<PAGE>

                                                                      Exhibit 13

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                              Yadkin Valley Company








                                      2001
                          Annual Report To Shareholders





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                      (THIS PAGE INTENTIONALLY LEFT BLANK)

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                          Annual Report to Shareholders

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. Results of operations are
significantly affected by related party transactions.

Directors and Executive Officers

<TABLE>
<CAPTION>
                             Position With       Principal Occupation
       Name                     Yadkin              and Employment                       Principal Business
       ----                     ------              --------------                       ------------------
<S>                          <C>                <C>                                      <C>
Hope Holding Connell           Director         Group Vice President,
                                                First-Citizens Bank &                           Banking
                                                Trust Company

E. Thomas Lucas                Director,        Retired; formerly President
                               Vice President,  and Chief Executive Officer,
                               Secretary        The Heritage Bank                               Banking

David S. Perry                 Director,        President,
                               President,       American Guaranty Insurance Company             Insurance
                               Treasurer        Triangle Life Insurance Company
</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 2001 were $16,894. 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 our principal
shareholders, serves as Chairman of American Guaranty. It is expected that
American Guaranty will continue to provide services during 2002.

         Our 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

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President, Treasurer and director of Yadkin, also serves as President and a
director of Triangle Life, and Frank B. Holding, Jr., one of our principal
shareholders, serves as Chairman of Triangle Life.

         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 our 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 our 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 our principal shareholders, also is a principal
shareholder of Southern's parent holding company. Lewis R. Holding, one of our
principal shareholders, also is a principal shareholder of Southern's and
Fidelity's parent holding companies. E. Thomas Lucas, one of our executive
officers and directors, was also is a director of Heritage during 2001. The
amounts of commissions received by Southern, Fidelity and Heritage,
respectively, in connection with those policies during 2001 were $27,134,
$39,879, and $13,959.

         A significant portion of our assets are represented by our investments
in equity securities of BancShares, First Citizens Bancorporation of South
Carolina, Columbia, South Carolina ("Bancorporation"), and Heritage's parent
holding company Heritage BancShares, Inc. We are affiliated with BancShares and
Heritage as a result of the common control relationships described above.
Additionally, Lewis R. Holding, one of our principal shareholders, also is a
principal shareholder of Bancorporation, and Peter M. Bristow, one of our
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. For example, Yadkin Valley Life maintains a reserve for death
benefits for estimated losses, which have occurred but have not been reported.
If trends in losses trend upward or if catastrophic events occur, our estimates
would be updated and additional reserves may be required.

         Results of Operation. Yadkin's net income for 2001 was $20,956 compared
to a net loss of $1,216 for 2000. The primary factors contributing to the change
in net income (loss) between 2000 and 2001 were (i) a decrease of $9,004 in
professional fees; (ii) a decrease of $22,815 in interest expense on outstanding
loans; and (iii) a decrease in death benefit claims paid of $11,549. Total
revenue decreased $12,804 (4%) and total benefits and expenses decreased $43,480
(14%).

          Life premiums continued to decline during 2001. Premiums declined 7%,
which follows a 5% decrease in 2000. 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 set forth in the Related Party Transaction section

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<PAGE>

above and Note 6 to the Consolidated Financial Statements, the ceding insurance
company is related through common ownership to Yadkin.

         Dividend income increased $8,750 and interest income decreased $5,180.
The dividend income increase was due to receipt of dividends in the amount of
$35,000 from First Citizens Bancorporation of South Carolina, Inc.
("Bancorporation") which, prior to 2000, had historically not paid dividends.
The decrease in interest income is a result of interest rate environment during
2001 and is expected to continue in 2002.

         The decrease in interest paid on outstanding loans was due to a
significant decrease in interest rates for much of 2001 when compared to 2000.
There were $30,000 of additional borrowings in 2001. 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.

