SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM 10-KSB

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

For the Fiscal Year Ended December 31, 2003     Commission File Number 000-32493

                            REGIONAL BANKSHARES, INC.
                 (Name of Small Business Issuer in its Charter)

      South Carolina                                  57-1108717
(State or Other Jurisdiction of           (IRS Employer Identification Number)
 Incorporation or Organization)

            206 South Fifth Street, Hartsville, South Carolina 29550
                (Address of Principal Executive Office, Zip Code)

         Issuer's Telephone Number, Including Area Code: (843) 383-4333

        Securities Registered Pursuant to Section 12(b) of the Act: None

           Securities Registered Pursuant to Section 12(g) of the Act:

                          Common stock, $1.00 par value
                                (Title of Class)

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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 [
]

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

         The issuer's revenues for its most recent fiscal year were $3,258,435.

         There is no  established  trading  market for the  Registrant's  voting
common equity. The Registrant has no non-voting common equity  outstanding.  The
aggregate book value of the voting common equity held by non-affiliates on March
1, 2004, was approximately  $3,285,710.  As of March 1, 2004, there were 569,270
shares of the  Registrant's  common  stock,  $1.00 par value,  outstanding.  For
purposes of the foregoing calculation only, all directors and executive officers
of the Registrant have been deemed affiliates.

                       DOCUMENTS INCORPORATED BY REFERENCE

(1)  Portions of the Registrant's Proxy Statement for the 2004 Annual Meeting of
     Shareholders - Part III

     Transitional Small Business Disclosure Format (check one):

     Yes [ ]  No [X]


<PAGE>


                              Cross-Reference Sheet
<TABLE>
<CAPTION>

<S>                                                                                                     <C>
  PART I
        Item 1.      Description of Business............................................................. 1
        Item 2.      Description of Property............................................................. 9
        Item 3.      Legal Proceedings................................................................... 9
        Item 4.      Submission of Matters to Vote of Security Holders................................... 9
  PART II
        Item 5.      Market for Common Equity, Related Stockholder Matters
                        and Small Business Issuer Purchases of Securities ............................... 9
        Item 6.      Management's Discussion and Analysis or Plan of Operation.......................... 11
        Item 7.      Financial Statements............................................................... 26
        Item 8.      Changes in and Disagreements with Accountants
                         on Accounting and Financial Disclosure......................................... 48
        Item 8A.     Controls and Procedures ........................................................... 48
  PART III
        Item 9.      Directors, Executive Officers, Promoters and Control Persons;
                         Compliance with Section 16(a) of the Exchange Act..............................  *
        Item 10.     Executive Compensation.............................................................  *
        Item 11.     Security Ownership of Certain Beneficial Owners and Management and
                     Related Stockholder Matters ....................................................... 49
        Item 12.     Certain Relationships and Related Transactions.....................................  *
  PART IV
        Item 13.     Exhibits and Reports on Form 8-K................................................... 50
        Item 14.     Principal Accountant Fees and Services ............................................  *
</TABLE>

* Incorporated  by reference to the  Registrant's  Proxy  Statement for the 2004
Annual Meeting of Shareholders

<PAGE>

                           FORWARD-LOOKING STATEMENTS

         This Report of Regional Bankshares, Inc. (the "Company") on Form 10-KSB
may contain  forward-looking  statements relating to such matters as anticipated
financial  performance,  business  prospects,  technological  developments,  new
products and similar  matters.  Statements  included in this report that are not
historical  in nature are intended to be, and are hereby  identified as 'forward
looking  statements.'  The  words  "estimate,"  "project,"  "intend,"  "expect,"
"believe,"  "anticipate,"  "plan,"  and  similar  expressions  identify  forward
looking  statements.  These  forward-looking  statements  are  based on  current
expectations,   estimates  and  projections  about  our  industry,  management's
beliefs, and assumptions made by management.  Such information includes, without
limitation,   discussions  as  to  estimates,   expectations,   beliefs,  plans,
strategies,  and  objectives  concerning  the  Company's  future  financial  and
operating performance. These statements are not guarantees of future performance
and are subject to risks,  uncertainties  and assumptions  that are difficult to
predict,  particularly in light of the fact that the Company is a relatively new
company with limited  operating  history.  Therefore,  actual results may differ
materially   from  those   expressed  or  forecasted  in  such   forward-looking
statements.

         The Private  Securities  Litigation  Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with terms of the safe
harbor,  the Company  notes that a variety of factors  could cause the Company's
actual results and experience to differ materially from the anticipated  results
or other expectations expressed in the Company's forward-looking statements. The
risks  and   uncertainties   that  may  affect  the  operations,   performances,
development and results of the Company's  business include,  but are not limited
to, the  following:  risks from  changes in economic  and  industry  conditions;
changes in interest rates;  risks inherent in making loans  including  repayment
risks  and value of  collateral;  adequacy  of the  allowance  for loan  losses;
dependence on senior management ; and recently-enacted or proposed  legislation.
Statements  contained  in  this  filing  regarding  the  demand  for  Hartsville
Community Bank's products and services,  changing economic conditions,  interest
rates,  consumer  spending and  numerous  other  factors may be  forward-looking
statements and are subject to uncertainties and risks.

         The Company  undertakes no obligation to publicly  update or revise any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.  In light of these risks,  uncertainties,  and assumptions,
the forward-looking events discussed in this report might not occur.

                                     PART I

Item 1.  Description of Business.

                                     GENERAL

         Regional  Bankshares,  Inc. is the  successor  registrant to Hartsville
Community Bank, National  Association (the "Bank").  The Bank was organized as a
national bank and opened for business in June, 1999. The Bank's common stock was
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, and
filings were made with the Office of the Comptroller of the Currency pursuant to
Section 12(i) of the Securities Exchange Act of 1934.

         Regional Bankshares,  Inc. is a South Carolina corporation incorporated
in 2000 to become the  holding  company  for the Bank.  On January 1, 2001,  the
Company completed its acquisition of the Bank and the Bank became a wholly-owned
subsidiary  of the  Company.  On January 10,  2001,  the Bank  converted  from a
national  bank to a South  Carolina  state bank.  The Company has no  operations
other than those carried on by the Bank as its wholly-owned subsidiary.

         The Bank  conducts  a general  banking  business  from its main  office
located in Hartsville,  South Carolina, and from a branch office in McBee, South
Carolina, that opened in May, 2003.

         The Bank's business primarily consists of accepting deposits and making
loans.  The Bank seeks deposit  accounts from  households  and businesses in its
primary  market areas by offering a full range of savings  accounts,  retirement
accounts (including Individual Retirement  Accounts),  checking accounts,  money
market  accounts,  and time  certificates  of deposit.  It also makes  primarily
commercial,  real estate and installment loans, primarily on a secured basis, to
borrowers in and around  Hartsville,  South Carolina and makes other  authorized
investments.  Residential  mortgage loans are primarily maintained in-house with
conventional  mortgage  financing  arranged  through  a  correspondent  mortgage
company.

                                       1
<PAGE>

                              BUSINESS OF THE BANK

Market Area

         The Bank's primary  market areas are the  communities of Hartsville and
McBee,  South  Carolina  and the  surrounding  areas  within a 15 mile radius of
Hartsville.  This  market  area  comprises  most  of  Darlington  County,  South
Carolina,  as well as the  incorporated  areas of  Bishopville in Lee County and
McBee in  Chesterfield  County.  Most of the Bank's  business  is drawn from the
cities of Hartsville and McBee and the greater Hartsville area, with significant
additional  business  being drawn from the area outside  greater  Hartsville but
within the designated market area.

         Hartsville  has a population  of  approximately  10,000 within the city
limits and 28,000 in the greater  Hartsville area.  Darlington County is located
in  the  northeastern  portion  of  South  Carolina  near  the  intersection  of
Interstates  I-95 and I-20. It is bordered on the north by  Chesterfield  County
and on the south by Florence County. Darlington County is served by an excellent
network of regional roads,  including major routes such as U.S.  Highways 15, 52
and 401. The primary link between the two major  communities  of Darlington  and
Hartsville is a four-lane  highway which tends to encourage  development  in the
area.

Competition

         South Carolina law permits statewide branching by banks and savings and
loan  associations.  Consequently,  many  financial  institutions  have branches
located in several  communities.  Currently,  in addition to the Bank,  10 other
financial institutions and branches of financial institutions are located in the
Bank's  market  areas.  The principal  areas and methods of  competition  in the
banking  industry  are the  services  offered,  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  most of the  financial
institutions in its extended market area. In the conduct of certain areas of its
business, the Bank also competes with credit unions, insurance companies,  money
market  mutual  funds and other  financial  institutions,  some of which are not
subject to the same degree of regulation and  restrictions  as the Bank. Most of
these  competitors have  substantially  greater  resources and lending abilities
than  the  Bank and  offer  certain  services,  such as  international  banking,
investment  banking,  and  trust  services,  that  the Bank  does not  presently
provide.

Deposits

         The Bank offers the full range of deposit services typically  available
in most banks and savings and loan  associations,  including  checking accounts,
NOW accounts, and savings and other time deposits of various types, ranging from
daily  money  market  accounts  to  longer-term  certificates  of  deposit.  The
transaction  accounts and time certificates are tailored to the principal market
area  at  rates  competitive  with  those  offered  in the  area.  In  addition,
retirement accounts such as IRA's (Individual  Retirement Accounts) are offered.
All deposit  accounts are insured by the FDIC up to the maximum amount permitted
by  law.  The  Bank  solicits  these  accounts  from  individuals,   businesses,
associations and organizations, and government authorities.

Lending Activities

         The Bank emphasizes a range of lending services, including real estate,
commercial and consumer loans.  Consumer loans include both installment and term
loans, and include loans for automobiles,  household goods, education, boats and
general personal expenses.

         To address the risks inherent in making loans,  management maintains an
allowance  for loan losses based on, among other  things,  an  evaluation of the
Bank's  loan  loss  experience,   management's  experience  at  other  financial
institutions in the market area, the amount of past due and nonperforming loans,
current and  anticipated  economic  changes  and the values of loan  collateral.
Based upon such  factors,  management  makes various  assumptions  and judgments
about  the  ultimate  collectibility  of the  loan  portfolio  and  provides  an
allowance for potential  loan losses based upon a percentage of the  outstanding
balances and specific loans.  However,  because there are some risks that cannot
be precisely  quantified,  management's judgment of the allowance is necessarily
approximate  and  imprecise.  The adequacy and  methodology of the allowance for
loan losses is subject to regulatory examination and compared to a peer group of
financial institutions identified by the regulators.



                                       2
<PAGE>

Real Estate Loans

         One of the primary  components  of the Bank's loan  portfolio  is loans
secured by first or second  mortgages on residential and commercial real estate.
These loans generally consist of commercial real estate loans,  construction and
development  loans and residential  real estate loans (including home equity and
second mortgage  loans).  Interest rates may be fixed or adjustable and the Bank
generally  charges an origination  fee. The Bank also originates  mortgage loans
for sale into the  secondary  market,  earning a fee,  but avoiding the interest
rate risk of holding long-term, fixed-rate loans.

         The principal  economic risk associated with all loans,  including real
estate loans, is the creditworthiness of the Bank's borrowers.  The ability of a
borrower to repay a real estate loan depends upon a number of economic  factors,
including employment levels and fluctuations in the value of real estate. In the
case of a real estate  construction  loan, there is generally no income from the
underlying property during the construction period, and the developer's personal
obligations  under  the  loan  are  typically  limited.  Each of  these  factors
increases the risk of  nonpayment by the borrower.  In the case of a real estate
purchase  loan,  the  borrower may be unable to repay the loan at the end of the
loan  term and may thus be  forced to  refinance  the loan at a higher  interest
rate,  or,  in  certain  cases,  the  borrower  may  default  as a result of its
inability to refinance the loan.  In either case,  the risk of nonpayment by the
borrower is increased.

         The Bank also  faces  additional  credit  risks to the  extent  that it
engages in making  adjustable  rate mortgage loans  ("ARMs").  In the case of an
ARM, as interest rates increase, the borrower's required payments increase, thus
increasing  the  potential  for default.  The  marketability  of all real estate
loans,  including  ARMs, is also generally  affected by the prevailing  level of
interest rates.

Commercial Loans

         The Bank  makes  loans for  commercial  purposes  in  various  lines of
business.  Commercial loans include both secured and unsecured loans for working
capital  (including  inventory and  receivables),  loans for business  expansion
(including  acquisition  of  real  estate  and  improvements),   Small  Business
Administration ("SBA") loans for new businesses (as well as other governmentally
guaranteed  business loans), and loans for purchases of equipment and machinery.
Commercial loans vary greatly  depending upon the  circumstances  and loan terms
are structured on a case-by-case basis to better serve customer needs.

         The risks  associated  with  commercial  loans vary with many  economic
factors,  including the economy in the  Hartsville  area.  The  well-established
banks in the Bank's  market area make  proportionately  more loans to medium- to
large-sized  businesses than the Bank. Many of the Bank's  commercial  loans are
made to small- to medium-sized  businesses,  which are typically  smaller,  have
shorter operating histories,  and less sophisticated record keeping systems than
larger  entities.  As a  result,  these  smaller  entities  may be less  able to
withstand  adverse  competitive,  economic and financial  conditions than larger
borrowers. In addition, because payments on loans secured by commercial property
generally  depend to a large degree on the results of operations  and management
of the properties,  repayment of such loans may be subject,  to a greater extent
than  other  loans,  to  adverse  conditions  in the real  estate  market or the
economy.

Consumer Loans

         The Bank  makes a variety  of loans to  individuals  for  personal  and
household purposes,  including secured and unsecured installment and term loans,
home equity loans and lines of credit and  unsecured  revolving  lines of credit
such as credit  cards.  The  secured  installment  and term  loans to  consumers
generally  consist  of  loans  to  purchase  automobiles,   boats,  recreational
vehicles,  mobile homes and household furnishings,  with the collateral for each
loan being the purchased  property.  The  underwriting  criteria for home equity
loans and lines of credit  are  generally  the same as  applied by the Bank when
making a first  mortgage  loan,  as  described  above,  and home equity lines of
credit  typically expire 15 years or less after  origination,  unless renewed or
extended.



                                       3
<PAGE>

         Consumer  loans  generally  involve  more credit risks than other loans
because of the type and nature of the  underlying  collateral  or because of the
absence  of any  collateral.  Consumer  loan  repayments  are  dependent  on the
borrower's  continuing  financial  stability  and  are  likely  to be  adversely
affected by job loss,  divorce and  illness.  Furthermore,  the  application  of
various  federal and state laws,  including  federal  and state  bankruptcy  and
insolvency  laws,  may limit the amount  which can be recovered on such loans in
the case of default. In most cases, any repossessed  collateral will not provide
an adequate  source of repayment of the outstanding  loan balance.  Although the
underwriting  process for consumer  loans  includes a comparison of the value of
the security,  if any, to the proposed loan amount,  the Bank cannot predict the
extent to which the  borrower's  ability to pay, and the value of the  security,
will be affected by prevailing economic and other conditions.


Other Services

         The  Bank  participates  in a  regional  network  of  automated  teller
machines  that may be used by Bank  customers  in major  cities  throughout  the
Southeast.  The Bank  offers  both  VISA and  MasterCard  brands  of bank  cards
together  with  related  lines of  credit.  The lines of credit  may be used for
overdraft protection as well as pre-authorized credit for personal purchases and
expenses. The Bank also provides travelers checks, direct deposit of payroll and
social security checks, and automatic drafts for various accounts,  but will not
provide international or trust banking services in the near future.

         The  Bank  offers  investment  and  brokerage  services  to the  Bank's
customers  through  an  investment  broker  who is an  agent  of  Raymond  James
Financial Services, Inc., a registered broker-dealer firm.

         The Bank  implemented  internet  banking  services in the fall of 2003.
This service allows customers to view accounts, make transactions, and engage in
other functions via the Internet.

Employees

         At March 1, 2003, the Bank had 28 full time employees.  The Company has
no employees.


                           SUPERVISION AND REGULATION

         Bank  holding  companies  and banks  are  extensively  regulated  under
federal and state law. To the extent that the  following  information  describes
statutory  and  regulatory  provisions,  it is  qualified  in  its  entirety  by
reference to such  statutes and  regulations.  Any change in  applicable  law or
regulation  may have a material  effect on the  business  of the Company and the
Bank.

General

         The Company is a bank  holding  company  under the federal Bank Holding
Company  Act  ("BHCA"),  and is  subject  to the  regulations  of the  Board  of
Governors of the Federal Reserve System (the "Federal Reserve"). Under the BHCA,
the Company's  activities and those of its  subsidiaries are limited to banking,
managing or controlling banks, furnishing services to or performing services for
its  subsidiaries  or engaging in any other activity  which the Federal  Reserve
determines to be so closely related to banking or managing or controlling  banks
as to be a proper incident thereto. The Company may engage in a broader range of
activities  if  it  becomes  a  "financial  holding  company"  pursuant  to  the
Gramm-Leach-Bliley   Act,   which  is   described   below   under  the   caption
"Gramm-Leach-Bliley  Act." The BHCA prohibits the Company from acquiring  direct
or  indirect  control  of  more  than  5% of the  outstanding  voting  stock  or
substantially  all of the assets of any bank or from  merging  or  consolidating
with another bank holding company without prior approval of the Federal Reserve.
Additionally,  the BHCA prohibits the Company from engaging in or from acquiring
ownership  or control  of more than 5% of the  outstanding  voting  stock of any
company engaged in a non-banking  business unless such business is determined by
the  Federal  Reserve  to be so closely  related  to  banking as to be  properly
incident thereto. The BHCA generally does not place territorial  restrictions on
the activities of such non-banking related activities.

         The Company is also subject to regulation and  supervision by the South
Carolina  State Board of Financial  Institutions  (the "State  Board").  A South
Carolina bank holding company must provide the State Board with information with
respect to the financial  condition,  operations,  management and  inter-company
relationships of the holding company and its subsidiaries.  The State Board also
may require such other information as is necessary to keep itself informed about
whether the  provisions  of South  Carolina law and the  regulations  and orders
issued  thereunder  by the State Board have been  complied  with,  and the State
Board may examine any bank holding company and its subsidiaries.



                                       4
<PAGE>

Obligations of the Company to its Subsidiary Bank

         A number of obligations  and  restrictions  are imposed on bank holding
companies  and their  depository  institution  subsidiaries  by Federal  law and
regulatory  policy that are designed to reduce  potential  loss  exposure to the
depositors of such  depository  institutions  and to the FDIC insurance funds in
the event the depository  institution  is in danger of becoming  insolvent or is
insolvent.  For example, under the policy of the Federal Reserve, a bank holding
company is required to serve as a source of financial strength to its subsidiary
depository  institutions and to commit resources to support such institutions in
circumstances  where it might not do so absent such  policy.  In  addition,  the
"cross-guarantee"  provisions of the Federal  Deposit  Insurance Act, as amended
("FDIA"),  require  insured  depository  institutions  under  common  control to
reimburse the FDIC for any loss suffered or reasonably anticipated by either the
Savings  Association  Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF")
of the  FDIC  as a  result  of the  default  of a  commonly  controlled  insured
depository  institution or for any assistance provided by the FDIC to a commonly
controlled  insured  depository  institution in danger of default.  The FDIC may
decline to enforce the cross-guarantee provisions if it determines that a waiver
is in the best  interest  of the SAIF or the BIF or both.  The FDIC's  claim for
damages  is  superior  to  claims  of  shareholders  of the  insured  depository
institution  or its holding  company but is subordinate to claims of depositors,
secured  creditors and holders of subordinated  debt (other than  affiliates) of
the commonly controlled insured depository institutions.

