Exhibit 13



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Yadkin Valley Company



2003



Annual Report To Shareholders



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Business



Yadkin Valley Company (Yadkin) was incorporated under the laws of North Carolina during 1979. Its primary activity is the ownership of all the
outstanding shares of the capital stock and serving as the parent holding company of Yadkin Valley Life Insurance Company (Yadkin Valley Life) which is incorporated under the laws of Arizona and is engaged in the business of reinsuring
credit life insurance policies. Yadkin Valley Lifes reinsurance activities currently are limited to assuming risk associated with credit life insurance policies (credit life policies) up to a maximum risk of $25,000 on any one
insured, issued only by Triangle Life Insurance Company, Raleigh, North Carolina (Triangle Life), and sold only in North Carolina by The Fidelity Bank, Fuquay-Varina, North Carolina, The Heritage Bank, Lucama, North Carolina, and
Southern Bank and Trust Company, Mount Olive, North Carolina. Triangle Life is a wholly owned subsidiary of First-Citizens Bank & Trust Company, Raleigh, North Carolina. In consideration of its assumption of risk, Yadkin Valley Life receives a
portion of the premium income on policies it reinsures, less the amount of claims and insurance taxes paid. 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, VicePresident andSecretary |  | Group Vice President and Manager of Central Bank Operations, First-Citizens Bank & Trust Company, Raleigh, NC                                                                                                                |  | Banking           
|                     |  |                                      | 
|David S. Perry       |  | Director,President andTreasurer      |  | 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 2003 were $17,726. 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 2004.



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 2003 were $25,846, $25,998, and $9,545.



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.



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, these estimates would be updated and
additional reserves may be required.



Results of
Operations.Yadkins operations in 2003 resulted in a net loss of $43,405 compared to a net income $25,394 for 2002. The primary factors contributing to the change in net income between 2003 and 2002 were (i) a $30,522
decrease in premium income, (ii) an increase of $19,919 in professional fees; (iii) a decrease of $5,456 in interest expense on outstanding loans; and (iv) an increase in death benefit claims paid of $73,201.



Life premiums continued to decline during 2003. Premiums declined 15.9%
during 2003, which follows an 8.7% decrease in 2002 and a 7% decrease in 2001. The decline was due to a decrease in premium writings by producers for the company from whom Yadkin Valley Life assumes business. Since Yadkin Valley Life does not
directly solicit business from customers, its revenue from life premiums is dependent on the volume generated by the ceding insurance company. Accordingly, these decreases may continue in future periods to the extent that the producers do not
generate additional volume. As described above under the caption Related Party Transactions and in Note 6 to the Consolidated Financial Statements, the ceding insurance company is related through common ownership to Yadkin.



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During 2003, dividend income increased $8,557 (14.8%) and interest income decreased $3,658 (48.2%). The
decrease in interest income is a result of the interest rate environment during 2003 and is not expected to improve in 2004.



The decrease in interest paid on outstanding loans was due to a continuing decrease in interest rates for 2003 when compared to 2002. There were no additional borrowings
in 2003. 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 fees paid increased by $19,919 (78.6%) during 2003 to provide for compliance with new regulations.



Total death benefit claims paid in 2003 were $120,796, an increase of $73,201 when compared
to death benefit claims paid of $47,595 in 2002. The percentage of paid claims in 2003 is significantly higher than Yadkins historical levels. The increase 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, 2003 increased $2,805 from December 31, 2002. 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 marketable equity securities experienced an increase in their net unrealized gains during 2003 of $3,169,759 (37.2%), net of
income taxes. This follows an increase of $2,141,922 (33.6%), net of income taxes, during 2002. Substantially all of these unrealized gains arise from investments in marketable 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 salability of these investments is contained under the caption Liquidity below.



Financial Condition. During 2003, total assets increased 30.4% from $16,790,039 at December 31, 2002, to $21,895,309 at December 31, 2003,
primarily due to the increase in unrealized gains on marketable equity securities. There were no other material changes in assets during 2003.



During 2003, total liabilities increased 31.4% from $6,323,113 at December 31, 2002, to $8,308,929 at December 31, 2003. The increase in deferred federal
income taxes resulting from unrealized gains on investments was $2,024,786 while total liabilities increased $1,985,816.



