Exhibit 13



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Yadkin Valley Company



2004



Annual Report To Shareholders



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(THIS PAGE INTENTIONALLY LEFT BLANK)



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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.



Directors and Executive Officers



|                     |  |                                        |  |                                                                                                                                                                                                                              |  |                   
|-------------------- |  | -------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|Name                 |  | Position with Yadkin                   |  | Principal Occupation and Employment                                                                                                                                                                                          |  | Principal Business
|Hope Holding Connell |  | Director                               |  | Executive Vice President, First-Citizens Bank & Trust Company, Raleigh, NC                                                                                                                                                   |  | Banking           
|                     |  |                                        | 
|Denton F. Lee, Jr.   |  | Director, Vice President and Secretary |  | Group Vice President and Manager of Central Bank Operations, First-Citizens Bank & Trust Company, Raleigh, NC                                                                                                                |  | Banking           
|                     |  |                                        | 
|David S. Perry       |  | Director, President and Treasurer      |  | President and director, American Guaranty Insurance Company, Raleigh, NC (property and casualty insurer); President and director, Triangle Life Insurance Company, Raleigh, NC (credit life and
accident and health insurer) |  | Insurance         



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 2004 were $24,687. 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 2005.



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 2004 were $20,630, $19,873, and $7,814.



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. Yadkin is affiliated with BancShares and Heritage 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.



Management has determined that the Registrants critical
accounting policies requiring more significant judgments and estimates used in the preparation of the consolidated financial statements are the valuation of investments and claim reserve determination. For further discussion refer to Use
of Estimatesin Note 1 of the Notes to Consolidated Financial Statements.



The Company restated its consolidated financial statements for the fiscal years December 31, 2004 and December 31, 2003. See Restatement of Financial Statementsin Note 2 of the notes to the
consolidated financial statements.



Results of
Operations.Yadkins operations in 2004 resulted in a net income of $40,706 compared to a net loss of $43,405 for 2003. The primary factors contributing to the change in net income between 2004 and 2003 were (i) a
$112,891 decrease in claims expense and (ii) an increase of $38,920 in dividends. The aforementioned revenue increase was offset by a $19,638 aggregate increase in interest expense, professional fees, management fees and general expenses.



Life premiums continued to decline during 2004. Premiums
declined 20.6% during 2004, which follows a 15.9% decrease in 2003 and an 8.7% decrease in 2002. 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



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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 7 to the Consolidated Financial Statements, the ceding insurance company is
related through common ownership to Yadkin.



During 2004,
dividend income increased $38,920 (58.5%) as a result of receiving a one time dividend in the 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 2004 when compared to
2003. There were no additional borrowings in 2004. 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 $9,748 (15.5%) during
2004 to provide for internal control and regulation compliance.



Total death benefit claims paid in 2004 were $14,983, a decrease of $105,813 when compared to death benefit claims paid of $120,796 in 2003. The percentage of paid claims in 2004 is significantly lower than in 2003 and is more in line with
Yadkins historical levels. The increase in 2003 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, 2004 decreased $4,273 from December 31, 2003. 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 2004 of $485,180 (3.8%), net of income taxes. This follows an increase of $3,552,872 (38.0%), net of income taxes, during 2003. 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 2004, total assets increased 3.4%
from $23,886,064 at December 31, 2003, to $24,687,100 at December 31, 2004, primarily due to the increase in unrealized gains on equity securities. There were no other material changes in assets during 2004.



During 2004, total liabilities increased 3.3% from $9,085,323 at
December 31, 2003, to $9,382,735 at December 31, 2004. The increase in deferred federal income taxes resulting from unrealized gains on investments was $316,965 while total liabilities increased $297,412.



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, 2004, Yadkin had one contractual obligation in the amount of $902,407 for a one-year loan obligation,
due June 5, 2005, and accrued interest thereon. There were no other commitments.



Off Balance Sheet Arrangements.During 2004, Yadkin had no off balance sheet arrangements and have none to report at December 31, 2004 and December 31, 2003.



