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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 September 30, 2002





Commission file number- 1-14081





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YADKIN VALLEY COMPANY


(Exact name of registrant as specified in its charter)





North Carolina

56-1249566(State or other jurisdiction of

(IRS Employerincorporation or organization)

Identification No.)





Post Office Box 18747


Raleigh, North Carolina 27619


(address of principal executive offices)





Telephone: (919) 716-2266


(Registrants
telephone number)





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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

182,198Class

Outstanding at September 30, 2002





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PART IFINANCIAL INFORMATION





Item 1.Financial Statements





YADKIN VALLEY COMPANY AND SUBSIDIARY





CONSOLIDATED BALANCE
SHEETS





September 30, 2002

December 31, 2001(UNAUDITED)ASSETSCash

$
115,338

83,442Investments in equity securities (cost of $2,276,744 at September 30, 2002 andDecember 31, 2001)


16,282,216

12,720,054Certificates of deposit


446,483

474,050Accrued investment income


1,355

1,027Other assets


100

100Total assets

$
16,845,492

13,278,673LIABILITIES AND SHAREHOLDERS EQUITYLiabilities :Life policy claims reserves


8,108

8,228Deferred income taxes


5,473,210

4,041,174Notes payable


899,205

899,205Accrued interest payable


1,915

2,480Total liabilities


6,382,438

4,951,087Shareholders equity :Common stock, par value $1 per share; authorized 500,000 shares, issued and outstanding 182,198 shares in 2002 and
182,327 in 2001


182,198

182,327Retained earnings


1,776,455

1,771,747Accumulated other comprehensive income


8,504,401

6,373,512Total shareholders equity


10,463,054

8,327,586Total liabilities and shareholders equity

$
16,845,492

13,278,673





See accompanying notes to consolidated financial statements.




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YADKIN VALLEY COMPANY AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF INCOME





For the three months ended Sept. 30, 2002

For the three months ended Sept. 30, 2001


For the nine Months ended Sept. 30, 2002


For the nine months ended Sept. 30, 2001UNAUDITED

UNAUDITED


UNAUDITED


UNAUDITEDPremiums and other revenue:Life premium

$
47,716

$
54,700


144,432


161,225Dividend income


15,046


13,936


42,919


42,919Interest income


1,979


4,785


5,920


17,10264,741


73,421


193,271


221,246Benefits and expenses:Death benefits


2,103


12,764


40,287


38,075Decrease in liability for life policy claims





(156
)

(120
)

(296
)Operating expenses:Commissions


21,445


24,632


65,015


73,604Interest


9,438


10,849


20,655


37,428Professional fees


2,400


199


23,591


19,752Management fees


2,430


2,354


15,009


14,860General, administrative and other


1,746


759


30,858


29,84947,775


51,401


195,295


213,272Income (loss) before income taxes


25,180


22,020


(2,024
)

7,974Income tax expense (benefit)


1,695


(9,909
)

(9,295
)

(11,094
)Net income

$
23,485

$
31,929


7,271


19,068Net income per share

$
0.13

$
0.17


0.04


0.10Weighted average shares outstanding


182,198


182,461


182,263


182,944





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 NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002





Common Stock


Retained earnings


Accumulated Other comprehensive Income

Total shareholders equityBalance at December 31, 2001

$
182,327


1,771,747


6,373,512

8,327,586Comprehensive income:Net loss





7,271




7,271Net unrealized gains on securities available for sale, net of income taxes of $1,431,273








2,130,889

2,130,889Comprehensive income










2,138,160Redemption of 129 shares of common stock


(129
)

(2,563
)



(2,692
)Balance at September 30, 2002

$
182,198


1,776,455


8,504,401

10,463,054





See accompanying notes to consolidated financial statements.




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YADKIN VALLEY COMPANY AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001





2002


2001UNAUDITED


UNAUDITEDOperating activities :Net income

$
7,271


19,068Adjustments to reconcile net income to net cash provided by operating activities:Decrease in reserve for life policy claims


(120
)

(296
)Deferred taxes


763


(14,689
)Decrease in federal and state income taxes recoverable





3,590Increase in accrued investment income


(328
)

(1,727
)Decrease in other assets





17,811Decrease in accrued interest payable


(565
)

(2,372
)Net cash provided by operating activities


7,021


21,385Investing activities :Purchases of certificates of deposit


(1,197,970
)

(1,129,672
)Maturities of certificates of deposit


1,225,537


1,124,074Net cash provided (used) by investing activities


27,567


(5,598
)Financing activities :Proceeds from issuance of notes payable





30,000Purchases and retirement of common stock


(2,692
)

(20,840
)Net cash provided (used) by financing activities


(2,692
)

9,160Net increase in cash


31,896


24,947Cash at beginning of reporting period


83,442


57,611Cash at end of reporting period

$
115,338


82,558Cash payments for :Interest

$
21,220


39,800Income taxes





Non-cash investing and financing activities :Increase in unrealized gain on marketable equity securities, net of applicable income taxes of $1,431,273 and
$573,508

$
2,130,889


892,785





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,
2002.





For the nine months ended September 30, 2002 and 2001, total comprehensive income consisting of net income
and unrealized gains on securities available for sale, net of taxes, was $2,138,160 and $911,853 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 September 30, 2002
and December 31, 2001, the Company had $346,483 and $374,050, 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. Management fees were $15,009 for the nine months ending September 30, 2002 and
$14,860 for the corresponding period in 2001.





