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THE
ST. LOUIS COMMERCE TEAM (Left to Right): DAVID W.
KEMPER , chairman and chief executive officer, Commerce
Bancshares, Inc.; RAY STRANGHOENER, president, The
Commerce Trust Company; SARA FOSTER, senior vice
president and director of support services, Commerce Bancshares,
Inc.; SETH M. LEADBEATER, chairman and chief executive
officer, Commerce Bank, St. Louis; SUE HUTCHINS,
executive vice president, retail administration, Commerce
Bank, St. Louis; JACK SCHREIBER, president, Commerce
Bank, St. Louis; JONATHAN FORD, executive vice president,
senior credit officer, Commerce Bank, St. Louis |
BANKING ON
KEMPER
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David Kemper
heads up Missouri’s largest bank holding company, with $12.9 billion
in assets in 2001, 5,200 employees and more than 330 locations.
By Kevin Kipp
If you tease David W. Kemper about Commerce Bancshares, Inc.’s reputation
for its conservative culture, he will grant that the company is
“tradition-rich.”
Chairman, president and CEO Kemper and other Commerce brass will
also point out what tradition-rich has meant to shareholders over
the last 10 years: 17 percent annualized total return; 11 percent
annual growth of earnings per share, and 40 consecutive quarters
of record earnings per share.
And for those who measure tradition in decades, rather than quarters
and years, Commerce Bancshares is midway through its fourth decade
of annually increasing its dividend.
Left unteased, Kemper describes Commerce Bank’s model and culture
as a super-community bank: “‘Super’—implies the advantages of size
and scale so you have competitive unit cost; enough capital to make
investments in technology, people and systems; and a broad product
offering…small community banks can’t do all that.”
More Kemper: “The business aspect of a community bank is that we
have higher quality personnel working closely with customers, understanding
them better, from the branches through senior management.
“The model is inherently more expensive,” Kemper continues, “and
the large banks have cut back on people in the community. You tend
to not know as much about what’s going on in the community. We’ve
attracted some very fine people over the years who want to work
in our kind of environment.”
(With $12.9 billion in assets, 5,200 employees and more than 330
locations, Commerce Bancshares is Missouri’s largest bank holding
company. It operates in Kansas and Illinois, as well. In its two
primary markets, St. Louis and Kansas City, its largest competitors
are Bank of America and U.S. Bank. Both measure their nation-wide
assets in multiples of $100 million. Commerce Bank and UMB Bank,
run by distant-but-known Kemper cousins, also competes for the market
share crown in Kansas City.)
COMMERCE
BANK AD,
Commerces’ idea that the customer’s need
comes first, is shown in their theme: “Ask Listen
Solve.” |
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The culture and tradition at Commerce also includes the “long-term
view,” Kemper says, “so you get away from quarter-to-quarter earnings
and strive to build the best franchise you can. You focus on strategies
to win the game rather than a five-yard gain.”
A gadfly might point out that sometimes you need five yards to make
a first down. Kemper plays along. “You include sustained drives
as part of your plan…for instance, momentum from continually increasing
market share. It’s not a secret financial product; it’s day-by-day
execution.”
To ensure the quality of their execution, Commerce invests heavily
in its people. In reiterating a “buy” recommendation on CBSH, Putnam
Lovell Securities commended the bank for its high level of training
and education “unique among banking institutions.”
Kemper says the efforts mean “virtually any Commerce employee is
able to articulate this company’s culture.” Bayard Clark, executive
vice president, CFO and treasurer of Commerce Bancshares, certainly
can. He segments Commerce culture in three:
One, there’s the “credit culture,” and when a banker talks credit,
he means loans. “Our focus first is to be here for customers, employees
and communities in good times and bad, so we have to have a risk-averse
culture that maintains our strength…a broken bank can’t be responsive
to any constituent.
“So if we have a reputation for being conservative,” he says, “it’s
because we’re prudent and carefully weigh relative risk and rewards.”
COMMERCE
BANK, WEBSTER GROVES, MO.,
One
of Commerce Banks’ more than 330 locations. |
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Next Clark describes the “sales culture” at Commerce: “We are big
believers that this is a people-to-people business. Our mission
statement, our core values and our ads all reinforce what happens
in customer relationships. Whether the experience is with the call
center, in a bank lobby or electronically, we want them to have
their problems solved efficiently and effectively.”
Thirdly, Clark talked about the “service culture” at Commerce: “Two-thirds
of company staff supports service…for instance, people in the centralized
customer contact center. We rigorously track all our service level
standards. We measure how long it takes to answer the telephone,
for instance. Our target is 19 seconds, and we count the abandon
rate as a negative experience. We measure details like that all
the time, and try to improve it all the time.”
