# Exhibit 13

Annual Report of the Company for the
year ended December 31, 2006

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# REGIONAL BANKSHARES,
INC.

# Exhibit 13

Regional Bankshares, Inc.

2006 Annual Report

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# Table of Contents

|                                                                                    | Page
|----------------------------------------------------------------------------------- | ----
|
|
|
|Forward Looking Statements                                                          |     
|Selected Financial Data                                                             |     
|Management's Discussion and Analysis                                                |     
|Independent Auditors' Report                                                        |     
|Consolidated Balance Sheets                                                         |     
|Consolidated Statements of Income                                                   |     
|Consolidated Statements of Changes in Shareholder's Equity and Comprehensive Income |     
|Consolidated Statements of Cash Flows                                               |     
|Notes to Consolidated Financial Statements                                          |     
|Corporate Data                                                                      |     

---

# 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.
Potential risks and uncertainties include, but are not limited to those described in our
Form 10-KSB under Risk Factors and the following:

| |  | Our growth and our ability to maintain
growth;
| | - | ----------------------------------------------

| |  | Governmental monetary and fiscal
policies, as well as legislative and regulatory changes;
| | - | -----------------------------------------------------------------------------------------

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

| |  | General economic  conditions,  either nationally or regionally and especially in our primary service area,
                 becoming less favorable than expected  resulting in, among other things,  a  deterioration  in credit
                 quality;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Repayment of loans by our borrowers;
| | - | ------------------------------------

| |  | The rate of  delinquencies  and amounts of charge-offs  or adverse  changes in asset quality and resulting
                 credit risk-related loses and expenses;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Failure of  assumptions  underlying  the  establishment  of our allowance  for loan losses,  including the
                 value of collateral securing loans;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Loss of consumer confidence and
economic disruptions resulting from terrorist activities; and
| | - | ---------------------------------------------------------------------------------------------

| |  | Other risks and  uncertainties  detailed from time to time in our filings with the Securities and Exchange
                 Commission.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

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-

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# 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.

|                                         | 2006 | 2005      | 2004 | 2003      | 2002
|---------------------------------------- | ---- | --------- | ---- | --------- | ----
|(Dollars in thousands, except per share) |      |           |      |           |     
|Income Statement Data:                   |     
|Interest income                          |      | $  5,359  |      | $  4,464  |     
|Interest expense                         |      | 2,158     |      | 1,357     |     
|                                         |      |           |      |           |     
|Net interest income                      |      | 3,201     |      | 3,107     |     
|Provision for loan losses                |      | 144       |      | 120       |     
|                                         |      |           |      |           |     
|Net interest income after provision      |     
|for loan losses                          |      | 3,057     |      | 2,987     |     
|Noninterest income                       |      | 758       |      | 586       |     
|Noninterest expense                      |      | 3,043     |      | 2,808     |     
|                                         |      |           |      |           |     
|Income before income taxes               |      | 772       |      | 765       |     
|Income tax expense                       |      | 286       |      | 283       |     
|                                         |      |           |      |           |     
|Net income                               |      | $     486 |      | $     482 |     
|                                         |      |           |      |           |     
|Balance Sheet Data:                      |     
|Assets                                   |      | $81,364   |      | $71,105   |     
|Earning assets                           |      | 73,001    |      | 65,500    |     
|Securities (1)                           |      | 6,699     |      | 6,527     |     
|Loans (2)                                |      | 64,058    |      | 58,586    |     
|Allowance for loan losses                |      | 745       |      | 681       |     
|Deposits                                 |      | 64,752    |      | 58,698    |     
|Shareholders' equity                     |      | 6,250     |      | 5,588     |     
|Per Share Data(3):                       |     
|Earnings per share                       |      | $    0.66 |      | $    0.69 |     
|Book value                               |      | 8.40      |      | 7.69      |     
|Tangible book value                      |      | 8.40      |      | 7.69      |     
|Selected Ratios:                         |     
|Return on average assets                 |      | 0.64      | %    | 0.67      | %   
|Return on average equity                 |      | 8.21      |      | 9.18      |     
|Net interest margin (4)                  |      | 4.56      |      | 4.62      |     
|Efficiency (5)                           |      | 76.86     |      | 76.04     |     
|Equity to assets                         |      | 7.68      |      | 7.86      |     
|Capital and Liquidity Ratios:            |     
|Average equity to average assets         |      | 7.64      | %    | 7.28      | %   
|Leverage (4.00% required minimum)        |      | 8.11      |      | 7.78      |     
|Tier 1 risk-based capital ratio          |      | 9.70      |      | 8.76      |     
|Total risk-based capital ratio           |      | 8.67      |      | 9.82      |     
|Average loans to average deposits        |      | 97.70     |      | 96.97     |     

_________________

|(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
          5% stock dividend paid in 2006.
|--- | ---------------------------------------------------------------------------------------------------------

|(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-

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# Basis of Presentation

The following discussion reviews our
results of operations and assesses our financial condition. 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.

The principal business activity of
the Bank is to provide banking services to domestic markets, principally in Darlington
County, Chesterfield County, and Kershaw 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.

In December 2005, the Bank moved its
operations center to 125 Westfield Street in Hartsville. The operations center now houses
deposit operations and loan operations.

The bank opened its Camden, South
Carolina office on November 15, 2006. The office provides full service banking including
deposit and loan services to the surrounding area.

# Overview

Like most community banks, we derive
the majority of our income from interest received on our loans and investments. Our
primary source of funds for making these loans and investments is our deposits, on which
we pay interest. Consequently, one of the key measures of our success is our amount of net
interest income, or the difference between the income on our interest-earning assets, such
as loans and investments, and the expense on our interest-bearing liabilities, such as
deposits and borrowings. Another key measure is the spread between the yield we earn on
these interest-earning assets and the rate we pay on our interest-bearing liabilities,
which is called our net interest spread.

There are risks inherent in all
loans, so we maintain an allowance for loan losses to absorb probable losses on existing
loans that may become uncollectible. We maintain this allowance by charging a provision
for loan losses against our operating earnings for each period. We have included a
detailed discussion of this process, as well as several tables describing our allowance
for loan losses.

In addition to earning interest on
our loans and investments, we earn income through fees and other charges to our customers.
We have also included a discussion of the various components of this noninterest income,
as well as of our noninterest expense.

The following discussion and analysis
also identifies significant factors that have affected our financial position and
operating results during the periods included in the accompanying financial statements. We
encourage you to read this discussion and analysis in conjunction with our financial
statements and the other statistical information included in this report.

-4-

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# REGIONAL BANKSHARES, INC.Results of Operations

Year ended December 31,
2006, compared with year ended December 31, 2005

Net interest income increased
$93,279, or 3.00% in 2006 from $3,107,541 in 2005. The increase in net interest income was
due primarily to an increase in yield on earnings assets, which increased from 6.64% in
2005 to 7.63% in 2006. The primary components of interest income were interest on loans,
including fees, of $4,982,560 and interest on securities available for sale of $224,832.

Our net interest spread and net
interest margin were 4.17% and 4.56%, respectively, in 2006 compared to 4.32% and 4.62%,
respectively, in 2005. The decline in net interest spread was primarily the result of an
increase in the cost of deposits in our markets. Yields on earning assets increased from
6.64% in 2005 to 7.63% in 2006. Rates on interest-bearing liabilities increased from 2.32%
in 2005 to 3.46% in 2006.

The provision for loan losses was
$144,000 in 2006 compared to $120,000 in 2005. 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
$172,467, or 29.45%, to $757,997 in 2006 from $585,530 in 2005. The increase is primarily
attributable to an increase in service charges on deposit accounts, which increased
$69,115, or 17.58%, to $462,340 for the year ended December 31, 2006. Residential mortgage
origination fees decreased $21,179, or 35.83%, to $37,924 for the year ended December 31,
2006 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. The bank also
purchased bank owned life insurance in 2006. Income on bank owned life insurance totaled
$48,468 for the year ended December 31, 2006.

Noninterest expense increased
$235,050, or 8.37%, to $3,042,922 in 2006 from $2,807,872 in 2005. Noninterest expenses
increased in all categories as a result of our continued growth. Other operating expenses
increased $93,362 to $1,089,297 for the year ended December 31, 2006. Salaries and
benefits increased $133,709, or 9.46%, to $1,547,638 in 2006 from $1,413,929 in 2005. This
increase is attributable to normal pay increases, the hiring of additional staff to meet
needs associated with our growth, and the additional staff needed for our new Camden
office. Our efficiency ratio was 76.86% in 2006 compared to 76.04% in 2005. 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 $486,149 in 2006
compared to a net income of $482,048 in 2005. The net income reflects our continued
growth, as average-earning assets increased from $67,271,000 for the year ended December
31, 2005 to $70,245,000 for the year ended December 31, 2006. Return on average assets
during 2006 was 0.64% compared to 0.67% during 2005, and return on average equity was
8.21% during 2006 compared to 9.18% during 2005.

# Net Interest Income

General.    
          The largest component of our net income is 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.

-5-

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# REGIONAL BANKSHARES, INC.

Net Interest Income
-continued

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. The
growth in our loan portfolio is the primary driver of the increase in net interest income.
Our loan portfolio increased to $64,058,193 at December 31, 2006, compared to $58,586,129
at December 31, 2005. We anticipate the growth in loans will continue to drive the growth
in assets and the growth in net interest income. Since loans typically provide higher
interest yields than other types of interest-earning assets, we invest a substantial
percentage of our earning assets in our loan portfolio. However, no assurance can be given
that we will be able to continue to increase loans at the same growth rate as we have
experienced in the past.

