REGIONAL BANKSHARES, INC.

                                   EXHIBIT 13

                   Portions of Annual Report to Shareholders
                           Incorporated by Reference
                             into December 31, 2005
                                  Form 10-KSB
























<PAGE>


                            REGIONAL BANKSHARES, INC.













                                Table of Contents

                                                                           Page

Forward Looking Statements....................................................2
Selected Financial Data.......................................................3
Management's Discussion and Analysis.......................................4-20
Independent Auditors' Report.................................................21
Consolidated Balance Sheets..................................................22
Consolidated Statements of Income............................................23
Consolidated Statements of Changes in Shareholders'
 Equity and Comprehensive Income.............................................24
Consolidated Statements of Cash Flows........................................25
Notes to Consolidated Financial Statements................................26-44












<PAGE>

                            REGIONAL BANKSHARES, INC.

                           Forward Looking Statements

This  report  contains  "forward-looking  statements"  within the meaning of the
securities   laws.   All   statements   that  are  not   historical   facts  are
"forward-looking  statements." You can identify these forward-looking statements
through  our  use of  words  such  as  "may,"  "will,"  "expect,"  "anticipate,"
"believe," "intend," "estimate,"  "project," "continue," or other similar words.
Forward-looking statements include, but are not limited to, statements regarding
our future business prospects,  revenues,  working capital,  liquidity,  capital
needs, interest costs, income, business operations and proposed services.

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
our  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  we  are a  relatively  new  company  with  a  limited  operating  history.
Therefore,  actual  results  may  differ  materially  from  those  expressed  or
forecasted  in such  forward-looking  statements.  The risks  and  uncertainties
include, but are not limited to:

     o    Our growth and our ability to maintain growth;

     o    Governmental  monetary and fiscal policies, as well as legislative and
          regulatory changes;

     o    The effect of interest  rate changes on our level and  composition  of
          deposits,  loan  demand  and the  value  of our  loan  collateral  and
          securities;

     o    The effects of competition from other financial institutions operating
          in our market area and  elsewhere,  including  institutions  operating
          locally,  regionally,  nationally and  internationally,  together with
          competitors   that  offer  banking  products  and  services  by  mail,
          telephone and computer and/or the Internet;

     o    Repayment of loans by our borrowers;

     o    Failure of assumptions  underlying the  establishment of our allowance
          for loan losses, including the value of collateral securing loans; and

     o    Loss of consumer  confidence and economic  disruptions  resulting from
          terrorist activities.

We  undertake 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.



                                       2
<PAGE>

                            REGIONAL BANKSHARES, INC.

                             Selected Financial Data

The following selected financial data for and at the years ended December 31, is
derived from our consolidated  financial statements and other data. The selected
financial data should be read in  conjunction  with our  consolidated  financial
statements, including the accompanying notes, included elsewhere herein.

<TABLE>
<CAPTION>
                                                             2005           2004           2003            2002            2001
                                                             ----           ----           ----            ----            ----
(Dollars in thousands, except per share)
Income Statement Data:
<S>                                                       <C>             <C>             <C>             <C>             <C>
  Interest income .................................       $  4,464        $  3,357        $  2,754        $  2,440        $  1,998
  Interest expense ................................          1,357             727             710             788             853
                                                          --------        --------        --------        --------        --------
  Net interest income .............................          3,107           2,630           2,044           1,652           1,145
  Provision for loan losses .......................            120             125             132             130             130
                                                          --------        --------        --------        --------        --------
  Net interest income after provision
    for loan losses ...............................          2,987           2,505           1,912           1,522           1,015
  Noninterest income ..............................            586             545             504             350             235
  Noninterest expense .............................          2,808           2,541           2,202           1,672           1,494
                                                          --------        --------        --------        --------        --------
  Income (loss) before income taxes ...............            765             509             214             200            (244)
  Income tax expense (benefit) ....................            283             188              79              74             (89)
                                                          --------        --------        --------        --------        --------
     Net income (loss) ............................       $    482        $    321        $    135        $    126        $   (155)
                                                          ========        ========        ========        ========        ========
Balance Sheet Data:
  Assets ..........................................       $ 71,105        $ 70,260        $ 57,406        $ 44,226        $ 34,218
  Earning assets ..................................         65,500          64,860          53,144          40,935          30,211
  Securities (1) ..................................          6,527           4,002           2,510           2,651             354
  Loans (2) .......................................         58,586          55,052          48,263          35,233          26,874
  Allowance for loan losses .......................            681             590             483             369             268
  Deposits ........................................         58,698          57,691          50,440          39,379          27,742
  Shareholders' equity ............................          5,588           5,094           4,728           4,584           4,452
Per Share Data(3):
   Earnings (losses) per share ....................       $   0.70        $   0.47        $   0.20        $   0.19        $  (0.23)
   Book value .....................................           8.07            7.40            6.93            6.76            6.56
   Tangible book value ............................           8.07            7.40            6.93            6.76            6.56
Selected Ratios:
    Return on average assets ......................           0.67%           0.52%           0.27%           0.32%          (0.55)%
    Return on average equity ......................           9.18            6.28            2.91            2.81           (3.44)
    Net interest margin (4) .......................           4.62            4.59            4.44            4.63            4.68
    Efficiency (5) ................................          76.04           80.04           86.40           83.52          108.29
    Equity to assets ..............................           7.86            7.25            8.24           10.36           13.01
Capital and Liquidity Ratios:
    Average equity to average assets ..............           7.28%           8.19%           9.17%          11.31%          16.07%
    Leverage (4.00% required minimum) .............           7.78            9.71            9.37           10.50           13.53
    Tier 1 risk-based capital ratio ...............           8.76           10.16            9.44           12.50           15.35
    Total risk-based capital ratio ................           9.82           11.15           10.40           13.51           16.27
    Average loans to average deposits .............          96.97           94.93           91.56           89.59           93.31
</TABLE>

----------------------
(1)  Securities   include   available-for-sale,   stated  at  fair  value,   and
     nonmarketable equity securities.
(2)  Loans are stated at gross amounts before allowance for loan losses.
(3)  Per share  amounts have been  adjusted to reflect the effect of a 20% stock
     dividend paid in 2005.
(4)  Net interest income divided by average earning assets.
(5)  Noninterest  expense  divided  by  the  sum  of  net  interest  income  and
     noninterest income, net of gains and losses on sales of assets.




                                       3
<PAGE>


                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

                              Basis of Presentation

The  following  discussion  should  be read in  conjunction  with our  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  Consolidated  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
national bank charter to a state bank charter. On June 27, 2005 the Bank changed
its name to Heritage Community Bank.

On May 10, 2001, we moved our operations to our 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.  In December 2005, the Bank moved its operations center
to 125 Westfield St. The operation center now houses deposit operations and loan
operations.

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 on behalf of correspondent  banks.  During 2001,
the Bank began to offer  investment  and  brokerage  services  to its  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 full service  banking.  The McBee branch  offers  deposit and loan
services to many consumers and local industries in the area.





                                       4
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

                              Results of Operations


Year ended December 31, 2005, compared with year ended December 31, 2004

Net interest  income  increased  $477,149,  or 19.04% in 2005 from $2,505,392 in
2004.  The increase in net interest  income was due  primarily to an increase in
average  earning  assets,  which  increased  $9,652,000,  or  16.75%,  due to an
increase  in  investment  securities  as well as  continued  growth  in the loan
portfolio.  The primary  components  of interest  income were interest on loans,
including  fees, of $4,124,076 and interest on securities  available for sale of
$222,484.

Our  net  interest  spread  and  net  interest  margin  were  4.32%  and  4.62%,
respectively,  in 2005 compared to 4.38% and 4.56%,  respectively,  in 2004. The
increase  in net  interest  spread was  primarily  the result of an  increase in
interest rates.  Yields on earning assets  increased from 5.83% in 2004 to 6.64%
in 2005. Rates on interest-bearing  liabilities  increased from 1.45% in 2004 to
2.32% in 2005.

The provision for loan losses was $120,000 in 2005 compared to $125,000 in 2004.
We continue  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 $40,947 or 7.52%, to $585,530 in 2005 from $544,583
in 2004.  The  increase  is  primarily  attributable  to an  increase in service
charges on deposit accounts,  which increased  $109,055,  or 38.38%, to $393,225
for the year ended  December 31, 2005.  Residential  mortgage  origination  fees
decreased  $24,694,  or 24.47%,  to $59,103 for the year ended December 31, 2005
due to the decline in the number of mortgage  refinances as interest rates began
to increase and most of the demand for refinancing had been satisfied.

Noninterest  expense increased  $266,780,  or 10.50%, to $2,807,872 in 2005 from
$2,541,092 in 2004. Noninterest expenses increased in all categories as a result
of our continued growth. Other operating expenses increased $143,188 to $995,935
for the year ended December 31, 2005.  Salaries and benefits  increased $68,370,
or 5.08%,  to  $1,413,929  in 2005 from  $1,345,559  in 2004.  This  increase is
attributable to normal pay increases and the hiring of additional  staff to meet
needs  associated  with our  growth.  Our  efficiency  ratio was  78.59% in 2005
compared  to 80.04% in 2004.  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  $482,048  in 2005  compared to a net income of $321,122 in 2004.
The  net  income  reflects  our  continued  growth,  as  average-earning  assets
increased from  $57,619,000  for the year ended December 31, 2004 to $67,271,000
for the year ended  December 31, 2005.  Return on average assets during 2005 was
0.67%  compared to 0.52%  during  2004,  and return on average  equity was 7.64%
during 2005 compared to 6.28% during 2004.





                                       5
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

                               Net Interest Income

General.  The largest  component of our 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 our  interest-earning  assets and the rates
paid   on  our   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 our interest-earning
assets and interest-bearing  liabilities.  Total  interest-earning  assets yield
less total  interest-bearing  liabilities  rate represents our net interest rate
spread.

