ENTERPRISE FINANCIAL SERVICES CORP: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

Forward-looking statements

This Quarterly Report on Form 10-Q contains information and statements that are
considered "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such forward-looking statements are based on
management's current expectations and beliefs concerning future developments and
their potential effects on the Company, and include, without limitation,
statements about the Company's plans, strategies, goals, objectives,
expectations, or consequences of statements about the future performance,
operations, products and services of the Company and its subsidiaries, as well
as statements about the Company's expectations regarding revenue and asset
growth, financial performance and profitability, loan and deposit growth, yields
and returns, loan diversification and credit management, products and services,
shareholder value creation and the impact of the First Choice acquisition and
other acquisitions. Forward-looking statements are typically identified with the
use of terms such as "may," "might," "will," "would," "should," "expect,"
"plan," "anticipate," "believe," "estimate," "predict," "potential," "could,"
"continue," "intend," and the negative and other variations of these terms and
similar words and expressions, although some forward-looking statements may be
expressed differently. Forward-looking statements are inherently subject to
risks and uncertainties and our ability to predict results or the actual effect
of future plans or strategies is inherently uncertain. You should be aware that
our actual results could differ materially from those contained in the
forward-looking statements.

The COVID-19 pandemic is continuing to adversely affect us, our customers,
counterparties, employees, and third-party service providers, and the ultimate
extent of the impacts on our business, financial position, results of
operations, liquidity, and prospects remain uncertain. Continued deterioration
in general business and economic conditions, including further increases in
unemployment rates, or turbulence in domestic or global financial markets could
adversely affect our revenues and the values of our assets and liabilities,
reduce the availability of funding, lead to a tightening of credit, and further
increase stock price volatility. In addition, changes to statutes, regulations,
or regulatory policies or practices as a result of, or in response to COVID-19,
could affect us in substantial and unpredictable ways. Other factors that could
cause or contribute to such differences include, but are not limited to: our
ability to efficiently integrate acquisitions, including the First Choice
acquisition, into our operations, retain the customers of these businesses and
grow the acquired operations; credit risk; changes in the appraised valuation of
real estate securing impaired loans; our ability to recover our investment in
loans; fluctuations in the fair value of collateral underlying loans; outcomes
of litigation and other contingencies; exposure to general and local economic
conditions; risks associated with rapid increases or decreases in prevailing
interest rates; changes in business prospects that could impact goodwill
estimates and assumptions; consolidation within the banking industry;
competition from banks and other financial institutions; the ability to attract
and retain relationship officers and other key personnel; burdens imposed by
federal and state regulation; changes in regulatory requirements; changes in
accounting policies and practices or accounting standards; changes in the method
of determining LIBOR and the phase-out of LIBOR; natural disasters; war
(including the war in Ukraine) or terrorist activities, or pandemics, including
the COVID-19 pandemic, and their effects on economic and business environments
in which we operate, including the ongoing disruption to the financial market
and other economic activity caused by the COVID-19 pandemic; and other risks
discussed under the caption "Risk Factors" under Part 1, Item 1A of our 2021
Annual Report on Form 10-K, and other reports filed with the SEC, all of which
could cause the Company's actual results to differ from those set forth in the
forward-looking statements.

Readers are cautioned not to place undue reliance on our forward-looking
statements, which reflect management's analysis and expectations only as of the
date of such statements. Forward-looking statements speak only as of the date
they are made, and the Company does not intend, and undertakes no obligation, to
publicly revise or update forward-looking statements after the date of this
report, whether as a result of new information, future events or otherwise,
except as required by federal securities law. You should understand that it is
not possible to predict or identify all risk factors. Readers should carefully
review all disclosures we file from time to time with the SEC which are
available on our website at www.enterprisebank.com under "Investor Relations."

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Introduction

The following discussion describes the significant changes to the financial
condition of the Company that have occurred during the first three months of
2022 compared to the financial condition as of December 31, 2021. In addition,
this discussion summarizes the significant factors affecting the results of
operations of the Company for the three months ended March 31, 2022, compared to
the linked fourth quarter ("linked quarter") in 2021 and the results of
operations, liquidity and cash flows for the three months ended March 31, 2022
compared to the same period in 2021. In light of the nature of the Company's
business, which is not seasonal, the Company's management believes that the
comparison to the linked quarter is the most relevant to understand the
financial results from management's perspective. For purposes of the Quarterly
Report on Form 10-Q, the Company is presenting a comparison to the corresponding
year-to-date period in 2021. This discussion should be read in conjunction with
the accompanying condensed consolidated financial statements included in this
report and our Annual Report on Form 10-K for the year ended December 31, 2021.

