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Yadkin Financial Corporation Reports Second Quarter 2014 Results

RALEIGH, N.C., July 23, 2014 (GLOBE NEWSWIRE) -- Yadkin Financial Corporation (NYSE:YDKN) (the "Company" and "Yadkin"), the parent company of Yadkin Bank, announced today financial results for the second quarter ended June 30, 2014. Net income available to common shareholders excluding merger-related expenses for the quarter was $4.3 million, or $0.30 per diluted share. Net income available to common shareholders for the quarter was $3.8 million, or $0.26 per diluted share, compared to $3.3 million, or $0.23 per diluted share, in the first quarter of 2014. These second quarter financial results do not include the financial results of VantageSouth Bancshares, Inc. ("VantageSouth"), which was merged with and into the Company on July 4, 2014.

Second Quarter 2014 Financial Highlights:

Yadkin VantageSouth
Q2 2014 Q1 2014 Q2 2014 Q1 2014
Pre-tax, pre-provision operating earnings (millions) $ 6.70 $ 6.33 $ 8.36 $ 7.13
Annualized operating return on average assets 1.08% 1.00% 0.95% 0.72%
Annualized operating return on average equity 10.29% 9.67% 8.34% 6.05%
Operating efficiency ratio 66.62% 68.61% 65.31% 70.06%
Operating earnings per diluted common share $ 0.30 $ 0.27 $ 0.09 $ 0.06
Net loan charge-offs (0.23)% 0.32% 0.07% 0.33%
Annualized net loan growth 10.93% 7.71% (3.99)% (1.52)%
Taxable equivalent net interest margin 4.00% 4.11% 4.13% 4.19%
Tangible common equity to tangible assets 8.99% 8.75% 9.89% 9.89%

"2014 has been an eventful year for the Company and with the legal close of the VantageSouth merger on July 4, 2014, Yadkin became the largest community bank headquartered in North Carolina," said Scott Custer, President and Chief Executive Officer of Yadkin, "The combination of two of North Carolina's largest community banks provides Yadkin with the growth opportunities, scale and footprint to continue to deliver a best-in-class customer experience, offer competitive financial services and solutions, provide a rewarding experience for our teammates and generate top-tier financial performance for our shareholders."

"Yadkin and VantageSouth produced strong results individually while working hard to close the merger and plan for the integration," Joe Towell, Executive Chairman of Yadkin and CEO prior to the VantageSouth merger, stated. "Yadkin's financial performance in the second quarter continued to improve as net operating earnings available to common shareholders reached $4.3 million; an increase of 10% over Q1 2014 results. Yadkin's net recoveries for the quarter and improving efficiency contributed significantly to the improvement in operating results." Custer, commenting on VantageSouth results, added, "VantageSouth turned in record operating results in its final quarter as a stand-alone company. Net operating earnings available to common shareholders totaled $5.0 million, an increase of 50% from Q1 2014 to Q2 2014. These results were realized by lowering credit costs, improving fee income and continuing strong expense control."

Towell continued, "late in the second quarter we received final regulatory and shareholder approvals for the VantageSouth merger which closed on July 4. The core system conversion is scheduled for late Q3 2014. Our integration planning is right on track including organizational design, system selection, product mapping, training and rebranding. We are encouraged by the way employees of both companies have come together to work on the integration and the creation of the new company. We welcome all of our new customers and look forward to a successful 2014 and beyond."

Discussion of Yadkin Q2 Results

Net operating earnings, which exclude merger and conversion costs and securities gains and losses, totaled $4.9 million in the second quarter of 2014 compared to $4.4 million in the first quarter of 2014. Similarly, pre-tax, pre-provision operating earnings increased to $6.7 million in the second quarter of 2014 from $6.3 million in the first quarter of 2014. Net income was $4.4 million in the second quarter of 2014 compared to $3.9 million in the first quarter of 2014. After preferred stock dividends, net income available to common stockholders was $3.8 million, or $0.26 per diluted common share, in the second quarter of 2014 compared to $3.3 million, or $0.23 per diluted common share, in the first quarter of 2014.

Net interest income remained flat at $16.6 million for the quarter. Net interest margin contracted during the quarter but still remains strong with a quarterly average margin of 4.00 percent, down 11 basis points from 4.11 percent at March 31, 2014. The decrease in net interest margin was primarily the result of lower yields on loans partially offset by lower rates on interest-bearing liabilities. Lower loan yields were primarily the result of new loan originations at lower current market rates.

In the second quarter of 2014, our core deposits increased by $1.9 million, and core deposits represented 65.9 percent of total deposits as of June 30, 2014. Management continued its strategy of focusing on lower cost demand deposits as the cost of deposits decreased to 0.42 percent for the quarter as compared to 0.45 percent in the first quarter of 2014.

During the second quarter of 2014, the recovery of loan losses was $891 thousand as total net recoveries for the second quarter of 2014 were $819 thousand, or (0.23) percent of average loans on an annualized basis. At June 30, 2014, the allowance for loan losses was $16.4 million, compared to $16.5 million at March 31, 2014. As a percentage of total loans held-for-investment, the allowance for loan losses was 1.15 percent in the second quarter of 2014, down from 1.19 percent in the first quarter of 2014. Management continues to focus on the allowance to ensure that adequate coverage is maintained.

The Company's key asset quality metrics continue to be strong as we maintain our focus on quality lending, underwriting, and problem asset resolution. First, our adversely classified assets to Tier 1 capital and loan loss reserve ratio has remained stable at 17.0 percent at the end of the first and second quarters. Nonperforming loans totaled $19.0 million at June 30, 2014 and the nonperforming loans to total loans ratio increased slightly to 1.32 percent at June 30, 2014, compared to 1.09 percent at March 31, 2014 due primarily to two new large relationships which Yadkin Bank has been monitoring. Other real estate owned (OREO) totaled $2.3 million at June 30, 2014, a decrease of $557 thousand compared to March 31, 2014. Total nonperforming assets at June 30, 2014 were $21.3 million, or 1.17 percent of total assets, up from $17.9 million, or 0.99 percent of total assets, at March 31, 2014.

Nonperforming Loan Analysis
(Dollars in thousands) June 30, 2014 March 31, 2014
Loan Type Outstanding Balance % of Total Loans Outstanding Balance % of Total Loans
Construction/land development $ 1,628 0.11% $ 1,595 0.12%
Residential construction 577 0.04% 586 0.04%
HELOC 1,012 0.07% 904 0.07%
1-4 Family Residential 4,576 0.32% 2,682 0.19%
Commercial real estate 8,148 0.57% 7,797 0.56%
Commercial & Industrial 2,787 0.19% 1,245 0.09%
Consumer & Other 254 0.02% 272 0.02%
Total $ 18,982 1.32% $ 15,081 1.09%

Non-interest income decreased $1.2 million to $3.5 million in the second quarter of 2014 compared to $4.7 million in the first quarter of 2014. This decrease is due primarily to a gain on sale of securities of $1.1 million recognized during the first quarter of 2014, as management made a strategic decision to redeploy the cash from this gain on sale to the Company's lending activities. In addition, income from our mortgage business continues to be impacted by the slowdown in the mortgage industry.

Non-interest expense decreased $1.2 million during the second quarter of 2014, to $14.0 million as compared to $15.2 million in the first quarter of 2014, as merger expenses decreased to $649 thousand in the second quarter of 2014 compared to $1.4 million recorded in the first quarter of 2014. Excluding merger expenses and gains on sale of securities, operating efficiency ratio improved from 68.61 percent in the first quarter of 2014 to 66.62 percent in the second quarter of 2014.

