Commerce Bancshares, Inc. Investor Presentation New York January 26 – 28, 2009

Commerce Bancshares, Inc.

Commerce Bancshares, Inc.Investor Presentation

New YorkJanuary 26 – 28, 2009

Bayard Clark, EVP & CFOJeffrey Aberdeen, ControllerNicole Hileman, Mgr – M&A

NY2


A number of statements we will be making in our presentation and 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, goals, objectives, expectations, projections, estimates and

intentions. These forward-looking statements involve significant risks and

uncertainties and are subject to change based on various factors (some of which are

beyond the Corporation’s control). Factors that could cause the Corporation’s actual

results to differ materially from such forward-looking statements made herein or by

management of the Corporation are set forth in the Corporation’s Third Quarter Report

on Form 10-Q and the Corporation’s Current Reports on Form 8-K.

Cautionary Statement

NY3


About Commerce BancsharesLower Midwest Footprint

•$18 billion in assets – 5,217 FTEs$18 billion in assets – 5,217 FTEs•Super-Community Bank – over 360 banking locationsSuper-Community Bank – over 360 banking locations•86% of 2008 profits from five key markets86% of 2008 profits from five key markets•Denver and Tulsa markets added in 2007Denver and Tulsa markets added in 2007•Adjacent metropolitan marketsAdjacent metropolitan markets

Kansas City

Peoria

Wichita Springfld Tulsa

Denver

St. Louis & Kansas City Deposit Market Share

2008US Bancorp 13% BoA 12% Commerce 8% Others 67%Source: FDIC 2008 Deposit Data

St. Louis

Omaha

Nashville

Des Moines

Louisville

Cincinnati Indianapolis

Performance – CAGRPerformance – CAGR20082008 10yr10yr

EPSEPS (8%)(8%) 6%6%Cash DivCash Div 5%5% 11%11%Stk PriceStk Price 3%3% 5%5%Total Rtn 5%Total Rtn 5% 7%7%

Oklahoma City

NY4


Super-Community Bank Platform

Community Bank Front End• Flat organization – quick decisions• Employees embrace strong culture• Solid multi-developed customer relationships• Knowledge of customers and markets reduces risk

Super-Regional Back End • Sophisticated payment processing systems• Broad, consumer product offerings• Private banking; trust; capital markets• Competitive on unit costs

A More Nimble Format . . . With Higher Service Focus

A Strategy that Builds Results for Tomorrow• Sales across business lines• Heavy people development and training• Investment in discretionary technology*• Top quartile credit quality metrics• Disciplined approach to acquisitions

*Technology expense has grown at a 5yr CAGR of 6.7%.

We compete with a….

NY5


Our Relative Position Against 10 Top Competitors

Name # of Branches

Deposits($ in Bn)

Deposits as a % of

Top 10 Total Deposits /

Branch ($ MM)

Commerce 214 $12.1 22% $56.4US Bancorp 183 $10.8 19% $59.2BoA 155 $12.8 23% $82.5Regions 83 $2.9 5% $35.2UMB 78 $3.9 7% $49.8Nat City 75 $2.8 5% $36.9Central Banc 67 $3.8 7% $56.1Top 10 Total 1,000 $55.1% CBSH / Top Ten 21% 22%

With Branches Within 5 Miles of a Commerce Branch

Source: FDIC

While Virtually Tied for 1st in Total Deposits, Commerce Ranks 4th Highest of Top Ten in Deposits Per Branch

Commerce…

NY6


Balanced Customer Solutions 2008 Pre-tax Profit*

Trust & Private Bkg

$37

Commercial & Capital Mkts

$103

Consumer$125

Lending & Risk Mgmt. $40

Payment Systems $220

LIN

ES O

F B

USI

NES

S

CUSTOMER SEGMENTS

*2008 includes overhead allocations of $9 million not considered in GAAP segment reports.Numbers in boxes reflect pre-tax contribution as % of total contribution.

Transaction accounts; Consumer Debit; Merchant

Private Client/ Institutional; Fixed Income

Private Banking

Institutional Trust; Capital Mkts Group

Commercial Lending; Floor plan; Leasing

Treasury Svcs; Int’l; Purchase Card

Money Market; Mutual Funds; Annuities; Bonds

Student loans; Bankcard; Mortgage; Consumer Lending

Private Client Transaction Accounts; Corp. Debt; Corp. Trust

49% (3%) 1%

9%

(7%)

2%

17%

3%

29%

We provide ….