Critical accounting policies

The Company's critical accounting policies are considered important to the
understanding of the Company's financial condition and results of operations.
These accounting policies require management's most difficult, subjective and
complex judgments about matters that are inherently uncertain. Because these
estimates and judgments are based on current circumstances, they may change over
time or prove to be inaccurate based on actual experience. If different
assumptions or conditions were to prevail, and depending upon the severity of
such changes, the possibility of a materially different financial condition
and/or results of operations could reasonably be expected.

A full description of our critical accounting policies and the impact and any
associated risks related to those policies on our business operations are
discussed throughout "Management's Discussion and Analysis of Financial
Condition and Results of Operations," where such policies affect our reported
and expected financial results. For a detailed discussion on the application of
these and other accounting policies, see the Company's Annual Report on Form
10-K for the year ended December 31, 2021.

The Company has prepared the consolidated financial information in this report
in accordance with GAAP. The Company makes estimates and assumptions that affect
the reported amount of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the consolidated financial statements, and the
reported amounts of revenue and expenses during the reporting period. Such
estimates include the valuation of loans, goodwill, intangible assets, and other
long-lived assets, along with assumptions used in the calculation of income
taxes, among others. These estimates and assumptions are based on management's
best estimates and judgment. Management evaluates its estimates and assumptions
on an ongoing basis using loss experience and other factors, including the
current economic environment, which management believes to be reasonable under
the circumstances. We adjust such estimates and assumptions when facts and
circumstances dictate. As future events and their effects cannot be determined
with precision, actual results could differ significantly from these estimates.
Changes in estimates resulting from continuing changes in the economic
environment will be reflected in the financial statement in future periods.
There can be no assurances that actual results will not differ from those
estimates.

Provision for credit losses

Utilizing the CECL methodology, the Company maintains separate allowances for
funded loans, unfunded loans, and held-to-maturity securities, collectively the
ACL. The ACL is a valuation account to adjust the cost basis to the amount
expected to be collected, based on management's estimate of experience, current
conditions, and reasonable and supportable forecasts. For purposes of
determining the allowance for funded and unfunded loans, the portfolios are
segregated into pools that share similar risk characteristics that are then
further segregated by credit grades. Loans that do not share similar risk
characteristics are evaluated on an individual basis and are not included in the
collective evaluation. The Company estimates the amount of the allowance based
on loan loss experience, adjusted for current and forecasted economic
conditions, including unemployment, changes in GDP, and commercial and
residential real estate prices. The Company's forecast of economic conditions
uses internal and external information
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and considers a weighted average of a baseline, upside, and downside scenarios.
Because economic conditions can change and are difficult to predict, the
anticipated amount of estimated loan defaults and losses, and therefore the
adequacy of the allowance, could change significantly and have a direct impact
on the Company's credit costs. The Company's allowance for credit losses on
loans was $139.2 million at March 31, 2022 based on the weighting of the
different economic scenarios. As a hypothetical example, if the Company had only
used the upside scenario, the allowance would have decreased $4.2 million.
Conversely, the allowance would have increased $48.4 million using only the
downside scenario.

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Summary

The Company finalized its acquisition of FCBP on July 21, 2021. The results of operations of FCBP are included in our results from that date.

Below are highlights of the Company's financial performance for the periods
indicated.

                                                                          Three months ended
                                                          March 31,             December 31,           March 31,
(in thousands, except per share data)                       2022                    2021                 2021
EARNINGS
Total interest income                                $       106,581           $    107,641          $   84,960
Total interest expense                                         5,416                  5,581               5,837
Net interest income                                          101,165                102,060              79,123
Provision (benefit) for credit losses                         (4,068)                (3,660)                 46
Net interest income after provision for credit
losses                                                       105,233                105,720              79,077
Total noninterest income                                      18,641                 22,630              11,290
Total noninterest expense                                     62,800                 63,694              52,884
Income before income tax expense                              61,074                 64,656              37,483
Income tax expense                                            13,381                 13,845               7,557
Net income                                           $        47,693           $     50,811          $   29,926
Preferred stock dividends                                      1,229                      -                   -

