Commerce Bancshares, Inc. Announces Fourth Quarter Earnings Per Share of $.70

KANSAS CITY, Mo.--(BUSINESS WIRE)--Commerce Bancshares, Inc. (NASDAQ: CBSH) announced earnings of $.70 per share for the quarter ended December 31, 2010 compared to $.57 in the fourth quarter of 2009 and $.64 per share in the previous quarter. Net income for the fourth quarter amounted to $61.9 million compared to $49.6 million in the same period last year and $55.9 million in the previous quarter. The return on average assets for the three months ended December 31, 2010 was 1.34%, and the return on average equity was 12.0%.

For the year ended December 31, 2010, earnings per share totaled $2.52, an increase of 27.9% compared to $1.97 in 2009. Net income amounted to $221.7 million in 2010 compared to $169.1 million in 2009, or an increase of 31.1%. The return on average assets was 1.22% in 2010 and the return on average equity was 11.1%. At December 31, 2010 the ratio of tangible common equity to total assets improved to 10.3% compared to 9.7% at year end 2009.

In making this announcement, David W. Kemper, Chairman and CEO, said, “We are pleased to report net income this quarter of $61.9 million, an increase of 24.8%, over the same period last year. These results were mainly due to solid growth in core fee income, notably bankcard and trust fees, coupled with a lower loan loss provision and stable core expenses. Additionally, the Company sold a majority of its student loan portfolio this quarter at a gain of $9.8 million and essentially exited from the federally insured student loan business due to recent statutory changes. Net interest income improved this quarter despite lower loan totals. We also prepaid high coupon advances from the Federal Home Loan Bank which resulted in a prepayment penalty of $11.8 million which will lower future borrowing costs.”

Mr. Kemper continued, “During the quarter, net loan charge-offs totaled $21.6 million compared to $21.8 million in the previous quarter, and $37.0 million in the same period last year. Non-performing assets at December 31, 2010 totaled $97.3 million compared to $102.1 million in the previous quarter. The provision for loan losses matched our net loan charge-offs this quarter, and our allowance for loan losses was unchanged at $197.5 million, representing 2.3 times non-performing loans. Our capital and liquidity positions have strengthened all year, and at year end the ratio of tangible common equity to assets amounted to 10.3%, while our loans to deposits ratio amounted to 64.6%. Because of our strong capital position, we elected to resume our treasury stock buyback plan and repurchased approximately 1.1 million shares of common stock this quarter. While we have navigated successfully through a stressed economy this year, new regulatory changes in 2011 will continue to challenge our Company and the entire banking industry. We feel confident we are well positioned to meet these challenges and take advantage of future growth opportunities.”

Total assets at December 31, 2010 were $18.5 billion, total loans were $9.5 billion, and total deposits were $15.1 billion. During the quarter, the Company purchased approximately 1.1 million shares of its common stock through its previously approved treasury stock buyback plan and paid a 5% common stock dividend on December 20, 2010.

Commerce Bancshares, Inc. is a registered bank holding company offering a full line of banking services, including investment management and securities brokerage. The Company currently operates in approximately 370 locations in Missouri, Illinois, Kansas, Oklahoma and Colorado. The Company also has operating subsidiaries involved in mortgage banking, credit related insurance, and private equity activities.

Summary of Non-Performing Assets and Past Due Loans


(Dollars in thousands)	9/30/10	12/31/10	12/31/09
Non-Accrual Loans	$89,609	$85,275	$106,613
Foreclosed Real Estate	$12,539	$12,045	$10,057
Total Non-Performing Assets	$102,148	$97,320	$116,670
Non-Performing Assets to Loans	1.05%	1.03%	1.15%
Non-Performing Assets to Total Assets	.54%	.53%	.64%
Loans 90 Days & Over Past Due – Still Accruing	$42,723	$20,466	$42,632

This financial news release, including management’s discussion of fourth quarter results, is posted to the Company’s website at www.commercebank.com.

