10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2002
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to

Commission File No. 0-2989

Commerce Bancshares, Inc.

(Exact name of registrant as specified in its charter)

Missouri	43-0889454
(State of Incorporation)	(IRS Employer Identification No.)

1000 Walnut, Kansas City, MO 64106

(Address of principal executive offices and Zip Code)

(816) 234-2000

(Registrant’s telephone number, including area code)

     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 þ          No o

      As of November 7, 2002, the registrant had outstanding 63,976,964 shares of its $5 par value common stock, registrant’s only class of common stock.

TABLE OF CONTENTS

EX-99.1 Certification of CEO

EX-99.2 Certification of CFO

COMMERCE BANCSHARES, INC. AND SUBSIDIARIES

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001		2
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2002 and 2001		3
	Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2002 and 2001		4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001		5
	Notes to Consolidated Financial Statements		6
Item 2	Management’s Discussion and Analysis of Results of Operations and Financial Condition		12
Item 3	Quantitative and Qualitative Disclosures about Market Risk		25
Item 4	Controls and Procedures		25
PART II.	OTHER INFORMATION
Item 6	Exhibits and Reports on Form 8-K		26
Signatures			26
Certifications			27

1

PART 1: FINANCIAL INFORMATION

Item 1. Financial Statements

COMMERCE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

				September 30			December 31
				2002			2001
				(Unaudited)
				(In thousands)
ASSETS
Loans, net of unearned income				$	7,961,102		$	7,638,482
Allowance for loan losses					(130,588	)		(129,973	)
			Net loans		7,830,514			7,508,509
Investment securities:
	Available for sale				3,861,917			3,654,919
	Trading				13,081			12,265
	Non-marketable				62,850			65,073
			Total investment securities		3,937,848			3,732,257
Federal funds sold and securities purchased under agreements to resell					107,265			375,060
Cash and due from banks					739,515			824,218
Land, buildings and equipment, net					334,215			313,383
Goodwill					43,224			43,968
Other intangible assets, net					4,390			6,842
Other assets					153,451			103,909
			Total assets	$	13,150,422		$	12,908,146
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
	Non-interest bearing demand			$	1,549,212		$	1,579,679
	Savings and interest bearing demand				5,758,260			5,652,715
	Time open and C.D.’s of less than $100,000				1,978,268			2,188,448
	Time open and C.D.’s of $100,000 and over				645,774			611,043
			Total deposits		9,931,514			10,031,885
Federal funds purchased and securities sold under agreements to repurchase					1,244,937			1,087,402
Long-term debt and other borrowings					390,660			392,586
Other liabilities					188,320			123,790
			Total liabilities		11,755,431			11,635,663
Stockholders’ equity:
	Preferred stock, $1 par value.
		Authorized and unissued 2,000,000 shares			—			—
	Common stock, $5 par value.
		Authorized 100,000,000 shares; issued 65,643,792 shares in 2002 and 65,575,525 in 2001			328,219			327,878
	Capital surplus				210,219			213,888
	Retained earnings				816,462			700,230
	Treasury stock of 1,437,619 shares in 2002 and 138,565 shares in 2001, at cost				(60,725	)		(5,187	)
	Other				(1,939	)		(1,749	)
	Accumulated other comprehensive income				102,755			37,423
			Total stockholders’ equity		1,394,991			1,272,483
			Total liabilities and stockholders’ equity	$	13,150,422		$	12,908,146

See accompanying notes to consolidated financial statements.

2

COMMERCE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

			For the Three Months				For the Nine Months
			Ended September 30				Ended September 30
			2002		2001		2002		2001
			(Unaudited)
			(In thousands, except per share data)
INTEREST INCOME
Interest and fees on loans			$	118,999	$	143,447	$	355,907	$	461,415
Interest on investment securities				44,527		35,079		133,553		96,992
Interest on federal funds sold and securities purchased under agreements to resell				234		6,300		1,186		20,777
		Total interest income		163,760		184,826		490,646		579,184
INTEREST EXPENSE
Interest on deposits:
	Savings and interest bearing demand			11,660		22,872		35,753		86,035
	Time open and C.D.’s of less than $100,000			16,044		30,495		55,165		93,959
	Time open and C.D.’s of $100,000 and over			4,454		7,038		14,215		21,383
Interest on federal funds purchased and securities sold under agreements to repurchase				2,944		4,584		6,702		16,786
Interest on long-term debt and other borrowings				1,877		3,538		6,776		9,696
		Total interest expense		36,979		68,527		118,611		227,859
		Net interest income		126,781		116,299		372,035		351,325
Provision for loan losses				9,193		8,317		23,260		25,839
		Net interest income after provision for loan losses		117,588		107,982		348,775		325,486
NON-INTEREST INCOME
Trust fees				14,754		15,695		45,967		47,687
Deposit account charges and other fees				23,750		21,405		67,636		61,989
Credit card transaction fees				14,715		13,668		41,827		40,070
Trading account profits and commissions				4,067		3,871		11,938		11,301
Mortgage banking revenue				1,324		1,097		2,961		4,224
Net gains on securities transactions				1,426		708		586		2,777
Other				9,511		12,553		37,157		36,736
		Total non-interest income		69,547		68,997		208,072		204,784
NON-INTEREST EXPENSE
Salaries and employee benefits				63,203		59,415		187,904		176,100
Net occupancy				8,835		8,242		25,469		24,230
Equipment				5,619		5,461		16,733		16,616
Supplies and communication				8,326		8,353		24,490		24,963
Data processing and software				10,095		11,480		34,447		35,150
Marketing				3,838		3,460		10,834		9,848
Goodwill amortization				—		1,182		—		3,505
Intangible assets amortization				508		775		1,900		2,281
Other				10,585		11,451		36,064		35,709
		Total non-interest expense		111,009		109,819		337,841		328,402
Income before income taxes				76,126		67,160		219,006		201,868
Less income taxes				25,111		21,642		70,973		66,690
		Net income	$	51,015	$	45,518	$	148,033	$	135,178
Net income per share — basic			$	.79	$	.69	$	2.27	$	2.05
Net income per share — diluted			$	.78	$	.68	$	2.24	$	2.02

See accompanying notes to consolidated financial statements.

3

COMMERCE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

																			Accumulated
			Number																Other
			of Shares		Common		Capital			Retained			Treasury						Comprehensive
			Issued		Stock		Surplus			Earnings			Stock			Other			Income		Total
			(Unaudited)
			(Dollars in thousands)
Balance January 1, 2002				65,575,525	$	327,878	$	213,888		$	700,230		$	(5,187	)	$	(1,749	)	$	37,423	$	1,272,483
	Net income										148,033											148,033
	Change in unrealized gain (loss) on available for sale securities																			65,332		65,332
		Total comprehensive income																				213,365
	Purchase of treasury stock													(68,830	)							(68,830	)
	Issuance of stock under purchase, option and benefit plans			68,267		341		(3,680	)					12,584								9,245
	Issuance of stock under restricted stock award plan							11						708			(719	)				—
	Restricted stock award amortization																529					529
	Cash dividends paid ($.488 per share)										(31,801	)										(31,801	)
Balance September 30, 2002				65,643,792	$	328,219	$	210,219		$	816,462		$	(60,725	)	$	(1,939	)	$	102,755	$	1,394,991
Balance January 1, 2001				62,655,891	$	313,279	$	147,436		$	671,147		$	(2,895	)	$	(1,179	)	$	15,967	$	1,143,755
	Net income										135,178											135,178
	Change in unrealized gain (loss) on available for sale securities																			35,558		35,558
		Total comprehensive income																				170,736
	Pooling acquisition			876,750		4,384		5,414			5,198									83		15,079
	Purchase of treasury stock													(44,636	)							(44,636	)
	Issuance of stock under purchase, option and benefit plans			2,982		15		(5,195	)					12,435								7,255
	Issuance of stock under restricted stock award plan			21,564		108		720						349			(1,177	)				—
	Restricted stock award amortization																464					464
	Cash dividends paid ($.457 per share)										(30,268	)										(30,268	)
Balance September 30, 2001				63,557,187	$	317,786	$	148,375		$	781,255		$	(34,747	)	$	(1,892	)	$	51,608	$	1,262,385

See accompanying notes to consolidated financial statements.

