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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-K



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2005

OR



| ̈ | TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the transition period from  to
.

COMMISSION FILE NUMBER 000-32985



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WACCAMAW BANKSHARES, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|NORTH CAROLINA                                                 |  | 52-2329563                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|110 NORTH J. K. POWELL BOULEVARD WHITEVILLE, NORTH CAROLINA    |  | 28472                               
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          

Registrants Telephone number, including area code: (910) 641-0044



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Securities registered pursuant
to Section 12(b) of the Act

NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, NO PAR VALUE



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Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ̈Yes    x  No

Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. ̈Yes    x  No

Note  Checking the box above will not relieve any
registrant required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) 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.    x  Yes ̈No

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K  x

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated
filer ̈Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ̈Yes    x  No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrants most recently completed second fiscal quarter. $68,488,578.

Indicate the number of shares
outstanding of each of the registrants classes of Common Stock as of the latest practicable date. 4,589,143 shares of Common Stock outstanding as of March 20, 2006:

Documents Incorporated by Reference.

The Registrants Annual Report to
stockholders for the fiscal year ended December 31, 2005

Registrants Proxy Statement for the 2006 Annual Meeting of Stockholders



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FORM 10-K CROSS-REFERENCE INDEX



|          |  |                                                                                                              |  |           |  |                |  |              
|--------- |  | ------------------------------------------------------------------------------------------------------------ |  | --------- |  | -------------- |  | -------------
|          |  |                                                                                                              |  | FORM 10-K |  | PROXYSTATEMENT |  | ANNUAL REPORT
|PART I    |  |                                                                                                              |  |           |  |               
|          |  |                                                                                                              |  |          
|Item 1   |  | Business                                                                                                     |  | 3         |  |                |  |              
|Item 1A  |  | Risk Factors                                                                                                 |  | 8         |  |                |  |              
|Item 1B  |  | Unresolved Staff Comments                                                                                    |  | 11        |  |                |  |              
|Item 2   |  | Properties                                                                                                   |  | 12        |  |                |  |              
|Item 3   |  | Legal Matters                                                                                                |  | 12        |  |                |  |              
|Item 4   |  | Submission of Matters to a Vote Of Security Holders                                                          |  | 12        |  |                |  |              
|          |  |                                                                                                              | 
|PART II   |  |                                                                                                              |  |           |  |               
|          |  |                                                                                                              |  |          
|Item 5   |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 13        |  |                |  |              
|Item 6   |  | Selected Financial Data                                                                                      |  | 14        |  |                |  |              
|Item 7   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 15        |  |                |  | X            
|Item 7A  |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 15        |  |                |  | X            
|Item 8   |  | Financial Statements and Supplementary Data                                                                  |  | 16        |  |                |  | X            
|Item 9   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures                        |  | 16        |  |                |  |              
|Item 9A  |  | Controls and Procedures                                                                                      |  | 16        |  |                |  |              
|Item 9B  |  | Other Information                                                                                            |  | 16        |  |                |  |              
|          |  |                                                                                                              | 
|PART III  |  |                                                                                                              |  |           |  |               
|          |  |                                                                                                              |  |          
|Item 10  |  | Directors and Executive Officers of the Registrant                                                           |  | 16        |  | X              |  |              
|Item 11  |  | Executive Compensation                                                                                       |  | 17        |  | X              |  |              
|Item 12  |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 17        |  | X              |  |              
|Item 13  |  | Certain Relationships and Related Transactions                                                               |  | 17        |  | X              |  |              
|Item 14  |  | Principal Accountant Fees and Services                                                                       |  | 17        |  | X              |  |              
|          |  |                                                                                                              | 
|PART IV   |  |                                                                                                              |  |           |  |               
|          |  |                                                                                                              |  |          
|Item 15  |  | Exhibits, Financial Statement Schedules                                                                      |  | 18        |  |                |  |              



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PART 1

ITEM 1  BUSINESS

General

Waccamaw Bankshares, Inc. (the Company) was formed during 2001 as a financial holding company chartered in the state of North Carolina. On July 1, 2001, the Company acquired all the outstanding shares of Waccamaw Bank (the
Bank) in a tax-free exchange. To date, the only business activities of the Company consist of the activities of the Bank.

Waccamaw Bank was organized and
incorporated under the laws of the State of North Carolina on August 28, 1997 and commenced operations on September 2, 1997. The Bank currently serves Columbus County, North Carolina and surrounding areas through three banking offices,
Brunswick County through three banking offices, New Hanover County through one banking office and Bladen County through one banking office. As a state chartered bank which is a member of the Federal Reserve, the Bank is subject to regulation by the
North Carolina Commissioner of Banks and the Federal Reserve.

Location and Service Area

The Companys primary service area is Columbus, Brunswick, Bladen and New Hanover Counties of North Carolina. The principal business of the Company is to provide
comprehensive individual and corporate banking services through its main service area. These services include demand and time deposits as well as commercial, installment, mortgage and other consumer lending services that are traditionally available
from community banks.

Columbus County is located in the southeastern portion of North Carolina near the South Carolina border. Whiteville, the largest
city in the county is approximately 45 miles west of Wilmington, North Carolina, 150 miles southeast of Charlotte, North Carolina, and 45 miles north of Myrtle Beach, South Carolina. These cities all have national or regional airports. Columbus
County had a population of 55,000 at the end of 2004. Per capita income in the county was $14,415 in 1999.

Brunswick County is adjacent to Columbus County
to the southeast and also borders South Carolina. Shallotte, the largest city in the county, is approximately 35 miles southwest of Wilmington and 35 miles northeast of Myrtle Beach. Brunswick County has a population of 85,000 as of 2004 and had per
capita income of $19,857 in 1999.

New Hanover County is a coastal county and adjacent to Brunswick County to the north. Wilmington, the largest city in
the county, has a diversified economy which includes shipping, manufacturing, medical and retail industries. New Hanover County has a population of 174,000 as of 2004 and had per capita income of $23,123 in 1999.

Bladen County is adjacent to Columbus County to the northeast. Elizabethtown, the largest city in the county is approximately 50 miles northwest of Wilmington and 80
miles northwest of Myrtle Beach. Bladen County has a population of 33,000 as of 2004 and has per capita income of $14,735 in 1999.

The principle
components of the economy are manufacturing, agriculture and tourism. Manufacturing employment is concentrated in the wood products and textile industries. The primary agriculture products are tobacco and hogs.

Competition

The primary business activity of the Company is
commercial banking. This activity is conducted by the Bank which is the wholly-owned subsidiary of the Company.

Banking is a highly competitive industry.
The principal areas and methods of competition in the banking industry are the services that are offered, the pricing of those services, the convenience and availability of the services and the degree of expertise and personal manner with which
those services are offered. The Bank encounters strong competition from other commercial banks, including the largest North Carolina banks, operating in the Banks market area. There are 13 offices of 4 other commercial banks operating in
Columbus County, 36 offices of 9 other commercial banks operating in Brunswick County, 66 offices of 14 other commercial banks operating in New Hanover County, and 8 offices of 6 other commercial banks operating in Bladen County. In the conduct of
certain aspects of its business, the Bank also competes with credit unions, money market mutual funds, and other non-bank



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financial institutions, some of which are not subject to the same degree of regulation as the Bank. Many of these
competitors have substantially greater resources and lending abilities than the Company and offer certain services, such as investment banking, trust, interstate and international banking services, that the Company cannot or will not provide.

