2010 Commerce AR WebView PDF

162 Pages·2011·3.11 MB·English

by  Falk Harrison

2010 ANNUAL REPORT AND FORM 10-K
STRENGTH | PARTNERSHIP | GROWTH
PERFORMANCE HIGHLIGHTS
Commerce Bancshares, Inc. operates as a super- financial products to consumer and commercial
community bank offering an array of sophisticated customers, including: lending, payment processing,
financial products delivered with high-quality, personal trust, brokerage and capital markets services. Serving
customer service. The company’s customer promise its customers from 367 locations in Missouri, Kansas,
– ask listen solve – is not just its brand but also its Illinois, Oklahoma and Colorado and commercial
corporate focus. With this platform, Commerce is offices throughout the nation’s midsection, Commerce
continually building its long-term franchise while uses a variety of delivery platforms including an
paying strict attention to asset quality and expense expansive ATM network, full-featured online banking
management. Commerce provides a full range of and a central contact center.
SEVEN KEY MARKETS
1. Kansas City
2. St. Louis
3. Peoria/Bloomington
4. Springfield
5. Wichita
6. Tulsa
Branch Footprint
7. Denver Extended Market Area
COMMERCE BANCSHARES AT A GLANCE
• $18.5 billion in assets • 91% of the company’s profitability comes from
• Super-community bank seven key markets including Kansas City; St. Louis;
• 367 locations Peoria/Bloomington, Illinois; Springfield, Missouri;
Wichita, Kansas; Tulsa, Oklahoma; and Denver,
• 4,979 full-time equivalent (FTE) employees
Colorado.
MARKET STABILITY
Commerce is a company that values employees, In December 2010, Commerce paid its 17th consecutive
customers and shareholders, and it strives to produce 5% stock dividend. In January 2011, the Board of
consistent, solid returns. During the last 10 years, the Directors approved a 2.7% increase in the cash dividend
average annual shareholder return on the company’s rate per share over the fourth quarter, as adjusted for
stock has been 6.4%, compared to the S&P 500’s the 5% stock dividend, making it the 43rd consecutive
performance of 1.4%. year of cash dividend increases.
ABOUT THE COVER
The Donald Danforth Plant Science Center in operating officer, left, on cover. Where does the
St. Louis is on a mission. By discovering ways to add world’s largest independent plant research institute
vitamins and protein to nutritionally devoid plants, bank? “Commerce has been our banking partner since
it aspires to end malnutrition in developing countries. our founding,” says Hal Davies, chief financial officer
That’s just one of many ways its 200 scientists are and vice president of finance, center, with Michael
working to improve the human condition through Logar of Commerce Bank. “We rely on them for just
plant science, says Sam Fiorello, the center’s chief about everything.”
TABLE OF CONTENTS
Financial Highlights 1 Message to Our Shareholders 2 Strength | Partnership | Growth 10
Success Stories 11 Community Advisors 19 Officers and Directors 24
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(In thousands, except per share data) 2006 2007 2008 2009 2010
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Net interest income $ 513,199 $ 538,072 $ 592,739 $ 635,502 $ 645,932
Provision for loan losses 25,649 42,732 108,900 160,697 100,000
Non-interest income 352,586 371,581 375,712 396,259 405,111
Investment securities gains (losses), net 9,035 8,234 30,294 (7,195) (1,785)
Non-interest expense 522,391 574,159 615,380 621,737 631,134
Net income 219,842 206,660 188,655 169,075 221,710
Cash dividends 65,758 68,915 72,055 74,720 78,231
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Total assets $ 15,230,349 $ 16,204,831 $ 1 7,532,447 $ 18,120,189 $ 18,502,339
Loans, including held for sale 9,960,118 10,841,264 1 1,644,544 1 0,490,327 9,474,733
Investment securities 3,496,323 3,297,015 3,780,116 6,473,388 7,409,534
Deposits 11,744,854 12,551,552 12,894,733 1 4,210,451 15,085,021
Equity 1,446,536 1,530,156 1,579,467 1,885,905 2,023,464
Non-performing assets 18,223 33,417 79,077 116,670 97,320
Common shares outstanding* 85,028 83,113 83,560 87,159 86,624
Tier I capital ratio 11.25% 10.31% 10.92% 13.04% 14.38%
Total capital ratio 12.56 11.49 12.31 14.39 15.75
Leverage ratio 9.05 8.76 9.06 9.58 10.17
Tangible equity to assets ratio 8.77 8.61 8.25 9.71 10.27
Efficiency ratio 60.20 62.65 63.08 59.88 59.71
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Return on total assets 1.54% 1.33% 1.15% .96% 1.22%
Return on equity 15.92 13.97 11.81 9.76 11.15
Loans to deposits 84.73 88.49 92.11 79.79 70.02
Equity to assets 9.70 9.55 9.71 9.83 10.91
Net yield on interest earning assets (T/E) 3.95 3.85 3.96 3.93 3.89
Wtd. average common shares outstanding – diluted* 86,361 84,626 83,819 85,551 87,382
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Net income – basic* $ 2.57 $ 2.46 $ 2.26 $ 1.98 $ 2.54
Net income – diluted* 2.54 2.44 2.24 1.97 2.52
Market price* 39.83 38.75 39.86 36.88 39.73
Book value* 17.01 18.41 18.90 21.64 23.36
Cash dividends* .768 .823 .864 .871 .895
Cash dividend payout ratio 30.19% 33.76% 38.54% 44.15% 35.52%
*Restated for the 5% stock dividend distributed December 2010.