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, 2003, Yadkin had one contractual obligation in the amount of $900,686 for a one-year loan obligation, due June 5, 2004, 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 is adequate as evidenced by a
ratio of assets to liabilities of 2.64 at December 31, 2003 and 2.66 at December 31, 2002. Additionally, investments in equity securities had a carrying value at December 31, 2003 and December 31, 2002 of $21,426,028 and $16,231,483 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



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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. 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, 2003, 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 $7,385,750. Any
funds needed to satisfy loan repayments will be derived from dividends from Yadkin Valley Life and the sale of or repositioning of investments.



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



Market for Common Equity and Related Stockholders Matters



Yadkins common stock is traded in the over-the-counter market on the OTC Bulletin Board under the trading symbol YAVL, but the trading market is very inactive. As of December 31, 2003, Yadkins
outstanding common stock was held by an aggregate of approximately 810 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
|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
|     |  |                  | 
|2002 |  | Fourth Quarter   |  |          | 34.60  |         |   | 33.50
|     |  | Third Quarter    |  |          | 41.525 |         |   | 27.00
|     |  | Second Quarter   |  |          | 31.05  |         |   | 29.50
|     |  | First Quarter    |  |          | 29.50  |         |   | 27.80



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.



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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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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, 2003 and 2002, 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, 2003 and 2002, 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.



LOGO



February 13, 2004



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YADKIN VALLEY COMPANY AND SUBSIDIARY



Consolidated Balance Sheets



December 31, 2003 and 2002



|                                                                                                                                          |  |      |            |      |           
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | ----------
|                                                                                                                                          |  | 2003 |            | 2002
|Assets                                                                                                                                    |  |      |            |      |           
|Cash and investments:                                                                                                                     |  |      |            |      |           
|Cash                                                                                                                                      |  | $    | 98,945     |      | 107,252   
|Investments in equity securities                                                                                                          |  |      | 21,426,028 |      | 16,231,483
|Certificates of deposit                                                                                                                   |  |      | 370,000    |      | 450,608   
|                                                                                                                                          |  |      |            |      |           
|Total cash and investments                                                                                                                |  |      | 21,894,973 |      | 16,789,343
|                                                                                                                                          |  |     
|Accrued investment income                                                                                                                 |  |      | 236        |      | 596       
|Other assets                                                                                                                              |  |      | 100        |      | 100       
|                                                                                                                                          |  |      |            |      |           
|Total assets                                                                                                                              |  | $    | 21,895,309 |      | 16,790,039
|                                                                                                                                          |  |      |            |      |           
|Liabilities and Shareholders Equity                                                                                                      |  |      |            |      |           
|Liabilities:                                                                                                                              |  |      |            |      |           
|Life policy claims reserve                                                                                                                |  | $    | 10,647     |      | 7,842     
|Deferred income taxes                                                                                                                     |  |      | 7,397,596  |      | 5,412,965 
|Accrued interest payable                                                                                                                  |  |      | 1,481      |      | 2,073     
|Notes payable                                                                                                                             |  |      | 899,205    |      | 899,205   
|Other liabilities                                                                                                                         |  |      |           |      | 1,028     
|                                                                                                                                          |  |      |            |      |           
|Total liabilities                                                                                                                         |  |      | 8,308,929  |      | 6,323,113 
|                                                                                                                                          |  |      |            |      |           
|Shareholders equity:                                                                                                                     |  |      |            |      |           
|Common stock, par value $1 per share. Authorized 500,000 shares, issued and outstanding 181,130 shares in 2003 and 181,295 shares in
2002 |  |      | 181,130    |      | 181,295   
|Retained earnings                                                                                                                         |  |      | 1,720,057  |      | 1,770,197 
|Accumulated other comprehensive income                                                                                                    |  |      | 11,685,193 |      | 8,515,434 
|                                                                                                                                          |  |      |            |      |           
|Total shareholders equity                                                                                                                |  |      | 13,586,380 |      | 10,466,926
|                                                                                                                                          |  |      |            |      |           
|Total liabilities and shareholders equity                                                                                                |  | $    | 21,895,309 |      | 16,790,039
|                                                                                                                                          |  |      |            |      |           



