1366367--3/31/2009--YADKIN_VALLEY_FINANCIAL

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{capital, credit, financial}

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Recent negative developments in the financial industry and the domestic and international credit markets may adversely affect our operations and results. There can be no assurance that recently enacted legislation will help stabilize the U.S. financial system. Efforts to comply with the Sarbanes-Oxley Act of 2002 will continue to involve significant expenditures, and non-compliance with the Sarbanes-Oxley Act of 2002 may adversely affect business. Yadkin Valley may identify additional material weaknesses or a significant deficiency in its internal control over financial reporting that may adversely affect Yadkin Valley's ability to properly account for non-routine transactions. Yadkin Valley and American Community may not receive shareholder approvals or such approvals may take longer than expected. Because of our participation in the Treasury Department's Capital Purchase Program, we are subject to several restrictions including restrictions on compensation paid to our executives. Continuation of the economic downturn could reduce our customer base, our level of deposits, and demand for financial products such as loans. Our small- to medium-sized business target markets may have fewer financial resources to weather a downturn in the economy. We are exposed to changes in the regulation of financial services companies. The FDIC Deposit Insurance assessments that we are required to pay may materially increase in the future, which would have an adverse effect on our earnings and our ability to pay our liabilities as they come due. Our continued pace of growth may require us to raise additional capital in the future, but that capital may not be available when it is needed. We depend heavily on out of market deposits as a source of funding. We are exposed to the possibility of technology failure. The capital and credit markets have experienced unprecedented levels of volatility. Significant risks accompany the recent and continued expansion of Yadkin Valley. Yadkin Valley's business strategy includes the continuation of significant growth plans, and its financial condition and results of operations could be negatively affected if Yadkin Valley fails to grow or fails to manage its growth effectively. Yadkin Valley will face risks with respect to future expansion. Yadkin Valley may have higher loan losses than is provided for in its allowance for loan losses. Yadkin Valley could continue to sustain losses from a further decline in credit quality. There can be no assurance that recently enacted legislation will help stabilize the U.S. financial system. Continued changes in local economic conditions have and could continue to lead to higher loan charge-offs and reduce our net income and growth. Weakness in the markets for residential or commercial real estate, including the secondary residential mortgage loan markets, could reduce Yadkin Valley's net income and profitability. The success of Yadkin Valley's growth strategy depends on its ability to identify and retain individuals with experience and relationships in the markets in which it intends to expand. Yadkin Valley depends on key individuals, and the unexpected loss of one or more of these key individuals could curtail its growth and adversely affect its prospects. Yadkin Valley depends on the accuracy and completeness of information about clients and counterparties and its financial condition could be adversely affected if it relies on misleading information. Interest rate volatility could significantly harm Yadkin Valley's business. Liquidity needs could adversely affect Yadkin Valley's financial condition and results of operations. Yadkin Valley is subject to extensive regulation that could limit or restrict its activities. Yadkin Valley faces strong competition in its market area, which may limit its asset growth and profitability. Yadkin Valley has implemented anti-takeover devices that could make it more difficult for another company to purchase it, even though such a purchase may increase shareholder value. Changes in banking laws could have a material adverse effect on Yadkin Valley. Our trading volume has been low compared with larger banks and bank holding companies and the sale of substantial amounts of our common stock in the public market could depress the price of our common stock. We may be adversely affected by the soundness of other financial institutions. Legislation or regulatory changes could cause us to seek to repurchase the preferred stock and warrants that we sold to the U.S. Treasury pursuant to the Capital Purchase Program. The Series T Preferred Stock impacts net income available to our common shareholders and earnings per common share, and the warrant we issued to Treasury may be dilutive to holders of our common stock. If we are unable to redeem the Series T Preferred Stock after five years, we will be required to make higher dividend payments on this stock, thereby substantially increasing our cost of capital. If we do not perform well, we may be required to recognize an impairment of our goodwill or to establish a valuation allowance against the deferred income tax asset, which could have a material adverse effect on our results of operations and financial condition.

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1366367--3/31/2009--YADKIN_VALLEY_FINANCIAL_CORP