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COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2006

For the quarter ended June 30, 2006, net income amounted to $55.3 million, an increase of 1.8% over the same quarter last year. For the current quarter, return on assets was 1.6%, the return on average equity was 16.6%, and the efficiency ratio was 60.4%. Compared to the 2^nd quarter of last year, net interest income decreased .7% while non-interest income grew by 7.6%. Additionally, the provision for loan losses amounted to $5.7 million for the quarter, while non-interest expense grew by 5.3%.

Balance Sheet Review

During the 2^nd quarter of 2006, average loans increased $227.6 million, or 2.5%, compared to the previous quarter, which represented annualized growth of 10.0%. Average loans also increased $752.8 million, or 8.9%, compared to the same period last year. Compared to the 1^st quarter of 2006, average business, construction and business real estate loans grew $151.8 million, $66.6 million and $26.3 million, respectively, as a result of new business, especially in regional markets, and increased borrowings by existing customers. Average student loans decreased $74.4 million, or 20.7%, due mainly to planned sales of student loans in the 2^nd quarter. Average consumer loans increased $44.7 million during the quarter reflecting seasonal demand for marine, recreational vehicle and fixed rate home equity loans.

Available for sale investment securities, excluding fair value adjustments, decreased on average by $126.1 million, or 3.6%, this quarter compared with the previous quarter as the Company continued to reduce its investment securities portfolio, mainly through normal maturities. Average available for sale investment securities also declined by $939.8 million, or 21.6%, from the same quarter last year. During the 2^nd quarter of 2006, sales, maturities and principal pay-downs of securities totaled $264.8 million while the Company purchased approximately $188.2 million of securities, mainly tax-free municipals.

Total average deposits increased by $148.6 million or 1.4% during the 2^nd quarter compared to the previous quarter. This growth was due mainly to increases in personal and business demand accounts ($50.3 million) and retail certificates of deposit with balances under $100,000 ($92.4 million). Average interest checking accounts increased $28.0 million, while money market accounts declined by $22.3 million. Jumbo certificates of deposit declined $29.0 million. The average loans to deposits ratio for the quarter amounted to 84.3%.

Average borrowings declined $68.0 million in the current quarter compared to the prior quarter due to decreases in federal funds purchased and Federal Home Loan Bank advances outstanding. The growth in deposit balances, coupled with the decline in investment securities, provided the liquidity to reduce this debt.

Net Interest Income

Net interest income in the 2^nd quarter of 2006 amounted to $126.5 million, an increase of $2.7 million, or 2.2%, compared with the previous quarter and a decrease of $908 thousand, or .7%, compared to the 2^nd quarter of last year. During the 2^nd quarter of 2006, the net yield on earning assets (tax-equivalent) was 3.98%, compared with 3.97% in the previous quarter and 3.93% in the same period last year.

The increase of $2.7 million in net interest income in the 2^nd quarter of 2006 over the previous quarter was the result of more days in the current quarter and an increase in loan interest income of approximately $11.3 million. The growth in loan interest income was reflective of higher rates and balances on almost all loan categories. Offsetting this increase in net interest income were lower interest income on investment securities of $869 thousand due to lower average balances and higher interest expense on interest bearing deposits of $6.8 million due to higher rates and balances. Also, while interest expense on other borrowings increased $1.0 million due mainly to higher rates, lower average balances helped to temper this overall increase.

During the current quarter, the overall yield on interest earning assets increased 22 basis points to 6.25%, while the overall cost of interest bearing liabilities increased 24 basis points to 2.49%.

Non-Interest Income

For the 2^nd quarter of 2006, total non-interest income amounted to $91.5 million, an increase of 7.6% compared to $85.0 million in the same period last year, and $89.4 million in the previous quarter. Compared with the same period last year, this growth was mainly the result of higher bank card, deposit account and trust fee income, which was partly offset by lower gains on sales of student loans. Deposit account fees increased $1.4 million, or 5.2%, compared with the 2^nd quarter of 2005, mainly due to growth in deposit account overdraft fees, which increased $2.2 million (11.5%) over the same period last year. This growth over last year continued to be the result of higher transaction volumes coupled with pricing changes initiated in the 3^rd quarter of 2005. Offsetting this growth was an 8.1% decline in corporate cash management fees, which continue to be affected by the higher interest rate environment. Bank card fees for the quarter increased 10.6% over the same period last year, mainly due to higher fees earned on debit, and corporate card transactions, which grew by 16.1% and 19.0%, respectively. Trust fees for the quarter increased 5.6% over the same quarter last year mainly as a result of higher fees on personal trust accounts.

