8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

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

Date of Report (Date of earliest event reported): July 15, 2010

Commerce Bancshares, Inc.

(Exact name of registrant as specified in its charter)

Missouri	0-2989	43-0889454
(State of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1000 Walnut, Kansas City, MO	64106
(Address of principal executive offices)	(Zip Code)

(816) 234-2000

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o      Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

The information in this Current Report on Form 8-K, including the exhibit, is furnished pursuant to Item 2.02 and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section. Furthermore, the information in this Current Report on Form 8-K, including the exhibit, shall not be deemed to be incorporated by reference into the filings of Commerce Bancshares, Inc. under the Securities Act of 1933, as amended.

Item 2.02 Results of Operations and Financial Condition

A copy of the press release issued July 15, 2010 by Commerce Bancshares, Inc. announcing Second Quarter 2010 earnings is furnished under Item 2.02 of this Current Report on Form 8-K as Exhibit 99.1.

All information included in this Current Report on Form 8-K is available on the Company’s Internet site at http://www.commercebank.com.

Item 9.01 Financial Statements and Exhibits

Exhibits
99.1	Press Release dated July 15, 2010

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

COMMERCE BANCSHARES, INC.
By:	\s\ Jeffery D. Aberdeen
	Jeffery D. Aberdeen
	Controller (Chief Accounting Officer)

Date: July 15, 2010

INDEX TO EXHIBITS

Exhibit
Number	Description
99.1	Press release dated July 15, 2010

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE:
Thursday, July 15, 2010

COMMERCE BANCSHARES, INC. ANNOUNCES SECOND QUARTER
EARNINGS PER SHARE OF $.71

     Commerce Bancshares, Inc. announced earnings of $.71 per share for the three months ended June 30, 2010 compared to $.53 per share in the previous quarter and $.46 per share in the second quarter of 2009. Net income for the second quarter amounted to $59.7 million compared to $44.2 million in the previous quarter and $37.0 million in the same period last year. For the quarter, the return on average assets totaled 1.33%, the return on average equity was 12.2% and the efficiency ratio was 58.5%.

     For the six months ended June 30, 2010, earnings per share totaled $1.24 compared to $.84 per share for the first six months of 2009, an increase of 47.6%. Net income amounted to $103.9 million for the first six months of 2010 compared with $67.8 million for the same period last year, or an increase of $36.1 million.

     In announcing these results, David W. Kemper, Chairman and CEO, said, “We are pleased to report strong second quarter earnings resulting from 3.8% core revenue growth, a $19.0 million decline in our provision for loan losses, and a 2.5% decrease in non-interest expense when compared to the same quarter last year. While the economy remains uncertain and customer loan demand continues to be weak, net interest income grew $5.7 million, or 3.6%, this quarter compared to the same period last year, with our net interest margin stable at 4.0%. Non-interest income increased 3.1% over the same period last year resulting from higher bankcard fees, which grew by 25.1% reflecting strong growth in corporate, debit and merchant fee income. Additionally, trust fee income increased by 5.2%. Average loans continued to decline this quarter as credit demand remains low from both consumer and corporate borrowers, while average deposits increased by 3.0%, or $423 million, over the previous quarter due to growth in both corporate and consumer deposit balances.”

     Mr. Kemper continued, “During the quarter, net loan charge-offs totaled $22.2 million, a decrease of $9.1 million from the previous quarter, while total non-performing assets declined $6.9 million from the previous quarter to $103.2 million. The provision for loan losses matched our net loan charge-offs this quarter and our allowance for loan losses was unchanged at $197.5 million, representing 1.9 times non-performing assets. Our capital and liquidity positions continued to strengthen, as the ratio of tangible common equity to assets increased to 10.1% compared to 10.0% in the prior quarter, while our loans to deposits ratio decreased to 72.0% compared to 75.0% in the prior quarter.”

     Total assets at June 30, 2010 were $18.4 billion, total loans were $10.2 billion, and total deposits were $14.5 billion.

(more)

     Commerce Bancshares, Inc. is a registered bank holding company offering a full line of banking services, including investment management and securities brokerage. The Company currently operates in over 370 locations in Missouri, Illinois, Kansas, Oklahoma and Colorado. The Company also has operating subsidiaries involved in mortgage banking, credit related insurance, and private equity activities.

