EXHIBIT 13


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                              Yadkin Valley Company




                                      2005

                          Annual Report To Shareholders

















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Business

         Yadkin Valley Company ("Yadkin") was incorporated under the laws of
North Carolina during 1979. Its primary activity is the ownership of all the
outstanding shares of the capital stock and serving as the parent holding
company of Yadkin Valley Life Insurance Company ("Yadkin Valley Life") which is
incorporated under the laws of Arizona and is engaged in the business of
reinsuring credit life insurance policies. Yadkin Valley Life's reinsurance
activities currently are limited to assuming risk associated with credit life
insurance policies ("credit life policies") up to a maximum risk of $25,000 on
any one insured, issued only by Triangle Life Insurance Company, Raleigh, North
Carolina ("Triangle Life"), and sold only in North Carolina by The Fidelity
Bank, Fuquay-Varina, North Carolina, The Heritage Bank, Lucama, North Carolina,
and Southern Bank and Trust Company, Mount Olive, North Carolina. Triangle Life
is a wholly owned subsidiary of First-Citizens Bank & Trust Company, Raleigh,
North Carolina. In consideration of its assumption of risk, Yadkin Valley Life
receives a portion of the premium income on policies it reinsures, less the
amount of claims and insurance taxes paid and a ceding commission. Results of
operations are significantly affected by related party transactions.
<TABLE>
<CAPTION>

Directors and Executive Officers

                               Position                                Principal Occupation                                Principal
      Name                   with Yadkin                                  and Employment                                   Business
---------------------   -------------------------   ---------------------------------------------------------------------  ---------
<S>                         <C>                    <C>                                                                   <C>
Hope Holding Connell          Director              Executive Vice President, First-Citizens Bank & Trust Company,         Banking
                                                    Raleigh, NC

Denton F. Lee, Jr.      Director, Vice President    Group Vice President and Manager of Central Bank Operations,           Banking
                            and Secretary           First-Citizens Bank & Trust Company, Raleigh, NC

David S. Perry          Director, President and     President and director, American Guaranty Insurance Company, Raleigh,  Insurance
                              Treasurer             NC (property and casualty insurer); President and director, Triangle
                                                    Life Insurance Company, Raleigh, NC (credit life and accident and
                                                    health insurer)
</TABLE>

Related Party Transactions

         Yadkin and Yadkin Valley Life are parties to Administration Agreements
(the "Agreements") with American Guaranty Insurance Company, Raleigh, North
Carolina ("American Guaranty") a subsidiary of First Citizens BancShares, Inc.
Raleigh, North Carolina ("BancShares"). Under the Agreements, American Guaranty
provides the managerial, administrative and operational services necessary in
carrying on Yadkin's business and the reinsurance business of Yadkin Valley
Life, subject to the supervision and control of our Board of Directors. American
Guaranty is compensated for its services and reimbursed for its expenses
incurred which are reasonable and properly attributable to the management and
conduct of Yadkin and Yadkin Valley Life's business affairs. Either party may
terminate the Agreements at any time upon written notice to the other. Aggregate
fees paid to American Guaranty pursuant to the Agreements during 2005 were
$28,692. David S. Perry, who is President, Treasurer and director of Yadkin,
also serves as President and a director of American Guaranty, and Frank B.
Holding, Jr., one of Yadkin's principal shareholders, serves as Chairman of
American Guaranty. It is expected that American Guaranty will continue to
provide services during 2006.

         Yadkin's reinsurance business consists solely of assuming risks,
through Yadkin Valley Life, on credit life insurance policies issued by Triangle
Life Insurance Company, Raleigh, North Carolina ("Triangle Life"), which is a
subsidiary of First-Citizens Bank & Trust Company ("FCB"). David S. Perry, who
is President, Treasurer and director of Yadkin, also serves as President and a
director of Triangle Life, and Frank B. Holding, Jr., one of Yadkin's principal
shareholders, serves as Chairman of Triangle Life.

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         As noted above, American Guaranty is a subsidiary of BancShares and
Triangle Life is a subsidiary of FCB. Frank B. Holding, Jr., Lewis R. Holding
and Hope H. Connell, each is one of Yadkin's principal shareholders, and each is
a principal shareholder of FCB's parent holding company, BancShares. Also, Frank
B. Holding, Jr., and Lewis R. Holding serve as directors and executive officers
of FCB and BancShares, and Hope H. Connell serves as a senior officer of FCB.

         The credit life insurance policies issued by Triangle Life and
reinsured by Yadkin Valley Life are sold through Southern Bank and Trust
Company, Mount Olive, North Carolina ("Southern"), The Fidelity Bank,
Fuquay-Varina, North Carolina ("Fidelity"), and The Heritage Bank, Lucama, North
Carolina ("Heritage"). Each of those banks has an arrangement with Triangle Life
whereby it receives a commission on credit life insurance policies it sells to
its loan customers. Hope H. Connell, one of Yadkin's directors and principal
shareholders, also serves as a director of Southern and its parent holding
company and is a principal shareholder of Heritage's parent holding company.
Frank B. Holding, Jr., one of Yadkin's principal shareholders, also is a
principal shareholder of Southern's parent holding company. Lewis R. Holding,
one of Yadkin's principal shareholders, also is a principal shareholder of
Southern's and Fidelity's parent holding companies. The amounts of commissions
received by Southern, Fidelity and Heritage, respectively, in connection with
those policies during 2005 were $13,541, $13,503, and $5,311.