4

COMMERCE BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

			For the Nine Months Ended
			September 30
			2002			2001
			(Unaudited)
			(In thousands)
OPERATING ACTIVITIES:
Net income			$	148,033		$	135,178
Adjustments to reconcile net income to net cash provided by operating activities:
	Provision for loan losses			23,260			25,839
	Provision for depreciation and amortization			25,837			28,166
	Amortization of investment security premiums, net			12,543			2,741
	Net gains on sales of investment securities (A)			(586	)		(2,777	)
	Net increase in trading securities			(1,342	)		(12,960	)
	(Increase) decrease in interest receivable			(1,719	)		5,350
	Decrease in interest payable			(13,745	)		(2,102	)
	Increase in income taxes payable			64			15,150
	Other changes, net			(15,119	)		(30,911	)
		Net cash provided by operating activities		177,226			163,674
INVESTING ACTIVITIES:
Cash received in acquisition				—			15,035
Cash paid in sale of branches				(20,252	)		—
Proceeds from sales of investment securities (A)				260,349			325,774
Proceeds from maturities of investment securities (A)				1,049,050			1,347,523
Purchases of investment securities (A)				(1,421,399	)		(2,641,903	)
Net decrease in federal funds sold and securities purchased under agreements to resell				267,795			11,435
Net (increase) decrease in loans				(354,415	)		275,393
Purchases of land, buildings and equipment				(46,357	)		(58,752	)
Sales of land, buildings and equipment				2,907			2,214
		Net cash used in investing activities		(262,322	)		(723,281	)
FINANCING ACTIVITIES:
Net increase in non-interest bearing demand, savings, and interest bearing demand deposits				88,992			206,170
Net increase (decrease) in time open and C.D.’s				(150,889	)		256,191
Net increase in federal funds purchased and securities sold under agreements to repurchase				157,535			176,049
Repayment of long-term debt				(51,781	)		(50,691	)
Additional borrowings				50,000			250,000
Purchases of treasury stock				(68,830	)		(44,636	)
Issuance of stock under purchase, option and benefit plans				7,167			5,200
Cash dividends paid on common stock				(31,801	)		(30,268	)
		Net cash provided by financing activities		393			768,015
		Increase (decrease) in cash and cash equivalents		(84,703	)		208,408
Cash and cash equivalents at beginning of year				824,218			616,724
Cash and cash equivalents at September 30			$	739,515		$	825,132
Net income tax payments			$	68,831		$	47,809
Interest paid on deposits and borrowings			$	132,356		$	229,999

(A)  Available for sale and non-marketable securities.

See accompanying notes to consolidated financial statements.

5

COMMERCE BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2002

(Unaudited)

1. Principles of Consolidation and Presentation

      The accompanying consolidated financial statements include the accounts of Commerce Bancshares, Inc. and all majority-owned subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated. Certain reclassifications were made to 2001 data to conform to current year presentation. Results of operations for the three and nine month periods ended September 30, 2002, are not necessarily indicative of results to be attained for any other period.

      The significant accounting policies followed in the preparation of the quarterly financial statements are the same as those disclosed in the 2001 Annual Report on Form 10-K.

2. Allowance for Loan Losses

      The following is a summary of the allowance for loan losses.

			For the				For the
			Three Months Ended				Nine Months Ended
			September 30				September 30
			2002		2001		2002		2001
			(In thousands)
Balance, beginning of period			$	129,973	$	131,109	$	129,973	$	128,445
Additions:
	Allowance for loan losses of acquired bank			—		—		—		2,519
	Provision for loan losses			9,193		8,317		23,260		25,839
		Total additions		9,193		8,317		23,260		28,358
Deductions:
	Loan losses			11,873		11,850		34,034		36,343
	Less recoveries on loans			3,295		3,388		11,389		10,504
		Net loan losses		8,578		8,462		22,645		25,839
Balance, September 30			$	130,588	$	130,964	$	130,588	$	130,964

6

COMMERCE BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.     Investment Securities

      Investment securities, at fair value, consist of the following at September 30, 2002, and December 31, 2001.

			September 30		December 31
			2002		2001
			(In thousands)
Available for sale:
	U.S. government and federal agency obligations		$	1,503,005	$	1,147,615
	State and municipal obligations			37,557		43,209
	CMO’s and asset-backed securities			2,226,467		2,176,551
	Other debt securities			18,925		66,054
	Equity securities			75,963		221,490
Trading				13,081		12,265
Non-marketable				62,850		65,073
		Total investment securities	$	3,937,848	$	3,732,257

      Equity securities included short term investments in mutual funds of $33,437,000 at September 30, 2002, and $176,067,000 at December 31, 2001.

4.     Intangible Assets and Goodwill

      The following table presents information about the Company’s intangible assets which are being amortized in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, discussed in note 9 below.

			September 30, 2002					December 31, 2001
			Gross					Gross
			Carrying		Accumulated			Carrying		Accumulated
			Amount		Amortization			Amount		Amortization
			(In thousands)
Amortized intangible assets:
	Core deposit premium		$	47,930	$	(43,708	)	$	50,676	$	(44,064	)
	Mortgage servicing rights			1,174		(1,006	)		1,170		(940	)
		Total	$	49,104	$	(44,714	)	$	51,846	$	(45,004	)

      Aggregate amortization expense was $508,000 and $775,000, respectively, for the three month periods ended September 30, 2002 and 2001, and $1,900,000 and $2,281,000, respectively, for the corresponding nine month periods.

Estimated annual amortization expense for the years ending:	(In thousands)
2002	$	2,319
2003		1,818
2004		1,776
2005		543
2006		100

7

COMMERCE BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      As required by SFAS 142, the Company discontinued recording goodwill amortization effective January 1, 2002. The following table compares results of operations as if no goodwill amortization had been recorded in 2001.

		For the Three Months				For the Nine Months
		Ended September 30				Ended September 30
		2002		2001		2002		2001
		(In thousands, except per share data)
Reported net income		$	51,015	$	45,518	$	148,033	$	135,178
	Add back goodwill amortization		—		1,182		—		3,505
	Adjusted net income	$	51,015	$	46,700	$	148,033	$	138,683
Basic earnings per share:
Reported net income		$	.79	$	.69	$	2.27	$	2.05
	Add back goodwill amortization		—		.02		—		.05
	Adjusted net income	$	.79	$	.71	$	2.27	$	2.10
Diluted earnings per share:
Reported net income		$	.78	$	.68	$	2.24	$	2.02
	Add back goodwill amortization		—		.02		—		.05
	Adjusted net income	$	.78	$	.70	$	2.24	$	2.07

      During the second quarter of 2002, the Company sold several bank branches. Goodwill and other intangible assets, net of accumulated amortization, amounting to $1,300,000 were written off in these transactions.

5.     Common Stock

      The shares used in the calculation of basic and diluted income per share are shown below.

	For the Three				For the Nine
	Months Ended				Months Ended
	September 30				September 30
	2002		2001		2002		2001
	(In thousands)
Weighted average common shares outstanding		64,781		65,935		65,266		66,051
Net effect of the assumed exercise of stock options — based on the treasury stock method using average market price for the respective periods		730		780		827		802
		65,511		66,715		66,093		66,853

8

COMMERCE BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.     Other Comprehensive Income

      The Company’s only component of other comprehensive income during the periods presented below was the unrealized holding gains and losses on available for sale investment securities.

	For the Three Months						For the Nine Months
	Ended September 30						Ended September 30
	2002			2001			2002			2001
	(In thousands)
Unrealized holding gains	$	51,587		$	36,456		$	108,345		$	64,253
Reclassification adjustment for gains included in net income		(2,588	)		(2,089	)		(2,973	)		(6,909	)
Net unrealized gains on securities		48,999			34,367			105,372			57,344
Income tax expense (benefit)		18,618			13,059			40,040			21,786
Other comprehensive income	$	30,381		$	21,308		$	65,332		$	35,558

7.     Segments

      The Company segregates financial information for use in assessing its performance and allocating resources among three operating segments. The Consumer segment includes the retail branch network, consumer finance, bankcard, student loans and discount brokerage services. The Commercial segment provides corporate lending, leasing, and international services, as well as business, government deposit and cash management services. The Money Management segment provides traditional trust and estate tax planning services, and advisory and discretionary investment management services.

