U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-QSB



QUARTERLY REPORT PURSUANT TO SECTION 12 (g)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended June 30, 2003



Commission file number- 1-14081



YADKIN VALLEY COMPANY

(Exact name of
registrant as specified in its charter)





|North Carolina                                                 |  | 56-1249566                       
|-------------------------------------------------------------- |  | ---------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)





Post Office Box 18747

Raleigh, North Carolina
27619

(address of principal executive offices)



Telephone: (919) 716-2266

(Registrants
telephone number)



Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 12 (g) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes  x            No ̈



Indicate the number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date.



|Common Stock |  | 181,287                     
|------------ |  | ----------------------------
|Class        |  | Outstanding at June 30, 2003



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PART IFINANCIAL INFORMATION



Item 1.    Financial Statements



YADKIN VALLEY COMPANY AND SUBSIDIARY



CONSOLIDATED BALANCE SHEETS



|                                                                                                                                   |  | June 30, 2003 |            | December 31, 2002
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | -----------------
|                                                                                                                                   |  | (Unaudited)   |            |                  
|ASSETS                                                                                                                             |  |               |            |                  
|Cash                                                                                                                               |  | $             | 82,391     |                  
|Investments in equity securities (cost of $2,276,744 at June 30, 2003 and December 31, 2002)                                       |  |               | 16,795,966 |                  
|Certificates of deposit                                                                                                            |  |               | 395,366    |                  
|Accrued investment income                                                                                                          |  |               | 229        |                  
|Other assets                                                                                                                       |  |               | 100        |                  
|                                                                                                                                   |  |               |            |                  
|Total assets                                                                                                                       |  | $             | 17,274,052 |                  
|                                                                                                                                   |  |               |            |                  
|                                                                                                                                   |  |              
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                               |  |               |            |                  
|                                                                                                                                   |  |              
|Liabilities :                                                                                                                      |  |               |            |                  
|Life policy claims reserves                                                                                                        |  |               | 7,903      |                  
|Deferred income taxes                                                                                                              |  |               | 5,598,398  |                  
|Notes payable                                                                                                                      |  |               | 899,205    |                  
|Accrued interest payable                                                                                                           |  |               | 3,540      |                  
|Other liabilities                                                                                                                  |  |               |           |                  
|                                                                                                                                   |  |               |            |                  
|Total liabilities                                                                                                                  |  |               | 6,509,046  |                  
|                                                                                                                                   |  |               |            |                  
|Shareholders equity :                                                                                                             |  |               |            |                  
|Common stock, par value $1 per share; authorized 500,000 shares, issued and outstanding 181,287 shares in 2003 and 181,295 in
2002 |  |               | 181,287    |                  
|Retained earnings                                                                                                                  |  |               | 1,723,950  |                  
|Accumulated other comprehensive income                                                                                             |  |               | 8,859,769  |                  
|                                                                                                                                   |  |               |            |                  
|Total shareholders equity                                                                                                         |  |               | 10,765,006 |                  
|                                                                                                                                   |  |               |            |                  
|Total liabilities and shareholders equity                                                                                         |  | $             | 17,274,052 |                  
|                                                                                                                                   |  |               |            |                  



See accompanying notes to consolidated
financial statements.





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YADKIN VALLEY COMPANY AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)