Supervision and Regulation

The Company and the Bank
are subject to state and federal banking laws and regulations. These impose specific requirements and restrictions and provide for general regulatory oversight with respect to virtually all aspects of operations. These laws and regulations are
generally intended to protect depositors, not Stockholders. To the extent that the following summary describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions.
Any change in applicable laws or regulations may have a material effect on the business and prospects of the Company. Beginning with the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and
following with the Federal Deposit Insurance Corporation Improvement Act (FDICIA), enacted in 1991, numerous additional regulatory requirements have been placed on the banking industry in the past five years, and additional changes have
been proposed. The operations of the Company and the Bank may be affected by legislative changes and the policies of various regulatory authorities. The Company is unable to predict the nature or the extent of the effect on its business and earnings
that fiscal or monetary policies, economic control, or new federal or state legislation may have in the future.

Federal Bank Holding Company Regulation
(Financial Holding Company Regulations)

The Company is a financial holding company within the meaning of the Gramm-Leach-Bliley Act of 1999 (the
GLB Act). Under the GLB Act, which became effective on March 11, 2000, the types of activities in which a bank holding company may engage were significantly expanded. Subject to various limitations, the GLB Act generally permits a
bank holding company to elect to become a financial holding company. A financial holding company may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. Among
the activities that are deemed financial in nature are, in addition to traditional lending activities, securities underwriting, dealing in or making a market in securities, sponsoring mutual funds and investment companies, insurance
underwriting and agency activities, certain merchant banking activities and activities that the Federal Reserve considers to be closely related to banking.

A bank holding company may become a financial holding company under the GLB Act if each of its subsidiary banks is well capitalized under the Federal Deposit Insurance Corporation Improvement Act prompt corrective action
provisions, is well managed and has at least a satisfactory rating under the Community Reinvestment Act. In addition, the bank holding company must file a declaration with the Federal Reserve if it falls out of compliance with these requirements and
may be required to cease engaging in some of its activities.

Under the GLB Act, the Federal Reserve serves as the primary umbrella regulator
of financial holding companies, with supervisory authority over each parent company and limited authority over its subsidiaries. Expanded financial activities of financial holding companies generally will be regulated according to the type of such
financial activity, banking activities by banking regulators, securities activities by securities regulators and insurance activities by insurance regulators. The GLB Act also imposes additional restrictions and heightened disclosure requirements
regarding information collected by financial institutions.

The Company is also still subject to the Bank Holding Company Act (the BHCA). Under
the BHCA, the Company is subject to periodic examination by the Federal Reserve and is required to file periodic reports of its operations and such other information as the Federal Reserve may require.

Investments, Control, and Activities. With certain limited exceptions, the BHCA requires every holding company to obtain the prior approval of the Federal Reserve before
(i) acquiring substantially all the assets of any bank, (ii) acquiring direct or indirect ownership or control of any voting shares of any bank if after such an acquisition it would own or control more than 5% of the voting shares of such
bank (unless it already owns or controls the majority of such shares), or (iii) merging or consolidating with another holding company.

In addition,
and subject to certain exceptions, the BHCA and the Change in Bank Control Act, together with regulations thereunder, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior to any person or company
acquiring control of a holding company, such as the Company.



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Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting
securities of the holding company. In the case of the Company, under Federal Reserve regulations control will be rebuttably presumed to exist if a person acquires at least 10% of the outstanding shares of any class of voting securities.

Source of Strength; Cross-Guarantee. In accordance with Federal Reserve policy, the Company is expected to act as a source of financial strength to the Bank and to
commit resources to support the Bank in circumstances in which the Company might not otherwise do so. Under the BHCA, the Federal Reserve may require a holding company to terminate any activity or relinquish control of a nonbank subsidiary (other
than a nonbank subsidiary of a bank) upon the Federal Reserves determination that such activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company.
Further, federal bank regulatory authorities have additional discretion to require a holding company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture may aid the depository institutions financial
condition. The Bank may be required to indemnify, or cross-guarantee, the FDIC against losses it incurs with respect to any other bank which the Company controls, which in effect makes the Companys equity investments in healthy bank
subsidiaries available to the FDIC to assist any failing or failed bank subsidiary of the Company. The Bank is the only bank currently controlled by the Company.

The Bank

The Company is the holding company for the Bank, which is a North Carolina banking corporation. Substantially all Company revenues
are earned through the operations of the Bank. The Bank is subject to examination and supervision by the Federal Reserve and the North Carolina Commissioner of Banks (the Commissioner). The Federal Reserve monitors the Banks
compliance with several federal statutes such as the Community Reinvestment Act of 1977 and the Interlocks Act. The Federal Reserve has broad enforcement authority to prevent the continuance or development of unsafe and unsound banking practices,
including the issuance of cease and desist orders and the removal of officers and directors. The Federal Reserve must approve the establishment of branch offices, conversions, mergers, assumptions of deposit liabilities between insured and uninsured
institutions, and the acquisition or establishment of certain subsidiary corporations. The Federal Reserve can prevent capital or surplus diminution in such transactions where the deposit accounts of the resulting, continuing or assuring bank are
federally insured.

The Bank is subject to capital requirements and limits on activities established by the Federal Reserve. Under the capital regulations,
the Bank generally is required to maintain Tier 1 risk-based capital, in such terms as defined therein, of 4.0% and total risk-based capital of 8.0%. In addition, the Bank is required to provide a minimum leverage ratio Tier 1 capital to adjusted
average quarterly assets (leverage ratio) equal to 3.0%, plus an additional cushion of one to two percent if the Bank has less than the highest regulatory rating. The Bank is not permitted to engage in any activity not permitted for a national bank
unless (i) it is in compliance with its capital requirement and (ii) the FDIC determines that the activity would not pose a risk to the deposit insurance fund. With certain exceptions, the Bank also is not permitted to acquire equity
investments of a type, or in an amount, not permitted for a national bank.

Federal banking law requires the federal banking agencies to take prompt
corrective action in respect of insured depository institutions that do not meet minimum capital requirements. There are five tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized, as defined by regulations promulgated by the FDIC and the other federal depository institution regulatory agencies. A depository institution is well capitalized
if it significantly exceeds the minimum level required by regulation for each relevant capital measure, adequately capitalized if it meets each such measure, undercapitalized if it fails to meet any such measure, significantly undercapitalized if it
is below such measures, and critically undercapitalized if it fails to meet any critical capital level set forth in the regulations. The critical capital level must be a level of tangible equity capital equal to not more than 65.0% of the minimum
leverage ratio prescribed by regulation. A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating.

The Bank is required to pay deposit insurance assessments set by the FDIC. Under the current assessment rate schedule, the Bank assessment will range from no assessment
to .27% of the Banks average deposit base, with the exact assessment determined by the Banks capital and the FDICs supervisory opinion of the Banks operations. Only the strongest banks are not required to pay an assessment.
The insurance assessments rate may change periodically. Changes in the assessment rate may have a material effect on the Banks operating results. The FDIC has the authority to terminate deposit insurance.