Summary of Non-Performing Assets and Past Due Loans

(Dollars in thousands)	3/31/10			6/30/10			6/30/09
Non-Accrual Loans	$	95,749		$	90,267		$	122,648
Foreclosed Real Estate	$	14,334		$	12,920		$	9,039
Total Non-Performing Assets	$	110,083		$	103,187		$	131,687
Non-Performing Assets to Loans		1.12	%		1.06	%		1.23	%
Non-Performing Assets to Total Assets		.61	%		.56	%		.74	%
Loans 90 Days & Over Past Due — Still Accruing	$	42,583		$	42,315		$	39,968

     This financial news release, including management’s discussion of second quarter results, is posted to the Company’s web site at www.commercebank.com.

* * * * * * * * * * * * * * *

For additional information, contact
Jeffery Aberdeen, Controller
at PO Box 419248, Kansas City, MO
or by telephone at (816) 234-2081
Web Site: http://www.commercebank.com
Email: mymoney@commercebank.com

2

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
FINANCIAL HIGHLIGHTS

	For the Three Months Ended									For the Six Months Ended
	March 31			June 30			June 30			June 30			June 30
(Unaudited)	2010			2010			2009			2010			2009
FINANCIAL SUMMARY (In thousands, except per share data)
Net interest income	$	162,710		$	163,108		$	157,445		$	325,818		$	307,460
Taxable equivalent net interest income		167,534			167,826			162,323			335,360			316,265
Non-interest income		93,252			101,647			98,562			194,899			190,993
Investment securities gains (losses), net		(3,665	)		660			(2,753	)		(3,005	)		(4,925	)
Provision for loan losses		34,322			22,187			41,166			56,509			84,334
Non-interest expense		155,787			155,982			160,011			311,769			312,897
Net income		44,170			59,734			36,968			103,904			67,804
Cash dividends		19,600			19,615			18,515			39,215			36,774
Net total loan charge-offs		31,264			22,187			36,033			53,451			70,952
Business charge-offs		267			2,223			2,378			2,490			6,220
Real estate — construction and land charge-offs		10,966			480			10,373			11,446			19,599
Real estate — business charge-offs		431			1,022			1,033			1,453			1,809
Consumer credit card charge-offs		13,065			12,338			13,214			25,403			23,977
Consumer charge-offs		5,524			4,743			8,476			10,267			17,809
Home equity charge-offs		580			650			96			1,230			396
Student charge-offs		3			—			2			3			2
Real estate — personal charge-offs		201			515			215			716			760
Overdraft charge-offs		227			216			246			443			380
Per common share:
Net income — basic	$	0.53		$	0.72		$	0.46		$	1.25		$	0.84
Net income — diluted	$	0.53		$	0.71		$	0.46		$	1.24		$	0.84
Cash dividends	$	0.235		$	0.235		$	0.229		$	0.470		$	0.457
Diluted wtd. average shares o/s		83,326			83,385			80,524			83,355			80,168
RATIOS
Average loans to deposits (1)		74.98	%		71.96	%		81.58	%		73.44	%		84.32	%
Return on total average assets		1.00	%		1.33	%		0.84	%		1.16	%		0.79	%
Return on total average equity		9.32	%		12.21	%		8.91	%		10.79	%		8.38	%
Non-interest income to revenue (2)		36.43	%		38.39	%		38.50	%		37.43	%		38.32	%
Efficiency ratio (3)		60.49	%		58.48	%		62.15	%		59.47	%		62.36	%
AT PERIOD END
Book value per share based on total equity	$	23.13		$	23.85		$	20.99
Market value per share	$	41.14		$	35.99		$	30.31
Allowance for loan losses as a percentage of loans		2.01	%		2.03	%		1.74	%
Tier I leverage ratio		9.81	%		10.01	%		9.08	%
Tangible equity to assets ratio (4)		9.99	%		10.15	%		8.85	%
Common shares outstanding		83,313,676			83,371,031			80,901,659
Shareholders of record		4,411			4,369			4,503
Number of bank/ATM locations		373			373			373
Full-time equivalent employees		5,094			5,051			5,181
OTHER QTD INFORMATION
High market value per share	$	41.86		$	43.22		$	37.38
Low market value per share	$	37.55		$	35.52		$	28.31

(1)	Includes loans held for sale
(2)	Revenue includes net interest income and non-interest income.
(3)	The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.
(4)	The tangible equity ratio is calculated as stockholders’ equity reduced by goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights).