Discussion of VantageSouth Q2 Results

Net operating earnings, which exclude merger and conversion costs, restructuring charges, and securities gains, totaled $5.0 million in the second quarter of 2014 compared to $3.7 million in the first quarter of 2014 as provision for loan losses declined and VantageSouth cut costs and continued to improve its operating efficiency ratio. Pre-tax, pre-provision operating earnings increased to $8.4 million in the second quarter of 2014 from $7.1 million in the first quarter of 2014. Net income was $3.5 million in the second quarter of 2014 compared to $2.1 million in the first quarter of 2014. After preferred stock dividends and accretion, net income available to common stockholders was $3.5 million, or $0.06 per common share, in the second quarter of 2014 compared to $1.7 million, or $0.03 per common share, in the first quarter of 2014.

Net interest income was $19.0 million in the second quarter of 2014 compared to $19.1 million in the first quarter of 2014. Net interest margin declined from 4.19 percent in the first quarter of 2014 to 4.13 percent in the second quarter of 2014. The decrease in net interest income and margin was primarily the result of lower yields on loans only partially offset by lower rates on interest-bearing liabilities. Core net interest margin, which excludes the impact of acquisition accounting on net interest income and average balances, was 3.33 percent in the second quarter of 2014 compared to 3.34 percent in the first quarter of 2014.

Income accretion on purchased loans totaled $5.0 million in the second quarter of 2014, which consisted of $3.0 million of accretion on purchased credit-impaired ("PCI") loans and $2.0 million of accretion income on purchased non-impaired loans. PCI loan accretion represents all interest income recorded for those loans in the period while accretion income on purchased non-impaired loans represents accretion of the fair value discount, which increased interest income above contractual yields. Income accretion on purchased loans in the first quarter of 2014 totaled $5.2 million, which included $3.1 million of accretion on PCI loans and $2.0 million of accretion income on purchased non-impaired loans. Accretion income on purchased non-impaired loans included $798 thousand of accelerated accretion due to principal prepayments in the second quarter of 2014 compared to $631 thousand in the first quarter of 2014. Fair value amortization on interest-bearing liabilities totaled $563 thousand in the second quarter of 2014 and $624 thousand in the first quarter of 2014, which reduced interest expense in both periods.

Provision for loan losses was $464 thousand in the second quarter of 2014, which was a decrease from $1.3 million in the first quarter of 2014. The lower provision for loan losses was primarily due to a $1.2 million decrease in provision expense for non-PCI loans, which was partially offset by a $345 thousand increase in provision on certain PCI loan pools. Provision expense on non-PCI loans was impacted by significantly lower net loan charge-offs which declined from 0.33 percent in the first quarter of 2014 to 0.07 percent of average loans in the second quarter of 2014. The table below summarizes the changes in VantageSouth's allowance for loan losses ("ALLL") in the second quarter of 2014 and first quarter of 2014.

(Dollars in thousands) Non-PCI Loans PCI Loans Total
Q2 2014:
Balance at April 1, 2014 $ 5,164 $ 2,049 $ 7,213
Net charge-offs (226) (226)
Provision for loan losses 431 33 464
Balance at June 30, 2014 $ 5,369 $ 2,082 $ 7,451
Q1 2014:
Balance at January 1, 2014 $ 4,682 $ 2,361 $ 7,043
Net charge-offs (1,120) (1,120)
Provision for loan losses 1,602 (312) 1,290
Balance at March 31, 2014 $ 5,164 $ 2,049 $ 7,213

The ALLL was $7.5 million, or 0.54 percent of total loans as of June 30, 2014, compared to $7.2 million, or 0.52 percent of total loans as of March 31, 2014, and $6.4 million, or 0.49 percent of total loans as of June 30, 2013. Adjusted ALLL, which includes the ALLL and net acquisition accounting fair value adjustments for acquired loans, represented 2.42 percent of total loans as of June 30, 2014 compared to 2.54 percent as of March 31, 2014 and 3.72 percent as of June 30, 2013.

Nonperforming loans as a percentage of total loans was 1.53 percent as of June 30, 2014, which was an increase from 1.50 percent as of March 31, 2014 and 1.14 percent as of June 30, 2013. Total nonperforming assets (which include nonaccrual loans, loans past due 90 days or more and still accruing, and foreclosed assets) as a percentage of total assets was 1.44 percent as of June 30, 2014, which was a slight increase from 1.43 percent as of March 31, 2014 and 1.33 percent as of June 30, 2013.

Non-interest income totaled $5.3 million in the second quarter of 2014 compared to $4.7 million in the first quarter of 2014. Government-guaranteed, small business lending income, which includes gains on sales of the guaranteed portion of certain SBA loans originated by VantageSouth as well as servicing fees on previously sold SBA loans, decreased by $220 thousand due to a slight decline in loan sales. Despite the decline from the first quarter of 2014, government guaranteed lending income continues to be a major source of non-interest income and the Company expects strong performance in the third quarter. Offsetting this decrease, mortgage banking income increased by $212 thousand primarily due to an increase in volume and an increase in profit margins on loans sold to investors. Additionally, service charges and bank-owned life insurance income increased by $172 thousand and $83 thousand, respectively.

Non-interest expense totaled $17.8 million in the second quarter of 2014 compared to $18.7 million in the first quarter of 2014. Operating non-interest expense, which excludes merger and conversion costs, restructuring charges, and securities gains, declined $952 thousand during this period as VantageSouth continued to focus on cutting costs and operating more efficiently following its merger with ECB Bancorp, Inc. in April 2013 and then-pending merger with Yadkin. VantageSouth's operating efficiency ratio, which excludes merger and conversion costs and restructuring charges, improved from 70.1 percent in the first quarter of 2014 to 65.3 percent in the second quarter of 2014. Restructuring charges in the first and second quarter of 2014 consisted of severance expenses related to a branch optimization plan that will result in the closure or sale of five underperforming branches as well as an initiative to streamline VantageSouth's organizational structure in certain back office functions. As a result of the branch optimization plan, four branch closures occurred in May 2014 and one branch is scheduled to be sold in the third quarter of 2014.

Income tax expense was $2.5 million in the second quarter of 2014, which was an increase from $1.7 million in the first quarter of 2014. The effective tax rate decreased from 44.3 percent in the first quarter of 2014 to 41.4 percent in the second quarter of 2014 as VantageSouth incurred lower non-deductible merger expenses and had higher deductible income on bank-owned life insurance.

Yadkin Financial Corporation is the holding company for Yadkin Bank, a full-service community bank with 74 branches across North Carolina and upstate South Carolina. Yadkin Financial Corporation voting common stock is traded on the NYSE under the symbol "YDKN." Investors can access additional corporate information, investor relations information, product descriptions and online services through Yadkin Bank's website at www.yadkinbank.com.

Conference Call

Yadkin Financial Corporation will host a conference call at 10:00 a.m. EST on Wednesday, July 23rd, to discuss financial results, business highlights, and outlook. The call may be accessed by dialing (855) 241-9862 and requesting the Yadkin Financial Corporation Second Quarter 2014 Earnings Call. Listeners should dial in 10-15 minutes prior to the start of the call.

A webcast of the conference call will be available online at www.yadkinbank.com and following the links to About Us, Investor Relations. A replay of the call will be available through August 22, 2014, by dialing (800) 633-8284 or (402) 977-9140 and entering reservation number 21727674.