Average  Balances,  Income and Expenses,  and Rates.  The  following  table sets
forth,  for the years  indicated,  certain  information  related to our  average
balance sheet and our 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>
                                                                           2005                                  2004
                                                                           ----                                  ----
                                                             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) ........................................   $     56,581  $    4,124       7.29%    $   51,709  $    3,238     6.26%
     Securities, taxable (2) ..........................          6,679         223       3.34          3,292          78     2.37
     Securities, nontaxable (3) .......................              2           -          -              -           -        -
     Nonmarketable securities .........................            481          14       2.91            214           4     1.87
     Federal funds sold ...............................          3,528         103       2.92          2,404          37     1.54
                                                          ------------  ----------                ----------  ----------
       Total earning assets ...........................         67,271       4,464       6.64         57,619       3,357     5.83
                                                          ------------  ----------                ----------  ----------
  Cash and due from banks .............................          2,095                                 1,976
  Premises and equipment ..............................          2,819                                 2,476
  Other assets ........................................            557                                   789
  Allowance for loan losses ...........................           (632)                                 (532)
                                                          -------------                           ----------
       Total assets ...................................   $     72,110                            $   62,328
                                                          ============                            ==========
Liabilities:
  Interest-bearing liabilities:
     Interest-bearing transaction
       accounts .......................................   $      6,802          27       0.40%    $    6,055          14     0.23%
     Savings deposits .................................         17,493         252       1.44         17,677         183     1.04
     Time deposits ....................................         27,092         799       2.95         23,728         482     2.03
  Note Payable ........................................          1,063          67       6.30            255          13     5.10
  Federal Home Loan Bank Advances .....................          6,038         211       3.49          2,524          34     1.35
  Other short-term borrowings .........................             16           1       6.25             44           1     2.27
                                                          ------------  ----------                ----------  ----------
       Total interest-bearing
         liabilities ..................................         58,504       1,357       2.32         50,283         727     1.45
                                                          ------------  ----------                ----------  ----------
  Demand deposits .....................................          8,025                                 6,757
  Accrued interest and other liabilities ..............            332                                   178
  Shareholders' equity ................................          5,249                                 5,110
                                                          ------------                            ----------
       Total liabilities and
         Shareholders' equity .........................   $     72,110                            $   62,328
                                                          ============                            ==========
  Net interest spread .................................                                  4.32%                               4.38%
  Net interest income .................................                 $    3,107                            $    2,630
                                                                        ==========                            ==========
  Net interest margin .................................                                  4.62%                               4.56%
</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.
(3)  Calculated  on a fully  tax-equivalent  basis at 37% tax rate.  Rate/Volume
     Analysis



                                       6
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

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 our 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>
                                                                                               2005 Compared to 2004
                                                                                                   Variance due to
                                                                                                   ---------------
(Dollars in thousands)                                                          Volume (1)             Rate (1)                Total
                                                                                ----------             --------                -----
Interest income:
<S>                                                                                 <C>                  <C>                  <C>
   Loans ............................................................               $  563               $  323               $  886
   Securities, taxable ..............................................                   41                  104                  145
   Securities, nontaxable ...........................................                    -                    -                    -
   Nonmarketable securities .........................................                    3                    7                   10
   Federal funds sold and other .....................................                   44                   22                   66
                                                                                    ------               ------               ------

     Total interest income ..........................................                  651                  456                1,107
                                                                                    ------               ------               ------

Interest expense:
   Interest-bearing deposits ........................................                  324                   75                  399
   Federal Home Loan Bank Advances ..................................                   95                   82                  177
   Note Payable .....................................................                    4                   50                   54
   Other short-term borrowings ......................................                    -                    -                    -
                                                                                    ------               ------               ------

     Total interest expense .........................................                  423                  207                  630
                                                                                    ------               ------               ------

     Net interest income ............................................               $  228               $  249               $  477
                                                                                    ======               ======               ======
</TABLE>

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

                               Net Interest Income

Interest  Sensitivity.  We monitor and manage the  pricing  and  maturity of our
assets and  liabilities  in order to diminish the potential  adverse impact that
changes in interest rates could have on our net interest  income.  The principal
monitoring  technique  employed is the  measurement of our 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
the same time  interval  helps to hedge the risk and  minimize the impact on net
interest income of rising or falling interest rates.





                                       7
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

                         Net Interest Income - continued

The  following  table sets forth our interest rate  sensitivity  at December 31,
2005.

Interest Sensitivity Analysis
<TABLE>
<CAPTION>
                                                          After one      After Three                        Greater
                                                           Through         Through                          Than One
December 31, 2005                       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 ...........................   $     26,386      $      5,142      $    2,677      $   34,205      $     24,381      $ 58,586
  Securities, taxable .............             26             1,051           1,211           2,288             3,485         5,773
  Securities, nontaxable ..........              -                 -               -               -               306           306
  Nonmarketable securities ........              -                 -               -               -               448           448
  Federal funds sold ..............            388                 -               -             388                 -           388
                                      ------------      ------------      ----------      ----------      ------------      --------
       Total earning assets .......         26,800             6,193           3,888          36,881            28,620        65,501
                                      ------------      ------------      ----------      ----------      ------------      --------
Liabilities
Interest-bearing liabilities:
  Interest-bearing deposits:
     Demand deposits ..............          7,520                 -               -           7,520                 -         7,520
     Savings deposits .............         15,084                 -               -          15,084                 -        15,084
     Time deposits ................             27             4,739          15,822          20,588             5,954        26,542
                                      ------------      ------------      ----------      ----------      ------------      --------
       Total interest-bearing
         deposits .................         22,631             4,739          15,822          43,192             5,954        49,146
                                      ------------      ------------      ----------      ----------      ------------      --------
  Fed Funds Purchased .............             50                 -               -              50                 -            50
  Note Payable ....................              -                50               -              50             1,000         1,050
  Federal Home Loan Bank
     advances .....................          2,000               750           1,250           4,000             1,250         5,250
                                      ------------      ------------      ----------      ----------      ------------      --------
       Total interest-bearing
         liabilities ..............         24,681             5,539          17,072          47,292             8,204        55,496
                                      ------------      ------------      ----------      ----------      ------------      --------
Period gap ........................   $      2,119      $        654      $  (13,184)     $  (10,411)     $     20,416      $ 10,005
                                      ============      ============      ===========     ===========     ============      ========
Cumulative gap ....................   $      2,119      $      2,773      $  (10,411)     $  (10,411)     $     10,005
                                      ============      ============      ===========     ===========     ============
Ratio of cumulative gap to total
  earning assets ..................           3.23%             4.23%         (15.90)%        (15.90)%           15.27%
</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 us the opportunity to vary the rates paid on
those  deposits  within a  thirty-day  or shorter  period.  However,  we are 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.  Advances from the Federal Home Loan Bank and
the note payable are reflected at their contractual maturity dates.




                                       8
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

                         Net Interest Income - continued

We generally would benefit from increasing market rates of interest when we have
an  asset-sensitive  gap position and generally  would  benefit from  decreasing
market   rates   of   interest   when   we  are   liability-sensitive.   We  are
liability-sensitive  on a  cumulative  basis within one year.  However,  our gap
analysis is not a precise indicator of our 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   our   current
liability-sensitive  gap  position is  acceptable  relative to the current  rate
environment,  as we would be  expected  to benefit  most from stable or slightly
declining rates.  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.  We have  developed  policies and procedures for evaluating the overall
quality  of our credit  portfolio  and the timely  identification  of  potential
problem  credits.  On a  quarterly  basis,  our Board of  Directors  reviews and
approves  the  appropriate  level for our  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 our market.

Additions to the allowance for loan losses,  which are expensed as the provision
for loan losses on our 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.

Our 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 our monitoring and analysis
system  are  also  reviewed  periodically  by the  banking  regulators  and  our
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.  We do not  allocate  the  allowance  for loan  losses to
specific  categories of loans but evaluate 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.




                                       9
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

               Provision and Allowance for Loan Losses - continued

The  following  table sets forth  information  with respect to our allowance for
loan losses and the composition of chargeoffs and recoveries for the years ended
December 31, 2005 and 2004.

Allowance for Loan Losses
(Dollars in thousands)                                         2005       2004
                                                               ----       ----
Total loans outstanding at end of year ...................   $58,586    $55,052
                                                             =======    =======
Average loans outstanding ................................   $56,581    $51,709
                                                             =======    =======
Balance of allowance for loan losses at beginning of year    $   590    $   483
Loans charged off:
     Real estate - construction ..........................         -          -
     Real estate - mortgage ..............................         -          -
     Commercial and industrial ...........................         -          -
     Consumer and other ..................................        54         32
                                                             -------    -------
         Total loan losses ...............................        54         32
                                                             -------    -------
Recoveries of previous loan losses:
     Real estate - construction ..........................         -          -
     Real estate - mortgage ..............................         -          -
     Commercial and industrial ...........................         -          -
     Consumer and other ..................................        25         14
                                                             -------    -------
         Total recoveries ................................        25         14
                                                             -------    -------
Net charge-offs ..........................................        29         18
Provision for loan losses ................................       120        125
                                                             -------    -------
Balance of allowance for loan losses at end of year ......   $   681    $   590
                                                             =======    =======

Allowance for loan losses to year end loans ..............      1.16%      1.07%
Ratio of charge-offs to average loans ....................      0.10%      0.05%


                              Nonperforming Assets

Nonperforming Assets. There were loans totaling $7,758 and $23,847 in nonaccrual
status at December 31, 2005 and 2004,  respectively.  There were loans  totaling
$520 and $2,157  past due ninety  days or more and still  accruing  interest  at
December 31, 2005 and 2004,  respectively.  There were no restructured  loans at
December 31, 2005 or 2004.

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
our  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.



                                       10
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

                        Nonperforming Assets - continued

Potential  Problem  Loans.  Management  has  identified  and maintains a list of
potential  problem  loans.  These  loans  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 the borrower  that causes  doubts about the
borrower's  ability to comply with the current loan repayment  terms.  Potential
problem  loans  are  either  designated  as  criticized  loans  (loans  that are
typically 60-89 days past due) or classified  loans (loans that are typically 90
days or more past due).  At December 31,  2005,  we had  identified  $368,357 in
criticized  loans and $8,989 in  classified  loans  through our internal  review
mechanisms. At December 31, 2004, we had identified $578,868 in criticized loans
and $30,160 in classified  loans through our 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, 2005 was
$585,530,  an increase of $40,947 from $544,583 for the year ended  December 31,
2004. The increase is primarily due to an increase in service charges on deposit
accounts  which  totaled  $393,225  in 2005 as  compared  to  $284,170  in 2004.
Residential  mortgage origination fees decreased $24,694 as compared to the year
ended December 31, 2004.  This decrease is attributable to rising interest rates
and a decline  in  consumer  refinancing  activity.  Brokerage  fee  commissions
declined from $101,912 for the year ended  December 31, 2004 to $42,786 in 2005.
The decline is attributable to a transition in brokerage personnel.


The following  table sets forth the principal  components of noninterest  income
for the years ended December 31, 2005 and 2004.

   (Dollars in thousands)                                     2005         2004
                                                              ----         ----
   Service charges on deposit accounts ..................     $393         $284
   Credit life insurance commissions ....................        4            5
   Residential mortgage origination fees ................       59           84
   Brokerage commissions ................................       43          102
   Other income .........................................       87           70
                                                              ----         ----
   Total noninterest income .............................     $586         $545
                                                              ====         ====

Noninterest  Expense.  Noninterest  expense  increased  $266,780  or  10.50%  to
$2,807,872  for the year ended  December 31, 2005 when compared to 2004. Of this
total,  other operating expenses  increased  $143,188,  or 16.79% to $995,935 in
2005 from $852,747 in 2004. Salaries and employee benefits increased $68,370, or
5.08%,  in 2005 from $1,345,559 in 2004. 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
$30,164,  or 17.35% to $204,049 for the year ended December 31, 2005.  Furniture
and equipment  expense  increased from $168,901 in 2004 to $193,959 for the year
ended  December 31, 2005.  Both the increase in occupancy  expense and furniture
and equipment expense are due to the addition of the permanent facility in McBee
and the purchase of our new operations center.




