SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM 10-KSB

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

For the Fiscal Year Ended December 31, 2002     Commission File Number 000-32493

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

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

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

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

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

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

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

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  Registrant was required to file such reports),  and (2)
has been subject to such filing  requirements for the past 90 days. Yes [X] No [
]

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

         The issuer's revenues for its most recent fiscal year were $2,789,840.

         There is no  established  trading  market for the  Registrant's  voting
common equity. The Registrant has no non-voting common equity  outstanding.  The
aggregate book value of the voting common equity held by non-affiliates on March
1, 2003, was approximately  $3,232,794.  As of March 1, 2003, there were 563,670
shares of the  Registrant's  common  stock,  $1.00 par value,  outstanding.  For
purposes of the foregoing calculation only, all directors and executive officers
of the Registrant have been deemed affiliates.

                       DOCUMENTS INCORPORATED BY REFERENCE

(1)  Portions of the Registrant's Proxy Statement for the 2003 Annual Meeting of
     Shareholders - Part III

     Transitional Small Business Disclosure Format (check one):

     Yes [ ]  No [X]


<PAGE>


                              Cross-Reference Sheet
<TABLE>
<CAPTION>

<S>                                                                                                     <C>
  PART I
        Item 1.      Description of Business............................................................. 1
        Item 2.      Description of Property............................................................. 9
        Item 3.      Legal Proceedings................................................................... 9
        Item 4.      Submission of Matters to Vote of Security Holders................................... 9
  PART II9
        Item 5.      Market for Common Equity and Related Stockholder Matters............................ 9
        Item 6.      Management's Discussion and Analysis or Plan of Operation.......................... 11
        Item 7.      Financial Statements............................................................... 28
        Item 8.      Changes in and Disagreements with Accountants
                         on Accounting and Financial Disclosure......................................... 50
  PART III
        Item 9.      Directors, Executive Officers, Promoters and Control Persons;
                         Compliance with Section 16(a) of the Exchange Act.............................. 50
        Item 10.     Executive Compensation............................................................. 50
        Item 11.     Security Ownership of Certain Beneficial Owners and Management and
                     Related Stockholder Matters ....................................................... 50
        Item 12.     Certain Relationships and Related Transactions..................................... 51
  PART IV
        Item 13.     Exhibits and Reports on Form 8-K................................................... 52
        Item 14.     Controls and Procedures ........................................................... 52
</TABLE>


<PAGE>



                                     PART I

Forward-Looking Statements

         This  Report on Form  10-KSB  may  contain  forward-looking  statements
relating  to  such  matters  as  anticipated  financial  performance,   business
prospects,   technological  developments,  new  products  and  similar  matters.
Statements  included  in this  report  that are not  historical  in  nature  are
intended to be, and are hereby  identified as 'forward looking  statements.' The
words  "estimate,"  "project,"  "intend,"  "expect,"  "believe,"   "anticipate,"
"plan," and similar expressions identify forward looking statements. The Private
Securities   Litigation   Reform  Act  of  1995   provides  a  safe  harbor  for
forward-looking  statements.  In order to comply with terms of the safe  harbor,
Regional Bankshares,  Inc. (the "Company") notes that a variety of factors could
cause the Company's actual results and experience to differ  materially from the
anticipated   results  or  other   expectations   expressed  in  the   Company's
forward-looking  statements.  The risks and  uncertainties  that may  affect the
operations,  performances,  development  and results of the  Company's  business
include,  but are not limited to, the following:  risks from changes in economic
and industry  conditions;  changes in interest  rates;  risks inherent in making
loans including  repayment  risks and value of collateral;  dependence on senior
management ; and recently-enacted or proposed legislation.  Statements contained
in this filing regarding the demand for Hartsville Community Bank's products and
services,  changing economic conditions,  interest rates,  consumer spending and
numerous  other  factors may be  forward-looking  statements  and are subject to
uncertainties and risks.

Item 1.  Description of Business.

                                     GENERAL

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

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

         The Bank  conducts  a general  banking  business  from its main  office
located in Hartsville, South Carolina. The Bank has entered into an agreement to
purchase  property in McBee,  South Carolina on which to locate a branch office.
The  agreement  is  subject  to the  Bank's  receiving  regulatory  approval  to
establish the branch.  There can, however,  be no assurance  regulatory approval
will be granted.

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

                              BUSINESS OF THE BANK

Market Area

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


<PAGE>




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

Competition

         South Carolina law permits statewide branching by banks and savings and
loan  associations.  Consequently,  many  financial  institutions  have branches
located in several  communities.  Currently,  in addition to the Bank,  10 other
financial institutions and branches of financial institutions are located in the
Bank's  market  area.  The  principal  areas and methods of  competition  in the
banking  industry  are the  services  offered,  pricing of those  services,  the
convenience and  availability  of the services,  and the degree of expertise and
personal manner with which those services are offered.

         The Bank  encounters  strong  competition  from  most of the  financial
institutions in its extended market area. In the conduct of certain areas of its
business, the Bank also competes with credit unions, insurance companies,  money
market  mutual  funds and other  financial  institutions,  some of which are not
subject to the same degree of regulation and  restrictions  as the Bank. Most of
these  competitors have  substantially  greater  resources and lending abilities
than  the  Bank and  offer  certain  services,  such as  international  banking,
investment  banking,  and  trust  services,  that  the Bank  does not  presently
provide.

Deposits

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

Lending Activities

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

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



                                       2
<PAGE>

Real Estate Loans

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

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

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

Commercial Loans

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

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

Consumer Loans

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



                                       3
<PAGE>

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


Other Services

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

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

         The Bank plans to implement  internet banking services by the summer of
2003.  This service would allow customers to view accounts,  make  transactions,
and engage in other functions via the Internet.

Employees

         The Bank has 20 full time employees. The Company has no employees.


                           SUPERVISION AND REGULATION

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

General

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

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



                                       4
<PAGE>

Obligations of the Company to its Subsidiary Bank

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

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

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

Capital Adequacy Guidelines for Bank Holding Companies and State Banks

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

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

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

         The Bank exceeded all applicable capital  requirements by a wide margin
at December 31, 2002.

Payment of Dividends

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



                                       5
<PAGE>

Certain Transactions by the Company with its Affiliates

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

FDIC Insurance Assessments

         Because the Bank's deposits are insured by the BIF, the Bank is subject
to insurance assessments imposed by the FDIC. Currently, the assessments imposed
on all FDIC deposits for deposit insurance have an effective rate ranging from 0
to 27 basis points per $100 of insured deposits,  depending on the institution's
capital position and other supervisory  factors.  However,  because  legislation
enacted in 1996  requires  that  insured  deposits pay a pro rata portion of the
interest due on the obligations issued by the Financing Corporation ("FICO"). To
cover those obligations,  during 2002, the FDIC assessed  BIF-insured deposits a
range of 1.82 to 1.70  basis  points  per $100 of  deposits,  and also  assessed
SAIF-insured deposits a range of 1.82 to 1.70 basis points per $100 of deposits.
Currently, the FDIC is assessing BIF-insured and SAIF-insured deposits each 1.68
basis points per $100 of deposits to cover the interest on FICO obligations. The
FICO assessment will continue to be adjusted quarterly to reflect changes in the
assessment  bases of the  respective  funds based on  quarterly  Call Report and
Thrift Financial Report submissions.

Regulation of the Bank

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

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

Other Safety and Soundness Regulations

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



                                       6
<PAGE>

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

         Brokered Deposits.  Under current FDIC regulations,  "well capitalized"
banks may accept brokered deposits without restriction, "adequately capitalized"
banks may accept  brokered  deposits  with a waiver  from the FDIC  (subject  to
certain  restrictions on payment of rates), while  "undercapitalized"  banks may
not accept brokered deposits.

Interstate Banking

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

Gramm-Leach-Bliley Act

         On November 12, 1999, the President signed the Gramm-Leach-Bliley  Act,
which  makes it easier for  affiliations  between  banks,  securities  firms and
insurance companies to take place. The Act removed Depression-era  barriers that
had separated  banks and securities  firms,  and seeks to protect the privacy of
consumers' financial information. Most of the provisions of the Act required the
applicable   regulators  to  adopt  regulations  in  order  to  implement  these
provisions, and a substantial number of regulations have already been adopted.

         Under provisions of the new legislation, which were effective March 11,
2000, banks,  securities firms and insurance companies are able to structure new
affiliations  through  a  holding  company  structure  or  through  a  financial
subsidiary.  The legislation creates a new type of bank holding company called a
"financial  holding  company" which has powers much more extensive than those of
standard holding companies. These expanded powers include authority to engage in
"financial  activities,"  which are activities that are (1) financial in nature;
(2) incidental to activities that are financial in nature;  or (3) complementary
to a  financial  activity  and that do not impose a safety and  soundness  risk.
Significantly,   the  permitted  financial   activities  for  financial  holding
companies  include  authority  to  engage  in  merchant  banking  and  insurance
activities,  including insurance portfolio investing. A bank holding company can
qualify as a financial holding company and expand the services it offers only if
all of its subsidiary depository institutions are well-managed, well-capitalized
and  have  received  a  rating  of   "satisfactory"   on  their  last  Community
Reinvestment Act examination.

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


                                       7
<PAGE>

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

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

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

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

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

Legislative Proposals

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

Fiscal and Monetary Policy

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



                                       8
<PAGE>

Item 2.  Description of Property.

         The Bank owns its office building,  which is located at 206 South Fifth
Street in  Hartsville.  The property is at a corner  location one block from the
geographic  center  of  Hartsville.  This area of town is  undergoing  extensive
redevelopment, and is likely to be a center for retail, professional and service
business growth in the future. The office building comprises approximately 8,000
feet.  The  building  was  completed  in the second  quarter  of 2001,  and cost
approximately  $1,000,000.  The property on which the main office is located was
purchased from an unaffiliated third party for approximately $293,400.

Item 3.  Legal Proceedings.

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

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

         None.

Item 5.  Market for Common Equity and Related Stockholder Matters.

Absence of Market for Common Stock

         Although  the common  stock of the  Company  may be traded from time to
time on an individual  basis,  no  established  trading market has developed and
none is expected to develop in the foreseeable  future.  The common stock is not
listed on any exchange nor is it traded on the NASDAQ  National  Market  System,
nor are there any market makers known to  management.  In 2002,  management  was
aware of a few  transactions  in which the  Company's  common  stock  traded for
$14.50 per share,  and  management is aware of one  transaction  in which shares
traded at $15.67 per share. However,  management has not ascertained that any of
these  transactions  are the result of arm's  length  negotiations  between  the
parties, and because of the limited number of shares involved,  these prices may
not be indicative of the market value of the common stock.

         As of December 31, 2002, there were approximately 883 holders of record
of the Company's  common stock,  excluding  individual  participants in security
position listings.