3

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

	For the Three Months Ended									For the Six Months Ended
(Unaudited)	March 31			June 30			June 30			June 30			June 30
(In thousands, except per share data)	2010			2010			2009			2010			2009
Interest income	$	188,069		$	185,057		$	198,992		$	373,126		$	392,866
Interest expense		25,359			21,949			41,547			47,308			85,406
Net interest income		162,710			163,108			157,445			325,818			307,460
Provision for loan losses		34,322			22,187			41,166			56,509			84,334
Net interest income after provision for loan losses		128,388			140,921			116,279			269,309			223,126
NON-INTEREST INCOME
Bank card transaction fees		32,490			37,659			30,105			70,149			57,273
Deposit account charges and other fees		23,981			25,472			26,935			49,453			52,527
Trust fees		19,318			20,358			19,355			39,676			38,228
Bond trading income		5,004			5,387			6,538			10,391			12,342
Consumer brokerage services		2,117			2,372			2,826			4,489			5,726
Loan fees and sales		1,839			3,472			3,733			5,311			6,694
Other		8,503			6,927			9,070			15,430			18,203
Total non-interest income		93,252			101,647			98,562			194,899			190,993
INVESTMENT SECURITIES GAINS (LOSSES), NET
Impairment (losses) reversals on debt securities		1,295			4,415			(10,080	)		5,710			(31,965	)
Less noncredit-related losses (reversals) on securities not expected to be sold		(2,752	)		(5,091	)		9,286			(7,843	)		30,618
Net impairment losses		(1,457	)		(676	)		(794	)		(2,133	)		(1,347	)
Realized gains (losses) on sales and fair value adjustments		(2,208	)		1,336			(1,959	)		(872	)		(3,578	)
Investment securities gains (losses), net		(3,665	)		660			(2,753	)		(3,005	)		(4,925	)
NON-INTEREST EXPENSE
Salaries and employee benefits		87,438			87,108			86,279			174,546			173,032
Net occupancy		12,098			11,513			11,088			23,611			22,900
Equipment		5,901			5,938			6,255			11,839			12,577
Supplies and communication		7,338			6,829			8,249			14,167			16,933
Data processing and software		16,606			17,497			15,007			34,103			29,354
Marketing		4,718			5,002			4,906			9,720			9,253
Deposit insurance		4,750			4,939			12,969			9,689			17,075
Other		16,938			17,156			15,258			34,094			31,773
Total non-interest expense		155,787			155,982			160,011			311,769			312,897
Income before income taxes		62,188			87,246			52,077			149,434			96,297
Less income taxes		18,377			27,428			15,257			45,805			28,849
Net income before non-controlling interest		43,811			59,818			36,820			103,629			67,448
Less non-controlling interest expense (income)		(359	)		84			(148	)		(275	)		(356	)
Net income	$	44,170		$	59,734		$	36,968		$	103,904		$	67,804
Net income per common share — basic	$	0.53		$	0.72		$	0.46		$	1.25		$	0.84
Net income per common share — diluted	$	0.53		$	0.71		$	0.46		$	1.24		$	0.84

