shares of any non-banking company. Under the BHC Act, the Company
may not engage in any business other than managing and controlling banks or furnishing certain specified services to subsidiaries
and may not acquire voting control of non-banking companies unless the Federal Reserve Board determines such businesses and
services to be closely related to banking. When reviewing bank acquisition applications for approval, the Federal Reserve Board
considers, among other things, the Bank’s record in meeting the credit needs of the communities it serves in accordance with the
Community Reinvestment Act of 1977, as amended (CRA). Under the terms of the CRA, banks have a continuing obligation,
consistent with safe and sound operation, to help meet the credit needs of their communities, including providing credit to individuals
residing in low- and moderate-income areas. The Bank has a current CRA rating of “outstanding”.

The Company is required to file with the Federal Reserve Board various reports and additional information the Federal Reserve
Board may require. The Federal Reserve Board also makes regular examinations of the Company and its subsidiaries. The
Company’s banking subsidiary is a state chartered Federal Reserve member bank and is subject to regulation, supervision and
examination by the Federal Reserve Bank of Kansas City and the State of Missouri Division of Finance. The Bank is also subject
to regulation by the Federal Deposit Insurance Corporation (FDIC). In addition, there are numerous other federal and state laws
and regulations which control the activities of the Company and the Bank, including requirements and limitations relating to capital
and reserve requirements, permissible investments and lines of business, transactions with affiliates, loan limits, mergers and
acquisitions, issuance of securities, dividend payments, and extensions of credit. The Bank is subject to a number of federal and

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state consumer protection laws, including laws designed to protect customers and promote lending to various sectors of the economy
and population. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act,
the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and their respective state law counterparts. If the
Company fails to comply with these or other applicable laws and regulations, it may be subject to civil monetary penalties,
imposition of cease and desist orders or other written directives, removal of management and, in certain circumstances, criminal
penalties. This regulatory framework is intended primarily for the protection of depositors and the preservation of the federal
deposit insurance funds, not for the protection of security holders. Statutory and regulatory controls increase a bank holding
company’s cost of doing business and limit the options of its management to employ assets and maximize income.

In addition to its regulatory powers, the Federal Reserve Bank affects the conditions under which the Company operates by
its influence over the national supply of bank credit. The Federal Reserve Board employs open market operations in U.S. government
securities and oversees changes in the discount rate on bank borrowings, changes in the federal funds rate on overnight inter-bank
borrowings, and changes in reserve requirements on bank deposits in implementing its monetary policy objectives. These methods
are used in varying combinations to influence the overall level of the interest rates charged on loans and paid for deposits, the
price of the dollar in foreign exchange markets, and the level of inflation. The monetary policies of the Federal Reserve have a
significant effect on the operating results of financial institutions, most notably on the interest rate environment. In view of changing
conditions in the national economy and in the money markets, as well as the effect of credit policies of monetary and fiscal
authorities, no prediction can be made as to possible future changes in interest rates, deposit levels or loan demand, or their effect
on the financial statements of the Company.

The financial industry operates under laws and regulations that are under constant review by various agencies and legislatures
and are subject to sweeping change. The Company currently operates as a bank holding company, as defined by the Gramm-
Leach-Bliley Financial Modernization Act of 1999 (GLB Act), and the Bank qualifies as a financial subsidiary under the GLB
Act, which allows it to engage in investment banking, insurance agency, brokerage, and underwriting activities that were not
available to banks prior to the GLB Act. The GLB Act also included privacy provisions that limit banks’ abilities to disclose non-
public information about customers to non-affiliated entities.

The Company must also comply with the requirements of the Bank Secrecy Act (BSA). The BSA is designed to help fight
drug trafficking, money laundering, and other crimes. Compliance is monitored by the Federal Reserve. The BSA was enacted
to prevent banks and other financial service providers from being used as intermediaries for, or to hide the transfer or deposit of
money derived from, criminal activity. Since its passage, the BSA has been amended several times. These amendments include
the Money Laundering Control Act of 1986 which made money laundering a criminal act, as well as the Money Laundering
Suppression Act of 1994 which required regulators to develop enhanced examination procedures and increased examiner training
to improve the identification of money laundering schemes in financial institutions.

The USA PATRIOT Act, established in 2001, substantially broadened the scope of U.S. anti-money laundering laws and
regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding
the extra-territorial jurisdiction of the United States. The regulations impose obligations on financial institutions to maintain
appropriate policies, procedures and controls to detect, prevent, and report money laundering and terrorist financing. The
regulations include significant penalties for non-compliance.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2011 (Dodd-Frank Act) was sweeping legislation intended
to overhaul regulation of the financial services industry. Among its many provisions, the Dodd-Frank Act established a new council
of “systemic risk” regulators, empowers the Federal Reserve to supervise the largest, most complex financial companies, allows
the government to seize and liquidate failing financial companies, and gives regulators new powers to oversee the derivatives
market. The Dodd-Frank Act also established the Consumer Financial Protection Bureau (CFPB) and authorized it to supervise
certain consumer financial services companies and large depository institutions and their affiliates for consumer protection
purposes. Subject to the provisions of the Dodd-Frank Act, the CFPB has responsibility to implement, examine for compliance
with, and enforce “Federal consumer financial law.” As a depository institution, the Company is subject to examinations by the
CFPB, which focus on the Company’s ability to detect, prevent, and correct practices that present a significant risk of violating
the law and causing consumer harm. Title VI of the Dodd-Frank Act, commonly known as the Volcker Rule, placed trading
restrictions on financial institutions and separated investment banking, private equity and proprietary trading (hedge fund) sections
of financial institutions from their consumer lending arms. Key provisions restrict banks from simultaneously entering into advisory
and creditor roles with their clients, such as with private equity firms. The Volcker Rule also restricts financial institutions from
investing in and sponsoring certain types of investments, and required divestment by July 21, 2017. In 2016, the Company
withdrew from a private equity fund investment to comply with the Volcker Rule requirement and realized a gain of $1.8 million
upon divestiture. The Company did not hold other significant investments requiring disposal.

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While the Company remains subject to regulation under the Dodd-Frank Act and related regulatory requirements, the current
presidential administration has instructed federal agencies to consider ways to reduce the impact of federal regulation on financial
institutions. It is not possible at this time to determine the extent to which this goal will be accomplished nor its impact on the
Company.

Subsidiary Bank

Under Federal Reserve policy, the bank holding company, Commerce Bancshares, Inc. (the "Parent"), is expected to act as a
source of financial strength to its bank subsidiary and to commit resources to support it in circumstances when it might not otherwise
do so. In addition, loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits
and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s bankruptcy, any commitment
by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by
the bankruptcy trustee and entitled to a priority of payment.

Deposit Insurance

Substantially all of the deposits of the Bank are insured up to the applicable limits by the Deposit Insurance Fund of the FDIC,
generally up to $250,000 per depositor, for each account ownership category. The Bank pays deposit insurance premiums to the
FDIC based on an assessment rate established by the FDIC for Deposit Insurance Fund member institutions. The FDIC classifies
institutions under a risk-based assessment system based on their perceived risk to the federal deposit insurance funds. The current
assessment base is defined as average total assets minus average tangible equity, with other adjustments for heavy use of unsecured
liabilities, secured liabilities, brokered deposits, and holdings of unsecured bank debt. For banks with more than $10 billion in
assets, the FDIC uses a scorecard designed to measure financial performance and ability to withstand stress, in addition to measuring
the FDIC’s exposure should the bank fail. FDIC insurance expense also includes assessments to fund the interest on outstanding
bonds issued in the 1980s in connection with the failures in the thrift industry. The Company's FDIC insurance expense was $14.0
million in 2017, $13.3 million in 2016, and $12.1 million in 2015.

Payment of Dividends

The Federal Reserve Board may prohibit the payment of cash dividends to shareholders by bank holding companies if their
actions constitute unsafe or unsound practices. The principal source of the Parent's cash revenues is cash dividends paid by the
Bank. The amount of dividends paid by the Bank in any calendar year is limited to the net profit of the current year combined
with the retained net profits of the preceding two years, and permission must be obtained from the Federal Reserve Board for
dividends exceeding these amounts. The payment of dividends by the Bank may also be affected by factors such as the maintenance
of adequate capital.

Capital Adequacy

The Company is required to comply with the capital adequacy standards established by the Federal Reserve, which are based
on the risk levels of assets and off-balance sheet financial instruments. Capital adequacy guidelines and prompt corrective action
regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to judgments by regulators regarding qualitative
components, risk weightings, and other factors.

A new comprehensive capital framework was established by the Basel Committee on Banking Supervision, which was effective
for banks and bank holding companies on January 1, 2015. A key goal of the new framework, known as "Basel III" was to
strengthen the capital resources of banking organizations during normal and challenging business environments. Basel III increased
minimum requirements for both the quantity and quality of capital held by banking organizations. The rule includes a new minimum
ratio of common equity Tier 1 capital to risk-weighted assets of 4.5% and a common equity Tier 1 capital conservation buffer of
2.5% of risk-weighted assets. The capital conservation buffer, which is being phased in during 2016-2019, is intended to absorb
losses during periods of economic stress. Failure to maintain the buffer will result in constraints on dividends, equity repurchases
and executive compensation. The rule also adjusted the methodology for calculating risk-weighted assets to enhance risk sensitivity.
At December 31, 2017, the Company met all capital adequacy requirements under Basel III on a fully phased-in basis as if such
requirements had been in effect.

The Federal Deposit Insurance Corporation Improvement Act (FDICIA) requires each federal banking agency to take prompt
corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one
or more prescribed minimum capital ratios. Pursuant to FDICIA, the FDIC promulgated regulations defining the following five
categories in which an insured depository institution will be placed, based on the level of its capital ratios: well-capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under the prompt

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corrective action provisions of FDICIA, an insured depository institution generally will be classified as well-capitalized (under
the Basel III rules mentioned above) if it has a Tier 1 capital ratio of at least 8%, a common equity Tier 1 capital ratio of at least
6.5%, a Total capital ratio of at least 10% and a Tier 1 leverage ratio of at least 5%. An institution that, based upon its capital
levels, is classified as “well-capitalized,” “adequately capitalized,” or “undercapitalized,” may be treated as though it were in the
next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category,
an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on
interest rates paid on deposits, restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered
deposits. Furthermore, if a bank is classified in one of the undercapitalized categories, it is required to submit a capital restoration
plan to the federal bank regulator, and the holding company must guarantee the performance of that plan. The Bank has consistently
maintained regulatory capital ratios at or above the “well-capitalized” standards.

Stress Testing

As required by the Dodd-Frank Act, the Federal Reserve published capital stress testing regulations applicable to certain
financial companies with total consolidated assets of more than $10 billion but less than $50 billion. The rule requires that these
financial companies, including the Company, conduct annual stress tests based on factors provided by the Federal Reserve,
supplemented by institution-specific factors. The stress test is designed to assess the potential impact of different economic
scenarios on earnings, credit losses and capital over a set time period. In accordance with the Dodd-Frank Act, the Company
began submitting its stress test results to the Federal Reserve in March 2014 and publicly disclosed the results of its stress testing
for the first time in June 2015. In 2017, the Company submitted its stress test report to the Federal Reserve in July and publicly
disclosed the results in October.

Executive and Incentive Compensation

Guidelines adopted by federal banking agencies prohibit excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive
officer, employee, director or principal shareholder. The Federal Reserve Board has issued comprehensive guidance on incentive
compensation intended to ensure that the incentive compensation policies do not undermine safety and soundness by encouraging
excessive risk taking. This guidance covers all employees that have the ability to materially affect the risk profile of an organization,
either individually or as part of a group, based on key principles that (i) incentives do not encourage risk-taking beyond the
organization's ability to identify and manage risk, (ii) compensation arrangements are compatible with effective internal controls
and risk management, and (iii) compensation arrangements are supported by strong corporate governance, including active and
effective board oversight. Deficiencies in compensation practices may affect supervisory ratings and enforcement actions may be
taken if incentive compensation arrangements pose a risk to safety and soundness.

Transactions with Affiliates

The Federal Reserve Board regulates transactions between the Company and its subsidiaries. Generally, the Federal Reserve
Act and Regulation W, as amended by the Dodd-Frank Act, limit the Company’s banking subsidiary and its subsidiaries to lending
and other “covered transactions” with affiliates. The aggregate amount of covered transactions a banking subsidiary or its
subsidiaries may enter into with an affiliate may not exceed 10% of the capital stock and surplus of the banking subsidiary. The
aggregate amount of covered transactions with all affiliates may not exceed 20% of the capital stock and surplus of the banking
subsidiary.

Covered transactions with affiliates are also subject to collateralization requirements and must be conducted on arm’s length
terms. Covered transactions include (a) a loan or extension of credit by the banking subsidiary, including derivative contracts, (b)
a purchase of securities issued to a banking subsidiary, (c) a purchase of assets by the banking subsidiary unless otherwise exempted
by the Federal Reserve, (d) acceptance of securities issued by an affiliate to the banking subsidiary as collateral for a loan, and
(e) the issuance of a guarantee, acceptance or letter of credit by the banking subsidiary on behalf of an affiliate.

Certain transactions with our directors, officers or controlling persons are also subject to conflicts of interest regulations.
Among other things, these regulations require that loans to such persons and their related interests be made on terms substantially
the same as for loans to unaffiliated individuals and must not create an abnormal risk of repayment or other unfavorable features
for the financial institution. See Note 2 to the consolidated financial statements for additional information on loans to related
parties.

Available Information

The Company’s principal offices are located at 1000 Walnut, Kansas City, Missouri (telephone number 816-234-2000). The
Company makes available free of charge, through its Web site at www.commercebank.com, reports filed with the Securities and
7

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Exchange Commission as soon as reasonably practicable after the electronic filing. These filings include the annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports.

Statistical Disclosure

The information required by Securities Act Guide 3 — “Statistical Disclosure by Bank Holding Companies” is located on the

pages noted below.

I.
II.
III.

Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest
Differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan Portfolio
Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities and Sensitivities of Loans to Changes in Interest Rates . . . . . . . . . . . . . . . . . . . . . . .
Risk Elements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary of Loan Loss Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IV.
V. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on Equity and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VI.
Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VII.

Page

22, 56-59
39-40, 80-84

28
29
34-38
31-34
56, 86
17
86

Item 1a. RISK FACTORS

Making or continuing an investment in securities issued by Commerce Bancshares, Inc., including its common and preferred
stock, involves certain risks that you should carefully consider. If any of the following risks actually occur, its business, financial
condition or results of operations could be negatively affected, the market price for your securities could decline, and you could
lose all or a part of your investment. Further, to the extent that any of the information contained in this Annual Report on Form
10-K constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important
factors that could cause the Company’s actual results to differ materially from those expressed in any forward-looking statements
made by or on behalf of Commerce Bancshares, Inc.

Difficult market conditions may affect the Company’s industry.

The concentration of the Company’s banking business in the United States particularly exposes it to downturns in the U.S.

economy. While current economic conditions are favorable, there remain risks in that environment.

In particular, the Company may face the following risks in connection with market conditions:

•

In the current national environment, positive trends in job growth, unemployment levels, consumer confidence, and credit
conditions are expected to continue. However, the U.S. economy is also affected by foreign economic events and
conditions. Although the Company does not hold foreign debt, the global economy, the strength of the U.S. dollar, and
oil prices may ultimately affect interest rates, business export activity, capital expenditures by businesses, and investor
confidence. Unfavorable changes in these factors may result in declines in consumer credit usage, adverse changes in
payment patterns, reduced loan demand, and higher loan delinquencies and default rates. These could impact the
Company’s future loan losses and provision for loan losses, as a significant part of the Company’s business includes
consumer and credit card lending.

In addition to the results above, reduced levels of economic activity may cause declines in financial services activity,
including declines in bank card, corporate cash management and other fee businesses, as well as the fees earned by the
Company on such transactions.

The process used to estimate losses inherent in the Company’s loan portfolio requires difficult, subjective, and complex
judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of
its borrowers to repay their loans. If an instance occurs that renders these predictions no longer capable of accurate
estimation, this may in turn impact the reliability of the process.

Competition in the industry could intensify as a result of the increasing consolidation of financial services companies in
connection with current market conditions, thereby reducing market prices for various products and services which could
in turn reduce Company revenues.

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The performance of the Company is dependent on the economic conditions of the markets in which the Company operates.

The Company’s success is heavily influenced by the general economic conditions of the specific markets in which it operates.
Unlike larger national or other regional banks that are more geographically diversified, the Company provides financial services
primarily throughout the states of Missouri, Kansas, and central Illinois, and in its expansion markets in Oklahoma, Colorado and
other surrounding states. As the Company does not have a significant banking presence in other parts of the country, a prolonged
economic downturn in these markets could have a material adverse effect on the Company’s financial condition and results of
operations.

The Company operates in a highly competitive industry and market area.

The Company operates in the financial services industry and has numerous competitors including other banks and insurance
companies, securities dealers, brokers, trust and investment companies and mortgage bankers. Consolidation among financial
service providers and new changes in technology, product offerings and regulation continue to challenge the Company's marketplace
position. As consolidation occurs, larger regional and national banks may enter our markets and add to existing competition.
Large national financial institutions have substantial capital, technology and marketing resources. These new banks may lower
fees in an effort to grow market share, which could result in a loss of customers and lower fee revenue for the Company. They
may have greater access to capital at a lower cost than the Company, which may adversely affect the Company’s ability to compete
effectively. The Company must continue to make investments in its products and delivery systems to stay competitive with the
industry as a whole, or its financial performance may suffer.

The soundness of other financial institutions could adversely affect the Company.

The Company’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial
soundness of other financial institution counterparties. Financial services institutions are interrelated as a result of trading, clearing,
counterparty or other relationships. The Company has exposure to many different industries and counterparties and routinely
executes transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment
banks, mutual funds, and other institutional clients. Transactions with these institutions include overnight and term borrowings,
interest rate swap agreements, securities purchased and sold, short-term investments, and other such transactions. As a result of
this exposure, defaults by, or rumors or questions about, one or more financial services institutions or the financial services industry
in general, could lead to market-wide liquidity problems and defaults by other institutions. Many of these transactions expose the
Company to credit risk in the event of default of its counterparty or client, while other transactions expose the Company to liquidity
risks should funding sources quickly disappear. In addition, the Company’s credit risk may be exacerbated when the collateral
held cannot be realized or is liquidated at prices not sufficient to recover the full amount of the exposure due to the Company.
Any such losses could materially and adversely affect results of operations.

The Company is subject to increasingly extensive government regulation and supervision.

As part of the financial services industry, the Company has been subject to increasingly extensive federal and state regulation
and supervision over the past several years. Banking regulations are primarily intended to protect depositors’ funds, federal deposit
insurance funds, and the banking system as a whole, not shareholders. These regulations affect the Company’s lending practices,
capital structure, investment practices, dividend policy, and growth, among other things. Congress and federal regulatory agencies
continually review banking laws, regulations, and policies for possible changes. Changes to statutes, regulations, or regulatory
policies, including changes in interpretation or implementation of statutes, regulations, or policies, could affect the Company in
substantial and unpredictable ways. Such changes could subject the Company to additional costs, limit the types of financial
services and products it may offer, and / or increase the ability of nonbanks to offer competing financial services and products,
among other things. Failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil
money penalties, and / or reputation damage, which could have a material adverse effect on the Company’s business, financial
condition, and results of operations. While the Company has policies and procedures designed to prevent any such violations,
there can be no assurance that such violations will not occur.

Significant changes in federal monetary policy could materially affect the Company’s business.

The Federal Reserve System regulates the supply of money and credit in the United States. Its policies determine in large part
the cost of funds for lending and interest rates earned on loans and paid on borrowings and interest bearing deposits. Credit
conditions are influenced by its open market operations in U.S. government securities, changes in the member bank discount rate,
and bank reserve requirements. Changes in Federal Reserve Board policies are beyond the Company’s control and difficult to
predict, and such changes may result in lower interest margins and a continued lack of demand for credit products.

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The Company is subject to both interest rate and liquidity risk.

With oversight from its Asset-Liability Management Committee, the Company devotes substantial resources to monitoring its
liquidity and interest rate risk on a monthly basis. The Company's net interest income is the largest source of overall revenue to
the Company, representing 59% of total revenue for the year ended at December 31, 2017. The interest rate environment in which
the Company operates fluctuates in response to general economic conditions and policies of various governmental and regulatory
agencies, particularly the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, will influence
loan originations, deposit generation, demand for investments and revenues and costs for earning assets and liabilities.

The Federal Reserve Board raised the benchmark interest rate three times during 2017 for a total of 75 basis points. Further
rate increases are expected in 2018. The Company saw only a slight decline in period end deposit balances; however, additional
rate increases may result in customer deposit withdrawals which, if significant, may affect the Company’s source of funds for
future loan growth. These actions may include reductions in its investment portfolio or higher borrowings, and could reduce net
interest income and related margins.

The Company’s asset valuation may include methodologies, models, estimations and assumptions which are subject to
differing interpretations and could result in changes to asset valuations that may materially adversely affect its results of
operations or financial condition.

The Company uses estimates, assumptions, and judgments when certain financial assets and liabilities are measured and reported
at fair value. Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility. Fair
values and the information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices
and/or other observable inputs provided by independent third-party sources, when available. When such third-party information
is not available, fair value is estimated primarily by using cash flow and other financial modeling techniques utilizing assumptions
such as credit quality, liquidity, interest rates and other relevant inputs. Changes in underlying factors, assumptions, or estimates
in any of these areas could materially impact the Company’s future financial condition and results of operations.

During periods of market disruption, including periods of significantly rising or high interest rates, rapidly widening credit
spreads or illiquidity, it may be difficult to value certain assets if trading becomes less frequent and/or market data becomes less
observable. There may be certain asset classes in active markets with significant observable data that become illiquid due to the
current financial environment. In such cases, certain asset valuations may require more subjectivity and management judgment.
As such, valuations may include inputs and assumptions that are less observable or require greater estimation. Further, rapidly
changing and unprecedented credit and equity market conditions could materially impact the valuation of assets as reported within
the Company’s consolidated financial statements, and the period-to-period changes in value could vary significantly. Decreases
in value may have a material adverse effect on results of operations or financial condition.

The processes the Company uses to estimate the fair value of financial instruments, as well as the processes used to estimate
the effects of changing interest rates and other market measures on the Company’s financial condition and results of operations,
depend upon the use of analytical and forecasting models. If these models are inadequate or inaccurate due to flaws in their design
or implementation, the fair value of such financial instruments may not accurately reflect what the Company could realize upon
sale or settlement of such financial instruments, or the Company may incur increased or unexpected losses upon changes in market
interest rates or other market measures. Any such failure in the Company's analytical or forecasting models could have a material
adverse effect on the Company business, financial condition and results of operations.

The Company’s investment portfolio values may be adversely impacted by deterioration in the credit quality of underlying
collateral within the various categories of investment securities it owns.

The Company generally invests in securities issued by municipal entities, government-backed agencies or privately issued
securities that are highly rated and evaluated at the time of purchase, however, these securities are subject to changes in market
value due to changing interest rates and implied credit spreads. While the Company maintains rigorous risk management practices
over bonds issued by municipalities, credit deterioration in these bonds could occur and result in losses. Certain mortgage and
asset-backed securities (which are collateralized by residential mortgages, credit cards, automobiles, mobile homes or other assets)
may decline in value due to actual or expected deterioration in the underlying collateral. Under accounting rules, when the
impairment is due to declining expected cash flows, some portion of the impairment, depending on the Company’s intent to sell
and the likelihood of being required to sell before recovery, must be recognized in current earnings. This could result in significant
non-cash losses.

Future loan losses could increase.

The Company maintains an allowance for loan losses that represents management’s best estimate of probable losses that have
been incurred at the balance sheet date within the existing portfolio of loans. The level of the allowance reflects management’s
continuing evaluation of industry concentrations, specific credit risks, loan loss experience including emergence periods, current
loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan

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portfolio. Although the loan losses have been stable during the past several years, an unforeseen deterioration of financial market
conditions could result in larger loan losses, which may negatively affect the Company's results of operations and could further
increase levels of its allowance. In addition, the Company’s allowance level is subject to review by regulatory agencies, and that
review could result in adjustments to the allowance. See the section captioned “Allowance for Loan Losses” in Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this report for further discussion
related to the Company’s process for determining the appropriate level of the allowance for probable loan loss.

New lines of business or new products and services may subject the Company to additional risk.

From time to time, the Company may implement new lines of business or offer new products and services within existing
lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the
markets are not fully developed. In developing and marketing new lines of business and new products or services, the Company
may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and
new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as
compliance with regulations, competitive alternatives and shifting market preferences may also impact the successful
implementation of a new line of business or a new product or service. Furthermore, any new line of business or new product or
service could have a significant impact on the effectiveness of the Company’s system of internal controls. Failure to successfully
manage these risks in the development and implementation of new lines of business and new products or services could have a
material adverse effect on the Company’s financial condition and results of operations.

The Company’s reputation and future growth prospects could be impaired if cyber-security attacks or other computer
system breaches occur.

The Company relies heavily on communications and information systems to conduct its business, and as part of its business,
the Company maintains significant amounts of data about its customers and the products they use. Information security risks for
financial institutions have increased recently due to new technologies, the use of the Internet and telecommunications technologies
(including mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of
organized crime, perpetrators of fraud, hackers, and others. While the Company has policies and procedures and safeguards
designed to prevent or limit the effect of failure, interruption or security breach of its information systems, there can be no assurances
that any such failures, interruptions or security breaches will not occur; or if they do occur, that they will be adequately addressed.
In addition to unauthorized access, denial-of-service attacks could overwhelm Company Web sites and prevent the Company from
adequately serving customers. Should any of the Company's systems become compromised, the reputation of the Company could
be damaged, relationships with existing customers may be impaired, and the Company could be subject to lawsuits, all of which
could result in lost business, and as a result, the Company could incur significant expenses trying to remedy the incident.

The Company’s operations rely on certain external vendors.

The Company relies on third-party vendors to provide products and services necessary to maintain day-to-day operations. For
example, the Company outsources a portion of its information systems, communication, data management and transaction
processing to third parties. Accordingly, the Company is exposed to the risk that these vendors might not perform in accordance
with the contracted arrangements or service level agreements because of changes in the vendor’s organizational structure, financial
condition, support for existing products and services, or strategic focus. Such failure to perform could be disruptive to the
Company’s operations, which could have a materially adverse impact on its business, results of operations and financial condition.
These third parties are also sources of risk associated with operational errors, system interruptions or breaches and unauthorized
disclosure of confidential information. If the vendors encounter any of these issues, the Company could be exposed to disruption
of service, damage to reputation and litigation. Because the Company is an issuer of both debit and credit cards, it is periodically
exposed to losses related to security breaches which occur at retailers that are unaffiliated with the Company (e.g., customer card
data being compromised at retail stores). These losses include, but are not limited to, costs and expenses for card reissuance as
well as losses resulting from fraudulent card transactions.

The Company continually encounters technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new
technology-driven products and services, including the entrance of financial technology companies offering new financial service
products. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to
reduce costs. The Company’s future success depends, in part, upon its ability to address the needs of its customers by using
technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in the
Company’s operations. Many of the Company’s competitors have substantially greater resources to invest in technological
improvements. The Company may not be able to effectively implement new technology-driven products and services or be
successful in marketing these products and services to its customers. Failure to successfully keep pace with technological change
affecting the financial services industry could have a material adverse effect on the Company’s business, financial condition and
results of operations.

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Commerce Bancshares, Inc. relies on dividends from its subsidiary bank for most of its revenue.

Commerce Bancshares, Inc. is a separate and distinct legal entity from its banking and other subsidiaries. It receives substantially
all of its revenue from dividends from its subsidiary bank. These dividends, which are limited by various federal and state
regulations, are the principal source of funds to pay dividends on its preferred and common stock and to meet its other cash needs.
In the event the subsidiary bank is unable to pay dividends to it, Commerce Bancshares, Inc. may not be able to pay dividends or
other obligations, which would have a material adverse effect on the Company's financial condition and results of operations.

The Company may not attract and retain skilled employees.

The Company’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people
can be intense, and the Company spends considerable time and resources attracting and hiring qualified people for its various
business lines and support units. The unexpected loss of the services of one or more of the Company’s key personnel could have
a material adverse impact on the Company’s business because of their skills, knowledge of the Company’s market, and years of
industry experience, as well as the difficulty of promptly finding qualified replacement personnel.

The Tax Cuts and Jobs Act of 2017 may have unexpected consequences for the Company.

In December 2017, the Tax Cuts and Jobs Act of 2017 ("the Act") was passed. Among other elements, the Act reduces income
tax rates for businesses and individuals. While the Act significantly lowers the Company's income tax expense, the effect of lower
tax rates on customer behavior remains uncertain. Lowering the business and individual income tax rates may reduce demand
for loans and impact deposit balances, which may negatively affect the Company's financial position.

Item 1b. UNRESOLVED STAFF COMMENTS

None

Item 2. PROPERTIES

The main offices of the Bank are located in the larger metropolitan areas of its markets in various multi-story office buildings.

The Bank owns its main offices and leases unoccupied premises to the public. The larger office buildings include:

Building

922 Walnut
Kansas City, MO

1000 Walnut
Kansas City, MO

811 Main
Kansas City, MO

8000 Forsyth
Clayton, MO

1551 N. Waterfront Pkwy
Wichita, KS

Net rentable
square footage

% occupied in
total

% occupied by
Bank

256,000

391,000

237,000

178,000

124,000

95%

93%

100

The Company has an additional 171 branch locations in Missouri, Illinois, Kansas, Oklahoma and Colorado which are owned

or leased, and 151 off-site ATM locations.

Item 3. LEGAL PROCEEDINGS

The information required by this item is set forth in Item 8 under Note 19, Commitments, Contingencies and Guarantees

on page 113.

Item 4. MINE SAFETY DISCLOSURES

Not applicable

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Executive Officers of the Registrant

The following are the executive officers of the Company as of February 22, 2018, each of whom is designated annually. There
are no arrangements or understandings between any of the persons so named and any other person pursuant to which such person
was designated an executive officer.

Name and Age

Jeffery D. Aberdeen, 63

Kevin G. Barth, 57

Jeffrey M. Burik, 59

Daniel D. Callahan, 61

Sara E. Foster, 57

John K. Handy, 55

Robert S. Holmes, 54

Patricia R. Kellerhals, 60

David W. Kemper, 67

John W. Kemper, 40

Jonathan M. Kemper, 64

Charles G. Kim, 57

Paula S. Petersen, 51

Michael J. Petrie, 61

David L. Roller, 47

Positions with Registrant
Controller of the Company since December 1995. He is also Controller of the Company's
subsidiary bank, Commerce Bank.

Executive Vice President of the Company since April 2005, and Community President and
Chief Executive Officer of Commerce Bank since October 1998. Senior Vice President of
the Company and Officer of Commerce Bank prior thereto.

Senior Vice President of the Company since February 2013. Executive Vice President of
Commerce Bank since November 2007.

Executive Vice President and Chief Credit Officer of the Company since December 2010 and
Senior Vice President of the Company prior thereto. Executive Vice President of Commerce
Bank since May 2003.

Executive Vice President of the Company since February 2012 and Senior Vice President of
the Company prior thereto. Executive Vice President of Commerce Bank since January 2016
and Senior Vice President of Commerce Bank prior thereto.

Executive Vice President of the Company since January 2018 and Senior Vice President of
the Company prior thereto. Community President and Chief Executive Officer of Commerce
Bank since January 2018 and Senior Vice President of Commerce Bank prior thereto.

Executive Vice President of the Company since April 2015, and Community President and
Chief Executive Officer of Commerce Bank since January 2016. Prior to his employment
with Commerce Bank in March 2015, he was employed at a Midwest regional bank where he
served as managing director and head of Regional Banking.

Senior Vice President of the Company since February 2016 and Vice President of the Company
prior thereto. Executive Vice President of Commerce Bank since 2005.

Chairman of the Board of Directors of the Company since November 1991, and Chief Executive
Officer of the Company since June 1986. He was President of the Company from April 1982
until February 2013. He is Chairman of the Board and Chief Executive Officer of Commerce
Bank. He is the brother of Jonathan M. Kemper, Vice Chairman of the Company, and father
of John W. Kemper, President and Chief Operating Officer of the Company.

President and Chief Operating Officer of the Company since February 2013, and President of
Commerce Bank since March 2013. Prior thereto, and since October 2010, he was Executive
Vice President and Chief Administrative Officer of the Company and Senior Vice President
of Commerce Bank. Member of Board of Directors since September 2015. He is the son of
David W. Kemper, Chairman and Chief Executive Officer of the Company and nephew of
Jonathan M. Kemper, Vice Chairman of the Company.

Vice Chairman of the Company since November 1991 and Vice Chairman of Commerce Bank
since December 1997. Prior thereto, he was Chairman of the Board, Chief Executive Officer,
and President of Commerce Bank. He is the brother of David W. Kemper, Chairman and Chief
Executive Officer of the Company, and uncle of John W. Kemper, President and Chief Operating
Officer of the Company.

Chief Financial Officer of the Company since July 2009. Executive Vice President of the
Company since April 1995 and Executive Vice President of Commerce Bank since January
2004. Prior thereto, he was Senior Vice President of Commerce Bank.

Senior Vice President of the Company since July 2016 and Executive Vice President of
Commerce Bank since March 2012.

Senior Vice President of the Company since April 1995. Prior thereto, he was Vice President
of the Company.

Senior Vice President of the Company since July 2016 and Senior Vice President of Commerce
Bank since September 2010.

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

AND ISSUER PURCHASES OF EQUITY SECURITIES

Commerce Bancshares, Inc.
Common Stock Data

The following table sets forth the high and low prices of actual transactions in the Company’s common stock and cash dividends

paid for the periods indicated (restated for the 5% stock dividend distributed in December 2017).

2017

2016

2015

Quarter

High

Low

Cash
Dividends

First

Second

Third

Fourth

First

Second

Third

Fourth

First

Second

Third

Fourth

57.72 $

50.62 $

55.18

56.42

57.91

49.54

49.43

52.07

41.69 $

33.96 $

44.82

46.53

56.40

38.98

41.49

43.21

37.97 $

34.15 $

41.46

42.07

42.72

35.88

36.67

37.55

.214

.204

.194

Commerce Bancshares, Inc. common shares are listed on the Nasdaq Global Select Market (NASDAQ) under the symbol
CBSH. The Company had 3,750 common shareholders of record as of December 31, 2017. Certain of the Company's shares are
held in "nominee" or "street" name and the number of beneficial owners of such shares is approximately 60,000.

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Performance Graph

The following graph presents a comparison of Company (CBSH) performance to the indices named below. It assumes $100

invested on December 31, 2012 with dividends invested on a cumulative total shareholder return basis.

Commerce (CBSH)

100.00

137.30

142.35

149.14

216.71

223.28

NASDAQ OMX Global-Bank

100.00

136.62

152.78

156.15

197.60

233.94

S&P 500

100.00

132.37

150.48

152.55

170.73

207.99

2012

2013

2014

2015

2016

2017

The following table sets forth information about the Company’s purchases of its $5 par value common stock, its only class of

common stock registered pursuant to Section 12 of the Exchange Act, during the fourth quarter of 2017.

Period

October 1—31, 2017

November 1—30, 2017

December 1—31, 2017

Total

Total Number of
Shares Purchased

Average Price
Paid per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced
Program

Maximum
Number that May
Yet Be Purchased
Under the
Program

11,331

55,600

47,891

114,822

$57.91

$56.96

$54.86

$56.18

11,331

55,600

47,891

114,822

3,547,014

3,491,414

3,443,523

The Company’s stock purchases shown above were made under authorizations by the Board of Directors. Under the most
recent authorization in October 2015 of 5,000,000 shares, 3,443,523 shares remained available for purchase at December 31, 2017.

Item 6. SELECTED FINANCIAL DATA

The required information is set forth below in Item 7.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Forward-Looking Statements

This report may contain “forward-looking statements” that are subject to risks and uncertainties and include information about
possible or assumed future results of operations. Many possible events or factors could affect the future financial results and
performance of Commerce Bancshares, Inc. and its subsidiaries (the "Company"). This could cause results or performance to
differ materially from those expressed in the forward-looking statements. Words such as “expects”, “anticipates”, “believes”,
“estimates”, variations of such words and other similar expressions are intended to identify such forward-looking statements.
These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied
by, such forward-looking statements. Readers should not rely solely on the forward-looking statements and should consider all
uncertainties and risks discussed throughout this report. Forward-looking statements speak only as of the date they are made. The
Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the
forward-looking statements are made or to reflect the occurrence of unanticipated events. Such possible events or factors include
the risk factors identified in Item 1a Risk Factors and the following: changes in economic conditions in the Company’s market
area; changes in policies by regulatory agencies, governmental legislation and regulation; fluctuations in interest rates; changes
in liquidity requirements; demand for loans in the Company’s market area; changes in accounting and tax principles; estimates
made on income taxes; failure of litigation settlement agreements to become final in accordance with their terms; and competition
with other entities that offer financial services.

Overview

The Company operates as a super-community bank and offers a broad range of financial products to consumer and commercial
customers, delivered with a focus on high-quality, personalized service. It is the largest bank holding company headquartered in
Missouri, with its principal offices in Kansas City and St. Louis, Missouri. Customers are served from 327 locations in Missouri,
Kansas, Illinois, Oklahoma and Colorado and commercial offices throughout the nation's midsection. A variety of delivery
platforms are utilized, including an extensive network of branches and ATM machines, full-featured online banking, and a central
contact center.

The core of the Company’s competitive advantage is its focus on the local markets in which it operates, its offering of competitive,
sophisticated financial products, and its concentration on relationship banking and high-touch service. In order to enhance
shareholder value, the Company targets core revenue growth. To achieve this growth, the Company focuses on strategies that will
expand new and existing customer relationships, offer opportunities for controlled expansion in additional markets, utilize improved
technology, and enhance customer satisfaction.

Various indicators are used by management in evaluating the Company’s financial condition and operating performance. Among

these indicators are the following:

•

Net income and earnings per share — Net income attributable to Commerce Bancshares, Inc. was $319.4 million, an
increase of 16.0% compared to the previous year. The return on average assets was 1.28% in 2017, and the return on
average common equity was 12.46%. Diluted earnings per share increased 16.1% in 2017 compared to 2016.

Total revenue — Total revenue is comprised of net interest income and non-interest income. Total revenue in 2017
increased $65.8 million over 2016, driven by growth in both net interest income and non-interest income of $53.6 million
and $12.2 million, respectively. Net interest income increased over 2016 due in part to higher average loan balances,
which grew 5.2%, as well as higher average rates earned on loans, as average rates earned during 2017 increased 21 basis
points over 2016. Higher average rates earned on investment securities, which increased 9 basis points over 2016, also
contributed to the growth in net interest income. The growth was partly offset by higher average rates paid on deposits
and borrowings. Overall, the net interest margin (tax equivalent) increased to 3.20% in 2017, a 16 basis point increase
over 2016. Growth in non-interest income resulted principally from increases in trust fees, deposit fees, and loan fees
and sales.

Non-interest expense — Total non-interest expense grew 7.3% this year compared to 2016, mainly as a result of higher
costs for salaries and employee benefits and due to donations of $32.0 million to a related foundation during 2017.
Excluding the current year donations, total non-interest expense grew 2.9% over the prior year.

Asset quality — Net loan charge-offs in 2017 increased $9.7 million over those recorded in 2016 and averaged .31% of
loans compared to .25% in the previous year. Total non-performing assets, which include non-accrual loans and foreclosed

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real estate, amounted to $12.7 million at December 31, 2017, a decrease of $2.0 million from balances at the previous
year end, and represented .09% of loans outstanding.

•

Shareholder return — Total shareholder return, including the change in stock price and dividend reinvestment, was 3.0%
over the past year and 17.4% over the past five years. The Company's shareholder return was 10.1% over the past 10
years compared to the KBW Bank Index return of 4.1%. During 2017, the Company paid cash dividends of $.857 per
share on its common stock, representing an increase of 5% over the previous year, and paid dividends of 6% on its
preferred stock. In 2017, the Company issued its 24th consecutive annual 5% common stock dividend, and in January
2018, the Company's Board of Directors authorized an increase of nearly 10% in the common cash dividend, which is
its 50th consecutive annual increase.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related
notes. The historical trends reflected in the financial information presented below are not necessarily reflective of anticipated
future results.

Key Ratios

(Based on average balances)
Return on total assets
Return on common equity
Equity to total assets
Loans to deposits (1)
Non-interest bearing deposits to total deposits
Net yield on interest earning assets (tax equivalent basis)
(Based on end of period data)
Non-interest income to revenue (2)
Efficiency ratio (3)
Tier I common risk-based capital ratio (4)
Tier I risk-based capital ratio (4)
Total risk-based capital ratio (4)
Tier I leverage ratio (4)
Tangible common equity to tangible assets ratio (5)
Common cash dividend payout ratio

(1) Includes loans held for sale.

(2) Revenue includes net interest income and non-interest income.

2017

2016

2015

2014

2013

1.28%
12.46
10.53
66.18
34.85
3.20

39.88
62.97
12.65
13.41
14.35
10.39
9.84
29.52

1.12%
11.33
10.16
63.71
34.67
3.04

41.09
61.98
11.62
12.38
13.32
9.55
8.66
32.69

1.11%
11.43
10.00
61.44
35.12
2.94

41.40
62.34
11.52
12.33
13.28
9.23
8.48
33.35

1.15%
11.65
10.10
59.91
33.73
3.00

41.31
61.96

13.74
14.86
9.36
8.55
32.69

1.19%
11.99
9.95
57.12
33.01
3.11

40.34
60.42

14.06
15.28
9.43
9.00
31.46

(3) The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.

(4) Risk-based capital information at December 31, 2017, 2016 and 2015 was prepared under Basel III requirements, which were effective January 1, 2015.

Risk-based capital information for prior years was prepared under Basel I requirements.

(5) The tangible common equity to tangible assets ratio is a measurement which management believes is a useful indicator of capital adequacy and utilization.
It provides a meaningful basis for period to period and company to company comparisons, and also assist regulators, investors and analysts in analyzing the
financial position of the Company. Tangible common equity and tangible assets are non-GAAP measures and should not be viewed as substitutes for, or
superior to, data prepared in accordance with GAAP.

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The following table is a reconciliation of the GAAP financial measures of total equity and total assets to the non-GAAP measures

of total tangible common equity and total tangible assets.

(Dollars in thousands)
Total equity
Less non-controlling interest
Less preferred stock
Less goodwill
Less core deposit premium
Total tangible common equity (a)
Total assets
Less goodwill
Less core deposit premium
Total tangible assets (b)
Tangible common equity to tangible assets ratio (a)/(b)

2017
$ 2,718,184
1,624
144,784
138,921
2,965
$ 2,429,890
$ 24,833,415
138,921
2,965
$ 24,691,529

2016
$ 2,501,132
5,349
144,784
138,921
3,841
$ 2,208,237
$ 25,641,424
138,921
3,841
$ 25,498,662

2015
$ 2,367,418
5,428
144,784
138,921
5,031
$ 2,073,254
$ 24,604,962
138,921
5,031
$ 24,461,010

2014
$ 2,334,246
4,053
144,784
138,921
6,572
$ 2,039,916
$ 23,994,280
138,921
6,572
$ 23,848,787

2013
$ 2,214,397
3,755
—
138,921
8,489
$ 2,063,232
$ 23,072,036
138,921
8,489
$ 22,924,626

9.84%

8.66%

8.48%

8.55%

9.00%

Selected Financial Data

(In thousands, except per share data)
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains (losses), net
Non-interest expense

2017

2016

2015

2014

2013

733,679 $
45,244
486,604
25,051
769,684

680,049 $
36,318
474,392
(53)
717,065

634,320 $
28,727
448,139
6,320
676,487

620,204 $
29,531
436,506
14,124
656,870

619,372
20,353
418,865
(4,425)
629,147

Net income attributable to Commerce Bancshares, Inc.
Net income available to common shareholders
Net income per common share-basic*
Net income per common share-diluted*
Cash dividends on common stock
Cash dividends per common share*
Market price per common share*
Book value per common share*
Common shares outstanding*
Total assets
Loans, including held for sale
Investment securities
Deposits
Long-term debt
Equity
Non-performing assets

319,383
310,383
2.90
2.89
91,619
.857
55.84
24.14
106,615
24,833,415
14,005,072
8,893,307
20,425,446
1,758
2,718,184
12,664

275,391
266,391
2.50
2.49
87,070
.816
55.06
22.12
106,534
25,641,424
13,427,192
9,770,986
21,101,095
102,049
2,501,132
14,649

263,730
254,730
2.33
2.32
84,961
.777
38.59
20.74
107,192
24,604,962
12,444,299
9,901,680
19,978,853
103,818
2,367,418
29,394

261,754
257,704
2.27
2.26
84,241
.740
37.57
19.63
111,511
23,994,280
11,469,238
9,645,792
19,475,778
104,058
2,334,246
46,251

260,961
260,961
2.24
2.23
82,104
.705
36.95
19.00
116,544
23,072,036
10,956,836
9,042,997
19,047,348
455,310
2,214,397
55,439

* Restated for the 5% stock dividend distributed in December 2017.