                                       11
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

                   Noninterest Income and Expense - continued

The following table sets forth the primary components of noninterest expense for
the years ended December 31, 2005 and 2004.

     (Dollars in thousands)                                 2005           2004
                                                            ----           ----
     Salaries and employee benefits .....................    $1,414      $1,346
     Net occupancy and equipment expense ................       398         174
     Advertising and public relations ...................        54          48
     Office supplies, stationery, and printing ..........        68          57
     Data processing and related expense ................       209         179
     Professional fees and services .....................       146         117
     Telephone expenses .................................        57          54
     Other ..............................................       462         566
                                                             ------      ------
         Total noninterest expense ......................    $2,808      $2,541
                                                             ======      ======
     Efficiency ratio ...................................     76.04%      80.04%

                                 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  $56,581,000  in 2005
compared to $51,709,000 in 2004, an increase of $4,872,000 or 9.42%. At December
31, 2005, total loans were  $58,586,129  compared to $55,052,377 at December 31,
2004.

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

Composition of Loan Portfolio
<TABLE>
<CAPTION>
December 31,                                                           2005                                   2004
                                                                       ----                                   ----
(Dollars in thousands)                                                           Percent                                 Percent
                                                             Amount              of Total            Amount              of Total
                                                             ------              --------            ------              --------
<S>                                                        <C>                    <C>            <C>                    <C>
Commercial and industrial ......................           $  5,642                 9.63%        $   4,941                 8.98%
Real estate
     Construction ..............................              8,714                14.87             5,152                 9.36
     Mortgage-residential ......................             17,307                29.54            17,254                31.34
     Mortgage-nonresidential ...................             21,222                30.24            21,722                39.46
Consumer .......................................              5,701                 9.73             5,982                10.86
                                                           --------               ------         ---------               ------
     Total loans ...............................             58,586               100.00%           55,052               100.00%
Allowance for loan losses ......................               (681)                                  (590)
                                                           --------                              ---------
     Net loans .................................           $ 57,905                              $  54,462
                                                           ========                              =========
</TABLE>

The largest  component of our loan portfolio is real estate  mortgage  loans. At
December  31,  2005,  real  estate   mortgage  loans  totaled   $47,242,902  and
represented  80.64% of the total loan  portfolio,  compared  to  $44,030,681  or
79.98% at December 31, 2004.

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 our 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.



                                       12
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

                           Earning Assets - continued

Residential  mortgage  loans  totaled  $17,307,240  at  December  31,  2005  and
represented  29.54% of the total loan  portfolio,  compared  to  $17,254,144  at
December 31,  2004.  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 $21,221,762 at December 31, 2005,
compared to  $21,722,119  at December  31, 2004.  This  represents a decrease of
$500,357 or 2.3% from the December 31, 2004 amount. Construction loans increased
$3,561,600  or  69.13%to  $8,713,899  at  December  31,  2005 when  compared  to
$5,152,299 for the year ended December 31, 2004.  This increase is  attributable
to increased construction loan demand.

Consumer and other loans decreased  $281,458 or 4.70%, to $5,701,033 at December
31, 2005 from $5,982,492 at December 31, 2004.

Commercial and industrial loans increased  $701,944 or 14.19%,  to $5,642,194 at
December 31, 2005 from $4,941,250 at December 31, 2004.

Our loan  portfolio  reflects the  diversity  of our market.  Our home office is
located in Hartsville in Darlington  County,  South  Carolina.  We have 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. We do not engage in foreign lending.

The repayment of loans in the loan  portfolio as they mature is also a source of
liquidity  for us. The  following  table sets  forth our loans  maturing  within
specified intervals at December 31, 2005.

Loan Maturity Schedule and Sensitivity to Changes in Interest Rates

<TABLE>
<CAPTION>
                                                              Over One Year
                                            One Year or          Through          Over Five
(Dollars in thousands)                          Less            Five Years          Years            Total
                                            --------------    -------------     -------------    -------------
<S>                                         <C>               <C>               <C>              <C>
Commercial and industrial ...............   $        2,518    $       2,657     $         467    $       5,642
Real estate .............................            5,012           35,240             6,991           47,243
Consumer and other ......................            1,133            4,038               530            5,701
                                            --------------    -------------     -------------    -------------
 ........................................   $        8,663    $      41,935     $       7,989    $      58,586
                                            ==============    =============     =============    =============

Loans maturing after one year with:
     Fixed interest rates ...............                                                        $      24,154
     Floating interest rates ............                                                               25,799
                                                                                                 -------------
                                                                                                 $      49,953
</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.




                                       13
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

                           Earning Assets - continued

Investment  Securities.  The investment securities portfolio is also a component
of our  total  earning  assets.  Total  securities  available-for-sale  averaged
$6,681,000 in 2005,  compared to $3,292,000 in 2004. At December 31, 2005, total
securities  available-for-sale were $6,078,990.  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 (the "Federal Home Loan Bank") stock and Community  Financial  Services,
Inc. (parent of The Bankers Bank) stock.  These securities are recorded at their
original cost and totaled $447,792 at December 31, 2005, compared to $446,153 at
December 31, 2004.

The   following   table   sets   forth   the  book   value  of  the   securities
available-for-sale held by us at December 31, 2005 and 2004.

Book Value of Securities

     (Dollars in thousands)                                 2005           2004
                                                         ----------    ---------
     U.S. government agencies and corporations .......   $    4,502    $   3,000
     Mortgage backed .................................        1,386          597
     Municipals ......................................          306    $       -
                                                         ----------    ---------
         Total securities available-for-sale .........   $    6,194    $   3,597
                                                         ==========    =========

The following  table sets forth the scheduled  maturities  and weighted  average
yields of securities available-for-sale held at December 31, 2005.

Investment Securities Maturity Distribution and Yields

<TABLE>
<CAPTION>
                                                                   After One But         After Five But
  December 31, 2005                           Within One Year      Within Five Years       Within Ten Years        Over Ten Years
                                            -----------------      -----------------     ------------------     ------------------
  (Dollars in thousands)                      Amount   Yield        Amount    Yield        Amount    Yield        Amount    Yield
                                            ---------  ------      --------   ------     ---------  -------     ---------  -------
<S>                                         <C>         <C>        <C>          <C>      <C>           <C>      <C>          <C>
  U.S. Government agencies .............    $   2,003   3.20%      $  2,500     3.04%    $       -              $       -        -
  Mortgage-backed ......................            -       -           946     3.68           439     4.23%            -        -
  Obligations of state and .............
   local governments(1) ................            -       -             -        -             -        -           306     5.64%
                                            ---------              --------              ---------              ---------
    Total securities(2) ................    $   2,003              $  3,446              $     439              $     306
                                            =========              ========              =========              =========
 </TABLE>

(1)  The yield on state and local  governments  is presented on a tax equivalent
     basis using a federal income tax rate of 34%.
(2)  Excludes mortgage equity securities.

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

Short-Term  Investments.  Short-term  investments,  which  consist  primarily of
federal funds sold, averaged $3,528,000 in 2005, compared to $2,404,000 in 2004.
At December 31, 2005, short-term  investments totaled $387,955.  These funds are
an important source of our liquidity. Federal funds are generally invested in an
earning capacity on an overnight basis.




                                       14
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

                 Deposits and Other Interest-Bearing Liabilities

Average  interest-bearing   liabilities  increased  $8,221,000,   or  16.35%  to
$58,504,000 in 2005, from $50,283,000 in 2004. Average interest-bearing deposits
increased $3,927,000 or 8.27%, to $51,387,000 in 2005, from $47,460,000 in 2004.
These   increases   resulted   from   increases   in   several   categories   of
interest-bearing  liabilities,  a result of the continued growth in deposits and
an increased use of Federal Home Loan Bank Advances.

Deposits.  Average total deposits increased $5,195,000, or 9.58%, to $59,412,000
in 2005,  from  $54,217,000  in 2004. At December 31, 2005,  total deposits were
$58,697,895,  compared to $57,691,196 a year earlier,  an increase of 1.74%. The
largest increase in deposits was in interest-bearing  transaction accounts which
increased  $1,744,040 or 30.20% to $7,519,826 at December 31, 2005 when compared
to 2004. Money market accounts decreased  $3,414,956 to $13,141,182 for the year
ended December 31, 2005 as compared to  $16,829,138  for the year ended December
31, 2004.  This decrease is primarily  due to a large deposit  customer that has
large shifts in its deposit balances.

The following table sets forth the deposits by category at December 31, 2005 and
2004.

Deposits
<TABLE>
<CAPTION>

December 31,                                             2005                                 2004
                                                         ----                                 ----
                                                                Percent of                         Percent of
(Dollars in thousands)                          Amount           Deposits          Amount           Deposits
                                                ------           --------          ------           --------
<S>                                           <C>                 <C>             <C>                <C>
Demand deposit accounts ...............       $    9,552           16.27%         $    8,281          14.35%
NOW accounts ..........................            7,520           12.81               5,776          10.01
Money market accounts .................           13,414           22.85              16,829          29.17
Savings accounts ......................            1,670            2.85               2,140           3.71
Time deposits less than $100 ..........           20,465           34.86              18,888          32.74
Time deposits of $100 or more .........            6,077           10.35               5,777          10.02
                                              ----------          ------          ----------         ------
     Total deposits ...................       $   58,698          100.00%         $   57,691         100.00%
                                              ==========                          ==========
</TABLE>

The average  amounts and average rates paid on deposits held by the Bank for the
years ended December 31, 2005 and 2004 are summarized below:


<TABLE>
<CAPTION>
December 31,                                              2005                                 2004
                                                          ----                                 ----
                                                Average            Average           Average          Average
(Dollars in thousands)                          Amount            Rate Paid          Amount           Rate Paid
                                                ------            ---------          ------           ---------
<S>                                            <C>                  <C>           <C>                   <C>
Demand deposit accounts ................       $   8,025            0.00%         $    6,757            0.00%
NOW accounts ...........................           6,802            0.40               6,055            0.23
Money market accounts ..................          15,539            1.55              15,629            1.13
Savings accounts .......................           1,953            0.56               2,048            0.29
Time deposits less than $100 ...........          20,656            3.00              17,398            2.07
Time deposits of $100 or more ..........           6,437            2.81               6,330            1.91
                                              ----------            ----          ----------            ----
     Total deposits ....................      $   59,412            1.82%         $   54,217            1.25%
                                              ==========                          ==========
</TABLE>
Core  deposits,  which  exclude  time  deposits of  $100,000 or more,  provide a
relatively  stable  funding  source  for our loan  portfolio  and other  earning
assets. Our core deposits were $52,620,542 at December 31, 2005.