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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 2.63 at December 31, 2004 and 2.63 at December 31, 2003. Additionally, investments in equity securities had a carrying value at December 31, 2004 and December 31, 2003 of $24,218,928 and
$23,416,783 respectively, of which $21,446,647 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 $21,446,647 of the securities to be readily 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, 2004,
Yadkin had outstanding borrowings of $899,205 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 $7,939,107. 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.



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Market for Common Equity and Related Stockholders Matters



Yadkins common stock is traded in the over-the-counter market on the
OTC Bulletin Board under the trading symbol YAVL.OB, but the trading market is very inactive. As of December 31, 2004, 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
by it from Financial Technologies, Inc. It should not be taken as an indication of the existence of any established trading market. The above 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
|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
|     |  |                  | 
|2003 |  | Fourth Quarter   |  |          | 44.55 |         |   | 42.75
|     |  | Third Quarter    |  |          | 53.80 |         |   | 42.00
|     |  | Second Quarter   |  |          | 53.50 |         |   | 36.75
|     |  | First Quarter    |  |          | 45.50 |         |   | 36.75



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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[DIXON HUGHES LETTERHEAD]



Report of Independent Registered Public Accounting Firm



Yadkin Valley Company and Subsidiary



We have audited the accompanying consolidated balance sheets of Yadkin Valley Company and subsidiary (the Company) as of December 31, 2004 and 2003, and the
related consolidated statements of income (loss), changes in shareholders equity, and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 consolidated financial position of the Company as of
December 31, 2004 and 2003, 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.



As discussed in note 2, the accompanying consolidated financial statements have been
restated.



/s/ Dixon Hughes PLLC



Raleigh, North Carolina

December 22, 2005



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YADKIN VALLEY COMPANY AND SUBSIDIARY



Consolidated Balance Sheets



December 31, 2004 and 2003



|                                                                                                                                   |  |                               |            |                               |           
|---------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ---------- | ----------------------------- | ----------
|                                                                                                                                   |  | 2004 (as restated, SeeNote 2) |            | 2003 (as restated, seeNote 2)
|Assets                                                                                                                             |  |                               |            |                               |           
|Cash and investments:                                                                                                              |  |                               |            |                               |           
|Cash                                                                                                                               |  | $                             | 108,783    |                               | 98,945    
|                                                                                                                                   |  |                              
|Investments in equity securities                                                                                                   |  |                               | 24,218,928 |                               | 23,416,783
|Certificates of deposit                                                                                                            |  |                               | 358,951    |                               | 370,000   
|                                                                                                                                   |  |                               |            |                               |           
|Total cash and investments                                                                                                         |  |                               | 24,686,662 |                               | 23,885,728
|                                                                                                                                   |  |                              
|Accrued investment income                                                                                                          |  |                               | 338        |                               | 236       
|Other assets                                                                                                                       |  |                               | 100        |                               | 100       
|                                                                                                                                   |  |                               |            |                               |           
|Total assets                                                                                                                       |  | $                             | 24,687,100 |                               | 23,886,064
|                                                                                                                                   |  |                               |            |                               |           
|Liabilities and Shareholders Equity                                                                                               |  |                               |            |                               |           
|Liabilities:                                                                                                                       |  |                               |            |                               |           
|Life policy claims reserve                                                                                                         |  | $                             | 6,374      |                               | 10,647    
|                                                                                                                                   |  |                              
|Deferred income taxes                                                                                                              |  |                               | 8,473,954  |                               | 8,173,990 
|Accrued interest payable                                                                                                           |  |                               | 3,202      |                               | 1,481     
|Notes payable                                                                                                                      |  |                               | 899,205    |                               | 899,205   
|                                                                                                                                   |  |                               |            |                               |           
|Total liabilities                                                                                                                  |  |                               | 9,382,735  |                               | 9,085,323 
|                                                                                                                                   |  |                               |            |                               |           
|Shareholders equity:                                                                                                              |  |                               |            |                               |           
|Common stock, par value $1 per share. Authorized 500,000 shares, issued and outstanding 180,700 shares in 2004 and 181,130 in
2003 |  |                               | 180,700    |                               | 181,130   
|Retained earnings                                                                                                                  |  |                               | 1,738,931  |                               | 1,720,057 
|Accumulated other comprehensive income                                                                                             |  |                               | 13,384,734 |                               | 12,899,554
|                                                                                                                                   |  |                               |            |                               |           
|                                                                                                                                   |  |                               | 15,304,365 |                               | 14,800,741
|                                                                                                                                   |  |                               |            |                               |           
|Total liabilities and shareholders equity                                                                                         |  | $                             | 24,687,100 |                               | 23,886,064
|                                                                                                                                   |  |                               |            |                               |           



See accompanying notes to consolidated
financial statements.