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Results of Operations

(Dollars in thousands)
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains (losses), net
Non-interest expense
Income taxes

Non-controlling interest expense
Net income attributable to Commerce
Bancshares, Inc.
Preferred stock dividends
Net income available to common
shareholders

$ Change

% Change

'17-'16

'16-'15

'17-'16

'16-'15

2017
733,679 $
(45,244)
486,604
25,051
(769,684)
(110,506)

2016
680,049 $
(36,318)
474,392
(53)
(717,065)
(124,151)

2015
634,320 $
(28,727)
448,139
6,320
(676,487)
(116,590)

53,630 $
8,926
12,212
25,104
52,619
(13,645)

(517)

(1,463)

(3,245)

(946)

319,383
(9,000)

275,391
(9,000)

263,730
(9,000)

43,992
—

45,729
7,591
26,253
(6,373)
40,578
7,561

(1,782)

11,661
—

7.9%
24.6
2.6
N.M.
7.3
(11.0)

(64.7)

16.0
N.M.

7.2%
26.4
5.9
N.M.
6.0
6.5

(54.9)

4.4
N.M.

310,383 $

266,391 $

254,730 $

43,992 $

11,661

16.5%

4.6%

Net income attributable to Commerce Bancshares, Inc. for 2017 was $319.4 million, an increase of $44.0 million, or 16.0%,
compared to $275.4 million in 2016. Diluted income per common share increased 16.1% to $2.89 in 2017, compared to $2.49 in
2016. The increase in net income resulted from increases of $53.6 million in net interest income, $12.2 million in non-interest
income, and $25.1 million in investment securities gains, as well as a decrease of $13.6 million in income tax expense. These
increases in net income were partly offset by increases of $52.6 million in non-interest expense and $8.9 million in the provision
for loan losses. The return on average assets was 1.28% in 2017 compared to 1.12% in 2016, and the return on average common
equity was 12.46% in 2017 compared to 11.33% in 2016. At December 31, 2017, the ratio of tangible common equity to assets
increased to 9.84%, compared to 8.66% at year end 2016.

During 2017, net interest income increased $53.6 million compared to 2016. This increase reflected growth of $53.9 million
in interest on loans, resulting from higher average balances and loan yields. In addition, interest on investment securities grew
by $7.5 million due to higher rates earned, which included $2.0 million in additional inflation income earned on the Company's
portfolio of U.S. Treasury inflation-protected securities (TIPS). Interest expense on deposits and borrowings rose by $10.7 million
largely due to higher average rates paid. The provision for loan losses increased $8.9 million over the previous year, totaling $45.2
million in 2017, and was $3.6 million higher than net loan charge-offs. Net charge-offs increased by $9.7 million in 2017 compared
to 2016, mainly due to higher net charge-offs on consumer credit card loans and lower net recoveries on construction and business
real estate loans.

Non-interest income in 2017 was $486.6 million, an increase of $12.2 million, or 2.6%, compared to $474.4 million in 2016.
This increase resulted mainly from growth in trust fees, deposit account fees, and loan fees and sales, which increased $13.4
million, $3.7 million, and $2.5 million, respectively. Non-interest expense in 2017 was $769.7 million, an increase of $52.6 million
over $717.1 million in 2016. The increase in non-interest expense included a $21.0 million, or 4.9%, increase in salaries and
benefits expense due to higher full-time salaries, incentive compensation, and payroll taxes. Current period expense also included
$32.0 million of contribution expense resulting from the donation of appreciated securities to a charitable foundation, as mentioned
earlier. Investment securities net gains in 2017 totaled $25.1 million, largely resulting from these donations.

Net income attributable to Commerce Bancshares, Inc. for 2016 was $275.4 million, an increase of $11.7 million, or 4.4%,
compared to $263.7 million in 2015. Diluted income per common share increased 7.3% to $2.49 in 2016, compared to $2.32 in
2015. The increase in net income resulted from increases of $45.7 million in net interest income and $26.3 million in non-interest
income. These increases in net income were partly offset by increases of $40.6 million in non-interest expense, $7.6 million in
the provision for loan losses, and $7.6 million in income tax expense, as well as a decrease of $6.4 million in investment securities
gains. The return on average assets was 1.12% in 2016 compared to 1.11% in 2015, and the return on average common equity
was 11.33% in 2016 compared to 11.43% in 2015. At December 31, 2016, the ratio of tangible common equity to assets increased
to 8.66%, compared to 8.48% at year end 2015.

During 2016, net interest income increased $45.7 million compared to 2015. This increase reflected growth of $33.3 million
in interest on loans, resulting from higher average balances. In addition, interest on investment securities grew by $15.4 million
due to higher rates earned, which included $6.4 million in additional inflation income earned on the Company's portfolio of TIPS.
Interest expense on deposits rose by $3.1 million due to higher balances and a slight increase in overall rates paid. The provision
for loan losses increased $7.6 million over the previous year, totaling $36.3 million in 2016, and was $4.4 million higher than net

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loan charge-offs. Net charge-offs decreased by $1.8 million in 2016 compared to 2015, mainly due to higher recoveries in
construction and business real estate loans.

Non-interest income in 2016 was $474.4 million, an increase of $26.3 million, or 5.9%, compared to $448.1 million in 2015.
This increase resulted mainly from growth in deposit account fees, trust fees, loan fees and sales, and bank card fees, which
increased $6.0 million, $3.4 million, $3.2 million, and $3.0 million, respectively. Non-interest expense in 2016 was $717.1 million,
an increase of $40.6 million over $676.5 million in 2015. The increase in non-interest expense included a $26.6 million, or 6.6%,
increase in salaries and benefits expense due to higher full-time salaries, incentives, and medical plan costs. The net loss on
investment securities transactions in 2016 was minimal, while a net gain of $6.3 million was recorded in 2015 that resulted from
sales of available for sale securities and fair value adjustments and dispositions of private equity investments.

The Company distributed a 5% stock dividend for the 24th consecutive year on December 18, 2017. All per share and average

share data in this report has been restated for the 2017 stock dividend.

Critical Accounting Policies

The Company's consolidated financial statements are prepared based on the application of certain accounting policies, the most
significant of which are described in Note 1 to the consolidated financial statements. Certain of these policies require numerous
estimates and strategic or economic assumptions that may prove inaccurate or be subject to variations which may significantly
affect the Company's reported results and financial position for the current period or future periods. The use of estimates,
assumptions, and judgments are necessary when financial assets and liabilities are required to be recorded at, or adjusted to reflect,
fair value. Current economic conditions may require the use of additional estimates, and some estimates may be subject to a
greater degree of uncertainty due to the current instability of the economy. The Company has identified several policies as being
critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that
are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions
or using different assumptions. These policies relate to the allowance for loan losses, the valuation of certain investment securities,
and accounting for income taxes.

Allowance for Loan Losses

The Company performs periodic and systematic detailed reviews of its loan portfolio to assess overall collectability. The level
of the allowance for loan losses reflects the Company's estimate of the losses inherent in the loan portfolio at any point in time.
While these estimates are based on substantive methods for determining allowance requirements, actual outcomes may differ
significantly from estimated results, especially when determining allowances for business, construction and business real estate
loans. These loans are normally larger and more complex, and their collection rates are harder to predict. Personal banking loans,
including personal real estate, credit card and consumer loans, are individually smaller and perform in a more homogenous manner,
making loss estimates more predictable. Further discussion of the methodology used in establishing the allowance is provided in
the Allowance for Loan Losses section of Item 7 and in Note 1 to the consolidated financial statements.

Valuation of Investment Securities

The Company carries its investment securities at fair value and employs valuation techniques which utilize observable inputs
when those inputs are available. These observable inputs reflect assumptions market participants would use in pricing the security
and are developed based on market data obtained from sources independent of the Company. When such information is not
available, the Company employs valuation techniques which utilize unobservable inputs, or those which reflect the Company’s
own assumptions about market participants, based on the best information available in the circumstances. These valuation methods
typically involve cash flow and other financial modeling techniques. Changes in underlying factors, assumptions, estimates, or
other inputs to the valuation techniques could have a material impact on the Company's future financial condition and results of
operations. Assets and liabilities carried at fair value inherently result in more financial statement volatility. Under the fair value
measurement hierarchy, fair value measurements are classified as Level 1 (quoted prices), Level 2 (based on observable inputs)
or Level 3 (based on unobservable, internally-derived inputs), as discussed in more detail in Note 15 on Fair Value Measurements.
Most of the available for sale investment portfolio is priced utilizing industry-standard models that consider various assumptions
observable in the marketplace or which can be derived from observable data. Such securities totaled approximately $7.8 billion,
or 89.1%, of the available for sale portfolio at December 31, 2017, and were classified as Level 2 measurements. The Company
also holds $17.0 million in auction rate securities. These were classified as Level 3 measurements, as no liquid market currently
exists for these securities, and fair values were derived from internally generated cash flow valuation models which used
unobservable inputs significant to the overall measurement.

Changes in the fair value of available for sale securities, excluding credit losses relating to other-than-temporary impairment,
are reported in other comprehensive income. The Company periodically evaluates the available for sale portfolio for other-than-

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temporary impairment. Evaluation for other-than-temporary impairment is based on the Company’s intent to sell the security and
whether it is likely that it will be required to sell the security before the anticipated recovery of its amortized cost basis. If either
of these conditions is met, the entire loss (the amount by which the amortized cost exceeds the fair value) must be recognized in
current earnings. If neither condition is met, but the Company does not expect to recover the amortized cost basis, the Company
must determine whether a credit loss has occurred. This credit loss is the amount by which the amortized cost basis exceeds the
present value of cash flows expected to be collected from the security. The credit loss, if any, must be recognized in current
earnings, while the remainder of the loss, related to all other factors, is recognized in other comprehensive income.

The estimation of whether a credit loss exists and the period over which the security is expected to recover requires significant
judgment. The Company must consider available information about the collectability of the security, including information about
past events, current conditions, and reasonable forecasts, which includes payment structure, prepayment speeds, expected defaults,
and collateral values. Changes in these factors could result in additional impairment, recorded in current earnings, in future periods.

At December 31, 2017, certain non-agency guaranteed mortgage-backed securities with a fair value of $26.2 million were
identified as other-than-temporarily impaired. The cumulative credit-related impairment loss recorded on these securities amounted
to $14.2 million, which was recorded in the consolidated statements of income.

The Company, through its direct holdings and its private equity subsidiaries, has numerous private equity investments,
categorized as non-marketable securities in the accompanying consolidated balance sheets. These investments are reported at fair
value and totaled $57.2 million at December 31, 2017. Changes in fair value are reflected in current earnings and reported in
investment securities gains (losses), net, in the consolidated statements of income. Because there is no observable market data
for these securities, fair values are internally developed using available information and management’s judgment, and the securities
are classified as Level 3 measurements. Although management believes its estimates of fair value reasonably reflect the fair value
of these securities, key assumptions regarding the projected financial performance of these companies, the evaluation of the investee
company’s management team, and other economic and market factors may affect the amounts that will ultimately be realized from
these investments.

Accounting for Income Taxes

Accrued income taxes represent the net amount of current income taxes which are expected to be paid attributable to operations
as of the balance sheet date. Deferred income taxes represent the expected future tax consequences of events that have been
recognized in the financial statements or income tax returns. Deferred tax assets and liabilities are measured using the enacted
tax rates that are expected to apply to taxable income when such assets and liabilities are anticipated to be settled or realized.
Current and deferred income taxes are reported as either a component of other assets or other liabilities in the consolidated balance
sheets, depending on whether the balances are assets or liabilities. Judgment is required in applying generally accepted accounting
principles in accounting for income taxes. The Company regularly monitors taxing authorities for changes in laws and regulations
and their interpretations by the judicial systems. The aforementioned changes, as well as any changes that may result from the
resolution of income tax examinations by federal and state taxing authorities, may impact the estimate of accrued income taxes
and could materially impact the Company’s financial position and results of operations.

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Net Interest Income

Net interest income, the largest source of revenue, results from the Company’s lending, investing, borrowing, and deposit
gathering activities. It is affected by both changes in the level of interest rates and changes in the amounts and mix of interest
earning assets and interest bearing liabilities. The following table summarizes the changes in net interest income on a fully taxable
equivalent basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related to volumes
and rates. Changes not solely due to volume or rate changes are allocated to rate.

(In thousands)
Interest income, fully taxable equivalent basis
Loans:

Business
Real estate- construction and land
Real estate - business
Real estate - personal
Consumer
Revolving home equity
Consumer credit card

Total interest on loans

Loans held for sale
Investment securities:

U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Mortgage-backed securities
Asset-backed securities
Other securities

Total interest on investment securities

Federal funds sold and short-term securities purchased
under agreements to resell
Long-term securities purchased under agreements to
resell
Interest earning deposits with banks
Total interest income
Interest expense
Interest bearing deposits:

Savings
Interest checking and money market
Time open and C.D.’s of less than $100,000
Time open and C.D.’s of $100,000 and over

Federal funds purchased and securities sold under
agreements to repurchase
Other borrowings
Total interest expense
Net interest income, fully taxable equivalent basis

2017

Change due to

Average
Volume

Average
Rate

Total

2016

Change due to

Average
Volume

Average
Rate

Total

5,190 $
3,628
9,284
3,114
3,441
(669)
(654)
23,334
(368)

3,831
(3,108)
(1,191)
7,771
(4,884)
(1,151)
1,268

15,053 $
6,235
3,420
(264)
2,548
1,388
2,975
31,355
51

238
(2,744)
3
(1,036)
6,295
4,199
6,955

20,243 $
9,863
12,704
2,850
5,989
719
2,321
54,689
(317)

4,069
(5,852)
(1,188)
6,735
1,411
3,048
8,223

13,067 $
10,794
5,502
1,402
4,661
(479)
356
35,303
1,175

2,985
(6,416)
(1,148)
7,587
(3,798)
1,993
1,203

4,916 $
(417)
(1,948)
(651)
(2,210)
14
(510)
(806)
(49)

7,463
2,270
1,355
(5,635)
9,586
(398)
14,641

17,983
10,377
3,554
751
2,451
(465)
(154)
34,497
1,126

10,448
(4,146)
207
1,952
5,788
1,595
15,844

116

152

(13)

(1,765)
97
22,602

3,661
1,153
43,291

1,896
1,250
65,893

(2,760)
(46)
34,862

3,132
491
17,440

372
445
52,302

53
235
(272)
(439)

5
2,650
108
2,753

58
2,885
(164)
2,314

55
546
(318)
264

(8)
399
(109)
2,230

463
(1,955)
(1,915)
24,517 $

6,051
1,073
12,640
30,651 $

6,514
(882)
10,725
55,168 $

(447)
2,347
2,447
32,415 $

1,901
(1,953)
2,460
14,980 $

47
945
(427)
2,494

1,454
394
4,907
47,395

Net interest income totaled $733.7 million in 2017, increasing $53.6 million, or 7.9%, compared to $680.0 million in 2016.
On a tax equivalent (T/E) basis, net interest income totaled $766.6 million, and increased $55.2 million over 2016. This increase
included growth of $54.7 million in loan interest, resulting from higher average loan balances and higher rates earned. In addition,
interest earned on investment securities increased $8.2 million, mainly due to higher rates earned. Interest expense on deposits
and borrowings combined was $43.7 million, and increased $10.7 million compared to 2016 largely due to higher rates paid. The
net yield on earning assets (T/E) was 3.20% in 2017 compared with 3.04% in 2016.

During 2017, loan interest income (T/E) grew $54.7 million over 2016 due to average loan growth of $683.9 million, or 5.3%.
The average tax equivalent rate earned on the loan portfolio was 4.07% in 2017 compared to 3.86% in 2016. The higher rates

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earned on the loan portfolio were partly related to actions taken by the Federal Reserve during 2017 to increase interest rate levels,
which caused the Company's portfolio to re-price. The largest increase in loan interest occurred in business loans, which was
higher by $20.2 million as a result of growth in the average rate earned of 31 basis points. Also contributing to the increase were
higher average business loan balances of $179.5 million, or 3.9%, as growth trends continued in commercial and industrial, tax-
free, and lease loans. Construction and land loan interest grew $9.9 million due to a 71 basis point increase in average rates and
a $103.1 million, or 13.2%, increase in average balances. Business real estate interest was higher by $12.7 million as a result of
an increase in average balances of $253.7 million, or 10.4%, along with an increase in average rates of 13 basis points. Interest
earned on consumer loans increased $6.0 million over the prior year as the average rate increased 12 basis points and average
balances increased $89.2 million. Personal real estate loan interest was higher by $2.9 million and resulted from growth in average
balances of $83.3 million. Interest on consumer credit card loans rose $2.3 million due to a 40 basis point increase in the average
rate earned.

Tax equivalent interest income on total investment securities increased $8.2 million during 2017, as the average rate earned
increased nine basis points, while total average balances declined slightly. The average rate earned on the total investment portfolio
was 2.52% in 2017 compared to 2.43% in 2016, while the average balance of the total investment securities portfolio (at amortized
cost) was approximately $9.4 billion during both years. The increase in interest income was mainly due to higher interest earned
on U.S. government obligations, mortgage-backed securities, and other non-marketable investments. Interest earned on U.S.
government securities grew $4.1 million, which included growth of $2.0 million in inflation-adjusted interest on TIPS. In addition,
average balances rose $179.9 million, or 24.5%. Interest income on mortgage-backed securities increased $6.7 million, due to an
increase in average balances of $323.8 million, partly offset by a decline of three basis points in the average rate earned. Interest
earned on asset-backed securities increased $1.4 million, mainly due to an increase of 30 basis points in the average rate earned,
partly offset by a decline in average balances of $334.5 million. Interest income on non-marketable securities increased $3.1
million, largely due to one-time interest payments received on a private equity investment in 2017. Partly offsetting these increases
in interest income were declines of $5.9 million and $1.2 million in interest on government-sponsored enteprise (GSE) and state
and municipal securities, respectively. The decline in GSE interest resulted from a $139.4 million decline in average balances
coupled with a rate decrease of 61 basis points, while state and municipal interest was lower due to a decrease of $33.0 million
in average balances. Interest earned on deposits with banks increased $1.3 million mainly due to a 55 basis point increase in
average rates earned. Interest on long-term securities purchased under resell agreements increased $1.9 million in 2017 compared
to the prior year due to an increase in the average rate of 53 basis points, partly offset by a $103.2 million decrease in the average
balances of these instruments.

During 2017, interest expense on deposits increased $5.1 million over 2016. This growth was comprised of higher interest
expense on money market and interest checking accounts of $2.9 million and higher interest expense on certificates of deposit of
$2.2 million. The increase in money market and interest checking interest expense resulted mainly from higher average rates paid,
which rose three basis points. The growth in certificate of deposit interest expense was largely due to higher rates paid on certificates
of deposit over $100,000, which increased 19 basis points, partly offset by lower total average certificate of deposit balances,
which fell $139.6 million, or 6.3%. The overall rate paid on total deposits increased from .19% in 2016 to .23% in the current
year. Interest expense on borrowings increased $5.6 million, due to higher average rates paid on repurchase agreements during
2017, partly offset by lower Federal Home Loan Bank (FHLB) borrowings. The overall average rate incurred on all interest
bearing liabilities was .29% in 2017, compared to .22% in 2016.

During 2016, net interest income totaled $680.0 million, increasing $45.7 million, or 7.2%, compared to $634.3 million in
2015. On a tax equivalent (T/E) basis, net interest income totaled $711.4 million, and increased $47.4 million over 2015. This
increase included growth of $34.5 million in loan interest, resulting from higher loan balances. In addition, interest earned on
investment securities increased $15.8 million, due mainly to higher average rates earned. Interest expense on deposits and
borrowings combined was $33.0 million in 2016, an increase of $4.9 million over 2015. The net yield on earning assets (T/E) was
3.04% in 2016 compared with 2.94% in 2015.

During 2016, loan interest income (T/E) grew $34.5 million over 2015 due to average loan growth of $1.1 billion, or 8.9%.
The average tax equivalent rate earned on the loan portfolio was 3.86% in 2016 compared to 3.92% in 2015. The largest increase
in loan interest occurred in business loans, which was higher by $18.0 million as a result of growth in average balances of $466.4
million, or 11.1%, further increased by higher average rates of 11 basis points. Construction and land loan interest grew $10.4
million due to a $301.5 million, or 63.2%, increase in average balances, partly offset by a six basis point decline in average rates.
Business real estate interest was higher by $3.6 million as a result of an increase in average balances of $147.1 million, or 6.4%,
partly offset by a decrease in average rates of eight basis points. Higher levels of interest were earned on consumer and personal
real estate loans, which increased $2.5 million and $751 thousand, respectively. These increases were due to higher average
balances, which increased 6.4% in consumer loans and 2.0% in personal real estate loans, partly offset by lower average rates
earned. Partially offsetting the increases in interest earned, interest on revolving home equity loans decreased $465 thousand due

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to lower average balances, while interest on consumer credit card loans decreased slightly due to a seven basis point decline in
rates.

Tax equivalent interest income on total investment securities increased $15.8 million during 2016, as the average rate earned
increased 19 basis points, while average balances declined $91.3 million, or 1.0%, from 2015. The average balance of the total
investment securities portfolio (at amortized cost) was $9.4 billion and the average rate earned was 2.43% in 2016, compared to
an average balance of $9.5 billion and an average rate earned of 2.24% in 2015. The increase in interest income was mainly due
to higher interest earned on most security types, except for a decline of $4.1 million in interest on GSE obligations. Interest earned
on U.S. government securities grew by $10.4 million, which included growth of $6.4 million in inflation-adjusted interest on TIPS.
In addition, average balances rose $268.9 million, or 57.7%. Interest earned on asset-backed securities increased $5.8 million,
mainly due to an increase of 39 basis points in the average rate earned, partly offset by a decline in the average balance of $355.0
million. Interest income on corporate debt securities increased $2.2 million, mainly due to growth of $75.7 million in average
balances. Interest income on mortgage-backed securities increased $2.0 million, due to an increase in average balances of $296.4
million, partly offset by a decline of 16 basis points in average rates. Partly offsetting these increases in interest was the decline
in GSE interest, resulting from a $346.8 million decline in average balances, but partly offset by a rate increase of 38 basis points.
Interest earned on deposits with banks increased $445 thousand mainly due to a 26 basis point increase in average rates earned.
Interest on long-term securities purchased under resell agreements increased $372 thousand in 2016 compared to 2015 due to an
increase in the average rate of 40 basis points, partly offset by a $210.7 million decrease in average balances.

During 2016, interest expense on deposits increased $3.1 million over 2015. This growth was largely due to higher interest
on certificates of deposit of $2.1 million and higher interest expense on money market and interest checking accounts of $945
thousand. The growth in certificate of deposit interest expense was largely due to higher rates paid on certificates of deposit over
$100,000, which increased nine basis points. The increase in money market and interest checking interest expense resulted from
both higher balances and rates paid. The overall rate paid on total deposits increased from .18% in 2015 to .19% in 2016. Interest
expense on borrowings increased $1.8 million, due to higher average rates paid on repurchase agreements during 2016 and higher
FHLB borrowings during the first quarter of 2016. The overall average rate incurred on all interest bearing liabilities was .22%
in 2016, compared to .20% in 2015.

Provision for Loan Losses

The provision for loan losses totaled $45.2 million in 2017, an increase of $8.9 million over the 2016 provision of $36.3 million.

The increase in the provision resulted mainly from a higher allowance for loan losses associated with loan portfolio growth and
an increase in net loan charge-offs compared to the prior year.

Net loan charge-offs for the year totaled $41.6 million and increased $9.7 million compared to net loan charge-offs of $31.9
million in 2016. The increase in net loan charge-offs over the previous year was mainly the result of lower recoveries on commercial
portfolio loans, which decreased $5.1 million, and higher net charge-offs on consumer credit card and consumer loans, which
increased $4.8 million and $932 thousand, respectively. Partly offsetting these increases in net charge-offs were lower net loan
charge-offs on revolving home equity and personal real estate loans. The allowance for loan losses totaled $159.5 million at
December 31, 2017, an increase of $3.6 million compared to the prior year, and represented 1.14% of outstanding loans at year
end 2017, compared to 1.16% at year end 2016. The provision for loan losses is recorded to bring the allowance for loan losses
to a level deemed adequate by management based on the factors mentioned in the following “Allowance for Loan Losses” section
of this discussion.

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Non-Interest Income

(Dollars in thousands)
Bank card transaction fees
Trust fees
Deposit account charges and other fees
Capital market fees
Consumer brokerage services
Loan fees and sales
Other
Total non-interest income
Non-interest income as a % of total revenue*
Total revenue per full-time equivalent employee

2017
180,441
135,159
90,060
7,996
14,630
13,948
44,370
486,604

39.9%
254.2

2016
181,879
121,795
86,394
10,655
13,784
11,412
48,473
474,392

41.1%
241.3

2015
178,926
118,437
80,416
11,476
13,784
8,228
36,872
448,139

41.4%
226.9

* Total revenue is calculated as net interest income plus non-interest income.

% Change

'17-'16

'16-'15

(.8)%

11.0
4.2
(25.0)
6.1
22.2
(8.5)
2.6 %

1.7%
2.8
7.4
(7.2)
—
38.7
31.5
5.9%

Non-interest income totaled $486.6 million, an increase of $12.2 million, or 2.6%, compared to $474.4 million in 2016. Bank
card fees decreased $1.4 million, or .8%, compared to the prior year, largely due to a decline in merchant fees of $4.2 million,
resulting from the loss of several large customers over the last twelve months. This decline was partly offset by growth in debit
card fees of $704 thousand, credit card fees of $625 thousand, and corporate card fees of $1.4 million. The table below is a
summary of bank card transaction fees for the last three years.

(Dollars in thousands)

Debit card fees

Credit card fees

Merchant fees

Corporate card fees

2017

2016

2015

'17-'16

'16-'15

% Change

40,134 $

39,430 $

25,275

23,680

91,352

24,650

27,840

89,959

38,330

24,202

26,784

89,610

1.8 %

2.5

(14.9)

1.5

Total bank card transaction fees

180,441 $

181,879 $

178,926

(.8)%

2.9%

1.9

3.9

1.7%

Trust fee income increased $13.4 million, or 11.0%, as a result of continued growth in both personal (up 10.3%) and institutional
(up 11.9%) trust fees. The market value of total customer trust assets totaled $48.7 billion at year end 2017, which was an increase
of 13.1% over year end 2016 balances. Deposit account fees increased $3.7 million, or 4.2%, mainly due to growth in service
charges on deposits of $2.5 million, or 12.1%. In addition, overdraft fees increased $1.2 million, or 4.2%, while corporate cash
management fees were flat. In 2017, overdraft fees comprised 34.0% of total deposit fees, while corporate cash management fees
comprised 40.0% of total deposit fees. Capital market fees declined $2.7 million, or 25.0%, due to continued lower sales volumes,
while consumer brokerage services revenue increased $846 thousand, or 6.1%, due to a growth in advisory fees. Loan fees and
sales increased $2.5 million this year mainly due to higher mortgage banking revenue related to the Company's fixed rate residential
mortgage sale program. Total mortgage banking revenue totaled $9.2 million in 2017 compared to $6.6 million in 2016. Other
non-interest income decreased $4.1 million, or 8.5%, from the prior year. This decrease was due in part to a decline in interest
rate swap fees of $3.9 million due to lower origination volume. In addition, a large gain on a branch sale and a trust settlement
were recorded in 2016 (mentioned below) which did not recur in 2017. These declines in current income were partly offset by
higher gains of $1.2 million on sales of leased assets to customers upon lease termination.

During 2016, non-interest income increased $26.3 million, or 5.9%, compared to $448.1 million in 2015. Bank card fees
increased $3.0 million, or 1.7%, over 2015. This growth included increases of $1.1 million, or 2.9%, in debit card fees, $1.1
million, or 3.9%, in merchant fees, and smaller increases in credit card and corporate card fees. Trust fee income increased $3.4
million, or 2.8%, as a result of growth in both personal (up 2.0%) and institutional (up 3.7%) trust fees. The market value of total
customer trust assets totaled $43.1 billion at year end 2016, which was an increase of 12.2% over year end 2015 balances. Deposit
account fees increased $6.0 million, or 7.4%, mainly due to growth in service charges on deposits of $4.4 million, or 26.3%. In
addition, corporate cash management fees increased $1.4 million, or 4.1%, and overdraft fees increased $206 thousand. Capital
market fees declined $821 thousand, or 7.2%, due to lower sales volumes, while consumer brokerage services revenue was
unchanged. Loan fees and sales increased $3.2 million in 2016 compared to 2015, mainly due to $2.7 million in higher mortgage
banking revenue. Other non-interest income increased $11.6 million, or 31.5%, over 2015. This increase was due in part to a
gain of $3.3 million on the sale of a former branch property recorded in 2016. In addition, an accrual for a trust related settlement
of $897 thousand was recorded in 2016. Cash sweep commissions, interest rate swap fees, and fees from sales of tax credits

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increased $4.8 million, $1.5 million, and $942 thousand, respectively, over 2015. The increases were partly offset by lower
operating lease revenue of $1.1 million.

Investment Securities Gains (Losses), Net

(In thousands)

2017

2016

2015

Net gains (losses) on sales of available for sale bonds
Loss on called bond
Net gains on sales of available for sale stock
Gains on donations of available for sale stock
Net gains (losses) on sales and fair value adjustments of private equity investments
Other

Total investment securities gains (losses), net

(9,695) $
(254)
10,054
31,074
(5,743)
(385)

25,051 $

109 $
—
—
—
108
(270)

(53) $

2,925
—
—
—
3,878
(483)

6,320

Net gains and losses on investment securities during 2017, 2016 and 2015 are shown in the table above. Included in these
amounts are gains and losses arising from sales of securities from the Company’s available for sale portfolio, including credit-
related losses on debt securities identified as other-than-temporarily impaired. Also shown are gains and losses relating to non-
marketable private equity investments, which are primarily held by the Parent’s majority-owned private equity subsidiaries. These
include fair value adjustments, in addition to gains and losses realized upon disposition. The portions of private equity investment
gains and losses that are attributable to minority interests are reported as non-controlling interest in the consolidated statements
of income, and resulted in income of $575 thousand in 2017, compared to expense of $573 thousand and $2.3 million in 2016 and
2015, respectively.

Net securities gains of $25.1 million were recorded in 2017, which included $31.1 million in gains realized upon donation of
available for sale stock, in addition to $10.1 million in gains on stock sales. These gains were offset by net losses in fair value
totaling $5.8 million on private equity investments, in addition to net losses of $9.7 million on bond sales. The Company sold
approximately $790 million of bonds, mainly mortgage and asset-backed securities, as part of a strategy to extend the duration of
the securities portfolio and improve net interest margins. During 2017, credit-related impairment losses of $385 thousand were
recorded on certain non-agency guaranteed mortgage-backed securities which have been identified as other-than-temporarily
impaired. These identified securities had a total fair value of $26.2 million at December 31, 2017, compared to $31.2 million at
December 31, 2016.

Net securities losses of $53 thousand were recorded in 2016, compared to net gains of $6.3 million in 2015. The 2016 net loss
included $3.8 million in gains realized upon dispositions of private equity investments, including a $1.8 million gain resulting
from the Parent's withdrawal from a private equity fund as required under the Volcker Rule investment prohibitions. These gains
were offset by net losses in fair value totaling $3.7 million.

In 2015, the Company sold asset-backed securities, municipal securities, and TIPs from the portfolio, realizing gains of $2.8
million. Most of these sales were also part of a plan to extend the portfolio duration. In addition, net gains of $3.9 million on
dispositions and fair value adjustments were recognized on private equity investments.

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Non-Interest Expense

(Dollars in thousands)

Salaries

Employee benefits

Net occupancy

Equipment

Supplies and communication

Data processing and software

Marketing

Deposit insurance

Community service

Other

2017

2016

2015

'17-'16

'16-'15

% Change

380,945

360,840

340,521

5.6%

67,376

45,612

18,568

22,790

92,246

16,325

13,986

34,377

77,459

66,470

46,290

19,141

24,135

92,722

16,032

13,327

3,906

74,202

60,180

44,788

19,086

22,970

83,944

16,107

12,146

3,180

73,565

1.4

(1.5)

(3.0)

(5.6)

(.5)

1.8

4.9

N.M.

4.4

7.3%

6.0%

10.5

3.4

5.1

10.5

(.5)

9.7

22.8

6.0%

Total non-interest expense

769,684

717,065

676,487

Efficiency ratio
Salaries and benefits as a % of total non-interest
expense
Number of full-time equivalent employees

63.0%

58.2%

4,800

62.0%

59.6%

4,784

62.3%

59.2%

4,770

Non-interest expense was $769.7 million in 2017, an increase of $52.6 million, or 7.3%, over the previous year. Salaries and
benefits expense increased $21.0 million, or 4.9%, mainly due to higher full-time salaries, incentive compensation, and payroll
taxes. Incentive compensation included the accrual of a discretionary bonus of $3.3 million in December 2017 that will be paid
to approximately 75% of all employees. Growth in salaries expense resulted partly from staffing additions in commercial and
consumer, information technology, and other support units. Full-time equivalent employees totaled 4,800 at December 31, 2017,
an increase of .3% over 2016. Occupancy expense decreased $678 thousand, mainly due to higher net rental income and lower
demolition costs on a branch replacement project. Supplies and communication expense decreased by $1.3 million, or 5.6%,
mainly due to reissuance costs for new chip cards distributed to customers in 2016 and lower office supplies expense. Data
processing and software expense decreased $476 thousand, or .5%, mainly due to lower bank card processing costs resulting from
a new vendor contract negotiated in the third quarter of 2017. This effect was partly offset by higher online subscription services
and outsourced data provider fees. Equipment expense decreased by $573 thousand, or 3.0%, while deposit insurance expense
was higher by $659 thousand, or 4.9%, due to higher insurance rates that were effective July 1, 2016. Costs for marketing increased
slightly compared to the prior year. Community service costs increased $30.5 million due to the contribution of $32.0 million of
appreciated securities to a related foundation during the current year. Other non-interest expense increased $3.3 million, or 4.4%,
over the prior year mainly due to higher costs for legal and professional fees (up $1.2 million), bank card rewards expense (up
$1.5 million), impairment losses on surplus branch sites (up $1.2 million), and lower deferred origination costs (down $1.5 million).
These increases were partly offset by lower bank card operating costs of $2.2 million, also due to the new contract.

In 2016, non-interest expense was $717.1 million, an increase of $40.6 million, or 6.0%, over 2015. Salaries and benefits
expense increased $26.6 million, or 6.6%, mainly due to higher full-time salaries, incentives, stock-based compensation, payroll
taxes, and medical plan costs. Growth in salaries expense resulted partly from staffing additions in commercial banking, commercial
card, residential mortgage, trust, and other support units. Full-time equivalent employees totaled 4,784 at December 31, 2016, an
increase of .3% over 2015. Occupancy expense increased $1.5 million, mainly due to lower net rental income and the demolition
costs associated with a branch building which was being replaced. Supplies and communication expense increased by $1.2 million,
or 5.1%, mainly due to reissuance costs for new chip cards distributed to customers and higher data network expense. Data
processing and software expense increased $8.8 million, or 10.5%, mainly due to higher software license costs, outsourced data
provider fees, online subscription services, and bank card processing costs. Deposit insurance expense was higher by $1.2 million,
or 9.7%, due to higher average assets and higher insurance rates that were effective July 1, 2016. Costs for marketing and equipment
were relatively flat compared to 2015. Community service expense grew $726 thousand over 2015, mainly due to higher foundation
contributions. Other non-interest expense increased $637 thousand in 2016 compared to 2015, partly due to a recovery of $2.8
million in 2015 related to a letter of credit exposure which had been drawn upon and subsequently paid off. In addition, higher
costs were recorded for bank card rewards expense (up $2.4 million), loan collection fees (up $1.8 million), and legal and
professional fees (up $1.2 million). These increases were partly offset by lower bank card fraud losses (down $3.8 million), lease
asset depreciation expense (down $1.3 million), and higher deferred origination costs (up $2.6 million) in 2016.

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Income Taxes

Income tax expense was $110.5 million in 2017, compared to $124.2 million in 2016 and $116.6 million in 2015. The effective
tax rate, including the effect of non-controlling interest, was 25.7% in 2017 compared to 31.1% in 2016 and 30.7% in 2015. The
declines in tax expense and the effective tax rate in 2017 compared to 2016 and 2015 were largely due to the items mentioned
below.

The Company adopted ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," on January 1, 2017,
which requires all excess tax benefits (net of tax deficiencies) to be recognized as income tax expense or benefit in the income
statement. The amount of excess tax benefits (net of tax deficiencies) recognized as a reduction to income tax expense totaled
$7.3 million in 2017. In addition, income tax benefits of $11.8 million were recorded in 2017, resulting from the contribution of
$32.0 million of appreciated securities to a charitable foundation.

New federal tax reform legislation was enacted in December 2017, which reduced income tax rates applied to the Company's
deferred tax assets and liabilities at December 31, 2017. As part of the enactment, tax benefits of $6.8 million were recorded as
a reduction of income tax expense in 2017, mostly as a result of revaluing deferred tax assets and liabilities at the new lower tax
rates. The Company’s effective tax rate in 2018 is likely to be reduced to a range of 19-21% as a result of this new tax legislation.
Additional information about income tax expense is provided in Note 8 to the consolidated financial statements.

Financial Condition

Loan Portfolio Analysis

Classifications of consolidated loans by major category at December 31 for each of the past five years are shown in the table
below. This portfolio consists of loans which were acquired or originated with the intent of holding to their maturity. Loans held
for sale are separately discussed in a following section. A schedule of average balances invested in each loan category below
appears on page 56.

(In thousands)

Commercial:

Business

Real estate — construction and land

Real estate — business

Personal banking:

Real estate — personal

Consumer

Revolving home equity

Consumer credit card

Overdrafts

Total loans

2017

2016

2015

2014

2013

Balance at December 31

4,958,554 $

4,776,365 $

4,397,893 $

3,969,952 $ 3,715,319

968,820

2,697,452

791,236

2,643,374

624,070

2,355,544

403,507

406,197

2,288,215

2,313,550

2,062,787

2,104,487

400,587

783,864

7,123

2,010,397

1,990,801

413,634

776,465

10,464

1,915,953

1,924,365

432,981

779,744

6,142

1,883,092

1,787,626

1,705,134

1,512,716

430,873

782,370

6,095

420,589

796,228

4,611

13,983,674 $

13,412,736 $

12,436,692 $

11,469,238 $ 10,956,836

The contractual maturities of business and real estate loan categories at December 31, 2017, and a breakdown of those loans

between fixed rate and floating rate loans are as follows.

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(In thousands)

Business

Real estate — construction and land

Real estate — business

Real estate — personal

Principal Payments Due

In
One Year
or Less

After One
Year Through
Five Years

After
Five
Years

Total

2,581,850

1,943,129

433,575

4,958,554

383,983

598,587

181,223

550,930

1,507,896

506,033

33,907

590,969

1,375,531

968,820

2,697,452

2,062,787

Total business and real estate loans

3,745,643

4,507,988

2,433,982

10,687,613

Business and real estate loans:

Loans with fixed rates

Loans with floating rates

Total business and real estate loans

24.3%

75.7%

100.0%

49.6%

50.4%

100.0%

58.2%

41.8%

100.0%

42.7%

57.3%

100.0%

The following table shows loan balances at December 31, 2017, segregated between those with fixed interest rates and those
with variable rates that fluctuate with an index.

(In thousands)

Business

Real estate — construction and land

Real estate — business

Real estate — personal

Consumer

Revolving home equity

Consumer credit card

Overdrafts

Total loans

Fixed Rate
Loans

Variable Rate
Loans

Total

% Variable Rate
Loans

1,727,430 $

3,231,124 $

4,958,554

65.2%

64,884

1,275,537

1,497,030

1,561,174

7,830

70,392

7,123

903,936

1,421,915

565,757

543,313

392,757

713,472

—

968,820

2,697,452

2,062,787

2,104,487

400,587

783,864

7,123

93.3

52.7

27.4

25.8

98.0

91.0

—

6,211,400 $

7,772,274 $

13,983,674

55.6%

Total loans at December 31, 2017 were $14.0 billion, an increase of $570.9 million, or 4.3%, over balances at December 31,
2016. The growth in loans during 2017 occurred in all loan categories, with the exception of revolving home equity loans and
overdrafts, which declined from the prior year. Business loans increased $182.2 million, or 3.8%, reflecting growth in commercial
and industrial loans, commercial card loans and tax-advantaged lending. Business real estate loans increased $54.1 million, or
2.0%, due to continued demand for commercial real estate loans during 2017. Construction loans increased $177.6 million, or
22.4% due to continued growth in commercial construction projects and advances on existing projects. Personal real estate loans
retained by the Company increased $52.4 million, or 2.6%, on solid origination growth. The Company sells certain long-term
fixed rate mortgage loans to the secondary market, and these loan sales totaled $199.8 million in 2017. Consumer loans were
higher by $113.7 million, or 5.7%, which was largely driven by growth in patient health care, automobile and other consumer
loans, while motorcycle and fixed rate home equity loans declined and marine and recreational vehicle loan balances continued
to run off during the year. Consumer credit card loans increased $7.4 million, while revolving home equity loan balances declined
$13.0 million, compared to balances at year end 2016.

The Company currently holds approximately 29% of its loan portfolio in the St. Louis market, 31% in the Kansas City market,
and 40% in other regional markets. The portfolio is diversified from a business and retail standpoint, with 62% in loans to businesses
and 38% in loans to consumers. A balanced approach to loan portfolio management and an historical aversion toward credit
concentrations, from an industry, geographic and product perspective, have contributed to low levels of problem loans and loan
losses.

The Company participates in credits of large, publicly traded companies which are defined by regulation as shared national
credits, or SNCs. Regulations define SNCs as loans exceeding $20 million that are shared by three or more financial institutions.
The Company typically participates in these loans when business operations are maintained in the local communities or regional
markets and opportunities to provide other banking services are present. At December 31, 2017, the balance of SNC loans totaled
approximately $1.1 billion, with an additional $1.4 billion in unfunded commitments, compared to $836.1 million in loans and
$1.4 billion in unfunded commitments at December 31, 2016.

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Commercial Loans

Business

Total business loans amounted to $5.0 billion at December 31, 2017 and include loans used mainly to fund customer accounts
receivable, inventories, and capital expenditures. The business loan portfolio includes tax-advantaged financings which carry tax
free interest rates. These loans totaled $728.9 million at December 31, 2017, which was a $53.5 million, or 7.9%, increase over
December 31, 2016 balances, and comprised 5.2% of the Company's total loan portfolio. The business loan portfolio also includes
direct financing and sales type leases totaling $737.7 million, which are used by commercial and tax-exempt customers to finance
capital purchases ranging from computer equipment to office and transportation equipment. These leases increased $12.4 million,
or 1.7%, over 2016 and comprised 5.3% of the Company’s total loan portfolio. The Company has outstanding energy-related
loans totaling $134.5 million at December 31, 2017, which are further discussed on page 38. Also included in the business portfolio
are corporate card loans, which totaled $300.8 million at December 31, 2017 and increased $76.6 million, or 34.1%, over the prior
year. These loans are made in conjunction with the Company’s corporate card business. They are generally for corporate trade
purchases and are short-term, with outstanding balances averaging between 7 to 30 days in duration, which helps to limit risk in
these loans.

Business loans, excluding corporate card loans, are made primarily to customers in the regional trade area of the Company,
generally the central Midwest, encompassing the states of Missouri, Kansas, Illinois, and nearby Midwestern markets, including
Iowa, Oklahoma, Colorado, Texas and Ohio. This portfolio is diversified from an industry standpoint and includes businesses
engaged in manufacturing, wholesaling, retailing, agribusiness, insurance, financial services, public utilities, health care, and other
service businesses. Emphasis is upon middle-market and community businesses with known local management and financial
stability. Consistent with management’s strategy and emphasis upon relationship banking, most borrowing customers also maintain
deposit accounts and utilize other banking services. Net loan charge-offs in this category totaled $1.4 million in 2017, compared
to net loan charge-offs of $616 thousand recorded in 2016. Non-accrual business loans were $5.9 million (.1% of business loans)
at December 31, 2017 compared to $8.7 million at December 31, 2016.