4

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(Unaudited)	March 31			June 30			June 30
(In thousands)	2010			2010			2009
ASSETS
Loans	$	9,834,540		$	9,735,049		$	10,699,674
Allowance for loan losses		(197,538	)		(197,538	)		(186,001	)
Net loans		9,637,002			9,537,511			10,513,673
Loans held for sale		541,104			489,826			388,706
Investment securities:
Available for sale		6,256,242			6,649,890			5,156,343
Trading		26,888			17,245			17,259
Non-marketable		122,508			107,343			133,925
Total investment securities		6,405,638			6,774,478			5,307,527
Federal funds sold and securities purchased under agreements to resell		500			9,300			40,155
Interest earning deposits with banks		7,818			302,354			8,318
Cash and due from banks		345,078			339,990			376,051
Land, buildings and equipment — net		396,296			393,133			406,612
Goodwill		125,585			125,585			125,585
Other intangible assets — net		13,419			12,278			15,849
Other assets		563,757			394,856			537,567
Total assets	$	18,036,197		$	18,379,311		$	17,720,043
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing demand	$	1,583,090		$	1,666,649		$	1,517,398
Savings, interest checking and money market		9,496,969			9,631,428			8,281,652
Time open and C.D.’s of less than $100,000		1,733,534			1,677,251			2,137,049
Time open and C.D.’s of $100,000 and over		1,191,166			1,510,819			1,770,243
Total deposits		14,004,759			14,486,147			13,706,342
Federal funds purchased and securities sold under agreements to repurchase		998,773			1,006,356			1,174,121
Other borrowings		731,507			363,997			847,108
Other liabilities		373,723			534,197			294,163
Total liabilities		16,108,762			16,390,697			16,021,734
Stockholders’ equity:
Preferred stock		—			—			—
Common stock		417,315			417,617			385,812
Capital surplus		859,849			862,965			655,020
Retained earnings		593,102			633,221			664,189
Treasury stock		(2,052	)		(2,153	)		(823	)
Accumulated other comprehensive income (loss)		58,088			75,797			(7,928	)
Total stockholders’ equity		1,926,302			1,987,447			1,696,270
Non-controlling interest		1,133			1,167			2,039
Total equity		1,927,435			1,988,614			1,698,309
Total liabilities and equity	$	18,036,197		$	18,379,311		$	17,720,043

5

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

(Unaudited)	For the Three Months Ended
(Dollars in thousands)	March 31, 2010					June 30, 2010					June 30, 2009
			Avg. Rates					Avg. Rates					Avg. Rates
	Average		Earned/			Average		Earned/			Average		Earned/
	Balance		Paid			Balance		Paid			Balance		Paid
ASSETS:
Loans:
Business (A)	$	2,830,429		3.83	%	$	2,880,616		3.93	%	$	3,259,712		3.81	%
Real estate — construction and land		633,726		4.01			568,417		3.90			750,983		3.50
Real estate — business		2,088,111		5.00			2,028,799		5.08			2,174,443		5.05
Real estate — personal		1,526,254		5.35			1,484,155		5.25			1,596,413		5.55
Consumer		1,306,507		6.94			1,270,243		6.72			1,497,806		6.87
Home equity		488,492		4.31			482,847		4.32			498,083		4.33
Student		328,725		2.28			322,010		2.38			347,239		2.61
Consumer credit card		762,925		12.58			737,798		12.32			697,542		12.70
Overdrafts		7,601		—			6,817		—			8,603		—
Total loans (B)		9,972,770		5.37			9,781,702		5.33			10,830,824		5.27
Loans held for sale		483,763		1.60			557,032		1.63			513,789		1.53
Investment securities:
U.S. government & federal agency		606,148		2.16			668,454		3.00			158,664		3.03
State & municipal obligations (A)		898,495		5.04			893,224		4.87			906,402		5.22
Mortgage and asset-backed securities		4,456,990		3.69			4,389,863		3.47			3,649,150		4.66
Other marketable securities (A)		181,123		4.67			192,647		4.55			193,280		5.40
Total available for sale securities (B)		6,142,756		3.77			6,144,188		3.66			4,907,496		4.74
Trading securities (A)		13,787		2.91			19,545		2.93			19,273		3.12
Non-marketable securities (A)		123,435		5.91			113,601		4.26			138,405		3.65
Total investment securities		6,279,978		3.81			6,277,334		3.67			5,065,174		4.70
Federal funds sold and securities
purchased under agreements to resell		7,224		0.84			6,840		0.76			25,853		0.56
Interest earning deposits with banks		108,137		0.24			321,763		0.25			212,930		0.10
Total interest earning assets		16,851,872		4.64			16,944,671		4.49			16,648,570		4.91
Non-interest earning assets (B)		1,110,052					1,113,372					926,055
Total assets	$	17,961,924				$	18,058,043				$	17,574,625
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings	$	461,244		0.10		$	490,463		0.11		$	451,900		0.15
Interest checking and money market		9,447,420		0.30			9,871,640		0.31			8,460,468		0.37
Time open & C.D.’s of less than $100,000		1,766,189		1.56			1,702,895		1.43			2,129,991		2.74
Time open & C.D.’s of $100,000 and over		1,323,701		1.20			1,323,064		1.08			2,003,537		1.98
Total interest bearing deposits		12,998,554		0.56			13,388,062		0.52			13,045,896		1.00
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase		1,165,618		0.29			1,026,763		0.32			962,804		0.35
Other borrowings (C)		734,921		3.70			502,191		3.02			873,596		3.79
Total borrowings		1,900,539		1.61			1,528,954		1.21			1,836,400		1.99
Total interest bearing liabilities		14,899,093		0.69	%		14,917,016		0.59	%		14,882,296		1.12	%
Non-interest bearing demand deposits		946,450					979,768					860,819
Other liabilities		193,998					198,909					167,510
Equity		1,922,383					1,962,350					1,664,000
Total liabilities and equity	$	17,961,924				$	18,058,043				$	17,574,625
Net interest income (T/E)	$	167,534				$	167,826				$	162,323
Net yield on interest earning assets				4.03	%				3.97	%				3.91	%