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, 2003 and 2002



|                                                      |  |      |         |   |      |         |  
|----------------------------------------------------- |  | ---- | ------- | - | ---- | ------- | -
|                                                      |  | 2003 |         |   | 2002 |        
|Premiums and other revenue:                           |  |      |         |   |      |         |  
|Life premiums                                         |  | $    | 161,549 |   |      | 192,071 |  
|Dividend income                                       |  |      | 66,522  |   |      | 57,965  |  
|Interest income                                       |  |      | 3,929   |   |      | 7,587   |  
|                                                      |  |      |         |   |      |         |  
|                                                      |  |      | 232,000 |   |      | 257,623 |  
|                                                      |  |      |         |   |      |         |  
|Benefits and expenses:                                |  |      |         |   |      |         |  
|Death benefits                                        |  |      | 120,796 |   |      | 47,595  |  
|Increase (decrease) in reserve for life policy claims |  |      | 2,805   |   |      | (386    | )
|Operating expenses:                                   |  |      |         |   |      |         |  
|Commissions                                           |  |      | 72,735  |   |      | 86,459  |  
|Interest                                              |  |      | 22,036  |   |      | 27,492  |  
|Professional fees                                     |  |      | 45,260  |   |      | 25,341  |  
|Management fees                                       |  |      | 17,726  |   |      | 18,310  |  
|General, administrative, and other                    |  |      | 40,862  |   |      | 35,193  |  
|                                                      |  |      |         |   |      |         |  
|                                                      |  |      | 322,220 |   |      | 240,004 |  
|                                                      |  |      |         |   |      |         |  
|Income (loss) before income taxes                     |  |      | (90,220 | ) |      | 17,619  |  
|                                                      |  |     
|Income tax benefit                                    |  |      | (46,815 | ) |      | (7,775  | )
|                                                      |  |      |         |   |      |         |  
|Net income (loss)                                     |  | $    | (43,405 | ) |      | 25,394  |  
|                                                      |  |      |         |   |      |         |  
|Net income (loss) per share                           |  | $    | (0.24   | ) |      | 0.14    |  
|Weighted average shares outstanding                   |  |      | 181,228 |   |      | 181,811 |  



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, 2003 and 2002



|                                                                                         |  |              |         |   |                   |           |   |                                        |            |                          |            |  
|---------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ----------------- | --------- | - | -------------------------------------- | ---------- | ------------------------ | ---------- | -
|                                                                                         |  | Common Stock |         |   | Retained earnings |           |   | Accumulated other comprehensive income |            | Totalshareholdersequity |           
|Balance at December 31, 2001                                                             |  | $            | 182,327 |   |                   | 1,771,747 |   |                                        | 6,373,512  |                          | 8,327,586  |  
|                                                                                         |  |              |         |  
|Comprehensive income:                                                                    |  |              |         |   |                   |           |   |                                        |            |                          |            |  
|Net income                                                                               |  |              |        |   |                   | 25,394    |   |                                        |           |                          | 25,394     |  
|Net unrealized gains on securities available for sale, net of income taxes of $1,369,507 |  |              |        |   |                   |          |   |                                        | 2,141,922  |                          | 2,141,922  |  
|                                                                                         |  |              |         |   |                   |           |   |                                        |            |                          |            |  
|Comprehensive income                                                                     |  |              |         |   |                   |           |   |                                        |            |                          | 2,167,316  |  
|                                                                                         |  |              |         |  
|Redemption of 1,032 shares of common stock                                               |  |              | (1,032  | ) |                   | (26,944   | ) |                                        |           |                          | (27,976    | )
|                                                                                         |  |              |         |   |                   |           |   |                                        |            |                          |            |  
|Balance at December 31, 2002                                                             |  |              | 181,295 |   |                   | 1,770,197 |   |                                        | 8,515,434  |                          | 10,466,926 |  
|                                                                                         |  |              |         |  
|Comprehensive income:                                                                    |  |              |         |   |                   |           |   |                                        |            |                          |            |  
|Net loss                                                                                 |  |              |        |   |                   | (43,405   | ) |                                        |           |                          | (43,405    | )
|Net unrealized gains on securities available for sale, net of income taxes of $2,024,786 |  |              |        |   |                   |          |   |                                        | 3,169,759  |                          | 3,169,759  |  
|                                                                                         |  |              |         |   |                   |           |   |                                        |            |                          |            |  
|Comprehensive income                                                                     |  |              |         |   |                   |           |   |                                        |            |                          | 3,126,354  |  
|                                                                                         |  |              |         |  
|Redemption of 165 shares of common stock                                                 |  |              | (165    | ) |                   | (6,735    | ) |                                        |           |                          | (6,900     | )
|                                                                                         |  |              |         |   |                   |           |   |                                        |            |                          |            |  
|Balance at December 31, 2003                                                             |  | $            | 181,130 |   |                   | 1,720,057 |   |                                        | 11,685,193 |                          | 13,586,380 |  
|                                                                                         |  |              |         |   |                   |           |   |                                        |            |                          |            |  