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The earnings of the Bank are affected significantly by the policies of the Federal Reserve Board, a federal agency which
regulates the money supply in order to mitigate recessionary and inflationary pressures. Among the techniques used to implement these objectives are open market transactions in United States government securities, changes in the rate paid by banks
on bank borrowings, and changes in reserve requirement against bank deposits. These techniques are used in varying combinations to influence overall growth and distribution of bank loans, investments, and deposits, and their use may also affect
interest rates charged on loans or paid on deposits.

The monetary policies of the Federal Reserve Board have had a significant effect on the operating
results of commercial banks in the past and are expected to continue to do so in the future. In view of changing conditions in the national economy and money markets, as well as the effect of actions by monetary and fiscal authorities, no prediction
can be made as to possible future changes in interest rates, deposit levels, loan demand or the business and earnings of the Bank.

The Bank is chartered
by the State of North Carolina and is subject to extensive supervision and regulation by the Commissioner. The Commissioner enforces state laws that set specific requirements for bank capital, the payment of dividends, loans to officers and
directors, record keeping, and types and amounts of loans and investments made by commercial banks. Among other things, the approval of the Commissioner is generally required before a North Carolina chartered commercial bank may establish branch
offices. North Carolina banking law requires that any merger, liquidation or sale of substantially all of the assets of the Bank must be approved by the Commissioner and the holders of two-thirds of the Banks outstanding common stock.

Pursuant to North Carolina banking laws, no person may directly or indirectly purchase or acquire voting stock of the Bank which would result in the
change of control of the Bank unless the Commissioner has approved the acquisition. A person will be deemed to have acquired control of the Bank if that person directly or indirectly (i) owns, controls or has power to vote 10% or
more of the voting stock of the Bank, or (ii) otherwise possesses the power to direct or cause the direction of the management and policy of the Bank.

In its lending activities, the Bank is subject to North Carolina usury laws which generally limit or restrict the rates of interest, fees and charges and other terms and conditions in connection with various types of loans.

North Carolina banking law requires that bank holding companies register with the Commissioner. The Commissioner must also approve any acquisition of control of a
state-chartered bank by a bank holding company.

In 1994, Congress adopted new legislation which generally permits an adequately capitalized and managed
bank holding company to acquire control of a bank in any state, subject to certain state law requirements. North Carolina banking law has been amended to authorize banking organizations in any state to acquire North Carolina banking institutions on
a reciprocal basis. North Carolina banking law authorizes North Carolina banks to establish branches in other states and permits out-of-state banks to establish branches in North Carolina on a reciprocal basis. The overall effect of this legislation
will increase competition in the banking industry in North Carolina, however, the State of South Carolina does not allow North Carolina chartered banks to establish branches in South Carolina. As a result, North Carolina chartered banks may only
establish offices within the State of South Carolina through acquisitions of existing South Carolina institutions effected in compliance with South Carolina banking law.

Material Customers

Deposits are derived from a broad base of customers in the Companys trade area. No material
portion of deposits have been obtained from a single person or a group of persons, with the exception of the Town of Holden Beach, North Carolina and the Columbus County School Board. Deposits from these two customers accounted for, on average, 2.2%
of the Banks total deposits during 2005. In addition, most securities sold under agreements to repurchase ($3.6 million average during 2005) were held by these two customers. Management does not believe the loss of any one customer would have
a material adverse effect on the business of the Company.

The majority of loans and commitments to extend credit have been granted to customers in the
Companys market area. The majority of such customers are depositors. The Bank generally does not extend credit to any single borrower or group of related borrowers in excess of approximately $4.6 million.



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Rights

No patents, trademarks, licenses, franchises or concessions held are of material significance to the Company.

Environmental Laws

Compliance with Federal, State, or Local provisions regulating the discharge of materials into the environment has not
had, nor is it expected to have in the future, a material effect upon the Companys capital expenditures, earnings or competitive position.

Employees

The Company had no compensated employees. The Bank presently has 85 full-time equivalent employees consisting of 79 full-time
employees and 12 part-time employees.

Pending Business Combination

On December 19, 2005, the Company entered into an Agreement and Plan of Reorganization and Merger (the Agreement) with Bank of Heath Springs (Heath Springs),
a South Carolina chartered bank headquartered in Heath Springs, South Carolina. Under the terms of the Agreement, Heath Springs will be merged with and into Waccamaw Bank. Shareholders of Heath Springs as of the close
of the merger will be entitled to receive cash in the aggregate amount of $8 million. As of December 31, 2005, Heath Springs had total assets of $19.8 million, total loans of $5.6 million and total deposits of $14.2
million (all amounts are unaudited). The acquisition is currently expected to be completed during the second quarter of 2006.



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ITEM 1A  RISK FACTORS

An investment in the registrants common stock involves a number of risks. We urge you
to read all of the information contained in this annual report on Form 10-K. In addition, we urge you to consider carefully the following factors before you invest in shares of the registrants common stock.

Risks Associated with our Merger Agreement with Bank of Heath Springs

We can give no assurances as to when, or if, our pending acquisition of the Bank of Heath Springs will be consummated.

We are party to an Agreement and Plan of Reorganization and Merger with the Bank of Heath Springs, Heath Springs, South Carolina dated December 19, 2005. Our acquisition of the Bank of Heath Springs is subject to
regulatory approval of the North Carolina Banking Commission, South Carolina Board of Financial Institutions, the Federal Reserve Board and also subject to the approval by the shareholders Bank of Heath Springs. Accordingly, we are unable to predict
when, or if, the acquisition will be consummated. If we cannot effect the acquisition of Bank of Heath Springs and its immediate merger with and into our subsidiary, Waccamaw Bank, we may be forced to alter our long-range business plans at
significant expense.

The merger may have an adverse effect on operating results

Our proposed acquisition of Bank of Heath Springs and the subsequent merger of Bank of Heath Springs with and into Waccamaw Bank involves the combination
of two companies that have previously operated independently. A successful combination of the companies operations will depend on numerous factors, some of which may be out of our control. Difficulties may be encountered in combining the
operations of Bank of Heath Springs and the registrant, including:



| |  |  | the loss of key employees and customers;
| | - |  | ----------------------------------------



| |  |  | disruptions to our businesses;
| | - |  | ------------------------------



| |  |  | possible inconsistencies in standards, control procedures and policies;
| | - |  | -----------------------------------------------------------------------



| |  |  | unexpected problems with costs, operations, personnel, technology or credit;
| | - |  | ----------------------------------------------------------------------------



| |  |  | the assimilation of new operations, sites and personnel possibly diverting resources from regular banking operations;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties assimilating acquired operations and personnel;
| | - |  | ------------------------------------------------------------



| |  |  | potential disruptions of our ongoing business;
| | - |  | ----------------------------------------------



| |  |  | the diversion of resources and management time;
| | - |  | -----------------------------------------------



| |  |  | the possibility that uniform standards, controls, procedures and policies may not be maintained;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | the potential impairment of relationships with employees or customers as a result of changes in management;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | difficulties in evaluating the historical or future financial performance of the combined business; and
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | brand awareness issues related to the acquired assets or customers.
| | - |  | -------------------------------------------------------------------

Further, we may be unable to realize fully any of the potential cost savings we expect to achieve in the merger. Any cost savings that are realized may be offset by losses in revenues, increases in expenses or other changes to earnings or
required accounting treatments or valuations of the registrants assets and liabilities.



