Commerce Bancshares, Inc. Announces First Quarter Earnings

Business Wire, April 15, 2008

KANSAS CITY, Mo. -- Commerce Bancshares, Inc. (NASDAQ: CBSH) announced earnings of $.89 per share for the three months ended March 31, 2008, an increase of 27.1% compared to $.70 per share in the first quarter of 2007. Net income for the first quarter amounted to $64.2 million compared to $51.5 million in the same period last year. The return on average assets for the three months ended March 31, 2008 was 1.6%, the return on average equity was 16.5% and the efficiency ratio was 60.1%. The current quarter included a $22.2 million pre-tax cash gain on sale of VISA Inc. (VISA) stock and the reversal of certain VISA litigation charges totaling $8.8 million, on a pre-tax basis.

In making this announcement, David W. Kemper, Chairman and CEO, said, "Despite a difficult economic environment, we were pleased to report revenue growth of 8% this quarter compared to the same period last year. These higher revenues were the result of a 7% increase in our net interest income coupled with continued solid growth in non-interest income. Average loans increased 13% this quarter over the previous quarter, on an annualized basis, as demand remained strong for business loans. Core expense growth remained well controlled this quarter."

Further, Mr. Kemper noted, "The Company also increased its provision for loan losses to $20.0 million this quarter compared with $14.1 million in the previous quarter and $8.2 million in the same period last year. During the quarter, the Company recorded non-cash impairment charges totaling $5.3 million on certain investment securities, foreclosed property and an office building held for sale."

Mr. Kemper continued, "While we increased our loan loss reserves this quarter to reflect increasing risk in the broader economy, net loan charge-offs actually declined 15% from the previous quarter, reflecting lower net losses. Net loan charge-offs for the quarter totaled .44% compared with .53% in the previous quarter and .34% in the same quarter last year. Our allowance for loan losses totaled $141.7 million, or 1.30% of outstanding loans, up from $133.6 million last quarter. Total non-performing assets increased $2.4 million from last quarter to $35.8 million as of March 31, 2008. Our allowance for loan losses represented 562% of total non-accrual loans."

Total assets at March 31, 2008 were $16.8 billion, total loans were $11.3 billion, and total deposits were $12.6 billion. Also during the quarter, the Company purchased 125 thousand shares of its common stock through its treasury stock buyback plan.

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 360 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.

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

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COMMERCE BANCSHARES, INC.

Management Discussion of First Quarter Results

March 31, 2008

For the quarter ended March 31, 2008, net income amounted to $64.2 million, an increase of $12.7 million over the same quarter last year and an increase of $20.5 million over the previous quarter. The return on average assets was 1.6%, the return on average equity was 16.5% and the efficiency ratio was 60.1%. The current quarter included both pre-tax cash gains of $22.2 million on sales of VISA, Inc. (VISA) stock and an $8.8 million reduction of an indemnification obligation related to VISA litigation costs. Also during the current quarter, the Company increased its provision for loan losses to $20.0 million and took non-cash impairment charges totaling $5.3 million on certain investment securities, foreclosed property and an office building held for sale.

Balance Sheet Review

During the 1st quarter of 2008, average loans, excluding loans held for sale, increased $336.5 million, or 3.2%, compared to the previous quarter, representing annualized growth of 12.8%. Also, average loans increased $1.0 billion, or 10.2%, this quarter compared to the same period last year. Overall during the quarter, the increase in average loans compared with the previous quarter consisted mainly of growth in business ($291.4 million) and consumer credit card ($48.9 million) loans offset by a decline of $15.6 million in personal real estate loans. The growth in average business loans this quarter was partly due to increased seasonal lending to a number of larger grain dealers totaling $197.6 million this quarter, coupled with demand from both new and existing business loan customers. Growth in consumer credit cards resulted mainly from growth in new accounts through increased marketing efforts over the last twelve months.

Available for sale investment securities (excluding fair value adjustments) decreased on average by $13.5 million this quarter compared with the previous quarter. During the current quarter, sales, maturities and principal paydowns of securities totaled $357.5 million, while the Company reinvested $392.3 million in mortgage-backed securities and $132.6 million in other asset-backed securities.