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YADKIN VALLEY COMPANY AND SUBSIDIARY



Consolidated Statements of Income (Loss)



Years ended December 31, 2004 and 2003



|                                                      |  |      |         |   |      |         |  
|----------------------------------------------------- |  | ---- | ------- | - | ---- | ------- | -
|                                                      |  | 2004 |         |   | 2003 |        
|Premiums and other revenue:                           |  |      |         |   |      |         |  
|Life premiums                                         |  | $    | 128,208 |   |      | 161,549 |  
|Dividend income                                       |  |      | 105,442 |   |      | 66,522  |  
|Interest income                                       |  |      | 3,598   |   |      | 3,929   |  
|                                                      |  |      |         |   |      |         |  
|                                                      |  |      | 237,248 |   |      | 232,000 |  
|                                                      |  |      |         |   |      |         |  
|Benefits and expenses:                                |  |      |         |   |      |         |  
|Death benefits                                        |  |      | 14,983  |   |      | 120,796 |  
|Increase (decrease) in reserve for life policy claims |  |      | (4,273  | ) |      | 2,805   |  
|Operating expenses:                                   |  |      |         |   |      |         |  
|Commissions                                           |  |      | 57,311  |   |      | 72,735  |  
|Interest                                              |  |      | 25,905  |   |      | 22,036  |  
|Professional fees                                     |  |      | 48,047  |   |      | 45,260  |  
|Management fees                                       |  |      | 24,687  |   |      | 17,726  |  
|General, administrative, and other                    |  |      | 46,883  |   |      | 40,862  |  
|                                                      |  |      |         |   |      |         |  
|                                                      |  |      | 213,543 |   |      | 322,220 |  
|                                                      |  |      |         |   |      |         |  
|Income (loss) before income taxes                     |  |      | 23,705  |   |      | (90,220 | )
|                                                      |  |     
|Income tax benefit                                    |  |      | (17,001 | ) |      | (46,815 | )
|                                                      |  |      |         |   |      |         |  
|Net income (loss)                                     |  | $    | 40,706  |   |      | (43,405 | )
|                                                      |  |      |         |   |      |         |  
|Net income (loss) per share                           |  | $    | 0.23    |   |      | (0.24   | )
|Weighted average shares outstanding                   |  |      | 180,911 |   |      | 181,228 |  



See accompanying notes to consolidated
financial statements.



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YADKIN VALLEY COMPANY AND SUBSIDIARY