         The FDIA also provides that amounts  received from the  liquidation  or
other resolution of any insured  depository  institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit  liabilities of
the  institution  prior to payment  of any other  general  or  unsecured  senior
liability,   subordinated  liability,  general  creditor  or  shareholder.  This
provision gives depositors a preference over general and subordinated  creditors
and  shareholders  in the event a receiver is appointed to distribute the assets
of the Bank.

         Any capital  loans by a bank holding  company to any of its  subsidiary
banks are  subordinate  in right of payment  to  deposits  and to certain  other
indebtedness of such subsidiary  bank. In the event of a bank holding  company's
bankruptcy,  any  commitment  by the bank  holding  company  to a  federal  bank
regulatory  agency to maintain the capital of a subsidiary  bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.

Capital Adequacy Guidelines for Bank Holding Companies and State Banks

         The various federal bank regulators,  including the Federal Reserve and
the FDIC have adopted  risk-based and leverage capital  adequacy  guidelines for
assessing bank holding company and bank capital adequacy. These standards define
what qualifies as capital and establish minimum capital standards in relation to
assets and off-balance sheet exposures, as adjusted for credit risks.

         Failure  to meet  capital  requirements  could  subject  the  Bank to a
variety of enforcement remedies,  including the termination of deposit insurance
by the FDIC and a prohibition on the taking of brokered deposits.

         The risk-based  capital standards of both the Federal Reserve Board and
the FDIC explicitly identify  concentrations of credit risk and the risk arising
from non-traditional  activities,  as well as an institution's ability to manage
these risks,  as  important  factors to be taken into account by the agencies in
assessing an institution's overall capital adequacy. The capital guidelines also
provide that an institution's exposure to a decline in the economic value of its
capital due to changes in interest rates should be considered by the agencies as
a factor in evaluating a bank's capital  adequacy.  The Federal Reserve also has
recently issued  additional  capital  guidelines for bank holding companies that
engage in certain trading activities.

         The Bank exceeded all applicable capital  requirements by a wide margin
at December 31, 2003.

Payment of Dividends

         The  Company is a legal  entity  separate  and  distinct  from its bank
subsidiary.  Most of the  revenues of the  Company  are  expected to result from
dividends  paid to the Company by the Bank.  There are statutory and  regulatory
requirements  applicable to the payment of dividends by subsidiary banks as well
as by the Company to its  shareholders.  It is not anticipated  that the Company
will pay cash dividends in the near future.



                                       5
<PAGE>

Certain Transactions by the Company with its Affiliates

         Federal  law   regulates   transactions   among  the  Company  and  its
affiliates,  including  the  amount of bank loans to or  investments  in nonbank
affiliates  and the  amount  of  advances  to third  parties  collateralized  by
securities of an affiliate.  Further,  a bank holding company and its affiliates
are prohibited  from engaging in certain tie-in  arrangements in connection with
any extension of credit, lease or sale of property or furnishing of services.

FDIC Insurance Assessments

         Because the Bank's deposits are insured by the BIF, the Bank is subject
to insurance assessments imposed by the FDIC. Currently, the assessments imposed
on all FDIC deposits for deposit insurance have an effective rate ranging from 0
to 27 basis points per $100 of insured deposits,  depending on the institution's
capital position and other supervisory  factors.  However,  because  legislation
enacted in 1996  requires  that  insured  deposits pay a pro rata portion of the
interest due on the obligations  issued by the Financing  Corporation  ("FICO").
The FICO  assessment is adjusted  quarterly to reflect changes in the assessment
bases of the  respective  funds  based  on  quarterly  Call  Report  and  Thrift
Financial Report submissions.

Regulation of the Bank

         The Bank is subject to regulation  and  examination by the State Board.
In  addition,  the Bank is subject to various  other state and federal  laws and
regulations,  including state usury laws, laws relating to fiduciaries, consumer
credit laws and laws relating to branch banking.  The Bank's loan operations are
subject to certain  federal  consumer  credit laws and  regulations  promulgated
thereunder,  including,  but not limited to: the federal  Truth-In-Lending  Act,
governing  disclosures of credit terms to consumer borrowers;  the Home Mortgage
Disclosure Act, requiring financial  institutions to provide certain information
concerning their mortgage lending; the Equal Credit Opportunity Act and the Fair
Housing  Act,  prohibiting  discrimination  on the basis of  certain  prohibited
factors in extending  credit;  the Fair Credit Reporting Act,  governing the use
and provision of information to credit reporting agencies; the Bank Secrecy Act,
dealing   with,   among  other  things,   the  reporting  of  certain   currency
transactions;  and the Fair Debt Collection  Act,  governing the manner in which
consumer debts may be collected by collection  agencies.  The deposit operations
of the  Bank  are  subject  to the  Truth  in  Savings  Act,  requiring  certain
disclosures  about  rates  paid  on  savings   accounts;   the  Expedited  Funds
Availability  Act,  which deals with  disclosure  of the  availability  of funds
deposited  in accounts  and the  collection  and return of checks by banks;  the
Right to  Financial  Privacy  Act,  which  imposes  a duty to  maintain  certain
confidentiality of consumer financial records, and the Electronic Funds Transfer
Act and regulations promulgated  thereunder,  which govern automatic deposits to
and  withdrawals  from deposit  accounts and customers'  rights and  liabilities
arising from the use of automated teller machines and other  electronic  banking
services.

         The  Bank  is  also  subject  to  the  requirements  of  the  Community
Reinvestment  Act (the  "CRA").  The CRA imposes on  financial  institutions  an
affirmative  and  ongoing  obligation  to meet the credit  needs of their  local
communities,  including low- and moderate-income neighborhoods,  consistent with
the safe and sound operation of those institutions. Each financial institution's
actual performance in meeting community credit needs is evaluated as part of the
examination process, and also is considered in evaluating mergers,  acquisitions
and applications to open a branch or facility.

Other Safety and Soundness Regulations

         Prompt  Corrective  Action.  The federal  banking  agencies  have broad
powers under  current  federal law to take prompt  corrective  action to resolve
problems of insured depository institutions.  The extent of these powers depends
upon whether the  institutions in question are "well  capitalized,"  "adequately
capitalized,"    "undercapitalized,"    "significantly    undercapitalized"   or
"critically undercapitalized."



                                       6
<PAGE>

         A bank that is "undercapitalized"  becomes subject to provisions of the
FDIA:   restricting  payment  of  capital  distributions  and  management  fees;
requiring the FDIC to monitor the condition of the bank; requiring submission by
the bank of a capital  restoration  plan;  restricting  the growth of the bank's
assets and requiring prior approval of certain expansion proposals.  A bank that
is  "significantly   undercapitalized"   is  also  subject  to  restrictions  on
compensation  paid  to  senior  management  of  the  bank,  and a bank  that  is
"critically   undercapitalized"  is  further  subject  to  restrictions  on  the
activities of the bank and restrictions on payments of subordinated  debt of the
bank.  The  purpose  of these  provisions  is to  require  banks  with less than
adequate  capital to act quickly to restore  their  capital and to have the FDIC
move  promptly  to take over  banks  that are  unwilling  or unable to take such
steps.

         Brokered Deposits.  Under current FDIC regulations,  "well capitalized"
banks may accept brokered deposits without restriction, "adequately capitalized"
banks may accept  brokered  deposits  with a waiver  from the FDIC  (subject  to
certain  restrictions on payment of rates), while  "undercapitalized"  banks may
not accept brokered  deposits.  The regulations  provide that the definitions of
"well capitalized," "adequately capitalized" and "undercapitalized" are the same
as the  definitions  adopted by the agencies to implement the prompt  corrective
action  provisions  described in the  previous  paragraph.  Management  does not
believe  that these  regulations  will  have a  material  adverse  effect on the
operations of the Bank.

Interstate Banking

         Under the Riegle-Neal  Interstate Banking and Branching  Efficiency Act
of 1994 the Company and any other  adequately  capitalized  bank holding company
located in South  Carolina can acquire a bank located in any other state,  and a
bank  holding  company  located  outside  South  Carolina  can acquire any South
Carolina-based  bank, in either case subject to certain  deposit  percentage and
other restrictions.  Unless prohibited by state law, adequately  capitalized and
managed bank holding  companies are permitted to  consolidate  their  multistate
bank operations into a single bank subsidiary and to branch  interstate  through
acquisitions. De novo branching by an out-of-state bank is permitted only if the
laws of the host state expressly permit it. The authority of a bank to establish
and operate  branches within a state continue to be subject to applicable  state
branching  laws.  South  Carolina law was amended,  effective  July 1, 1996,  to
permit such  interstate  branching but not de novo branching by an  out-of-state
bank.

Gramm-Leach-Bliley Act

         The  Gramm-Leach-Bliley  Act,  which  makes it easier for  affiliations
between banks,  securities firms and insurance  companies to take place,  became
effective  in March  2000.  The Act  removed  Depression-era  barriers  that had
separated  banks and  securities  firms,  and seeks to  protect  the  privacy of
consumers' financial information.

         Under provisions of the new legislation and regulations  adopted by the
appropriate regulators, banks, securities firms and insurance companies are able
to structure new affiliations  through a holding company  structure or through a
financial subsidiary. The legislation creates a new type of bank holding company
called a "financial  holding  company" which has powers much more extensive than
those of standard holding companies.  These expanded powers include authority to
engage in "financial activities," which are activities that are (1) financial in
nature;  (2)  incidental  to  activities  that are  financial in nature;  or (3)
complementary  to a  financial  activity  and that do not  impose  a safety  and
soundness risk. Significantly,  the permitted financial activities for financial
holding  companies include authority to engage in merchant banking and insurance
activities,  including insurance portfolio investing. A bank holding company can
qualify as a financial holding company and expand the services it offers only if
all of its subsidiary depository institutions are well-managed, well-capitalized
and  have  received  a  rating  of   "satisfactory"   on  their  last  Community
Reinvestment Act examination.

         The  legislation  also  creates  another  new type of  entity  called a
"financial subsidiary." A financial subsidiary may be used by a national bank or
a group of national banks to engage in many of the same activities permitted for
a financial holding company, though several of these activities,  including real
estate development or investment,  insurance or annuity underwriting,  insurance
portfolio  investing and merchant  banking,  are reserved for financial  holding
companies.  A bank's  investment  in a financial  subsidiary  affects the way in


                                       7
<PAGE>

which the bank calculates its regulatory capital, and the assets and liabilities
of financial  subsidiaries  may not be consolidated  with those of the bank. The
bank must also be certain that its risk  management  procedures  are adequate to
protect it from  financial and  operational  risks created both by itself and by
any financial subsidiary.  Further, the bank must establish policies to maintain
the separate corporate  identities of the bank and its financial  subsidiary and
to prevent each from becoming liable for the obligations of the other.

         The Act also  establishes  the  concept  of  "functional  supervision,"
meaning that  similar  activities  should be  regulated  by the same  regulator.
Accordingly,  the Act spells out the regulatory authority of the bank regulatory
agencies,  the Securities and Exchange Commission and state insurance regulators
so that each type of activity is  supervised by a regulator  with  corresponding
expertise.  The Federal  Reserve Board is intended to be an umbrella  supervisor
with the  authority  to  require a bank  holding  company or  financial  holding
company  or any  subsidiary  of  either  to  file  reports  as to its  financial
condition,  risk management  systems,  transactions with depository  institution
subsidiaries  and  affiliates,  and compliance  with any federal law that it has
authority to enforce.

         Although the Act reaffirms that states are the regulators for insurance
activities  of  all  persons,  including   federally-chartered  banks,  the  Act
prohibits  states from preventing  depository  institutions and their affiliates
from conducting insurance activities.

         The Act also  establishes  a minimum  federal  standard  of  privacy to
protect the confidentiality of a consumer's  personal financial  information and
gives the consumer the power to choose how personal financial information may be
used by  financial  institutions.  The Act and the  regulations  adopted  by the
federal banking agencies under the Act require increased disclosure to consumers
about use of information about them and, in some  circumstances,  require notice
to, or consent from, consumers before the information may be provided to a third
party.

         The Act and the  regulations  adopted  pursuant  to the Act  create new
opportunities  for the Company to offer  expanded  services to  customers in the
future,  though  the  Company  has not yet  determined  what the  nature  of the
expanded  services  might be or when the Company might find it feasible to offer
them. The Act has increased competition from larger financial  institutions that
are  currently  more  capable  than  the  Company  of  taking  advantage  of the
opportunity  to  provide a  broader  range of  services.  However,  the  Company
continues to believe that its commitment to providing high quality, personalized
service to customers will permit it to remain competitive in its market area.

Sarbanes-Oxley Act of 2002

         The  Sarbanes-Oxley  Act was  signed  into  law on July 30,  2002,  and
mandated  extensive reforms and requirements for public  companies.  The SEC has
adopted   extensive  new  regulations   pursuant  to  the  requirements  of  the
Sarbanes-Oxley  Act. The  Sarbanes-Oxley  Act and the SEC's new regulations have
increased  the  Company's  cost of  doing  business,  particularly  its fees for
internal  and  external  audit  services  and  legal  services,  and the law and
regulations  are  expected to continue to do so.  However,  the Company does not
believe that it will be affected by  Sarbanes-Oxley  and the new SEC regulations
in ways that are materially different or more onerous than those of other public
companies of similar size and in similar businesses.

Legislative Proposals

         Proposed legislation,  which could significantly affect the business of
banking, is introduced in Congress from time to time.  Management of the Company
cannot predict the future course of such  legislative  proposals or their impact
on the Company and the Bank should they be adopted.

Fiscal and Monetary Policy

         Banking  is  a  business   that  depends   largely  on  interest   rate
differentials. In general, the difference between the interest paid by a bank on
its deposits and its other  borrowings,  and the interest  received by a bank on
its loans and  securities  holdings,  constitutes  the major portion of a bank's
earnings.  Thus, the earnings and growth of the Company and the Bank are subject
to the influence of economic  conditions  generally,  both domestic and foreign,
and also to the  monetary  and  fiscal  policies  of the  United  States and its
agencies,  particularly the Federal Reserve.  The Federal Reserve  regulates the
supply of money through various means,  including open-market dealings in United
States government  securities,  the discount rate at which banks may borrow from
the Federal Reserve,  and the reserve  requirements on deposits.  The nature and
timing of any changes in such  policies  and their impact on the Company and the
Bank cannot be predicted.

Further Information

         Further  information  about the business of the Company and the Bank is
set  forth in this  Form  10-KSB  under  Item 6  -"Management's  Discussion  and
Analysis or Plan of Operation."

                                       8
<PAGE>

Item 2.  Description of Property.

         The Bank owns its office building,  which is located at 206 South Fifth
Street in  Hartsville.  The property is at a corner  location one block from the
geographic  center  of  Hartsville.  This area of town is  undergoing  extensive
redevelopment, and is likely to be a center for retail, professional and service
business growth in the future. The office building comprises approximately 8,000
feet.

         The Bank also owns property located at 7 N. 7th Street in McBee,  South
Carolina,   where  it  operates  a  branch   office.   The  facility   comprises
approximately 1,800 square feet.

Item 3.  Legal Proceedings.

         The  Company  may  from  time  to  time be a  party  to  various  legal
proceedings  arising in the ordinary  course of business,  but management of the
Company  is not aware of any  pending or  threatened  litigation  or  unasserted
claims or assessments that are expected to result in losses,  if any, that would
be material to the Company's business and operations.

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

         No matters were submitted to a vote of securities holders in the fourth
quarter of 2003.

Item 5. Market for Common Equity, Related Stockholder Matters and Small Business
        Issuer Purchases of Equity Securities.

Absence of Market for Common Stock

         Although  the common  stock of the  Company  may be traded from time to
time on an individual  basis,  no  established  trading market has developed and
none is expected to develop in the foreseeable  future.  The common stock is not
listed on any exchange nor is it traded on the NASDAQ  National  Market  System,
nor are there any market makers known to  management.  In 2003,  management  was
aware of a few  transactions  in which the  Company's  common  stock  traded for
$14.50 per share,  and  management is aware of one  transaction  in which shares
traded at $10.00 per share. However,  management has not ascertained that any of
these  transactions  are the result of arm's  length  negotiations  between  the
parties, and because of the limited number of shares involved,  these prices may
not be indicative of the market value of the common stock.

         As of December 31, 2003, there were approximately 883 holders of record
of the Company's  common stock,  excluding  individual  participants in security
position listings.



                                       9
<PAGE>

Dividends

         The Company  has never paid any cash  dividends,  and to  maintain  its
capital,  does not expect to pay cash dividends in the near future. The dividend
policy of the Company is subject to the discretion of the Board of Directors and
depends upon a number of factors, including earnings, financial conditions, cash
needs  and  general  business  conditions,  as  well  as  applicable  regulatory
considerations.  Because the Company has no  operations  other than those of the
Bank and presently has no income of its own, the Company would rely on dividends
from the Bank as its principal  source of cash to pay dividends.  South Carolina
banking  regulations  restrict the amount of cash  dividends that can be paid to
shareholders,  and all of the Bank's cash dividends to shareholders  are subject
to the prior  approval  of the  South  Carolina  Commissioner  of  Banking.

         The  payment  of  dividends  by the  Company  and the  Bank may also be
affected  or limited by other  factors,  such as the  requirements  to  maintain
adequate capital above regulatory guidelines. In addition, if, in the opinion of
the applicable regulatory authority, a bank under its jurisdiction is engaged in
or is about to engage in an unsafe or unsound practice (which,  depending on the
financial  condition of the Bank, could include the payment of dividends),  such
authority may require, after notice and hearing, that such bank cease and desist
from  such  practice.  The  Federal  Reserve  and the FDIC  have  issued  policy
statements  which  provide that bank holding  companies and insured banks should
generally only pay dividends out of current operating earnings.

Issuance of Unregistered Securities

         In connection  with the Bank's  initial  public  offering,  each of its
organizers  received a warrant to  purchase  5,000  shares of the Bank's  common
stock. Upon acquisition of the Bank by the Company,  the warrants were converted
into warrants to purchase  common stock of the Company.  The exercise  price for
the warrants is $10 per share and they may be exercised over a ten-year  period.
The right to exercise  the  warrants  vested with  respect to  one-third  of the
warrants on each of June 15, 2000,  June 15, 2001,  and June 15, 2002,  for each
organizer who had served  continuously  as a director from the Bank's  formation
until the vesting date. In each of 2001, 2002 and 2003, an aggregate of 3,400, 0
and 3,100  shares,  respectively,  was  exercised.  Issuance  of shares upon the
exercise of warrants has not been registered under the Securities Act of 1933 in
reliance on the exemption provided by Section 4(2) thereof.

         On January 1, 2001,  pursuant  to a  transaction  in which the  Company
became a one-bank  holding  company  for  Hartsville  Community  Bank,  National
Association, the Company exchanged 560,270 shares of its common stock for all of
the 560,270  outstanding  shares of common stock of Hartsville  Community  Bank,
National  Association.  The Company did not  register  issuance of its shares in
this  transaction  in reliance on the exemption  from  registration  provided by
Section 3(a)(12) of the Securities Act of 1933.

         See Item 11 for the  information  required by Item 201(d) of Regulation
S-B.

Purchases of Equity Securities by the Company and Affiliated Purchasers

         Neither  the Company nor any  "affiliated  purchaser"  as defined in 17
C.F.R.  240.10b-18(a)(3)  purchased  any  shares  or units  of any  class of the
Company's  equity  securities  that is registered  pursuant to Section 12 of the
Exchange Act during the fourth  quarter of 2003.  Accordingly,  no disclosure is
required pursuant to 17 C.F.R. Section 228.703.