Real Estate-Construction and Land

The portfolio of loans in this category amounted to $968.8 million at December 31, 2017, which was an increase of $177.6
million, or 22.4%, over the prior year and comprised 6.9% of the Company’s total loan portfolio. Commercial construction and
land development loans totaled $765.8 million, or 79.0% of total construction loans at December 31, 2017. These loans increased
$193.3 million over 2016 year end balances; driving the growth in the total construction portfolio. Commercial construction loans
are made during the construction phase for small and medium-sized office and medical buildings, manufacturing and warehouse
facilities, apartment complexes, shopping centers, hotels and motels, and other commercial properties. Commercial land
development loans relate to land owned or developed for use in conjunction with business properties. Residential construction
and land development loans at December 31, 2017 totaled $203.0 million, or 21.0% of total construction loans. A stable construction
market has contributed to improved loss trends, with net loan recoveries of $1.2 million and $3.7 million recorded in 2017 and
2016, respectively. Construction and land loans on non-accrual status declined to $5 thousand at year end 2017 compared to $564
thousand at year end 2016.

Real Estate-Business

Total business real estate loans were $2.7 billion at December 31, 2017 and comprised 19.3% of the Company’s total loan
portfolio. This category includes mortgage loans for small and medium-sized office and medical buildings, manufacturing and
warehouse facilities, shopping centers, hotels and motels, churches, and other commercial properties. Emphasis is placed on
owner-occupied lending (37.5% of this portfolio), which presents lower risk levels. The borrowers and/or the properties are
generally located in local and regional markets. Additional information about loans by category is presented on page 36. At
December 31, 2017, non-accrual balances amounted to $2.7 million, or .1% of the loans in this category, up from $1.6 million at
year end 2016. The Company experienced net loan recoveries of $203 thousand in 2017, compared to net loan recoveries of $1.3
million in 2016.

Personal Banking Loans

Real Estate-Personal

At December 31, 2017, there were $2.1 billion in outstanding personal real estate loans, which comprised 14.8% of the
Company’s total loan portfolio. The mortgage loans in this category are mainly for owner-occupied residential properties. The
Company originates both adjustable rate and fixed rate mortgage loans, and at December 31, 2017, 27% of the portfolio was
comprised of adjustable rate loans and 73% was comprised of fixed rate loans. The Company does not purchase any loans from
outside parties or brokers, and has never maintained or promoted subprime or reduced-document products. Levels of mortgage
loan origination activity decreased in 2017 compared to 2016, with originations of $560.8 million in 2017 compared with $574.7
30

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million in 2016. Net loans retained by the Company increased $52.4 million and loans sold to the secondary market increased
$50.2 million. The loan sales were made under a 2015 initiative to originate and sell certain long term fixed rate loans, resulting
in sales of $149.6 million in 2016 and $199.8 million in 2017. The Company has experienced lower loan losses in this category
than many others in the industry and believes this is partly because of its conservative underwriting culture, stable markets, and
the fact that it does not offer subprime lending products or purchase loans from brokers. Net loan recoveries for 2017 amounted
to $305 thousand, compared to net loan recoveries of $6 thousand in the previous year. The non-accrual balances of loans in this
category decreased to $2.5 million at December 31, 2017, compared to $3.4 million at year end 2016.

Consumer

Consumer loans consist of automobile, motorcycle, marine, tractor/trailer, recreational vehicle (RV), fixed rate home equity,
patient health care financing and other types of consumer loans. These loans totaled $2.1 billion at year end 2017. Approximately
48% of the consumer portfolio consists of automobile loans, 6% in motorcycle loans, 15% in fixed rate home equity loans, 7% in
heathcare financing loans and 3% in marine and RV loans. Total consumer loans increased by $113.7 million at year end in 2017
compared to year end 2016. Growth of $69.6 million in patient health care financing and $37.3 million in automobile loan
originations was partly offset by the run-off of $30.6 million in marine and RV loans and lower motorcycle and fixed rate home
equity loans of $10.9 million and $8.7 million, respectively. Loans for other general consumer purposes increased $57.0 million
over year end 2016. Net charge-offs on total consumer loans were $10.0 million in 2017, compared to $9.0 million in 2016,
averaging .5% of consumer loans in both years. Consumer loan net charge-offs included marine and RV loan net charge-offs of
$1.2 million, which were 1.4% of average marine and RV loans in 2017, compared to .9% in 2016.

Revolving Home Equity

Revolving home equity loans, of which 98% are adjustable rate loans, totaled $400.6 million at year end 2017. An additional
$698.6 million was available in unused lines of credit, which can be drawn at the discretion of the borrower. Home equity loans
are secured mainly by second mortgages (and less frequently, first mortgages) on residential property of the borrower. The
underwriting terms for the home equity line product permit borrowing availability, in the aggregate, generally up to 80% or 90%
of the appraised value of the collateral property at the time of origination. Net charge-offs totaled $185 thousand in 2017, compared
to $485 thousand in 2016.

Consumer Credit Card

Total consumer credit card loans amounted to $783.9 million at December 31, 2017 and comprised 5.6% of the Company’s
total loan portfolio. The credit card portfolio is concentrated within regional markets served by the Company. The Company offers
a variety of credit card products, including affinity cards, rewards cards, and standard and premium credit cards, and emphasizes
its credit card relationship product, Special Connections. Approximately 42% of the households that own a Commerce credit card
product also maintain a deposit relationship with the subsidiary bank. At December 31, 2017, approximately 91% of the outstanding
credit card loan balances had a floating interest rate, compared to 90% in the prior year. Net charge-offs amounted to $30.3 million
in 2017, an increase of $4.8 million over $25.4 million in 2016. The ratio of credit card loan net charge-offs to total average credit
card loans was 4.1% in 2017 and 3.4% in 2016.

Loans Held for Sale

At December 31, 2017, loans held for sale were comprised of certain long-term fixed rate personal real estate loans and loans
extended to students while attending colleges and universities. The personal real estate loans are carried at fair value and totaled
$15.3 million at December 31, 2017. The student loans, carried at the lower of cost or fair value, totaled $6.1 million at December
31, 2017. Both of these portfolios are further discussed in Note 2 to the consolidated financial statements.

Allowance for Loan Losses

The Company has an established process to determine the amount of the allowance for loan losses which assesses the risks
and losses inherent in its portfolio. This process provides an allowance consisting of a specific allowance component based on
certain individually evaluated loans and a general component based on estimates of reserves needed for pools of loans.

Loans subject to individual evaluation generally consist of business, construction, business real estate and personal real estate
loans on non-accrual status, and include troubled debt restructurings that are on non-accrual status. These non-accrual loans are
evaluated individually for impairment based on factors such as payment history, borrower financial condition and collateral. For
collateral dependent loans, appraisals of collateral (including exit costs) are normally obtained annually but discounted based on
date last received and market conditions. From these evaluations of expected cash flows and collateral values, specific allowances
are determined.

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Loans which are not individually evaluated are segregated by loan type and sub-type and are collectively evaluated. These
loans include commercial loans (business, construction and business real estate) which have been graded pass, special mention
or substandard, and all personal banking loans except personal real estate loans on non-accrual status. Collectively-evaluated loans
include certain troubled debt restructurings with similar risk characteristics. Allowances for both personal banking and commercial
loans use methods which consider historical and current loss trends, loss emergence periods, delinquencies, industry concentrations
and unique risks. Economic conditions throughout the Company's market place, as monitored by Company credit officers, are
also considered in the allowance determination process.

The Company’s estimate of the allowance for loan losses and the corresponding provision for loan losses rest upon various
judgments and assumptions made by management. In addition to past loan loss experience, various qualitative factors are
considered, such as current loan portfolio composition and characteristics, trends in delinquencies, portfolio risk ratings, levels
of non-performing assets, credit concentrations, collateral values, and prevailing regional and national economic conditions. The
Company has internal credit administration and loan review staff that continuously review loan quality and report the results of
their reviews and examinations to the Company’s senior management and Board of Directors. Such reviews also assist management
in establishing the level of the allowance. In using this process and the information available, management must consider various
assumptions and exercise considerable judgment to determine the overall level of the allowance for loan losses. Because of these
subjective factors, actual outcomes of inherent losses can differ from original estimates. The Company’s subsidiary bank continues
to be subject to examination by several regulatory agencies, and examinations are conducted throughout the year, targeting various
segments of the loan portfolio for review. Refer to Note 1 to the consolidated financial statements for additional discussion on the
allowance and charge-off policies.

At December 31, 2017, the allowance for loan losses was $159.5 million compared to $155.9 million at December 31, 2016.
The percentage of allowance to loans decreased slightly to 1.14% at December 31, 2017 compared to 1.16% at year end 2016.
Total loans delinquent 90 days or more and still accruing were $18.1 million at December 31, 2017, an increase of $1.7 million
compared to year end 2016, mainly driven by a $1.2 million increase in personal real estate loans delinquent 90 days or more.
Non-accrual loans at December 31, 2017 were $12.0 million, a decrease of $2.3 million from the prior year, mainly comprised of
decreases in business and personal real estate non-accrual loans of $2.7 million and $942 thousand, respectively. These decreases
were partially offset by an increase in business real estate non-accrual loans of $1.1 million. The 2017 year end balance of non-
accrual loans was comprised of $5.9 million of business loans, $2.7 million of business real estate loans, $2.5 million of personal
real estate loans, and $834 thousand of consumer loans.

Net loan charge-offs totaled $41.6 million in 2017, representing a $9.7 million increase compared to net charge-offs of $31.9
million in 2016. The increase was largely due to lower recoveries on commercial loans, which saw $5.1 million fewer recoveries
in 2017 compared to 2016, as well as $4.8 million and $932 thousand higher net charge-offs on consumer credit card and consumer
loans, respectively. Partly offsetting these increases in net charge-offs were lower net loan charge-offs on revolving home equity
and personal real estate loans. Consumer credit card net charge-offs were 4.07% of average consumer credit card loans in 2017
compared to 3.39% in 2016. Consumer credit card loan net charge-offs as a percentage of total net charge-offs decreased to 72.6%
in 2017 compared to 79.7% in 2016. Consumer loan net charge-offs were .49% of average consumer loans in 2017, compared
to .46% in 2016, and represented 24.0% of total net loan charge-offs in 2017.

The ratio of net charge-offs to total average loans outstanding in 2017 was .31%, compared to .25% in 2016 and .28% in 2015.
The provision for loan losses in 2017 was $45.2 million, compared to provisions of $36.3 million in 2016 and $28.7 million in
2015.

The Company considers the allowance for loan losses of $159.5 million adequate to cover losses inherent in the loan portfolio

at December 31, 2017.

Table of contents

The schedules which follow summarize the relationship between loan balances and activity in the allowance for loan losses:

(Dollars in thousands)
Loans outstanding at end of year(A)
Average loans outstanding(A)

Allowance for loan losses:

Balance at beginning of year

Additions to allowance through charges to expense

Loans charged off:

Business

Real estate — construction and land

Real estate — business

Real estate — personal

Consumer

Revolving home equity

Consumer credit card

Overdrafts

Total loans charged off

Recoveries of loans previously charged off:

Business

Real estate — construction and land

Real estate — business

Real estate — personal

Consumer

Revolving home equity

Consumer credit card

Overdrafts

Total recoveries

Net loans charged off

Balance at end of year

2017

13,983,674

13,611,699

155,932

45,244

Years Ended December 31

2016

2015

2014

2013

13,412,736

12,927,778

12,436,692

11,869,276

11,469,238

11,260,233

10,956,836

10,311,654

151,532

156,532

161,532

36,318

28,727

29,531

172,532

20,353

2,410

127

417

13,415

488

36,114

2,207

55,179

1,032

1,192

330

722

3,436

303

5,861

659

13,535

41,644

2,549

515

194

556

12,711

860

31,616

1,977

50,978

1,933

4,227

1,475

562

3,664

375

6,186

638

19,060

31,918

2,295

499

1,263

1,037

11,708

722

31,326

2,200

51,050

2,683

1,761

1,396

596

3,430

320

6,287

850

17,323

33,727

2,646

794

1,108

844

12,214

783

32,424

1,960

52,773

2,181

2,323

681

317

3,409

743

7,702

886

18,242

34,531

1,869

621

2,680

1,570

11,029

1,200

33,206

2,024

54,199

2,736

5,313

1,728

343

3,489

214

8,085

938

22,846

31,353

159,532

155,932

151,532

156,532

161,532

Ratio of allowance to loans at end of year

Ratio of provision to average loans outstanding

1.14%

.33%

1.16%

.28%

1.22%

.24%

1.36%

.26%

1.47%

.20%

(A) Net of unearned income, before deducting allowance for loan losses, excluding loans held for sale.

Ratio of net charge-offs (recoveries) to average loans outstanding, by loan
category:

Business

Real estate — construction and land

Real estate — business

Real estate — personal

Consumer

Revolving home equity

Consumer credit card

Overdrafts

Years Ended December 31

2017

2016

2015

2014

2013

.03%

.01%

(.01)%

(.14)

(.01)

(.02)

.49

.05

4.07

33.71

(.48)

(.05)

—

.46

.12

3.39

28.42

(.26)

(.01)

.02

.45

.09

3.35

24.93

.01%

(.37)

(.03)%

(1.24)

.02

.03

.54

.01

3.28

21.97

.04

.07

.52

.23

3.34

18.04

Ratio of total net charge-offs to total average loans outstanding

.31%

.25%

.28 %

.31%

.30 %

Table of contents

The following schedule provides a breakdown of the allowance for loan losses by loan category and the percentage of each

loan category to total loans outstanding at year end.

(Dollars in thousands)

2017

2016

2015

2014

2013

Loan Loss
Allowance
Allocation

% of Loans
to Total
Loans

Loan Loss
Allowance
Allocation

% of Loans
to Total
Loans

Loan Loss
Allowance
Allocation

% of Loans
to Total
Loans

Loan Loss
Allowance
Allocation

% of Loans
to Total
Loans

Loan Loss
Allowance
Allocation

% of Loans
to Total
Loans

Business

44,462

35.4% $

43,910

35.6% $

43,617

35.4% $

40,881

34.6% $

43,146

33.9%

RE — construction and

land

RE — business

RE — personal

Consumer

Revolving home equity

Consumer credit card

Overdrafts

Total

24,432

24,810

4,201

19,509

1,189

40,052

877

$ 159,532

6.9

19.3

14.8

15.0

2.9

5.6

21,841

25,610

4,110

18,935

1,164

39,530

832
100.0% $ 155,932

5.9

19.7

15.0

14.8

3.1

5.8

16,312

22,157

6,680

21,717

1,393

38,764

892

5.0

18.9

15.4

15.5

3.5

6.3

—

13,584

35,157

7,343

16,822

2,472

39,541

732

3.5

20.0

16.4

14.9

3.7

6.8

18,617

32,426

4,490

15,440

3,152

43,360

901

3.7

21.1

16.3

13.8

3.8

7.3

100.0% $ 151,532

100.0% $ 156,532

100.0% $ 161,532

100.0%

Risk Elements of Loan Portfolio

Management reviews the loan portfolio continuously for evidence of problem loans. During the ordinary course of business,
management becomes aware of borrowers that may not be able to meet the contractual requirements of loan agreements. Such
loans are placed under close supervision with consideration given to placing the loan on non-accrual status, the need for an
additional allowance for loan loss, and (if appropriate) partial or full loan charge-off. Loans are placed on non-accrual status when
management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. After a loan is
placed on non-accrual status, any interest previously accrued but not yet collected is reversed against current income. Interest is
included in income only as received and only after all previous loan charge-offs have been recovered, so long as management is
satisfied there is no impairment of collateral values. The loan is returned to accrual status only when the borrower has brought
all past due principal and interest payments current, and, in the opinion of management, the borrower has demonstrated the ability
to make future payments of principal and interest as scheduled. Loans that are 90 days past due as to principal and/or interest
payments are generally placed on non-accrual, unless they are both well-secured and in the process of collection, or they are
comprised of those personal banking loans that are exempt under regulatory rules from being classified as non-accrual. Consumer
installment loans and related accrued interest are normally charged down to the fair value of related collateral (or are charged off
in full if no collateral) once the loans are more than 120 days delinquent. Credit card loans and the related accrued interest are
charged off when the receivable is more than 180 days past due.

The following schedule shows non-performing assets and loans past due 90 days and still accruing interest.

(Dollars in thousands)
Total non-accrual loans
Real estate acquired in foreclosure
Total non-performing assets

Non-performing assets as a percentage of total loans
Non-performing assets as a percentage of total assets
Loans past due 90 days and still accruing interest

December 31

2017
$ 11,983
681
$ 12,664

2016
14,283
366
14,649

2015
26,575
2,819
29,394

2014
40,775
5,476
46,251

2013
48,814
6,625
55,439

.09%
.05%

.11%
.06%

.24%
.12%

.40%
.19%

.51%
.24%

$ 18,127

16,396

16,467

13,658

13,966

The table below shows the effect on interest income in 2017 of loans on non-accrual status at year end.

(In thousands)
Gross amount of interest that would have been recorded at original rate
Interest that was reflected in income
Interest income not recognized

1,067
58
1,009

Non-accrual loans, which are also classified as impaired, totaled $12.0 million at year end 2017, a decrease of $2.3 million
from the balance at year end 2016. The decline from December 31, 2016 occurred mainly in business, personal real estate, and
construction loans, which decreased $2.7 million, $942 thousand, and $559 thousand, respectively, but was partially offset by
increases in business real estate and consumer non-accrual loans. At December 31, 2017, non-accrual loans were comprised
primarily of business (49.6%), business real estate (22.8%), and personal real estate (20.5%) loans. Foreclosed real estate totaled
$681 thousand at December 31, 2017, an increase of $315 thousand when compared to December 31, 2016. Total non-performing

Table of contents

assets remain low compared to the overall banking industry in 2017, with the non-performing loans to total loans ratio at .09% at
December 31, 2017. Total loans past due 90 days or more and still accruing interest were $18.1 million as of December 31, 2017,
an increase of $1.7 million when compared to December 31, 2016. Balances by class for non-accrual loans and loans past due
90 days and still accruing interest are shown in the "Delinquent and non-accrual loans" section of Note 2 to the consolidated
financial statements.

In addition to the non-performing and past due loans mentioned above, the Company also has identified loans for which
management has concerns about the ability of the borrowers to meet existing repayment terms. They are classified as substandard
under the Company’s internal rating system. The loans are generally secured by either real estate or other borrower assets, reducing
the potential for loss should they become non-performing. Although these loans are generally identified as potential problem
loans, they may never become non-performing. Such loans totaled $213.4 million at December 31, 2017, compared with $99.5
million at December 31, 2016, resulting in an increase of $113.9 million. The change in potential problem loans was largely
comprised of an increase of $110.0 million in business loans, mainly due to the downgrade of several large commercial and
industrial and lease loans.

(In thousands)

Potential problem loans:

Business
Real estate – construction and land
Real estate – business
Real estate – personal

Total potential problem loans

December 31

2017

2016

153,417
2,702
51,134
6,121
213,374 $

43,438
1,172
52,913
1,955
99,478

At December 31, 2017, the Company had $110.6 million of loans whose terms have been modified or restructured under a
troubled debt restructuring. These loans have been extended to borrowers who are experiencing financial difficulty and who have
been granted a concession, as defined by accounting guidance, and are further discussed in the "Troubled debt restructurings"
section in Note 2 to the consolidated financial statements. This balance includes certain commercial loans totaling $88.6 million
which are classified as substandard and included in the table above because of this classification.

Loans with Special Risk Characteristics

Management relies primarily on an internal risk rating system, in addition to delinquency status, to assess risk in the loan
portfolio, and these statistics are presented in Note 2 to the consolidated financial statements. However, certain types of loans are
considered at high risk of loss due to their terms, location, or special conditions. Construction and land loans and business real
estate loans are subject to higher risk because of the impact that volatile interest rates and a changing economy can have on real
estate value, and because of the potential volatility of the real estate industry. Certain personal real estate products (residential
first mortgages and home equity loans) have contractual features that could increase credit exposure in a market of declining real
estate prices, when interest rates are steadily increasing, or when a geographic area experiences an economic downturn. For these
personal real estate loans, higher risks could exist when 1) loan terms require a minimum monthly payment that covers only
interest, or 2) loan-to-collateral value (LTV) ratios at origination are above 80%, with no private mortgage insurance. Information
presented below for personal real estate and home equity loans is based on LTV ratios which were calculated with valuations at
loan origination date. The Company does not attempt to obtain updated appraisals or valuations unless the loans become
significantly delinquent or are in the process of being foreclosed upon. For credit monitoring purposes, the Company relies on
delinquency monitoring along with obtaining refreshed FICO scores, and in the case of home equity loans, reviewing line utilization
and credit bureau information annually. This has remained an effective means of evaluating credit trends and identifying problem
loans, partly because the Company offers standard, conservative lending products.

Table of contents

Real Estate - Construction and Land Loans

The Company’s portfolio of construction loans, as shown in the table below, amounted to 6.9% of total loans outstanding at
December 31, 2017. The largest component of construction and land loans was commercial construction, which grew $213.9
million during the year ended December 31, 2017. At December 31, 2017, multi-family residential construction loans totaled
approximately $252.8 million, or 35.2%, of the commercial construction loan portfolio.

December 31,
2017

% of Total

% of Total Loans

December 31,
2016

% of Total

% of Total Loans

81,859
121,138

48,474
717,349

8.5%
12.5

5.0
74.0

.6% $
.9

.3
5.1

86,373
132,334

69,057
503,472

10.9%
16.8

8.7
63.6

968,820

100.0%

6.9% $

791,236

100.0%

.6%
1.0

.5
3.8

5.9%

(Dollars in thousands)
Residential land
and land development
Residential construction
Commercial land
and land development
Commercial construction
Total real estate –
construction and land loans

Real Estate – Business Loans

Total business real estate loans were $2.7 billion at December 31, 2017 and comprised 19.3% of the Company’s total loan
portfolio. These loans include properties such as manufacturing and warehouse buildings, small office and medical buildings,
churches, hotels and motels, shopping centers, and other commercial properties. Approximately 37.5% of these loans were for
owner-occupied real estate properties, which present lower risk profiles.

(Dollars in thousands)
Owner-occupied

Office

Retail

Multi-family

Hotels

Farm

Industrial

Other

Total real estate - business
loans

Real Estate - Personal Loans

December 31,
2017

% of Total

% of Total Loans

December 31,
2016

% of Total

% of Total Loans

1,010,786

37.5%

7.2% $

1,004,238

373,301

338,937

298,605

181,704

161,972

73,078

259,069

13.8

12.6

11.1

6.7

6.0

2.7

9.6

2.7

2.4

2.1

1.3

1.2

1.9

319,638

344,221

255,369

174,207

173,210

122,940

249,551

38.0%

12.1

13.0

9.7

6.6

4.6

9.4

7.5%

2.4

2.5

1.9

1.3

1.9

2,697,452

100.0%

19.3% $

2,643,374

100.0%

19.7%

The Company’s $2.1 billion personal real estate loan portfolio is composed mainly of residential first mortgage real estate
loans. The majority of this portfolio is comprised of approximately $1.9 billion of loans made to the retail customer base and
includes both adjustable rate and fixed rate mortgage loans. As shown in Note 2 to the consolidated financial statements, 3.4%
of this portfolio has FICO scores of less than 660, and delinquency levels have been low. Loans of approximately $29.9 million
in this personal real estate portfolio were structured with interest only payments. Interest only loans are typically made to high
net-worth borrowers and generally have low LTV ratios at origination or have additional collateral pledged to secure the loan.
Therefore, they are not perceived to represent above normal credit risk. Loans originated with interest only payments were not
made to "qualify" the borrower for a lower payment amount. A small portion of the total portfolio is comprised of personal real
estate loans made to individuals employed by commercial customers which totaled $219.2 million at December 31, 2017.

Table of contents

The following table presents information about the retail-based personal real estate loan portfolio for 2017 and 2016.

(Dollars in thousands)
Loans with interest only payments
Loans with no insurance and LTV:

Between 80% and 90%
Between 90% and 95%
Over 95%

Over 80% LTV with no insurance

Total loan portfolio from which above loans were identified

Revolving Home Equity Loans

2017

2016

Principal
Outstanding at
December 31

29,919

% of Loan
Portfolio

Principal
Outstanding at
December 31

% of Loan
Portfolio

1.6% $

22,185

1.2%

110,272
28,774
44,529
183,575
1,855,779

5.9
1.6
2.4
9.9

95,708
29,323
33,778
158,809
1,783,674

5.4
1.6
1.9
8.9

The Company also has revolving home equity loans that are generally collateralized by residential real estate. Most of these
loans (92.3%) are written with terms requiring interest only monthly payments. These loans are offered in three main product
lines: LTV up to 80%, 80% to 90%, and 90% to 100%. As shown in the following tables, the percentage of loans with LTV ratios
greater than 80% has remained a small segment of this portfolio, and delinquencies have been low and stable. The weighted
average FICO score for the total current portfolio balance is 794. At maturity, the accounts are re-underwritten and if they qualify
under the Company's credit, collateral and capacity policies, the borrower is given the option to renew the line of credit or to
convert the outstanding balance to an amortizing loan. If criteria are not met, amortization is required, or the borrower may pay
off the loan. Over the next three years, approximately 14% of the Company's current outstanding balances are expected to mature.
Of these balances, 92% have a FICO score above 700. The Company does not expect a significant increase in losses as these
loans mature, due to their high FICO scores, low LTVs, and low historical loss levels.

(Dollars in thousands)
Loans with interest only payments
Loans with LTV:

Between 80% and 90%
Over 90%

Over 80% LTV

Total loan portfolio from which above
loans were identified

Principal
Outstanding at
December 31,
2017
369,846

New Lines
Originated
*
During 2017
92.3% $160,111

*
40.0%

Unused Portion
of Available
Lines at
December 31,
2017
$680,826

Balances
Over 30
Days Past
Due
$2,977

*
170.0%

43,493
7,849
51,342

10.9
1.9
12.8

19,537
—
19,537

4.9
—
4.9

40,750
5,452
46,202

10.2
1.3
11.5

514
85
599

400,587

172,511

713,934

* Percentage of total principal outstanding of $400.6 million at December 31, 2017.

(Dollars in thousands)
Loans with interest only payments
Loans with LTV:
Between 80% and 90%
Over 90%
Over 80% LTV

Total loan portfolio from which above
loans were identified

Principal
Outstanding at
December 31,
2016
385,617

New Lines
Originated
*
During 2016
93.2% $174,892

*
42.3%

Unused Portion
of Available
Lines at
December 31,
2016
$663,594

Balances
Over 30
Days Past
Due
$1,912

*
160.4%

46,633
8,443
55,076

11.3
2.0
13.3

21,263
2,036
23,299

5.1
.5
5.6

39,069
7,251
46,320

9.4
1.8
11.2

540
106
646

413,634

184,250

694,767

* Percentage of total principal outstanding of $413.6 million at December 31, 2016.

.7%

.1
—
.1

.5%

.1
.1
.2

Table of contents

Other Consumer Loans

Within the consumer loan portfolio are several direct and indirect product lines comprised mainly of loans secured by
automobiles, motorcycles, marine, and RVs. Outstanding balances for auto loans were $1.0 billion and $972.5 million at December
31, 2017 and 2016, respectively. The balances over 30 days past due amounted to $18.4 million at December 31, 2017, compared
to $13.8 million at the end of 2016, and comprised 1.8% of the outstanding balances of these loans at December 31, 2017 compared
to 1.4% at December 31, 2016. For the year ended December 31, 2017, $464.3 million of new auto loans were originated, compared
to $431.0 million during 2016. At December 31, 2017, the automobile loan portfolio had a weighted average FICO score of 751.

Outstanding balances for motorcycle loans were $129.5 million at December 31, 2017, compared to $140.4 million at December
31, 2016. The balances over 30 days past due amounted to $2.5 million and $2.2 million at December 31, 2017 and 2016,
respectively, and comprised 1.9% of the outstanding balances of these loans at December 31, 2017, compared to 1.5% at December
31, 2016. For the year ended December 31, 2017, $55.3 million of new motorcycle loans were originated, compared to $76.4
million during 2016.

Marine and RV loan production has been significantly curtailed since 2008 with few new originations. While loss rates have
remained low over the last five years, the loss ratios experienced for marine and RV loans in 2017 increased over the prior year
and have been higher than for other consumer loan products, at 1.4% and .9% in 2017 and 2016, respectively. Balances over 30
days past due for marine and RV loans decreased $3.3 million at year end 2017 compared to 2016. The table below provides the
total outstanding principal and other data for this group of direct and indirect lending products at December 31, 2017 and 2016.

(In thousands)

Automobiles

Motorcycles

Marine

Total

Principal
Outstanding at
December 31

2017

New Loans
Originated

Balances
Over 30 Days
Past Due

Principal
Outstanding at
December 31

2016

New Loans
Originated

Balances
Over 30 Days
Past Due

1,009,880 $

464,253 $

18,396

972,536 $

431,048 $

13,839

129,530

17,776

54,070

55,253

997

2,496

846

109

140,408

26,187

76,254

76,364

1,629

1,187

2,155

953

3,307

1,211,256 $

520,532 $

21,847

1,215,385 $

510,228 $

20,254

Additionally, the Company offers low promotional rates on selected consumer credit card products. Out of a portfolio at
December 31, 2017 of $783.9 million in consumer credit card loans outstanding, approximately $167.9 million, or 21.4%, carried
a low promotional rate. Within the next six months, $50.2 million of these loans are scheduled to convert to the ongoing higher
contractual rate. To mitigate some of the risk involved with this credit card product, the Company performs credit checks and
detailed analysis of the customer borrowing profile before approving the loan application. Management believes that the risks in
the consumer loan portfolio are reasonable and the anticipated loss ratios are within acceptable parameters.

Energy Lending

The Company's energy lending portfolio was comprised of lending to the petroleum and natural gas sectors and totaled $134.5

million at December 31, 2017, a decrease of $37.0 million from year end 2016, as shown in the table below.

(In thousands)
Extraction
Downstream distribution and refining
Mid-stream shipping and storage
Support activities
Total energy lending portfolio

Unfunded
commitments at
December 31, 2017
51,647
$
18,247
72,149
23,651
165,694

December 31,
2017

December 31,
2016
103,011
30,231
22,985
15,296
171,523

86,040 $
25,329
9,310
13,811
134,490 $

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Investment Securities Analysis

Investment securities are comprised of securities which are classified as available for sale, non-marketable, or trading. Total
investment securities (excluding unrealized gains/losses in fair value) decreased 9.1% during 2017 to $8.8 billion at year end 2017.
During 2017, securities of $1.9 billion were purchased in the available for sale and non-marketable portfolios, which included
$407.8 million in asset-backed securities, $995.9 million in agency mortgage-backed securities and $169.1 million in non-agency
mortgage-backed securities. Total sales, maturities and pay downs in these portfolios were $2.7 billion during 2017. During 2018,
maturities and pay downs of approximately $1.4 billion are expected to occur. The average tax equivalent yield earned on total
investment securities was 2.52% in 2017 and 2.43% in 2016.

At December 31, 2017, the fair value of available for sale securities was $8.8 billion, including a net unrealized gain in fair
value of $54.4 million, compared to a net unrealized gain of $48.9 million at December 31, 2016. The overall unrealized gain in
fair value at December 31, 2017 included net gains of $18.7 million in state and municipal securities and $44.3 million in equity
securities held by the Parent, partially offset by net losses of $5.8 million in agency mortgage-backed securities.

Available for sale investment securities at year end for the past two years are shown below:

(In thousands)

Amortized Cost

U.S. government and federal agency obligations

Government-sponsored enterprise obligations

State and municipal obligations

Agency mortgage-backed securities

Non-agency mortgage-backed securities

Asset-backed securities

Other debt securities

Equity securities

Total available for sale investment securities

Fair Value

U.S. government and federal agency obligations

Government-sponsored enterprise obligations

State and municipal obligations

Agency mortgage-backed securities

Non-agency mortgage-backed securities

Asset-backed securities

Other debt securities

Equity securities

December 31

2017

2016

917,494 $

408,266

1,592,707

3,046,701

903,920

1,495,380

350,988

4,411

919,904

450,448

1,778,684

2,674,964

1,054,446

2,389,176

327,030

5,678

8,719,867 $

9,600,330

917,147 $

406,363

1,611,366

3,040,913

905,793

1,492,800

351,060

48,838

920,904

449,998

1,778,214

2,685,931

1,055,639

2,381,301

325,953

51,263

Total available for sale investment securities

8,774,280 $

9,649,203

The available for sale portfolio includes agency mortgage-backed securities, which are collateralized bonds issued by agencies,
including FNMA, GNMA, FHLMC, FHLB, Federal Farm Credit Banks and FDIC. Non-agency mortgage-backed securities
totaled $905.8 million, at fair value, at December 31, 2017, and included $582.4 million collateralized by commercial mortgages
and $323.4 million collateralized by residential mortgages. Certain non-agency mortgage-backed securities are other-than-
temporarily impaired, and the processes for determining impairment and the related losses are discussed in Note 3 to the consolidated
financial statements.

At December 31, 2017, U.S. government obligations included $442.1 million in TIPS, and state and municipal obligations
included $17.0 million in auction rate securities, at fair value. Other debt securities include corporate bonds, notes and commercial
paper. Available for sale equity securities are mainly comprised of common stock held by the Parent which totaled $45.9 million
at December 31, 2017.

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The types of debt securities held in the available for sale security portfolio at year end 2017 are presented in the table below.

Additional detail by maturity category is provided in Note 3 to the consolidated financial statements.

Available for sale debt securities:

U.S. government and federal agency obligations

Government-sponsored enterprise obligations

State and municipal obligations

Agency mortgage-backed securities

Non-agency mortgage-backed securities

Asset-backed securities

Other debt securities

*Based on call provisions and estimated prepayment speeds.

December 31, 2017

Percent of
Total Debt
Securities

Weighted
Average
Yield

Estimated
Average
Maturity*

10.5%

1.24%

4.2 years

4.7

18.4

34.9

10.4

17.1

4.0

1.79

2.39

2.62

2.54

2.03

2.59

2.9

5.0

4.1

2.9

2.4

4.6

Non-marketable securities totaled $100.8 million at December 31, 2017 and $99.6 million at December 31, 2016. These include
Federal Reserve Bank stock and Federal Home Loan Bank (Des Moines) stock held by the bank subsidiary in accordance with
debt and regulatory requirements. These are restricted securities and are carried at cost. Also included are private equity investments,
most of which are held by a subsidiary qualified as a Small Business Investment Company. These investments are carried at
estimated fair value, but are not readily marketable. While the nature of these investments carries a higher degree of risk than the
normal lending portfolio, this risk is mitigated by the overall size of the investments and oversight provided by management, and
management believes the potential for long-term gains in these investments outweighs the potential risks.

Non-marketable securities at year end for the past two years are shown below:

(In thousands)

Federal Reserve Bank stock
Federal Home Loan Bank stock

Private equity investments in debt securities

Private equity investments in equity securities

Other equity securities

December 31

2017

2016

33,253 $
10,000

31,734

25,474

297

32,929
14,000

27,258

25,076

295

99,558

Total non-marketable investment securities

100,758 $

In addition to its holdings in the investment securities portfolio, the Company invests in long-term securities purchased under
agreements to resell, which totaled $700.0 million at December 31, 2017 and $725.0 million at December 31, 2016. These
investments mature in 2019 through 2021 and have fixed rates or variable rates that fluctuate with published indices. The
counterparties to these agreements are other financial institutions from whom the Company has accepted collateral of $712.9
million in marketable investment securities at December 31, 2017. The average rate earned on these agreements during 2017 was
1.72%.

The Company also holds offsetting repurchase and resale agreements totaling $650.0 million at December 31, 2017 and $550.0
million at December 31, 2016, which are further discussed in Note 18 to the consolidated financial statements. These agreements
involve the exchange of collateral under simultaneous repurchase and resale agreements with the same financial institution
counterparty. These repurchase and resale agreements have been offset against each other in the balance sheet, as permitted under
current accounting guidance. The agreements mature in 2018 through 2019 and earned an average of 53 basis points during 2017.

Deposits and Borrowings

Deposits are the primary funding source for the Bank and are acquired from a broad base of local markets, including both
individual and corporate customers. Total deposits were $20.4 billion at December 31, 2017, compared to $21.1 billion last year,
reflecting a decrease of $675.6 million, or 3.2%. Most of this decline occurred in the second and third quarters of 2017.

Average deposits grew by $263.9 million, or 1.3%, in 2017 compared to 2016, with most of this growth occurring in money
market deposits, which grew $196.5 million, or 2.0%. Interest checking and savings deposits also increased over the prior year,
while total certificates of deposits declined $139.6 million, or 6.3%. Non-interest bearing deposits increased on average by $126.6
40

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million, or 1.8%, driven by growth in government and personal demand deposits but partially offset by a decline in business
demand deposits.

The following table shows year end deposits by type as a percentage of total deposits.

Non-interest bearing
Savings, interest checking and money market
Time open and C.D.’s of less than $100,000
Time open and C.D.’s of $100,000 and over
Total deposits

December 31

2017

2016

35.1%
56.3
3.1
5.5
100.0%

35.2%
54.2
3.4
7.2
100.0%

Core deposits, which include non-interest bearing, interest checking, savings, and money market deposits, supported 77% of
average earning assets in both 2017 and 2016. Average balances by major deposit category for the last six years appear on page
56. A maturity schedule of time deposits outstanding at December 31, 2017 is included in Note 6 on Deposits in the consolidated
financial statements.

The Company’s primary sources of overnight borrowings are federal funds purchased and securities sold under agreements to
repurchase (repurchase agreements). Balances in these accounts can fluctuate significantly on a day-to-day basis and generally
have one day maturities. Total balances of federal funds purchased and repurchase agreements outstanding at December 31, 2017
were $1.5 billion, a $216.8 million decrease from the $1.7 billion balance outstanding at year end 2016. On an average basis,
these borrowings increased $196.3 million, or 15.5%, during 2017, mainly due to an increase of $201.8 million in repurchase
agreements. The average rate paid on total federal funds purchased and repurchase agreements was .67% during 2017 and .26%
during 2016.

The majority of the Company’s long-term debt has been comprised of fixed rate advances from the FHLB. These advances,
which totaled $100.0 million at December 31, 2016, were repaid by the Company in November 2017. The average rate paid on
FHLB advances was 3.55% and 2.32% during 2017 and 2016, respectively.

Liquidity and Capital Resources

Liquidity Management

Liquidity is managed within the Company in order to satisfy cash flow requirements of deposit and borrowing customers while
at the same time meeting its own cash flow needs. The Company has taken numerous steps to address liquidity risk and has
developed a variety of liquidity sources which it believes will provide the necessary funds for future growth. The Company
manages its liquidity position through a variety of sources including:

• A portfolio of liquid assets including marketable investment securities and overnight investments,

• A large customer deposit base and limited exposure to large, volatile certificates of deposit,

• Lower long-term borrowings that might place demands on Company cash flow,

• Relatively low loan to deposit ratio promoting strong liquidity,

• Excellent debt ratings from both Standard & Poor’s and Moody’s national rating services, and

• Available borrowing capacity from outside sources.

The Company’s most liquid assets include available for sale marketable investment securities, federal funds sold, balances at
the Federal Reserve Bank, and securities purchased under agreements to resell. At December 31, 2017 and 2016, such assets were
as follows:

(In thousands)

Available for sale investment securities

Federal funds sold

Long-term securities purchased under agreements to resell

Balances at the Federal Reserve Bank
Total

2017

2016

8,774,280 $

9,649,203

42,775

700,000

15,470

725,000

30,631
9,547,686 $

272,275
10,661,948

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Federal funds sold are funds lent to the Company’s correspondent bank customers with overnight maturities, and totaled $42.8
million at December 31, 2017. At December 31, 2017, the Company had lent funds totaling $700.0 million under long-term resale
agreements to other large financial institutions. The agreements mature in years 2019 through 2021. Under these agreements,
the Company holds marketable securities, safekept by a third-party custodian, as collateral. This collateral totaled $712.9 million
in fair value at December 31, 2017. Interest earning balances at the Federal Reserve Bank, which have overnight maturities and
are used for general liquidity purposes, totaled $30.6 million at December 31, 2017. The Company’s available for sale investment
portfolio includes scheduled maturities and expected pay downs of approximately $1.4 billion during 2018, and these funds offer
substantial resources to meet either new loan demand or help offset reductions in the Company’s deposit funding base. The
Company pledges portions of its investment securities portfolio to secure public fund deposits, repurchase agreements, trust funds,
letters of credit issued by the FHLB, and borrowing capacity at the Federal Reserve Bank. At December 31, 2017 and 2016, total
investment securities pledged for these purposes were as follows:

(In thousands)

2017

2016

Investment securities pledged for the purpose of securing:

Federal Reserve Bank borrowings

FHLB borrowings and letters of credit

Repurchase agreements *

Other deposits

Total pledged securities

Unpledged and available for pledging

Ineligible for pledging

84,946 $

13,332

2,001,401

1,679,024

3,778,703

3,346,826

1,648,751

115,858

17,781

2,447,835

1,773,017

4,354,491

3,516,648

1,778,064

Total available for sale securities, at fair value

8,774,280 $

9,649,203

* Includes securities pledged for collateral swaps, as discussed in Note 18 to the consolidated financial statements

Liquidity is also available from the Company’s large base of core customer deposits, defined as non-interest bearing, interest
checking, savings, and money market deposit accounts. At December 31, 2017, such deposits totaled $18.7 billion and represented
91.3% of the Company’s total deposits. These core deposits are normally less volatile, often with customer relationships tied to
other products offered by the Company promoting long lasting relationships and stable funding sources. Total core deposits
decreased $201.6 million at year end 2017 compared to year end 2016, with declines of $108.7 million in corporate core deposits
and $251.6 million in private banking deposits, offset by growth of $194.0 million in consumer deposits. The Company does not
consider the decline in core deposits to be significant, but should the decline in deposits continue in 2018, future funding
requirements will be met by the liquidity supplied by investment security maturities and pay downs, expected to total $1.4 billion
over the next year, as noted above. In addition, as shown on page 43, the Company has borrowing capacity of $3.4 billion through
advances from the FHLB and the Federal Reserve.

(In thousands)

Core deposit base:

Non-interest bearing

Interest checking

Savings and money market

Total

2017

2016

7,158,962 $

7,429,398

1,533,904

9,965,716

1,275,899

10,154,890

18,658,582 $

18,860,187

Time open and certificates of deposit of $100,000 or greater totaled $1.1 billion at December 31, 2017. These deposits are

normally considered more volatile and higher costing, and comprised 5.5% of total deposits at December 31, 2017.

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Other important components of liquidity are the level of borrowings from third party sources and the availability of future
credit. The Company’s outside borrowings are mainly comprised of federal funds purchased, repurchase agreements, and advances
from the FHLB, as follows:

(In thousands)
Borrowings:

Federal funds purchased
Repurchase agreements
FHLB advances
Other long-term debt

Total

2017

2016

202,370 $

1,304,768
—
1,758

52,840
1,671,065
100,000
2,049

1,508,896 $

1,825,954

Federal funds purchased, which totaled $202.3 million at December 31, 2017, are unsecured overnight borrowings obtained
mainly from upstream correspondent banks with which the Company maintains approved lines of credit. Retail repurchase
agreements are offered to customers wishing to earn interest in highly liquid balances and are used by the Company as a funding
source considered to be stable, but short-term in nature. Repurchase agreements are collateralized by securities in the Company’s
investment portfolio. Total repurchase agreements at December 31, 2017 were comprised of non-insured customer funds totaling
$1.3 billion, and securities pledged for these retail agreements totaled $1.3 billion. The Company's remaining FHLB advances
matured in 2017, bringing the long-term debt position to nearly zero.

The Company pledges certain assets, including loans and investment securities, to both the Federal Reserve Bank and the
FHLB as security to establish lines of credit and borrow from these entities. Based on the amount and type of collateral pledged,
the FHLB establishes a collateral value from which the Company may draw advances against the collateral. Additionally, this
collateral is used to enable the FHLB to issue letters of credit in favor of public fund depositors of the Company. The Federal
Reserve Bank also establishes a collateral value of assets pledged and permits borrowings from the discount window. The following
table reflects the collateral value of assets pledged, borrowings, and letters of credit outstanding, in addition to the estimated future
funding capacity available to the Company at December 31, 2017.

(In thousands)

Total collateral value pledged

Advances outstanding

Letters of credit issued

Available for future advances

December 31, 2017

FHLB

Federal Reserve

Total

2,566,135 $

1,347,778 $

3,913,913

—

(498,410)

—

(498,410)

2,067,725 $

1,347,778 $

3,415,503

The Company’s average loans to deposits ratio was 66.2% at December 31, 2017, which is considered in the banking industry
to be a measure of strong liquidity. Also, the Company receives outside ratings from both Standard & Poor’s and Moody’s on both
the consolidated company and its subsidiary bank, Commerce Bank. These ratings are as follows:

Commerce Bancshares, Inc.