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$ 60 $3.00 $1.00
$ 50 $2.50
$0.80
Stock Price $$$ 432000 $$$211...050000 Earnings per Share Dividends per Share$$00..6400
$ 10 $0.50 $0.20
$ 0 $0.00 $0.00
01 02 03 04 05 06 07 08 09 10 01 02 03 04 05 06 07 08 09 10
Earnings per Share Stock Price
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To Our Shareholders
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While loan losses moderated from the previous year, to $222 million, making 2010 the second most profitable
continued high unemployment, cautious businesses and year in our history.
a deleveraging economy reduced loan demand. The banking Importantly, we grew our franchise base from our core
industry, meanwhile, continued to recapitalize itself as and newer
financial markets were receptive to capital issuance by expansion (cid:60)(cid:101)(cid:104)(cid:22)(cid:106)(cid:94)(cid:91)(cid:22)(cid:106)(cid:94)(cid:95)(cid:104)(cid:90)(cid:22)(cid:111)(cid:91)(cid:87)(cid:104)(cid:22)(cid:95)(cid:100)(cid:22)(cid:87)(cid:22)(cid:104)(cid:101)(cid:109)(cid:34)(cid:22)(cid:22)
stronger institutions. markets, and
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Despite the many challenges of 2010, Commerce had solid
continued to deliver exceptional value to our customers results in (cid:106)(cid:94)(cid:91)(cid:22)(cid:67)(cid:95)(cid:90)(cid:109)(cid:91)(cid:105)(cid:106)(cid:22)(cid:95)(cid:100)(cid:22)(cid:106)(cid:94)(cid:91)(cid:22)(cid:64)(cid:36)(cid:58)(cid:36)(cid:22)(cid:70)(cid:101)(cid:109)(cid:91)(cid:104)(cid:22)(cid:87)(cid:100)(cid:90)(cid:22)
and our shareholders. For the third year in a row, we our wealth
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ranked first among banks in the Midwest in the J.D. Power management
and Associates 2010 Retail Banking Satisfaction StudySM, and national (cid:73)(cid:87)(cid:106)(cid:95)(cid:105)(cid:92)(cid:87)(cid:89)(cid:106)(cid:95)(cid:101)(cid:100)(cid:22)(cid:73)(cid:106)(cid:107)(cid:90)(cid:111)(cid:73)(cid:67)(cid:36)
achieving the third highest score in the country. We corporate card
continued to add to our strong capital base, with tangible payments businesses. Our wealth management business
equity to assets reaching 10.3%. Earnings increased 31% achieved record revenues of $81 million with strong invest-
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ment performance from both our own proprietary products reaffirming Commerce’s bank financial strength ratings in
and those of outside asset managers. We continue to grow December 2010. Commerce is one of only three banks
our high-net-worth trust and private banking businesses in the country that holds Moody’s highest bank financial
as we see strong demand for these high-service products. strength rating.
Revenue growth from corporate card activities was up • In 2010, your Company paid a dividend of $0.895
50% in 2010, as we added significant new transaction per share, marking the 42nd consecutive year in which
volume, and were the ninth largest purchasing card issuer cash dividends to shareholders increased1.
in the U.S., • During 2010, our provision for loan losses declined
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Nilson Report, $42 million. Non-performing assets also declined $19 million
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June, 2010. and totaled 0.53% of total assets at year end, compared to
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continued to add • Both our national commercial card and asset manage-
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to our customer ment businesses continued their solid growth trends in
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lines of business, 50% to $48 million as a result of national sales efforts
while significantly outperforming the industry in earnings and an uptick in business spending. Our asset management
and return on assets. We attribute these successes, in large business
part, to our super-community banking model, which revenues (cid:57)(cid:101)(cid:99)(cid:99)(cid:91)(cid:104)(cid:89)(cid:91)(cid:22)(cid:95)(cid:105)(cid:22)(cid:101)(cid:100)(cid:91)(cid:22)(cid:101)(cid:92)(cid:22)(cid:101)(cid:100)(cid:98)(cid:111)(cid:22)(cid:22)
allows us to balance small bank customer service and deep grew 5% to
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market knowledge with large bank product offerings and $81 million,
pricing, enabling us to compete effectively against banks with the (cid:94)(cid:101)(cid:98)(cid:90)(cid:105)(cid:22)(cid:67)(cid:101)(cid:101)(cid:90)(cid:111)(cid:202)(cid:105)(cid:22)(cid:94)(cid:95)(cid:93)(cid:94)(cid:91)(cid:105)(cid:106)(cid:22)(cid:88)(cid:87)(cid:100)(cid:97)(cid:22)(cid:22)
of all sizes. Commerce
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Trust Com-
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• Earnings per share for 2010 grew 28% to $2.52, • Your Company received a number of significant
reflecting lower loan losses, strong bankcard revenues and industry awards for performance and customer excellence
prudent expense control. in 2010. In addition to our J.D. Power and Associates
• Net income totaled $222 million in 2010, representing ranking, Commerce, for the second year in a row, was
a return on average assets of 1.22%, compared to an average ranked among the top ten on Forbes’ list of America’s Best
of 0.70% for the top 50 U.S. banks. Our 2010 net income Banks, reported in December 2010. We also received
was the second highest in our history. the Greenwich Excellence Award, recognizing
• The ratio of tangible equity to assets increased to Commerce as one of the best regional banks in the
10.3% in 2010. That compares to an average ratio of 7.4% U.S. for overall customer satisfaction in middle market
for the top 50 U.S. banks. The Company’s total shareholder commercial banking, treasury management and small
equity now totals more than $2 billion, having grown $493 business banking.
million, or 32%, since 2007, when the current period of • Commerce continued to focus on expense manage-
market turbulence began. ment and invest in productivity-enhancing technologies
• Moody’s Investors Service and Standard & Poor’s in 2010. Excluding several non-recurring items totaling
continue to rate your Company very highly, with Moody’s 12009’s dividend of $0.914 was restated as $0.871 after a 5% stock dividend in December, 2010.
