Commerce Bancshares, Inc. · NASDAQ:CBSH
Commerce Bancshares — 2011 NY Investor Conference
35 slides from Commerce Bancshares's conference presentation, February 2011
Slide 1: Investor Overview
INVESTOR OVERVIEW February 2011 Charles Kim Executive Vice President and Chief Financial Officer Jeffery Aberdeen Controller Nicole Rose Manager Mergers and Acquisitions
Slide 2: Cautionary Statement
CAUTIONARY STATEMENT A number b off statements t t t we will ill be b making ki i our presentation in t ti and d in the accompanying slides are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements of the Corporation’s plans, goal
Slide 3: About Commerce Bancshares
ABOUT COMMERCE BANCSHARES S Super-Community C it BBank k – over 145 years iin th the industry i d t – $18 billion billi iin assets t Lower Midwest Footprint – over 370 banking locations and 4,979 employees • 71% of 2010 ppre-tax p y markets profits from five key • Denver and Tulsa markets added in 2
Slide 4: About Our Markets
ABOUT OUR MARKETS Kansas City St. Louis Denver Tulsa Outstate1 2010 Population (000’s) 2,031 2,835 2,582 930 1,759 5-Year Projected 4.0% 1.7% 7.2% 3.5% 3.9% Growth CBI Market M k 23.8% 19.3% 0.4% 0.5% 15.5% Penetration2 Median Household $57 $54 $62 $47 N/A Income (000’s) Unemployment rate3 9.1% 9.5%
Slide 5: Super-Community Bank Platform
SUPER-COMMUNITY BANK PLATFORM A More Nimble Format … With Higher Service Focus Community Bank Front End Super-Regional Back End • Flat organization – quick decisions • Sophisticated payment processing systems • Employees embrace strong culture • Broad consumer product offerings • Award winning custo
Slide 6: Superior Employee Engagement
SUPERIOR EMPLOYEE ENGAGEMENT Commerce Bank 2010 Engagement Scores compared to benchmarks Engagement Index 2010 Commerce Bank 94% U.S. High Performance Companies 90% U.S. Financial Services Companies 88% 2009 Global Workforce Study (Banks) 64% • Commerce Bank’s scores compare very favorably to the U.
Slide 7: Industry Recognition and Customer Satisfaction
INDUSTRY RECOGNITION AND CUSTOMER SATISFACTION America’s Best Banks by Forbes Magazine 2010 J.D. Power Retail Banking Results Commerce ranked in the top ten on Commerce Bank Ranked the list of America s Best Banks by America's Highest Customer Satisfaction Forbes Magazine with Retail Banking in the
Slide 8: Diverse Revenue Sources
DIVERSE REVENUE SOURCES • Balanced mix of interest and non-interest income • Meaningful contribution from wealth management and card businesses Commerce Bank Peer Banks Banks* 14% 4% 7% 10% 61% 8% 68% 6% 10% 9% 3% 1% Net interest income Service charges Wealth management Fees & commission Other Card
Slide 9: Improved Earnings Result from Lower Provision and Good Expense Control
IMPROVED EARNINGS RESULT FROM LOWER PROVISION AND GOOD EXPENSE CONTROL 09 vs. 10 ($ in millions) 2008 2009 2010 % change Net Interest Income $593 $636 $646 2% Non-Interest Income 376 396 405 2% Total Revenue $968 $1,032 $1,051 2% Securities Gains/(Losses) 30 (7) (2) (75%) Non-Interest Expense (615)
Slide 10: Growth in Card and Commerce Trust Company Drive Top Line Growth
GROWTH IN CARD AND COMMERCE TRUST COMPANY DRIVE TOP LINE GROWTH 09 vs. 10 ($ in millions) 2008 2009 2010 % change Interest Income $850 $790 $729 ( ) (8%) Interest Expense $257 $154 $83 (46%) Net Interest Income $593 $636 $646 2% Contribution from … Deposit fees 110 106 93 (12%) Cards 114 122 149 22%
Slide 11: Continued Focus on Expense Management
CONTINUED FOCUS ON EXPENSE MANAGEMENT 09 vs. 10 ($ in millions) 2008 2009 2010 % change Salaries & Benefits $334 $ $346 $ $347 $ 0% Occupancy 46 46 47 2% Equipment 25 26 23 (9%) Supplies & Communications 35 32 27 (16%) Data Processing 56 62 68 10% Other 93 85 93 8% Subtotal: Controllable Expense $58
Slide 12: Investment Portfolio: High Quality, Diverse, Short Duration
INVESTMENT PORTFOLIO: HIGH QUALITY, DIVERSE, SHORT DURATION Asset Backed ARCs 33.4% 2.3% Treasury 6.1% 12/31/2009 PORTFOLIO Agency 2.8% 12/31/2010 PORTFOLIO Unrealized Gain $72 million Investment Grade 96.9% $7.4 billion Total investments Unrealized gain $130 million Corporate 2.4% 12 mo maturities
