Business Combination

As a result of the following acquisitions and the October 25, 2018 definitive agreement and plan of merger with Capital Bank of New Jersey, (“Capital Bank”), which closed on January 31, 2019, the Company incurred merger related expenses of $26.9 million, $8.3 million, and $16.5 million for the years ended December 31, 2018, 2017, and 2016, respectively. Refer to Note 17 Subsequent Events, for additional information related to the Capital Bank acquisition. The following table summarizes the merger related expenses for the years ended December 31, 2018, 2017 and 2016 is as follows:



	For the Year Ended December 31,
	2018		2017		2016
	(in thousands)
Data processing fees	$	6,017	$	3,956	$	4,844
Professional fees	4,414		2,771		5,982
Employee severance payments	15,660		1,177		5,457
Other/miscellaneous fees	820		389		251
Merger related expenses	$	26,911	$	8,293	$	16,534

Sun Bancorp. Inc Acquisition

On January 31, 2018, the Company completed its acquisition of Sun Bancorp, Inc. (“Sun”), which after purchase accounting adjustments, added $2.0 billion to assets, $1.5 billion to loans, and $1.6 billion to deposits. Total consideration paid for Sun was $474.9 million, including cash consideration of $72.4 million. Sun was merged with and into the Company on the date of acquisition.

The acquisition was accounted for under the acquisition method of accounting. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax. The excess of consideration paid over the estimated fair value of the net assets acquired has been recorded as goodwill.

The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the

acquisition for Sun, net of the total consideration paid (in thousands):



	At January 31, 2018
	Sun Book Value			Purchase Accounting Adjustments			Estimated Fair Value
Total Purchase Price:							$	474,930
Assets acquired:
Cash and cash equivalents	$	68,632		$	—		$	68,632
Securities	254,522			—			254,522
Loans	1,541,868			(24,523		)	1,517,345
Accrued interest receivable	5,621			—			5,621
Bank Owned Life Insurance	85,238			—			85,238
Deferred tax asset	55,710			1,864			57,574
Other assets	49,561			(6,359		)	43,202
Core deposit intangible	—			11,897			11,897
Total assets acquired	2,061,152			(17,121		)	2,044,031
Liabilities assumed:
Deposits	(1,614,910		)	(1,163		)	(1,616,073		)
Borrowings	(142,567		)	14,840			(127,727		)
Other liabilities	(14,372		)	1,130			(13,242		)
Total liabilities assumed	(1,771,849		)	14,807			(1,757,042		)
Net assets acquired	$	289,303		$	(2,314	)	$	286,989
Goodwill recorded in the merger							$	187,941

The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative

to the closing date estimates and uncertainties become available. As the Company finalizes its review of the acquired assets and

liabilities, certain adjustments to the recorded carrying values may be required.

Supplemental Pro Forma Financial Information

The following table presents financial information regarding the former Cape Bancorp, Inc. (“Cape”) operations included in the Consolidated Statements of Income from the date of the acquisition (May 2, 2016) through December 31, 2016 and regarding the former Ocean Shore Holding Co. (“Ocean Shore”), operations included in the Consolidated Statements of Income from the date of the acquisition (December 1, 2016) through December 31, 2016, and regarding the former Sun operations included in the Consolidated Statements of Income from the date of the acquisition (January 31, 2018) through December 31, 2018. In addition, the table provides condensed pro forma financial information assuming the Cape, Ocean Shore and Sun acquisitions had been completed as of January 1, 2016, for the year ended December 31, 2016, and assuming the Sun acquisition had been completed as of January 1, 2017, for the year ended December 31, 2017, and January 1, 2018 for the year ended December 31, 2018. The table has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisitions occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings that may have occurred as a result of the integration and consolidation of Cape’s, Ocean Shore’s, and Sun’s operations. The pro forma information shown reflects adjustments related to certain purchase accounting fair value adjustments; amortization of core deposit and other intangibles; and related income tax effects.