                                       10

<Page>

Item 6.   Management's Discussion and Analysis or Plan of Operation

                              Basis of Presentation

The  following  discussion  should  be read in  conjunction  with the  Company's
Financial Statements and the Notes thereto and the other financial data included
elsewhere in this Annual Report.  The financial  information  provided below has
been  rounded in order to simplify  its  presentation.  However,  the ratios and
percentages   provided  below  are  calculated  using  the  detailed   financial
information  contained in the  Financial  Statements,  the Notes thereto and the
other financial data included elsewhere in this Annual Report.

                                     General

On  June  15,  1999,  Hartsville  Community  Bank  (the  "Bank")  completed  its
organization and began operations in temporary  facilities in Hartsville,  South
Carolina.  On January 1, 2001,  the Bank  became a  wholly-owned  subsidiary  of
Regional Bankshares,  Inc. (the Company),  when the Company acquired 100% of the
outstanding  common  stock of the Bank.  The  Company  was  formed to serve as a
holding  company for the Bank. On January 10, 2001,  the Bank  converted  from a
nationally-chartered bank to a state-chartered bank.

On May 10, 2001, the Company moved its operations to its newly constructed 8,250
square  foot  headquarters  at 206  South  Fifth  Street  in  Hartsville,  South
Carolina. In April 2003, the Bank moved its operations center to 226 W. Carolina
Avenue,  near the Bank's  headquarters.  The new site provided additional needed
space for operations as well as valuable storage space for the Bank.

The principal  business  activity of the Bank is to provide banking  services to
domestic  markets,  principally in Darlington  County and  Chesterfield  County,
South  Carolina.  The deposits of the Bank are insured up to legal limits by the
Federal  Deposit  Insurance  Corporation.  In addition to providing  traditional
banking  services,  the Bank has a mortgage  loan  division.  The mortgage  loan
division  originates loans to purchase existing homes or construct new homes and
to  refinance  existing  mortgages.  During 2001,  the Bank hired an  investment
broker to offer  investment  and brokerage  services to the Company's  customers
through Raymond James Financial Services, Inc., a registered broker-dealer firm.

On May 28,  2003 the Bank  opened the doors of its new  branch  office in McBee,
South  Carolina,  an area in which the Bank saw a need for a community bank that
could provide all the services of a "big" bank.  The McBee branch offers deposit
and loan services to many consumers and local industries in the area.




                                       11
<PAGE>


                              Results of Operations


Year ended December 31, 2003, compared with year ended December 31, 2002

Net interest  income  increased  $392,038,  or 23.73% in 2003 from $1,651,879 in
2002.  The increase in net interest  income was due  primarily to an increase in
average earning assets, which increased $10,358,000, or 29.05%, due to continued
growth in the loan portfolio  which was enhanced by the opening of a new branch.
The primary  components  of interest  income were  interest on loans,  including
fees, of $2,654,561 and interest on securities available for sale of $67,443.

The Company's net interest  spread and net interest margin were 4.21% and 4.44%,
respectively,  in 2003 compared to 4.30% and 4.63%,  respectively,  in 2002. The
decrease in net interest  spread was  primarily  the result of a lower  interest
rate  environment.  Yields on most earning  assets  declined in 2003.  Yields on
earning  assets  decreased  from  6.84%  in 2002 to 5.99%  in  2003.  Yields  on
interest-bearing liabilities decreased from 2.54% in 2002 to 1.78% in 2003.

The provision for loan losses was $132,000 in 2003 compared to $130,000 in 2002.
The Company  continues  to  maintain  the  allowance  for loan losses at a level
management  believes to be sufficient to cover known and inherent  losses in the
loan portfolio.

Noninterest  income  increased  $154,076,  or 43.99%,  to  $504,327 in 2003 from
$350,251 in 2002.  The  increase  is  primarily  attributable  to an increase in
brokerage commissions,  which increased $53,194, or 94.31 %, to $109,598 for the
year ended December 31, 2003. Service charges on deposit accounts also increased
by $47,945 or 26.55% to $228,532  for the year ended  December  31,  2003,  when
compared to 2002.  Residential  mortgage  origination fees increased $42,159, or
73.77%,  to $99,311 for the year ended December 31, 2003 due to the large number
of mortgage refinances in a low interest rate environment.

Noninterest  expense increased  $529,544,  or 31.67%, to $2,201,690 in 2003 from
$1,672,146 in 2002. Noninterest expenses increased in all categories as a result
of our continued growth. Other operating expenses increased $155,090 to $730,313
for the year ended December 31, 2003. The increase is mainly attributable to the
addition of our McBee branch office and our new operations center.  Salaries and
benefits increased  $319,648,  or 36.90%, to $1,185,955 in 2003 from $866,307 in
2002.  This increase is  attributable  to normal pay increases and the hiring of
additional  staff to meet  needs  associated  with  our  growth.  The  Company's
efficiency  ratio was 86.40% in 2003 compared to 83.52% in 2002.  The efficiency
ratio is  defined as  noninterest  expense  divided  by the sum of net  interest
income and noninterest income, net of gains and losses on sales of assets.

Net income was  $135,169  in 2003  compared to a net income of $125,968 in 2002.
The  net  income  reflects  our  continued  growth,  as  average-earning  assets
increased from  $35,660,000  for the year ended December 31, 2002 to $46,018,000
for the year ended  December 31, 2003.  Return on average assets during 2003 was
0.27%  compared to 0.32%  during  2002,  and return on average  equity was 2.91%
during 2003 compared to 2.81% during 2002.




                                       12
<PAGE>


                               Net Interest Income

General.  The largest  component of the Company's net income is its net interest
income, which is the difference between the income earned on assets and interest
paid on deposits and borrowings used to support such assets. Net interest income
is determined by the yields earned on the Company's  interest-earning assets and
the rates paid on its  interest-bearing  liabilities,  the  relative  amounts of
interest-earning  assets  and  interest-bearing  liabilities,  and the degree of
mismatch and the maturity and repricing  characteristics of its interest-earning
assets and  interest-bearing  liabilities.  Total interest  earning assets yield
less total  interest  bearing  liabilities  rate  represents  the  Company's net
interest rate spread.

Average  Balances,  Income and Expenses,  and Rates.  The  following  table sets
forth, for the years  indicated,  certain  information  related to the Company's
average  balance  sheet and its average  yields on assets and  average  costs of
liabilities.  Such  yields  are  derived  by  dividing  income or expense by the
average balance of the  corresponding  assets or liabilities.  Average  balances
have been derived from the daily balances throughout the periods indicated.

Average Balances, Income and Expenses, and Rates
<TABLE>
<CAPTION>
                                                                             2003                                  2002
                                                                             ----                                  ----
                                                               Average      Income/      Yield/       Average     Income/     Yield/
(Dollars in thousands)                                         Balance     Expense        Rate        Balance    Expense       Rate
                                                            ------------  ----------  ----------    ----------  ----------  --------
Assets:
  Earning Assets:
<S>                                                         <C>           <C>              <C>      <C>         <C>            <C>
     Loans (1) .......................................      $     41,352  $    2,655       6.42%    $   30,787  $    2,333     7.58%
     Securities, taxable (2) .........................             2,287          67       2.93          1,030          41     3.98
     Nonmarketable securities ........................               159           7       4.40            138           6     4.35
     Federal funds sold ..............................             2,220          25       1.17          3,705          60     1.62
                                                            ------------  ----------                ----------  ----------
       Total earning assets ..........................            46,018       2,754       5.99         35,660       2,440     6.84
                                                            ------------  ----------                ----------  ----------
  Cash and due from banks ............................             1,832                                 1,371
  Premises and equipment .............................             2,362                                 2,100
  Other assets .......................................               803                                   785
  Allowance for loan losses ..........................              (417)                                 (315)
                                                            ------------                            ----------
       Total assets ..................................      $     50,598                            $   39,601
                                                            ============                            ==========
Liabilities:
  Interest-bearing liabilities:
     Interest-bearing transaction
       accounts ......................................      $      4,892          14       0.29%    $    3,782          19     0.50%
     Savings deposits ................................            11,117         136       1.22          7,652         135     1.76
     Time deposits ...................................            23,423         557       2.38         19,109         621     3.25
  Federal Home Loan Bank Advances ....................               562           3       0.53            503          13     2.58
  Other short-term borrowings ........................                 5           0                        -           -
                                                            ------------  ----------                ----------  ----------
       Total interest-bearing
         liabilities .................................            39,999         710       1.78         31,046         788     2.54
                                                            ------------  ----------                ----------  ----------
  Demand deposits ....................................             5,730                                 3,818
  Accrued interest and other liabilities .............               227                                   257
  Shareholders' equity ...............................             4,642                                 4,480
                                                            ------------                            ----------
       Total liabilities and
         Shareholders' equity ........................      $     50,598                            $   39,601
                                                            ============                            ==========
  Net interest spread ................................                                     4.21%                               4.30%
  Net interest income ................................                    $    2,044                            $    1,652
                                                                          ==========                            ==========
  Net interest margin ................................                                     4.44%                               4.63%
</TABLE>
(1)  The  effect  of  fees  collected  on  loans  is  not   significant  to  the
     computations.  Nonaccrual  loans are not  included  in average  balances on
     loans. All loans and deposits are domestic.
(2)  Average investment securities exclude the valuation allowance on securities
     available-for-sale.



                                       13
<PAGE>


                              Rate/Volume Analysis

Analysis of Changes in Net  Interest  Income.  Net  interest  income can also be
analyzed  in terms of the impact of  changing  rates and  changing  volume.  The
following  table  reflects  the extent to which  changes in  interest  rates and
changes in the volume of earning assets and  interest-bearing  liabilities  have
affected the Company's  interest income and interest  expense during the periods
indicated.  Information on changes in each category  attributable to (i) changes
due to volume (change in volume  multiplied by prior period rate),  (ii) changes
due to rates  (changes in rates  multiplied  by prior  period  volume) and (iii)
changes in  rate/volume  (change in rate  multiplied by the change in volume) is
provided as follows:

<TABLE>
<CAPTION>
                                                                               2003 Compared to 2002
                                                                                  Variance due to
                                                                                  ---------------
(Dollars in thousands)                                                Volume (1)       Rate (1)            Total
                                                                     ------------    ------------    ------------
  Interest income:
<S>                                                                  <C>             <C>             <C>
     Loans .....................................................     $        716    $       (394)            322
     Securities, taxable .......................................               39             (13)             26
     Nonmarketable securities ..................................               -               -               -
     Federal funds sold and other ..............................              (20)            (14)            (34)
                                                                     ------------    ------------    ------------

       Total interest income ...................................              735            (421)            314
                                                                     ------------    ------------    ------------

  Interest expense:
     Interest-bearing deposits .................................              178            (246)            (68)
     Short-term borrowings .....................................                2             (12)            (10)
                                                                     ------------    ------------    ------------

       Total interest expense ..................................              180            (258)            (78)
                                                                     ------------    ------------    ------------

       Net interest income .....................................     $        555    $       (163)   $        392
                                                                     ============    ============    ============
</TABLE>

(1)  Volume-rate  changes  have  been  allocated  to each  category  based  on a
     consistent basis between rate and volume.




                                       14
<PAGE>


                               Net Interest Income

Interest Sensitivity.  The Company monitors and manages the pricing and maturity
of its assets and liabilities in order to diminish the potential  adverse impact
that  changes in  interest  rates  could have on its net  interest  income.  The
principal monitoring technique employed by the Company is the measurement of the
Company's  interest  sensitivity "gap," which is the positive or negative dollar
difference  between  assets and  liabilities  that are subject to interest  rate
repricing  within a given  period  of time.  Interest  rate  sensitivity  can be
managed   by   repricing    assets   or    liabilities,    selling    securities
available-for-sale,  replacing an asset or  liability at maturity,  or adjusting
the interest rate during the life of an asset or liability.  Managing the amount
of assets and  liabilities  repricing in this same time interval  helps to hedge
the risk and  minimize  the impact on net  interest  income of rising or falling
interest rates.

The  following  table sets forth the  Company's  interest  rate  sensitivity  at
December 31, 2003.
Interest Sensitivity Analysis
<TABLE>
<CAPTION>
                                                          After one       After Three                        Greater
                                                           Through         Through                          Than One
December 31, 2003                       Within One          Three           Twelve       Within one       Year or Non-
(Dollars in thousands)                     Month            Months          Months           Year            Sensitive        Total
                                      ------------      ------------      ----------      ----------      ------------      --------
Assets
Interest-earning assets
<S>                                   <C>               <C>               <C>             <C>             <C>                <C>
  Loans ...........................   $     25,030      $        739      $    2,118      $   27,887      $     20,375       $48,262
  Securities, taxable .............             -                 -               -               -              2,345         2,345
  Nonmarketable securities ........             -                 -               -               -                165           165
  Federal funds sold ..............          2,372                -               -            2,372                -          2,372
                                      ------------      ------------      ----------      ----------      ------------      --------
       Total earning assets .......         27,402               739           2,118          30,259            22,885        53,144
                                      ------------      ------------      ----------      ----------      ------------      --------
Liabilities
Interest-bearing liabilities:
  Interest-bearing deposits:
     Demand deposits ..............          5,284                -               -            5,284                -          5,284
     Savings deposits .............         14,484                -               -           14,484                -         14,484
     Time deposits ................          1,972             5,610          13,544          21,126             2,577        23,703
                                      ------------      ------------      ----------      ----------      ------------      --------
       Total interest-bearing
         deposits .................         21,740             5,610          13,544          40,894             2,577        43,471
                                      ------------      ------------      ----------      ----------      ------------      --------
  Federal Home Loan Bank
     advances .....................          2,000                -               -            2,000                -          2,000
                                      ------------      ------------      ----------      ----------      ------------      --------
       Total interest-bearing
         liabilities ..............         23,740             5,610          13,544          42,894             2,577        45,471
                                      ------------      ------------      ----------      ----------      ------------      --------
Period gap ........................   $      3,662      $     (4,871)     $  (11,426)     $  (12,635)     $     20,308
                                      ============      =============     ==========      ==========      ============
Cumulative gap ....................   $      3,662      $     (1,209)     $  (12,635)     $  (12,635)     $      7,673
                                      ============      ============      ==========      ==========      ============
Ratio of cumulative gap to total
  earning assets ..................           6.89%            (2.27)%        (23.78)%        (23.78)%           14.44%
</TABLE>

The  above  table   reflects  the  balances  of   interest-earning   assets  and
interest-bearing  liabilities  at the  earlier of their  repricing  or  maturity
dates.  Overnight  federal funds are reflected at the earliest  pricing interval
due to the immediately available nature of the instruments.  Debt securities are
reflected at each instrument's ultimate maturity date. Scheduled payment amounts
of fixed rate  amortizing  loans are reflected at each  scheduled  payment date.
Scheduled  payment  amounts of variable rate  amortizing  loans are reflected at
each scheduled  payment date until the loan may be repriced  contractually;  the
unamortized  balance is  reflected at that point.  Interest-bearing  liabilities
with no  contractual  maturity,  such as savings  deposits and  interest-bearing
transaction  accounts,  are  reflected in the earliest  repricing  period due to
contractual  arrangements  which give the  Company the  opportunity  to vary the
rates paid on those deposits within a thirty-day or shorter period. However, the
Company is not  obligated  to vary the rates paid on these  deposits  within any
given period. Fixed rate time deposits, principally certificates of deposit, are
reflected at their contractual maturity dates.



                                       15
<PAGE>


                         Net Interest Income - continued

The Company  generally  would benefit from  increasing  market rates of interest
when it has an  asset-sensitive  gap position and  generally  would benefit from
decreasing market rates of interest when it is liability-sensitive.  The Company
is  cumulatively  liability-sensitive  for all periods  within one year with the
exception of amounts due within one month.  However,  the Company's gap analysis
is not a precise indicator of its interest  sensitivity  position.  The analysis
presents  only  a  static  view  of  the  timing  of  maturities  and  repricing
opportunities,  without taking into consideration that changes in interest rates
do not affect all assets and liabilities equally.  For example,  rates paid on a
substantial  portion  of  core  deposits  may  change   contractually  within  a
relatively  short  time  frame,  but those  rates are  viewed by  management  as
significantly less interest-sensitive than market-based rates such as those paid
on noncore deposits. Accordingly,  management believes a liability-sensitive gap
position is not as indicative of the Company's  true interest  sensitivity as it
would be for an  organization  which  depends to a greater  extent on  purchased
funds to support  earning  assets.  Net interest  income may also be impacted by
other  significant  factors  in a given  interest  rate  environment,  including
changes  in  the  volume  and  mix  of  earning   assets  and   interest-bearing
liabilities.

                     Provision and Allowance for Loan Losses

General.  The Company has developed  policies and  procedures for evaluating the
overall  quality  of its  credit  portfolio  and the  timely  identification  of
potential  problem  credits.  On a  quarterly  basis,  the  Company's  Board  of
Directors reviews and approves the appropriate level for the Company's allowance
for loan  losses  based upon  management's  recommendations,  the results of the
internal monitoring and reporting system, and an analysis of economic conditions
in its market.  The experience of management with other  financial  institutions
and the experience of other financial  institutions in the area has been to fund
the allowance  for loan losses at  approximately  1% of total loans  outstanding
until a history is established for the Company.

Additions to the allowance for loan losses,  which are expensed as the provision
for loan losses on the Company's  statement of income,  are made periodically to
maintain the allowance at an appropriate level based on management's analysis of
inherent losses in the loan portfolio. Loan losses and recoveries are charged or
credited directly to the allowance. The amount of the provision is a function of
the level of loans  outstanding,  the level of nonperforming  loans,  historical
loan loss  experience,  the amount of loan losses  actually  charged against the
reserve during a given period, and current and anticipated economic conditions.

The Company's  allowance for loan losses is based upon judgments and assumptions
about risk elements in the  portfolio,  future  economic  conditions,  and other
factors  affecting  borrowers.  The  process of setting the  allowance  includes
identification  and analysis of inherent  losses in various  portfolio  segments
utilizing a credit risk grading process and specific  reviews and evaluations of
significant  problem  credits.  In  addition,  management  monitors  the overall
portfolio  quality through  observable  trends in delinquency,  chargeoffs,  and
general  and  economic  conditions  in the  service  area.  The  adequacy of the
allowance for loan losses and the effectiveness of the Company's  monitoring and
analysis system are also reviewed periodically by the banking regulators and the
Company's independent auditors.

Based on present information and an ongoing evaluation, management considers the
allowance  for loan losses to be adequate to meet  presently  known and inherent
losses in the loan  portfolio.  Management's  judgment about the adequacy of the
allowance is based upon a number of  assumptions  about  future  events which it
believes to be reasonable but which may or may not be accurate.  Thus, there can
be no assurance that  chargeoffs in future periods will not exceed the allowance
for loan losses or that  additional  increases in the  allowance for loan losses
will not be  required.  The Company does not  allocate  the  allowance  for loan
losses to specific  categories of loans but evaluates the adequacy on an overall
portfolio basis  utilizing a risk grading system.  Although real estate mortgage
loans comprise the largest category of total loans, the relative risk associated
with these loans is considered  lower than the risk associated with  traditional
commercial and consumer loans. Commercial and consumer loans are usually secured
by  collateral  other than real estate and  therefore  carry a higher  degree of
risk.



                                       16
<PAGE>


               Provision and Allowance for Loan Losses - continued

The  following  table  sets forth  information  with  respect  to the  Company's
allowance for loan losses and the  composition  of chargeoffs and recoveries for
the years ended December 31, 2003 and 2002.