         A significant portion of our assets are represented by Yadkin's
investments in equity securities of BancShares, First Citizens Bancorporation,
Inc., Columbia, South Carolina ("Bancorporation"), and Heritage's parent holding
company Heritage BancShares, Inc. ("HBI"). Yadkin is affiliated with BancShares
and HBI as a result of the common control relationships described above.
Additionally, Lewis R. Holding, one of Yadkin's principal shareholders, also is
a principal shareholder of Bancorporation, and Peter M. Bristow, one of Yadkin's
principal shareholders, also is a principal shareholder and an executive officer
of Bancorporation.

Management's Discussion and Analysis of Financial Condition and Results of
Operations

         The following discussion is presented to assist shareholders in
understanding Yadkin's consolidated financial condition and results of
operations and should be read in conjunction with the audited consolidated
financial statements appearing elsewhere in this report.

         Certain critical accounting policies affect the more significant
judgments and estimates used in the preparation of the consolidated financial
statements. See Use of Estimates in Note 1 of the Notes to Consolidated
Financial Statements.

         Results of Operations. Yadkin's operations in 2005 resulted in a net
loss of $37,806 compared to a net income of $40,706 for 2004. The primary
factors contributing to the change in net income between 2005 and 2004 were (i)
a $31,771 decrease in life premiums (ii) a decrease of $23,519 in dividends and
(iii) an increase in professional fees of $61,766.

         Life premiums continued to decline during 2005. Premiums declined 24.8%
during 2005, which follows a 20.6% decrease in 2004 and a 15.9% decrease in
2003. The decline was due to a decrease in premium writings by producers for the
company from whom Yadkin Valley Life assumes business. Since Yadkin Valley Life
does not directly solicit business from customers, its revenue from life
premiums is dependent on the volume generated by the ceding insurance company.
Accordingly, these decreases may continue in future periods to the extent that
the producers do not generate additional volume. As described above under the
caption "Related Party Transactions" and in Note 6 of the Notes to Consolidated
Financial Statements, the ceding insurance company is related through common
ownership to Yadkin.

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         During 2005, dividend income decreased $23,519 (22.3%) as a result of
receiving a one time dividend in 2004 for an amount of $27,461 from
Bancorporation on the 5,631 shares of nonvoting common stock.

         The increase in interest paid on outstanding loans was due to an
increase in interest rates throughout 2005 when compared to 2004. In addition,
there was a $100,000 increase in borrowings in 2005. Any future decrease or
increase in interest paid will depend on the interest rate environment and
Yadkin's ability to reduce loans or the need for additional borrowings.

         Professional and management fees paid increased by $61,766 (129%)
during 2005 primarily due to the United States Securities and Exchange
Commission direction to restate the financials filed in the 2004 Form 10-KSB and
Form 10-QSB for March 31, 2005 and June 30, 2005.

         Total death benefit claims paid in 2005 were $36,988, an increase of
$22,005 when compared to death benefit claims paid of $14,983 in 2004. The
increase in 2005 is not specifically attributable to any known events, as there
have been no changes in operations, underwriting or any other procedures. The
estimate of Yadkin Valley Life's life policy claim reserves at December 31, 2005
decreased $3,201 from December 31, 2004. The reserve amount was developed by
using a 3 year average of claims paid from reserves as it relates to the total
in force amount of insurance plus case reserves. The information used in
developing reserves is received directly from producing units. Trends, adequacy
of the reserves and catastrophic events are reviewed by a qualified independent
actuary. Corrections and/or adjustments are made based on the trends, historical
adequacy and catastrophic events. For the years 2005 and 2004, all of the
reported reserves were Incurred But Not Reported ("IBNR"). Additionally, the
historical nature of the registrant's credit insurance business is such that the
timing of reported claims are of a short duration, generally less than 60 days
which results in a more accurate estimate in that a significant amount of the
estimate is known prior to reporting date. At December 31, 2005 and 2004
respectively, and, subsequently, there were and have been no additional losses
known to the Company, and no case reserves were established. The estimate of
life policy claim reserves will vary from period to period based on actuarial
development and the amount of known claims at the period reporting date.

         Yadkin's investments in equity securities experienced an increase in
their net unrealized gains during 2005 of $4,527,034 (33.8%), net of income
taxes. This follows an increase of $485,180 (3.8%) net of income taxes, during
2004. Substantially all of these unrealized gains arise from investments in
equity securities issued by banking organizations, all of which are related to
Yadkin through common ownership as described above under the caption "Related
Party Transactions." Decreases in the fair values of these investments in future
periods will result in reductions of shareholders' equity. Further discussion of
the liquidity of these investments is contained under the caption "Liquidity"
below.

         Financial Condition. During 2005, total assets increased 30% from
$24,687,100 at December 31, 2004, to $32,084,770 at December 31, 2005, primarily
due to the increase in unrealized gains on equity securities. There were no
other material changes in assets during 2005.

         During 2005, total liabilities increased 31% from $9,382,735 at
December 31, 2004, to $12,297,177 at December 31, 2005. The increase in deferred
federal income taxes resulting from unrealized gains on investments was
$2,894,334 while total liabilities increased $2,914,442.

         Commitments and Contractual Obligations. As a normal part of its
business, Yadkin and Yadkin Valley Life may enter into various contractual
obligations and have other commitments. At December 31, 2005, Yadkin had one

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contractual obligation in the amount of $1,004,153 for a one-year loan
obligation, due June 5, 2006, and accrued interest thereon. There were no other
commitments.

