MERGERS AND ACQUISITIONS

Mergers with VantageSouth Bancshares, Inc. and Piedmont Community Bank Holdings, Inc.

On July 4, 2014, the Company completed its mergers with VantageSouth and Piedmont pursuant to the Merger Agreement. At closing, VantageSouth and Piedmont merged with and into the Company, with the Company continuing as the surviving corporation. Piedmont owned a controlling interest in VantageSouth at the time of the Mergers. Pursuant to the Merger Agreement, holders of VantageSouth common stock received 0.3125 shares of voting common stock of the Company for each share of VantageSouth common stock. Holders of Piedmont common stock received (i) 6.28597 shares of voting common stock of the Company; (ii) $6.6878 in cash; and (iii) a right to receive a pro rata portion of certain shares of voting common stock of the Company at a later date if such shares do not become payable under the Piedmont Phantom Equity Plan. Immediately following the Mergers, VantageSouth Bank, the wholly owned banking subsidiary of VantageSouth, merged with and into Yadkin Bank.

The Mergers were accounted for as a reverse merger using the acquisition method of accounting primarily due to the relative voting interests in the Company upon completion of the Mergers. As a result, Piedmont and its consolidated subsidiaries represent the accounting acquirer, and Yadkin represents the accounting acquiree. Therefore, the historical financial results of the Company prior to the Mergers reflect the historical balances of Piedmont, and the financial results of the Company after the Mergers reflect the combined organization. In addition, the assets and liabilities of Yadkin as of the date of the Mergers have been recorded at estimated fair value and added to those of Piedmont. The Company has substantially completed its valuations of Yadkin's assets and liabilities but may refine those valuations for up to a year from the date of the Mergers. The Mergers had a significant impact on all aspects of the Company's financial statements, and as a result, financial results after the Mergers may not be comparable to financial results prior to the Mergers.

The Piedmont Phantom Equity Plan, which is a type of deferred compensation plan, was assumed by the Company in the Mergers. A total of 856,447 shares of Yadkin’s voting common stock that otherwise would have been issued to Piedmont shareholders as merger consideration if the Piedmont Phantom Equity Plan did not exist was issued to a rabbi trust established by Yadkin to serve as a source of payment for both (i) payments due under the Piedmont Phantom Equity Plan and (ii) contingent merger consideration payable to former holders of Piedmont common stock.

From an accounting perspective, 28,405 shares of Yadkin's Series T and T-ACB Preferred Stock were assumed by the Company in the Mergers. The Series T and T-ACB Preferred Stock rank equally and have identical terms. They have no maturity date and pay cumulative dividends of 9.0 percent annually.

As the legal acquirer, Yadkin issued 17.3 million shares of voting common stock in connection with the Mergers, which represented approximately 55 percent of the voting interests in the Company at the time of the Mergers. Guidance in FASB ASC 805-40-30-2 explains that the purchase price in a reverse merger is determined "based on the number of equity interests the legal [acquiree] would have had to issue to give the owners of the legal [acquirer] the same equity interest in the combined entity that results from the reverse acquisition." The first step in estimating the purchase price in the Mergers is to determine the ownership of the combined institution following the Mergers. The table below summarizes, for each shareholder group immediately prior to the Mergers, the ownership of Yadkin common stock immediately following the Mergers as well as the market capitalization of the combined institution using Yadkin’s stock price at the time of the Mergers.



	Yadkin Financial Corporation Ownership and Market Value Table
Shareholder Groups Immediately Prior to Mergers	Number of Outstanding YDKN Shares	Percentage Ownership		Market Value at $19.41 YDKN Share Price

Piedmont shareholders	9,219,406	29.1	%	$	178,949
VantageSouth shareholders (excluding Piedmont)	7,195,127	22.7	%	139,657
Shares issued and held in Rabbi Trust	856,447	2.7	%	16,624
Total Piedmont and VantageSouth shareholders	17,270,980	54.6	%	335,230
Yadkin shareholders	14,380,127	45.4	%	279,118
Total	31,651,107	100.0	%	$	614,348

Next, the number of shares Piedmont would have had to issue to give Yadkin and other owners the same percentage ownership in the combined institution is calculated in the table below.