                                       9
<PAGE>

Dividends

         The Company  has never paid any cash  dividends,  and to  maintain  its
capital,  does not expect to pay cash dividends in the near future. The dividend
policy of the Company is subject to the discretion of the Board of Directors and
depends upon a number of factors, including earnings, financial conditions, cash
needs  and  general  business  conditions,  as  well  as  applicable  regulatory
considerations.  Because the Company has no  operations  other than those of the
Bank and presently has no income of its own, the Company would rely on dividends
from the Bank as its principal  source of cash to pay dividends.  South Carolina
banking  regulations  restrict the amount of cash  dividends that can be paid to
shareholders,  and all of the Bank's cash dividends to shareholders  are subject
to the prior  approval  of the  South  Carolina  Commissioner  of  Banking.  The
information  set  forth  in  Note  19 to the  Company's  Consolidated  Financial
Statements  which are set forth  under  Item 7 below is  incorporated  herein by
reference.

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

Issuance of Unregistered Securities

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

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

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


                                       10

<Page>

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

                            REGIONAL BANKSHARES, INC.

                             Selected Financial Data

The following  selected  financial  data for the years ended  December 31, 2002,
2001, 2000 and 1999 are derived from the financial  statements and other data of
the Company.  The selected financial data should be read in conjunction with the
financial statements of the Company,  including the accompanying notes, included
elsewhere herein.

<TABLE>
<CAPTION>
                                                                     2002             2001                2000                1999
                                                                     ----             ----                ----                ----
(Dollars in thousands, except per share)
Income Statement Data:
<S>                                                               <C>               <C>                <C>                <C>
     Interest income ....................................         $  2,440          $  1,998           $  1,290           $    319
     Interest expense ...................................              788               853                541                100
                                                                  --------          --------           --------           --------
     Net interest income ................................            1,652             1,145                749                219
     Provision for loan losses ..........................              130               130                119                 62
                                                                  --------          --------           --------           --------
     Net interest income after provision
       for loan losses ..................................            1,522             1,015                630                157
     Noninterest income .................................              350               235                108                 39
     Noninterest expense ................................            1,672             1,494              1,302              1,117
                                                                  --------          --------           --------           --------
     Income (loss) before income taxes ..................              200              (244)              (564)              (921)
     Income tax expense (benefit) .......................               74               (89)              (209)              (313)
                                                                  --------          --------           --------           --------
         Net income (loss) ..............................         $    126          $   (155)          $   (355)          $   (608)
                                                                  ========          ========           ========           ========

Balance Sheet Data:
     Assets .............................................         $ 44,226          $ 34,218           $ 23,304           $ 11,326
     Earnings assets ....................................           40,935            30,211             20,353              9,517
     Securities (1) .....................................            2,651               354                347                342
     Loans (2) ..........................................           35,233            26,874             15,157              5,536
     Allowance for loan losses ..........................              369               268                159                 55
     Deposits ...........................................           39,379            27,742             18,464              6,343
     Shareholders' equity ...............................            4,584             4,452              4,571              4,925

Per Share Data:
     Earnings (losses) per share ........................         $   0.22          $  (0.28)          $  (0.63)          $  (1.08)
     Book value (period end) ............................             8.13              7.90               8.16               8.79
     Tangible book value (period end) ...................             8.13              7.90               8.16               8.79

Selected Ratios:
     Return on average assets ...........................             0.32%            (0.55)%            (2.14)%           (11.53)%
     Return on average equity ...........................             2.81             (3.44)             (7.51)            (21.68)
     Net interest margin (3) ............................             4.63              4.68               5.03               5.37
     Efficiency (4) .....................................            83.52            108.29             152.01             433.48
     Equity to assets ...................................            10.36             13.01              19.61              43.48

Capital and Liquidity Ratios:
     Average equity to average assets ...................            11.31%            16.07%             28.45%             53.22%
     Leverage (4.00% required minimum) ..................            10.50             13.53              21.70              47.02
     Tier 1 risk-based capital ratio ....................            12.50             15.35              26.83              74.24
     Total risk-based capital ratio .....................            13.51             16.27              27.77              75.06
     Average loans to average deposits ..................            89.59             93.31              85.65              72.81
</TABLE>

----------------------
1.   All  securities  are  available-for-sale  and are  stated  at  fair  value.
     Nonmarketable equity securities are excluded.
2.   Loans are stated at gross amounts before allowance for loan losses.
3.   Net interest income divided by average earning assets.
4.   Noninterest  expense  divided  by  the  sum  of  net  interest  income  and
     noninterest income, net of gains and losses on sales of assets.



                                       11
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

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

                              Basis of Presentation

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

                                     General

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

On May 10,  2001,  the Company  moved its  operations  to its newly  constructed
headquarters at 206 South Fifth Street in Hartsville,  South Carolina. The 8,250
square foot facility allowed the Company to consolidate its main bank branch and
operations center into one facility.  The cost of the building was approximately
$1,328,844.  Additional  furniture  and  equipment  purchased  for the  building
totaled approximately $244,058.

The Bank opened for business on June 15, 1999. The principal  business  activity
of the Bank is to provide banking services to domestic  markets,  principally in
Darlington  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 or construct
new homes and to refinance  existing  mortgages.  During 2001, the Bank hired an
investment  broker to offer  investment and brokerage  services to the Company's
customers  through  Raymond  James  Financial   Services,   Inc.,  a  registered
broker-dealer firm.




                                       12
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

                              Results of Operations

Year ended December 31, 2002, compared with year ended December 31, 2001

Net interest income increased  $507,303,  or 44.32%,  to $1,651,879 in 2002 from
$1,144,576 in 2001. The increase in net interest  income was due primarily to an
increase  in  average   earning  assets.   Average   earning  assets   increased
$10,875,000,  or 44.42%,  due to  continued  growth in the loan  portfolio.  The
primary components of interest income were interest on loans, including fees, of
$2,332,757 and interest on federal funds sold of $59,649.

The Company's net interest  spread and net interest margin were 4.30% and 4.63%,
respectively,  in 2002 compared to 3.98% and 4.68%,  respectively,  in 2001. The
increase in net interest spread was primarily the result of management's efforts
to increase  loans,  which  generally have  relatively high interest rates, as a
percentage  of total  earning  assets and to  control  interest  rates  during a
declining  interest rate  environment.  Yields on all earning assets declined in
2002.  Yields on earning  assets  decreased from 8.16% in 2001 to 6.84% in 2002.
Yields on interest-bearing  liabilities decreased from 4.18% in 2001 to 2.54% in
2002.

The provision for loan losses was $130,000 in 2002 compared to $129,841 in 2001.
The Company  continues  to  maintain  the  allowance  for loan losses at a level
management  believes to be sufficient to cover known and inherent  losses in the
loan portfolio.

Noninterest  income  increased  $115,006,  or 48.89%,  to  $350,251 in 2002 from
$235,245 in 2001. The increase is primarily  attributable  to increased  service
charges on deposit accounts.  Service charges increased  $49,499,  or 37.76%, to
$180,587 for the year ended December 31, 2002.  The increase in service  charges
on deposit  accounts was  attributable  to an overall  increase in the number of
deposit  accounts over the two years.  Brokerage  commissions  also increased by
$42,611 or  308.93%  to $56,404  for the year  ended  December  31,  2002,  when
compared to 2001.  Residential  mortgage  origination fees decreased  $1,678, or
2.85%, to $57,152 for the year ended December 31, 2002. This decrease was due to
a change in personnel during the year of mortgage origination processors.

Noninterest  expense increased  $177,926,  or 11.91%, to $1,672,146 in 2002 from
$1,494,220 in 2001. Noninterest expenses increased in all categories as a result
of our continued growth.  Other operating  expenses increased $6,644 to $575,223
for the year ended December 31, 2002.  Salaries and benefits increased $120,463,
or  16.15%,  to  $866,307  in 2002  from  $745,844  in 2001.  This  increase  is
attributable to normal pay increases and the hiring of additional  staff to meet
needs associated with our growth.  The Company's  efficiency ratio was 83.52% in
2002 compared to 108.29% in 2001. The decrease is  attributable  to the increase
in net interest income and noninterest  income.  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.

The net income was $125,968 in 2002  compared to a net loss of $154,830 in 2001.
The  net  income  reflects  our  continued  growth,  as  average-earning  assets
increased from  $24,481,000  for the year ended December 31, 2001 to $35,660,000
for the year ended  December 31, 2002.  Return on average assets during 2002 was
0.32%  compared to (0.55)%  during 2001,  and return on average equity was 2.81%
during 2002 compared to (3.44)% during 2001.



                                       13
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

                        Results of Operations (continued)

Year ended December 31, 2001, compared with year ended December 31, 2000

Net interest income increased  $395,513,  or 52.80%,  to $1,144,576 in 2001 from
$749,063 in 2000.  The increase in net interest  income was due  primarily to an
increase in average earning assets. Average earning assets increased $9,599,000,
or 64.50%, due to continued growth in the loan portfolio. The primary components
of interest  income were interest on loans,  including  fees, of $1,834,066  and
interest on federal funds sold of $133,228.

The Company's net interest  spread and net interest margin were 3.98% and 4.68%,
respectively,  in 2001 compared to 3.36% and 5.03%,  respectively,  in 2000. The
increase in net interest spread was primarily the result of management's efforts
to increase  loans,  which  generally have  relatively high interest rates, as a
percentage  of total  earning  assets and to  control  interest  rates  during a
declining  interest rate environment.  Yields on all earning assets,  other than
nonmarketable  equity  securities,  declined in 2001.  Yields on earning  assets
decreased  from  8.67%  in 2000 to 8.16% in  2001.  Yields  on  interest-bearing
liabilities decreased from 5.31% in 2000 to 4.18% in 2001.

The provision for loan losses was $129,841 in 2001 compared to $118,884 in 2000.
The Company  continues  to  maintain  the  allowance  for loan losses at a level
management  believes to be sufficient to cover known and inherent  losses in the
loan portfolio.

Noninterest  income  increased  $127,422,  or 118.18%,  to $235,245 in 2001 from
$107,823 in 2000. The increase was primarily  attributable to increased  service
charges on deposit accounts.  Service charges increased $84,240,  or 179.82%, to
$131,088 for the year ended December 31, 2001.  The increase in service  charges
on deposit  accounts was  attributable  to an overall  increase in the number of
deposit  accounts  over the two years.  Residential  mortgage  origination  fees
increased  $29,315,  or 99.32%, to $58,830 for the year ended December 31, 2001.
The  decline in  interest  rates  during  2001  resulted  in more home  mortgage
refinancings.

Noninterest  expense increased  $191,697,  or 14.72%, to $1,494,220 in 2001 from
$1,302,523 in 2000. Noninterest expenses increased in all categories as a result
of our continued growth.  Other operating expenses increased $76,889 to $568,579
for the year ended  December 31,  2001.  The Company  incurred  $26,365 in legal
expenses in 2001 associated with the formation of the holding company.  Salaries
and benefits increased $84,920,  or 12.85%, to $745,844 in 2001 from $660,924 in
2000.  This increase is  attributable  to normal pay increases and the hiring of
additional  staff to meet  needs  associated  with  our  growth.  The  Company's
efficiency  ratio was 108.29% in 2001 compared to 152.01% in 2000.  The decrease
is attributable to the increase in net interest income and noninterest income.