                                       15
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

Deposits and Other Interest-Bearing Liabilities - continued

Deposits,  and  particularly  core  deposits,  have been our  primary  source of
funding  and  have  enabled  us to meet  successfully  both our  short-term  and
long-term  liquidity  needs.  Management  anticipates  that such  deposits  will
continue to be our primary source of funding in the future. Our  loan-to-deposit
ratio was 99.81% at December  31, 2005,  and 95.43% at December  31,  2004.  The
maturity  distribution  of our time deposits of $100,000 or more at December 31,
2005, 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
                                                          ------           ------           ------           ------           -----
<S>                                                       <C>              <C>              <C>              <C>             <C>
Certificates of deposit
  of $100,000 or more .........................           $2,016           $1,295           $2,028           $  738          $6,077
</TABLE>

Approximately  33.17% of our time  deposits of  $100,000  or more had  scheduled
maturities  within three months,  and 54.68% 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.

Advances from the Federal Home Loan Bank.  Total  advances from the Federal Home
Loan  Bank  decreased  $1,000,000  to  $5,250,000  at  December  31,  2005  from
$6,250,000 at December 31, 2004.  The average of Federal Home Loan Bank advances
was $6,038,000 in 2005 as compared to $2,524,000 in 2004.  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 notes 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.

Notes  Payable.  During 2004, we executed a note with The Bankers Bank to borrow
$1,000,000 for purposes of providing additional capital to the Bank. The note is
secured by our stock in the Bank and matures September 30, 2016.

In March 2005,  we executed a line of credit with the Bankers  Bank to borrow up
to $500,000 for general and corporate purposes.  The note is also secured by our
stock in the  Bank.  We  currently  have  $50,000  drawn on the line and it will
mature March 18, 2006.











                                       16
<PAGE>


                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

           Deposits and Other Interest-Bearing Liabilities - continued

The following table sets forth information with respect to our Federal Home Loan
Bank  advances  and notes  payable  to the  Bankers  Bank for the  years  ending
December 31, 2005 and 2004.

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                                                -----------------------
                                                            Maximum        Average         Weighted                    Weighted
                                                         Outstanding       Amounts          Average                     Average
                                                            at any       Outstanding        Interest      Balance   Interest Rate at
(Dollars in thousands)                                     Month End    During Period         Rate      December 31,   December 31,
                                                           ---------    -------------         ----      ------------   ------------
2005
Advances from Federal Home
<S>                                                         <C>           <C>                <C>          <C>             <C>
   Loan Bank ....................................           $6,250        $6,038             3.49%        $5,250          3.61%
Note Payable ....................................            1,200         1,063             6.30%         1,050          7.25%

2004
Advances from Federal Home
   Loan Bank ....................................           $6,250        $2,524             1.35%        $6,250          2.80%
Note Payable ....................................            1,000           250             5.09%         1,000          5.25%

</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.  The  Bank's  Tier 1  capital  consists  of  common
shareholders'  equity minus certain intangible assets. The Bank's Tier 2 capital
consists of the allowance for loan losses  subject to certain  limitations.  The
qualifying capital base for purposes of the 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 of 3%. All others are subject to maintaining  ratios
of 1% to 2%  above  the  minimum.  In  2005  the  Federal  Reserve  applied  its
guidelines  on a  bank-only  basis  for  holding  companies  with less than $150
million in consolidated  assets.  Beginning in 2006 the Company will be required
to meet the Federal Reserve's guidelines as well.

Analysis of Capital and Capital Ratios
<TABLE>
<CAPTION>

December 31, 2005                                                                                 The Bank          The Company
                                                                                                  --------          -----------
(Dollars in thousands)
<S>                                                                                               <C>                 <C>
Tier 1 capital .............................................................................      $ 6,607             $ 5,607
Tier 2 capital .............................................................................          681                 681
                                                                                                  -------             -------
     Total qualifying capital ..............................................................      $ 7,288             $ 6,288
                                                                                                  =======             =======
Risk-adjusted total assets (including off-balance-sheet exposures) .........................      $63,963             $64,036
                                                                                                  =======             =======
Risk-based capital ratios:
  Tier 1 risk-based capital ratio ..........................................................        10.33%               8.76%
  Total risk-based capital ratio ...........................................................        11.39%               9.82%
  Tier 1 leverage ratio ....................................................................         9.16%               7.78%
</TABLE>

The Company and the Bank met all applicable capital requirements at December 31,
2005 and the Bank was "well  capitalized"  under FDIC standards.  See Note 17 to
the Company's  Consolidated  Financial  Statements for further information about
the Bank's capital amounts and ratios.



                                       17
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

                   Liquidity Management and Capital Resources

Liquidity  management involves monitoring our sources and uses of funds in order
to  meet  our  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,  we 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 we serve.

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.  We also  have 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, 2005, or  $7,103,213,  $5,250,000 of which has already
been advanced.  In addition, we have unused lines to purchase federal funds from
unrelated banks totaling $4,750,000 at December 31, 2005.




























                                       18
<PAGE>


                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

                         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  specified  periods of time.  At December 31,
2005, the Bank had issued  commitments  to extend credit of $15,846,973  through
various types of commercial lending arrangements.  Approximately  $15,722,388 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, 2005.

<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 .................         $    51         $    55         $ 3,505         $ 3,611         $12,236         $15,847
                                             =======         =======         =======         =======         =======         =======
</TABLE>

The Bank also had  $45,000  and  $60,000  in letters  of credit  outstanding  at
December  31,  2005.  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.

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
20 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 our  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.



                                       19
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

                    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 consolidated  financial statements.  Our significant  accounting policies
are described in the notes to the consolidated  financial statements at December
31,  2005  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.






























                                       20
<PAGE>








             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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, 2005 and 2004,
and the related  consolidated  statements  of income,  changes in  shareholders'
equity and comprehensive  income, and cash flows for the years then ended. 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 the standards of the Public  Company
Accounting Oversight Board (United States). 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, 2005 and 2004,  and the results of their
operations  and their cash flows for the years then ended,  in  conformity  with
U.S. generally accepted accounting principles.




Elliott Davis, LLC
Columbia, South Carolina
January 6, 2006




                                       21
<PAGE>

                            REGIONAL BANKSHARES, INC.

                            Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                             ------------
                                                                                                    2005                    2004
                                                                                                    ----                    ----
Assets:
   Cash and cash equivalents:
<S>                                                                                            <C>                     <C>
     Cash and due from banks .......................................................           $  2,258,817            $  2,201,849
     Federal funds sold ............................................................                387,955               6,395,757
                                                                                               ------------            ------------
         Total cash and cash equivalents ...........................................              2,646,772               8,597,606
                                                                                               ------------            ------------
   Investment securities:
     Securities available-for-sale .................................................              6,078,990               3,555,552
     Nonmarketable equity securities ...............................................                447,792                 446,153
                                                                                               ------------            ------------
         Total investment securities ...............................................              6,526,782               4,001,705
                                                                                               ------------            ------------
   Loans receivable ................................................................             58,586,129              55,052,377
     Less allowance for loan losses ................................................               (681,238)               (589,765)
                                                                                               ------------            ------------
         Loans receivable, net .....................................................             57,904,891              54,462,612
                                                                                               ------------            ------------
   Premises, furniture and equipment, net ..........................................              3,290,720               2,454,548
   Accrued interest receivable .....................................................                413,002                 237,244
   Other assets ....................................................................                322,977                 506,686
                                                                                               ------------            ------------
         Total assets ..............................................................           $ 71,105,144            $ 70,260,401
                                                                                               ============            ============
Liabilities:
   Deposits:
     Noninterest-bearing transaction accounts ......................................           $  9,551,816            $  8,280,977
     Interest-bearing transaction accounts .........................................              7,519,826               5,775,786
     Savings .......................................................................             15,083,906              18,969,783
     Time deposits $100,000 and over ...............................................              6,077,353               5,776,697
     Other time deposits ...........................................................             20,464,994              18,887,953
                                                                                               ------------            ------------
         Total deposits ............................................................             58,697,895              57,691,196
                                                                                               ------------            ------------
   Federal funds purchased .........................................................                 50,000                       -
   Notes payable ...................................................................              1,050,000               1,000,000
   Advances from Federal Home Loan Bank ............................................              5,250,000               6,250,000
   Accrued interest payable ........................................................                268,415                 117,773
   Other liabilities ...............................................................                201,252                 107,833
                                                                                               ------------            ------------
         Total liabilities .........................................................             65,517,562              65,166,802
                                                                                               ------------            ------------
Commitments and Contingencies (Notes 13 and 20)
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; 692,759 and 572,070 shares issued and
     outstanding at December 31, 2005 and 2004, respectively .......................                692,759                 572,070
   Capital surplus .................................................................              5,021,124               5,079,471
   Retained deficit ................................................................                (53,734)               (535,783)
   Accumulated other comprehensive loss, net of tax ................................                (72,567)                (22,159)
                                                                                               ------------            ------------
         Total shareholders' equity ................................................              5,587,582               5,093,599
                                                                                               ------------            ------------
         Total liabilities and shareholders' equity ................................           $ 71,105,144            $ 70,260,401
                                                                                               ============            ============
</TABLE>

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


                                       22
<PAGE>

                            REGIONAL BANKSHARES, INC.

                        Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                                                                       Years ended December 31,
                                                                                                       ------------------------
                                                                                                    2005                     2004
                                                                                                    ----                     ----
Interest income:
<S>                                                                                              <C>                      <C>
   Loans, including fees .........................................................               $4,124,076               $3,237,824
   Investment securities:
      Taxable ....................................................................                  222,484                   77,727
      Nonmarketable equity securities ............................................                   14,475                    4,353
   Federal funds sold ............................................................                  103,414                   36,608
                                                                                                 ----------               ----------
         Total ...................................................................                4,464,449                3,356,512
                                                                                                 ----------               ----------
Interest expense:
   Time deposits $100,000 and over ...............................................                  180,957                  120,548
   Other deposits ................................................................                  897,136                  558,027
   Notes payable .................................................................                   67,004                   12,743
   Advances from Federal Home Loan Bank ..........................................                  211,052                   34,096
   Short-term borrowings .........................................................                      759                      706
                                                                                                 ----------               ----------
         Total ...................................................................                1,356,908                  726,120
                                                                                                 ----------               ----------
Net interest income ..............................................................                3,107,541                2,630,392
Provision for loan losses ........................................................                  120,000                  125,000
                                                                                                 ----------               ----------
Net interest income after provision for loan losses ..............................                2,987,541                2,505,392
                                                                                                 ----------               ----------
Noninterest income:
   Service charges on deposit accounts ...........................................                  393,225                  284,170
   Credit life insurance commissions .............................................                    3,807                    4,956
   Residential mortgage origination fees .........................................                   59,103                   83,797
   Brokerage commissions .........................................................                   42,786                  101,912
   Other .........................................................................                   86,609                   69,748
                                                                                                 ----------               ----------
         Total ...................................................................                  585,530                  544,583
                                                                                                 ----------               ----------
Noninterest expenses:
   Salaries and employee benefits ................................................                1,413,929                1,345,559
   Net occupancy .................................................................                  204,049                  173,885
   Furniture and equipment .......................................................                  193,959                  168,901
   Other operating ...............................................................                  995,935                  852,747
                                                                                                 ----------               ----------
         Total ...................................................................                2,807,872                2,541,092
                                                                                                 ----------               ----------
Income before income taxes .......................................................                  765,199                  508,883
Income tax provision .............................................................                  283,151                  187,761
                                                                                                 ----------               ----------
Net income .......................................................................               $  482,048               $  321,122
                                                                                                 ==========               ==========
Earnings per share(1)
Basic earnings per share .........................................................               $     0.70               $     0.47
                                                                                                 ==========               ==========
Diluted earnings per share .......................................................               $     0.69               $     0.46
                                                                                                 ==========               ==========
</TABLE>

(1)     Restated to reflect 20% stock dividend distributed in 2005.