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$7 million, total non-interest expense in 2010 was Many of the Dodd-Frank Act’s provisions, including
essentially unchanged from the previous year. those governing capital standards, proprietary trading,
securitization rules and deposit insurance, are not

(cid:69)(cid:71)(cid:58)(cid:69)(cid:54)(cid:71)(cid:62)(cid:67)(cid:60)(cid:21)(cid:59)(cid:68)(cid:71)(cid:21)(cid:71)(cid:58)(cid:60)(cid:74)(cid:65)(cid:54)(cid:73)(cid:68)(cid:71)(cid:78)(cid:21)(cid:56)(cid:61)(cid:54)(cid:67)(cid:60)(cid:58)(cid:72) expected to have a material effect on Commerce.
Many new regulations related to credit cards, overdraft Other rules which will be effective later in 2011, will
practices, student loans and other bank products and be more significant.
services took effect in 2010. Congress also passed the The Act’s sheer size, complexity and scope will
Dodd-Frank Act, 2,319 pages of new laws that will likely drive many complicated changes throughout the
significantly impact the banking industry for years to come. banking industry. Some rules, like those that mandate lower
Commerce has always been an advocate for stronger prices on debit interchange revenues, will significantly
capital requirements, improved lending transparency and affect current
risk-based FDIC deposit insurance, and we welcome the revenue and (cid:74)(cid:94)(cid:91)(cid:22)(cid:58)(cid:101)(cid:90)(cid:90)(cid:35)(cid:60)(cid:104)(cid:87)(cid:100)(cid:97)(cid:22)(cid:55)(cid:89)(cid:106)(cid:202)(cid:105)(cid:22)(cid:105)(cid:94)(cid:91)(cid:91)(cid:104)(cid:22)(cid:105)(cid:95)(cid:112)(cid:91)(cid:34)(cid:22)
Dodd-Frank provisions addressing these areas. Other could lead to
(cid:89)(cid:101)(cid:99)(cid:102)(cid:98)(cid:91)(cid:110)(cid:95)(cid:106)(cid:111)(cid:22)(cid:87)(cid:100)(cid:90)(cid:22)(cid:105)(cid:89)(cid:101)(cid:102)(cid:91)(cid:22)(cid:109)(cid:95)(cid:98)(cid:98)(cid:22)(cid:98)(cid:95)(cid:97)(cid:91)(cid:98)(cid:111)(cid:22)
regulations in Dodd-Frank that set governmental price major price
controls and add new regulatory agencies and burdens, adjustments on (cid:90)(cid:104)(cid:95)(cid:108)(cid:91)(cid:22)(cid:99)(cid:87)(cid:100)(cid:111)(cid:22)(cid:89)(cid:101)(cid:99)(cid:102)(cid:98)(cid:95)(cid:89)(cid:87)(cid:106)(cid:91)(cid:90)(cid:22)(cid:89)(cid:94)(cid:87)(cid:100)(cid:93)(cid:91)(cid:105)(cid:22)
however, will add costs, stifle innovation and ultimately debit cards and
(cid:106)(cid:94)(cid:104)(cid:101)(cid:107)(cid:93)(cid:94)(cid:101)(cid:107)(cid:106)(cid:22)(cid:106)(cid:94)(cid:91)(cid:22)(cid:88)(cid:87)(cid:100)(cid:97)(cid:95)(cid:100)(cid:93)(cid:22)(cid:95)(cid:100)(cid:90)(cid:107)(cid:105)(cid:106)(cid:104)(cid:111)(cid:36)
reduce credit and service to our customers. other checking
We devoted many hours in 2010 to understanding products. We
these new rules and, in many cases, redesigned our products feel it is inappropriate public policy for the government to
to comply with them. For example: set prices on what has been a very important and convenient
• We introduced a new product, myDirect checking, consumer banking product. Many of the Act’s implications
for consumers who prefer electronic banking channels are still unclear, as new governmental agencies will likely
and wish to avoid the costs for checks, paper statements add more rules and costs in the future. Commerce is actively
and other services they don’t use. engaged in tracking these new rules and stands ready to
• We communicated new overdraft regulations to all address the changes this new environment brings.
our customers.