         Off Balance Sheet Arrangements. During 2005, Yadkin had no off balance
sheet arrangements and have none to report at December 31, 2005 and December 31,
2004.

         Liquidity. Management views liquidity as a key financial objective.
Management relies on the operations of Yadkin Valley Life as the principal
source of liquidity. Further, borrowings from a commercial bank have allowed
Yadkin to fund asset growth and maintain liquidity.

         Management believes the liquidity of Yadkin is adequate as evidenced by
a ratio of assets to liabilities of 2.61 at December 31, 2005 and 2.63 at
December 31, 2004. Additionally, investments in equity securities had a carrying
value at December 31, 2005 and December 31, 2004 of $31,640,295 and $24,218,928
respectively, of which $28,128,945 are classified as available for sale and
portions of which could be sold as a source of cash. Factors which could impact
Yadkin's financial position and liquidity are significant increases or decreases
in the market values of these equity securities. While management considers
$28,128,945 of the securities to be marketable, Yadkin's ability to sell a
substantial portion of these investments may be inhibited by the limited trading
in most of these issuances. As a result, Yadkin could realize substantial losses
on any such sales. In the event the need for additional liquidity arises,
management believes that, as an alternative to selling investment securities,
Yadkin has the ability to borrow additional funds from outside sources, using
its investment securities as collateral if necessary.

         Capital Resources. There are no material commitments for capital
expenditures and none are anticipated. At December 31, 2005, Yadkin had
outstanding borrowings of $999,205 secured by 10,000 voting common shares of
Bancorporation and 18,139 shares of Class A Common Stock of BancShares with an
aggregate fair market value of approximately $10,163,804. Any funds needed to
satisfy loan repayments will be derived from dividends from Yadkin Valley Life
and the sale of or repositioning of investments.

         Forward-Looking Statements. The foregoing discussion may contain
statements that could be deemed forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 and the Private Securities
Litigation Reform Act, which statements are inherently subject to risks and
uncertainties. Forward-looking statements are statements that include
projections, predictions, expectations, or beliefs about future events or
results or otherwise are not statements of historical fact. Such statements are
often characterized by the use of qualifying words (and their derivatives) such
as "expect," "believe," "estimate," "plan," "project," or other statements
concerning opinions or judgment of the Company and its management about future
events. Factors that could influence the accuracy of such forward looking
statements include, but are not limited to, the financial success or changing
strategies of the Company's customers, actions of government regulators, the
level of market interest rates, the market for and values of the equity
securities held by Yadkin, and general economic conditions.

Market for Common Equity and Related Stockholders Matters

         Yadkin's common stock is traded in the Pink Sheets under the trading
symbol "YAVL.PK," but the trading market is very inactive. As of December 31,
2005, Yadkin's outstanding common stock was held by an aggregate of
approximately 767 shareholders of record.

         The following table lists the high and low closing bid prices for
Yadkin's common stock in the over-the-counter market for the periods indicated.
This information was supplied by First-Citizens Bank & Trust Company, which
serves as transfer agent for Yadkin's common stock, and was obtained through
research and from Financial Technologies, Inc. It should not be taken as an
indication of the existence of any established trading market. The above

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quotations represent prices between dealers and do not include retail markup,
markdown or commissions, and they may not represent actual transactions.

    Year          Quarterly period           High Bid        Low bid
    ----          ----------------           --------        -------
    2005          Fourth Quarter              $91.00          54.00
                  Third Quarter                60.30          54.00
                  Second Quarter               57.00          51.00
                  First Quarter                56.45          40.00
    2004          Fourth Quarter              $54.50         $40.00
                  Third Quarter                53.80          50.00
                  Second Quarter               52.10          48.30
                  First Quarter                48.30          44.55

         Yadkin has never paid cash dividends on its common stock and does not
anticipate any change in its existing dividend policy or practice. Cash
dividends may be authorized as and when declared by its Board of Directors,
provided that no such distribution results in its insolvency on a going concern
or balance sheet basis.

         Historically, Yadkin has been funded primarily by dividends paid by
Yadkin Valley Life. The amount of dividend payments by Yadkin Valley Life during
any 12-month period, without prior approval by the Arizona Department of
Insurance (the "Department"), is limited by statute to the lesser of 10% of its
statutory capital and surplus or the amount of its gain from operations for the
previous fiscal year.

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                                [GRAPHIC OMITTED]
                                DIXON HUGHES PLLC
                   Certified Public Accountants and Advisors


             Report of Independent Registered Public Accounting Firm


To the Board of Directors and Shareholders
Yadkin Valley Company
Raleigh, North Carolina


We have audited the accompanying consolidated balance sheets of Yadkin Valley
Company and Subsidiary as of December 31, 2005 and 2004, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Yadkin Valley
Company and Subsidiary as of December 31, 2005 and 2004, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.