         Total death benefit claims paid in 2001 were $57,011, a decrease of
$11,549 when compared to death benefit claims paid of $68,560 in 2000. The
increase is not specifically attributable to any known events, as there have
been no change in operations, underwriting or any other procedures. The
percentage of paid claims is representative of Yadkin's historical levels and
industry averages. The estimate of Yadkin Valley Life's life policy claim
reserves at December 31, 2001 decreased $484 from December 31, 2000. The
estimate of life policy claim reserves will vary from period to period based on
actuarial development and amount of known claims at the period reporting date.

         Yadkin's investments in marketable equity securities experienced an
increase in their net unrealized gains during the year of $1,762,164 (20.3%).
This follows a decrease of $614,540 (5.3%) in the year 2000. Accordingly,
unrealized gains, net of taxes increased $1,075,707 in the year 2001 and
decreased $374,140 in 2000. Substantially all of these unrealized gains arise
from investments in marketable equity securities issued by banking
organizations, all of which are considered Related Parties. Decreases in the
fair values of these investments in future periods will result in continued
reductions of shareholders' equity. See further discussion of the salability of
these investments in "Liquidity" below.

         Income tax benefit was $10,060 in 2001, compared to income tax benefit
of $18,564 in 2000. This change was primarily due to having income before income
taxes of $10,896 in 2001 while the year 2000 produced a loss before income taxes
of $19,780.

         Financial Condition. During 2001, total assets increased 15.5% from
$11,501,901 at December 31, 2000, to $13,278,673 at December 31, 2001, primarily
due to the increase in unrealized gains on marketable equity securities. There
were no other material changes in assets during 2001.

         During 2001, total liabilities increased from $4,248,218 at December
31, 2000, to $4,951,087 at December 31, 2001. The increase in deferred federal
income taxes resulting from unrealized gains on investments was $676,395 while
total liabilities increased $702,867.

         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, 2001, Yadkin has one
Contractual Obligation in the amount of $901,685 for a one-year loan obligation
and accrued interest thereon. There were no other commitments.

         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 to be adequate as evidenced
by a ratio of assets to liabilities of 2.68 at December 31, 2001 and 2.71
December 31, 2000. Additionally, investments in equity securities had a carrying
value at December 31, 2001 and December 31, 2000 of $12,720,054 and

                                       5

<PAGE>

$10,957,890 respectively, substantially all of which 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 these 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, and, 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, 2001, Yadkin had
outstanding borrowings of $899,205 secured by 10,000 voting common shares of
Bancorporation, 18,139 shares of Class A Common shares of BancShares and 1,725
shares of BancShares Class B Common Shares with a fair market value of
approximately $4,786,099 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, and general economic conditions.

Market for Common Equity and Related Stockholders Matters

         There is not an active market for Yadkin's common stock. However, the
stock is traded over the counter and the OTC Bank Trust and Insurance Industry
System publish quotations for the stock.

         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 of Yadkin, and should not be taken as an indication of
the existence of any established trading market.

Year      Quarterly period               High bid          Low bid
----      ----------------               --------          -------
2001      Fourth Quarter                  $28.000          $21.000
          Third Quarter                    21.000           20.500
          Second Quarter                   20.500           20.000
          First Quarter                    20.500           20.188

2000      Fourth Quarter                  $17.625          $17.500
          Third Quarter                    18.000           17.500
          Second Quarter                   20.125           17.500
          First Quarter                    20.188           17.500

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

         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

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<PAGE>

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.

         As of December 31, 2001, Yadkin's outstanding common stock was held by
an aggregate of approximately 828 shareholders of record.

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                          Independent Auditors' Report

The Board of Directors and Shareholders
Yadkin Valley Company:

We have audited the accompanying consolidated balance sheets of Yadkin Valley
Company and subsidiary as of December 31, 2001 and 2000, and the related
consolidated statements of income (loss), 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 auditing standards generally accepted
in the United States of America. 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 financial position of Yadkin Valley
Company and subsidiary as of December 31, 2001 and 2000, 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.