The net loss was  $154,830  in 2001  compared to a net loss of $355,367 in 2000.
The  decrease in net loss  reflects our  continued  growth,  as  average-earning
assets  increased  from  $14,882,000  for the year ended  December  31,  2000 to
$24,481,000  for the year ended  December  31,  2001.  Return on average  assets
during 2001 was (0.55)%  compared to (2.14)%  during 2000, and return on average
equity was (3.44)% during 2001 compared to (7.51)% during 2000.


                                       14
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

                               Net Interest Income

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

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

Average Balances, Income and Expenses, and Rates

<TABLE>
<CAPTION>
                                                                             2002                                  2001
                                                                             ----                                  ----
                                                               Average      Income/      Yield/       Average     Income/     Yield/
(Dollars in thousands)                                         Balance     Expense        Rate        Balance    Expense       Rate
                                                               -------     -------        ----        -------    -------       ----
Assets:
     Earning Assets:
<S>                                                         <C>           <C>              <C>      <C>         <C>            <C>
         Loans (1) ....................................     $     30,787  $    2,333       7.58%    $   21,060  $    1,834     8.71%
         Securities, taxable (2) ......................            1,030          41       3.98            353          22     6.23
         Nonmarketable securities .....................              138           6       4.35            104           9     8.65
         Federal funds sold ...........................            3,705          60       1.62          2,964         133     4.49
                                                            ------------  ----------                ----------  ----------
              Total earning assets ....................           35,660       2,440       6.84         24,481       1,998     8.16
                                                            ------------  ----------                ----------  ----------
     Cash and due from banks ..........................            1,371                                 1,151
     Premises and equipment ...........................            2,100                                 1,868
     Other assets .....................................              785                                   728
     Allowance for loan losses ........................             (315)                                 (209)
                                                            ------------                            ----------
              Total assets ............................     $     39,601                            $   28,019
                                                            ============                            ==========
Liabilities:
     Interest-bearing liabilities:
         Interest-bearing transaction
           accounts ...................................     $      3,782          19       0.50%    $    3,010          34     1.13%
         Savings deposits .............................            7,652         135       1.76          5,169         162     3.13
         Time deposits ................................           19,109         621       3.25         11,597         640     5.52
         Other short-term borrowings ..................              503          13       2.58            626          17     2.72
                                                            ------------  ----------                ----------  ----------
              Total interest-bearing
                liabilities ...........................           31,046         788       2.54         20,402         853     4.18
                                                            ------------  ----------                ----------  ----------
     Demand deposits ..................................            3,818                                 2,793
     Accrued interest and other liabilities ...........              257                                   321
     Shareholders' equity .............................            4,480                                 4,503
                                                            ------------                            ----------
              Total liabilities and
                Shareholders' equity ..................     $     39,601                            $   28,019
                                                            ============                            ==========

Net interest spread ...................................                                    4.30%                               3.98%
Net interest income ...................................                   $    1,652                            $    1,145
                                                                          ==========                            ==========
Net interest margin ...................................                                    4.63%                               4.68%
</TABLE>
(1)  The  effect  of  fees  collected  on  loans  is  not   significant  to  the
     computations.  Nonaccrual  loans are not  included  in average  balances on
     loans. All loans and deposits are domestic.

(2)  Average investment securities exclude the valuation allowance on securities
     available-for-sale.



                                       15
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

                              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  describes  the extent to which  changes in interest  rates and
changes in the volume of earning assets and  interest-bearing  liabilities  have
affected the Company's  interest income and interest  expense during the periods
indicated.  Information on changes in each category  attributable to (i) changes
due to volume (change in volume  multiplied by prior period rate),  (ii) changes
due to rates  (changes in rates  multiplied  by prior  period  volume) and (iii)
changes in  rate/volume  (change in rate  multiplied by the change in volume) is
provided as follows:

<TABLE>
<CAPTION>
                                                                                           2002 compared to 2001
                                                                                       Due to increase (decrease) in
(Dollars in thousands)                                                 Volume (1)       Rate (1)         Volume/Rate         Total
                                                                       ----------       --------         -----------         -----
Interest income:
<S>                                                                     <C>               <C>               <C>               <C>
     Loans .................................................            $ 847             $(238)            $(110)            $ 499
     Securities, taxable ...................................               41                (8)              (15)               18
     Nonmarketable securities ..............................                6                (4)               (4)               (2)
     Federal funds sold and other ..........................               33               (85)              (21)              (73)
                                                                        -----             -----             -----             -----
         Total interest income .............................              927              (335)             (150)              442
                                                                        -----             -----             -----             -----
Interest expense:
     Interest-bearing deposits .............................              502              (353)             (210)              (61)
     Short-term borrowings .................................               (3)               (1)                -                (4)
                                                                        -----             -----             -----             -----
         Total interest expense ............................              499              (354)             (210)              (65)
                                                                        -----             -----             -----             -----
             Net interest income ...........................            $ 428             $  19             $  60             $ 507
                                                                        =====             =====             =====             =====
</TABLE>


<TABLE>
<CAPTION>
                                                                                          2001 compared to 2000
                                                                                      Due to increase (decrease) in
(Dollars in thousands)                                             Volume (1)        Rate (1)            Volume/Rate          Total
                                                                   ----------        --------            -----------          -----
Interest income:
<S>                                                                <C>                <C>                <C>                <C>
     Loans .............................................           $ 1,085            $  (116)           $  (127)           $   842
     Securities, taxable ...............................                 1                 (1)                 -                  -
     Nonmarketable securities ..........................                (3)                 6                 (3)                 -
     Federal funds sold and other ......................               (83)               (74)                23               (134)
                                                                   -------            -------            -------            -------
         Total interest income .........................             1,000               (185)              (107)               708
                                                                   -------            -------            -------            -------
Interest expense:
     Interest-bearing deposits .........................               509               (110)              (104)               295
     Short-term borrowings .............................                 -                  -                 17                 17
                                                                   -------            -------            -------            -------
         Total interest expense ........................               509               (110)               (87)               312
                                                                   -------            -------            -------            -------
             Net interest income .......................           $   491            $   (75)           $   (20)           $   396
                                                                   =======            =======            =======            =======
</TABLE>

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




                                       16
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

                               Net Interest Income

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

The following table sets forth the Bank's interest rate  sensitivity at December
31, 2002.

Interest Sensitivity Analysis

<TABLE>
<CAPTION>
                                                                  After one   After Three                   Greater
                                                                  Through       Through                     Than One
December 31, 2002                                   Within One     Three         Twelve      Within one    Year or Non-
(Dollars in thousands)                                Month        Months        Months         Year         Sensitive       Total
                                                      -----        ------        ------         ----         ---------       -----
Assets
Interest-earning assets
<S>                                                <C>           <C>            <C>            <C>            <C>           <C>
     Loans ...................................     $ 10,070      $  2,011       $  2,348       $ 14,429       $ 20,804      $ 35,233
     Securities, taxable .....................            -             -              -              -          2,513         2,513
     Nonmarketable securities ................            -             -              -              -            138           138
     Federal funds sold ......................        3,051             -              -          3,051              -         3,051
                                                   --------      --------       --------       --------       --------      --------
              Total earning assets ...........       13,121         2,011          2,348         17,480         23,455        40,935
                                                   --------      --------       --------       --------       --------      --------

Liabilities
Interest-bearing liabilities:
     Interest-bearing deposits:
         Demand deposits .....................        4,567             -              -          4,567              -         4,567
         Savings deposits ....................        8,078             -              -          8,078              -         8,078
         Time deposits .......................           35         8,762         10,210         19,007          2,940        21,947
                                                   --------      --------       --------       --------       --------      --------
              Total interest-bearing
                liabilities ..................       12,680         8,762         10,210         31,652          2,940        34,592
                                                   --------      --------       --------       --------       --------      --------
Period gap ...................................     $    441      $(6,751)       $ (7,862)      $(14,172)      $ 20,515
                                                   ========      ========       ========       ========       ========
Cumulative gap ...............................     $    441      $(6,310)       $(14,172)      $(14,172)      $  6,343
                                                   ========      ========       ========       ========       ========
Ratio of cumulative gap to total
  earning assets .............................         1.08%      (15.41)%        (34.62)%       (34.62)%        15.50%
</TABLE>

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



                                       17
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

                         Net Interest Income (continued)

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

                     Provision and Allowance for Loan Losses

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

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

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

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



                                       18
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

               Provision and Allowance for Loan Losses (continued)

The following table sets forth certain information with respect to the Company's
allowance for loan losses and the  composition  of chargeoffs and recoveries for
the years ended December 31, 2002, 2001 and 2000.
<TABLE>
<CAPTION>

Allowance for Loan Losses
(Dollars in thousands)                                                                   2002              2001               2000
                                                                                         ----              ----               ----
<S>                                                                                     <C>               <C>               <C>
Total loans outstanding at end of year .......................................          $35,233           $26,874           $15,157
                                                                                        =======           =======           =======
Average loans outstanding ....................................................          $30,787           $21,060           $10,052
                                                                                        =======           =======           =======
Balance of allowance for loan losses at beginning of year ....................          $   268           $   159           $    55
Loans charged off:
     Real estate - construction ..............................................                -                 -                 -
     Real estate - mortgage ..................................................                -                 -                 -
     Commercial and industrial ...............................................                -                 4                 -
     Consumer and other ......................................................               33                19                21
                                                                                        -------           -------           -------
         Total loan losses ...................................................               33                23                21
                                                                                        -------           -------           -------
Recoveries of previous loan losses:
     Real estate - construction ..............................................                -                 -                 -
     Real estate - mortgage ..................................................                -                 -                 -
     Commercial and industrial ...............................................                -                 -                 -
     Consumer and other ......................................................                4                 2                 6
                                                                                        -------           -------           -------
         Total recoveries ....................................................                4                 2                 6
                                                                                        -------           -------           -------
Net charge-offs ..............................................................               29                21                15
Provision for loan losses ....................................................              130               130               119
                                                                                        -------           -------           -------
Balance of allowance for loan losses at end of year ..........................              369               268               159
                                                                                        -------           -------           -------

Allowance for loan losses to year end loans ..................................             1.05%             1.00%             1.05%
Ratio of charge-offs to average loans ........................................             0.11%             0.10%             0.15%
</TABLE>

                              Nonperforming Assets

Nonperforming  Assets. There were loans totaling $27,229 in nonaccrual status at
December  31,  2002.  There  were  loans with  principal  balances  of $9,314 in
nonaccrual status at December 31, 2001. There were no loans past due ninety days
or more and still accruing  interest at December 31, 2002 or 2001. There were no
restructured loans at December 31, 2002 or 2001.

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.  When a loan is placed in  nonaccrual  status,
all interest  which has been accrued on the loan but remains  unpaid is reversed
and deducted from current  earnings as a reduction of reported  interest income.
No additional  interest is accrued on the loan balance  until the  collection of
both principal and interest becomes reasonably  certain.  When a problem loan is
finally  resolved,  there may ultimately be an actual write-down or chargeoff of
the principal balance of the loan which would necessitate  additional charges to
earnings. For all periods presented, the additional interest income, which would
have been  recognized into earnings if the Company's  nonaccrual  loans had been
current in  accordance  with  their  original  terms and the amount of  interest
income on such loans that was included in net income, is immaterial.