Non-GAAP Financial Measures

Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. Yadkin and VantageSouth use these non-GAAP financial measures, including: (i) net operating earnings (loss); (ii) pre-tax, pre-provision operating earnings; (iii) operating non-interest expense, (iv) operating efficiency ratio, (v) adjusted allowance for loan losses to loans; and (vi) tangible common equity, in their analysis of the company's performance. Net operating earnings (loss) excludes the following from net income (loss): securities gains, a one-time acquisition gain, merger and conversion costs, restructuring charges, income tax expense from the change in future state tax rates, and the income tax effect of adjustments. Pre-tax, pre-provision operating earnings excludes the following from net income (loss): provision for (recovery of) loan losses, income tax expense (benefit), securities gains, a one-time acquisition gain, restructuring charges, and merger and conversion costs. Operating non-interest expense excludes merger and conversion costs and restructuring charges from non-interest expense. The operating efficiency ratio excludes a one-time acquisition gain, securities gains and losses, merger and conversion costs, and restructuring charges from the efficiency ratio. Adjusted allowance for loan losses adds net acquisition accounting fair value discounts to the allowance for loan losses. Tangible common equity excludes preferred stock as well as goodwill and other intangible assets, net, from total stockholders' equity.

Management believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider Yadkin and VantageSouth performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

Forward-Looking Statements

Information in this press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, reduced earnings due to larger than expected credit losses in the sectors of our loan portfolio secured by real estate due to economic factors, including declining real estate values, increasing interest rates, increasing unemployment, or changes in payment behavior or other factors; reduced earnings due to larger credit losses because our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral; the rate of delinquencies and amount of loans charged-off; the adequacy of the level of our allowance for loan losses and the amount of loan loss provisions required in future periods; costs or difficulties related to the integration of the banks we acquired or may acquire may be greater than expected; results of examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for loan losses or writedown assets; the amount of our loan portfolio collateralized by real estate, and the weakness in the commercial real estate market; our ability to maintain appropriate levels of capital, including levels of capital required under the capital rules implementing Basel III; the impact of our efforts to raise capital on our financial position, liquidity, capital, and profitability; the increase in the cost of capital of our Series T and Series T-ACB Preferred Stock in 2014 if we do not redeem within five years of the date of issuance; adverse changes in asset quality and resulting credit risk-related losses and expenses; increased funding costs due to market illiquidity, increased competition for funding, and increased regulatory requirements with regard to funding; significant increases in competitive pressure in the banking and financial services industries; changes in the interest rate environment which could reduce anticipated or actual margins; changes in political conditions or the legislative or regulatory environment, including the effect of recent financial reform legislation on the banking industry; general economic conditions, either nationally or regionally and especially in our primary service area, becoming less favorable than expected resulting in, among other things, a deterioration in credit quality; our ability to retain our existing customers, including our deposit relationships; changes occurring in business conditions and inflation; changes in monetary and tax policies; ability of borrowers to repay loans, which can be adversely affected by a number of factors, including changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, natural disasters, which could be exacerbated by potential climate change, and international instability; risks associated with a failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors and other service providers or other third parties, including as a result of cyber attacks, which could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses; changes in accounting principles, policies or guidelines; changes in the assessment of whether a deferred tax valuation allowance is necessary; our reliance on secondary sources such as FHLB advances, sales of securities and loans, federal funds lines of credit from correspondent banks and out-of-market time deposits, to meet our liquidity needs; loss of consumer confidence and economic disruptions resulting from terrorist activities or other military actions; and changes in the securities markets. Additional factors that could cause actual results to differ materially are discussed in the Company's filings with the Securities and Exchange Commission ("SEC"), including without limitation its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, and its Current Reports on Form 8-K. Information in this press release also contains forward-looking statements with respect to the recent merger of VantageSouth with and into the Company. These statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by such forward-looking statements, including without limitation: potential deposit attrition, higher than expected costs, customer loss and business disruption associated with business integration, including, without limitation, potential difficulties in maintaining relationships with key personnel, and technological integration. The forward-looking statements in this press release speak only as of the date of the press release, and the Company does not assume any obligation to update such forward-looking statements.

YADKIN QUARTERLY RESULTS OF OPERATIONS

Three Months Ended
(Dollars in thousands, except per share data) June 30,
2014
March 31,
2014
December 31,
2013
September 30,
2013
June 30,
2013
Interest income
Loans $ 16,952 $ 16,937 $ 17,126 $ 16,849 $ 16,950
Investment securities 1,600 1,719 1,773 1,616 1,686
Federal funds sold and interest-earning deposits 16 10 4 5 15
Total interest income 18,568 18,666 18,903 18,470 18,651
Interest expense
Deposits 1,600 1,669 1,732 1,911 2,121
Short-term borrowings 211 214 165 143 60
Long-term debt 171 180 257 280 349
Total interest expense 1,982 2,063 2,154 2,334 2,530
Net interest income 16,586 16,603 16,749 16,136 16,121
Provision for (recovery of) loan losses (891) (460) (3,017) 40 55
Net interest income after provision for (recovery of) loan losses 17,477 17,063 19,766 16,096 16,066
Non-interest income
Service charges and fees on deposit accounts 1,243 1,224 1,264 1,336 1,317
Other service fees 1,264 1,025 1,066 1,259 1,401
Mortgage banking 769 1,022 1,162 1,713 2,546
Bank-owned life insurance 137 137 145 152 150
Gain (loss) on sales of available for sale securities 3 1,128 (2,884) 253 272
Other 75 161 429 668 498
Total non-interest income 3,491 4,697 1,182 5,381 6,184
Non-interest expense
Salaries and employee benefits 7,367 7,917 7,854 7,780 7,953
Occupancy and equipment 1,758 1,746 2,049 2,001 1,951
Data processing 293 275 376 374 350
FDIC insurance premiums 239 151 433 363 642
Professional services 440 409 537 327 675
Foreclosed asset expenses 169 310 302 93 (174)
Loan, collection, and repossession expense 47 97 118 203 201
Merger and conversion costs 649 1,352
Other 3,060 2,936 2,043 3,009 3,245
Total non-interest expense 14,022 15,193 13,712 14,150 14,843
Income before income taxes 6,946 6,567 7,236 7,327 7,407
Income tax expense 2,558 2,659 2,579 2,616 2,598
Net income 4,388 3,908 4,657 4,711 4,809
Dividends and accretion on preferred stock 608 559 421 421 590
Net income available to common stockholders $ 3,780 $ 3,349 $ 4,236 $ 4,290 $ 4,219
NET INCOME PER COMMON SHARE
Basic $ 0.27 $ 0.24 $ 0.30 $ 0.30 $ 0.30
Diluted $ 0.26 $ 0.23 $ 0.30 $ 0.30 $ 0.30
WEIGHTED AVERAGE COMMON SHARES
Weighted average common shares outstanding - basic 14,217,607 14,211,456 14,206,070 14,205,705 14,205,223
Weighted average common shares outstanding - diluted 14,279,164 14,269,453 14,259,809 14,249,152 14,223,604
Three Months Ended
(Dollars in thousands, except per share data) June 30,
2014
March 31,
2014
December 31,
2013
September 30,
2013
June 30,
2013
PERFORMANCE RATIOS (annualized)
Return on average assets 0.84% 0.76% 0.93% 0.95% 0.93%
Return on average equity 7.96% 7.29% 9.31% 9.74% 9.63%
Yield on earning assets, tax equivalent 4.47% 4.61% 4.54% 4.48% 4.50%
Cost of interest-bearing liabilities 0.60% 0.63% 0.64% 0.69% 0.74%
Net interest margin, tax equivalent 4.00% 4.11% 4.04% 3.93% 3.90%
Efficiency ratio 69.84% 71.33% 76.47% 65.76% 66.55%
Net loan charge-offs (recoveries) (0.23)% 0.32% (0.02)% 0.58% 0.49%
Reconciliation of GAAP to Non-GAAP
OPERATING EARNINGS
Net income (GAAP) $ 4,388 $ 3,908 $ 4,657 $ 4,711 $ 4,809
Securities (gains) losses (3) (1,128) 2,884 (253) (272)
Merger and conversion costs 649 1,352
Income tax effect of adjustments (146) 312 (1,120) 100 106
Net operating earnings (Non-GAAP) 4,888 4,444 6,421 4,558 4,643
Dividends and accretion on preferred stock 608 559 421 421 590
Net operating earnings available to common stockholders (Non-GAAP) $ 4,280 $ 3,885 $ 6,000 $ 4,137 $ 4,053
Net operating earnings per common share:
Basic (Non-GAAP) $ 0.30 $ 0.27 $ 0.42 $ 0.29 $ 0.29
Diluted (Non-GAAP) $ 0.30 $ 0.27 $ 0.42 $ 0.29 $ 0.28
Net operating return on average assets 1.08% 1.00% 1.41% 1.01% 1.02%
Net operating return on average equity 10.29% 9.67% 14.12% 10.35% 10.59%
PRE-TAX, PRE-PROVISION OPERATING EARNINGS
Net income (GAAP) $ 4,388 $ 3,908 $ 4,657 $ 4,711 $ 4,809
Provision for (recovery of) loan losses (891) (460) (3,017) 40 55
Income tax expense 2,558 2,659 2,579 2,616 2,598
Pre-tax, pre-provision income 6,055 6,107 4,219 7,367 7,462
Securities (gains) losses (3) (1,128) 2,884 (253) (272)
Merger and conversion costs 649 1,352
Pre-tax, pre-provision operating earnings (Non-GAAP) $ 6,701 $ 6,331 $ 7,103 $ 7,114 $ 7,190
OPERATING NON-INTEREST EXPENSE
Non-interest expense (GAAP) $ 14,022 $ 15,193 $ 13,712 $ 14,150 $ 14,843
Merger and conversion costs (649) (1,352)
Operating non-interest expense (Non-GAAP) $ 13,373 $ 13,841 $ 13,712 $ 14,150 $ 14,843
OPERATING EFFICIENCY RATIO
Efficiency ratio (GAAP) 69.84% 71.33% 76.47% 65.76% 66.55%
Effect to adjust for securities gains 0.01% 3.99% (10.59)% 0.78% 0.82%
Effect to adjust for gain on acquisition —% —% —% —% —%
Effect to adjust for merger and conversion costs (3.23)% (6.71)% —% —% —%
Effect to adjust for restructuring costs —% —% —% —% —%
Operating efficiency ratio (Non-GAAP) 66.62% 68.61% 65.88% 66.54% 67.37%