(A)	Stated on a tax equivalent basis using a federal income tax rate of 35%.
(B)	The allowance for loan losses and unrealized gains/(losses) on available for sale securities are included in non-interest earning assets.
(C)	Interest expense capitalized on construction projects is not deducted from interest expense in the calculation of the rate shown above.

6

COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2010

For the quarter ended June 30, 2010, net income amounted to $59.7 million, an increase of $22.8 million over the same quarter last year, and an increase of $15.6 million compared to the previous quarter. For the current quarter, the return on average assets was 1.33%, the return on average equity was 12.2%, and the efficiency ratio was 58.5%. Compared to the same quarter last year, net interest income (tax equivalent) increased by $5.5 million to $167.8 million, while non-interest income increased by $3.1 million to $101.6 million. Non-interest expense for the quarter totaled $156.0 million, a decrease of $4.0 million, or 2.5%, from the same period last year. The provision for loan losses totaled $22.2 million, representing a decline of $19.0 million from the amount recorded in the same quarter last year.

Balance Sheet Review

During the 2^nd quarter of 2010, average loans, excluding loans held for sale, decreased $191.1 million, or 1.9%, compared to the previous quarter. Also, these same loans decreased $1.0 billion, or 9.7%, this quarter compared to the same period last year. The decrease in average loans compared to the previous quarter was mainly the result of lower loan balances in all categories except business loans, which grew on average by $50.2 million. The growth in business loans resulted from seasonal borrowings on several larger loans in addition to new loans made this quarter.

During the 2^nd quarter of 2010, average construction and business real estate loans declined $65.3 million and $59.3 million, respectively, while average personal real estate loans declined $42.1 million. Average consumer loans, consisting mainly of automobile and marine and RV loans, declined $36.3 million as loan pay-downs, mostly from marine and RV loans, exceeded new loan originations. Average credit card balances declined $25.1 million from the previous quarter; however, period end balances of consumer credit card loans totaled $775.7 million, an increase of $15.2 million over the previous quarter. The average balance of loans held for sale (comprised mostly of student loans) increased $73.3 million this quarter due to new loan originations, but reflected sales of student loans totaling $95.1 million, most of which occurred late in the quarter. It is expected that nearly all held for sale student loans will be sold later this year, and regulatory changes effective 7/1/10 will preclude the Company from continuing to make federally guaranteed student loans.

Total available for sale investment securities (excluding fair value adjustments) averaged $6.1 billion this quarter, up slightly compared to the previous quarter. Declines in average municipal securities and mortgage and asset-backed securities were offset by growth in U.S. government and agency securities, which grew by $62.3 million on average this quarter. At June 30, 2010 the duration of the investment portfolio was 1.6 years and maturities of approximately $1.9 billion are expected to occur during the next 12 months.

Total average deposits increased $422.8 million, or 3.0%, during the 2^nd quarter of 2010 compared to the previous quarter. This increase in average deposits resulted mainly from growth in business demand deposits, money market, and interest checking accounts of $33.2 million, $384.0 million, and $40.2 million, respectively. Average certificates of deposit, however, declined by $63.9 million in total. Growth in consumer deposits represented approximately 64% of the overall deposit growth this quarter. The average loans to deposits ratio in the current quarter was 72.0%, compared to 75.0% in the previous quarter.