Consolidated Statements of Changes in Shareholders Equity



Years ended December 31, 2004 and 2003



|                                                                                                       |  |             |         |   |                  |           |   |                                                  |            |                                       |            |  
|------------------------------------------------------------------------------------------------------ |  | ----------- | ------- | - | ---------------- | --------- | - | ------------------------------------------------ | ---------- | ------------------------------------- | ---------- | -
|                                                                                                       |  | Commonstock |         |   | Retainedearnings |           |   | Accumulatedothercomprehensiveincome (asrestated) |            | Totalshareholdersequity (asrestated) |           
|Balance at December 31, 2002                                                                           |  | $           | 181,295 |   |                  | 1,770,197 |   |                                                  | 9,346,682  |                                       | 11,298,174 |  
|                                                                                                       |  |             |         |  
|Comprehensive income:                                                                                  |  |             |         |   |                  |           |   |                                                  |            |                                       |            |  
|Net loss                                                                                               |  |             |        |   |                  | (43,405   | ) |                                                  |           |                                       | (43,405    | )
|Net unrealized gains on equity securities, net of income taxes of $2,269,727 (as restated, see Note 2) |  |             |        |   |                  |          |   |                                                  | 3,552,872  |                                       | 3,552,872  |  
|                                                                                                       |  |             |         |   |                  |           |   |                                                  |            |                                       |            |  
|Comprehensive income                                                                                   |  |             |         |   |                  |           |   |                                                  |            |                                       | 3,509,467  |  
|                                                                                                       |  |             |         |  
|Redemption of 165 shares of common stock                                                               |  |             | (165    | ) |                  | (6,735    | ) |                                                  |           |                                       | (6,900     | )
|                                                                                                       |  |             |         |   |                  |           |   |                                                  |            |                                       |            |  
|Balance at December 31, 2003 (as restated)                                                             |  |             | 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, net of income taxes of $316,965 (as restated, see Note 2)   |  |             |        |   |                  |          |   |                                                  | 485,180    |                                       | 485,180    |  
|                                                                                                       |  |             |         |   |                  |           |   |                                                  |            |                                       |            |  
|Comprehensive income                                                                                   |  |             |         |   |                  |           |   |                                                  |            |                                       | 525,886    |  
|                                                                                                       |  |             |         |  
|Redemption of 430 shares of common stock                                                               |  |             | (430    | ) |                  | (21,832   | ) |                                                  |           |                                       | (22,262    | )
|                                                                                                       |  |             |         |   |                  |           |   |                                                  |            |                                       |            |  
|Balance at December 31, 2004 (as restated)                                                             |  | $           | 180,700 |   |                  | 1,738,931 |   |                                                  | 13,384,734 |                                       | 15,304,365 |  
|                                                                                                       |  |             |         |   |                  |           |   |                                                  |            |                                       |            |  



See accompanying notes to consolidated
financial statements.



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YADKIN VALLEY COMPANY AND SUBSIDIARY



Consolidated Statements of Cash Flows



Years ended December 31, 2004 and 2003



|                                                                                                                            |  |      |            |   |      |            |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | ---------- | -
|                                                                                                                            |  | 2004 |            |   | 2003 |           
|Operating activities:                                                                                                       |  |      |            |   |      |            |  
|Net income (loss)                                                                                                           |  | $    | 40,706     |   |      | (43,405    | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                          |  |      |            |   |      |            |  
|Deferred tax benefit                                                                                                        |  |      | (17,001    | ) |      | (40,155    | )
|Increase (decrease) in reserve for life policy claims                                                                       |  |      | (4,273     | ) |      | 2,805      |  
|(Increase) decrease in accrued investment income                                                                            |  |      | (102       | ) |      | 360        |  
|Increase (decrease) in accrued interest payable                                                                             |  |      | 1,721      |   |      | (592       | )
|Increase in other liabilities                                                                                               |  |      |           |   |      | (1,028     | )
|                                                                                                                            |  |      |            |   |      |            |  
|Net cash provided by (used in) operating activities                                                                         |  |      | 21,051     |   |      | (82,015    | )
|                                                                                                                            |  |      |            |   |      |            |  
|Investing activities:                                                                                                       |  |      |            |   |      |            |  
|Purchases of certificates of deposit                                                                                        |  |      | (1,400,015 | ) |      | (1,994,195 | )
|Maturities of certificates of deposit                                                                                       |  |      | 1,411,064  |   |      | 2,074,803  |  
|                                                                                                                            |  |      |            |   |      |            |  
|Net cash provided by investing activities                                                                                   |  |      | 11,049     |   |      | 80,608     |  
|                                                                                                                            |  |      |            |   |      |            |  
|Financing activities:                                                                                                       |  |      |            |   |      |            |  
|Purchases and retirement of common stock                                                                                    |  |      | (22,262    | ) |      | (6,900     | )
|                                                                                                                            |  |      |            |   |      |            |  
|Net cash used by financing activities                                                                                       |  |      | (22,262    | ) |      | (6,900     | )
|                                                                                                                            |  |      |            |   |      |            |  
|Net increase (decrease) in cash                                                                                             |  |      | 9,838      |   |      | (8,307     | )
|Cash at beginning of year                                                                                                   |  |      | 98,945     |   |      | 107,252    |  
|                                                                                                                            |  |      |            |   |      |            |  
|Cash at end of year                                                                                                         |  | $    | 108,783    |   |      | 98,945     |  
|                                                                                                                            |  |      |            |   |      |            |  
|Cash payments for:                                                                                                          |  |      |            |   |      |            |  
|Interest                                                                                                                    |  | $    | 24,184     |   |      | 22,628     |  
|Income taxes                                                                                                                |  |      |           |   |      |           |  
|                                                                                                                            |  |     
|Non cash investing and financing activities:                                                                                |  |      |            |   |      |            |  
|Unrealized gain on equity securities, net of applicable income taxes of $316,965 and $2,269,727 respectively (as restated). |  | $    | 485,180    |   |      | 3,552,872  |  



See accompanying notes to consolidated
financial statements.