Allowance for Loan Losses
<TABLE>
<CAPTION>
(Dollars in thousands)                                                                                  2003                  2002
                                                                                                        ----                  ----
<S>                                                                                                   <C>                   <C>
Total loans outstanding at end of year .................................................              $48,263               $35,233
                                                                                                      =======               =======
Average loans outstanding ..............................................................              $41,352               $30,787
                                                                                                      =======               =======
Balance of allowance for loan losses at beginning of year ..............................              $   369               $   268
Loans charged off:
     Real estate - construction ........................................................                    -                     -
     Real estate - mortgage ............................................................                    -                     -
     Commercial and industrial .........................................................                    -                     -
     Consumer and other ................................................................                   24                    33
                                                                                                      -------               -------
         Total loan losses .............................................................                   24                    33
                                                                                                      -------               -------
Recoveries of previous loan losses:
     Real estate - construction ........................................................                    -                     -
     Real estate - mortgage ............................................................                    -                     -
     Commercial and industrial .........................................................                    -                     -
     Consumer and other ................................................................                    6                     4
                                                                                                      -------               -------
         Total recoveries ..............................................................                    6                     4
                                                                                                      -------               -------
Net charge-offs ........................................................................                   18                    29
Provision for loan losses ..............................................................                  132                   130
                                                                                                      -------               -------
Balance of allowance for loan losses at end of year ....................................              $   483               $   369
                                                                                                      =======               =======

Allowance for loan losses to year end loans ............................................                 1.00%                 1.05%
Ratio of charge-offs to average loans ..................................................                 0.06%                 0.11%
</TABLE>

                              Nonperforming Assets

Nonperforming   Assets.  There  were  loans  totaling  $10,833  and  $27,229  in
nonaccrual status at December 31, 2003 and 2002, respectively.  There were loans
totaling  $7,874  past due ninety  days or more and still  accruing  interest at
December 31, 2003.  There were no loans of this type at December 31, 2002. There
were no restructured loans at December 31, 2003 or 2002.

Accrual of interest is discontinued on a loan when  management  believes,  after
considering  economic and business  conditions and  collection  efforts that the
borrower's  financial  condition  is such that the  collection  of  interest  is
doubtful.  A delinquent  loan is generally  placed in nonaccrual  status when it
becomes 90 days or more past due unless the  estimated net  realizable  value of
collateral  exceeds the principal balance and accrued  interest.  When a loan is
placed in nonaccrual status, all interest which has been accrued on the loan but
remains unpaid is reversed and deducted from current  earnings as a reduction of
reported interest income. No additional  interest is accrued on the loan balance
until the collection of both principal and interest becomes reasonably  certain.
When a problem  loan is  finally  resolved,  there may  ultimately  be an actual
write-down  or  chargeoff  of the  principal  balance  of the loan  which  would
necessitate  additional  charges to  earnings.  For all periods  presented,  the
additional  interest  income,  which would have been recognized into earnings if
the  Company's  nonaccrual  loans had been  current  in  accordance  with  their
original terms and the amount of interest income on such loans that was included
in net income, is immaterial.



                                       17
<PAGE>


                        Nonperforming Assets - continued

Potential  Problem  Loans.  Management  has  identified  and maintains a list of
potential problem loans. These are loans that are not included in impaired loans
(nonaccrual or past due 90 days or more and still accruing).  A loan is added to
the potential  problem loan list when  management  becomes aware of  information
about  possible  credit  problems of  borrowers  that causes  doubts about their
ability to comply with the current loan repayment  terms.  At December 31, 2003,
the  Company  had  identified  $449,876  in  criticized  loans  (loans  that are
typically  60-89 days past due) and $17,009 in classified  loans (loans that are
typically 90 days or more past due) through its internal review  mechanisms.  At
December 31,  2002,  the Company had  identified  $690 in  criticized  loans and
$24,123 in  classified  loans  through its  internal  review  mechanisms.  These
amounts do not  represent  management's  estimate of  potential  losses  since a
portion of such loans is secured by various types of collateral.  The results of
this  internal  review  process  are  considered  in  determining   management's
assessment of the adequacy of the allowance for loan losses.

                         Noninterest Income and Expense

Noninterest Income.  Noninterest income for the year ended December 31, 2003 was
$504,327,  an increase of $154,076 from $350,251 for the year ended December 31,
2002.  The  increase  is  primarily  due  to an  increase  in  income  brokerage
commissions  which  totaled  $109,598 in 2003 as compared to $56,404 in 2002 and
income from our residential mortgage origination  increased from $57,152 for the
year ended December 31, 2002 to $99,311 for the year ended December 31, 2003.

The following  table sets forth the principal  components of noninterest  income
for the years ended December 31, 2003 and 2002.

     (Dollars in thousands)                                2003          2002
                                                       ----------    ----------
     Service charges on deposit accounts ...........   $      229    $      180
     Credit life insurance commissions .............            4             7
     Residential mortgage origination fees .........           99            57
     Brokerage commissions .........................          110            57
     Other income ..................................           62            49
                                                       ----------    ----------
     Total noninterest income ......................   $      504    $      350
                                                       ==========    ==========

Noninterest  Expense.  Noninterest  expense  increased  $529,544  or  31.67%  to
$2,201,690  for the year ended  December 31, 2003 when compared to 2002. Of this
total,  other operating expenses  increased  $155,090,  or 26.96% to $730,313 in
2003 from $575,223 in 2002. The increase is mainly  attributable to the addition
of our McBee branch office and our new operations center.  Salaries and employee
benefits  increased  $319,648,  or 36.90%,  in 2003 from $866,307 in 2002.  This
increase is  attributable  to normal pay  increases and the hiring of additional
staff to meet needs  associated with our growth.  Occupancy  expense,  including
depreciation  charges,  increased  $29,977,  or 27.61% to $138,543  for the year
ended December 31, 2003. Furniture and equipment expense increased from $122,050
in 2002 to $146,879 for the year ended December 31, 2003. Increases in occupancy
and  furniture  and  equipment  expense  are also a result of the opening of our
McBee branch and operations center.




                                       18
<PAGE>


                   Noninterest Income and Expense - continued

The following table sets forth the primary components of noninterest expense for
the years ended December 31, 2003 and 2002.

<TABLE>
<CAPTION>
     (Dollars in thousands)                                                            2003             2002
                                                                                -------------    -------------
<S>                                                                             <C>              <C>
     Salaries and employee benefits ......................................      $       1,186    $         866
     Net occupancy and equipment expense .................................                285              231
     Advertising and public relations ....................................                 90               43
     Office supplies, stationery, and printing ...........................                 64               43
     Data processing and related expense .................................                138              116
     Professional fees and services ......................................                 74               77
     Telephone expenses ..................................................                 48               29
     Other ...............................................................                317              267
                                                                                -------------    -------------
         Total noninterest expense .......................................      $       2,202    $       1,672
                                                                                =============    =============
     Efficiency ratio ....................................................             86.40%            83.52%
</TABLE>

                                 Earning Assets

Loans.  Loans are the largest  category of earning assets and typically  provide
higher yields than the other types of earning assets. Associated with the higher
loan  yields  are the  inherent  credit and  liquidity  risks  which  management
attempts to control  and  counterbalance.  Loans  averaged  $41,352,000  in 2003
compared  to  $30,787,000  in 2002,  an increase of  $10,565,000  or 34.32%.  At
December 31,  2003,  total loans were  $48,262,788  compared to  $35,232,689  at
December 31, 2002.

The following table sets forth the composition of the loan portfolio by category
at the dates  indicated and  highlights  the Company's  general  emphasis on all
types of lending.

Composition of Loan Portfolio

<TABLE>
<CAPTION>
December 31,                                              2003                                 2002
                                                          ----                                 ----
(Dollars in thousands)                                             Percent                            Percent
                                                Amount             of Total          Amount           of Total
                                                ------             --------          ------           --------
<S>                                         <C>                     <C>         <C>                    <C>
Commercial and industrial ..............    $        6,925           14.35%     $       3,474            9.86%
Real estate
     Construction ......................             3,899            8.08              4,321           12.26
     Mortgage-residential ..............            15,526           32.17              9,154           25.98
     Mortgage-nonresidential ...........            15,956           33.06             12,148           34.48
Consumer ...............................             5,957           12.34              6,136           17.42
                                            --------------           -----      -------------          ------
     Total loans .......................            48,263          100.00%            35,233          100.00%
Allowance for loan losses ..............              (483)                              (369)
                                            --------------                      -------------
     Net loans .........................    $       47,780                      $      34,864
                                            ==============                      =============
</TABLE>

The largest  component of the Company's loan  portfolio is real estate  mortgage
loans. At December 31, 2003, real estate mortgage loans totaled  $31,481,432 and
represented  65.23% of the total loan  portfolio,  compared  to  $21,302,015  or
60.46% at December 31, 2002.

In the context of this  discussion,  a "real estate mortgage loan" is defined as
any loan,  other than loans for construction  purposes,  secured by real estate,
regardless  of the  purpose of the loan.  It is common  practice  for  financial
institutions in the Company's market area to obtain a security  interest in real
estate whenever possible,  in addition to any other available  collateral.  This
collateral is taken to reinforce the likelihood of the ultimate repayment of the
loan and tends to increase  the  magnitude  of the real  estate  loan  portfolio
component.



                                       19
<PAGE>

                           Earning Assets - continued

Residential  mortgage  loans  totaled  $15,525,959  at  December  31,  2003  and
represented  32.17% of the total  loan  portfolio,  compared  to  $9,153,687  at
December 31,  2002.  Residential  real estate loans  consist of first and second
mortgages  on  single  or  multi-family  residential  dwellings.  Nonresidential
mortgage  loans,  which  include  commercial  loans and other  loans  secured by
multi-family properties and farmland,  totaled $15,955,503 at December 31, 2003,
compared to  $12,148,328  at December 31, 2002.  This  represents an increase of
$3,807,175  or  31.34%  from the  December  31,  2002  amount.  The  demand  for
residential  and  commercial  real  estate  loans in the  Hartsville  market has
increased due to a lower interest rate environment. The Company has been able to
compete   favorably  for   residential   mortgage  loans  with  other  financial
institutions  by offering  fixed rate  products  having three and five year call
provisions.

The  Company's  loan  portfolio  is also  comprised  heavily of consumer  loans.
Consumer and other loans decreased  $178,683 or 3.00%, to $5,956,923 at December
31, 2003 from $6,135,606 at December 31, 2002.

Commercial and industrial loans increased $3,451,681 or 99.35%, to $6,925,789 at
December  31,  2003 from  $3,474,108  at  December  31,  2002.  The  increase is
attributed to approximately  $1,200,000 in new loans originated at the Company's
new McBee branch and the Bank's overall growth in the Hartsville area.

The Company's loan portfolio reflects the diversity of its market. The Company's
home office is located in Hartsville in Darlington County,  South Carolina.  The
Company has a second branch in McBee,  which is in  Chesterfield  County,  South
Carolina.  The  economy  of  Hartsville  contains  elements  of medium and light
manufacturing,   higher  education,   regional  health  care,  and  distribution
facilities.  The  economy  of  McBee  contains  elements  of  medium  and  light
manufacturing  and farming.  Management  expects the areas to remain stable with
continued  growth in the near  future.  The  diversity  of the  economy  creates
opportunities  for all types of lending.  The Company does not engage in foreign
lending.

The repayment of loans in the loan  portfolio as they mature is also a source of
liquidity for the Company.  The following  table sets forth the Company's  loans
maturing within specified intervals at December 31, 2003.

Loan Maturity Schedule and Sensitivity to Changes in Interest Rates

<TABLE>
<CAPTION>
                                                              Over One Year
December 31, 2003                              One Year or        Through         Over Five
(Dollars in thousands)                             Less         Five Years           Years            Total
                                            --------------    -------------     -------------    -------------
<S>                                         <C>               <C>               <C>              <C>
Commercial and industrial ...............   $        3,361    $       3,000     $         565    $       6,926
Real estate .............................            2,188           25,117             8,075           35,380
Consumer and other ......................            1,181            4,180               596            5,957
                                            --------------    -------------     -------------    -------------
                                            $        6,730    $      32,297     $       9,236    $      48,263
                                            ==============    =============     =============    =============

Loans maturing after one year with:
     Fixed interest rates ...............                                                        $      20,378
     Floating interest rates ............                                                               21,155
                                                                                                 -------------
                                                                                                 $      41,533
                                                                                                 =============
</TABLE>

The  information  presented in the preceding  table is based on the  contractual
maturities  of the  individual  loans,  including  loans which may be subject to
renewal  at their  contractual  maturity.  Renewal  of such  loans is subject to
review and credit approval as well as modification of terms upon their maturity.
Consequently,  management  believes this treatment  presents fairly the maturity
and repricing structure of the loan portfolio shown in the above table.

Investment  Securities.  The investment securities portfolio is also a component
of the  Company's  total earning  assets.  Total  securities  available-for-sale
averaged  $2,287,000  in 2003,  compared to  $1,030,000 in 2002. At December 31,
2003,  total   securities   available-for-sale   were  $2,344,649.   Other  than
nonmarketable   equity   securities,   all   securities   were   designated   as
available-for-sale  and were recorded at their estimated fair value.  Investment
securities  also  include  certain  nonmarketable  equity  securities  including
Federal Home Loan Bank of Atlanta stock and Community Financial  Services,  Inc.
(parent of The Bankers  Bank)  stock.  These  securities  are  recorded at their
original cost and totaled $164,853 at December 31, 2003.



                                       20
<PAGE>


                           Earning Assets - continued

The   following   table   sets   forth   the  book   value  of  the   securities
available-for-sale held by the Company at December 31, 2003 and 2002.

Book Value of Securities
<TABLE>
<CAPTION>
     (Dollars in thousands)                                                           2003             2002
                                                                                -------------    -------------
<S>                                                                             <C>              <C>
     U.S. government agencies and corporations ............................     $       1,500    $       2,500
     Mortgage backed ......................................................               866    $          -
                                                                                -------------    -------------
         Total securities available-for-sale ..............................     $       2,366    $       2,500
                                                                                =============    =============
</TABLE>

The following  table sets forth the scheduled  maturities  and weighted  average
yields of securities available-for-sale held at December 31, 2003.

Investment Securities Maturity Distribution and Yields

<TABLE>
<CAPTION>
                                                                        After One But
December 31, 2003                                                     Within Five Years                        Total
                                                               -------------------------------     ------------------------------
                                                                                   Weighted                           Weighted
                                                                                   Average                            Average
(Dollars in thousands)                                              Amount           Yield            Amount            Yield
                                                               --------------    -------------     -------------    -------------
<S>                                                            <C>                  <C>            <C>                  <C>
U.S. government agencies and corporations ..................   $        1,500       2.48%          $       1,500        2.48%
Mortgage Backed ............................................              866       4.00%                    866        4.00%
                                                               --------------                      -------------
     Total securities available for sale ...................   $        2,366       3.05%          $       2,366        3.05%
                                                               ==============                      =============
</TABLE>

Other attributes of the securities  portfolio,  including yields and maturities,
are discussed above in "Net Interest Income- Interest Sensitivity Analysis."

Short-Term  Investments.  Short-term  investments,  which  consist  primarily of
federal funds sold, averaged $2,220,000 in 2003, compared to $3,705,000 in 2002.
At December 31, 2003, short-term investments totaled $2,371,780. These funds are
an important  source of the  Company's  liquidity.  Federal  funds are generally
invested in an earning capacity on an overnight basis.

                 Deposits and Other Interest-Bearing Liabilities

Average  interest-bearing   liabilities  increased  $8,953,000,   or  28.84%  to
$39,999,000 in 2003, from $31,046,000 in 2002. Average interest-bearing deposits
increased  $8,889,000,  or 29.10%,  to $39,432,000 in 2003, from  $30,543,000 in
2002.   These   increases   resulted  from   increases  in  all   categories  of
interest-bearing  liabilities,  primarily as a result of the continued growth of
the Company.

Deposits.   Average  total  deposits  increased   $10,801,000,   or  31.43%,  to
$45,162,000  in 2003,  from  $34,361,000  in 2002.  At December 31, 2003,  total
deposits were $50,439,904,  compared to $39,378,724 a year earlier,  an increase
of 28.09%.  The largest  increase in  deposits  was in savings and money  market
deposits  which  increased  $6,406,493 or 79.31% to  $14,484,317 at December 31,
2003 when compared to 2002.



                                       21
<PAGE>


           Deposits and Other Interest-Bearing Liabilities - continued

The  following  table sets forth the  deposits  of the  Company by  category  at
December 31, 2003 and 2002.

Deposits
<TABLE>
<CAPTION>
December 31,                                             2003                                 2002
                                            -------------------------------     ------------------------------
                                                              Percent of                         Percent of
(Dollars in thousands)                          Amount            Deposits          Amount           Deposits
                                            --------------    -------------     -------------    -------------
<S>                                         <C>                     <C>         <C>                   <C>
Demand deposit accounts ..................  $        6,969           13.82%     $       4,788          12.16%
NOW accounts .............................           5,284           10.48              4,567          11.60
Money market accounts ....................          12,421           24.63              7,327          18.60
Savings accounts .........................           2,063            4.09                751           1.91
Time deposits less than $100 .............          16,144           32.00             15,048          38.21
Time deposits of $100 or more ............           7,559           14.98              6,898          17.52
                                            --------------          ------      -------------         ------
     Total deposits ......................  $       50,440          100.00%     $      39,379         100.00%
                                            ==============                      =============
</TABLE>

The average  amounts and average rates paid on deposits held by the Bank for the
years ended December 31, 2003 and 2002 are summarized below:

<TABLE>
<CAPTION>
December 31,                                             2003                                 2002
                                            -------------------------------     ------------------------------
                                                  Average          Average         Average            Average
(Dollars in thousands)                            Amount          Rate Paid         Amount           Rate Paid
                                            --------------    ---------------   -------------    ---------------
<S>                                         <C>                   <C>           <C>                  <C>
Demand deposit accounts ...............     $    5,730            0.00%         $   3,818            0.00%
NOW accounts ..........................          4,892            0.28              3,782            0.49
Money market accounts .................          9,877            1.32              6,992            1.84
Savings accounts ......................          1,240            0.44                659            0.94
Time deposits less than $100 ..........          7,605            2.39              6,889            3.22
Time deposits of $100 or more .........         15,818            2.38             12,221            3.27
                                            ----------            ----          ---------            ----
     Total deposits ...................     $   45,162            1.79%         $  34,361            2.54%
                                            ==========                          =========
</TABLE>

Core  deposits,  which  exclude  time  deposits of  $100,000 or more,  provide a
relatively  stable  funding  source for the Company's  loan  portfolio and other
earning  assets.  The Company's  core deposits were  $42,880,142 at December 31,
2003.

Deposits, and particularly core deposits, have been the Company's primary source
of funding and have enabled the Company to meet successfully both its short-term
and long-term  liquidity needs.  Management  anticipates that such deposits will
continue  to be the  Company's  primary  source of  funding in the  future.  The
Company's  loan-to-deposit  ratio was 95.68% at December 31, 2003, and 89.47% at
December 31, 2002. The maturity  distribution  of the Company's time deposits of
$100,000 or more at December 31, 2003, is set forth in the following table:

Maturities of Time Deposits of $100,000 or More

<TABLE>
<CAPTION>
                                                                 After Six
                                              After Three         Through
                            Within Three      Through Six          Twelve       After Twelve
(Dollars in thousands)          Months           Months            Months            Months           Total
                           -------------    --------------    -------------     -------------    -------------
Certificates of deposit
<S>                        <C>               <C>                <C>                <C>               <C>
  of $100,000 or more ...  $   2,751         $   2,526          $   1,496          $  786            $  7,559
</TABLE>

Approximately  36.39% of the  Company's  time  deposits  of $100,000 or more had
scheduled  maturities within three months,  and 69.81% had maturities within six
months. Large certificate of deposit customers tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits.