During the current quarter, gains on sales of student loans totaled $1.8 million, compared with $3.6 million in the same period last year and $2.7 million in the

COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2006

previous quarter. Other non-interest income increased $2.0 million over the same period last year as a result of increased income on leasing activities, higher sweep fee and check sales income, and net gains on several real estate transactions. The ratio of non-interest income to total revenue, excluding net securities gains, was 41.1% in the 2^nd quarter of 2006 compared to 39.6% in the same period last year.

Net securities gains amounted to $3.3 million for the 2^nd quarter of 2006, compared to $2.4 million in the previous quarter and $1.4 million in the 2^nd quarter of 2005. These gains mostly pertained to realized gains and fair value adjustments on certain private equity investments held by the Company’s venture capital subsidiary. Minority interests related to this income totaled $748 thousand and were reported in other expense. There were no other realized gains or losses on the Company’s investment securities portfolio.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $130.0 million, an increase of $6.5 million, or 5.3%, compared with amounts recorded in the same period last year and was slightly less than amounts recorded in the prior quarter. Compared with the 2^nd quarter of last year, salaries and benefits expense increased $3.7 million, or 5.4%, mainly as a result of normal merit increases, higher incentives, payroll taxes and medical insurance costs. Full-time equivalent employees totaled 4,868 and 4,826 at June 30, 2006 and 2005, respectively.

Occupancy costs grew 7.4% over the same quarter last year, mainly a result of higher depreciation expense offset by increased tenant rent received. Equipment and data processing expenses increased 6.5% and 4.7%, respectively, due to higher depreciation and amortization charges, while lower telephone and network costs resulted in a reduction in overall supplies and communication costs of 4.7%. The increase in other expense over the same quarter last year resulted from higher costs for minority interests, operating lease depreciation and foreclosed property costs.

Income Taxes

During the 2^nd quarter of 2006, income tax expense amounted to $27.4 million, an increase of $1.5 million over the previous quarter and $2.1 million less than the same quarter last year. The effective tax rate for the Company was 33.1% for the current quarter, compared with a rate of 32.8% in the previous quarter and 35.2% in the 2^nd quarter of 2005. The decrease in the effective tax rate in the current quarter compared to the 2^nd quarter of 2005 was mainly due to lower state income taxes.

Credit Quality

Net loan charge-offs for the 2^nd quarter of 2006 amounted to $5.7 million, compared with $4.4 million in the prior quarter and $7.0 million in the 2^nd quarter of last year. The increase in net charge-offs in the 2^nd quarter of 2006 compared to the previous quarter was the result of slightly higher credit card charge-offs and a large lease loan recovery in the first quarter of 2006 that did not re-occur. Personal banking loan net charge-offs remained at low levels during the 2^nd quarter. Year-to-date, the ratio of net loan charge-offs to total average loans was .22% compared to .26% last year.

For the 2^nd quarter of 2006, annualized net charge-offs on average credit card loans were 3.01%, compared with 3.93% in the same quarter last year and 2.63% in the 1^st quarter of 2006. Additionally, personal banking loan net charge-offs for the quarter amounted to .09% of average personal loans compared to .29% in the same period last year. The provision for loan losses for the quarter totaled $5.7 million, and was $1.2 million higher than the 1^st quarter 2006 provision and slightly higher than the 2^nd quarter 2005 provision. The allowance for loan losses at June 30, 2006 amounted to $128.4 million, or 1.37% of total loans.

Total non-performing assets amounted to $15.9 million, an increase of $5.3 million over the previous quarter and .17% of loans outstanding. Non-performing assets are comprised of non-accrual loans ($14.2 million) and foreclosed real estate ($1.8 million). Loans past due more than 90 days and still accruing interest totaled $15.2 million at June 30, 2006.