|                                                |  | For the three months ended June 30, 2003 |         |   | For the three months ended June 30, 2002 |   | For the six months ended June 30, 2003 |  |         | For the six months ended June 30, 2002 | 
|----------------------------------------------- |  | ---------------------------------------- | ------- | - | ---------------------------------------- | - | -------------------------------------- |  | ------- | -------------------------------------- | 
|Premiums and other revenue:                     |  |                                          |         |   |                                          |   |                                        |  |         |                                        | 
|Life premium                                    |  | $                                        | 41,863  |   |                                          | $ | 48,548                                 |  | 84,979  |                                        | 
|Dividend income                                 |  |                                          | 15,565  |   |                                          |   | 13,937                                 |  | 29,501  |                                        | 
|Interest income                                 |  |                                          | 1,066   |   |                                          |   | 1,749                                  |  | 2,304   |                                        | 
|                                                |  |                                          |         |   |                                          |   |                                        |  |         |                                        | 
|                                                |  |                                          | 58,495  |   |                                          |   | 64,234                                 |  | 116,784 |                                        | 
|                                                |  |                                          |         |   |                                          |   |                                        |  |         |                                        | 
|Benefits and expenses:                          |  |                                          |         |   |                                          |   |                                        |  |         |                                        | 
|Death benefits                                  |  |                                          | 64,879  |   |                                          |   | 8,532                                  |  | 70,769  |                                        | 
|Increase in liability for life policy claims    |  |                                          | 61      |   |                                          |   |                                       |  | 61      |                                        | 
|Operating expenses:                             |  |                                          |         |   |                                          |   |                                        |  |         |                                        | 
|Commissions                                     |  |                                          | 18,849  |   |                                          |   | 21,888                                 |  | 38,261  |                                        | 
|Interest                                        |  |                                          | 5,791   |   |                                          |   | 4,662                                  |  | 11,269  |                                        | 
|Professional fees                               |  |                                          | 14,878  |   |                                          |   | 5,002                                  |  | 33,284  |                                        | 
|Management fees                                 |  |                                          | 4,458   |   |                                          |   | 4,327                                  |  | 12,916  |                                        | 
|General, administrative and other               |  |                                          | 4,736   |   |                                          |   | 3,364                                  |  | 36,601  |                                        | 
|                                                |  |                                          |         |   |                                          |   |                                        |  |         |                                        | 
|                                                |  |                                          | 113,652 |   |                                          |   | 47,775                                 |  | 203,161 |                                        | 
|                                                |  |                                          |         |   |                                          |   |                                        |  |         |                                        | 
|Income (loss) before income taxes               |  |                                          | (55,157 | ) |                                          |   | 16,459                                 |  | (86,377 | )                                      | 
|Income tax expense (benefit)                    |  |                                          | (24,974 | ) |                                          |   | 5,312                                  |  | (40,346 | )                                      | 
|                                                |  |                                          |         |   |                                          |   |                                        |  |         |                                        | 
|Net income (loss)                               |  |                                          | (30,183 | ) |                                          | $ | 11,147                                 |  | (46,031 | )                                      | 
|                                                |  |                                          |         |   |                                          |   |                                        |  |         |                                        | 
|Net income (loss) per share (basic and diluted) |  | $                                        | (0.17   | ) |                                          | $ | 0.06                                   |  | (0.25   | )                                      | 
|                                                |  |                                          |         |   |                                          |   |                                        |  |         |                                        | 
|Weighted average shares outstanding             |  |                                          | 181,293 |   |                                          |   | 182,205                                |  | 181,291 |                                        | 
|                                                |  |                                          |         |   |                                          |   |                                        |  |         |                                        | 



See accompanying notes to consolidated
financial statements.





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YADKIN VALLEY COMPANY AND SUBSIDIARY



CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2003

(Unaudited)



|                                                                                       |  | Common stock |         |   | Retained earnings |           |   | Accumulated other comprehensive income |           | Totalshareholdersequity |           
|-------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ----------------- | --------- | - | -------------------------------------- | --------- | ------------------------ | ----------
|Balance at December 31, 2002                                                           |  | $            | 181,295 |   |                   | 1,770,197 |   |                                        | 8,515,434 |                          | 10,466,926
|                                                                                       |  |              |         |  
|Comprehensive income:                                                                  |  |              |         |   |                   |           |   |                                        |           |                          |           
|Net loss                                                                               |  |              |        |   |                   | (46,031   | ) |                                        |          |                          | (46,031   
|Net unrealized gains on securities available for sale, net of income taxes of $220,148 |  |              |        |   |                   |          |   |                                        | 344,335   |                          | 344,335   
|                                                                                       |  |              |         |   |                   |           |   |                                        |           |                          |           
|Comprehensive income                                                                   |  |              |         |   |                   |           |   |                                        |           |                          | 298,304   
|Redemption of 8 shares of common stock                                                 |  |              | (8      | ) |                   | (216      | ) |                                        |          |                          | (224      
|                                                                                       |  |              |         |   |                   |           |   |                                        |           |                          |           
|Balance at June 30, 2003                                                               |  | $            | 181,287 |   |                   | 1,723,950 |   |                                        | 8,859,769 |                          | 10,765,006
|                                                                                       |  |              |         |   |                   |           |   |                                        |           |                          |           



See accompanying notes to consolidated
financial statements.





