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Yadkin Valley Financial Corporation (YAVY)

Q2 2008 Earnings Call

August 11, 2008 2:00 pm ET

Executives

William A. Long - President and Chief Executive Officer

Edwin Laws - Chief Financial Officer

Steve Robinson - Chief Operating Officer

Analysts

Carter Bundy - Stifel Nicolaus

Presentation

Operator

Good day and welcome to the Yadkin Valley Financial Corporation Second Quarter Earnings Results Conference Call. Today’s conference is being recorded.

At this time I would like to turn the conference over to your President and CEO, Mr. William Long. Please go ahead sir.

William A. Long - President and Chief Executive Officer

Good afternoon everyone, my name is Bill Long, President and CEO of Yadkin Valley Bank and welcome you and thank you for joining us today. We appreciate your participation and your continued interest in the Yadkin Valley Financial.

With me on this call today is Edwin Laws, Yadkin Valley’s Chief Financial Officer and Steve Robinson is with us, our Chief Operating Officer who will participate during the question and answer session.

I will begin with the brief commentary on our business and our near term prospects and then Edwin will take you briefly through the financial results of the second quarter and then we will close with the question and answer session.

Please note that we are maybe making forward-looking statements of Yadkin Valley Financial and its subsidiaries and as always the company is subject to the risk and uncertainties described in its filings with Securities and Exchange Commission including it’s annual report on Form 10-K for the year ended December 2007 and quarterly reports on Form 10-Q for 2008 first quarter. You should read these factors as being applicable to all related forward-looking statements.

I’m pleased to say that our economic structure remains challenging for our industry, loan growth continues and asset quality remains healthy across our franchise. And Yadkin better remains well positioned to emerge from this downturn stronger than ever. As indicated in our press release, loans increased 31% year-over-year largely due to the Cardinal merger excluding Cardinal however, loans increased 15% year-over-year and 3% sequentially as demand for most types of warrants remained healthy, yet lower than in the past few years.

Cardinal’s loans increased 5% compared to the first quarter of 2008, its commercial loan demand more than offset the weaknesses in construction and residential loans in the Durham area. As we said, last quarter loan growth across our footprint has slowed since the end of 2007 and we expect growth for the remainder of the year to be similar to that of first half of 2008.

Well, economies across our markets have softened since the end of 2007 and certainly now declined nearly to the extent such areas as Florida and California and Michigan. Unemployment in the Durham markets has increased noticeably and housing activity has slowed but economies across these regions appear low. For example the most recent S&P case data reported that existing single family home prices and the metro solid data increased 1% between April and May of this year and they are just two-tenths of 1% on a year-over-year basis.

The June employment data shows that unemployment rate in Iredell County stands at about 5.8%, 5.1% in Durham County, 6.1% in Mecklenburg County, which of course includes a city of [Show], this compares to statewide on employment rate of 6% and national wide of 5.7%. Non-performing loans decreased slightly compared to the prior quarter representing 43 basis points of the loan sale for investment compared 48 points at the end of the last quarter and continue to be concentrated in residential construction and land development.

We continue to monitor our loan portfolio very closely and our loan committee introduced potential personal loans regularly. We strengthened our past due and risk rate affording process is allowing has to have better management control of other loan portfolio and we are in the process of adding infrastructure to our credit administration and review processes. This new infrastructure will not only allow us to better manage credit approval and processes that will also support our growth to the 2B in an appropriate level and assets

We continue to see a significant opportunity in Sidus, as customers have returned to the community buying further mortgages, in April Sidus entered six new England state and we believe this expansion represents a significant long term growth opportunity for us, we should continue to serve as the strong source of non interest income. Even during the current difficult mortgage environment Sidus reported record volume in profitability even accounting for the 234,000 start up costs during the first six months of 2008 for our New England project. While many mortgage lenders have experienced disruption in the product offerings following turmoil in the credit markets, this has not been the case with Sidus, majority of its product offers continued to be FHA Fannie Freddy eligible mortgages allowing us to continue to sell these mortgages in the secondary market.

Let me discuss briefly our plans for Cardinal over the coming quarters. As said in our press release Cardinal merger was off to a great start and we replaced some underperforming -- we replaced some loan officers with three new experienced (inaudible) loan officers in Durham market since the beginning of the year. We have two new offices in the Cardinal regions since the beginning of the year and full cash like even within the next 18 months. Our new [Claymore] office opened in April is operating out of a temporary location and already have 8.4 million in deposits and the Hillsborough Office which opened in May has $9.2 million in deposits. We planned to move Claymore office to a permanent facility during the first quarter of 2009. We are currently in the process of locating a new site and research triangle area and expect to begin construction of our new branch there sometime in mid 2009.

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