Issuer rating

Preferred stock

Rating outlook

Commerce Bank

Issuer rating

Baseline credit assessment

Short-term rating

Rating outlook

Standard &
Poor’s

Moody’s

A-

BBB-

Stable

A-1

Stable

Baa1

Stable

P-1

Stable

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The Company considers these ratings to be indications of a sound capital base and strong liquidity and believes that these
ratings would help ensure the ready marketability of its commercial paper, should the need arise. No commercial paper has been
outstanding during the past ten years. The Company has no subordinated or hybrid debt instruments which would affect future
borrowing capacity. Because of its lack of significant long-term debt, the Company believes that, through its Capital Markets
Group or in other public debt markets, it could generate additional liquidity from sources such as jumbo certificates of deposit,
privately-placed corporate notes or other forms of debt.

The cash flows from the operating, investing and financing activities of the Company resulted in a net decrease in cash and
cash equivalents of $270.6 million in 2017, as reported in the consolidated statements of cash flows on page 64 of this report.
Operating activities, consisting mainly of net income adjusted for certain non-cash items, provided cash flow of $433.2 million
and has historically been a stable source of funds. Investing activities provided total cash of $220.7 million, mainly from sales
and maturities (net of purchases) of available for sale investment securities, offset by an increase in the loan portfolio. Activity
in the investment securities portfolio provided cash of $838.2 million, while growth in the loan portfolio used cash of $614.8
million. Net repayments of long-term resale agreements provided additional cash of $25.0 million. Investing activities are somewhat
unique to financial institutions in that, while large sums of cash flow are normally used to fund growth in investment securities,
loans, or other bank assets, they are normally dependent on the financing activities described below.

During 2017, financing activities used total cash of $924.5 million, primarily resulting from a $489.1 million decrease in
deposits, a $216.8 decrease in borrowings of federal funds purchased and repurchase agreements, and a $100.0 million decline in
FHLB borrowings. Cash dividend payments of $100.6 million were paid on common and preferred stock, while treasury stock
purchases totaled $17.8 million. Future short-term liquidity needs for daily operations are not expected to vary significantly, and
the Company believes it maintains adequate liquidity to meet these cash flows. The Company’s sound equity base, along with its
low debt level, common and preferred stock availability, and excellent debt ratings, provide several alternatives for future financing.
Future acquisitions may utilize partial funding through one or more of these options.

Cash flows resulting from the Company’s transactions in its common and preferred stock were as follows:

(In millions)

Exercise of stock-based awards

Purchases of treasury stock

Accelerated share repurchase agreements

Common cash dividends paid

Preferred cash dividends paid

Cash used

2017

2016

2015

— $

(17.8)

—

(91.6)

(9.0)

(39.4)

—

(87.1)

(9.0)

(118.4) $

(135.5) $

1.9

(23.2)

(100.0)

(85.0)

(9.0)

(215.3)

The Parent faces unique liquidity constraints due to legal limitations on its ability to borrow funds from its bank subsidiary.
The Parent obtains funding to meet its obligations from two main sources: dividends received from bank and non-bank subsidiaries
(within regulatory limitations) and management fees charged to subsidiaries as reimbursement for services provided by the Parent,
as presented below:

(In millions)

Dividends received from subsidiaries

Management fees

Total

2017

2016

2015

160.0 $
30.4

190.4 $

160.0 $
31.0

191.0 $

160.0
25.7

185.7

These sources of funds are used mainly to pay cash dividends on outstanding stock, pay general operating expenses, and
purchase treasury stock. At December 31, 2017, the Parent’s available for sale investment securities totaled $53.3 million at fair
value, consisting of common and preferred stock and non-agency backed collateralized mortgage obligations. To support its
various funding commitments, the Parent maintains a $20.0 million line of credit with its subsidiary bank. There were no borrowings
outstanding under the line during 2017 or 2016.

Company senior management is responsible for measuring and monitoring the liquidity profile of the organization with oversight
by the Company’s Asset/Liability Committee. This is done through a series of controls, including a written Contingency Funding
Policy and risk monitoring procedures, which include daily, weekly and monthly reporting. In addition, the Company prepares
forecasts to project changes in the balance sheet affecting liquidity and to allow the Company to better plan for forecasted changes.

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Capital Management

Under Basel III capital guidelines, at December 31, 2017 and 2016, the Company met all capital adequacy requirements and

had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as shown in the following table.

(Dollars in thousands)

Risk-adjusted assets

Tier I common risk-based capital

Tier I risk-based capital

Total risk-based capital

2017

2016

$ 19,149,949

18,994,730

2,422,480

2,567,264

2,747,863

2,207,370

2,352,154

2,529,675

Minimum Ratios
under Capital
Adequacy
Guidelines*

Minimum Ratios
for Well-
Capitalized
Banks**

Tier I common risk-based capital ratio

12.65%

11.62%

7.00%

6.50%

Tier I risk-based capital ratio

Total risk-based capital ratio

Tier I leverage ratio

Tangible common equity to tangible assets

Dividend payout ratio

13.41

14.35

10.39

9.84

29.52

12.38

13.32

9.55

8.66

32.69

8.50

10.50

4.00

8.00

10.00

5.00

* as of the fully phased-in date of Jan. 1, 2019, including capital conservation buffer
**under Prompt Corrective Action requirements

The Company maintains a treasury stock buyback program under authorizations by its Board of Directors and periodically
purchases stock in the open market. During 2015, the Company purchased 4.2 million shares, comprised of 3.6 million shares
purchased under accelerated share repurchase agreements and 535 thousand shares acquired through market purchases. During
2016 and 2017, respectively, the Company purchased 959 thousand and 315 thousand shares through market purchases. At
December 31, 2017, 3.4 million shares remained available for purchase under the current Board authorization.

The Company’s common stock dividend policy reflects its earnings outlook, desired payout ratios, the need to maintain adequate
capital levels and alternative investment options. Per share cash dividends paid by the Company increased 5% in 2017 compared
with 2016, and the Company increased its first quarter 2018 cash dividend by nearly 10%. The Company also distributed its 24th
consecutive annual 5% stock dividend in December 2017.

Commitments, Contractual Obligations, and Off-Balance Sheet Arrangements

In the normal course of business, various commitments and contingent liabilities arise which are not required to be recorded
on the balance sheet. The most significant of these are loan commitments totaling $10.8 billion (including approximately $5.1
billion in unused approved credit card lines) and the contractual amount of standby letters of credit totaling $387.8 million at
December 31, 2017. As many commitments expire unused or only partially used, these totals do not necessarily reflect future
cash requirements. Management does not anticipate any material losses arising from commitments or contingent liabilities and
believes there are no material commitments to extend credit that represent risks of an unusual nature.

A table summarizing contractual cash obligations of the Company at December 31, 2017 and the expected timing of these

payments follows:

(In thousands)
Long-term debt obligations*
Operating lease obligations
Purchase obligations
Time open and C.D.’s *
Total

* Includes principal payments only.

Payments Due by Period

In One Year or
Less

After One Year
Through Three
Years

After Three Years
Through Five
Years

300 $

6,196
69,273
1,414,554
1,490,323 $

633 $

8,844
107,859
290,754
408,090 $

668 $

5,854
62,837
59,504
128,863 $

After Five Years
157
13,383
5,471
2,052
21,063

Total

1,758
34,277
245,440
1,766,864
2,048,339

The Company funds a defined benefit pension plan for a portion of its employees. Under the funding policy for the plan,
contributions are made as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a reasonable

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period. During 2017, the Company made a discretionary contribution of $5.5 million to its defined benefit pension plan in order
to reduce pension guarantee premiums. However, the Company is not required nor does it expect to make a contribution in 2018.

The Company has investments in several low-income housing partnerships within the areas it serves. These partnerships
supply funds for the construction and operation of apartment complexes that provide affordable housing to that segment of the
population with lower family income. If these developments successfully attract a specified percentage of residents falling in that
lower income range, federal (and sometimes state) income tax credits are made available to the partners. The tax credits are
normally recognized over ten years, and they play an important part in the anticipated yield from these investments. In order to
continue receiving the tax credits each year over the life of the partnership, the low-income residency targets must be maintained.
Under the terms of the partnership agreements, the Company has a commitment to fund a specified amount that will be due in
installments over the life of the agreements, which ranges from 10 to 15 years. At December 31, 2017, the investments totaled
$36.5 million and are recorded as other assets in the Company’s consolidated balance sheet. Unfunded commitments, which are
recorded as liabilities, amounted to $27.4 million at December 31, 2017.

The Company regularly purchases various state tax credits arising from third-party property redevelopment. These credits are
either resold to third parties or retained for use by the Company. During 2017, purchases and sales of tax credits amounted to
$70.9 million and $47.1 million, respectively. Fees from the sales of tax credits were $3.3 million, $3.1 million and $2.2 million
in 2017, 2016 and 2015, respectively. At December 31, 2017, the Company had outstanding purchase commitments totaling
$114.9 million that it expects to fund in 2018.

Interest Rate Sensitivity

The Company’s Asset/Liability Management Committee (ALCO) measures and manages the Company’s interest rate risk on
a monthly basis to identify trends and establish strategies to maintain stability in net interest income throughout various rate
environments. Analytical modeling techniques provide management insight into the Company’s exposure to changing rates. These
techniques include net interest income simulations and market value analysis. Management has set guidelines specifying acceptable
limits within which net interest income and market value may change under various rate change scenarios. These measurement
tools indicate that the Company is currently within acceptable risk guidelines as set by management.

The Company’s main interest rate measurement tool, income simulations, projects net interest income under various rate change
scenarios in order to quantify the magnitude and timing of potential rate-related changes. Income simulations are able to capture
option risks within the balance sheet where expected cash flows may be altered under various rate environments. Modeled rate
movements include “shocks, ramps and twists.” Shocks are intended to capture interest rate risk under extreme conditions by
immediately shifting rates up and down, while ramps measure the impact of gradual changes and twists measure yield curve risk.
The size of the balance sheet is assumed to remain constant so that results are not influenced by growth predictions.

The Company also employs a sophisticated simulation technique known as a stochastic income simulation. This technique
allows management to see a range of results from hundreds of income simulations. The stochastic simulation creates a vector of
potential rate paths around the market’s best guess (forward rates) concerning the future path of interest rates and allows rates to
randomly follow paths throughout the vector. This allows for the modeling of non-biased rate forecasts around the market consensus.
Results give management insight into a likely range of rate-related risk as well as worst and best-case rate scenarios.

Additionally, the Company uses market value analyses to help identify longer-term risks that may reside on the balance sheet.
This is considered a secondary risk measurement tool by management. The Company measures the market value of equity as the
net present value of all asset and liability cash flows discounted along the current swap curve plus appropriate market risk spreads.
It is the change in the market value of equity under different rate environments, or effective duration, that gives insight into the
magnitude of risk to future earnings due to rate changes. Market value analyses also help management understand the price
sensitivity of non-marketable bank products under different rate environments.

The tables below compute the effects of gradual rising interest rates over a twelve month period on the Company’s net interest
income, assuming a static balance sheet with the exception of deposit attrition. The difference between the two simulations is the
amount of deposit attrition incorporated, which is shown in the tables below. In both simulations, three rising rate scenarios were
selected as shown in the tables, and net interest income was calculated and compared to a base scenario in which assets, liabilities
and rates remained constant over a twelve month period. For each of the simulations, interest rates applicable to each interest
earning asset or interest bearing liability were ratably increased during the year (by either 100, 200 or 300 basis points). The
balances contained in the balance sheet were assumed not to change over the twelve month period, except that as presented in the
tables below, it was assumed certain non-maturity type deposit attrition would occur, as a result of higher interest rates, and would
be replaced with short-term federal funds borrowings.

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The simulations reflect two different assumptions related to deposit attrition. The Company utilizes these simulations both for
monitoring interest rate risk and for liquidity planning purposes. While the future effects of rising rates on deposit balances cannot
be known, the Company maintains a practice of running multiple rate scenarios to better understand interest rate risk and its effect
on the Company’s performance. The Company believes that its approach to interest rate risk has appropriately considered its
susceptibility to both rising rates and falling rates and has adopted strategies which minimize impacts to overall interest rate risk.

Simulation A

December 31, 2017

September 30, 2017

(Dollars in millions)

$ Change in
Net Interest
Income

% Change in
Net Interest
Income

Assumed
Deposit
Attrition

$ Change in
Net Interest
Income

% Change in
Net Interest
Income

Assumed
Deposit
Attrition

300 basis points rising

200 basis points rising

100 basis points rising

3.4

6.2

4.9

.45% $

(346.2)

.82

.65

(241.8)

(124.3)

10.4

10.7

7.1

1.41% $

(356.9)

1.45

.96

(246.5)

(125.7)

Simulation B

December 31, 2017

September 30, 2017

(Dollars in millions)

$ Change in
Net Interest
Income

% Change in
Net Interest
Income

Assumed
Deposit
Attrition

$ Change in
Net Interest
Income

% Change in
Net Interest
Income

Assumed
Deposit
Attrition

300 basis points rising

(18.0)

(2.36)% $

(1,060.3)

(10.8)

(1.45)% $

(1,122.0)

200 basis points rising

(12.3)

(1.62)

100 basis points rising

(10.7)

(1.40)

(956.9)

(841.5)

(7.3)

(7.6)

(.98)

(1.03)

(1,013.2)

(895.2)

The difference in these two simulations is the degree to which deposits are modeled to decline as noted in the above table.
Both simulations assume that a decline in deposits would be offset by increased short-term borrowings, which are more rate
sensitive and can result in higher interest costs in a rising rate environment. Under Simulation A, a gradual increase in interest
rates of 100 basis points is expected to increase net interest income from the base calculation by $4.9 million, while a gradual
increase in rates of 200 basis points would increase net interest income by $6.2 million. An increase in rates of 300 basis points
would result in an increase in net interest income of $3.4 million. As rates rise, the increase in net interest income from the base
calculation at December 31, 2017 was lower than projections made at September 30, 2017 largely due to higher rates and balances
of federal funds purchased and repurchase agreements and higher rates on deposits, which increased interest expense and lowered
net interest income projections for the fourth quarter of 2017 compared to the prior quarter. In addition, interest income projected
on investment securities at December 31, 2017 declined when compared to projections at September 30, 2017, due to lower
investment securities balances and fewer variable rate securities, making the portfolio less rate sensitive in a rising rate environment.

Under Simulation B, the same assumptions utilized in Simulation A were applied. However, in Simulation B, deposit attrition
was accelerated to consider the effects that large deposit outflows might have on net interest income and liquidity planning purposes.
The effect of higher deposit attrition was that greater reliance was placed on short-term borrowings at higher rates, which are more
rate sensitive. As shown in the table, under these assumptions, net interest income in Simulation B was significantly lower than
in Simulation A, reflecting higher costs for short-term borrowings.

Projecting deposit activity in a historically low interest rate environment is difficult, and the Company cannot predict how
deposits will react to rising rates. The comparison provided above provides insight into potential effects of changes in rates and
deposit levels on net interest income.

Derivative Financial Instruments

The Company maintains an overall interest rate risk management strategy that permits the use of derivative instruments to
modify exposure to interest rate risk. The Company’s interest rate risk management strategy includes the ability to modify the re-
pricing characteristics of certain assets and liabilities so that changes in interest rates do not adversely affect the net interest margin
and cash flows. Interest rate swaps may be used on a limited basis as part of this strategy. The Company also sells interest rate
swap contracts to customers who wish to modify their interest rate sensitivity. The Company offsets the interest rate risk of these
swaps by purchasing matching contracts with offsetting pay/receive rates from other financial institutions. These paired swap
contracts comprised the Company's swap portfolio at December 31, 2017 with a total notional amount of $1.7 billion.

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Credit risk participation agreements arise when the Company contracts, as a guarantor or beneficiary, with other financial
institutions to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses
resulting from a third party default on the underlying swap.

The Company enters into foreign exchange derivative instruments as an accommodation to customers and offsets the related
foreign exchange risk by entering into offsetting third-party forward contracts with approved, reputable counterparties. This
trading activity is managed within a policy of specific controls and limits. The foreign exchange contracts outstanding at December
31, 2017 mature within the next one to nine months.

The Company began selling new originations of certain long-term residential mortgage loans in early 2015. Derivative
instruments arising from this activity include mortgage loan commitments and forward loan sale contracts. Changes in the fair
values of the loan commitments and funded loans prior to sale that are due to changes in interest rates are economically hedged
with forward contracts to sell residential mortgage-backed securities in the to-be-announced (TBA) market. These TBA forward
contracts, which are settled in cash at the security settlement date, are also derivatives.

In all of these contracts, the Company is exposed to credit risk in the event of nonperformance by counterparties, who may be
bank customers or other financial institutions. The Company controls the credit risk of its financial contracts through credit
approvals, limits and monitoring procedures. Because the Company generally enters into transactions only with high quality
counterparties, there have been no losses associated with counterparty nonperformance on derivative financial instruments.

The following table summarizes the notional amounts and estimated fair values of the Company’s derivative instruments at
December 31, 2017 and 2016. Notional amount, along with the other terms of the derivative, is used to determine the amounts to
be exchanged between the counterparties. Because the notional amount does not represent amounts exchanged by the parties, it
is not a measure of loss exposure related to the use of derivatives nor of exposure to liquidity risk.

(In thousands)

Notional
Amount

Positive Fair
Value

Negative Fair
Value

Notional
Amount

Positive Fair
Value

Negative Fair
Value

Interest rate swaps

$ 1,741,412

7,674

(7,857)

$ 1,685,099

12,987

(12,987)

2017

2016

Interest rate caps
Credit risk participation
agreements
Foreign exchange contracts

Mortgage loan commitments
Mortgage loan forward sale
contracts
Forward TBA contracts
Total at December 31

Operating Segments

31,776

133,488

11,826

17,110

2,566

580

25,000
$ 1,963,178

4
8,349

(16)

(123)

(40)

—

(7)

(31)
(8,074)

59,379

121,514

4,046

12,429

6,626

355

—

(78)

(156)

(4)

(6)

(63)

15,000
$ 1,904,093

15
13,566

(45)
(13,339)

The Company segregates financial information for use in assessing its performance and allocating resources among three
operating segments. The results are determined based on the Company’s management accounting process, which assigns balance
sheet and income statement items to each responsible segment. These segments are defined by customer base and product type.
The management process measures the performance of the operating segments based on the management structure of the Company
and is not necessarily comparable with similar information for any other financial institution. Each segment is managed by
executives who, in conjunction with the Chief Executive Officer, make strategic business decisions regarding that segment. The
three reportable operating segments are Consumer, Commercial and Wealth. Additional information is presented in Note 12 on
Segments in the consolidated financial statements.

The Company uses a funds transfer pricing method to value funds used (e.g., loans, fixed assets, cash, etc.) and funds provided
(deposits, borrowings, and equity) by the business segments and their components. This process assigns a specific value to each
new source or use of funds with a maturity, based on current swap rates, thus determining an interest spread at the time of the
transaction. Non-maturity assets and liabilities are valued using weighted average pools. The funds transfer pricing process
attempts to remove interest rate risk from valuation, allowing management to compare profitability under various rate environments.
The Company also assigns loan charge-offs and recoveries (labeled in the table below as “provision for loan losses”) directly to
each operating segment instead of allocating an estimated loan loss provision. The operating segments also include a number of
allocations of income and expense from various support and overhead centers within the Company.

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The table below is a summary of segment pre-tax income results for the past three years.

(Dollars in thousands)

Consumer

Commercial

Wealth

Segment Totals

Other/
Elimination

Consolidated
Totals

Year ended December 31, 2017:

Net interest income

Provision for loan losses

Non-interest income

Investment securities gains, net

Non-interest expense

Income before income taxes

Year ended December 31, 2016:

Net interest income

Provision for loan losses

Non-interest income

Investment securities losses, net

279,031

328,345

47,264

654,640

79,039

733,679

(41,829)

136,554

—

205

(41)

194,581

158,175

—

(41,665)

489,310

—

(290,905)

(290,874)

(120,458)

(702,237)

82,851

268,654

(36,042)

131,988

—

232,257

311,704

4,378

199,384

—

84,940

44,113

(122)

144,661

—

400,048

624,471

(31,786)

476,033

—

(3,579)

(2,706)

25,051

(67,447)

30,358

55,578

(4,532)

(1,641)

(53)

(45,244)

486,604

25,051

(769,684)

430,406

680,049

(36,318)

474,392

(53)

Non-interest expense

(282,061)

(284,432)

(113,888)

(680,381)

(36,684)

(717,065)

Income before income taxes

82,539

231,034

74,764

388,337

12,668

401,005

2017 vs 2016
Increase in income before income
taxes:
Amount

312

1,223

10,176

11,711

17,690

29,401

Percent

.4%

.5%

13.6%

3.0%

N.M.

7.3%

Year ended December 31, 2015:

Net interest income

Provision for loan losses

Non-interest income

Investment securities gains, net

266,328

296,510

42,653

605,491

28,829

634,320

(34,864)

119,561

—

1,032

194,133

—

136,374

—

(33,757)

450,068

—

5,030

(1,929)

6,320

(28,727)

448,139

6,320

Non-interest expense

(273,378)

(267,343)

(108,755)

(649,476)

(27,011)

(676,487)

Income before income taxes

77,647

224,332

70,347

372,326

11,239

383,565

2016 vs 2015
Increase in income before income
taxes:
Amount

Percent

Consumer

4,892

6,702

4,417

16,011

1,429

17,440

6.3 %

3.0 %

6.3 %

4.3 %

12.7%

4.5 %

The Consumer segment includes consumer deposits, consumer finance, and consumer debit and credit cards. During 2017,
income before income taxes for the Consumer segment increased $312 thousand, or .4%, compared to 2016. This increase was
mainly due to growth of $10.4 million, or 3.9%, in net interest income and an increase in non-interest income of $4.6 million, or
3.5%. Net interest income increased due to a $9.7 million increase in net allocated funding credits assigned to the Consumer
segment's loan and deposit portfolios and a $670 thousand increase in loan interest income. Non-interest income increased mainly
due to growth in deposit fees (mainly deposit account service fees and overdraft and return item fees) and bank card fees. These
increases to income were partly offset by growth of $8.8 million, or 3.1%, in non-interest expense and $5.8 million in the provision
for loan losses. Non-interest expense increased over the prior year due to an increase in full-time salaries expense and higher
allocated support costs, mainly administrative, online banking and information technology. These increases were partly offset by
lower bank card processing costs, mainly the result of a new vendor contract negotiated in the third quarter of 2017, while bank
card rewards expense was higher. In addition, supplies expense decreased due to higher chip card reissue costs last year that have
now declined. The provision for loan losses totaled $41.8 million, a $5.8 million increase over the prior year, which was mainly
due to higher net charge-offs on consumer credit card loans. Total average loans in this segment decreased $62.0 million, or 2.4%,
in 2017 compared to the prior year mainly due to a decline in marine and RV loans. Average deposits increased $234.3 million,
or 2.4%, over the prior year, resulting from growth in money market deposit accounts, partly offset by a decline in certificate of
deposit balances.

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Pre-tax profitability for 2016 was $82.5 million, an increase of $4.9 million, or 6.3%, compared to 2015. This increase was
mainly due to growth of $2.3 million in net interest income and an increase in non-interest income of $12.4 million, or 10.4%.
Net interest income increased due to a $4.3 million increase in net allocated funding credits, partly offset by a $2.2 million decline
in loan interest income. Non-interest income increased due to growth in mortgage banking revenue, deposit account service fees
and bank card fees. These increases to income were partly offset by growth of $8.7 million, or 3.2%, in non-interest expense and
$1.2 million in the provision for loan losses. Non-interest expense increased over the prior year due to higher bank card processing
costs, bank card rewards expense, and supplies expense. Supplies expense increased over the prior year largely due to higher
reissuance costs for new chip cards distributed to customers. In addition, higher costs were incurred for allocated support and
servicing, while bank card fraud losses declined from the prior year. The provision for loan losses totaled $36.0 million, a $1.2
million increase over the prior year, which was mainly due to higher net charge-offs on credit card and other consumer loans,
partly offset by lower marine and RV loan net charge-offs. Total average loans in this segment increased $33.5 million, or 1.3%,
in 2016 compared to the prior year due to growth in auto lending, partly offset by declines in marine and RV loans. Average
deposits increased $288.4 million, or 3.0%, over the prior year, resulting from growth in money market deposit accounts, partly
offset by lower balances in certificates of deposit.

Commercial

The Commercial segment provides corporate lending (including the Small Business Banking product line within the branch
network), leasing, international services, and business, government deposit, and related commercial cash management services,
as well as merchant and commercial bank card products. The segment includes the Capital Markets Group, which sells fixed-
income securities to individuals, corporations, correspondent banks, public institutions, and municipalities, and also provides
investment safekeeping and bond accounting services. Pre-tax income for 2017 increased $1.2 million, or .5%, compared to
2016, mainly due to an increase in net interest income, partly offset by lower non-interest income, higher non-interest expense
and an increase in the provision for loan losses. Net interest income increased $16.6 million, or 5.3%, due to growth of $45.9
million in loan interest income, partly offset by a decrease of $18.5 million in net allocated funding credits. In addition, customer
repurchase agreement interest expense increased $5.5 million and deposit interest expense increased $5.2 million. The provision
for loan losses increased $4.2 million over last year, as construction loan and business real estate loan net recoveries were lower
by $2.5 million and $1.1 million, respectively. Non-interest income decreased $4.8 million, or 2.4%, from the previous year due
to lower interest rate swap fees and capital market fees. Non-interest expense increased $6.4 million, or 2.3%, during 2017, mainly
due to increases in full-time salaries expense and allocated support costs, partly offset by lower bank card processing costs. Average
segment loans increased $562.5 million, or 7.0%, compared to 2016, with growth occurring in commercial and industrial,
construction, and business real estate loans. Average deposits increased $57.6 million, or .7%, due to growth in governmental
demand deposit accounts, partly offset by declines in certificates of deposit, money market deposit accounts, and business demand
deposits.

In 2016, pre-tax income increased $6.7 million, or 3.0%, compared to 2015, mainly due to increases in net interest income
and non-interest income, partly offset by higher non-interest expense. Net interest income increased $15.2 million, or 5.1%, due
to growth of $34.6 million in loan interest income, partly offset by a decrease of $14.3 million in net allocated funding credits and
higher deposit interest expense of $3.7 million. The provision for loan losses decreased $3.3 million from last year, as construction
loan and business real estate loan net recoveries were higher by $2.5 million and $1.1 million, respectively, while business loan
net charge-offs increased $1.0 million. Non-interest income increased $5.3 million, or 2.7%, over the previous year due to growth
in bank card fees, corporate cash management fees, swap fees, and cash sweep commissions. These increases were partly offset
by declines in operating lease revenue and capital market fees. Non-interest expense increased $17.1 million, or 6.4%, during
2016, mainly due to higher full-time and incentive salary costs and allocated support costs. Also contributing to higher non-
interest expense was a recovery of $2.8 million in 2015 related to a letter of credit exposure which had been drawn upon and
subsequently paid off. These increases were partly offset by a decline in operating lease asset depreciation. Average segment
loans increased $947.2 million, or 13.3%, compared to 2015, with most of the growth in commercial and industrial, construction,
business real estate and tax-advantaged loans. Average deposits increased $692.8 million, or 9.2.%, due to growth in business
and governmental demand deposit accounts, money market deposit accounts and certificates of deposit greater than $100,000.

Wealth

The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment management services,
brokerage services, and includes Private Banking accounts. At December 31, 2017, the Trust group managed investments with a
market value of $30.0 billion and administered an additional $18.8 billion in non-managed assets. It also provides investment
management services to The Commerce Funds, a series of mutual funds with $2.5 billion in total assets at December 31, 2017.
In 2017, pre-tax income for the Wealth segment was $84.9 million, compared to $74.8 million in 2016, an increase of $10.2 million,
or 13.6%. Net interest income increased $3.2 million, or 7.1%, due to a $5.1 million increase in loan interest income, partly offset
by a $2.1 million decline in net allocated funding credits. Non-interest income increased $13.5 million, or 9.3%, over the prior

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year largely due to higher personal and institutional trust fees, brokerage revenue and cash sweep fees, partly offset by a trust
related settlement recorded in 2016. Non-interest expense increased $6.6 million, or 5.8%, resulting from higher incentive
compensation and allocated support costs. The provision for loan losses decreased $81 thousand, mainly due to lower charge-
offs on revolving home equity loans. Average assets increased $101.6 million, or 9.1%, during 2017 mainly due to higher personal
real estate and consumer loans. Average deposits increased $5.6 million, or .3%, due to growth in money market deposit accounts
and business demand deposits, partly offset by a decline in long-term certificates of deposit over $100,000.

In 2016, pre-tax income for the Wealth segment was $74.8 million, compared to $70.3 million in 2015, an increase of $4.4
million, or 6.3%. Net interest income increased $1.5 million, or 3.4%, due to a $2.5 million increase in loan interest income and
a decline of $412 thousand in deposit interest expense, partly offset by a $1.4 million decline in net allocated funding credits.
Non-interest income increased $8.3 million, or 6.1%, over the prior year largely due to higher personal and institutional trust fees,
cash sweep fees and a trust related settlement. Non-interest expense increased $5.1 million, or 4.7%, resulting from higher full-
time salary costs and incentive compensation. The provision for loan losses increased $197 thousand, mainly due to higher charge-
offs on revolving home equity loans. Average assets increased $78.9 million, or 7.6%, during 2016 mainly due to higher personal
real estate and consumer loans. Average deposits increased $28.8 million, or 1.4%, due to growth in money market deposit
accounts, partly offset by a decline in long-term certificates of deposit over $100,000.

The segment activity, as shown above, includes both direct and allocated items. Amounts in the “Other/Elimination” column
include activity not related to the segments, such as certain administrative functions, the investment securities portfolio, and the
effect of certain expense allocations to the segments. Also included in this category is the difference between the Company’s
provision for loan losses and net loan charge-offs, which are generally assigned directly to the segments. In 2017, the pre-tax
income in this category was $30.4 million, compared to $12.7 million in 2016. This increase was due to higher unallocated net
interest income of $23.5 million, which was offset by higher unallocated non-interest expense of $30.8 million. Non-interest
expense included contributions to a related charitable foundation, which are not allocated to the segments. These contributions
totaled $32.0 million in 2017 compared to $1.4 million in 2016. Unallocated securities gains were $25.1 million in 2017, compared
to securities losses of $53 thousand in 2016. Also, the unallocated loan loss provision decreased $953 thousand, as the total
provision was $4.4 million in excess of charge-offs in 2016 compared to $3.6 million in excess of charge-offs in 2017.

Impact of Recently Issued Accounting Standards

Derivatives In March 2016, the FASB issued ASU 2016-05, "Effect of Derivative Contract Novations on Existing Hedge
Accounting Relationships", which clarifies that a change in the counterparty to a derivative instrument that has been designated
as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge
accounting criteria continue to be met. The amendments were effective January 1, 2017 and did not have a significant effect on
the Company's consolidated financial statements.

The FASB issued ASU 2016-06, "Contingent Put and Call Options in Debt Instruments", in March 2016. The ASU clarifies
the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments
are clearly and closely related to their debt hosts. Under the new guidance, the embedded options should be assessed solely in
accordance with a four-step decision sequence, with no additional assessment of whether the triggering event is indexed to interest
rates or credit risk. The amendments were effective January 1, 2017 and did not have a significant effect on the Company's
consolidated financial statements.

The FASB issued ASU 2017-12, "Targeted Improvements to Accounting for Hedging Activities", in August 2017. The ASU
improves the financial reporting of hedging relationships to better portray the economic results of an entity's risk management
activities in its financial statements. These improvements allow the hedging of risk components, ease restrictions on the
measurement of the change in fair value of the hedged item, aligns the recognition and presentation of the effects of the hedging
instrument and the hedged item, and otherwise simplify hedge accounting guidance. The amendments are effective January 1,
2019 but may be adopted early in any interim period. The Company adopted the ASU on January 1, 2018, but as the Company
does not currently apply hedge accounting, the Company's consolidated financial statements were not affected by the adoption.
The hedging improvements in the new guidance will be considered in the development of risk management strategies in the future.

Investments The FASB issued ASU 2016-07, "Equity Method and Joint Ventures", in March 2016, which eliminates the
requirement that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity
method as a result of an increase in ownership or influence. Instead, the cost of acquiring the additional interest should be added
to the current basis of the previously held interest, and equity method accounting applied prospectively. The amendments were
effective January 1, 2017 and did not have a significant effect on the Company's consolidated financial statements.

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Stock Compensation The FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting", in
March 2016, in order to reduce complexity in this area and improve the usefulness of information provided to users. Amendments
which affected public companies included the recognition of excess tax benefits and deficiencies in income tax expense or benefit
in the income statement, guidance as to the classification of excess tax benefits on the statement of cash flows, an election to
account for award forfeitures as they occur, and the ability to withhold taxes up to the maximum statutory rate in the applicable
jurisdictions without triggering liability classification of the award. The amendments were effective January 1, 2017. As further
discussed in Note 10 to the consolidated financial statements, the Company elected to account for forfeitures as they occur.

Consolidation The FASB issued ASU 2016-17, "Interests Held through Related Parties That Are under Common Control",
in October 2016. The ASU amends current guidance on how a reporting entity that is the single decision maker of a variable
interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with
the reporting entity when determining whether it is the primary beneficiary of that VIE. Current GAAP requires a single decision
maker to attribute indirect interests held by certain of its related parties entirely to itself, while the amendments require inclusion
of those interests on a proportionate basis consistent with indirect interests held through other related parties. The amendments
were effective January 1, 2017 and did not have a significant effect on the Company's consolidated financial statements.

Revenue from Contracts with Customers The FASB issued ASU 2014-09, "Revenue from Contracts with Customers", in
May 2014, which has been followed by additional clarifying guidance on specified implementation issues. The ASU supersedes
revenue recognition requirements in Topic 605, Revenue Recognition, including most industry specific revenue recognition
guidance in the FASB Accounting Standards Codification. The core principle of the new guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. The guidance identifies specific steps that entities should
apply in order to achieve this principle. Under the ASU and related amendments, the guidance is effective for interim and annual
periods beginning January 1, 2018 and must be applied retrospectively, whether through a full restatement of prior periods or a
cumulative adjustment upon adoption of the ASU.

Approximately 60% of the Company’s revenue is comprised of net interest income on financial assets and financial liabilities,
and is explicitly out of scope of the guidance. The Company has identified the primary contracts in scope as those relating to
brokerage commissions, trust fees, deposit account fees, real estate sales, and credit card revenues. The Company has completed
an extensive review of these areas and has concluded that the new guidance does not require any significant change in the revenue
recognition process. However, as a result of the review, the Company believes it appropriate to classify certain charges, currently
classified as expense, as a reduction of revenue. These are primarily network charges and rewards expense that relate to the
Company's bank card products, which approximated $25 million during 2017. In order to provide comparability between periods,
the Company plans to adopt the ASU in 2018 on a full retrospective basis, with the only change to prior periods being the
reclassification of these charges. Prior period net income will not be affected by the adoption. In future periods, expanded
disclosures will be required in order to provide additional understanding of these revenue streams, including disaggregation of
total revenue and information about performance obligations, key judgments, estimates and policy decisions regarding revenue
recognition.

Liabilities The FASB issued ASU 2016-04, "Recognition of Breakage for Certain Prepaid Stored-Value Products", in March
2016, in order to address current and potential future diversity in practice related to the derecognition of a prepaid stored-value
product liability. Such products include prepaid gift cards issued on a specific payment network and redeemable at network-
accepting merchant locations, prepaid telecommunication cards, and traveler's checks. The amendments require that the portion
of the dollar value of prepaid stored-value products that is ultimately unredeemed (that is, the breakage) be accounted for consistent
with the breakage guidance for stored-value product transactions provided in ASC Topic 606 - Revenue from Contracts with
Customers. These amendments are effective for interim and annual periods beginning January 1, 2018 and are not expected to
have a significant effect on the Company's consolidated financial statements.

Income Taxes The FASB issued ASU 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory", in October 2016.
Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has
been sold to an outside party. The amendments require the recognition of income tax consequences of an intra-entity transfer of
an asset (other than inventory) when the transfer occurs. This change removes the current exception to the principal of
comprehensive recognition of current and deferred income taxes in GAAP (except for inventory). These amendments are effective
for reporting periods beginning January 1, 2018 and are not expected to have a significant effect on the Company's consolidated
financial statements.

Financial Instruments The FASB issued ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial
Liabilities", in January 2016. Upon adoption, the amendments require all equity investments to be measured at fair value with
changes in the fair value recognized through net income, other than those accounted for under the equity method of accounting
52

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or those that result in the consolidation of the investee. The Company adopted the ASU on January 1, 2018, and as required by
the new guidance, recorded a cumulative-effect adjustment on that date which reclassified net unrealized gains/losses on equity
securities from accumulated other comprehensive income to retained earnings. This amount of the reclassification totaled
approximately $33.3 million, net of tax. As also required by the new guidance, disclosures of the fair value of the Company's
loan portfolio will be based on the exit-price concept, beginning in the first quarter of 2018.

Statement of Cash Flows The FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments", in
August 2016. The ASU addresses the presentation and classification in the Statement of Cash Flows of several specific cash flow
issues. These include cash payments for debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments,
distributions received from equity method investees, and separately identifiable cash flows and application of the predominance
principle. The amendments are effective January 1, 2018 and are not expected to have a significant effect on the Company's
consolidated financial statements.

The FASB issued ASU 2016-18, "Restricted Cash", in November 2016. The ASU addresses the current diversity in the
classification and presentation of changes in restricted cash on the statement of cash flows. The ASU requires that amounts
described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the
beginning and end of period amounts shown on the statement of cash flows. Disclosures are to be provided on the nature of
restrictions on cash and cash equivalents. When presented in more than one line item within the statement of financial position,
the entity shall disclose the amounts, disaggregated by line item, of cash, cash equivalents, restricted cash, and restricted cash
equivalents reported within the statement of financial position. The amendments are effective January 1, 2018 and are not expected
to have a significant effect on the Company's consolidated financial statements.

Retirement Benefits The FASB issued ASU 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost", in March 2017. Under current guidance, the different components comprising net benefit
cost are aggregated for reporting in the financial statements. Because these components are heterogeneous, the current presentation
reduces the transparency and usefulness of the financial statements. The ASU requires that an employer report the service cost
component of net benefit cost in the same line item as other compensation costs arising from services rendered during the period.
The other components of net benefit cost are required to be presented separately from the servicing cost component. Only service
cost is eligible for capitalization when applicable. The amendments are effective January 1, 2018 and are not expected to have a
significant effect on the Company's consolidated financial statements.

Leases In February 2016, the FASB issued ASU 2016-02, "Leases", in order to increase transparency and comparability by
recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The
ASU primarily affects lessee accounting, which requires the lessee to recognize a right-of-use asset and a liability to make lease
payments for those leases classified as operating leases under previous GAAP. For leases with a term of 12 months or less, an
election by class of underlying asset not to recognize lease assets and lease liabilities is permitted. The ASU also provides additional
guidance as to the definition of a lease, identification of lease components, and sale and leaseback transactions. The amendments
in the ASU are effective for interim and annual periods beginning January 1, 2019. The Company is the lessee in approximately
200 lease agreements that are subject to this ASU. The Company has formed a working group to assess the changes required and
is working with its current software vendor to review a newly created software module designed to comply with the new accounting
requirements.

Premium Amortization The FASB issued ASU 2017-08, "Premium Amortization on Purchased Callable Debt Securities", in
March 2017. Under current guidance, many entities amortize the premium on purchased callable debt securities over the contractual
life of the instrument. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized
premium is recorded as a loss in earnings. The amendments in this ASU shorten the amortization period for certain callable debt
securities held at a premium to the earliest call date, and more closely align the amortization period to expectations incorporated
in market pricing of the instrument. The amendments are effective January 1, 2019 and are not expected to have a significant
effect on the Company's consolidated financial statements.

Financial Instruments ASU 2016-13, "Measurement of Credit Losses on Financial Instruments", was issued in June 2016.
Its implementation will result in a new loan loss accounting framework, also known as the current expected credit loss (CECL)
model. CECL requires credit losses expected throughout the life of the asset portfolio on loans and held-to-maturity securities to
be recorded at the time of origination. Under the current incurred loss model, losses are recorded when it is probable that a loss
event has occurred. The new standard will require significant operational changes, especially in data collection and analysis. The
ASU is effective for interim and annual periods beginning January 1, 2020, and is expected to increase the allowance upon adoption.
The Company has formed a working group to assess the standard and the data needs required. In the second quarter of 2017, the
Company contracted with a software supplier to assist in the data collection and calculation of the allowance for loan losses under

Table of contents

the new model, and is currently collecting loan data to be supplied to the vendor to allow for pro-forma CECL calculations to
begin by mid-2018.

Intangible Assets The FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment", in January 2017. Under
current guidance, a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit's goodwill with
the carrying amount of that goodwill by following procedures that would be required in determining the fair value of assets acquired
and liabilities assumed in a business combination. Under the new amendments, the goodwill impairment test compares the fair
value of a reporting unit with its carrying amount and an impairment charge is measured as the amount by which the carrying
amount exceeds the reporting unit's fair value. The amendments are effective for impairment tests beginning January 1, 2020 and
are not expected to have a significant effect on the Company's consolidated financial statements.

Comprehensive Income The FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income", in February 2018. The guidance allows a reclassification from accumulated other comprehensive income
to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendments are effective for all entities
effective January 1, 2019, but early adoption is permitted in certain circumstances. The Company adopted the ASU effective
January 1, 2018 and recorded a reclassification which increased accumulated other comprehensive income and reduced retained
earnings by $2.9 million. As these are both categories within equity, total equity was unchanged. The adoption did not have a
significant effect on the Company's consolidated financial statements.

Corporate Governance

The Company has adopted a number of corporate governance measures. These include corporate governance guidelines, a code
of ethics that applies to its senior financial officers and the charters for its audit committee, its committee on compensation and
human resources, and its committee on governance/directors. This information is available on the Company’s Web site
www.commercebank.com under Investor Relations.

Table of contents

SUMMARY OF QUARTERLY STATEMENTS OF INCOME

Year ended December 31, 2017

(In thousands, except per share data)

Interest income

Interest expense

Net interest income

Non-interest income

Investment securities gains (losses), net

Salaries and employee benefits

Other expense

Provision for loan losses

Income before income taxes

Income taxes

Non-controlling interest

Net income attributable to Commerce Bancshares, Inc.

Net income per common share — basic*

Net income per common share — diluted*

Weighted average shares — basic*

Weighted average shares — diluted*

12/31/2017

9/30/2017

6/30/2017

3/31/2017

For the Quarter Ended

201,572 $

(11,564)

190,008

124,212

27,209

(115,741)

(97,947)

(12,654)

115,087

(20,104)

(628)

194,244 $

(11,653)

182,591

122,242

(3,037)

(111,382)

(73,190)

(10,704)

106,520

(32,294)

338

94,355 $

74,564 $

78,960 $

.86 $

105,619

105,976

.68 $

.67 $

105,628

105,981

.71 $

105,583

105,943

193,594 $

(10,787)

182,807

123,084

1,651

187,997

(9,724)

178,273

117,066

(772)

(108,829)

(112,369)

(75,765)

(10,758)

112,190

(33,201)

(29)

(74,461)

(11,128)

96,609

(24,907)

(198)

71,504

.65

105,389

105,805

Year ended December 31, 2016
(In thousands, except per share data)

12/31/2016

9/30/2016

6/30/2016

3/31/2016

For the Quarter Ended

Interest income

Interest expense

Net interest income

Non-interest income

Investment securities gains (losses), net

Salaries and employee benefits

Other expense

Provision for loan losses

Income before income taxes

Income taxes

Non-controlling interest

181,498 $

179,361 $

180,065 $

(8,296)

173,202

119,479

3,651

(108,639)

(72,622)

(10,400)

104,671

(32,297)

(795)

(8,118)

171,243

119,319

(1,965)

(107,004)

(74,238)

(7,263)

100,092

(30,942)

(605)

(8,236)

171,829

116,570

(744)

(104,808)

(72,281)

(9,216)

101,350

(31,542)

Net income attributable to Commerce Bancshares, Inc.

Net income per common share — basic*

Net income per common share — diluted*

Weighted average shares — basic*

Weighted average shares — diluted*

71,579 $

68,545 $

69,893 $

.65 $

105,245

105,586

.63 $

.62 $

105,207

105,476

.63 $

105,158

105,433

172,128

(8,353)

163,775

119,024

(995)

(106,859)

(70,614)

(9,439)

94,892

(29,370)

(148)

65,374

.59

105,361

105,600

Year ended December 31, 2015
(In thousands, except per share data)

12/31/2015

9/30/2015

6/30/2015

3/31/2015

For the Quarter Ended

Interest income

Interest expense

Net interest income

Non-interest income

Investment securities gains (losses), net

Salaries and employee benefits

Other expense

Provision for loan losses

Income before income taxes

Income taxes

Non-controlling interest

Net income attributable to Commerce Bancshares, Inc.