During the current quarter, the Company’s average borrowings decreased $371.6 million compared to the previous quarter. This decrease was mainly due to current quarter maturities of Federal Home Loan Bank (FHLB) advances totaling $300.4 million, which had a weighted average rate of 4.8%. Federal funds purchased and repurchase agreements also declined on average by $138.9 million.

Net Interest Income

Net interest income (tax equivalent) in the 2^nd quarter of 2010 amounted to $167.8 million, an increase of $292 thousand compared with the previous quarter, and an increase of $5.5 million compared to the 2^nd quarter of last year. During the 2^nd quarter of 2010, the net yield on earning assets (tax equivalent) was 3.97%, compared with 4.03% in the previous quarter and 3.91% in the same period last year.

The slight increase in net interest income (tax equivalent) in the 2^nd quarter of 2010 over the previous quarter was primarily due to lower interest costs on other borrowings and deposits, but offset by lower interest earned on average loans and investment securities. The decrease in interest earned on loans this quarter was mainly due to lower average balances on most loan products, except business loans, coupled with small changes in rates earned. Interest on business loans (tax equivalent) grew by $1.4 million over the previous quarter due to higher average balances and higher rates earned, especially on those variable rate loans based on LIBOR indices. Interest income on investment securities (tax equivalent) decreased $1.5 million as rates earned on investment securities declined 14 basis points to an average yield of 3.67%, while the average balance was consistent with the previous quarter. At June 30, 2010, the Company held Treasury inflation-protected securities with a book value of $426.6 million. During the current quarter, inflation-adjusted income earned on these bonds amounted to $2.6 million compared to $982 thousand in the previous quarter.

Interest expense on deposits declined $502 thousand in the 2^nd quarter of 2010 compared with the previous quarter as a result of lower rates paid on virtually all deposit products, coupled with lower average CD balances which carry higher interest rates. Higher average balances for money market, interest checking and savings accounts increased expense this quarter by $395 thousand. Interest expense on borrowings decreased $2.9 million, due mainly to lower average balances and lower rates paid on FHLB advances discussed above.

The tax equivalent yield on interest earning assets in the 2^nd quarter of 2010 decreased 15 basis points from the previous quarter to 4.49%, while the overall cost of interest bearing liabilities decreased 10 basis points to .59%.

Non-Interest Income

For the 2^nd quarter of 2010, total non-interest income amounted to $101.6 million, an increase of $3.1 million compared to $98.6 million in the same period last year. Also, current quarter non-interest income increased $8.4 million compared to $93.3 million recorded in the previous quarter.

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COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2010

Bank card fees for the current quarter increased 25.1% over the 2^nd quarter of last year due to continued growth in transaction fees earned on corporate card (growth of 64.9%), merchant (growth of 12.1%) and debit card (growth of 14.0%) transactions. The growth in corporate card fees continued to result from both new customer transactions and increased volumes from existing customers. Debit card fees in the 2^nd quarter comprised 38.7% of total bankcard fees while corporate card fees comprised 33.2% of total fees. Trust fees for the quarter were up 5.2% compared to the same period last year, and resulted from growth in both personal and institutional trust business, but continued to be negatively affected by low interest rates on money market investments held in trust accounts.

Deposit account fees decreased 5.4% from the 2^nd quarter of 2009, as overdraft fees were down 7.8%. However, overdraft fees showed seasonal growth of $1.8 million when compared to the previous quarter. Corporate cash management fees, which comprised 32% of total deposit account fees in the current quarter, were essentially flat compared to the same period in the previous year. Effective July 1, 2010, the Company implemented new overdraft regulations on debit transactions which are expected to reduce overdraft fees during the 2^nd half of 2010 by as much as $13 million.

Bond trading income for the current quarter totaled $5.4 million, a decrease of 17.6% from the same period last year. Loan fees and sales totaled $3.5 million this quarter, down somewhat from last year, and included gains of $1.5 million on sales of $95.1 million of student loans. Also included in other income was an impairment charge of $969 thousand on a downtown Kansas City office building which is vacant and held for sale.