Net income available to common shareholders $46,464

   $     50,811          $   29,926

Basic earnings per share                             $          1.23           $       1.33          $     0.96
Diluted earnings per share                           $          1.23           $       1.33          $     0.96

Return on average assets                                        1.42   %               1.52  %             1.22  %
Return on average common equity                                12.87   %              13.81  %            11.07  %
Return on average tangible common equity1                      17.49   %              18.81  %            14.92  %
Net interest margin (tax equivalent)                            3.28   %               3.32  %             3.50  %

Efficiency ratio                                               52.42   %              51.08  %            58.49  %
Core efficiency ratio1                                         52.43   %              49.22  %            55.02  %
Book value per common share                          $         37.35           $      38.53          $    34.95
Tangible book value per common share1                $         27.06           $      28.28          $    25.92

ASSET QUALITY
Net charge-offs                                      $         1,521           $      3,263          $    5,647
Nonperforming loans                                           21,160                 28,024              36,659
Classified assets                                             93,199                100,797             114,713
Nonperforming loans to total loans                              0.23   %               0.31  %             0.50  %
Nonperforming assets to total assets                            0.17   %               0.23  %             0.42  %
ACL on loans to total loans                                     1.54   %               1.61  %             1.80  %
Net charge-offs to average loans (annualized)                   0.07   %               0.14  %             0.32  %

(1) A non-GAAP measure. A reconciliation has been included in this section under the heading “Use of Non-GAAP Financial Measures”.



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Financial results and other notable items include:

•The Company has been active in continuing to support its customers in the PPP. Details of PPP loans are noted in the following table:

                                                             Quarter ended
(in thousands)                                   March 31, 2022       December 31, 2021
PPP loans outstanding, net of deferred fees     $      134,084       $      

271,958

Average PPP loans outstanding, net                     194,382              

365 295

PPP interest and fee income recognized                   2,858                  4,864
PPP deferred fees remaining                              1,851                  4,215
PPP average yield                                         5.96  %                5.28  %



PPP has impacted the Company's financial metrics in all periods since the
Company began participating in April 2020. Loan and deposit growth, earnings per
share, and return on assets all increased due to the PPP. Conversely, the
allowance coverage ratio, the leverage ratio and the ratio of tangible common
equity to tangible assets all decreased. The net interest margin has benefited
in quarters where loan forgiveness has been approved by the SBA and related loan
fees have been accelerated into income. Since the PPP loans are guaranteed by
the SBA, CET1, Tier 1 and total risk-based capital are not impacted by PPP loan
balances.

•Pre-provision net revenue1 ("PPNR") of $57.0 million in the first quarter 2022
decreased $6.3 million from the linked quarter PPNR of $63.3 million and
increased $16.3 million from $40.7 million in the prior year quarter. The
decrease from the linked quarter was primarily due to a decline in PPP loan
income as the PPP loan portfolio winds down and lower noninterest income that
typically declines from a peak in the fourth quarter. The increase from the
prior year quarter was primarily due to the acquisition of FCBP in the third
quarter 2021, partially offset by a decline in PPP income.

1 PPNR is a non-GAAP measure. See the discussion and reconciliation of these measures in the accompanying financial tables.

•Net interest income of $101.2 million for the first quarter 2022 decreased $0.9
million from the linked quarter, primarily due to a decline in PPP income. Net
interest margin ("NIM") was 3.28% for the first quarter 2022, compared to 3.32%
for the linked quarter. Net interest income for the first quarter 2022 increased
$22.0 million from the prior year quarter. This was due primarily to the
acquisition of FCBP, organic growth in the loan portfolio, and an expanded
investment portfolio, partially offset by a decline in PPP income.

•Noninterest income of $18.6 million for the first quarter 2022 decreased $4.0
million from the linked quarter and increased $7.4 million from the prior year
quarter. A decline in tax credit income from a seasonally strong linked quarter
and a decline in other income were the primary drivers of the linked quarter
decrease. The increase from the prior year quarter was due primarily to an
increase in noninterest income from the FCBP acquisition and higher tax credit
income due to a low volume quarter in the prior year.