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YADKIN VALLEY COMPANY AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2003 AND 2002

(Unaudited)



|                                                                                                                     |  | 2003 |            |   | 2002 |          
|-------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | ---------
|Operating activities :                                                                                               |  |      |            |   |      |          
|Net loss                                                                                                             |  | $    | (46,031    | ) |      | (16,214  
|                                                                                                                     |  |     
|Adjustments to reconcile net loss to net cash used by operating activities:                                          |  |      |            |   |      |          
|Net tax benefit                                                                                                      |  |      | (34,713    | ) |      | (10,990  
|Increase (decrease) in reserve for life policy claims                                                                |  |      | 61         |   |      | (120     
|Decrease in accrued investment income                                                                                |  |      | 367        |   |      | 538      
|Increase (decrease) in accrued interest payable                                                                      |  |      | 1,467      |   |      | (550     
|Increase in accounts receivable                                                                                      |  |      |           |   |      | (7,841   
|Increase (decrease) in other liabilities                                                                             |  |      | (1,028     | ) |      | 4,327    
|                                                                                                                     |  |      |            |   |      |          
|                                                                                                                     |  |     
|Net cash used by operating activities`                                                                               |  |      | (79,879    | ) |      | (30,850  
|                                                                                                                     |  |      |            |   |      |          
|                                                                                                                     |  |     
|Investing activities :                                                                                               |  |      |            |   |      |          
|Purchases of certificates of deposit                                                                                 |  |      | (1,223,382 | ) |      | (700,993 
|Maturities of certificates of deposit                                                                                |  |      | 1,278,624  |   |      | 750,043  
|                                                                                                                     |  |      |            |   |      |          
|Net cash provided by investing activities                                                                            |  |      | 55,242     |   |      | 49,050   
|                                                                                                                     |  |      |            |   |      |          
|                                                                                                                     |  |     
|Financing activities:                                                                                                |  |      |            |   |      |          
|Purchases and retirement of common stock                                                                             |  |      | (224       | ) |      | (2,692   
|                                                                                                                     |  |      |            |   |      |          
|Net cash used by financing activities                                                                                |  |      | (224       | ) |      | (2,692   
|                                                                                                                     |  |     
|Net increase (decrease) in cash                                                                                      |  |      | (24,861    | ) |      | 15,508   
|Cash at beginning of reporting period                                                                                |  |      | 107,252    |   |      | 83,442   
|                                                                                                                     |  |      |            |   |      |          
|Cash at end of reporting period                                                                                      |  | $    | 82,391     |   |      | 98,950   
|                                                                                                                     |  |      |            |   |      |          
|                                                                                                                     |  |     
|Cash payments for :                                                                                                  |  |      |            |   |      |          
|Interest                                                                                                             |  | $    | 9,802      |   |      | 11,768   
|                                                                                                                     |  |      |            |   |      |          
|Income taxes                                                                                                         |  |      |           |   |      |         
|                                                                                                                     |  |      |            |   |      |          
|Non-cash investing and financing activities :                                                                        |  |      |            |   |      |          
|Increase in unrealized gain on marketable equity securities, net of applicable income taxes of $220,148 and
$543,137 |  | $    | 344,335    |   |      | 1,940,053
|                                                                                                                     |  |      |            |   |      |          



See accompanying notes to consolidated
financial statements.





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YADKIN VALLEY COMPANY AND SUBSIDIARY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1:    Basis of Presentation



The accompanying consolidated financial statements include the accounts and operations of Yadkin Valley Company (the Parent) and
its wholly owned subsidiary Yadkin Valley Life Insurance Company, hereinafter collectively referred to as the Company. Inter-company accounts and transactions have been eliminated. The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America which, as to the insurance subsidiary, may vary in some respects from statutory accounting practices, which are prescribed or permitted by the Insurance
Department of the State of Arizona. All adjustments considered necessary for a fair presentation of the results for the interim periods have been included (such adjustments are normal and recurring in nature).



The information contained in the footnotes to the Companys consolidated financial
statements, included in the Companys Form 10-KSB, should be referenced when reading these unaudited interim financial statements. Operating results for the interim periods presented herein are not necessarily indicative of the results that may
be expected for the year ending December 31, 2003.