      The following table presents selected financial information by segment and reconciliations of combined segment totals to consolidated totals. There were no material intersegment revenues between the three segments.

						Money			Segment		Other/			Consolidated
	Consumer		Commercial			Management			Totals		Elimination			Totals
	(In thousands)
Nine Months Ended September 30, 2002
Net interest income after loan loss expense	$	69,302	$	163,189		$	(6,019	)	$	226,472	$	122,303		$	348,775
Cost of funds allocation		119,259		(38,115	)		12,371			93,515		(93,515	)		—
Non-interest income		110,695		30,940			61,378			203,013		5,059			208,072
Total net revenue		299,256		156,014			67,730			523,000		33,847			556,847
Non-interest expense		200,687		71,441			44,789			316,917		20,924			337,841
Income before income taxes	$	98,569	$	84,573		$	22,941		$	206,083	$	12,923		$	219,006
Nine Months Ended September 30, 2001
Net interest income after loan loss expense	$	13,432	$	223,904		$	(9,395	)	$	227,941	$	97,545		$	325,486
Cost of funds allocation		201,523		(103,039	)		15,028			113,512		(113,512	)		—
Non-interest income		108,498		26,736			61,970			197,204		7,580			204,784
Total net revenue		323,453		147,601			67,603			538,657		(8,387	)		530,270
Non-interest expense		200,594		68,839			43,076			312,509		15,893			328,402
Income before income taxes	$	122,859	$	78,762		$	24,527		$	226,148	$	(24,280	)	$	201,868

9

COMMERCE BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

						Money			Segment		Other/			Consolidated
	Consumer		Commercial			Management			Totals		Elimination			Totals
	(In thousands)
Three Months Ended September 30, 2002
Net interest income after loan loss expense	$	25,765	$	53,943		$	(2,117	)	$	77,591	$	39,997		$	117,588
Cost of funds allocation		39,002		(11,309	)		4,097			31,790		(31,790	)		—
Non-interest income		36,957		10,439			19,948			67,344		2,203			69,547
Total net revenue		101,724		53,073			21,928			176,725		10,410			187,135
Non-interest expense		67,124		23,626			15,095			105,845		5,164			111,009
Income before income taxes	$	34,600	$	29,447		$	6,833		$	70,880	$	5,246		$	76,126
Three Months Ended September 30, 2001
Net interest income after loan loss expense	$	6,811	$	68,746		$	(2,748	)	$	72,809	$	35,173		$	107,982
Cost of funds allocation		70,794		(27,688	)		4,622			47,728		(47,728	)		—
Non-interest income		36,793		10,145			20,544			67,482		1,515			68,997
Total net revenue		114,398		51,203			22,418			188,019		(11,040	)		176,979
Non-interest expense		67,438		22,346			14,225			104,009		5,810			109,819
Income before income taxes	$	46,960	$	28,857		$	8,193		$	84,010	$	(16,850	)	$	67,160

      Beginning in 2002, the Company implemented a new 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 new process assigns a specific value to each new source or use of funds with a maturity, based on current LIBOR interest rates, thus determining an interest spread at the time of the transaction. Non-maturity assets and liabilities are assigned to LIBOR based funding pools. Previous methodology used funding pools based on average rates to assign and determine value. The new method provides a more accurate means of valuing fund sources and uses in a varying interest rate environment. The change in profitability methods mainly affected the Consumer segment and had the effect of lowering the cost of funds allocation to the Consumer segment by $27.4 million and $89.6 million, respectively, in the three and nine month periods ended September 30, 2002. The effect on the other segments was not significant. Segment results for the prior periods in the table above were not restated for the change in the profitability measurement method.

8.     Derivative Instruments

      The Company uses derivative instruments, on a limited basis, primarily to hedge the variability in interest payments or protect the value of certain assets and liabilities recorded in its balance sheet from changes in interest rates. The Company has three interest rate swaps which were designated as fair value hedges of certain fixed rate loans. Through its International Department, the Company enters into foreign exchange contracts consisting mainly of contracts to purchase or deliver foreign currency transactions for customers at a specific future date. Also, mortgage loan commitments and forward sales contracts are derived from the Company’s mortgage banking operation in which fixed rate personal real estate loans are originated and sold to other institutions.

10

COMMERCE BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company’s use of derivative instruments is detailed below.

		September 30, 2002							December 31, 2001
				Positive		Negative					Positive		Negative
		Notional		Fair		Fair			Notional		Fair		Fair
		Amount		Value		Value			Amount		Value		Value
		(In thousands)
Interest rate swaps		$	23,730	$	—	$	(2,147	)	$	24,912	$	—	$	(551	)
Foreign exchange contracts:
	Forward contracts		153,997		5,594		(5,569	)		99,232		3,373		(3,349	)
	Options written/purchased		1,970		12		(12	)		1,950		2		(2	)
Mortgage loan commitments			41,612		274		(8	)		18,679		79		(162	)
Mortgage loan forward sale contracts			41,438		140		(12	)		43,758		921		(1	)
	Total	$	262,747	$	6,020	$	(7,748	)	$	188,531	$	4,375	$	(4,065	)

9.     Impact of Recently Issued Accounting Standards

      Effective January 1, 2002, the Company adopted Statement of Accounting Standards No. 142, “Goodwill and Other Intangible Assets”. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. It also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment.

      The Statement requires the Company to perform an assessment of whether there is an indication that goodwill is impaired as of January 1, 2002. To accomplish this, the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of January 1, 2002. The Statement allows until June 30, 2002, to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an indication exists that the reporting unit goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill, both of which would be measured as of January 1, 2002. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. This second step is required to be completed as soon as possible, but no later than the end of 2002. Any transitional impairment loss must be recognized as the cumulative effect of a change in accounting principle in the Company’s 2002 consolidated statement of income.

      The Company identified its reporting units as its three reportable segments of Consumer, Commercial, and Money Management. It completed the first step in the transitional goodwill impairment valuation, which was to compare the fair value of its reporting units with the carrying amount of the reporting units. Because the fair value of the reporting units exceeded the carrying value of the units, no indication of reporting unit goodwill impairment existed. As a result, performance of the second step of the transitional impairment test described above was not necessary, and no impairment loss will be recognized as a cumulative effect of a change in accounting principle in the Company’s 2002 consolidated statement of income.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

September 30, 2002

(Unaudited)

      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 2001 Annual Report on Form 10-K. Results of operations for the three and nine month periods ended September 30, 2002, 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 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: 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

      Critical accounting policies are those which are both most important to the portrayal of the Company’s financial condition and results, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company’s critical accounting policies relate to the allowance for loan losses, the valuation of certain non-marketable investments, and accounting for income taxes, all of which involve significant judgment by management.

      The Company performs periodic and systematic detailed reviews of its lending portfolio to assess overall collectability. The level of the allowance for loan losses reflects the Company’s estimate of the collectability of the loan portfolio. Further discussion of the methodologies used in establishing this reserve is contained in the Provision and Allowance for Loan Losses section of this discussion.

      The Company, through its Small Business Investment subsidiaries, has investments in venture capital securities. These non-marketable venture capital securities are reported at estimated fair values in the absence of readily ascertainable fair values. Management believes that the cost of an investment is initially the best indication of estimated fair value unless there have been significant subsequent positive or negative developments that justify an adjustment to the fair value estimate. The values assigned to these securities where no market quotations exist are based upon available information and may not necessarily represent amounts that will ultimately be realized. 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 not necessarily reflect those of an active market for these investments.

      The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have

12

been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact the Company’s financial position and its results of operations.

SELECTED FINANCIAL DATA

		Three Months						Nine Months
		Ended September 30						Ended September 30
		2002			2001			2002			2001
Per Share Data
	Net income — basic	$	.79		$	.69		$	2.27		$	2.05
	Net income — diluted		.78			.68			2.24			2.02
	Cash dividends		.163			.152			.488			.457
	Book value								21.75			19.22
	Market price								39.07			35.83
Selected Ratios
(Based on average balance sheets)
	Loans to deposits		79.74	%		81.18	%		78.66	%		83.66	%
	Non-interest bearing deposits to total deposits		10.21			9.57			9.83			12.25
	Equity to loans		17.82			15.90			17.42			15.34
	Equity to deposits		14.21			12.90			13.70			12.83
	Equity to total assets		11.10			10.37			10.90			10.40
	Return on total assets		1.62			1.52			1.61			1.56
	Return on realized stockholders’ equity*		15.59			15.03			15.48			15.36
	Return on total stockholders’ equity		14.59			14.64			14.76			15.02
(Based on end-of-period data)
	Efficiency ratio		56.70			58.43			57.97			58.30
	Tier I capital ratio								12.63			12.56
	Total capital ratio								14.02			13.92
	Leverage ratio								10.13			9.84

*  Excludes net unrealized holding gains on available for sale securities from average stockholders’ equity.