Training, incentives and compensation are means to these ends. According
to Kemper, 14 percent of CBSH shares are owned by directors, officers
and other employees. He points out that employees’ holdings—roughly
six percent—amount to more than $150 million worth of Commerce stock.
Moreover, the stock is up 50 percent in five years, he says, demonstrating
that “the super-community bank is a better business model.”
Part of managing the model includes its organization. The usual
parlance about the product and service lines at a bank holding company
refer to its retail, commercial and trust (or sometimes wealth management)
business.
Kemper refers to Commerce Bancshares’ lines as “payment systems,
risk management and money management.” The Commerce Trust Company
is part of the latter. The latter also includes proprietary mutual
funds. Risk management is making good loans. And payment systems
include both sides of a two-way street: a consumer or a business
sending or receiving money, whether electronically, by paper or
by plastic.
Payment systems account for just over half the earnings at Commerce
Bancshares, Kemper says, “One reason our economy works so well is
the efficient allocation of capital. We also settle transactions
efficiently…it’s convenient and seamless, and it keeps getting better.”
At Commerce, executive vice president of retail administration,
Charles Kim, focuses on consumer banking business…“anything you
can do as a consumer,” he says. “It’s also the largest portion of
payment system revenue.”
Kim nonetheless is involved with commercial customers, through Commerce’s
merchant bank card business, “selling our service to clear their
payments through our facility.”
He also is responsible (and one detects even partial to) the commercial
credit cards and purchasing card business. “It’s your basic T&E
cards for executives, managers and your sales forces. We make it
easier for purchasing managers to track expenditures—like expense
reports and purchases—of their field force much more effectively
by virtue of the direct reporting of data into their accounting
systems.”
What’s more, Kim says, an alert purchasing manager can use the information
to leverage discounts. Say a company discovers it spends $500,000
annually on office supplies. “If they bought that all at one place,”
he says, “do you think they could get a discount?”
Kim is also responsible for corporate marketing reports, which he
says is “listening to what the market wants. We do that on a number
of levels, lately through telephone surveys and a mail survey of
our own customers. We’re asking, ‘what do people value in their
banking relationships? What would set a bank apart from the competition?’
“What we heard,” Kim continues, “is that they wanted a bank that
listens and provides the service and advice that fits their needs
not the bank’s needs.”
Thus the Commerce Bank advertising theme: “Ask Listen Solve.”
“That describes the experience we want customers to have when they
interact with us,” Kim says, “Customized solutions in our commercial
and trust dealings. And for consumers the best mix, best value and
best fit from the vast array of products and services we offer.”
The smallest source of revenue—asset management—is also being asked
to grow the fastest. Ray Stranghoener, president of The Commerce
Trust Company says, “We contribute 11 percent to the company’s profitability.
One reason we invest in this part of the business is that there
is a possibility to grow asset management and trust even faster
than the rest of the bank, so that in five years we’ll be at 20
percent of profitability.”
The bear market in stocks didn’t help, but Stranghoener knows this
too shall pass: “After a commercial client sells his business these
days, he’s not typically jumping right into a stock portfolio. I
don’t think that will continue given our low interest rates. People
are coming back to market slowly.”
Secular trends bode well, too. “Baby-boomers are retiring,” Stranghoener
says, “and the population is aging. As money changes hands it will
create a growing need for our kinds of services, and lead to a lot
of growth opportunities.”
Commerce Trust clients’ portfolios usually start at $500,000 and
up. “Below that amount, our brokerage company can handle the customer’s
needs. But above $500,000 the needs become more complex, and require
a broader array of products and services...that’s where we come
in with estate tax planning, financial planning, charitable gift
planning and retirement planning.”
The remaining profit source at Commerce Bancshares is risk management,
carrying 37 percent of the load. “Our corporate business is one
of our best franchises,” Kemper says, “and that still starts with
commercial lending. St. Louis is a wonderful market because of the
depth of medium- and family-owned businesses. If you look at our
directors such as—Ben Rassieur [Paulo Products], Andy Taylor [Enterprise
Rent-A-Car], Mary Ann Van Lokeren [Krey Distributing Company]—these
are family-owned companies, not Fortune 1000 companies.”
To be fair, Enterprise Rent-A-Car may be family owned, but it operates
in five countries. “We use a variety of banks,” says chairman and
CEO Taylor. “However, Commerce is our main bank.”
As a board member, Taylor says his duties include the classic “directors’
responsibilities: exercise care and look out for the interests of
shareholders. The bank’s management is so straightforward and the
results have been so consistent that all the directors feel comfortable
exercising those duties…which is not to say that we don’t have,
um, enthusiastic conversations.”