                                       22
<PAGE>


           Deposits and Other Interest-Bearing Liabilities - continued

Advances from Federal Home Loan Bank. Total advances from Federal Home Loan Bank
were  $2,000,000  at December  31,  2003.  The average of Federal Home Loan Bank
advances  was  $562,000 in 2003 as compared to $503,000 in 2002.  Advances  from
Federal Home Loan Bank serve as a secondary funding source.

Advances from Federal Home Loan Bank mature at different periods as discussed in
the footnotes to the financial  statements  and are secured by the Bank's one to
four family residential mortgage loans and the Bank's investment in Federal Home
Loan Bank stock.

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                                 -----------------------
                                           Maximum                       Weighted
                                        Outstanding                       Average                      Interest
                                            at any        Average        Interest        Balance        Rate at
(Dollars in thousands)                    Month End       Balance            Rate     December 31,   December 31,
                                        -----------    -----------     -----------    ------------   ------------
2003
<S>                                     <C>                <C>            <C>            <C>              <C>
Advances from Federal Home
   Loan Bank ........................   $ 2,000            $  562         1.31%          $ 2,000          1.15%

2002
Advances from Federal Home
   Loan Bank ........................   $ 1,750            $  503         1.98%          $    -            N/A
</TABLE>

                                     Capital

The Federal  Reserve  Board and bank  regulatory  agencies  require bank holding
companies  and financial  institutions  to maintain  capital at adequate  levels
based on a percentage of assets and  off-balance-sheet  exposures,  adjusted for
risk weights ranging form 0% to 100%. Under the risk-based standard,  capital is
classified  into two tiers.  Tier 1 capital of the  Company  consists  of common
shareholders' equity minus certain intangible assets. Tier 2 capital consists of
the allowance  for loan losses  subject to certain  limitations.  A bank holding
company's  qualifying  capital base for purposes of its risk-based capital ratio
consists  of the sum of its Tier 1 and Tier 2 capital.  The  regulatory  minimum
requirements are 4% for Tier 1 and 8% for total risk-based capital.  The holding
company  and banking  subsidiary  are also  required  to  maintain  capital at a
minimum level based on quarterly average assets,  which is known as the leverage
ratio.  Only the  strongest  bank  holding  companies  and banks are  allowed to
maintain  capital  at  the  minimum  requirement.  All  others  are  subject  to
maintaining  ratios  100 to 200 basis  points  above the  minimum.  The  Federal
Reserve applies its guidelines on a bank-only  basis for holding  companies with
less than $150 million in consolidated assets.

Analysis of Capital and Capital Ratios
<TABLE>
<CAPTION>
December 31, 2003                                                                  The Bank       The Company
                                                                                   --------       -----------
(Dollars in thousands)
<S>                                                                             <C>              <C>
Tier 1 capital .............................................................    $   4,696,712    $   4,741,636
Tier 2 capital .............................................................          482,875          482,875
                                                                                -------------    -------------
     Total qualifying capital ..............................................    $   5,179,587    $   5,224,511
                                                                                =============    =============

Risk-adjusted total assets (including off-balance-sheet exposures) .........    $  50,243,219    $  50,253,453
                                                                                =============    =============

Risk-based capital ratios:
  Tier 1 risk-based capital ratio ..........................................             9.35%            9.44%
  Total risk-based capital ratio ...........................................            10.31%           10.40%
  Tier 1 leverage ratio ....................................................             9.28%            9.37%
</TABLE>

The Company and the Bank met all applicable capital requirements at December 31,
2003 and the Bank was "well capitalized" under FDIC standards.



                                       23
<PAGE>


                   Liquidity Management and Capital Resources

Liquidity management involves monitoring the Company's sources and uses of funds
in order to meet its day-to-day cash flow requirements while maximizing profits.
Liquidity  represents  the  ability of a Company to convert  assets into cash or
cash  equivalents  without  significant  loss and to raise  additional  funds by
increasing liabilities.  Without proper liquidity management,  the Company would
not be able to perform the primary  function  of a  financial  intermediary  and
would, therefore, not be able to meet the needs of the communities it serves.

Liquidity  management  is made more  complex  because  different  balance  sheet
components are subject to varying  degrees of management  control.  For example,
the timing of maturities of the  investment  portfolio is very  predictable  and
subject to a high degree of control at the time  investment  decisions are made.
However,  net deposit inflows and outflows are far less  predictable and are not
subject to nearly the same degree of control. Nevertheless,  management believes
that cash and cash  equivalents  in  combination  with deposit  inflows and loan
repayments  are  adequate  to meet  reasonably  foreseeable  demands for deposit
withdrawals and the funding of new loans.  The Company also has a line of credit
available  with  Federal  Home Loan Bank to borrow up to 10% of the Bank's total
assets as of December 31, 2003, or  $5,740,000,  $2,000,000 of which has already
been  advanced.  In addition,  the Company has unused lines to purchase  federal
funds from unrelated banks totaling $2,750,000 at December 31, 2003.

                         Off-Balance Sheet Arrangements

Through its  operations,  the Bank has made  contractual  commitments  to extend
credit in the ordinary course of its business activities.  These commitments are
legally   binding   agreements  to  lend  money  to  the  Bank's   customers  at
predetermined  interest  rates for a specified  period of time.  At December 31,
2003,  the Bank had issued  commitments  to extend credit of $7,229,066  through
various types of commercial lending  arrangements.  Approximately  $2,470,670 of
these commitments to extend credit had variable rates.

The following  table sets forth the length of time until  expiration  for unused
commitments to extend credit at December 31, 2003.

<TABLE>
<CAPTION>
                                                     After One  After Three
                                                      Through      Through                   Greater
                                       Within One       Three       Twelve      Within One      Than
  (Dollars in thousands)                   Month       Months       Months        Year       One Year        Total
                                    -------------  -----------  -----------  -------------   ---------  -----------
<S>                                 <C>            <C>          <C>          <C>             <C>        <C>
  Unused commitments
    to extend credit .............  $          16  $        95  $     2,694  $       2,805   $  4,424   $     7,229
                                    =============  ===========  ===========  =============   ========   ===========
</TABLE>

The total amount of loan commitments does not necessarily  represent future cash
requirements  because many of the  commitments  are  expected to expire  without
being fully drawn.  The Bank evaluates each  customer's  credit  worthiness on a
case-by-case  basis. The amount of collateral  obtained,  if deemed necessary by
the Bank upon  extension  of credit,  is based on its credit  evaluation  of the
borrower.  Collateral  varies but may include  accounts  receivable,  inventory,
property, plant and equipment,  commercial and residential real estate. See Note
19 to the Company's financial statements for further information about financial
instruments with off-balance sheet risk.

                               Impact of Inflation

Unlike  most  industrial  companies,  the assets and  liabilities  of  financial
institutions  such as the Company are primarily  monetary in nature.  Therefore,
interest rates have a more significant effect on the Company's  performance than
do the  effects of changes  in the  general  rate of  inflation  and  changes in
prices.  In  addition,  interest  rates  do not  necessarily  move  in the  same
direction  or in the same  magnitude  as the  prices of goods and  services.  As
discussed  previously,  management  seeks to manage  the  relationships  between
interest  sensitive  assets and  liabilities  in order to protect  against  wide
interest rate fluctuations, including those resulting from inflation.



                                       24
<PAGE>


                    Accounting and Financial Reporting Issues

We have adopted  various  accounting  policies  which govern the  application of
accounting principles generally accepted in the United States in the preparation
of our financial statements.  Our significant  accounting policies are described
in the notes to the  consolidated  financial  statements  at  December  31, 2003
included in this Annual Report to Shareholders and as filed in our Annual Report
on Form 10-KSB.  Certain accounting policies involve  significant  judgments and
assumptions which have a material impact on the carrying value of certain assets
and liabilities. We consider these accounting policies to be critical accounting
policies.  The  judgments  and  assumptions  we  use  are  based  on  historical
experience  and other  factors,  which we  believe  to be  reasonable  under the
circumstances.  Because of the nature of the judgments and  assumptions we make,
actual results could differ from these  judgments and estimates which could have
a  material  impact on our  carrying  values of assets and  liabilities  and our
results of operations.

We believe the  allowance for loan losses is a critical  accounting  policy that
requires the most significant judgments and estimates used in preparation of our
consolidated financial statements.  Refer to the portion of this discussion that
addresses our  allowance for loan losses for a description  of our processes and
methodology for determining our allowance for loan losses.

                                        25
<PAGE>

Item 7.  Financial Statements.











                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
Regional Bankshares, Inc.
Hartsville, South Carolina


We have  audited  the  accompanying  consolidated  balance  sheets  of  Regional
Bankshares,  Inc. (the Company) and subsidiary as of December 31, 2003 and 2002,
and the related consolidated statements of operations,  changes in shareholders'
equity and comprehensive income, and cash flows for each of the years in the two
year period ended December 31, 2003. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used and the  significant  estimates made by management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion,  the consolidated  financial  statements  present fairly, in all
material respects,  the consolidated  financial position of Regional Bankshares,
Inc. and  subsidiary as of December 31, 2003 and 2002,  and the results of their
operations  and cash  flows for each of the years in the two year  period  ended
December 31, 2003, in conformity with accounting  principles  generally accepted
in the United States of America.




Elliott Davis, LLC
Columbia, South Carolina
January 9, 2004





                                       26
<PAGE>


                            REGIONAL BANKSHARES, INC.

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                            ------------
                                                                                        2003             2002
                                                                                        ----             ----
Assets:
   Cash and cash equivalents:
<S>                                                                          <C>                 <C>
     Cash and due from banks ............................................    $      1,413,904    $       808,282
     Federal funds sold .................................................           2,371,780          3,050,991
                                                                             ----------------    ---------------
         Total cash and cash equivalents ................................           3,785,684          3,859,273
                                                                             ----------------    ---------------
   Investments securities:
     Securities available-for-sale ......................................           2,344,649          2,513,281
     Nonmarketable equity securities ....................................             164,853            137,553
                                                                             ----------------    ---------------
         Total investment securities ....................................           2,509,502          2,650,834
                                                                             ----------------    ---------------
   Loans receivable .....................................................          48,262,788         35,232,689
     Less allowance for loan losses .....................................            (482,875)          (368,656)
                                                                             ----------------    ---------------
         Loans, net .....................................................          47,779,913         34,864,033
                                                                             ----------------    ---------------
   Premises, furniture and equipment, net ...............................           2,514,985          2,039,599
   Accrued interest receivable ..........................................             190,352            153,315
   Other assets .........................................................             626,061            658,242
                                                                             ----------------    ---------------
         Total assets ...................................................    $     57,406,497    $    44,225,296
                                                                             ================    ===============
Liabilities:
   Deposits:
     Noninterest-bearing transaction accounts ...........................    $      6,968,579    $     4,787,870
     Interest-bearing transaction accounts ..............................           5,283,574          4,566,531
     Savings ............................................................          14,484,317          8,077,824
     Time deposits $100,000 and over ....................................           7,559,762          6,898,433
     Other time deposits ................................................          16,143,672         15,048,066
                                                                             ----------------    ---------------
         Total deposits .................................................          50,439,904         39,378,724
                                                                             ----------------    ---------------
   Advances from Federal Home Loan Bank .................................           2,000,000                 -
   Accrued interest payable .............................................             136,441            209,496
   Other liabilities ....................................................             102,256             53,242
                                                                             ----------------    ---------------
         Total liabilities ..............................................          52,678,601         39,641,462
                                                                             ----------------    ---------------
Commitments and Contingencies (Notes 12 and 19)
Shareholders' equity:
   Preferred stock, $1.00 par value, 1,000,000 shares authorized,
     none issued ........................................................                  -                  -
   Common stock, $1.00 par value, 10,000,000 shares authorized;
     566,770 and 563,670 shares issued and outstanding at
     December 31, 2003 and 2002, respectively ...........................             566,770            563,670
   Capital surplus ......................................................           5,031,771          5,003,871
   Retained deficit .....................................................            (856,905)          (992,074)
   Accumulated other comprehensive income (loss) ........................             (13,740)             8,367
                                                                             ----------------    ---------------
         Total shareholders' equity .....................................           4,727,896          4,583,834
                                                                             ----------------    ---------------
         Total liabilities and shareholders' equity .....................    $     57,406,497    $    44,225,296
                                                                             ================    ===============
</TABLE>

        The  accompanying  notes  are an  integral  part  of  the  consolidated
financial statements.



                                       27
<PAGE>


                        Consolidated Statements of Income


<TABLE>
<CAPTION>
                                                                                     Years ended December 31,
                                                                                     ------------------------
                                                                                        2003             2002
                                                                                -------------    -------------
Interest income:
<S>                                                                             <C>              <C>
   Loans, including fees ..................................................     $   2,654,561    $   2,332,757
   Investment securities:
      Taxable .............................................................            67,443           40,773
      Nonmarketable equity securities .....................................             7,416            6,410
   Federal funds sold .....................................................            24,688           59,649
                                                                                -------------    -------------
         Total ............................................................         2,754,108        2,439,589
                                                                                -------------    -------------
Interest expense:
   Time deposits $100,000 and over ........................................           181,688          221,922
   Other deposits .........................................................           525,041          552,800
   Advances from Federal Home Loan Bank ...................................             3,382           12,988
   Short-term borrowings ..................................................                80               -
                                                                                -------------    -------------
         Total ............................................................           710,191          787,710
                                                                                -------------    -------------
Net interest income .......................................................         2,043,917        1,651,879
Provision for loan losses .................................................           132,000          130,000
                                                                                -------------    -------------
Net interest income after provision for loan losses .......................         1,911,917        1,521,879
                                                                                -------------    -------------
Noninterest income:
   Service charges on deposit accounts ....................................           228,532          180,587
   Credit life insurance commissions ......................................             4,480            6,838
   Residential mortgage origination fees ..................................            99,311           57,152
   Brokerage commissions ..................................................           109,598           56,404
   Other ..................................................................            62,406           49,270
                                                                                -------------    -------------
         Total ............................................................           504,327          350,251
                                                                                -------------    -------------
Noninterest expenses:
   Salaries and employee benefits .........................................         1,185,955          866,307
   Net occupancy ..........................................................           138,543          108,566
   Furniture and equipment ................................................           146,879          122,050
   Other operating ........................................................           730,313          575,223
                                                                                -------------    -------------
         Total ............................................................         2,201,690        1,672,146
                                                                                -------------    -------------
Income before income taxes ................................................           214,554          199,984
Income tax provision ......................................................            79,385           74,016
                                                                                -------------    -------------
Net income ................................................................           135,169     $    125,968
                                                                                =============     ============
Earnings per share
Basic earnings per share ..................................................     $        0.24    $        0.22
                                                                                =============    =============
Diluted earnings per share ................................................     $        0.23    $        0.22
                                                                                =============    =============
</TABLE>

        The  accompanying  notes  are an  integral  part  of  the  consolidated
financial statements.



                                       28
<PAGE>

               Consolidated Statements of Changes in Shareholders'
                         Equity and Comprehensive Income
                 For the years ended December 31, 2003 and 2002


<TABLE>
<CAPTION>
                                                                                                          Accumulated
                                                       Common stock                                         other
                                                       ------------          Capital       Retained      comprehensive
                                                   Shares       Amount       surplus       deficit       income (loss)      Total
                                                   ------       ------       -------       -------       -------------      -----
Balance,
<S>                                               <C>        <C>           <C>          <C>                 <C>          <C>
  December 31, 2001 ........................      563,670    $  563,670    $5,003,871   $   (1,118,042)     $    2,740   $4,452,239
                                                                                                                         ----------

Net income .................................                                                   125,968                      125,968

Other comprehensive income,
  net of tax expense of $3,305 .............                                                                     5,627        5,627
                                                                                                                         ----------

Comprehensive income .......................                                                                                131,595
                                                  -------    ----------    ----------   --------------      ----------   ----------

Balance,
  December 31, 2002 ........................      563,670       563,670     5,003,871          (992,074)         8,367    4,583,834

Net income .................................                                                    135,169                     135,169

Other comprehensive loss,
  net of tax benefit of $12,984 ............                                                                   (22,107)     (22,107)
                                                                                                                         ----------

Comprehensive income .......................                                                                                113,062

Exercise of stock warrants .................        3,100         3,100        27,900                                        31,000
                                                  -------    ----------    ----------   --------------      ----------   ----------

Balance,
  December 31, 2003 ........................      566,770    $  566,770    $5,031,771   $     (856,905)    $   (13,740)  $4,727,896
                                                  =======    ==========    ==========   ==============     ===========   ==========
</TABLE>


        The  accompanying  notes  are an  integral  part  of  the  consolidated
financial statements.



                                       29
<PAGE>


                      Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                                       Years ended December 31,
                                                                                       ------------------------
                                                                                          2003             2002
                                                                                  -------------    -------------
Cash flows from operating activities:
<S>                                                                               <C>              <C>
  Net income ................................................................     $     135,169    $     125,968
  Adjustments to reconcile net income to
    net cash provided by operating activities:
      Provision for loan losses .............................................           132,000          130,000
      Depreciation and amortization expense .................................           161,448          139,550
      Discount accretion and premium
        amortization on securities ..........................................             3,162             (677)
      Deferred income tax provision .........................................            59,994           71,650
      Increase in accrued interest receivable ...............................           (37,037)         (33,192)
      Decrease in accrued interest payable ..................................           (73,055)         (44,200)
      Increase in other assets ..............................................           (14,829)         (52,063)
      Increase in other liabilities .........................................            49,014           33,130
                                                                                  -------------    -------------
        Net cash provided by operating activities ...........................           415,866          370,166
                                                                                  -------------    -------------
Cash flows from investing activities:
  Purchases of securities available-for-sale ................................        (2,526,094)      (3,000,000)
  Calls and maturities of securities available-for-sale .....................         2,656,473          850,000
  Purchases of nonmarketable equity securities ..............................           (27,300)              -
  Net increase in loans receivable ..........................................       (13,047,880)      (8,388,572)
  Purchase of premises, furniture and equipment .............................          (636,834)         (54,868)
                                                                                  -------------    -------------
        Net cash used by investing activities ...............................       (13,581,635)     (10,593,440)
                                                                                  -------------    -------------
Cash flows from financing activities:
  Net increase in demand deposits, interest-bearing
    transaction accounts and savings accounts ...............................         9,304,245        3,500,727
  Net increase in certificates of deposit and
    other time deposits .....................................................         1,756,935        8,135,860
  Advances from Federal Home Loan Bank ......................................         2,000,000               -
  Repayments of advances from Federal Home Loan Bank ........................                -        (1,750,000)
  Proceeds from exercise of stock warrants ..................................            31,000               -
                                                                                  -------------    -------------
        Net cash provided by financing activities ...........................        13,092,180        9,886,587
                                                                                  -------------    -------------
Net decrease in cash and cash equivalents ...................................           (73,589)        (336,687)
Cash and cash equivalents, beginning of year ................................         3,859,273        4,195,960
                                                                                  -------------    -------------
Cash and cash equivalents, end of year ......................................     $   3,785,684    $   3,859,273
                                                                                  =============    =============
</TABLE>


        The  accompanying  notes  are an  integral  part  of  the  consolidated
financial statements.