For the six months ended
June 30, 2003 and 2002, total comprehensive income consisting of net income (loss) and unrealized gains on securities available for sale, net of taxes, was $298,304 and $1,923,839, respectively. For the three months ended June 30, 2003 and 2002,
total comprehensive income consisting of net income (loss) and unrealized gains on securities available for sale, net of taxes, was $289,176 and $1,174465, respectively



Note 2:    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), The Heritage Bank (Heritage), Southern Bank & Trust Company, Mount Olive, North Carolina (Southern), and The Fidelity Bank, Fuquay-Varina, North Carolina (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 Triangle Life Insurance
Company (TLIC) is wholly owned by FCB&T. The Company holds stock in FCB, FCB-SC and Heritage. At June 30, 2003 and December 31, 2002, the Company had $295,366 and $350,608 respectively, invested in certificates of deposit in
FCB&T.



The Company has no employees. AGI provides all managerial,
administration and operational services necessary in carrying out the Companys business. AGI is a subsidiary of FCB and provides management services to the Company. Management fees were $12,916 for the six months ending June 30, 2003 and
$12,579 for the corresponding period in 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 the six months ended June 30, 2003 and the corresponding period in 2002 are as
follows:



|                                   |  | 2003 |        | 2002
|---------------------------------- |  | ---- | ------ | ----
|Premiums assumed                   |  | $    | 84,979 |     
|Death benefits assumed             |  |      | 70,830 |     
|Life policy claim reserves assumed |  |      | 7,903  |     
|Ceding commissions                 |  |      | 38,261 |     





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Item 2.    Managements Discussion and Analysis of Financial Condition and Results of
Operations.



RESULTS OF
OPERATIONS.    The Company realized an increase in consolidated loss before income taxes of $59,173 for the six months ended June 30, 2003 compared to the corresponding period in 2002. The increase in the loss was
primarily due to a $32,584 increase in death claims paid, a $11,737 decrease in life premium income and a $12,093 increase in professional fees. Consolidated net loss during the period was $46,031 compared to a consolidated net loss of $16,214
during the corresponding period of 2002.



The main source of
operating funds for the six months ended June 30, 2003 was from Yadkin Valley Life Insurance Companys (Yadkin Valley Life) operation. Revenue from Yadkin Valley Lifes operation continued to decline primarily as a result of a
decrease in sales of credit life insurance by producing banks. Premiums have decreased $11,737 (12.1%) from the corresponding period in 2002 and management expects the decline may continue for the remainder of the year, as the products being
reinsured are not being actively marketed. The premium volume of Yadkin Valley Life does vary from year to year based on the volume and eligibility of loans for credit life insurance in producing banks.



The primary outflows of the Companys funds are for claim payments,
commission payments and general expenses. Incurred claims increased $ 32,765 (85.3%) from the corresponding period in 2002. The change is attributed to two claims processed in one quarter larger than historical amounts and, at this time, Management
has no information that this is indicative of a trend. Management believes all claims filed and paid to be proper and paid according to provisions in the various policies issued. While the policyholder mortality experience represents the primary
uncertainty of Yadkin Valley Lifes operations, claim reserves have proven to be adequate. The decline in commission payments in 2003 versus 2002 is directly correlated to the decline in assumed premium written. Operating expenses, excluding
commissions, increased by $19,972 (27.0%) for the period reported from the corresponding period of 2002, primarily due to an increase in professional fees of $12,093 and an increase in general, administrative and other expenses of $7,490.



During 2003, the Companys investment in marketable
equity securities that are accounted for in accordance with SFAS No. 115 experienced an increase in their fair values of $564,483 (3.5%) from December 31, 2002. The increase in fair values of the Companys investments as of June 30, 2003
is driven by the fact that the Companys largest individual holding is in a banking organization (FCB-SC) whose equity securities are not widely traded and thus are subject to fluctuation. There can be no assurances that the current fair values
will be sustained in future periods and continued fluctuations in the fair values of these investments in future periods will result in fluctuations of shareholders equity.



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, limited borrowings have allowed the Company to fund asset growth and maintain liquidity. A factor which could impact the Companys financial position and liquidity
is a significant increase or decrease in the market values of the securities held in the investment portfolio.



Management believes the liquidity of the Company to be adequate as evidenced by ratios of assets to liabilities of 2.65 at June 30, 2003 and 2.66 at
December 31, 2002. This ratio continues to remain constant. Investments in equity securities had a carrying value at June 30, 2003 and December 31, 2002 of $16,795,966 and $16,231,483 respectively. While management considers these securities to be
readily marketable, the Companys ability to sell a substantial portion of these investments may be inhibited by the limited trading of most of these securities, and may result in the Company realizing substantial losses on any such sales.
Management of the Company believes that Yadkin Valley Life maintains sufficient other sources of liquidity such as certificates of deposit and borrowings and that sales of these investments would not appear necessary for the foreseeable future.