• We updated our consumer credit card products to (cid:62)(cid:67)(cid:75)(cid:58)(cid:72)(cid:73)(cid:62)(cid:67)(cid:60)(cid:21)(cid:59)(cid:68)(cid:71)(cid:21)(cid:73)(cid:61)(cid:58)(cid:21)(cid:59)(cid:74)(cid:73)(cid:74)(cid:71)(cid:58)
provide greater transparency in statement information. The challenges of 2010 reminded us once again why our
• We revised our mortgage loan disclosures to meet highly trained, long-tenured and engaged workforce remains
new regulations and provide greater clarity. our most important corporate asset. As a relationship-
(cid:60)(cid:71)(cid:68)(cid:76)(cid:73)(cid:61)(cid:21)(cid:62)(cid:67)(cid:21)(cid:71)(cid:58)(cid:75)(cid:58)(cid:67)(cid:74)(cid:58)(cid:21)(cid:54)(cid:67)(cid:57)(cid:21)(cid:71)(cid:58)(cid:75)(cid:58)(cid:67)(cid:74)(cid:58)(cid:21)(cid:69)(cid:58)(cid:71)(cid:21)(cid:72)(cid:61)(cid:54)(cid:71)(cid:58) (cid:69)(cid:58)(cid:71)(cid:56)(cid:58)(cid:67)(cid:73)(cid:21)(cid:67)(cid:68)(cid:67)(cid:34)(cid:69)(cid:58)(cid:71)(cid:59)(cid:68)(cid:71)(cid:66)(cid:62)(cid:67)(cid:60)(cid:21)(cid:54)(cid:72)(cid:72)(cid:58)(cid:73)(cid:72)(cid:21)(cid:73)(cid:68)(cid:21)(cid:65)(cid:68)(cid:54)(cid:67)(cid:72)
(cid:54)(cid:67)(cid:57)(cid:21)(cid:65)(cid:68)(cid:54)(cid:67)(cid:21)(cid:65)(cid:68)(cid:72)(cid:72)(cid:21)(cid:71)(cid:58)(cid:72)(cid:58)(cid:71)(cid:75)(cid:58)(cid:21)(cid:73)(cid:68)(cid:21)(cid:65)(cid:68)(cid:54)(cid:67)(cid:72)
$1,250 $15.00 1.20% 3.00%
ns
Total Revenue in Millions $$$$1 ,752050500000 $$$$1 9632....00000000Revenue per Share on-Performing Assets to Loa 10000.....0864200000%%%%% 22110.....5050500000%%%%% Loan Loss Reserve to Loans
N
$ 0 $ 0.00 0.00% 0.00%
01 02 03 04 05 06 07 08 09 10 01 02 03 04 05 06 07 08 09 10
Non-Interest Income Revenue per Share Non-Performing Assets Loan Loss Reserve
Net Interest Income
(cid:57)(cid:69)(cid:67)(cid:67)(cid:59)(cid:72)(cid:57)(cid:59)(cid:22)(cid:56)(cid:55)(cid:68)(cid:57)(cid:73)(cid:62)(cid:55)(cid:72)(cid:59)(cid:73)(cid:34)(cid:22)(cid:63)(cid:68)(cid:57)(cid:36)(cid:22)(cid:40)(cid:38)(cid:39)(cid:38)(cid:22)(cid:55)(cid:68)(cid:68)(cid:75)(cid:55)(cid:66)(cid:22)(cid:72)(cid:59)(cid:70)(cid:69)(cid:72)(cid:74)
(cid:43)
(cid:58)(cid:66)(cid:69)(cid:65)(cid:68)(cid:78)(cid:58)(cid:58)(cid:21)(cid:58)(cid:67)(cid:60)(cid:54)(cid:60)(cid:58)(cid:66)(cid:58)(cid:67)(cid:73)(cid:21)(cid:56)(cid:68)(cid:66)(cid:69)(cid:54)(cid:71)(cid:62)(cid:72)(cid:68)(cid:67) to expand the banking hours at each of our locations,
making Commerce even more convenient to our
2010 94% 4% 2%
customer base. It also reduces our costs for transporting
2009 92% 6% 2%
paper checks between branches and creates other back
2008 89% 8% 3% office efficiencies.
2007 89% 8% 3% We have now converted virtually all check processing
0 20 40 60 80 100 to image technologies, resulting in lower costs in this area.
% Satisfaction
Favorable Neutral Unfavorable We have also invested in new corporate card systems that
Towers Watson Benchmark* expand our already robust product offerings. Our online
2009 Global Workforce Study: 64% Favorable
U.S. Financial Services Companies: 88% Favorable banking and bill pay websites, which were visited nearly
*The 2009 Global Workforce Study and U.S. Financial Services Companies %
favorable scores are averages of nine items that comprise the 2010 Commerce four million times per month in 2010, also benefited from
Engagement survey category.
numerous improvements. We remain focused on investing
driven business, we continue to invest in training and in new technologies so that our products and services
development to cultivate our employees’ knowledge and remain best of class.
relationship-building skills. Communicating consistently to
our employees on all levels has also grown in importance, (cid:68)(cid:75)(cid:58)(cid:71)(cid:75)(cid:62)(cid:58)(cid:76)(cid:21)(cid:68)(cid:59)(cid:21)(cid:68)(cid:69)(cid:58)(cid:71)(cid:54)(cid:73)(cid:62)(cid:68)(cid:67)(cid:72)(cid:21)
given that our core employee base now stretches across Commerce has long operated from a position of
seven major markets, and our corporate payments business strength, built on solid asset quality, judicious expense
is national. management and a strong balance sheet with industry-
These investments appear to be paying off. Our leading capital. In addition, we have built a portfolio of fee
employee engagement scores have risen steadily since we businesses that are not only sources of significant revenue
began measuring it in 2004. In 2010, we reached an overall growth, but also allow us to diversify from net interest
favorable rating of 94%, a new high for us and well above income revenues, which are affected by the national and
the norms for U.S. financial services companies and high local economies.
performance U.S. companies, as measured by Towers Watson. Both our strong balance sheet and diversified revenue
We also continue to invest in new technologies that have proven to be valuable during this period of uncertainty
make advanced new products and services possible, or fueled by bank failures and other industry turmoil. Our
that offer opportunities for greater productivity. During focus this past year on deepening customer relationships
2010, we completed our branch image capture system at and emphasizing our payment systems business resulted in
all 209 of our branch locations. This new system allows us increased market share across all our businesses.