($ in Millions)Money Mgmt. / Trust

$5

NY7


Revenue Per Share Growth Has Improved Recently

….and has been consistent over time

60

80

100

120

140

160

2001 2002 2003 2004 2005 2006 2007 2008

Rev

enue

Per

Sha

re (i

ndex

ed)

CBSH PEERS*

2002-2005 CAGRPeers = 1.9%CBSH = 6.8%

2005-2008 CAGRPeers = 5.2%CBSH = 7.5%

PEERS* 6.5% 4.6% (3.6%) 4.7% 10.3% 6.2% (.6%)1

CBSH 6.5% 6.3% 5.4% 8.8% 7.8% 7.2% 7.5%2

*PEERS: Associated, BOK, City National, Colonial, Cullen/Frost, FirstMerit, and Zions1Forecast 2008 – not actual2CBSH Actual 2008Source: Financial Information Systems and CBI Annual Reports

RPS Growth (YOY):

NY8


Revenue Growth.…’08 Report

($ in Millions) 2006 2007 2008 07 vs 08% Change

Contribution from Loans $216 $235 $248 5.5%

… from Deposits 305 323 316 -2.2%

… from Investments -8 -20 29 NM

Net Interest Income $513 $538 $593 10.2%

Contribution from Dep. Fees 115 117 110 -6.0%

… from Cards 95 104 114 9.6%

… from Trust 72 78 80 2.6%

… from Other* 80 81 102 25.9%

Non Interest Income $362 $380 $406 6.8%

Total Revenue $875 $918 $999 8.8%

% Fees to Total Revenue 41% 41% 41%

*Includes Securities Gains

NY9


Diverse Revenue Sources Outsized in Wealth Management and Card Revenue

Peers*

Card Inc 3%

Svc Chrgs 10%

Other 5%

Net Int Margin71%

Wealth Mgt 5%

Fees & Comm 7%

Card Inc12%

Wealth Mgt11%Svc Chrgs

11%

Other2%

Net Int Margin61%

Fees & Comm

3%

Commerce – YTD 12/31/08

*Data as of 9/30/08 - Peers Include: BOKF, CYN, ZION, FMER, CFR, ASBC, and CNBNOTE: Excludes Securities GainsSources: Financial Information Systems, SEC, Company Reports

NY10


Pre-Tax Profit.…’08 Report

($ in Millions) 2006 2007 200807 vs 08

% VarianceTotal Revenue $875 $918 $999 8.8% Provision Expense 26 43 109 153.5%

Salary Expense 245 265 286 7.9%

Benefit Expense 43 43 48 11.6%

Occupancy + FF&E Expense 69 70 71 1.4%

Supplies & Communications 33 34 35 2.9%

Outside Fees 87 89 95 6.7%

Other 48 74 81 9.5%

Pre-Tax Profit $324 $300 $274 (8.7%)

NY11


Commerce Non-interest Expenses, relative to the Peer group, are higher, but align with its growing fee

businesses

2.94%2.96%2.92%2.91%2.90%2.94%3.07%

3.27%3.17%

3.48%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

1999 2000 2001 2002 2003 2004 2005 2006 2007 Sep-08

Non

inte

rest

Exp

ense

as

% o

f Avg

Ass

ets PEERS* CBSH

(33) (77) (46) (58) (55) (51) (64) (77) (62) (90)CBSH (Disadvantage)in bp of assets:

*PEERS: Associated, BOK, City National, Colonial, Cullen/Frost, FirstMerit, and ZionsSource: Financial Information Systems and CBI Annual Reports

NY12


Balance Sheet Trends

($ in Millions)

*At 12/31/08, 86% of deposits were <$100M

$1,000

$2,500

$4,000

$5,500

$7,000

$8,500

$10,000

$11,500

$13,000

Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08

Loans Deposits* Investments Equity

$3.5 billion

$3.7 billion

$8.9 billion

$11.6 billion

$12.9 billion

$10.9 billion

$1.3 billion

$3.8 billion

$1.6 billion

NY13


How Have We Been Affected?In This Economic Downturn

Commerce…

Strong Demand for Loans Customer demand for liquidity high as credit tightens.

Strong Competition for Core Deposits Bank demand for stable, low cost deposits, high as liquidity needs grow and capital

markets dry-up. Some irrational pricing.

Decreased reliance on overnight and unsecured borrowings. Pledged additional collateral with the Fed and FHLB to double “backup” funding

facilities (approx. $4B). Investment portfolio ($4B) has been managed to free as many saleable bonds as

possible (approximately $1.6B). Suspended stock buy-back to add liquidity and capital.