                                       19
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

                        Nonperforming Assets (continued)

Potential  Problem  Loans.  Management  has  identified  and maintains a list of
potential problem loans. These are loans that are not included in impaired loans
(nonaccrual or past due 90 days or more and still accruing).  A loan is added to
the potential  problem loan list when  management  becomes aware of  information
about  possible  credit  problems of  borrowers  that causes  doubts about their
ability to comply with the current loan repayment  terms.  At December 31, 2002,
the Company had  identified  $690 in criticized  loans and $24,123 in classified
loans through its internal review mechanisms.  At December 31, 2001, the Company
had  identified  $13,817  in  criticized  loans and $8,695 in  classified  loans
through  its  internal  review  mechanisms.   This  amount  does  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, 2002 was
$350,251,  an increase of $115,006 from $235,245 for the year ended December 31,
2001.  The  increase is  primarily  due to an  increase  in income from  service
charges on deposit  accounts  which  totaled  $180,587  in 2002 as  compared  to
$131,083 in 2001. In addition, income from our brokerage services increased from
$13,793  for the year ended  December  31,  2001 to  $56,404  for the year ended
December 31, 2002.

Noninterest  income  for the year  ended  December  31,  2001 was  $235,245,  an
increase of $127,422  from  $107,823 for the year ended  December 31, 2000.  The
increase  was  primarily a result of an  increase in service  charges on deposit
accounts  from $46,848 for the year ended  December 31, 2000 to $131,088 for the
year ended December 31, 2001.  Residential  mortgage  origination fees increased
$29,315 or 99.32% from  $29,515 in 2000 to $58,830  for the year ended  December
31, 2001.

The following  table sets forth the principal  components of noninterest  income
for the years ended December 31, 2002, 2001 and 2000.

<TABLE>
<CAPTION>
(Dollars in thousands)                                                                  2002                2001                2000
                                                                                        ----                ----                ----
<S>                                                                                     <C>                 <C>                 <C>
Service charges on deposit accounts ....................................                $180                $131                $ 47
Credit life insurance commissions ......................................                   7                   9                  14
Residential mortgage origination fees ..................................                  57                  59                  30
Brokerage commissions ..................................................                  57                  14                   -
Other income ...........................................................                  49                  22                  17
                                                                                        ----                ----                ----
     Total noninterest income ..........................................                $350                $235                $108
                                                                                        ====                ====                ====
</TABLE>

Noninterest  Expense.  Noninterest  expense  increased  $177,926  or  11.91%  to
$1,672,146 for the year ended December 31, 2002. Of this total,  other operating
expenses  increased  $6,644, or 1.17% to $575,223 in 2002 from $568,579 in 2001.
Salaries and  employee  benefits  increased  $120,463,  or 16.15%,  in 2002 from
$745,844 in 2001.  This increase is attributable to normal pay increases and the
hiring of additional staff to meet needs  associated with our growth.  Occupancy
expense,  including  depreciation  charges,  increased  $36,711,  or  51.09%  to
$108,566 for the year ended December 31, 2002.  Furniture and equipment  expense
increased  from  $107,942 in 2001 to $122,050  for the year ended  December  31,
2002.

Noninterest  expense  increased  $191,697 or 14.72% to  $1,494,220  for the year
ended  December 31, 2001.  Of this total,  other  operating  expenses  increased
$76,889,  or 15.64% to  $568,579  in 2001 from  $491,690  in 2000.  The  Company
incurred  $26,365 of legal expenses in 2001 associated with the formation of the
holding company. Salaries and employee benefits increased $84,920, or 12.85%, in
2001 from  $660,924  in 2000.  This  increase  was  attributable  to normal  pay
increases and the hiring of additional  staff to meet needs  associated with our
growth.  Occupancy expense and furniture and equipment expense increased in 2001
as a result of the new  corporate  headquarters.  Occupancy  expense,  including
depreciation charges, increased $11,791, or 19.63% to $71,855 for the year ended
December 31, 2001.  Furniture and equipment  expense  increased  from $89,845 in
2000 to $107,942 for the year ended December 31, 2001.


                                       20
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

                   Noninterest Income and Expense (continued)

The following table sets forth the primary components of noninterest expense for
the years ended December 31, 2002, 2001 and 2000.

<TABLE>
<CAPTION>
(Dollars in thousands)                                                               2002                2001                  2000
                                                                                     ----                ----                  ----
<S>                                                                                <C>                  <C>                  <C>
Salaries and employee benefits ......................................              $  866               $  746               $  661
Net occupancy and equipment expense .................................                 231                  180                  150
Advertising and public relations ....................................                  43                   36                   65
Office supplies, stationery, and printing ...........................                  43                   30                   36
Service bureau and related expense ..................................                 116                   99                   84
Professional fees and services ......................................                  77                   90                   51
Telephone expenses ..................................................                  29                   24                   19
Other ...............................................................                 267                  289                  237
                                                                                   ------               ------               ------
     Total noninterest expense ......................................              $1,672               $1,494               $1,303
                                                                                   ======               ======               ======
Efficiency ratio ....................................................               83.52%              108.29%              152.01%
</TABLE>

                                 Earning Assets

Loans.  Loans are the largest  category of earning assets and typically  provide
higher yields than the other types of earning assets. Associated with the higher
loan  yields  are the  inherent  credit and  liquidity  risks  which  management
attempts to control  and  counterbalance.  Loans  averaged  $30,787,000  in 2002
compared  to  $21,060,000  in 2001,  an  increase of  $9,727,000  or 46.19%.  At
December 31,  2002,  total loans were  $35,232,689  compared to  $26,873,907  at
December 31, 2001.

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

<TABLE>
<CAPTION>
Composition of Loan Portfolio
December 31,                                                              2002                                   2001
                                                                          ----                                   ----
(Dollars in thousands)                                                               Percent                                Percent
                                                             Amount                  of Total          Amount               of Total
                                                             ------                  --------          ------               --------
<S>                                                        <C>                        <C>             <C>                    <C>
Commercial and industrial ......................           $  3,474                     9.86%         $  3,634                13.52%
Real estate
     Construction ..............................              4,321                    12.26             2,231                 8.30
     Mortgage-residential ......................              9,154                    25.98             8,654                32.20
     Mortgage-nonresidential ...................             12,148                    34.48             7,356                27.37
Consumer .......................................              6,136                    17.42             4,998                18.60
Other ..........................................                  -                        -                 1                 0.01
                                                           --------                   ------          --------           ----------
     Total loans ...............................             35,233                   100.00%           28,874               100.00%
Allowance for loan losses ......................               (369)                                      (268)
                                                           --------                                   --------
     Net loans .................................           $ 34,864                                   $ 26,606
                                                           ========                                   ========
</TABLE>

The largest  component of the Company's loan  portfolio is real estate  mortgage
loans. At December 31, 2002, real estate mortgage loans totaled  $21,302,015 and
represented  60.46% of the total loan  portfolio,  compared  to  $16,010,012  or
59.57% at December 31, 2001.

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


                                       21
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

                           Earning Assets (continued)

Residential   mortgage  loans  totaled  $9,153,687  at  December  31,  2002  and
represented  25.98% of the total  loan  portfolio,  compared  to  $8,653,796  at
December 31,  2001.  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 $12,148,328 at December 31, 2002,
compared to  $7,356,216  at December 31, 2001.  This  represents  an increase of
$4,792,112  or  65.14%  from the  December  31,  2001  amount.  The  demand  for
residential  and  commercial  real  estate  loans in the  Hartsville  market has
remained stable.  The Company has been able to compete favorably for residential
mortgage loans with other financial institutions by offering fixed rate products
having three and five year call provisions.

The  Company's  loan  portfolio  is also  comprised  heavily of consumer  loans.
Consumer  and other loans  increased  $1,136,901  or 22.74%,  to  $6,135,606  at
December 31, 2002 from $4,998,705 at December 31, 2001.

Commercial and industrial  loans  decreased  $160,245 or 4.41%, to $3,474,108 at
December 31, 2002 from $3,634,353 at December 31, 2001.

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

The repayment of loans in the loan  portfolio as they mature is also a source of
liquidity for the Company.  The following  table sets forth the Company's  loans
maturing within specified intervals at December 31, 2002.

Loan Maturity Schedule and Sensitivity to Changes in Interest Rates

<TABLE>
<CAPTION>
                                                               Over One Year
December 31, 2002                              One Year or       Through         Over Five
(Dollars in thousands)                             Less         Five Years         Years            Total
                                            --------------    -------------     -------------    -------------
<S>                                         <C>               <C>               <C>              <C>
Commercial and industrial ..............    $          853    $       2,064     $         557    $       3,474
Real estate ............................             2,681           16,804             6,138           25,623
Consumer and other .....................               821            4,545               770            6,136
                                            --------------    -------------     -------------    -------------
                                            $        4,355    $      23,413     $       7,465    $      35,233
                                            ==============    =============     =============    =============

Loans maturing after one year with:
     Fixed interest rates ..............                                                         $      7,408
     Floating interest rates ...........                                                                23,470
                                                                                                 -------------
                                                                                                 $      30,878
                                                                                                 =============
</TABLE>

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

Investment  Securities.  The investment securities portfolio is also a component
of the  Company's  total earning  assets.  Total  securities  available-for-sale
averaged $1,030,000 in 2002, compared to $353,000 in 2001. At December 31, 2002,
total securities  available-for-sale  were $2,513,281.  Other than nonmarketable
equity securities, all securities were designated as available-for-sale and were
recorded at their  estimated  fair value.  Investment  securities  also  include
certain  nonmarketable  equity  securities  including  Federal Home Loan Bank of
Atlanta stock and Community Financial Services, Inc. stock. These securities are
recorded at their original cost and totaled $137,553 at December 31, 2002.


                                       22
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

                           Earning Assets (continued)

The   following   table   sets   forth   the  book   value  of  the   securities
available-for-sale held by the Company at December 31, 2002 and 2001.

Book Value of Securities

December 31,                                                  2002         2001
                                                              ----         ----
(Dollars in thousands)
U.S. government agencies and corporations ............       $2,500       $  349
                                                             ------       ------

     Total securities available-for-sale .............       $2,500       $  349
                                                             ======       ======

The following  table sets forth the scheduled  maturities  and weighted  average
yields of securities available-for-sale held at December 31, 2002.

Investment Securities Maturity Distribution and Yields

<TABLE>
<CAPTION>
                                                                                    After One But
December 31, 2002                                                                 Within Five Years                   Total
                                                                                  -----------------                   -----
(Dollars in thousands)                                                        Amount            Yield        Amount            Yield
                                                                              ------            -----        ------            -----
<S>                                                                           <C>               <C>          <C>               <C>
 U.S. government agencies and corporations ........................           $2,500            3.44%        $2,500            3.44%
                                                                              ------                         ------
     Total securities available for sale .........................            $2,500            3.44%        $2,500            3.44%
                                                                              ======                         ======
</TABLE>

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

Short-Term  Investments.  Short-term  investments,  which  consist  primarily of
federal funds sold, averaged $3,705,000 in 2002, compared to $2,964,000 in 2001.
At December 31, 2002, short-term investments totaled $3,050,991. These funds are
an important  source of the  Company's  liquidity.  Federal  funds are generally
invested in an earning capacity on an overnight basis.

