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Commerce 2009 Combined AR 2009 annual report anD form 10-k commerce inc. BancShareS, 2009 annual report anD form report annual 10 -k positioned for growth commerce BancShareS, inc. 1000 Walnut p.o. Box 419248 kanSaS city, mo 64141-6248 Phone: (816) 234-2000 (800) 892-7100 Email: [email protected] Web site: www.commercebank.com An Equal Opportunity Employer MK2909 COMPANY PROFILE 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, 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, trust, brokerage and capital markets services. personal customer service. The company’s customer Serving its customers from 374 locations in Missouri, promise ask listen solve is not just its brand but Kansas, Illinois, Oklahoma and Colorado and from also its corporate focus. With this platform, Commerce commercial offices throughout the nation’s mid- is continually building its long-term franchise while section, Commerce uses a variety of delivery platforms paying strict attention to asset quality and expense including an expansive ATM network, full-featured management. Commerce provides a full range of online banking and a central contact center. COMMERCE BANCSHARES, INC. AT A GLANCE • $18.1 billion in assets • 90% of the company’s profitability comes from • Super-community bank seven key markets including Kansas City; • 374 locations St. Louis; Peoria/Bloomington, Illinois; Springfield, • 5,125 full-time equivalent (FTE) employees Missouri; Wichita, Kansas; Tulsa, Oklahoma; and Denver, Colorado. MARKET STABILITY Commerce is a company that values employees, In December 2009, Commerce paid its 16th consecu- customers and shareholders, and it strives to tive 5% stock dividend. In February 2010, the Board produce consistent, solid returns. During the last of Directors approved a 2.8% increase in the cash 10 years, the average annual shareholder return dividend rate per share over the fourth quarter, as on the company’s stock has been 8.5%, while the adjusted for the 5% stock dividend, making 2010 the S&P 500 Index has declined 1%. 42nd consecutive year of cash dividend increases. ABOUT THE COVER Construction soon will be underway on the new expansion plan. “Commerce is integrated in so six-story, 73-bed East Patient Tower on the main many aspects of what we do,” says Children’s campus of Children’s Mercy Hospital in Kansas Mercy CEO Randall O’Donnell, Ph.D., right, on City. Commerce served as trustee on the bond cover, with Kevin Barth of Commerce Bank. “It issue that is financing the construction, along may be a large bank, but relationships still come with other projects in the hospital’s $800 million first.” See story on page 11. TABLE OF CONTENTS Financial Highlights 1 Message to Our Shareholders 2 Positioned for Growth 10 Community Advisors 19 Officers and Directors 24 commerce bancshares, inc. 2009 annual report 1 financial highlights EARNINGS PER SHARE and STOCK PRICE $ 60 $3.00 $ 50 $2.50 $ 40 $2.00 $ 30 $1.50 Stock Price $ 20 $1.00 Earnings per Share $ 10 $0.50 $ 0 $0.00 00 01 02 03 04 05 06 07 08 09 Earnings per Share Stock Price (In thousands, except per share data) 2005 2006 2007 2008 2009 operating results Net interest income $ 501,702 $ 513,199 $ 538,072 $ 592,739 $ 635,502 Provision for loan losses 28,785 25,649 42,732 108,900 160,697 Non-interest income 334,837 352,586 371,581 375,712 396,585 Investment securities gains (losses), net 6,362 9,035 8,234 30,294 (7,195) Non-interest expense 495,649 522,391 574,159 615,380 622,063 Net income 223,247 219,842 206,660 188,655 169,075 Cash dividends 63,421 65,758 68,915 72,055 74,720 at year end Total assets $ 13,885,545 $ 15,230,349 $ 16,204,831 $ 17,532,447 $ 18,120,189 Loans, including held for sale 8,899,183 9,960,118 10,841,264 11,644,544 10,490,327 Investment securities 3,770,181 3,496,323 3,297,015 3,780,116 6,473,388 Deposits 10,851,813 11,744,854 12,551,552 12,894,733 14,210,451 Equity 1,340,475 1,446,536 1,530,156 1,579,467 1,885,905 Non-performing assets 11,713 18,223 33,417 79,077 116,670 Common shares outstanding* 82,179 80,979 79,155 79,580 83,008 Tier I capital ratio 12.21% 11.25% 10.31% 10.92% 13.04% Total capital ratio 13.63 12.56 11.49 12.31 14.39 Leverage ratio 9.43 9.05 8.76 9.06 9.58 Tangible equity to assets ratio 9.32 8.77 8.61 8.25 9.71 Efficiency ratio 59.20 60.20 62.65 63.08 59.89 other financial data (based on average balances) Return on total assets 1.60% 1.54% 1.33% 1.15% .96% Return on equity 16.16 