Balance sheet highlights:

•Loans - Total loans increased $38.4 million to $9.1 billion at March 31, 2022,
compared to $9.0 billion at December 31, 2021. PPP loans declined $137.9
million. Excluding PPP, loans grew $176.3 million, or 8%, on an annualized basis
from December 31, 2021. Loan growth was primarily attributed to the specialty
lending niches. Average loans totaled $9.0 billion for the quarter ended March
31, 2022 compared to $9.0 billion for the fourth quarter 2021.

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•Deposits - Total deposits increased $360.3 million, to $11.7 billion at
March 31, 2022 from $11.3 billion at December 31, 2021. The specialty deposit
groups have had continued success in generating deposit growth, increasing
deposits by $273.7 million in the first quarter 2022 compared to December 31,
2021. Average deposits totaled $11.5 billion for the quarter ended March 31,
2022 compared to $11.2 billion for the fourth quarter 2021. Noninterest deposit
accounts represented 41.7% of total deposits and the loan to deposit ratio was
77.4% at March 31, 2022.

•Asset quality - The allowance for credit losses on loans to total loans was
1.54% at March 31, 2022, compared to 1.61% at December 31, 2021. Nonperforming
assets to total assets was 0.17% at March 31, 2022 compared to 0.23% at December
31, 2021. Due to the improvement in credit quality and macroeconomic forecasts,
a provision benefit of $4.1 million was recorded in the first quarter 2022,
compared to a provision benefit of $3.7 million in the fourth quarter 2021. Loan
growth and the provision benefit in the first quarter 2022 contributed to the
decline in the ratio of allowance for credit losses to total loans.

•Shareholders' equity - Total shareholders' equity was $1.47 billion at March
31, 2022, compared to $1.53 billion at December 31, 2021, and the tangible
common equity to tangible assets ratio2 was 7.62% at March 31, 2022 compared to
8.13% at December 31, 2021. The decline in the tangible common equity ratio was
primarily due to a $78.0 million decrease in accumulated other comprehensive
income driven primarily from a decrease in the fair value of the
available-for-sale investment portfolio. The Company and the Bank's regulatory
capital ratios exceeded the "well-capitalized" level at March 31, 2022.

The Company bought back 351,090 shares totaling $17.0 million in the first quarter of 2022 for an average price of $48.35 per share. The Company has 349,383 shares available for repurchase under its authorization to repurchase common shares.

The Company's Board of Directors unanimously approved a quarterly dividend
of $0.22 per common share, payable on June 30, 2022 to shareholders of record as
of June 15, 2022, an increase of $0.01, or 5.0%, compared to the first quarter
2022. The Board of Directors also declared a cash dividend of $12.50 per share
of Series A Preferred Stock (or $0.3125 per depositary share) representing a 5%
per annum rate for the period commencing (and including) March 15, 2022 to (but
excluding) June 15, 2022. The dividend will be payable on June 15, 2022 to
shareholders of record on May 31, 2022.

2 Tangible common equity to tangible assets ratio is a non-GAAP measure. Refer
to discussion and reconciliation of these measures in the accompanying financial
tables.

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RESULTS OF OPERATIONS
Net Interest Income
Average Balance Sheet
The following tables present, for the periods indicated, certain information
related to our average interest-earning assets and interest-bearing liabilities,
as well as the corresponding interest rates earned and paid, all on a tax
equivalent basis.

                                                                 Three months ended March 31,                                                Three months ended December 31,                                            Three months ended March 31,
                                                                             2022                                                                         2021                                                                      2021
                                                                                                        Average                                                                    Average                                                                  Average
                                                                               Interest                 Yield/                                              Interest                Yield/                                          Interest                 Yield/
(in thousands)                                 Average Balance              Income/Expense               Rate                 Average Balance            Income/Expense              Rate              Average Balance           Income/Expense               Rate
Assets
Interest-earning assets:

Total loans1.2                                    9,005,875                        96,301                    4.34  %                9,030,982                   98,412                 4.32  %              7,192,776                   77,073                   4.35  %
Taxable securities                                1,151,743                         5,699                    2.01                   1,021,007                    5,070                 1.97                   849,123                    4,719                   2.25
Non-taxable securities2                             772,226                         5,270                    2.77                     732,152                    5,076                 2.75                   568,182                    4,099                   2.93
Total securities                                  1,923,969                        11,786                    2.31                   1,753,159                   10,736                 2.30                 1,417,305                    8,818                   2.52
Interest-earning deposits                         1,781,272                           817                    0.19                   1,589,008                      590                 0.15                   679,659                      189                   0.11
Total interest-earning assets                    12,711,116                       108,087                    3.45                  12,373,149                  109,148                 3.50                 9,289,740                   86,080                   3.76
Noninterest-earning assets                          902,887                                                                           894,044                                                                 650,312