YADKIN YEAR-TO-DATE RESULTS OF OPERATIONS

Six Months Ended June 30,
(Dollars in thousands, except per share data) 2014 2013
Interest income
Loans $ 33,889 $ 33,629
Investment securities 3,319 3,234
Federal funds sold and interest-earning deposits 26 63
Total interest income 37,234 36,926
Interest expense
Deposits 3,269 4,904
Short-term borrowings 425 153
Long-term debt 351 696
Total interest expense 4,045 5,753
Net interest income 33,189 31,173
Provision for (recovery of) loan losses (1,351) 292
Net interest income after provision for (recovery of) loan losses 34,540 30,881
Non-interest income
Service charges and fees on deposit accounts 2,467 2,586
Other service fees 2,289 2,327
Mortgage banking 1,791 5,834
Bank-owned life insurance 274 303
Gain on sales of available for sale securities 1,131 276
Other 236 514
Total non-interest income 8,188 11,840
Non-interest expense
Salaries and employee benefits 15,285 15,343
Occupancy and equipment 3,505 3,765
Data processing 568 744
FDIC insurance premiums 389 1,234
Professional services 850 974
Foreclosed asset expenses 478 (997)
Loan, collection, and repossession expense 144 418
Merger and conversion costs 2,001
Other 5,995 6,576
Total non-interest expense 29,215 28,057
Income before income taxes 13,513 14,664
Income tax expense 5,217 5,206
Net income 8,296 9,458
Dividends and accretion on preferred stock 1,167 1,035
Net income available to common stockholders $ 7,129 $ 8,423
NET INCOME PER COMMON SHARE
Basic $ 0.50 $ 0.59
Diluted $ 0.50 $ 0.59
WEIGHTED AVERAGE COMMON SHARES
Weighted average common shares outstanding - basic 14,214,549 14,200,264
Weighted average common shares outstanding - diluted 14,274,304 14,200,264
Six Months Ended June 30,
(Dollars in thousands, except per share data) 2014 2013
PERFORMANCE RATIOS (annualized)
Return on average assets 0.80% 0.92%
Return on average equity 7.63% 9.78%
Yield on earning assets, tax equivalent 4.54% 4.41%
Cost of interest-bearing liabilities 0.62% 0.82%
Net interest margin, tax equivalent 4.06% 3.73%
Efficiency ratio 70.61% 65.23%
Net loan charge-offs 0.04% 0.38%
Reconciliation of GAAP to Non-GAAP
OPERATING EARNINGS
Net income (GAAP) $ 8,296 $ 9,458
Securities gains (1,131) (276)
Merger and conversion costs 2,001
Income tax effect of adjustments 165 108
Net operating earnings (Non-GAAP) 9,331 9,290
Dividends and accretion on preferred stock 1,167 1,035
Net operating earnings available (loss attributable) to common stockholders (Non-GAAP) $ 8,164 $ 8,255
Net operating earnings per common share:
Basic (Non-GAAP) $ 0.57 $ 0.58
Diluted (Non-GAAP) $ 0.57 $ 0.58
Net operating return on average assets 1.04% 1.01%
Net operating return on average equity 9.98% 10.79%
Net income (GAAP) $ 8,296 $ 9,458
Provision for (recovery of) loan losses (1,351) 292
Income tax expense 5,217 5,206
Pre-tax, pre-provision income 12,162 14,956
Securities gains (1,131) (276)
Merger and conversion costs 2,001
Pre-tax, pre-provision operating earnings (Non-GAAP) $ 13,032 $ 14,680
OPERATING NON-INTEREST EXPENSE
Non-interest expense (GAAP) $ 29,215 $ 28,057
Merger and conversion costs (2,001)
Operating non-interest expense (Non-GAAP) $ 27,214 $ 28,057
OPERATING EFFICIENCY RATIO
Efficiency ratio (GAAP) 70.61% 65.23%
Effect to adjust for securities gains 1.98% 0.42%
Effect to adjust for gain on acquisition —% —%
Effect to adjust for merger and conversion costs (4.97)% —%
Effect to adjust for restructuring costs —% —%
Operating efficiency ratio (Non-GAAP) 67.62% 65.65%