12



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YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2004 and 2003



|(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 7).



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.



13



---

YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2004 and 2003



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.



A decline in the fair value of
securities which is deemed to be other than temporary is recognized in earnings.



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



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 estimates. Finally, the fair value estimates presented herein are based on pertinent information available to management as of December 31, 2004 and 2003, 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.



14



---

YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2004 and 2003



Other Comprehensive Income



Other comprehensive income consists solely of unrealized gains on equity securities net of related income taxes. For the periods ending 2004 and 2003,
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 2004 and 2003, 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 relate to: (i) the determination of fair market
value of First Citizens Bancorporation, Inc. (Bancorporation) nonvoting common stock and Heritage BancShares, Inc. (HBI) common stock, and (ii) the life policy claims reserve.



| | (i) | The fair value of the Bancorporation nonvoting common 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 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. Refer also to Note 8 regarding subsequent events.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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, 2004 and 2003, respectively were $6,374 and $10,674. 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 2004 and 2003, all of the reported reserves were Incurred But Not Reported
(IBNR). Additionally,
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15



---

YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2004 and 2003



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, 2004 and 2003, respectively, and, subsequently, there were and have been no additional
losses known to the Company, and no case reserves were established.



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 reported as an other than temporary impairment, and the loss is recorded as a securities
transaction on the Consolidated Statement of Income. If the evaluation indicates a loss of asset value, management may elect to record an other than temporary impairment immediately.



|(2) | Restatement of Financial Statements
|--- | -----------------------------------



On August 24, 2005, the Company received a notice from the Division of Corporation Finance of the Securities and Exchange Commission
(SEC), addressing its views regarding the valuation of certain equity securities under generally accepted accounting principles in the United States of America (GAAP). In response to the notice, the Companys management
discussed with the current and prior auditors and the SEC the accounting and valuation of certain equity securities held by the Company and determined that the Companys method of accounting for nonmarketable equity securities was not
consistent with GAAP. As a result, the Company is restating its consolidated financial statements for the fiscal years December 31, 2004 and December 31, 2003.



The effect of this accounting change on the Companys consolidated balance sheets and consolidated statements of
changes in shareholders equity for the years ended December 31, 2004 and 2003, is summarized as follows:



16



---

YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2004 and 2003



|                                                                            |  |                       |            |             |   |             |  |   |           
|--------------------------------------------------------------------------- |  | --------------------- | ---------- | ----------- | - | ----------- |  | - | ----------
|Consolidated Balance Sheet December 31, 2004                                |  | As previouslyreported |            | Adjustments |   | As restated
|                                                                            |  |                      
|Investments in equity securities                                            |  | $                     | 22,170,052 |             | $ | 2,048,876   |  | $ | 24,218,928
|Total assets                                                                |  |                       | 22,638,224 |             |   | 2,048,876   |  |   | 24,687,100
|Deferred income taxes                                                       |  |                       | 7,674,892  |             |   | 799,062     |  |   | 8,473,954 
|Total liabilities                                                           |  |                       | 8,583,673  |             |   | 799,062     |  |   | 9,382,735 
|Accumulated other comprehensive income                                      |  |                       | 12,134,920 |             |   | 1,249,814   |  |   | 13,384,734
|Total shareholders equity                                                  |  |                       | 14,054,551 |             |   | 1,249,814   |  |   | 15,304,365
|Total liabilities and shareholders equity                                  |  |                       | 22,638,224 |             |   | 2,048,876   |  |   | 24,687,100
|                                                                            |  |                       |           
|Consolidated Statement of Changes in Shareholders Equity December 31, 2004 |  | As previouslyreported |            | Adjustments |   | As restated
|                                                                            |  |                      
|Net unrealized gains on equity securities, net of income taxes              |  | $                     | 449,727    |             | $ | 35,453      |  | $ | 485,180   
|Accumulated other comprehensive income                                      |  |                       | 12,134,920 |             |   | 1,249,814   |  |   | 13,384,734
|Total shareholders equity                                                  |  |                       | 14,054,551 |             |   | 1,249,814   |  |   | 15,304,365
|                                                                            |  |                       |           
|Consolidated Statement of Cash Flow December 31, 2004                       |  | As previouslyreported |            | Adjustments |   | As restated
|                                                                            |  |                      
|Noncash investing and financing activities:                                 |  |                       |            |             |   |             |  |   |           
|Unrealized gain on equity securities, net of applicable income taxes        |  | $                     | 449,727    |             | $ | 35,453      |  | $ | 485,180   



