National Bank (NBHC) 8-K National Bank Holdings Corporation Announces Completion of Peoples, Inc. Acquisition

Exhibit 99.4

Selected Unaudited Pro Forma Condensed Combined Financial Information

The following tables show selected unaudited pro forma condensed combined financial information about the financial condition and results of operations of National Bank Holdings Corporation (“NBHC”), including per share data, after giving effect to the merger with Peoples, Inc. (“Peoples”) and other pro forma adjustments. The selected unaudited pro forma condensed combined financial information assumes that the merger is accounted for under the acquisition method of accounting for business combinations in accordance with U.S. generally accepted accounting principles (“GAAP”) and that the assets and liabilities of Peoples will be recorded by NBHC at their respective fair values as of the date the merger is completed. The unaudited pro forma condensed combined statement of financial condition gives effect to the transaction as if the transaction had occurred on September 30, 2017. The unaudited pro forma combined statements of operations for the nine months ended September 30, 2017, and the year ended December 31, 2016, give effect to the transaction as if the transaction had become effective on January 1, 2016. In accordance with the merger agreement, the Peoples national mortgage business has been wound down. Accordingly, the unaudited pro forma condensed combined financial statements exclude the results of the Peoples national mortgage business for all periods presented.

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the beginning of each period presented. The unaudited pro forma condensed combined financial information also does not consider any expense efficiencies, increased revenue or other potential financial benefits of the merger. The fair values are estimates as of the date hereof and actual amounts are still in the process of being finalized. Fair values are subject to refinement for up to one year after the closing date as additional information regarding the closing date fair values becomes available. The Peoples consolidated unaudited condensed financial information have been reclassified to conform to the current NBHC presentation.

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NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Statement of Financial Condition

September 30, 2017

(In thousands, except per share and per share data)

	NBHC		Peoples		Pro Forma			Pro Forma
	Consolidated		Consolidated		Adjustments			Combined
ASSETS
Cash and cash equivalents	$	241,160	$	110,896	$	(37,044)	A	$	315,012
Investment securities available-for-sale (at fair value)		812,051		120,792		—			932,843
Investment securities held-to-maturity		275,370		—		—			275,370
Investment securities trading assets		—		5,677		(5,677)	A		—
Non-marketable securities		15,537		4,037		—			19,574
Loans		3,120,543		543,225		(7,000)	B		3,656,768
Allowance for loan losses		(30,047)		(7,559)		7,559	C		(30,047)
Loans, net		3,090,496		535,666		559			3,626,721
Loans held for sale		12,212		70,339		—			82,551
Other real estate owned		12,330		1,740		—			14,070
Premises and equipment, net		91,654		18,849		(143)	D		110,360
Mortgage servicing rights, net		—		4,030		395	E		4,425
Goodwill		59,630		—		49,804	F		109,434
Intangible assets, net		2,840		—		9,839	G		12,679
Other assets		155,692		16,941		(4,507)	H		168,126
Total assets	$	4,768,972	$	888,967	$	13,226		$	5,671,165
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing demand deposits	$	910,675	$	226,469	$	—		$	1,137,144
Interest bearing demand deposits		431,786		152,318		—			584,104
Savings and money market		1,470,714		296,113		—			1,766,827
Time deposits		1,133,167		57,980		—			1,191,147
Total deposits		3,946,342		732,880		—			4,679,222
Securities sold under agreements to repurchase		92,814		—		—			92,814
Federal Home Loan Bank advances		129,115		51,310		—			180,425
Other liabilities		50,457		14,408		(6,618)	I		58,247
Total liabilities		4,218,728		798,598		(6,618)			5,010,708
Shareholders’ equity:
Total shareholders’ equity		550,244		90,369		19,844	J		660,457
Total liabilities and shareholders’ equity	$	4,768,972	$	888,967	$	13,226		$	5,671,165
Common shares outstanding		26,802,964		—		3,398,477			30,201,441

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NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

Unaudited Pro Forma Combined Statement of Operations

For the Nine Months Ended September 30, 2017

(In thousands, except per share and per share data)