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FINANCIAL CONDITION.The increase in total assets from December 31, 2002
was primarily due to an increase in unrealized gains on marketable equity securities. There were no other material changes in assets during 2003.



CAPITAL RESOURCES.    There are no material commitments for capital expenditures and none are anticipated. At June 30, 2003,
Registrant had outstanding borrowings, which is with an unrelated bank, of $899,205 secured by 18,139 shares of First Citizens BancShares, Inc. Class A Common Stock, which have a carrying value of $1,828,955; and 1,725 shares of First Citizens
BancShares, Inc. Class B Common Stock, which have a carrying value of $156,539; and 10,000 voting common shares of First Citizens Bancorporation of South Carolina, Inc, which have a carrying value of $4,000,000. Any funds needed to satisfy loan
repayments would be derived from the sale of or repositioning of investments and dividends from Yadkin Valley Life.



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.



Item 3.    Controls and Procedures



An evaluation of the effectiveness of the Companys disclosure
controls and procedures as of the end of the period covered by this report has been performed under the supervision and with the participation of the Companys President, who serves as both principal executive officer and principal financial
officer. Based on that evaluation, the President concluded that the Companys disclosure controls and procedures were effective as of the end of the period covered by this report.



There has been no change in the Companys internal controls over financial reporting that occurred during the most
recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



PART IIOTHER INFORMATION



Item 1.    Legal Proceedings



Not Applicable



Item 2.    Changes in Securities and Use of Proceeds



Not Applicable



Item 3.    Default Upon Senior Securities



Not Applicable





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Item 4.    Submission of Matters to a Vote of Security Holders



| | (a) |  | The Annual Meeting of Shareholders of the Company was held on April 28, 2003.
| | --- |  | -----------------------------------------------------------------------------



| | (b) |  | At the Annual Meeting, the following Directors were elected to the Board of Directors for a term of one year or until a successor is duly elected and qualified.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



David S. Perry

Hope H. Connell

E. Thomas. Lucas



| | (c) |  | Matters voted upon at the Annual Meeting and the number of shares voted for, against, withheld, abstaining from voting and broker non-votes were as follows:
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (1) |  | Election of three Directors for a term expiring in 2004
| | --- |  | -------------------------------------------------------



|                |  | FOR     |  | AGAINST |  | WITHHELD
|--------------- |  | ------- |  | ------- |  | --------
|                |  |         | 
|David S. Perry  |  | 143,370 |  | 0       |  | 6       
|Hope H. Connell |  | 143,370 |  | 0       |  | 6       
|E. Thomas Lucas |  | 143,370 |  | 0       |  | 6       



| | (2) |  | Ratification of the appointment of KPMG LLP as independent public accountants for the Company for 2003:
| | --- |  | -------------------------------------------------------------------------------------------------------



|                       |  |         |  |  |  | 
|---------------------- |  | ------- |  |  |  | 
|FOR                    |  | 143,130 |  |  |  | 
|AGAINST                |  | 0       |  |  |  | 
|ABSTAINING FROM VOTING |  | 246     |  |  |  | 



Item 5.    Other
Information



Not Applicable



Item 6.    Exhibits and Reports on Form 8-K



| | (a) |  | The following exhibits are filed with this report:
| | --- |  | --------------------------------------------------



|Exhibit Number |  | Description                                       
|-------------- |  | --------------------------------------------------
|               | 
|31             |  | Certification Pursuant to Rule 13a-14(a)          
|               | 
|32             |  | Certification pursuant to 18 U. S. C. Section 1350



| | (b) |  | Registrant filed no reports on Form 8-K during the quarter covered by this Report.
| | --- |  | ----------------------------------------------------------------------------------





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SIGNATURES



In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.



|                     |  | YADKIN VALLEY COMPANY
|-------------------- |  | ---------------------
|                     |  |                      
|Date: August 9, 2003 |  | By:                  
|                     |  |                      





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EXHIBIT INDEX



|Exhibit Number |  | Description                                     
|-------------- |  | ------------------------------------------------
|31             |  | Certification Pursuant to Rule 13a-14(a)        
|32             |  | Certification pursuant to 18 U.S.C. Section 1350