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Yadkin Valley Financial Corp. (YAVY)

Q4 2008 Earnings Call

February 13, 2009 11:00 am ET


Bill Long - CEO

Edwin Laws- CFO

Steve Robinson - COO

Joe Towell - CCO

Julie Mason - Controller


Carter Bundy - Stifel Nicolaus



Good day and welcome to the Yadkin Valley Financial Corporation's fourth quarter earnings result conference call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to President and Chief Executive Officer, Mr. William A. Long. Please go ahead, sir.

Bill Long

Thank you very much, Nancy. This is Bill Long. I have got with me today who will be speaking Edwin Laws, our Chief Financial Officer and then to the question-and-answer session, Joe Towell will join us our Chief Credit Officer, Steve Robinson, our Chief Operating Officer, and Julie Mason, our Controller is also with us.

I do want to welcome and thank all of you for joining us today. We certainly appreciate your continued interest in Yadkin Valley Financial. During the first quarter of 2008 and 2009, we have certainly seen an economic environment becoming more and more difficult. Nonetheless, we believe that Yadkin Valley will be able to meet these challenges.

While our fourth quarter non-performing assets increased slightly over the third quarter of last year from 0.83% to 1.09%, we are still performing significantly better than the peers in the industry as a whole, which recorded non-performing assets as a percentage of total assets above the 2% range on average at the end of fourth quarter 2008.

Based on the fourth quarter 2008 (inaudible), our average non-performing total assets ratio at our peer group increased just over 150 basis points between year-end ’07 and year-end ’08.

By comparison, our average non-performing assets increased just 88 basis points. We believe this speaks to our conservative underwriting standards as well as our ability to recognize and manage global credits.

Our reserves as a percentage of total loans remain in line with our peers which were above 1.75%. Moreover, approximately one-third of our company’s non-accrual loans continue to pay as agree. Loans started 30 to 89 days past due totaled 18.6 million at the end of the fourth quarter, and we’re closely monitoring these loans.

We feel confident that we can manage our problem assets as we move forward in 2009, having significantly improved our credit administration and review process during all of ’09.

We remain well capitalized from a regulatory standpoint with $36 million in new capital we added under the TARP program will allow us to selectively take advantage of the unique opportunities have risen during this unprecedented economic environment, deeply as we move into demographically attractive markets of Mecklenburg County and Union County. We believe that we have excess capital to grow our franchise as well as absorb any potential future losses.

Speaking of merger, we made substantial progress toward closing the integrated American Community during the fourth quarter. In addition to extensive training for the American Community employees, we have been well extensively continued to review their loan portfolio for potential losses. I believe the risk inherent with their loan portfolio is still manageable. We expect the merger to close soon after the special shareholders meeting.

I must say here we are very pleased with the attitudes of the employees at American Community Bank that will go a long way towards making this merger successful. We feel confident that this merger will go smoothly given our prudent track record of successfully integrating three financial institutions with total assets of $587 million since 2002 as well as Sidus Financial, our mortgage subsidiary.

We're still focused on profitable growth, even though credit quality remains our top priority at the current time. Sidus rose to the record year in 2008 originations closing just over $1 billion in new mortgage loans and is entering 2009 with a loan pipeline at record levels. This is significant considering the weak position to current weak housing market and is expected to help improve our non-interest income even more.

The expansion into New England during the first quarter of '08 proved to be an important strategic move for us, it's almost [approval] of Sidus' 2008 originations were derived from this region. I think this is significant move for Sidus to start up that operation and become profitable in the first five months.

Looking forward to the future, we are cautiously optimistic about growth prospects in our markets. We believe we will successfully weather the difficult 2009. Excluding the American Community merger, we expect our loan growth to be modest compared to prior years. We anticipate that our net interest margin will remain relatively stable during the first quarter of '09.

Deposit pricing has become more rational in our markets and we anticipate that we will continue to add to our loan loss reserves as we anticipate the continued economic weakness. Our asset quality metrics are expected to deteriorate slightly. During the first half of '09, we believe that they will continue to perform above our peer and industry averages and remain at manageable levels.

And now, I'll turn it over to Edwin, who will discuss the financial results.

Edwin Laws

Thank you, Bill, and good morning, everyone. I do want to refer you to the press release that we distributed this morning shortly before the market opened at 9.20 and our comments will be derived from that.

Our fourth quarter results were impacted by $2.7 million increase in loan loss provision, in addition to 6% increase in our net interest income over the fourth quarter of 2007. Net income for the fourth quarter amounted to $217,000 or $0.02 per diluted share while net income for the full year 2008 amounted to $6.7 million or $0.59 per diluted share.

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