RESULTS OF OPERATIONS

Summary

		Three Months									Nine Months
		Ended September 30									Ended September 30
		2002			2001			% Change			2002			2001			% Change
		(Dollars in thousands)
Net interest income		$	126,781		$	116,299			9.0	%	$	372,035		$	351,325			5.9	%
Provision for loan losses			(9,193	)		(8,317	)		10.5			(23,260	)		(25,839	)		(10.0	)
Non-interest income			69,547			68,997			.8			208,072			204,784			1.6
Non-interest expense			(111,009	)		(109,819	)		1.1			(337,841	)		(328,402	)		2.9
Income taxes			(25,111	)		(21,642	)		16.0			(70,973	)		(66,690	)		6.4
	Net income	$	51,015		$	45,518			12.1	%	$	148,033		$	135,178			9.5	%

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      Consolidated net income for the third quarter of 2002 was $51.0 million, a $5.5 million, or 12.1%, increase over the third quarter of 2001. Diluted earnings per share increased 14.7% to $.78 for the third quarter of 2002, compared to $.68 for the third quarter of 2001. The increase in net income resulted mainly from growth in net interest income, partly offset by increases in non-interest expense and the provision for loan losses. The growth in net interest income resulted from the continued re-pricing of certificate of deposit accounts and lower rates paid on money market accounts, coupled with higher investment securities balances and some loan growth. For the current quarter, net interest income increased 9.0% over the same quarter in 2001. Non-interest income increased .8% in the current quarter compared to the third quarter in the prior year, while non-interest expense increased 1.1%. The return on average assets for the current quarter was 1.62% compared to 1.52% for the third quarter of 2001. The return on average realized stockholders’ equity was 15.59% compared to 15.03% in the same quarter of last year. The Company’s efficiency ratio declined to 56.70% in the third quarter of 2002 from 58.43% in the third quarter of 2001.

      Consolidated net income for the first nine months of 2002 was $148.0 million, a 9.5% increase over the first nine months of 2001. Diluted earnings per share was $2.24 compared to $2.02 for the first nine months of last year, an increase of 10.9%. Net interest income rose $20.7 million, or 5.9%, while the provision for loan losses declined $2.6 million. Non-interest income, excluding gains and losses on securities transactions, grew 2.7%, and non-interest expense, excluding goodwill amortization, increased 4.0%. The efficiency ratio for the first nine months of 2002 was 57.97% compared to 58.30% in 2001.

      Effective September 30, 2002, the Company’s investment in a venture capital limited partnership, previously accounted for on the equity method, was reclassified as a consolidated entity. Financial statements for prior periods were also reclassified. At September 30, 2002, the partnership had assets of $10.6 million and no outstanding debt. Limited partnership interests of 47% are held by outside investors. The effect of the reclassification on the income statement for the nine months ended September 30, 2002, was to increase net interest income $448 thousand, decrease non-interest income $1.048 million, and decrease other non-interest expense $600 thousand.

      The Company’s most recent bank acquisition was effective March 1, 2001, when Centennial Bank was acquired. The bank was located in the metropolitan St. Louis area, and at acquisition had assets of $254 million, loans of $189 million, and deposits of $216 million. The Company issued common stock valued at $34.4 million as consideration in the transaction. The acquisition was accounted for as a pooling of interests; however, the Company’s financial statements were not restated since restated amounts did not differ materially from the Company’s historical results.

Net Interest Income

      The following table summarizes the changes in net interest income on a fully tax 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. Management believes this allocation method, applied on a consistent basis, provides meaningful comparisons between the respective periods.

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Analysis of Changes in Net Interest Income

				Three Months Ended									Nine Months Ended
				September 30, 2002 vs. 2001									September 30, 2002 vs. 2001
				Change due to									Change due to
				Average			Average						Average			Average
				Volume			Rate			Total			Volume			Rate			Total
				(In thousands)
Interest income, fully taxable equivalent basis:
	Loans			$	970		$	(25,453	)	$	(24,483	)	$	(7,341	)	$	(98,206	)	$	(105,547	)
	Investment securities:
		U.S. government and federal agency securities			5,053			(2,930	)		2,123			15,083			(10,383	)		4,700
		State and municipal obligations			(354	)		(11	)		(365	)		(1,107	)		92			(1,015	)
		CMO’s and asset-backed securities			12,746			(4,189	)		8,557			46,666			(11,923	)		34,743
		Other securities			(785	)		(172	)		(957	)		117			(2,250	)		(2,133	)
			Total interest on investment securities		16,660			(7,302	)		9,358			60,759			(24,464	)		36,295
	Federal funds sold and securities purchased under agreements to resell				(5,880	)		(186	)		(6,066	)		(17,891	)		(1,700	)		(19,591	)
			Total interest income		11,750			(32,941	)		(21,191	)		35,527			(124,370	)		(88,843	)
Interest expense:
	Deposits:
		Savings			64			(218	)		(154	)		285			(1,387	)		(1,102	)
		Interest bearing demand			381			(11,439	)		(11,058	)		4,559			(53,739	)		(49,180	)
		Time open & C.D.’s of less than $100,000			(4,220	)		(10,231	)		(14,451	)		(8,213	)		(30,581	)		(38,794	)
		Time open & C.D.’s of $100,000 and over			1,214			(3,798	)		(2,584	)		5,407			(12,575	)		(7,168	)
			Total interest on deposits		(2,561	)		(25,686	)		(28,247	)		2,038			(98,282	)		(96,244	)
	Federal funds purchased and securities sold under agreements to repurchase				1,719			(3,359	)		(1,640	)		2,612			(12,696	)		(10,084	)
	Long-term debt and other borrowings				332			(1,996	)		(1,664	)		4,514			(7,522	)		(3,008	)
			Total interest expense		(510	)		(31,041	)		(31,551	)		9,164			(118,500	)		(109,336	)
Net interest income, fully taxable equivalent basis				$	12,260		$	(1,900	)	$	10,360		$	26,363		$	(5,870	)	$	20,493

      Net interest income for the third quarter of 2002 was $126.8 million, a 9.0% increase over the third quarter of 2001, and for the first nine months was $372.0 million, a 5.9% increase over last year. For the quarter, the net interest margin was 4.40% compared with 4.22% last year, while the nine month margin was 4.40% in 2002 and 4.42% in 2001.

      Total interest income in the current quarter decreased $21.1 million, or 11.4%, compared to the third quarter of 2001. Much of this decline was the result of lower rates earned on loans and investment securities

15

and lower balances of federal funds sold, but offset by increased interest earned on higher balances of investment securities. Since September 2001, the overall quarterly yield on the loan portfolio declined 127 basis points while the yield on the investment portfolio declined 73 basis points. Interest rates on large sections of the Company’s loan portfolio adjust with various indices, including the prime rate, and have re-priced downward since September 2001 in conjunction with actions taken by the Federal Reserve to reduce overall interest rates. Over the last 12 months, the Company has increased average investment securities by $1.14 billion and this growth in balances has created additional interest income, thus partly offsetting the effects of interest rate reductions. This increase in investment securities has been funded mainly from growth in deposits and overnight borrowings, coupled with a decline in overnight investments. The average tax equivalent yield on total interest earning assets was 5.68% for the third quarter of 2002 compared to 6.71% last year.

      Compared to the first nine months of 2001, total interest income decreased $88.5 million, or 15.3%. The decline in interest income occurred as a result of many of the same trends noted above in the quarterly comparison. Interest on loans declined $105.5 million due mainly to lower rates earned on all loan categories, combined with lower average balances on business and personal real estate loans. Interest on investment securities increased $36.6 million due mainly to an increase of $1.35 billion in average balances outstanding, but partly offset by lower rates earned on these investments of 89 basis points. Also, interest on federal funds sold and securities purchased under agreements to resell declined $19.6 million, mainly as a result of a $536.8 million decrease in average balances coupled with lower rates earned (down 262 basis points). The average tax equivalent yield on total interest earning assets for the nine months was 5.81% in 2002 and 7.28% in 2001.