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Risks Associated with our Continued Operations

We may not be able to maintain and manage our growth, which may adversely affect our results of operations and financial condition and the value of our common stock.

Our strategy has been to increase the size of our company by opening new offices, acquiring other banks and by pursuing business development
opportunities. We have grown rapidly since we commenced operations. We can provide no assurance that we will continue to be successful in increasing the volume of loans and deposits at acceptable risk levels and upon acceptable terms while managing
the costs and implementation risks associated with our growth strategy. There can be no assurance that our further expansion will be profitable or that we will continue to be able to sustain our historical rate of growth, either through internal
growth or through successful expansion of our markets, or that we will be able to maintain capital sufficient to support our continued growth. If we grow too quickly, however, and are not able to control costs and maintain asset quality, rapid
growth also could adversely affect our financial performance.

Changes in interest rates affect our interest margins, which can adversely affect our
profitability.

We may not be able to effectively manage changes in interest rates that affect what we charge as interest on our earning assets and the
expense we must pay on interest-bearing liabilities, which may significantly reduce our earnings. Fluctuations in interest rates are not predictable or controllable and, therefore, there can be no assurances of our ability to continue to maintain a
consistent positive spread between the interest earned on our earning assets and the interest paid on our interest-bearing liabilities.

Our
profitability depends significantly on economic conditions in our market area.

Our success depends to a large degree on the general economic conditions
in our market areas. The local economic conditions in these areas have a significant impact on the amount of loans that we make to our borrowers, the ability of our borrowers to repay these loans and the value of the collateral securing these loans.
A significant decline in general economic conditions caused by inflation, recession, unemployment or other factors beyond our control would impact these local economic conditions and could negatively affect our financial condition and performance.

If we lose key employees with significant business contacts in our market area, our business may suffer.

Our success is largely dependent on the personal contacts of our officers and employees in our market area. If we lose key employees temporarily or permanently, our
business could be hurt. We could be particularly hurt if our key employees went to work for our competitors. Our future success depends on the continued contributions of our existing senior management personnel.

If we experience greater loan losses than anticipated, it will have an adverse effect on our net income.

While the risk of nonpayment of loans is inherent in banking, if we experience greater nonpayment levels than we anticipate, our earnings and overall financial condition,
as well as the value of our common stock, could be adversely affected.

We cannot assure you that our monitoring procedures and policies will reduce
certain lending risks or that our allowance for loan losses will be adequate to cover actual losses. In addition, as a result of the rapid growth in our loan portfolio, loan losses may be greater than managements estimates. Loan losses can
cause insolvency and failure of a financial institution and, in such an event, our Stockholders could lose their entire investment. In addition, future provisions for loan losses could materially and adversely affect our profitability. Any loan
losses will reduce the loan loss allowance. A reduction in the loan loss allowance will be restored by an increase in our provision for loan losses. This would reduce our earnings, which could have an adverse effect on our stock price.



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In order to be profitable, we must compete successfully with other financial institutions which have greater resources
and capabilities than we do.

The banking business in North Carolina in general is extremely competitive. Most of our competitors are larger and have
greater resources than we do and have been in existence a longer period of time. We must overcome historical bank-customer relationships to attract customers away from our competition. We compete with the following types of institutions:



| |  |  | other commercial banks
| | - |  | ----------------------



| |  |  | savings banks
| | - |  | -------------



| |  |  | thrifts
| | - |  | -------



| |  |  | credit unions
| | - |  | -------------



| |  |  | consumer finance companies
| | - |  | --------------------------



| |  |  | securities brokerage firms
| | - |  | --------------------------



| |  |  | mortgage brokers
| | - |  | ----------------



| |  |  | insurance companies
| | - |  | -------------------



| |  |  | mutual funds
| | - |  | ------------



| |  |  | trust companies
| | - |  | ---------------

Some of our competitors are not regulated as extensively
as we are and, therefore, may have greater flexibility in competing for business. Some of these competitors are subject to similar regulation but have the advantages of larger established customer bases, higher lending limits, extensive branch
networks, numerous automated teller machines, greater advertising-marketing budgets or other factors.

Our legal lending limit is determined by law. The
size of the loans which we offer to our customers may be less than the size of the loans that larger competitors are able to offer. This limit may affect to some degree our success in establishing relationships with the larger businesses in our
market.

New or acquired branch facilities and other facilities may not be profitable.

We may not be able to correctly identify profitable locations for new branches and the costs to start up new branch facilities or to acquire existing branches, and the additional costs to operate these facilities, may
increase our noninterest expense and decrease earnings in the short term. If other banks or branches of other banks become available for sale, we may acquire them. It may be difficult to adequately and profitably manage our growth through the
establishment of these branches. In addition, we can provide no assurance that these branch sites will successfully attract enough deposits to offset the expenses of operating these branch sites. Any new or acquired branches will be subject to
regulatory approval, and there can be no assurance that we will succeed in securing such approvals.

Government regulations may prevent or impair our
ability to pay dividends, engage in additional acquisitions, or operate in other ways.

Current and future legislation and the policies established by
federal and state regulatory authorities will affect our operations. We are subject to supervision and periodic examination by the Federal Reserve Board and the North Carolina Commissioner of Banks. Our principal subsidiary, Waccamaw Bank, as a
state chartered member bank, also receives regulatory scrutiny from the North Carolina Commissioner of Banks and the Federal Reserve. Banking regulations are designed primarily for the protection of depositors rather than stockholders, and they may
limit our growth and the return to you as an investor by restricting its activities, such as:



| |  |  | the payment of dividends to stockholders;
| | - |  | -----------------------------------------



| |  |  | possible transactions with or acquisitions by other institutions;
| | - |  | -----------------------------------------------------------------



| |  |  | desired investments;
| | - |  | --------------------



| |  |  | loans and interest rates;
| | - |  | -------------------------



| |  |  | interest rates paid on deposits;
| | - |  | --------------------------------



| |  |  | the possible expansion of branch offices; and
| | - |  | ---------------------------------------------



| |  |  | the ability to provide securities or trust services.
| | - |  | ----------------------------------------------------

We are registered
with the Federal Reserve Board as a bank holding company. We cannot predict what changes, if any, will be made to existing federal and state legislation and regulations or the effect that such changes may have on our business. The cost of compliance
with regulatory requirements may adversely affect our ability to operate profitably.



10



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##### Table of Contents

Our stock trading volume has been low compared with larger bank holding companies.

The trading volume in our common stock on the Nasdaq Capital Market has been comparable to other similarly sized bank holding companies since trading on the Capital
Market began. Nevertheless, this trading volume does not compare with more seasoned companies listed on other stock exchanges. Thus, the market in our common stock is somewhat limited in scope relative to some other companies. In addition, we can
provide no assurance that a more active and liquid trading market for our stock will develop in the future.

Our articles of incorporation include
anti-takeover provisions that may prevent Stockholders from receiving a premium for their shares or effecting a transaction favored by a majority of Stockholders.