NY14


$0

$2

$4

$6

$8

$10

$12

$14

$16

2006 Q1&2 2006 Q3&4 2007 Q1&2 2007 Q3&4 2008 Q1&2 2008 Q3&4

$ B

illio

ns

Core Non-Contractual Deposits Retail CD's Fed FundsCustomer Repos Structured Repo Capital Market's CD'sFHLB TAF

NOTE: No BHC leverage; only Common Equity; no senior, subordinated or hybrid debt.

Managing with Stable & Diversified Funding

Commerce…

$1.8B

$2.9B

NY15


Managing Interest Rate Risk to a Neutral Position

Net Interest Income: 2000 – 2009(E)

425,0

00 45

0,000

475,0

00 50

0,000

525,0

00 55

0,000

575,0

00 60

0,000

625,0

00

($00

0's)

Total Net Interest Income Change Due to Rates Change Due to Volumes

2001-20022000-2001 2002-2003 2003-2004 2006-2007

499

481

502497

2004-2005 2005-2006

502513

2007-2008

468

538

616

592

2008-2009 2009E

Commerce…

NY16


-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

Dura

tion

of E

quity

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

Fed

Fund

s

Effective Duration of Equity

Fed Funds

Grey Band = Long-Term Duration Target Range

• Future Duration Based on

Forecasted Rates/Volumes

Managing to Limit Earnings VolatilityBank Duration of Equity (or mismatch):

2000 – 12/2009 Forecasted

Commerce…

The duration of equity measures the sensitivity of the value of the Bank (all future cash flows) to changes in rates.

In order to protect the Bank against swings in market rates, Commerce manages the Bank’s duration of equity to within a conservative long-term targeted range of 2.00 – 3.50%1

Management relies on “on balance sheet” solutions to manage interest rate risk.

1This targeted range was established over time based on Management’s comfort with levels of short and long-term net interest income risk.

NY17


($ in Millions)

2006 2007 2008

% Chg (‘06 – ‘08)

Business $2,703 $3,124 $3,491 29%

Construction / Bus. RE 2,594 2,876 2,983 15%

Residential RE 1,415 1,521 1,522 8%

Consumer / HELOCs* 1,797 2,002 2,163 20%

Credit Card 595 666 777 31%

Total Loans $9,105 $10,189 $10,936 20%

Loans held for sale** $316 $322 $347 10%

Our Loan Portfoliois well diversified – 57% commercial; 43% consumer

Annual average*Includes Student Loans held to maturity**Mainly Student Loans

Commerce…

NY18


0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Non

-Per

form

ing

Ass

ets

to T

otal

Loa

ns

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

Net

C/O

s to

Avg

. Tot

al L

oans

Non-Perf. Assets/Total Loans Net CO/Avg Total Loans

Risk Management is An Important Part of Our Culture….

Commerce…

NY19


Selected Large Cap & Peer Banks3rd Quarter

Net Charge-offs (%) Loan Loss Reserve (%) NPA Coverage (x)3Q 08 3Q 07 3Q 08 3Q 07 3Q 08 3Q 07

Selected Large BanksBoA 1.84% 0.80% 2.17% 1.21% 1.53x 2.94x

JP Morgan 1.91% 1.07% 2.86% 1.76% 1.20x 2.70x

Wells Fargo 1.96% 1.01% 1.95% 1.11% 1.28x 1.26x

US Bank 1.19% 0.54% 1.71% 1.52% 1.94x 3.53x

Selected Peer BanksAssociated 0.94% 0.38% 1.51% 1.32% 0.70x 1.17x

Colonial 3.17% 0.27% 1.88% 1.14% 0.42x 2.46x

Cullen/Frost 0.30% 0.51% 1.25% 1.24% 1.94x 3.50x

Zions 0.91% 0.19% 1.45% 1.11% 0.66x 2.13x

Selected Bank Avg 1.52% 0.60% 1.85% 1.30% 1.21x 2.46xCommerce 0.68% 0.44% 1.42% 1.28% 3.38x 3.23x

Asset Quality…

NY20


Commerce May Not Be Immune to Credit Losses in a Sustained Down Cycle

Peer Group Concentrations - High Risk Categories

Selected Banks

Home Equity

Cons & Dev

CommlRE

Credit Card

Other Consumer

Zions 5.4 22.9 30.2 0.3 1.7Associated 15.0 14.6 19.5 0.0 5.3City National 4.4 12.4 16.8 0.2 3.2FirstMerit 13.6 7.4 21.8 2.0 18.0Colonial 4.3 32.9 24.2 0.0 1.4Peer Median1 5.1 17.3 25.1 0.0 5.7Commerce 5.2 7.2 17.3 7.1 15.2

Note: City National (California); FirstMerit (Ohio), and Colonial (Florida) are concentrated in troubled residential real estate markets.