Slide 13: Slight Increase in C&I Loans While Utilization Rates Remain Low
SLIGHT INCREASE IN C&I LOANS WHILE UTILIZATION RATES REMAIN LOW Loan Trends $ in thousands siness Loan Balances 4,000,000 60.00% 3,500,000 50.00% zation Rate 40.00% 3,000,000 30.00% 2,500,000 ,500,000 Utiliz uarterly Bus 20.00% 2,000,000 10.00% 1 500 000 1,500,000 0 00% 0.00% Qu 1Q08 2Q08 3Q08 4Q08
Slide 14: Earnings Performance Significantly Above Peers and Large Banks
EARNINGS PERFORMANCE SIGNIFICANTLY ABOVE PEERS AND LARGE BANKS Financial Returns CBSH CBSH 2010 2010 Return on Assets ROA Return on Equity ROE 11.15% 1.19% 1.22% 1.20% 1.15% 11.81% 12.00% 10.98% 1.10% 11.00% 1.00% 0.96% 9.76% 10.00% 0.65% 0.86% 8.57% 8 57% 0.90% 9.00% 7.17% 0.80% 8.00% 0.69% 6.95% 6
Slide 15: Strong and Quality Capital Position
STRONG AND QUALITY CAPITAL POSITION 18.0% 17.7% djusted Assets Ratio 1.6% 16.0% 14.3% 14 3% 14.3% 0.4% 13 8% 13.8% 3.8% 14.0% 0.4% 14.0% 13.2% 13.4% 1.3% 12.8% 12.3% 1.1% 2.3% 12.1% 0.8% 12.0% 11.5% 1.1% 2.9% 0.9% 1.4% 10.8% 10.3% 10.0% 0.2% 10.0% 0.8% 3.1% 3.0% 0.9% 3.5% Capital / Risk Ad 3 1% 3.1%
Slide 16: Diversified Loan Portfolio
DIVERSIFIED LOAN PORTFOLIO Less Real Estate concentration; higher Card/Consumer exposure $ in Millions Commerce Bank Peer Banks $11,283 $11,027 $10,057 Business 31% 28% 29% 30% Construction/Business RE 26% 26% 26% 42% Residential RE 14% 14% 15% Consumer/HELOCs 19% 21% 20% 16% Credit Card 0% 7% 7% 7%
Slide 17: Reserves Remain Strong; While NPAs Continue Downward Trend
RESERVES REMAIN STRONG; WHILE NPAs CONTINUE DOWNWARD TREND Reser e co Reserve coverage erage among ind industry's str 's best $240 1.4% $200 1 2% 1.2% s to Loans $ in Millions 1.0% $160 0.8% $120 0.6% NPA's $80 0.4% $40 0.2% $0 0.0% '05 '06 '07 '08 09 1Q10 2Q10 3Q10 4Q10 $ Allow for Loan Loss $ Non-
Slide 18: Charge-Offs Consistently Better Than Industry
CHARGE-OFFS CONSISTENTLY BETTER THAN INDUSTRY Net Charge-Off Charge Off Rates for CBI vs. Other Banks CBI Largest 100 Business C&I Net C/Os Commercial R/E Net C/Os 3.42% 3.50% 3.50% 3.00% 3.00% 2.78% 2.72% 2.80% 2.65% 2.59% 2.51% 2.50% 2.50% 1.97% 1.78% 2.00% 1.65% 2.00% 1.70% 1.58% 1.50% 1.50% 1.00
Slide 19: Our Areas of Focus Reflect the Challenges and Opportunities We See
OUR AREAS OF FOCUS REFLECT THE CHALLENGES AND OPPORTUNITIES THAT WE SEE IN THE MARKETPLACE Description • Add high quality loans across lending categories, at Grow quality loans appropriate spreads Build new customer relationships Build relationship • Acquire A i and d retain i ddeposits i that h are
Slide 20: Retail - 2011 Plan Highlights
RETAIL - 2011 PLAN HIGHLIGHTS CORE RETAIL STRATEGIES Create new Refine Drive for Accelerate Align Manage revenue marketing improved Channel spending with Critical Issues streams from strategy and productivity productivity, Innovation new revenue for Customer / product lines customer empowerment para
Slide 21: Leverage Online Channel: Over 60% of Retail Customers Use Online Banking
LEVERAGE ONLINE CHANNEL: OVER 60% OF RETAIL CUSTOMERS ACTIVELY USE ONLINE BANKING We expect to drive revenue with various approaches: • Open and fund Deposit Open accounts accounts • Apply for loans • Apply for credit cards Example: Online check shopping Sell add-on • Shop for new and re-order servi
Slide 22: Retail - Align Spending with Current Revenue Model
RETAIL - ALIGN SPENDING WITH CURRENT REVENUE MODEL Core Retail 2010 Expenses = $235 million Goal: G l Reduce R d costs t while hil maintaining sales/service/risk $64 million management expectations $67 million • Formal F l projects j t underway d tto re- engineer operating models • Examples: – Staff
Slide 23: Commercial - Opportunities for Loan Growth
COMMERCIAL - OPPORTUNITIES FOR LOAN GROWTH • Working capital utilization tili ation % 2007-2010 Loan Growth Trend • Industry opportunities Healthcare 25% Agribusiness 21% Beverage Distribution 20% 16% • New markets 15% Denver Tulsa 10% 9% Cincinnati Nashville 5% • Refinancing CMBS tran