      For the three months ended September 30, 2002, total interest expense decreased $31.5 million compared with the same quarter last year. The decrease resulted mainly from lower interest rates paid on all deposit products and borrowings plus lower balances in long term certificates of deposit under $100,000, but was offset by higher balances of federal funds purchased. The average rates paid on interest bearing deposits was 1.46% for the third quarter of 2002, a decline of 131 basis points from the same period last year. The decline included not only lower rates on the re-pricing of certificates of deposit as they matured, but also lower rates on interest bearing deposits which incurred large adjustments downward in late 2001 and in the third quarter of 2002. Also, rates paid on other borrowings, which include both overnight funds purchased and advances from the Federal Home Loan Bank (FHLB), declined 179 basis points compared to the same period last year. Much of the Company’s other borrowings are variably priced. Certificates of deposit under $100,000, which are mostly held by retail bank customers, declined $300.3 million on average while certificates of deposit of $100,000 and over, held mainly by commercial customers, increased $121.1 million. During the same period, average balances of federal funds purchased increased $241.0 million.

      Total interest expense for the first nine months of 2002 decreased $109.2 million compared with the same period last year. Average rates paid on deposit balances declined 168 basis points and rates on other borrowings declined 248 basis points. Much of the decrease in rates was the result of the Company’s certificate of deposit portfolio re-pricing downward as maturities came due. This coupled with a decline in rates on interest bearing demand accounts in the third quarter were the main causes of the overall lower deposit rates. The reduction in rates paid on other borrowings was mainly the result of lower rates paid on federal funds purchased, repurchase agreements and FHLB advances, all of which re-price rapidly with interest rate changes. Partly offsetting these effects was growth in average interest bearing demand deposits of $591.2 million, which was partly offset by declining retail certificates of deposit balances, which were down $179.5 million.

      Summaries of average assets and liabilities and the corresponding average rates earned/ paid are located at the end of this discussion.

16

Non-Interest Income

		Three Months Ended									Nine Months Ended
		September 30									September 30
		2002			2001			% Change			2002			2001		% Change
		(Dollars in thousands)
Trust fees		$	14,754		$	15,695			(6.0	)%	$	45,967		$	47,687		(3.6	)%
Deposit account charges and other fees			23,750			21,405			11.0			67,636			61,989		9.1
Credit card transaction fees			14,715			13,668			7.7			41,827			40,070		4.4
Trading account profits and commissions			4,067			3,871			5.1			11,938			11,301		5.6
Mortgage banking revenue			1,324			1,097			20.7			2,961			4,224		(29.9	)
Net gains on securities transactions			1,426			708			101.4			586			2,777		(78.9	)
Other			9,511			12,553			(24.2	)		37,157			36,736		1.1
	Total non-interest income	$	69,547		$	68,997			.8	%	$	208,072		$	204,784		1.6	%
As a % of operating income (net interest income plus non-interest income)			35.4	%		37.2	%					35.9	%		36.8%

      Total non-interest income for the third quarter of 2002 totaled $69.5 million compared with $69.0 million in the same quarter of last year, resulting in an increase of $550 thousand, or .8%. Deposit account charges and other fees increased $2.3 million, or 11.0%, over the third quarter of 2001. This increase was mainly due to growth in overdraft and commercial cash management fees, which were higher by a combined $1.9 million. Credit card transaction fees rose $1.0 million, or 7.7%, largely because of higher cardholder transaction and debit card fees. Merchant fees for the current quarter remained at similar levels as last year, mainly as a result of lower profit margins, partly offset by higher transaction volumes. Debit card and credit cardholder transaction fees grew by 11.8% and 9.9%, respectively, over the same quarter in 2001. Trading revenue rose by 5.1% over the third quarter of last year due to continued strong sales of fixed income products to correspondent banking customers. Trust fees for the current quarter decreased 6.0% from the same quarter last year, mainly due to lower trust asset valuations on which fees are based. Mortgage banking revenue was up 20.7% mainly due to higher origination activity as a result of lower mortgage rates. Securities transactions for the third quarter of 2002 included gains of $2.6 million on sales of bank investment securities, partly offset by a net loss of $1.2 million on venture capital investments held by the Company’s 53%-owned affiliate. Other non-interest income declined $3.0 million in the third quarter of 2002 compared to the same quarter in the previous year, mainly because of lower sales of student loans in the current quarter.

      Non-interest income for the nine months ended September 30, 2002, increased $3.3 million, or 1.6%, over 2001. Most of the increase was due to higher deposit account charges, which rose $5.6 million, or 9.1%, due to increases in overdraft and corporate cash management fees. Credit card transaction fees rose $1.8 million, or 4.4%, mainly in debit card fees. Trust fees declined $1.7 million partly due to large, one-time probate fees received in 2001 and declining asset valuations. Mortgage banking revenue declined $1.3 million, resulting from lower sales of mortgage loans to the secondary market earlier in the year, in addition to fair value adjustments on related sales contracts. Securities transactions for the first nine months of 2002 included $3.0 million in gains on sales from the banks’ investment portfolios, partly offset by venture capital investment losses of $1.7 million recorded by the Company’s 53%-owned affiliate and $700 thousand recorded by the Parent company. In comparison, the 2001 nine month period included bank securities gains of $7.0 million, offset by venture capital investment losses of $4.4 million. During the first nine months of 2002, other non-interest income included the sale of minority interest in a community bank, sales of bank branches and facilities, and sales of student loans for gains of $1.5 million, $2.4 million, and $3.4 million, respectively. During the same period in 2001, a banking facility was sold for a gain of $1.5 million, and student loan gains amounted to $5.0 million.

17

Non-Interest Expense

		Three Months Ended							Nine Months Ended
		September 30							September 30
		2002		2001		% Change			2002		2001		% Change
		(Dollars in thousands)
Salaries and employee benefits		$	63,203	$	59,415		6.4	%	$	187,904	$	176,100		6.7	%
Net occupancy			8,835		8,242		7.2			25,469		24,230		5.1
Equipment			5,619		5,461		2.9			16,733		16,616		.7
Supplies and communication			8,326		8,353		(.3	)		24,490		24,963		(1.9	)
Data processing and software			10,095		11,480		(12.1	)		34,447		35,150		(2.0	)
Marketing			3,838		3,460		10.9			10,834		9,848		10.0
Goodwill amortization			—		1,182		N.M.			—		3,505		N.M.
Intangible assets amortization			508		775		(34.5	)		1,900		2,281		(16.7	)
Other			10,585		11,451		(7.6	)		36,064		35,709		1.0
	Total non-interest expense	$	111,009	$	109,819		1.1	%	$	337,841	$	328,402		2.9	%

      Non-interest expense for the third quarter of 2002 amounted to $111.0 million, an increase of 1.1% over amounts recorded in the same quarter last year. The largest increase occurred in salaries and employee benefits, which rose $3.8 million, or 6.4%, mainly due to higher costs for salaries, incentives, medical insurance and retirement plan expense. Full-time equivalent employees totaled 5,017 and 5,119 at September 30, 2002 and 2001, respectively. Excluding salaries and benefits, non-interest expense declined 5.2% compared with the third quarter of 2001. Much of this decline was the result of lower data processing costs from the internalization of the mainframe computer operation, which was completed in the second quarter of 2002. Also, goodwill amortization, which amounted to $1.2 million in the third quarter of last year, was discontinued in 2002, as required by a recent accounting pronouncement.

      Non-interest expense for the nine months ended September 30, 2002, was $337.8 million, an increase of $9.4 million, or 2.9%, over 2001. Salaries and employee benefits rose $11.8 million, with the same expense trends noted above in the quarterly comparison. Net occupancy expense increased $1.2 million mainly because of higher depreciation expense on new bank branches and remodeling projects, in addition to rent expense on new telemarketing and disaster recovery centers. Data processing and software costs declined $703 thousand due to the mainframe internalization project, and is reflective of a $1.7 million contract termination payment in the second quarter of 2002 but lower expenses for the data center in the third quarter of 2002. Marketing expense rose $986 thousand, offset by a net decline in other expense categories. Among these was a $3.5 million decline in goodwill amortization, which was discontinued in 2002 as noted above.

