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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-QSB



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QUARTERLY REPORT PURSUANT TO SECTION 12 (g) OF

THE SECURITIES EXCHANGE ACT OF
1934



For the quarterly period ended March 31, 2004



Commission file number- 1-14081



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YADKIN VALLEY COMPANY

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|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)



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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 |  | 181,130                      
|Class        |  | Outstanding at March 31, 2004

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PART I - FINANCIAL INFORMATION



Item 1. Financial Statements



YADKIN VALLEY COMPANY AND SUBSIDIARY



CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                        |  |                |            |                   |           
|----------------------------------------------------------------------------------------------------------------------- |  | -------------- | ---------- | ----------------- | ----------
|                                                                                                                        |  | March 31, 2004 |            | December 31, 2003
|                                                                                                                        |  | (Unaudited)    |            | *                
|ASSETS                                                                                                                  |  |                |            |                   |           
|Cash                                                                                                                    |  | $              | 36,852     |                   | 98,945    
|                                                                                                                        |  |               
|Investments in equity securities (cost of $2,276,744 at March 31, 2004 and December 31, 2003)                           |  |                | 21,801,670 |                   | 21,426,028
|Certificates of deposit                                                                                                 |  |                | 390,000    |                   | 370,000   
|Accrued investment income                                                                                               |  |                | 696        |                   | 236       
|Other assets                                                                                                            |  |                | 100        |                   | 100       
|                                                                                                                        |  |                |            |                   |           
|Total assets                                                                                                            |  | $              | 22,229,318 |                   | 21,895,309
|                                                                                                                        |  |                |            |                   |           
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                    |  |                |            |                   |           
|                                                                                                                        |  |               
|Liabilities :                                                                                                           |  |                |            |                   |           
|Life policy claims reserves                                                                                             |  |                | 10,647     |                   | 10,647    
|Deferred income taxes                                                                                                   |  |                | 7,529,316  |                   | 7,397,596 
|Notes payable                                                                                                           |  |                | 899,205    |                   | 899,205   
|Accrued interest payable                                                                                                |  |                | 1,512      |                   | 1,481     
|                                                                                                                        |  |                |            |                   |           
|Total liabilities                                                                                                       |  |                | 8,440,680  |                   | 8,308,929 
|                                                                                                                        |  |                |            |                   |           
|Shareholders equity :                                                                                                  |  |                |            |                   |           
|Common stock, par value $1 per share; authorized 500,000 shares, issued and outstanding 181,130 shares in 2004 and 2003 |  |                | 181,130    |                   | 181,130   
|Retained earnings                                                                                                       |  |                | 1,697,301  |                   | 1,720,057 
|Accumulated other comprehensive income                                                                                  |  |                | 11,910,207 |                   | 11,685,193
|                                                                                                                        |  |                |            |                   |           
|Total shareholders equity                                                                                              |  |                | 13,788,638 |                   | 13,586,380
|                                                                                                                        |  |                |            |                   |           
|Total liabilities and shareholders equity                                                                              |  | $              | 22,229,318 |                   | 21,895,309
|                                                                                                                        |  |                |            |                   |           

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|* | Derived from December 31, 2003 audited consolidated financial statements
|- | ------------------------------------------------------------------------



See accompanying notes to consolidated financial statements.



2



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YADKIN VALLEY COMPANY AND SUBSIDIARY



CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

UNAUDITED



|                                    |  |                                         |         |   |                                      |   |         |  
|----------------------------------- |  | --------------------------------------- | ------- | - | ------------------------------------ | - | ------- | -
|                                    |  | For the threemonths endedMarch 31, 2004 |         |   | For thethreemonthsendedMarch 31,2003 |  
|                                    |  | (Unaudited)                             |         |   | (Unaudited)                          |  
|Premiums and other revenue :        |  |                                         |         |   |                                      |   |         |  
|Life premiums                       |  | $                                       | 35,935  |   |                                      | $ | 43,116  |  
|Dividend income                     |  |                                         | 17,955  |   |                                      |   | 13,936  |  
|Interest income                     |  |                                         | 788     |   |                                      |   | 1,237   |  
|                                    |  |                                         |         |   |                                      |   |         |  
|                                    |  |                                         | 54,678  |   |                                      |   | 58,289  |  
|                                    |  |                                         |         |   |                                      |   |         |  
|Benefits and expenses :             |  |                                         |         |   |                                      |   |         |  
|Death benefits                      |  |                                         | 4,109   |   |                                      |   | 5,890   |  
|                                    |  |                                        
|Operating expenses :                |  |                                         |         |   |                                      |   |         |  
|Commissions                         |  |                                         | 16,054  |   |                                      |   | 19,412  |  
|Interest                            |  |                                         | 5,415   |   |                                      |   | 5,478   |  
|Professional fees                   |  |                                         | 23,155  |   |                                      |   | 18,406  |  
|Management fees                     |  |                                         | 8,881   |   |                                      |   | 8,458   |  
|General, administrative and other   |  |                                         | 38,728  |   |                                      |   | 31,865  |  
|                                    |  |                                         |         |   |                                      |   |         |  
|                                    |  |                                         | 96,342  |   |                                      |   | 89,509  |  
|                                    |  |                                         |         |   |                                      |   |         |  
|Loss before income taxes            |  |                                         | (41,664 | ) |                                      |   | (31,220 | )
|                                    |  |                                        
|Income tax benefit                  |  |                                         | (18,908 | ) |                                      |   | (15,372 | )
|                                    |  |                                         |         |   |                                      |   |         |  
|Net loss                            |  | $                                       | (22,756 | ) |                                      | $ | (15,848 | )
|                                    |  |                                         |         |   |                                      |   |         |  
|Net loss per share                  |  | $                                       | (0.13   | ) |                                      | $ | (0.09   | )
|                                    |  |                                         |         |   |                                      |   |         |  
|Weighted average shares outstanding |  |                                         | 181,130 |   |                                      |   | 181,295 |  
|                                    |  |                                         |         |   |                                      |   |         |  



See
accompanying notes to consolidated financial statements.



3



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YADKIN VALLEY COMPANY AND SUBSIDIARY



CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2004

UNAUDITED



|                                                                                       |  |              |         |                   |           |   |                                     |            |                          |            |  
|-------------------------------------------------------------------------------------- |  | ------------ | ------- | ----------------- | --------- | - | ----------------------------------- | ---------- | ------------------------ | ---------- | -
|                                                                                       |  | Common stock |         | Retained earnings |           |   | Accumulatedothercomprehensiveincome |            | Totalshareholdersequity |           
|Balance at December 31, 2003                                                           |  | $            | 181,130 |                   | 1,720,057 |   |                                     | 11,685,193 |                          | 13,586,380 |  
|                                                                                       |  |              |         |                  
|Comprehensive income:                                                                  |  |              |         |                   |           |   |                                     |            |                          |            |  
|Net loss                                                                               |  |              |        |                   | (22,756   | ) |                                     |           |                          | (22,756    | )
|Net unrealized gains on securities available for sale, net of income taxes of $150,628 |  |              |        |                   |          |   |                                     | 225,014    |                          | 225,014    |  
|                                                                                       |  |              |         |                   |           |   |                                     |            |                          |            |  
|Comprehensive income                                                                   |  |              |         |                   |           |   |                                     |            |                          | 202,258    |  
|                                                                                       |  |              |         |                   |           |   |                                     |            |                          |            |  
|Balance at March 31, 2004                                                              |  | $            | 181,130 |                   | 1,697,301 |   |                                     | 11,910,207 |                          | 13,788,638 |  
|                                                                                       |  |              |         |                   |           |   |                                     |            |                          |            |  



See
accompanying notes to consolidated financial statements.



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YADKIN VALLEY COMPANY AND SUBSIDIARY