Average Balances,
Income and Expenses, and Rates

|                                       | 2006 | 2005
|-------------------------------------- | ---- | ----
|
|
|Assets:                                |      |     
|Earning Assets:                        |      |     
|Loans (1)                              |      |     
|Securities, taxable (2)                |      |     
|Securities, nontaxable (3)             |      |     
|Nonmarketable securities               |      |     
|Federal funds sold                     |      |     
|                                       |      |     
|Total earning assets                   |      |     
|                                       |      |     
|Cash and due from banks                |      |     
|Premises and equipment                 |      |     
|Other assets                           |      |     
|Allowance for loan losses              |      |     
|                                       |      |     
|Total assets                           |      |     
|                                       |      |     
|Liabilities:                           |      |     
|Interest-bearing liabilities:          |      |     
|Interest-bearing transaction           |      |     
|accounts                               |      |     
|Savings deposits                       |      |     
|Time deposits                          |      |     
|Junior subordinated debentures         |      |     
|Note Payable                           |      |     
|Federal Home Loan Bank Advances        |      |     
|Other short-term borrowings            |      |     
|                                       |      |     
|Total interest-bearing                 |      |     
|liabilities                            |      |     
|                                       |      |     
|Demand deposits                        |      |     
|Accrued interest and other liabilities |      |     
|Shareholders' equity                   |      |     
|                                       |      |     
|Total liabilities and                  |      |     
|Shareholders' equity                   |      |     
|                                       |      |     
|Net interest spread                    |      |     
|Net interest income                    |      |     
|                                       |      |     
|Net interest margin                    |      |     

|(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.
|--- | --------------------------------------------------------------------------

-6-

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# REGIONAL BANKSHARES, INC.Rate/Volume Analysis

Analysis of Changes in Net
Interest Income. Net interest income can also be analyzed in terms of the
impact of changing rates and changing volume. The following table reflects the extent to
which changes in interest rates and changes in the volume of earning assets and
interest-bearing liabilities have affected 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:

|                                | 2006 Compared to 2005
|------------------------------- | ---------------------
|
|
|(Dollars in thousand)           |                      
|Interest income:                |                      
|Loans                           |                      
|Securities, taxable             |                      
|Securities, nontaxable          |                      
|Nonmarketable securities        |                      
|Federal funds sold and other    |                      
|                                |                      
|Total interest income           |                      
|                                |                      
|Interest expense:               |                      
|Interest-bearing deposits       |                      
|Federal Home Loan Bank Advances |                      
|Junior subordinated debenture   |                      
|Note Payable                    |                      
|Other short-term borrowings     |                      
|                                |                      
|Total interest expense          |                      
|                                |                      
|Net interest income             |                      
|                                |                      

(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-

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# REGIONAL BANKSHARES, INC.

Net Interest Income
 continued

The following table sets forth our
interest rate sensitivity at December 31, 2006.

# Interest Sensitivity
Analysis

|                                 |  | After one | After Three |        | Greater |  
|-------------------------------- |  | --------- | ----------- | ------ | ------- | -
|
|
|
|(Dollars in thousands)           |  |           |             |        |         |  
|Assets                           |  |          
|Interest-earning assets          |  |          
|Loans                            |  |           | $           | 17,929 |         | $
|Securities, taxable              |  |           |             | 499    |         |  
|Securities, nontaxable           |  |           |             | -      |         |  
|Nonmarketable securities         |  |           |             | -      |         |  
|Federal funds sold               |  |           |             | 2,244  |         |  
|                                 |  |           |             |        |         |  
|Total earning assets             |  |           |             | 20,672 |         |  
|                                 |  |           |             |        |         |  
|Liabilities                      |  |          
|Interest-bearing liabilities:    |  |          
|Interest-bearing deposits:       |  |          
|Demand deposits                  |  |           |             | 7,765  |         |  
|Savings deposits                 |  |           |             | 11,146 |         |  
|Time deposits                    |  |           |             | 5,360  |         |  
|                                 |  |           |             |        |         |  
|Total interest-bearing           |  |          
|deposits                         |  |           |             | 24,271 |         |  
|                                 |  |           |             |        |         |  
|Junior subordinated debenture    |  |           |             | -      |         |  
|Federal Home Loan Bank           |  |          
|advances                         |  |           |             | 5,280  |         |  
|                                 |  |           |             |        |         |  
|Total interest-bearing           |  |          
|liabilities                      |  |           |             | 29,551 |         |  
|                                 |  |           |             |        |         |  
|Period gap                       |  |           | $           | (8,879 | )       |  
|                                 |  |           |             |        |         |  
|Cumulative gap                   |  |           | $           | (8,879 | )       | $
|                                 |  |           |             |        |         |  
|Ratio of cumulative gap to total |  |          
|earning assets                   |  |           |             | (12.16 | )%      |  

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-

---

# REGIONAL BANKSHARES, INC.

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-

---

# REGIONAL BANKSHARES, INC.

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, 2006 and 2005.

Allowance for Loan Losses

|                                                          | 2006 | 2005
|--------------------------------------------------------- | ---- | ----
|(Dollars in thousands)                                    |      |     
|Total loans outstanding at end of year                    |      |     
|                                                          |      |     
|Average loans outstanding                                 |      |     
|                                                          |      |     
|Balance of allowance for loan losses at beginning of year |      |     
|Loans charged off:                                        |      |     
|Real estate - construction                                |      |     
|Real estate - mortgage                                    |      |     
|Commercial and industrial                                 |      |     
|Consumer and other                                        |      |     
|                                                          |      |     
|Total loan losses                                         |      |     
|                                                          |      |     
|Recoveries of previous loan losses:                       |      |     
|Real estate - construction                                |      |     
|Real estate - mortgage                                    |      |     
|Commercial and industrial                                 |      |     
|Consumer and other                                        |      |     
|                                                          |      |     
|Total recoveries                                          |      |     
|                                                          |      |     
|Net charge-offs                                           |      |     
|Provision for loan losses                                 |      |     
|                                                          |      |     
|Balance of allowance for loan losses at end of year       |      |     
|                                                          |      |     
|Allowance for loan losses to year end loans               |      |     
|Ratio of charge-offs to average loans                     |      |     

# Nonperforming Assets

Nonperforming
Assets.There were loans totaling $257,279 and $7,758 in nonaccrual status
at December 31, 2006 and 2005, respectively. There were loans totaling $2,919 and $520
past due ninety days or more and still accruing interest at December 31, 2006 and 2005,
respectively. There were no restructured loans at December 31, 2006 or 2005.

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-

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# REGIONAL BANKSHARES, INC.

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, 2006, we had identified $595,684 in criticized
loans and no classified loans through our internal review mechanisms. At December 31,
2005, we had identified $368,357 in criticized loans and $8,989 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, 2006 was
$757,997, an increase of $172,467 from $585,530 for the year ended December 31, 2005. The
increase is primarily due to an increase in service charges on deposit accounts which
totaled $462,340 in 2006 as compared to $393,225 in 2005. Residential mortgage origination
fees decreased $21,179 as compared to the year ended December 31, 2005. This decrease is
attributable to rising interest rates and a decline in consumer refinancing activity.
Brokerage fee commissions increased from $42,786 for the year ended December 31, 2005 to
$103,823 in 2006. The increase is attributable to a transition in brokerage personnel in
2005. The bank also purchased bank owned life insurance in 2006. The income produced from
the bank owned life insurance totaled $48,468 for the year ended December 31, 2006.

The following table sets forth the
principal components of noninterest income for the years ended December 31, 2006 and 2005.

|                                                   | 2006 | 2005
|-------------------------------------------------- | ---- | ----
|(Dollars in thousands)                             |      |     
|Service charges on deposit accounts                |      |     
|Increase in cash surrender value of life insurance |      |     
|Residential mortgage origination fees              |      |     
|Brokerage commissions                              |      |     
|Other income                                       |      |     
|                                                   |      |     
|Total noninterest income                           |      |     
|                                                   |      |     

Noninterest Expense.
Noninterest expense increased $235,050, or 8.37% to $3,042,922 for the year ended
December 31, 2006 when compared to 2005. Of this total, other operating expenses increased
$93,362, or 9.37% to $1,089,297 in 2006 from $995,935 in 2005. Salaries and employee
benefits increased $133,709, or 9.46%, in 2006 from $1,413,929 in 2005. This increase is
attributable to normal pay increases, the hiring of additional staff to meet needs
associated with our growth, and additional staff for our new Camden office. Occupancy
expense, including depreciation charges, increased $1,568, or 0.77% to $205,617 for the
year ended December 31, 2006. Furniture and equipment expense increased from $193,959 in
2005 to $200,370 for the year ended December 31, 2006. Both the increase in occupancy
expense and furniture and equipment expense are due to the addition of our Camden office
and some improvements made to the main office location.

-11-

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# REGIONAL BANKSHARES, INC.

# Noninterest Income and
Expensecontinued

The following table sets forth the
primary components of noninterest expense for the years ended December 31, 2006 and 2005.

|                                          | 2006 | 2005
|----------------------------------------- | ---- | ----
|(Dollars in thousands)                    |      |     
|Salaries and employee benefits            |      |     
|Net occupancy and equipment expense       |      |     
|Advertising and public relations          |      |     
|Office supplies, stationery, and printing |      |     
|Data processing and related expense       |      |     
|Professional fees and services            |      |     
|Telephone expenses                        |      |     
|Other                                     |      |     
|                                          |      |     
|Total noninterest expense                 |      |     
|                                          |      |     
|Efficiency ratio                          |      |     

# 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 $64,058,000 in 2006
          compared to $58,586,000 in 2005, an increase of $5,472,000 or 9.34%. At December
          31, 2006, total loans were $64,058,193 compared to $58,586,129 at December 31,
          2005.