Our articles of incorporation include anti-takeover provisions, including a supermajority vote requirement for a merger under certain circumstances as well as a provision allowing our Board of Directors to consider
the social and economic effects of a proposed merger. Such provisions may have the effect of preventing Stockholders from receiving a premium for their shares of common stock and discouraging a change of control by allowing management to prevent a
transaction favored by a majority of the Stockholders.

Our securities are not FDIC insured.

Our common stock is not a savings or deposit account or other obligation of the Bank, and is not insured by the Federal Deposit Insurance Corporation or any other
governmental agency and is subject to investment risk, including the possible loss of principal.

ITEM 1B  UNRESOLVED STAFF COMMENTS

Not applicable



11



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##### Table of Contents

ITEM 2 - PROPERTIES

The Company purchased a 2.44 acre tract of real estate for $233,318 from a Company director to be used
as a construction site for a banking facility. This transaction was effected at arms length and management believes that the purchase price was at or below fair market value. The construction was completed in April of 2001 at a cost of $1.8
million. The two story building has approximately 12,000 finished square feet. In addition to the tellers inside the building, the Bank utilizes 3 drive-up lanes and an ATM to service the needs of customers.

The Bank has two additional branches in Columbus County located at 105 Hickman Road, Tabor City, North Carolina and 111 Strawberry Boulevard, Chadbourn, North Carolina.
The Tabor City Branch is located in a 3,800 square foot building that includes two drive-up lanes and an ATM. The property is leased for $33,474 per year. The lease was assumed from the prior tenant and expires in 2008. The Bank has the option to
extend the lease for four additional five year terms.

The Chadbourn branch is a one-story brick building with approximately 2,500 square feet of floor
space that was leased following a Centura branch acquisition. The Bank has a five year lease with the option to renew for five additional terms of five years each. The branch also has drive-up facilities. In addition, on January 2, 1999 the
Bank purchased on a 1.7 acre tract in Chadbourn for $50,000 for future expansion.

The Bank has three branches located in Brunswick County, one in
Shallotte, North Carolina, one in Holden Beach, North Carolina and the last in Southport, North Carolina. The Shallotte branch is housed in a 2,521 square foot facility that includes two drive-up lanes and an ATM. The building is leased for a term
of ten years beginning on February 1, 2000. The Bank has the option to renew the lease for three additional terms of five years.

The Holden Beach
branch is housed in a 1,200 square foot facility that includes one drive-up lane and an ATM. The building is leased for a term of five years beginning on October 10, 2000. The Bank has the option to renew the lease for five additional terms of
five years.

The Southport branch is housed in a 1,860 square foot facility. The land and building are leased for a term of five years beginning on
March 1, 2005.

The Elizabethtown branch is housed in a 2,016 square foot facility. The land is leased for a term of five years beginning on
November 7, 2005.

The Kerr Avenue branch in Wilmington is housed in a 3,000 square foot facility that includes two drive-up lanes and an ATM. The
building is leased for a term of five years beginning on August 1, 2004. The Bank has a five year lease with the option to renew for five additional terms of five years.

ITEM 3  LEGAL PROCEEDINGS

The Company is not party to, nor is any of its property the subject of, any material
pending legal proceeding incidental to the business of the Company or the Bank.

ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this report.



12



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##### Table of Contents

PART II

ITEM 5  MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Companys articles of incorporation authorize it to issue up to 25,000,000 shares of common stock, no par value, of which 4,589,143 shares were issued and outstanding as of March 20, 2006. The stock is listed on the NASDAQ
Capital Market under the symbol WBNK

The approximate number of holders of the Companys shares of common stock as of March 20, 2006
is 1,900. There are no issued or outstanding shares of the Companys preferred stock as of March 20, 2006.

The Board of Directors anticipates
that all or substantially all of the Companys earnings in the foreseeable future will be required for use in the development of the Companys business. The payment of future cash dividends will be determined by the Board of Directors and
is dependent upon the receipt of dividends from the Bank. To date, the Company has not paid any cash dividends.

The availability of dividends from the
Bank is dependant on the Banks earnings, financial condition, business projections, and other pertinent factors. In addition, North Carolina banking law will prohibit the payment of cash dividends if the banks surplus is less than 50% of
its paid-in capital. Also, under federal banking law, no cash dividend may be paid if the Bank is undercapitalized, or insolvent or if payment of the cash dividend would render the Bank undercapitalized or insolvent, and no cash dividend may be paid
by the Bank if it is in default of any deposit insurance assessment due to the FDIC.

Set forth below are the approximate high and low (bid
quotations/sales price), known to the management of the Bank, for each quarter in the last three fiscal years. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commissions and may not represent actual transactions.



|               |  |      |       |      |   |       |  |     |       |      |   |       |  |   |       |  |   |     
|-------------- |  | ---- | ----- | ---- | - | ----- |  | --- | ----- | ---- | - | ----- |  | - | ----- |  | - | ----
|               |  | 2005 |       | 2004 |   | 2003 
|               |  | High |       | Low  |   | High  |  | Low |       | High |   | Low  
|First Quarter  |  | $    | 19.25 |      | $ | 17.25 |  | $   | 12.08 |      | $ | 10.83 |  | $ | 6.94  |  | $ | 6.25
|Second Quarter |  |      | 18.75 |      |   | 17.50 |  |     | 15.00 |      |   | 11.00 |  |   | 8.68  |  |   | 7.29
|Third Quarter  |  |      | 20.75 |      |   | 18.00 |  |     | 22.25 |      |   | 14.90 |  |   | 10.21 |  |   | 6.94
|Fourth Quarter |  |      | 19.55 |      |   | 17.50 |  |     | 27.15 |      |   | 17.99 |  |   | 12.08 |  |   | 9.99

See Item 12 of this report for disclosure regarding securities authorized for issuance and equity
compensation plans required by Item 201(d) of Regulation S-K.