                                    KPMG LLP


Raleigh, North Carolina
February 15, 2002

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                      YADKIN VALLEY COMPANY AND SUBSIDIARY

                           Consolidated Balance Sheets

                           December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                      Assets                          2001           2000
                                                                   -----------   -----------
<S>                                                                <C>           <C>
Cash and investments:
    Cash                                                           $    83,442        57,611
    Investments in equity securities (notes 2, 3 and 6)             12,720,054    10,957,890
    Certificates of deposit (notes 2 and 6)                            474,050       463,000
                                                                   -----------   -----------
                   Total cash and investments                       13,277,546    11,478,501
Accrued investment income                                                1,027         1,899
Federal and state income taxes recoverable                                  --         3,590
Other assets                                                               100        17,911
                                                                   -----------   -----------
                   Total assets                                    $13,278,673    11,501,901
                                                                   ===========   ===========

                       Liabilities and Shareholders' Equity

Liabilities:
    Life policy claims reserve (note 6)                                  8,228         8,712
    Deferred income taxes (note 5)                                   4,041,174     3,364,779
    Accrued interest payable                                             2,480         5,522
    Notes payable (note 3)                                             899,205       869,205
                                                                   -----------   -----------
                   Total liabilities                                 4,951,087     4,248,218
                                                                   -----------   -----------
Shareholders' equity (note 4):
    Common stock, par value $1 per share; authorized 500,000
       Shares, issued and outstanding 182,327 shares in 2001 and
       183,465 shares in 2000                                          182,327       183,465
    Retained earnings                                                1,771,747     1,772,413
    Accumulated other comprehensive income                           6,373,512     5,297,805
                                                                   -----------   -----------
                   Total shareholders' equity                        8,327,586     7,253,683
                                                                   -----------   -----------
                   Total liabilities and shareholders' equity      $13,278,673    11,501,901
                                                                   ===========   ===========
</TABLE>

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, 2001 and 2000

<TABLE>
<CAPTION>
                                                             2001          2000
                                                           ---------    ---------
<S>                                                        <C>          <C>
Premiums and other revenue:
     Life premiums (note 6)                                $ 210,452      226,198
     Dividend income                                          57,965       49,215
     Interest income                                          21,055       26,235
     Miscellaneous income                                         --          628
                                                           ---------    ---------
                                                             289,472      302,276
                                                           ---------    ---------

Benefits and expenses:
     Death benefits (note 6)                                  57,011       68,560
     Decrease in reserve for life policy claims (note 6)        (484)      (1,163)
     Operating expenses:
        Commissions (note 6)                                  95,733      101,863
        Interest                                              45,426       68,241
        Professional fees                                     28,957       37,961
        Management fees (note 6)                              16,894       16,483
        General, administrative and other                     35,039       30,111
                                                           ---------    ---------
                                                             278,576      322,056
                                                           ---------    ---------

                  Income (loss) before income taxes           10,896      (19,780)

Income tax benefit (note 5)                                  (10,060)     (18,564)
                                                           ---------    ---------

                  Net income (loss)                        $  20,956       (1,216)
                                                           =========    =========

Net income (loss) per share                                $    0.11        (0.01)
                                                           =========    =========

Weighted average shares outstanding                          182,896      183,543
                                                           =========    =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       10

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                      YADKIN VALLEY COMPANY AND SUBSIDIARY

            Consolidated Statements of Change in Shareholders' Equity

                     Years ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                        Accumulated
                                                                                           other             Total
                                                         Common         Retained       Comprehensive     shareholders'
                                                         Stock          Earnings          income            equity
                                                       ----------     ------------     -------------     -------------
<S>                                                    <C>            <C>              <C>               <C>
Balance at December 31, 1999                           $  183,620        1,776,574         5,671,945         7,632,139

Comprehensive income (loss):
  Net loss                                                     --           (1,216)               --            (1,216)
  Net unrealized losses on securities available
    for sale, net of income taxes of $240,400                  --               --          (374,140)         (374,140)
                                                                                                         -------------
           Comprehensive income (loss)                                                                        (375,356)

Redemption of 155 shares of
  common stock                                               (155)          (2,945)              --             (3,100)
                                                       ----------     ------------    --------------     -------------