 Total assets                              $     13,614,003                                                                $       13,267,193                                                        $      9,940,052

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts      $      2,505,319               $           536                    0.09  %       $        2,383,059          $           491                 0.08  %       $      1,887,059          $           328                   0.07  %
Money market accounts                             2,872,302                         1,460                    0.21                   2,853,655                    1,412                 0.20                 2,350,592                      975                   0.17
Savings                                             817,431                            66                    0.03                     776,695                       64                 0.03                   654,662                       48                   0.03
Certificates of deposit                             607,133                           797                    0.53                     616,347                      831                 0.53                   537,166                    1,312                   0.99
Total interest-bearing deposits                   6,802,185                         2,859                    0.17                   6,629,756                    2,798                 0.17                 5,429,479                    2,663                   0.20
Subordinated debentures                             154,959                         2,220                    5.81                     171,453                    2,439                 5.64                   203,694                    2,819                   5.61
FHLB advances                                        50,000                           195                    1.58                      50,000                      199                 1.58                    50,000                      195                   1.58
Securities sold under agreements to
repurchase                                          262,252                            60                    0.09                     246,525                       60                 0.10                   231,527                       60                   0.11
Other borrowed funds                                 22,841                            82                    1.46                      24,270                       85                 1.39                    28,650                      100                   1.42
Total interest-bearing liabilities                7,292,237                         5,416                    0.30                   7,122,004                    5,581                 0.31                 5,943,350                    5,837                   0.40
Noninterest bearing liabilities:
Demand deposits                                   4,692,027                                                                         4,537,247                                                               2,777,900
Other liabilities                                    93,518                                                                           112,546                                                                 122,321
Total liabilities                                12,077,782                                                                        11,771,797                                                               8,843,571
Shareholders' equity                              1,536,221                                                                         1,495,396                                                               1,096,481
Total liabilities & shareholders' equity   $     13,614,003                                                                $       13,267,193                                                        $      9,940,052
Net interest income                                                       $       102,671                                                              $       103,567                                                         $        80,243
Net interest spread                                                                                          3.15  %                                                                   3.19  %                                                                   3.36  %
Net interest margin                                                                                          3.28  %                                                                   3.32  %                                                                   3.50  %

1 Average balances include outstanding loans. Interest income includes borrowing costs of $5.2 million, $6.3 millionand $8.1 million for the three months ended
March 31, 2022, December 31, 2021and March 31, 2021respectively.

2 Non-taxable income is presented on a fully tax-equivalent basis using a 25.2%
tax rate. The tax-equivalent adjustments were $1.5 million, $1.4 million, and
$1.1 million for the three months ended March 31, 2022, December 31, 2021, and
March 31, 2021, respectively.



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Rate/Volume

The following table presents, on a tax equivalent basis for the periods indicated, a summary of the changes in interest income and expense resulting from changes in yield/rate and volume.

                                                  Quarter ended March 31, 2022                              Quarter ended March 31, 2022
                                                          compared to                                                compared to
                                                Quarter ended December 31, 2021                             Quarter ended March 31, 2021
                                                   Increase (decrease) due to                                Increase (decrease) due to
(in thousands)                            Volume(1)          Rate(2)             Net                Volume(1)              Rate(2)             Net
Interest earned on:

Loans(3)                                    (1,124)            (987)           (2,111)              19,244                    (16)           19,228
Taxable securities                             542               86               628                1,527                   (547)              980
Non-taxable securities(3)                      172               23               195                1,405                   (234)            1,171
Interest-earning deposits                       71              156               227                  434                    194               628
Total interest-earning assets           $     (339)         $  (722)         $ (1,061)         $    22,610               $   (603)         $ 22,007