(cid:54)(cid:67)(cid:67)(cid:74)(cid:54)(cid:65)(cid:62)(cid:79)(cid:58)(cid:57)(cid:21)(cid:73)(cid:68)(cid:73)(cid:54)(cid:65)(cid:21)(cid:72)(cid:61)(cid:54)(cid:71)(cid:58)(cid:61)(cid:68)(cid:65)(cid:57)(cid:58)(cid:71)(cid:21)(cid:71)(cid:58)(cid:73)(cid:74)(cid:71)(cid:67) (cid:73)(cid:54)(cid:67)(cid:60)(cid:62)(cid:55)(cid:65)(cid:58)(cid:21)(cid:56)(cid:68)(cid:66)(cid:66)(cid:68)(cid:67)(cid:21)(cid:58)(cid:70)(cid:74)(cid:62)(cid:73)(cid:78)
$ in Millions
-11-05050%%%%% 3.3 -10.3 -2.9 1.7 -8.5 2.3 6.4 0.2 1.4 Tangible Common Equity $$$$211 ,,,505000000000 12963....00000000%%%%gible Common Equity to Assets
n
-15% $ 0 0.00%Ta
3 Year 5 Year 10 Year 01 02 03 04 05 06 07 08 09 10
Commerce Bancshares NASDAQ Bank S&P500 Tangible Common Equity Tangible Common Equity to Assets
(cid:57)(cid:69)(cid:67)(cid:67)(cid:59)(cid:72)(cid:57)(cid:59)(cid:22)(cid:56)(cid:55)(cid:68)(cid:57)(cid:73)(cid:62)(cid:55)(cid:72)(cid:59)(cid:73)(cid:34)(cid:22)(cid:63)(cid:68)(cid:57)(cid:36)(cid:22)(cid:40)(cid:38)(cid:39)(cid:38)(cid:22)(cid:55)(cid:68)(cid:68)(cid:75)(cid:55)(cid:66)(cid:22)(cid:72)(cid:59)(cid:70)(cid:69)(cid:72)(cid:74)
(cid:44)
Commerce’s super-community banking model includes strong presence in the healthcare industry, adding 89
three main core business franchises: payment systems, new hospital clients in 2010.
traditional lending products and wealth management. Our business customers continued to increase
The payment systems business encompasses not only their efficiency by shifting from paper to electronic-
typical consumer and corporate deposit-taking services, based payment methods in 2010. Our corporate cash
but also corporate cash management, consumer and management services, including wholesale lockbox,
corporate card activities, merchant processing, international remote deposit and online banking applications,
processing services and other fee-based businesses. Our experienced growth in key areas. Our remote deposit
loan portfolio, platform, which allows corporate customers to deposit
(cid:69)(cid:107)(cid:104)(cid:22)(cid:98)(cid:101)(cid:87)(cid:100)(cid:22)(cid:102)(cid:101)(cid:104)(cid:106)(cid:92)(cid:101)(cid:98)(cid:95)(cid:101)(cid:34)(cid:22)(cid:109)(cid:94)(cid:95)(cid:89)(cid:94)(cid:22)(cid:22) which has checks directly into the bank from their own offices, saw
historically its volume grow by 14% to more than 5.6 million items
(cid:94)(cid:87)(cid:105)(cid:22)(cid:94)(cid:95)(cid:105)(cid:106)(cid:101)(cid:104)(cid:95)(cid:89)(cid:87)(cid:98)(cid:98)(cid:111)(cid:22)(cid:88)(cid:91)(cid:91)(cid:100)(cid:22)(cid:90)(cid:95)(cid:108)(cid:95)(cid:90)(cid:91)(cid:90)(cid:22)
been divided in 2010. New healthcare business also helped drive
(cid:91)(cid:103)(cid:107)(cid:87)(cid:98)(cid:98)(cid:111)(cid:22)(cid:88)(cid:91)(cid:106)(cid:109)(cid:91)(cid:91)(cid:100)(cid:22)(cid:89)(cid:101)(cid:100)(cid:105)(cid:107)(cid:99)(cid:91)(cid:104)(cid:22)(cid:87)(cid:100)(cid:90)(cid:22) equally growth in our wholesale lockbox business. Double-digit
between commercial card revenue growth in our Denver, Tulsa,
(cid:89)(cid:101)(cid:99)(cid:99)(cid:91)(cid:104)(cid:89)(cid:95)(cid:87)(cid:98)(cid:22)(cid:98)(cid:101)(cid:87)(cid:100)(cid:105)(cid:34)(cid:22)(cid:102)(cid:104)(cid:101)(cid:108)(cid:95)(cid:90)(cid:91)(cid:105)(cid:22)(cid:22)
consumer and Cincinnati and Nashville markets bolstered our 2010
(cid:90)(cid:95)(cid:108)(cid:91)(cid:104)(cid:105)(cid:95)(cid:106)(cid:111)(cid:22)(cid:109)(cid:94)(cid:95)(cid:98)(cid:91)(cid:22)(cid:98)(cid:101)(cid:109)(cid:91)(cid:104)(cid:95)(cid:100)(cid:93)(cid:22)(cid:22) commercial payment systems results as well.