                 Deposits and Other Interest-Bearing Liabilities

Average  interest-bearing   liabilities  increased  $10,644,000,  or  52.17%  to
$31,046,000 in 2002, from $20,402,000 in 2001. Average interest-bearing deposits
increased  $10,767,000,  or 54.44%,  to $30,543,000 in 2002, from $19,766,000 in
2001.   These   increases   resulted  from   increases  in  all   categories  of
interest-bearing  liabilities,  primarily as a result of the continued growth of
the Company.

Deposits.   Average  total  deposits  increased   $11,792,000,   or  52.25%,  to
$34,361,000  in 2002,  from  $22,569,000  in 2001.  At December 31, 2002,  total
deposits were $39,378,724,  compared to $27,742,137 a year earlier,  an increase
of 41.95%.

                                       23
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

           Deposits and Other Interest-Bearing Liabilities (continued)

The  following  table sets forth the  deposits  of the  Company by  category  at
December 31, 2002 and 2001.

Deposits
<TABLE>
<CAPTION>
December 31,                                                                      2002                            2001
                                                                                  ----                            ----
                                                                                         Percent of                       Percent of
(Dollars in thousands)                                                  Amount            Deposits        Amount           Deposits
                                                                        ------            --------        ------           --------
<S>                                                                    <C>                <C>            <C>                 <C>
Demand deposit accounts ....................................           $ 4,788             12.16%        $ 3,412              12.30%
NOW accounts ...............................................             4,567             11.60           5,270              19.00
Money market accounts ......................................             7,327             18.60           4,758              17.15
Savings accounts ...........................................               751              1.91             491               1.77
Time deposits less than $100,000 ...........................            15,048             38.21           8,558              30.85
Time deposits of $100,000 or over ..........................             6,898             17.52           5,253              18.93
                                                                       -------            ------         -------             ------
     Total deposits ........................................           $39,379            100.00%        $27,742             100.00%
                                                                       =======                           =======
</TABLE>

Core  deposits,  which  exclude  time  deposits of  $100,000 or more,  provide a
relatively  stable  funding  source for the Company's  loan  portfolio and other
earning  assets.  The Company's  core deposits were  $30,480,291 at December 31,
2002.

Deposits, and particularly core deposits, have been the Company's primary source
of funding and have enabled the Company to meet successfully both its short-term
and long-term  liquidity needs.  Management  anticipates that such deposits will
continue  to be the  Company's  primary  source of  funding in the  future.  The
Company's  loan-to-deposit  ratio was 89.47% at December 31, 2002, and 96.87% at
December 31, 2001. The maturity distribution of the Company's time deposits over
$100,000 at December 31, 2002, is set forth in the following table:

Maturities of Time Deposits of $100,000 or More

<TABLE>
<CAPTION>
                                                                                          After Six
                                                                        After Three        Through
                                                        Within Three    Through Six         Twelve       After Twelve
(Dollars in thousands)                                     Months          Months           Months            Months           Total
                                                           ------          ------           ------            ------           -----
<S>                                                       <C>              <C>              <C>              <C>              <C>
Certificates of deposit
  of $100,000 or more .........................           $3,049           $2,148           $1,173           $  528           $6,898
</TABLE>


Approximately  40.08% of the  Company's  time  deposits  of $100,000 or more had
scheduled  maturities within three months,  and 66.89% 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.


                                       24
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

                                     Capital

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

Analysis of Capital and Capital Ratios

<TABLE>
<CAPTION>
                                                                                                 The Bank             The Company
                                                                                                 --------             -----------
(Dollars in thousands)
<S>  <C>                                                                                       <C>                   <C>
Tier 1 capital ......................................................................          $ 4,569,910           $    4,575,467
Tier 2 capital ......................................................................              368,656                  368,656
     Total qualifying capital .......................................................          $ 4,938,566           $    4,944,123
                                                                                               ===========           ==============

Risk-adjusted total assets (including off-balance-sheet exposures) ..................          $36,584,579           $   36,594,812
                                                                                               ===========           ==============

Risk-based capital ratios:
     Tier 1 risk-based capital ratio ................................................                12.49%                   12.50%
     Total risk-based capital ratio .................................................                13.50%                   13.51%
     Tier 1 leverage ratio ..........................................................                10.49%                   10.50%
</TABLE>

                   Liquidity Management and Capital Resources

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

Liquidity  management  is made more  complex  because  different  balance  sheet
components are subject to varying  degrees of management  control.  For example,
the timing of maturities of the  investment  portfolio is very  predictable  and
subject to a high degree of control at the time  investment  decisions are made.
However,  net deposit inflows and outflows are far less  predictable and are not
subject to nearly the same degree of control. Nevertheless,  management believes
that cash and cash  equivalents  in  combination  with deposit  inflows and loan
repayments  are  adequate  to meet  reasonably  foreseeable  demands for deposit
withdrawals and the funding of new loans.  The Company also has a line of credit
available  with  Federal  Home Loan Bank to borrow up to 10% of the Bank's total
assets as of December  31, 2002,  or  $4,422,000.  In addition,  the Company has
unused lines to purchase federal funds from unrelated banks totaling  $2,650,000
at December 31, 2002.


                                       25
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

                             Off-Balance Sheet Risk

Through its  operations,  the Bank was made  contractual  commitments  to extend
credit in the ordinary course of its business activities.  These commitments are
legally   binding   agreements  to  lend  money  to  the  Bank's   customers  at
predetermined  interest  rates for a specified  period of time.  At December 31,
2002,  the Bank had issued  commitments  to extend credit of $4,247,159  through
various types of commercial lending  arrangements.  Approximately  $3,451,314 of
these commitments to extend credit had variable rates.

The  following  table sets forth the  length of time until  maturity  for unused
commitments to extend credit at December 31, 2002.

<TABLE>
<CAPTION>
                                                                 After One     After Three
                                                                  Through        Through                      Greater
                                                  Within One      Three          Twelve       Within One       Than
  (Dollars in thousands)                            Month         Months         Months          Year         One Year        Total
                                                    -----         ------         ------          ----         --------        -----
<S>                                                <C>            <C>            <C>            <C>            <C>            <C>
Unused commitments
  to extend credit .......................         $   15         $   22         $  501         $  538         $3,364         $4,247
                                                   ======         ======         ======         ======         ======         ======
</TABLE>

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

                               Impact of Inflation

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

                    Accounting and Financial Reporting Issues

We have adopted  various  accounting  policies  which govern the  application of
accounting principles generally accepted in the United States in the preparation
of our financial statements.  Our significant  accounting policies are described
in the notes to the  consolidated  financial  statements  at  December  31, 2002
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 by us 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.


                                       26
<PAGE>

                            REGIONAL BANKSHARES, INC.

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

                              Change of Accountants

Legislation  and  Securities  Exchange  Commission  rules  adopted  in 2002 have
significantly  increased,  and will continue to increase, the regulatory burdens
on audit firms that audit the financial statements of companies that are subject
to  the  reporting   requirements  of  the  Securities  Exchange  Act  of  1934.
Consequently,  many  smaller  audit  firms are  deciding  to limit  their  audit
practice to companies that are not subject to the 1934 Act. Tourville, Simpson &
Caskey,  L.L.P., which served as the Company's principal independent  accountant
since the Company's inception, is one such firm. Accordingly,  effective January
2,  2003  Tourville,  Simpson  &  Caskey  resigned  as the  Company's  principal
independent public accountant.  Elliott Davis, LLC was engaged by the Company on
January 2, 2003 to audit the Company's  financial  statements for the year ended
December 31, 2002,  and has also been selected to audit the Company's  financial
statements for the year ending December 31, 2003.

Tourville,  Simpson  &  Caskey,  L.L.P.'s  reports  on the  Company's  financial
statements  for each of the  years  ended  December  31,  2001 and 2000  neither
contained an adverse  opinion or disclaimer  of opinion,  nor was modified as to
uncertainty,  audit scope, or accounting principles. There were no disagreements
with Tourville,  Simpson & Caskey, L.L.P. on any matter of accounting principles
or practices,  financial statement  disclosure,  or auditing scope or procedure,
which, if not resolved to Tourville,  Simpson & Caskey,  L.L.P.'s  satisfaction,
would have caused it to make reference to the subject matter of the disagreement
in its reports.



                                       27
<PAGE>

Item 7.  Financial Statements.


Independent Auditors' Report
Consolidated Balance Sheets
Statements of Income
Statements of Changes in Shareholders'
    Equity and Comprehensive Income
Statements of Cash Flows
Notes to Consolidated Financial Statements













                                       28
<PAGE>








                          INDEPENDENT AUDITORS' REPORT


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


We  have  audited  the  accompanying  consolidated  balance  sheet  of  Regional
Bankshares,  Inc.  and its  subsidiary  as of December  31, 2002 and the related
consolidated   statement  of  income,   changes  in  shareholders'   equity  and
comprehensive  income,  and cash flows for the year then ended.  These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit. The consolidated financial statements of Regional Bankshares, Inc. as
of  December  31,  2001 and for each of the years in the two year  period  ended
December 31, 2001, were audited by other auditors whose report dated January 31,
2002, expressed an unqualified opinion on those consolidated statements.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit 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  significant  estimates  made  by  management,  as well as
evaluating the overall consolidated financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.

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


                                        s/Elliott Davis, LLC


Elliott Davis, LLC
Columbia, South Carolina
January 16, 2003



                                       29
<PAGE>


                            REGIONAL BANKSHARES, INC.