Interest paid on:
Interest-bearing transaction accounts   $       13          $    32          $     45          $       111               $     97          $    208
Money market accounts                            5               43                48                  236                    249               485
Savings                                          2                -                 2                   18                      -                18
Certificates of deposit                        (34)               -               (34)                 154                   (669)             (515)
Subordinated debentures                       (276)              57              (219)                (696)                    97              (599)
FHLB advances                                   (2)              (2)               (4)                   -                      -                 -
Securities sold under agreements to
repurchase                                       4               (5)               (1)                   6                     13                19
Other borrowings                                (6)               3                (3)                 (22)                   (15)              (37)
Total interest-bearing liabilities            (294)             128              (166)                (193)                  (228)             (421)
Net interest income                     $      (45)         $  (850)         $   (895)         $    22,803               $   (375)         $ 22,428


(1) Change in volume multiplied by yield/rate of prior period.
(2) Change in yield/rate multiplied by volume of prior period.
(3) Nontaxable income is presented on a tax equivalent basis.
NOTE: The change in interest due to both rate and volume has been allocated to
rate and volume changes in proportion to the relationship of the absolute dollar
amounts of the change in each.

Net interest income (on a tax equivalent basis) for the three months ended March
31, 2022 decreased $0.9 million, over the linked quarter. The decrease in net
interest income from the linked quarter was primarily due to a $2.0 million
decline in PPP income as this loan portfolio continues to wind down. This
decline was partially offset by an increase in income from loan growth, an
expanded investment portfolio and a decline in interest expense from the
redemption of $50.0 million of subordinated debentures in the fourth quarter
2021. Total PPP income in the current quarter was $2.9 million, compared to $4.9
million in the linked quarter. The Federal Open Markets Committee increased the
target federal funds rate by 25 basis points in the first quarter of 2022. Net
interest income will generally benefit from interest rate increases due to the
asset-sensitive position of the balance sheet.

Compared to the previous year, net interest income increased $22.0 million, mainly due to the acquisition of FCBP, organic loan growth and an expanded investment portfolio. These increases were offset by a $5.6 million decline in PPP revenues.

NIM was 3.28% for the first quarter 2022, compared to 3.32% and 3.50% in the
linked and prior year quarter, respectively. NIM decreased four basis points
from the linked quarter primarily due to a five basis point decrease in earning
asset yields. The decrease in the earning asset yield was primarily due to a
shift in the composition of earning assets to a higher level of cash related to
payoffs of PPP loans and deposit growth and an increase in investment
securities. Average interest-bearing cash accounts totaled $1.8 billion in the
first quarter 2022,
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compared to $1.6 billion in the linked quarter. The cost of interest-bearing
liabilities declined one basis points from the linked quarter, primarily due to
the redemption of $50.0 million of subordinated debentures in the fourth quarter
2021.

Compared to the prior year, NIM was compressed by growth in deposit portfolio
that expanded available liquidity in both cash and investment balances. This
expanded liquidity shifted the composition of earning assets to these lower
yielding categories (cash and investments), as loans represented 77% of average
earnings assets in the first quarter 2021, compared to 71% in the first quarter
2022.

Noninterest Income

The following table presents a comparative summary of the main components of non-interest revenue for the periods indicated.

                                                     Linked quarter comparison                                                    Prior year comparison
                                                           Quarter ended                                                              Quarter ended
                                 March 31,         December 31,
(in thousands)                      2022               2021                 Increase (decrease)                    March 31, 2021               Increase (decrease)
Deposit service charges         $   4,163          $    3,962          $      201               5  %             $      3,084              $     1,079              35  %
Wealth management revenue           2,622               2,687                 (65)             (2) %                    2,483                      139               6  %
Card services revenue               3,040               3,223                (183)             (6) %                    2,496                      544              22  %
Tax credit income (expense)         2,608               4,374              (1,766)            (40) %                   (1,041)                   3,649             351  %

Other income                        6,208               8,384              (2,176)            (26) %                    4,268                    1,940              45  %

Total noninterest income        $  18,641          $   22,630          $   (3,989)            (18) %             $     11,290              $     7,351              65  %



Total noninterest income for the first quarter 2022 was $18.6 million, a
decrease of $4.0 million from the linked quarter and an increase of $7.4 million
from the prior year quarter. The linked quarter decrease was due primarily to a
decline in miscellaneous income and tax credit income. Miscellaneous income in
the fourth quarter 2021 included $5.0 million of income on community development
investments, compared to $2.2 million in the first quarter 2022. Income from
community development investments is not a consistent source and will vary among
periods. Offsetting the decline from community development investments in
miscellaneous income was a $1.1 million increase in customer swap income from
higher activity and $0.6 million from higher servicing income and a life
insurance death benefit. The $1.8 million decline in tax credit income from the
fourth quarter 2021 was consistent with the normal trend of this product line
that typically peaks in the fourth quarter each year. Certain tax credit
investment projects are carried at fair value. An increase in interest rates
will also increase the discount rate used in the fair value of these
investments, resulting in a lower fair value. Future rate increases may result
in fair value changes that will lower tax credit income.

