Parent Company Condensed Financial Statements

Following are the condensed financial statements of Commerce Bancshares, Inc. (Parent only) for the periods indicated:



Condensed Balance Sheets
	December 31
(In thousands)	2018		2017
Assets
Investment in consolidated subsidiaries:
Bank	$	2,587,489	$	2,409,098
Non-banks	67,538		52,479
Cash	207,462		151,607
Investment securities:
Available for sale debt	2,576		4,595
Equity	3,191		49,345
Note receivable due from bank subsidiary	50,000		50,000
Advances to subsidiaries, net of borrowings	19,867		14,571
Income tax benefits	8,590		8,279
Other assets	23,734		19,951
Total assets	$	2,970,447	$	2,759,925
Liabilities and stockholders’ equity
Pension obligation	$	12,645	$	12,407
Other liabilities	26,504		30,958
Total liabilities	39,149		43,365
Stockholders’ equity	2,931,298		2,716,560
Total liabilities and stockholders’ equity	$	2,970,447	$	2,759,925



Condensed Statements of Income
	For the Years Ended December 31
(In thousands)	2018			2017			2016
Income
Dividends received from consolidated bank subsidiary	$	200,000		$	160,002		$	160,002
Earnings of consolidated subsidiaries, net of dividends	233,785			147,678			118,704
Interest and dividends on investment securities	10,698			2,099			2,364
Management fees charged to subsidiaries	37,688			30,431			30,965
Investment securities gains (losses)	(4,581		)	41,717			1,880
Net interest income on advances and note to subsidiaries	1,299			514			21
Other	2,390			3,346			2,720
Total income	481,279			385,787			316,656
Expense
Salaries and employee benefits	33,588			33,714			29,116
Professional fees	2,383			2,036			1,951
Data processing fees paid to affiliates	3,341			3,512			3,226
Community service	152			32,093			1,620
Other	10,729			10,671			9,849
Total expense	50,193			82,026			45,762
Income tax benefit	(2,456		)	(15,622		)	(4,497		)
Net income	$	433,542		$	319,383		$	275,391



Condensed Statements of Cash Flows
	For the Years Ended December 31
(In thousands)	2018			2017			2016
Operating Activities
Net income	$	433,542		$	319,383		$	275,391
Adjustments to reconcile net income to net cash provided by operating activities:
Earnings of consolidated subsidiaries, net of dividends	(233,785		)	(147,678		)	(118,704		)
Other adjustments, net	2,505			(11,268		)	9,541
Net cash provided by operating activities	202,262			160,437			166,228
Investing Activities
(Increase) decrease in securities purchased under agreements to resell	—			155,775			(51,335		)
Decrease in investment in subsidiaries, net	—			11			4
Proceeds from sales of investment securities	41,638			11,006			2,949
Proceeds from maturities/pay downs of investment securities	1,988			2,295			4,105
Purchases of investment securities	(125		)	—			—
Note receivable due from bank subsidiary	—			(50,000		)	—
(Increase) decrease in advances to subsidiaries, net	(5,296		)	(9,518		)	13,507
Net purchases of building improvements and equipment	(133		)	(52		)	(3		)
Net cash provided by (used in) investing activities	38,072			109,517			(30,773		)
Financing Activities
Purchases of treasury stock	(75,231		)	(17,771		)	(39,381		)
Issuance of stock under equity compensation plans	(10		)	(8		)	(6		)
Cash dividends paid on common stock	(100,238		)	(91,619		)	(87,070		)
Cash dividends paid on preferred stock	(9,000		)	(9,000		)	(9,000		)
Net cash used in financing activities	(184,479		)	(118,398		)	(135,457		)
Increase (decrease) in cash	55,855			151,556			(2		)
Cash at beginning of year	151,607			51			53
Cash at end of year	$	207,462		$	151,607		$	51
Income tax receipts, net	$	(1,965	)	$	(8,991	)	$	(8,958	)

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 manage 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, 2018, the fair value of the investment securities held by the Parent consisted of investments of $2.5 million in common and preferred stock with readily determinable fair values, $720 thousand in equity securities that do not have readily determinable fair values, and $2.6 million in non-agency mortgage-backed securities. The decline in balances from the prior year was due to a third party merger transaction in June 2018, in which the majority of these securities were redeemed for cash of $39.9 million.