The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and with the statistical information and financial data appearing in this report as well as the Company's 2008 Annual Report on Form 10-K. Results of operations for the three month period ended March 31, 2009 are not necessarily indicative of results to be attained for any other period.

Forward Looking Information

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 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 that 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: 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, and competition with other entities that offer financial services.

Critical Accounting Policies

The Company's consolidated financial statements are prepared based on the application of certain accounting policies, some of which 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 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, lease, construction and business real estate loans. These loans are normally larger and more complex, and their collection rates are harder to predict. Personal loans, including personal mortgage, credit card and consumer loans, are individually smaller and perform in a more homogenous manner, making loss estimates more predictable. Further discussion of the methodologies used in establishing the allowance is provided in the Provision and Allowance for Loan Losses section of this discussion.

Valuation of Investment Securities

The Company carries its investment securities at fair value, and in accordance with the requirements of Statement of Financial Accounting Standards (SFAS) No. 157 and related guidance, the Company 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, 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. SFAS No. 157, which requires fair value measurements to be classified as Level 1 (quoted prices), Level 2 (based on observable inputs) or Level 3 (based on unobservable, internally-derived inputs) is discussed in more detail in Note 14 to the consolidated financial statements. Most of the available for sale investment portfolio is priced utilizing industry-standard models that consider various assumptions which are observable in the marketplace, or can be derived from observable data. Such securities totaled approximately $4.3 billion, or 95.3% of the available for sale portfolio at March 31, 2009, and were classified as Level 2 measurements. The Company also holds $171.4 million in auction rate securities. These were classified as Level 3 measurements, as no market currently exists for these securities, and fair values were derived from internally generated cash flow valuation models which used unobservable inputs which were significant to the overall measurement.

In accordance with FASB Staff Position No. FAS 115-2 and 124-2, 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-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 basis 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.

During the current quarter, non-agency guaranteed mortgage-backed securities with a par value of $66.6 million were identified as other than temporarily impaired. The credit-related impairment loss on these securities amounted to $553 thousand which was recorded in the consolidated income statement in investment securities gains (losses), net. The noncredit-related loss on these securities, which was recorded in other comprehensive income, was $21.3 million on a pre-tax basis.

The Company, through its direct holdings and its Small Business Investment 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 $54.2 million at March 31, 2009. 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, their fair values are internally developed using available information and management's judgment. 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

The Company accounts for income taxes in accordance with SFAS No. 109, "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. 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 the principles of SFAS No. 109. The Company regularly monitors taxing authorities for changes in laws and regulations and their interpretations by the judicial systems. The aforementioned changes, and 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.

Selected Financial Data


                                                          Three Months Ended
                                                               March 31
                                                           2009          2008


      Per Share Data
      Net income per common share - basic               $      .41      $   .85
      Net income per common share - diluted                    .40          .84
      Cash dividends                                          .240         .238
      Book value                                             21.19        20.95
      Market price                                           36.30        40.03
      Selected Ratios
      (Based on average balance sheets)
      Loans to deposits(1)                                   87.23 %      91.78 %
      Non-interest bearing deposits to total deposits         5.82         5.45
      Equity to loans(1)                                     13.83        14.03
      Equity to deposits                                     12.06        12.88
      Equity to total assets                                  9.30         9.63
      Return on total assets                                   .73         1.59
      Return on total equity                                  7.82        16.52
      (Based on end-of-period data)
      Non-interest income to revenue(2)                      38.12        39.68
      Efficiency ratio(3)                                    62.58        59.87
      Tier I risk-based capital ratio                        11.05        10.45
      Total risk-based capital ratio                         12.42        11.66
      Tangible equity to assets ratio(4)                      8.24         8.62
      Tier I leverage ratio                                   8.93         8.88

(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).

Results of Operations

Summary


                                                       Three Months Ended                 Increase
                                                            March 31                     (Decrease)
(Dollars in thousands)                                2009            2008          Amount        Percent


Net interest income                                $  150,015      $  140,107      $   9,908           7.1 %
Provision for loan losses                             (43,168 )       (20,000 )       23,168         115.8
Non-interest income                                    92,431          92,160            271            .3
Investment securities gains (losses), net              (2,172 )        23,323        (25,495 )        N.M.
Non-interest expense                                 (152,886 )      (140,181 )       12,705           9.1
Income taxes                                          (13,592 )       (30,668 )      (17,076 )       (55.7 )
Non-controlling interest (expense) income                 208            (574 )          782          N.M.


Net income*                                        $   30,836      $   64,167      $ (33,331 )       (51.9 )%

* Net income shown in the table above and mentioned throughout this discussion refers to Net income attributable to Commerce Bancshares, Inc. as shown in the accompanying statements of income.