Investment Securities Gains and Losses

Net securities gains amounted to $660 thousand in the 2^nd quarter of 2010, compared to net losses of $3.7 million in the previous quarter and net losses of $2.8 million in the same quarter last year. During the current quarter, the Company recorded additional credit-related impairment losses of $676 thousand on certain non-agency guaranteed mortgage-backed securities identified as other than temporarily impaired, compared to $794 thousand in the 2^nd quarter of 2009. The cumulative credit-related impairment reserve on these bonds totaled $4.6 million at quarter end. At June 30, 2010, the par value of non-agency guaranteed mortgage-backed securities identified as other than temporarily impaired totaled $178.0 million, compared to $171.6 million at December 31, 2009.

The current quarter also included a pre-tax gain of $1.3 million, mainly due to sales of certain investment securities from the Company’s available for sale investment portfolio.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $156.0 million, an increase of $195 thousand over the previous quarter and a decrease of $4.0 million, or 2.5%, compared to the same period last year. The decrease from last year was mainly due to a reduction of $8.0 million in FDIC insurance costs, in addition to other reductions in supplies and communication and equipment costs. A special assessment by the FDIC of $8.0 million occurred in the 2^nd quarter of 2009 which did not reoccur in 2010. Compared to the 2^nd quarter of last year, salaries and benefits expense was well controlled, increasing only $829 thousand, or 1.0%, but included additional 401K plan expense of $1.6 million tied to improved Company performance. Full-time equivalent employees totaled 5,051 and 5,181 at June 30, 2010 and 2009, respectively.

Compared with the 2^nd quarter of last year, supplies and communication costs declined 17.2% and equipment costs were down 5.1%. Marketing costs increased 2.0% over the same period last year, while data processing and software costs increased 16.6% as a result of higher costs for bankcard processing fees (related to higher bankcard revenues), higher student loan servicing costs and other upgraded IT related systems. Foreclosed real estate property expense this quarter totaled $857 thousand compared to $154 thousand in the previous year. Included in other expense was a reduction in the Visa, Inc. (Visa) indemnification obligation of $1.7 million, which resulted from funding contributions by Visa to its litigation escrow account.

Income Taxes

The effective tax rate for the Company was 31.5% for the current quarter, compared with 29.4% in the previous quarter and 29.2% in the 2^nd quarter of 2009.

Credit Quality

Net loan charge-offs for the 2^nd quarter of 2010 amounted to $22.2 million, compared with $31.3 million in the prior quarter and $36.0 million in the 2^nd quarter of last year. The $9.1 million decrease in net loan charge-offs in the 2^nd quarter of 2010 compared to the previous quarter was mainly the result of lower loan losses on construction loans of $10.5 million, coupled with lower losses on consumer banking and consumer credit card loans of $781 thousand and $727 thousand, respectively. Net loan charge-offs on business loans increased $2.0 million over the previous quarter but remained low at .31% of average business loans outstanding. The ratio of annualized net loan charge-offs to total average loans was .91% in the current quarter compared to 1.27% in the previous quarter.

For the 2^nd quarter of 2010, annualized net charge-offs on average consumer credit card loans amounted to 6.71%, compared with 6.95% in the previous quarter and 7.60% in the same period last year. Consumer loan net charge-offs for the quarter amounted to 1.50% of average consumer loans, compared to 1.71% in the previous quarter and 2.27% in the same quarter last year. The provision for loan losses for the current quarter totaled $22.2 million, matching net loan charge-offs, and was $12.1 million lower than the previous quarter. The allowance for loan losses, which was unchanged from the previous quarter, totaled $197.5 million, or 2.03% of total loans, excluding loans held for sale. At June 30, 2010, the allowance for loan losses was 219% of total non-accrual loans.

At June 30, 2010, total non-performing assets amounted to $103.2 million, a decrease of $6.9 million from the previous quarter, and represented 1.06% of loans outstanding. Non-performing assets are comprised of non-accrual loans ($90.3 million) and foreclosed real estate ($12.9 million). At June 30, 2010, the balance of non-accrual loans included construction and land loans of $53.3 million, business real estate loans of $17.5 million and business loans of $10.9 million. Loans past due more than 90 days and still accruing interest totaled $42.3 million at June 30, 2010, but included $17.1 million in federally guaranteed student loans.

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COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2010

Other

The Company’s purchases of treasury stock during the current quarter were not significant and related mainly to employee stock option activity.

Forward Looking Information

This information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include future financial and operating results, expectations, intentions and other statements that are not historical facts. Such statements are based on current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements.

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