% of Total Loan Portfolio

1Peer median also includes BOK, Cullen/Frost and TCF Source: Morgan Stanley

Asset Quality…

NY21


Business C&I

CBILargest 100Other BanksAll Banks

Com R/E

CBILargest 100Other BanksAll Banks

Business C&I Net C/Os

0.43%

0.83%

0.63%

0.80%

0.25%

0.96%

-0.20%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

Sep-07 Dec-07 Mar-08 Jun-08 Sep-08

Com R/E Net C/Os

0.14%

0.39%0.52%

1.14%

0.20%

1.26%

0.00%0.20%0.40%0.60%0.80%1.00%1.20%1.40%


Consumer Net C/Os

1.65%

2.07% 2.10% 2.17%

1.40%

2.52%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%


Credit Card Net C/Os

4.05% 4.11%4.63%

4.19%

5.39% 5.55%

0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%


CBI Largest 100 Other Banks All Banks

Net Loan Charge-Offs Over Last 5 QuartersConsistently Better than Industry Average

Asset Quality…

NY22


Our Challenges and OpportunitiesAreas of Focus for 2009

Sustain Organic Growth Momentum in Key Business Lines Refine and deliver the value proposition Grow our core deposit account base Leverage payment systems capabilities Further penetrate wealth customer segment Develop out of footprint expansion

Better Manage Our Performance Employ actionable MIS Deploy enhanced sales management and data mining capabilities Sharpen risk management skills/risk based pricing* Focus on productivity, cost control, expense management*

Negotiate through turmoil in both the economy and the financial services industry

*Added to the 2009 AOF

Commerce…

NY23


Planning for the Future

Company-wide strategic planning initiative to focus on top-line growth begun during 2007, advised by First Manhattan Consulting Group

Full implementation during 2008 A collection of corporate “areas of focus” that balance growth and

profitability/productivity/risk management: Retail value proposition that drives organic deposit growth Commercial payment system out of footprint expansion Wealth management Asset quality and risk-based pricing Expense/productivity management

Our Plan…

NY24


Core Retail FocusChallenges

YTD 2008 Plan Performance

Key Long-Term Initiatives

Relative Value over 10 Years

$ in

Milli

ons

Our Performance…

Highlights

Generate additional Fee Income Compete with irrational deposit pricing by

competitors desperate for funding needs Grow consumer loan book against

housing & economic headwinds Increased FDIC Insurance Premiums

Contribution off plan, $28.5MM DDA balances, $67MM NIM under plan, $12MM Lower NSF/OD fees, off 13.5%

All non-CD deposit categories exceeded budget Non-CD balance growth rate 3.8% vs. 1.1% 2005

- 2007 CAGR Targeted sales campaigns accomplished goal to

lift NIM PMMA promotion attracted $511MM in new

money and 5,800 new accounts

0102030405060708090

100

ProductEnhancements

VP Delivery Sales / ServiceTools

Self-ServiceUpgrades

VP Proof Points

NY25


Core Commercial Focus

Economic turmoil effecting all facets of line of business

Potential for fee income to be effected by economic slowdown

Problem loans will require increasing amounts of officer time

Reprice credit relative to risk Capitalize on safety/soundness Work across business lines Focus on expansion markets

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

DepositAcquisition

PaymentSystem

RegionalBanking

AssetQuality

HealthcareBanking

ExpenseMgmt

($ in

Milli

ons)

Pre-tax contribution up 10% Total revenue up 8.9% Depository fees up 13% Loans up 8.4% Deposits up 7.5%

Highlights

Challenges



Our Performance…

NY26


Wealth Management Focus

0

10

20

30

40

Private BankGrowth

EmergingWealth

CTC /Comml Sales

CTC / RetailSales

CompletelyCommerce

Family Office

Challenges




$ in

Milli

ons

Our Performance…

Highlights

Decline in the market has reduced 2008 fee income

Achieving our 2008 5% private bank loan growth goal in a tough economy

Implementing important systems projects to support long-term growth initiatives

Contribution below budget by $744M, or 1.8% below plan

Deposits up $93MM, or 12% Fee Income $1.9MM below plan; market

pressured Net New Trust Fee growth ahead of plan

at $1.9MM

New asset management sales achieved 16.7% planned growth goal

Asset management sales hit a record high of $7.1MM

YOY Private Bank Core Deposits grow 12% Joint Wealth Management Sales Program with