13



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##### Table of Contents

ITEM 6  SELECTED FINANCIAL DATA



|                                                    |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------------- |  | ----------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                    |  | 2005                                      |         |   | 2004 |   |         | 2003 |  |   | 2002    |   |  | 2001 |        
|                                                    |  | (thousands, except share data and ratios) |        
|Summary of Operations:                              |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Interest income                                     |  | $                                         | 18,228  |   |      | $ | 11,450  |      |  | $ | 9,957   |   |  | $    | 9,594   |   |  | $ | 8,789   |  
|Interest expense                                    |  |                                           | 7,536   |   |      |   | 3,766   |      |  |   | 3,627   |   |  |      | 3,978   |   |  |   | 4,518   |  
|                                                    |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net interest income                                 |  |                                           | 10,692  |   |      |   | 7,684   |      |  |   | 6,330   |   |  |      | 5,616   |   |  |   | 4,271   |  
|Provision for credit losses                         |  |                                           | 1,370   |   |      |   | 819     |      |  |   | 730     |   |  |      | 794     |   |  |   | 612     |  
|                                                    |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net interest income after provision for loan losses |  |                                           | 9,322   |   |      |   | 6,865   |      |  |   | 5,600   |   |  |      | 4,822   |   |  |   | 3,659   |  
|Total non-interest income                           |  |                                           | 2,269   |   |      |   | 2,445   |      |  |   | 2,053   |   |  |      | 1,370   |   |  |   | 1,243   |  
|Total non-interest expense                          |  |                                           | 6,967   |   |      |   | 5,687   |      |  |   | 4,436   |   |  |      | 3,893   |   |  |   | 3,890   |  
|                                                    |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income before income taxes                          |  |                                           | 4,624   |   |      |   | 3,623   |      |  |   | 3,217   |   |  |      | 2,299   |   |  |   | 1,012   |  
|Income tax (expense) benefit                        |  |                                           | (1,589  | ) |      |   | (1,209  | )    |  |   | (1,210  | ) |  |      | (740    | ) |  |   | 12      |  
|                                                    |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income                                          |  | $                                         | 3,035   |   |      | $ | 2,414   |      |  | $ | 2,007   |   |  | $    | 1,559   |   |  | $ | 1,024   |  
|                                                    |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Per Common Share Data: 1                            |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Basic earnings per share                            |  | $                                         | .67     |   |      | $ | .54     |      |  | $ | .45     |   |  | $    | .36     |   |  | $ | .24     |  
|Diluted earnings per share                          |  |                                           | .64     |   |      |   | .52     |      |  |   | .43     |   |  |      | .34     |   |  |   | .23     |  
|Market Price                                        |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|High                                                |  |                                           | 20.75   |   |      |   | 27.15   |      |  |   | 12.08   |   |  |      | 6.25    |   |  |   | 4.63    |  
|Low                                                 |  |                                           | 17.25   |   |      |   | 10.83   |      |  |   | 6.25    |   |  |      | 4.63    |   |  |   | 4.63    |  
|Close                                               |  |                                           | 17.75   |   |      |   | 18.00   |      |  |   | 11.35   |   |  |      | 6.25    |   |  |   | 4.63    |  
|Book value                                          |  |                                           | 4.93    |   |      |   | 4.39    |      |  |   | 3.80    |   |  |      | 3.32    |   |  |   | 2.97    |  
|                                                    |  |                                           |         |   |     
|Selected Average Balances:                          |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total assets                                        |  | $                                         | 302,381 |   |      | $ | 217,035 |      |  | $ | 177,563 |   |  | $    | 152,559 |   |  | $ | 120,646 |  
|Loans, net                                          |  |                                           | 238,579 |   |      |   | 168,757 |      |  |   | 137,403 |   |  |      | 114,823 |   |  |   | 84,209  |  
|Securities                                          |  |                                           | 31,257  |   |      |   | 29,068  |      |  |   | 19,663  |   |  |      | 18,309  |   |  |   | 18,577  |  
|Interest-earning assets                             |  |                                           | 284,320 |   |      |   | 200,982 |      |  |   | 165,847 |   |  |      | 141,980 |   |  |   | 112,054 |  
|Deposits                                            |  |                                           | 252,994 |   |      |   | 169,162 |      |  |   | 147,663 |   |  |      | 125,725 |   |  |   | 100,220 |  
|Interest-bearing liabilities                        |  |                                           | 256,492 |   |      |   | 179,696 |      |  |   | 146,438 |   |  |      | 123,873 |   |  |   | 96,401  |  
|Shareholders equity                                |  |                                           | 20,254  |   |      |   | 17,941  |      |  |   | 15,633  |   |  |      | 13,611  |   |  |   | 12,247  |  
|                                                    |  |                                           |         |   |     
|Selected Year-End Balance Sheet Data:               |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total assets                                        |  | $                                         | 322,792 |   |      | $ | 258,412 |      |  | $ | 193,207 |   |  | $    | 161,315 |   |  | $ | 132,060 |  
|Loans, net                                          |  |                                           | 257,575 |   |      |   | 206,666 |      |  |   | 142,342 |   |  |      | 125,669 |   |  |   | 100,935 |  
|Securities                                          |  |                                           | 35,214  |   |      |   | 30,232  |      |  |   | 24,053  |   |  |      | 20,696  |   |  |   | 16,303  |  
|Interest-earning assets                             |  |                                           | 306,987 |   |      |   | 247,432 |      |  |   | 181,648 |   |  |      | 149,650 |   |  |   | 122,041 |  
|Deposits                                            |  |                                           | 271,035 |   |      |   | 207,642 |      |  |   | 154,796 |   |  |      | 130,723 |   |  |   | 111,266 |  
|Interest-bearing liabilities                        |  |                                           | 273,171 |   |      |   | 218,592 |      |  |   | 158,828 |   |  |      | 132,202 |   |  |   | 104,857 |  
|Shareholders equity                                |  |                                           | 22,499  |   |      |   | 19,899  |      |  |   | 16,963  |   |  |      | 14,594  |   |  |   | 12,852  |  
|                                                    |  |                                           |         |   |     
|Selected Performance Ratios:                        |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Return on average assets                            |  |                                           | 1.00    | % |      |   | 1.11    | %    |  |   | 1.13    | % |  |      | 1.02    | % |  |   | 0.85    | %
|Return on average equity                            |  |                                           | 14.98   | % |      |   | 13.46   | %    |  |   | 12.84   | % |  |      | 11.46   | % |  |   | 8.36    | %
|Net interest margin                                 |  |                                           | 3.76    | % |      |   | 3.82    | %    |  |   | 3.82    | % |  |      | 3.96    | % |  |   | 3.81    | %
|                                                    |  |                                           |         |   |     
|Asset Quality Ratios:                               |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Nonperforming loans to period-end loans             |  |                                           | .80     | % |      |   | 1.16    | %    |  |   | .93     | % |  |      | 1.65    | % |  |   | .04     | %
|Allowance for loan losses to period-end loans       |  |                                           | 1.50    | % |      |   | 1.33    | %    |  |   | 1.53    | % |  |      | 1.45    | % |  |   | 1.39    | %
|Net loan charge-offs to average loans               |  |                                           | .09     | % |      |   | 0.15    | %    |  |   | 0.27    | % |  |      | 0.32    | % |  |   | 0.20    | %
|                                                    |  |                                           |         |   |     
|Capital Ratios:                                     |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total risk-based capital                            |  |                                           | 12.36   | % |      |   | 13.64   | %    |  |   | 14.24   | % |  |      | 11.22   | % |  |   | 11.76   | %
|Tier 1 risk-based capital                           |  |                                           | 11.11   | % |      |   | 10.53   | %    |  |   | 12.91   | % |  |      | 9.97    | % |  |   | 10.51   | %
|Leverage ratio                                      |  |                                           | 9.37    | % |      |   | 9.44    | %    |  |   | 10.47   | % |  |      | 8.05    | % |  |   | 8.49    | %
|Equity to assets ratio                              |  |                                           | 6.97    | % |      |   | 7.70    | %    |  |   | 8.78    | % |  |      | 9.04    | % |  |   | 9.73    | %
|                                                    |  |                                           |         |   |     
|Capital Ratios:                                     |  |                                           |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Number of banking offices                           |  |                                           | 8       |   |      |   | 6       |      |  |   | 5       |   |  |      | 5       |   |  |   | 5       |  
|Number of full time equivalent employees            |  |                                           | 85      |   |      |   | 73      |      |  |   | 58      |   |  |      | 55      |   |  |   | 53      |  

---

|1 | Adjusted for the effects of 6 for 5 stock splits in 2001, 2003 and 2004 and 2 for 1 stock
split in 2004.
|- | --------------------------------------------------------------------------------------------------------



14



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##### Table of Contents

ITEM 7 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The information
required by this item is incorporated by reference to the Companys 2005 annual report to stockholders.

ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys profitability is dependent
to a large extent upon its net interest income, which is the difference between its interest income on interest-bearing assets, such as loans and investments, and its interest expense on interest-bearing liabilities, such as deposits and borrowings.
The Companys primary market risk is interest rate risk, which is the result of differing maturities or repricing intervals of interest-earning assets and interest-bearing liabilities with the goals of minimizing interest rate fluctuations in
its net interest income. The Company does not maintain a trading account, nor is it subject to currency exchange risk or commodity price risk.

The
Companys Asset/Liability Committee (ALCO) meets on a monthly basis in order to assess interest rate risk, liquidity, capital and overall balance sheet management through rate shock analysis measuring various interest rate scenarios
over the future 12 months. Through ALCO, the Company is able to determine fluctuations to net interest income from changes in the Prime Rate of up to 300 basis points up or down during a 12-month period. ALCO also reviews policies and procedures
related to funds management and interest rate risk based on local, national and global economic conditions along with funding strategies and balance sheet management to minimize the potential impact of earnings and liquidity from interest rate
movements.

The following table presents information about the contractual maturities, average interest rates and estimated fair values of the
Companys financial instruments that are considered market risk sensitive.

Expected Maturities of Market Sensitive Instruments Held
at December 31, 2005

($ in thousands)



|                                          |  |           |         |            |         |             |   |               |  |              |        |                       |   |         |            |      |   |  |   |        
|----------------------------------------- |  | --------- | ------- | ---------- | ------- | ----------- | - | ------------- |  | ------------ | ------ | --------------------- | - | ------- | ---------- | ---- | - |  | - | -------
|                                          |  | 1-3Months |         | 4-12Months |         | 13-60Months |   | Over 60Months |  | AverageTotal |        | EstimatedInterestRate |   |         | Fair Value
|Earning Assets:                           |  |           |         |            |         |             |   |               |  |              |        |                       |   |         |            |      |   |  |   |        
|Loans                                     |  | $         | 159,315 |            | 12,910  |             | $ | 62,049        |  |              | 27,631 |                       | $ | 261,905 |            | 6.84 | % |  | $ | 256,445
|Investments                               |  |           | 278     |            |        |             |   | 2,232         |  |              | 32,704 |                       |   | 35,214  |            | 4.59 | % |  |   | 35,214 
|Federal funds sold                        |  |           | 8,281   |            |        |             |   |              |  |              |       |                       |   | 8,281   |            | 3.21 | % |  |   | 8,281  
|Deposits with banks                       |  |           | 708     |            |        |             |   |              |  |              |       |                       |   | 708     |            | 3.03 | % |  |   | 708    
|                                          |  |           |         |            |         |             |   |               |  |              |        |                       |   |         |            |      |   |  |   |        
|Total                                     |  |           | 168,582 |            | 12,910  |             |   | 64,281        |  |              | 60,335 |                       |   | 306,108 |            | 6.41 | % |  |   | 300,648
|                                          |  |           |         |            |         |             |  
|Interest-bearing liabilities:             |  |           |         |            |         |             |   |               |  |              |        |                       |   |         |            |      |   |  |   |        
|Demand accounts                           |  |           | 20,062  |            |        |             |   |              |  |              |       |                       |   | 20,062  |            | .73  | % |  |   | 20,062 
|Savings and money market                  |  |           | 62,067  |            |        |             |   |              |  |              |       |                       |   | 62,067  |            | 2.08 | % |  |   | 62,067 
|Time deposits                             |  |           | 37,528  |            | 99,961  |             |   | 18,330        |  |              | 7,738  |                       |   | 163,557 |            | 3.22 | % |  |   | 164,114
|Repurchase agreements and Purchased funds |  |           | 2,736   |            |        |             |   |              |  |              |       |                       |   | 2,736   |            | 2.11 | % |  |   | 2,736  
|Short-term borrowings                     |  |           |        |            | 10,000  |             |   |              |  |              |       |                       |   | 10,000  |            | 3.55 | % |  |   | 10,000 
|Long-term debt                            |  |           |        |            |        |             |   |              |  |              | 6,500  |                       |   | 6,500   |            | 5.33 | % |  |   | 6,493  
|Junior subordinated debentures            |  |           | 8,248   |            |        |             |   |              |  |              |       |                       |   | 8,248   |            | 6.23 | % |  |   | 7,999  
|                                          |  |           |         |            |         |             |   |               |  |              |        |                       |   |         |            |      |   |  |   |        
|Total                                     |  | $         | 130,641 |            | 109,961 |             | $ | 18,330        |  | $            | 14,238 |                       | $ | 273,170 |            | 2.94 | % |  | $ | 273,471
|                                          |  |           |         |            |         |             |   |               |  |              |        |                       |   |         |            |      |   |  |   |        



15



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##### Table of Contents

ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements of the Company and the
Independent Auditors Report set forth on pages 6 through 31 of the Companys 2005 Annual Report to Stockholders are incorporated herein by reference:



| | 1. | Consolidated Balance Sheets as of December 31, 2005 and 2004
| | -- | ------------------------------------------------------------



| | 2. | Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003
| | -- | --------------------------------------------------------------------------------------



| | 3. | Consolidated Statements of Stockholders Equity for the years ended December 31, 2005, 2004 and 2003
| | -- | ----------------------------------------------------------------------------------------------------



| | 4. | Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
| | -- | ------------------------------------------------------------------------------------------



| | 5. | Notes to Consolidated Financial Statements
| | -- | ------------------------------------------



| | 6. | Independent Auditors Report
| | -- | ----------------------------

ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A  CONTROLS AND PROCEDURES

Management, including the Companys President and Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that
evaluation, the Companys President and Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in
the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.

There have been no
changes in the Companys internal control over financial reporting identified in connection with the evaluation that occurred during the Companys last fiscal quarter that has materially affected, or that is reasonably likely to materially
affect, the Companys internal control over financial reporting.

ITEM 9B  OTHER INFORMATION

None.

PART III

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated
by reference to the Companys proxy statement for the 2006 Annual Meeting of Stockholders, pages 4-9.

Code of Ethics

The Companys Board of Directors has adopted a Code of Ethics that applies to its directors and to all of its executive officers, including without limitation its
principal executive officer and principal financial officer. A copy of the Companys Code of Ethics is provided at the Companys website: www.waccamawbank.com.



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##### Table of Contents

ITEM 11  EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
Companys proxy statement for the 2006 Annual Meeting of Stockholders, pages 10-13.

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Certain
information required by this item is incorporated by reference to the Companys proxy statement for the 2006 Annual Meeting of Stockholders, pages 3-4.