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, 2003 and 2002



|                                                                                                                             |  |      |            |   |      |            |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | ---------- | -
|                                                                                                                             |  | 2003 |            |   | 2002 |           
|Operating activities:                                                                                                        |  |      |            |   |      |            |  
|Net income (loss)                                                                                                            |  | $    | (43,405    | ) |      | 25,394     |  
|Adjustments to reconcile net income to net cash provided by operating activities:                                            |  |      |            |   |      |            |  
|Deferred tax expense (benefit)                                                                                               |  |      | (40,155    | ) |      | 2,284      |  
|Increase (decrease) in reserve for life policy claims                                                                        |  |      | 2,805      |   |      | (386       | )
|Decrease in accrued investment income                                                                                        |  |      | 360        |   |      | 431        |  
|Decrease in accrued interest payable                                                                                         |  |      | (592       | ) |      | (407       | )
|Increase (decrease) in other liabilities                                                                                     |  |      | (1,028     | ) |      | 1,028      |  
|                                                                                                                             |  |      |            |   |      |            |  
|Net cash provided (used) by operating activities                                                                             |  |      | (82,015    | ) |      | 28,344     |  
|                                                                                                                             |  |      |            |   |      |            |  
|Investing activities:                                                                                                        |  |      |            |   |      |            |  
|Purchases of certificates of deposit                                                                                         |  |      | (1,994,195 | ) |      | (1,674,196 | )
|Maturities of certificates of deposit                                                                                        |  |      | 2,074,803  |   |      | 1,697,638  |  
|                                                                                                                             |  |      |            |   |      |            |  
|Net cash provided by investing activities                                                                                    |  |      | 80,608     |   |      | 23,442     |  
|                                                                                                                             |  |      |            |   |      |            |  
|Financing activities:                                                                                                        |  |      |            |   |      |            |  
|Purchases and retirement of common stock                                                                                     |  |      | (6,900     | ) |      | (27,976    | )
|                                                                                                                             |  |      |            |   |      |            |  
|Net cash used by financing activities                                                                                        |  |      | (6,900     | ) |      | (27,976    | )
|                                                                                                                             |  |      |            |   |      |            |  
|Net increase (decrease) in cash                                                                                              |  |      | (8,307     | ) |      | 23,810     |  
|                                                                                                                             |  |     
|Cash at beginning of year                                                                                                    |  |      | 107,252    |   |      | 83,442     |  
|                                                                                                                             |  |      |            |   |      |            |  
|Cash at end of year                                                                                                          |  | $    | 98,945     |   |      | 107,252    |  
|                                                                                                                             |  |      |            |   |      |            |  
|Cash payments for:                                                                                                           |  |      |            |   |      |            |  
|Interest                                                                                                                     |  | $    | 22,628     |   |      | 27,899     |  
|Income taxes                                                                                                                 |  |      |           |   |      |           |  
|                                                                                                                             |  |     
|Noncash investing and financing activities:                                                                                  |  |      |            |   |      |            |  
|Unrealized gain on securities available for sale, net of applicable income taxes of $2,024,786 and $1,369,507, respectively. |  | $    | 3,169,759  |   |      | 2,141,922  |  



See
accompanying notes to consolidated financial statements.



12



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YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



|(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
insurance subsidiary is domiciled in Arizona.



Line of
Business



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



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



Recognition of Premium Revenues



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



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YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



Equity securities, which do not have readily determinable fair values, are carried at the lower of cost or estimated fair 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. 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 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, 2003 and 2002, respectively. Such amounts have not been comprehensively
revalued for purposes of these financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.



Other Comprehensive Income



Other comprehensive income consists 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 per share, respectively, for 2003 and 2002, as the Company has no potentially dilutive common stock.