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                                            December 31,
                                                                                                            ------------
                                                                                                     2002                 2001
                                                                                                     ----                 ----
Assets:
     Cash and cash equivalents:
<S>                                                                                             <C>                    <C>
         Cash and due from banks .....................................................          $    808,282           $  1,350,004
         Federal funds sold ..........................................................             3,050,991              2,845,956
                                                                                                ------------           ------------
              Total cash and cash equivalents ........................................             3,859,273              4,195,960
                                                                                                ------------           ------------

     Investments securities:
         Securities available-for-sale ...............................................             2,513,281                353,672
         Nonmarketable equity securities .............................................               137,553                137,553
                                                                                                ------------           ------------
              Total investment securities ............................................             2,650,834                491,225
                                                                                                ------------           ------------

     Loans receivable ................................................................            35,232,689             26,873,907
         Less allowance for loan losses ..............................................              (368,656)              (268,446)
                                                                                                ------------           ------------
              Loans, net .............................................................            34,864,033             26,605,461
                                                                                                ------------           ------------

     Premises, furniture and equipment, net ..........................................             2,039,599              2,124,281
     Accrued interest receivable .....................................................               153,315                120,123
     Other assets ....................................................................               658,242                681,134
                                                                                                ------------           ------------
              Total assets ...........................................................          $ 44,225,296           $ 34,218,184
                                                                                                ============           ============

Liabilities:
     Deposits:
         Noninterest-bearing transaction accounts ....................................          $  4,787,870           $  3,411,614
         Interest-bearing transaction accounts .......................................             4,566,531              5,269,616
         Savings .....................................................................             8,077,824              5,250,268
         Time deposits $100,000 and over .............................................             6,898,433              5,253,053
         Other time deposits .........................................................            15,048,066              8,557,586
                                                                                                ------------           ------------
              Total deposits .........................................................            39,378,724             27,742,137
                                                                                                ------------           ------------

     Advances from Federal Home Loan Bank ............................................                     -              1,750,000
     Accrued interest payable ........................................................               209,496                253,696
     Other liabilities ...............................................................                53,242                 20,112
                                                                                                ------------           ------------
              Total liabilities ......................................................            39,641,462             29,765,945
                                                                                                ------------           ------------

Commitments and Contingencies (Notes 10 and 17)

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;
       563,670 shares issued and outstanding .........................................               563,670                563,670
     Capital surplus .................................................................             5,003,871              5,003,871
     Retained deficit ................................................................              (992,074)            (1,118,042)
     Accumulated other comprehensive income ..........................................                 8,367                  2,740
                                                                                                ------------           ------------
              Total shareholders' equity .............................................             4,583,834              4,452,239
                                                                                                ------------           ------------

              Total liabilities and shareholders' equity .............................          $ 44,225,296           $ 34,218,184
                                                                                                ============           ============
</TABLE>

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


                                       30
<PAGE>

                            REGIONAL BANKSHARES, INC.

                        Consolidated Statements of Income


<TABLE>
<CAPTION>
                                                                                               Year ended December 31,
                                                                                               -----------------------
                                                                                    2002               2001                 2000
                                                                                    ----               ----                 ----
Interest income:
<S>                                                                            <C>                 <C>                  <C>
     Loans, including fees ...........................................         $ 2,332,757         $ 1,834,066          $   991,752
     Investment securities:
         Taxable .....................................................              40,773              22,299               22,110
         Nonmarketable equity securities .............................               6,410               8,176                8,907
     Federal funds sold ..............................................              59,649             133,228              267,120
                                                                               -----------         -----------          -----------
              Total ..................................................           2,439,589           1,997,769            1,289,889
                                                                               -----------         -----------          -----------

Interest expense:
     Time deposits $100,000 and over .................................             221,922             232,289              134,967
     Other deposits ..................................................             552,800             604,271              405,859
     Advances from Federal Home Loan Bank ............................              12,988              12,438                    -
     Short-term borrowings ...........................................                   -               4,195                    -
                                                                               -----------         -----------          -----------
              Total ..................................................             787,710             853,193              540,826
                                                                               -----------         -----------          -----------

Net interest income ..................................................           1,651,879           1,144,576              749,063

Provision for loan losses ............................................             130,000             129,841              118,884
                                                                               -----------         -----------          -----------

Net interest income after provision for loan losses ..................           1,521,879           1,014,735              630,179
                                                                               -----------         -----------          -----------

Noninterest income:
     Service charges on deposit accounts .............................             180,587             131,088               46,848
     Credit life insurance commissions ...............................               6,838               9,458               14,270
     Residential mortgage origination fees ...........................              57,152              58,830               29,515
     Brokerage commissions ...........................................              56,404              13,793                    -
     Other ...........................................................              49,270              22,076               17,190
                                                                               -----------         -----------          -----------
         Total .......................................................             350,251             235,245              107,823
                                                                               -----------         -----------          -----------

Noninterest expenses:
     Salaries and employee benefits ..................................             866,307             745,844              660,924
     Net occupancy ...................................................             108,566              71,855               60,064
     Furniture and equipment .........................................             122,050             107,942               89,845
     Other operating .................................................             575,223             568,579              491,690
                                                                               -----------         -----------          -----------
         Total .......................................................           1,672,146           1,494,220            1,302,523
                                                                               -----------         -----------          -----------

Income (loss) before income taxes ....................................             199,984            (244,240)            (564,521)

Income tax provision (benefit) .......................................              74,016             (89,410)            (209,154)
                                                                               -----------         -----------          -----------

Net income (loss) ....................................................         $   125,968         $  (154,830)         $  (355,367)
                                                                               ===========         ===========          ===========

Earnings (loss) per share
Basic earnings (loss) per share ......................................         $      0.22         $     (0.28)         $     (0.63)
                                                                               ===========         ===========          ===========
Diluted earnings (loss) per share ....................................         $      0.20         $     (0.28)         $     (0.63)
                                                                               ===========         ===========          ===========
</TABLE>



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




                                       31
<PAGE>

                            REGIONAL BANKSHARES, INC.

               Consolidated Statements of Changes in Shareholders'
                         Equity and Comprehensive Income
              for the years ended December 31, 2002, 2001, and 2000


<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                                   Common stock                                             other
                                                   ------------            Capital         Retained      comprehensive
                                              Shares          Amount       surplus          deficit      income (loss)        Total
                                              ------          ------       -------          -------      -------------        -----
Balance,
<S>                                           <C>         <C>             <C>            <C>             <C>            <C>
  December 31, 1999 ..................        560,270     $   560,270     $ 4,973,271    $  (607,845)    $      (603)   $ 4,925,093
                                                                                                                        -----------

Net loss .............................                                                      (355,367)                      (355,367)

Other comprehensive income,
  net of tax expense of $539 .........                                                                           994            994
                                                                                                                        -----------

Comprehensive loss ...................                                                                                     (354,373)
                                          -----------     -----------     -----------    -----------     -----------    -----------

Balance,
  December 31, 2000 ..................        560,270         560,270       4,973,271       (963,212)            391      4,570,720
                                                                                                                        -----------

Net loss .............................                                                      (154,830)                      (154,830)

Other comprehensive income,
  net of tax expense of $1,380 .......                                                                         2,349          2,349
                                                                                                                        -----------

Comprehensive loss ...................                                                                                     (152,481)

Exercise of stock warrants ...........          3,400           3,400          30,600                                        34,000
                                          -----------     -----------     -----------    -----------     -----------    -----------

Balance,
  December 31, 2001 ..................        563,670         563,670       5,003,871     (1,118,042)          2,740      4,452,239
                                                                                                                        -----------

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

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

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

Balance,
  December 31, 2002 ..................        563,670     $   563,670     $ 5,003,871    $  (992,074)    $     8,367    $ 4,583,834
                                          ===========     ===========     ===========    ===========     ===========    ===========
</TABLE>




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




                                       32
<PAGE>

                            REGIONAL BANKSHARES, INC.

                      Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                                                  Year ended December 31,
                                                                                                  -----------------------
                                                                                     2002                 2001               2000
                                                                                     ----                 ----               ----
Cash flows from operating activities:
<S>                                                                            <C>                 <C>                 <C>
Net income (loss) ......................................................       $    125,968        $   (154,830)       $   (355,367)
Adjustments to reconcile net income (loss) to
  net cash provided (used) by operating activites:
     Provision for loan losses .........................................            130,000             129,841             118,884
     Depreciation and amortization expense .............................            139,550             115,494              75,789
     Discount accretion and premium
       amortization on securities ......................................               (677)             (3,234)             (3,045)
     Deferred income tax provision (benefit) ...........................             71,650             (89,410)           (209,154)
     Increase in accrued interest receivable ...........................            (33,192)            (30,583)            (60,967)
     Increase (decrease) in accrued interest payable ...................            (44,200)              8,583             212,913
     Increase in other assets ..........................................            (52,063)            (32,829)            (17,347)
     (Decrease) increase in other liabilities ..........................             33,130              (3,893)             (1,602)
                                                                               ------------        ------------        ------------
         Net cash provided (used) by operating activities ..............            370,166             (60,861)           (239,896)
                                                                               ------------        ------------        ------------

Cash flows from investing activities:
     Purchases of securities available-for-sale ........................         (3,000,000)                  -                   -
     Calls and maturities of securities available-for-sale .............            850,000                   -                   -
     Purchases of nonmarketable equity securities ......................                  -             (67,100)            (70,453)
     Sale of nonmarketable equity securities ...........................                  -             168,150                   -
     Net increase in loans receivable ..................................         (8,388,572)        (11,736,941)         (9,635,385)
     Purchase of premises, furniture and equipment .....................            (54,868)         (1,187,834)           (520,511)
                                                                               ------------        ------------        ------------
         Net cash used by investing activities .........................        (10,593,440)        (12,823,725)        (10,226,349)
                                                                               ------------        ------------        ------------

Cash flows from financing activities:
     Net increase in demand deposits, interest-bearing
       transaction accounts and savings accounts .......................          3,500,727           5,489,045           4,809,774
     Net increase in certificates of deposit and
       other time deposits .............................................          8,135,860           3,788,873           7,311,079
     Advances from Federal Home Loan Bank ..............................                  -           1,750,000                   -
     Repayments of advances from Federal Home Loan Bank ................         (1,750,000)                  -                   -
     Proceeds from exercise of stock warrants ..........................                  -              34,000                   -
                                                                               ------------        ------------        ------------
         Net cash provided by financing activites ......................          9,886,587          11,061,918          12,120,853
                                                                               ------------        ------------        ------------

Net increase (decrease) in cash and cash equivalents ...................           (336,687)         (1,822,668)          1,654,608

Cash and cash equivalents, beginning of year ...........................          4,195,960           6,018,628           4,364,020
                                                                               ------------        ------------        ------------

Cash and cash equivalents, end of year .................................       $  3,859,273        $  4,195,960        $  6,018,628
                                                                               ============        ============        ============
</TABLE>



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




                                       33
<PAGE>


                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization - Regional Bankshares, Inc. (the Company) was incorporated to serve
as a bank holding  company for its  subsidiary,  Hartsville  Community Bank (the
Bank).  Hartsville  Community Bank was  incorporated as a national bank on March
24, 1999 and commenced  business on June 15, 1999. The Bank converted to a South
Carolina state bank on January 10, 2001. The principal  business activity of the
Bank  is to  provide  banking  services  to  domestic  markets,  principally  in
Darlington County, South Carolina.  The Bank is a state-chartered  bank, and its
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 generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the financial  statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.

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

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

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

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

Nonmarketable  Equity Securities - Nonmarketable  equity securities  include the
cost of the  Company's  investment  in the stock of  Federal  Home Loan Bank and
Community Financial Services, Inc. The stocks have no quoted market value and no
ready market 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,  2002 and 2001,  the  Bank's
investment  in Federal Home Loan Bank stock was  $87,500.  At December 31, 2002,
and 2001 investment in Community Financial Services, Inc. was $50,053. Dividends
received  on these  stocks are  included  as a separate  component  of  interest
income.