For additional information, contact
Jeffery Aberdeen, Controller
at PO Box 419248, Kansas City, MO
or by telephone at (816) 234-2081
Website: http://www.commercebank.com
Email: mymoney@commercebank.com


COMMERCE BANCSHARES, INC. and SUBSIDIARIES
FINANCIAL HIGHLIGHTS

(Unaudited)	For the Three Months Ended									For the Year Ended
	Sept. 30			Dec. 31			Dec. 31			Dec. 31			Dec. 31
	2010			2010			2009			2010			2009
FINANCIAL SUMMARY (In thousands, except per share data)
Net interest income	$	159,437		$	160,677		$	164,503		$	645,932		$	635,502
Taxable equivalent net
interest income		164,773			166,010			169,530			666,143			654,203
Non-interest income		100,010			110,454			102,519			405,111			396,259
Investment securities gains (losses), net		16			1,204			(1,325	)		(1,785	)		(7,195	)
Provision for loan losses		21,844			21,647			41,002			100,000			160,697
Non-interest expense		155,586			164,031			153,739			631,134			621,737
Net income		55,885			61,921			49,622			221,710			169,075
Cash dividends		19,621			19,395			18,984			78,231			74,720
Net total loan charge-offs		21,844			21,647			36,988			96,942			138,836
Business		582			1,514			1,991			4,586			12,837
Real estate - construction and land		1,971			1,589			10,030			15,006			34,092
Real estate - business		776			1,829			2,186			4,058			5,248
Consumer credit card		12,592			9,736			12,721			47,731			49,275
Consumer		4,912			5,295			7,870			20,474			32,201
Revolving home equity		276			469			561			1,975			1,190
Student		2			-			2			5			6
Real estate - personal		379			961			1,230			2,056			2,787
Overdraft		354			254			397			1,051			1,200
Per common share:
Net income - basic	$	0.63		$	0.72		$	0.57		$	2.54		$	1.98
Net income - diluted	$	0.64		$	0.70		$	0.57		$	2.52		$	1.97
Cash dividends	$	0.224		$	0.224		$	0.218		$	0.895		$	0.871
Diluted wtd. average shares o/s		87,560			86,927			87,192			87,382			85,551
RATIOS
Average loans to deposits (1)		68.88	%		64.63	%		73.61	%		70.02	%		79.79	%
Return on total average assets		1.19	%		1.34	%		1.09	%		1.22	%		0.96	%
Return on total average equity		10.98	%		11.99	%		10.48	%		11.15	%		9.76	%
Non-interest income to revenue (2)		38.55	%		40.74	%		38.39	%		38.54	%		38.41	%
Efficiency ratio (3)		59.58	%		60.33	%		57.27	%		59.71	%		59.88	%
AT PERIOD END
Book value per share based on total equity	$	23.37		$	23.36		$	21.64
Market value per share	$	35.80		$	39.73		$	36.88
Allowance for loan losses
as a percentage of loans		2.04	%		2.10	%		1.92	%
Tier I leverage ratio		9.93	%		10.17	%		9.58	%
Tangible equity to assets ratio (4)		10.26	%		10.27	%		9.71	%
Common shares outstanding		87,578,505			86,624,181			87,158,735
Shareholders of record		4,311			4,284			4,444
Number of bank/ATM locations		369			367			374
Full-time equivalent employees		5,011			4,979			5,125

OTHER QTD INFORMATION
High market value per share	$	38.42		$	40.59		$	38.46
Low market value per share	$	33.43		$	34.35		$	32.56

(1) Includes loans held for sale.
(2) Revenue includes net interest income and non-interest income.
(3) The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.
(4) The tangible equity ratio is calculated as stockholders' equity reduced by goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights).

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)	For the Three Months Ended									For the Year Ended
(In thousands, except per share data)	Sept. 30			Dec. 31			Dec. 31				Dec. 31			Dec. 31
	2010			2010			2009				2010			2009
Interest income	$	178,916		$	177,436		$	194,999			$	729,478		$	789,512
Interest expense		19,479			16,759			30,496				83,546			154,010
Net interest income		159,437			160,677			164,503				645,932			635,502
Provision for loan losses		21,844			21,647			41,002				100,000			160,697
Net interest income after
provision for loan losses		137,593			139,030			123,501				545,932			474,805

NON-INTEREST INCOME
Bankcard transaction fees		37,723			41,016			33,572				148,888			122,124
Deposit account charges and other fees		21,693			21,491			26,085				92,637			106,362
Trust fees		20,170			21,117			19,345				80,963			76,831
Bond trading income		5,133			5,574			4,903				21,098			22,432
Consumer brokerage services		2,390			2,311			2,413				9,190			10,831
Loan fees and sales		5,830			11,975			7,728				23,116			21,273
Other		7,071			6,970			8,473				29,219			36,406
Total non-interest income		100,010			110,454			102,519				405,111			396,259