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 PortfolioDecember 31,

|                          | 2006 | 2005
|------------------------- | ---- | ----
|
|
|(Dollars in thousands)    |      |     
|Commercial and industrial |      |     
|Real estate               |      |     
|Construction              |      |     
|Mortgage-residential      |      |     
|Mortgage-nonresidential   |      |     
|Consumer                  |      |     
|                          |      |     
|Total loans               |      |     
|Allowance for loan losses |      |     
|                          |      |     
|Net loans                 |      |     
|                          |      |     

The largest component of our loan
portfolio is real estate mortgage loans. At December 31, 2006, real estate mortgage loans
totaled $37,484,014 and represented 58.45% of the total loan portfolio, compared to
$38,529,667, or 65.76%, at December 31, 2005.

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-

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# REGIONAL BANKSHARES, INC.

Earning Assets continued

Residential mortgage loans totaled
$14,791,557 at December 31, 2006 and represented 23.06% of the total loan portfolio,
compared to $17,307,240 at December 31, 2005. 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 $22,692,457 at December 31, 2006, compared to $21,221,762
at December 31, 2005. This represents an increase of $1,470,695, or 6.93%, from the
December 31, 2005 amount. Construction loans increased $5,716,713 or 65.60%to $14,430,612
at December 31, 2006 when compared to $8,713,899 for the year ended December 31, 2005.
This increase is attributable to increased construction loan demand.

Consumer and other loans increased
$904,794, or 15.85%, to $6,612,827 at December 31, 2006 from $5,708,033 at December 31,
2005.

Commercial and industrial loans
decreased $38,802, or 0.69%, to $5,603,392 at December 31, 2006 from $5,642,194 at
December 31, 2005.

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. In 2006 we also opened a branch in Camden, which is in Kershaw 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. The economy of Camden
contains elements of medium and light manufacturing, regional health care, and some
retail. Management expects the areas to remain stable with continued growth in the near
future. The diversity of the economy creates opportunities for many 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, 2006.

# Loan Maturity Schedule
and Sensitivity to Changes in Interest Rates

|                                    |  | Over One Year |   |       
|----------------------------------- |  | ------------- | - | ------
|
|
|(Dollars in thousands)              |  |               |   |       
|Commercial and industrial           |  |               | $ | 2,513 
|Real estate                         |  |               |   | 8,084 
|Consumer and other                  |  |               |   | 1,507 
|                                    |  |               |   |       
|                                    |  |               | $ | 12,104
|                                    |  |               |   |       
|Loans maturing after one year with: |  |              
|Fixed interest rates                |  |               |   |       
|Floating interest rates             |  |               |   |       
|                                    |  |               |   |       
|                                    |  |               |   |       
|                                    |  |               |   |       

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-

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# REGIONAL BANKSHARES, INC.

# Earning Assets 
continued

Investment
Securities. The investment securities portfolio is also a component of our
total earning assets. Total securities available-for-sale averaged $6,061,000 in 2006,
compared to $6,681,000 in 2005. At December 31, 2006, total securities available-for-sale
were $6,191,346. 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 $507,892 at December 31, 2006, compared to
$447,792 at December 31, 2005.

The following table sets forth the
book value of the securities available-for-sale held by us at December 31, 2006 and 2005.

Book Value of Securities

|                                    | 2006 | 2005
|----------------------------------- | ---- | ----
|(Dollars in thousands)              |      |     
|Government-sponsored enterprises    |      |     
|Mortgage backed                     |      |     
|Municipals                          |      |     
|                                    |      |     
|Total securities available-for-sale |      |     
|                                    |      |     

The following table sets forth the scheduled
maturities and weighted average yields of securities available-for-sale held at December
31, 2006.

# Investment Securities
Maturity Distribution and Yields

|                                 |  |  | After One But |       | After Five But |  |      |  
|-------------------------------- |  |  | ------------- | ----- | -------------- |  | ---- | -
|
|
|(Dollars in thousands)           |  |  |               |       |                |  |      |  
|Government-sponsored enterprises |  |  | $             | 2,000 |                |  | 2.75 | %
|Mortgage-backed                  |  |  |               | -     |                |  | -    |  
|Obligations of state and         |  | 
|local governments(1)             |  |  |               | -     |                |  | -    |  
|                                 |  |  |               |       |                |  |      |  
|Total securities(2)              |  |  | $             | 2,000 |                |  |      |  
|                                 |  |  |               |       |                |  |      |  

|(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 $2,712,000 in 2006, compared to $3,528,000 in 2005. At December 31,
2006, short-term investments totaled $2,243,872. These funds are an important source of
our liquidity. Federal funds are generally invested in an earning capacity on an overnight
basis.

-14-

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# REGIONAL BANKSHARES, INC.

# Deposits and Other
Interest-Bearing Liabilities

Average interest-bearing liabilities
increased $3,906,000, or 6.68% to $62,410,000 in 2006, from $58,504,000 in 2005. Average
interest-bearing deposits increased $2,360,000, or 4.59%, to $53,747,000 in 2006, from
$51,387,000 in 2005. 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 $3,001,000, or 5.05%, to $62,413,000 in 2006,
          from $59,412,000 in 2005. At December 31, 2006, total deposits were $64,752,251,
          compared to $58,697,895 a year earlier, an increase of 10.31%. The largest
          increase in deposits was in time deposits of less than $100,000 which increased
          $7,582,116, or 37.05% to $28,047,110 at December 31, 2006 when compared to 2005.
          This increase reflects a shift in deposit customers investing in longer term,
          higher rated deposit products.

The following table sets forth the
deposits by category at December 31, 2006 and 2005.

DepositsDecember 31,

|                              | 2006 | 2005 |  
|----------------------------- | ---- | ---- | -
|
|
|(Dollars in thousands)        |      |      |  
|Demand deposit accounts       |      |      | $
|NOW accounts                  |      |      |  
|Money market accounts         |      |      |  
|Savings accounts              |      |      |  
|Time deposits less than $100  |      |      |  
|Time deposits of $100 or more |      |      |  
|                              |      |      |  
|Total deposits                |      |      | $
|                              |      |      |  

The average amounts and average rates
paid on deposits held by the Bank for the years ended December 31, 2006 and 2005 are
summarized below:

December 31,

|                              | 2006 | 2005 |  
|----------------------------- | ---- | ---- | -
|
|
|(Dollars in thousands)        |      |      |  
|Demand deposit accounts       |      |      | $
|NOW accounts                  |      |      |  
|Money market accounts         |      |      |  
|Savings accounts              |      |      |  
|Time deposits less than $100  |      |      |  
|Time deposits of $100 or more |      |      |  
|                              |      |      |  
|Total deposits                |      |      | $
|                              |      |      |  

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 $56,017,240 at December 31,
2006, which included approximately $10.1 million in brokered deposits.

-15-

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# REGIONAL BANKSHARES, INC.

# 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 98.93% at December 31, 2006, and 99.81% at December 31, 2005.
The maturity distribution of our time deposits of $100,000 or more at December 31, 2006,
is set forth in the following table:

# Maturities of Time
Deposits of $100,000 or More

|                        |  |  | After Six |       | 
|----------------------- |  |  | --------- | ----- | 
|
|
|
|(Dollars in thousands)  |  |  |           |       | 
|Certificates of deposit |  | 
|of $100,000 or more     |  |  | $         | 1,962 | 

Approximately 22.46% of our time
deposits of $100,000 or more had scheduled maturities within three months, and 65.39% 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 increased $1,280,000 to
$6,530,000 at December 31, 2006 from $5,250,000 at December 31, 2005. The average of
Federal Home Loan Bank advances was $6,142,000 in 2006 as compared to $6,038,000 in 2005.
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.On September
30, 2004, we executed a note with The Bankers Bank to borrow $1,000,000 for the purposes
of providing capital to the bank. Interest was based on the prime rate and the note was
secured by the stock owned by the Company in the Bank. On April 20, 2006 the note was
repaid from the proceeds generated from the junior subordinated debentures issuance.

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 line bears interest at a rate of prime (7.25% at December 31, 2005). The note was also
secured by the stock owned by the Company in the Bank. The note was repaid on March 17,
2006.

-16-

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# REGIONAL BANKSHARES, INC.

# 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 ended December 31, 2006 and 2005.

|                           | Year Ended December 31,
|-------------------------- | -----------------------
|
|
|
|
|(Dollars in thousands)     |                        
|2006                       |                        
|Advances from Federal Home |                        
|Loan Bank                  |                        
|Note Payable               |                        
|2005                       |                        
|Advances from Federal Home |                        
|Loan Bank                  |                        
|Note Payable               |                        

# Junior Subordinated
Debentures

On April 20, 2006, we formed Regional
Statutory Trust I (the Trust) for the purpose of issuing trust preferred
securities, which enable us to obtain Tier 1 capital on a consolidated bases for
regulatory purposes. The Trust issued junior subordinated debentures totaling $3,093,000.
Total junior subordinated debentures outstanding at December 31, 2006 was $3,093,000 and
the maximum amount outstanding during any month-end period at December 31, 2006 was
$3,093,000. Junior subordinated debentures averaged $2,161,000 for the year ended December
31, 2006. The average rate was 7.22% for the year ended December 31, 2006.

The trust preferred securities accrue
and pay distributions annually at a rate per annum equal to the three month libor plus 177
basis points, which was 7.13% at December 31, 2006. The distribution rate payable on these
securities is cumulative and payable quarterly in arrears. We have the right, subject to
events of default, to defer payments of interest on the trust preferred securities for a
period not to exceed 20 consecutive quarterly periods, provided that no extension period
may extend beyond the maturity date of June 15, 2036. We have no current intention to
exercise our right to defer payments of interest on the trust preferred securities. We
have the right to redeem the trust preferred securities, in whole or in part, on or after
March 15, 2015. We may also redeem the trust preferred securities prior to such dates upon
occurrence of specified conditions and the payment of a redemption premium.

-17-

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REGIONAL BANKSHARES,
INC.

# Capital

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 material effect on
the Banks financial statements. 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 classifications are also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.

Quantitative measures established by
regulation to ensure capital adequacy require the Bank to maintain minimum ratios of Tier
1 and total capital as a percentage of assets and off-balance-sheet exposures, adjusted
for risk weights ranging from 0% to 100%. Tier 1 capital of the Bank 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 capital and 8% for total
risk-based capital.