15.92 13.97 11.81 9.76 Loans to deposits 81.34 84.73 88.49 92.11 79.79 Equity to assets 9.89 9.70 9.55 9.71 9.83 Net yield on interest earning assets (T/E) 3.89 3.95 3.85 3.96 3.93 Wtd. average common shares outstanding – diluted* 85,571 82,248 80,596 79,828 81,477 per share data Net income – basic* $ 2.64 $ 2.70 $ 2.58 $ 2.37 $ 2.07 Net income – diluted* 2.60 2.67 2.56 2.36 2.07 Market price* 42.88 41.82 40.69 41.86 38.72 Book value* 16.31 17.86 19.33 19.85 22.72 Cash dividends* .752 .806 .864 .907 .914 Cash dividend payout ratio 28.92% 30.19% 33.76% 38.54% 44.15% *Restated for the 5% stock dividend distributed December 2009. commerce bancshares, inc. 2009 annual report 2 David W. Kemper, Chairman To Our Shareholders In 2009, the United States economy began to recover from the most severe financial and economic recession since the 1930s. The effects on the American banking system have been and will continue to be profound. Unprecedented government intervention in financial markets, cantly increased our capital base through retained earnings and higher regulation and significant losses on most asset classes a modest common stock issuance so that tangible equity to assets made 2009 a very difficult year for the industry, both in terms stood at 9.7% at year end. of profitability and reputation. Although the industry is healing In 2009, Commerce Bancshares earned $169 million, which itself as significant new capital has been issued and government amounted to guarantee programs are reduced, slow economic recovery and a return on Commerce Bancshares was increased regulation will affect industry performance for the average assets and is well positioned to operate foreseeable future. of 0.96% and in this uncertain environment. Commerce Bancshares was and is well positioned to operate compares to in this uncertain environment. In 2009, we continued to execute a return on on our long-term strategic plan as a super-community bank, average assets of 0.64% for the 50 largest U.S. banks, many of focusing on our customers’ needs for payment systems, credit which lost money in 2009. and investments. At the same time, we reacted to the current Because of our conservative management and strong balance operating environment by focusing on asset quality and expense sheet, we were one of only eight of the nation’s 50 largest banks control, while continuing to build an even stronger capital base. to decline taking money from the federal government’s Troubled Higher loan losses, increased FDIC insurance charges and Asset Relief Program (TARP) last year. Although 36 of these sluggish loan demand put pressure on our earnings for the year, same 50 large banks either cut or eliminated their dividends, your but better spreads on loans and strong deposit growth improved company increased its cash dividend to $0.914, making this the 41st our liquidity and lending margins. During the year, we signifi- consecutive year-over-year dividend increase to our shareholders. commerce bancshares, inc. 2009 annual report 3 GROWTH in REVENUE and REVENUE PER SHARE $ 1,250 $15.00 $ 900 $ 1,000 $12.00 $ 700 $ 750 $ 9.00 $ 500 $ 500 $ 6.00 $ 300 Revenue per Share $ 250 $ 3.00 Total Revenue in Millions Total $ 100 $ 0 $ 0.00 00 01 02 03 04 05 06 07 08 09 Net Interest Income Non-Interest Income Revenue per Share Operating free of government capital assistance has proven • The strength of our balance sheet was affirmed by our very advantageous to our bank and shareholders. Not only has latest Moody’s and Standard & Poor’s ratings in September 2009. it helped Commerce avoid significant costs, it also has helped Commerce currently maintains bank ratings of Aa2 from Moody’s us attract new customers who prefer a strong, self-funded and A+ from Standard & Poor’s, positioning the company in the commercial bank. top tier of the nation’s banks. We could not, however, avoid helping pay the price for the • Average deposits grew by 13%, or $1.6 billion, as Commerce banks that have failed in recent years. In 2009, our FDIC insurance was able to capitalize on disruption in the markets to establish and costs increased expand customer relationships. although 36 of these same $25 million • Net interest income, which reflects the bank’s lending 50 large banks either cut or over the and depository activities, is a significant revenue source and a key eliminated their dividends, your previous year, component of bank profitability.
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