INVESTMENT SECURITIES GAINS (LOSSES), NET

Impairment (losses) reversals on debt securities		5,645			1,703			2,639				13,058			(32,783	)
Noncredit-related losses (reversals) on
securities not expected to be sold		(7,690	)		(2,594	)		(2,301	)			(18,127	)		30,310
Net impairment losses		(2,045	)		(891	)		338				(5,069	)		(2,473	)
Realized gains (losses) on sales and
fair value adjustments		2,061			2,095			(1,663	)			3,284			(4,722	)
Investment securities gains (losses), net		16			1,204			(1,325	)			(1,785	)		(7,195	)

NON-INTEREST EXPENSE
Salaries and employee benefits		85,442			86,562			85,480				346,550			345,779
Net occupancy		12,086			11,290			11,273				46,987			45,925
Equipment		5,709			5,776			6,589				23,324			25,472
Supplies and communication		6,724			6,222			7,162				27,113			32,156
Data processing and software		16,833			16,999			16,935				67,935			61,789
Marketing		5,064			3,377			4,132				18,161			18,231
Deposit insurance		4,756			4,801			5,465				19,246			27,373
Debt extinguishment		-			11,784			-				11,784			-
Indemnification obligation		-			(2,722	)		-				(4,405	)		(2,496	)
Other		18,972			19,942			16,703				74,439			67,508
Total non-interest expense		155,586			164,031			153,739				631,134			621,737
Income before income taxes		82,033			86,657			70,956				318,124			242,132
Less income taxes		26,012			24,432			21,493				96,249			73,757
Net income before non-controlling interest		56,021			62,225			49,463				221,875			168,375
Less non-controlling interest
expense (income)		136			304			(159	)			165			(700	)
Net income	$	55,885		$	61,921		$	49,622			$	221,710		$	169,075

Net income per common share - basic	$	0.63		$	0.72		$	0.57			$	2.54		$	1.98
Net income per common share - diluted	$	0.64		$	0.70		$	0.57			$	2.52		$	1.97

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(Unaudited)	Sept. 30			Dec. 31			Dec. 31
(In thousands)	2010			2010			2009
ASSETS
Loans	$	9,706,265		$	9,410,982		$	10,145,324
Allowance for loan losses		(197,538	)		(197,538	)		(194,480	)
Net loans		9,508,727			9,213,444			9,950,844
Loans held for sale		248,108			63,751			345,003
Investment securities:
Available for sale		7,164,273			7,294,303			6,340,975
Trading		20,828			11,710			10,335
Non-marketable		110,487			103,521			122,078
Total investment securities		7,295,588			7,409,534			6,473,388
Short-term federal funds sold and securities
purchased under agreements to resell		4,550			10,135			22,590
Long-term securities purchased under
agreements to resell		350,000			450,000			---
Interest earning deposits with banks		4,047			122,076			24,118
Cash and due from banks		412,315			328,464			417,126
Land, buildings and equipment - net		387,792			383,397			402,633
Goodwill		125,585			125,585			125,585
Other intangible assets - net		11,285			10,937			14,333
Other assets		403,762			385,016			344,569
Total assets	$	18,751,759		$	18,502,339		$	18,120,189

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand	$	1,752,930		$	2,150,725		$	1,793,816
Savings, interest checking and money market		9,712,088			10,190,134			9,202,916
Time open and C.D.'s of less than $100,000		1,607,664			1,465,050			1,801,332
Time open and C.D.'s of $100,000 and over		1,318,877			1,279,112			1,412,387
Total deposits		14,391,559			15,085,021			14,210,451
Federal funds purchased and securities sold
under agreements to repurchase		1,530,555			982,827			1,103,191
Other borrowings		337,863			112,273			736,062
Other liabilities		445,177			298,754			184,580
Total liabilities		16,705,154			16,478,875			16,234,284
Stockholders' equity:
Preferred stock		---			---			---
Common stock		417,827			433,942			415,637
Capital surplus		865,246			971,293			854,490
Retained earnings		669,485			555,778			568,532
Treasury stock		(2,323	)		(2,371	)		(838	)
Accumulated other comprehensive income		95,204			63,345			46,407
Total stockholders' equity		2,045,439			2,021,987			1,884,228
Non-controlling interest		1,166			1,477			1,677
Total equity		2,046,605			2,023,464			1,885,905
Total liabilities and equity	$	18,751,759		$	18,502,339		$	18,120,189