	Hypothetical Piedmont Ownership
Shareholder Groups Immediately Prior to Mergers	Number of Outstanding Piedmont Shares	Percentage Ownership

Piedmont shareholders	1,466,664	29.1	%
VantageSouth shareholders (excluding Piedmont)	1,144,633	22.7	%
Shares issued and held in Rabbi Trust	136,247	2.7	%
Total Piedmont and VantageSouth shareholders	2,747,544	54.6	%
Yadkin shareholders	2,287,654	45.4	%
Total	5,035,198	100.0	%

Finally, the purchase price is calculated based on the number of hypothetical Piedmont shares issued to Yadkin shareholders multiplied by the share price as demonstrated in the table below. Because Piedmont was the accounting acquirer in the Mergers and was a private company, the market price per share was derived from Yadkin’s closing stock price at the time of the Mergers. The equivalent Piedmont market price per share was calculated based on the 6.28597 exchange ratio in the Mergers.



	Calculation of Purchase Price

Equivalent Piedmont market price per share	$	122.01
Number of Piedmont shares issued to Yadkin shareholders	2,287,654
Purchase price (in thousands)	$	279,115

The following table presents the Yadkin assets acquired, liabilities assumed and other equity interests as of July 4, 2014 as well as the related purchase price allocation and calculation of the residual goodwill.



	As Reported by Yadkin at July 4, 2014		Initial Fair Value Adjustments				As Reported by the Company at July 4, 2014
Assets:
Cash and cash equivalents	$	36,116	$	—			$	36,116
Investment securities available for sale	259,143		(1,488		)	(a)	257,655
Loans held for sale	15,696		—			(b)	15,696
Loans, net	1,403,419		(30,740		)		1,372,679
Federal Home Loan Bank stock, at cost	3,778		—				3,778
Premises and equipment	40,204		(2,344		)	(c)	37,860
Bank-owned life insurance	27,306		—				27,306
Foreclosed assets	2,271		(601		)	(d)	1,670
Deferred tax asset, net	16,955		5,939			(e)	22,894
Goodwill	—		124,172			(f)	124,172
Other intangible assets	1,665		10,965			(g)	12,630
Accrued interest receivable and other assets	16,330		(2,229		)	(h)	14,101
Total assets	1,822,883		103,674				1,926,557
Liabilities:
Deposits	1,509,581		5,019			(i)	1,514,600
Short-term borrowings	72,879		—				72,879
Long-term debt	38,217		(15,486		)	(j)	22,731
Accrued interest payable and other liabilities	8,448		(338		)	(k)	8,110
Total liabilities	1,629,125		(10,805		)		1,618,320
Net assets acquired	193,758		114,479				308,237
Other equity interests:
Preferred stock	28,405		—			(l)	28,405
Common stock warrants	1,850		(1,133		)	(m)	717
Total other equity interests	30,255		(1,133		)		29,122
Purchase price							$	279,115

Explanation of fair value adjustments

(a) Adjustment reflects opening fair value of securities portfolio, which was established as the new book basis of the portfolio.

(b) Adjustment reflects the elimination of Yadkin's historical allowance for loan losses of $16.4 million and the recording of a fair value discount of $47.2 million on the loan portfolio. The fair value discount was calculated by forecasting cash flows over the expected remaining life of each loan and discounting those cash flows to present value using current market rates for similar loans. Forecasted cash flows include an estimate of lifetime credit losses on the loan portfolio.

(c) Adjustment reflects fair value adjustments on certain acquired branch offices as well as certain software and computer equipment.

(d) Adjustment reflects the write down of certain foreclosed assets based on current estimates of property values given current market conditions and additional discounts based on the Company's planned disposition strategy.

(e) Adjustment reflects the tax impact of acquisition accounting fair value adjustments.

(f) Goodwill represents the excess of the purchase price over the fair value of acquired net assets.

(g) Adjustment reflects the fair value of the acquired core deposit intangible.

(h) Adjustment reflects the impact of fair value adjustments on other assets, which include mortgage servicing assets, certain unusable prepaid expenses, and the elimination of accrued interest on purchased credit-impaired loans.

(i) Adjustment reflects the fair value premium on time deposits, which was calculated by discounting future contractual interest payments at a current market interest rate.

(j) Adjustments reflect the fair value adjustments for subordinated debt issued to fund trust preferred securities and long-term Federal Home Loan Bank ("FHLB") advances, which were calculated by discounting future contractual interest payments at a current market interest rate for similar instruments. For FHLB advances, the fair value adjustment is consistent with the prepayment penalty the FHLB would charge to terminate the advance.