Set forth below is certain information regarding the Companys various stock option plans.



|                                                           |  |                                                                                               |  |                                                                               |       |                                                                                                                                           |        
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan Category                                              |  | Number of securities tobe issued upon exerciseof
outstanding options,warrants, and rights (a) |  | Weighted-averageexercise price
ofoutstanding options,warrants, and rights (b) |       | Number of securitiesremaining available forfuture issuance underequity compensationplans (excludingsecurities reflected incolumn (a)) (c)
|Equity compensation plans approved by security holders     |  | 520,072                                                                                       |  | $                                                                             | 10.60 |                                                                                                                                           | 125,304
|Equity compensation plans not approved by security holders |  | None                                                                                          |  |                                                                               | None  |                                                                                                                                           | None   
|Total                                                      |  | 520,072                                                                                       |  | $                                                                             | 10.60 |                                                                                                                                           | 125,304

ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by
reference to the Companys proxy statement for the 2006 Annual Meeting of Stockholders, pages 6, 12 and 13.

ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference
to the Companys proxy statement for the 2006 Annual Meeting of Stockholders, pages 13-14.



17



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##### Table of Contents

PART IV

ITEM 15  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



| | (a) | Index to Exhibits
| | --- | -----------------



|               |  |                                                                                                                 
|-------------- |  | ----------------------------------------------------------------------------------------------------------------
|EXHIBIT NUMBER |  | DESCRIPTION OF EXHIBIT                                                                                          
|3.1            |  | Registrants Articles of Incorporation*                                                                         
|               | 
|3.2            |  | Registrants Bylaws*                                                                                            
|               | 
|4.1            |  | Specimen Stock Certificate**                                                                                    
|               | 
|10.1           |  | Employment Agreement of James G. Graham***                                                                      
|               | 
|10.2           |  | Waccamaw Bank 1998 Incentive Stock Option Plan***                                                               
|               | 
|10.3           |  | Waccamaw Bank 1998 Nonstatutory Stock Option Plan***                                                            
|               | 
|10.4           |  | Agreement and Plan of Reorganization and Merger with Bank of Heath Springs (Filed herewith)                     
|               | 
|13             |  | Annual Report to Stockholders (Filed
herewith)                                                                  
|               | 
|21             |  | Subsidiaries of Registrant (Filed herewith)                                                                     
|               | 
|31(i)          |  | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act (Filed herewith) 
|               | 
|31(ii)         |  | Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes Oxley Act (Filed herewith)
|               | 
|32             |  | Certification Pursuant to Section 906 of the Sarbanes Oxley Act (Filed herewith)                                
|               | 
|99             |  | Registrants Definitive Proxy Statement****                                                                     

---

|* | Incorporated by reference from exhibits 3(i) and 3(ii) to Registrants Current Report on Form 8-K12g3, as filed with the Commission on July 1, 2001.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|** | Incorporated by reference from exhibit 4.1 to Registrants Annual Report on Form 10-KSB for the year ended December 31, 2001.
|-- | -----------------------------------------------------------------------------------------------------------------------------

|*** | Incorporated by reference from Exhibits 10.2, 10.3 and 10.4 to Annual Report on Form 10-KSB of Waccamaw Bank, as filed with the FDIC.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

|**** | Filed with the Commission pursuant to Rule 14a-6.
|---- | -------------------------------------------------



18



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##### Table of Contents

SIGNATURES

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



|               |  |  |  |  |  |  |  |                                       |  |  |  |  |  | 
|-------------- |  |  |  |  |  |  |  | ------------------------------------- |  |  |  |  |  | 
|               |  |  |  |  |  |  |  | WACCAMAW BANKSHARES, INC.            
|               |  |  |  | 
|March 28, 2006 |  |  |  |  |  |  |  | /s/ James G. Graham                  
|Date           |  |  |  |  |  |  |  | James G. Graham                      
|               |  |  |  |  |  |  |  | President and Chief Executive Officer

In accordance with the Exchange Act, this report has to be signed below by the following persons on behalf of the
registrant and in the capacity and on the dates indicated.



|                                                |  |                                       |  |               
|----------------------------------------------- |  | ------------------------------------- |  | --------------
|Signature                                       |  | Title                                 |  | Date          
|/s/ James G. Graham James G.
Graham             |  | President and Chief Executive Officer |  | March 28, 2006
|                                                |  |                                      
|/s/ M. B. Bo Biggs M. B.
Bo Biggs           |  | Director                              |  | March 28, 2006
|                                                |  |                                      
|/s/ Dr. Maudie M. Davis Dr. Maudie M. Davis     |  | Director                              |  | March 28, 2006
|                                                |  |                                      
|/s/ E. Autry Dawsey, Sr. E. Autry
Dawsey, Sr.   |  | Director                              |  | March 28, 2006
|                                                |  |                                      
|/s/ Monroe Enzor, III Monroe Enzor,
III         |  | Director                              |  | March 28, 2006
|                                                |  |                                      
|/s/ James E. Hill, Jr. James E. Hill,
Jr.       |  | Director                              |  | March 28, 2006
|                                                |  |                                      
|/s/ Alan W. Thompson Alan W.
Thompson           |  | Director, Chairman of the Board       |  | March 28, 2006
|                                                |  |                                      
|/s/ Dale Ward Dale Ward                         |  | Director                              |  | March 28, 2006
|                                                |  |                                      
|/s/ J. Densil Worthington J. Densil
Worthington |  | Director                              |  | March 28, 2006



19



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##### Table of Contents

EXHIBIT INDEX



|               |  |                                                                                                                 
|-------------- |  | ----------------------------------------------------------------------------------------------------------------
|EXHIBIT NUMBER |  | DESCRIPTION OF EXHIBIT                                                                                          
|3.1            |  | Registrants Articles of Incorporation*                                                                         
|               | 
|3.2            |  | Registrants Bylaws*                                                                                            
|               | 
|4.1            |  | Specimen Stock Certificate**                                                                                    
|               | 
|10.1           |  | Employment Agreement of James G. Graham***                                                                      
|               | 
|10.2           |  | Waccamaw Bank 1998 Incentive Stock Option Plan***                                                               
|               | 
|10.3           |  | Waccamaw Bank 1998 Nonstatutory Stock Option Plan***                                                            
|               | 
|10.4           |  | Agreement and Plan of Reorganization and Merger with Bank of Heath Springs (Filed herewith)                     
|               | 
|13             |  | Annual Report to Stockholders (Filed
herewith)                                                                  
|               | 
|21             |  | Subsidiaries of Registrant (Filed herewith)                                                                     
|               | 
|31(i)          |  | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act (Filed herewith) 
|               | 
|31(ii)         |  | Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes Oxley Act (Filed herewith)
|               | 
|32             |  | Certification Pursuant to Section 906 of the Sarbanes Oxley Act (Filed herewith)                                
|               | 
|99             |  | Registrants Definitive Proxy Statement***                                                                      

---

|* | Incorporated by reference from exhibits 3(i) and 3(ii) to Registrants Current Report on Form 8-K12g3, as filed with the Commission on July 1, 2001.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|** | Incorporated by reference from exhibit 4.1 to Registrants Annual Report on Form 10-KSB for the year ended December 31, 2001.
|-- | -----------------------------------------------------------------------------------------------------------------------------

|*** | Incorporated by reference from Exhibits 10.2, 10.3 and 10.4 to Annual Report on Form 10-KSB of Waccamaw Bank, as filed with the FDIC.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

|**** | Filed with the Commission pursuant to Rule 14a-6.
|---- | -------------------------------------------------



20