For the quarter ended March 31, 2009, net income amounted to $30.8 million, a decrease of $33.3 million, or 51.9%, compared to the first quarter of the previous year. For the current quarter, the annualized return on average assets was .73%, the annualized return on average equity was 7.82%, and the efficiency ratio was 62.58%. Diluted earnings per share was $.40, a decrease of 52.4% compared to $.84 per share in the first quarter of 2008. The first quarter of 2008 included a $22.2 million pre-tax gain on the redemption of Visa, Inc.
(Visa) common stock and the reversal of certain Visa litigation charges of $8.8 million on a pre-tax basis, which had the effect of increasing earnings per share by $.26 in 2008.

Net income for the first quarter of 2009 compared to the same period last year included growth of $9.9 million, or 7.1%, in net interest income, coupled with slight growth in non-interest income, which increased $271 thousand. Compared to the same period last year, non-interest expense increased $12.7 million, largely due to an $8.8 million reduction in an indemnification obligation in the first quarter of 2008 which did not reoccur in the first quarter of 2009, as mentioned above. In addition, salaries and employee benefits costs increased $3.7 million and data processing and software expenses increased $784 thousand. The provision for loan losses totaled $43.2 million for the current quarter, representing an increase of $23.2 million over the first quarter of 2008. Investment securities gains declined $25.5 million due to the gain on the redemption of Visa common stock in the first quarter of 2008, mentioned above, coupled with a net unrealized loss in fair value on certain private equity investments in the current quarter.

The Company continually evaluates the profitability of its network of bank branches throughout its markets. As a result of this evaluation process, the Company may periodically sell the assets and liabilities of certain branches, or may sell the premises of specific banking facilities. In February 2009, the Company sold its branch in Lakin, Kansas. In this transaction, the Company sold the bank facility and certain deposits of approximately $4.7 million, and recorded a pre-tax gain of $644 thousand. In May 2008, the Company sold its banking branch, including the facility, in Independence, Kansas. In this transaction, approximately $23.3 million in loans, $85.0 million in deposits, and various other assets and liabilities were sold, and the Company recorded a pre-tax gain of $6.9 million.

Net Interest Income

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.

Analysis of Changes in Net Interest Income


                                                                      Three Months Ended
                                                                   March 31, 2009 vs. 2008
                                                                 Change due to
                                                            Average        Average
(In thousands)                                               Volume         Rate           Total


Interest income, fully taxable equivalent basis:
Loans                                                       $  1,737      $ (33,594 )    $ (31,857 )
Loans held for sale                                            1,876         (2,361 )         (485 )
Investment securities:
U.S. government and federal agency securities                 (1,727 )         (189 )       (1,916 )
State and municipal obligations                                3,380         (1,053 )        2,327
Mortgage and asset-backed securities                           5,613            952          6,565
Other securities                                                (146 )            8           (138 )


Total interest on investment securities                        7,120           (282 )        6,838


Federal funds sold and securities purchased under
agreements to resell                                          (2,580 )         (707 )       (3,287 )
Interest earning deposits with banks                             449              -            449


Total interest income                                          8,602        (36,944 )      (28,342 )


Interest expense:
Deposits:
Savings                                                           34           (239 )         (205 )
Interest checking and money market                               932        (13,288 )      (12,356 )
Time open & C.D.'s of less than $100,000                      (2,638 )       (7,874 )      (10,512 )
Time open & C.D.'s of $100,000 and over                        5,504        (11,504 )       (6,000 )


Total interest on deposits                                     3,832        (32,905 )      (29,073 )


Federal funds purchased and securities sold under
agreements to repurchase                                      (4,837 )       (5,685 )      (10,522 )
Other borrowings                                               4,668         (3,660 )        1,008


Total interest expense                                         3,663        (42,250 )      (38,587 )


Net interest income, fully taxable equivalent basis         $  4,939      $   5,306      $  10,245

Net interest income for the first quarter of 2009 was $150.0 million, a $9.9 million, or 7.1%, increase over the first quarter of 2008. The increase in net interest income was primarily the result of lower rates paid on interest bearing deposits and borrowings and an increase in average investment securities, partly offset by lower loan yields. The decline in rates on interest earning assets and interest bearing liabilities resulted from actions taken by the Federal Reserve Bank to reduce interest rate levels, which caused the earning assets and interest bearing liabilities to reprice downward. The Company's net interest rate margin was 3.83% for the first quarter of 2009, compared to 4.06% in the previous quarter and 3.83% in the first quarter of 2008.