Taylor identifies “two qualities of Commerce Bancshares’ success
and reputation. First they stick to their mission to be a high-quality,
super-regional bank. They don’t go off in never-never land.
“Number two, starting with David and his senior team,” Taylor says,
“they are very much in touch with their customers and employees.
David answers his own telephone sometimes. [Yes, he does.]
“It is my view,” Taylor continues, “that when a lending officer
takes a loan to credit committee, he or she believes David and the
senior team will have a hand in the decision.”
David Kemper
chairman, president and CEO of Commerce Bancshares,
Inc.
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Kemper shares such praise with his fellow officers. In the case
of the risk management team he notes the contributions of Seth Leadbeater,
executive vice president of the holding company and chairman and
CEO of Commerce Bank, St. Louis and Jack Schreiber, president of
Commerce Bank, St. Louis. “We have one of the most experienced commercial
lending groups in this part of the country, and certainly in St.
Louis.”
Another component of Kemper’s super-community model is extracurriculars.
“We try to have representation on the key boards in St. Louis. We
back them financially and with our people. We meet other actively
involved people and decision-makers. It’s a great way to network
and know whose business is flourishing and might need bank services.”
Kemper adds, “We as a business live and die as the community grows
or dies.” His personal involvement and money have followed his civic
utterance at Washington University, The Greater St. Louis Economic
Development Council, the Missouri Botanical Garden, the Donald Danforth
Plant Science Center and a variety of capital campaigns and undertakings
for education. “We support urban renewal and models that work,”
he says.
With The May Department Stores Co. retired honcho David Farrell,
Kemper co-chaired the major gifts phase of the capital campaign
to build a new Cardinal Ritter College Prep School near Grand Center.
According to George Henry, superintendent of education for the Archdiocese
of St. Louis, they gathered $25 million, $2 million of which came
from the William T. Kemper Foundation.
Henry notes that while it is unusual to build a private high school
in a core city anymore, and while it has an ambitious goal of doubling
its enrollment by the beginning of the next school year (Last year’s
graduating class was 60 strong, for those keeping score), Cardinal
Ritter is nonetheless “an established product. In 23 years we have
a strong track record, with graduation and college enrollment rates
near 100 percent.”
Henry cites “three separate characteristics that made David Kemper
so invaluable to the campaign, starting with his support and his
vision for the project. He persuaded me that the project would be
become a reality.
“Secondly,” Henry continues, “the work he did in the corporate community…not
just the contributions, but the relationships and the partnerships
that he helped begin…mentoring programs, for instance.
“Thirdly, his personal generosity and his foundation’s support for
the cause. With any project that comes to completion, you look back
at who was crucial to its success. David Kemper is one of those
select few about whom that can be said.”
Other educational institutions that have benefited from Kemper’s
involvement include the Jefferson School initiative and Vashon Compact
in St. Louis’ JeffVanderLou neighborhood, St. Margaret of Scotland
parish school in St. Louis’ Shaw Neighborhood and John Burroughs.
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MISSOURI
BOTANICAL GARDEN, As part of his personal
civic involvement, Kemper runs capital campaigns for
the Missouri Botanical Garden. |
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Kemper also helps schools that he actually attended, serving on
the Stanford University Business School Advisory Committee and the
Committee on University Resources at Harvard.
He attended Pembroke Country Day School in Kansas City where he
was captain of the football team. “But I hasten to add,” he chuckles,
“that all my kids go to or attended John Burroughs. So I’m a Bombers
fan.”
Kemper graduated from Harvard in 1972 with a history degree, honors
and a fiancée. “I met Dotty during my freshman year at my sister’s
dorm at Wellesley,” Kemper says.
He followed his undergrad work with an M.A. in English literature
from Oxford University in 1974 and—finally getting down to
business—an MBA from Stanford in 1976.
Kemper offered cogent observations on current difficulties in the
economy and at some banks, butnotCommercethankyou.
“It seems like every 10 years, something terrible comes into the
financial markets…some unidentified risk blows up,” Kemper says.
“It was REITs in the ’70s, foreign loans in the early ’80s, real
estate lending in late ’80s-early ’90s. And now it’s telecom and
tech. There was simply too much debt based on ‘enterprise value.’
What that means is there were no real assets, no real cash flow.
It was betting on a future vision—that resulted in too much capacity—and
visions don’t pay dividends or pay back loans.”
Any conclusions, Mr. Kemper? “Don’t take equity risk for banking
loans. That’s not being conservative…that’s smart business.”
Kevin Kipp runs Bubble Communications, a creative services and
community relations firm in St. Charles.
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