YADKIN QUARTERLY BALANCE SHEETS

Ending Balances
(Dollars in thousands, except per share data) June 30, March 31, December 31, September 30, June 30,
2014 2014 2013 2013 2013
Assets
Cash and due from banks $ 32,159 $ 32,254 $ 32,226 $ 32,417 $ 28,104
Interest-earning deposits with banks 3,957 29,249 8,759 6,695 4,654
Federal funds sold 15 15 10 15 50
Investment securities available for sale 259,143 267,093 288,922 328,690 330,345
Loans held for sale 15,696 6,962 18,913 12,632 22,545
Loans 1,419,868 1,382,698 1,358,746 1,333,437 1,314,761
Allowance for loan losses (16,449) (16,522) (18,063) (21,014) (22,924)
Net loans 1,403,419 1,366,176 1,340,683 1,312,423 1,291,837
Federal Home Loan Bank stock 3,778 2,789 3,473 5,273 3,473
Premises and equipment, net 40,204 40,396 40,698 41,050 42,410
Bank-owned life insurance 27,306 27,169 27,032 26,888 26,736
Foreclosed assets 2,271 2,828 3,267 2,989 3,812
Deferred tax asset, net 16,955 20,305 23,425 26,588 29,225
Other intangible assets, net 1,665 1,818 1,974 2,133 2,301
Accrued interest receivable and other assets 16,315 16,433 16,645 15,724 16,423
Total assets $ 1,822,883 $ 1,813,487 $ 1,806,027 $ 1,813,517 $ 1,801,915
Liabilities
Deposits:
Non-interest demand $ 296,861 $ 287,585 $ 267,596 $ 266,951 $ 252,618
Interest-bearing demand 228,429 231,230 224,260 222,063 222,125
Money market and savings 468,809 473,351 469,298 454,439 464,313
Time 515,482 533,308 557,269 547,883 584,041
Total deposits 1,509,581 1,525,474 1,518,423 1,491,336 1,523,097
Short-term borrowings 72,879 49,083 43,260 85,129 30,915
Long-term debt 35,959 40,956 45,954 45,951 60,981
Accrued interest payable and other liabilities 10,706 9,198 13,920 12,229 12,306
Total liabilities 1,629,125 1,624,711 1,621,557 1,634,645 1,627,299
Stockholders' equity
Preferred stock, no par value 28,405 28,405 28,405 28,339 28,273
Common stock, $1.00 par value 14,380 14,381 14,384 14,384 14,384
Common stock warrant 1,850 1,850 1,850 1,850 1,850
Additional paid-in capital 187,264 187,317 187,118 186,994 186,869
Accumulated deficit (40,163) (43,943) (47,292) (51,528) (55,818)
Accumulated other comprehensive income (loss) 2,022 766 5 (1,167) (942)
Total stockholders' equity 193,758 188,776 184,470 178,872 174,616
Total liabilities and stockholders' equity $ 1,822,883 $ 1,813,487 $ 1,806,027 $ 1,813,517 $ 1,801,915
Ending Balances
June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands, except per share data) 2014 2014 2013 2013 2013
COMMON SHARE DATA
Book value per common share $ 11.50 $ 11.15 $ 10.85 $ 10.47 $ 10.17
Tangible book value per common share $ 11.38 $ 11.03 $ 10.71 $ 10.32 $ 10.01
Ending shares outstanding 14,380,127 14,380,673 14,383,986 14,383,986 14,383,986
CAPITAL RATIOS
Tangible equity to tangible assets 10.55% 10.32% 10.12% 9.76% 9.69%
Tangible common equity to tangible assets 8.99% 8.75% 8.54% 8.19% 8.00%
Yadkin Financial Corporation:
Tier 1 leverage ratio 12.18% 11.88% 11.45% 11.12% 10.56%
Tier 1 risk-based capital ratio 14.02% 13.93% 13.46% 13.2% 12.8%
Total risk-based capital ratio 15.01% 14.95% 14.59% 14.38% 13.98%
Yadkin Bank:
Tier 1 leverage ratio 12.07% 11.71% 11.24% 10.88% 10.3%
Tier 1 risk-based capital ratio 13.89% 13.73% 13.21% 12.92% 12.49%
Total risk-based capital ratio 14.95% 14.82% 14.41% 14.17% 13.74%
ASSET QUALITY DATA
Nonperforming loans $ 18,982 $ 15,082 $ 15,393 $ 17,874 $ 19,698
Foreclosed assets 2,271 2,828 3,267 2,989 3,812
Total nonperforming assets $ 21,253 $ 17,910 $ 18,660 $ 20,863 $ 23,510
Allowance for loan losses to loans 1.15% 1.19% 1.31% 1.56% 1.71%
Nonperforming loans to total loans 1.32% 1.09% 1.12% 1.33% 1.47%
Nonperforming assets to total assets 1.17% 0.99% 1.03% 1.15% 1.30%
Restructured loans not included in categories above $ 1,894 $ 1,910 $ 5,033 $ 5,599 $ 6,627
Reconciliation of GAAP to Non-GAAP
TANGIBLE COMMON EQUITY
Total stockholders' equity (GAAP) $ 193,758 $ 188,776 $ 184,470 $ 178,872 $ 174,616
Less: Preferred stock 28,405 28,405 28,405 28,405 28,405
Less: Goodwill and other intangible assets, net 1,665 1,818 1,974 2,133 2,301
Tangible common equity (Non-GAAP) $ 163,688 $ 158,553 $ 154,091 $ 148,334 $ 143,910

YADKIN QUARTERLY NET INTEREST MARGIN ANALYSIS

Three months ended Three months ended Three months ended
June 30, 2014 March 31, 2014 June 30, 2014
Average Average Average
(Dollars in thousands) Balance Interest* Yield/Cost* Balance Interest* Yield/Cost* Balance Interest* Yield/Cost*
Assets
Loans $ 1,404,273 $ 16,979 4.85% $ 1,371,694 $ 16,966 5.02% $ 1,325,313 $ 16,978 5.14%
Investment securities 262,951 1,860 2.84 286,094 2,046 2.90 353,837 2,041 2.31
Federal funds and other 22,808 16 0.28 16,794 10 0.24 17,741 15 0.34
Total interest-earning assets 1,690,032 18,855 4.47% 1,674,582 19,022 4.61% 1,696,891 19,034 4.50%
Non-interest-earning assets 118,816 122,754 123,142
Total assets $ 1,808,848 $ 1,797,336 $ 1,820,033
Liabilities and Equity
Interest-bearing demand $ 227,031 $ 41 0.07% $ 221,867 $ 56 0.10% $ 214,216 $ 46 0.09%
Money market and savings 469,710 242 0.21 463,489 237 0.21 460,750 239 0.21
Time 527,444 1,317 1.00 548,673 1,376 1.02 607,172 1,835 1.23
Total interest-bearing deposits 1,224,185 1,600 0.52 1,234,029 1,669 0.55 1,282,138 2,120 0.67
Short-term borrowings 52,549 211 1.61 47,059 214 1.84 38,433 61 0.64
Long-term debt 37,495 171 1.83 42,565 180 1.72 60,947 348 2.32
Total interest-bearing liabilities 1,314,229 1,982 0.60% 1,323,653 2,063 0.63% 1,381,518 2,529 0.74%
Non-interest-bearing deposits 294,596 276,878 251,482
Other liabilities 9,457 10,459 11,260
Total liabilities 1,618,282 1,610,990 1,644,260
Stockholders' equity 190,565 186,346 175,774
Total liabilities and stockholders' equity $ 1,808,847 $ 1,797,336 $ 1,820,034
Net interest income, taxable equivalent $ 16,873 $ 16,959 $ 16,505
Interest rate spread 3.87% 3.98% 3.76%
Tax equivalent net interest margin 4.00% 4.11% 3.90%
Percentage of average interest-earning assets to average interest-bearing liabilities 128.59% 126.51% 122.83%
* Taxable equivalent basis