/s/ Dixon Hughes PLLC
--------------------------
High Point, North Carolina
March 24, 2006

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<TABLE>
<CAPTION>

                      YADKIN VALLEY COMPANY AND SUBSIDIARY
                           Consolidated Balance Sheets
                           December 31, 2005 and 2004

                                                                                    2005          2004
                                                                                 -----------   -----------
<S>                                                                              <C>           <C>
                           Assets
Cash and investments:
   Cash                                                                          $    86,818   $   108,783
   Investments in equity securities, at fair value
   (cost $2,276,743 and $2,276,743)                                               31,640,295    24,218,928
   Certificates of deposit                                                           280,000       358,951
                                                                                 -----------   -----------
                       Total cash and investments                                 32,007,113    24,686,662
Deferred expenses                                                                     77,338            --
Accrued investment income                                                                219           338
Other assets                                                                             100           100
                                                                                 -----------   -----------
                       Total assets                                              $32,084,770   $24,687,100
                                                                                 ===========   ===========
             Liabilities and Shareholders' Equity

Liabilities:
   Life policy claims reserve                                                    $     3,173   $     6,374
   Deferred income taxes                                                          11,279,481     8,473,954
   Accounts payable                                                                   10,370            --
   Accrued interest payable                                                            4,948         3,202
   Notes payable                                                                     999,205       899,205
                                                                                 -----------   -----------
                       Total liabilities                                          12,297,177     9,382,735
                                                                                 -----------   -----------
Shareholders' equity:
   Common stock, par value $1 per share. Authorized 500,000
     shares, issued and outstanding 180,598 shares in 2005
     and 180,700 in 2004                                                             180,598       180,700
   Retained earnings                                                               1,695,227     1,738,931
   Accumulated other comprehensive income                                         17,911,768    13,384,734
                                                                                 -----------   -----------
                                                                                  19,787,593    15,304,365
                                                                                 -----------   -----------
                 Total liabilities and shareholders' equity                      $32,084,770   $24,687,100
                                                                                 ===========   ===========
</TABLE>

See accompanying notes to consolidated financial statements.

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<TABLE>
<CAPTION>

                      YADKIN VALLEY COMPANY AND SUBSIDIARY
                    Consolidated Statements of Income (Loss)
                     Years ended December 31, 2005 and 2004

                                                               2005            2004
                                                           ------------    ------------
<S>                                                        <C>             <C>
Premiums and other revenue:
  Life premiums                                            $     96,437    $    128,208
  Dividend income                                                81,923         105,442
  Interest income                                                 6,258           3,598
                                                           ------------    ------------
                                                                184,618         237,248
                                                           ------------    ------------
Benefits and expenses:
  Death benefits                                                 36,988          14,983
  Increase (decrease) in reserve for life policy claims          (3,201)         (4,273)
  Operating expenses:
          Commissions                                            39,119          57,311
          Interest                                               42,501          25,905
          Professional fees                                     109,813          48,047
          Management fees                                        28,692          24,687
          General, administrative, and other                     57,318          46,883
                                                           ------------    ------------
                                                                311,230         213,543
                                                           ------------    ------------
                      Income (loss) before income taxes        (126,612)         23,705
Income tax benefit                                              (88,806)        (17,001)
                                                           ------------    ------------
                      Net income (loss)                    $    (37,806)   $     40,706
                                                           ============    ============
Net income (loss) per share                                $      (0.21)   $       0.23

Weighted average shares outstanding                             180,633         180,911
</TABLE>

See accompanying notes to consolidated financial statements.

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<TABLE>
<CAPTION>

                      YADKIN VALLEY COMPANY AND SUBSIDIARY
           Consolidated Statements of Changes in Shareholders' Equity
                     Years ended December 31, 2005 and 2004
                                                                                           Accumulated
                                                                                              other          Total
                                                             Common          Retained     comprehensive   shareholders'
                                                              Stock          Earnings        income          equity
                                                          ------------    ------------    ------------   ------------
<S>                                                       <C>             <C>             <C>            <C>
Balance at December 31, 2003                              $    181,130    $  1,720,057    $ 12,899,554   $ 14,800,741
Comprehensive income:
    Net income                                                      --          40,706              --         40,706
    Net unrealized gains on equity securities available
        for sale, net of income taxes of $316,965                   --              --         485,180        485,180
                                                                                                         ------------
                            Comprehensive income                                                              525,886

Redemption of 165 shares of common stock                          (430)        (21,832)             --        (22,262)
                                                          ------------    ------------    ------------   ------------
Balance at December 31, 2004                                   180,700       1,738,931      13,384,734     15,304,365
Comprehensive income:
    Net loss                                                        --         (37,806)             --        (37,806)
    Net unrealized gains on equity securities available
       for sale, net of income taxes of $2,894,334                  --              --       4,527,034      4,527,034
                                                                                                         ------------
                            Comprehensive income                                                            4,489,228

Redemption of 102 shares of common stock                          (102)         (5,898)             --         (6,000)
                                                          ------------    ------------    ------------   ------------
Balance at December 31, 2005                              $    180,598    $  1,695,227    $ 17,911,768   $ 19,787,593
                                                          ============    ============    ============   ============
</TABLE>

See accompanying notes to consolidated financial statements.

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<TABLE>
<CAPTION>

                      YADKIN VALLEY COMPANY AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                     Years ended December 31, 2005 and 2004

                                                                                   2005             2004
                                                                               ------------     ------------
<S>                                                                            <C>              <C>
Operating activities:
  Net income (loss)                                                            $    (37,806)    $     40,706
  Adjustments to reconcile net income (loss) to net
    cash provided (used) by operating activities:
        Deferred tax benefit                                                        (88,806)         (17,001)
        Increase in deferred expenses                                               (77,338)              --
        Decrease in reserve for life policy claims                                   (3,201)          (4,273)
        (Increase) decrease in accrued investment income                                119             (102)
        Increase in notes payable                                                   100,000               --
        Increase in accrued interest payable                                          1,746            1,721
        Increase in other liabilities                                                10,370               --
                                                                               ------------     ------------
                         Net cash provided (used) by operating activities           (94,916)          21,051
                                                                               ------------     ------------
Investing activities:
  Purchases of certificates of deposit                                           (1,396,475)      (1,400,015)
  Maturities of certificates of deposit                                           1,475,426        1,411,064
                                                                               ------------     ------------
                         Net cash provided by investing activities                   78,951           11,049
                                                                               ------------     ------------
Financing activities:
  Purchases and retirement of common stock                                           (6,000)         (22,262)
                                                                               ------------     ------------
                         Net cash used by financing activities                       (6,000)         (22,262)
                                                                               ------------     ------------
                         Net increase (decrease) in cash                            (21,965)           9,838