Balance at December 31, 2000                              183,465        1,772,413         5,297,805         7,253,683

Comprehensive income (loss):
  Net income                                                   --           20,956                --            20,956
  Net unrealized losses on securities available
      for sale, net of income taxes of $686,457                --               --         1,075,707         1,075,707
                                                                                                         -------------
           Comprehensive income                                                                              1,096,663

Redemption of 1,138 shares of
  common stock                                             (1,138)         (21,622)               --           (22,760)
                                                       ----------     ------------    --------------     -------------
Balance at December 31, 2001                           $  182,327        1,771,747         6,373,512         8,327,586
                                                       ==========     ============    ==============     =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       11

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                      YADKIN VALLEY COMPANY AND SUBSIDIARY

                      Consolidated Statements of Cash Flows

                     Years ended December 31, 2001 and 2000

<TABLE>
<CAPTION>

                                                                                          2001            2000
<S>                                                                                <C>             <C>
Operating activities:
    Net income (loss)                                                              $    20,956          (1,216)
    Adjustments to reconcile net income (loss) to net
       cash provided (used) by operating activities:
          Deferred tax benefit                                                         (10,062)        (18,564)
          Decrease in reserve for life policy claims                                      (484)         (1,163)
          Decrease in federal and state income taxes recoverable                         3,590          11,643
          Decrease in accrued investment income                                            872           1,796
          (Decrease) increase in accrued interest payable                               (3,042)            710
          Decrease (increase) in other assets                                           17,811         (17,811)
                                                                                   -----------     -----------
                         Net cash provided (used) by operating activities               29,641         (24,605)
                                                                                   -----------     -----------

Investing activities:
    Purchases of certificates of deposit                                            (1,603,723)     (2,123,587)
    Maturities of certificates of deposit                                            1,592,673       2,151,877
                                                                                   -----------     -----------
                 Net cash provided (used) by investing activities                      (11,050)         28,290
                                                                                   -----------     -----------

Financing activities:
    Proceeds from issuance of note payable                                              30,000              --
    Purchases and retirement of common stock                                           (22,760)         (3,100)
                                                                                   -----------     -----------
                 Net cash provided (used) by financing activities                        7,240          (3,100)
                                                                                   -----------     -----------
                 Net increase in cash                                                   25,831             585
Cash at beginning of year                                                               57,611          57,026
                                                                                   -----------     -----------
Cash at end of year                                                                $    83,442          57,611
                                                                                   ===========     ===========
Cash payments for:

       Interest                                                                    $    48,468          67,531

       Income taxes                                                                $        --              --

Non-cash investing and financing activities:
    Unrealized gain (loss) on securities available for sale,
       Net of applicable income taxes of $686,457 and
       $240,400, respectively.                                                     $ 1,075,707        (374,140)

</TABLE>

See accompanying notes to consolidated financial statements.

                                       12

<PAGE>

                      YADKIN VALLEY COMPANY AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000

(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. Intercompany 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
       variations between accounting principles generally accepted in the United
       States of America and statutory accounting practices are not significant
       to the accompanying consolidated financial statements.

       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 ("Southern"), The Heritage Bank ("Heritage") and The
       Fidelity Bank ("Fidelity"). The Company and the three aforementioned
       banks are 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

       Revenue is recognized based on premiums collected from TLIC. The premiums
       are received monthly and are 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.

       Investments

       Investments in equity securities with readily determinable fair values
       are classified as available-for-sale and are carried at fair value. The
       unrealized holding gains and losses are reported net of deferred income
       taxes as a component of accumulated other comprehensive income. An equity
       security's fair value is considered readily determinable if its price is
       quoted on a registered securities exchange or in the over-the-counter
       market.

                                       13

<PAGE>

                      YADKIN VALLEY COMPANY AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000

       Equity securities which do not have readily determinable fair values are
       carried at the lower of cost or market value. 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.

       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 investment in equity securities are discussed in note 2. 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, 2001 and 2000, 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.