      The efficiency ratio improved to 56.70% in the third quarter of 2002, compared with 58.43% in the third quarter of 2001 and 57.51% in the second quarter of 2002.

18

Provision and Allowance for Loan Losses

			Three Months Ended									Nine Months Ended
												September 30
			September 30			September 30			June 30
			2002			2001			2002			2002			2001
			(Dollars in thousands)
Provision for loan losses			$	9,193		$	8,317		$	6,668		$	23,260		$	25,839
Net loan charge-offs (recoveries):
	Business			2,831			1,888			1,118			5,310			5,222
	Credit card			4,173			4,173			4,309			12,774			14,352
	Personal banking			1,611			2,321			1,472			4,752			6,338
	Real estate			(37	)		80			(231	)		(191	)		(73	)
		Total net loan charge-offs	$	8,578		$	8,462		$	6,668		$	22,645		$	25,839
Annualized total net charge-offs as a percentage of average loans				.44	%		.43	%		.35	%		.39	%		.44	%

      The Company has a process to evaluate the adequacy of the allowance for loan losses, which assesses the risks and losses inherent in its portfolio. This process provides an allowance consisting of an allocated and an unallocated component. To determine the allocated component of the allowance, the Company combines estimates of the reserves needed for loans evaluated on an individual basis with estimates of reserves needed for pools of loans with similar risk characteristics. This process uses tools such as the “watch loan list”, loss experience, and migration models. To mitigate the imprecision in the estimation of the allocated component, specifically calculated reserve amounts are supplemented by an unallocated component. The unallocated component includes management’s determination of the amounts necessary to offset credit risk issues associated with loan concentrations, economic uncertainties, industry concerns, adverse market changes in estimated or appraised collateral values, and other subjective factors.

      The Company’s estimate of the allowance for loan losses and the corresponding provision for loan losses rests upon various judgments and assumptions made by management. Factors that influence these judgments include past loan loss experience, current loan portfolio composition and characteristics, trends in portfolio risk ratings, levels of non-performing assets, prevailing regional and national economic conditions, and the Company’s ongoing specific loan evaluation process, including that of its regulators.

      Net loan charge-offs were $22.6 million in the first nine months of 2002, a $3.2 million decrease from the same period in the prior year. The decline resulted from lower charge-offs on credit card and personal banking loans, in addition to higher recoveries on credit card loans. Total net charge-offs for the first nine months of 2002 were .39% of total average loans, compared to .44% for the same period in 2001.

      Net loan charge-offs in the third quarter of 2002 were $8.6 million compared to $6.7 million in the second quarter of 2002 and $8.5 million in the third quarter of 2001. The ratio of net charge-offs to average loans was .44% in the current quarter compared with .35% in the second quarter of 2002 and .43% in the third quarter of 2001. The increase in net charge-offs in the current quarter compared to the second quarter of this year resulted principally from the additional charge-down of $1.5 million of two business loans, which had previously been placed on non-accrual status and mentioned in an earlier report. Compared to the third quarter of 2001, net charge-offs were up slightly due to higher business loan net charge-offs, partly offset by lower net charge-offs on personal banking loans.

      For the third quarter of 2002, net charge-offs on average credit card loans amounted to 3.35% compared with 3.60% in the second quarter of this year and 3.42% in the third quarter of 2001. Personal banking loan net charge-offs amounted to .38% of average personal loans this quarter compared to .37% in the second quarter of this year and .56% in the third quarter of 2001.

      The provision for loan losses was $23.3 million in the first nine months of 2002 compared to $25.8 million in the same period in 2001. The provision for loan losses for the third quarter of 2002 totaled $9.2 million, up from $6.7 million in the second quarter of 2002 and $8.3 million in the third quarter of 2001.

19

      The allowance for loan losses at September 30, 2002, was $130.6 million, or 1.68% of average quarterly loans, and represented 460% of total non-performing assets. The Company considers the allowance for loan losses adequate to cover losses inherent in the loan portfolio at September 30, 2002.

Risk Elements of Loan Portfolio

      The following table presents non-performing assets and loans which are past due 90 days and still accruing interest. Non-performing assets include non-accruing loans and foreclosed real estate. Loans are placed on non-accrual status when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. These generally are loans that are 90 days past due as to principal and/or interest payments, unless both well-secured and in the process of collection, or are 1-4 family first mortgage loans or consumer loans that are exempt under regulatory rules from being classified as non-accrual. Those loans, anticipated to be collected, are included in the totals below for loans past due 90 days and still accruing interest.

		September 30			December 31
		2002			2001
		(Dollars in thousands)
Non-accrual loans		$	26,701		$	28,819
Foreclosed real estate			1,679			1,949
	Total non-performing assets	$	28,380		$	30,768
Non-performing assets to total loans			.36	%		.40	%
Non-performing assets to total assets			.22	%		.24	%
Loans past due 90 days and still accruing interest		$	23,435		$	19,699

Income Taxes

      The Company’s income tax expense was $71.0 million in the first nine months of 2002 and $66.7 million in the first nine months of 2001, resulting in effective tax rates of 32.4% and 33.0%, respectively. The lower effective tax rate in the first nine months of 2002 compared with 2001 was impacted by both the elimination of non-deductible goodwill amortization, and the additional accrual of state and Federal rehabilitation credits to be received on the renovation of a downtown Kansas City office building. The effective tax rate for the third quarter of 2002 was 33.0% compared with 32.8% in the second quarter of 2002 and 32.2% in the third quarter of 2001.

FINANCIAL CONDITION

Balance Sheet

      Total assets of the Company were $13.2 billion at September 30, 2002 compared to $12.9 billion at December 31, 2001, an increase of 1.9%. Earning assets at September 30, 2002 totaled $12.0 billion, composed of loans (66%), investment securities (33%) and short term investments in federal funds sold and securities purchased under agreements to resell (1%).

      During the first nine months of 2002, loans increased $322.6 million, or 4.2%, over balances at December 31, 2001. The increase was the result of higher personal banking, construction, and business loans, but partly offset by lower personal real estate loans. Personal real estate loans decreased $60.4 million from the year end balance, continuing the trend whereby principal amortization, coupled with lower origination of variable rate loans, resulted in lower loan balances. Longer term fixed rate personal real estate loans originated by the Company are routinely sold to the secondary market. During the first nine months of 2002, personal loans, mainly student and automobile loans, grew $240.2 million. The Company has been successful in attracting new auto loans even with existing incentives offered by the auto companies by emphasizing used car products and differing terms. Although the region’s economy remained sluggish, business loans increased

20

$79.8 million over year end as a result of seasonal line of credit usage and new lending opportunities occurring mainly in the third quarter of 2002.

      Available for sale investment securities at September 30, 2002, were $207.0 million higher than at December 31, 2001. Most of the increase resulted from higher investments in U.S. government securities, particularly in purchases of treasury inflation indexed bonds, which were partly offset by smaller holdings of mutual funds. The growth in investment securities since December 31, 2001, occurred mainly from liquidity arising from increases in short term borrowings of federal funds purchased and securities sold under agreements to repurchase. The total investment securities portfolio amounted to $3.94 billion at September 30, 2002, and was comprised mainly of U.S. government and agencies (38%), mortgage-backed (35%), and other asset-backed (22%) investment securities.

      Total deposits decreased $100.4 million at September 30, 2002, compared to December 31, 2001, mainly due to a decline of $157.3 million in long term retail certificates of deposit, which was partly offset by growth in money market accounts and short term certificates of deposit of $100,000 and over.

      Compared to 2001 year end balances, borrowings at September 30, 2002, increased $155.6 million. The Company’s short term borrowings of federal funds purchased and securities sold under agreements to repurchase vary depending on daily liquidity requirements. These borrowings rose $157.5 million during the first nine months of 2002 to a balance of $1.24 billion at September 30, 2002. Longer term borrowings, consisting mainly of FHLB borrowings, remained stable at $390.7 million outstanding at September 30, 2002.