Commercial LOB implemented

NY27


Bankcard Products Focus

0

20

40

60

80

CCX-2 In-FootprintPenetration

A/P SupplierEnrollment

ConsumerRewards

Prog

Clearing BkgSponsorship

ConsumerCo-Branding

Challenges




$ in

Milli

ons

Highlights

Consumer Card Net C/Os continued at elevated levels, projected to be over plan by 10%

Merchant outgoing interchange rate is significantly higher/usage on Reward and World Cards

CCX card spend is 22% under budget

Combined Contribution 4% under plan NIM up 7% - spread driven Consumer & Merchant Fees up 1% YOY Comml Card Revenue up $7.5MM, 45% YOY

Consumer Direct Mail/Interest Rate Floors growing portfolio

Merchant Retail Sales Volume exceeding plan Existing Commercial Card Sales are up 20% YOY

Our Performance…

NY28


We Invest in Technology toDeliver Expected Customer Interaction

6.2MM 7.9MMAverage Monthly Transactions

1999 2008

Avg Monthly Web Visits 1999 – 58M 2008 – 3,434M

Volume Has Grown 26% Since 1999… Now 70% Electronic

Teller42%

VoiceResponse

21%

PhoneAgent

2%

ATM34%

OnlineBkg 1%

Teller27%

VoiceResponse

15%

PhoneAgent

3%

ATM20%

OnlineBkg35%

Technology Investments nearly 43% of Total FF&E Expenditures in 2008.

NY29


Comparison of Engagement Scores

Overall engagement score significantly surpassed both mid-cap, as well as all bank indexes

2007 Global Workforce Study (U.S. Banking) Engagement Index

87% 9% 3%

% Favorable % Neutral % Unfavorable

89% 8% 3%

89% 8% 3%

68% (all banks)74% (mid-cap banks)

22% 11%

2008

2007

2006

Com

mer

ce B

ank

Enga

gem

ent

Inde

x

Leverage our Human Capital…

NY30


2008 Total Return PerformanceTop 25 Banks (by market cap)

Rank Bank Market Cap1 ($ in Billions)

Total Return2 Price Return2

1 JP Morgan $117.0 (25%) (28%)

2 Wells Fargo $113.7 2% (2%)

3 BoA $71.9 (63%) (66%)

4 US Bancorp $44.3 (17%) (21%)

5 Citigroup $38.9 (76%) (77%)

18 CBSH $3.3 5% 3%25 Synovus $2.7 (18%) (21%)

Avg Top 253 $22.1 (34%) (37%)

S&P 500 Bks (50%)

112/31/082From 1/1/08 to 12/31/083Not Weighted

Industry…

Source: Factset

NOTE: Total assets for this group range from a high of $2,521B for JPMorgan to a low of $14B for Cullen/Frost. By total assets, Commerce ranks 31st and is the 5th best in total shareholder return among the top 50 banks.

NY31


Revenue and Earnings Per Share GrowthLast 10 Years

$6.00

$7.00

$8.00

$9.00

$10.00

$11.00

$12.00

$13.00

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Rev

enue

Per

Sha

re

$1.00

$1.40

$1.80

$2.20

$2.60

$3.00

Earn

ings

Per

Sha

re

Revenue Per Share Earnings Per Share

In Summary…

NY32


Our Position Entering 2009

Relatively, in a better position than most of our competitors. Did not take TARP. A strong capital base: nearly 10% common equity to average assets.

Positioned to grow while many competitors focused on damage control. Our core strategy of relationship business, leading with payment

systems solutions, generates high customer satisfaction ratings. Our risk aversion mindset is attracting new prospects.

In Conclusion …

NY33


Our Challenges for 2009

Reduced economic activity and higher unemployment will stress our customers and communities.

Will be a difficult earnings environment for all companies, which will pressure market related fee income and net interest income.

Higher unemployment and lower corporate profits generally increase loan losses. We are budgeting an increase in our loan loss provision.

In Conclusion …

Commerce Bancshares, Inc. Investor Presentation New York January 26 – 28, 2009

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Transcript of Commerce Bancshares, Inc. Investor Presentation New York January 26 – 28, 2009