17



---

YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2004 and 2003



|                                                                            |  |                        |            |             |   |             |  |   |           
|--------------------------------------------------------------------------- |  | ---------------------- | ---------- | ----------- | - | ----------- |  | - | ----------
|Consolidated Balance Sheet December 31, 2003                                |  | As previouslyreported  |            | Adjustments |   | As restated
|                                                                            |  |                       
|Investments in equity securities                                            |  | $                      | 21,426,028 |             | $ | 1,990,755   |  | $ | 23,416,783
|Total assets                                                                |  |                        | 21,895,309 |             |   | 1,990,755   |  |   | 23,886,064
|Deferred income taxes                                                       |  |                        | 7,397,596  |             |   | 776,394     |  |   | 8,173,990 
|Total liabilities                                                           |  |                        | 8,308,929  |             |   | 776,394     |  |   | 9,085,323 
|Accumulated other comprehensive income                                      |  |                        | 11,685,193 |             |   | 1,214,361   |  |   | 12,899,554
|Total shareholders equity                                                  |  |                        | 13,586,380 |             |   | 1,214,361   |  |   | 14,800,741
|Total liabilities and shareholders equity                                  |  |                        | 21,895,309 |             |   | 1,990,755   |  |   | 23,886,064
|                                                                            |  |                        |           
|Consolidated Statement of Changes in Shareholders Equity December 31, 2003 |  | As previouslyreported  |            | Adjustments |   | As restated
|                                                                            |  |                       
|Net unrealized gains on equity securities, net of income taxes              |  | $                      | 3,169,759  |             | $ | 383,113     |  | $ | 3,552,872 
|Accumulated other comprehensive income                                      |  |                        | 11,685,193 |             |   | 1,214,361   |  |   | 12,899,554
|Total shareholders equity                                                  |  |                        | 13,586,380 |             |   | 1,214,361   |  |   | 14,800,741
|                                                                            |  |                        |           
|Consolidated Statement of Cash Flow December 31, 2003                       |  | As previously reported |            | Adjustments |   | As restated
|Noncash investing and financing activities:                                 |  |                        |            |             |   |             |  |   |           
|Unrealized gain on equity securities, net of applicable income taxes        |  | $                      | 3,169,759  |             | $ | 383,113     |  | $ | 3,552,872 



|(3) | Investments
|--- | -----------



Investments at December 31, 2004 and 2003, consisted of certificates of deposit and equity securities.



Certificates of deposit of $358,951 and $370,000 at December 31, 2004
and 2003, 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 Estimatesin Note 1 of Notes to Consolidated Financial Statements.





18



---

YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2004 and 2003



Equity securities at December 31, 2004 consist of the following securities (as restated):



|                                                                                                        |  |                 |  |      |           |                |            |            |           
|------------------------------------------------------------------------------------------------------- |  | --------------- |  | ---- | --------- | -------------- | ---------- | ---------- | ----------
|Description                                                                                             |  | Number ofshares |  | Cost |           | Unrealizedgain |            | Fair value
|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. 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   |                | 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
|                                                                                                        |  |                 |  |      |           |                |            |            |           