The Bank is also required to maintain
capital at a minimum level based on quarterly average 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.

The Bank exceeded the regulatory
capital requirements at December 31, 2006 as set forth in the following table.

# Analysis of Capital and
Capital Ratios

|December 31, 2006                                                  | The Bank
|------------------------------------------------------------------ | --------
|(Dollars in thousands)                                             |         
|Tier 1 capital                                                     |         
|Tier 2 capital                                                     |         
|                                                                   |         
|Total qualifyingital                                               |         
|                                                                   |         
|Risk-adjusted total assets (including off-balance-sheet exposures) |         
|                                                                   |         
|Risk-based capital ratios:                                         |         
|Tier 1 risk-based capital ratio                                    |         
|Total risk-based capital ratio                                     |         
|Tier 1 leverage ratio                                              |         

-18-

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# REGIONAL BANKSHARES, INC.

Capital 
continued

The Federal Reserve also requires
bank holding companies to maintain capital at adequate levels based on a percentage of
assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%.
The Federal Reserve guidelines contain an exemption from the capital requirements for
small bank holding companies. Prior to March 2006, all bank holding companies
with less than $150 million in total assets, including the Company, qualified for this
exemption. On March 30, 2006, the Federal Reserve adopted a new rule expanding the
definition of a small bank holding company. The new definition includes bank
holding companies with less than $500 million in total assets. However, bank holding
companies will not qualify under the new definition if they (i) are engaged in significant
nonbanking activities either directly or indirectly through a subsidiary, (ii) conduct
significant off-balance sheet activities, including securitizations or managing or
administering assets for third parties, or (iii) have a material amount of debt or equity
securities (including trust preferred securities) outstanding that are registered with the
SEC. The Federal Reserves use of the phrase material amount of . . . equity
securities . . . registered with the SEC created uncertainty, as the SEC
registration requirements apply to classes of securities  in our case our class of
common stock  not to a portion of the shares in a class. According to the Federal
Reserve Board, the revision of the criterion to exclude any bank holding company that has
outstanding a material amount of SEC-registered debt or equity securities reflects the
fact that SEC registrants typically exhibit a degree of complexity of operations and
access to multiple funding sources that warrants excluding them from the new policy
statement and subjecting them to the capital guidelines. In the adopting release for the
new rule, the Federal Reserve Board stated that what constitutes a material
amount of SEC-registered debt or equity for a particular bank holding company depends on
the size, activities and condition of the relevant bank holding company. In lieu of using
fixed measurable parameters of materiality across all institutions, the rule provides the
Federal Reserve with supervisory flexibility in determining, on a case-by-case basis, the
significance or materiality of activities or securities outstanding such that a bank
holding company should be excluded from the policy statement and subject to the capital
guidelines. Based on informal discussions with staff members of the Federal Reserve, we
believe the new Federal Reserve rule is intended to exclude companies whose stock is
listed on a stock exchange and is actively traded. Since our stock is not listed on an
exchange or actively traded, we believe the Company qualifies as a small bank holding
company and is exempt from the capital requirements. Nevertheless, until the Federal
Reserve provides further guidance on the new rules, it will be unclear whether our holding
company will be subject to the exemption from the capital requirements for small bank
holding companies. Regardless, our bank is subject to these minimum capital requirements
as set per bank regulatory agencies.

-19-

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# REGIONAL BANKSHARES, INC.

# 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, 2006, or $8,113,458, $6,530,000 of
which has already been advanced. In addition, we have unused lines to purchase federal
funds from unrelated banks totaling $7,500,000 at December 31, 2006.

# 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, 2006, the Bank had issued commitments to extend credit of $17,014,117 through
various types of commercial lending arrangements. Approximately $15,305,200 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,
2006.

|                       |  | After One | After Three |    |  |  
|---------------------- |  | --------- | ----------- | -- |  | -
|
|
|
|(Dollars in thousands) |  |           |             |    |  |  
|Unused commitments     |  |          
|to extend credit       |  |           | $           | 67 |  | $
|                       |  |           |             |    |  |  

The Bank also had $20,000 and $45,000
in letters of credit outstanding at December 31, 2006 and December 31, 2005, repsectively.
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 22 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.

-20-

---

# REGIONAL BANKSHARES, INC.

# 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, 2006 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.

-21-

---

# REGIONAL BANKSHARES, INC.

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

The Board of DirectorsRegional
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, 2006 and 2005, 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, 2006 and 2005, and
the results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles in the United States of America.

Elliott Davis, LLCColumbia,
South Carolina March 23, 2007

-22-

---

# REGIONAL BANKSHARES,
INC.

# Notes to Consolidated
Financial StatementsConsolidated Balance Sheets

|                                                        | December 31, | 
|------------------------------------------------------- | ------------ | 
|
|Assets:                                                 |              | 
|Cash and cash equivalents:                              |              | 
|Cash and due from banks                                 |              | 
|Federal funds sold                                      |              | 
|                                                        |              | 
|Total cash and cash equivalents                         |              | 
|                                                        |              | 
|Investment securities:                                  |              | 
|Securities available-for-sale                           |              | 
|Nonmarketable equity securities                         |              | 
|                                                        |              | 
|Total investment securities                             |              | 
|                                                        |              | 
|Loans receivable                                        |              | 
|Less allowance for loan losses                          |              | 
|                                                        |              | 
|Loans receivable, net                                   |              | 
|                                                        |              | 
|Premises, furniture and equipment, net                  |              | 
|Accrued interest receivable                             |              | 
|Cash surrender value of life insurance                  |              | 
|Other assets                                            |              | 
|                                                        |              | 
|Total assets                                            |              | 
|                                                        |              | 
|Liabilities:                                            |              | 
|Deposits:                                               |              | 
|Noninterest-bearing transaction accounts                |              | 
|Interest-bearing transaction accounts                   |              | 
|Savings                                                 |              | 
|Time deposits $100,000 and over                         |              | 
|Other time deposits                                     |              | 
|                                                        |              | 
|Total deposits                                          |              | 
|                                                        |              | 
|Junior subordinated debenture                           |              | 
|Federal funds purchased                                 |              | 
|Notes payable                                           |              | 
|Advances from Federal Home Loan Bank                    |              | 
|Accrued interest payable                                |              | 
|Other liabilities                                       |              | 
|                                                        |              | 
|Total liabilities                                       |              | 
|                                                        |              | 
|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; 743,621 and 692,759 shares issued and       |              | 
|outstanding at December 31, 2006 and 2005, respectively |              | 
|Capital surplus                                         |              | 
|Retained earnings (deficit)                             |              | 
|Accumulated other comprehensive loss, net of tax        |              | 
|                                                        |              | 
|Total shareholders' equity                              |              | 
|                                                        |              | 
|Total liabilities and shareholders' equity              |              | 
|                                                        |              | 

-23-

---

# REGIONAL BANKSHARES, INC.
Notes to Consolidated Financial Statements

# Consolidated
Statements of Income

|                                                    | Years ended December 31,
|--------------------------------------------------- | ------------------------
|
|Interest income:                                    |                         
|Loans, including fees                               |                         
|Investment securities:                              |                         
|Taxable                                             |                         
|Nonmarketable equity securities                     |                         
|Federal funds sold                                  |                         
|                                                    |                         
|Total                                               |                         
|                                                    |                         
|Interest expense:                                   |                         
|Time deposits $100,000 and over                     |                         
|Other deposits                                      |                         
|Notes payable                                       |                         
|Advances from Federal Home Loan Bank                |                         
|Short-term borrowings                               |                         
|Other interest expense                              |                         
|                                                    |                         
|Total                                               |                         
|                                                    |                         
|Net interest income                                 |                         
|Provision for loan losses                           |                         
|                                                    |                         
|Net interest income after provision for loan losses |                         
|                                                    |                         
|Noninterest income:                                 |                         
|Service charges on deposit accounts                 |                         
|Increase in cash surrender value of life insurance  |                         
|Residential mortgage origination fees               |                         
|Brokerage commissions                               |                         
|Other                                               |                         
|                                                    |                         
|Total                                               |                         
|                                                    |                         
|Noninterest expenses:                               |                         
|Salaries and employee benefits                      |                         
|Net occupancy                                       |                         
|Furniture and equipment                             |                         
|Other operating                                     |                         
|                                                    |                         
|Total                                               |                         
|                                                    |                         
|Income before income taxes                          |                         
|Income tax provision                                |                         
|                                                    |                         
|Net income                                          |                         
|                                                    |                         
|Earnings per share(1)                               |                         
|Basic earnings per share                            |                         
|                                                    |                         
|Diluted earnings per share                          |                         
|                                                    |                         

(1)    
          Restated to reflect 5% stock dividend distributed in 2006.