                                       30
<PAGE>


                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization - Regional Bankshares, Inc. (the Company) was incorporated to serve
as a bank holding company for Hartsville  Community Bank (the Bank).  Hartsville
Community  Bank  was  incorporated  as a  national  bank on March  24,  1999 and
commenced  business on June 15, 1999.  The Bank  converted  to a South  Carolina
state chartered bank on January 10, 2001. The principal business activity of the
Bank  is to  provide  banking  services  to  domestic  markets,  principally  in
Darlington and Chesterfield Counties in South Carolina.  The Bank's deposits are
insured by the Federal Deposit Insurance Corporation. The consolidated financial
statements  include  the  accounts of the parent  company  and its  wholly-owned
subsidiary  after  elimination  of all  significant  intercompany  balances  and
transactions.

Management's Estimates - The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America  requires  management to make estimates and assumptions  that affect the
reported  amounts of assets and liabilities and disclosure of contingent  assets
and liabilities at the date of the financial statements and the reported amounts
of income and expenses during the reporting period.  Actual results could differ
from those estimates.

Material  estimates that are  particularly  susceptible  to  significant  change
relate to the  determination  of the  allowance  for losses on loans,  including
valuation  allowances  for  impaired  loans,  and the  valuation  of real estate
acquired  in  connection  with  foreclosures  or in  satisfaction  of loans.  In
connection  with the  determination  of the  allowances  for losses on loans and
foreclosed  real  estate,   management   obtains   independent   appraisals  for
significant  properties.  Management must also make estimates in determining the
estimated useful lives and methods for depreciating premises and equipment.

While  management  uses available  information to recognize  losses on loans and
foreclosed  real estate,  future  additions to the  allowances  may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an  integral  part of their  examination  process,  periodically  review  the
Company's  allowances  for  losses on loans and  foreclosed  real  estate.  Such
agencies may require the Company to recognize  additions to the allowances based
on their  judgments  about  information  available  to them at the time of their
examination.  Because  of these  factors,  it is  reasonably  possible  that the
allowances for losses on loans and foreclosed real estate may change  materially
in the near term.

Significant  Group  Concentrations  of  Credit  Risk  - Most  of  the  Company's
activities  are  with  customers  located  within  Darlington  and  Chesterfield
Counties in South Carolina. The types of securities in which the Company invests
are  discussed in Note 3. The types of lending in which the Company  engages are
discussed in Note 4. The Company does not have any significant concentrations of
loans or deposits to or from any one industry or customer.

Securities  Available-for-Sale  - Securities  available-for-sale  are carried at
amortized  cost and  adjusted  to  estimated  market  value by  recognizing  the
aggregate  unrealized gains or losses in a valuation  account.  Aggregate market
valuation  adjustments  are  recorded  in  shareholders'  equity net of deferred
income taxes.  Reductions  in market value  considered by management to be other
than temporary are reported as a realized loss and a reduction in the cost basis
of the security.  The adjusted cost basis of investments  available-for-sale  is
determined by specific  identification and is used in computing the gain or loss
upon sale.

Nonmarketable  Equity Securities - Nonmarketable  equity securities  include the
cost of the  Company's  investment  in the stock of  Federal  Home Loan Bank and
Community Financial Services, Inc. The stocks have no quoted market value and no
ready  market for them  exists.  Investment  in the Federal  Home Loan Bank is a
condition of borrowing from the Federal Home Loan Bank, and the stock is pledged
to  collateralize  such  borrowings.  At December 31, 2003 and 2002,  the Bank's
investment   in  Federal   Home  Loan  Bank  stock  was  $114,800  and  $87,500,
respectively.  At December 31, 2003 and 2002  investment in Community  Financial
Services, Inc. was $50,053. Dividends received on these stocks are included as a
separate component of interest income.


                                       31
<PAGE>


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Loans  receivable  - Loans  receivable  are  stated  at their  unpaid  principal
balance.  Interest  income is computed using the simple  interest  method and is
recorded in the period earned.

When  serious  doubt  exists as to the  collectibility  of a loan or when a loan
becomes  contractually  90 days past due as to principal  or interest,  interest
income is generally  discontinued  unless the estimated net realizable  value of
collateral  exceeds the principal  balance and accrued  interest.  When interest
accruals are discontinued, income earned but not collected is reversed.

The Company  identifies  impaired loans through its normal  internal loan review
process.  Loans  on  the  Company's  problem  loan  watch  list  are  considered
potentially impaired loans. These loans are evaluated in determining whether all
outstanding  principal and interest are expected to be collected.  Loans are not
considered  impaired if a minimal  payment  delay  occurs and all  amounts  due,
including  accrued  interest at the contractual  interest rate for the period of
delay,  are  expected to be  collected.  At December 31,  2003,  management  has
determined that the Company had no impaired loans.

Allowance  for Loan Losses - An  allowance  for loan losses is  maintained  at a
level deemed  appropriate  by  management  to provide  adequately  for known and
inherent losses in the loan portfolio. Until a history is established,  the Bank
has decided to fund the  allowance for loan losses at a target of 1.00% of total
outstanding  loans.  In addition,  the allowance is also based upon a continuing
review of past loan loss  experience,  current  and future  economic  conditions
which may affect the borrowers'  ability to pay, and the  underlying  collateral
value of the loans.  Loans which are deemed to be uncollectible  are charged off
and deducted from the allowance. The provision for loan losses and recoveries of
loans previously charged off are added to the allowance.

Residential  Mortgage  Origination  Fees - The Company offers  residential  loan
origination  services to its customers in its immediate  market area.  The loans
are offered on terms and prices offered by the Company's  correspondents and are
closed in the name of the correspondents. The Company receives fees for services
it provides in conjunction with the origination  services it provides.  The fees
are recognized at the time the loans are closed by the Company's correspondent.

Premises, Furniture and Equipment - Premises, furniture and equipment are stated
at cost,  less  accumulated  depreciation.  The  provision for  depreciation  is
computed by the  straight-line  method,  based on the estimated useful lives for
furniture and  equipment of 5 to 7 years and buildings of 40 years.  The cost of
assets sold or otherwise  disposed of and the related allowance for depreciation
are eliminated from the accounts and the resulting gains or losses are reflected
in the income  statement when incurred.  Maintenance  and repairs are charged to
current expense. The costs of major renewals and improvements are capitalized.

Income Taxes - Income taxes are the sum of amounts  currently  payable to taxing
authorities  and the net changes in income taxes payable or refundable in future
years.  Income  taxes  deferred  to future  years  are  determined  utilizing  a
liability   approach.   This  method  gives  consideration  to  the  future  tax
consequences  associated with differences  between financial  accounting and tax
bases of certain assets and liabilities  which are principally the allowance for
loan losses and depreciable premises and equipment.

Advertising  Expense -  Advertising  and public  relations  costs are  generally
expensed as incurred. External costs incurred in producing media advertising are
expensed the first time the advertising takes place.  External costs relating to
direct mailing costs are expended in the period in which the direct mailings are
sent.  Advertising  and public  relations  costs of $65,328  and  $43,432,  were
included in the Company's results of operations for 2003 and 2002, respectively.

Retirement   Plan  -  The  Company  has  a  SIMPLE   retirement   plan  covering
substantially all employees.  Under the plan, participants are permitted to make
discretionary  contributions in 2003 up to $8,000,  unless age 50 and over as to
which the amount is $9,000.  The Company  can match  employee  contributions  by
contributing up to 3% of each employee's annual  compensation up to a maximum of
$3,000.  The  Company  matched  contributions  in 2003 and 2002 and  charges  to
earnings were $17,969 and $11,922, respectively.



                                       32
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Stock-Based  Compensation - The Company has a stock-based employee  compensation
plan and outstanding  stock warrants (both herein referred to as "Option Plans")
which are further  described  in Notes 13 and 14. The Company  accounts  for the
Option Plans under the  recognition  and  measurement  principles  of Accounting
Principles  Board  ("APB")  Opinion  No.  25,  Accounting  for  Stock  Issued to
Employees, and Related Interpretations. No compensation cost is reflected in net
income,  as all warrants and options  granted  under these plans had an exercise
price equal to the market  value of the  underlying  common stock on the date of
grant.  The  following  table  illustrates  the effect on net income  (loss) and
earnings (loss) per share if the Company had applied the fair value  recognition
provisions  of  Financial  Accounting  Standards  Board  ("FASB")  Statement  of
Financial  Accounting  Standards  ("SFAS") No. 123,  Accounting for  Stock-Based
Compensation, to the Option Plans.

<TABLE>
<CAPTION>
                                                                                    Years ended December 31,
                                                                                      2003             2002
                                                                                -------------    -------------

<S>                                                                             <C>              <C>
Net income, as reported ....................................................    $     135,169    $     125,968
Deduct: Total stock-based employee
  compensation expense determined
  under fair value based method
  for all awards, net of related tax effects ...............................           24,525           70,312
                                                                                -------------    -------------

Pro forma net income .......................................................    $     110,644    $      55,656
                                                                                =============    =============

Earnings per share:
  Basic - as reported ......................................................    $        0.24    $        0.22
                                                                                =============    =============
  Basic - pro forma ........................................................    $        0.20    $        0.10
                                                                                =============    =============

  Diluted - as reported ....................................................    $        0.23    $        0.22
                                                                                =============    =============
  Diluted - pro forma ......................................................    $        0.19    $        0.10
                                                                                =============    =============
</TABLE>

Earnings Per Share - Basic  earnings per share  represents  income  available to
shareholders divided by the weighted-average number of common shares outstanding
during the period.  Diluted earnings per share reflects additional common shares
that would have been  outstanding if dilutive  potential  common shares had been
issued using the treasury stock method.


                                       33
<PAGE>


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Comprehensive  Income - Accounting  principles generally require that recognized
income, expenses,  gains, and losses be included in net income. Although certain
changes  in assets  and  liabilities,  such as  unrealized  gains and  losses on
available-for-sale  securities,  are  reported  as a separate  component  of the
equity  section of the balance  sheet,  such items,  along with net income,  are
components of comprehensive income.

The  components  of other  comprehensive  income and  related tax effects are as
follows:

<TABLE>
<CAPTION>
                                                                                    Years ended December 31,
                                                                                    ------------------------
                                                                                     2003                 2002
                                                                                -------------        -------------
<S>                                                                             <C>                  <C>
Unrealized gains (losses) on available-for-sale securities .................    $     (35,091)       $       8,932

Reclassification adjustment for gains realized in
  net income ...............................................................               -                    -
                                                                                -------------        -------------

Net unrealized gains (losses) on securities ................................          (35,091)               8,932

Tax effect .................................................................           12,984               (3,305)
                                                                                -------------        -------------

Net-of-tax amount ..........................................................    $     (22,107)       $       5,627
                                                                                =============        =============
</TABLE>

Statements  of  Cash  Flows  - For  purposes  of  reporting  cash  flows  in the
consolidated  financial statements,  the Company considers certain highly liquid
debt  instruments  purchased  with a maturity of three months or less to be cash
equivalents.  Cash equivalents  include amounts due from banks and federal funds
sold. Generally, federal funds are sold for one-day periods.

Interest paid on deposits and other borrowings totaled $783,246 and $831,910 for
the years ended December 31, 2003 and 2002, respectively.

Income tax payments  totaled $5,700 for the year ended December 31, 2003.  There
were no income tax payments during the year ended December 31, 2002.

Changes in the valuation account of securities available-for-sale, including the
deferred tax effects,  are considered  noncash  transactions for purposes of the
statement  of cash  flows  and are  presented  in  detail  in the  notes  to the
financial statements.

Off-Balance-Sheet  Financial  Instruments - In the ordinary  course of business,
the Company enters into  off-balance-sheet  consolidated  financial  instruments
consisting  of  commitments  to extend  credit  and  letters  of  credit.  These
financial  instruments are recorded in the financial statements when they become
payable by the customer.


                                       34
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Recent  Accounting  Pronouncements - In December 2002, the Financial  Accounting
Standards  Board  ("FASB")  issued SFAS No.  148,  "Accounting  for  Stock-based
Compensation  - Transition and  Disclosure,"  an amendment of FASB Statement No.
123, "Accounting for Stock-Based  Compensation",  to provide alternative methods
of  transition  for a  voluntary  change  to the  fair  value  based  method  of
accounting for stock-based employee  compensation.  SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 and Accounting Pronouncement Board ("APB")
Opinion No. 28,  "Interim  Financial  Reporting",  to require  disclosure in the
summary  of  significant  accounting  policies  of the  effects  of an  entity's
accounting policy with respect to stock-based employee  compensation on reported
net income and  earnings per share in annual and interim  financial  statements.
While SFAS No. 148 does not amend SFAS No. 123 to require  companies  to account
for  employee  stock  options  using  the  fair  value  method,  the  disclosure
provisions  of SFAS No. 148 are  applicable to all  companies  with  stock-based
employee compensation,  regardless of whether they account for that compensation
using the fair value method of SFAS No. 123 or the intrinsic value method of APB
Opinion  No.  25.  The  provisions  of SFAS No.  148 were  effective  for annual
financial  statements  for fiscal years ending after  December 15, 2002, and for
financial reports containing  condensed financial statements for interim periods
beginning after December 15, 2002.

In April 2003,  the FASB issued SFAS No. 149,  "Amendment  of  Statement  133 on
Derivative  Instruments  and  Hedging  Activities."  SFAS  No.  149  amends  and
clarifies  accounting for derivative  instruments,  including certain derivative
instruments  embedded in other contracts and loan commitments that relate to the
origination of mortgage loans held for sale,  and for hedging  activities  under
SFAS No. 133. SFAS No. 149 was generally effective for contracts entered into or
modified  after  June 30,  2003.  The  adoption  of SFAS No.  149 did not have a
material impact on the financial condition or operating results of the Company.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity." SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some  circumstances).  Many of those  instruments
were previously  classified as equity.  SFAS No. 150 was generally effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
was effective at the beginning of the first interim period  beginning after June
15,  2003.  The  adoption of SFAS No. 150 did not have a material  impact on the
financial condition or operating results of the Company.

In November 2002, the FASB issued  Interpretation  ("FIN") No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of  Indebtedness  of Others".  FIN No. 45 requires a company,  at the
time it issues a guarantee, to recognize an initial liability for the fair value
of obligations assumed under the guarantee and elaborates on existing disclosure
requirements  related to  guarantees  and  warranties.  The initial  recognition
requirements  of FIN No. 45 were  effective  for  guarantees  issued or modified
after  December  31,  2002.  The  disclosure  requirements  were  effective  for
financial  statements of periods ending after December 15, 2002. The adoption of
FIN No. 45 did not have a material effect on the Company's financial position or
results of operations.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities." FIN No. 46 requires a variable  interest entity to be consolidated by
a company if that  company is subject to a majority of the risk of loss from the
variable interest  entity's  activities or entitled to receive a majority of the
entity's residual returns,  or both. FIN No. 46 also requires  disclosures about
variable interest entities that a company is not required to consolidate, but in
which it has a significant  variable interest.  FIN No. 46 provides guidance for
determining  whether  an  entity  qualifies  as a  variable  interest  entity by
considering,  among other  considerations,  whether the entity lacks  sufficient
equity  or  its  equity  holders  lack  adequate  decision-making  ability.  The
consolidation  requirements  of FIN  No.  46  applied  immediately  to  variable
interest entities created after January 31, 2003. The consolidation requirements
applied  to  existing  entities  in the  first  fiscal  year or  interim  period
beginning after June 15, 2003. Certain of the disclosure requirements applied in
all financial  statements issued after January 31, 2003,  regardless of when the
variable  interest  entity was  established.  The adoption of FIN No. 46 did not
have a  material  effect on the  Company's  financial  position  or  results  of
operations.


                                       35
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Risks and  Uncertainties  - In the normal  course of its  business,  the Company
encounters two significant  types of risks:  economic and regulatory.  There are
three main  components of economic  risk:  interest  rate risk,  credit risk and
market risk. The Company is subject to interest rate risk to the degree that its
interest-bearing  liabilities  mature or  reprice  at  different  speeds,  or on
different basis, than its  interest-earning  assets.  Credit risk is the risk of
default on the Company's loan and investment  securities portfolios that results
from  borrower's  inability  or  unwillingness  to make  contractually  required
payments.  Market risk reflects  changes in the value of  collateral  underlying
loans receivable and the valuation of real estate held by the Company.

The  Company is subject to the  regulations  of various  governmental  agencies.
These  regulations can and do change  significantly  from period to period.  The
Company also undergoes periodic  examinations by the regulatory agencies,  which
may subject it to further changes with respect to asset  valuations,  amounts of
required  loss  allowances  and  operating  restrictions  from  the  regulators'
judgments  based  on  information  available  to  them  at  the  time  of  their
examination.

Reclassifications   -  Certain  captions  and  amounts  in  the  2002  financial
statements were reclassified to conform with the 2003 presentation.


NOTE 2 - CASH AND DUE FROM BANKS

The  Company is  required  to  maintain  cash  balances to cover all cash letter
transactions. At December 31, 2003 and 2002, the requirement was met by the cash
balance in an account with the Bankers Bank and by cash in the vault.


NOTE 3 - INVESTMENT SECURITIES

The amortized  cost and estimated  fair values of securities  available-for-sale
are as follows:

<TABLE>
<CAPTION>
                                                                     Gross Unrealized
                                              Amoritized             ----------------              Estimated
                                                 Cost             Gains            Losses          Fair Value
                                                 ----             -----            ------          ----------
December 31, 2003
<S>                                         <C>               <C>               <C>              <C>
U.S. government agencies and
  corporations .........................    $    1,500,000    $       1,094     $      17,188    $   1,483,906
Mortgage-backed securities .............           866,460               -              5,717          860,743
                                            --------------    -------------     -------------    -------------
                                            $    2,366,460    $       1,094     $      22,905    $   2,344,649
                                            ==============    =============     =============    =============
December 31, 2002
U.S. government agencies and
  corporations .........................    $    2,500,000    $      13,281     $          -     $   2,513,281
                                            ==============    =============     =============    =============
</TABLE>

There were no sales of securities in 2003 or 2002.


                                       36
<PAGE>

NOTE 3 - INVESTMENT SECURITIES - continued

The following is a summary of maturities of securities  available-for-sale as of
December 31, 2003. The amortized cost and estimated fair values are based on the
contractual  maturity  dates.  Actual  maturities  may differ  from  contractual
maturities  because  borrowers may have the right to call or prepay  obligations
with or without penalty.

<TABLE>
<CAPTION>
                                                                                          Securities
                                                                                      Available-for-sale
                                                                                      ------------------
                                                                                  Amortized         Estimated
                                                                                     Cost          Fair Value
                                                                                     ----          ----------

<S>                                                                             <C>              <C>
     Due after one year but within five years ...............................   $   2,366,460    $   2,344,649
                                                                                =============    =============
</TABLE>

The following table shows gross unrealized losses and fair value,  aggregated by
investment category,  and length of time that individual securities have been in
a continuous unrealized loss position, at December 31, 2003.

Securities available-for-sale:

<TABLE>
<CAPTION>
                                              Less than             Twelve months
                                            twelve months              or more                  Total
                                            -------------              -------                  -----
                                                  Unrealized                Unrealized                Unrealized
                                     Fair value      losses    Fair value      losses    Fair value      losses
                                    -----------  -----------  -----------  -----------  -----------  -----------
<S>                                 <C>          <C>          <C>          <C>          <C>          <C>
U.S. government agencies
  and corporations ...............  $   982,813  $    17,188  $        -   $        -   $   982,813  $    17,188
Mortgage-backed securities .......      860,742        5,717           -            -       860,742        5,717
                                    -----------  -----------  -----------  -----------  -----------  -----------
                                    $ 1,843,555  $    22,905  $        -   $        -   $ 1,843,555  $    22,905
                                    ===========  ===========  ===========  ===========  ===========  ===========
</TABLE>

At December 31, 2003 and 2002,  securities  with amortized costs of $450,000 and
$150,000 and estimated fair values of $447,469 and $151,641,  respectively, were
pledged to secure public deposits.