                                       34
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

The Company  identifies  impaired loans through its normal  internal loan review
process.  Loans  on  the  Company's  problem  loan  watch  list  are  considered
potentially impaired loans. These loans are evaluated in determining whether all
outstanding  principal and interest are expected to be collected.  Loans are not
considered  impaired if a minimal  payment  delay  occurs and all  amounts  due,
including  accrued  interest at the contractual  interest rate for the period of
delay,  are  expected to be  collected.  At December 31,  2002,  management  has
determined that no impairment of loans existed.

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.

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.

Retirement   Plan  -  The  Company  has  a  SIMPLE   retirement   plan  covering
substantially all employees.  Under the plan, participants are permitted to make
discretionary  contributions  up to  $7,000.  The  Company  can  match  employee
contributions by contributing up to 3% of each employee's annual compensation up
to a maximum of $3,000.  The Company matched  contributions  in 2002,  2001, and
2000 and charges to earnings were $11,922, $13,743, and $15,411, respectively.


                                       35
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock-Based  Compensation - The Company has a stock-based employee  compensation
plan and stock  warrants (both herein  referred to as "Option  Plans") which are
further  described in Notes 11 and 12. The Company accounts for the option plans
under the recognition and measurement  principles of Accounting Principles Board
("APB")  Opinion No. 25,  Accounting for Stock Issued to Employees,  and related
Interpretations.  No  compensation  cost  is  reflected  in net  income,  as all
warrants and options  granted  under these plans had an exercise  price equal to
the  market  value of the  underlying  common  stock on the date of  grant.  The
following table  illustrates the effect on net income (loss) and earnings (loss)
per share if the Company had applied the fair value  recognition  provisions  of
Financial  Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards  ("SFAS") No. 123,  Accounting for  Stock-Based  Compensation,  to the
Option Plans.

<TABLE>
<CAPTION>
                                                                                            Year ended December 31,
                                                                                            -----------------------
                                                                              2002                    2001                2000
                                                                              ----                    ----                ----

<S>                                                                     <C>                     <C>                   <C>
Net income (loss), as reported ................................         $       125,968         $     (154,830)       $    (355,367)
Deduct: Total stock-based employee
  compensation expense determined
  under fair value based method
  for all awards, net of related tax effects ..................                  70,312                103,835              103,835
                                                                        ---------------         --------------          -----------

Pro forma net income (loss) ...................................         $        55,656         $     (258,665)       $    (459,202)
                                                                        ===============         ==============          ===========

Earnings (loss) per share:
  Basic - as reported .........................................         $          0.22         $        (0.28)         $     (0.63)
                                                                        ===============         ==============          ===========
  Basic - pro forma ...........................................         $          0.10         $        (0.46)         $     (0.82)
                                                                        ===============         ==============          ===========

  Diluted - as reported .......................................         $          0.20         $        (0.28)         $     (0.63)
                                                                        ===============         ==============          ===========
  Diluted - pro forma .........................................         $          0.09         $        (0.46)         $     (0.82)
                                                                        ===============         ==============          ===========
</TABLE>

Earnings  (Loss) Per Share - Basic earnings (loss) 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.


                                       36
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

<TABLE>
<CAPTION>
                                                                                                Year ended December 31,
                                                                                                -----------------------
                                                                                      2002               2001                 2000
                                                                                      ----               ----                 ----
<S>                                                                                 <C>                 <C>                 <C>
Unrealized gains on available-for-sale securities ......................            $ 8,932             $ 3,729             $ 1,533

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

Net unrealized gains on securities .....................................              8,932               3,729               1,533

Tax effect .............................................................             (3,305)             (1,380)               (539)
                                                                                    -------             -------             -------

Net-of-tax amount ......................................................            $ 5,627             $ 2,349             $   994
                                                                                    =======             =======             =======
</TABLE>

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

Interest paid on deposits and other borrowings totaled $831,910,  $844,610,  and
$327,913 for the years ended December 31, 2002, 2001, and 2000, respectively.

There were no income tax  payments  during the years ended  December  31,  2002,
2001, and 2000.

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.




                                       37
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent  Accounting  Pronouncements  - In October 2002,  the FASB issued SFAS No.
147,  Acquisitions  of Certain  Financial  Institutions  - an  amendment of FASB
Statements  No. 72 and 144 and FASB  Interpretation  No.  9,  which  brings  all
business combinations involving financial institutions,  except mutual financial
institutions,  into the  scope  of SFAS No.  141,  Business  Combinations.  This
statement requires that all acquisitions of financial institutions that meet the
definition  of a  business,  including  acquisitions  of  part  of  a  financial
institution  that meet the  definition  of a business,  must be accounted for in
accordance  with  SFAS No.  141 and the  related  intangibles  accounted  for in
accordance  with SFAS No. 142. SFAS No. 147 removes such  acquisitions  from the
scope of SFAS No. 72,  Accounting for Certain  Acquisitions of Banking or Thrift
Institutions.  SFAS No.  147 also  amends  SFAS No.  144 to include in its scope
long-term customer relationship intangibles of financial institutions.  SFAS No.
147 was effective  upon  issuance and had no impact on the  Company's  financial
statements.

In December  2002,  the FASB issued SFAS No.  148,  Accounting  for  Stock-Based
Compensation--Transition and Disclosure--an amendment of FASB Statement No. 123.
This  Statement  amends FASB  Statement  No.  123,  Accounting  for  Stock-Based
Compensation,  to provide  alternative  methods of  transition  for a  voluntary
change to the fair value based method of  accounting  for  stock-based  employee
compensation.  In addition, this statement amends the disclosure requirements of
Statement No. 123 to require  prominent  disclosures  in both annual and interim
financial  statements  about the method of accounting for  stock-based  employee
compensation and the effect of the method used on reported results.  The Company
adopted this standard  effective December 31, 2002 and has included the required
disclosures in the footnotes to the financials.  The Company has not elected the
fair value  treatment  of  stock-based  compensation  and the  adoption  of this
standard had no impact on its financial position.

Other  accounting  standards  that have been  issued or  proposed by the FASB or
other standards-setting  bodies that do not require adoption until a future date
are not  expected  to  have a  material  impact  on the  consolidated  financial
statements upon adoption.

Reclassifications  - Certain captions and amounts in the 2001 and 2000 financial
statements were reclassified to conform with the 2002 presentation.


NOTE 2 - CASH AND DUE FROM BANKS

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


NOTE 3 - INVESTMENT SECURITIES

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

<TABLE>
<CAPTION>
                                                                                          Gross Unrealized
                                                                 Amortized                ----------------                Estimated
                                                                    Cost             Gains              Losses            Fair Value
                                                                    ----             -----              ------            ----------
December 31, 2002
<S>                                                             <C>               <C>                <C>                  <C>
U.S. government agencies and corporations ..............        $2,500,000        $   13,281         $           -        $2,513,281
                                                                ==========        ==========        ==============        ==========

December 31, 2001
U.S. government agencies and corporations ..............        $  349,323        $    4,349         $           -        $  353,672
                                                                ==========        ==========        ==============        ==========
</TABLE>

There were no sales of securities in 2002 or 2001.




                                       38
<PAGE>

                            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, 2002. 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
                                                         Available-for-sale
                                                         ------------------
                                                    Amortized        Estimated
                                                       Cost          Fair Value
                                                       ----          ----------

Due after one year
  but within five years ..................         $2,500,000         $2,513,281
                                                   ==========         ==========

At December 31, 2002 and 2001,  securities  with amortized costs of $150,000 and
$149,573 and estimated fair values of $151,641 and $152,672,  respectively, were
pledged to secure public deposits.


NOTE 4 - LOANS RECEIVABLE

Major classifications of loans receivable are summarized as follows:

                                                           December 31,
                                                           ------------
                                                       2002             2001
                                                       ----             ----
Real estate - construction ...............        $ 4,320,960        $ 2,230,837
Real estate - mortgage ...................         21,302,015         16,010,012
Commercial and industrial ................          3,474,108          3,634,353
Consumer and other .......................          6,135,606          4,998,705
                                                  -----------        -----------

     Total gross loans ...................        $35,232,689        $26,873,907
                                                  ===========        ===========

Transactions in the allowance for loan losses are summarized below:

                                                   Year ended December 31,
                                                   -----------------------
                                             2002           2001          2000
                                             ----           ----          ----
Balance, beginning of year ...........    $ 268,446     $ 159,000     $  54,629
Provision charged to operations ......      130,000       129,841       118,884
Recoveries on loans
  previously charged-off .............        3,125         2,800         6,506
Loans charged-off ....................      (32,915)      (23,195)      (21,019)
                                          ---------     ---------     ---------

         Balance, end of year ........    $ 368,656     $ 268,446     $ 159,000
                                          =========     =========     =========

At December 31, 2002 and 2001, the Bank had loans in nonaccrual  status totaling
$27,229  and $9,314,  respectively.  There were no loans past due ninety days or
more and still accruing interest at December 31, 2002 and 2001.

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




                                       39
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 5 - PREMISES, FURNITURE AND EQUIPMENT

Premises, furniture and equipment consisted of the following:

                                                              December 31,
                                                              ------------
                                                         2002             2001
                                                         ----             ----
Land and land improvements .......................   $   380,891    $   368,166
Building .........................................     1,328,844      1,328,844
Furniture and equipment ..........................       695,111        653,076
                                                     -----------    -----------
         Total ...................................     2,404,846      2,350,086
Less, accumulated depreciation ...................      (365,247)      (225,805)
                                                     -----------    -----------

         Premises, furniture and equipment, net ..   $ 2,039,599    $ 2,124,281
                                                     ===========    ===========

The  Bank  capitalized   approximately  $16,576  in  interest  relating  to  the
construction of the new corporate headquarters during 2001.