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 nine months ended September 30, 2002 and the corresponding period in 2001 are as follows:





2002

2001Premiums assumed

$
144,432

161,225Death benefits assumed


40,287

38,075Life policy claim reserves assumed


8,108

8,416Commissions assumed


65,015

73,604




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YADKIN VALLEY COMPANY AND SUBSIDIARY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







An executive officer and director of the Company is also a director
of Heritage. As a part of reinsurance commissions assumed, the Company paid approximately $8,930 in commissions to Heritage for the nine months ended September 30, 2002 and $10,558 for the corresponding period in 2001.





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





Results of Operations.    The Company realized an increase in consolidated
income before income taxes of $3,160 during the three months ended September 30, 2002 compared to the corresponding period in 2001. The increase was primarily due to decreases of $3,797 in net premium (premium written less commission), a decrease of
$10,661 in death benefits paid, a decrease of $1,411 in interest expense and an increase of $2,231 in professional fees. Consolidated net income before income taxes during the three-month period was $25,180 compared to a consolidated net income
before income taxes of $22,020 during the corresponding period of 2001.





Despite the significant improvement
during the three months ended September 30, 2002, the Company realized a consolidated loss before income taxes of $2,024 during the nine months ended September 30, 2002 compared to a consolidated income before income taxes of $7,974 during the
corresponding period in 2001. The decrease was primarily due to a $11,182 decrease in interest income, a $8,204 decrease in net premium earned (premium written less commission), a $2,212 increase in death benefits paid, a $3,839 increase in
professional fees and a $1,009 increase in other general expenses. The aforementioned items were partially offset by a $16,773 decrease in interest expense.





The main sources of operating funds for the period reported was from Yadkin Valley Life Insurance Companys (Yadkin Valley Life) operation and dividend income. 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 $16,793 (10.0%) for the reporting period from the corresponding period in 20001.
Management expects the decline to continue for the remainder of the year. 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 $2,388 (6.3%) from the corresponding period in 2001. The increase is not specifically attributable to any known events as there have been no changes in operations, underwriting or any other procedure. Management believes all claims
filed and paid to be proper and paid according to provisions in the various policies issued and the increase is not necessarily indicative of a trend. 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 2002 versus 2001 is directly correlated to the decline in assumed premiums written. Operating expenses, excluding commissions, decreased by
$11,776 (11.6%) for the period reported from the corresponding period of 2001, primarily due to a decrease in loan interest expense of $16,773 (44.8%) which was offset by an increase in professional fees, management fees and general, administrative
and other expenses.





During 2002, the Companys investment in marketable equity securities accounted for in
accordance with SFAS No. 115 experienced an increase in their fair values of $3,562,162 from December 31, 2001. The increase in fair values of the Companys investments as of September 30, 2002 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 and dividend income as primary sources of liquidity. Further,
limited borrowings have allowed the




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YADKIN VALLEY COMPANY AND SUBSIDIARY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




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 2.64 at September 30, 2002 and 2.68 at December 31, 2001, which ratio continues to remain constant. Investments in equity securities had a carrying value at September 30, 2002 and December
31, 2001 of $16,282,216 and $12,720,054 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 issuances, and may result in the Company realizing substantial losses or diminished gains on any such sales. Management of the Company believes that Yadkin Valley Life maintains sufficient other sources of liquidity such that sales of these
investments would not appear necessary for the foreseeable future.





FINANCIAL
CONDITION.    The increase in total assets from December 31, 2001 was primarily due to an increase in unrealized gains on marketable equity securities. There were no other material changes in assets during 2002.





During 2002, total liabilities increased from $4,951,087 at December 31, 2001 to $6,382,438 at September 30, 2002. The increase
in deferred federal income taxes on the unrealized gains on investments was $1,431,273 while total liabilities increased $1,431,351.





CAPITAL RESOURCES.    There are no material commitments for capital expenditures and none are anticipated. At September 30, 2002, Registrant had outstanding borrowings, which is with an unrelated
bank, of $899,205 secured by 18,139 shares of First Citizens BancShares, Inc. of North Carolina Class A Common Stock, which have a carrying value of $1,869,768; and 1,725 shares of First Citizens BancShares, Inc. of North Carolina Class B Common
Stock, which have a carrying value of $160,032; and 10,000 voting common shares of First Citizens Bancorporation of South Carolina, Inc, which have a carrying value of $3,840,000. 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





Evaluation of disclosure controls
and procedures





Yadkin Valley Companys Chief Executive Officer and Chief Financial Officer has evaluated
the companys disclosure controls and procedures as November 8, 2002, and concluded that these controls and procedures are effective.





Changes in internal control





There are no significant changes in internal controls
or in other factors that could significantly affect these controls subsequent to November 8, 2002.




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PART IIOTHER INFORMATION





Item 1.Legal Proceedings





There are no material pending legal proceedings involving the company.





Item 2.Changes in Securities and Use of Proceeds





None





Item
3.Default Upon Senior Securities





Not Applicable





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





None





Item 5.Other Information





Not
Applicable





Item 6.Exhibits and Reports on Form 8-K





Not Applicable





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.





Date:    November 11, 2002


YADKIN VALLEY COMPANYBy:

/s/    DAVID S.
PERRYDavid S. Perry President and
Principal Financial Officer





CERTIFICATION





(Pursuant to 18 U.S.C. Section 1350)





The undersigned hereby certifies that, to the best of his knowledge, (i) the foregoing Quarterly Report on Form 10-Q SB filed by Yadkin Valley Company (the Company) for the quarter ended September 30, 2002, fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.





Date:    November 11, 2002


By:

/s/    DAVID S.
PERRYDavid S. Perry President and
Principal Financial Officer




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