19



---

YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2004 and 2003



Equity securities at December 31, 2003 consist of the following securities (as restated):



|                                                                                                        |  |                 |  |      |           |                |            |            |           
|------------------------------------------------------------------------------------------------------- |  | --------------- |  | ---- | --------- | -------------- | ---------- | ---------- | ----------
|Description                                                                                             |  | Number ofShares |  | Cost |           | Unrealizedgain |            | Fair value
|First Citizens Bancorporation of South Carolina, Inc.  voting common stock  par value $5 per share    |  | 35,000          |  | $    | 455,000   |                | 17,745,000 |            | 18,200,000
|                                                                                                        |  |                 |  |     
|First Citizens BancShares, Inc.  Class A common stock  par value $1 per share                         |  | 18,845          |  |      | 1,013,748 |                | 1,257,075  |            | 2,270,823 
|                                                                                                        |  |                 |  |     
|First Citizens BancShares, Inc.  Class B common stock  par value $1 per share                         |  | 1,900           |  |      | 84,590    |                | 147,210    |            | 231,800   
|                                                                                                        |  |                 |  |      |           |                |            |            |           
|Total marketable securities                                                                             |  | 55,745          |  |      | 1,553,338 |                | 19,149,285 |            | 20,702,623
|                                                                                                        |  |                 |  |      |           |                |            |            |           
|Heritage BancShares, Inc. common stock - par value $1 per share                                         |  | 7,401           |  |      | 455,932   |                | 62,137     |            | 518,069   
|                                                                                                        |  |                 |  |     
|First Citizens Bancorporation of South Carolina, Inc.  nonvoting common stock  par value $5 per share |  | 5,631           |  |      | 267,473   |                | 1,928,618  |            | 2,196,091 
|                                                                                                        |  |                 |  |      |           |                |            |            |           
|Total non-marketable securities                                                                         |  | 13,032          |  |      | 723,405   |                | 1,990,755  |            | 2,714,160 
|                                                                                                        |  |                 |  |      |           |                |            |            |           
|Total equity securities                                                                                 |  |                 |  | $    | 2,276,743 |                | 21,140,040 |            | 23,416,783
|                                                                                                        |  |                 |  |      |           |                |            |            |           



|(4) | Notes Payable
|--- | -------------



Notes payable at December 31, 2004 and 2003 consist of the following:



|                                                                                                  |  |      |         |      |        
|------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | -------
|                                                                                                  |  | 2004 |         | 2003
|Advances under line of credit expiring June 5, 2005, interest payable monthly at LIBOR plus 1.25% |  | $    | 899,205 |      | 899,205



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 $5,250,000 and 18,139 shares of First Citizens BancShares, Inc. of North
Carolina (FCB) Class A Common Class, which have a carrying value of $2,689,107. 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, 2004 and 2003 is 3.67% and 2.39%,
respectively.



20



---

YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2004 and 2003



|(5) | 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 2005, the subsidiary may not pay
dividends without approval of the Arizona Department of Insurance. In 2004 and 2003, the subsidiary paid dividends to the parent of $50,000 and $46,000, with approval of the Arizona Department of Insurance.



Statutory surplus at December 31, 2004, and net income for the year
then ended of the insurance subsidiary, as computed in accordance with statutory accounting practices, were $373,979 and $43,523, respectively. Statutory surplus at December 31, 2003, and net loss for the year then ended of the insurance
subsidiary, as computed in accordance with statutory accounting practices, were $396,339 and $48,097, respectively.



|(6) | Income Taxes
|--- | ------------



The Company has elected to file a consolidated federal income tax return. Income tax benefit for the years ended December 31, 2004 and 2003 is
composed of the following:



|          |  |      |         |   |      |         |  
|--------- |  | ---- | ------- | - | ---- | ------- | -
|          |  | 2004 |         |   | 2003 |        
|Current:  |  |      |         |   |      |         |  
|Federal   |  | $    | 0       |   |      | (6,660  | )
|State     |  |      | 0       |   |      | 0       |  
|          |  |      |         |   |      |         |  
|          |  |      | 0       |   |      | (6,660  | )
|          |  |      |         |   |      |         |  
|Deferred: |  |      |         |   |      |         |  
|Federal   |  |      | (17,001 | ) |      | (40,155 | )
|State     |  |      | 0       |   |      | 0       |  
|          |  |      |         |   |      |         |  
|          |  |      | (17,001 | ) |      | (40,155 | )
|          |  |      |         |   |      |         |  
|Total     |  | $    | (17,001 | ) |      | (46,815 | )
|          |  |      |         |   |      |         |  