Liquidity and Capital Resources

      Liquidity represents the Company’s ability to obtain cost-effective funding to meet the needs of customers as well as the Company’s financial obligations. Liquidity can be provided through the subsidiary banks’ sale and maturity of federal funds sold and securities purchased under agreements to resell, in addition to their available for sale investment securities portfolio. These liquid assets had a fair value of $3.74 billion at September 30, 2002, which included $648.3 million pledged to secure public deposits, discount window borrowings, and other purposes as required by law. Within the next twelve months, approximately $312.2 million, or 9%, of the banks’ available for sale portfolio will mature. The available for sale bank portfolio included an unrealized net gain in fair value of $137.1 million at September 30, 2002 compared to an unrealized net gain of $29.4 million at December 31, 2001. Liquidity can also be obtained through secured advances from the FHLB, of which certain subsidiary banks are members. These borrowings are generally secured by residential mortgages and mortgage-backed securities. Advances outstanding approximated $375 million at December 31, 2001 and September 30, 2002. Most of the advances are payable during 2002 and 2003. An additional $123.6 million is available under the FHLB lines of credit.

      The liquid assets of Commerce Bancshares, Inc. holding company (the Parent) consist primarily of U.S. federal agency securities, commercial paper, securities purchased under agreements to resell, and marketable corporate stock, including investments in mutual funds. The fair value of these assets was $205.4 million at September 30, 2002 compared to $175.2 million at December 31, 2001. Included in the fair values were unrealized net gains of $29.7 million at September 30, 2002, and $32.6 million at December 31, 2001. The Parent’s liabilities totaled $64.0 million at September 30, 2002, compared to $13.4 million at December 31, 2001. Liabilities at September 30, 2002, included $53.1 million advanced mainly from subsidiary bank holding companies in order to combine resources for short term investment in liquid assets. The funds advanced from the subsidiary bank holding companies consist mainly of subsidiary bank dividends. The Parent had no short term borrowings from affiliate banks or long term debt during 2002. The Parent’s commercial paper, which management believes is readily marketable, has a P1 rating from Moody’s and an A1 rating from Standard & Poor’s. The Company’s commercial paper is unissued, however, this credit availability should provide adequate funds to meet any outstanding or future commitments of the Parent.

      In February 2002, the Board of Directors re-approved a plan to authorize the Company to purchase up to 3,000,000 shares of common stock. During the first nine months of 2002, the Company purchased approximately 1,626,153 shares at an average cost of $42.33. The Company has routinely used these reacquired shares to fund annual stock dividends and various stock option programs.

21

      The Company had an equity to asset ratio of 10.90% based on 2002 average balances. As shown in the following table, the Company’s capital exceeded the minimum risk-based capital and leverage requirements of the regulatory agencies.

							Minimum
							Ratios for
	September 30			December 31			Well-Capitalized
	2002			2001			Banks
	(Dollars in thousands)
Risk-Adjusted Assets	$	9,857,568		$	9,634,566
Tier I Capital		1,245,263			1,182,661
Total Capital		1,381,925			1,313,857
Tier I Capital Ratio		12.63	%		12.28	%		6.00	%
Total Capital Ratio		14.02	%		13.64	%		10.00	%
Leverage Ratio		10.13	%		9.81	%		5.00	%

      The following is a discussion of cash flows; these amounts are based on cash flows that exclude changes resulting from bank acquisitions and branch dispositions. The Company’s cash and cash equivalents (defined as “Cash and due from banks” on the accompanying balance sheets) were $739.5 million at September 30, 2002, a decrease of $84.7 million from December 31, 2001. Contributing to the net cash outflow were an increase in loan balances (net of repayments) of $354.4 million and an increase of $112.0 million in investment securities (net of maturities and sales). Additional cash outflows resulted from a decline of $61.9 million in total deposits. Net cash inflows of $177.2 million were generated from the operating activities of the Company, along with a decline of $267.8 million in short term investments and an increase of $157.5 million in overnight borrowings.

      The Company has various commitments and contingent liabilities which are properly not reflected on the balance sheet. Loan commitments (excluding derivative instruments and lines of credit related to credit cards) totaled approximately $3.05 billion, standby letters of credit totaled $301.1 million, and commercial letters of credit totaled $35.4 million at September 30, 2002.

22

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Nine Months Ended September 30, 2002 and 2001

				Nine Months 2002								Nine Months 2001
							Interest		Avg. Rates						Interest		Avg. Rates
				Average			Income/		Earned/			Average			Income/		Earned/
				Balance			Expense		Paid			Balance			Expense		Paid
				(Unaudited)
				(Dollars in thousands)
ASSETS:
Loans:
	Business (A)			$	2,406,591		$	87,222		4.85	%	$	2,599,407		$	136,665		7.03	%
	Real estate — construction				468,358			17,918		5.12			407,961			23,500		7.70
	Real estate — business				1,467,945			66,505		6.06			1,376,225			79,269		7.70
	Real estate — personal				1,250,564			62,875		6.72			1,354,568			75,401		7.44
	Personal banking				1,615,597			82,915		6.86			1,618,173			98,947		8.18
	Credit card				486,972			39,373		10.81			491,205			48,573		13.22
		Total loans			7,696,027			356,808		6.20			7,847,539			462,355		7.88
Investment securities:
	U.S. government & federal agency				1,200,297			41,323		4.60			850,191			36,623		5.76
	State & municipal obligations (A)				38,748			2,287		7.89			58,247			3,302		7.58
	CMO’s and asset-backed securities				2,112,496			85,253		5.40			1,097,994			50,510		6.15
	Trading securities				10,607			402		5.07			16,745			741		5.92
	Other marketable securities (A)				132,382			3,229		3.26			119,118			4,293		4.82
	Non-marketable securities				65,744			2,047		4.16			68,375			2,777		5.43
		Total investment securities			3,560,274			134,541		5.05			2,210,670			98,246		5.94
Federal funds sold and securities purchased under agreements to resell					86,273			1,186		1.84			623,101			20,777		4.46
		Total interest earning assets			11,342,574			492,535		5.81			10,681,310			581,378		7.28
Less allowance for loan losses					(129,680	)							(129,980	)
Unrealized gain on investment securities					101,489								44,656
Cash and due from banks					510,109								533,564
Land, buildings and equipment, net					327,481								279,288
Other assets					146,358								166,770
		Total assets		$	12,298,331							$	11,575,608
LIABILITIES AND EQUITY:
Interest bearing deposits:
	Savings			$	353,767			1,700		.64		$	321,240			2,802		1.17
	Interest bearing demand				5,734,276			34,053		.79			5,143,069			83,233		2.16
	Time open & C.D.’s of less than $100,000				2,072,633			55,165		3.56			2,252,089			93,959		5.58
	Time open & C.D.’s of $100,000 and over				662,030			14,215		2.87			514,635			21,383		5.56
		Total interest bearing deposits			8,822,706			105,133		1.59			8,231,033			201,377		3.27
Borrowings:
	Federal funds purchased and securities sold under agreements to repurchase				683,235			6,702		1.31			594,981			16,786		3.77
	Long-term debt and other borrowings (B)				369,523			7,269		2.63			256,339			10,277		5.36
		Total borrowings			1,052,758			13,971		1.77			851,320			27,063		4.25
			Total interest bearing liabilities		9,875,464			119,104		1.61	%		9,082,353			228,440		3.36	%
Non-interest bearing demand deposits					961,579								1,149,358
Other liabilities					120,388								140,280
Stockholders’ equity					1,340,900								1,203,617
		Total liabilities and equity		$	12,298,331							$	11,575,608
Net interest margin (T/E)							$	373,431							$	352,938
Net yield on interest earning assets										4.40	%							4.42	%

(A)  Stated on a tax equivalent basis using a federal income tax rate of 35%.

(B)  Interest expense capitalized on construction projects is not deducted from the interest expense shown above.