-24-

---

# REGIONAL BANKSHARES,
INC. Notes to Consolidated Financial Statements

# Consolidated
Statements of Changes in Shareholders Equity and Comprehensive Income For the years ended
December 31, 2006 and 2005

|                              |  |  |  |         | Accumulated |  
|----------------------------- |  |  |  | ------- | ----------- | -
|
|
|
|Balance,                      |  |  |  |         |             |  
|December 31, 2004             |  |  |  | 572,070 |             | $
|Net income                    |  |  |  |         |             |  
|Other comprehensive loss,     |  | 
|net of tax benefit of $29,610 |  |  |  |         |             |  
|                              |  |  |  |         |             |  
|Comprehensive income          |  |  |  |         |             |  
|Exercise of stock options     |  |  |  | 3,334   |             |  
|Exercise of stock warrants    |  |  |  | 1,900   |             |  
|Stock dividend of 20%         |  |  |  | 115,455 |             |  
|                              |  |  |  |         |             |  
|Balance,                      |  | 
|December 31, 2005             |  |  |  | 692,759 |             |  
|Net income                    |  |  |  |         |             |  
|Other comprehensive income,   |  | 
|net of tax expense of $24,660 |  |  |  |         |             |  
|                              |  |  |  |         |             |  
|Comprehensive income          |  |  |  |         |             |  
|Exercise of stock options     |  |  |  | 2,057   |             |  
|Exercise of stock warrants    |  |  |  | 13,528  |             |  
|Stock dividend of 5%          |  |  |  | 35,277  |             |  
|                              |  |  |  |         |             |  
|Balance,                      |  | 
|December 31, 2006             |  |  |  | 743,621 |             | $
|                              |  |  |  |         |             |  

-25-

---

# REGIONAL BANKSHARES,
INC. Notes to Consolidated Financial Statements

# Consolidated
Statements of Cash Flows

|                                                            | Years ended December 31,
|----------------------------------------------------------- | ------------------------
|
|Cash flows from operating activities:                       |                         
|Net income                                                  |                         
|Adjustments to reconcile net income to                      |                         
|net cash provided by operating activities:                  |                         
|Provision for loan losses                                   |                         
|Depreciation and amortization expense                       |                         
|Discount accretion and premium                              |                         
|amortization on securities                                  |                         
|Deferred income tax provision (benefit)                     |                         
|Loss on sale of fixed assets                                |                         
|Increase in accrued interest receivable                     |                         
|Increase in accrued interest payable                        |                         
|Decrease (increase) in other assets                         |                         
|Increase in other liabilities                               |                         
|                                                            |                         
|Net cash provided by operating activities                   |                         
|                                                            |                         
|Cash flows from investing activities:                       |                         
|Purchases of securities available-for-sale                  |                         
|Calls and maturities of securities available-for-sale       |                         
|Purchases of nonmarketable equity securities                |                         
|Sales of nonmarketable equity securities                    |                         
|Net increase in loans receivable                            |                         
|Purchases of premises, furniture and equipment              |                         
|Proceeds from disposal of premises, furniture and equipment |                         
|Purchase of bank owned life insurance                       |                         
|                                                            |                         
|Net cash used by investing activities                       |                         
|                                                            |                         
|Cash flows from financing activities:                       |                         
|Net decrease in demand deposits, interest-bearing           |                         
|transaction accounts and savings accounts                   |                         
|Net increase in certificates of deposit and                 |                         
|other time deposits                                         |                         
|Proceeds from advances from Federal Home Loan Bank          |                         
|Repayments of advances from Federal Home Loan Bank          |                         
|Proceeds from federal funds purchased                       |                         
|Repayment of federal funds purchased                        |                         
|Proceeds from notes payable                                 |                         
|Repayment of notes payable                                  |                         
|Proceeds from issuance of junior subordinated debenture     |                         
|Proceeds from exercise of stock options                     |                         
|Proceeds from exercise of stock warrants                    |                         
|                                                            |                         
|Net cash provided by financing activities                   |                         
|                                                            |                         
|Net increase (decrease) in cash and cash equivalents        |                         
|Cash and cash equivalents, beginning of year                |                         
|                                                            |                         
|Cash and cash equivalents, end of year                      |                         
|                                                            |                         

-26-

---

# 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, Chesterfield, and Kershaw 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.

-27-

---

# 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 the 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, 2006 and 2005, the Banks investment in Federal Home Loan Bank stock was
$436,900 and $376,800, respectively. At December 31, 2006 and 2005, investment in
Community Financial Services, Inc. was $70,992. 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, 2005 and 2006.

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.

-28-

---

# 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 $56,396 and $54,340, were included in the Companys results
of operations for 2006 and 2005, 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 2006 up
to $10,000, unless age 50 and over, as to which the amount was $12,500. 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 2006 and 2005
and charges to earnings were $25,548 and $25,716, respectively.

Stock-Based Compensation
On January 1, 2006, the Company adopted the fair value recognition provisions
of Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 123(R), Accounting for Stock-Based
Compensation, to account for compensation costs under its stock option plans. The
Company previously utilized the intrinsic value method under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (as amended) (APB
25). Under the intrinsic value method prescribed by APB 25, no compensation costs
were recognized for the Companys stock options because the option exercise price in
its plans equals the market price on the date of grant. Prior to January 1, 2006, the
Company only disclosed the pro forma effects on net income and earnings per share as if
the fair value recognition provisions of SFAS 123(R) had been utilized.

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. No additional options were granted in 2006.
As a result, no compensation expense has been recognized in 2006.

-29-

---

# REGIONAL BANKSHARES,
INC. Notes to Consolidated Financial Statements

# NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES  continued

The following table illustrates the
effect of net income per common share as if the Company had applied fair value recognition
provisions to stock-based employee compensation in 2006 and 2005.

|                                           | Years ended December 31,
|------------------------------------------ | ------------------------
|
|Net income, as reported                    |                         
|Stock based employee compensation          |                         
|expense reported in net income, net        |                         
|of related tax expense                     |                         
|Deduct: Total stock-based employee         |                         
|compensation expense determined            |                         
|under fair value based method              |                         
|for all awards, net of related tax effects |                         
|                                           |                         
|Pro forma net income                       |                         
|                                           |                         
|Earnings per share:                        |                         
|Basic - as reported                        |                         
|                                           |                         
|Basic - pro forma                          |                         
|                                           |                         
|Diluted - as reported                      |                         
|                                           |                         
|Diluted - pro forma                        |                         
|                                           |                         

As previously mentioned, on August
18, 2005, the Board of Directors approved accelerating the vesting of 132,000 unvested
stock 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 pre-tax
compensation expense that will be avoided, based upon the effective date of January 1,
2006, approximately $119,000 in 2006 and is expected to be approximately $137,000 in 2007.
The Company believes that the acceleration of vesting stock options meets the criteria for
variable accounting under FIN No. 44. Based upon past experience, the Company believes the
grantees of these stock options will remain as a director or employee of the Company.

-30-

---

# REGIONAL BANKSHARES,
INC. Notes to Consolidated Financial Statements

# NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES  continued

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 5% stock dividend issued
on September 15, 2006 to shareholders of record on August 31, 2006.

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 (loss) and related tax effects are as follows:

|                                                           | Years ended December 31, | 
|---------------------------------------------------------- | ------------------------ | 
|
|Unrealized gains (losses) on available-for-sale securities |                          | 
|Tax effect                                                 |                          | 
|Net-of-tax amount                                          |                          | 

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 $2,065,927and $1,206,266 for the years ended December 31, 2006 and
2005, respectively.

Income tax payments totaled $222,268
and $104,485 for the years ended December 31, 2006 and 2005, 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.

-31-

---

# 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 may affect accounting, reporting, and disclosure of financial
information by the Company:

In February 2006, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
(SFAS) No. 155, Accounting for Certain Hybrid Financial
Instrumentsan amendment of FASB Statements No. 133 and 140. This Statement
amends SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, and SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. This Statement resolves issues
addressed in SFAS No. 133 Implementation Issue No. D1, Application of Statement 133
to Beneficial Interests in Securitized Financial Assets. FAS 155 permits fair value
re-measurement for any hybrid financial instrument that contains an embedded derivative
that otherwise would require bifurcation, clarifies which interest only-strips and
principal-only strips are not subject to the requirements of Statement 133, establishes a
requirement to evaluate interests in securitized financial assets to identify interests
that are freestanding derivatives or that are hybrid financial instruments that contain an
embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in
the form of subordination are not embedded derivatives, and amends Statement 140 to
eliminate the prohibition on a qualifying special purpose entity from holding a derivative
financial instrument that pertains to a beneficial interest other than another derivative
financial instrument. SFAS No. 155 is effective for all financial instruments acquired or
issued after the beginning of an entitys first fiscal year that begins after
September 15, 2006. The Company does not believe that the adoption of SFAS No. 155 will
have a material impact on its financial position, results of operations or cash flows.

In March 2006, the FASB issued SFAS
No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB
Statement No. 140. This Statement amends FASB No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with
respect to the accounting for separately recognized servicing assets and servicing
liabilities. SFAS No. 156 requires an entity to recognize a servicing asset or servicing
liability each time it undertakes an obligation to service a financial asset by entering
into a servicing contract; requires all separately recognized servicing assets and
servicing liabilities to be initially measured at fair value, if practicable; permits an
entity to choose its subsequent measurement methods for each class of separately
recognized servicing assets and servicing liabilities; at its initial adoption, permits a
one-time reclassification of available-for-sale securities to trading securities by
entities with recognized servicing rights, without calling into question the treatment of
other available-for-sale securities under Statement 115, provided that the
available-for-sale securities are identified in some manner as offsetting the
entitys exposure to changes in fair value of servicing assets or servicing
liabilities that a servicer elects to subsequently measure at fair value; and requires
separate presentation of servicing assets and servicing liabilities subsequently measured
at fair value in the statement of financial position and additional disclosures for all
separately recognized servicing assets and servicing liabilities. An entity should adopt
SFAS No. 156 as of the beginning of its first fiscal year that begins after September 15,
2006. The Company does not believe the adoption of SFAS No. 156 will have a material
impact on its financial position, results of operations or cash flows.

In July 2006, the FASB issued FASB
Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in
enterprises financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and
measurement attributable for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods,
disclosures and transitions. FIN 48 is effective for fiscal years beginning after December
15, 2006. The Company is currently analyzing the effects of FIN 48 on its financial
position, results of operations and cash flows.

In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. This standard does not
require any new fair value measurements, but rather eliminates inconsistencies found in
various prior pronouncements. SFAS 157 is effective for the Company on January 1, 2008 and
is not expected to have a significant impact on the Companys financial position,
results of operations or cash flows.