       Comprehensive Income

       Other comprehensive income consists of unrealized gains on marketable
       equity securities net of related income taxes.

       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 (loss) per share, respectively, for 2001 and 2000,
       as the Company has no potentially dilutive common stock.

                                       14

<PAGE>

       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 estimate the Company makes in
       preparing its consolidated financial statements relates to the
       determination of the life policy claims reserve.

(2)    Investments

       Investments at December 31, 2001 and 2000, consisted of certificates of
       deposit and equity securities. Certificates of deposit of $474,050 and
       $463,000 at December 31, 2001 and 2000, respectively, are carried at
       cost. These certificates of deposit have maturities of less than one
       year. The cost of these securities approximates fair value.

       Investments in equity securities at December 31, 2001 and 2000 are
classified as follows:

<TABLE>
<CAPTION>
                                                           2001           2000
                                                      ---------------   -------------
       <S>                                            <C>               <C>
       Available-for-sale, carried at fair value      $    11,996,649      10,234,485
       Other, carried at lower of cost or market              723,405         723,405
                                                      ---------------   -------------
                                                      $    12,720,054      10,957,890
                                                      ===============   =============
</TABLE>

       Equity securities classified as available-for-sale at December 31, 2001
       consist of the following securities:

<TABLE>
<CAPTION>
                                            Number                        Unrealized        Fair
           Description                     of shares         Cost            gain           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       9,520,000      9,975,000

       First Citizens
          BancShares, Inc.-
          Class A common stock -
          par value $1 per share               18,845       1,013,748         828,351      1,842,099

       First Citizens
          BancShares, Inc. -
          Class B common stock -
          par value $1 per share                1,900          84,590          94,960        179,550
                                          -----------     -----------   -------------   ------------

              Total                                       $ 1,553,338      10,443,311     11,996,649
                                                          ===========   =============   ============
</TABLE>

                                       15

<PAGE>

Equity securities classified as available-for-sale at December 31, 2000
consist of the following securities:

<TABLE>
<CAPTION>

                                           Number of                        Unrealized           Fair
               Description                  shares           Cost              gain             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          8,120,000       8,575,000

      First Citizens BancShares,
          Inc. - Class A common
          stock - par value $1 per share       18,845      1,013,748            507,987       1,521,735


      First Citizens
          BancShares, Inc. -
          Class B common stock
          - par value $1 per share               1,900        84,590             53,160         137,750
                                                         -----------    ---------------   -------------
      Total                                             $  1,553,338          8,681,147      10,234,485
                                                         ============   ===============   =============
</TABLE>

       Equity securities classified as "other" and carried at lower of cost or
       market at December 31, 2001 and 2000 consist of the following securities:

<TABLE>
<CAPTION>
                                                     2001                                2000
                                     -----------------------------------  --------------------------------
                                          Number of                            Number or
                 Description               shares              Cost            shares           Cost
      ----------------------------   ----------------    ---------------  ---------------  ---------------
<S>                                 <C>                 <C>              <C>              <C>
      First Citizens
          Bancorporation of South
          Carolina, Inc. - non-
          voting common stock
          -Par value $5 per share           5,631      $      267,473             5,631   $       267,473

      The Heritage Bank -
          common stock - par
          value $1 per share               7,401              455,932             7,401           455,932
                                                       --------------                     ---------------

                    Total                              $      723,405                     $       723,405
                                                       ==============                     ===============
</TABLE>

       At December 31, 2001 and 2000, the estimated fair values of investments
       in equity securities carried at lower of cost or market were $1,838,943
       and $1,552,766, respectively.

                                       16

<PAGE>

       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.


(3)    Notes Payable

       Notes payable at December 31, 2001 and 2000 consist of the following:
<TABLE>

                                                                     2001             2000
                                                               ---------------   ---------------
       <S>                                                     <C>               <C>
       Advances under line of credit expiring June 5, 2002,
       interest payable quarterly at LIBOR plus 1.25%           $      899,205          869,205
                                                               ===============   ===============
</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 $2,850,000; 18,139 shares
       of First Citizens BancShares, Inc. of North Carolina ("FCB") Class A
       Common Class, which have a carrying value of $1,773,087; and 1,725 shares
       of First Citizens BancShares, Inc. of North Carolina Class B Common
       Class, which have a carrying value of $163,013. The Company may borrow up
       to $1,000,000 under the line of credit.