14



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YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



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, 2003 and 2002, consisted of certificates of deposit and equity securities. Certificates of deposit of $370,000 and $450,608 at
December 31, 2003 and 2002, 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, 2003 and 2002 are classified as follows:



|                                          |  |      |            |      |           
|----------------------------------------- |  | ---- | ---------- | ---- | ----------
|                                          |  | 2003 |            | 2002
|Available-for-sale, carried at fair value |  | $    | 20,702,623 |      | 15,508,078
|Other, carried at lower of cost or market |  |      | 723,405    |      | 723,405   
|                                          |  |      |            |      |           
|                                          |  | $    | 21,426,028 |      | 16,231,483
|                                          |  |      |            |      |           



Equity securities
classified as available-for-sale at December 31, 2003 consist of the following securities:



|                                                                                                     |  |                 |  |      |           |                |            |            |           
|---------------------------------------------------------------------------------------------------- |  | --------------- |  | ---- | --------- | -------------- | ---------- | ---------- | ----------
|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                                                                                                |  |                 |  | $    | 1,553,338 |                | 19,149,285 |            | 20,702,623
|                                                                                                     |  |                 |  |      |           |                |            |            |           



15



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YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



Equity securities classified as available-for-sale at December 31, 2002 consist of the following securities:



|                                                                                                     |  |                 |  |      |           |                |            |            |           
|---------------------------------------------------------------------------------------------------- |  | --------------- |  | ---- | --------- | -------------- | ---------- | ---------- | ----------
|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   |                | 13,055,000 |            | 13,510,000
|                                                                                                     |  |                 |  |     
|First Citizens BancShares, Inc.  Class A common stock  par value $1 per share                      |  | 18,845          |  |      | 1,013,748 |                | 806,680    |            | 1,820,428 
|                                                                                                     |  |                 |  |     
|First Citizens BancShares, Inc.  Class B common stock  par value $1 per share                      |  | 1,900           |  |      | 84,590    |                | 93,060     |            | 177,650   
|                                                                                                     |  |                 |  |      |           |                |            |            |           
|Total                                                                                                |  |                 |  | $    | 1,553,338 |                | 13,954,740 |            | 15,508,078
|                                                                                                     |  |                 |  |      |           |                |            |            |           



Equity securities
classified as other and carried at lower of cost or market at December 31, 2003 and 2002 consist of the following securities:



|                                                                                                        |  |                 |  |      |         |                 |       |      |   |        
|------------------------------------------------------------------------------------------------------- |  | --------------- |  | ---- | ------- | --------------- | ----- | ---- | - | -------
|                                                                                                        |  | 2003            |  | 2002
|Description                                                                                             |  | Number ofshares |  | Cost |         | Number ofshares |       | Cost
|First Citizens Bancorporation of South Carolina, Inc.  nonvoting 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
|                                                                                                        |  |                 |  |      |         |                 |       |      |   |        



At December 31, 2003
and 2002, the estimated fair values of investments in equity securities carried at lower of cost or market were $2,714,160 and $2,148,245, respectively.



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.



16



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YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



|(3) | Notes Payable
|--- | -------------



Notes payable at December 31, 2003 and 2002 consist of the following:



|                                                                                                    |  |      |         |      |        
|--------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | -------
|                                                                                                    |  | 2003 |         | 2002
|Advances under line of credit expiring June 5, 2004, interest payable quarterly 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 $5,200,000 and 18,139 shares of First Citizens BancShares, Inc. of North
Carolina (FCB) Class A Common Class, which have a carrying value of $2,185,750. 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, 2003 and 2002 is 2.39% and 2.67%,
respectively.



|(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. In 2004, the subsidiary may not pay
dividends without approval of the Arizona Department of Insurance. In 2003 and 2002, the subsidiary paid dividends to the parent of $46,000 and $42,000, with approval of the Arizona Department of Insurance.



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. Statutory surplus at December 31, 2002, and net income for the year then ended of the insurance subsidiary, as
computed in accordance with statutory accounting practices, were $495,410 and $46,923, respectively.