Net income per common share — basic*

Net income per common share — diluted*

Weighted average shares — basic*

Weighted average shares — diluted*

* Restated for the 5% stock dividend distributed in 2017.

169,742 $

169,115 $

170,577 $

(7,255)

162,487

116,042

(1,480)

(102,098)

(73,679)

(9,186)

92,086

(27,661)

(715)

(7,077)

162,038

111,288

(378)

(100,874)

(70,528)

(8,364)

93,182

(27,969)

(601)

(6,920)

163,657

114,235

2,143

(99,655)

(65,808)

(6,757)

107,815

(32,492)

(970)

63,710 $

64,612 $

74,353 $

.58 $

.57 $

106,074

106,376

.58 $

106,489

106,813

.65 $

109,257

109,630

152,982

(6,844)

146,138

106,574

6,035

(98,074)

(65,771)

(4,420)

90,482

(28,468)

(959)

61,055

.52

110,309

110,655

Table of contents

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

(Dollars in thousands)

ASSETS
Loans:(A)

Business(B)
Real estate – construction and land
Real estate – business
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts

Total loans
Loans held for sale
Investment securities:

U.S. government & federal agency

obligations

Government-sponsored enterprise

obligations
State & municipal obligations(B)
Mortgage-backed securities
Asset-backed securities
Other marketable securities(B)
Trading securities(B)
Non-marketable securities(B)

Total investment securities
Federal funds sold and short-term

securities purchased under agreements
to resell

Long-term securities purchased under

agreements to resell

Interest earning deposits with banks
Total interest earning assets
Allowance for loan losses
Unrealized gain on investment

securities

Cash and due from banks
Land, buildings and equipment - net
Other assets
Total assets

LIABILITIES AND EQUITY

Interest bearing deposits:

Savings
Interest checking and money market
Time open & C.D.’s of less than

$100,000

Time open & C.D.’s of $100,000 and

over

Total interest bearing deposits
Borrowings:

Federal funds purchased and

securities sold under agreements to
repurchase

Other borrowings

Total borrowings
Total interest bearing liabilities
Non-interest bearing deposits
Other liabilities
Equity
Total liabilities and equity
Net interest margin (T/E)
Net yield on interest earning assets

Percentage increase (decrease) in net
interest margin (T/E) compared to
the prior year

Average
Balance

2017

Interest
Income/
Expense

Average Rates
Earned/Paid

Average
Balance

2016

Interest
Income/
Expense

Average Rates
Earned/Paid

Average
Balance

2015

Interest
Income/
Expense

Average Rates
Earned/Paid

Years Ended December 31

4,832,045 $
881,879
2,694,620
2,019,674
2,036,393
398,611
743,885
4,592
13,611,699
17,452

154,681
37,315
102,009
75,267
81,065
15,516
88,329
—
554,182
1,000

914,961

19,697

7,321

62,073
89,623
36,757
9,384
583
11,816
237,254

230

15,440

2,223
810,329

981
16,328

2,645

10,859

30,813

9,829

3,086
12,915
43,728

452,422

1,720,723
3,784,602
2,083,611
335,791
21,929
100,805
9,414,844

18,518

688,147

207,269
23,957,929
(156,572)

98,865

361,414
345,639
424,333
$ 25,031,608

819,558
10,517,741

676,272

1,404,960

13,418,531

1,462,387

87,696
1,550,083
14,968,614
7,176,255
250,510
2,636,229
$ 25,031,608

3.20% $
4.23
3.79
3.73
3.98
3.89
11.87
—
4.07
5.73

4,652,526 $
778,822
2,440,955
1,936,420
1,947,240
417,514
749,589
4,712
12,927,778
25,710

134,438
27,452
89,305
72,417
75,076
14,797
86,008
—
499,493
1,317

2.89% $
3.52
3.66
3.74
3.86
3.54
11.47
—
3.86
5.12

4,186,101 $
477,320
2,293,839
1,899,234
1,829,830
431,033
746,503
5,416
11,869,276
4,115

116,455
17,075
85,751
71,666
72,625
15,262
86,162
—
464,996
191

735,081

15,628

2.15

1.62

3.61
2.37
1.76
2.79
2.66
11.72
2.52

1.24

2.24

1.07
3.38

591,785

1,753,727
3,460,821
2,418,118
336,968
19,722
115,778
9,432,000

12,660

791,392

188,581
23,378,121
(152,628)

183,036

381,822
350,443
415,677
$ 24,556,471

.12
.16

.39

.77

.23

775,121
10,285,288

749,261

1,471,610

13,281,280

.67

3.52
.83
.29%

1,266,093

171,255
1,437,348
14,718,628
7,049,633
292,145
2,496,065
$ 24,556,471

13,173

63,261
82,888
35,346
9,481
489
8,765
229,031

13,544

973
744,436

923
13,443

2,809

8,545

25,720

3,315

3,968
7,283
33,003

466,135

5,180

938,589

1,786,235
3,164,447
2,773,069
262,937
20,517
111,380
9,523,309

17,319

63,054
80,936
29,558
7,038
562
9,540
213,187

16,184

2.13

2.23

3.61
2.40
1.46
2.81
2.48
7.57
2.43

.62

1.71

.52
3.18

13,172

528
692,134

876
12,498

3,236

6,051

22,661

1,861

3,574
5,435
28,096

1,002,053

206,115
22,621,052
(152,690)

146,854

378,803
359,773
383,810
$ 23,737,602

.12
.13

.37

.58

.19

729,311
9,752,794

832,343

1,224,402

12,538,850

.26

2.32
.51
.22%

1,654,860

103,884
1,758,744
14,297,594
6,786,741
280,231
2,373,036
$ 23,737,602

766,601

711,433

664,038

3.20%

7.75%

3.04%

7.14%

2.78 %
3.58
3.74
3.77
3.97
3.54
11.54
—
3.92
4.64

1.11

1.85

3.53
2.56
1.07
2.68
2.74
8.57
2.24

.37

1.31

.26
3.06

.12
.13

.39

.49

.18

.11

3.44
.31
.20 %

2.94 %

2.38 %

(A) Loans on non-accrual status are included in the computation of average balances. Included in interest income above are loan fees and late charges, net of amortization of deferred loan

origination fees and costs, which are immaterial. Credit card income from merchant discounts and net interchange fees are not included in loan income.

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Table of contents

Average
Balance

2014

Interest
Income/
Expense

Average Rates
Earned/Paid

Average
Balance

2013

Interest
Income/
Expense

Average Rates
Earned/Paid

Average
Balance

2012

Interest
Income/
Expense

Average Rates
Earned/Paid

Average Balance Five
Year Compound
Growth Rate

Years Ended December 31

2.83%
3.78
3.83
3.80
4.23
3.79
11.44
—
4.04

—

2.77

1.66

3.59
2.69
.88
2.61
2.23
10.26
2.30

.32

1.27

.25
3.13

.13
.13

.44

.43

.19

.08

3.32
.33
.20%

3,919,421 $
418,702
2,300,855
1,818,125
1,617,039
426,720
754,482
4,889
11,260,233

—

110,791
15,826
88,206
69,054
68,434
16,188
86,298
—
454,797

—

497,271

13,750

13,211

61,593
80,229
24,976
3,928
411
10,692
208,790

101

12,473

555
676,716

855
12,667

4,137

5,926

23,585

1,019

3,484
4,503
28,088

794,752

1,715,493
2,981,225
2,834,013
150,379
18,423
104,211
9,095,767

31,817

985,205

220,876
21,593,898
(160,828)

126,314

382,207
354,899
376,433
$ 22,672,923

670,650
9,477,947

935,387

1,372,509

12,456,493

1,257,660

104,896
1,362,556
13,819,049
6,339,183
225,554
2,289,137
$ 22,672,923

3,366,564 $
378,896
2,251,113
1,694,955
1,437,270
424,358
752,478
6,020
10,311,654

102,847
15,036
92,555
66,353
67,299
16,822
84,843
—
445,755

3.05 %
3.97
4.11
3.91
4.68
3.96
11.28
—
4.32

2,962,699 $
356,425
2,193,271
1,503,357
1,180,538
446,204
730,697
6,125
9,379,316

102,013
15,146
98,693
65,642
66,402
18,586
85,652
—
452,134

3.44 %
4.25
4.50
4.37
5.62
4.17
11.72
—
4.82

4,488

176

3.92

9,688

361

3.73

401,162

499,947

1,617,814
3,187,648
3,061,415
182,323
20,986
116,557
9,087,852

8,775

8,658

58,522
87,523
27,475
5,625
472
12,226
209,276

24,669

106

21,119

387
676,819

766
13,589

6,002

6,383

26,740

809

3,364
4,173
30,913

1,174,589

155,885
20,759,137
(166,846)

157,910

382,500
357,544
383,739
$ 21,873,984

625,517
9,059,524

1,034,991

1,380,003

12,100,035

1,294,691

103,901
1,398,592
13,498,627
5,961,116
237,130
2,177,111
$ 21,873,984

2.19

1.73

3.62
2.75
.90
3.09
2.25
10.49
2.30

.43

1.80

.25
3.26

.12
.15

.58

.46

.22

.06

3.24
.30
.23 %

332,382

12,260

5,653

54,056
107,527
31,940
6,556
637
12,558
231,187

19,174

339
703,277

802
17,880

7,918

7,174

33,774

808

3,481
4,289
38,063

306,676

1,376,872
3,852,616
2,925,249
139,499
25,107
118,879
9,077,280

16,393

892,624

135,319
19,510,620
(178,934)

257,511

369,020
357,336
385,125
$ 20,700,678

574,336
8,430,559

1,117,236

1,181,426

11,303,557

1,185,978

108,916
1,294,894
12,598,451
5,522,991
334,684
2,244,552
$ 20,700,678

3.69

1.84

3.93
2.79
1.09
4.70
2.54
10.56
2.55

.50

2.15

.25
3.60

.14
.21

.71

.61

.30

.07

3.20
.33
.30 %

3.41 %

(.64)%

10.28%
19.86
4.20
6.08
11.52
(2.23)
.36
(5.60)
7.73

12.49

22.45

8.09

4.56
(.36)
(6.56)
19.21
(2.67)
(3.24)
.73

2.47

(5.07)

8.90
4.19
(2.63)

(17.42)

(.42)
(.66)
1.96
3.87

7.37
4.52

(9.55)

3.53

3.49

4.28

(4.24)
3.66
3.51
5.38
(5.63)
3.27
3.87%

648,628

645,906

665,214

3.00%

.42%

3.11 %

(2.90)%

(B)

Interest income and yields are presented on a fully-taxable equivalent basis using the Federal statutory income tax rate. Loan interest income includes tax free loan income (categorized
as business loan income) which includes tax equivalent adjustments of $10,357,000 in 2017, $9,537,000 in 2016, $8,332,000 in 2015, $7,640,000 in 2014, $6,673,000 in 2013, and
$5,803,000 in 2012. Investment securities interest income includes tax equivalent adjustments of $22,565,000 in 2017, $21,847,000 in 2016, $21,386,000 in 2015, $20,784,000 in 2014,
$19,861,000 in 2013, and $19,505,000 in 2012 . These adjustments relate to state and municipal obligations, other marketable securities, trading securities, and non-marketable
securities.

Table of contents

QUARTERLY AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

(Dollars in millions)

ASSETS

Loans:

Business(A)
Real estate – construction and land

Real estate – business

Real estate – personal

Consumer

Revolving home equity

Consumer credit card

Overdrafts
Total loans

Loans held for sale

Investment securities:

U.S. government & federal agency

obligations

Government-sponsored enterprise

obligations
State & municipal obligations(A)
Mortgage-backed securities

Asset-backed securities
Other marketable securities(A)
Trading securities(A)
Non-marketable securities(A)
Total investment securities

Federal funds sold and short-term
securities purchased under agreements
to resell
Long-term securities purchased under
agreements to resell
Interest earning deposits with banks
Total interest earning assets

Allowance for loan losses

Unrealized gain on investment securities

Cash and due from banks

Land, buildings and equipment – net

Other assets
Total assets

LIABILITIES AND EQUITY
Interest bearing deposits:

Savings

Interest checking and money market

Time open & C.D.’s under $100,000

Time open & C.D.’s $100,000 & over

Total interest bearing deposits

Borrowings:

Federal funds purchased and securities
sold under agreements to repurchase

Other borrowings

Total borrowings

Total interest bearing liabilities

Non-interest bearing deposits

Other liabilities

Equity
Total liabilities and equity

Net interest margin (T/E)

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Average
Balance

Average Rates
Earned/Paid

Average
Balance

Average Rates
Earned/Paid

Average
Balance

Average Rates
Earned/Paid

Average
Balance

Average Rates
Earned/Paid

Year ended December 31, 2017

4,818

948

2,720

2,045

2,101

394

757

13,788

918

452

1,631

3,950

1,623

356

9,048

700

270

23,851

(157)

112

372

347

438

24,963

822

10,416

645

1,119

13,002

1,626

1,668

14,670

7,257

312

2,724

24,963

198

3.32% $

4.41

3.90

3.72

4.07

4.06

11.90

—

4.18

5.55

2.60

1.69

3.60

2.38

1.94

2.86

2.63

8.08

2.59

1.35

2.36

1.18

3.48

.12

.17

.40

.88

.24

.83

3.59

.90

.31%

4,778

888

2,710

2,017

2,070

395

740

13,602

918

457

1,699

3,719

2,025

328

103

9,270

662

211

23,790

(157)

117

349

345

429

24,873

829

10,387

668

1,326

13,210

1,501

102

1,603

14,813

7,136

252

2,672

24,873

190

3.25% $

4.31

3.85

3.72

4.02

4.03

12.03

—

4.13

5.36

1.40

1.61

3.57

2.36

1.82

2.73

2.51

6.46

2.39

1.30

2.28

1.24

3.37

.12

.16

.40

.83

.24

.75

3.53

.93

.31%

4,828

862

2,701

2,004

1,998

400

731

13,529

912

450

1,772

3,708

2,335

326

102

9,626

666

139

23,991

(157)

103

349

344

413

25,043

831

10,667

688

1,510

13,696

1,363

106

1,469

15,165

7,066

203

2,609

25,043

191

3.21% $

4.30

3.74

3.72

3.94

3.84

11.90

—

4.06

5.75

2.52

1.59

3.61

2.35

1.72

2.76

2.70

11.49

2.52

1.13

2.22

1.04

3.37

.12

.15

.39

.75

.23

.60

3.47

.81

.29%

4,907

828

2,646

2,012

1,975

405

748

13,525

913

450

1,783

3,760

2,360

333

101

9,725

725

208

24,205

(155)

376

346

417

25,252

796

10,604

705

1,671

13,776

1,356

102

1,458

15,234

7,247

234

2,537

25,252

187

3.02%

3.85

3.63

3.74

3.89

3.64

11.66

—

3.92

6.64

2.09

1.58

3.65

2.38

1.63

2.82

2.77

21.08

2.58

.94

2.12

.77

3.30

.13

.14

.37

.67

.21

.46

3.53

.67

.26%

Net yield on interest earning assets

3.29%

3.18%

3.19%

3.14%

(A)

Includes tax equivalent calculations.

Table of contents

QUARTERLY AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

(Dollars in millions)

ASSETS

Loans:

Business(A)
Real estate – construction and land

Real estate – business

Real estate – personal

Consumer

Revolving home equity

Consumer credit card

Overdrafts
Total loans

Loans held for sale

Investment securities:

U.S. government & federal agency

obligations

Government-sponsored enterprise

obligations

State & municipal obligations(A)
Mortgage-backed securities

Asset-backed securities
Other marketable securities(A)
Trading securities(A)
Non-marketable securities(A)
Total investment securities

Federal funds sold and short-term

securities purchased under agreements
to resell

Long-term securities purchased under

agreements to resell

Interest earning deposits with banks
Total interest earning assets

Allowance for loan losses

Unrealized gain on investment securities

Cash and due from banks

Land, buildings and equipment – net

Other assets
Total assets

LIABILITIES AND EQUITY

Interest bearing deposits:

Savings

Interest checking and money market

Time open & C.D.’s under $100,000

Time open & C.D.’s $100,000 & over

Total interest bearing deposits

Borrowings:

Federal funds purchased and securities
sold under agreements to repurchase

Other borrowings

Total borrowings

Total interest bearing liabilities

Non-interest bearing deposits

Other liabilities

Equity
Total liabilities and equity

Net interest margin (T/E)

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Average
Balance

Average Rates
Earned/Paid

Average
Balance

Average Rates
Earned/Paid

Average
Balance

Average Rates
Earned/Paid

Average
Balance

Average Rates
Earned/Paid

Year ended December 31, 2016

4,731

821

2,559

1,986

1,978

415

758

13,254

812

446

1,784

3,657

2,417

333

105

9,576

725

201

23,775

(154)

156

372

346

436

24,931

773

10,512

723

1,334

13,342

1,285

101

1,386

14,728

7,308

347

2,548

24,931

181

2.91% $

3.64

3.61

3.69

3.85

3.50

11.38

—

3.85

5.77

2.18

1.54

3.57

2.40

1.52

2.95

2.40

5.42

2.39

.72

1.86

.56

3.17

.12

.13

.37

.60

.19

.30

3.54

.54

.22%

4,695

821

2,432

1,944

1,948

412

750

13,007

726

482

1,748

3,366

2,341

335

114

9,130

766

208

23,151

(154)

235

362

348

442

24,384

779

10,211

741

1,434

13,165

1,164

103

1,267

14,432

7,096

306

2,550

24,384

179

2.87% $

3.48

3.63

3.73

3.91

3.56

11.56

—

3.86

5.00

2.43

2.24

3.60

2.38

1.48

2.74

2.42

10.24

2.49

.61

1.73

.51

3.22

.12

.13

.37

.61

.20

.25

3.51

.51

.22%

4,692

789

2,389

1,906

1,928

413

738

12,859

698

666

1,764

3,394

2,378

338

116

9,375

825

125

23,252

(152)

192

372

351

390

24,405

787

10,288

759

1,636

13,470

1,212

105

1,317

14,787

6,886

260

2,472

24,405

180

2.90% $

3.46

3.69

3.76

3.80

3.59

11.54

—

3.86

4.95

3.48

3.03

3.60

2.36

1.45

2.77

2.27

8.03

2.58

.64

1.64

.49

3.25

.11

.13

.38

.58

.20

.24

3.49

.50

.22%

4,492

683

2,382

1,909

1,935

429

752

12,587

703

777

1,719

3,425

2,537

342

128

9,649

850

220

23,332

(151)

149

421

357

395

24,503

761

10,129

775

1,484

13,149

1,404

378

1,782

14,931

6,906

254

2,412

24,503

171

2.87%

3.51

3.70

3.77

3.87

3.52

11.42

—

3.89

5.80

.40

1.93

3.66

2.45

1.39

2.79

2.87

6.54

2.26

.56

1.64

.49

3.10

.12

.13

.38

.54

.19

.25

1.33

.48

.23%

Net yield on interest earning assets

3.03%

3.08%

3.11%

2.95%

(A)

Includes tax equivalent calculations.

Table of contents

Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is set forth on pages 46 through 47 of Management’s Discussion and Analysis of Financial

Condition and Results of Operations.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
Commerce Bancshares, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Commerce Bancshares, Inc. and subsidiaries (the “Company”)
as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, cash flows, and changes
in equity for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 22, 2018 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 1971.

Kansas City, Missouri
February 22, 2018

Table of contents

Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS

ASSETS
Loans

Allowance for loan losses

Net loans
Loans held for sale (including $15,327,000 and $9,263,000 of residential mortgage loans carried at

fair value at December 31, 2017 and 2016, respectively)

Investment securities:

Available for sale ($662,515,000 and $568,553,000 pledged at December 31, 2017 and
2016, respectively, to secure swap and repurchase agreements)
Trading
Non-marketable

Total investment securities
Federal funds sold and short-term securities purchased under agreements to resell
Long-term securities purchased under agreements to resell
Interest earning deposits with banks
Cash and due from banks
Land, buildings and equipment – net
Goodwill
Other intangible assets – net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:

Non-interest bearing
Savings, interest checking and money market
Time open and C.D.’s of less than $100,000
Time open and C.D.’s of $100,000 and over

Total deposits
Federal funds purchased and securities sold under agreements to repurchase
Other borrowings
Other liabilities
Total liabilities
Commerce Bancshares, Inc. stockholders’ equity:

Preferred stock, $1 par value
Authorized 2,000,000 shares; issued 6,000 shares
Common stock, $5 par value
Authorized 120,000,000 shares; issued 107,081,397 shares at December 31, 2017 and 102,003,046

shares at December 31, 2016

Capital surplus
Retained earnings
Treasury stock of 276,968 shares at December 31, 2017
and 364,711 shares at December 31, 2016, at cost
Accumulated other comprehensive income

Total Commerce Bancshares, Inc. stockholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity

See accompanying notes to consolidated financial statements.

December 31

2017

2016

(In thousands)

13,983,674 $
(159,532)
13,824,142

13,412,736
(155,932)
13,256,804

21,398

14,456

8,774,280
18,269
100,758
8,893,307
42,775
700,000
30,631
438,439
335,110
138,921
7,618
401,074
24,833,415 $

7,158,962 $
11,499,620
634,646
1,132,218
20,425,446
1,507,138
1,758
180,889
22,115,231

9,649,203
22,225
99,558
9,770,986
15,470
725,000
272,275
494,690
337,705
138,921
6,709
608,408
25,641,424

7,429,398
11,430,789
713,075
1,527,833
21,101,095
1,723,905
102,049
213,243
23,140,292

144,784

535,407
1,815,360
221,374

(14,473)
14,108
2,716,560
1,624
2,718,184
24,833,415 $

510,015
1,552,454
292,849

(15,294)
10,975
2,495,783
5,349
2,501,132
25,641,424

Table of contents

Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)
INTEREST INCOME
Interest and fees on loans
Interest on loans held for sale
Interest on investment securities
Interest on federal funds sold and short-term securities purchased under agreements

to resell

Interest on long-term securities purchased under agreements to resell
Interest on deposits with banks
Total interest income
INTEREST EXPENSE
Interest on deposits:

Savings, interest checking and money market
Time open and C.D.’s of less than $100,000
Time open and C.D.’s of $100,000 and over

Interest on federal funds purchased and securities sold under agreements to

repurchase

Interest on other borrowings
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
NON-INTEREST INCOME
Bank card transaction fees
Trust fees
Deposit account charges and other fees
Capital market fees
Consumer brokerage services
Loan fees and sales
Other
Total non-interest income
INVESTMENT SECURITIES GAINS (LOSSES), NET
NON-INTEREST EXPENSE
Salaries and employee benefits
Net occupancy
Equipment
Supplies and communication
Data processing and software
Marketing
Deposit insurance
Community service
Other
Total non-interest expense
Income before income taxes
Less income taxes
Net income
Less non-controlling interest expense
Net income attributable to Commerce Bancshares, Inc.
Less preferred stock dividends
Net income available to common shareholders
Net income per common share - basic
Net income per common share - diluted

See accompanying notes to consolidated financial statements.

$
$
$

For the Years Ended December 31
2016

2015

2017

543,825 $
1,000
214,689

489,956 $
1,317
207,184

230
15,440
2,223
777,407

17,309
2,645
10,859

9,829
3,086
43,728
733,679
45,244
688,435

180,441
135,159
90,060
7,996
14,630
13,948
44,370
486,604
25,051

448,321
45,612
18,568
22,790
92,246
16,325
13,986
34,377
77,459
769,684
430,406
110,506
319,900
517
319,383
9,000
310,383 $
2.90 $
2.89 $

78
13,544
973
713,052

14,366
2,809
8,545

3,315
3,968
33,003
680,049
36,318
643,731

181,879
121,795
86,394
10,655
13,784
11,412
48,473
474,392
(53)

427,310
46,290
19,141
24,135
92,722
16,032
13,327
3,906
74,202
717,065
401,005
124,151
276,854
1,463
275,391
9,000
266,391 $
2.50 $
2.49 $

456,664
191
191,801

60
13,172
528
662,416

13,374
3,236
6,051

1,861
3,574
28,096
634,320
28,727
605,593

178,926
118,437
80,416
11,476
13,784
8,228
36,872
448,139
6,320

400,701
44,788
19,086
22,970
83,944
16,107
12,146
3,180
73,565
676,487
383,565
116,590
266,975
3,245
263,730
9,000
254,730
2.33
2.32

Table of contents

Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)
Net income

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

Net unrealized gains (losses) on other securities
Change in pension loss

Other comprehensive income (loss)

Comprehensive income

Less non-controlling interest expense

For the Years Ended December 31

2017

2016

2015

319,900 $

276,854 $

266,975

412

3,022
(301)

3,133

323,033

517

(341)

(22,422)

1,268

(21,495)

255,359

1,463

(518)

(31,517)
2,412

(29,623)

237,352

3,245

234,107

Comprehensive income attributable to Commerce Bancshares, Inc.

322,516 $

253,896 $

See accompanying notes to consolidated financial statements.

Table of contents

Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

OPERATING ACTIVITIES

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses

Provision for depreciation and amortization

Amortization of investment security premiums, net

Deferred income tax (benefit) expense

Investment securities (gains) losses, net

Net gains on sales of loans held for sale

Proceeds from sales of loans held for sale

Originations of loans held for sale

Net (increase) decrease in trading securities, excluding unsettled transactions

Stock-based compensation

Increase in interest receivable

Increase in interest payable

Increase (decrease) in income taxes payable

Donation of securities

Other changes, net

Net cash provided by operating activities

INVESTING ACTIVITIES

Proceeds from sales of investment securities

Proceeds from maturities/pay downs of investment securities

Purchases of investment securities

Net increase in loans

Long-term securities purchased under agreements to resell

Repayments of long-term securities purchased under agreements to resell

Purchases of land, buildings and equipment

Sales of land, buildings and equipment
Net cash provided by (used in) investing activities

FINANCING ACTIVITIES

Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits

Net increase (decrease) in time open and C.D.’s

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

repurchase

Net decrease in other borrowings

Purchases of treasury stock

Accelerated share repurchase agreements

Issuance of stock under equity compensation plans

Cash dividends paid on common stock

Cash dividends paid on preferred stock
Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Income tax payments, net

Interest paid on deposits and borrowings

Loans transferred to foreclosed real estate

Settlement of accelerated share repurchase agreement and receipt of treasury stock
Loans transferred from held for investment to held for sale, net

See accompanying notes to consolidated financial statements.

For the Years Ended December 31

2017

2016

2015

319,900 $

276,854 $

266,975

45,244

39,732

35,423

13,617

(25,051)

(8,008)

215,373

(216,064)

7,585

12,105

(4,459)

(27,685)

32,036

(6,560)

433,226

792,380

1,899,640

(1,853,817)

(614,849)

(75,000)

100,000

(30,824)

3,190

220,720

(15,036)

(474,044)

(216,767)

(100,291)

(17,771)

—
(8)

(91,619)

(9,000)

(924,536)

(270,590)

782,435
511,845 $
120,744 $
43,690

2,063

—

36,318

40,929

31,493

(2,059)

(5,850)

160,875

(163,469)

73,780

11,525

(3,642)

1,107

4,509
—
(26,666)

435,757

24,380

2,032,397

(1,988,101)

(1,009,523)

(250,000)

400,000

(24,478)

10,112

28,727

42,803

32,618

7,432

(6,320)

(3,076)

97,813

(103,199)

(86,045)

10,147

(4,992)

336

11,733

—

(3,757)

291,195

689,031

2,515,113

(3,542,537)

(1,005,657)

—

175,000

(31,897)

5,545

(805,213)

(1,195,402)

782,846

243,199

(239,647)

(1,769)

(39,381)

—

(6)

(87,070)

(9,000)

649,172

279,716

502,719

782,435 $

119,596 $

31,896

1,122

—
42,688

545,147

(124,509)

101,034

(240)

(23,176)

(100,000)

1,914

(84,961)

(9,000)

306,209

(597,998)

1,100,717

502,719

95,341

27,760

3,778

60,000
—

Table of contents

Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except per share data)

Balance, December 31, 2014

Net income

Other comprehensive loss

Distributions to non-controlling interest

Purchases of treasury stock

Accelerated share repurchase agreements
Cash dividends paid on common stock

($.777 per share)

Cash dividends paid on preferred stock

($1.500 per depositary share)

Excess tax benefit related to equity

compensation plans

Stock-based compensation

Issuance under stock purchase and equity

compensation plans
5% stock dividend, net
Balance, December 31, 2015
Net income

Other comprehensive loss

Distributions to non-controlling interest

Purchases of treasury stock

Cash dividends paid on common stock

($.816 per share)

Cash dividends paid on preferred stock

($1.500 per depositary share)

Excess tax benefit related to equity

compensation plans

Stock-based compensation

Issuance under stock purchase and equity

compensation plans
5% stock dividend, net
Balance, December 31, 2016

Adoption of ASU 2016-09

Net income

Other comprehensive income

Distributions to non-controlling interest

Sale of non-controlling interest of subsidiary

Purchases of treasury stock

Cash dividends paid on common stock

($.857 per share)

Cash dividends paid on preferred stock

($1.500 per depositary share)

Stock-based compensation

Issuance under stock purchase and equity

compensation plans
5% stock dividend, net
Balance, December 31, 2017

Commerce Bancshares, Inc. Shareholders

Preferred
Stock

Common
Stock

Capital
Surplus

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Income (Loss)

Non-
Controlling
Interest

Total

$ 144,784 $ 484,155 $ 1,229,075 $ 426,648 $ (16,562) $

62,093 $

4,053 $ 2,334,246

263,730

3,245

266,975

60,000

(23,176)

(160,000)

(84,961)

(9,000)

2,132

10,147

(16,615)

19,503

5,707

52,938

(213,104)

154,119

(29,623)

(1,870)

(29,623)

(1,870)

(23,176)

(100,000)

(84,961)

(9,000)

2,132

10,147

2,888

(340)

144,784

489,862

1,337,677

383,313
275,391

(26,116)

32,470

5,428
1,463

2,367,418
276,854

(87,070)

(9,000)

3,390

11,525

(15,810)

20,153

215,672

(269,785)

144,784

510,015

1,552,454
3,441

292,849
(2,144)

319,383

2,950

12,105

(17,734)

(91,619)

(9,000)

25,392

262,144

(288,095)

(39,381)

16,721

33,482

(15,294)

(17,771)

18,592

(21,495)

(1,542)

(21,495)

(1,542)

(39,381)

(87,070)

(9,000)

3,390

11,525

911

(478)

10,975

5,349

2,501,132
1,297

517

319,900

3,133

(1,293)

(2,949)

3,133

(1,293)

(17,771)

(91,619)

(9,000)

12,105

858

(559)

$ 144,784 $ 535,407 $ 1,815,360 $ 221,374 $ (14,473) $

14,108 $

1,624 $ 2,718,184

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Nature of Operations

Commerce Bancshares, Inc. and its subsidiaries (the Company) conducts its principal activities from approximately 330
locations throughout Missouri, Illinois, Kansas, Oklahoma and Colorado. Principal activities include retail and commercial
banking, investment management, securities brokerage, mortgage banking, credit related insurance and private equity investment
activities.

Basis of Presentation

The Company follows accounting principles generally accepted in the United States of America (GAAP) and reporting practices
applicable to the banking industry. The preparation of financial statements under GAAP requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and notes. These estimates are based on information
available to management at the time the estimates are made. While the consolidated financial statements reflect management’s
best estimates and judgments, actual results could differ from those estimates. The consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries (after elimination of all material intercompany balances and
transactions). Certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications
had no effect on net income or total assets. Management has evaluated subsequent events for potential recognition or disclosure
through the date these consolidated financial statements were issued.

The Company, in the normal course of business, engages in a variety of activities that involve variable interest entities (VIEs).
A VIE is a legal entity that lacks equity investors or whose equity investors do not have a controlling financial interest in the entity
through their equity investments. However, an enterprise is deemed to have a controlling financial interest and is the primary
beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic
performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. An
enterprise that is the primary beneficiary must consolidate the VIE. The Company’s interests in VIEs are evaluated to determine
if the Company is the primary beneficiary both at inception and when there is a change in circumstances that requires a
reconsideration.

The Company is considered to be the primary beneficiary in a rabbi trust related to a deferred compensation plan offered to
certain employees. The assets and liabilities of this trust, which are included in the accompanying consolidated balance sheets,
are not significant. The Company also has variable interests in certain entities in which it is not the primary beneficiary. These
entities are not consolidated. These interests include affordable housing limited partnership interests, holdings in its investment
portfolio of various asset and mortgage-backed bonds that are issued by securitization trusts, and managed discretionary trust
assets that are not included in the accompanying consolidated balance sheets.

Cash and Cash Equivalents

In the accompanying consolidated statements of cash flows, cash and cash equivalents include “Cash and due from banks”,
“Federal funds sold and short-term securities purchased under agreements to resell”, and “Interest earning deposits with banks”
as segregated in the accompanying consolidated balance sheets.

Regulations of the Federal Reserve System require cash balances to be maintained at the Federal Reserve Bank, based on
certain deposit levels. The minimum reserve requirement for the Bank at December 31, 2017 totaled $126.1 million, while cash
held at the Federal Reserve Bank totaled $30.6 million. Additionally, as of December 31, 2017, the Company had $12.5 million
in cash collateral on deposit with another financial institution relating to interest rate swap transactions.

Loans and Related Earnings

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at
their outstanding principal balances, net of undisbursed loan proceeds, the allowance for loan losses, and any deferred fees and
costs on originated loans. Origination fee income received on loans and amounts representing the estimated direct costs of
origination are deferred and amortized to interest income over the life of the loan using the interest method.

Interest on loans is accrued based upon the principal amount outstanding. Interest income is recognized primarily on the level
yield method. Loan and commitment fees, net of costs, are deferred and recognized in income over the term of the loan or
commitment as an adjustment of yield. Annual fees charged on credit card loans are capitalized to principal and amortized over

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12 months to loan fees and sales. Other credit card fees, such as cash advance fees and late payment fees, are recognized in income
as an adjustment of yield when charged to the cardholder’s account.

Non-Accrual Loans

Loans are placed on non-accrual status when management does not expect to collect payments consistent with acceptable and
agreed upon terms of repayment. Business, construction real estate, business real estate, and personal real estate loans that are
contractually 90 days past due as to principal and/or interest payments are generally placed on non-accrual, unless they are both
well-secured and in the process of collection. Consumer, revolving home equity and credit card loans are exempt under regulatory
rules from being classified as non-accrual. When a loan is placed on non-accrual status, any interest previously accrued but not
collected is reversed against current income, and the loan is charged off to the extent uncollectible. Principal and interest payments
received on non-accrual loans are generally applied to principal. Interest is included in income only after all previous loan charge-
offs have been recovered and is recorded only as received. The loan is returned to accrual status only when the borrower has
brought all past due principal and interest payments current, and, in the opinion of management, the borrower has demonstrated
the ability to make future payments of principal and interest as scheduled. A six month history of sustained payment performance
is generally required before reinstatement of accrual status.

Restructured Loans

A loan is accounted for as a troubled debt restructuring if the Company, for economic or legal reasons related to the borrowers’
financial difficulties, grants a concession to the borrower that it would not otherwise consider. A troubled debt restructuring typically
involves (1) modification of terms such as a reduction of the stated interest rate, loan principal, or accrued interest, (2) a loan
renewal at a stated interest rate lower than the current market rate for a new loan with similar risk, or (3) debt that was not reaffirmed
in bankruptcy. Business, business real estate, construction real estate and personal real estate troubled debt restructurings with
impairment charges are placed on non-accrual status. The Company measures the impairment loss of a troubled debt restructuring
in the same manner as described below. Troubled debt restructurings which are performing under their contractual terms continue
to accrue interest which is recognized in current earnings.

Impaired Loans

Loans are evaluated regularly by management for impairment. Included in impaired loans are all non-accrual loans, as well
as loans that have been classified as troubled debt restructurings. Once a loan has been identified as impaired, impairment is
measured based on either the present value of the expected future cash flows at the loan’s initial effective interest rate or the fair
value of the collateral if collateral dependent. Factors considered in determining impairment include delinquency status, cash
flow analysis, credit analysis, and collateral value and availability.

Loans Held For Sale

Loans held for sale include student loans and certain fixed rate residential mortgage loans. These loans are typically classified
as held for sale upon origination based upon management's intent to sell the production of these loans. The student loans are
carried at the lower of aggregate cost or fair value, and their fair value is determined based on sale contract prices. The mortgage
loans are carried at fair value under the elected fair value option. Their fair value is based on secondary market prices for loans
with similar characteristics, including an adjustment for embedded servicing value. Changes in fair value and gains and losses
on sales are included in loan fees and sales. Deferred fees and costs related to these loans are not amortized but are recognized
as part of the cost basis of the loan at the time it is sold. Interest income related to loans held for sale is accrued based on the
principal amount outstanding and the loan's contractual interest rate.

Occasionally, other types of loans may be classified as held for sale in order to manage credit concentration. These loans are

carried at the lower of cost or fair value with gains and losses on sales recognized in loan fees and sales.

Allowance/Provision for Loan Losses

The allowance for loan losses is maintained at a level believed to be appropriate by management to provide for probable loan
losses inherent in the portfolio as of the balance sheet date, including losses on known or anticipated problem loans as well as for
loans which are not currently known to require specific allowances. Management has established a process to determine the
amount of the allowance for loan losses which assesses the risks and losses inherent in its portfolio. Business, construction real
estate and business real estate loans are normally larger and more complex, and their collection rates are harder to predict. These
loans are more likely to be collateral dependent and are allocated a larger reserve, due to their potential volatility. Personal real
estate, credit card, consumer and revolving home equity loans are individually smaller and perform in a more homogenous manner,
making loss estimates more predictable. Management’s process provides an allowance consisting of a specific allowance component
based on certain individually evaluated loans and a general component based on estimates of reserves needed for pools of loans.

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Loans subject to individual evaluation generally consist of business, construction real estate, business real estate and personal
real estate loans on non-accrual status. These impaired loans are evaluated individually for the impairment of repayment potential
and collateral adequacy. Other impaired loans identified as performing troubled debt restructurings are collectively evaluated
because they have similar risk characteristics. Loans which have not been identified as impaired are segregated by loan type and
sub-type and are collectively evaluated. Reserves calculated for these loan pools are estimated using a consistent methodology
that considers historical loan loss experience by loan type, loss emergence periods, delinquencies, current economic factors, loan
risk ratings and industry concentrations.

The Company’s estimate of the allowance for loan losses and the corresponding provision for loan losses is based on various
judgments and assumptions made by management. The amount of the allowance for loan losses is influenced by several qualitative
factors which include collateral valuation, evaluation of performance and status, current loan portfolio composition and
characteristics, trends in delinquencies, portfolio risk ratings, levels of non-performing assets, and prevailing regional and national
economic and business conditions.

The estimates, appraisals, evaluations, and cash flows utilized by management may be subject to frequent adjustments due to
changing economic prospects of borrowers or properties. These estimates are reviewed periodically and adjustments, if necessary,
are recorded in the provision for loan losses in the periods in which they become known.

Loans, or portions of loans, are charged off to the extent deemed uncollectible. Loan charge-offs reduce the allowance for loan
losses, and recoveries of loans previously charged off are added back to the allowance. Business, business real estate, construction
real estate and personal real estate loans are generally charged down to estimated collectible balances when they are placed on
non-accrual status. Consumer loans and related accrued interest are normally charged down to the fair value of related collateral
(or are charged off in full if no collateral) once the loans are more than 120 days delinquent. Credit card loans are charged off
against the allowance for loan losses when the receivable is more than 180 days past due. The interest and fee income previously
capitalized but not collected on credit card charge-offs is reversed against interest income.

Operating, Direct Financing and Sales Type Leases

The net investment in direct financing and sales type leases is included in loans on the Company’s consolidated balance sheets
and consists of the present values of the sum of the future minimum lease payments and estimated residual value of the leased
asset. Revenue consists of interest earned on the net investment and is recognized over the lease term as a constant percentage
return thereon. The net investment in operating leases is included in other assets on the Company’s consolidated balance sheets.
It is carried at cost, less the amount depreciated to date. Depreciation is recognized, on the straight-line basis, over the lease term
to the estimated residual value. Operating lease revenue consists of the contractual lease payments and is recognized over the
lease term in other non-interest income. Estimated residual values are established at lease inception utilizing contract terms, past
customer experience, and general market data and are reviewed and adjusted, if necessary, on an annual basis.

Investments in Debt and Equity Securities

The Company has classified the majority of its investment portfolio as available for sale. From time to time, the Company
sells securities and utilizes the proceeds to reduce borrowings, fund loan growth, or modify its interest rate profile. Securities
classified as available for sale are carried at fair value. Changes in fair value, excluding certain losses associated with other-than-
temporary impairment (OTTI), are reported in other comprehensive income (loss), a component of stockholders’ equity. Securities
are periodically evaluated for OTTI in accordance with guidance provided in ASC 320-10-35. For securities with OTTI, the entire
loss in fair value is required to be recognized in current earnings if the Company intends to sell the securities or believes it likely
that it will be required to sell the security before the anticipated recovery. If neither condition is met, but the Company does not
expect to recover the amortized cost basis, the Company determines whether a credit loss has occurred, and the loss is then
recognized in current earnings. The noncredit-related portion of the overall loss is reported in other comprehensive income (loss).
Gains and losses realized upon sales of securities are calculated using the specific identification method and are included in
investment securities gains (losses), net, in the consolidated statements of income. Purchase premiums and discounts are amortized
to interest income using a level yield method over the estimated lives of the securities. For mortgage and asset-backed securities,
prepayment experience is evaluated quarterly to determine the appropriate estimate of the future rate of prepayment. When a
change in a bond's estimated remaining life is necessary, a corresponding adjustment is made in the related amortization of premium
or discount accretion.

Non-marketable securities include certain private equity investments, consisting of both debt and equity instruments. These
securities are carried at fair value in accordance with ASC 946-10-15, with changes in fair value reported in current earnings. In
the absence of readily ascertainable market values, fair value is estimated using internally developed models. Changes in fair
value and gains and losses from sales are included in investment securities gains (losses), net in the consolidated statements of

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income. Other non-marketable securities acquired for debt and regulatory purposes are carried at cost and periodically evaluated
for other-than-temporary impairment.

Trading account securities, which are bought and held principally for the purpose of resale in the near term, are carried at fair

value. Gains and losses, both realized and unrealized, are recorded in non-interest income.

Purchases and sales of securities are recognized on a trade date basis. A receivable or payable is recognized for pending

transaction settlements.

Securities Purchased under Agreements to Resell and Securities Sold under Agreements to Repurchase

Securities purchased under agreements to resell and securities sold under agreements to repurchase are treated as collateralized
financing transactions, not as purchases and sales of the underlying securities. The agreements are recorded at the amount of cash
advanced or received.

The Company periodically enters into securities purchased under agreements to resell with large financial institutions.

Securities pledged by the counterparties to secure these agreements are delivered to a third party custodian.

Securities sold under agreements to repurchase are a source of funding to the Company and are offered to cash management
customers as an automated, collateralized investment account. From time to time, securities sold may also be used by the Bank
to obtain additional borrowed funds at favorable rates. These borrowings are secured by a portion of the Company's investment
security portfolio and delivered either to the dealer custody account at the FRB or to the applicable counterparty.

The fair value of collateral either received from or provided to a counterparty is monitored daily, and additional collateral is

obtained, returned, or provided by the Company in order to maintain full collateralization for these transactions.

As permitted by current accounting guidance, the Company offsets certain securities purchased under agreements to resell
against securities sold under agreements to repurchase in its balance sheet presentation. These agreements are further discussed
in Note 18, Resale and Repurchase Agreements.

Land, Buildings and Equipment

Land is stated at cost, and buildings and equipment are stated at cost, including capitalized interest when appropriate, less
accumulated depreciation. Depreciation is computed using a straight-line method, utilizing estimated useful lives; generally 30
years for buildings, 10 years for building improvements, and 3 to 10 years for equipment. Leasehold improvements are amortized
over the shorter of 10 years or the remaining lease term. Maintenance and repairs are charged to non-interest expense as incurred.

Foreclosed Assets

Foreclosed assets consist of property that has been repossessed and is comprised of commercial and residential real estate and
other non-real estate property, including auto and recreational and marine vehicles. The assets are initially recorded at fair value
less estimated selling costs, establishing a new cost basis. Initial valuation adjustments are charged to the allowance for loan
losses. Fair values are estimated primarily based on appraisals, third-party price opinions, or internally developed pricing models.
After initial recognition, fair value estimates are updated periodically. Declines in fair value below cost are recognized through
valuation allowances which may be reversed when supported by future increases in fair value. These valuation adjustments, in
addition to gains and losses realized on sales and net operating expenses, are recorded in other non-interest expense.