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS - AVERAGE RATES AND YIELDS

(Unaudited)	For the Three Months Ended
(Dollars in thousands)	September 30, 2010				December 31, 2010				December 31, 2009
			Avg. Rates				Avg. Rates				Avg. Rates
	Average		Earned/		Average		Earned/		Average		Earned/
ASSETS:	Balance		Paid		Balance		Paid		Balance		Paid
Loans:
Business (A)	$	2,917,798	3.82	%	$	2,919,553	3.77	%	$	2,866,187	3.77	%
Real estate - construction and land		530,472	4.00			498,296	4.17			695,077	3.93
Real estate - business		1,998,500	5.10			2,002,721	5.01			2,112,793	4.98
Real estate - personal		1,450,898	5.13			1,443,998	5.00			1,546,822	5.32
Consumer		1,234,138	6.65			1,190,862	6.61			1,358,380	7.03
Revolving home equity		485,034	4.32			483,195	4.31			488,314	4.33
Student		315,150	2.40			22,307	2.10			334,804	2.28
Consumer credit card		762,987	11.29			776,426	10.82			748,918	11.80
Overdrafts		6,667	-			8,068	-			10,802	-
Total loans (B)		9,701,644	5.21			9,345,426	5.22			10,162,097	5.27
Loans held for sale		305,013	1.78			93,041	2.38			322,125	1.70
Investment securities:
U.S. government & federal agency		672,447	1.44			623,102	2.30			517,951	3.02
State & municipal obligations (A)		982,137	4.53			1,090,639	4.45			930,881	4.80
Mortgage and asset-backed securities		5,100,958	2.77			5,221,307	2.86			4,478,166	3.86
Other marketable securities (A)		182,966	5.18			176,628	5.01			188,467	5.45
Total available for sale securities (B)		6,938,508	2.95			7,111,676	3.11			6,115,465	3.98
Trading securities (A)		22,525	2.87			31,537	3.35			13,746	2.66
Non-marketable securities (A)		109,215	9.43			107,275	5.98			133,682	6.02
Total investment securities		7,070,248	3.05			7,250,488	3.15			6,262,893	4.02
Short-term federal funds sold and securities
purchased under agreements to resell		6,903	0.69			5,219	0.61			9,383	0.85
Long-term securities purchased
under agreements to resell		199,302	1.72			396,739	1.69			-	-
Interest earning deposits with banks		170,504	0.25			87,371	0.25			290,233	0.25
Total interest earning assets		17,453,614	4.19			17,178,284	4.22			17,046,731	4.66
Non-interest earning assets (B)		1,167,692				1,116,547				1,045,890
Total assets	$	18,621,306			$	18,294,831			$	18,092,621

LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings	$	481,997	0.16		$	480,417	0.14		$	442,036	0.14
Interest checking and money market		9,979,287	0.28			10,316,143	0.27			9,180,802	0.33
Time open & C.D.'s of less than $100,000		1,642,200	1.32			1,533,324	1.18			1,895,538	1.93
Time open & C.D.'s of $100,000 and over		1,417,162	0.97			1,231,865	0.93			1,558,664	1.46
Total interest bearing deposits		13,520,646	0.47			13,561,749	0.43			13,077,040	0.69
Borrowings:
Federal funds purchased and securities
sold under agreements to repurchase		1,023,961	0.23			1,125,258	0.12			979,738	0.33
Other borrowings		350,328	3.09			230,469	2.96			773,130	3.62
Total borrowings		1,374,289	0.96			1,355,727	0.61			1,752,868	1.78
Total interest bearing liabilities		14,894,935	0.52	%		14,917,476	0.45	%		14,829,908	0.82	%
Non-interest bearing demand deposits		1,006,578				1,041,035				1,166,687
Other liabilities		700,754				286,675				217,306
Equity		2,019,039				2,049,645				1,878,720
Total liabilities and equity	$	18,621,306			$	18,294,831			$	18,092,621
Net interest income (T/E)	$	164,773			$	166,010			$	169,530
Net yield on interest earning assets			3.75	%			3.83	%			3.95	%


(A) Stated on a tax equivalent basis using a federal income tax rate of 35%.
(B) The allowance for loan losses and unrealized gains/(losses) on available for sale securities are included in non-interest earning assets.