YADKIN YEAR-TO-DATE NET INTEREST MARGIN ANALYSIS

Six months ended
June 30, 2014
Six months ended
June 30, 2013
Average Average
(Dollars in thousands) Balance Interest* Yield/Cost* Balance Interest* Yield/Cost*
Assets
Loans $ 1,388,073 $ 33,945 4.93% $ 1,323,294 $ 33,685 5.13%
Investment securities 274,459 3,906 2.87 359,158 3,879 2.18
Federal funds and other 19,817 26 0.26 40,099 64 0.32
Total interest-earning assets 1,682,349 37,877 4.54% 1,722,551 37,628 4.41%
Non-interest-earning assets 120,775 125,861
Total assets $ 1,803,124 $ 1,848,412
Liabilities and Equity
Interest-bearing demand $ 224,463 97 0.09% $ 203,315 $ 91 0.09%
Money market and savings 466,617 479 0.21 453,645 468 0.21
Time 538,000 2,693 1.01 649,736 4,345 1.35
Total interest-bearing deposits 1,229,080 3,269 0.54 1,306,696 4,904 0.76
Short-term borrowings 49,819 425 1.72 39,620 154 0.78
Long-term debt 40,016 351 1.77 60,945 695 2.30
Total interest-bearing liabilities 1,318,915 4,045 0.62% 1,407,261 5,753 0.82%
Noninterest-bearing deposits 285,786 255,660
Other liabilities 9,956 11,822
Total liabilities 1,614,657 1,674,743
Stockholders' equity 188,467 173,670
Total liabilities and stockholders' equity $ 1,803,124 $ 1,848,413
Net interest income, taxable equivalent $ 33,832 $ 31,875
Interest rate spread 3.92% 3.59%
Tax equivalent net interest margin 4.06% 3.73%
Percentage of average interest-earning assets to average interest-bearing liabilities 127.56% 122.40%
* Taxable equivalent basis

VANTAGESOUTH QUARTERLY RESULTS OF OPERATIONS (Unaudited)

Three Months Ended
(Dollars in thousands, except per share data) June 30,
2014
March 31,
2014
December 31,
2013
September 30,
2013
June 30,
2013
Interest income
Loans $ 19,803 $ 19,906 $ 20,206 $ 20,348 $ 20,376
Investment securities 1,992 1,985 2,360 1,846 2,005
Federal funds sold and interest-earning deposits 26 26 19 33 21
Total interest income 21,821 21,917 22,585 22,227 22,402
Interest expense
Deposits 1,657 1,659 1,661 1,621 1,619
Short-term borrowings 95 78 65 46 42
Long-term debt 1,029 1,031 1,048 654 313
Total interest expense 2,781 2,768 2,774 2,321 1,974
Net interest income 19,040 19,149 19,811 19,906 20,428
Provision for loan losses 464 1,290 757 1,280 1,492
Net interest income after provision for loan losses 18,576 17,859 19,054 18,626 18,936
Non-interest income
Service charges and fees on deposit accounts 1,487 1,315 1,407 1,512 1,525
Government-guaranteed lending 2,121 2,341 1,884 1,525 1,058
Mortgage banking 530 318 468 310 1,096
Bank-owned life insurance 389 306 397 324 310
Gain on sales of available for sale securities 217 123
Gain on acquisition 7,382
Other 523 387 397 866 743
Total non-interest income 5,267 4,667 4,553 4,537 12,237
Non-interest expense
Salaries and employee benefits 8,574 9,014 9,452 10,034 11,009
Occupancy and equipment 2,523 2,636 2,600 2,497 2,408
Data processing 991 1,030 1,096 1,105 1,075
FDIC insurance premiums 365 390 436 423 400
Professional services 594 544 780 598 914
Foreclosed asset expenses 151 263 10 201 79
Loan, collection, and repossession expense 350 679 802 909 792
Merger and conversion costs 1,968 1,209 599 477 11,961
Restructuring charges 93 836
Other 2,186 2,130 2,348 2,438 2,502
Total non-interest expense 17,795 18,731 18,123 18,682 31,140
Income before income taxes 6,048 3,795 5,484 4,481 33
Income tax expense (benefit) 2,504 1,681 2,220 2,997 (2,808)
Net income 3,544 2,114 3,264 1,484 2,841
Dividends and accretion on preferred stock 377 711 708 705
Net income available (loss attributable) to common stockholders $ 3,544 $ 1,737 $ 2,553 $ 776 $ 2,136
NET INCOME PER COMMON SHARE
Basic $ 0.06 $ 0.03 $ 0.06 $ 0.02 $ 0.05
Diluted $ 0.06 $ 0.03 $ 0.06 $ 0.02 $ 0.05
WEIGHTED AVERAGE COMMON SHARES
Weighted average common shares outstanding - basic 55,259,830 52,075,323 46,032,153 46,021,308 45,916,707
Weighted average common shares outstanding - diluted 55,563,960 52,360,688 46,222,652 46,213,216 45,935,330
Three Months Ended
(Dollars in thousands, except per share data) June 30,
2014
March 31,
2014
December 31,
2013
September 30,
2013
June 30,
2013
PERFORMANCE RATIOS (annualized)
Return on average assets 0.67% 0.41% 0.63% 0.29% 0.58%
Return on average equity 5.91% 3.45% 5.54% 2.55% 4.81%
Yield on earning assets, tax equivalent 4.74% 4.80% 4.90% 5.12% 4.91%
Cost of interest-bearing liabilities 0.67% 0.69% 0.59% 0.51% 0.76%
Net interest margin, tax equivalent 4.13% 4.19% 4.39% 4.67% 4.24%
Efficiency ratio 73.21% 78.65% 74.38% 76.43% 95.33%
Net loan charge-offs 0.07% 0.33% 0.22% 0.20% 0.18%
Reconciliation of GAAP to Non-GAAP
OPERATING EARNINGS
Net income (GAAP) $ 3,544 $ 2,114 $ 3,264 $ 1,484 $ 2,841
Securities gains (217) (123)
Gain on acquisition (7,382)
Merger and conversion costs 1,968 1,209 599 477 11,961
Restructuring charges 93 836
Income tax effect of adjustments (387) (452) (24) (172) (4,484)
Deferred tax asset revaluation from reduction in state income tax rates 1,218
Net operating earnings (Non-GAAP) 5,001 3,707 3,839 3,007 2,813
Dividends and accretion on preferred stock 377 711 708 705
Net operating earnings available to common stockholders (Non-GAAP) $ 5,001 $ 3,330 $ 3,128 $ 2,299 $ 2,108
Net operating earnings per common share:
Basic (Non-GAAP) $ 0.09 $ 0.06 $ 0.07 $ 0.05 $ 0.05
Diluted (Non-GAAP) $ 0.09 $ 0.06 $ 0.07 $ 0.05 $ 0.05
Net operating return on average assets 0.95% 0.72% 0.74% 0.59% 0.57%
Net operating return on average equity 8.34% 6.05% 6.52% 5.16% 4.76%
PRE-TAX, PRE-PROVISION OPERATING EARNINGS
Net income (GAAP) $ 3,544 $ 2,114 $ 3,264 $ 1,484 $ 2,841
Provision for loan losses 464 1,290 757 1,280 1,492
Income tax expense (benefit) 2,504 1,681 2,220 2,997 (2,808)
Pre-tax, pre-provision income 6,512 5,085 6,241 5,761 1,525
Securities gains (217) (123)
Gain on acquisition (7,382)
Merger and conversion costs 1,968 1,209 599 477 11,961
Restructuring charges 93 836
Pre-tax, pre-provision operating earnings (Non-GAAP) $ 8,356 $ 7,130 $ 6,840 $ 6,238 $ 5,981
OPERATING NON-INTEREST EXPENSE
Non-interest expense (GAAP) $ 17,795 $ 18,731 $ 18,123 $ 18,682 $ 31,140
Merger and conversion costs (1,968) (1,209) (599) (477) (11,961)
Restructuring charges (93) (836)
Operating non-interest expense (Non-GAAP) $ 15,734 $ 16,686 $ 17,524 $ 18,205 $ 19,179
OPERATING EFFICIENCY RATIO
Efficiency ratio (GAAP) 73.21% 78.65% 74.38% 76.43% 95.33%
Effect to adjust for securities gains 0.66% —% —% —% 0.36%
Effect to adjust for gain on acquisition —% —% —% —% 27.84%
Effect to adjust for merger and conversion costs (8.17)% (5.08)% (2.45)% (1.95)% (47.30)%
Effect to adjust for restructuring costs (0.39)% (3.51)% —% —% —%
Operating efficiency ratio (Non-GAAP) 65.31% 70.06% 71.93% 74.48% 76.23%

