According to the rating agency, Commerce Bancshares' modest exposure to construction and land loans has helped the company perform better than its peers. Its direct retail and commercial-banking franchise are also expected to post steady and predictable earnings while its credit costs remain somewhat manageable. Also, the outlook modification suggests that a downgrade is less probable if the nation's economy deteriorates any further.

Commerce Bancshares' third quarter 2010 earnings came in at 67 cents per share, a cent less than the Zacks Consensus Estimate but ahead of the year-ago quarter's earnings of 63 cents. Credit quality continued to improve and the company reported a drop in loan loss provisions.

Going forward, we expect the company to continue to experience an improvement in credit quality. However, its top line is expected to remain restricted, given weaker loan demands in a challenging economic condition.

Commerce Bancshares currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold' rating indicating no directional pressure on the shares over the near term.