loans, provides In 2010, we upgraded our commercial online banking
(cid:89)(cid:101)(cid:100)(cid:89)(cid:91)(cid:100)(cid:106)(cid:104)(cid:87)(cid:106)(cid:95)(cid:101)(cid:100)(cid:22)(cid:104)(cid:95)(cid:105)(cid:97)(cid:36)
diversity while system to provide customers with new self-service
lowering capabilities and other productivity-enhancing functions.
concentration risk. Our wealth management business We also delivered new functionality to our retail online
includes traditional trust services for personal and corporate banking application, which is now the preferred banking-
customers, as well as private banking services. This business method of half our customers. Customers can now open
is augmented by a retail brokerage business and a capital and fund new checking accounts online using an existing
markets business that sells mainly fixed income investments debit card. We have also used our system’s communication
to corporate and correspondent bank customers. capabilities to convert large numbers of customers to
electronic statements, reducing paper usage.
Payment Systems Average deposit balances in 2010 grew 4% to $14
While undergoing many changes this past year, our billion. In an uncertain economy, businesses kept large
payment systems business remains at the core of our amounts of cash on their books and in our bank. Despite
operating model. It offers significant growth opportunities exceptionally low interest rates, average business deposits
as our customers transition from traditional paper checks
to more cost-effective payment channels.
TEN YEAR CUMULATIVE TOTAL RETURN
Similarly, corporate card fees grew by 50% to $48
in Percent
million, driven primarily by our accounts payable solution. 200
180
With this product, clients earn transaction fees by
160
converting checks to card payments at the time vendors
140
are paid. In fact, our corporate card business, which 120
includes this accounts payable solution, was ranked ninth 100
80
nationally in terms of spending volumes. We continue to
60
develop new products in this area and have a particularly
40
2000 2002 2004 2006 2008 2010
Commerce (CBSH) NASDAQ Bank S&P 500
(cid:57)(cid:69)(cid:67)(cid:67)(cid:59)(cid:72)(cid:57)(cid:59)(cid:22)(cid:56)(cid:55)(cid:68)(cid:57)(cid:73)(cid:62)(cid:55)(cid:72)(cid:59)(cid:73)(cid:34)(cid:22)(cid:63)(cid:68)(cid:57)(cid:36)(cid:22)(cid:40)(cid:38)(cid:39)(cid:38)(cid:22)(cid:55)(cid:68)(cid:68)(cid:75)(cid:55)(cid:66)(cid:22)(cid:72)(cid:59)(cid:70)(cid:69)(cid:72)(cid:74)
(cid:45)
increased to $4.8 billion. Overdraft fees declined by Net loan charge-offs on consumer and credit card
$14 million, due primarily to new debit card overdraft loans declined $12 million and $2 million, respectively,
regulations the Company implemented mid-year. during the year. In the fourth quarter of 2010, credit card
Even with predictions of continued high unemploy- loan losses declined to 5% of total credit card loans, which
ment and slow economic growth, we expect our payment was much lower than other banking companies reported
businesses to grow in 2011. Corporations will continue to in the same period. By helping us identify potential credit
transition away from paper-based transactions to corporate card losses in advance, we believe our technology and
cards or other electronic payment methods. Both our systems contributed to these improved loss results.
corporate card and cash management businesses are well We continue to experience low losses on our
positioned to take advantage of these trends. residential mortgage and home equity loan products, a
While our revenues in the near term could be result of prudent underwriting standards. Overall asset
challenged by the overdraft fee regulations instituted in quality and loan losses improved gradually through the
2010 and new, proposed debit interchange fee regulations, year, producing credit results that remain among the best
we believe our credit, merchant and corporate card in the banking industry.
activities, as well as other cash management services, During 2010, our loan portfolio declined by $1 billion,
will allow us to grow new fees over time. or 10%,
evidence of (cid:69)(cid:108)(cid:91)(cid:104)(cid:87)(cid:98)(cid:98)(cid:22)(cid:87)(cid:105)(cid:105)(cid:91)(cid:106)(cid:22)(cid:103)(cid:107)(cid:87)(cid:98)(cid:95)(cid:106)(cid:111)(cid:22)(cid:87)(cid:100)(cid:90)(cid:22)(cid:98)(cid:101)(cid:87)(cid:100)(cid:22)(cid:22)
Lending and Risk Management weak loan
(cid:98)(cid:101)(cid:105)(cid:105)(cid:91)(cid:105)(cid:22)(cid:95)(cid:99)(cid:102)(cid:104)(cid:101)(cid:108)(cid:91)(cid:90)(cid:22)(cid:93)(cid:104)(cid:87)(cid:90)(cid:107)(cid:87)(cid:98)(cid:98)(cid:111)(cid:22)(cid:106)(cid:94)(cid:104)(cid:101)(cid:107)(cid:93)(cid:94)(cid:22)
Commerce has maintained a diverse loan portfolio for demand
many years. For business customers, our lending products throughout (cid:106)(cid:94)(cid:91)(cid:22)(cid:111)(cid:91)(cid:87)(cid:104)(cid:34)(cid:22)(cid:102)(cid:104)(cid:101)(cid:90)(cid:107)(cid:89)(cid:95)(cid:100)(cid:93)(cid:22)(cid:89)(cid:104)(cid:91)(cid:90)(cid:95)(cid:106)(cid:22)(cid:104)(cid:91)(cid:105)(cid:107)(cid:98)(cid:106)(cid:105)(cid:22)
include working capital loans and lines of credit, business our portfolio.