-32-

---

# REGIONAL BANKSHARES,
INC. Notes to Consolidated Financial Statements

# NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES  continued

Recent Accounting
Pronouncements (continued) In September 2006, the FASB issued SFAS
No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans(SFAS 158), which amends SFAS 87 and SFAS
106 to require recognition of the overfunded or underfunded status of pension and other
postretirement benefit plans on the balance sheet. Under SFAS 158, gains and losses, prior
service costs and credits, and any remaining transition amounts under SFAS 87 and SFAS 106
that have not yet been recognized through net periodic benefit cost will be recognized in
accumulated other comprehensive income, net of tax effects, until they are amortized as a
component of net periodic cost. The measurement date  the date at which the benefit
obligation and plan assets are measured  is required to be the companys fiscal
year end. SFAS 158 is effective for publicly-held companies for fiscal years ending after
December 15, 2006, except for the measurement date provisions, which are effective for
fiscal years ending after December 15, 2008. The Company does not have a defined benefit
pension plan. Therefore, SFAS 158 will not impact the Companys financial position,
results of operations or cash flows.

In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities
 Including an amendment of FASB Statement No. 115. This statement permits, but
does not require, entities to measure many financial instruments at fair value. The
objective is to provide entities with an opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without having to
apply complex hedge accounting provisions. Entities electing this option will apply it
when the entity first recognizes an eligible instrument and will report unrealized gains
and losses on such instruments in current earnings. This statement 1) applies to all
entities, 2) specifies certain election dates, 3) can be applied on an
instrument-by-instrument basis with some exceptions, 4) is irrevocable and 5) applies only
to entire instruments. One exception is demand deposit liabilities which are explicitly
excluded as qualifying for fair value. With respect to SFAS 115, available-for-sale and
held-to-maturity securities at the effective date are eligible for the fair value option
at that date. If the fair value option is elected for those securities at the effective
date, cumulative unrealized gains and losses at that date shall be included in the
cumulative-effect adjustment and thereafter, such securities will be accounted for as
trading securities. SFAS 159 is effective for the Company on January 1, 2008. Earlier
adoption is permitted in 2007 if the Company also elects to apply the provisions of SFAS
157, Fair Value Measurement. The Company is currently analyzing the fair value
option provided under SFAS 159.

In September, 2006, The FASB ratified
the consensuses reached by the FASBs Emerging Issues Task Force (EITF)
relating to EITF 06-4 Accounting for the Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. EITF 06-4
addresses employer accounting for endorsement split-dollar life insurance arrangements
that provide a benefit to an employee that extends to postretirement periods should
recognize a liability for future benefits in accordance with SFAS No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions,or Accounting Principles Board (APB) Opinion No. 12, Omnibus
Opinion1967".EITF 06-4 is effective for fiscal years beginning after
December 15, 2006. Entities should recognize the effects of applying this Issue through
either (a) a change in accounting principle through a cumulative-effect adjustment to
retained earnings or to other components of equity or net assets in the statement of
financial position as of the beginning of the year of adoption or (b) a change in
accounting principle through retrospective application to all prior periods. The Company
does not believe the adoption of EITF 06-4 will have a material impacton its
financial position, results of operations or cash flows.

In September 2006, the FASB ratified
the consensus reached related to EITF 06-5,Accounting for Purchases of Life
InsuranceDetermining the Amount That Could Be Realized in Accordance with FASB
Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance.  EITF
06-5 states that a policyholder should consider any additional amounts included in the
contractual terms of the insurance policy other than the cash surrender value in
determining the amount that could be realized under the insurance contract.  EITF
06-5 also states that a policyholder should determine the amount that could be realized
under the life insurance contract assuming the surrender of an individual-life by
individual-life policy (or certificate by certificate in a group policy). EITF 06-5 is
effective for fiscal years beginning after December 15, 2007.  The Company does not
believe the adoption of EITF 06-5 will have a material impact on its financial position,
results of operations or cash flows.

-33-

---

# REGIONAL BANKSHARES,
INC. Notes to Consolidated Financial Statements

# NOTE 1  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES  continued

Recent Accounting
Pronouncements (continued) In September 2006, the SEC issued Staff
Accounting Bulleting No. 108 (SAB 108). SAB 108 provides interpretive guidance
on how the effects of the carryover or reversal of prior year misstatements should be
considered in quantifying a potential current year misstatement. Prior to SAB 108,
Companies might evaluate the materiality of financial statement misstatements using either
the income statement or balance sheet approach, with the income statement approach
focusing on new misstatements added in the current year, and the balance sheet approach
focusing on the cumulative amount of misstatement present in a companys balance
sheet. Misstatements that would be material under one approach could be viewed as
immaterial under another approach, and not be corrected. SAB 108 now requires that
companies view financial statement misstatements as material if they are material
according to either the income statement or balance sheet approach. The Company has
analyzed SAB 108 and determined that upon adoption it will have no impact on the reported
results of operations or financial conditions.

Other accounting standards that have
been issued or proposed by the FASB or other standards-setting bodies are not expected to
have a material impact on the Companys financial position, results of operations and
cash flows.

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 2005 financial statements were reclassified to
conform with the 2006 presentation.

# NOTE 2  CASH AND
DUE FROM BANKS

The Company is required to maintain
cash balances to cover all cash transactions. At December 31, 2006 and 2005, the
requirement was met by the cash balance in an account with the Bankers Bank and by cash in
the vault.

# NOTE 3  INVESTMENT
SECURITIES

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

|                                 | Amortized | Gross Unrealized | Estimated
|-------------------------------- | --------- | ---------------- | ---------
|
|December 31, 2006                |           |                  |          
|Government-sponsored enterprises |           |                  | $        
|Mortgage-backed securities       |           |                  |          
|Municipals                       |           |                  |          
|                                 |           |                  |          
|                                 |           |                  | $        
|                                 |           |                  |          
|December 31, 2005                |           |                 
|Government-sponsored enterprises |           |                  | $        
|Mortgage-backed securities       |           |                  |          
|Municipals                       |           |                  |          
|                                 |           |                  |          
|                                 |           |                  | $        
|                                 |           |                  |          

There were no sales of
available-for-sale securities in 2006 or 2005.

-34-

---

# REGIONAL BANKSHARES,
INC.

# Notes to Consolidated Financial Statements

# NOTE 3  INVESTMENT
SECURITIES continued

The following is a summary of
maturities of securities available-for-sale as of December 31, 2006. 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.

|                                          | Securities
|----------------------------------------- | ----------
|
|
|
|
|Due in one year or less                   |           
|Due after one year but within five years  |           
|Due after five years but within ten years |           
|Due after ten years                       |           
|                                          |           
|Total                                     |           
|                                          |           

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, 2006. Securities available-for-sale:

|                           | Less than | Twelve months |   |           | 
|-------------------------- | --------- | ------------- | - | --------- | 
|
|
|
|Government-sponsored       |           |               |   |           | 
|enterprises                |           |               | $ | -         | 
|Mortgage-backed securities |           |               |   | 920,230   | 
|Municipals                 |           |               |   | 678,198   | 
|                           |           |               |   |           | 
|                           |           |               | $ | 1,598,428 | 
|                           |           |               |   |           | 

Securities classified as
available-for-sale are recorded at fair market value. Approximately 84.7% of the
unrealized losses, or eight 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, 2006 and 2005,
securities with an amortized cost of $600,000, and estimated fair values of $604,344 and
$590,641, respectively, were pledged to secure public deposits.

-35-

---

# REGIONAL BANKSHARES,
INC.   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

# NOTE 4  LOANS
RECEIVABLE

Major classifications of loans
receivable are summarized as follows:

|                           | December 31,
|-------------------------- | ------------
|
|Real estate - construction |             
|Real estate - mortgage     |             
|Commercial and industrial  |             
|Consumer and other         |             
|                           |             
|                           |             
|                           |             
|Less:                      |             
|Allowance for loan losses  |             
|Loans in process           |             
|                           |             
|Loans, net                 |             
|                           |             

Transactions in the allowance for
loan losses are summarized below:

|                                           | Years ended December 31,
|------------------------------------------ | ------------------------
|
|Balance, beginning of year                 |                         
|Provision charged to operations            |                         
|Recoveries on loans previously charged-off |                         
|Loans charged-off                          |                         
|                                           |                         
|Balance, end of year                       |                         
|                                           |                         

At December 31, 2006 and 2005, the
Bank had loans in nonaccrual status totaling $257,279 and $7,758, respectively. There were
loans totaling $2,919 and $520 past due ninety days or more and still accruing interest at
December 31, 2006 and 2005, respectively. There were no restructured loans at December 31,
2006 or 2005.

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, 2006 and 2005, impaired loans closely
approximated nonaccrual loans.

At December 31, 2006, the Company had
pledged approximately $11,385,032 of loans as collateral for advances from the Federal
Home Loan Bank (see Note 7).

-36-

---

# REGIONAL BANKSHARES,
INC.   Notes to Consolidated Financial Statements

# NOTE 5  PREMISES, FURNITURE
AND EQUIPMENT

Premises, furniture and equipment consisted of the following:

|                                       | December 31, | 
|-------------------------------------- | ------------ | 
|
|Land and land improvements             |              | 
|Buildings                              |              | 
|Furniture and equipment                |              | 
|                                       |              | 
|Total                                  |              | 
|Less, accumulated depreciation         |              | 
|                                       |              | 
|Premises, furniture and equipment, net |              | 
|                                       |              | 

Depreciation and amortization expense
totaled $230,847 and $223,125 for the years ended December 31, 2006 and 2005,
respectively.

# NOTE 6  DEPOSITS

At December 31, 2006, the scheduled
maturities of certificates of deposit were as follows:

|Maturing In         | Amount
|------------------- | ------
|2007                |       
|2008                |       
|2009                |       
|2010                |       
|2011 and thereafter |       
|                    |       
|Total               |       
|                    |       

Of the total time deposits
outstanding at December 31, 2006, $12,455,835 were brokered deposits. Of this amount,
$11,398,835 and $1,057,000 were scheduled to mature in 2007 and 2008, respectively.