Goodwill and Intangible Assets

Goodwill is not amortized but is assessed for impairment on an annual basis or more frequently in certain circumstances. When
testing for goodwill impairment, the Company may initially perform a qualitative assessment. Based on the results of this qualitative
assessment, if the Company concludes it is more likely than not that a reporting unit's fair value is less than its carrying amount,
a quantitative analysis is performed. Quantitative valuation methodologies include a combination of formulas using current market
multiples, based on recent sales of financial institutions within the Company's geographic marketplace. If the fair value of a
reporting unit is less than the carrying amount, additional analysis is required to measure the amount of impairment. The Company
has not recorded impairment resulting from goodwill impairment tests. However, adverse changes in the economic environment,
operations of the reporting unit, or other factors could result in a decline in fair value.

Intangible assets that have finite useful lives, such as core deposit intangibles and mortgage servicing rights, are amortized
over their estimated useful lives. Core deposit intangibles are amortized over periods of 8 to 14 years, representing their estimated
lives, using accelerated methods. Mortgage servicing rights are amortized in proportion to and over the period of estimated net

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servicing income, considering appropriate prepayment assumptions. Core deposit intangibles are reviewed for impairment
whenever events or changes in circumstances indicate their carrying amount may not be recoverable. Impairment is indicated if
the sum of the undiscounted estimated future net cash flows is less than the carrying value of the intangible asset. Mortgage
servicing rights, while initially recorded at fair value, are subsequently amortized and carried at the lower of the initial capitalized
amount (net of accumulated amortization), or estimated fair value. The Company evaluates its mortgage servicing rights for
impairment on a quarterly basis, using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications
based on the risk characteristics of the underlying loans. A valuation allowance has been established, through a charge to earnings,
to the extent the amortized cost exceeds the estimated fair value. However, the Company has not recorded other-than-temporary
impairment losses on either of these types of intangible assets.

Income Taxes

Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily
represent amounts currently payable under tax laws. Deferred income taxes are provided for temporary differences between the
financial reporting bases and income tax bases of the Company’s assets and liabilities, net operating losses, and tax credit
carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to apply to taxable
income when such assets and liabilities are anticipated to be settled or realized. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized as tax expense or benefit in the period that includes the enactment date of the change. In
determining the amount of deferred tax assets to recognize in the financial statements, the Company evaluates the likelihood of
realizing such benefits in future periods. A valuation allowance is established if it is more likely than not that all or some portion
of the deferred tax asset will not be realized. The Company recognizes interest and penalties related to income taxes within income
tax expense in the consolidated statements of income.

The Company and its eligible subsidiaries file a consolidated federal income tax return. State and local income tax returns are

filed on a combined, consolidated or separate return basis based upon each jurisdiction’s laws and regulations.

In December 2017, tax reform legislation was enacted which changed the maximum corporate tax rate for years 2018 and
beyond. As such, deferred tax assets and liabilities were revalued in 2017 to account for the change in future tax rates. Additional
information about current and deferred income taxes is provided in Note 8, Income Taxes.

Derivatives

While the Company’s interest rate risk management policy permits the use of hedge accounting for derivatives, all of the
derivatives held by the Company during the past several years have been accounted for as free-standing instruments. These
instruments are carried at fair value, and changes in fair value are recognized in current earnings. They include interest rate swaps
and caps, which are offered to customers to assist in managing their risks of adverse changes in interest rates. Each contract
between the Company and a customer is offset by a contract between the Company and an institutional counterparty, thus minimizing
the Company's exposure to rate changes. The Company also enters into certain contracts, known as credit risk participation
agreements, to buy or sell credit protection on specific interest rate swaps. It also purchases and sells forward foreign exchange
contracts, either in connection with customer transactions, or for its own trading purposes. In 2015, the Company began an
origination and sales program of certain personal real estate mortgages. Derivative instruments under this program include mortgage
loan commitments, forward loan sale contracts, and forward contracts to sell certain to-be-announced (TBA) securities.

The Company has master netting arrangements with various counterparties but does not offset derivative assets and liabilities
under these arrangements in its consolidated balance sheets. However, interest rate swaps that are executed under central clearing
requirements are presented on a net basis as mandated by the statutory terms of the Company's contract with its clearing counterparty.

Additional information about derivatives held by the Company and valuation methods employed is provided in Note 15, Fair

Value Measurements and Note 17, Derivative Instruments.

Pension Plan

The Company’s pension plan is described in Note 9, Employee Benefit Plans. The funded status of the plan is recognized as
an asset or liability in the consolidated balance sheets, and changes in that funded status are recognized in the year in which the
changes occur through other comprehensive income. Plan assets and benefit obligations are measured as of fiscal year end. The
measurement of the projected benefit obligation and pension expense involve actuarial valuation methods and the use of various
actuarial and economic assumptions. The Company monitors the assumptions and updates them periodically. Due to the long-
term nature of the pension plan obligation, actual results may differ significantly from estimations. Such differences are adjusted
over time as the assumptions are replaced by facts and values are recalculated.

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Stock-Based Compensation

The Company’s stock-based employee compensation plan is described in Note 10, Stock-Based Compensation and Directors
Stock Purchase Plan. In accordance with the requirements of ASC 718-10-30-3 and 35-2, the Company measures the cost of
stock-based compensation based on the grant-date fair value of the award, recognizing the cost over the requisite service period,
which is generally the vesting period. The fair value of an option award is estimated using the Black-Scholes option-pricing model
while the fair value of a nonvested stock award is the common stock (CBSH) market price. The expense recognized is reduced
for estimated forfeitures over the vesting period and adjusted for actual forfeitures as they occurred, and was included in salaries
and employee benefits in the accompanying consolidated statements of income. As further discussed in Note 10, effective January
1, 2017, the Company recognized forfeitures as a reduction to expense only when they have occurred, as allowed under the
provisions of ASU 2016-09.

Comprehensive Income

Comprehensive income includes all changes in stockholders’ equity during a period, except those resulting from transactions
with stockholders. In addition to net income, other components of the Company’s comprehensive income include the after tax
effect of changes in net unrealized gain / loss on securities available for sale and changes in net actuarial gain / loss on defined
benefit post-retirement plans. Comprehensive income is reported in the accompanying consolidated statements of comprehensive
income. See Note 11 for additional information on accumulated other comprehensive income (loss).

Treasury Stock

Purchases of the Company’s common stock are recorded at cost. Upon re-issuance for acquisitions, exercises of stock-based

awards or other corporate purposes, treasury stock is reduced based upon the average cost basis of shares held.

Income per Share

Basic income per share is computed using the weighted average number of common shares outstanding during each year.
Diluted income per share includes the effect of all dilutive potential common shares (primarily stock options and stock appreciation
rights) outstanding during each year. The Company applies the two-class method of computing income per share. The two-class
method is an earnings allocation formula that determines income per share for common stock and for participating securities,
according to dividends declared and participation rights in undistributed earnings. The Company’s nonvested stock awards are
considered to be a class of participating security. All per share data has been restated to reflect the 5% stock dividend distributed
in December 2017.

2. Loans and Allowance for Loan Losses

Major classifications within the Company’s held for investment loan portfolio at December 31, 2017 and 2016 are as follows:

(In thousands)

Commercial:

Business

Real estate — construction and land

Real estate — business

Personal Banking:

Real estate — personal

Consumer

Revolving home equity

Consumer credit card

Overdrafts

Total loans

2017

2016

4,958,554 $

4,776,365

968,820

791,236

2,697,452

2,643,374

2,062,787

2,104,487

400,587

783,864

7,123

2,010,397

1,990,801

413,634

776,465

10,464

13,983,674 $

13,412,736

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Loans to directors and executive officers of the Parent and the Bank, and to their associates, are summarized as follows:

(In thousands)

Balance at January 1, 2017

Additions

Amounts collected

Amounts written off

Balance, December 31, 2017

62,991

655,544

(639,920)

—

78,615

Management believes all loans to directors and executive officers have been made in the ordinary course of business with
normal credit terms, including interest rate and collateral considerations, and do not represent more than a normal risk of collection.
The activity in the table above includes draws and repayments on several lines of credit with business entities. There were no
outstanding loans at December 31, 2017 to principal holders (over 10% ownership) of the Company’s common stock.

The Company’s lending activity is generally centered in Missouri, Illinois, Kansas and other nearby states including Oklahoma,
Colorado, Iowa, Ohio, Texas, and others. The Company maintains a diversified portfolio with limited industry concentrations of
credit risk. Loans and loan commitments are extended under the Company’s normal credit standards, controls, and monitoring
features. Most loan commitments are short or intermediate term in nature. Commercial loan maturities generally range from three
to seven years. Collateral is commonly required and would include such assets as marketable securities and cash equivalent assets,
accounts receivable and inventory, equipment, other forms of personal property, and real estate. At December 31, 2017, unfunded
loan commitments totaled $10.8 billion (which included $5.1 billion in unused approved lines of credit related to credit card loan
agreements) which could be drawn by customers subject to certain review and terms of agreement. At December 31, 2017, loans
totaling $3.8 billion were pledged at the FHLB as collateral for borrowings and letters of credit obtained to secure public deposits.
Additional loans of $1.7 billion were pledged at the Federal Reserve Bank as collateral for discount window borrowings.

The Company has a net investment in direct financing and sales type leases to commercial and industrial and tax-exempt
entities of $737.7 million and $725.3 million at December 31, 2017 and 2016, respectively, which is included in business loans
on the Company’s consolidated balance sheets. This investment includes deferred income of $52.1 million and $49.9 million at
December 31, 2017 and 2016, respectively. The net investment in operating leases amounted to $17.4 million and $19.0 million
at December 31, 2017 and 2016, respectively, and is included in other assets on the Company’s consolidated balance sheets.

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Allowance for loan losses

A summary of the activity in the allowance for losses during the previous three years follows:

(In thousands)

Balance at December 31, 2014

Provision for loan losses

Deductions:

Loans charged off

Less recoveries

Net loans charged off (recoveries)

Balance at December 31, 2015

Provision for loan losses

Deductions:

Loans charged off

Less recoveries

Net loans charged off (recoveries)

Balance at December 31, 2016

Provision for loan losses

Deductions:

Loans charged off

Less recoveries

Net loans charged off (recoveries)

Balance at December 31, 2017

Commercial

Personal
Banking

Total

89,622 $

66,910 $

156,532

(9,319)

38,046

28,727

4,057

5,840

(1,783)

82,086

4,898

3,258

7,635

(4,377)

91,361

2,327

2,538

2,554

(16)

46,993

11,483

35,510

69,446

31,420

47,720

11,425

36,295

64,571

42,917

52,641

10,981

41,660

51,050

17,323

33,727

151,532

36,318

50,978

19,060

31,918

155,932

45,244

55,179

13,535

41,644

93,704 $

65,828 $

159,532

The following table shows the balance in the allowance for loan losses and the related loan balance at December 31, 2017 and
2016, 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 deemed to have similar risk
characteristics, which are collectively evaluated. All other loans are collectively evaluated for impairment under ASC 450-20.

(In thousands)

December 31, 2017

Commercial

Personal Banking

Total

December 31, 2016

Commercial

Personal Banking

Total

Impaired Loans

All Other Loans

Allowance for
Loan Losses

Loans
Outstanding

Allowance for
Loan Losses

Loans
Outstanding

3,067 $

1,176

92,613

22,182

4,243 $

114,795

1,817 $

1,292

3,109 $

44,795

19,737

64,532

90,637 $

8,532,213

64,652

5,336,666

155,289 $ 13,868,879

89,544 $

8,166,180

63,279

5,182,024

152,823 $ 13,348,204

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Impaired loans

The table below shows the Company’s investment in impaired loans at December 31, 2017 and 2016. 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 current accounting guidance. 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 78.

(In thousands)

Non-accrual loans

Restructured loans (accruing)

Total impaired loans

2017

2016

11,983 $

102,812

114,795 $

14,283

50,249

64,532

The following table provides additional information about impaired loans held by the Company at December 31, 2017 and
2016, segregated between loans for which an allowance for credit losses has been provided and loans for which no allowance has
been provided.

(In thousands)

December 31, 2017

With no related allowance recorded:

Business

Real estate – business

Consumer

With an allowance recorded:

Business

Real estate – construction and land

Real estate – business

Real estate – personal

Consumer

Revolving home equity

Consumer credit card

Total

December 31, 2016

With no related allowance recorded:

Business

Real estate – construction and land

With an allowance recorded:

Business

Real estate – construction and land

Real estate – business

Real estate – personal

Consumer

Revolving home equity

Consumer credit card

Total

Recorded
Investment

Unpaid Principal
Balance

Related
Allowance

5,356 $

9,000 $

1,299

779

1,303

817

7,434 $

11,120 $

—

72,589 $

73,168 $

2,455

837

12,532

9,126

5,388

204

6,685

841

13,071

11,914

5,426

204

6,685

107,361 $

114,795 $

111,309 $

122,429 $

7,375 $

10,470 $

557

752

7,932 $

11,222 $

585

532

566

4,243

—

29,924 $

31,795 $

1,318

6,870

6,394

5,281

584

7,478

8,072

9,199

5,281

584

7,478

56,600 $

64,532 $

62,481 $

73,703 $

496

642

592

3,109

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Total average impaired loans during 2017 and 2016 are shown in the table below.

(In thousands)

Commercial

2017

Personal
Banking

Total

Commercial

2016

Personal
Banking

Total

Average impaired loans:

Non-accrual loans

Restructured loans (accruing)

Total

9,658 $

3,989 $

49,070

17,539

58,728 $

21,528 $

13,647

66,609

80,256

17,294 $

4,135 $

32,295

17,058

49,589 $

21,193 $

21,429

49,353

70,782

The table below shows interest income recognized during the years ended December 31, 2017, 2016 and 2015 for impaired

loans held at the end of each respective period. This interest relates to accruing restructured loans, as discussed previously.

(In thousands)

Interest income recognized on impaired loans:

Business

Real estate – construction and land

Real estate – business

Real estate – personal

Consumer

Revolving home equity

Consumer credit card

Total

Years Ended December 31

2017

2016

2015

3,135 $

1,064 $

514

402

307

673

171

152

339

722

495

122

187

348

750

5,082 $

2,481 $

2,002

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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 December 31, 2017 and 2016.

(In thousands)
December 31, 2017
Commercial:

Business

Real estate – construction and land

Real estate – business
Personal Banking:

Real estate – personal

Consumer

Revolving home equity

Consumer credit card

Overdrafts

Total
December 31, 2016
Commercial:

Business

Real estate – construction and land

Real estate – business
Personal Banking:

Real estate – personal

Consumer

Revolving home equity

Consumer credit card

Overdrafts

Total

Credit quality

Current or Less
Than 30 Days
Past Due

30 – 89 Days
Past Due

90 Days Past
Due and Still
Accruing

Non-accrual

Total

4,949,148

3,085 $

374 $

5,947 $

4,958,554

967,321

2,694,234

2,050,787

2,067,025

397,349

764,568

6,840

1,473

482

6,218

32,674

1,962

10,115

283

—

3,321

3,954

1,276

9,181

—

968,820

2,736

2,697,452

2,461

834

—

2,062,787

2,104,487

400,587

783,864

7,123

13,897,272

56,292 $

18,127 $

11,983 $

13,983,674

4,763,274 $

3,735 $

674 $

8,682 $

4,776,365

789,633

2,639,586

1,995,724

1,957,358

411,483

757,443

10,014

1,039

2,154

9,162

29,783

1,032

10,187

450

—

2,108

3,660

1,119

8,835

—

564

1,634

3,403

—

791,236

2,643,374

2,010,397

1,990,801

413,634

776,465

10,464

13,324,515 $

57,542 $

16,396 $

14,283 $

13,412,736

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
material 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, as discussed in Note 1.

Table of contents

(In thousands)

December 31, 2017

Pass

Special mention

Substandard

Non-accrual

Total

December 31, 2016

Pass

Special mention

Substandard

Non-accrual

Total

Commercial Loans

Business

Real Estate -
Construction

Real Estate -
Business

Total

4,740,013 $

955,499 $

2,593,005 $

8,288,517

59,177

153,417

5,947

10,614

2,702

4,958,554 $

968,820 $

50,577

51,134

2,736
2,697,452 $

120,368

207,253

8,688

8,624,826

4,607,553 $

788,778 $

2,543,348 $

7,939,679

116,642

43,488

8,682

722

1,172

564

45,479

52,913

1,634

162,843

97,573

10,880

4,776,365 $

791,236 $

2,643,374 $

8,210,975

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 section on "Delinquent and non-accrual loans". 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 person'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 real estate loans for which FICO scores are not obtained because the loans are related to commercial
activity. These loans totaled $219.2 million at December 31, 2017 and $237.2 million at December 31, 2016. The table also
excludes consumer loans related to the Company's patient healthcare loan program, which totaled $145.0 million at December 31,
2017 and $75.4 million at December 31, 2016. As the healthcare loans are guaranteed by the hospital, FICO scores are not
considered relevant for this program. The personal real estate loans and consumer loans excluded below totaled less than 7% 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 December 31, 2017 and 2016 by FICO score.

December 31, 2017

FICO score:

Under 600

600 – 659

660 – 719

720 – 779

780 and over

Total

December 31, 2016

FICO score:

Under 600

600 – 659

660 – 719

720 – 779

780 and over

Total

Personal Banking Loans

% of Loan Category

Real Estate -
Personal

Consumer

Revolving Home
Equity

Consumer Credit
Card

1.3%

3.3%

1.1%

4.7%

2.1

10.5

25.6

60.5

5.5

17.3

26.8

47.1

1.7

9.5

21.4

66.3

14.4

34.4

26.0

20.5

100.0%

1.3 %

3.4 %

1.0 %

4.9 %

2.6

10.4

25.4

60.3

6.4

19.7

26.3

44.2

1.8

9.7

21.1

66.4

15.5

34.9

25.1

19.6

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.
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. Other performing restructured loans are 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 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. Performing restructured
loans at rates judged to be below market increased $54.1 million at year end 2017 compared to year end 2016 due to several large
loan renewals in 2017, including a single business loan of $31.9 million.

Troubled debt restructurings also include certain credit card loans under various debt management and assistance programs.
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 also classified certain loans as troubled debt restructurings because they were
not reaffirmed by the borrower in bankruptcy proceedings. These loans are comprised of 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 table below summarizes the troubled debt restructurings outstanding by type of modification, as described above.

(In thousands)

Accruing loans:

Non-market interest rates

Assistance programs

Bankruptcy non-affirmation

Other

Non-accrual loans

Total restructured loans

December 31

2017

2016

88,588 $

34,531

6,685

7,283

256

7,796

7,478

7,937

303

8,825

110,608 $

59,074

The table below shows the balance of troubled debt restructurings by loan classification at December 31, 2017, in addition to
the period end balances of 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)

Commercial:

Business

Real estate – construction and land

Real estate – business

Personal Banking:

Real estate – personal

Consumer

Revolving home equity

Consumer credit card

Total restructured loans

Balance 90 days past
due at any time
during previous 12
months

December 31, 2017

77,400 $

776

12,394

7,760

5,389

204

6,685

110,608

—

278

630

1,031

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

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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 $1.0 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 begin.

The Company had commitments of $7.6 million at December 31, 2017 to lend additional funds to borrowers with restructured

loans, compared to $10.3 million at December 31, 2016.

Loans held for sale

The Company designates certain long-term fixed rate personal real estate loan originations 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 17. The loans are primarily sold to FNMA, FHLMC, and GNMA. At December 31,
2017, the fair value of these loans was $15.3 million, and the unpaid principal balance was $14.8 million.

The Company also designates certain student loan originations as held for sale. The borrowers are credit-worthy students who
are attending colleges and universities. The loans are intended to be sold in the secondary market, and the Company maintains
contracts with Sallie Mae to sell the loans within 210 days after the last disbursement to the student. These loans are carried at
lower of cost or fair value, which at December 31, 2017 totaled $6.1 million.

At December 31, 2017, none of the loans held for sale were past due or on non-accrual status.

Foreclosed real estate/repossessed assets

The Company’s holdings of foreclosed real estate totaled $681 thousand and $366 thousand at December 31, 2017 and 2016,
respectively. Personal property acquired in repossession, generally autos and marine and recreational vehicles, totaled $2.7 million
and $2.2 million at December 31, 2017 and 2016, respectively. Upon acquisition, these assets are recorded at fair value less
estimated selling costs at the date of foreclosure, establishing a new cost basis. They are subsequently carried at the lower of this
cost basis or fair value less estimated selling costs.

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3. Investment Securities

Investment securities, at fair value, consisted of the following at December 31, 2017 and 2016.

(In thousands)

Available for sale:

U.S. government and federal agency obligations

Government-sponsored enterprise obligations

State and municipal obligations

Agency mortgage-backed securities

Non-agency mortgage-backed securities

Asset-backed securities

Other debt securities

Equity securities

Total available for sale

Trading

Non-marketable

Total investment securities

2017

2016

917,147 $
406,363

1,611,366

3,040,913

905,793

1,492,800

351,060

48,838

8,774,280

18,269

100,758

920,904

449,998

1,778,214

2,685,931

1,055,639

2,381,301

325,953

51,263

9,649,203

22,225

99,558

8,893,307 $

9,770,986

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 borrowing and regulatory purposes, which totaled $43.3 million and $46.9 million at December 31, 2017 and
2016, respectively. Investment in Federal Reserve Bank stock is based on the capital structure of the investing bank, and investment
in FHLB stock is mainly tied to the level of borrowings from the FHLB. These holdings are carried at cost. Non-marketable
securities also include private equity investments, which amounted to $57.2 million and $52.3 million at December 31, 2017 and
2016, respectively. In the absence of readily ascertainable market values, these securities are carried at estimated fair value.

A summary of the available for sale investment securities by maturity groupings as of December 31, 2017 is shown in the
following table. The weighted average yield for each range of maturities was calculated using the yield on each security within
that range weighted by the amortized cost of each security at December 31, 2017. Yields on tax exempt securities have not been
adjusted for tax exempt status. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by
agencies such as FHLMC, FNMA, GNMA and FDIC, in addition to non-agency mortgage-backed securities which have no
guarantee, but are collateralized by residential and commercial mortgages. Also included are certain other asset-backed securities,
primarily collateralized by credit cards, automobiles and commercial loans. The Company does not have exposure to subprime-
originated mortgage-backed or collateralized debt obligation instruments, and does not hold any trust preferred securities.

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(Dollars in thousands)

U.S. government and federal agency obligations:

Within 1 year

After 1 but within 5 years

After 5 but within 10 years

After 10 years

Total U.S. government and federal agency obligations

Government-sponsored enterprise obligations:

Within 1 year

After 1 but within 5 years

After 5 but within 10 years

After 10 years

Total government-sponsored enterprise obligations

State and municipal obligations:

Within 1 year

After 1 but within 5 years

After 5 but within 10 years

After 10 years

Total state and municipal obligations

Mortgage and asset-backed securities:

Agency mortgage-backed securities

Non-agency mortgage-backed securities

Asset-backed securities

Total mortgage and asset-backed securities

Other debt securities:

Within 1 year

After 1 but within 5 years

After 5 but within 10 years

Total other debt securities

Equity securities

Amortized Cost

Fair Value

Weighted Average
Yield

1.71*%

1.45*

.43*

.59*

1.24*

1.35

1.93

2.71

3.00

1.79

2.65

2.21

2.46

3.01

2.39

2.62

2.54

2.03

2.45

57,983 $

641,114

149,589

68,808

917,494

215,763

121,575

34,983

35,945

408,266

164,756

665,351

709,248

53,352

58,347

639,192

149,927

69,681

917,147

215,434

121,199

34,870

34,860

406,363

165,638

670,953

721,181

53,594

1,592,707

1,611,366

3,046,701

3,040,913

903,920

1,495,380

5,446,001

905,793

1,492,800

5,439,506

10,390

247,181

93,417

350,988

4,411

10,389

247,626

93,045

351,060

48,838

Total available for sale investment securities

8,719,867 $

8,774,280

* Rate does not reflect inflation adjustment on inflation-protected securities

Investments in U.S. government securities include U.S. Treasury inflation-protected securities, which totaled $442.1 million,
at fair value, at December 31, 2017. Interest paid on these securities increases with inflation and decreases with deflation, as
measured by the Consumer Price Index. At maturity, the principal paid is the greater of an inflation-adjusted principal or the
original principal. Included in state and municipal obligations are $17.0 million, at fair value, of auction rate securities, which
were purchased from bank customers in 2008. Interest on these bonds is currently being paid at the maximum failed auction rates.
Equity securities are primarily comprised of investments in common stock held by the Parent, which totaled $45.9 million, at fair
value, at December 31, 2017.

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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)

December 31, 2017

Amortized Cost

Gross Unrealized
Gains

Gross Unrealized
Losses

Fair Value

U.S. government and federal agency obligations

917,494 $

4,096 $

(4,443) $

Government-sponsored enterprise obligations

State and municipal obligations

Mortgage and asset-backed securities:

Agency mortgage-backed securities

Non-agency mortgage-backed securities

Asset-backed securities

Total mortgage and asset-backed securities

Other debt securities

Equity securities

Total

December 31, 2016

U.S. government and federal agency obligations

Government-sponsored enterprise obligations

State and municipal obligations

Mortgage and asset-backed securities:

Agency mortgage-backed securities

Non-agency mortgage-backed securities

Asset-backed securities

Total mortgage and asset-backed securities

Other debt securities

Equity securities

Total

408,266

1,592,707

3,046,701

903,920

1,495,380

5,446,001

350,988

4,411

21,413

17,956

6,710

2,657

27,323

1,250

44,427

(1,929)

(2,754)

917,147

406,363

1,611,366

(23,744)

3,040,913

(4,837)

(5,237)

(33,818)

(1,178)

—

905,793

1,492,800

5,439,506

351,060

48,838

8,719,867 $

98,535 $

(44,122) $

8,774,280

919,904 $

7,312 $

(6,312) $

450,448

1,778,684

2,674,964

1,054,446

2,389,176

6,118,586

327,030

5,678

1,126

12,223

31,610

7,686

3,338

42,634

935

45,585

(1,576)

(12,693)

(20,643)

(6,493)

(11,213)

(38,349)

(2,012)

—

920,904

449,998

1,778,214

2,685,931

1,055,639

2,381,301

6,122,871

325,953

51,263

9,600,330 $

109,815 $

(60,942) $

9,649,203

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 Baa3 (Moody's) or BBB- (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 December 31, 2017, the fair value of securities on this watch list was $68.0 million compared
to $79.6 million at December 31, 2016.

As of December 31, 2017, the Company had recorded OTTI on certain non-agency mortgage-backed securities, part of the
watch list mentioned above, which had an aggregate fair value of $26.2 million. The cumulative credit-related portion of the
impairment on these securities, which was recorded in earnings, totaled $14.2 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 included the following:

Significant Inputs
Prepayment CPR

Projected cumulative default

Credit support

Loss severity

Range
0% - 25%

14% - 50%

0% - 54%

15% - 63%

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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.

(In thousands)

Cumulative OTTI credit losses at January 1

Credit losses on debt securities for which impairment was not previously recognized

Credit losses on debt securities for which impairment was previously recognized

Increase in expected cash flows that are recognized over remaining life of security

Cumulative OTTI credit losses at December 31

2017

2016

2015

14,080 $

14,129 $

13,734

111

274

(266)

—

270

(319)

407

(88)

14,199 $

14,080 $

14,129

Securities with unrealized losses recorded in accumulated other comprehensive income are shown in the table below, along

with the length of the impairment period.

(In thousands)

December 31, 2017

Less than 12 months

12 months or longer

Total

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

U.S. government and federal agency obligations

618,617

4,443

— $

618,617

Government-sponsored enterprise obligations

State and municipal obligations

Mortgage and asset-backed securities:

Agency mortgage-backed securities

Non-agency mortgage-backed securities

Asset-backed securities

286,393

282,843

1,320,689

577,017

786,048

1,712

1,752

9,433

2,966

3,168

49,766

49,339

619,300

153,813

264,295

217

1,002

336,159

332,182

14,311

1,939,989

1,871

2,069

730,830

1,050,343

Total mortgage and asset-backed securities

2,683,754

15,567

1,037,408

18,251

3,721,162

Other debt securities

Total

December 31, 2016

144,090

$ 4,015,697

U.S. government and federal agency obligations

$ 349,538

Government-sponsored enterprise obligations

State and municipal obligations

Mortgage and asset-backed securities:

Agency mortgage-backed securities

Non-agency mortgage-backed securities

Asset-backed securities

Total mortgage and asset-backed securities

Other debt securities

Total

727

20,202

451

164,292

24,201

$ 1,156,715 $

19,921

$ 5,172,412

2,823

1,576

12,164

20,638

6,373

5,277

32,288

1,986

32,208 $

3,489

$ 381,746

—

15,195

2,150

34,946

358,778

395,874

975

—

529

120

5,936

6,061

190,441

715,974

1,149,566

723,077

1,138,987

3,011,630

180,614

190,441

700,779

1,147,416

688,131

780,209

2,615,756

179,639

$ 4,036,153 $

50,837

444,252 $

10,105

$ 4,480,405 $

60,942

4,443

1,929

2,754

23,744

4,837

5,237

33,818

1,178

44,122

6,312

1,576

12,693

20,643

6,493

11,213

38,349

2,012

The total available for sale portfolio consisted of approximately 2,000 individual securities at December 31, 2017. The portfolio
included 635 securities, having an aggregate fair value of $5.2 billion, that were in a loss position at December 31, 2017, compared
to 771 securities, with a fair value of $4.5 billion, at December 31, 2016. The total amount of unrealized loss on these securities
was $44.1 million at December 31, 2017, a decrease of $16.8 million compared to the loss at December 31, 2016. At December 31,
2017, the fair value of securities in an unrealized loss position for 12 months or longer totaled $1.2 billion, or 13.2% of the total
portfolio value.

The Company’s holdings of state and municipal obligations included gross unrealized losses of $2.8 million at December 31,
2017. The state and municipal portfolio totaled $1.6 billion at fair value, or 18.4% of total available for sale securities. The
portfolio is diversified in order to reduce risk, and the Company has processes and procedures in place to monitor its state and
municipal holdings, identify signs of financial distress and, if necessary, exit its positions in a timely manner.

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The credit ratings (Moody’s rating or equivalent) at December 31, 2017 in the state and municipal bond portfolio are shown

in the following table. The average credit quality of the portfolio is Aa2 as rated by Moody’s.

Aaa

Not rated

% of Portfolio

6.0%

76.9

16.4

100.0%

The following table presents proceeds from sales of securities and the components of investment securities gains and losses

which have been recognized in earnings.

(In thousands)

Proceeds from sales of available for sale securities

Proceeds from sales of non-marketable securities

Total proceeds

Available for sale:

Gains realized on sales

Losses realized on sales

Losses realized on called bonds

Gain realized on donation

Other-than-temporary impairment recognized on debt securities

Non-marketable:

Gains realized on sales

Losses realized on sales

Fair value adjustments, net

Investment securities gains (losses), net

2017

2016

2015

790,152 $

2,228

792,380 $

2,049 $
22,331

24,380 $

675,870

13,161

689,031

10,656 $

109 $

2,925

(10,297)

(254)

31,074

(385)

970

(880)

(5,833)

25,051 $

—

(270)

(483)

4,349

(502)

(3,739)

(53) $

2,516

(40)

1,402

6,320

Investment securities with a fair value of $3.8 billion and $4.4 billion were pledged at December 31, 2017 and 2016, respectively,
to secure public deposits, securities sold under repurchase agreements, trust funds, and borrowings at the Federal Reserve Bank.
Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated
$662.5 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 exceeds 10% of stockholders’ equity.

4. Land, Buildings and Equipment

Land, buildings and equipment consist of the following at December 31, 2017 and 2016:

(In thousands)

Land

Buildings and improvements

Equipment

Total

Less accumulated depreciation

Net land, buildings and equipment

2017

2016

94,992 $

540,204

216,876

852,072

516,962

335,110 $

98,221

530,489

258,030

886,740

549,035

337,705

Depreciation expense of $29.1 million in 2017 and $30.1 million in both 2016 and 2015, was included in occupancy expense
and equipment expense in the consolidated statements of income. Repairs and maintenance expense of $16.4 million, $16.2 million
and $16.3 million for 2017, 2016 and 2015, respectively, was included in occupancy expense and equipment expense. There has
been no interest expense capitalized on construction projects in the past three years.

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5. Goodwill and Other Intangible Assets

The following table presents information about the Company's intangible assets which have estimable useful lives.

(In thousands)
Amortizable intangible

assets:
Core deposit premium
Mortgage servicing rights

Total

December 31, 2017

December 31, 2016

Gross
Carrying
Amount

Accumulated
Amortization

Valuation
Allowance

Net
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Valuation
Allowance

Net
Amount

$ 31,270
7,906
$ 39,176

(28,305)
(3,244)
(31,549)

— $ 2,965
4,653
(9)
$ 7,618
(9)

$ 31,270
5,672
$ 36,942

(27,429)
(2,782)
(30,211)

— $ 3,841
2,868
(22)
$ 6,709
(22)

The carrying amount of goodwill and its allocation among segments at December 31, 2017 and 2016 is shown in the table
below. As a result of ongoing assessments, no impairment of goodwill was recorded in 2017, 2016 or 2015. Further, the annual
assessment of qualitative factors on January 1, 2018 revealed no likelihood of impairment as of that date.

(In thousands)
Consumer segment
Commercial segment
Wealth segment
Total goodwill

December 31,
2017

December 31,
2016

70,721 $
67,454
746
138,921 $

70,721
67,454
746
138,921

Changes in the net carrying amount of goodwill and other net intangible assets for the years ended December 31, 2017 and

2016 are shown in the following table.

(In thousands)

Balance at December 31, 2015

Originations

Amortization

Impairment reversal

Balance at December 31, 2016

Originations

Amortization

Impairment reversal

Goodwill

Core Deposit
Premium

Mortgage
Servicing Rights

138,921 $

5,031 $

—

138,921

—

(1,190)

—

3,841

—

(876)

—

1,638

1,539

(316)

2,868

2,234

(462)

4,653

Balance at December 31, 2017

138,921 $

2,965 $

Mortgage servicing rights (MSRs) are initially recorded at fair value and subsequently amortized over the period of estimated
servicing income. They are periodically reviewed for impairment and if impairment is indicated, recorded at fair value. At
December 31, 2017, temporary impairment of $9 thousand had been recognized. Temporary impairment, including impairment
recovery, is effected through a change in a valuation allowance. The fair value of the MSRs is based on the present value of
expected future cash flows, as further discussed in Note 15 on Fair Value Measurements.

Aggregate amortization expense on intangible assets for the years ended December 31, 2017, 2016 and 2015 was $1.3 million,
$1.5 million and $1.8 million, respectively. The following table shows the estimated future amortization expense based on existing
asset balances and the interest rate environment as of December 31, 2017. 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)

2018

2019

2020

2021

2022

1,213

1,038

878

753

653

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6. Deposits

At December 31, 2017, the scheduled maturities of total time open and certificates of deposit were as follows:

(In thousands)

Due in 2018

Due in 2019

Due in 2020

Due in 2021

Due in 2022

Thereafter

Total

1,414,554

217,562

73,192

41,313

18,191

2,052

1,766,864

The following table shows a detailed breakdown of the maturities of time open and certificates of deposit, by size category, at

December 31, 2017.

(In thousands)

Due in 3 months or less

Due in over 3 through 6 months

Due in over 6 through 12 months

Due in over 12 months

Total

Certificates of
Deposit under
$100,000

Other Time
Deposits under
$100,000

Certificates of
Deposit over
$100,000

Other Time
Deposits over
$100,000

115,126 $

24,019 $

484,168 $

3,744 $

115,595

180,447

82,789

26,607

36,573

53,490

197,173

216,459

205,085

5,438

9,205

10,946

Total

627,057

344,813

442,684

352,310

493,957 $

140,689 $

1,102,885 $

29,333 $

1,766,864

The aggregate amount of time open and certificates of deposit that exceeded the $250,000 FDIC insurance limit totaled $880.9

million at December 31, 2017.

7. Borrowings

The following table sets forth selected information for short-term borrowings (borrowings with an original maturity of less

than one year).

(Dollars in thousands)

Federal funds purchased and repurchase agreements:

2017

2016

2015

Year End
Weighted
Rate

Average
Weighted
Rate

Average Balance
Outstanding

Maximum
Outstanding at
any Month End

Balance at
December 31

.8%

.7% $

1,462,387 $

1,984,071 $

1,507,138

1,266,093

1,654,860

1,723,905

2,193,197

1,723,905

1,963,552

Short-term borrowings consist primarily of federal funds purchased and securities sold under agreements to repurchase
(repurchase agreements), which generally have one day maturities. At December 31, 2017, $1.3 billion of these borrowings were
short-term repurchase agreements comprised of non-insured customer funds, which were secured by a portion of the Company's
investment portfolio. Additional information about the securities pledged for repurchase agreements is provided in Note 18 on
Resale and Repurchase Agreements.

The Bank is a member of the Des Moines FHLB and has access to term financing from the FHLB. These borrowings are
secured under a blanket collateral agreement including primarily residential mortgages as well as all unencumbered assets and
stock of the borrowing bank. In November 2017, the Bank repaid its remaining borrowings from the FHLB, which totaled $100.0
million. The FHLB also issues letters of credit to secure the Bank's obligations to certain depositors of public funds, which totaled
$498.4 million at December 31, 2017. At December 31, 2017, the Bank had no outstanding advances from the FHLB, and its
remaining outstanding debt, totaling $1.8 million, relates to leasing activities.

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8. Income Taxes

The components of income tax expense from operations for the years ended December 31, 2017, 2016 and 2015 were as

follows:

(In thousands)
Year ended December 31, 2017:

U.S. federal
State and local

Total
Year ended December 31, 2016:

U.S. federal
State and local

Total
Year ended December 31, 2015:

U.S. federal
State and local

Total

Current

Deferred

Total

89,154 $
7,735
96,889 $

116,753 $
9,457
126,210 $

102,607 $
6,551
109,158 $

12,190 $
1,427
13,617 $

(2,036) $
(23)
(2,059) $

7,084 $
348
7,432 $

101,344
9,162
110,506

114,717
9,434
124,151

109,691
6,899
116,590

The components of income tax (benefit) expense recorded directly to stockholders’ equity for the years ended December 31,

2017, 2016 and 2015 were as follows:

(In thousands)
Unrealized gain (loss) on securities available for sale
Accumulated pension (benefit) loss
Compensation expense for tax purposes in excess of amounts recognized for

financial reporting purposes

Income tax (benefit) expense allocated to stockholders’ equity

2017

2016

2015

2,104 $
(184)

—
1,920 $

(13,952) $
778

(3,390)
(16,564) $

(19,634)
1,478

(2,132)
(20,288)

Significant components of the Company’s deferred tax assets and liabilities at December 31, 2017 and 2016 were as follows:

(In thousands)
Deferred tax assets:

Loans, principally due to allowance for loan losses
Equity-based compensation
Deferred compensation
Private equity investments
Accrued expenses
Unearned fee income
Other

Total deferred tax assets
Deferred tax liabilities:

Equipment lease financing
Unrealized gain on securities available for sale
Land, buildings and equipment
Undistributed earnings of subsidiaries
Intangibles
Other

Total deferred tax liabilities
Net deferred tax liabilities

2017

2016

40,341 $
8,201
5,647
5,473
5,245
3,701
4,430
73,038

45,825
13,603
8,592
7,094
5,732
6,569
87,415
(14,377) $

61,233
12,633
7,998
9,667
16,638
3,819
6,071
118,059

71,355
18,572
10,375
23
9,105
8,765
118,195
(136)

Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to

realize the total deferred tax assets.

As a result of the Tax Cuts and Jobs Act enacted on December 22, 2017, the Company revalued its deferred tax assets and
liabilities using the highest maximum corporate tax rate of 21%. This change was reported as a reduction of deferred tax expense.
The Company also adopted ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," on January 1, 2017.

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This adoption requires all excess tax benefits and tax deficiencies arising from share-based award payments to be recognized as
income tax expense or benefit in the statements of income, while in previous periods these benefits and deficiencies were recognized
in equity. In 2017, net excess tax benefits resulted from share-based award payments. The effects on federal tax expense of both
of these items are shown in the reconciliation below.

A reconciliation between the expected federal income tax expense using the federal statutory tax rate of 35% and the Company’s
actual income tax expense for 2017, 2016 and 2015 is provided in the table below. The effective tax rate is calculated by dividing
income taxes by income before income taxes less the non-controlling interest expense.

(In thousands)
Computed “expected” tax expense
Increase (decrease) in income taxes resulting from:

Tax-exempt interest, net of cost to carry
Contribution of appreciated securities
Tax reform enactment
Share-based award payments
State and local income taxes, net of federal tax benefit
Tax deductible dividends on allocated shares held by the Company’s ESOP
Other

Total income tax expense

2017

2016

2015

150,461 $

139,840 $

133,112

(20,295)
(10,864)
(6,753)
(6,613)
5,955
(966)
(419)
110,506 $

(20,033)
—
—
—
6,132
(1,044)
(744)
124,151 $

(19,083)
—
—
—
4,484
(1,093)
(830)
116,590

The gross amount of unrecognized tax benefits was $1.2 million at both December 31, 2017 and 2016, and the total amount
of unrecognized tax benefits that would impact the effective tax rate, if recognized, was $785 thousand and $798 thousand,
respectively. The activity in the accrued liability for unrecognized tax benefits for the years ended December 31, 2017 and 2016
was as follows:

(In thousands)
Unrecognized tax benefits at beginning of year
Gross increases – tax positions in prior period
Gross decreases – tax positions in prior period
Gross increases – current-period tax positions
Lapse of statute of limitations
Unrecognized tax benefits at end of year

2017

2016

1,228 $
5
—
268
(293)
1,208 $

1,278
—
(1)
269
(318)
1,228

The Company and its subsidiaries are subject to income tax by federal, state and local government taxing authorities. Tax
years 2014 through 2017 remain open to examination for U.S. federal income tax as well as income tax in major state taxing
jurisdictions.

9. Employee Benefit Plans

Employee benefits charged to operating expenses are summarized in the table below. Substantially all of the Company’s

employees are covered by a defined contribution (401(k)) plan, under which the Company makes matching contributions.

(In thousands)
Payroll taxes
Medical plans
401(k) plan
Pension plans
Other
Total employee benefits

2017

2016

2015

24,402 $
25,143
14,244
704
2,883
67,376 $

23,210 $
25,497
13,562
987
3,214
66,470 $

22,235
20,659
12,841
1,495
2,950
60,180

A portion of the Company’s employees are covered by a noncontributory defined benefit pension plan, however, participation
in the pension plan is not available to employees hired after June 30, 2003. All participants are fully vested in their benefit payable
upon normal retirement date, which is based on years of participation and compensation. Certain key executives also participate
in a supplemental executive retirement plan (the CERP) that the Company funds only as retirement benefits are disbursed. The
CERP carries no segregated assets. Since January 2011, all benefits accrued under the pension plan have been frozen. However,
the accounts continue to accrue interest at a stated annual rate. The CERP continues to provide credits based on hypothetical

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contributions in excess of those permitted under the 401(k) plan. In the tables presented below, the pension plan and the CERP
are presented on a combined basis.

Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to
satisfy the statutory minimum required contribution as defined by the Pension Protection Act, which is intended to provide for
current service accruals and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these
requirements are fully covered by assets in the trust, a contribution might not be made in a particular year. No contributions to
the defined benefit plan were made in 2016. The Company made a discretionary contribution of $5.5 million to its defined benefit
pension plan in 2017 in order to reduce pension guarantee premiums. The minimum required contribution for 2018 is expected
to be zero. The Company does not expect to make any further contributions in 2018 other than the necessary funding contributions
to the CERP. Contributions to the CERP were $439 thousand, $21 thousand and $20 thousand during 2017, 2016 and 2015,
respectively.

The following items are components of the net pension cost for the years ended December 31, 2017, 2016 and 2015.

(In thousands)

Service cost-benefits earned during the year

Interest cost on projected benefit obligation

Expected return on plan assets

Amortization of prior service cost

Amortization of unrecognized net loss

Net periodic pension cost

2017

2016

2015

621 $

500 $

3,826

(5,785)

(271)

2,313

3,944

(5,751)

(271)

2,565

704 $

987 $

503

4,762

(6,092)

(271)

2,593

1,495

The following table sets forth the pension plans’ funded status, using valuation dates of December 31, 2017 and 2016.

(In thousands)

Change in projected benefit obligation

Projected benefit obligation at prior valuation date

Service cost

Interest cost

Benefits paid

Actuarial (gain) loss

Projected benefit obligation at valuation date

Change in plan assets

Fair value of plan assets at prior valuation date

Actual return on plan assets

Employer contributions

Benefits paid

Fair value of plan assets at valuation date

2017

2016

116,695 $

117,562

621

3,826

(6,780)

6,305

500

3,944

(6,322)

1,011

120,667

116,695

99,537

9,564

5,939

(6,780)

108,260

99,325

6,513

(6,322)

99,537

(17,158)

Funded status and net amount recognized at valuation date

(12,407) $

The accumulated benefit obligation, which represents the liability of a plan using only benefits as of the measurement date,

was $120.7 million and $116.7 million for the combined plans on December 31, 2017 and 2016, respectively.