NOTE 4 - LOANS RECEIVABLE

Major classifications of loans receivable are summarized as follows:

                                                           December 31,
                                                           ------------
                                                      2003             2002
                                                 -------------    -------------
     Real estate - construction .............    $   3,898,644    $   4,320,960
     Real estate - mortgage .................       31,481,432       21,302,015
     Commercial and industrial ..............        6,925,789        3,474,108
     Consumer and other .....................        5,956,923        6,135,606
                                                 -------------    -------------
       Total gross loans ....................    $  48,262,788    $  35,232,689
                                                 =============    =============


                                       37
<PAGE>

NOTE 4 - LOANS RECEIVABLE - continued

Transactions in the allowance for loan losses are summarized below:

<TABLE>
<CAPTION>
                                                                                     Years ended December 31,
                                                                                     ------------------------
                                                                                        2003             2002
                                                                               --------------    -------------
<S>                                                                            <C>               <C>
     Balance, beginning of year ...........................................    $      368,656    $     268,446
     Provision charged to operations .......................................          132,000          130,000
     Recoveries on loans previously charged-off ............................            5,897            3,125
     Loans charged-off .....................................................          (23,678)         (32,915)
                                                                               --------------    -------------
       Balance, end of year ................................................   $      482,875    $     368,656
                                                                               ==============    =============
</TABLE>

At December 31, 2003 and 2002, the Bank had loans in nonaccrual  status totaling
$10,883 and $27,229,  respectively.  There were loans  totaling  $7,874 past due
ninety days or more and still  accruing  interest at December 31,  2003,  and no
loans past due ninety days or more and still  accruing  interest at December 31,
2002. There were no restructured loans at December 31, 2003 or 2002.

Management is not aware of any significant concentrations of loans to classes of
borrowers or industries that would be affected similarly by economic conditions.
Although the Company's loan portfolio is diversified,  a substantial  portion of
its  borrowers'  ability to honor the terms of their loans is  dependent  on the
economic conditions in Darlington County and Chesterfield County and surrounding
areas.

At December 31, 2003, the Company had pledged approximately  $5,055,517 of loans
on residential real estate as collateral for advances from the Federal Home Loan
Bank (see Note 7).

NOTE 5 - PREMISES, FURNITURE AND EQUIPMENT

Premises, furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                            ------------
                                                                                        2003             2002
                                                                                -------------    -------------
<S>                                                                             <C>              <C>
     Land and land improvements ...........................................     $     652,790    $     380,891
     Buildings ............................................................         1,485,432        1,328,844
     Furniture and equipment ..............................................           899,527          695,111
                                                                                -------------    -------------
       Total ..............................................................         3,037,749        2,404,846
     Less, accumulated depreciation .......................................           522,764          365,247
                                                                                -------------    -------------
       Premises, furniture and equipment, net .............................     $   2,514,985    $   2,039,599
                                                                                =============    =============
</TABLE>

Depreciation  and  amortization  expense  totaled  $161,448 and $139,550 for the
years ended December 31, 2003 and 2002, respectively.

NOTE 6 - DEPOSITS

At December 31, 2003, the scheduled  maturities of  certificates of deposit were
as follows:

         Maturing In                                               Amount
         -----------                                         -------------
         2004 ..........................................     $  21,126,171
         2005 ..........................................         2,198,252
         2006 ..........................................            51,075
         2007 and thereafter ...........................           327,936
                                                             -------------
            Total ......................................     $  23,703,434
                                                             =============



                                       38
<PAGE>

NOTE 7 - ADVANCES FROM THE FEDERAL HOME LOAN BANK

Advances from the Federal Home Loan Bank  consisted of the following at December
31, 2003:

     Description                                  Interest Rate       Balance
     -----------                                  -------------       -------

     Variable rate advances maturing:
       January 29, 2004 ........................          1.15%    $ 2,000,000
                                                                   ===========

     Scheduled principal reductions of Federal Home Loan Bank are all in 2004.

As  collateral,  the  Company has pledged  first  mortgage  loans on one to four
family residential loans totaling  $5,055,517 at December 31, 2004 (see Note 4).
In addition, the Company's Federal Home Loan Bank stock is pledged to secure the
borrowings. Certain advances are subject to the prepayment penalties.

NOTE 8 - OTHER OPERATING EXPENSES

Other operating expenses are summarized below:

<TABLE>
<CAPTION>
                                                                                   Year ended December 31,
                                                                                   -----------------------
                                                                                    2003             2002
                                                                               --------------    -------------
<S>                                                                            <C>               <C>
     Professional fees ....................................................    $       67,531    $      77,072
     Telephone ............................................................            47,959           29,384
     Office supplies, stationery, and printing ............................            57,071           42,634
     Data processing and related ..........................................           137,983          115,887
     Advertising and public relations .....................................            65,328           43,432
     ATM related expenses .................................................            48,909           38,877
     Other ................................................................           305,532          227,937
                                                                               --------------    -------------

        Total .............................................................    $      730,313    $     575,223
                                                                               ==============    =============
</TABLE>

NOTE 9 - INCOME TAXES

Income tax expense is summarized as follows:

<TABLE>
<CAPTION>
                                                                                    Year ended December 31,
                                                                                    -----------------------
                                                                                     2003             2002
                                                                               --------------    -------------
Currently payable:
<S>                                                                            <C>               <C>
   Federal ................................................................    $           -     $          -
   State ..................................................................             6,083            5,671
                                                                               --------------    -------------
      Total current .......................................................             6,083            5,671
                                                                               --------------    -------------
Deferred income taxes .....................................................            60,318           71,650
                                                                               --------------    -------------
Income tax expense ........................................................    $       66,401    $      77,321
                                                                               ==============    =============
Income tax expense is allocated as follows:
   To continuing operations ...............................................    $       79,385    $      74,016
   To shareholders' equity ................................................           (12,984)           3,305
                                                                               --------------    -------------
      Income tax expense ..................................................    $       66,401    $      77,321
                                                                               ==============    =============
</TABLE>


                                       39
<PAGE>

NOTE 9 - INCOME TAXES - continued

The gross  amounts of deferred tax assets and deferred  tax  liabilities  are as
follows:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                          ------------
                                                                                     2003             2002
                                                                                -------------    -------------
Deferred tax assets:
<S>                                                                             <C>              <C>
     Allowance for loan losses .............................................    $     156,153    $     119,318
     Contributions carryforward ............................................               -             1,369
     Net operating loss carryforward .......................................          307,698          378,050
     Organization costs ....................................................           15,352           39,876
     Other .................................................................            2,043            1,300
     Unrealized loss on securities available-for-sale ......................            8,070               -
                                                                                -------------    -------------
         Total deferred tax assets .........................................          489,316          497,745
                                                                                -------------    -------------
Deferred tax liabilities:
     Unrealized gain on securities available-for-sale ......................               -             4,914
     Accumulated depreciation ..............................................           44,304           25,474
                                                                                -------------    -------------
         Total deferred tax liabilities ....................................           44,304           30,388
                                                                                -------------    -------------
         Net deferred tax asset ............................................    $     445,012    $     464,357
                                                                                =============    =============
</TABLE>

Deferred tax assets  represent the future tax benefit of deductible  differences
and,  if it is more  likely  than not that a tax asset will not be  realized,  a
valuation  allowance is required to reduce the  recorded  deferred tax assets to
net realizable value. As of December 31, 2003, management has determined that it
is more likely than not that all of the deferred tax asset will be realized, and
accordingly, has not established a valuation allowance.

The Company has a net  operating  loss for income tax purposes of $323,050 as of
December 31, 2003. This net operating loss expires in the year 2022.

Reconciliation  between  the  income tax  expense  and the  amount  computed  by
applying  the  federal  statutory  rate of 34% to  income  before  income  taxes
follows:
<TABLE>
<CAPTION>
                                                                                    Year ended December 31,
                                                                                    -----------------------
                                                                                     2003             2002
                                                                               --------------    -------------
<S>                                                                            <C>               <C>
Tax expense at statutory rate ............................................     $       72,948    $      67,995
State income tax, net of federal income tax benefit ......................              4,014            3,742
Other, net ...............................................................              2,423           (2,279)
                                                                               --------------    -------------
     Total ...............................................................     $       79,385    $      74,016
                                                                               ==============    =============
</TABLE>


NOTE 10 - LEASES

The Company leases its operations center from an entity controlled by a director
of the  Company.  The lease is  renewable  on an annual  basis until  2008.  The
current  monthly rental amount is $1,000 per month.  Rental  expense  associated
with this lease was $11,000 for the year ended  December 31, 2003.  Assuming the
lease is renewed at the same monthly rate,  future  minimum lease payments would
be $12,000 per year over the next five years or $60,000.


                                       40
<PAGE>

NOTE 11 - RELATED PARTY TRANSACTIONS

Certain parties  (principally  certain  directors and executive  officers of the
Company, their immediate families and business interests) were loan customers of
and had other  transactions  in the normal  course of business with the Company.
Related party loans are made on substantially the same terms, including interest
rates  and  collateral,   as  those   prevailing  at  the  time  for  comparable
transactions with unrelated persons and do not involve more than the normal risk
of  collectibility.  As of December  31, 2003 and 2002,  the Company had related
party loans  totaling  $2,904,801  and  $3,067,951,  respectively.  During 2003,
advances on related party loans totaled $990,839 and repayments were $1,153,989.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company may, from time to time, become a
party to legal claims and  disputes.  At December 31,  2003,  management,  after
consultation  with legal  counsel,  is not aware of any  pending  or  threatened
litigation or unasserted  claims or assessments that could result in losses,  if
any, that would be material to the financial statements.


NOTE 13 - STOCK COMPENSATION PLAN

On May 10, 2001, the shareholders  approved the Regional Bankshares,  Inc. "2001
Stock Option Plan" (the Plan).  The Plan provides for grants of "Incentive Stock
Options,"  within the meaning of section 422 of the  Internal  Revenue  Code and
"Non-qualified  Stock Options" that do not so qualify. The Plan provides for the
issuance of up to 50,000  shares of the  Company's  common stock to officers and
key  employees.  Options  may be granted  for a term of up to ten years from the
effective  date of grant.  Options become  exercisable  ratably over three years
after  being  granted.  The Board of  Directors  will  determine  the  per-share
exercise price,  but for incentive stock options the price will not be less than
100% of the fair  value of a share of  common  stock on the date the  option  is
granted.  As of December 31, 2003, the Company had 33,000 options  available for
grant.

In calculating the pro forma  disclosures,  the fair value of options granted is
estimated as of the date granted using the  Black-Scholes  option  pricing model
with  the  following  weighted-average  assumptions  used  for  grants  in 2002:
dividend  yield  of 0  percent;  expected  volatility  of 0  percent;  risk-free
interest  rate of 5.40  percent;  and expected  life of 10 years.  There were no
options granted in 2003.

The following table summarizes the stock option plan:

<TABLE>
<CAPTION>
                                                          2003                              2002
                                                          ----                              ----
                                                                Weighted-                          Weighted-
                                                                  Average                            Average
                                                  Shares      Exercise Price          Shares     Exercise Price
                                                  ------      --------------          ------     --------------
<S>                                               <C>           <C>                  <C>            <C>
Outstanding at beginning of year .............    17,000        $  13.00                  -         $     -
Granted ......................................         -                             17,000           13.00
Exercised ....................................         -                                  -
Cancelled ....................................         -                                  -
                                                  ------                             ------
Outstanding at end of year ...................    17,000           13.00             17,000           13.00
                                                  ======                             ======
</TABLE>

At  December  31,  2003,  no options  were  exercisable.  The  weighted  average
remaining  life and  exercise  price for both  exercisable  and non  exercisable
options was 8.25 years and $13 per option, respectively.



                                       41
<PAGE>

NOTE 14 - STOCK WARRANTS

In connection  with the Company's  initial public stock sale, each of the twelve
organizers  received 5,000 stock warrants which gives them the right to purchase
5,000 shares of the Company's  common stock at a price of $10.00 per share.  The
warrants  vested  equally over a three-year  period  beginning June 15, 2000 and
expire on June 15, 2010 or ninety days after the warrant  holder ceases to serve
as a member of the Board of Directors.

A summary of the status of the Company's  stock  warrants and changes during the
year is presented below:

                                                       December 31,
                                                       ------------
                                                  2003             2002
                                              -------------    -------------
Outstanding at beginning of year ..........          51,600           56,600
Granted ...................................              -                -
Exercised .................................           3,100               -
Cancelled .................................              -             5,000
                                              -------------    -------------
Outstanding at end of year ................          48,500           51,600
                                              =============    =============

At December 31, 2003, all of the warrants were exercisable.


NOTE 15 - EARNINGS PER SHARE

Basic   earnings   per  share  is  computed  by  dividing   net  income  by  the
weighted-average number of common shares outstanding. Diluted earnings per share
is  computed  by dividing  net income by the  weighted-average  number of common
shares  outstanding  and dilutive  common share  equivalents  using the treasury
stock method.  Dilutive common share equivalents  include common shares issuable
upon exercise of outstanding stock warrants and stock options.

Basic and diluted earnings per share are computed below:
<TABLE>
<CAPTION>
                                                                                   Year ended December 31,
                                                                                   -----------------------
                                                                                     2003             2002
                                                                               --------------    -------------
Basic earnings per share computation:
<S>                                                                            <C>               <C>
Net income available to common shareholders ..............................     $      135,169    $     125,968
                                                                               ==============    =============
Average common shares outstanding - basic ................................            565,446          563,670
                                                                               ==============    =============
Basic net income per share ...............................................     $         0.24    $        0.22
                                                                               ==============    =============
Diluted earnings per share computation:
Net income available to common shareholders ..............................     $      135,169    $     125,968
                                                                               ==============    =============
Average common shares outstanding - basic ................................            565,446          563,670
Incremental shares from assumed conversions:
     Stock options and warrants ..........................................             15,450           17,722
                                                                               --------------    -------------
Average common shares outstanding - diluted ..............................            580,896          581,392
                                                                               --------------    -------------
Diluted earnings per share ...............................................      $        0.23    $        0.22
                                                                                =============    =============
</TABLE>


                                       42
<PAGE>

NOTE 16 - REGULATORY MATTERS

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate certain mandatory,  and possibly  additional  discretionary  actions by
regulators  that, if undertaken,  could have a direct adverse material effect on
the Bank's  financial  condition.  Under  capital  adequacy  guidelines  and the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities,  and certain off-balance-sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to  maintain  minimum  ratios of Tier 1 and total  capital as a
percentage of assets and off-balance-sheet exposures,  adjusted for risk weights
ranging from 0% to 100%. Tier 1 capital consists of common shareholders' equity,
excluding the unrealized  gain or loss on securities  available-for-sale,  minus
certain  intangible  assets.  Tier 2 capital  consists of the allowance for loan
losses subject to certain  limitations.  Total capital for purposes of computing
the  capital  ratios  consists  of the sum of  Tier 1 and  Tier 2  capital.  The
regulatory  minimum  requirements  are 4% for Tier 1 and 8% for total risk-based
capital.

The Bank is also required to maintain  capital at a minimum level based on total
assets,  which is known as the  leverage  ratio.  Only the  strongest  banks are
allowed to  maintain  capital at the minimum  requirement  of 3%. All others are
subject to maintaining ratios 1% to 2% above the minimum.

As of December 31, 2003,  the most recent  notification  from the Bank's primary
regulator categorized it as well-capitalized  under the regulatory framework for
prompt  corrective  action.  There are no conditions  or events that  management
believes have changed the Bank's category.

The following  table  summarizes the capital  amounts and ratios of the Bank and
the regulatory minimum requirements.

<TABLE>
<CAPTION>
                                                                                                                   To Be Well-
                                                                                                               Capitalized Under
                                                                                         For Capital           Prompt Corrective
                                                                 Actual               Adequacy Purposes        Action Provisions
                                                                 ------               -----------------        -----------------
                                                           Amount        Ratio      Amount          Ratio      Amount      Ratio
                                                           ------        -----      ------          -----      ------      -----
December 31, 2003
<S>                                                      <C>            <C>        <C>               <C>      <C>          <C>
     Total capital (to risk-weighted assets) ..........  $5,179,587     10.31%     $4,019,458        8.00%    $5,024,322   10.00%
     Tier 1 capital (to risk-weighted assets) .........   4,696,712      9.35       2,009,729        4.00      3,014,593    6.00
     Tier 1 capital (to average assets) ...............   4,696,712      9.28       2,023,920        4.00      2,529,900    5.00

December 31, 2002
     Total capital (to risk-weighted assets) ..........  $4,938,566     13.50%     $2,966,766        8.00%    $3,658,458   10.00%
     Tier 1 capital (to risk-weighted assets) .........   4,569,910     12.49       1,463,383        4.00      2,195,075    6.00
     Tier 1 capital (to average assets) ...............   4,569,910     10.49       1,743,292        4.00      2,179,116    5.00
</TABLE>

The Federal Reserve has similar  requirements  for bank holding  companies.  The
Company is not  currently  subject to these  requirements  because  the  Federal
Reserve applies its guidelines on a bank-only  basis for bank holding  companies
with less than $150,000,000 in consolidated assets.

NOTE 17 - UNUSED LINES OF CREDIT

As of December  31,  2003,  the  Company had unused  lines of credit to purchase
federal funds from unrelated  banks totaling  $2,750,000.  These lines of credit
are available on a one to fourteen day basis for general corporate purposes. The
Company  also has a line of credit to borrow  funds from the  Federal  Home Loan
Bank,  under various  maturity terms and interest rates, up to 10% of the Bank's
total assets,  which totaled  $5,740,640 as of December 31, 2003. As of December
31, 2003, the Bank has borrowed $2,000,000 on this line.


                                       43
<PAGE>

NOTE 18 - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS, OR ADVANCES

South  Carolina  banking   regulations  require  that  cash  dividends  paid  to
shareholders  receive the prior written approval of the Commissioner of Banking.
The Bank is  authorized  to pay cash  dividends  up to 100% of net income in any
calendar  year  without  obtaining  the prior  approval of the  Commissioner  of
Banking  provided that the Bank received a composite rating of one or two at the
last  Federal or State  regulatory  examination.  Under  Federal  Reserve  Board
regulations,  the  amounts  of loans  or  advances  from the Bank to the  parent
company are also restricted.


NOTE 19 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Company is a party to financial instruments with  off-balance-sheet  risk in
the normal  course of business  to meet the  financing  needs of its  customers.
These financial  instruments consist of commitments to extend credit and standby
letters of credit.  Commitments  to extend  credit are  agreements  to lend to a
customer as long as there is no violation of any  condition  established  in the
contract. Commitments generally have fixed expiration dates or other termination
clauses  and may require  payment of a fee. A  commitment  involves,  to varying
degrees,  elements  of credit  and  interest  rate risk in excess of the  amount
recognized in the balance  sheet.  The Company's  exposure to credit loss in the
event of  nonperformance  by the other party to the instrument is represented by
the contractual notional amount of the instrument. Since certain commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company uses the same credit
policies in making commitments to extend credit as it does for  on-balance-sheet
instruments. Letters of credit are conditional commitments issued to guarantee a
customer's  performance  to a third party and have  essentially  the same credit
risk as other lending facilities.

Collateral  held for  commitments  to extend credit and letters of credit varies
but may include accounts receivable,  inventory,  property, plant, equipment and
income-producing commercial properties.