(k) Adjustments reflect accruals and fair value adjustments for other liabilities, which include the write-off of unearned income, deferred gains, and accrued liabilities that will not be paid.

(l) No fair value adjustments were made to Yadkin's outstanding preferred stock. The current preferred dividend rate of 9.0 percent approximates the current market yield for issuances of similar perpetual preferred stock. The preferred stock is currently redeemable at the liquidation value, and the Company expects the remaining life of this preferred stock to be relatively short.

(m) The fair value of the common stock warrants was estimated using a Black-Scholes option pricing model assuming all 91,178 warrants will remain outstanding through expiration on July 24, 2019. Assumptions and inputs used in the option pricing model included stock price volatility of 48.6 percent, no dividends, a risk free interest rate of 1.74 percent, and an exercise price of $21.90 per common warrant.

The table below presents supplemental pro forma information as if the Mergers with VantageSouth and Piedmont as well as the ECB Merger had occurred at the beginning of the earliest period presented, which was January 1, 2013. Pro forma results include adjustments for amortization and accretion of preliminary estimated fair value adjustments and do not include any projected cost savings or other anticipated benefits of the Mergers. Therefore, the pro forma financial information is not indicative of the results of operations that would have occurred had the transaction(s) been effected on the assumed date. Pro forma financial information has not been provided for the three months ended September 30, 2014 since the various entities involved in the Mergers were combined for substantially the entire period.



	Three months ended September 30, 2013		Nine months ended September 30,
Supplemental pro forma information	Three months ended September 30, 2013		2014		2013

Net interest income	$	38,632	$	118,700	$	114,560

Net income	$	7,203	$	19,778	$	14,226

Net income available to common shareholders	$	6,782	$	17,981	$	12,505

Basic income per common share	$	0.24	$	0.58	$	0.44

Diluted income per common share	$	0.24	$	0.57	$	0.44

Weighted average basic common shares outstanding	28,587,364		31,193,728		28,557,784

Weighted average diluted common shares outstanding	28,690,782		31,296,065		28,610,786

ECB Bancorp, Inc. Merger

On April 1, 2013, the Company completed the merger of ECB Bancorp, Inc. ("ECB") with and into VantageSouth (the "ECB Merger"). The ECB Merger was completed pursuant to an Agreement and Plan of Merger dated as of September 25, 2012 (the "ECB Merger Agreement"). Immediately following the ECB Merger, The East Carolina Bank, a wholly-owned subsidiary of ECB, was merged with and into the Bank. Upon the closing of the ECB Merger, each outstanding share of ECB common stock was converted into the right to receive 3.55 shares of common stock of VantageSouth. The aggregate merger consideration consisted of 10.3 million shares of VantageSouth's common stock. Based upon the market price of VantageSouth's common stock immediately prior to the ECB Merger, the transaction value was $40,629.

Pursuant to the Merger Agreement, the Company agreed to exchange each share of ECB’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, into one share of VantageSouth's Fixed Rate Cumulative Perpetual Preferred Stock, Series B ("Series B Preferred Stock"). At the closing of the ECB Merger, the Company also issued a warrant to purchase 514,693.2 shares of VantageSouth's common stock to the U.S. Department of the Treasury (“Treasury”) in exchange for the warrant issued by ECB to Treasury on January 16, 2009 to purchase 144,984 shares of ECB’s common stock. The warrant issuance reflected the exchange ratio associated with the ECB Merger.

Because ECB merged into VantageSouth, which was a controlled subsidiary of Piedmont, the shares of VantageSouth common stock issued to legacy ECB shareholders as merger consideration as well as the Series B Preferred stock and related common stock warrants assumed by VantageSouth in the ECB Merger were classified on Piedmont's consolidated balance sheets as part of non-controlling interests. The Series B Preferred Stock was subsequently redeemed by the Company on February 19, 2014, and the related common stock warrants were subsequently repurchased by the Company on June 11, 2014.

The following table presents the ECB assets acquired, liabilities assumed and other equity interests as of April 1, 2013 as well as the related purchase price allocation and calculation of the gain on acquisition.