COMMERCE BANCSHARES, INC.
Management Discussion of Fourth Quarter Results
December 31, 2010

For the quarter ended December 31, 2010, net income amounted to $61.9 million, an increase of $12.3 million over the same quarter last year, and an increase of $6.0 million compared to the previous quarter. For the current quarter, the return on average assets was 1.34%, the return on average equity was 12.0%, and the efficiency ratio was 60.3%. Compared to the same quarter last year, net interest income (tax equivalent) decreased by $3.5 million to $166.0 million, while non-interest income increased by $7.9 million to $110.5 million and included a $6.9 million gain on the sale of the Company’s entire held to maturity student loan portfolio. Non-interest expense for the quarter totaled $164.0 million, an increase of $10.3 million, or 6.7%, over the same period last year but included an early pay-off penalty of $11.8 million on the redemption of certain Federal Home Loan Bank (FHLB) borrowings, partly offset by a $2.7 million reduction in a Visa indemnification obligation. The provision for loan losses totaled $21.6 million, representing a decline of $19.4 million from the amount recorded in the same quarter last year.

Balance Sheet Review

During the 4^th quarter of 2010, average loans, including loans held for sale, decreased $568.2 million, or 5.7%, compared to the previous quarter. Also, these same loans decreased $1.0 billion, or 10.0%, this quarter compared to the same period last year. The decrease in average loans compared to the previous quarter was partly due to the sale of the Company’s held to maturity student loans in October 2010, which totaled approximately $311 million. Also in October, the Company sold held for sale student loans totaling approximately $175 million. These loans were originated in the 2009-2010 school year and sold to the U.S. Department of Education (DOE). The Company no longer holds any student loans originated under the DOE program. In addition, construction and consumer banking loans declined on average by $32.2 million and $43.3 million, respectively. Average business loans increased slightly, which included growth in commercial and tax free loans of $12.5 million offset by a decline in lease loans of $10.8 million, while average business real estate loans increased $4.2 million. Average consumer credit card loans also increased $13.4 million, mainly due to seasonal retail spending in the 4^th quarter. The decline in average consumer loans resulted mainly from a decline of $32.7 million in marine and RV loans, primarily due to normal pay-downs on these loans as the Company no longer originates these types of loans. On December 30, 2010, the Company purchased business real estate loans, totaling $40.1 million, from another financial institution. These loans are to borrowers within the Company’s existing markets. On a period end basis, business and business real estate loans increased $100.2 million over the previous quarter mainly due to new loan activity late in the current quarter.

Total available for sale investment securities (excluding fair value adjustments) averaged $7.1 billion this quarter, up $173.2 million compared to the previous quarter. The increase was mainly the result of purchases of municipal, agency mortgage-backed and other asset-backed securities which totaled $75.9 million, $307.3 million and $445.9 million, respectively, in the 4^th quarter. On December 31, 2010, the duration of the investment portfolio was 2.0 years, and maturities of approximately $1.6 billion are expected to occur during 2011.

Total average deposits increased $75.6 million, or .5%, during the 4^th quarter of 2010 compared to the previous quarter. This increase in average deposits resulted mainly from growth in non-interest bearing demand, money market, and interest checking accounts of $34.5 million, $315.7 million, and $21.2 million, respectively, partly offset by a decline in certificate of deposit (CD) accounts of $294.2 million. Virtually all of the net increase in average deposits came from business type accounts. The average loans to deposits ratio in the current quarter was 64.6%, compared to 68.9% in the previous quarter.

During the current quarter, the Company’s average borrowings decreased $18.6 million compared to the previous quarter. This decrease was mainly due to a decline of $119.2 million in the average balance of FHLB advances during the current quarter as a result of both redemptions and maturities during the quarter. In November 2010, the Company repaid FHLB advances totaling $125 million which had a weighted average rate of 4.2%, and paid a pre-payment penalty of $11.8 million. In December 2010, another $100 million in such advances also matured. Average balances of federal funds purchased and repurchase agreements increased this quarter by $101.3 million.