Cash at beginning of year                                                           108,783           98,945
                                                                               ------------     ------------
Cash at end of year                                                            $     86,818     $    108,783
                                                                               ============     ============
Cash payments for:
  Interest                                                                     $     39,754     $     24,184
  Income taxes                                                                           --               --
Non cash investing and financing activities:
  Unrealized gain on securities available for sale,
    net of applicable income taxes of $2,894,334 and
    $316,965, respectively (as restated)                                       $  4,527,034     $    485,180
</TABLE>

See accompanying notes to consolidated financial statements.

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                      YADKIN VALLEY COMPANY AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2005 and 2004


(1)      Significant Accounting Policies

         Basis of Presentation

         The consolidated financial statements include the accounts and
         operations of Yadkin Valley Company (the Parent) and its wholly owned
         subsidiary, Yadkin Valley Life Insurance Company, hereinafter
         collectively referred to as the Company. Inter-company accounts and
         transactions have been eliminated. The consolidated financial
         statements have been prepared in accordance with accounting principles
         generally accepted in the United States of America which, as to the
         insurance subsidiary, may vary in some respects from the statutory
         accounting practices which are prescribed or permitted by the Insurance
         Department of the State of Arizona. The insurance subsidiary is
         domiciled in Arizona.

         Line of Business

         The Parent, which was organized as a North Carolina holding company,
         manages the operations of Yadkin Valley Life Insurance Company, which
         is in the business of assuming credit life insurance. All reinsurance
         is assumed from Triangle Life Insurance Company (TLIC), which is an
         affiliate through common ownership. TLIC issues credit life insurance
         policies on loans made by three banks located in North Carolina:
         Southern Bank and Trust Company (Southern), The Heritage Bank
         (Heritage) and The Fidelity Bank (Fidelity). The Company and the three
         aforementioned banks are also related through certain common ownership
         (see Note 6).

         Yadkin Valley Life Insurance Company's assumption limit, which has been
         determined by management, is $25,000 per policy.

         Recognition of Premium Revenues

         The credit life insurance is written on a group basis which allows
         premium payments to be collected by the financial institution monthly
         from an individual insured. Pursuant to a group policy and an agency
         agreement between TLIC and the financial institutions, the premiums are
         paid by the financial institution to TLIC in the month following the
         month which the premiums are collected from the individual insured.
         TLIC pays the premium to the Company in the month TLIC receives it.
         Premium revenue is recognized based on premiums collected from TLIC and
         is based on the reinsurance coverage provided for the month. Since
         reinsurance coverage is provided prior to the receipt of premiums,
         there is no deferral of revenue to future periods.

         Liabilities for Policy and Contract Claims

         The reserve for life policy claims includes estimates of losses on
         reported claims and claims incurred but not reported, based on
         information provided by the ceding company and on the Company's
         historical experience. Although management believes that the liability
         for life policy claims is adequate, the ultimate amount of such claims
         may vary, perhaps significantly, from the estimated amounts in the
         financial statements.

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                      YADKIN VALLEY COMPANY AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2005 and 2004


         Investments

         Investments in marketable equity securities are classified as
         available-for-sale in accordance with SFAS 115, Accounting for Certain
         Investments in Debt and Equity Securities, and are accounted for at
         fair value as determined by quoted market prices. Non-marketable equity
         securities are accounted for under SFAS 60, Accounting and Reporting by
         Insurance Enterprises as amended, at fair value as determined by
         management as quoted market prices are not available. The unrealized
         holding gains and losses on both marketable and non-marketable equity
         securities are reported net of deferred income taxes as a component of
         accumulated other comprehensive income.

         Realized gains and losses on equity securities are recognized in
         earnings using the specific identification method.

         Other Than Temporary Impairment of Investment Securities

         Our policy regarding other than temporary impairment of investment
         securities requires continuous monitoring. Individual investment
         securities with a fair market that is less than 80% of original cost
         over a continuous period of two quarters are evaluated for impairment
         during the subsequent quarter. The evaluation includes an assessment of
         both qualitative and quantitative measures to determine whether, in
         management's judgment, the investment is likely to recover its original
         value. If the evaluation concludes that the investment is not likely to
         recover its original value, the unrealized loss is other than temporary
         impairment, and the loss is recorded as a realized loss in the
         Consolidated Statement of Income.

         Income Taxes

         Income tax provisions are based on income reported for financial
         statement purposes. Deferred federal income taxes are recorded based on
         temporary differences between the financial reporting basis and the tax
         basis of assets and liabilities at enacted tax rates expected to be in
         effect when such amounts are realized or settled. A valuation allowance
         is provided to reduce the deferred tax assets to the amount that is
         more likely than not to be recovered.

         Fair Value of Financial Instruments

         The Company's on-balance sheet financial instruments are cash,
         investments in equity securities, certificates of deposit, accrued
         investment income, accrued interest payable and notes payable. Fair
         values of investments in equity securities are discussed below and in
         Note 3. The carrying values of other on-balance sheet financial
         instruments approximate fair value.