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


                                       23
<PAGE>

                            REGIONAL BANKSHARES, INC.

           Consolidated Statements of Changes in Shareholders' Equity
                  and Comprehensive Income For the years ended
                           December 31, 2005 and 2004

<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, 2003 .......................       566,770    $   566,770    $ 5,031,771    $  (856,905)   $   (13,740)  $ 4,727,896
                                                                                                                        -----------

Net income ................................                                                    321,122                      321,122

Other comprehensive loss,
  net of tax benefit of $4,943 ............                                                                    (8,419)       (8,419)
                                                                                                                        -----------

Comprehensive income ......................                                                                                 312,703

Exercise of stock warrants ................         5,300          5,300         47,700                                      53,000
                                                  -------    -----------    -----------    -----------    -----------   ------------

Balance,
  December 31, 2004 .......................       572,070        572,070      5,079,471       (535,783)       (22,159)     5,093,599

Net income ................................                                                    482,048                      482,048

Other comprehensive loss,
  net of tax benefit of $29,610 ...........                                                                   (50,408)      (50,408)
                                                                                                                        -----------

Comprehensive income ......................                                                                                 431,640

Exercise of stock options .................         3,334          3,334         40,008                                      43,342

Exercise of stock warrants ................         1,900          1,900         17,100                                      19,000

Stock dividend of 20% .....................       115,455        115,455       (115,455)                                         -
                                                  -------    -----------    -----------    -----------    -----------   ------------
Balance,
  December 31, 2005 .......................       692,759    $   692,759    $ 5,021,124    $   (53,735)   $   (72,567)  $  5,587,581
                                                  =======    ===========    ===========    ===========    ===========   -===========
</TABLE>



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


                                       24
<PAGE>

                            REGIONAL BANKSHARES, INC.

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                       Years ended December 31,
                                                                                                       ------------------------
                                                                                                     2005                   2004
                                                                                                     ----                   ----
Cash flows from operating activities:
<S>                                                                                            <C>                     <C>
  Net income .......................................................................           $    482,048            $    321,122
  Adjustments to reconcile net income to
    net cash provided by operating activities:
      Provision for loan losses ....................................................                120,000                 125,000
      Depreciation and amortization expense ........................................                223,125                 167,034
      Discount accretion and premium
        amortization on securities .................................................                  5,384                  15,263
      Deferred income tax provision ................................................                186,615                 210,675
      Increase in accrued interest receivable ......................................               (175,758)                (46,892)
      Increase (decrease) in accrued interest payable ..............................                150,642                 (18,668)
      Decrease (increase) in other assets ..........................................                 26,701                 (86,356)
      Increase in other liabilities ................................................                 93,419                   5,577
                                                                                               ------------            ------------
        Net cash provided by operating activities ..................................              1,112,176                 692,755
                                                                                               ------------            ------------
Cash flows from investing activities:
  Purchases of securities available-for-sale .......................................             (5,455,947)             (2,005,592)
  Calls and maturities of securities available-for-sale ............................              2,847,111                 766,063
  Purchases of nonmarketable equity securities .....................................               (136,639)               (281,300)
  Sales of nonmarketable equity securities .........................................                135,000                       -
  Net increase in loans receivable .................................................             (3,562,279)             (6,807,699)
  Purchases of premises, furniture and equipment ...................................             (1,059,297)               (106,597)
                                                                                               ------------            ------------
        Net cash used by investing activities ......................................             (7,232,051)             (8,435,125)
                                                                                               ------------            ------------
Cash flows from financing activities:
  Net increase (decrease) in demand deposits, interest-bearing
    transaction accounts and savings accounts ......................................               (870,998)              6,290,076
  Net increase in certificates of deposit and
    other time deposits ............................................................              1,877,697                 961,216
  Proceeds from advances from Federal Home Loan Bank ...............................              3,500,000               6,250,000
  Repayments of advances from Federal Home Loan Bank ...............................             (4,500,000)             (2,000,000)
  Proceeds from federal funds purchased ............................................                 50,000                       -
  Proceeds from notes payable ......................................................                 50,000               1,000,000
  Proceeds from exercise of stock options ..........................................                 43,342                       -
  Proceeds from exercise of stock warrants .........................................                 19,000                  53,000
                                                                                               ------------            ------------
        Net cash provided by financing activities ..................................                169,041              12,554,292
                                                                                               ------------            ------------
Net increase (decrease) in cash and cash equivalents ...............................             (5,950,834)              4,811,922
Cash and cash equivalents, beginning of year .......................................              8,597,606               3,785,684
                                                                                               ------------            ------------
Cash and cash equivalents, end of year .............................................           $  2,646,772            $  8,597,606
                                                                                               ============            ============
</TABLE>



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



                                       25
<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.  Hartsville  Community
Bank was  incorporated  as a  national  bank on  March  24,  1999 and  commenced
business on June 15, 1999.  The Company  acquired  Hartsville  Community Bank on
January 1, 2001,  and  Hartsville  Community  Bank converted to a South Carolina
state chartered bank on January 10, 2001. During 2005, Hartsville Community Bank
changed its name to Heritage  Community Bank (the Bank). 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.

Concentrations of Credit Risk - Financial instruments, which potentially subject
the Company to  concentrations  of credit  risk,  consist  principally  of loans
receivable,  investment  securities,  federal  funds sold and  amounts  due from
banks.

The Company makes loans to individuals and small businesses for various personal
and commercial purposes primarily within Darlington and Chesterfield Counties in
South Carolina. The Company's loan portfolio is not concentrated in loans to any
single  borrower  or a  relatively  small  number  of  borrowers.  Additionally,
Management is not aware of any  concentrations  of loans to classes of borrowers
or industries that would be similarly affected by economic conditions.

In  addition  to  monitoring  potential  concentrations  of loans to  particular
borrowers or groups of borrowers,  industries and geographic regions, Management
monitors  exposure to credit risk from  concentrations  of lending  products and
practices such as loans that subject borrowers to substantial  payment increases
(e.g.  principal  deferral periods,  loans with initial  interest-only  periods,
etc), and loans with high loan-to-value  ratios.  Management has determined that
there is no concentration of credit risk associated with its lending policies or
practices.  Additionally,  there are industry  practices  that could subject the
Company to  increased  credit risk should  economic  conditions  change over the
course of a loan's life. For example,  the Company makes variable rate loans and
fixed rate  principal-amortizing  loans with maturities  prior to the loan being
fully paid (i.e.  balloon  payment  loans).  These  loans are  underwritten  and
monitored to manage the associated risks.  Therefore,  management  believes that
these particular practices do not subject the Company to unusual credit risk.



                                       26
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

The Company's  investment  portfolio consists  principally of obligations of the
United States, its agencies or its corporations and general obligation municipal
securities.  In the opinion of Management,  there is no  concentration of credit
risk  in  its  investment  portfolio.   The  Company  places  its  deposits  and
correspondent  accounts  with  and  sells  its  federal  funds  to high  quality
institutions.  Management  believes credit risk  associated  with  correspondent
accounts is not significant.

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, 2005 and 2004,  the Bank's
investment   in  Federal  Home  Loan  Bank  stock  was  $376,800  and  $396,100,
respectively.  At December 31, 2005 and 2004,  investment in Community Financial
Services,  Inc. was $70,992 and  $50,053,  respectively.  Dividends  received on
these stocks are included as a separate component of interest income.

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.  As discussed in Note 4,  impaired  loans
closely approximated nonaccrual loans at December 31, 2004 and 2005.

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.  The allowance is 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.



                                       27
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

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 expensed in the period in which the direct mailings are
sent.  Advertising  and public  relations  costs of $54,340  and  $48,229,  were
included in the Company's results of operations for 2005 and 2004, respectively.

Retirement   Plan  -  The  Company  has  a  SIMPLE   retirement   plan  covering
substantially all employees. Under the plan, participants were permitted to make
discretionary  contributions in 2005 up to $10,550, unless age 50 and over as to
which the amount was $12,000.  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 2005 and 2004 and  charges  to
earnings were $25,716 and $23,592, respectively.

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 14 and 15. 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 and earnings 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.
                                                       Years ended December 31,
                                                       ------------------------
                                                        2005             2004
                                                        ----             ----
Net income, as reported ..........................   $ 482,048     $   321,122
Deduct: Total stock-based employee
  compensation expense determined
  under fair value based method
  for all awards, net of related tax effects .....     352,437          59,003
                                                     ---------     -----------
Pro forma net income .............................   $ 129,611     $   262,119
                                                     =========     ===========
Earnings per share:
  Basic - as reported ............................   $    0.70     $      0.47
                                                     =========     ===========
  Basic - pro forma ..............................   $    0.19     $      0.38
                                                     =========     ===========
  Diluted - as reported ..........................   $    0.69     $      0.46
                                                     =========     ===========
  Diluted - pro forma ............................   $    0.19     $      0.38
                                                     =========     ===========



                                       28
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

In calculating the pro forma disclosures, the fair value of options and warrants
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
2004:  dividend  yield of 0  percent;  expected  volatility  of  15.20  percent;
risk-free  interest  rate of 4.12  percent;  and expected  life of 10 years.  No
options or warrants were granted in 2005.

On August 18, 2005, the board of directors approved  accelerating the vesting of
132,000 unvested  warrants.  The accelerated  vesting was effective as of August
18, 2005.  All of the other terms and conditions  applicable to the  outstanding
warrants remained unchanged.

The decision to accelerate  vesting of these warrants will avoid  recognition of
pre-tax compensation expense by the Company upon the adoption of SFAS 123(R). In
the Company's view, the future compensation expense could outweigh the incentive
and  retention  value   associated   with  the  warrants.   The  future  pre-tax
compensation  expense  that will be avoided,  based upon the  effective  date of
January 1, 2006, is expected to be approximately $194,744 and $162,287 in fiscal
years 2006 and 2007, respectively. The Company believes that the acceleration of
vesting  warrants meets the criteria for variable  accounting  under FIN No. 44.
Based upon past experience,  the Company believes the grantees of these warrants
will remain as directors of the Company.


