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:

"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. 

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. 

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

YADKIN YEAR-TO-DATE RESULTS OF OPERATIONS

YADKIN QUARTERLY BALANCE SHEETS

YADKIN QUARTERLY NET INTEREST MARGIN ANALYSIS

YADKIN YEAR-TO-DATE NET INTEREST MARGIN ANALYSIS

VANTAGESOUTH QUARTERLY RESULTS OF OPERATIONS (Unaudited)

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

VANTAGESOUTH QUARTERLY BALANCE SHEETS (Unaudited)

VANTAGESOUTH QUARTERLY NET INTEREST MARGIN ANALYSIS (Unaudited)

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