         The fair value estimates are made at a specific point in time based on
         relevant market information about the financial instrument. These
         estimates do not reflect any premium or discount that could result from
         offering for sale at one time the Company's entire holding of a
         particular financial instrument. In cases where quoted market prices
         are not available, fair value estimates are based on judgments
         regarding current economic conditions, risk characteristics of
         financial instruments, and other factors. These estimates are
         subjective in nature and involve uncertainties and matters of
         significant judgment and, therefore, cannot be determined with
         precision. Changes in assumptions could significantly affect the
         estimates. In addition, the tax ramifications related to the
         realization of the unrealized gains and losses can have a significant
         effect on fair value estimates and have not been considered in the

                                       14
<PAGE>

                      YADKIN VALLEY COMPANY AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2005 and 2004


         estimates. Finally, the fair value estimates presented herein are based
         on pertinent information available to management as of December 31,
         2005 and 2004, respectively. Such amounts have not been comprehensively
         revalued for purposes of these financial statements since those dates
         and, therefore, current estimates of fair value may differ
         significantly from the amounts presented herein.

         Other Comprehensive Income

         Other comprehensive income consists solely of unrealized gains on
         equity securities net of related income taxes. For the periods ending
         2005 and 2004, there have been no realized gains.

         Net Income (Loss) Per Share

         Net income (loss) per share is computed based on the weighted average
         number of common shares outstanding during the year and represents
         basic and diluted net income per share, respectively, for 2005 and
         2004, as the Company has no potentially dilutive common stock.

         Use of Estimates

         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States of America requires
         management to make estimates and assumptions that affect the reported
         amounts of assets and liabilities as of the dates of the consolidated
         balance sheets and the reported amounts of income and expense included
         in the consolidated statements of income. Actual results could differ
         from those estimates.

         The most significant estimates the Company makes in preparing its
         consolidated financial statements relates to: (i) the determination of
         fair market value of First Citizens Bancorporation, Inc.
         ("Bancorporation") non voting stock and Heritage BancShares, Inc.
         ("HBI") common stock and; (ii) the life policy claims reserve.

         (i)      The fair value of the Bancorporation non voting stock is
                  reported using a 25% discount from the fair value of
                  Bancorporation's voting common stock, which is determined by
                  quoted market prices. There are only four shareholders of the
                  nonvoting common stock, and there have been no transfers in
                  the last five years. There is no known market for the stock.
                  The 25% discount was determined by management of the Company
                  based on a comprehensive evaluation by an independent third
                  party and discussions with management of the issuer.

                  The fair value of the HBI stock is reported using a buy back
                  price determined annually by management of HBI. This stock is
                  thinly traded and there is no known market.

                  If there are changes in the market price of Bancorporation's
                  voting common stock, or the buy back price of HBI's common
                  stock, materially different amounts may be reported in the
                  Company's consolidated balance sheet.

         (ii)     The life policy claim reserves reported at December 31, 2005
                  and 2004, respectively were $3,173 and $6,374. The reserve
                  amount was developed by using a 3 year average of claims paid
                  from reserves as it relates to the total in force amount of
                  insurance plus case reserves. The information used in
                  developing reserves is received directly from producing units.

                                       15
<PAGE>

                      YADKIN VALLEY COMPANY AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2005 and 2004

                  Trends, adequacy of the reserves and catastrophic events are
                  reviewed by a qualified independent actuary. Corrections
                  and/or adjustments are made based on the trends, historical
                  adequacy and catastrophic events. For the years 2005 and 2004,
                  all of the reported reserves were Incurred But Not Reported
                  ("IBNR"). Additionally, the historical nature of the
                  registrant's credit insurance business is such that the timing
                  of reported claims are of a short duration, generally less
                  than 60 days which results in a more accurate estimate in that
                  a significant amount of the estimate is known prior to the
                  reporting date. At December 31, 2005 and 2004 respectively,
                  and, subsequently, there were and have been no additional
                  losses known to the Company, and no case reserves were
                  established.

(2)      Investments

         Investments at December 31, 2005 and 2004, consisted of certificates of
         deposit and equity securities.

         Certificates of deposit of $280,000 and $358,951 at December 31, 2005
         and 2004, respectively, are carried at cost. These certificates of
         deposit have maturities of less than one year. The cost of these
         securities approximates fair value. Included in certificates of deposit
         on the consolidated balance sheets are $100,000 in certificates of
         deposit owned by Yadkin Valley Life Insurance Company which are held on
         deposit with the Arizona Department of Insurance.

         The shares of common stock of Heritage BancShares, Inc. are reported at
         fair values using a buy back price determined annually by management of
         the issuer. The shares of nonvoting common stock of First Citizens
         Bancorporation of South Carolina, Inc. are reported at fair values
         determined by the Company based on an independent comprehensive
         analysis provided by Equity Research, Raleigh, North Carolina, and
         discussions with management of the issuer. There are only four holders
         of Bancorporation's nonvoting common stock, and there have been no
         transfers in the last five years. HBI's common stock is very thinly
         traded. There is no known market for either stock. See Use of Estimates
         in Note 1 of Notes to Consolidated Financial Statements.