Other

The Company maintains a treasury stock buyback program and effective October 2005, was authorized by the Board of Directors to repurchase up to 5 million shares of its common stock. During the quarter ended June 30, 2006, the Company purchased 486 thousand shares of treasury stock at an average cost of $50.70 per share. During the current quarter the Company announced plans to purchase the banking businesses of Boone National Savings and Loan Association, Columbia, Missouri. Through this transaction, the Company will acquire four branch locations in the Columbia market with total loans and deposits of approximately $132 million and $108 million, respectively. The Company also announced plans to acquire West Pointe Bancorp. Inc., Belleville, Illinois, a one-bank holding company with five branch locations with loans of $256 million and deposits of $402 million. It is expected that both transactions will be completed in the 3^rd quarter of 2006.

Forward Looking Information

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

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
FINANCIAL HIGHLIGHTS


	For the Three Months Ended									For the Six Months Ended
	March 31			June 30			June 30			June 30			June 30
(Unaudited)	2006			2006			2005			2006			2005
FINANCIAL SUMMARY (In thousands, except per share data)
Net interest income	$	123,735		$	126,479		$	127,387		$	250,214		$	248,864
Taxable equivalent net interest income		125,088			128,009			128,044			253,097			250,038
Non-interest income		89,448			91,463			84,980			180,911			165,671
Provision for loan losses		4,432			5,672			5,503			10,104			7,871
Non-interest expense		129,961			129,550			123,012			259,511			246,934
Net income		52,944			55,333			54,368			108,277			104,214
Cash dividends		16,379			16,311			15,970			32,690			32,103
Net total loan charge-offs		4,411			5,694			7,035			10,105			10,837
Net business charge-offs (recov)		(1,081	)		259			(48	)		(822	)		(2,669	)
Net credit card charge-offs		3,748			4,387			5,430			8,135			10,027
Net personal banking charge-offs*		1,649			446			1,474			2,095			3,422
Net real estate charge-offs (recov)		(255	)		80			(19	)		(175	)		(225	)
Net overdraft charge-offs		350			522			198			872			282
Per share :
Net income — basic	$	0.79		$	0.83		$	0.78		$	1.62		$	1.48
Net income — diluted	$	0.78		$	0.82		$	0.77		$	1.60		$	1.46
Cash dividends	$	0.245		$	0.245		$	0.229		$	0.490		$	0.457
Diluted wtd. average shares o/s		67,927			67,460			71,036			67,692			71,521

RATIOS
Average loans to deposits		83.32	%		84.27	%		79.35	%		83.80	%		79.40	%
Return on total average assets		1.57	%		1.61	%		1.55	%		1.59	%		1.50	%
Return on total average stockholders’ equity		16.14	%		16.59	%		15.78	%		16.37	%		15.07	%
Non-interest income to revenue**		41.30	%		41.08	%		39.63	%		41.19	%		39.23	%
Efficiency ratio***		61.66	%		60.35	%		58.27	%		61.00	%		60.18	%

AT PERIOD END
Book value per share based on total stockholders’ equity	$	19.74		$	20.08		$	19.83
Market value per share	$	51.67		$	50.05		$	48.01
Allowance for loan losses as a percentage of loans		1.41	%		1.37	%		1.52	%
Tier I leverage ratio		9.43	%		9.47	%		9.37	%
Common shares outstanding		66,776,170			66,314,415			69,410,080
Shareholders of record		4,505			4,430			4,584
Number of bank/ATM locations		344			347			337
Number of bank charters		3			3			3
Full-time equivalent employees		4,863			4,868			4,826


				June 30			June 30
OTHER YTD INFORMATION					2006			2005

High market value per share				$	53.20		$	48.50
Low market value per share				$	49.14		$	43.94


*		Includes consumer, student and home equity loans

**		Revenue includes net interest income and non-interest income, excluding net securities gains/losses.

***		The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of net interest income and non-interest income (excluding net securities gains/losses).