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YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



|(5) | Income Taxes
|--- | ------------



The Company has elected to file a consolidated federal income tax return. Income tax benefit for the years ended December 31, 2003 and 2002 is composed of
the following:



|          |  |      |         |   |      |         |  
|--------- |  | ---- | ------- | - | ---- | ------- | -
|          |  | 2003 |         |   | 2002 |        
|Current:  |  |      |         |   |      |         |  
|Federal   |  | $    | (6,660  | ) |      | (10,059 | )
|State     |  |      |        |   |      |        |  
|          |  |      |         |   |      |         |  
|          |  |      | (6,660  | ) |      | (10,059 | )
|          |  |      |         |   |      |         |  
|Deferred: |  |      |         |   |      |         |  
|Federal   |  |      | (40,155 | ) |      | 2,284   |  
|State     |  |      |        |   |      |        |  
|          |  |      |         |   |      |         |  
|          |  |      | (40,155 | ) |      | 2,284   |  
|          |  |      |         |   |      |         |  
|Total     |  | $    | (46,815 | ) |      | (7,775  | )
|          |  |      |         |   |      |         |  



At December 31, 2003
and 2002, deferred tax assets (liabilities) consist of the following components:



|                                                 |  |      |            |   |      |            |  
|------------------------------------------------ |  | ---- | ---------- | - | ---- | ---------- | -
|                                                 |  | 2003 |            |   | 2002 |           
|Deferred tax assets:                             |  |      |            |   |      |            |  
|Tax loss and credit carryforwards                |  | $    | 75,695     |   |      | 38,079     |  
|                                                 |  |      |            |   |      |            |  
|Gross deferred tax assets                        |  |      | 75,695     |   |      | 38,079     |  
|                                                 |  |     
|Valuation allowance                              |  |      | (9,200     | ) |      | (11,740    | )
|                                                 |  |      |            |   |      |            |  
|Net deferred tax asset                           |  |      | 66,495     |   |      | 26,339     |  
|                                                 |  |     
|Deferred tax liabilities:                        |  |      |            |   |      |            |  
|Unrealized gain on securities available-for-sale |  |      | (7,464,091 | ) |      | (5,439,304 | )
|                                                 |  |      |            |   |      |            |  
|Net deferred tax liability                       |  | $    | (7,397,596 | ) |      | (5,412,965 | )
|                                                 |  |      |            |   |      |            |  



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



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YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



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:



|                                                        |  |      |         |   |      |         |  
|------------------------------------------------------- |  | ---- | ------- | - | ---- | ------- | -
|                                                        |  | 2003 |         |   | 2002 |        
|Income tax expense (benefit) at federal statutory rates |  | $    | (30,675 | ) |      | 5,990   |  
|Effect of dividends received deduction and other        |  |      | (16,140 | ) |      | (13,765 | )
|                                                        |  |      |         |   |      |         |  
|Income tax benefit                                      |  | $    | (46,815 | ) |      | (7,775  | )
|                                                        |  |      |         |   |      |         |  



At December 31, 2003,
the Company has a net operating loss carryforward (NOL) for federal income tax purposes of $191,289 that expires in 2021 through 2023. At December 31, 2003, the Company has an NOL for state income tax purposes of $202,018 that expires between 2014
and 2018.



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. The North Carolina general statutes require that carried forward losses must be reduced or offset by any income
not taxable received in succeeding years.



|(6) | Related Parties
|--- | ---------------



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



The Company has no employees. AGI provides all managerial, administrative and operational services necessary in carrying out the Companys business. Management fees for such services were $17,726 in 2003 and $18,310 in 2002.



The Company holds stock in FCB, FCB-SC and Heritage (refer to
note 2). At December 31, 2003 and 2002, the Company had $270,000 and $350,608, 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 0.80% to 0.85% at December 31, 2003.



19



---

YADKIN VALLEY COMPANY AND SUBSIDIARY



Notes to Consolidated Financial Statements



December 31, 2003 and 2002



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 2003 and 2002 follows:



|                                   |  |      |         |      |        
|---------------------------------- |  | ---- | ------- | ---- | -------
|                                   |  | 2003 |         | 2002
|Premiums assumed                   |  | $    | 161,549 |      | 192,071
|Death benefits assumed             |  |      | 120,796 |      | 47,595 
|Life policy claim reserves assumed |  |      | 10,647  |      | 7,842  
|Commissions paid                   |  |      | 72,735  |      | 86,459 



20