                                       16
<PAGE>
<TABLE>
<CAPTION>

                      YADKIN VALLEY COMPANY AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2005 and 2004

   Equity securities at December 31, 2005 consist of the following securities:


                                           Number of                      Unrealized
          Description                       shares           Cost            gain         Fair value
                                         ------------    ------------    ------------    ------------
<S>                                            <C>       <C>             <C>             <C>
 First Citizens Bancorporation of
   South Carolina, Inc. - voting
   common stock - par value
   $5 per share                                35,000    $    455,000    $ 24,045,000    $ 24,500,000
 First Citizens BancShares, Inc. -
   class A common stock -
   par value $1 per share                      18,845       1,013,748       2,273,197       3,286,945
 First Citizens BancShares, Inc. -
   Class B common stock -
   par value $1 per share                       1,900          84,590         257,410         342,000
                                         ------------    ------------    ------------    ------------
      Total marketable securities              55,745       1,553,338      26,575,607      28,128,945
                                         ------------    ------------    ------------    ------------

 Heritage BancShares, Inc. common
   stock - par value $1 per share               7,401         455,932          99,143         555,075
 First Citizens Bancorporation of
   South Carolina, Inc. - nonvoting
   common stock - par value
   $5 per share                                 5,631         267,473       2,688,802       2,956,275
                                         ------------    ------------    ------------    ------------
      Total non-marketable securities          13,032         723,405       2,787,945       3,511,350
                                         ------------    ------------    ------------    ------------
       Total equity securities                           $  2,276,743    $ 29,363,552    $ 31,640,295
                                                         ============    ============    ============
</TABLE>

                                       17
<PAGE>
<TABLE>
<CAPTION>

                      YADKIN VALLEY COMPANY AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2005 and 2004

  Equity securities at December 31, 2004 consist of the following securities:

                                           Number of                      Unrealized
          Description                       shares           Cost            gain         Fair value
                                         ------------    ------------    ------------    ------------
<S>                                            <C>       <C>             <C>             <C>
First Citizens Bancorporation of
  South Carolina, Inc. - voting
  common stock - par value
  $5 per share                                 35,000    $    455,000    $ 17,920,000    $ 18,375,000
First Citizens BancShares, Inc. -
  Class A common stock -
  par value $1 per share                       18,845       1,013,748       1,780,024       2,793,772
First Citizens BancShares, Inc. -
  Class B common stock -
  par value $1 per share                        1,900          84,590         193,285         277,875
                                         ------------    ------------    ------------    ------------
     Total marketable securities               55,745       1,553,338      19,893,309      21,446,647
                                         ------------    ------------    ------------    ------------
Heritage BancShares, Inc.
  stock - par value $1 per share                7,401         455,932          99,143         555,075
First Citizens Bancorporation of
  South Carolina, Inc. - nonvoting
  common stock - par value
  $5 per share                                  5,631         267,473       1,949,733       2,217,206
                                         ------------    ------------    ------------    ------------
     Total non-marketable securities           13,032         723,405       2,048,876       2,772,281
                                         ------------    ------------    ------------    ------------
      Total equity securities                            $  2,276,743    $ 21,942,185    $ 24,218,928
                                                         ============    ============    ============

<CAPTION>

(3)      Notes Payable

         Notes payable at December 31, 2005 and 2004 consist of the following:

                                                                             2005            2004
                                                                         ------------    ------------
<S>                                                                   <C>             <C>
Advances under line of credit expiring June 5, 2006, interest
  payable monthly at LIBOR plus 1.25%                                    $    999,205    $    899,205
</TABLE>

         The line of credit, which is with an unrelated bank, is secured by
         10,000 voting common shares of First Citizens Bancorporation of South
         Carolina, Inc. (FCB-SC) which have a carrying value of $7,000,000 and
         18,139 shares of First Citizens BancShares, Inc. of North Carolina
         (FCB) Class A Common Class, which have a carrying value of $3,163,804.
         The Company may borrow up to $1,000,000 under the line of credit. The
         interest rate for this line of credit at December 31, 2005 and 2004 is
         5.63% and 3.67%, respectively.

                                       18
<PAGE>

                      YADKIN VALLEY COMPANY AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2005 and 2004


(4)      Shareholders' Equity and Restrictions

         Prior approval by state regulators is required for insurance companies
         to pay dividends to their shareholders in excess of certain
         limitations. In addition, shareholders' equity and minimum capital
         requirements, as defined by statute, are restricted and cannot be
         distributed by insurance subsidiaries without approval of the state
         insurance department. The amount which the insurance subsidiary can pay
         in dividends during any twelve-month period without prior approval is
         limited by statute to the lesser of 10% of statutory surplus, or
         statutory gain from operations of the previous fiscal year. In 2006,
         the subsidiary may not pay dividends without approval of the Arizona
         Department of Insurance. In 2005 and 2004, the subsidiary paid
         dividends to the parent of $86,000 and $50,000, with approval of the
         Arizona Department of Insurance.

         Statutory surplus at December 31, 2005, and net income for the year
         then ended of the insurance subsidiary, as computed in accordance with
         statutory accounting practices, were $278,615 and $5,242, respectively.
         Statutory surplus at December 31, 2004, and net loss for the year then
         ended of the insurance subsidiary, as computed in accordance with
         statutory accounting practices, were $373,979 and $43,523,
         respectively.