VANTAGESOUTH YEAR-TO-DATE RESULTS OF OPERATIONS (Unaudited)

Six Months Ended June 30,
(Dollars in thousands, except per share data) 2014 2013
Interest income
Loans $ 39,709 $ 31,073
Investment securities 3,977 2,820
Federal funds sold and interest-earning deposits 52 37
Total interest income 43,738 33,930
Interest expense
Deposits 3,316 2,921
Short-term borrowings 173 54
Long-term debt 2,060 583
Total interest expense 5,549 3,558
Net interest income 38,189 30,372
Provision for loan losses 1,754 3,432
Net interest income after provision for loan losses 36,435 26,940
Non-interest income
Service charges and fees on deposit accounts 2,802 2,040
Government-guaranteed lending 4,462 2,177
Mortgage banking 848 1,487
Bank-owned life insurance 695 505
Gain on sales of available for sale securities 217 1,215
Gain on acquisition 7,382
Other 910 893
Total non-interest income 9,934 15,699
Non-interest expense
Salaries and employee benefits 17,588 17,000
Occupancy and equipment 5,159 3,955
Data processing 2,021 1,719
FDIC insurance premiums 755 627
Professional services 1,138 1,411
Foreclosed asset expenses 414 262
Loan, collection, and repossession expense 1,029 1,253
Merger and conversion costs 3,177 13,562
Restructuring charges 929
Other 4,316 4,018
Total non-interest expense 36,526 43,807
Income (loss) before income taxes 9,843 (1,168)
Income tax expense (benefit) 4,185 (3,203)
Net income 5,658 2,035
Dividends and accretion on preferred stock 377 1,074
Net income available to common stockholders $ 5,281 $ 961
NET INCOME PER COMMON SHARE
Basic $ 0.10 $ 0.02
Diluted $ 0.10 $ 0.02
WEIGHTED AVERAGE COMMON SHARES
Weighted average common shares outstanding - basic 53,676,373 40,865,433
Weighted average common shares outstanding - diluted 53,971,712 40,883,775
Six Months Ended June 30,
(Dollars in thousands, except per share data) 2014 2013
PERFORMANCE RATIOS (annualized)
Return on average assets 0.54% 0.27%
Return on average equity 4.67% 2.00%
Yield on earning assets, tax equivalent 4.77% 5.06%
Cost of interest-bearing liabilities 0.68% 0.60%
Net interest margin, tax equivalent 4.16% 4.53%
Efficiency ratio 75.90% 95.09%
Net loan charge-offs 0.19% 0.19%
Reconciliation of GAAP to Non-GAAP
OPERATING EARNINGS
Net income (GAAP) $ 5,658 $ 2,035
Securities gains (217) (1,215)
Gain on acquisition (7,382)
Merger and conversion costs 3,177 13,562
Restructuring charges 929
Income tax effect of adjustments (840) (4,609)
Net operating earnings (Non-GAAP) 8,707 2,391
Dividends and accretion on preferred stock 377 1,074
Net operating earnings available to common stockholders (Non-GAAP) $ 8,330 $ 1,317
Net operating earnings per common share:
Basic (Non-GAAP) $ 0.16 $ 0.03
Diluted (Non-GAAP) $ 0.15 $ 0.03
Net operating return on average assets 0.83% 0.31%
Net operating return on average equity 7.18% 2.35%
Net income (GAAP) $ 5,658 $ 2,035
Provision for loan losses 1,754 3,432
Income tax expense (benefit) 4,185 (3,203)
Pre-tax, pre-provision income 11,597 2,264
Securities gains (217) (1,215)
Gain on acquisition (7,382)
Merger and conversion costs 3,177 13,562
Restructuring charges 836 836
Pre-tax, pre-provision operating earnings (Non-GAAP) $ 15,393 $ 8,065
OPERATING NON-INTEREST EXPENSE
Non-interest expense (GAAP) $ 36,526 $ 43,807
Merger and conversion costs (3,177) (13,562)
Restructuring charges (929)
Operating non-interest expense (Non-GAAP) $ 32,420 $ 30,245
OPERATING EFFICIENCY RATIO
Efficiency ratio (GAAP) 75.90% 95.09%
Effect to adjust for securities gains 0.35% 2.57%
Effect to adjust for gain on acquisition —% 18.14%
Effect to adjust for merger and conversion costs (6.65)% (35.09)%
Effect to adjust for restructuring costs (1.93)% —%
Operating efficiency ratio (Non-GAAP) 67.67% 80.71%

VANTAGESOUTH QUARTERLY BALANCE SHEETS (Unaudited)