Slide 24: Commercial - Opportunities for Loan Growth
COMMERCIAL – OPPORTUNITIES FOR LOAN GROWTH 23
Slide 25: Commercial - Deposits & the Payment System
COMMERCIAL - DEPOSITS & THE PAYMENT SYSTEM Deposit Growth Trend • Focus on payments processing $3 500 $3,500 Wholesale lockbox processing 3,000 +32% Remote deposit volume up 13% 2,500 Enhancing online banking platform 2,000 • Transition from paper to electronic 1,500 Procurement card 1,000
Slide 26: Commerce Trust Company - Overview
COMMERCE TRUST COMPANY – OVERVIEW As one of the largest trust companies in the US, The Commerce Trust Company excels at providing objective financial advice, exceptional personal service and comprehensive wealth management solutions. • $25 billion in assets under administration • Ranked #27 based on
Slide 27: Commerce Trust Company - 2011 Initiatives
COMMERCE TRUST COMPANY – 2011 INITIATIVES Target Markets for Enhanced Institutional Trust Services • Retirement Plan Services/401(k) • Fixed Income Management – $5 - $50 million in assets – Hospitals, insurance, colleges and – Complex plan designs universities – Poor advisor support – $10 million an
Slide 28: Card Products - A Leader in the Payments Industry
CARD PRODUCTS – A LEADER IN THE PAYMENTS INDUSTRY Among US Banks, Nilson Ranks Commerce Bank: Debit / Prepaid #33 Debit Card Issuer Card #25 Consumer Card Issuer Consumer Card Merchant #13 Bank Acquirer* Services #9 Purchasing Card Issuer Commercial Card * Excludes non-bank acquirers 27
Slide 29: Consumer Card - Back to Basics; Increasing Spend
CONSUMER CARD – BACK TO BASICS; INCREASING SPEND 2011 PRIORITIES Incremental Product Innovation Grow Quality Loans Transaction Volume KEY INITIATIVES Incremental • Leverage analytics to stimulate Reward Program usage & activation Transaction • Select co-brand and affinity opportunities V l Volume •
Slide 30: Commercial Card & Merchant Processing: Continued Investment
STRONG RESULTS IN COMMERCIAL CARD & OPPORTUNITIES IN MERCHANT PROCESSING WARRANT CONTINUED INVESTMENT 2011 PLAN HIGHLIGHTS Commercial • 40 sales reps covering territories across 48 states C d Card • CCX Volume grew to over $1 $1.66 billion with a 148% growth rate and now comprises ½ of entire portfo
Slide 31: Product Opportunities in the Payments System
PRODUCT OPPORTUNITIES IN THE PAYMENTS SYSTEM Payment • Reduces costs • Combines payment processes for all suppliers • Provides automated expense allocation • Enhances supplier relationships with standard data processes and on-time Commerce Bank Advantages payments • Expands payment product Processin
Slide 32: M&A Posture
M&A POSTURE • We are strategic buyers • Focus on opportunities to round out our existing core footprint • Augment expansion markets if strategic fits become available • FDIC deals increasingly less attractive • Healthy bank sales may present opportunities in future • Targeted loan purchases; managem
Slide 33: Recap of Themes
RECAP OF THEMES… • 2011: Credit picture much improved, but still a challenging h ll i revenue environment i t ffor b banks k • Commerce well positioned; emphasis on revenue and operating models • Areas of focus: – Creating new customer relationships – Building on our strengths People, operations,
Slide 34: Earnings Recover in 2010, Though Revenues May Be Challenged
EARNINGS RECOVER IN 2010, THOUGH REVENUES MAY BE CHALLENGED $13.00 Revenue Per Share Earnings Per Share $3.00 $12 00 $12.00 $2.60 arnings Perr Share Revenue Perr Share $11.00 $10 00 $10.00 $2.20 $ $9.00 $1.80 Ea $8 00 $8.00 $1.40 $7.00 $6 00 $6.00 $1 00 $1.00 2001 2002 2003 2004 2005 2006 2007 2008
Slide 35: Continuing Commitment to Shareholder Return
CONTINUING COMMITMENT TO SHAREHOLDER RETURN Total T t l shareholder h h ld returns* t * Indexed, 12/31/1999 = 100 200 COMMERCE 180 BANK 160 140 S&P 500 120 INDEX 100 NASDAQ 80 BANKS 60 40 2000 2002 2004 2006 2008 2010 Annualized returns* Percent 3 yr 5 yr 10 yr CBSH 3.3% 1.7% 6.4% S&P 500 (2.9%) 2.3