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. Earnings per share have been restated to
reflect a 20% stock  dividend  issued on  September 1, 2005 to  shareholders  of
record on August 31, 2005.

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:

                                                        Years ended December 31,
                                                        ------------------------
                                                          2005          2004
                                                          ----          ----
Unrealized losses on available-for-sale securities ...  $(80,018)    $(13,362)
Tax effect ...........................................    29,610        4,943
                                                        --------     --------
Net-of-tax amount ....................................  $(50,408)    $ (8,419)
                                                        ========     ========











                                       29
<PAGE>



                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

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  $1,206,266 and $707,452
for the years ended December 31, 2005 and 2004, respectively.

Income tax payments totaled $104,485 and $6,110 for the years ended December 31,
2005 and 2004, respectively.

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.




                                       30
<PAGE>


                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Recent  Accounting  Pronouncements  -  The  following  is a  summary  of  recent
authoritative  pronouncements that affect accounting,  reporting, and disclosure
of financial information by the Company:

In December  2004, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 123 (revised  2004),
"Share-Based  Payment"  ("SFAS  No.  123(R)").  SFAS  No.  123(R)  will  require
companies to measure all employee  stock-based  compensation awards using a fair
value method and record such expense in its financial  statements.  In addition,
the adoption of SFAS No. 123(R) requires  additional  accounting and disclosures
related to the  income  tax and cash flow  effects  resulting  from  share-based
payment  arrangements.  SFAS No.  123(R) will be effective for the company as of
its  first  quarterly  reporting  period in 2006.  SFAS No.  123(R)  allows  for
adoption  using  either  the  modified  prospective  or  modified  retrospective
methods. The Company anticipates using the modified prospective method when this
statement is adopted in the first quarter of 2006. The Company has evaluated the
impact upon adoption of SFAS No. 123(R) and has concluded that the adoption will
not have a material  impact on financial  position or results of operations upon
adoption.

In April 2005,  the  Securities  and Exchange  Commission's  Office of the Chief
Accountant  and its Division of  Corporation  Finance  issued  Staff  Accounting
Bulletin  ("SAB") No.107 to provide  guidance  regarding the application of SFAS
No.123(R). SAB No. 107 provides interpretive guidance related to the interaction
between SFAS  No.123(R)  and certain SEC rules and  regulations,  as well as the
staff's views regarding the valuation of share-based  payment  arrangements  for
public companies. SAB No. 107 also reminds public companies of the importance of
including  disclosures  within  filings  made  with  the  SEC  relating  to  the
accounting  for  share-based  payment  transactions,   particularly  during  the
transition to SFAS No.123(R).

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- an amendment  of APB Opinion No. 29." The  standard is based on the  principle
that exchanges of nonmonetary  assets should be measured based on the fair value
of the assets  exchanged and eliminates  the exception  under ABP Opinion No. 29
for an exchange of similar  productive  assets and replaces it with an exception
for exchanges of nonmonetary  assets that do not have  commercial  substance.  A
nonmonetary  exchange has  commercial  substance if the future cash flows of the
entity are expected to change  significantly  as a result of the  exchange.  The
standard is effective  for  nonmonetary  exchanges  occurring in fiscal  periods
beginning  after June 15, 2005. The adoption of SFAS 153 is not expected to have
a material impact on the Company's financial position or results of operations.

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections  - a  replacement  of APB Opinion No. 20 and FASB  Statement No. 3."
SFAS No. 154  establishes  retrospective  application as the required method for
reporting a change in accounting principle, unless it is impracticable, in which
case the changes  should be applied to the latest  practicable  date  presented.
SFAS No. 154 also  requires that a correction of an error be reported as a prior
period adjustment by restating prior period financial  statements.  SFAS No. 154
is effective for  accounting  changes and  corrections  of errors made in fiscal
years beginning after December 15, 2005.

In March 2004,  the FASB issued  Emerging  Issues Task Force  ("EITF") Issue No.
03-1,  "The Meaning of  Other-Than-Temporary  Impairment and its  Application to
Certain  Investments." This Issue addresses the meaning of  other-than-temporary
impairment and its application to investments classified as either available for
sale or held to  maturity  under SFAS No. 115 and it also  provides  guidance on
quantitative  and  qualitative  disclosures.   The  disclosure  requirements  in
paragraph 21 of this Issue were  effective for annual  financial  statements for
fiscal  years  ending  after  December  15, 2003 and were adopted by the Company
effective December 31, 2003.




                                       31
<PAGE>


                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Recent Accounting  Pronouncements  (continued) - The recognition and measurement
guidance   in   paragraphs   6-20  of  this   Issue   was  to  be   applied   to
other-than-temporary impairment evaluations in reporting periods beginning after
June 15,  2004,  but was  delayed by FASB  action in October  2004  through  the
issuance of a proposed FASB Staff Position  ("FSP") on the issue.  In July 2005,
the  FASB   issued   FSP  FAS   115-1   and  FAS   124-1  -  "The   Meaning   of
Other-Than-Temporary  Impairment and its  Application  to Certain  Investments."
This final guidance  eliminated  paragraphs10-18 of EITF-03-1  (paragraphs 19-20
have no material  impact on the  financial  position or results of operations of
the Company) and will be effective for other-than-temporary  impairment analysis
conducted  in periods  beginning  after  December  15,  2005.  The  Company  has
evaluated  the impact  that the  adoption of FSP FAS 115-1 and FAS 124-1 and has
concluded  that the  adoption  will  not have a  material  impact  on  financial
position and results of operations upon adoption.

In December 2005,  the FASB issued FSP SOP 94-6-1,  "Terms of Loan Products that
May Give Rise to a  Concentration  of Credit Risk." The  disclosure  guidance in
this FSP is effective for interim and annual  periods  ending after December 19,
2005.  The FSP states that the terms of certain  loan  products  may  increase a
reporting  entity's  exposure  to  credit  risk  and  thereby  may  result  in a
concentration  of credit risk as that term is used in SFAS No. 107, either as an
individual  product type or as a group of products with similar  features.  SFAS
No. 107 requires  disclosures  about each significant  concentration,  including
"information  about the (shared)  activity,  region, or economic  characteristic
that   identifies  the   concentration."   The  FSP  suggests   possible  shared
characteristics  on which  significant  concentrations  may be determined  which
include,  but are not  limited  to:  borrowers  subject to  significant  payment
increases,  loans with terms that permit  negative  amortization  and loans with
high loan-to-value ratios.

This FSP requires  entities to provide the disclosures  required by SFAS No. 107
for loan products that are  determined  to represent a  concentration  of credit
risk in accordance with the guidance of this FSP for all periods presented.  The
Company adopted this disclosure standard effective December 31, 2005.

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 bases, than its  interest-earning  assets.  Credit risk is the risk of
default on the Company's loan and investment  securities portfolios that results
from  borrowers'  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  2004  financial
statements were reclassified to conform with the 2005 presentation.

NOTE 2 - CASH AND DUE FROM BANKS

The  Company  is  required  to  maintain   cash   balances  to  cover  all  cash
transactions. At December 31, 2005 and 2004, the requirement was met by the cash
balance in an account with the Bankers Bank and by cash in the vault.




                                       32
<PAGE>
                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 3 - INVESTMENT SECURITIES
The amortized  cost and estimated  fair values of securities  available-for-sale
are as follows:
<TABLE>
<CAPTION>
                                                                                                  Gross Unrealized
                                                                                Amortized         ----------------      Estimated
                                                                                  Cost           Gains        Losses    Fair Value
                                                                                  ----           -----        ------    ----------
<S>                                                                             <C>              <C>      <C>           <C>
December 31, 2005
U.S. government agencies and
  corporations .............................................................    $4,502,679       $   -    $   74,234    $4,428,445
Mortgage-backed securities .................................................     1,385,739                    40,957     1,344,782
Municipals .................................................................       305,760       $   3             -       305,763
                                                                                ----------       -----    ----------    ----------
                                                                                $6,194,178       $   3    $  115,191    $6,078,990
                                                                                ==========       =====    ==========    ==========
December 31, 2004
U.S. government agencies and
  corporations .............................................................    $3,000,000       $   -    $   29,190    $2,970,810
Mortgage-backed securities .................................................       590,725       $   -         5,983       584,742
                                                                                ----------       -----    ----------    ----------
                                                                                $3,590,725       $   -    $   35,173    $3,555,552
                                                                                ==========       =====    ==========    ==========
</TABLE>
There were no sales of available-for-sale securities in 2005 or 2004

The following is a summary of maturities of securities  available-for-sale as of
December 31, 2005. 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 in one year or less ......................................................                 $2,002,679                 $1,990,164
Due after one year but within five years .....................................                  3,446,321                  3,355,013
Due after five years but within ten years ....................................                    439,418                    428,050
Due after ten years ..........................................................                    305,760                    305,763
                                                                                               ----------                 ----------
  Total ......................................................................                 $6,194,178                 $6,078,990
                                                                                               ==========                 ==========
</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, 2005.

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 .................      $1,492,812      $    9,867      $2,935,633      $   64,367      $4,428,445      $   74,234
Mortgage-backed securities .........         940,758          25,869         404,024          15,088       1,344,782          40,957
                                          ----------      ----------      ----------      ----------      ----------      ----------
                                          $2,433,570      $   35,736      $3,339,657      $   79,455      $5,773,227      $  115,191
                                          ==========      ==========      ==========      ==========      ==========      ==========
</TABLE>
Securities classified as  available-for-sale  are recorded at fair market value.
Approximately  69.0% of the unrealized  losses, or seven individual  securities,
consisted of securities in a continuous loss position for twelve months or more.
The Company has the ability and intent to hold these  securities until such time
as the value recovers or the securities mature.  The Company believes,  based on
industry analyst reports and credit ratings,  that the deterioration in value is
attributable  to  changes  in market  interest  rates  and is not in the  credit
quality  of  the  issuer  and   therefore,   these  losses  are  not  considered
other-than-temporary.

At December 31, 2005 and 2004, securities with an amortized cost of $600,000 and
$450,000,  respectively,  and  estimated  fair values of $590,641 and  $442,766,
respectively, were pledged to secure public deposits.