Ending Balances
(Dollars in thousands, except per share data) June 30, March 31, December 31, September 30, June 30,
2014 2014 2013 2013 2013
Assets
Cash and due from banks $ 38,770 $ 30,969 $ 29,080 $ 37,681 $ 29,264
Interest-earning deposits with banks 76,125 42,474 71,699 47,954 57,689
Federal funds sold 855
Investment securities available for sale 394,492 407,231 404,388 403,900 376,536
Investment securities held to maturity 3,119 3,119 500 208 200
Loans held for sale 10,658 11,158 8,663 7,216 21,009
Loans 1,368,568 1,381,926 1,389,666 1,353,550 1,324,171
Allowance for loan losses (7,451) (7,213) (7,043) (7,034) (6,425)
Net loans 1,361,117 1,374,713 1,382,623 1,346,516 1,317,746
Federal Home Loan Bank stock 8,950 8,455 8,929 8,029 6,904
Premises and equipment, net 44,212 44,350 44,875 42,306 43,052
Bank-owned life insurance 48,700 33,386 33,148 32,896 32,642
Foreclosed assets 9,786 9,505 10,518 11,501 11,327
Deferred tax asset, net 48,783 52,276 54,867 55,960 59,099
Goodwill 26,254 26,254 26,254 26,254 26,254
Other intangible assets, net 5,432 5,657 5,883 6,113 6,343
Accrued interest receivable and other assets 63,071 56,643 38,130 19,226 19,757
Total assets $ 2,139,469 $ 2,106,190 $ 2,119,557 $ 2,045,760 $ 2,008,677
Liabilities
Deposits:
Non-interest demand $ 234,370 $ 198,710 $ 220,659 $ 208,736 $ 197,229
Interest-bearing demand 348,075 356,134 351,921 339,973 344,515
Money market and savings 473,258 472,968 467,814 458,214 482,672
Time 620,336 630,132 634,915 615,616 630,283
Total deposits 1,676,039 1,657,944 1,675,309 1,622,539 1,654,699
Short-term borrowings 140,500 129,500 126,500 100,500 68,002
Long-term debt 69,933 69,961 72,921 75,880 45,341
Accrued interest payable and other liabilities 12,914 11,764 12,919 16,259 11,621
Total liabilities 1,899,386 1,869,169 1,887,649 1,815,178 1,779,663
Stockholders' equity
Preferred stock, Series A, no par value 24,894 24,833 24,774
Preferred stock, Series B, no par value 17,891 17,776 17,663
Common stock, $0.001 par value 55 55 46 46 46
Common stock warrant 1,457 1,457 1,457 1,457
Additional paid-in capital 233,010 233,608 188,908 188,658 188,408
Retained earnings (accumulated deficit) 8,166 4,622 2,885 333 (443)
Accumulated other comprehensive loss (1,148) (2,721) (4,173) (2,521) (2,891)
Total stockholders' equity 240,083 237,021 231,908 230,582 229,014
Total liabilities and stockholders' equity $ 2,139,469 $ 2,106,190 $ 2,119,557 $ 2,045,760 $ 2,008,677
Ending Balances
June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands, except per share data) 2014 2014 2013 2013 2013
COMMON SHARE DATA
Book value per common share $ 4.34 $ 4.29 $ 4.11 $ 4.08 $ 4.05
Tangible book value per common share $ 3.77 $ 3.71 $ 3.41 $ 3.38 $ 3.34
Ending shares outstanding 55,269,712 55,260,170 46,037,685 46,037,808 46,038,808
CAPITAL RATIOS
Tangible equity to tangible assets 9.89% 9.89% 9.57% 9.84% 9.94%
Tangible common equity to tangible assets 9.89% 9.89% 7.52% 7.73% 7.79%
VantageSouth Bancshares, Inc.:
Tier 1 leverage ratio 8.67% 8.54% 8.47% 8.30% 8.28%
Tier 1 risk-based capital ratio 10.31% 10.10% 9.89% 9.83% 10.26%
Total risk-based capital ratio 13.37% 13.17% 12.97% 12.99% 11.15%
VantageSouth Bank:
Tier 1 leverage ratio 10.31% 10.14% 10.16% 9.95% 8.26%
Tier 1 risk-based capital ratio 12.26% 12.00% 11.85% 11.78% 10.22%
Total risk-based capital ratio 13.12% 12.85% 12.70% 12.66% 11.11%
ASSET QUALITY DATA
Nonperforming loans $ 20,928 $ 20,694 $ 20,925 $ 18,911 $ 15,116
Foreclosed assets 9,786 9,505 10,823 11,806 11,632
Total nonperforming assets $ 30,714 $ 30,199 $ 31,748 $ 30,717 $ 26,748
Allowance for loan losses to loans 0.54% 0.52% 0.51% 0.52% 0.49%
Nonperforming loans to total loans 1.53% 1.50% 1.51% 1.40% 1.14%
Nonperforming assets to total assets 1.44% 1.43% 1.50% 1.50% 1.33%
Restructured loans not included in categories above $ 4,000 $ 985 $ 534 $ 542 $ 550
Reconciliation of GAAP to Non-GAAP
ADJUSTED ALLOWANCE FOR LOAN LOSSES
Allowance for loan losses (GAAP) $ 7,451 $ 7,213 $ 7,043 $ 7,034 $ 6,425
Net acquisition accounting fair value discounts to loans 25,624 27,906 31,152 34,264 42,783
Adjusted allowance for loan losses 33,075 35,119 38,195 41,298 49,208
Loans $ 1,368,568 $ 1,381,926 $ 1,389,666 $ 1,353,550 $ 1,324,171
Adjusted allowance for loan losses to loans (Non-GAAP) 2.42% 2.54% 2.75% 3.05% 3.72%
TANGIBLE COMMON EQUITY
Total stockholders' equity (GAAP) $ 240,083 $ 237,021 $ 231,908 $ 230,582 $ 229,014
Less: Preferred stock 42,785 42,609 42,437
Less: Goodwill and other intangible assets, net 31,686 31,911 32,137 32,367 32,597
Tangible common equity (Non-GAAP) $ 208,397 $ 205,110 $ 156,986 $ 155,606 $ 153,980

VANTAGESOUTH QUARTERLY NET INTEREST MARGIN ANALYSIS (Unaudited)

Three months ended Three months ended Three months ended
June 30, 2014 March 31, 2014 June 30, 2013
Average Average Average
(Dollars in thousands) Balance Interest* Yield/Cost* Balance Interest* Yield/Cost* Balance Interest* Yield/Cost*
Assets
Loans $ 1,390,855 $ 19,803 5.71% $ 1,396,881 $ 19,906 5.78% $ 1,316,237 $ 20,376 6.21%
Investment securities 404,173 2,010 1.99 407,831 1,990 1.98 394,398 2,008 2.04
Federal funds and other 54,681 26 0.19 49,177 26 0.21 43,719 21 0.19
Total interest-earning assets 1,849,709 21,839 4.74% 1,853,889 21,922 4.80% 1,754,354 22,405 5.12%
Non-interest-earning assets 271,356 245,914 225,912
Total assets $ 2,121,065 $ 2,099,803 $ 1,980,266
Liabilities and Equity
Interest-bearing demand $ 351,204 $ 150 0.17% $ 348,047 $ 180 0.21% $ 333,215 $ 183 0.22%
Money market and savings 469,848 313 0.27 469,288 349 0.30 484,685 346 0.29
Time 630,931 1,194 0.76 630,840 1,130 0.73 620,441 1,090 0.70
Total interest-bearing deposits 1,451,983 1,657 0.46 1,448,175 1,659 0.46 1,438,341 1,619 0.45
Short-term borrowings 140,819 95 0.27 116,900 78 0.27 58,292 42 0.29
Long-term debt 69,946 1,029 5.90 71,873 1,031 5.82 45,465 313 2.76
Total interest-bearing liabilities 1,662,748 2,781 0.67% 1,636,948 2,768 0.69% 1,542,098 1,974 0.51%
Non-interest-bearing deposits 206,833 204,156 192,459
Other liabilities 11,080 10,259 8,846
Total liabilities 1,880,661 1,851,363 1,743,403
Stockholders' equity 240,404 248,440 236,863
Total liabilities and stockholders' equity $ 2,121,065 $ 2,099,803 $ 1,980,266
Net interest income, taxable equivalent $ 19,058 $ 19,154 $ 20,431
Interest rate spread 4.07% 4.11% 4.61%
Tax equivalent net interest margin 4.13% 4.19% 4.67%
Percentage of average interest-earning assets to average interest-bearing liabilities 111.24% 113.25% 113.76%
* Taxable equivalent basis

VANTAGESOUTH YEAR-TO-DATE NET INTEREST MARGIN ANALYSIS (Unaudited)

Six months ended
June 30, 2014
Six months ended
June 30, 2013
Average Average
(Dollars in thousands) Balance Interest* Yield/Cost* Balance Interest* Yield/Cost*
Assets
Loans $ 1,393,852 $ 39,709 5.74% $ 1,049,646 $ 31,073 5.97%
Investment securities 405,992 4,000 1.99 268,589 2,866 2.15
Federal funds and other 51,944 52 0.20 36,672 37 0.20
Total interest-earning assets 1,851,788 43,761 4.77% 1,354,907 33,976 5.06%
Non-interest-earning assets 258,704 180,565
Total assets $ 2,110,492 $ 1,535,472
Liabilities and Equity
Interest-bearing demand $ 349,634 329 0.19% $ 258,441 $ 323 0.25%
Money market and savings 469,570 662 0.28 374,801 689 0.37
Time 630,886 2,325 0.74 491,845 1,909 0.78
Total interest-bearing deposits 1,450,090 3,316 0.46 1,125,087 2,921 0.52
Short-term borrowings 128,925 173 0.27 32,751 54 0.33
Long-term debt 70,905 2,060 5.86 34,333 583 3.42
Total interest-bearing liabilities 1,649,920 5,549 0.68% 1,192,171 3,558 0.60%
Noninterest-bearing deposits 205,502 130,215
Other liabilities 10,671 7,634
Total liabilities 1,866,093 1,330,020
Stockholders' equity 244,399 205,452
Total liabilities and stockholders' equity $ 2,110,492 $ 1,535,472
Net interest income, taxable equivalent $ 38,212 $ 30,418
Interest rate spread 4.09% 4.46%
Tax equivalent net interest margin 4.16% 4.53%
Percentage of average interest-earning assets to average interest-bearing liabilities 112.24% 113.65%
* Taxable equivalent basis

CONTACT: Terry Earley, CFO Yadkin Financial Corporation Phone: (919) 659-9015 Email: Terry.Earley@vsb.comSource:Yadkin Financial Corporation