(4)    Shareholders' Equity and Restrictions (Unaudited)

       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. The maximum dividend which could be paid by the
       subsidiary without prior approval was $42,251 at December 31, 2001. In
       2001, the subsidiary paid dividends to the parent of $45,000, with
       approval of the Arizona Department of Insurance.

       Statutory surplus at December 31, 2001, and net income for the year then
       ended of the insurance subsidiary, as computed in accordance with
       statutory accounting practices, were $490,392 and $42,251, respectively.
       Statutory surplus at December 31, 2000 and net income for the year then
       ended were $514,933 and $45,134, respectively.

                                       17

<PAGE>

(5)  Income Taxes

     The Company has elected to file a consolidated federal income tax return.
     Income tax benefit for the years ended December 31, 2001 and 2000 is
     composed of the following:

                                                           2001        2000
                                                       -----------  -----------

    Current:
       Federal                                         $        --           --
       State                                                    --           --
                                                       -----------  -----------
                                                                --           --
                                                       -----------  -----------
    Deferred:
       Federal                                             (10,060)     (18,564)
       State                                                    --           --
                                                       -----------  -----------
                                                           (10,060)     (18,564)
                                                       -----------  -----------

               Total                                   $   (10,060)     (18,564)
                                                       ===========  ===========

     At December 31, 2001 and 2000, deferred tax assets (liabilities) consist of
the following components:

                                                           2001        2000
                                                       -----------  -----------

    Deferred tax assets:
       Tax loss carryforwards                          $    42,683       30,204
                                                       -----------  -----------
                  Gross deferred tax assets                 42,683       30,204

    Valuation allowance                                    (14,059)     (11,640)
                                                       -----------  -----------
                  Net deferred tax asset                    28,664       18,564

    Deferred tax liabilities:
       Unrealized gain on securities available-for-sale (4,069,800)  (3,383,343)
                                                       -----------  -----------

                  Net deferred tax liability           $(4,041,174)  (3,364,779)
                                                       ===========  ===========



     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.

                                       18

<PAGE>

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

                                                            2001        2000
                                                          --------    --------

Income tax expense (benefit) at federal statutory rates   $  3,705      (6,725)
Effect of dividends received deduction and other           (13,765)    (11,839)
                                                          --------    --------

Income tax benefit                                        $(10,060)    (18,564)
                                                          ========    ========


     At December 31, 2001, the Company has a net operating loss carryforward
     (NOL) for federal income tax purposes of $84,190 that expires in 2020 and
     2021. At December 31, 2001, the Company has an NOL for state income tax
     purposes of approximately $308,721 that expires between 2013 and 2016.

     The Tax Reform Act of 1986 contains provisions which limit the ability to
     utilize net operating loss carryforwards 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.

(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, a subsidiary of FCB, provides all
     managerial, administrative and operational services necessary in carrying
     out the Company's business. Management fees for such services were $16,894
     in 2001 and $16,483 in 2000.

     The Company holds stock in FCB, FCB-SC and Heritage (refer to note 2). At
     December 31, 2001 and 2000, the Company had $374,050 and $363,000,
     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 1.64% to 2.55% at December 31, 2001.

                                       19

<PAGE>

     Yadkin Valley Life provides reinsurance to TLIC, a subsidiary of FCB&T. The
     policies reinsured are sold through Southern, Fidelity and Heritage.
     Amounts related to business assumed from TLIC for 2001 and 2000 follows:

                                                     2001            2000
                                                   --------        --------
Premiums assumed                                   $210,452         226,198
Death benefits assumed                               57,011          68,560
Life policy claim reserves assumed                    8,228           8,712
Commissions assumed                                  95,733         101,863

                                       20