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Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss) at
December 31, 2017 and 2016 are shown below, including amounts recognized in other comprehensive income during the periods.
All amounts are shown on a pre-tax basis.

(In thousands)

Prior service cost

Accumulated loss

Accumulated other comprehensive loss

Cumulative employer contributions in excess of net periodic benefit cost

Net amount recognized as an accrued benefit liability on the December 31 balance sheet

Net loss arising during period

Amortization of net loss

Amortization of prior service cost

Total recognized in other comprehensive income

Total income (expense) recognized in net periodic pension cost and other comprehensive income

2017

2016

1,806 $

(33,499)

(31,693)

19,286

(12,407) $

(2,527)

2,313

(271)

(485) $

(1,189) $

2,077

(33,285)

(31,208)

14,050

(17,158)

(248)

2,565

(271)

2,046

1,059

The estimated net loss and prior service cost to be amortized from accumulated other comprehensive income into net periodic

pension cost in 2018 is $2.1 million.

The following assumptions, on a weighted average basis, were used in accounting for the plans.

Determination of benefit obligation at year end:

Effective discount rate for benefit obligations

Assumed credit on cash balance accounts

Determination of net periodic benefit cost for year ended:

Effective discount rate for benefit obligations

Effective rate for interest on benefit obligations

Long-term rate of return on assets

Assumed credit on cash balance accounts

2017

2016

2015

3.57%

5.00%

3.95%

3.28%

6.00%

5.00%

4.05%

5.00%

4.16%

3.38%

6.00%

5.00%

4.15%

5.00%

3.95%

6.00%

5.00%

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The following table shows the fair values of the Company’s pension plan assets by asset category at December 31, 2017 and
2016. Information about the valuation techniques and inputs used to measure fair value are provided in Note 15 on Fair Value
Measurements.

(In thousands)
December 31, 2017
Assets:

U.S. government obligations
Government-sponsored enterprise obligations (a)
State and municipal obligations
Agency mortgage-backed securities (b)
Non-agency mortgage-backed securities

Asset-backed securities
Corporate bonds (c)
Equity securities and mutual funds: (d)

Mutual funds

Common stocks

International developed markets funds

Emerging markets funds
Total
December 31, 2016
Assets:

U.S. government obligations
Government-sponsored enterprise obligations (a)
State and municipal obligations
Agency mortgage-backed securities (b)
Non-agency mortgage-backed securities

Asset-backed securities
Corporate bonds (c)
Equity securities and mutual funds: (d)

Mutual funds

Common stocks

International developed markets funds

Emerging markets funds
Total

Fair Value Measurements

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs (Level 3)

Total Fair Value

3,719 $

— $

1,282

8,527

7,896

4,891

3,833

37,457

6,979

23,744

7,870

2,062
108,260 $

—

6,979

23,744

7,870

2,062
44,374 $

1,282

8,527

7,896

4,891

3,833

37,457

—

—
63,886 $

3,621 $

— $

1,215

9,148

4,073

5,437

5,275

34,037

10,393

20,141

5,100

1,097
99,537 $

—

10,393

20,141

5,100

1,097
40,352 $

1,215

9,148

4,073

5,437

5,275

34,037

—

—
59,185 $

—

—
—

—

—
—

(a) This category represents bonds (excluding mortgage-backed securities) issued by agencies such as the Federal Home Loan Bank, the

Federal Home Loan Mortgage Corp and the Federal National Mortgage Association.

(b) This category represents mortgage-backed securities issued by the agencies mentioned in (a).

(c) This category represents investment grade bonds issued in the U.S., primarily by domestic issuers, representing diverse industries.

(d) This category represents investments in individual common stocks and equity funds. These holdings are diversified, largely across the

financial services, consumer goods, healthcare, electronic technology and technology services industries.

The investment policy of the pension plan is designed for growth in principal, within limits designed to safeguard against
significant losses within the portfolio. The policy sets guidelines, which may change from time to time, regarding the types and
percentages of investments held. Currently, the policy includes guidelines such as holding bonds rated investment grade or better
and prohibiting investment in Company stock. The plan does not utilize derivatives. Management believes there are no significant
concentrations of risk within the plan asset portfolio at December 31, 2017. Under the current policy, the long-term investment
target mix for the plan is 35% equity securities and 65% fixed income securities. The Company regularly reviews its policies on
investment mix and may make changes depending on economic conditions and perceived investment risk.

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Effective January 1, 2016, the Company changed the method used to estimate the interest cost component of net periodic
pension cost for its defined benefit pension plan. Prior to the change, the interest cost component was estimated by utilizing a
single weighted average discount rate derived from the yield curve used to measure the projected benefit obligation. Under the
new method, the interest cost component is estimated by applying the specific annual spot rates along the yield curve used in the
determination of the projected benefit obligation to the relevant projected cash flows. This change provides a more precise
measurement of the interest cost by improving the correlation between projected benefit cash flows and the corresponding spot
yield curve rates. The Company accounted for this change prospectively as a change in accounting estimate. The change resulted
in a decrease of approximately $900 thousand in the interest cost component of the estimated annual net periodic pension cost for
2016.

The assumed overall expected long-term rate of return on pension plan assets used in calculating 2017 pension plan expense
was 6.0%. Determination of the plan’s expected rate of return is based upon historical and anticipated returns of the asset classes
invested in by the pension plan and the allocation strategy currently in place among those classes. The rate used in plan calculations
may be adjusted by management for current trends in the economic environment. The 10-year annualized return for the Company’s
pension plan was 6.3%. During 2017, the plan’s rate of return was 9.6%, compared to 7.2% in 2016. Returns for any plan year
may be affected by changes in the stock market and interest rates. The Company expects to incur pension expense of $761 thousand
in 2018, compared to $704 thousand in 2017.

The Company utilizes mortality tables published by the Society of Actuaries to incorporate mortality assumptions into the
measurement of the pension benefit obligation. At December 31, 2017, the Company utilized an updated mortality projection
scale and recently finalized mortality tables. In addition, various other assumptions were changed as the result of a recent experience
study. The combined effect of all assumption changes decreased the pension benefit obligation on that date by approximately
$300 thousand.

The following future benefit payments are expected to be paid:

(In thousands)
2018
2019
2020
2021
2022
2023 - 2027

7,133
7,231
7,413
7,534
7,473
37,421

10. Stock-Based Compensation and Directors Stock Purchase Plan*

The Company’s stock-based compensation is provided under a stockholder-approved plan which allows for issuance of various
types of awards, including stock options, stock appreciation rights, restricted stock and restricted stock units, performance awards
and stock-based awards. During the past three years, stock-based compensation has been issued in the form of nonvested stock
awards and stock appreciation rights. At December 31, 2017, 2,776,076 shares remained available for issuance under the plan.
The stock-based compensation expense that was charged against income was $12.1 million, $11.5 million and $10.1 million for
the years ended December 31, 2017, 2016 and 2015, respectively. The total income tax benefit recognized in the income statement
for share-based compensation arrangements was $4.5 million, $4.3 million and $3.8 million for the years ended December 31,
2017, 2016 and 2015, respectively.

The Company adopted ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," on January 1, 2017.
The Company elected to change its method of accounting for forfeitures, as allowed by this guidance. In 2016 and prior years,
accruals of compensation cost were reduced by an estimate of awards not expected to vest and further adjusted when actual
forfeitures occurred. In 2017 and subsequent years, forfeitures will be accounted for when they occur and recognized in
compensation cost at that time. The effect of this change, which was recognized as a cumulative-effect adjustment on January
1, 2017, increased equity and increased deferred tax assets by approximately $1.3 million.

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Nonvested Restricted Stock Awards

Nonvested stock is awarded to key employees by action of the Company's Compensation and Human Resources Committee
and Board of Directors. These awards generally vest after 4 to 7 years of continued employment, but vesting terms may vary
according to the specifics of the individual grant agreement. There are restrictions as to transferability, sale, pledging, or assigning,
among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant of restricted stock awards.
A summary of the status of the Company’s nonvested share awards as of December 31, 2017 and changes during the year then
ended is presented below.

Nonvested at January 1, 2017

Granted

Vested

Forfeited

Canceled

1,461,713

263,123

(442,435)

(27,883)

—

Weighted
Average Grant
Date Fair Value
33.02

54.56

29.41

39.12

—

Nonvested at December 31, 2017

1,254,518

38.67

The total fair value (at vest date) of shares vested during 2017, 2016 and 2015 was $23.8 million, $10.9 million and $6.0

million, respectively.

Stock Appreciation Rights

Stock appreciation rights (SARs) are granted with exercise prices equal to the market price of the Company’s stock at the date
of grant. SARs vest ratably over four years of continuous service and have 10-year contractual terms. All SARs must be settled
in stock under provisions of the plan. A summary of SAR activity during 2017 is presented below.

(Dollars in thousands, except per share data)

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value

Outstanding at January 1, 2017

Granted

Forfeited

Expired

Exercised

Outstanding at December 31, 2017

Exercisable at December 31, 2017

1,390,782 $

173,740

(13,325)

(878)

(371,033)

1,179,286 $

630,135 $

32.89

54.79

42.19

34.75

29.30

37.13

32.60

6.2 years $

22,073

4.6 years $

14,645

In determining compensation cost, the Black-Scholes option-pricing model is used to estimate the fair value of SARs on date
of grant. The Black-Scholes model is a closed-end model that uses various assumptions as shown in the following table. Expected
volatility is based on historical volatility of the Company’s stock. The Company uses historical exercise behavior and other factors
to estimate the expected term of the SARs, which represents the period of time that the SARs granted are expected to be outstanding.
The risk-free rate for the expected term is based on the U.S. Treasury zero coupon spot rates in effect at the time of grant. The
per share average fair value and the model assumptions for SARs granted during the past three years are shown in the table below.

Weighted per share average fair value at grant date

Assumptions:

Dividend yield

Volatility

Risk-free interest rate

Expected term

2017

$11.94

2016

2015

$6.79

$6.55

1.6%

21.1%

2.4%

2.2%

21.2%

1.8%

2.2%

21.3%

1.8%

7.0 years

7.2 years

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Additional information about stock options and SARs exercised is presented below.

(In thousands)

Intrinsic value of options and SARs exercised

Cash received from options and SARs exercised

Tax benefit realized from options and SARs exercised

2017

2016

2015

9,310 $

— $

2,698 $

8,854

— $

1,781

7,541

1,914

1,041

As of December 31, 2017, there was $24.0 million of unrecognized compensation cost related to unvested SARs and stock

awards. This cost is expected to be recognized over a weighted average period of approximately 3.0 years.

Directors Stock Purchase Plan

The Company has a directors stock purchase plan whereby outside directors of the Company and its subsidiaries may elect to
use their directors’ fees to purchase Company stock at market value each month end. Remaining shares available for issuance
under this plan were 80,377 at December 31, 2017. In 2017, 15,873 shares were purchased at an average price of $54.55, and in
2016, 21,568 shares were purchased at an average price of $42.50.

* All share and per share amounts in this note have been restated for the 5% common stock dividend distributed in 2017.

11. 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 amortization from other comprehensive income of losses associated with pension benefits, which occurs as
the amortization is included in current net periodic benefit cost.

(In thousands)

Balance January 1, 2017

Unrealized Gains (Losses)
on Securities (1)

OTTI

Other

Pension Loss
(2)

Total Accumulated
Other
Comprehensive
Income

2,975

27,328

(19,328)

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive income

Current period other comprehensive income (loss), before tax

Income tax (expense) benefit

Current period other comprehensive income (loss), net of tax

Transfer of unrealized gain on securities for which impairment was not
previously recognized

Balance December 31, 2017

Balance January 1, 2016

Other comprehensive loss before reclassifications

Amounts reclassified from accumulated other comprehensive income

Current period other comprehensive income (loss), before tax

Income tax (expense) benefit

Current period other comprehensive income (loss), net of tax

279

385

664

(252)

412

3,411

3,316

(820)

270

(550)

209

(341)

36,307

(31,433)

4,874

(1,852)

3,022

(24)

(2,527)

2,042

(485)

184

(301)

—

30,326

49,750

(19,629)

(20,596)

(36,057)

(108)

(36,165)

13,743

(22,422)

(248)

2,294

2,046

(778)

1,268

10,975

34,059

(29,006)

5,053

(1,920)

3,133

—

14,108

32,470

(37,125)

2,456

(34,669)

13,174

(21,495)

Balance December 31, 2016

2,975

27,328

(19,328)

10,975

(1) The pre-tax amounts reclassified from accumulated other comprehensive income are included in "investment securities gains (losses), net" in the consolidated statements of
income.
(2) The pre-tax amounts reclassified from accumulated other comprehensive income are included in the computation of net periodic pension cost as "amortization of prior
service cost" and "amortization of unrecognized net loss" (see Note 9), for inclusion in the consolidated statements of income.

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12. Segments

The Company segregates financial information for use in assessing its performance and allocating resources among three
operating segments: Consumer, Commercial and Wealth. The Consumer segment includes the consumer portion of the retail
branch network (loans, deposits and other personal banking services), indirect and other consumer financing, and consumer debit
and credit card loan and fee businesses. Residential mortgage origination, sales and servicing functions are included in this
consumer segment, but residential mortgage loans retained by the Company are not considered part of this segment. The Commercial
segment provides corporate lending (including the Small Business Banking product line within the branch network), leasing,
international services, and business, government deposit, and related commercial cash management services, as well as merchant
and commercial bank card products. The Commercial segment also includes the Capital Markets Group, which sells fixed income
securities and provides investment safekeeping and bond accounting services. The Wealth segment provides traditional trust and
estate planning, advisory and discretionary investment management, and brokerage services. This segment also provides various
loan and deposit related services to its private banking customers.

The Company’s business line reporting system derives segment information from the internal profitability reporting system
used by management to monitor and manage the financial performance of the Company. This information is based on internal
management accounting procedures and methods, which have been developed to reflect the underlying economics of the businesses.
These methodologies are applied in connection with funds transfer pricing and assignment of overhead costs among segments.
Funds transfer pricing was used in the determination of net interest income by assigning a standard cost (credit) for funds used
(provided) by assets and liabilities based on their maturity, prepayment and/or repricing characteristics. Income and expense that
directly relate to segment operations are recorded in the segment when incurred. Expenses that indirectly support the segments
are allocated based on the most appropriate method available.

The Company uses a funds transfer pricing method to value funds used (e.g., loans, fixed assets, and cash) and funds provided
(e.g., deposits, borrowings, and equity) by the business segments and their components. This process assigns a specific value to
each new source or use of funds with a maturity, based on current swap rates, thus determining an interest spread at the time of
the transaction. Non-maturity assets and liabilities are valued using weighted average pools. The funds transfer pricing process
attempts to remove interest rate risk from valuation, allowing management to compare profitability under various rate environments.

The following tables present selected financial information by segment and reconciliations of combined segment totals to
consolidated totals. There were no material intersegment revenues between the three segments. Management periodically makes
changes to methods of assigning costs and income to its business segments to better reflect operating results. If appropriate, these
changes are reflected in prior year information presented below.

Segment Income Statement Data

(In thousands)
Year ended December 31, 2017:
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains, net
Non-interest expense
Income before income taxes
Year ended December 31, 2016:
Net interest income
Provision for loan losses
Non-interest income
Investment securities losses, net
Non-interest expense
Income before income taxes
Year ended December 31, 2015:
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains, net
Non-interest expense
Income before income taxes

Consumer

Commercial

Wealth

Segment Totals

Other/
Elimination

Consolidated
Totals

279,031 $
(41,829)
136,554
—
(290,905)

82,851 $

268,654 $
(36,042)
131,988
—
(282,061)

82,539 $

266,328 $
(34,864)
119,561
—
(273,378)

77,647 $

328,345 $
205
194,581
—
(290,874)
232,257 $

311,704 $
4,378
199,384
—
(284,432)
231,034 $

296,510 $
1,032
194,133
—
(267,343)
224,332 $

47,264 $
(41)
158,175
—
(120,458)

84,940 $

44,113 $
(122)
144,661
—
(113,888)

74,764 $

42,653 $
75
136,374
—
(108,755)

70,347 $

654,640 $
(41,665)
489,310
—
(702,237)
400,048 $

624,471 $
(31,786)
476,033
—
(680,381)
388,337 $

605,491 $
(33,757)
450,068
—
(649,476)
372,326 $

79,039 $
(3,579)
(2,706)
25,051
(67,447)
30,358 $

55,578 $
(4,532)
(1,641)
(53)
(36,684)
12,668 $

28,829 $
5,030
(1,929)
6,320
(27,011)
11,239 $

733,679
(45,244)
486,604
25,051
(769,684)
430,406

680,049
(36,318)
474,392
(53)
(717,065)
401,005

634,320
(28,727)
448,139
6,320
(676,487)
383,565

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Segment Balance Sheet Data

(In thousands)
Average balances for 2017:
Assets
Loans, including held for sale
Goodwill and other intangible assets
Deposits
Average balances for 2016:
Assets
Loans, including held for sale
Goodwill and other intangible assets
Deposits

Consumer

Commercial

Wealth

Segment Totals

Other/
Elimination

Consolidated
Totals

2,610,045 $
2,471,578
76,734
10,190,613

8,830,584 $
8,635,035
68,538
8,301,004

1,218,598 $
1,209,792
746
2,090,582

12,659,227 $
12,316,405
146,018
20,582,199

12,372,381 $
1,312,746
—
12,587

25,031,608
13,629,151
146,018
20,594,786

2,673,915 $
2,533,528
75,971
9,956,327

8,267,963 $
8,072,528
68,848
8,243,394

1,116,969 $
1,108,211
746
2,084,940

12,058,847 $
11,714,267
145,565
20,284,661

12,497,624 $
1,239,221
—
46,252

24,556,471
12,953,488
145,565
20,330,913

The above segment balances include only those items directly associated with the segment. The “Other/Elimination” column
includes unallocated bank balances not associated with a segment (such as investment securities and federal funds sold), balances
relating to certain other administrative and corporate functions, and eliminations between segment and non-segment balances.
This column also includes the resulting effect of allocating such items as float, deposit reserve and capital for the purpose of
computing the cost or credit for funds used/provided.

The Company’s reportable segments are strategic lines of business that offer different products and services. They are managed
separately because each line services a specific customer need, requiring different performance measurement analyses and
marketing strategies. The performance measurement of the segments is based on the management structure of the Company and
is not necessarily comparable with similar information for any other financial institution. The information is also not necessarily
indicative of the segments’ financial condition and results of operations if they were independent entities.

13. Common and Preferred Stock*

On December 18, 2017, the Company distributed a 5% stock dividend on its $5 par common stock for the 24th consecutive

year. All per common share data in this report has been restated to reflect the stock dividend.

The Company applies the two-class method of computing income per share, as nonvested share-based awards that pay
nonforfeitable common stock 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 following table. Nonvested share-based awards
are further discussed in Note 10 on Stock-Based Compensation.

Basic income per share is based on the weighted average number of common shares outstanding during the year. Diluted
income per share gives effect to all dilutive potential common shares that were outstanding during the year. Presented below is
a summary of the components used to calculate basic and diluted income per common share, which have been restated for all
stock dividends.

Table of contents

(In thousands, except per share data)

Basic income per common share:

Net income attributable to Commerce Bancshares, Inc.
Less preferred stock dividends
Net income available to common shareholders
Less income allocated to nonvested restricted stock
Net income allocated to common stock

Weighted average common shares outstanding

Basic income per common share
Diluted income per common share:

Net income available to common shareholders
Less income allocated to nonvested restricted stock
Net income allocated to common stock
Weighted average common shares outstanding

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

Weighted average diluted common shares outstanding
Diluted income per common share

2017

2016

2015

319,383 $
9,000
310,383
3,848
306,535 $
105,555

2.90 $

310,383 $
3,838
306,545 $
105,555

275,391 $
9,000
266,391
3,698
262,693 $
105,243

2.50 $

266,391 $
3,692
262,699 $
105,243

372
105,927

281
105,524

2.89 $

2.49 $

263,730
9,000
254,730
3,548
251,182
108,016
2.33

254,730
3,541
251,189
108,016

336
108,352
2.32

Unexercised stock options and stock appreciation rights of 152 thousand, 99 thousand and 443 thousand were excluded from
the computation of diluted income per share for the years ended December 31, 2017, 2016 and 2015, respectively, because their
inclusion would have been anti-dilutive.

The Company has 6,000,000 depositary shares outstanding, 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. 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 entered into accelerated share repurchase programs in 2014 and 2015 for $200.0 million and $100.0 million,
respectively. Final settlement of the programs occurred in mid-2015, and a total of 7.9 million shares of common stock were
received by the Company under the programs. Shares purchased under these programs were part of the Company's stock repurchase
program, as authorized by its Board of Directors. The most recent authorization in October 2015 approved future purchases of
5,000,000 shares of the Company's common stock. At December 31, 2017, 3,443,523 shares of common stock remained available
for purchase under the current authorization.

The table below shows activity in the outstanding shares of the Company’s common stock during the past three years. Shares

in the table below are presented on an historical basis and have not been restated for the annual 5% stock dividends.

(In thousands)
Shares outstanding at January 1
Issuance of stock:

Awards and sales under employee and director plans
5% stock dividend

Purchases of treasury stock under accelerated share repurchase programs
Other purchases of treasury stock
Other
Shares outstanding at December 31

Years Ended December 31

2017

2016

2015

101,461

97,226

96,327

403
5,078
—
(315)
(12)
106,615

397
4,831
—
(959)
(34)
101,461

435
4,641
(3,635)
(535)
(7)
97,226

* Except as noted in the above table, all share and per share amounts in this note have been restated for the 5% common stock dividend distributed in 2017.

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14. Regulatory Capital Requirements

The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and additional discretionary actions by regulators that could
have a direct material effect on the Company’s financial statements. The regulations require the Company to meet specific capital
adequacy guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The Company’s capital classification is also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.

The following tables show the capital amounts and ratios for the Company (on a consolidated basis) and the Bank, together

with the minimum capital adequacy and well-capitalized capital requirements, at the last two year ends.

(Dollars in thousands)

December 31, 2017

Total Capital (to risk-weighted assets):

Actual

Minimum Capital
Adequacy Requirement

Well-Capitalized Capital
Requirement

Amount

Ratio

Amount

Ratio

Amount

Ratio

Commerce Bancshares, Inc. (consolidated)

$ 2,747,863

14.35% $ 1,531,996

8.00%

N.A.

Commerce Bank

2,428,789

12.76

1,522,361

8.00

$ 1,902,951

10.00%

Tier I Capital (to risk-weighted assets):

Commerce Bancshares, Inc. (consolidated)

$ 2,567,264

13.41% $ 1,148,997

6.00%

N.A.

Commerce Bank

2,268,131

11.92

1,141,771

6.00

$ 1,522,361

Tier I Common Capital (to risk-weighted assets):

Commerce Bancshares, Inc. (consolidated)

$ 2,422,480

12.65% $ 861,748

4.50%

N.A.

Commerce Bank

2,268,131

11.92

856,328

4.50

$ 1,236,918

Tier I Capital (to adjusted quarterly average assets):

(Leverage Ratio)

Commerce Bancshares, Inc. (consolidated)

$ 2,567,264

10.39% $ 988,653

4.00%

N.A.

Commerce Bank

December 31, 2016

Total Capital (to risk-weighted assets):

2,268,131

9.20

986,240

4.00

$ 1,232,800

N.A.

8.00%

N.A.

6.50%

N.A.

5.00%

Commerce Bancshares, Inc. (consolidated)

$ 2,529,675

13.32% $ 1,519,578

8.00%

N.A.

Commerce Bank

2,268,845

12.00

1,512,471

8.00

$ 1,890,589

10.00%

Tier I Capital (to risk-weighted assets):

Commerce Bancshares, Inc. (consolidated)

$ 2,352,154

12.38% $ 1,139,684

6.00%

N.A.

Commerce Bank

2,111,797

11.17

1,134,353

6.00

$ 1,512,471

Tier I Common Capital (to risk-weighted assets):

Commerce Bancshares, Inc. (consolidated)

$ 2,207,370

11.62% $ 854,763

4.50%

N.A.

Commerce Bank

2,111,797

11.17

850,765

4.50

$ 1,228,883

Tier I Capital (to adjusted quarterly average assets):

(Leverage Ratio)

Commerce Bancshares, Inc. (consolidated)

$ 2,352,154

9.55% $ 985,698

4.00%

N.A.

Commerce Bank

2,111,797

8.59

983,081

4.00

$ 1,228,851

N.A.

8.00%

N.A.

6.50%

N.A.

5.00%

The minimum required ratios for well-capitalized banks (under prompt corrective action provisions) are 6.5% for Tier I common

capital, 8.0% for Tier I capital, 10.0% for Total capital and 5.0% for the leverage ratio.

At December 31, 2017 and 2016, the Company met all capital requirements to which it is subject, and the Bank’s capital

position exceeded the regulatory definition of well-capitalized.

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15. Fair Value Measurements

The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and
liabilities and to determine fair value disclosures. Various financial instruments such as available for sale and trading securities,
certain non-marketable securities relating to private equity activities, and derivatives are recorded at fair value on a recurring basis.
Additionally, from time to time, the Company may be required to record at fair value other assets and liabilities on a nonrecurring
basis, such as loans held for sale, mortgage servicing rights and certain other investment securities. These nonrecurring fair value
adjustments typically involve lower of cost or fair value accounting, or write-downs of individual assets.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation
techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation hierarchy of
fair value measurements has been established. The valuation hierarchy is based upon the transparency of inputs to the valuation
of an asset or liability as of the measurement date. The three levels are defined as follows:

• Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

• Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs that are observable for
the assets or liabilities, either directly or indirectly (such as interest rates, yield curves, and prepayment speeds).

• Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. These may be internally

developed, using the Company’s best information and assumptions that a market participant would consider.

When determining the fair value measurements for assets and liabilities required or permitted to be recorded or disclosed at
fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions
that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable
markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company
looks to observable market data for similar assets and liabilities. Nevertheless, certain assets and liabilities are not actively traded
in observable markets, and the Company must use alternative valuation techniques to derive an estimated fair value measurement.

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Instruments Measured at Fair Value on a Recurring Basis

The table below presents the carrying values of assets and liabilities measured at fair value on a recurring basis at December

31, 2017 and 2016. There were no transfers among levels during these years.

(In thousands)
December 31, 2017
Assets:

Residential mortgage loans held for sale
Available for sale securities:

U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Equity securities
Trading securities
Private equity investments
Derivatives *
Assets held in trust for deferred compensation plan
Total assets

Liabilities:

Derivatives *
Liabilities held in trust for deferred compensation plan
Total liabilities
December 31, 2016
Assets:

Residential mortgage loans held for sale
Available for sale securities:

Liabilities:

Derivatives *
Liabilities held in trust for deferred compensation plan
Total liabilities

* The fair value of each class of derivative is shown in Note 17.
.

Fair Value Measurements Using

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total Fair Value

15,327 $

— $

15,327 $

—

917,147
406,363
1,611,366
3,040,913
905,793
1,492,800
351,060
48,838
18,269
55,752
8,349
12,843
8,884,820

917,147
—
—
—
—
—
—
19,864
—
—
—
12,843
949,854

—
406,363
1,594,350
3,040,913
905,793
1,492,800
351,060
28,974
18,269
—
7,723
—
7,861,572

8,074
12,843
20,917 $

—
12,843
12,843 $

7,951
—
7,951 $

—
—
17,016
—
—
—
—
—
—
55,752
626
—
73,394

123
—
123

9,263 $

— $

9,263 $

—

920,904
449,998
1,778,214
2,685,931
1,055,639
2,381,301
325,953
51,263
22,225
50,820
13,566
10,261
9,755,338

920,904
—
—
—
—
—
—
24,967
—
—
—
10,261
956,132

—
449,998
1,761,532
2,685,931
1,055,639
2,381,301
325,953
26,296
22,225
—
13,146
—
8,731,284

13,339
10,261
23,600 $

—
10,261
10,261 $

13,177
—
13,177 $

—
—
16,682
—
—
—
—
—
—
50,820
420
—
67,922

162
—
162

100

Table of contents

Valuation methods for instruments measured at fair value on a recurring basis

Following is a description of the Company’s valuation methodologies used for instruments measured at fair value on a recurring

basis:

Residential mortgage loans held for sale

The Company originates fixed rate, first lien residential mortgage loans that are intended for sale in the secondary market. Fair
value is based on quoted secondary market prices for loans with similar characteristics, which are adjusted to include the embedded
servicing value in the loans. This adjustment represents an unobservable input to the valuation but is not considered significant
given the relative insensitivity of the valuation to changes in this input. Accordingly, these loan measurements are classified as
Level 2.

Available for sale investment securities

For available for sale securities, changes in fair value, including that portion of other-than-temporary impairment unrelated to
credit loss, are recorded in other comprehensive income. As mentioned in Note 3 on Investment Securities, the Company records
the credit-related portion of other-than-temporary impairment in current earnings. This portfolio comprises the majority of the
assets which the Company records at fair value. Most of the portfolio, which includes government-sponsored enterprise, mortgage-
backed and asset-backed securities, are priced utilizing industry-standard models that consider various assumptions, including
time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices
for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are
observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions
are executed in the marketplace. These measurements are classified as Level 2 in the fair value hierarchy. Where quoted prices
are available in an active market, the measurements are classified as Level 1. Most of the Level 1 measurements apply to equity
securities and U.S. Treasury obligations.

The fair values of Level 1 and 2 securities (excluding equity securities) in the available for sale portfolio are prices provided
by a third-party pricing service. The prices provided by the third-party pricing service are based on observable market inputs, as
described in the sections below. On a quarterly basis, the Company compares a sample of these prices to other independent sources
for the same and similar securities. Variances are analyzed, and, if appropriate, additional research is conducted with the third-
party pricing service. Based on this research, the pricing service may affirm or revise its quoted price. No significant adjustments
have been made to the prices provided by the pricing service. The pricing service also provides documentation on an ongoing
basis that includes reference data, inputs and methodology by asset class, which is reviewed to ensure that security placement
within the fair value hierarchy is appropriate.

Valuation methods and inputs, by class of security:

• U.S. government and federal agency obligations

U.S. treasury bills, bonds and notes, including inflation-protected securities, are valued using live data from active market
makers and inter-dealer brokers. Valuations for stripped coupon and principal issues are derived from yield curves generated
from various dealer contacts and live data sources.

• Government-sponsored enterprise obligations

Government-sponsored enterprise obligations are evaluated using cash flow valuation models. Inputs used are live market
data, cash settlements, Treasury market yields, and floating rate indices such as LIBOR, CMT, and Prime.

•

State and municipal obligations, excluding auction rate securities

A yield curve is generated and applied to bond sectors, and individual bond valuations are extrapolated. Inputs used to
generate the yield curve are bellwether issue levels, established trading spreads between similar issuers or credits, historical
trading spreads over widely accepted market benchmarks, new issue scales, and verified bid information. Bid information
is verified by corroborating the data against external sources such as broker-dealers, trustees/paying agents, issuers, or
non-affiliated bondholders.

• Mortgage and asset-backed securities

Collateralized mortgage obligations and other asset-backed securities are valued at the tranche level. For each tranche
valuation, the process generates predicted cash flows for the tranche, applies a market based (or benchmark) yield/spread
for each tranche, and incorporates deal collateral performance and tranche level attributes to determine tranche-specific
spreads to adjust the benchmark yield. Tranche cash flows are generated from new deal files and prepayment/default
assumptions. Tranche spreads are based on tranche characteristics such as average life, type, volatility, ratings, underlying

101

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collateral and performance, and prevailing market conditions. The appropriate tranche spread is applied to the corresponding
benchmark, and the resulting value is used to discount the cash flows to generate an evaluated price.

Valuation of agency pass-through securities, typically issued under GNMA, FNMA, FHLMC, and SBA programs, are
primarily derived from information from the To Be Announced (TBA) market. This market consists of generic mortgage
pools which have not been received for settlement. Snapshots of the TBA market, using live data feeds distributed by
multiple electronic platforms, are used in conjunction with other indices to compute a price based on discounted cash flow
models.

• Other debt securities

Other debt securities are valued using active markets and inter-dealer brokers as well as bullet spread scales and option
adjusted spreads. The spreads and models use yield curves, terms and conditions of the bonds, and any special features
(e.g., call or put options and redemption features).

• Equity securities

Equity securities are priced using the market prices for each security from the major stock exchanges or other electronic
quotation systems. These are generally classified as Level 1 measurements. Stocks which trade infrequently are classified
as Level 2.

The available for sale portfolio includes certain auction rate securities. The auction process by which the auction rate securities
are normally priced has not functioned in recent years, and due to the illiquidity in the market, the fair value of these securities
cannot be based on observable market prices. The fair values of these securities are estimated using a discounted cash flows
analysis which is discussed more fully in the Level 3 Inputs section of this note. Because many of the inputs significant to the
measurement are not observable, these measurements are classified as Level 3 measurements.

Trading securities

The securities in the Company’s trading portfolio are priced by averaging several broker quotes for similar instruments and

are classified as Level 2 measurements.

Private equity investments

These securities are held by the Company’s private equity subsidiaries and are included in non-marketable investment securities
in the consolidated balance sheets. Due to the absence of quoted market prices, valuation of these nonpublic investments requires
significant management judgment. These fair value measurements, which are discussed in the Level 3 Inputs section of this note,
are classified as Level 3.

Derivatives

The Company’s derivative instruments include interest rate swaps, foreign exchange forward contracts, and certain credit risk
guarantee agreements. When appropriate, the impact of credit standing as well as any potential credit enhancements, such as
collateral, has been considered in the fair value measurement.

• Valuations for interest rate swaps are derived from a proprietary model whose significant inputs are readily observable
market parameters, primarily yield curves used to calculate current exposure. Counterparty credit risk is incorporated into
the model and calculated by applying a net credit spread over LIBOR to the swap's total expected exposure over time.
The net credit spread is comprised of spreads for both the Company and its counterparty, derived from probability of
default and other loss estimate information obtained from a third party credit data provider or from the Company's Credit
Department when not otherwise available. The credit risk component is not significant compared to the overall fair value
of the swaps. The results of the model are constantly validated through comparison to active trading in the marketplace.

Parties to swaps requiring central clearing are required to post collateral (generally in the form of cash or marketable
securities) to an authorized clearing agency that holds and monitors the collateral. In January 2017, the Company's clearing
counterparty made rule changes to characterize a component of this collateral as a legal settlement of the derivative contract
exposure. As a result, this component, known as variation margin, is no longer accounted for separately from the derivative
as collateral, but is considered in determining the fair value of the derivative.

The fair value measurements of interest rate swaps are classified as Level 2.

•

Fair value measurements for foreign exchange contracts are derived from a model whose primary inputs are quotations
from global market makers and are classified as Level 2.

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• The Company’s contracts related to credit risk guarantees are valued under a proprietary model which uses unobservable
inputs and assumptions about the creditworthiness of the counterparty (generally a Bank customer). Customer credit
spreads, which are based on probability of default and other loss estimates, are calculated internally by the Company's
Credit Department, as mentioned above, and are based on the Company's internal risk rating for each customer. Because
these inputs are significant to the measurements, they are classified as Level 3.

• Derivatives relating to residential mortgage loan sale activity include commitments to originate mortgage loans held for
sale, forward loan sale contracts, and forward commitments to sell TBA securities. The fair values of loan commitments
and sale contracts are estimated using quoted market prices for loans similar to the underlying loans in these instruments.
The valuations of loan commitments are further adjusted to include embedded servicing value and the probability of
funding. These assumptions are considered Level 3 inputs and are significant to the loan commitment valuation;
accordingly, the measurement of loan commitments is classified as Level 3. The fair value measurement of TBA contracts
is based on security prices published on trading platforms and is classified as Level 2.

Assets held in trust

Assets held in an outside trust for the Company’s deferred compensation plan consist of investments in mutual funds. The fair
value measurements are based on quoted prices in active markets and classified as Level 1. The Company has recorded an asset
representing the total investment amount. The Company has also recorded a corresponding liability, representing the Company’s
liability to the plan participants.

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The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

(In thousands)

Year ended December 31, 2017:

Balance at January 1, 2017

Total gains or losses (realized/unrealized):

Included in earnings

Included in other comprehensive income

Investment securities called

Discount accretion

Purchases of private equity securities

Sale / pay down of private equity securities

Capitalized interest/dividends

Purchase of risk participation agreement

Sale of risk participation agreement

Balance at December 31, 2017
Total gains or losses for the year included in earnings attributable
to the change in unrealized gains or losses relating to assets still
held at December 31, 2017
Year ended December 31, 2016:

Balance at January 1, 2016

Total gains or losses (realized/unrealized):

Included in earnings

Included in other comprehensive income

Investment securities called

Discount accretion

Purchases of private equity securities

Sale / pay down of private equity securities

Capitalized interest/dividends

Purchase of risk participation agreement

Sale of risk participation agreement
Balance at December 31, 2016
Total gains or losses for the year included in earnings attributable to
the change in unrealized gains or losses relating to assets still held
at December 31, 2016

Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)

State and
Municipal
Obligations

Private Equity
Investments

Derivatives

Total

16,682 $

50,820 $

258 $

67,760

(5,833)

266

(5,567)

—

882

(600)

—

13,352

(2,621)

—

17,016 $

55,752 $

—

(91)

503 $

882

(600)

13,352

(2,621)

(91)

73,271

— $

(5,658) $

615 $

(5,043)

17,195 $

63,032 $

69 $

80,296

—

583

(1,200)

104

—

—
16,682 $

(3,739)

—

9,906

(18,471)

—

—
50,820 $

—

404

(258)
258 $

(3,696)

583

(1,200)

104

9,906

(18,471)

404

(258)
67,760

— $

(5,914) $

306 $

(5,608)

Gains and losses on the Level 3 assets and liabilities in the table above are reported in the following income categories:

(In thousands)

Year ended December 31, 2017:

Loan Fees and
Sales

Other Non-
Interest Income

Investment
Securities Gains
(Losses), Net

Total

Total gains or losses included in earnings
Change in unrealized gains or losses relating to assets still held at
December 31, 2017
Year ended December 31, 2016:

Total gains or losses included in earnings
Change in unrealized gains or losses relating to assets still held at
December 31, 2016

231 $

580 $

87 $

350 $

35 $

(44) $

(5,833) $

(5,567)

(5,658) $

(5,043)

(3,739) $

(3,696)

(5,914) $

(5,608)

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Level 3 Inputs

As shown above, the Company's significant Level 3 measurements which employ unobservable inputs that are readily
quantifiable pertain to auction rate securities (ARS) held by the Bank, investments in portfolio concerns held by the Company's
private equity subsidiaries, and held for sale residential mortgage loan commitments. ARS are included in state and municipal
securities and totaled $17.0 million at December 31, 2017, while private equity investments, included in non-marketable securities,
totaled $55.8 million.

Information about these inputs is presented in the table and discussions below.

Auction rate securities

Private equity investments
Mortgage loan commitments

Quantitative Information about Level 3 Fair Value Measurements

Valuation Technique
Discounted cash flow

Unobservable Input
Estimated market recovery period
Estimated market rate

Market comparable companies EBITDA multiple
Discounted cash flow

Probability of funding
Embedded servicing value

Range

Weighted

Average

3.1% -
-
4.0

5 years
4.5%
6.0
50.4% - 100.0% 76.0%
1.1%
2.0%
(.3)% -

The fair values of ARS are estimated using a discounted cash flows analysis in which estimated cash flows are based on
mandatory interest rates paid under failing auctions and projected over an estimated market recovery period. Under normal
conditions, ARS traded in weekly auctions and were considered liquid investments. The Company's estimate of when these
auctions might resume is highly judgmental and subject to variation depending on current and projected market conditions. Few
auctions of these securities have been successful in recent years, and most secondary transactions have been privately arranged.
Estimated cash flows during the period over which the Company expects to hold the securities are discounted at an estimated
market rate. These securities are comprised of bonds issued by various states and municipalities for healthcare and student lending
purposes, and market rates are derived for each type. Market rates are calculated at each valuation date using a LIBOR or Treasury
based rate plus spreads representing adjustments for liquidity premium and nonperformance risk. The spreads are developed
internally by employees in the Company's bond department. An increase in the holding period alone would result in a higher fair
value measurement, while an increase in the estimated market rate (the discount rate) alone would result in a lower fair value
measurement. The valuation of the ARS portfolio is reviewed on a quarterly basis by the Company's chief investment officers.

The fair values of the Company's private equity investments are based on a determination of fair value of the investee company
less preference payments assuming the sale of the investee company. Investee companies are normally non-public entities. The
fair value of the investee company is determined by reference to the investee's total earnings before interest, depreciation/
amortization, and income taxes (EBITDA) multiplied by an EBITDA factor. EBITDA is normally determined based on a trailing
prior period adjusted for specific factors including current economic outlook, investee management, and specific unique
circumstances such as sales order information, major customer status, regulatory changes, etc. The EBITDA multiple is based on
management's review of published trading multiples for recent private equity transactions and other judgments and is derived for
each individual investee. The fair value of the Company's investment (which is usually a partial interest in the investee company)
is then calculated based on its ownership percentage in the investee company. On a quarterly basis, these fair value analyses are
reviewed by a valuation committee consisting of investment managers and senior Company management.

The significant unobservable inputs used in the fair value measurement of the Company’s derivative commitments to originate
residential mortgage loans are the percentage of commitments that are actually funded and the mortgage servicing value that is
inherent in the underlying loan value. A significant increase in the rate of loans that fund would result in a larger derivative asset
or liability. A significant increase in the inherent mortgage servicing value would result in an increase in the derivative asset or a
reduction in the derivative liability. The probability of funding and the inherent mortgage servicing values are directly impacted
by changes in market rates and will generally move in the same direction as interest rates.

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Instruments Measured at Fair Value on a Nonrecurring Basis

For assets measured at fair value on a nonrecurring basis during 2017 and 2016, and still held as of December 31, 2017 and
2016, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation
assumptions used to determine each adjustment, and the carrying value of the related individual assets or portfolios at December
31, 2017 and 2016.

(In thousands)

Fair Value

Fair Value Measurements Using

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total Gains
(Losses)

Balance at December 31, 2017

Collateral dependent impaired loans

Mortgage servicing rights

Foreclosed assets

Long-lived assets

Balance at December 31, 2016

Collateral dependent impaired loans

Mortgage servicing rights

Foreclosed assets

Long-lived assets

1,236 $

— $

1,236 $

4,653

—

3,378

—

4,653

—

3,378

(617)

(9)

(724)

1,331 $

— $

1,331 $

(1,700)

2,868

2,408

—

2,868

2,408

(20)

(1,054)

Valuation methods for instruments measured at fair value on a nonrecurring basis

Following is a description of the Company’s valuation methodologies used for other financial and nonfinancial instruments

measured at fair value on a nonrecurring basis.

Collateral dependent impaired loans

While the overall loan portfolio is not carried at fair value, the Company periodically records nonrecurring adjustments to the
carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans.
Nonrecurring adjustments also include certain impairment amounts for collateral dependent loans when establishing the allowance
for loan losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan. In determining
the value of real estate collateral, the Company relies on external and internal appraisals of property values depending on the size
and complexity of the real estate collateral. The Company maintains a staff of qualified appraisers who also review third party
appraisal reports for reasonableness. In the case of non-real estate collateral, reliance is placed on a variety of sources, including
external estimates of value and judgments based on the experience and expertise of internal specialists. Values of all loan collateral
are regularly reviewed by credit administration. Unobservable inputs to these measurements, which include estimates and
judgments often used in conjunction with appraisals, are not readily quantifiable. These measurements are classified as Level 3.
Changes in fair value recognized for partial charge-offs of loans and loan impairment reserves on loans held by the Company at
December 31, 2017 and 2016 are shown in the table above.

Private equity investments and restricted stock

These assets are included in non-marketable investment securities in the consolidated balance sheets. They include certain
investments in private equity concerns held by the Parent company which are carried at cost, reduced by other-than-temporary
impairment. These investments are periodically evaluated for impairment based on their estimated fair value as determined by
review of available information, most of which is provided as monthly or quarterly internal financial statements, annual audited
financial statements, investee tax returns, and in certain situations, through research into and analysis of the assets and investments
held by those private equity concerns. Restricted stock consists of stock issued by the Federal Reserve Bank and FHLB which
is held by the bank subsidiary as required for regulatory purposes. Generally, there are restrictions on the sale and/or liquidation
of these investments, and they are carried at cost, reduced by other-than-temporary impairment. Fair value measurements for
these securities are classified as Level 3.

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Table of contents

Mortgage servicing rights

The Company initially measures its mortgage servicing rights at fair value and amortizes them over the period of estimated
net servicing income. They are periodically assessed for impairment based on fair value at the reporting date. Mortgage servicing
rights do not trade in an active market with readily observable prices. Accordingly, the fair value is estimated based on a valuation
model which calculates the present value of estimated future net servicing income. The model incorporates assumptions that
market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount
rates, cost to service, float earnings rates, and other ancillary income, including late fees. The fair value measurements are classified
as Level 3.