21



---

At December 31, 2004 and 2003, deferred tax assets (liabilities) consist of the following
components:



|                                                           |  |      |            |   |      |            |  
|---------------------------------------------------------- |  | ---- | ---------- | - | ---- | ---------- | -
|                                                           |  | 2004 |            |   | 2003 |           
|Deferred tax assets:                                       |  |      |            |   |      |            |  
|Tax loss and credit carryforwards                          |  | $    | 90,982     |   |      | 75,695     |  
|                                                           |  |      |            |   |      |            |  
|Gross deferred tax assets                                  |  |      | 90,982     |   |      | 75,695     |  
|                                                           |  |     
|Valuation allowance                                        |  |      | (7,485     | ) |      | (9,200     | )
|                                                           |  |      |            |   |      |            |  
|Net deferred tax asset                                     |  |      | 83,497     |   |      | 66,495     |  
|                                                           |  |     
|Deferred tax liabilities:                                  |  |      |            |   |      |            |  
|Unrealized gain on equity securities (previously reported) |  |      | (7,758,389 | ) |      | (7,464,091 | )
|                                                           |  |      |            |   |      |            |  
|Adjustments due to restatement                             |  |      | (799,062   | ) |      | (776,394   | )
|                                                           |  |      |            |   |      |            |  
|Net deferred tax liability                                 |  | $    | (8,473,954 | ) |      | (8,173,990 | )
|                                                           |  |      |            |   |      |            |  



22



---

YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2004 and 2003



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:



|                                                        |  |      |         |   |      |         |  
|------------------------------------------------------- |  | ---- | ------- | - | ---- | ------- | -
|                                                        |  | 2004 |         |   | 2003 |        
|Income tax expense (benefit) at federal statutory rates |  | $    | 8,060   |   |      | (30,675 | )
|Effect of dividends received deduction and other        |  |      | (25,061 | ) |      | (16,140 | )
|                                                        |  |      |         |   |      |         |  
|Income tax benefit                                      |  | $    | (17,001 | ) |      | (46,815 | )
|                                                        |  |      |         |   |      |         |  



At December 31,
2004, the Company has a net operating loss carry-forward (NOL) for federal income tax purposes of $241,292 that expires in 2021 through 2024. At December 31, 2004, the Company has an NOL for state income tax purposes of $164,336 that expires
between 2014 and 2019.



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.



|(7) | 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 $24,687 in 2004 and $17,726 in 2003. The amount
of 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 Heritage (refer to note 3).
At December 31, 2004 and 2003, the Company had $258,951 and $270,000, 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 1.10% to 1.20% at December 31, 2004. The cash balance of $108,783 at December 31, 2004 and $98,945 at December 31, 2003 is represented by deposit accounts at FCB&T.



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YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2004 and 2003



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 2004 and 2003 follows:



|                                   |  |      |         |      |        
|---------------------------------- |  | ---- | ------- | ---- | -------
|                                   |  | 2004 |         | 2003
|Premiums assumed                   |  | $    | 128,208 |      | 161,549
|Death benefits assumed             |  |      | 14,983  |      | 120,796
|Life policy claim reserves assumed |  |      | 6,374   |      | 10,647 
|Commissions paid                   |  |      | 57,311  |      | 72,735 



|(8) | Subsequent Events
|--- | -----------------



Subsequent to December 31, 2004, First Citizens Bancorporation, Inc., Columbia, South Carolina announced its intentions to pursue voluntary
de-registration with the Securities and Exchange Commission. The announcement stated that record holders of 170 and fewer voting common stock would receive $735.00 in cash for each voting common stock. This announcement is expected to have a
material impact on the fair market value of these securities and the non-marketable equity securities of Bancorporation in subsequent reporting periods. Using this fair value would increase investments in equity securities by $8,236,882 and increase
other comprehensive income by $5,024,498 from the December 31, 2004 values.



Subsequent to December 31, 2004, the Company 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.



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