                                       33
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 4 - LOANS RECEIVABLE

Major classifications of loans receivable are summarized as follows:

                                                            December 31,
                                                            ------------
                                                       2005             2004
                                                       ----             ----
Real estate - construction ...............        $ 8,713,900        $ 5,152,299
Real estate - mortgage ...................         38,529,667         38,976,263
Commercial and industrial ................          5,641,530          4,941,323
Consumer and other .......................          5,708,360          5,982,492
                                                  -----------        -----------
                                                   58,593,457         55,052,377
                                                  -----------        -----------
Less:
  Allowance for loan losses ..............            681,238            589,765
  Loans in process .......................              7,328                  -
                                                  -----------        -----------
     Loans, net ..........................        $57,904,891        $54,462,612
                                                  ===========        ===========

Transactions in the allowance for loan losses are summarized below:

                                                        Years ended December 31,
                                                        ------------------------
                                                          2005           2004
                                                          ----           ----
Balance, beginning of year .......................     $ 589,765      $ 482,875
Provision charged to operations ..................       120,000        125,000
Recoveries on loans previously charged-off .......        25,684         13,424
Loans charged-off ................................       (54,211)       (31,534)
                                                       ---------      ---------
  Balance, end of year ...........................     $ 681,238      $ 589,765
                                                       =========      =========

At December 31, 2005 and 2004, the Bank had loans in nonaccrual  status totaling
$7,758 and $23,847, respectively. There were loans totaling $520 and $2,157 past
due ninety days or more and still  accruing  interest  at December  31, 2005 and
2004,  respectively.  There were no  restructured  loans at December 31, 2005 or
2004.

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  delay  occurs and all  amounts  due,  including  accrued
interest  at the  contractual  interest  rate for the period of the  delay,  are
expected to be collected.  At December 31, 2005 and 2004, impaired loans closely
approximated nonaccrual loans.

At December 31, 2005, the Company had pledged approximately $12,162,547 of loans
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:
                                                               December 31,
                                                               ------------
                                                          2005             2004
                                                          ----             ----
Land and land improvements .......................     $  673,545     $  659,470
Buildings ........................................      2,385,325      1,509,012
Furniture and equipment ..........................      1,141,560        966,179
                                                       ----------     ----------
  Total ..........................................      4,200,430      3,134,661
Less, accumulated depreciation ...................        909,710        680,113
                                                       ----------     ----------
  Premises, furniture and equipment, net .........     $3,290,720     $2,454,548
                                                       ==========     ==========

Depreciation  and  amortization  expense  totaled  $223,125 and $167,034 for the
years ended December 31, 2005 and 2004, respectively.



                                       34
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 6 - DEPOSITS

At December 31, 2005, the scheduled  maturities of  certificates of deposit were
as follows:

         Maturing In                                             Amount
                                                                 ------
         2006                                              $  22,347,980
         2007                                                  2,825,903
         2008                                                  1,080,211
         2009                                                     41,224
         2010 and thereafter                                     247,029
                                                           -------------
            Total                                          $  26,542,347
                                                           =============

Of the total time deposits  outstanding at December 31, 2005,  $11,154,764  were
brokered deposits.  Of this amount,  $8,400,764 and $1,697,000 were scheduled to
mature in 2006 and 2007, respectively.


NOTE 7 - ADVANCES FROM THE FEDERAL HOME LOAN BANK

Advances from the Federal Home Loan Bank  consisted of the following at December
31, 2005 and 2004:

<TABLE>
<CAPTION>
                                                                                                          2005            2004
       Description                                                              Interest Rate           Balance          Balance
                                                                                -------------           -------          -------
       Variable rate advances maturing:
<S>                                                                                 <C>            <C>                  <C>
         January 31, 2005 ........................................                  2.44%          $           -        $2,000,000
         January 31, 2006 ........................................                  4.44%              2,000,000                 -
       Fixed rate advances maturing:
         March 14, 2006 ..........................................                  2.62%                750,000           750,000
         September 14, 2006 ......................................                  2.91%                750,000           750,000
         December 8, 2006 ........................................                  3.34%                500,000           500,000
         September 14, 2007 ......................................                  3.28%                750,000           750,000
         December 10, 2007 .......................................                  3.59%                500,000           500,000
       Convertible advances maturing:
         December 10, 2009 .......................................                  2.56%                      -         1,000,000
                                                                                                      ----------        ----------
             Total ...............................................                                    $5,250,000        $6,250,000
                                                                                                      ==========        ==========
</TABLE>

     Scheduled  principal  reductions  of Federal Home Loan Bank advances are as
     follows:

        2006                                            $    4,000,000
        2007                                                 1,250,000
        2008                                                        -
        2009                                                        -
        2010                                                        -
                                                        --------------
           Total                                        $    5,250,000
                                                        ==============

As  collateral,  the  Company has pledged  first  mortgage  loans on one to four
family  residential  loans  totaling  $3,145,977,   multifamily  loans  totaling
$301,012,  home  equity  lines and second  mortgages  totaling  $5,756,682,  and
commercial real estate loans totaling  $2,958,876 at December 31, 2005 (see Note
4). In addition, the Company's Federal Home Loan Bank stock is pledged to secure
the borrowings. Certain advances are subject to prepayment penalties.



                                       35
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 8 - NOTES PAYABLE

On  September  30,  2004,  the Company  executed a note with The Bankers Bank to
borrow $1,000,000. The principal balance is payable in ten equal annual payments
beginning  January 1, 2007.  Interest  is based on the prime rate and is payable
quarterly,  in arrears  beginning January 1, 2005. The interest rate on the note
payable at  December  31,  2005 was 7.25%.  All  principal  and  interest is due
September 30, 2016. The note is secured by the stock owned by the Company in the
Bank. Proceeds from the note were used to provide capital to the Bank.

In March 2005,  the Company  executed a line of credit with the Bankers  Bank to
borrow up to  $500,000  for  general  and  corporate  purposes.  The line  bears
interest  at a rate of prime  (7.25% at  December  31,  2005).  The note is also
secured by the stock owned by the Company in the Bank. The Company currently has
$50,000 drawn on the line and it will mature March 18, 2006.

Scheduled  principal  reductions  of the  notes  over the next  five  years  are
summarized as follows:

     2006                                                       $      50,000
     2007                                                             100,000
     2008                                                             100,000
     2009                                                             100,000
     2010                                                             100,000
     Thereafter                                                       600,000
                                                                -------------
                                                                $   1,050,000
                                                                =============

NOTE 9 - OTHER OPERATING EXPENSES Other operating expenses are summarized below:

                                                         Year ended December 31,
                                                         -----------------------
                                                          2005             2004
                                                          ----             ----
Professional fees ..................................      $145,882      $117,378
Telephone ..........................................        56,835        54,227
Office supplies, stationery, and printing ..........        67,916        56,833
Data processing and related ........................       209,062       179,359
Advertising and public relations ...................        54,340        48,229
ATM related expenses ...............................        46,251        57,482
Other ..............................................       415,649       339,239
                                                          --------      --------
   Total ...........................................      $995,934      $852,747
                                                          ========      ========

NOTE 10 - INCOME TAXES

Income tax expense is summarized as follows:
                                                        Year ended December 31,
                                                        -----------------------
                                                         2005             2004
                                                         ----             ----
Currently payable:
   Federal .......................................     $ 166,910      $       -
   State .........................................        25,099         15,571
                                                       ---------      ---------
      Total current ..............................       192,009         15,571
                                                       ---------      ---------
Deferred income taxes ............................        61,532        167,246
                                                       ---------      ---------
Income tax expense ...............................     $ 253,541      $ 182,817
                                                       =========      =========
Income tax expense is allocated as follows:
   To continuing operations ......................     $ 283,151      $ 187,761
   To shareholders' equity .......................       (29,610)        (4,944)
                                                       ---------      ---------
      Income tax expense .........................     $ 253,541      $ 182,817
                                                       =========      =========



                                       36
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 10 - INCOME TAXES - continued

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

                                                                 December 31,
                                                                 ------------
                                                                2005      2004
                                                                ----      ----
Deferred tax assets:
     Allowance for loan losses ...........................   $220,864   $189,701
     Net operating loss carryforward .....................     10,000    123,240
     Organization costs ..................................          -      2,057
     Other ...............................................        796      1,136
     Unrealized loss on securities available-for-sale ....     42,624     13,014
                                                             --------   --------
         Total deferred tax assets .......................    274,284    329,148
                                                             --------   --------
Deferred tax liabilities:
     Accumulated depreciation ............................     53,106     46,438
                                                             --------   --------
         Total deferred tax liabilities ..................     53,106     46,438
                                                             --------   --------
         Net deferred tax asset ..........................   $221,178   $282,710
                                                             ========   ========

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, 2005, 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.

Reconciliation  between  the  income tax  expense  and the  amount  computed  by
applying  the  federal  statutory  rate of 34% to  income  before  income  taxes
follows:
                                                        Year ended December 31,
                                                        -----------------------
                                                            2005         2004
                                                            ----         ----
Tax expense at statutory rate .........................   $260,168    $173,020
State income tax, net of federal income tax benefit ...     16,565      10,466
Other, net ............................................      6,418       4,275
                                                          --------    --------
     Total ............................................   $283,151    $187,761
                                                          ========    ========


NOTE 11 - LEASES

The Company leased its operations center from an entity controlled by a director
of the Company at a rate of $1,000 per month.  Rental  expense  associated  with
this  lease was  $12,000  for the year  ended  December  31,  2005 and 2004.  On
December 16, 2005,  the  operations  center moved from the leased  facility to a
building purchased by the Bank. The lease was terminated, effective December 31,
2005.

The Company also signed a lease on October 11, 2004 with Carolina Partners, LLC.
The property is located in Bluffton, SC and was to be used for future expansion.
Rental  expense  associated  with this  lease  was  $68,553  for the year  ended
December 31, 2005, however all of it was reimbursed by Atlantic  Bankshares Inc.
Rental expense associated with this lease was $4,563 for the year ended December
31, 2004.  Effective  December 31, 2005  Atlantic  Bankshares  Inc.  assumed the
lease.




                                       37
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 12 - 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, 2005 and 2004,  the Company had related
party loans  totaling  $3,736,214  and  $3,464,509,  respectively.  During 2005,
advances  on  related  party  loans  totaled   $1,940,645  and  repayments  were
$1,668,940.

In 2004 and  2005 the  Company  leased  its  operations  center  from an  entity
controlled  by a director  of the  Company  at a rate of $1,000  per  month.  On
December 16, 2005,  the  operations  center moved from the leased  facility to a
building purchased by the Bank. The lease was terminated, effective December 31,
2005.


NOTE 13 - 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,  2005,  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 14 - 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 60,000  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, 2005,  the Company had 48,000  shares  reserved for
issuance upon exercise of options under the Plan.

A summary of the plan and changes during the year is presented  below (all share
and per share data has been adjusted for stock dividends):
<TABLE>
<CAPTION>
                                                                                2005                             2004
                                                                                ----                             ----
                                                                                       Weighted-                        Weighted-
                                                                                        Average                          Average
                                                                        Shares       Exercise Price      Shares       Exercise Price
                                                                        ------       --------------      ------       --------------
<S>                                                                     <C>            <C>               <C>            <C>
Outstanding at beginning of year ...........................            18,000         $   10.83         20,400         $   10.83
Granted ....................................................                 -                                                  -
Exercised ..................................................             4,000             10.83              -
Cancelled ..................................................             2,000             10.83          2,400             10.83
                                                                        ------                           ------
Outstanding at end of year .................................            12,000             10.83         18,000             10.83
                                                                        ======                           ======
</TABLE>

At December 31, 2005,  12,000  options were  exercisable.  The weighted  average
remaining  life and  exercise  price for both  exercisable  and non  exercisable
options was 6.25 years and $10.83 per option, respectively.