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME


	For the Three Months Ended						For the Six Months Ended
(Unaudited)	March 31		June 30		June 30		June 30		June 30
(In thousands, except per share data)	2006		2006		2005		2006		2005
INTEREST INCOME
Interest and fees on loans	$	149,874	$	161,188	$	125,242	$	311,062	$	243,765
Interest on investment securities		37,130		36,261		46,394		73,391		88,140
Interest on federal funds sold and securities purchased under agreements to resell		1,623		1,801		1,164		3,424		1,748

Total interest income		188,627		199,250		172,800		387,877		333,653


INTEREST EXPENSE
Interest on deposits:
Savings, interest checking and money market		19,607		23,002		12,192		42,609		22,649
Time open and C.D.’s of less than $100,000		16,731		19,448		12,051		36,179		22,443
Time open and C.D.’s of $100,000 and over		13,187		13,906		7,973		27,093		14,325
Interest on other borrowings		15,367		16,415		13,197		31,782		25,372

Total interest expense		64,892		72,771		45,413		137,663		84,789

Net interest income		123,735		126,479		127,387		250,214		248,864
Provision for loan losses		4,432		5,672		5,503		10,104		7,871

Net interest income after provision for loan losses		119,303		120,807		121,884		240,110		240,993


NON-INTEREST INCOME
Deposit account charges and other fees		27,497		28,910		27,476		56,407		51,777
Bank card transaction fees		21,708		23,558		21,295		45,266		40,802
Trust fees		17,819		17,992		17,040		35,811		33,434
Trading account profits and commissions		2,565		2,010		2,450		4,575		5,064
Consumer brokerage services		2,389		2,771		2,338		5,160		5,163
Loan fees and sales		3,743		2,745		4,805		6,488		8,245
Investment securities gains, net		2,403		3,284		1,372		5,687		4,984
Other		11,324		10,193		8,204		21,517		16,202

Total non-interest income		89,448		91,463		84,980		180,911		165,671


NON-INTEREST EXPENSE
Salaries and employee benefits		71,725		71,239		67,585		142,964		137,765
Net occupancy		10,977		10,230		9,527		21,207		19,305
Equipment		5,949		6,071		5,701		12,020		11,392
Supplies and communication		8,393		7,872		8,257		16,265		16,470
Data processing and software		12,393		12,631		12,069		25,024		23,524
Marketing		4,318		4,657		4,687		8,975		8,549
Other		16,206		16,850		15,186		33,056		29,929

Total non-interest expense		129,961		129,550		123,012		259,511		246,934

Income before income taxes		78,790		82,720		83,852		161,510		159,730
Less income taxes		25,846		27,387		29,484		53,233		55,516

NET INCOME	$	52,944	$	55,333	$	54,368	$	108,277	$	104,214


Net income per share — basic	$	0.79	$	0.83	$	0.78	$	1.62	$	1.48

Net income per share — diluted	$	0.78	$	0.82	$	0.77	$	1.60	$	1.46

Cash dividends per common share	$	0.245	$	0.245	$	0.229	$	0.490	$	0.457

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


(Unaudited)	March 31			June 30			June 30
(In thousands)	2006			2006			2005
ASSETS
Loans, net of unearned income	$	9,138,239		$	9,379,893		$	8,499,301
Allowance for loan losses		(128,468	)		(128,446	)		(129,428	)

Net loans		9,009,771			9,251,447			8,369,873

Investment securities:
Available for sale		3,401,823			3,337,477			4,358,178
Trading		25,559			17,001			12,359
Non-marketable		84,353			81,401			73,674

Total investment securities		3,511,735			3,435,879			4,444,211

Federal funds sold and securities purchased under agreements to resell		89,385			237,072			128,204
Cash and due from banks		484,456			662,790			544,922
Land, buildings and equipment — net		368,209			367,954			372,291
Goodwill		48,522			48,522			48,522
Other assets		219,044			269,733			210,170

Total assets	$	13,731,122		$	14,273,397		$	14,118,193


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing demand	$	1,418,387		$	1,326,787		$	1,351,186
Savings, interest checking and money market		6,449,831			6,439,068			6,547,940
Time open and C.D.’s of less than $100,000		1,925,755			2,028,700			1,744,629
Time open and C.D.’s of $100,000 and over		1,360,383			1,247,790			1,022,361

Total deposits		11,154,356			11,042,345			10,666,116
Federal funds purchased and securities sold under agreements to repurchase		901,923			1,586,511			1,594,735
Other borrowings		258,616			144,919			371,781
Other liabilities		97,982			168,227			109,392