Compared to the prior year quarter, the increase of $7.4 million was primarily
due to an increase in tax credit income, as tax credit project activity was
stronger in the first quarter 2022 compared to the same period in 2021. In
addition, other income increased due to higher swap fee income on increased
customer swap transactions. The FCBP acquisition also contributed $1.3 million
to the overall noninterest income increase in the first quarter 2022 compared to
the prior year period, primarily in deposit service charges.




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Non-interest expenses

The following table presents a comparative summary of the main components of non-interest expenses for the periods indicated.

                                                  Linked quarter comparison                                                     Prior year comparison
                                                        Quarter ended                                                               Quarter ended
                                                 December 31,
(in thousands)              March 31, 2022           2021               
Increase (decrease)                    March 31, 2021               Increase (decrease)
Employee compensation and
benefits                    $   35,827           $  33,488          $   2,339                 7  %             $       29,562          $   6,265                 21  %
Occupancy                        4,586               4,510                 76                 2  %                      3,751                835                 22  %
Data processing                  3,260               3,174                 86                 3  %                      2,890                370                 13  %
Professional fees                1,177               1,100                 77                 7  %                        988                189                 19  %

Merger-related expenses              -               2,320             (2,320)             (100) %                      3,142             (3,142)              (100) %
Other expense                   17,950              19,102             (1,152)               (6) %                     12,551              5,399                 43  %
Total noninterest expense   $   62,800           $  63,694          $    (894)               (1) %             $       52,884          $   9,916                 19  %

Efficiency ratio                 52.42   %           51.08  %            1.34    %                                      58.49  %           (6.07)   %
Core efficiency ratio1           52.43   %           49.22  %            3.21    %                                      55.02  %           (2.59)   %

1 Core efficiency ratio is a non-GAAP measure. See discussion and reconciliation of this measure in the accompanying financial tables. NM – Not significant



Noninterest expense was $62.8 million for the first quarter 2022, compared to
$63.7 million for the linked quarter and $52.9 million in the prior year
quarter. The decrease from the linked quarter was due primarily to a decline in
merger expenses and other expenses, offset by an increase in employee
compensation and benefits. Merger expenses in the linked quarter of $2.3 million
were related to the acquisition of First Choice in July 2021. All merger-related
costs were recognized in 2021 and no future merger expenses will be incurred
related to the First Choice acquisition. Other expenses declined $1.1 million,
primarily due to lower operational losses and the loss on the redemption of debt
that was recognized in the linked quarter. The $2.3 million increase in employee
compensation and benefits was primarily from seasonally higher payroll taxes and
the partial quarter impact of merit increases that went into effect on March 1,
2022.

Compared to the prior year quarter, the $9.9 million increase was primarily due
to the FCBP acquisition that added $6.8 million in noninterest expense, an
increase in employee compensation and benefits from merit increases in 2021, and
higher deposit servicing costs. Certain deposit specialty accounts receive an
earnings credit that pays costs used to service the customer. These costs are
recorded as noninterest expense and will fluctuate with the amount of the
underlying deposit balances and the related earnings credit rate. Excluding
FCBP, these costs increased $1.4 million to $3.7 million in the first quarter
2022, compared to $2.3 million in the prior year quarter. The increase was
primarily due to continued success in generating new customer activity in the
deposit specialties. Offsetting these increases was a decline of $3.1 million in
merger expenses that were recognized in the prior year quarter on the
acquisition of Seacoast Commerce Banc Holdings in the fourth quarter 2020.


Income taxes

The Company's effective tax rate was 21.9 % for the first quarter 2022, compared
to 21.4% in the linked quarter and 20.2% in the prior year quarter. The tax rate
was relatively stable in the first quarter 2022 compared to the linked quarter.
The increase from the prior year quarter was primarily due to the Company's
expanded geographic footprint and the related state tax apportionment.

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