	NBHC		Peoples		Pro Forma			Pro Forma
	Consolidated		Consolidated		Adjustments			Combined
Interest and dividend income:
Interest and fees on loans	$	102,238	$	24,076	$	656	K	$	126,970
Interest and dividends on investment securities		19,108		1,747		—			20,855
Dividends on non-marketable securities		619		147		—			766
Interest on interest-bearing bank deposits		687		262		—			949
Total interest and dividend income		122,652		26,232		656			149,540
Interest expense:
Interest on deposits		11,759		564		—			12,323
Interest on borrowings		1,380		610		—			1,990
Total interest expense		13,139		1,174		—			14,313
Net interest income before provision for loan losses		109,513		25,058		656			135,227
Provision for loan losses		9,700		550		—			10,250
Net interest income after provision for loan losses		99,813		24,508		656			124,977
Non-interest income:
Service charges		10,458		2,051		—			12,509
Bank card fees		9,014		1,576		—			10,590
Gain on sale of mortgages, net		1,716		24,647		—			26,363
Bank-owned life insurance income		1,417		44		—			1,461
Other non-interest income		7,149		4,673		(131)	L		11,691
OREO related income		449		5		—			454
Total non-interest income		30,203		32,996		(131)			63,068
Non-interest expense:
Salaries and benefits		59,662		35,053		(100)	M		94,615
Occupancy and equipment		15,887		4,656		—			20,543
Telecommunications and data processing		4,841		1,380		(171)	M		6,050
Marketing and business development		1,878		647		—			2,525
FDIC deposit insurance		2,106		302		—			2,408
Bank card expenses		2,751		753		—			3,504
Professional fees		2,441		825		(655)	M		2,611
Other non-interest expense		7,839		1,783		(608)	N		9,014
Problem asset workout		3,389		1,054		—			4,443
Gain on OREO sales, net		(2,254)		12		—			(2,242)
Intangible asset amortization		4,110		—		1,207	O		5,317
Total non-interest expense		102,650		46,465		(327)			148,788
Income before income taxes		27,366		11,039		852			39,257
Income tax expense		2,668		4,151		324	P		7,143
Net income	$	24,698	$	6,888	$	528		$	32,114
Income per share—basic	$	0.92						$	1.06
Income per share—diluted	$	0.89						$	1.03
Weighted average number of common shares outstanding:
Basic		26,902,128				3,398,477			30,300,605
Diluted		27,636,675				3,398,477			31,035,152

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NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

Unaudited Pro Forma Combined Statement of Operations

For the Year Ended December 31, 2016

(In thousands, except per share and per share data)

	NBHC		Peoples		Pro Forma			Pro Forma
	Consolidated		Consolidated		Adjustments			Combined
Interest and dividend income:
Interest and fees on loans	$	129,317	$	31,082	$	875	K	$	161,274
Interest and dividends on investment securities		29,665		1,668		—			31,333
Dividends on non-marketable securities		748		324		—			1,072
Interest on interest-bearing bank deposits		718		124		—			842
Total interest and dividend income		160,448		33,198		875			194,521
Interest expense:
Interest on deposits		13,963		675		—			14,638
Interest on borrowings		845		1,782		—			2,627
Total interest expense		14,808		2,457		—			17,265
Net interest income before provision for loan losses		145,640		30,741		875			177,256
Provision for loan losses		23,651		656		—			24,307
Net interest income after provision for loan losses		121,989		30,085		875			152,949
Non-interest income:
Service charges		13,900		2,893		—			16,793
Bank card fees		11,429		2,080		—			13,509
Gain on sale of mortgages, net		2,881		39,227		—			42,108
Bank-owned life insurance income		1,861		61		—			1,922
Other non-interest income		7,708		6,733		(174)	L		14,267
OREO related income		2,248		8		—			2,256
Total non-interest income		40,027		51,002		(174)			90,855
Non-interest expense:
Salaries and benefits		79,765		47,003		—			126,768
Occupancy and equipment		22,904		7,054		—			29,958
Telecommunications and data processing		5,970		2,111		—			8,081
Marketing and business development		2,564		852		—			3,416
FDIC deposit insurance		3,236		536		—			3,772
Bank card expenses		4,440		1,063		—			5,503
Professional fees		3,496		933		—			4,429
Other non-interest expense		8,554		2,836		(696)	N		10,694
Problem asset workout		3,983		536		—			4,519
Gain on OREO sales, net		(4,383)		106		—			(4,277)
Intangible asset amortization		5,480		—		1,789	O		7,269
Total non-interest expense		136,009		63,030		1,093			200,132
Income before income taxes	$	26,007	$	18,057	$	(392)		$	43,672
Income tax expense		2,947		6,662		(149)	P		9,460
Net income	$	23,060	$	11,395	$	(243)		$	34,212
Income per share—basic	$	0.81						$	1.08
Income per share—diluted	$	0.79						$	1.05
Weighted average number of common shares outstanding:
Basic		28,313,061				3,398,477			31,711,538
Diluted		29,091,343				3,398,477			32,489,820

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Pro Forma Adjustments Footnotes

The following pro forma adjustments are reflected in the unaudited pro forma combined financial information. All taxable adjustments were calculated using a 38% tax rate to arrive at deferred tax asset or liability adjustments. All adjustments are based on current assumptions and valuations, which are subject to change:

A – To record cash paid for Peoples common stock of $36.2 million to seller and to escrow and to payoff Peoples debt of $5.4 million. To record investment securities trading assets sold of $5.7 million prior to acquisition date. Adjustment also includes Peoples estimated transaction costs of $1.2 million, net of tax of $0.8 million.

B – To record estimated fair value adjustment on loans based on a $7.0 million discount to adjust for credit deterioration of the acquired portfolio. The fair value adjustment is expected to be accreted over an estimated 8 year remaining life of the respective loans in a manner that approximates level yield.

C – To eliminate Peoples allowance for loan losses of $7.6 million.

D – To record estimated fair value adjustment on premises and equipment of $0.1 million.

E – To record estimated fair value adjustment for mortgage servicing rights of $0.4 million.

F – To record estimate of goodwill that will be recognized as part of the transaction. See the allocation of purchase price at Note 3.

G – To record estimate of core deposit intangible asset which is assumed to be amortized sum of the years’ digits over 10 years.

H – To record adjustment to deferred tax asset related to the pro forma adjustments.

I – To record adjustment for payoff of debt of $5.4 million and reversal of the deferred gain on sale of properties of $1.3 million.

J – To eliminate Peoples stockholders’ equity of $90.4 million and to record re-issuance of 3.4 million shares of NBHC’s treasury stock at cost totaling $68.0 million, including a gain on the re-issuance of treasury stock of $42.2 million included in additional paid-in capital.

K – To record accretion of loan portfolio fair value adjustments.

L – To record elimination of amortization of deferred gain on sale of properties of $0.1 million and $0.2 million for the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.

M – To record elimination of directly attributable transaction costs incurred during the nine months ended September 30, 2017 of $0.9 million.

N – To record elimination of interest expense on paid off debt of $0.6 million and $0.8 million during the nine months ended September 30, 2017 and year ended December 31, 2016, respectively. To record amortization of mortgage servicing rights ($0.1) million during the nine months ended September 30, 2017 and year ended December 31, 2016. To record elimination of directly attributable transaction costs incurred during the nine months ended September 30, 2017 of $0.1 million.

O – To record amortization of core deposit intangible asset of $1.2 million and $1.8 million during the nine months ended September 30, 2017 and year ended December 31, 2016, respectively.

P – To record tax effect at a rate of 38%.

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Note 1 Basis of Presentation

NBHC completed the acquisition of Peoples on January 1, 2018, with total consideration a mix of approximately 75% common stock and 25% cash. The acquisition is accounted for under the acquisition method of accounting and, accordingly, the assets and liabilities of Peoples presented in these pro forma condensed combined financial statements have been adjusted to their estimated fair values based upon conditions as of the merger date and as if the transaction had been effective on January 1, 2016 for statements of operations data. Since these are pro forma statements, we cannot assure that the amounts reflected in these financial statements would have been representative of the actual amounts earned had the companies been combined at that time. The fair values are estimates as of the date hereof and actual amounts are still in the process of being finalized. Fair values are subject to refinement for up to one year after the closing date as additional information regarding the closing date fair values becomes available. The unaudited pro forma condensed combined financial statements exclude the results of the Peoples national mortgage business for all periods presented. Accordingly, assets and liabilities of $16.2 million, revenue of $66.9 million and expenses of $62.9 million were excluded from the Peoples historical statement of financial condition and statement of operations for the nine months ended September 30, 2017. Revenue of $108.5 million and expenses of $95.7 million were excluded from the Peoples historical statement of operations for the year ended December 31, 2016.

Note 2 Purchase Price

NBHC completed the acquisition of Peoples on January 1, 2018. Pursuant to the merger agreement, Peoples shareholders received $36.2 million in cash and 3,398,477 shares of NBHC common stock, with a closing price of $32.43 implying a value of $146.4 million. Cash paid included $10.0 million placed in escrow for estimated unknown liabilities that may have existed as of the acquisition date. 

Note 3 Allocation of Purchase Price

Under the acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of Peoples based on their estimated fair value as of the closing of the transaction. The excess of the purchase price over the fair value of the net assets acquired, net of deferred taxes, is allocated to goodwill. Estimated fair value adjustments included in the pro forma unaudited financial statements are based upon available information and certain assumptions considered reasonable may be revised as additional information becomes available. The following are the pro forma adjustments made to record the acquisition and adjust Peoples assets and liabilities to their estimated fair values at September 30, 2017.

(in thousands)
Purchase price allocation:
NBHC common stock paid at January 1, 2018, closing price of $32.43	$	110,213
Cash paid to seller		36,189
Purchase price		146,402
Allocated to:
Historical book value of Peoples assets and liabilities as of September 30, 2017		90,369
Less: Transaction expenses incurred by Peoples, net of tax		(1,165)
Adjusted net historical book value of Peoples assets and liabilities		89,204
Adjustments to record assets and liabilities at fair value:
Loans		(7,000)
Allowance for loan losses		7,559
Premises and equipment		(143)
Mortgage servicing rights		395
Core deposit intangible asset		9,839
Deferred taxes		(4,507)
Other liabilities		1,251
Preliminary pro forma goodwill	$	49,804

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Note 4 Estimated Merger Costs

The table below reflects NBHC’s estimate of the aggregated merger costs of $10.3 million (net of $3.1 million of income tax benefit using a 23% incremental tax rate given the passage of H.R.1, formerly known as the “Tax Cuts and Jobs Act”) expected to be incurred in connection with the merger subsequent to September 30, 2017, which are excluded from the pro forma financial statements. The current estimates of these costs are as follows:

(in thousands)
Change-in-control, severance and retention payments	$	6,052
Conversion and contract termination		4,628
Professional fees and other non-interest expenses		2,730
Pre-tax merger costs		13,410
Income tax benefit		(3,084)
Total merger costs	$	10,326

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