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2004 AND 2003

UNAUDITED



|                                                                                                                    |  |             |          |   |             |   |          |  
|------------------------------------------------------------------------------------------------------------------- |  | ----------- | -------- | - | ----------- | - | -------- | -
|                                                                                                                    |  | 2004        |          |   | 2003        |  
|                                                                                                                    |  | (Unaudited) |          |   | (Unaudited) |  
|Operating activities :                                                                                              |  |             |          |   |             |   |          |  
|Net loss                                                                                                            |  | $           | (22,756  | ) |             | $ | (15,848  | )
|                                                                                                                    |  |            
|Adjustments to reconcile net loss to net cash used by operating activities:                                         |  |             |          |   |             |   |          |  
|Deferred tax benefit                                                                                                |  |             | (18,908  | ) |             |   | (15,372  | )
|Decrease (increase) in accrued investment income                                                                    |  |             | (460     | ) |             |   | (168     | )
|Increase (decrease) in accrued interest payable                                                                     |  |             | 31       |   |             |   | (425     | )
|                                                                                                                    |  |             |          |   |             |   |          |  
|Net cash used by operating activities                                                                               |  |             | (42,093  | ) |             |   | (24,383  | )
|                                                                                                                    |  |             |          |   |             |   |          |  
|Investing activities :                                                                                              |  |             |          |   |             |   |          |  
|Purchases of certificates of deposit                                                                                |  |             | (140,000 | ) |             |   | (551,869 | )
|Maturities of certificates of deposit                                                                               |  |             | 120,000  |   |             |   | 550,873  |  
|                                                                                                                    |  |             |          |   |             |   |          |  
|Net cash used by investing activities                                                                               |  |             | (20,000  | ) |             |   | (996     | )
|                                                                                                                    |  |             |          |   |             |   |          |  
|Net decrease in cash                                                                                                |  |             | (62,093  | ) |             |   | (25,280  | )
|                                                                                                                    |  |            
|Cash at beginning of reporting period                                                                               |  |             | 98,945   |   |             |   | 107,252  |  
|                                                                                                                    |  |             |          |   |             |   |          |  
|Cash at end of reporting period                                                                                     |  | $           | 36,852   |   |             | $ | 81,872   |  
|                                                                                                                    |  |             |          |   |             |   |          |  
|Cash payments for :                                                                                                 |  |             |          |   |             |   |          |  
|Interest                                                                                                            |  | $           | 5,384    |   |             | $ | 5,903    |  
|                                                                                                                    |  |             |          |   |             |   |          |  
|Income taxes                                                                                                        |  |             |         |   |             |   |         |  
|                                                                                                                    |  |             |          |   |             |   |          |  
|Non-cash investing and financing activities :                                                                       |  |             |          |   |             |   |          |  
|Increase in unrealized gain on marketable equity securities, net of applicable income taxes of $150,628 and $15,968 |  | $           | 225,014  |   |             | $ | 24,976   |  
|                                                                                                                    |  |             |          |   |             |   |          |  



See
accompanying notes to consolidated financial statements.



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YADKIN VALLEY COMPANY AND SUBSIDIARY



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Note 1: Basis of Presentation



The accompanying condensed 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 condensed 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 condensed consolidated
financial statements, included in the Companys Form 10-KSB, should be referenced when reading these unaudited condensed 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, 2004.



For
the three months ended March 31, 2004 and 2003, total comprehensive income (loss) consisting of net income (loss) and unrealized gains (losses) on securities available for sale, net of taxes, was $202,258 and $9,128, respectively.



Note 2: Related Parties



Certain significant shareholders of the Company are also significant shareholders of First
Citizens BancShares, Inc. (FCB), First Citizens Bancorporation, 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 March 31, 2004 and December 31, 2003, the Company had $290,000 and
$270,000 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
$8,881 for the three months ending March 31, 2004 and $8,458 for the corresponding period in 2003.



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 three months
ended March 31, 2004 and the corresponding period in 2003 are as follows:



|                       |  |      |        |      |       
|---------------------- |  | ---- | ------ | ---- | ------
|                       |  | 2004 |        | 2003
|Premiums assumed       |  | $    | 35,935 |      | 43,116
|Death benefits assumed |  |      | 4,109  |      | 5,890 
|Commissions assumed    |  |      | 16,054 |      | 19,412



At both March 31, 2004 and December
31, 2003, the Company assumed life policy claim reserves of $10,647.



6



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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 $10,444 during the period reported compared to the corresponding period in 2003. The increase in the loss was primarily due to a $4,749 increase in professional fees and an increase in
N.C. franchise taxes of $7,801. Consolidated net loss during the period was $22,756 compared to a consolidated net loss of $15,848 during the corresponding period of 2003.



The main source of operating funds for the period reported 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 $7,181 (16.7%) from
the corresponding period in 2003 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 decreased $1,781 (30.2%) from the corresponding period in 2003. The change is not
specifically attributable to any known events as there have been no change 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 decrease is not 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
2004 versus 2003 is directly correlated to the decline in assumed premium written. Operating expenses, excluding commissions, increased by $11,972 (18.6%) for the period reported from the corresponding period of 2003, primarily due to an increase in
professional fees of $4,749 and an increase in general, administrative and other expenses of $6,863. The primary reason for the increase in general, administrative and other expenses was an increase in North Carolina corporation taxes of $7,801.