(cid:106)(cid:94)(cid:87)(cid:106)(cid:22)(cid:104)(cid:91)(cid:99)(cid:87)(cid:95)(cid:100)(cid:22)(cid:87)(cid:99)(cid:101)(cid:100)(cid:93)(cid:22)(cid:106)(cid:94)(cid:91)(cid:22)(cid:88)(cid:91)(cid:105)(cid:106)(cid:22)(cid:95)(cid:100)(cid:22)(cid:22)
real estate loans, and equipment loans and leases. For More than
consumers, we offer traditional first mortgages, home 60% of this (cid:106)(cid:94)(cid:91)(cid:22)(cid:88)(cid:87)(cid:100)(cid:97)(cid:95)(cid:100)(cid:93)(cid:22)(cid:95)(cid:100)(cid:90)(cid:107)(cid:105)(cid:106)(cid:104)(cid:111)(cid:36)
equity loans and auto loans. We also maintain one of the decline,
largest credit card loan portfolios in the country for a however, was attributable to the Company’s exit from the
bank our size. student loan business. New regulations ended private
With demand for new loans weak on all fronts, we banks’ involvement in the federal student loan program,
focused on credit quality and aggressively managing credit and most of the student loans held by the Company were
exposures. By working closely to understand how the sold during the year. As a reflection of the distressed
weakened economy was affecting our commercial customers’ housing industry, construction loans declined $204 million.
businesses and borrowing requirements, we achieved a 55% Demand for business real estate and personal real estate
decline in total commercial loan net charge-offs in 2010, loans also remained low.
compared to 2009. Likewise, we experienced a $19 million We nonetheless attracted a number of new customers
decline in non-performing assets, comprised mostly of to our bank, especially those seeking business and tax-free
construction and business real estate loans. Our non- loans. Loans to agribusiness customers grew strongly in the
performing assets totaled 0.53% of total assets in 2010, second half of the year, aided in part by strong commodity
compared to an average of 1.6% for the top 50 U.S. banks. prices. We saw some customers making greater use of their
The Company’s watch list loans also declined 22%, while seasonal lines of credit, but usage in general remained at
90-day past due commercial loans continued to remain low levels. We hope to help spur growth through a new
at low levels. partnership we established in 2010 with the State of
(cid:57)(cid:69)(cid:67)(cid:67)(cid:59)(cid:72)(cid:57)(cid:59)(cid:22)(cid:56)(cid:55)(cid:68)(cid:57)(cid:73)(cid:62)(cid:55)(cid:72)(cid:59)(cid:73)(cid:34)(cid:22)(cid:63)(cid:68)(cid:57)(cid:36)(cid:22)(cid:40)(cid:38)(cid:39)(cid:38)(cid:22)(cid:55)(cid:68)(cid:68)(cid:75)(cid:55)(cid:66)(cid:22)(cid:72)(cid:59)(cid:70)(cid:69)(cid:72)(cid:74)
(cid:46)
Missouri, with the goal of generating $100 million in new, Commerce Trust Company also manages a series
high-quality loans with Missouri businesses. of mutual funds known as the Commerce Funds. During
Loan growth will continue to be a challenge in 2011, 2010, the Commerce Bank Bond Fund was recognized
impacted by low interest rates, a deleveraging consumer by Smart Money magazine as one of the five best perform-
and high levels of cash held by businesses. With improving ing bond mutual funds over the last one, three and five
credit trends and a solid balance sheet, however, we are years periods.
well poised to take advantage of new loan opportunities Our brokerage and capital markets businesses provided
as they arise and improve our market share. a combined $35 million in revenues in 2010. Capital
markets revenues remained strong from sales of fixed
Wealth and Asset Management income securities to businesses and correspondent banks,
The Commerce Trust Company continued to grow profits but below 2009 levels, when bank purchases of securities
and assets under management in 2010. Our Wealth and were fueled by the weak lending environment.
Asset Management revenues, including private banking New initiatives were begun in 2010 to better integrate
and brokerage, brokerage activities with existing trust services and better
(cid:57)(cid:98)(cid:95)(cid:91)(cid:100)(cid:106)(cid:22)(cid:105)(cid:87)(cid:106)(cid:95)(cid:105)(cid:92)(cid:87)(cid:89)(cid:106)(cid:95)(cid:101)(cid:100)(cid:22)(cid:105)(cid:89)(cid:101)(cid:104)(cid:91)(cid:105)(cid:22)(cid:87)(cid:100)(cid:90)(cid:22)(cid:22) totaled $132 serve our emerging wealth customer segment. We are also
million in seeing positive results from our efforts to improve cross
(cid:87)(cid:89)(cid:89)(cid:101)(cid:107)(cid:100)(cid:106)(cid:22)(cid:104)(cid:91)(cid:106)(cid:91)(cid:100)(cid:106)(cid:95)(cid:101)(cid:100)(cid:22)(cid:109)(cid:91)(cid:104)(cid:91)(cid:22)(cid:87)(cid:106)(cid:22)(cid:22)
2010, an sales among our various commercial and business lines.