23

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Three Months Ended September 30, 2002 and 2001

				Third Quarter 2002								Third Quarter 2001
							Interest		Avg. Rates						Interest		Avg. Rates
				Average			Income/		Earned/			Average			Income/		Earned/
				Balance			Expense		Paid			Balance			Expense		Paid
				(Unaudited)
				(Dollars in thousands)
ASSETS:
Loans:
	Business (A)			$	2,404,059		$	29,298		4.84	%	$	2,476,368		$	39,459		6.32	%
	Real estate — construction				486,704			6,131		5.00			414,146			7,552		7.23
	Real estate — business				1,476,920			22,242		5.97			1,421,017			26,147		7.30
	Real estate — personal				1,228,342			20,172		6.52			1,319,655			23,987		7.21
	Personal banking				1,693,411			27,824		6.52			1,644,963			31,874		7.69
	Credit card				494,171			13,623		10.94			483,560			14,754		12.10
		Total loans			7,783,607			119,290		6.08			7,759,709			143,773		7.35
Investment securities:
	U.S. government & federal agency				1,338,146			14,503		4.30			950,412			12,380		5.17
	State & municipal obligations (A)				37,184			717		7.65			55,355			1,082		7.75
	CMO’s and asset-backed securities				2,125,855			27,903		5.21			1,281,636			19,346		5.99
	Trading securities				10,627			131		4.89			15,305			227		5.88
	Other marketable securities (A)				74,204			861		4.60			143,159			1,327		3.68
	Non-marketable securities				65,763			736		4.44			70,839			1,131		6.33
		Total investment securities			3,651,779			44,851		4.87			2,516,706			35,493		5.60
Federal funds sold and securities purchased under agreements to resell					45,194			234		2.05			697,730			6,300		3.58
		Total interest earning assets			11,480,580			164,375		5.68			10,974,145			185,566		6.71
Less allowance for loan losses					(129,629	)							(130,356	)
Unrealized gain on investment securities					145,638								53,267
Cash and due from banks					510,322								531,982
Land, buildings and equipment, net					333,991								297,544
Other assets					149,269								166,859
		Total assets		$	12,490,171							$	11,893,441
LIABILITIES AND EQUITY:
Interest bearing deposits:
	Savings			$	358,990			581		.64		$	330,514			735		.88
	Interest bearing demand				5,739,434			11,079		.77			5,468,739			22,137		1.61
	Time open & C.D.’s of less than $100,000				1,999,354			16,044		3.18			2,299,700			30,495		5.26
	Time open & C.D.’s of $100,000 and over				666,333			4,454		2.65			545,203			7,038		5.12
		Total interest bearing deposits			8,764,111			32,158		1.46			8,644,156			60,405		2.77
Borrowings:
	Federal funds purchased and securities sold under agreements to repurchase				843,392			2,944		1.38			629,371			4,584		2.89
	Long-term debt and other borrowings (B)				355,842			2,058		2.29			326,138			3,722		4.53
		Total borrowings			1,199,234			5,002		1.65			955,509			8,306		3.45
			Total interest bearing liabilities		9,963,345			37,160		1.48	%		9,599,665			68,711		2.84	%
Non-interest bearing demand deposits					997,069								914,871
Other liabilities					142,800								145,376
Stockholders’ equity					1,386,957								1,233,529
		Total liabilities and equity		$	12,490,171							$	11,893,441
Net interest margin (T/E)							$	127,215							$	116,855
Net yield on interest earning assets										4.40	%							4.22	%

(A)  Stated on a tax equivalent basis using a federal income tax rate of 35%.

(B)  Interest expense capitalized on construction projects is not deducted from the interest expense shown above.

24

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

      Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits. The Company mainly uses earnings simulation models to analyze net interest sensitivity to movement in interest rates. Simulation models are run at least quarterly, calculating interest sensitivity. The table below shows the effect, at both September 30, 2002 and December 31, 2001, that gradual rising and/or falling interest rates over a twelve month period would have on the Company’s net interest income, given a static balance sheet.

	September 30, 2002						December 31, 2001
	$ Change			% Change			$ Change			% Change
	in Net			in Net			in Net			in Net
	Interest			Interest			Interest			Interest
Scenario	Income			Income			Income			Income
	(Dollars in millions)
200 basis points rising	$	1.4			.27	%	$	(7.6	)		(1.5	)%
100 basis points rising		2.4			.48			(3.6	)		(.7	)
100 basis points falling		(.9	)		(.19	)		2.3			.5

      Since December 2001, the Company has continued to reduce its interest rate risk for all of the above scenarios of changes in interest levels. Over the last nine months, general interest rate levels, as monitored by the Federal Reserve, have remained relatively constant. During this period the Company’s certificates of deposit have re-priced downward as maturities have occurred and the average balances of all certificates of deposit have declined. Also, rates on interest bearing demand deposits have declined while balances have grown. Modeling assumptions have used these facts and further assumptions on the extent to which interest bearing deposit rates could decline further to reduce the impact to net interest income should rates fall an added 100 basis points.

      Changes in the mix of earning assets during the year, combined with fewer certificates of deposit balances with fixed rates, also changed simulation models assuming rising interest rates. Growth in certain consumer loan products this year with rates tied to various indices provide improved results under rising rate environments. Student loan products, which have rates that recently were reset by governmental rules, will now show growth in interest if rates begin to rise. Under rising assumptions personal real estate loan run-off should slow. Also, the Company’s commercial loan portfolio with recent growth in the third quarter is now comprised of a greater proportion of variable rate loans which will re-price with upward rate movements. The growth over the last 12 months in the Company’s investment securities portfolio, coupled with higher short term borrowings that are used as part of the assumptions, partly offset the impact of loan and deposit changes. However, taken as a whole, simulation models used on rising rate environments indicated improved results over models prepared in December 2001.

      For further discussion of the Company’s market risk, see the Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Sensitivity included in the Company’s 2001 Annual Report on Form 10-K.

Item 4. Controls and Procedures

      Within the 90 days prior to the filing of this report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. There were not any significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

25

PART II: OTHER INFORMATION

Item 6.     Exhibits and Reports on Form 8-K

      (a) Exhibits:

99.1	Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2	Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

      (b) No reports on Form 8-K were filed during the quarter ended September 30, 2002.

SIGNATURES

      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 thereunto duly authorized.

COMMERCE BANCSHARES, INC.

By  /s/ J. DANIEL STINNETT

J. Daniel Stinnett

Vice President & Secretary

Date: November 12, 2002

By  /s/ JEFFERY D. ABERDEEN

Jeffery D. Aberdeen

Controller (Chief Accounting Officer)

Date: November 12, 2002

26

CERTIFICATION

      I, David W. Kemper, certify that:

      1. I have reviewed this quarterly report on Form 10-Q of Commerce Bancshares, Inc.;

      2. Based on my knowledge, this quarterly 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 quarterly report;

      3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

      4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      (a) designed such disclosure controls and procedures 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 quarterly report is being prepared;

      (b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

      (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

      5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

      (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

      (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

      6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ DAVID W. KEMPER

David W. Kemper

Chairman, President and

Chief Executive Officer

November 12, 2002

27

CERTIFICATION

      I, A. Bayard Clark, certify that:

      1. I have reviewed this quarterly report on Form 10-Q of Commerce Bancshares, Inc.;

      2. Based on my knowledge, this quarterly 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 quarterly report;

      3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

      4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      (a) designed such disclosure controls and procedures 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 quarterly report is being prepared;

      (b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

      (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

      5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

      (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

      (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

      6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ A. BAYARD CLARK

A. Bayard Clark

Executive Vice President,

Treasurer and Chief Financial Officer

November 12, 2002

28 EX-99.1 3 c72540exv99w1.txt EX-99.1 CERTIFICATION OF CEO EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Commerce Bancshares, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), David W. Kemper, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (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 November 12, 2002 EX-99.2 4 c72540exv99w2.txt EX-99.2 CERTIFICATION OF CFO EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Commerce Bancshares, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), A. Bayard Clark, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (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/ A. BAYARD CLARK -------------------------------------- A. Bayard Clark Chief Financial Officer November 12, 2002 -----END PRIVACY-ENHANCED MESSAGE-----

EX-99.1

                                                                    EXHIBIT 99.1

                           CERTIFICATION PURSUANT TO
                            18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Commerce Bancshares, Inc. (the
"Company") on Form 10-Q for the period ended September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), David
W. Kemper, Chief Executive Officer of the Company, hereby certifies, pursuant to
18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:

          (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

November 12, 2002

EX-99.2

                                                                    EXHIBIT 99.2

                           CERTIFICATION PURSUANT TO
                            18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Commerce Bancshares, Inc. (the
"Company") on Form 10-Q for the period ended September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), A.
Bayard Clark, Chief Financial Officer of the Company, hereby certifies, pursuant
to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act
of 2002, that:

          (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/ A. BAYARD CLARK
                                          --------------------------------------
                                                     A. Bayard Clark
                                                 Chief Financial Officer

November 12, 2002