Foreclosed assets

Foreclosed assets consist of loan collateral which has been repossessed through foreclosure. This collateral is comprised of
commercial and residential real estate and other non-real estate property, including auto, marine and recreational vehicles.
Foreclosed assets are initially recorded as held for sale at the lower of the loan balance or fair value of the collateral less estimated
selling costs. Subsequent to foreclosure, valuations are updated periodically, and the assets may be marked down further, reflecting
a new cost basis. Fair value measurements may be based upon appraisals, third-party price opinions, or internally developed
pricing methods. These measurements are classified as Level 3.

Long-lived assets

When investments in branch facilities and various office buildings are determined to be impaired, their carrying values are
written down to estimated fair value, or estimated fair value less cost to sell if the property is held for sale. Fair value is estimated
in a process which considers current local commercial real estate market conditions and the judgment of the sales agent and often
involves obtaining third party appraisals from certified real estate appraisers. The carrying amounts of these real estate holdings
are regularly monitored by real estate professionals employed by the Company. These fair value measurements are classified as
Level 3. Unobservable inputs to these measurements, which include estimates and judgments often used in conjunction with
appraisals, are not readily quantifiable.

16. Fair Value of Financial Instruments

The carrying amounts and estimated fair values of financial instruments held by the Company, in addition to a discussion of

the methods used and assumptions made in computing those estimates, are set forth below.

Loans

The fair values of loans are estimated by discounting the expected future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same remaining terms. This method of estimating fair
value does not incorporate the exit-price concept of fair value prescribed by ASC 820 “Fair Value Measurements and Disclosures”.
Future cash flows for each individual loan are modeled using current rates and all contractual features, while adjusting for optionality
such as prepayments. Loans with potential optionality are modeled under a multiple-rate path process. Each loan's expected future
cash flows are discounted using the LIBOR/swap curve plus an appropriate spread. For business, construction and business real
estate loans, internally-developed pricing spreads based on loan type, term and credit score are utilized. The spread for personal
real estate loans is generally based on newly originated loans with similar characteristics. For consumer loans, the spread is
calculated at loan origination as part of the Bank's funds transfer pricing process, which is indicative of individual borrower
creditworthiness. All consumer credit card loans are discounted at the same spread, depending on whether the rate is variable or
fixed.

Loans Held for Sale, Investment Securities and Derivative Instruments

Detailed descriptions of the fair value measurements of these instruments are provided in Note 15 on Fair Value Measurements.

Federal Funds Purchased and Sold, Interest Earning Deposits With Banks and Cash and Due From Banks

The carrying amounts of federal funds purchased and sold, interest earning deposits with banks, and cash and due from banks

approximates fair value, as these instruments are payable on demand or mature overnight.

Securities Purchased/Sold under Agreements to Resell/Repurchase

The fair values of these investments and borrowings are estimated by discounting contractual cash flows using an estimate of

the current market rate for similar instruments.

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Table of contents

Deposits

The fair value of deposits with no stated maturity is equal to the amount payable on demand. Such deposits include savings
and interest and non-interest bearing demand deposits. These fair value estimates do not recognize any benefit the Company
receives as a result of being able to administer, or control, the pricing of these accounts. Because they are payable on demand,
they are classified as Level 1 in the fair value hierarchy. The fair value of time open and certificates of deposit is based on the
discounted value of cash flows, taking early withdrawal optionality into account. Discount rates are based on the Company’s
approximate cost of obtaining similar maturity funding in the market. Their fair value measurement is classified as Level 3.

Other Borrowings

The fair value of other borrowings, which consists mainly of long-term debt, is estimated by discounting contractual cash flows

using an estimate of the current market rate for similar instruments.

The estimated fair values of the Company’s financial instruments are as follows:

(In thousands)

Financial Assets

Loans:

Business

Real estate - construction and land

Real estate - business

Real estate - personal

Consumer

Revolving home equity

Consumer credit card

Overdrafts

Loans held for sale

Investment securities:

Available for sale

Trading

Non-marketable

Federal funds sold

Securities purchased under agreements to resell

Interest earning deposits with banks

Cash and due from banks

Derivative instruments

Assets held in trust for deferred compensation plan

Financial Liabilities

Non-interest bearing deposits

Savings, interest checking and money market deposits

Time open and certificates of deposit

Federal funds purchased

Securities sold under agreements to repurchase

Other borrowings

Derivative instruments

Liabilities held in trust for deferred compensation plan

Fair Value
Hierarchy
Level

2017

2016

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

Level 3

$ 4,958,554 $ 4,971,401

$ 4,776,365 $ 4,787,469

Level 3

Level 2

Level 1

Level 2

Level 3

Level 2

Level 3

Level 1

Level 3

Level 1

Level 2

Level 3

Level 1

968,820

979,389

791,236

800,426

2,697,452

2,702,598

2,643,374

2,658,093

2,062,787

2,060,443

2,010,397

2,005,227

2,104,487

2,074,129

1,990,801

1,974,784

400,587

783,864

7,123

21,398

400,333

798,093

7,123

21,398

413,634

776,465

10,464

14,456

414,499

794,856

10,464

14,456

937,011

945,871

7,820,253

8,686,650

17,016

18,269

100,758

42,775

700,000

30,631

438,439

7,723

626

12,843

17,016

18,269

100,758

42,775

695,194

30,631

438,439

7,723

626

12,843

16,682

22,225

99,558

15,470

725,000

272,275

494,690

13,146

420

10,261

16,682

22,225

99,558

15,470

728,179

272,275

494,690

13,146

420

10,261

Level 1

$ 7,158,962 $ 7,158,962

$ 7,429,398 $ 7,429,398

Level 1

Level 3

Level 1

Level 3

Level 2

Level 3

Level 1

11,499,620

11,430,789

1,766,864

1,768,780

2,240,908

2,235,218

202,370

52,840

1,304,768

1,305,375

1,671,065

1,671,227

1,758

7,951

123

1,758

7,951

123

12,843

102,049

13,177

162

10,261

104,298

13,177

162

10,261

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Table of contents

Off-Balance Sheet Financial Instruments

The fair value of letters of credit and commitments to extend credit is based on the fees currently charged to enter into similar
agreements. The aggregate of these fees is not material. These instruments are also referenced in Note 19 on Commitments,
Contingencies and Guarantees.

Limitations

Fair value estimates are made at a specific point in time based on relevant market information. They do not reflect any premium
or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.
Because no market exists for many of the Company’s financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve uncertainties
and cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

17. Derivative Instruments

The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts,
along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a
measure of loss exposure. The Company's derivative instruments are accounted for as free-standing derivatives, and changes in
their fair value are recorded in current earnings.

(In thousands)

Interest rate swaps
Interest rate caps
Credit risk participation agreements
Foreign exchange contracts
Mortgage loan commitments
Mortgage loan forward sale contracts
Forward TBA contracts

Total notional amount

December 31

2017
1,741,412
31,776
133,488
11,826
17,110
2,566
25,000
1,963,178

2016
1,685,099
59,379
121,514
4,046
12,429
6,626
15,000
$ 1,904,093

The largest group of notional amounts relate to interest rate swap contracts sold to commercial customers who wish to modify
their interest rate sensitivity. The customers are engaged in a variety of businesses, including real estate, manufacturing, retail
product distribution, education, and retirement communities. These customer swaps are offset by matching contracts purchased
by the Company from other financial dealer institutions. Contracts with dealers that require central clearing are novated to a
clearing agency who becomes the Company's counterparty. Because of the matching terms of the offsetting contracts, in addition
to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition
have a minimal effect on earnings.

Many of the Company’s interest rate swap arrangements with large financial institutions contain contingent features relating
to debt ratings or capitalization levels. Under these provisions, if the Company’s debt rating falls below investment grade or if
the Company ceases to be “well-capitalized” under risk-based capital guidelines, certain counterparties can require immediate
and ongoing collateralization on interest rate swaps in net liability positions, or can require instant settlement of the contracts.
The Company maintains debt ratings and capital well above these minimum requirements.

The Company’s foreign exchange activity involves the purchase and sale of forward foreign exchange contracts, which are
commitments to purchase or deliver a specified amount of foreign currency at a specific future date. This activity enables customers
involved in international business to hedge their exposure to foreign currency exchange rate fluctuations. The Company minimizes
its related exposure arising from these customer transactions with offsetting contracts for the same currency and time frame. Risk
arises from changes in the currency exchange rate and from the potential for counterparty nonperformance. These risks are controlled
by adherence to a foreign exchange trading policy which contains control limits on currency amounts, open positions, maturities
and losses, and procedures for approvals, record-keeping, monitoring and reporting. Hedge accounting has not been applied to
these foreign exchange activities.

Credit risk participation agreements arise when the Company contracts, as a guarantor or beneficiary, with other financial
institutions to share credit risk associated with certain interest rate swaps. The Company’s risks and responsibilities as guarantor
are further discussed in Note 19 on Commitments, Contingencies and Guarantees.

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Under its program to sell residential mortgage loans in the secondary market, the Company designates certain newly-originated
residential mortgage loans as held for sale. Derivative instruments arising from this activity include mortgage loan commitments
and forward loan sale contracts. Changes in the fair values of the loan commitments and funded loans prior to sale that are due
to changes in interest rates are economically hedged with forward contracts to sell residential mortgage-backed securities in the
to-be-announced (TBA) market. These forward TBA contracts are also considered to be derivatives and are settled in cash at the
security settlement date.

The fair values of the Company’s derivative instruments are shown in the table below. Information about the valuation methods
used to measure fair value is provided in Note 15 on Fair Value Measurements. Derivative instruments with a positive fair value
(asset derivatives) are reported in other assets in the consolidated balance sheets while derivative instruments with a negative fair
value (liability derivatives) are reported in other liabilities in the consolidated balance sheets. As mentioned in Note 15, effective
January 2017, certain collateral posted to and from the Company's clearing counterparty has been offset against the fair values of
cleared swaps, such that at December 31, 2017, the positive fair values of cleared swaps were reduced by $4.5 million and the
negative fair values of cleared swaps were reduced by $4.3 million, as reflected in the table below.

(In thousands)

Derivative instruments:
Interest rate swaps
Interest rate caps

Credit risk participation agreements
Foreign exchange contracts
Mortgage loan commitments

Mortgage loan forward sale contracts
Forward TBA contracts

Total

Asset Derivatives

December 31

Liability Derivatives

December 31

2017

2016

2017

2016

Fair Value

7,674
16

12,987
78

(7,857)
(16)

(12,987)
(78)

46
21
580

8
4

65
66
355

—
15

(123)
(40)
—

(7)
(31)

(156)
(4)
(6)

(63)
(45)

8,349

13,566

(8,074)

(13,339)

The effects of derivative instruments on the consolidated statements of income are shown in the table below.

(In thousands)

Derivative instruments:

Interest rate swaps

Interest rate caps

Credit risk participation agreements

Foreign exchange contracts:

Mortgage loan commitments

Mortgage loan forward sale contracts

Forward TBA contracts

Total

Location of Gain or (Loss) Recognized
in Income on Derivative

Amount of Gain or (Loss) Recognized in
Income on Derivative

For the Years
Ended December 31

2017

2016

2015

Other non-interest income

1,978

5,927

4,309

Other non-interest income

Loan fees and sales

—

(80)

231

(648)

—

(44)

(63)

253

263

—

1,580

6,041

4,996

The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the
consolidated balance sheets. It also provides information about these instruments which are subject to an enforceable master
netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset.
Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable
securities. The collateral amounts in this table are limited to the outstanding balance of the related asset or liability (after netting
is applied); thus amounts of excess collateral are not shown. Most of the derivatives in the following table were transacted under
master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default.

The Company is party to master netting arrangements with most of its swap derivative counterparties; however, the Company
does not offset derivative assets and liabilities under these arrangements on its consolidated balance sheet. Collateral, usually in

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the form of marketable securities, is exchanged between the Company and dealer bank counterparties and is generally subject to
thresholds and transfer minimums. By contract, it may be sold or re-pledged by the secured party until recalled at a subsequent
valuation date by the pledging party. For those swap transactions requiring central clearing, the Company posts cash and securities
to its clearing agency. Collateral positions are valued daily, and adjustments to amounts received and pledged by the Company
are made as appropriate to maintain proper collateralization for these transactions. Swap derivative transactions with customers
are generally secured by rights to non-financial collateral, such as real and personal property, which is not shown in the table
below.

(In thousands)

December 31, 2017

Assets:

Derivatives subject to master netting

agreements

Derivatives not subject to master

netting agreements

Total derivatives

Liabilities:

Derivatives subject to master netting

agreements

Derivatives not subject to master

netting agreements

Total derivatives

December 31, 2016

Assets:

Derivatives subject to master netting

agreements

Derivatives not subject to master

netting agreements

Total derivatives

Liabilities:

Derivatives subject to master netting

agreements

Derivatives not subject to master

netting agreements

Total derivatives

Gross Amount
Recognized

Gross Amounts
Offset in the
Balance Sheet

Net Amounts
Presented in the
Balance Sheet

Gross Amounts Not Offset in the
Balance Sheet

Financial
Instruments
Available for
Offset

Collateral
Received/
Pledged

Net Amount

7,726 $

— $

7,726 $

(233) $

(824) $

6,669

623

8,349

7,935

139

8,074

—

623

8,349

7,935

139

8,074

(233)

(1,570)

6,132

13,111 $

— $

13,111 $

(3,391) $

— $

9,720

455

13,566

13,124

215

13,339

—

455

13,566

13,124

(3,391)

(5,292)

4,441

215

13,339

18. Resale and Repurchase Agreements

The following table shows the extent to which assets and liabilities relating to securities purchased under agreements to resell
(resale agreements) and securities sold under agreements to repurchase (repurchase agreements) have been offset in the consolidated
balance sheets, in addition to the extent to which they could potentially be offset. Also shown is collateral received or pledged,
which consists of marketable securities. The collateral amounts in the table are limited to the outstanding balances of the related
asset or liability (after netting is applied); thus amounts of excess collateral are not shown. The agreements in the following table
were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default.

Resale and repurchase agreements are agreements to purchase/sell securities subject to an obligation to resell/repurchase the
same or similar securities. They are accounted for as collateralized financing transactions, not as sales and purchases of the
securities portfolio. The securities collateral accepted or pledged in resale and repurchase agreements with other financial
institutions also may be sold or re-pledged by the secured party, but is usually delivered to and held by third party trustees. The
Company generally retains custody of securities pledged for repurchase agreements with customers.

The Company is party to several agreements commonly known as collateral swaps. These agreements involve the exchange
of collateral under simultaneous repurchase and resale agreements with the same financial institution counterparty. These repurchase

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and resale agreements have the same principal amounts, inception dates, and maturity dates and have been offset against each
other in the balance sheet, having met the accounting requirements for this treatment. The collateral swaps totaled $650.0 million
at December 31, 2017 and $550.0 million at December 31, 2016. At December 31, 2017, the Company had posted collateral of
$661.4 million in marketable securities, consisting of agency mortgage-backed bonds and treasuries, and had accepted $661.3
million in investment grade asset-backed, commercial mortgage-backed, and corporate bonds.

(In thousands)

December 31, 2017

Total resale agreements, subject to
master netting arrangements

Total repurchase agreements, subject to

master netting arrangements

December 31, 2016

Total resale agreements, subject to
master netting arrangements

Total repurchase agreements, subject to

master netting arrangements

Gross Amount
Recognized

Gross Amounts
Offset in the
Balance Sheet

Net Amounts
Presented in the
Balance Sheet

Gross Amounts Not Offset in the
Balance Sheet

Financial
Instruments
Available for
Offset

Securities
Collateral
Received/
Pledged

Net Amount

1,350,000 $

(650,000) $

700,000 $

— $

(700,000) $

1,954,768

(650,000)

1,304,768

—

(1,304,768)

1,275,000 $

(550,000) $

725,000 $

— $

(725,000) $

2,221,065

(550,000)

1,671,065

—

(1,671,065)

—

The table below shows the remaining contractual maturities of repurchase agreements outstanding at December 31, 2017 and

2016, in addition to the various types of marketable securities that have been pledged as collateral for these borrowings.

(In thousands)
December 31, 2017
Repurchase agreements, secured by:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
Agency mortgage-backed securities
Asset-backed securities
Other debt securities
Total repurchase agreements, gross amount recognized
December 31, 2016
Repurchase agreements, secured by:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
Agency mortgage-backed securities
Asset-backed securities
Total repurchase agreements, gross amount recognized

Remaining Contractual Maturity of the Agreements

Overnight and
continuous

Up to 90 days

Greater than 90
days

Total

271,820 $
149,111
737,975
89,601
14,780
1,263,287 $

294,600 $
147,694
693,851
474,830
1,610,975 $

1,731 $
—
9,750
30,000
—
41,481 $

— $
—
24,380
30,000
54,380 $

450,000 $

—
200,000
—
—

650,000 $

300,000 $
3,237
252,473
—

555,710 $

723,551
149,111
947,725
119,601
14,780
1,954,768

594,600
150,931
970,704
504,830
2,221,065

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19. Commitments, Contingencies and Guarantees

The Company leases certain premises and equipment, all of which were classified as operating leases. The rent expense under
such arrangements amounted to $7.3 million, $7.1 million and $6.8 million in 2017, 2016 and 2015, respectively. A summary of
minimum lease commitments follows:

(In thousands)

Year Ended December 31

2018

2019

2020

2021

2022

After

Total minimum lease payments

Type of Property

Real Property

Equipment

Total

5,981 $

215 $

4,876

3,861

3,162

2,678

13,383

—

6,196

4,951

3,893

3,176

2,678

13,383

34,277

All leases expire prior to 2052. It is expected that in the normal course of business, leases that expire will be renewed or replaced
by leases on other properties; thus, the future minimum lease commitments are not expected to be less than the amounts shown
for 2018.

The Company engages in various transactions and commitments with off-balance sheet risk in the normal course of business
to meet customer financing needs. The Company uses the same credit policies in making the commitments and conditional
obligations described below as it does for on-balance sheet instruments. The following table summarizes these commitments at
December 31:

(In thousands)

Commitments to extend credit:

Credit card

Other

Standby letters of credit, net of participations

Commercial letters of credit

2017

2016

5,102,556 $

4,932,955

5,737,181

5,508,686

387,811

4,498

391,899

2,962

Commitments to extend credit are legally binding agreements to lend to a borrower providing there are no violations of any
conditions established in the contract. As many of the commitments are expected to expire without being drawn upon, the total
commitment does not necessarily represent future cash requirements. Refer to Note 2 on Loans and Allowance for Loan Losses
for further discussion.

Commercial letters of credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer. The majority
of commercial letters of credit issued are used to settle payments in international trade. Typically, letters of credit require presentation
of documents which describe the commercial transaction, evidence shipment, and transfer title.

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 the customer, the Company has rights to the underlying collateral, which could
include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities.

At December 31, 2017, the Company had recorded a liability in the amount of $2.5 million, representing the carrying value
of the guarantee obligations associated with the standby letters of credit. This amount will be accreted into income over the
remaining life of the respective commitments. Commitments outstanding under these letters of credit, which represent the maximum
potential future payments guaranteed by the Company, were $387.8 million at December 31, 2017.

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$70.9 million and $47.1 million, respectively. At December 31, 2017, the Company had outstanding purchase commitments
totaling $114.9 million that it expects to fund in 2018.

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 December 31, 2017, 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 2 to 11 years. At December 31, 2017, the fair value of
the Company's guarantee liability RPAs was $123 thousand, and the notional amount of the underlying swaps was $84.1 million.
The maximum potential future payment guaranteed by the Company cannot be readily estimated and is dependent upon the fair
value of the interest rate swaps at the time of default.

The Company has various legal proceedings pending at December 31, 2017, arising in the normal course of business. While
some matters pending against the Company specify damages claimed by plaintiffs, others do not seek a specified amount of
damages or are at very early stages of the legal process. The Company records a loss accrual for all legal and regulatory matters
for which it deems a loss is probable and can be reasonably estimated. Some matters, which are in the early stages, have not yet
progressed to the point where a loss amount can be determined to be probable and estimable.

20. Related Parties

The Company’s Chief Executive Officer, its Vice Chairman, and its President are directors of Tower Properties Company
(Tower) and, together with members of their immediate families, beneficially own approximately 66% of the outstanding stock
of Tower. At December 31, 2017, Tower owned 270,646 shares of Company stock. Tower is primarily engaged in the business
of owning, developing, leasing and managing real property.

Payments from the Company and its affiliates to Tower are summarized below. These payments, with the exception of dividend
payments, relate to property management services, including construction oversight, on three Company-owned office buildings
and related parking garages in downtown Kansas City.

(In thousands)

Leasing agent fees

Operation of parking garages

Building management fees

Property construction management fees

Dividends paid on Company stock held by Tower

Total

2017

2016

2015

32 $

1,954

146

232

101 $

184

1,832

147

221

2,446 $

2,485 $

1,850

322

210

2,523

Tower has a $13.5 million line of credit with the Bank which is subject to normal credit terms and has a variable interest rate.

The line of credit is collateralized by Company stock and based on collateral value had a maximum borrowing amount of
approximately $11.5 million at December 31, 2017. There were $5.2 million of borrowings under this line during 2017, and there
was no balance outstanding at December 31, 2017. There were no borrowings outstanding during 2016, and the maximum
borrowings outstanding during 2015 were $1.3 million. There was no balance outstanding at December 31, 2016 or 2015. Interest
paid on these borrowings during the last three years was not significant. Letters of credit may be collateralized under this line of
credit; however, there were no letters of credit outstanding during 2017, 2016 or 2015, and thus, no fees were received during
these periods. From time to time, the Bank extends additional credit to Tower for construction and development projects. No
construction loans were outstanding during 2017, 2016 and 2015.

Tower leases office space in the Kansas City bank headquarters building owned by the Company. Rent paid to the Company
totaled $74 thousand in 2017, $72 thousand in 2016, and $69 thousand in 2015, at $15.75, $15.67 and $15.42 per square foot,
respectively.

Directors of the Company and their beneficial interests have deposit accounts with the Bank and may be provided with cash
management and other banking services, including loans, in the ordinary course of business. Such loans were made on substantially
the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other
unrelated persons and did not involve more than the normal risk of collectability.

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As discussed in Note 19 on Commitments, Contingencies, and Guarantees, the Company regularly purchases various state tax
credits arising from third-party property redevelopment and resells the credits to third parties. During 2017, the Company sold
state tax credits to its Chief Executive Officer, its Vice Chairman, and its President, in the amount of $694 thousand, $598 thousand,
and $67 thousand, respectively, for personal tax planning. During 2016, the Company sold state tax credits to its Chief Executive
Officer, his father (a former Chief Executive Officer), its Vice Chairman, and its President, in the amount of $549 thousand, $191
thousand, $244 thousand, and $72 thousand, respectively. During 2015, the Company sold state tax credits to its Chief Executive
Officer, his father, its Vice Chairman, and its President in the amount of $478 thousand, $40 thousand, $372 thousand, and $65
thousand, respectively. The terms of the sales and the amounts paid were the same as the terms and amounts paid for similar tax
credits by persons not related to the Company.

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21. Parent Company Condensed Financial Statements

Following are the condensed financial statements of Commerce Bancshares, Inc. (Parent only) for the periods indicated:

Condensed Balance Sheets

(In thousands)

Assets

Investment in consolidated subsidiaries:

Bank

Non-banks

Cash

Securities purchased under agreements to resell

Investment securities:

Available for sale

Non-marketable

Note receivable due from bank subsidiary

Advances to subsidiaries, net of borrowings

Income tax benefits

Other assets

Total assets

Liabilities and stockholders’ equity

Pension obligation

Other liabilities

Total liabilities

Stockholders’ equity

Total liabilities and stockholders’ equity

Condensed Statements of Income

(In thousands)

Income

Dividends received from consolidated bank subsidiary

Earnings of consolidated subsidiaries, net of dividends

Interest and dividends on investment securities

Management fees charged to subsidiaries

Investment securities gains

Net interest income on advances and note to subsidiaries

Other

Total income

Expense

Salaries and employee benefits

Professional fees

Data processing fees paid to affiliates

Community service

Other

Total expense

Income tax benefit

Net income

December 31

2017

2016

2,409,098 $

2,246,060

52,479

151,607

—

53,285

655

50,000

14,571

8,279

19,951

51,816

155,775

58,051

718

—

5,053

524

17,716

2,759,925 $

2,535,764

12,407 $

30,958

43,365

2,716,560

2,759,925 $

17,158

22,823

39,981

2,495,783

2,535,764

For the Years Ended December 31

2017

2016

2015

160,002 $

147,678

118,704

2,099

30,431

41,717

514

3,346

2,364

30,965

1,880

2,720

385,787

316,656

33,714

2,036

3,512

32,093

10,671

82,026

(15,622)

29,116

1,951

3,226

1,620

9,849

45,762

(4,497)

160,001

106,636

2,272

25,713

—

1,422

296,048

22,167

1,833

3,186

991

8,278

36,455

(4,137)

319,383 $

275,391 $

263,730

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Condensed Statements of Cash Flows

(In thousands)

Operating Activities

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Earnings of consolidated subsidiaries, net of dividends

Other adjustments, net

Net cash provided by operating activities

Investing Activities

For the Years Ended December 31

2017

2016

2015

319,383 $

275,391 $

263,730

(147,678)

(118,704)

(106,636)

(11,268)

160,437

9,541

166,228

(1,152)

155,942

(Increase) decrease in securities purchased under agreements to resell

155,775

(51,335)

57,210

(Increase) decrease in investment in subsidiaries, net

Proceeds from sales of investment securities

Proceeds from maturities/pay downs of investment securities

Purchases of investment securities

Note receivable due from bank subsidiary

(Increase) decrease in advances to subsidiaries, net

Net purchases of building improvements and equipment

Net cash provided by (used in) investing activities

Financing Activities

Purchases of treasury stock

Accelerated share repurchase agreements

Issuance of stock under equity compensation plans

Cash dividends paid on common stock

Cash dividends paid on preferred stock

Net cash used in financing activities

Increase (decrease) in cash

Cash at beginning of year

Cash at end of year

Income tax payments (receipts), net

11,006

2,295

—

(50,000)

(9,518)

(52)

109,517

2,949

4,105

—

13,507

(3)

(30,773)

(17,771)

(39,381)

—

(6)

(87,070)

(9,000)

—

(8)

(91,619)

(9,000)

(118,398)

151,556

151,607 $

(135,457)

(215,223)

(2)

51 $

(3)

(8,991) $

(8,958) $

1,278

(6)

—

3,516

(2,500)

—

1,171

(113)

59,278

(23,176)

(100,000)

1,914

(84,961)

(9,000)

Dividends paid by the Parent to its shareholders were substantially provided from Bank dividends. The Bank may distribute
common dividends without prior regulatory approval, provided that the dividends do not exceed the sum of net income for the
current year and retained net income for the preceding two years, subject to maintenance of minimum capital requirements. The
Parent charges fees to its subsidiaries for management services provided, which are allocated to the subsidiaries based primarily
on total average assets. The Parent makes cash advances to its private equity subsidiaries for general short-term cash flow purposes.
Advances may be made to the Parent by its subsidiary bank holding company for temporary investment of idle funds. Interest on
such advances is based on market rates.

In 2017, the Bank borrowed $50.0 million from the Parent as part of its strategy to reduce FDIC insurance premiums. The

note has a rolling 13 month maturity, and the interest rate is a variable rate equal to the one year treasury rate.

For the past several years, the Parent has maintained a $20.0 million line of credit for general corporate purposes with the
Bank. The line of credit is secured by investment securities. The Parent has not borrowed under this line during the past three
years.

At December 31, 2017, the fair value of available for sale investment securities held by the Parent consisted of investments
of $48.7 million in common and preferred stock and $4.6 million in non-agency mortgage-backed securities. The Parent’s unrealized
net gain in fair value on its investments was $44.5 million at December 31, 2017. The corresponding net of tax unrealized gain
included in the equity category of accumulated other comprehensive income was $27.6 million. Also included in accumulated

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other comprehensive income was an unrealized net of tax gain in fair value of investment securities held by subsidiaries, which
amounted to $6.2 million at December 31, 2017.

During 2017, the Parent contributed appreciated common stock to a charitable foundation and recorded securities gains of
$31.1 million and expense of $32.0 million in these transactions. The Parent also sold holdings of the same investment during
the fourth quarter of 2017 for a total gain of $10.0 million. The Parent's remaining holdings of this stock, with a fair value of
$45.9 million at December 31, 2017, are expected to be redeemed for cash in a third party merger transaction expected to occur
in the first six months of 2018. The Company adopted new accounting guidance on January 1, 2018 which reclassified the unrealized
gain in fair value on these holdings (net of tax) to retained earnings, as discussed in the Financial Instruments section on page 52.

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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

There were no changes in or disagreements with accountants on accounting and financial disclosure.

Item 9a. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934. Based on this evaluation, our principal executive officer and our principal
financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this
annual report.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in
Internal Control — Integrated Framework (2013), our management concluded that our internal control over financial reporting
was effective as of December 31, 2017.

The Company’s internal control over financial reporting as of December 31, 2017 has been audited by KPMG LLP, an

independent registered public accounting firm, as stated in their report which follows.

Changes in Internal Control Over Financial Reporting

No change in the Company’s internal control over financial reporting occurred that has materially affected, or is reasonably

likely to materially affect, such controls during the last quarter of the period covered by this report.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
Commerce Bancshares, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Commerce Bancshares, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements
of income, comprehensive income, cash flows, and changes in equity for each of the years in the three-year period ended
December 31, 2017, and the related notes (collectively, the consolidated financial statements), and our report dated February 22,
2018 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Kansas City, Missouri
February 22, 2018

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Item 9b. OTHER INFORMATION

None

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by Items 401, 405 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K regarding executive officers,
directors, and corporate governance is included at the end of Part I of this Form 10-K under the caption “Executive Officers of
the Registrant” and under the captions “Proposal One - Election of the 2021 Class of Directors”, “Section 16(a) Beneficial
Ownership Reporting Compliance”, “Audit and Risk Committee Report”, “Committees of the Board" and "Shareholder Proposals
and Nominations" in the definitive proxy statement, which is incorporated herein by reference.

The Company’s senior financial officer code of ethics for the chief executive officer and senior financial officers of the Company,
including the chief financial officer, principal accounting officer or controller, or persons performing similar functions, is available
at www.commercebank.com. Amendments to, and waivers of, the code of ethics are posted on this Web site.

Item 11. EXECUTIVE COMPENSATION

The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K regarding executive compensation is included
under the captions “Compensation Discussion and Analysis”, “Executive Compensation”, “Director Compensation”,
“Compensation and Human Resources Committee Report”, and “Compensation and Human Resources Committee Interlocks and
Insider Participation” in the definitive proxy statement, which is incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS

The information required by Items 201(d) and 403 of Regulation S-K is included under the captions “Equity Compensation
Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” in the definitive proxy statement,
which is incorporated herein by reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

The information required by Items 404 and 407(a) of Regulation S-K is covered under the captions “Proposal One - Election
of the 2021 Class of Directors” and “Corporate Governance” in the definitive proxy statement, which is incorporated herein by
reference.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by Item 9(e) of Schedule 14A is included under the captions “Pre-approval of Services by the External

Auditor” and “Fees Paid to KPMG LLP” in the definitive proxy statement, which is incorporated herein by reference.

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Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

PART IV

(a) The following documents are filed as a part of this report:

(1)

(2)

Financial Statements:
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary of Quarterly Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statement Schedules:
All schedules are omitted as such information is inapplicable or is included in the financial
statements.

Page

61
62
63
64
65
66
55

(b) The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are listed
below.

3 —Articles of Incorporation and By-Laws:

(a) Restated Articles of Incorporation, as amended, were filed in quarterly report on Form 10-Q (Commission file
number 0-2989) dated May 7, 2014, and the same are hereby incorporated by reference.

(b) Restated By-Laws, as amended, were filed in current report on Form 8-K (Commission file number 0-2989)
dated February 14, 2013, and the same are hereby incorporated by reference.

4 — Instruments defining the rights of security holders, including indentures:

(a) Pursuant to paragraph (b)(4)(iii) of Item 601 Regulation S-K, Registrant will furnish to the Commission upon
request copies of long-term debt instruments.

10 — Material Contracts (Each of the following is a management contract or compensatory plan arrangement):

(a) Commerce Bancshares, Inc. Executive Incentive Compensation Plan amended and restated as of January 1,
2009 was filed in quarterly report on Form 10-Q (Commission file number 0-2989) dated August 7, 2009, and
the same is hereby incorporated by reference.

(b) Commerce Bancshares, Inc. Stock Purchase Plan for Non-Employee Directors amended and restated as of
April 17, 2013 was filed in current report on Form 8-K (Commission file number 0-2989) dated April 23, 2013,
and the same is hereby incorporated by reference.

(c) Commerce Executive Retirement Plan amended and restated as of January 28, 2011 was filed in annual report
on Form 10-K (Commission file number 0-2989) dated February 25, 2011, and the same is hereby incorporated
by reference.

(d)(1) 2009 Form of Severance Agreement between Commerce Bancshares, Inc. and the persons listed at the end
of such agreement was filed in annual report on Form 10-K (Commission file number 0-2989) dated February
24, 2015, and the same is hereby incorporated by reference.

(d)(2) 2015 Form of Severance Agreement between Commerce Bancshares, Inc. and the persons listed at the end
of such agreement was filed in annual report on Form 10-K (Commission file number 0-2989) dated February
24, 2015, and the same is hereby incorporated by reference.

(e) Trust Agreement for the Commerce Bancshares, Inc. Executive Incentive Compensation Plan amended and
restated as of January 1, 2001 was filed in quarterly report on Form 10-Q (Commission file number 0-2989)
dated May 8, 2001, and the same is hereby incorporated by reference.

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Table of contents

(f) Commerce Bancshares, Inc. 2018 Compensatory Arrangements with CEO and Named Executive Officers
were filed in amended current report on Form 8-K (Commission file number 0-2989) dated February 15, 2018,
and the same is hereby incorporated by reference.

(g) Commerce Bancshares, Inc. 2005 Equity Incentive Plan amended and restated as of April 17, 2013 was filed
in current report on Form 8-K (Commission file number 0-2989) dated April 23, 2013, and the same is hereby
incorporated by reference.

(h) Commerce Bancshares, Inc. Stock Appreciation Rights Agreement and Commerce Bancshares, Inc.
Restricted Stock Award Agreement, pursuant to the 2005 Equity Incentive Plan, were filed in current report on
Form 8-K (Commission file number 0-2989) dated February 23, 2006, and the same are hereby incorporated by
reference.

(i) Commerce Bancshares, Inc. Stock Appreciation Rights Agreement, Commerce Bancshares, Inc. Restricted
Stock Award Agreements for Executive Officers, and Commerce Bancshares, Inc. Restricted Stock Award
Agreements for Employees other than Executive Officers, pursuant to the 2005 Equity Incentive Plan, were filed
in quarterly report on Form 10-Q (Commission file number 0-2989) dated May 6, 2013, and the same are hereby
incorporated by reference.

(j) Form of Notice of Grant of Award and Award Agreement for Restricted Stock for Executive Officers, pursuant
to the Commerce Bancshares, Inc. 2005 Equity Incentive Plan, was filed in quarterly report on Form 10-Q
(Commission file number 0-2989) dated May 7, 2014, and the same is hereby incorporated by reference.

(k) Form of Notice of Grant of Award and Award Agreement for Restricted Stock for Employees other than
Executive Officers, pursuant to the Commerce Bancshares, Inc. 2005 Equity Incentive Plan, was filed in
quarterly report on Form 10-Q (Commission file number 0-2989) dated May 7, 2014, and the same is hereby
incorporated by reference.

(l) Form of Notice of Grant of Award and Award Agreement for Stock Appreciation Rights, pursuant to the
Commerce Bancshares, Inc. 2005 Equity Incentive Plan, was filed in quarterly report on Form 10-Q
(Commission file number 0-2989) dated May 7, 2014, and the same is hereby incorporated by reference.

21 — Subsidiaries of the Registrant

23 — Consent of Independent Registered Public Accounting Firm

24 — Power of Attorney

31.1 — Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 — Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32 — Certifications of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

101 — Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the
Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated
Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial
Statements, tagged as blocks of text and in detail

Item 16. FORM 10-K SUMMARY

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused

this report to be signed on its behalf by the undersigned thereunto duly authorized this 22nd day of February 2018.

COMMERCE BANCSHARES, INC.

By:

/s/ THOMAS J. NOACK
Thomas J. Noack

Vice President and Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons

on behalf of the Registrant and in the capacities indicated on the 22nd day of February 2018.

By:

/s/ DAVID W. KEMPER

David W. Kemper
Chief Executive Officer

/s/ CHARLES G. KIM
Charles G. Kim

Chief Financial Officer

/s/ JEFFERY D. ABERDEEN
Jeffery D. Aberdeen

Controller

(Chief Accounting Officer)

All the Directors on the Board of Directors*

David W. Kemper

Terry D. Bassham

John R. Capps

Earl H. Devanny, III

W. Thomas Grant, II

James B. Hebenstreit

John W. Kemper

Jonathan M. Kemper

Benjamin F. Rassieur, III

Todd R. Schnuck

Andrew C. Taylor

Kimberly G. Walker

____________
* The Directors of Registrant listed executed a power of attorney authorizing Thomas J. Noack, their attorney-in-fact, to sign this

report on their behalf.

By:

124

/s/ THOMAS J. NOACK
Thomas J. Noack

Attorney-in-Fact

The consolidated subsidiaries of the Registrant at February 1, 2018 were as follows:

Exhibit 21

Name
CBI-Kansas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas City, MO Kansas

Location

State or Other
Jurisdiction of
Incorporation

Clayton Financial Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Clayton, MO
Clayton Realty Corp.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Clayton, MO

Commerce Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas City, MO Missouri
Commerce Brokerage Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Clayton, MO
Missouri
Clayton Holdings, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas City, MO Missouri
Missouri
Missouri
Delaware
Illinois Financial, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Peoria, IL
Delaware
Illinois Realty, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Peoria, IL
Commerce Insurance Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fenton, MO
Missouri
Commerce Investment Advisors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas City, MO Missouri
CBI Equipment Finance, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas City, MO Missouri
Mid-Am Acquisition, LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Clayton, MO
Missouri
Tower Redevelopment Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas City, MO Missouri
CBI Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas City, MO Arizona
Delaware
CFB Partners, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Clayton, MO
CFB Venture Fund I, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas City, MO Missouri
Delaware
Capital for Business, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas City, MO Missouri

CFB Venture Fund, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Clayton, MO

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Exhibit 23

The Board of Directors
Commerce Bancshares, Inc.:

We consent to the incorporation by reference in the Registration Statements No. 33-28294, No. 33-82692, No. 33-8075, No.
33-78344, No. 333-14651, No. 333-186867, No. 333-188374, and No. 333-214495, each on Form S-8, and No. 333-140221 and
No. 333-196689, each on Form S-3ASR of Commerce Bancshares, Inc. of our reports dated February 22, 2018, with respect to
the consolidated balance sheets of Commerce Bancshares, Inc. and subsidiaries as of December 31, 2017 and 2016, and the related
consolidated statements of income, comprehensive income, cash flows, and changes in equity for each of the years in the three-
year period ended December 31, 2017, and the effectiveness of internal control over financial reporting as of December 31, 2017,
which reports appear in the December 31, 2017 annual report on Form 10-K of Commerce Bancshares, Inc.

KPMG LLP

Kansas City, Missouri
February 22, 2018

POWER OF ATTORNEY

Exhibit 24

KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby appoint Thomas J. Noack and Jeffery D. Aberdeen,
or either of them, attorney for the undersigned to sign the Annual Report on Form 10-K of Commerce Bancshares, Inc., for the
fiscal year ended December 31, 2017, together with any and all amendments which might be required from time to time with
respect thereto, to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, with respect
to Commerce Bancshares, Inc., with full power and authority in either of said attorneys to do and perform in the name of and on
behalf of the undersigned every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and
purposes as the undersigned might or could do in person.

IN WITNESS WHEREOF, the undersigned have executed these presents as of this 26th day of January, 2018.

/s/ TERRY D. BASSHAM

/s/ JOHN R. CAPPS

/s/ EARL H. DEVANNY, III

/s/ W. THOMAS GRANT, II

/s/ JAMES B. HEBENSTREIT

/s/ DAVID W. KEMPER

/s/ JOHN W. KEMPER

/s/ JONATHAN M. KEMPER

/s/ BENJAMIN F. RASSIEUR, III

/s/ TODD R. SCHNUCK

/s/ ANDREW C. TAYLOR

/s/ KIMBERLY G. WALKER

CERTIFICATION

Exhibit 31.1

I, David W. Kemper, certify that:

1. I have reviewed this annual report on Form 10-K of Commerce Bancshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in

the registrant’s internal control over financial reporting.

February 22, 2018

/s/ DAVID W. KEMPER
David W. Kemper
Chairman and
Chief Executive Officer

Exhibit 31.2

I, Charles G. Kim, certify that:

1. I have reviewed this annual report on Form 10-K of Commerce Bancshares, Inc.;

CERTIFICATION

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in

the registrant’s internal control over financial reporting.

February 22, 2018

/s/ CHARLES G. KIM
Charles G. Kim
Executive Vice President and
Chief Financial Officer

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32

In connection with the Annual Report of Commerce Bancshares, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, David W. Kemper
and Charles G. Kim, Chief Executive Officer and Chief Financial Officer, respectively, of the Company, hereby certify, pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of our knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of

operations of the Company.

/s/ DAVID W. KEMPER
David W. Kemper
Chief Executive Officer

/s/ CHARLES G. KIM
Charles G. Kim
Chief Financial Officer

February 22, 2018

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.

C O R P O R AT E H E A D Q U A R T E R S

I N V E S T O R I N Q U I R I E S

1000 Walnut

P.O. Box 419248

Kansas City, MO 64141-6248

(816) 234-2000

www.commercebank.com

I N D E P E N D E N T A C C O U N TA N T S

KPMG LLP

Kansas City, Missouri

T R A N S F E R A G E N T, R E G I S T R A R

A N D D I V I D E N D D I S B U R S I N G A G E N T

Computershare Trust Company, N.A.

P.O. Box 505000

Louisville, KY 40233
(800) 368-5948
(800) 952-9245 Hearing Impaired/TDD
www.computershare.com/investor

S T O C K E X C H A N G E L I S T I N G

NASDAQ

Symbol-Common Stock: CBSH

Symbol-Preferred Stock: CBSHP

C O M M O N S T O C K I N F O R M AT I O N
The table below sets forth the high and the low prices of
actual transactions for the Company’s common stock —
adjusted for the December 2017 5% stock dividend —
which is publicly traded on the Nasdaq Stock Market.

FISCAL 2017

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

HIGH

$57.72

55.18

56.42

57.91

LOW

$50.62

49.54

49.43

52.07

A N N U A L M E E T I N G
The annual meeting of shareholders will be held
Wednesday, April 18, 2018, at 9:30 a.m., at Washington
University on level two of the Charles E. Knight Center,
#1 Brookings Drive, St. Louis, Missouri.

Shareholders, analysts and investors seeking information about the

Company should direct their inquiries to:

Jeffery D. Aberdeen, Controller

1000 Walnut

P.O. Box 419248

Kansas City, MO 64141-6248

(800) 892-7100

mymoney@commercebank.com

S H A R E H O L D E R S M AY R E C E I V E F U T U R E A N N U A L

R E P O R T S A N D P R O X Y M AT E R I A L S O N L I N E

To receive materials electronically, rather than by mail,

individuals who hold stock in their name may enroll for

electronic delivery at Computershare’s investor website

www.computershare.com/investor

• If you have already created a login ID and password at the above site,

• If you have not created a login ID and password on the above site,

choose “Create Login.” You will need the Social Security number or tax

ID number associated with your Commerce stock account to create the

Electronic Delivery.”

Please note:

• Your consent is entirely revocable.

• You can always vote your proxy on the internet whether

or not you elect to receive your materials electronically.

Shareholders who hold their Commerce stock through a bank,

broker or other holder of record should refer to the information

provided by that entity for instructions on how to elect to view future

annual reports and proxy statements over the internet.

Employee PIP (401(k)) shareholders who have a Company email

address and online access will automatically be enrolled to receive the

Annual Report, Proxy Statement and proxy card over the

internet unless they choose to opt out by emailing the Corporate

Secretary at thomas.noack@commercebank.com.

C O M M E R C E B A N C S H A R E S , I N C .

1000 WALNUT
P.O. BOX 419248

KANSAS CITY, MO 64141-6248

Phone: (816) 234-2000
(800) 892-7100

Email: mymoney@commercebank.com
Website: www.commercebank.com

An Equal Opportunity Employer