(cid:91)(cid:110)(cid:89)(cid:91)(cid:102)(cid:106)(cid:95)(cid:101)(cid:100)(cid:87)(cid:98)(cid:22)(cid:98)(cid:91)(cid:108)(cid:91)(cid:98)(cid:105)(cid:34)(cid:22)(cid:91)(cid:108)(cid:91)(cid:100)(cid:22)(cid:87)(cid:105)(cid:22)(cid:109)(cid:91)(cid:22)(cid:22) increase of New investments in our 401(k) products for small- and
7% over medium-sized businesses and investment consulting
(cid:106)(cid:101)(cid:101)(cid:97)(cid:22)(cid:87)(cid:93)(cid:93)(cid:104)(cid:91)(cid:105)(cid:105)(cid:95)(cid:108)(cid:91)(cid:22)(cid:105)(cid:106)(cid:91)(cid:102)(cid:105)(cid:22)(cid:106)(cid:101)(cid:22)(cid:99)(cid:87)(cid:100)(cid:87)(cid:93)(cid:91)(cid:22)(cid:22)
2009 results. services for businesses and non-profits should position
(cid:91)(cid:110)(cid:102)(cid:91)(cid:100)(cid:105)(cid:91)(cid:105)(cid:22)(cid:87)(cid:100)(cid:90)(cid:22)(cid:102)(cid:104)(cid:101)(cid:211)(cid:106)(cid:87)(cid:88)(cid:95)(cid:98)(cid:95)(cid:106)(cid:111)(cid:36) In 2010 this part of our business to grow as well.
Commerce With Commerce’s reputation in the money manage-
Trust Company also achieved its third consecutive record ment business
year in asset management sales. New annualized fees grew continuing to (cid:58)(cid:107)(cid:104)(cid:95)(cid:100)(cid:93)(cid:22)(cid:40)(cid:38)(cid:39)(cid:38)(cid:34)(cid:22)(cid:106)(cid:94)(cid:91)(cid:22)(cid:57)(cid:101)(cid:99)(cid:99)(cid:91)(cid:104)(cid:89)(cid:91)(cid:22)(cid:22)
to more than $8 million. Total trust assets also grew to more increase and
(cid:56)(cid:87)(cid:100)(cid:97)(cid:22)(cid:56)(cid:101)(cid:100)(cid:90)(cid:22)(cid:60)(cid:107)(cid:100)(cid:90)(cid:22)(cid:109)(cid:87)(cid:105)(cid:22)(cid:104)(cid:91)(cid:89)(cid:101)(cid:93)(cid:100)(cid:95)(cid:112)(cid:91)(cid:90)(cid:22)(cid:22)
than $25 billion at year end. Client satisfaction scores and favorable
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account retention were at exceptional levels, even as we demographics (cid:88)(cid:111)(cid:22) (cid:22)(cid:99)(cid:87)(cid:93)(cid:87)(cid:112)(cid:95)(cid:100)(cid:91)(cid:22)(cid:87)(cid:105)(cid:22)(cid:101)(cid:100)(cid:91)(cid:22)
took aggressive steps to manage expenses and profitability. increasing the
(cid:101)(cid:92)(cid:22)(cid:106)(cid:94)(cid:91)(cid:22)(cid:211)(cid:108)(cid:91)(cid:22)(cid:88)(cid:91)(cid:105)(cid:106)(cid:22)(cid:102)(cid:91)(cid:104)(cid:92)(cid:101)(cid:104)(cid:99)(cid:95)(cid:100)(cid:93)(cid:22)(cid:88)(cid:101)(cid:100)(cid:90)(cid:22)(cid:22)
We attribute this performance to our approach, which demand for
centers on experienced investment professionals who offer personal (cid:99)(cid:107)(cid:106)(cid:107)(cid:87)(cid:98)(cid:22)(cid:92)(cid:107)(cid:100)(cid:90)(cid:105)(cid:22)(cid:101)(cid:108)(cid:91)(cid:104)(cid:22)(cid:106)(cid:94)(cid:91)(cid:22)(cid:98)(cid:87)(cid:105)(cid:106)(cid:22)(cid:101)(cid:100)(cid:91)(cid:34)(cid:22)(cid:22)
objective, long-term advice, coupled with a wide range of financial
(cid:106)(cid:94)(cid:104)(cid:91)(cid:91)(cid:22)(cid:87)(cid:100)(cid:90)(cid:22)(cid:211)(cid:108)(cid:91)(cid:22)(cid:111)(cid:91)(cid:87)(cid:104)(cid:22)(cid:102)(cid:91)(cid:104)(cid:95)(cid:101)(cid:90)(cid:105)(cid:36)(cid:22)
investment alternatives, including both our own proprietary advice, we
products and those from outside asset managers. see further
In 2010 we expanded our high net worth trust busi- opportunities for this business to grow in size and
ness, offering more value and a broader range of services importance in 2011. We will continue to invest and
to the top tier of individuals and families we serve. Private develop new products, such as our high net worth
banking, meanwhile, showed both revenue and profit trust business initiative and expanded 401(k) products.
growth. Total average deposits grew 20% to $1.3 billion, We believe our advice-based business model is attractive
while average loans declined slightly to $671 million, a to customers looking for more help in managing
result of the ongoing deleveraging of affluent investors. their resources.