	As Reported by ECB at April 1, 2013		Initial Fair Value Adjustments				Measurement Period Adjustments				As Reported by the Company at April 1, 2013
Assets:
Cash and cash equivalents	$	24,008	$	—			$	—			$	24,008
Investment securities available for sale	289,058		301			(a)	—				289,359
Loans held for sale	3,857		9,790			(b)	(191		)	(m)	13,456
Loans, net	483,474		(30,420		)	(c)	—				453,054
Federal Home Loan Bank stock, at cost	3,150		—				—				3,150
Premises and equipment	25,633		(1,177		)	(d)	135			(m)	24,591
Bank-owned life insurance	12,249		—				—				12,249
Foreclosed assets	7,090		(717		)	(e)	(305		)	(m)	6,068
Deferred tax asset, net	6,986		9,082			(f)	540			(m)	16,608
Other intangible assets	—		4,307			(g)	—				4,307
Accrued interest receivable and other assets	10,423		(665		)	(h)	(922		)	(m)	8,836
Total assets	865,928		(9,499		)		(743		)		855,686
Liabilities:
Deposits	$	731,926	$	4,188		(i)	$	—			$	736,114
Short-term borrowings	34,284		—				—				34,284
Long-term debt	16,000		460			(j)	—				16,460
Accrued interest payable and other liabilities	2,867		148			(k)	116			(m)	3,131
Total liabilities	785,077		4,796				116				789,989
Net assets acquired	80,851		(14,295		)		(859		)		65,697
Other equity interests:
Preferred stock	17,660		(107		)	(l)	—				17,553
Common stock warrant	878		(745		)	(l)	—				133
Total other equity interests	18,538		(852		)		—				17,686
Gain on acquisition											7,382
Purchase price											$	40,629

Explanation of fair value adjustments

(a) Adjustment reflects opening fair value of securities portfolio, which was established as the new book basis of the portfolio.

(b) Adjustment reflect the reclassification of the fair value of certain loans identified by management as being held for sale at acquisition.

(c) Adjustment reflects the elimination of ECB's historical allowance for loan losses and the recording of a fair value discount on the loan portfolio. The fair value discount was calculated by forecasting cash flows over the expected remaining life of each loan and discounting those cash flows to present value using current market rates for similar loans. Forecasted cash flows include an estimate of lifetime credit losses on the loan portfolio.

(d) Adjustment reflects fair value adjustments on certain acquired branch offices as well as certain software and computer equipment.

(e) Adjustment reflects the write down of certain foreclosed assets based on current estimates of property values given current market conditions and additional discounts based on the Company's planned disposition strategy.

(f) Adjustment reflects the tax impact of acquisition accounting fair value adjustments.

(g) Adjustment reflects the fair value of the acquired core deposit intangible.

(h) Adjustment reflects the impact of fair value adjustments on other assets, which include the write down of certain unusable prepaid expenses and the elimination of accrued interest on purchased credit-impaired loans.

(i) Adjustment reflects the fair value premium on time deposits, which was calculated by discounting future contractual interest payments at a current market interest rate.

(j) Adjustment reflects the fair value premium on long-term FHLB advances, which was calculated by discounting future contractual interest payments at a current market interest rate. This fair value premium is also consistent with the prepayment penalty the FHLB would charge to terminate the advance.

(k) Adjustment reflects the impact of fair value adjustments on other liabilities, which primarily includes the accrual of a preferred stock dividend at acquisition.

(l) Amount reflects the adjustment to record other equity interests at fair value. The fair value of preferred stock issued to Treasury was estimated by discounting future contractual dividend payments at a current market interest rate for preferred stocks of issuers with similar risk. The assumed liquidation date of the preferred stock was February 15, 2014, which was the date the dividend reset from 5 to 9 percent. The fair value of the common stock warrant issued to Treasury was estimated using a Black-Scholes option pricing model assuming a warrant life through the dividend reset date.

(m) Adjustments reflect changes to acquisition date fair values of certain assets based on additional information received post-acquisition within the measurement period. Measurement period adjustments included tax-effected adjustments to reduce the fair value of a non-marketable investment, to dispose of other assets with no value at the merger, to reduce the fair value of certain distressed loans held for sale, to reduce the fair value of certain other real estate owned, to recognize a liability for outstanding ECB employee credit card balances, and to increase the fair value of a bank-owned office.