Total interest income, on a tax equivalent basis (T/E), decreased $28.3 million, or 12.5%, from the first quarter of 2008. Interest income on loans (T/E) declined $31.9 million, primarily the result of a 127 basis point decrease in rates earned on the loan portfolio. Interest income on investment securities (T/E) increased

$6.8 million, as average balances increased $548.9 million, or 15.9%, while yields increased slightly. Interest income on overnight investments in federal funds sold and securities purchased under agreements to resell decreased $3.3 million, primarily due to a decrease in average balances of $381.3 million coupled with a decline of 236 basis points in rates earned. Beginning October 1, 2008, amounts held with the Federal Reserve Bank began earning interest. This contributed $449 thousand to interest income in the first quarter of 2009. The average tax equivalent yield on total interest earning assets was 4.93% in the first quarter of 2009 compared to 6.03% in the first quarter of 2008.

Total interest expense decreased $38.6 million, or 46.8%, compared to the first quarter of 2008, primarily due to a $29.1 million decrease in interest expense paid on interest bearing deposits, coupled with a $10.5 million decrease in interest expense paid on federal funds purchased and securities sold under agreements to repurchase. The decrease in interest expense paid on deposits resulted from a 111 basis point decrease in average rates, offset slightly by an increase in average balances. Average rates paid on interest checking and money market accounts decreased 72 basis points, while average balances increased $703.6 million, or 9.8%, resulting in a net decrease in interest expense of $12.4 million. Additionally, interest expense paid on certificates of deposit decreased $16.5 million as a result of a decrease in average rates paid of 190 basis points, offset by an increase in average balances of $277.5 million, or 7.1%. Interest expense on federal funds purchased and securities sold under agreements to repurchase decreased $10.5 million compared to first quarter 2008 as a result of a decrease in average balances of $633.4 million, or 38.9%, coupled with a 240 basis point decrease in average rates paid. Much of the decrease in average balances occurred in federal funds purchased, which was due to efforts to reduce inter-bank borrowing exposure. The average balance of other borrowings increased $477.6 million, or 65.4%, compared to first quarter 2008 and included higher average advances from the Federal Home Loan Bank and borrowings under the Federal Reserve's Term Auction Facility program. The impact of these increases in average balances was partially offset by a 128 basis point decrease in average rates paid on other borrowings. The overall average rate incurred on all interest bearing liabilities decreased to 1.21% in the first quarter of 2009 compared to 2.40% in the first quarter of 2008.

Summaries of average assets and liabilities and the corresponding average rates earned/paid appear on the last page of this discussion.

Non-Interest Income



                                                           Three Months                  Increase
                                                          Ended March 31                (Decrease)
(Dollars in thousands)                                  2009          2008         Amount        Percent


Deposit account charges and other fees                $ 25,592      $ 27,075      $ (1,483 )         (5.5 )%
Bank card transaction fees                              27,168        26,308           860            3.3
Trust fees                                              18,873        20,113        (1,240 )         (6.2 )
Trading account profits and commissions                  5,396         4,164         1,232           29.6
Consumer brokerage services                              3,308         3,409          (101 )         (3.0 )
Loan fees and sales                                      2,961         2,140           821           38.4
Other                                                    9,133         8,951           182            2.0


Total non-interest income                             $ 92,431      $ 92,160      $    271             .3 %


Non-interest income as a % of total revenue*              38.1 %        39.7 %
Total revenue per full-time equivalent employee       $   46.4      $   45.3

* Total revenue includes net interest income and non-interest income.

For the first quarter of 2009, total non-interest income amounted to $92.4 million compared with $92.2 million in the same quarter last year, which was an increase of $271 thousand, or .3%. The slight increase over last year resulted mainly from increases in bond trading income, bank card fees, and loan fees and sales, but was offset by reductions in deposit and trust fees. Bank card fees for the quarter increased $860 thousand, or 3.3%, over the first quarter of last year, primarily due to continued growth in transaction fees

earned on corporate cards and debit cards, which grew by 19.7% and 3.0%, respectively, but were negatively impacted by lower retail sales affecting both merchant and credit card fees. Trust fees for the quarter decreased $1.2 million, or 6.2%, from the same quarter last year and reflected the impact that lower markets have had on trust asset values this quarter. Deposit account fees declined $1.5 million, or 5.5%, from the same period last year as a result of an 11.6% decline in overdraft fee income, partly offset by growth in corporate cash management fees of 10.3%. Bond trading income for the current quarter totaled $5.4 million, an increase of $1.2 million, or 29.6%, due to strong sales to correspondent banks. Consumer brokerage services revenue decreased slightly by $101 thousand, or 3.0%, mainly due to lower mutual fund fees. Loan fees and sales revenue increased $821 thousand, or 38.4%, as a result of higher mortgage banking revenue due to refinancing activity and increased gains on sales of student loans. Other non-interest income for the current quarter increased $182 thousand, or 2.0%, over the same quarter last year. Most of this increase was due to a gain of $644 thousand recorded on the sale of the Lakin branch, mentioned previously, and an impairment charge of $1.1 million, recorded in the first quarter of 2008, on an office building held for sale. . . .