Net Interest Income

Net interest income (tax equivalent) in the 4^th quarter of 2010 amounted to $166.0 million, an increase of $1.2 million compared with the previous quarter, and a decrease of $3.5 million compared to the 4^th quarter of last year. During the 4^th quarter of 2010, the net yield on earning assets (tax equivalent) was 3.83%, compared with 3.75% in the previous quarter and 3.95% in the same period last year.

The increase in net interest income (tax equivalent) in the 4^th quarter of 2010 over the previous quarter was primarily due to lower rates paid on both deposits and borrowings, lower average balances on FHLB advances and growth in interest income on the Company’s investment securities portfolio. Interest on loans, including held for sale student loans, declined $5.4 million, mainly due to lower average balances and rates earned on most loan categories. Of this decline in interest income, the sale of the Company’s student loan portfolios (both held for sale and held to maturity) accounted for $2.6 million of the overall decline in interest income. Interest income on investment securities increased $3.1 million mainly due to higher interest earned on mortgage-backed, municipal and inflation-protected securities (TIPS). The higher interest on mortgage-backed securities was partly due to the settlement late in the 3^rd quarter and in the 4^th quarter of certain securities purchased on a forward delivery basis, as mentioned last quarter. The growth in municipal interest income of $1.0 million was mainly due to higher average balances, while interest on TIPS increased $1.3 million due to higher inflation income recorded this quarter.

Interest expense on deposits declined $1.5 million in the 4^th quarter of 2010 compared with the previous quarter as a result of continued lower rates paid on virtually all deposit products, in addition to lower average CD balances. Interest expense on borrowings decreased $1.2 million, due mainly to lower average balances and lower rates paid on FHLB advances, as discussed above. Also, rates paid on repurchase agreements declined 12 basis points this quarter, further reducing interest expense.

The tax equivalent yield on interest earning assets in the 4^th quarter of 2010 increased 3 basis points over the previous quarter to 4.22%, while the overall cost of interest bearing liabilities decreased 7 basis points to .45%.

Non-Interest Income

For the 4^th quarter of 2010, total non-interest income amounted to $110.5 million, an increase of $7.9 million compared to $102.5 million in the same period last year. Also, current quarter non-interest income increased $10.4 million compared to $100.0 million recorded in the previous quarter.

Bankcard fees in the current quarter increased 22.2% over the 4^th quarter of last year due to strong growth in transaction fees earned on corporate card (growth of 44.6%), merchant (growth of 22.7%) and debit card (growth of 12.9%) transactions. Corporate card fees, which totaled $13.1 million this quarter, saw continued growth resulting from both new customer transactions and increased volumes from existing customers. Debit card and merchant fee income in the 4^th quarter of 2010 totaled $15.0 million and $7.3 million, respectively, and reflected good holiday retail sales results. Credit card fees also increased 6.4% over the same quarter last year. Trust fees for the quarter increased 9.2% compared to the same period last year, which resulted from growth in both personal and institutional trust business, but continued to be negatively affected by low interest rates on money market investments held in trust accounts.

Deposit account fees decreased $4.6 million, or 17.6%, from the 4^th quarter of 2009, and decreased $202 thousand, or .9%, compared to the previous quarter. Virtually the entire decline was due to lower overdraft fees. The decline in overdraft fees of $4.8 million this quarter compared to the same period last year was the result of the Company’s implementation on July 1, 2010 of new overdraft regulations on debit card transactions. There was only a slight decline in overdraft fees from the previous quarter. Corporate cash management fees, which comprised 38.2% of total deposit account fees in the current quarter, declined 1.8% compared to the same period in the previous year.

Bond trading income for the current quarter totaled $5.6 million, an increase of 13.7% over the same period last year. Loan fees and sales totaled $12.0 million this quarter, an increase of $4.2 million over the 4^th quarter of last year and included gains of $6.9 million on sales of $311 million of held to maturity student loans and gains of $2.8 million on sales of $175 million of held for sale student loans originated under the DOE program. Other non-interest income included $1.0 million in impairment charges recorded during the quarter on certain bank premises which the Company intends to sell.

Investment Securities Gains and Losses

Net securities gains amounted to $1.2 million in the 4^th quarter of 2010, compared to net gains of $16 thousand in the previous quarter and net losses of $1.3 million in the same quarter last year. During the current quarter, the Company recorded additional credit-related impairment losses of $891 thousand on certain non-agency guaranteed mortgage-backed securities identified as other than temporarily impaired, compared to losses of $2.0 million in the previous quarter. The cumulative credit-related impairment reserve on these bonds totaled $7.5 million at quarter end. At December 31, 2010, the par value of non-agency guaranteed mortgage-backed securities identified as other than temporarily impaired totaled $184.3 million, compared to $171.6 million at December 31, 2009.