(5)      Income Taxes

         The Company has elected to file a consolidated federal income tax
         return. Income tax benefit for the years ended December 31, 2005 and
         2004 is composed of the following:

                                                        2005            2004
                                                    ------------   ------------
         Deferred Federal Taxes                     $    (88,806)  $    (17,001)

         At December 31, 2005 and 2004, deferred tax assets (liabilities)
         consist of the following components:

                                                        2005            2004
                                                    ------------   ------------
         Deferred tax assets:
           Tax loss and credit carryforwards        $    184,809         90,982
                                                    ------------   ------------
                      Gross deferred tax assets          184,809         90,982
         Valuation allowance                             (12,505)        (7,485)
                                                    ------------   ------------
                      Net deferred tax asset             172,304         83,497
         Deferred tax liabilities:
           Unrealized gain on securities
            available-for-sale                       (11,451,785)    (8,557,451)
                                                    ------------   ------------
                      Net deferred tax liability    $(11,279,481)    (8,473,954)
                                                    ============   ============

                                       19
<PAGE>

                      YADKIN VALLEY COMPANY AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2005 and 2004

         The Company has established a valuation allowance against its deferred
         tax assets due to the uncertainty surrounding the realization of such
         assets. The ultimate realization of deferred tax assets is dependent
         upon the generation of future taxable income during the period in which
         those temporary differences become deductible. Management considered
         the scheduled reversal of deferred tax liabilities in making this
         assessment.

         The reasons for the difference between total income tax benefit and the
         amount computed by applying the statutory federal income tax rate of
         34% to income before income taxes are as follows:
<TABLE>
<CAPTION>

                                                                        2005            2004
                                                                   ------------    ------------
<S>                                                                <C>                    <C>
         Income tax expense (benefit) at federal statutory rates   $    (43,048)          8,060
         Effect of dividends received deduction and other               (19,463)        (25,061)
         Deferral of going private expenses                             (26,295)             --
                                                                   ------------    ------------
                               Income tax benefit                  $    (88,806)        (17,001)
                                                                   ============    ============
</TABLE>


         At December 31, 2005, the Company has a net operating loss
         carry-forward (NOL) for federal income tax purposes of $502,486 that
         expires in 2021 through 2025. At December 31, 2005, the Company has an
         NOL for state income tax purposes of $274,629 that expires between 2014
         and 2020.

         The Tax Reform Act of 1986 contains provisions which limit the ability
         to utilize net operating loss carry-forwards in the case of certain
         events including significant changes in ownership interests. If the
         Company's NOL's are limited and the Company has taxable income which
         exceeds the permissible yearly NOL, the Company would incur a federal
         income tax liability even though NOL's would be available in future
         years. The North Carolina general statutes require that carried forward
         losses must be reduced or offset by any income not taxable received in
         succeeding years.

(6)      Related Parties

         Certain significant shareholders of the Company are also significant
         shareholders of First Citizens BancShares, Inc. (FCB), First Citizens
         Bancorporation of South Carolina, Inc. (FCB-SC), Heritage, Southern and
         Fidelity. All of these entities are related through common ownership.
         American Guaranty Insurance Company (AGI) and First-Citizens Bank &
         Trust Company (FCB&T) are wholly owned subsidiaries of FCB, and TLIC is
         wholly owned by FCB&T.

         The Company has no employees. AGI provides all managerial,
         administrative and operational services necessary in carrying out the
         Company's business. Management fees for such services were $28,692 in
         2005 and $24,687 in 2004. The amount of the management fees is a fee
         mutually agreed upon for services rendered and expenses incurred which
         are reasonable and properly attributed to the management and conduct of
         the Company's business.

         The Company holds stock in FCB, FCB-SC and HBI (refer to note 2). At
         December 31, 2005 and 2004, the Company had $180,000 and $258,951,
         respectively, invested in First-Citizens Bank & Trust Company (FCB&T),
         a subsidiary of FCB, certificates of deposit. The interest rates on the
         certificates of deposit  range from 1.40% to 2.76% at  December 31,

                                       20
<PAGE>

                      YADKIN VALLEY COMPANY AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2005 and 2004


         2005. The cash balance of $86,818 at December 31, 2005 and $108,783 at
         December 31, 2004 is represented by deposit accounts at FCB&T.

         Yadkin Valley Life provides reinsurance under a reinsurance agreement
         entered into on August 1, 1994, to TLIC, a subsidiary of FCB&T. The
         agreement is on a coinsurance basis according to Yadkin's share,
         subject to the terms and conditions of the original policy issued by
         TLIC for the reinsured policy. Reinsurance amounts are calculated in
         terms of coverages on a per certificate basis. The maximum amount
         allowed for a single certificate is $25,000. The agreement provides
         that TLIC shall maintain a certificate of deposit in an amount no less
         than any reserve established for the Company.

         The policies reinsured are sold through Southern, Fidelity, and
         Heritage. Amounts related to business assumed from TLIC for 2005 and
         2004 follows:

                                                  2005           2004
                                              ------------   ------------
         Premiums assumed                     $     96,437   $    128,208
         Death benefits assumed                     36,988         14,983
         Life policy claim reserves assumed          3,173          6,374
         Commissions paid                           39,119         57,311

(7)      Going Private Transaction

         On September 28, 2005, the Registrant filed an 8-K with the Securities
         and Exchange Commission in which it announced its intentions to pursue
         voluntary de-registration by means of a reverse stock-split.
         Shareholders will receive 1 share for each 50 shares held immediately
         prior to the reverse stock-split. In lieu of fractional shares,
         shareholders will receive $78.00 in cash for each pre-split share
         comprising a fraction of a newly issued share.

         On January 24, 2006, Registrant filed Schedule 13E-3 "Transaction
         Statement" and Schedule 14A "Proxy Statement" with the United States
         Securities and Exchange Commission to seek approval of the
         aforementioned voluntary de-registration.

                                       21