                                       38
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements


NOTE 15 - STOCK WARRANTS

In connection  with the Company's  initial public stock sale, each of the twelve
organizers  received 6,000 stock warrants which gives them the right to purchase
6,000 shares of the  Company's  common stock at a price of $8.33 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.  On  November  18,  2004  the  eleven
organizers  who are  still  serving  on the  Board of  Directors,  were  granted
additional  warrants which give them the right to purchase an additional 132,000
shares  of the  Company's  common  stock at a price of  $11.25  per  share.  The
warrants became fully vested on August 18, 2005.

A summary of the status of the Company's  stock  warrants and changes during the
year is presented below (all shares have been adjusted for stock dividends):

                                                               December 31,
                                                               ------------
                                                          2005             2004
                                                          ----             ----
Outstanding at beginning of year ..............         183,840          58,200
Granted .......................................               -         132,000
Exercised .....................................           2,280          (6,360)
Cancelled .....................................               -               -
                                                        -------         -------
Outstanding at end of year ....................         181,560         183,840
                                                        =======         =======

At December 31, 2005, 181,560 warrants were exercisable.


NOTE 16 - 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:

                                                         Year ended December 31,
                                                         -----------------------
                                                          2005             2004
                                                          ----             ----
Basic earnings per share computation:
Net income available to common shareholders ..........   $482,048     $321,122
                                                         ========     ========
Average common shares outstanding - basic ............    690,132      683,093
                                                         ========     ========
Basic net income per share ...........................   $   0.70     $   0.47
                                                         ========     ========
Diluted earnings per share computation:
Net income available to common shareholders ..........   $482,048     $321,122
                                                         ========     ========
Average common shares outstanding - basic ............    690,132      683,093
Incremental shares from assumed conversions:
     Stock options and warrants ......................     11,249        9,929
                                                         --------     --------
Average common shares outstanding - diluted ..........    701,481      693,022
                                                         --------     --------
Diluted earnings per share ...........................   $   0.69     $   0.46
                                                         ========     ========




                                       39
<PAGE>


                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 17 - 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%.  The  Bank's  Tier  1  capital  consists  of  common
shareholders'  equity,  excluding  the  unrealized  gain or  loss on  securities
available-for-sale,  minus certain  intangible assets. The Bank's 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, 2005,  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, 2005
<S>                                                        <C>             <C>       <C>             <C>      <C>             <C>
  Total capital (to risk-weighted assets) .............    $7,288,096      11.39%    $5,117,006      8.00%    $6,396,257      10.00%
  Tier 1 capital (to risk-weighted assets) ............     6,606,858      10.33      2,558,503      4.00      3,837,754       6.00
  Tier 1 capital (to average assets) ..................     6,606,858       9.16      2,884,407      4.00      3,605,508       5.00

December 31, 2004
  Total capital (to risk-weighted assets) .............    $6,639,869      11.15%    $4,762,397      8.00%    $5,952,996      10.00%
  Tier 1 capital (to risk-weighted assets) ............     6,049,104      10.16      2,381,198      4.00      3,571,797       6.00
  Tier 1 capital (to average assets) ..................     6,049,104       9.71      2,493,113      4.00      3,116,391       5.00
</TABLE>
The Federal Reserve has similar  requirements  for bank holding  companies.  The
Company  was not  subject to these  requirements  in 2005  because  the  Federal
Reserve applied its guidelines on a bank-only  basis for bank holding  companies
with less than $150,000,000 in consolidated assets.

NOTE 18 - UNUSED LINES OF CREDIT

As of December  31,  2005,  the  Company had unused  lines of credit to purchase
federal funds from unrelated  banks totaling  $4,750,000.  These lines of credit
are available on a one to fourteen day basis for general corporate purposes.  As
of December 31,  2005,  the Company had  borrowed  $50,000 on these  lines.  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  $7,103,213 as of December 31, 2005. As of December
31, 2005, the Bank has borrowed $5,250,000 on this line.



                                       40
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 19 - SHAREHOLDERS' EQUITY

Stock Dividends - In August 2005, the Company  announced a stock dividend on its
common stock. On September 1, 2005, shareholders of record as of August 31, 2005
received  one  additional  share of stock for every five  shares of stock  owned
prior to the 20% stock  dividend.  As a result of the  stock  dividend,  115,455
shares were issued.  All fractional  shares were paid in cash. All share and per
share data has been adjusted to reflect this dividend.

Restrictions on Dividends - South Carolina banking regulations require that cash
dividends  paid to  shareholders  receive  the  prior  written  approval  of the
Commissioner of Banking.  However,  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 20 - 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,
                                                           ------------
                                                       2005             2004
                                                       ----             ----
Commitments to extend credit                   $  15,846,973    $   7,532,145
Standby letters of credit                             45,000           60,000


NOTE 21 - 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.



                                       41
<PAGE>


                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 21 - 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.

Federal Funds Purchased - The carrying  amount is a reasonable  estimate of fair
value because these instruments typically have terms of one day.

Note  Payable - The  carrying  amounts of  variable  rate  notes are  reasonable
estimates of fair value because they can be repriced frequently.

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.  The fair  values of fixed rate  borrowings  are  estimated  using a
discounted cash flow  calculation that applies the Company's  current  borrowing
rate from the Federal Home Loan Bank.

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

Off-Balance-Sheet  Financial  Instruments - In the ordinary  course of business,
the Company enters into  off-balance-sheet  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.



                                       42
<PAGE>


                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS - continued

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

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                            ------------
                                                                             2005                                  2004
                                                                             ----                                  ----
                                                                  Carrying         Estimated            Carrying          Estimated
                                                                   Amount          Fair Value            Amount          Fair Value
                                                                   ------          ----------            ------          ----------
Financial Assets:
<S>                                                             <C>                <C>                <C>                <C>
  Cash and due from banks ..............................        $ 2,258,817        $ 2,258,817        $ 2,201,849        $ 2,201,849
  Federal funds sold ...................................            387,955            387,955          6,395,757          6,395,757
  Securities available-for-sale ........................          6,078,990          6,078,990          3,555,552          3,555,552
  Nonmarketable equity securities ......................            447,792            447,792            446,153            446,153
  Loans receivable .....................................         58,586,129         58,030,137         55,052,377         54,986,814
  Accrued interest receivable ..........................            413,002            413,002            237,244            237,244

Financial Liabilities:
  Demand deposit, interest-bearing
    transaction, and savings accounts ..................         32,155,548         32,155,548         33,026,546         33,026,546
  Certificates of deposit and
    other time deposits ................................         26,542,347         26,623,109         24,664,650         24,702,019
  Federal funds purchased ..............................             50,000             50,000                  -                  -
  Note payable .........................................          1,050,000          1,050,000          1,000,000          1,000,000
  Advances from Federal Home Loan Bank .................          5,250,000          5,207,878          6,250,000          6,250,000
  Accrued interest payable .............................            268,415            268,415            117,773            117,773


<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 .........................       $15,846,973       $           -       $ 7,532,145       $           -
  Letters of credit ....................................            45,000                   -            60,000                   -
</TABLE>


NOTE 22 - REGIONAL BANKSHARES, INC. (PARENT COMPANY ONLY)

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

                            Condensed Balance Sheets

                                                            December 31,
                                                            ------------
                                                         2005             2004
                                                         ----             ----
Assets
  Cash ...........................................     $   49,038     $   42,653
  Investment in banking subsidiary ...............      6,534,292      6,026,944
  Other assets ...................................         73,016         59,894
                                                       ----------     ----------
     Total assets ................................     $6,656,346     $6,129,491
                                                       ==========     ==========
Liabilities
  Note payable ...................................     $1,050,000     $1,000,000
  Other ..........................................         18,764         35,892
                                                       ----------     ----------
     Total liabilities ...........................      1,068,764      1,035,892
                                                       ----------     ----------
Shareholders' equity .............................      5,587,582      5,093,599
                                                       ----------     ----------
Total liabilities and shareholders' equity .......     $6,656,346     $6,129,491
                                                       ==========     ==========




                                       43
<PAGE>


                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 22 - REGIONAL BANKSHARES, INC. (PARENT COMPANY ONLY) - continued

                         Condensed Statements of Income

<TABLE>
<CAPTION>
                                                                                                      Year ended December 31,
                                                                                                      -----------------------
                                                                                                    2005                    2004
                                                                                                    ----                    ----
<S>                                                                                           <C>                      <C>
Income .............................................................................          $           -            $          -
Expenses
  Interest expense .................................................................                (67,004)                (12,743)
  Other expenses ...................................................................                (53,120)                (36,892)
                                                                                                  ---------               ---------
Loss before income taxes and equity in
  undistributed earnings of banking subsidiary .....................................               (120,124)                (49,635)
Income tax benefit .................................................................                 44,417                  18,365
Equity in undistributed earnings of banking subsidiary .............................                557,755                 352,392
                                                                                                  ---------               ---------
Net income .........................................................................              $ 482,048               $ 321,122
                                                                                                  =========               =========
</TABLE>


                       Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                       Year ended December 31,
                                                                                                       -----------------------
                                                                                                   2005                      2004
                                                                                                   ----                      ----
Cash flows from operating activities:
<S>                                                                                           <C>                       <C>
   Net income ..................................................................              $   482,048               $   321,122
   Adjustments to reconcile net income
      to net cash used by operating activities:
      Equity in undistributed earnings
        of banking subsidiary ..................................................                 (557,755)                 (352,392)
   Increase (decrease) in other liabilities ....................................                  (17,129)                   35,892
   Increase in other assets ....................................................                  (13,121)                  (49,660)
                                                                                              -----------               -----------
         Net cash used by operating activities .................................                 (105,957)                  (45,038)
                                                                                              -----------               -----------
Cash flows from investing activities:
   Transfer of capital to the Bank .............................................                        -                (1,000,000)
                                                                                              -----------               -----------
         Net cash used by investing activities .................................                        -                (1,000,000)
                                                                                              -----------               -----------
Cash flows from financing activities:
   Proceeds from note payable ..................................................                   50,000                 1,000,000
   Proceeds from exercise of stock options .....................................                   43,342                         -
   Proceeds from exercise of stock warrants ....................................                   19,000                    53,000
                                                                                              -----------               -----------
         Net cash provided by financing activities .............................                  112,342                 1,053,000
                                                                                              -----------               -----------
Increase in cash ...............................................................                    6,385                     7,962
Cash and cash equivalents, beginning of year ...................................                   42,653                    34,691
                                                                                              -----------               -----------
Cash and cash equivalents, end of year .........................................              $    49,038               $    42,653
                                                                                              ===========               ===========
</TABLE>

                                       44