Total liabilities		12,412,877			12,942,002			12,742,024

Stockholders’ equity:
Preferred stock		—			—			—
Common stock		347,049			347,049			347,049
Capital surplus		384,535			385,358			384,166
Retained earnings		729,586			768,608			775,404
Treasury stock		(128,662	)		(152,189	)		(155,749	)
Accumulated other comprehensive income (loss)		(14,263	)		(17,431	)		25,299

Total stockholders’ equity		1,318,245			1,331,395			1,376,169

Total liabilities and stockholders’ equity	$	13,731,122		$	14,273,397		$	14,118,193

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCES


	For the Three Months Ended									For the Six Months Ended
(Unaudited)	March 31			June 30			June 30			June 30			June 30
(Dollars in thousands)	2006			2006			2005			2006			2005
Loans:
Business	$	2,542,482		$	2,694,246		$	2,305,000		$	2,618,783		$	2,275,806
Real estate — construction		441,489			508,127			478,675			474,992			460,673
Real estate — business		1,971,197			1,997,502			1,765,896			1,984,422			1,762,040
Real estate — personal		1,358,445			1,373,444			1,344,203			1,365,986			1,339,639
Consumer		1,288,378			1,333,105			1,225,386			1,310,865			1,209,314
Home equity		447,188			446,094			422,637			446,638			417,525
Student		359,961			285,540			374,176			322,545			391,999
Credit card		577,537			584,508			553,965			581,042			550,475
Overdrafts		20,114			11,836			11,651			15,952			13,961

Total loans		9,006,791			9,234,402			8,481,589			9,121,225			8,421,432

Investment securities (excluding unrealized gains and losses):
Available for sale		3,531,600			3,405,527			4,345,329			3,468,215			4,424,384
Trading		19,012			21,144			7,864			20,084			9,607
Non-marketable		84,007			86,658			75,968			85,340			76,408

Total investment securities		3,634,619			3,513,329			4,429,161			3,573,639			4,510,399

Federal funds sold and securities purchased under agreements to resell		141,750			142,651			145,135			142,203			115,227

Total interest earning assets		12,783,160			12,890,382			13,055,885			12,837,067			13,047,058

Total assets		13,706,253			13,800,313			14,024,246			13,753,543			14,047,188


Deposits:
Non-interest bearing deposits		597,492			663,820			633,473			630,839			702,786
Interest bearing deposits:
Savings		383,869			396,959			417,059			390,450			410,488
Interest checking		165,531			193,506			175,820			179,596			218,900
Money market		6,494,964			6,472,684			6,644,696			6,483,762			6,542,796
Time open & C.D.’s of less than $100,000		1,881,277			1,973,722			1,732,288			1,927,755			1,698,742
Time open & C.D.’s of $100,000 and over		1,286,151			1,257,161			1,085,769			1,271,576			1,032,685

Total interest bearing deposits		10,211,792			10,294,032			10,055,632			10,253,139			9,903,611

Total deposits		10,809,284			10,957,852			10,689,105			10,883,978			10,606,397

Borrowings:
Federal funds purchased and securities sold under agreements to repurchase		1,226,822			1,213,925			1,481,135			1,220,338			1,567,611
Oher borrowings		260,580			205,472			380,043			232,874			384,383

Total borrowings		1,487,402			1,419,397			1,861,178			1,453,212			1,951,994


Total interest bearing liabilities		11,699,194			11,713,429			11,916,810			11,706,351			11,855,605
Total stockholders’ equity		1,330,334			1,337,423			1,381,560			1,333,898			1,394,913

Net yield on interest earning assets (tax-equivalent basis)		3.97	%		3.98	%		3.93	%		3.98	%		3.86	%

-----END PRIVACY-ENHANCED MESSAGE-----


Missouri	0-2989	43-0889454

(State of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)


1000 Walnut,
Kansas City, MO		64106

(Address of principal executive offices)		(Zip Code)


Item 2.02 Results of Operations and Financial Condition
SIGNATURE
INDEX TO EXHIBITS
Press Release


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


Exhibit
Number		Description
99.1		Press release dated July 12, 2006

Table of Contents

Table of Contents

Table of Contents