# NOTE 7  ADVANCES
FROM THE FEDERAL HOME LOAN BANK

Advances from the Federal Home Loan
Bank consisted of the following at December 31, 2006 and 2005:

|                                 |  | 2006 | 2005
|-------------------------------- |  | ---- | ----
|
|Variable rate advances maturing: |  |      |     
|January 31, 2006                 |  |      |     
|January 31, 2007                 |  |      |     
|March 26, 2008                   |  |      |     
|September 26, 2008               |  |      |     
|March 26, 2009                   |  |      |     
|September 28, 2009               |  |      |     
|Fixed rate advances maturing:    |  |     
|March 14, 2006                   |  |      |     
|September 14, 2006               |  |      |     
|December 8, 2006                 |  |      |     
|September 14, 2007               |  |      |     
|December 10, 2007                |  |      |     
|                                 |  |      |     
|Total                            |  |      |     
|                                 |  |      |     

-37-

---

# REGIONAL BANKSHARES,
INC.   Notes to Consolidated Financial Statements

# NOTE 7  ADVANCES
FROM THE FEDERAL HOME LOAN BANK  continued

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

|      | 
|----- | 
|2007  | 
|2008  | 
|2009  | 
|2010  | 
|2011  | 
|      | 
|Total | 
|      | 

As collateral, the Company has
pledged first mortgage loans on one to four family residential loans totaling $3,089,128,
multifamily loans totaling $296,991, home equity lines and second mortgages totaling
$4,355,742, and commercial real estate loans totaling $3,643,171 at December 31, 2006 (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.

# 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 was
payable in ten equal annual payments beginning January 1, 2007. Interest was based on the
prime rate and was payable quarterly, in arrears beginning January 1, 2005. The interest
rate on the note payable at December 31, 2005 was 7.25%. The note was secured by the stock
owned by the Company in the Bank. All principal and interest was due September 30, 2016.
On April 20, 2006 the Company used proceeds from its trust preferred issuance to payoff
the note.

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 was also secured by the stock owned by the Company in the Bank. The Company paid off
the note on March 17, 2006.

# NOTE 9  JUNIOR
SUBORDINATED DEBENTURES

On April 20, 2006, Regional Statutory
Trust I (the Trust), a non-consolidated subsidiary of the Company, issued and
sold floating rate capital securities of the trust (the Capital Securities),
generating proceeds of $3.0 million. The Trust loaned these proceeds to the Company to use
for general corporate purposes, primarily to provide capital to the Bank. The debentures
qualify as Tier 1 capital under Federal Reserve Board guidelines.

The Capital Securities in the
transaction accrue and pay distributions quarterly at a rate per annum equal to the
three-month LIBOR plus 177 basis points, which was 7.13% at December 31, 2006. The
distribution rate payable on the Capital Securities is cumulative and payable quarterly in
arrears. The Company has the right, subject to events of default, to defer payments of
interest on the Capital Securities for a period not to exceed 20 consecutive quarterly
periods, provided that no extension period may extend beyond the maturity date of June 15,
2036. The Company has no current intention to exercise its right to defer payments of
interest on the Capital Securities.

The Capital Securities mature or are
mandatorily redeemable upon maturity on June 15, 2036 or upon earlier optional redemption
as provided in the indenture. The Company has the right to redeem the Capital Securities
in whole or in part, on or after June 15, 2011. The Company may also redeem the capital
securities prior to such dates upon occurrence of specified conditions and the payment of
a redemption premium.

-38-

---

# REGIONAL BANKSHARES,
INC.   Notes to Consolidated Financial Statements

NOTE 10  OTHER OPERATING
EXPENSES

Other operating expenses are summarized below:

|                                          | Year ended December 31,
|----------------------------------------- | -----------------------
|
|Professional fees                         |                        
|Telephone                                 |                        
|Office supplies, stationery, and printing |                        
|Data processing and related               |                        
|Advertising and public relations          |                        
|ATM related expenses                      |                        
|Other                                     |                        
|                                          |                        
|Total                                     |                        
|                                          |                        

NOTE 11  INCOME
TAXES

Income tax expense is summarized as
follows:

|                                            | Year ended December 31,
|------------------------------------------- | -----------------------
|
|Currently payable:                          |                        
|Federal                                     |                        
|State                                       |                        
|                                            |                        
|Total current                               |                        
|                                            |                        
|Deferred income taxes                       |                        
|                                            |                        
|Income tax expense                          |                        
|                                            |                        
|Income tax expense is allocated as follows: |                        
|To continuing operations                    |                        
|To shareholders' equity                     |                        
|                                            |                        
|Income tax expense                          |                        
|                                            |                        

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

|                                                 | Year ended December 31,
|------------------------------------------------ | -----------------------
|
|Deferred tax assets:                             |                        
|Allowance for loan losses                        |                        
|Net operating loss carryforward                  |                        
|Nonaccrual of interest                           |                        
|Deferred compensation                            |                        
|Unrealized loss on securities available-for-sale |                        
|Other                                            |                        
|                                                 |                        
|Total deferred tax assets                        |                        
|                                                 |                        
|Deferred tax liabilities:                        |                        
|Accumulated depreciation                         |                        
|Prepaids                                         |                        
|                                                 |                        
|Total deferred tax liabilities                   |                        
|                                                 |                        
|Net deferred tax asset                           |                        
|                                                 |                        

-39-

---

# REGIONAL BANKSHARES,
INC.   Notes to Consolidated Financial Statements

# NOTE 11  INCOME TAXES continued

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, 2006, 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,
|--------------------------------------------------- | -----------------------
|
|Tax expense at statutory rate                       |                        
|State income tax, net of federal income tax benefit |                        
|Other, net                                          |                        
|                                                    |                        
|Total                                               |                        
|                                                    |                        

# NOTE 12  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. 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.
Rental expense associated with the property was $12,000 for the year ended December 31,
2005. There was no rental expense associated with the lease in 2006.

The Company entered into a lease
agreement with a third party for the lease of its temporary branch site in Camden, SC. The
site serves as a temporary location during construction of a permanent building. The lease
term is for the twelve (12) months beginning on September 1, 2006 and ending August 31,
2007. The monthly lease rate is $600 per month. Rental expense associated with the
property was $2,400 for the year ended December 31, 2006. There was no rental expense
associated with the lease in 2005. Future minimum lease payments under noncancellable
operating leases totaled $4,800 and are all in 2007.

# NOTE 13  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, 2006 and 2005, the Company had related party loans
totaling $4,156,097 and $4,460,449, respectively. During 2006, advances on related party
loans totaled $402,904 and repayments were $707,255.

In 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. Rental expense associated with the lease was $12,000 for the year ended December
31, 2005. There was no rental expense associated with the lease in 2006.

# NOTE 14 
RETIREMENT PLAN

In 2006,  the  Company  purchased  a Bank  Owned  Life  Insurance  (BOLI)  Policy on its Chief  Executive  Officer.
Earnings on the policy will be used to offset expenses  associated with  retirement  benefits
for the officer.  The

-40-

---

# REGIONAL BANKSHARES,
INC.   Notes to Consolidated Financial Statements

officer will receive an annual
payment from the Bank equal to the promised benefits. In connection with this plan, life
insurance policies were purchased on the officer. Premiums totaling $1,250,000 were paid
on the policies during the year ended December 31, 2006. The policies increased in cash
value by $48,468 during 2006. Cash values at December 31, 2006 were $1,298,468.

# NOTE 15 
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, 2006, 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 16  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 63,000 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, 2006, the Company had 52,457 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):

|                                 | 2006 | 2005
|-------------------------------- | ---- | ----
|
|
|
|Outstanding at beginning of year |      |     
|Granted                          |      |     
|Exercised                        |      |     
|                                 |      |     
|Cancelled                        |      |     
|                                 |      |     
|Outstanding at end of year       |      |     
|                                 |      |     

At December 31, 2006, 10,543 options
were exercisable. The weighted average remaining life and exercise price for both
outstanding options was 5.25 years and $10.31 per option, respectively. The aggregate
intrinsic value of options outstanding and exercisable as of December 31, 200 was $38,825.

# NOTE 17  STOCK
WARRANTS

In connection with the Companys
initial public stock sale, each of the twelve organizers received 6,300 stock warrants
which gives them the right to purchase 6,300 shares of the Companys common stock at
a price of $7.93 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 138,600 shares of the Companys common
stock at a price of $10.71 per share. The warrants became fully vested on August 18, 2005.
The aggregate intrinsic value of warrants outstanding and exercisable as of December 31,
2006 was $652,194.

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):

-41-

---

# REGIONAL BANKSHARES,
INC.   Notes to Consolidated Financial Statements

|                                 | December 31,
|-------------------------------- | ------------
|
|Outstanding at beginning of year |             
|Granted                          |             
|Exercised                        |             
|Cancelled                        |             
|                                 |             
|Outstanding at end of year       |             
|                                 |             

At December 31, 2006, 176,442
warrants were exercisable.

# NOTE 18  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,
|-------------------------------------------- | -----------------------
|
|Basic earnings per share computation:        |                        
|Net income available to common shareholders  |                        
|                                             |                        
|Average common shares outstanding - basic    |                        
|                                             |                        
|Basic net income per share                   |                        
|                                             |                        
|Diluted earnings per share computation:      |                        
|Net income available to common shareholders  |                        
|                                             |                        
|Average common shares outstanding - basic    |                        
|Incremental shares from assumed conversions: |                        
|Stock options and warrants                   |                        
|                                             |                        
|Average common shares outstanding - diluted  |                        
|                                             |                        
|Diluted earnings per share                   |                        
|                                             |                        

NOTE 19  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.

42

---

# REGIONAL BANKSHARES,
INC.   Notes to Consolidated Financial Statements

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, 2006, 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.