The current quarter also included a pre-tax gain of $2.1 million, which included $1.1 million in fair value adjustments on certain of the Company’s private equity investments and a gain of $950 thousand on the sale of mortgage-backed securities.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $164.0 million, an increase of $8.4 million over the previous quarter and an increase of $10.3 million, or 6.7%, compared to the same period last year. Non-interest expense included a FHLB pre-payment penalty of $11.8 million and a $2.7 million reduction in a Visa indemnification obligation, as previously mentioned. Excluding these items, non-interest expense would have amounted to $155.0 million, slightly less than the amount recorded in the previous quarter. Compared to the 4^th quarter of last year, salaries and benefits expense increased $1.1 million, or 1.3%, mainly due to higher incentive compensation and 401K plan expense, but offset by lower salaries, pension plan expense, and medical claims costs. Full time equivalent employees totaled 4,979 and 5,125 at December 31, 2010 and 2009, respectively.

Compared with the 4^th quarter of last year, supplies and communication costs declined 13.1%, reflecting initiatives to reduce paper supplies, customer checks, and courier costs. Costs for equipment, loan collection, and marketing costs were all lower than the same period last year. Data processing and software costs increased slightly, which was mainly the result of higher bankcard processing fees (related to higher bankcard revenues), partly offset by lower student loan servicing costs. Included in other non-interest expense this quarter was foreclosed real estate and other repossessed property expense which totaled $3.1 million compared to $129 thousand in the same period last year.

Income Taxes

The effective tax rate for the Company was 28.3% in the current quarter, compared with 31.8% in the previous quarter and 30.2% in the 4^th quarter of 2009.

Credit Quality

Net loan charge-offs in the 4^th quarter of 2010 amounted to $21.6 million, compared with $21.8 million in the prior quarter and $37.0 million in the 4^th quarter of last year. The slight decrease in net loan charge-offs in the 4^th quarter of 2010 compared to the previous quarter was mainly the result of lower consumer credit card and construction loan losses, which decreased by $2.9 million and $382 thousand, respectively. Net loan charge-offs on business and business real estate loans were higher than in the previous quarter but remained at low levels. Consumer loan losses totaled $5.3 million in the current quarter, with the majority of the losses contained in the marine/RV loan portfolio. The ratio of annualized net loan charge-offs to total average loans was .92% in the current quarter compared to .89% in the previous quarter.

For the 4^th quarter of 2010, annualized net charge-offs on average consumer credit card loans amounted to 4.97%, compared with 6.55% in the previous quarter and 6.74% in the same period last year. Consumer loan net charge-offs for the quarter amounted to 1.76% of average consumer loans, compared to 1.58% in the previous quarter and 2.30% in the same quarter last year. The provision for loan losses for the current quarter totaled $21.6 million, matching net loan charge-offs, and was $19.4 million lower than in the same period last year. The allowance for loan losses, which was unchanged from the previous quarter, totaled $197.5 million, or 2.10% of total loans, excluding loans held for sale. At December 31, 2010, the allowance for loan losses was 232% of total non-accrual loans.

At December 31, 2010, total non-performing assets amounted to $97.3 million, a decrease of $4.8 million from the previous quarter. Non-performing assets are comprised of non-accrual loans ($85.3 million) and foreclosed real estate ($12.0 million). At December 31, 2010, the balance of non-accrual loans, which represented .9% of loans outstanding, included construction and land loans of $52.8 million, business real estate loans of $16.2 million and business loans of $8.9 million. Loans past due more than 90 days and still accruing interest totaled $20.5 million at December 31, 2010, a decline of $22.3 million from the previous quarter. The decline from the previous quarter was mainly due to $19.6 million in federally guaranteed student loans which, as noted above, were sold in October 2010.

Other

During the quarter ended December 31, 2010, the Company resumed its previously approved treasury stock buyback plan and purchased 1,076,732 shares of treasury stock at an average cost of $37.09.

Forward-Looking Information

This information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include future financial and operating results, expectations, intentions and other statements that are not historical facts. Such statements are based on current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements.