N@N

Yadkin Valley Financial Corporation: Yadkin Valley Financial Corporation Announces Fourth Quarter and Full Year 2008 Results

^{Published on 2009-02-13 06:41:08, Last Modified on 2009-02-13 06:48:47 - Market Wire}
 

ELKIN, NC--(Marketwire - February 13, 2009) - Yadkin Valley Financial Corporation (NASDAQ: [ YAVY ])

Fourth Quarter Highlights:

 -- Total loan growth of 25% (annualized) from the end of the third quarter -- Received approval for $36 million in new capital under the U.S. Treasury Department's Capital Purchase Program -- Tier 1, total capital, and leverage ratios of 9.15%, 10.34%, and 8.25%, respectively for the bank holding company as reported to the Federal Reserve; tangible equity ratio of 6.38% -- Loan loss reserves increased to 1.54% of total loans, compared to 1.42% in the third quarter -- Provision for loan losses of $4.4 million, an increase of $3.0 million compared to the third quarter -- Nonperforming loans increased modestly to 1.01% of total loans from 0.83% of total loans in the third quarter -- Nonperforming assets increased to 1.09% of total assets from 0.86% in the third quarter -- Net charge-offs of 0.60% of average loans (annualized), an increase from 0.24% (annualized) during the third quarter -- Net interest margin of 3.02%, a decrease of 31 basis points compared to 3.33% during the third quarter -- Net income of $217,000 or $0.02 per diluted share -- Declared fourth quarter dividend of $0.13 per share 

Full Year 2008 Highlights:

 -- Successfully closed and integrated the acquisition of Cardinal State Bank, which added $218 million in total assets within the attractive Durham market -- Sidus Financial, Yadkin Valley's mortgage subsidiary, closed in excess of $1.0 billion in new mortgage loans during 2008, a record level of originations -- Total loans grew 30% at December 31, 2008 compared to December 31, 2007; year-over-year loan growth excluding the Cardinal acquisition was 15% -- Total deposits increased 20% on a year-over-year basis; excluding the Cardinal acquisition, deposits increased 2% -- Net charge-offs of 0.26% of average loans, an increase from 0.10% at December 31, 2007 -- Net income of $6.7 million, or $0.59 per diluted share 

Yadkin Valley Financial Corporation (NASDAQ: [ YAVY ]), the holding company for Yadkin Valley Bank and Trust Company, announced financial results for the fourth quarter and full year ending December 31, 2008. Net income for the fourth quarter of 2008 totaled $217,000 or $0.02 per diluted share, compared to net income of $3.1 million or $0.29 per share in the fourth quarter of 2007. The decrease in quarterly net income was primarily due to a $2.7 million increase in the provision for loan losses as compared to the same period as last year. Also impacting net income was a 6% decrease in net interest income, which was primarily driven by a decrease in the prime rate of 400 basis points during 2008.

Net income for the year ended December 31, 2008 was $6.7 million or $0.59 per diluted share, compared to $14.7 million or $1.37 per diluted share for the year ended December 31, 2007. The decrease in net income for the full year ended December 31, 2008 was primarily due to a $5.4 million increase in the provision for loan losses as well as a 4% decrease in net interest income.

Bill Long, President and CEO commented, "As the economic environment becomes even more difficult, Yadkin Valley remains well-positioned to manage the challenges ahead of us. During the fourth quarter, nonperforming assets increased slightly to 1.09% of total assets from 0.86% in the third quarter. While this is above our historic average, our asset quality remains attractive relative to our peers and the industry as a whole, which revealed nonperforming assets as a percentage of total assets above 2.00% on average as of the fourth quarter of 2008. While our asset quality continues to outperform our peers, our reserves as a percentage of total loans are in line with our peers, which on average were above 1.75%. During 2008, we significantly improved our credit administration and review processes, and these improvements will allow us to effectively manage problem assets as we move forward in 2009.

"We remain well-capitalized from a regulatory standpoint, and are pleased to be adding $36 million in new capital during the first quarter of 2009 under the Treasury's Capital Purchase Program. This additional capital will allow us to selectively take advantage of the unique opportunities that have arisen as a result of the market disruption within the banking industry that began last September, particularly as we begin to complete the American Community merger. We believe that we have sufficient capital to grow our franchise, as well as absorb any potential loan losses.

"During the fourth quarter, we made substantial progress on planning the American Community merger and integrating their employees and processes. The planned extensive training is ongoing for American Community employees in areas including risk grading and underwriting loans, real estate value assessment, and problem loan reporting and tracking. We have reviewed American Community's loan portfolio extensively for potential losses, and believe that the risk inherent in its loan portfolio is manageable. The merger remains on track, and is expected to close soon after the special shareholders' meetings scheduled for February 26, 2009. Since the end of 2002, we have successfully integrated three financial institutions with total assets of $587 million, and we believe this speaks to our ability to successfully acquire and integrate quality financial institutions.

"While credit quality remains our top priority, we are still focused on profitable growth. Sidus Financial, our mortgage subsidiary, completed a record year in 2008 in terms of originations, closing just over $1.0 billion in new mortgage loans, and begins 2009 with a loan pipeline at record levels. We believe this volume is significant in light of the current weak housing environment, and expect it to improve our noninterest income.

"Lastly, while we are cautiously optimistic about growth prospects for the markets in which we operate, we believe that we will successfully weather a difficult 2009. We expect modest loan growth compared to prior years, excluding the American Community merger. We believe that our net interest margin will remain relatively stable during the first quarter of 2009 as deposit pricing has become more rational across our markets. We anticipate that we will continue to add to our loan loss reserves as we expect economic conditions to weaken over the next six months. While we anticipate that our asset quality metrics will deteriorate slightly during the first half of 2009, we believe that they will continue to outperform our peer and industry averages, and remain at manageable levels."

FOURTH QUARTER 2008 FINANCIAL HIGHLIGHTS

Net Interest Income and Net Interest Margin

Net interest income totaled $9.9 million, a decrease of 6% compared to $10.5 million in the fourth quarter of 2007. The decrease in net interest income on a year-over-year basis was primarily due to the 400 basis points decrease in the prime rate during 2008, which had a more immediate effect upon variable rate loans than deposit costs. The net interest margin decreased by 101 basis points to 3.02% in the fourth quarter of 2008 from 4.03% in the fourth quarter of 2007.

Compared to the third quarter of 2008, net interest income decreased 7%. The decrease in net interest income was primarily due to a 31 basis point decrease in the net interest margin, to 3.02% from 3.33%, primarily resulting from the 175 basis points decrease in the prime rate that occurred during the fourth quarter of 2008.

Non-Interest Income

Non-interest income increased 22% to $4.5 million, compared to $3.7 million in the fourth quarter of 2007. The increase in year-over-year non-interest income was primarily related to a 14% increase in service charges, and a 51% increase in mortgage sale gains. Also contributing to the increase in non-interest income was a $215,000 write-down to market value of other real-estate owned during the fourth quarter of 2007. This real estate, most of which was rental property, was acquired in a foreclosure which occurred during the third quarter of 2007.

Compared to the third quarter of 2008, non-interest income increased $1.5 million (48%). This increase was primarily due a third quarter pretax charge of $972,800 for other than temporary impairment on Freddie Mac preferred stock. Excluding this charge, non-interest income would have increased 12% compared to the third quarter. Service charges increased 2% sequentially, while gains on mortgage sales rose 20%.

Non-Interest Expense

Non-interest expense increased 26% to $10.1 million compared to $8.0 million in the fourth quarter of 2007. The year-over-year increase was largely due to additional salary and benefits expense, occupancy expense, and other expense associated with the Cardinal State Bank acquisition.

Compared to the third quarter of 2008, non-interest expenses increased 4%, primarily due to a 24% increase in other expense. The increase in other expense was primarily related to an increase in year end payables over the prior year. These payables consisted of normal operating expenses accrued at each year end that increased due to additional bank branches and timing of vendor billing. Offsetting the increase in other expense was a 4% decrease in salaries and employee benefits, due to the reversal of incentive plan accruals, and a 14% decrease in occupancy expense due to the reversal of prior quarters' over accrual for property taxes.

Balance Sheet Growth

Total assets increased $315.6 million, or 26% compared to the fourth quarter of 2007. Total loans increased $286.0 million, or 30% compared to the fourth quarter of 2007, and total deposits increased $191.6 million, or 20%. The increase in assets, loans, and deposits on a year-over-year basis was primarily due to the acquisition of Cardinal State Bank. Excluding the Cardinal acquisition, assets increased 8%, loans increased 15%, and deposits increased 2% year-over-year.

Compared to the September 30, 2008, total assets, loans, and deposits increased 16%, 25%, and 17% on an annualized basis. The increase in loans was largely driven by an increase in already established equity credit lines, particularly within the Cardinal State and Piedmont markets. Deposit growth was primarily driven by an increase in CDs as well as money market accounts as customers moved their balances to Yadkin Valley as a result of the disruption in the banking environment. Deposit growth was strong, particularly in the Yadkin Valley and High Country regions.

Asset Quality

Nonperforming loans increased by $2.9 million to $12.6 million or 1.01% of total loans compared to $9.7 million or 0.83% of total loans as of the third quarter of 2008. The majority of the increase was due to the addition of one $1.8 million residential builder relationship which was added to nonaccrual loans during the fourth quarter of 2008. The remainder of the additions to nonperforming loans was related to several smaller credits comprised of various loan types. Approximately 25% to 30% of the Company's nonaccrual loans continue to pay as agreed. The following chart highlights nonperforming loans by loan category, and as a percentage of total loans:

 Nonperforming Loan Analysis (Dollars in thousands) ------------------------------------------- Fourth Quarter 2008 Third Quarter 2008 --------------------- --------------------- % of % of Outstanding Total Outstanding Total Loan Type Balance Loans Balance Loans ------------ ------- ------------ ------- Construction/land development $ 1,777 0.14% $ 1,881 0.16% Residential construction 1,807 0.15% 855 0.07% HELOC 219 0.02% 708 0.06% 1-4 Family residential 2,187 0.18% 722 0.06% Multifamily residential 539 0.04% 103 0.01% Commercial real estate 1,585 0.13% 542 0.05% Commercial & industrial 4,288 0.35% 4,603 0.40% Consumer & other 148 0.01% 253 0.02% ------------ ------- ------------ ------- Total $ 12,550 1.01% $ 9,667 0.83% ------------ ------- ------------ -------

Other real estate owned (OREO) totaled $4.0 million at the end of the fourth quarter compared to $3.0 million in the third quarter. The increase in OREO was primarily attributable to tracts of land that were acquired in foreclosure. Total nonperforming assets were $16.6 million or 1.09% of total assets as of December 31, 2008, up from $12.7 million or 0.86% of total assets as of September 30, 2008.

During the fourth quarter of 2008, net charge-offs totaled 0.60% of average loans on an annualized basis, compared to 0.24% during the third quarter of 2008. Loan loss reserves as a percentage of total loans increased to 1.54% in the fourth quarter of 2008, up from 1.42% in the third quarter of 2008.

Capital

Yadkin Valley remains well-capitalized for regulatory purposes. As of December 31, 2008, the total capital ratio was 10.34%, Tier 1 ratio was 9.15%, and leverage ratio was 8.25% for the bank holding company. The bank's total capital ratio was 10.26%, Tier 1 ratio was 9.01%, and leverage ratio was 8.12%. Tangible equity as a percentage of tangible assets was 6.38%.

Conference Call

Yadkin Valley Financial will host a conference call today at 11:00 a.m. EST to discuss fourth quarter and full year 2008 financial results. The call may be accessed by dialing 877-545-1490 at least 10 minutes prior to the call. A webcast of the call may also be accessed at[ http://investor.shareholder.com/media/eventdetail.cfm?mediaid=35521&c=YAVY&mediakey=AEF65777FEB6DAF4428EFC8BD7771FE4&e=0 ] (Due to its length, this URL may need to be copied and pasted into your Internet browser's address field. Remove the extra space if one exists.)

About Yadkin Valley Financial Corporation

Yadkin Valley Financial Corporation is the holding company for Yadkin Valley Bank and Trust Company, a full service community bank providing services in 29 branches throughout its four regions in North Carolina. The Yadkin Valley Bank region serves Ashe, Forsyth, Surry, Wilkes, and Yadkin Counties. The Piedmont Bank region serves Iredell and Mecklenburg Counties. The High Country Bank region serves Avery and Watauga Counties. The Cardinal State Bank region serves Durham, Orange, and Granville Counties. The Bank provides mortgage lending services through its subsidiary, Sidus Financial, LLC, headquartered in Greenville, North Carolina and operates a loan production office in Wilmington, NC. Securities brokerage services are provided by Main Street Investment Services, Inc., a Bank subsidiary with four offices located in the branch network. Yadkin Valley Financial Corporation website is[ www.yadkinvalleybank.com ]. Yadkin Valley shares are traded on NASDAQ under the symbol YAVY.

Certain statements in this press release contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements concerning our future growth, plans, objectives, expectations, performance, events and the like, as well as any other statements, including those regarding the proposed merger, that are not historical facts and are thus prospective. Such forward-looking statements are subject to risks, uncertainties, and other factors, including, but not limited to: the businesses of Yadkin Valley and American Community may not be integrated successfully or such integration may take longer to accomplish than expected; disruption from the merger may make it more difficult to maintain relationships with clients, associates, or suppliers; the required governmental approvals of the merger may not be obtained on the proposed terms and schedule; shareholders may not approve the merger; continued disruption in worldwide and U.S. economic conditions; changes in the interest rate environment which may reduce the net interest margin; a continued downturn in the economy or real estate market; greater than expected noninterest expenses or excessive loan losses as a result of changes in market conditions and the adverse impact on the value of the underlying collateral and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. For a more detailed description of factors that could cause or contribute to such differences, please see Yadkin Valley's and American Community's filings with the Securities and Exchange Commission.

Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. These projections and statements are based on management's estimates and assumptions with respect to future events and financial performance and are believed to be reasonable though they are inherently uncertain and difficult to predict. Therefore, we can give no assurance that the results contemplated in the forward-looking statements will be realized. The inclusion of this forward-looking information should not be construed as a representation by either company or any person that the future events, plans, or expectations contemplated by either company will be achieved. Yadkin Valley and American Community do not intend to and assume no responsibility for updating or revising any forward-looking statement contained in this press release, whether as a result of new information, future events or otherwise

 Yadkin Valley Financial Corporation (Amounts in thousands except per share data) (unaudited) For the Three Months Ended December 31, September 30, December 31, 2008 2008 2007 Interest Income: Interest and fees on loans $ 16,586 $ 17,552 $ 17,532 Interest on federal funds sold 11 8 31 Interest on taxable securities 1,272 1,335 1,390 Interest on tax-exempt securities 393 382 348 Interest-bearing deposits 76 161 38 ------------- ------------- ------------- Interest income 18,338 19,438 19,339 Interest expense 8,449 8,813 8,800 ------------- ------------- ------------- Net interest income 9,889 10,625 10,539 Provision for loan losses 4,360 1,334 1,689 ------------- ------------- ------------- Net interest income after provision for loan loss 5,529 9,291 8,850 ------------- ------------- ------------- Noninterest Income: Service charges on deposit accounts 1,148 1,172 1,008 Other service fees 779 858 841 Net gain on sales of mortgage loans 2,250 1,872 1,488 Net (loss) on sales of investment securities (43) (966) 1 Income on investment in bank owned life Insurance 221 238 260 Mortgage banking income 123 (11) 175 Other income (loss) 35 (105) (77) ------------- ------------- ------------- Total noninterest income 4,513 3,058 3,696 ------------- ------------- ------------- Noninterest Expense: Salaries and employee benefits 4,956 5,136 4,708 Occupancy and equipment expense 1,123 1,307 930 Printing and supplies 333 176 141 Data processing 186 217 83 Communications expense 277 272 193 Amortization of core deposit intangible 225 229 187 Other expense 3,003 2,424 1,753 ------------- ------------- ------------- Total noninterest expense 10,103 9,761 7,995 ------------- ------------- ------------- Income before income taxes (61) 2,588 4,551 Income taxes (278) 795 1,484 ------------- ------------- ------------- Net income $ 217 $ 1,793 $ 3,067 ============= ============= ============= Income per share: Basic $ 0.02 $ 0.16 $ 0.29 Diluted $ 0.02 $ 0.15 $ 0.29 Average shares outstanding - basic 11,533 11,525 10,570 Average shares outstanding - diluted 11,585 11,583 10,650 Yadkin Valley Financial Corporation (Amounts in thousands except per share data) (unaudited) For the Twelve Months Ended December 31, 2008 2007 2006 Interest income $ 74,781 $ 75,193 $ 67,306 Interest expense 34,536 33,301 26,429 ------------- ------------- ------------- Net interest income 40,245 41,892 40,877 Provision for loan losses 7,852 2,489 2,165 ------------- ------------- ------------- Net interest income after provision for loan loss 32,393 39,403 38,712 ------------- ------------- ------------- Noninterest Income: Service charges on deposit accounts 4,394 3,946 3,758 Other service fees 3,378 3,561 3,400 Net gain on sales of mortgage loans 7,679 5,882 6,026 Net gain (loss) on sales of investment securities (1,016) 45 (86) Income on investment in bank owned life Insurance 928 1,046 699 Mortgage banking income 190 451 257 Bank owned life insurance death benefit 564 Other income (loss) (6) (50) 291 ------------- ------------- ------------- Total noninterest income 15,547 15,445 14,345 ------------- ------------- ------------- Noninterest Expense: Salaries and employee benefits 20,007 19,161 18,693 Occupancy and equipment expense 4,701 3,917 3,901 Printing and supplies 890 550 591 Data processing 786 399 418 Communications expense 1,035 1,127 1,031 Amortization of core deposit intangible 877 777 813 Other expense 10,363 7,028 6,646 ------------- ------------- ------------- Total noninterest expense 38,659 32,959 32,093 ------------- ------------- ------------- Income before income taxes 9,281 21,889 20,964 Income taxes 2,630 7,201 7,172 ------------- ------------- ------------- Net income $ 6,651 $ 14,688 $ 13,792 ============= ============= ============= Income per share: Basic $ 0.59 $ 1.39 $ 1.30 Diluted $ 0.59 $ 1.37 $ 1.28 Average shares outstanding - basic 11,236 10,595 10,641 Average shares outstanding - diluted 11,307 10,713 10,789 Yadkin Valley Financial Corporation (Amounts in thousands except per share data) (unaudited) As of Dec 31, 2008 2007* 2006* Assets Cash and due from banks $ 22,553 $ 24,268 $ 42,387 Federal funds sold and interest-bearing deposits 3,469 2,058 1,669 Securities available for sale 137,771 142,484 127,521 Gross loans held for investment 1,187,569 898,753 814,910 Allowance for loan losses (19,098) (12,446) (10,829) ------------- ------------- ------------- Net loans held for investment 1,168,471 886,307 804,081 Loans held for sale 49,929 52,754 42,351 Accrued interest receivable 5,594 6,055 5,796 Premises and equipment, net 33,900 26,780 27,098 Federal Home Loan Bank stock 7,877 2,557 3,633 Investment in bank-owned life insurance 23,607 22,683 22,797 Goodwill 54,149 32,697 32,697 Core deposit intangible 4,660 4,261 5,038 Other assets 14,651 8,173 5,797 ------------- ------------- ------------- Total Assets $ 1,526,631 $ 1,211,077 $ 1,120,865 ============= ============= ============= Liabilities and Stockholders' Equity Non-interest bearing deposits $ 153,573 $ 154,979 $ 151,812 NOW, savings, and money market 283,891 232,888 233,032 Time deposits over $100,000 333,375 267,530 228,553 Other time deposits 384,203 308,045 294,450 ------------- ------------- ------------- Total deposits 1,155,042 963,442 907,847 Borrowed funds 207,962 104,199 79,063 Accrued interest payable 3,554 3,435 2,975 Other liabilities 7,670 6,732 6,581 ------------- ------------- ------------- Total Liabilities 1,374,228 1,077,808 996,466 Stockholders' equity 152,403 133,269 124,399 ------------- ------------- ------------- Total Liabilities and Stockholders' Equity $ 1,526,631 $ 1,211,077 $ 1,120,865 ============= ============= ============= Shares outstanding at end of period 11,536 10,563 10,611 * Note: Derived from audited financial statements Yadkin Valley Financial Corporation (unaudited) For the Three Months Ended Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, 2008 2008 2008 2008 2007 (restated) Per Share Data: Basic Earnings per Share $ 0.02 $ 0.16 $ 0.15 $ 0.28 $ 0.29 Diluted Earnings per Share $ 0.02 $ 0.15 $ 0.15 $ 0.27 $ 0.29 Book Value per Share $ 13.21 $ 13.24 $ 13.00 $ 13.16 $ 12.62 Tangible Book Value per Share $ 8.11 $ 8.12 $ 7.87 $ 8.12 $ 9.12 Cash Dividends per Share $ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.13 Selected Performance Ratios: Return on Average Assets (annualized) 0.06% 0.49% 0.49% 0.98% 1.04% Return on Average Equity (annualized) 0.56% 4.66% 4.57% 8.55% 9.14% Return on Tangible Equity (annualized) 0.91% 7.61% 7.45% 11.75% 12.66% Net Interest Margin (annualized) 3.02% 3.33% 3.34% 3.56% 4.03% Net Interest Spread (annualized) 2.65% 2.90% 2.87% 2.94% 3.30% Noninterest Income as a % of Revenue 44.94% 24.76% 31.84% 30.61% 26.45% Noninterest Income as a % of Average Assets 0.31% 0.21% 0.29% 0.33% 0.32% Noninterest Expense as a % of Average Assets 0.68% 0.68% 0.72% 0.73% 0.69% Net Noninterest income as a % of Average Assets -0.38% -0.47% -0.43% -0.40% -0.37% Efficiency Ratio 67.61% 68.64% 67.82% 62.68% 54.12% Asset Quality: Nonperforming Loans (000's) 12,551 9,667 4,830 4,992 1,962 Nonperforming Assets(000's) 16,569 12,668 6,945 7,289 2,564 Nonperforming Loans to Total Loans 1.01% 0.83% 0.43% 0.48% 0.21% Nonperforming Assets to Total Assets 1.09% 0.86% 0.49% 0.51% 0.21% Allowance for Loan Losses to Total Loans Held For Investment 1.61% 1.48% 1.48% 1.40% 1.38% Allowance for Loan Losses to Nonperforming Loans 152% 171% 329% 292% 634% Net Charge-offs/Recoveries to Average Loans (annualized) 0.60% 0.24% 0.14% (0.01)% 0.21% Capital Ratios: Equity to Total Assets 9.98% 10.39% 10.46% 10.58% 11.01% Tangible Equity to Tangible Assets 6.38% 6.64% 6.60% 6.80% 8.21% Tier 1 leverage ratio(1) 8.12% 8.36% 8.40% 10.07% 8.41% Tier 1 risk-based ratio(1) 9.01% 9.40% 9.34% 9.50% 9.16% Total risk-based capital ratio(1) 10.26% 10.65% 10.59% 10.74% 10.36% Note: (1) Tier 1 leverage, Tier 1 risk-based and Total risk-based ratios are ratios for the bank, Yadkin Valley Bank and Trust Company, as reported on Consolidated Reports of Condition and Income for a Bank With Domestic Offices Only - FFIEC 041 Yadkin Valley Financial Corporation (unaudited) For the Twelve Months Ended Dec 31, Dec 31, Dec 31, Dec 31, 2008 2007 2006 2005 Selected Performance Ratios: Return on Average Assets 0.48% 1.31% 1.31% 1.14% Return on Average Equity 4.58% 11.32% 11.52% 9.79% Return on Tangible Equity 6.99% 15.90% 16.80% 14.65% Net Interest Margin 3.31% 4.20% 4.45% 4.10% Net Interest Spread 2.86% 3.49% 3.88% 3.71% Noninterest Income as a % of Revenue 32.43% 28.15% 27.04% 28.68% Noninterest Income as a % of Average Assets 1.13% 1.37% 1.36% 1.35% Noninterest Expense as a % of Average Assets 2.81% 2.93% 3.05% 3.02% Net Noninterest Income as a % of Average Assets -1.68% -1.56% -1.69% -1.67% Efficiency Ratio 66.74% 55.45% 56.16% 59.32% Asset Quality: Net Charge-offs to Average Loans 0.26% 0.10% 0.10% 0.12% Yadkin Valley Financial Corporation Average Balance Sheets and Net Interest Income Analysis (Dollars in Thousands) (Unaudited) Three Months Ended: December 31, 2008 December 31, 2007 -------------------------- -------------------------- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ---------- ------- ------ ---------- ------- ------ INTEREST EARNING ASSETS Federal funds sold $ 4,609 $ 11 0.95% $ 3,493 $ 31 3.52% Interest bearing deposits 6,220 76 4.85% 3,387 38 4.45% Investment securities (1) 137,010 1,838 5.32% 144,191 1,892 5.21% Total loans (1,2) 1,179,459 16,621 5.59% 905,455 17,570 7.70% ---------- ------- ---------- ------- Total average earning assets (1) 1,327,298 18,546 5.54% 1,056,526 19,531 7.33% ------- ------- Noninterest earning assets 149,763 108,609 ---------- ---------- Total average assets $1,477,061 $1,165,135 ========== ========== INTEREST BEARING LIABILITIES NOW and money market $ 244,607 $ 856 1.39% $ 193,008 $ 1,078 2.22% Savings 36,964 30 0.32% 35,281 70 0.79% Time certificates 701,426 6,638 3.75% 565,841 6,863 4.81% ---------- ------- ---------- ------- Total interest bearing deposits 982,997 7,524 3.04% 794,130 8,011 4.00% Repurchase agreements sold 45,920 210 1.81% 40,490 357 3.50% Borrowed funds 129,672 715 2.19% 31,072 432 5.52% ---------- ------- ---------- ------- Total interest bearing liabilities 1,158,589 8,449 2.89% 865,692 8,800 4.03% ---------- ------- ---------- ------- Noninterest bearing deposits 153,322 159,218 Stockholders' equity 153,344 133,166 Other liabilities 11,806 7,059 ---------- ---------- Total average liabilities and stockholders' equity $1,477,061 $1,165,135 ========== ========== NET INTEREST INCOME/ YIELD (3,4) $10,097 3.02% $10,731 4.03% ======= ======= INTEREST SPREAD (5) 2.65% 3.30% 1. Yields related to securities and loans exempt from Federal income taxes are stated on a fully tax-equivalent basis, assuming a Federal income tax rate of 34%, reduced by the nondeductible portion of interest expense. 2. The loan average includes loans on which accrual of interest has been discontinued. 3. Net interest income is the difference between income from earning assets and interest expense. 4. Net interest yield is net interest income divided by total average earning assets. 5. Interest spread is the difference between the average interest rate received on earning assets and the average rate paid on interest bearing liabilities. Yadkin Valley Financial Corporation Average Balance Sheets and Net Interest Income Analysis (Dollars in Thousands) (Unaudited) Twelve Months Ended: December 31, 2008 December 31, 2007 -------------------------- -------------------------- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ---------- ------- ------ ---------- ------- ------ INTEREST EARNING ASSETS Federal funds sold $ 2,451 $ 56 2.28% $ 5,825 $ 298 5.12% Interest bearing deposits 9,885 376 3.80% 3,213 148 4.61% Investment securities (1) 138,674 7,442 5.37% 137,839 7,067 5.13% Total loans (1,2) 1,088,626 67,725 6.22% 867,725 68,377 7.88% ---------- ------- ---------- ------- Total average earning assets (1) 1,239,636 75,599 6.10% 1,014,602 75,890 7.48% ------- ------- Noninterest earning assets 136,221 110,230 ---------- ---------- Total average assets $1,375,857 $1,124,832 ========== ========== INTEREST BEARING LIABILITIES NOW and money market $ 235,836 $ 3,866 1.64% $ 188,909 $ 4,196 2.22% Savings 36,949 185 0.50% 36,152 343 0.95% Time certificates 640,282 26,210 4.09% 550,448 26,453 4.81% ---------- ------- ---------- ------- Total interest bearing deposits 913,067 30,261 3.31% 775,509 30,992 4.00% Repurchase agreements sold 48,981 1,132 2.31% 36,171 1,223 3.38% Borrowed funds 103,086 3,143 3.05% 21,980 1,086 4.94% ---------- ------- ---------- ------- Total interest bearing liabilities 1,065,134 34,536 3.24% 833,660 33,301 3.99% ---------- ------- ---------- ------- Noninterest bearing deposits 154,074 154,838 Stockholders' equity 145,184 129,722 Other liabilities 11,465 6,612 ---------- ---------- Total average liabilities and stockholders' equity $1,375,857 $1,124,832 ========== ========== NET INTEREST INCOME/ YIELD (3,4) $41,063 3.31% $42,589 4.20% ======= ======= INTEREST SPREAD (5) 2.86% 3.49% 1. Yields related to securities and loans exempt from Federal income taxes are stated on a fully tax-equivalent basis, assuming a Federal income tax rate of 34%, reduced by the nondeductible portion of interest expense. 2. The loan average includes loans on which accrual of interest has been discontinued. 3. Net interest income is the difference between income from earning assets and interest expense. 4. Net interest yield is net interest income divided by total average earning assets. 5. Interest spread is the difference between the average interest rate received on earning assets and the average rate paid on interest bearing liabilities.