	Sun Actual from January 31, 2018 to December 31, 2018		Cape Actual from May 2, 2016 to December 31, 2016		Ocean Shore Actual from December 1, 2016 to December 31, 2016			Pro forma Year ended December 31, 2018		Pro forma Year ended December 31, 2017		Pro forma Year ended December 31, 2016
(in thousands, except per share amounts)	(Unaudited)
Net interest income	$	63,889	$	34,565	$	3,109		$	246,642	$	242,508	$	236,852
Provision for loan losses	1,215		498		—			3,490		2,914		2,718
Non-interest income	7,961		3,503		349			35,642		38,960		39,150
Non-interest expense	35,184		19,258		1,337			203,733		191,342		226,782
Provision (benefit) for income taxes	7,090		6,947		(60		)	12,911		23,675		(40,177		)
Net income	$	28,361	$	12,311	$	1,397		$	62,150	$	63,537	$	86,679
Fully diluted earnings per share								$	1.27	$	1.32	$	1.84

Core Deposit Intangible

The estimated future amortization expense for the core deposit intangible over the next five years is as follows (in thousands):



For the Year Ended December 31,	Amortization Expense
2019	$	3,583
2020	3,156
2021	2,730
2022	2,303
2023	1,876
Thereafter	3,323
Total	$	16,971

Fair Value Measurement of Assets Acquired and Liabilities Assumed

The methods used to determine the fair value of the assets acquired and liabilities assumed in the Sun acquisition is described below. Refer to Note 15 Fair Value Measurements, for a discussion of the fair value hierarchy.

Securities

The estimated fair values of the securities were calculated utilizing Level 2 inputs. The securities acquired are bought and sold in active markets. Prices for these instruments were obtained through security industry sources that actively participate in the buying and selling of securities.

Loans

The acquired loan portfolio was valued utilizing Level 3 inputs and included the use of present value techniques employing cash flow estimates and incorporated assumptions that marketplace participants would use in estimating fair values. In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine reasonable fair value. Specifically, the Company utilized three separate fair value analyses which a market participant would employ in estimating the total fair value adjustment. The three separate fair valuation methodologies used were: (1) interest rate loan fair value analysis; (2) general credit fair value adjustment; and (3) specific credit fair value adjustment.

To prepare the interest rate fair value analysis, loans were grouped by characteristics such as loan type, term, collateral and rate. Market rates for similar loans were obtained from various external data sources and reviewed by Company management for reasonableness. The average of these rates was used as the fair value interest rate a market participant would utilize. A present value approach was utilized to calculate the interest rate fair value adjustment.

The general credit fair value adjustment was calculated using a two part general credit fair value analysis: (1) expected lifetime losses and (2) estimated fair value adjustment for qualitative factors. The expected lifetime losses were calculated using an average of historical losses of the acquired bank. The adjustment related to qualitative factors was impacted by general economic conditions and the risk related to lack of experience with the originator’s underwriting process.

To calculate the specific credit fair value adjustment, the Company reviewed the acquired loan portfolio for loans meeting the definition of an impaired loan with deteriorated credit quality. Loans meeting this criteria were reviewed by comparing the contractual cash flows to expected collectible cash flows. The aggregate expected cash flows less the acquisition date fair value resulted in an accretable yield amount which will be recognized over the life of the loans on a level yield basis as an adjustment to yield.

Premises and Equipment

Fair values are based upon appraisals from independent third parties. In addition to owned properties, Sun operated twenty one properties subject to lease agreements.

Deposits and Core Deposit Premium

Core deposit premium represents the value assigned to non-interest-bearing demand deposits, interest-bearing checking, money market and saving accounts acquired as part of the acquisition. The core deposit premium value represents the future economic benefit, including the present value of future tax benefits, of the potential cost saving from acquiring the core deposits as part of an acquisition compared to the cost of alternative funding sources and is valued utilizing Level 2 inputs. The core deposit premium totaled $11.9 million, for the acquisition of Sun and is being amortized over its estimated useful life of approximately 10 years using an accelerated method.

Time deposits are not considered to be core deposits as they are assumed to have a low expected average life upon acquisition. The fair value of time deposits represents the present value of the expected contractual payments discounted by market rates for similar time deposits and is valued utilizing Level 2 inputs.

Borrowings

Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.