# NOTE 19  REGULATORY MATTERS continued

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

|                                         |  |  |   |           | To Be Well-
|---------------------------------------- |  |  | - | --------- | -----------
|
|
|
|
|December 31, 2006                        |  | 
|Total capital (to risk-weighted assets)  |  |  | $ | 9,945,281 |            
|Tier 1 capital (to risk-weighted assets) |  |  |   | 9,200,283 |            
|Tier 1 capital (to average assets)       |  |  |   | 9,200,283 |            
|December 31, 2005                        |  | 
|Total capital (to risk-weighted assets)  |  |  | $ | 7,288,096 |            
|Tier 1 capital (to risk-weighted assets) |  |  |   | 6,606,858 |            
|Tier 1 capital (to average assets)       |  |  |   | 6,606,858 |            

The Federal Reserve has similar
requirements for bank holding companies. The Company was not subject to these requirements
in 2006 because the Federal Reserve applied its guidelines on a bank-only basis for bank
holding companies with less than $500,000,000 in consolidated assets.

# NOTE 20  UNUSED
LINES OF CREDIT

As of December 31, 2006, the Company
had unused lines of credit to purchase federal funds from unrelated banks totaling
$7,500,000. These lines of credit are available on a one to fourteen day basis for general
corporate purposes. As of December 31, 2006, the Company had not borrowed 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 $8,113,458 as of December 31, 2006. As of December 31, 2006, the
Bank has borrowed $6,530,000 on this line.

# NOTE 21 
SHAREHOLDERS EQUITY

Stock Dividends 
In September 2006, the Company announced a stock dividend on its common stock. On
September 15, 2006, shareholders of record as of August 31, 2006 received one additional
share of stock for every twenty shares of stock owned prior to the 5% stock dividend. As a
result of the stock dividend, 35,277 shares were issued. All fractional shares were paid
in cash.

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.

43

---

# REGIONAL BANKSHARES,
INC.   Notes to Consolidated Financial Statements

All share and per share data has been
adjusted to reflect these dividends.

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 22  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,
|---------------------------- | ------------
|
|Commitments to extend credit |             
|Standby letters of credit    |             

# NOTE 23  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.

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.

44

---

# REGIONAL BANKSHARES,
INC.   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

# NOTE 23  FAIR VALUE
OF FINANCIAL INSTRUMENTS  continued

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.

Junior Subordinated
Debenture  The carrying value of junior subordinate debentures is a
reasonable estimate of fair value since the debentures were issued at a floating rate.

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.

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

|                                     | December 31,
|------------------------------------ | ------------
|
|
|
|Financial Assets:                    |             
|Cash and due from banks              |             
|Federal funds sold                   |             
|Securities available-for-sale        |             
|Nonmarketable equity securities      |             
|Loans receivable                     |             
|Accrued interest receivable          |             
|Financial Liabilities:               |             
|Demand deposit, interest-bearing     |             
|transaction, and savings accounts    |             
|Certificates of deposit and          |             
|other time deposits                  |             
|Federal funds purchased              |             
|Junior subordinated debenture        |             
|Note payable                         |             
|Advances from Federal Home Loan Bank |             
|Accrued interest payable             |             

|                                         | Notional | Estimated | Notional | Estimated 
|---------------------------------------- | -------- | --------- | -------- | ----------
|
|Off-Balance Sheet Financial Instruments: |          |           |          |           
|Commitments to extend credit             |          |           | $        | 17,014,117
|Letters of credit                        |          |           |          | 20,000    

45

---

# REGIONAL BANKSHARES,
INC.   Notes to Consolidated Financial Statements

# NOTE 24  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,
|------------------------------------------ | ------------
|
|Assets                                     |             
|Cash                                       |             
|Investment in banking subsidiary           |             
|Investment in trust                        |             
|Other assets                               |             
|                                           |             
|Total assets                               |             
|                                           |             
|Liabilities                                |             
|Note payable                               |             
|Junior Subordinated Debenture              |             
|Other                                      |             
|                                           |             
|Total liabilities                          |             
|                                           |             
|Shareholders' equity                       |             
|                                           |             
|Total liabilities and shareholders' equity |             
|                                           |             

# Condensed Statements
of Income

|                                                       | December 31,
|------------------------------------------------------ | ------------
|
|Income                                                 |             
|Dividend income from banking subsidiary                |             
|Interest Income                                        |             
|                                                       |             
|Total income                                           |             
|                                                       |             
|Expenses                                               |             
|Interest expense                                       |             
|Other expenses                                         |             
|                                                       |             
|Total expenses                                         |             
|                                                       |             
|Loss before income taxes and equity in                 |             
|undistributed earnings of banking subsidiary           |             
|Income tax benefit                                     |             
|Equity in undistributed earnings of banking subsidiary |             
|                                                       |             
|Net income                                             |             
|                                                       |             

# NOTE 24 - REGIONAL BANKSHARES, INC.
(PARENT COMPANY ONLY) - continued

# Condensed Statements of
Cash Flows

|                                                        | December 31,
|------------------------------------------------------- | ------------
|
|Cash flows from operating activities:                   |             
|Net income                                              |             
|Adjustments to reconcile net income                     |             
|to net cash used by operating activities:               |             
|Equity in undistributed earnings                        |             
|of banking subsidiary                                   |             
|Deferred income tax provision                           |             
|Decrease in other liabilities                           |             
|Decrease (Increase) in other assets                     |             
|                                                        |             
|Net cash used by operating activities                   |             
|                                                        |             
|Cash flows from investing activities:                   |             
|Transfer of capital to the Bank                         |             
|Investment in trust                                     |             
|                                                        |             
|Net cash used by investing activities                   |             
|                                                        |             
|Cash flows from financing activities:                   |             
|Proceeds from note payable                              |             
|Repayments of note payable                              |             
|Proceeds from issuance of junior subordinated debenture |             
|Proceeds from exercise of stock options                 |             
|Proceeds from exercise of stock warrants                |             
|                                                        |             
|Net cash provided by financing activities               |             
|                                                        |             
|Increase in cash                                        |             
|Cash and cash equivalents, beginning of year            |             
|                                                        |             
|Cash and cash equivalents, end of year                  |             
|                                                        |             

46

---

# REGIONAL BANKSHARES,
INC. CORPORATE DATA

# ANNUAL MEETING:

The Annual Meeting of  Shareholders  of Regional  Bankshares,  Inc.,  will be held at 11:00 a.m. on May 17, 2007 at
the Bank's Operation Center, 125 Westfield Street, Hartsville, South Carolina.

|                               | 
|------------------------------ | 
|CORPORATE OFFICE:              | 
|206 South Fifth Street         | 
|South Carolina 29550           | 
|Phone (843) 383-4333           | 
|Fax (843) 332-3218             | 
|STOCK TRANSFER AGENT:          | 
|Registrar and Transfer Company | 
|10 Commerce Drive              | 
|Cranford, New Jersey 07016     | 
|                               | 

# STOCK INFORMATION:

Although a limited number of shares
of common stock of Regional Bankshares, Inc. are traded from time to time on an individual
basis, no established trading market has developed and none is expected to develop in the
near future. The common stock is not listed on any exchange or on the OTC Bulletin Board,
nor are there any market makers known to management.

During 2006, management was aware of
a few transactions in which the Companys common stock traded at $12.38 per share.
However, management has not ascertained that these transactions resulted from arms
length negotiations, and because of the limited number of shares involved, these prices
may not be indicative of the market value of the common stock. In 2006, the Company issued
a 5% stock dividend. The share prices above have been restated to reflect this dividend.
As of December 31, 2006, there were 873 shareholders of record.

The ability of Regional Bankshares,
Inc. to pay cash dividends is dependent upon receiving cash in the form of dividends from
Heritage Community Bank. However, there are restrictions on the ability of the Bank to
transfer funds to the Company in the form of cash dividends. Additionally, all of the
Banks dividends to the Company are subject to the prior written approval of the
South Carolina Commissioner of Banking. The Company has not declared or paid any cash
dividends since its inception, and, to support the Companys continuing need for
capital to support anticipated asset growth and market expansion, management does not
expect to declare or pay cash dividends in the foreseeable future.

# FORM 10-KSB

Copies of the Annual Report on
Form 10-KSB may be obtained free of charge upon request to Curtis A. Tyner, Sr.,
President, Regional Bankshares, Inc., P.O. Box 2255, Hartsville, South Carolina 29551.
Copies of the Form 10-KSB may also be obtained from the Securities and Exchange
Commissions website at www.sec.gov.

This Annual Report serves as the
ANNUAL FINANCIAL DISCLOSURE STATEMENT for Heritage Community Bank, furnished
pursuant to Part 350 of the Federal Deposit Insurance Corporations Rules and
Regulations. THIS STATEMENT HAS NOT BEEN REVIEWED, OR CONFIRMED FOR ACCURACY OR RELEVANCE
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.

47

---

# REGIONAL BANKSHARES,
INC. CORPORATE DATA

BOARD OF DIRECTORS

|                            | 
|--------------------------- | 
|Francine P. Bachman         | 
|T. James Bell, Jr., MD      | 
|                            | 
|Peter Collin Coggeshall, Jr | 
|                            | 
|Franklin Hines              | 
|                            | 
|                            | 
|J. Richard Jones            | 
|                            | 
|Woodward H. Morgan, III     | 
|                            | 
|Randolph G. Rogers          | 
|                            | 
|Gosnold G. Segars           | 
|                            | 
|                            | 
|Howard W. Tucker, Jr        | 
|Curtis A. Tyner, Sr         | 
|                            | 
|                            | 
|Patricia M. West            | 

# SENIOR OFFICERS OF
HERITAGE COMMUNITY BANK

|                        | 
|----------------------- | 
|Curtis A. Tyner,        | 
|President, Chief Execut | 
|and Chief Financial     | 
|Howard Frye             | 
|Senior Vice Preside     | 
|Senior Credit Off       |