The  following  table  summarizes  the  Company's   off-balance-sheet  financial
instruments whose contract amounts represent credit risk:

                                                          December 31,
                                                          ------------
                                                      2003             2002
                                                 -------------    -------------
Commitments to extend credit .................   $   7,229,066    $   4,247,166
Standby letters of credit ....................          45,000          100,000


NOTE 20 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair  value of a  financial  instrument  is the amount at which the asset or
obligation could be exchanged in a current  transaction between willing parties,
other than in a forced or liquidation  sale.  Fair value estimates are made at a
specific  point in time based on relevant  market  information  and  information
about  the  financial  instruments.   Because  no  market  value  exists  for  a
significant portion of the financial instruments, fair value estimates are based
on  judgments  regarding  future  expected  loss  experience,  current  economic
conditions,  risk  characteristics of various financial  instruments,  and other
factors.


                                       44
<PAGE>

NOTE 20 - FAIR VALUE OF FINANCIAL INSTRUMENTS - continued

The following  methods and  assumptions  were used to estimate the fair value of
significant financial instruments:

Cash and Due from Banks - The carrying  amount is a reasonable  estimate of fair
value.

Federal  Funds  Sold -  Federal  funds  sold are for a term of one day,  and the
carrying amount approximates the fair value.

Investment Securities - The fair values of securities  available-for-sale  equal
the carrying  amounts,  which are the quoted  market  prices.  If quoted  market
prices  are not  available,  fair  values are based on quoted  market  prices of
comparable  securities.  The carrying value of nonmarketable  equity  securities
approximates the fair value since no ready market exists for the stocks.

Loans Receivable - For certain  categories of loans, such as variable rate loans
which are repriced  frequently  and have no  significant  change in credit risk,
fair values are based on the carrying amounts.  The fair value of other types of
loans is estimated by discounting  the future cash flows using the current rates
at which similar loans would be made to borrowers  with similar  credit  ratings
and for the same remaining maturities.

Deposits - The fair value of demand deposits, savings, and money market accounts
is the  amount  payable  on demand at the  reporting  date.  The fair  values of
certificates of deposit are estimated  using a discounted cash flow  calculation
that  applies  current  interest  rates to a  schedule  of  aggregated  expected
maturities.

Advances  from Federal Home Loan Bank - The  carrying  amounts of variable  rate
borrowings are  reasonable  estimates of fair value because they can be repriced
frequently.

Accrued  Interest   Receivable  and  Payable  -  The  carrying  value  of  these
instruments is a reasonable estimate of fair value.

Off-Balance-Sheet   Financial   Instruments  -  The  carrying  amount  for  loan
commitments which are off-balance-sheet  financial instruments  approximates the
fair value since the obligations are typically based on current market rates.

The  carrying  values  and  estimated  fair  values of the  Company's  financial
instruments as are as follows:

<TABLE>
<CAPTION>
                                                                        December 31,
                                                                        ------------
                                                           2003                               2002
                                                           ----                               ----
                                                 Carrying        Estimated           Carrying       Estimated
                                                  Amount        Fair Value            Amount       Fair Value
                                                  ------        ----------            ------       ----------
Financial Assets:
<S>                                         <C>               <C>               <C>              <C>
  Cash and due from banks ................  $    1,413,904    $   1,413,904     $     808,282    $     808,282
  Federal funds sold .....................       2,371,780        2,371,780         3,050,991        3,050,991
  Securities available-for-sale ..........       2,344,649        2,344,649         2,513,281        2,513,281
  Nonmarketable equity securities ........         164,853          164,853           137,553          137,553
  Loans receivable .......................      48,262,788       47,524,615        35,232,689       35,160,533
  Accrued interest receivable ............         190,352          190,352           153,315          153,315

Financial Liabilities:
  Demand deposit, interest-bearing
    transaction, and savings accounts ....      26,736,470       26,736,470        17,432,225       17,432,225
  Certificates of deposit and
    other time deposits ..................      23,703,434       23,747,584        21,946,499       21,989,752
  Advances from Federal Home Loan Bank ...       2,000,000        2,000,000                -                -
  Accrued interest payable ...............         136,441          136,441           209,496          209,496
</TABLE>

<TABLE>
<CAPTION>
                                                Notional         Estimated          Notional        Estimated
                                                  Amount        Fair Value           Amount        Fair Value
                                                  ------        ----------           ------        ----------
Off-Balance Sheet Financial Instruments:
<S>                                         <C>               <C>               <C>              <C>
  Commitments to extend credit ...........  $    7,229,066    $   7,229,066     $   4,247,166    $   4,247,166
  Letters of credit ......................          45,000           45,000           100,000          100,000
</TABLE>



                                       45
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 21 - REGIONAL BANKSHARES, INC. (PARENT COMPANY ONLY)

Presented below are the condensed financial  statements for Regional Bankshares,
Inc. (Parent Company Only).

                            Condensed Balance Sheets

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                         ------------
                                                                                     2003             2002
                                                                               --------------    -------------
Assets
<S>                                                                            <C>               <C>
     Cash .................................................................    $       34,691    $       3,691
     Investment in banking subsidiary .....................................         4,682,971        4,569,910
     Other assets .........................................................            10,234           10,233
                                                                               --------------    -------------
         Total assets .....................................................    $    4,727,896    $   4,583,834
                                                                               ==============    =============

Shareholders' equity ......................................................    $    4,727,896    $   4,583,834
                                                                               ==============    =============
</TABLE>



                         Condensed Statements of Income


<TABLE>
<CAPTION>
                                                                                   Year ended December 31,
                                                                                   -----------------------
                                                                                     2003             2002
                                                                               --------------    -------------

<S>                                                                            <C>               <C>
 Income ...................................................................    $           -     $          -

 Expenses
     Other expenses .......................................................                -                59
                                                                               --------------    -------------

 Loss before income taxes and equity in
   undistributed earnings of banking subsidiary ...........................                -               (59)

 Income tax benefit .......................................................                -                -
 Equity in undistributed earnings of banking subsidiary ...................           135,169          126,027
                                                                               --------------    -------------

 Net income ...............................................................    $      135,169    $     125,968
                                                                               ==============    =============
</TABLE>



                                       46
<PAGE>


NOTE 21 - REGIONAL BANKSHARES, INC. (PARENT COMPANY ONLY) - continued

                       Condensed Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                                   Year ended December 31,
                                                                                   -----------------------
                                                                                     2003             2002
                                                                               --------------    -------------
Cash flows from operating activities:
<S>                                                                            <C>               <C>
     Net income ...........................................................    $      135,169    $     125,968
     Adjustments to reconcile new income
       to net cash used by operating activities:
         Equity in undistributed earnings
           of banking subsidiary ..........................................          (135,169)        (126,027)
                                                                               --------------    -------------
         Net cash used by operating activities ............................                -               (59)
                                                                               --------------    -------------

Cash flows from financing activities:
     Proceeds from exercise of stock warrants .............................            31,000               -
                                                                               --------------    -------------
         Net cash provided by financing activities ........................            31,000               -
                                                                               --------------    -------------

Increase (decrease) in cash ...............................................            31,000              (59)

Cash and cash equivalents, beginning of year ..............................             3,691            3,750
                                                                               --------------    -------------

Cash and cash equivalents, end of year ....................................    $       34,691    $       3,691
                                                                               ==============    =============
</TABLE>



                                       47
<PAGE>

Item  8.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

         (a)(1)(i)-(iv)(A)  - Legislation  and  Securities  Exchange  Commission
rules  adopted  in 2002  have  significantly  increased,  and will  continue  to
increase,  the  regulatory  burdens  on audit  firms  that  audit the  financial
statements of companies  that are subject to the reporting  requirements  of the
Securities  Exchange Act of 1934.  Consequently,  many  smaller  audit firms are
deciding to limit their audit  practice to companies that are not subject to the
1934 Act.  Tourville,  Simpson  &  Caskey,  L.L.P.  (TSC),  which  served as the
Company's principal  independent  accountant since the Company's inception,  was
one such firm.  Accordingly,  TSC resigned as the  Company's  principal  auditor
effective  January 2, 2003.  TSC's  report on the  financial  statements  of the
Company for each of the years ended  December 31, 2000 and December 31, 2001 did
not contain an adverse  opinion or a disclaimer of opinion and was not qualified
or modified as to uncertainty, audit scope or accounting principles.

     During the Company's three most recent fiscal years ended December 31, 2002
     and the subsequent  interim period through  January 2, 2003,  there were no
     disagreements  between  the  Company  and TSC on any  matter of  accounting
     principles or practices,  financial statement  disclosure or auditing scope
     or procedure,  which disagreements,  if not resolved to the satisfaction of
     TSC,  would have caused it to make  reference to the subject  matter of the
     disagreements  in connection with its report.

     The  disclosures  required by Item 304 (a) (1) (iv) (B) - (E) of Regulation
     S-B are not applicable.

(2)  Elliott  Davis,  LLC  certified  public  accountants  was  engaged  by  the
     Registrant on January 2, 2003, to audit the  financial  statements  for the
     year ending December 31, 2002. The Registrant did not consult Elliott Davis
     regarding  any of the  matters set forth in Item 304 (a) (2) (i) or (ii) of
     Regulation S-B.

Item 8A. Controls and Procedures.

         Based on the evaluation required by 17 C.F.R. Section  240.13a-15(b) or
240.15d-15(b) of the Company's disclosure controls and procedures (as defined in
17  C.F.R.  Sections  240.13a-15(e)  or  240.15d-15(e)),   the  Company's  chief
executive  officer and chief financial  officer concluded that the effectiveness
of such  controls and  procedures,  as of the end of the period  covered by this
annual report, was adequate.

         No disclosure is required under 17 C.F.R. Section 228.308.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act

         The information set forth under the captions  "Election of Directors --
Nominees  for  Re-election  to the  Board of  Directors  for  terms of office to
continue until the Annual Meeting of  Shareholders  in 2007," "-- Members of the
Board of Directors  whose terms of office will continue until the Annual Meeting
of  Shareholders  in 2006," "-- Members of the Board of Directors whose terms of
office will continue until the Annual Meeting of  Shareholders in 2005," and "--
Executive  Officers" in the Proxy  Statement to be used in  connection  with the
Company's  2004 Annual  Stockholders  Meeting (the "2004 Proxy  Statement"),  is
incorporated  herein by reference.  Each director has served as a director since
1999, including service on the Board of Directors of the Bank prior to formation
of the  Company.  The  information  set forth under the caption  "Section  16(a)
Beneficial  Ownership  Reporting  Compliance"  in the 2004  Proxy  Statement  is
incorporated herein by reference.

         Audit Committee Financial Expert

         The Company's  board of directors has determined  that the Company does
not have an "audit committee  financial expert," as that term is defined by Item
401(e) of Regulation S-B promulgated by the Securities and Exchange  Commission,
serving on its audit committee.  The Company's audit committee is a committee of
directors who are elected by the  shareholders  and who are  independent  of the
Company and its  management.  After reviewing the experience and training of all
of the  Company's  independent  directors,  the board of directors has concluded
that  no  independent  director  meets  the  SEC's  very  demanding  definition.
Therefore, it would be necessary to find a qualified individual willing to serve
as both a  director  and  member of the  audit  committee  and have that  person
elected  by the  shareholders  in order to have an  "audit  committee  financial
expert" serving on the Company's audit committee.  The Company's audit committee
is,  however,  authorized to use  consultants  to provide  financial  accounting
expertise in any instance where members of the committee believe such assistance
would be useful. Accordingly, the Company does not believe that it needs to have
an "audit committee financial expert" on its audit committee.

                                       48
<PAGE>

         Code of Ethics

         The  Company  has  adopted a code of ethics  (as  defined  by 17 C.F.R.
228.406) that applies to its principal executive officer and principal financial
officer.  The Company will provide a copy of the code of ethics, free of charge,
to any person upon written request to Curtis A. Tyner, Sr.,  President and Chief
Executive  Officer,   Regional   Bankshares,   Inc.,  206  South  Fifth  Street,
Hartsville, South Carolina 29550.

Item 10.  Executive Compensation

         The information set forth under the caption  "Management  Compensation"
and "2001 Stock Option Plan" in the 2004 Proxy Statement is incorporated  herein
by reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management and
          Related Stockholder Matters

         The  information  set forth under the caption  "Security  Ownership  of
Management" in the 2004 Proxy Statement is incorporated herein by reference.

Equity Compensation Plan Information

The following  table sets forth  aggregated  information as of December 31, 2003
about all of the Company's compensation plans (including individual compensation
arrangements)  under which equity  securities of the Company are  authorized for
issuance:

<TABLE>
<CAPTION>
Plan category                   Number of securities         Weighted-average             Number of securities
                                to be issued upon            exercise price of            remaining available
                                exercise of                  outstanding options,         for future issuance
                                outstanding options,         warrants and rights          under equity
                                warrants and rights                                       compensation plans
                                                                                          (excluding securities
                                                                                          reflected in column(a))
                                (a)                          (b)                          (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                             <C>                          <C>                          <C>
Equity compensation             17,000                       $13.00                       33,000
plans approved by
security holders

Equity compensation             48,500(1)                    $10.00                          -0-
plans not approved              ------                                                    ------
by security holders

Total                           65,500                                                    33,000
</TABLE>

(1)  These represent  director  warrants.  In connection with the Bank's initial
     public  offering,  each of its  organizers  received a warrant to  purchase
     5,000 shares of the Bank's common stock.  Upon  acquisition  of the Bank by
     the Company,  the warrants were converted into warrants to purchase  common
     stock of the Company.  The exercise price for the warrants is $10 per share
     and they may be exercised over a ten-year period. The right to exercise the
     warrants  vested with  respect to one-third of the warrants on each of June
     15, 2000,  June 15, 2001,  and June 15, 2002,  for each  organizer  who had
     served  continuously  as a  director  from the Bank's  formation  until the
     vesting date.  Assuming all of the warrants  issued to the  organizers  are
     exercised  and that  the  Company  issues  no  further  common  stock,  the
     organizers  would  own an  aggregate  of  244,150  shares,  or 40%,  of the
     Company's outstanding common stock.

Item 12.   Certain Relationships and Related Transactions

         The information set forth under the caption "Certain  Relationships and
Related  Transactions"  in the 2004 Proxy  Statement is  incorporated  herein by
reference.



                                       49
<PAGE>

                                     PART IV

Item 13.  Exhibits and Reports on Form 8-K

(a)      Exhibits required by Item 601 of Regulation S-B.

Exhibit
Number            Description
------            -----------

3.1            Articles of  Incorporation  of the  Registrant  (incorporated  by
               reference to exhibits to Registrant's  Registration  Statement on
               Form 8-A (the "Form 8-A")).

3.2            Bylaws of Registrant (incorporated by reference to the Form 8-A).

4.1            Specimen Common Stock  Certificate  (incorporated by reference to
               the Form 8-A).

4.2            Form of Warrant  Agreement Issued to Organizers  (incorporated by
               reference  to exhibits to  Registrant's  Form 10-KSB for the year
               ended December 31, 2000 (the "2000" Form 10-KSB).

10.1           Employment  Agreement between Hartsville Community Bank, National
               Association  and Curtis A. Tyner  (incorporated  by  reference to
               exhibits to the 2000 Form 10-KSB).

10.2           Lease  Agreement  dated  October  23,  1998  between   Hartsville
               Community   Investors,   LLC  and  Gordon  McBride   (assumed  by
               Registrant)  (incorporated  by  reference to exhibits to the 2000
               Form 10-KSB).

10.3           Regional Bankshares, Inc. 2001 Stock Option Plan (incorporated by
               reference to the Company's Proxy Statment relating to the May 10,
               2001 Annual Meeting of Shareholders).

16             Letter  on  Change  in  Certifying  Accountant  (incorporated  by
               reference to Amended Form 8-K, filed February 5, 2003).

21             Subsidiaries of the Registrant

31             Rule 13a-14(a)/15d-14(a) Certifications

32             18 U.S.C. Section 1350 Certifications

(b)  Reports on Form 8-K.  No  reports on Form 8-K were filed  during the fourth
     quarter of 2003.

Item 14.  Principal Accountant Fees and Services

         The  information  set  forth  under  the  caption  "Independent  Public
Accountants  -  Fees  Paid  to  Independent   Auditors"  and  "Audit   Committee
Pre-Approval  of  Audit  and  Permissible   Non-Audit  Services  of  Independent
Auditors" in the 2004 Proxy Statement is incorporated herein by reference.

                                       50
<PAGE>

                                   SIGNATURES

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


                                 REGIONAL BANKSHARES, INC.

March 26, 2004                   By: s/Curtis A. Tyner, Sr.
                                    --------------------------------------------
                                     Curtis A. Tyner, Sr.
                                     President, Chief Executive Officer and
                                        Chief Financial Officer

         In accordance with the Exchange Act, this Report has been signed by the
following  persons on behalf of the  registrant and in the capacities and on the
dates stated.

<TABLE>
<CAPTION>

                  Signature                                         Title                               Date
                  ---------                                         -----                               ----

<S>                                            <C>                                                 <C>

s/Gosnold G. Segars, Jr.
----------------------------                         Chairman of the Board of Directors            March 26, 2004
Gosnold G. Segars, Jr.

s/Curtis A. Tyner, Sr.
----------------------------                      President, Chief Executive Officer, Chief        March 26, 2004
Curtis A. Tyner, Sr.                              Financial Officer and Director (Principal
                                                 Executive Officer and Principal Accounting
                                                                  Officer)


----------------------------                                      Director                         March __, 2004
Francine P. Bachman

s/T. James Bell, Jr.
----------------------------                                      Director                         March 26, 2004
T. James Bell, Jr.


----------------------------                                      Director                         March __, 2004
Peter C. Coggeshall, Jr.

s/Franklin Hines
----------------------------                                      Director                         March 29, 2004
Franklin Hines

s/J. Richard Jones
----------------------------                                      Director                         March 29, 2004
J. Richard Jones

s/Woodward H. Morgan, III
----------------------------                                      Director                         March 26, 2004
Woodward H. Morgan, III


----------------------------                                      Director                         March __, 2004
Randolph G. Rogers


----------------------------                                      Director                         March __, 2004
Howard W. Tucker, Jr.


----------------------------                                      Director                         March __, 2004
Patricia M. West
</TABLE>


                                       51
<PAGE>

                                  EXHIBIT INDEX

Exhibit
Number            Description
------            -----------

3.1            Articles of  Incorporation  of the  Registrant  (incorporated  by
               reference to exhibits to Registrant's  Registration  Statement on
               Form 8-A (the "Form 8-A")).

3.2            Bylaws of Registrant (incorporated by reference to the Form 8-A).

4.1            Specimen Common Stock  Certificate  (incorporated by reference to
               the Form 8-A).

4.2            Form of Warrant  Agreement Issued to Organizers  (incorporated by
               reference  to exhibits to  Registrant's  Form 10-KSB for the year
               ended December 31, 2000 (the "2000" Form 10-KSB).

10.1           Employment  Agreement between Hartsville Community Bank, National
               Association  and Curtis A. Tyner  (incorporated  by  reference to
               exhibits to the 2000 Form 10-KSB).

10.2           Lease  Agreement  dated  October  23,  1998  between   Hartsville
               Community   Investors,   LLC  and  Gordon  McBride   (assumed  by
               Registrant)  (incorporated  by  reference to exhibits to the 2000
               Form 10-KSB).

10.3           Regional Bankshares, Inc. 2001 Stock Option Plan (incorporated by
               reference to the Company's Proxy Statment relating to the May 10,
               2001 Annual Meeting of Shareholders).

16             Letter  on  Change  in  Certifying  Accountant  (incorporated  by
               reference to Amended Form 8-K, filed February 5, 2003).

21             Subsidiaries of the Registrant

31             Rule 13a-14(a)/15d-14(a) Certifications

32             18 U.S.C. Section 1350 Certifications


                                       52