During 2004, 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 $375,642 (1.75%) from December 31, 2003. The increase in fair values of the Companys investments as of March 31, 2004 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 2.63 at March 31, 2004 and 2.64 at December 31, 2003, which ratio continues to remain constant.
Investments in equity securities had a carrying value at March 31, 2004 and December 31, 2003 of $21,801,670 and $21,426,028 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, 2003 was primarily due to an
increase in unrealized gains on marketable equity securities. There were no other material changes in assets during 2004.



CAPITAL RESOURCES. There are no material commitments for capital expenditures and none are anticipated. At March 31, 2004, Registrant had
outstanding borrowings, which is with an unrelated bank, of $899,205 secured by 18,139 shares of the Class A Common Stock, and 1,725 shares of the Class B Common Stock of First Citizens BancShares, Inc., Raleigh, North Carolina which have a carrying
value of $2,231,835 and $190,958 respectively; and 10,000 voting common shares of First Citizens Bancorporation, Inc., Columbia, South Carolina which have a carrying value of $5,300,000. 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



Registrants Chief Executive Officer, who also serves as Registrants Chief Financial Officer, has evaluated the effectiveness of the design and
operation of Registrants disclosure controls and procedures in accordance with Rule 13a-14 of the Securities Exchange Act of 1934 (the Exchange Act). Based on his evaluation, he concluded that, as of the end of the period covered
by this report, Registrants disclosure, controls and procedures were effective in enabling Registrant to record, process, summarize and report in a timely manner the information required to be disclosed in reports Registrant files under the
Exchange Act.



No changes in Registrants internal control
over financial reporting occurred during the first quarter of 2004 that has materially affected, or is reasonably likely to materially affect, Registrants internal control over financial reporting.



PART II - OTHER INFORMATION



Item 1. Legal Proceedings



At March 31, 2004, Registrant was not a party to any legal proceedings that
are expected to have a material effect on its financial condition or results of operation.



Item 2. Changes in Securities, Use of Proceeds and Small Business Issuer Purchases of Equity Securities



Not Applicable



Item 3. Defaults Upon Senior Securities



Not Applicable



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



Not applicable.



Item 5. Other Information



Not Applicable



Item 6. Exhibits and Reports on Form 8-K



(a) Exhibits. The following exhibits are filed herewith or incorporated herein by reference as part of this Report.



|              |  |                                                                                           
|------------- |  | ------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                               
|              | 
|31.1          |  | Certification of Registrants Principal Executive Officer pursuant to Rule 13a-14(a)      
|              | 
|31.2          |  | Certification of Registrants Chief Financial Officer pursuant to Rule 13a-14(a)          
|              | 
|32            |  | Certification of Registrants Chief Financial Officer pursuant to 18 U. S. C. Section 1350



(b) Reports on Form
8-K.No Reports on Form 8-K were filed by Registrant during the last quarter of the period covered by this Report on Form 10-QSB.



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SIGNATURES



In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.





|                   |  |                       |  |                          
|------------------ |  | --------------------- |  | -------------------------
|                   |  | YADKIN VALLEY COMPANY
|                   |  |                      
|Date: May 10, 2004 |  | By:                   |  | S/ David S. Perry        
|                   |  |                       |  | David S. Perry, President



In accordance with
Section13 or 15(d) of the Securities and Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



|                  |  |                                                                                 |  |             
|----------------- |  | ------------------------------------------------------------------------------- |  | ------------
|Signature         |  | Title                                                                           |  | Date        
|                  |  |                                                                                
|S/ David S. Perry |  | President, Treasurer and Director (chief executive and chief financial officer) |  | May 10, 2004
|David S.Perry     |  |                                                                                 | 



10



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EXHIBIT INDEX



|              |  |                                                                                           
|------------- |  | ------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                               
|31.1          |  | Certification of Registrants Principal Executive Officer pursuant to Rule 13a-14(a)      
|              | 
|31.2          |  | Certification of Registrants Chief Financial Officer pursuant to Rule 13a-14(a)          
|              | 
|31.2          |  | Certification of Registrants Chief Financial Officer pursuant to 18 U. S. C. Section 1350



11