NOTE 6 - DEPOSITS

At December 31, 2002, the scheduled  maturities of  certificates of deposit were
as follows:

Maturing In                                                              Amount
                                                                         ------
2003 ...........................................................     $19,427,283
2004 ...........................................................       2,404,564
2005 ...........................................................          50,556
2006 and thereafter ............................................          64,096
                                                                     -----------
        Total ..................................................     $21,946,499
                                                                     ===========


NOTE 7 - OTHER OPERATING EXPENSES

Other operating expenses are summarized below:

                                                      Year ended December 31,
                                                      -----------------------
                                                    2002       2001       2000
                                                    ----       ----       ----
Professional fees .............................   $ 77,072   $ 90,438   $ 51,074
Telephone .....................................     29,384     24,442     19,405
Office supplies, stationery, and printing .....     42,634     29,685     35,682
Service bureau and related ....................    115,887     99,010     83,728
Advertising and public relations ..............     43,432     35,993     64,746
ATM related expenses ..........................     38,877     32,303     18,898
Other .........................................    227,937    256,708    218,157
                                                  --------   --------   --------

         Total ................................   $575,223   $568,579   $491,690
                                                  ========   ========   ========




                                       40
<PAGE>


NOTE 8 - INCOME TAXES

Income tax expense (benefit) is summarized as follows:

<TABLE>
<CAPTION>
                                                                                               Year ended December 31,
                                                                                               -----------------------
                                                                                     2002                2001               2000
                                                                                     ----                ----               ----
Currently payable:
<S>                                                                           <C>                 <C>                 <C>
     Federal ...........................................................      $           -       $           -       $           -
     State .............................................................              5,671                   -                   -
                                                                                  ---------           ---------           ---------
         Total current .................................................              5,671                   -                   -
                                                                                  ---------           ---------           ---------
Change in deferred income taxes:
     Federal ...........................................................             (3,813)            (77,299)           (184,232)
     State .............................................................             75,463             (10,731)            (24,383)
                                                                                  ---------           ---------           ---------
         Total deferred ................................................             71,650             (88,030)           (208,615)
                                                                                  ---------           ---------           ---------

Income tax expense (benefit) ...........................................          $  77,321           $ (88,030)          $(208,615)
                                                                                  =========           =========           =========

Income tax expense (benefit) is allocated as follows:
     To continuing operations ..........................................          $  74,016           $ (89,410)          $(209,154)
     To shareholders' equity ...........................................              3,305               1,380                 539
                                                                                  ---------           ---------           ---------

         Income tax expense (benefit) ..................................          $  77,321           $ (88,030)          $(208,615)
                                                                                  =========           =========           =========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                                              December 31,
                                                                                                              ------------
                                                                                                     2002                    2001
                                                                                                     ----                    ----
Deferred tax assets:
<S>                                                                                               <C>                     <C>
     Allowance for loan losses .....................................................              $ 119,318               $  98,482
     Contributions carryforward ....................................................                  1,369                   1,550
     Net operating loss carryforward ...............................................                378,050                 501,545
     Organization costs ............................................................                 39,876                  71,454
     Other .........................................................................                  1,300                     577
                                                                                                  ---------               ---------
         Total gross deferred tax assets ...........................................                539,913                 673,608
     Less, valuation allowance .....................................................                (45,168)                (45,171)
                                                                                                  ---------               ---------
         Total net deferred tax assets .............................................                494,745                 628,437
                                                                                                  ---------               ---------

Deferred tax liabilities:
     Unrealized gain on securities available-for-sale ..............................                  4,914                   1,609
     Accumulated depreciation ......................................................                 25,474                  16,334
                                                                                                  ---------               ---------
         Total deferred tax liabilities ............................................                 30,388                  17,943
                                                                                                  ---------               ---------

         Net deferred tax asset ....................................................              $ 464,357               $ 610,494
                                                                                                  =========               =========
</TABLE>

Deferred tax assets  represent the future tax benefit of deductible  differences
and,  if it is more  likely  than not that a tax asset will not be  realized,  a
valuation  allowance is required to reduce the  recorded  deferred tax assets to
net realizable value. As of December 31, 2002, management has determined that it
is more likely than not that  $494,745 of the total  deferred  tax asset will be
realized, and accordingly, has established a valuation allowance of $45,168.

The Company has a net  operating  loss for income tax purposes of $417,926 as of
December 31, 2002. This net operating loss expires in the year 2022.


                                       41
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 8 - INCOME TAXES (continued)

Reconciliation  between  the  income tax  expense  and the  amount  computed  by
applying  the  federal  statutory  rate of 34% to  income  before  income  taxes
follows:
<TABLE>
<CAPTION>
                                                                                              Year ended December 31,
                                                                                              -----------------------
                                                                                     2002               2001                 2000
                                                                                     ----               ----                 ----
<S>                                                                               <C>                 <C>                 <C>
Tax expense at statutory rate ..........................................          $  67,995           $ (83,041)          $(191,937)
State income tax, net of federal income tax benefit ....................              9,002             (10,735)            (25,062)
Change in the deferred tax asset valuation allowance ...................                  3               2,427               4,726
Other, net .............................................................             (2,984)              1,939               3,119
                                                                                  ---------           ---------           ---------
     Total .............................................................          $  74,016           $ (89,410)          $(209,154)
                                                                                  =========           =========           =========
</TABLE>


NOTE 9 - 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, 2002 and 2001,  the Company had related
party loans  totaling  $3,067,951  and  $2,412,585,  respectively.  During 2002,
advances on related party loans totaled $1,506,486 and repayments were $851,120.


NOTE 10 - 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,  2002,  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 11 - STOCK COMPENSATION PLAN

On May 10, 2001, the shareholders  approved the Regional Bankshares,  Inc. "2001
Stock Option Plan" (the Plan).  The Plan provides for grants of "Incentive Stock
Options,"  within the meaning of section 422 of the  Internal  Revenue  Code and
"Non-qualified  Stock Options" that do not so qualify. The Plan provides for the
issuance of up to 50,000  shares of the  Company's  common stock to officers and
key  employees.  Options  may be granted  for a term of up to ten years from the
effective  date of grant.  Options become  exercisable  ratably over three years
after  being  granted.  The Board of  Directors  will  determine  the  per-share
exercise price,  but for incentive stock options the price will not be less than
100% of the fair  value of a share of  common  stock on the date the  option  is
granted.  As of December 31, 2002, the Company had 33,000 options  available for
grant. The following table summarizes the stock option plan:

                                                              2002
                                                              ----
                                                                    Weighted-
                                                                     Average
                                                      Shares      Exercise Price
                                                      ------      --------------
Outstanding at beginning of year ..................          -
Granted ...........................................     17,000        $13.00
Exercised .........................................          -
Cancelled .........................................          -
                                                        ------
Outstanding at end of year ........................     17,000         13.00
                                                        ======

At  December  31,  2002,  no options  were  exercisable.  The  weighted  average
remaining  life and  exercise  price for both  exercisable  and non  exercisable
options was 9.25 years and $13 per option, respectively.


                                       42
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements


NOTE 12 - STOCK WARRANTS

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

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

                                                               December 31,
                                                               ------------
                                                           2002           2001
                                                           ----           ----
Outstanding at beginning of year .................         56,600         60,000
Granted ..........................................              -              -
Exercised ........................................              -          3,400
Cancelled ........................................          5,000              -
                                                           ------         ------

Outstanding at end of year .......................         51,600         56,600
                                                           ======         ======

At December 31, 2002, all of the warrants were exercisable.


NOTE 13 - EARNINGS (LOSS) PER SHARE

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

Basic and diluted earnings per share are computed below:
<TABLE>
<CAPTION>
                                                                                             Year ended December 31,
                                                                                             -----------------------
                                                                                  2002                  2001                2000
                                                                                  ----                  ----                ----
Basic earnings (loss) per share computation:

<S>                                                                            <C>                  <C>                   <C>
Net income available to common shareholders .......................            $ 125,968            $(154,830)            $(355,367)
                                                                               =========            =========             =========

Average common shares outstanding - basic .........................              563,670              560,652               560,270
                                                                               =========            =========             =========

Basic net income (loss) per share .................................            $    0.22            $   (0.28)            $   (0.63)
                                                                               =========            =========             =========

Diluted earnings (loss) per share computation:

Net income available to common shareholders .......................            $ 125,968            $(154,830)            $(355,367)
                                                                               =========            =========             =========

Average common shares outstanding - basic .........................              563,670              560,652               560,270

Incremental shares from assumed conversions:
     Stock options and warrants ...................................               65,923                    -                     -
                                                                               ---------            ---------             ---------

Average common shares outstanding - diluted .......................              629,593              560,652               560,270
                                                                               ---------            ---------             ---------

Diluted earnings (loss) per share .................................            $    0.20            $   (0.28)            $   (0.63)
                                                                               =========            =========             =========
</TABLE>


                                       43
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 14 - 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  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  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings, and other factors.

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

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

As of December 31, 2002,  the most recent  notification  from the Bank's primary
regulator categorized it as well-capitalized  under the regulatory framework for
prompt  corrective  action.  There are no conditions  or events that  management
believes have changed the Bank's category.

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

<TABLE>
<CAPTION>
                                                                                                                   To Be Well-
                                                                                                                Capitalized Under
                                                                                           For Capital          Prompt Corrective
                                                                      Actual            Adequacy Purposes       Action Provisions
                                                                      ------            -----------------       -----------------
                                                               Amount        Ratio     Amount        Ratio     Amount         Ratio
                                                               ------        -----     ------        -----     ------         -----

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

December 31, 2001
     Total capital (to risk-weighted assets) ..........     $4,703,962       16.23%  $2,318,659       8.00%  $2,898,324       10.00%
     Tier 1 capital (to risk-weighted assets) .........      4,435,516       15.30    1,159,330       4.00    1,738,995        6.00
     Tier 1 capital (to average assets) ...............      4,435,516       13.49    1,315,669       4.00    1,644,586        5.00
</TABLE>

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



                                       44
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 15 - UNUSED LINES OF CREDIT

As of December  31,  2002,  the  Company had unused  lines of credit to purchase
federal funds from unrelated  banks totaling  $2,650,000.  These lines of credit
are available on a one to fourteen day basis for general corporate purposes. The
Company  also has a line of credit to borrow  funds from the  Federal  Home Loan
Bank up to 10% of the  Bank's  total  assets,  which  totaled  $4,422,000  as of
December 31, 2002.  As of December 31, 2002,  the Bank had no borrowings on this
line.


NOTE 16 - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS, OR ADVANCES

South Carolina banking regulations  restrict the amount of dividends that can be
paid to shareholders.  All of the Bank's dividends to Regional Bankshares,  Inc.
are payable only from the  undivided  profits of the Bank. At December 31, 2002,
the Bank had negative  undivided  profits.  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 17 - 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  Bank's   off-balance-sheet   financial
instruments whose contract amounts represent credit risk:

                                                            December 31,
                                                            ------------
                                                        2002             2001
                                                        ----             ----
Commitments to extend credit ...............        $4,247,166        $4,084,418
Standby letters of credit ..................           100,000           100,000


                                       45
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 18 - 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.

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 and
credit card receivables, fair values are based on the carrying amounts. The fair
value of other types of loans is estimated by discounting  the future cash flows
using the current rates at which  similar loans would be made to borrowers  with
similar credit ratings and for the same remaining maturities.

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

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

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

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



                                       46
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

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

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                          ------------
                                                                              2002                                2001
                                                                              ----                                ----
                                                                  Carrying           Estimated         Carrying           Estimated
Financial Assets:                                                  Amount           Fair Value          Amount            Fair Value
                                                                   ------           ----------          ------            ----------
<S>                                                             <C>                <C>                <C>                <C>
     Cash and due from banks ...........................        $   808,282        $   808,282        $ 1,350,004        $ 1,350,004
     Federal funds sold ................................          3,050,991          3,050,991          2,845,956          2,845,956
     Securities available-for-sale .....................          2,513,281          2,513,281            353,672            353,672
     Nonmarketable equity securities ...................            137,553            137,553            137,553            137,553
     Loans receivable ..................................         35,232,689         35,160,533         26,873,907         27,114,724
     Accrued interest receivable .......................            153,315            153,315            120,123            120,123

Financial Liabilities:
     Demand deposit, interest-bearing
       Transaction, and savings accounts ...............         17,432,225         17,432,225         13,931,498         13,931,498
     Certificates of deposit and
       other time deposits .............................         21,946,499         21,989,752         13,810,639         13,831,192
     Advances from Federal Home Loan Bank ..............                  -                  -          1,750,000          1,750,000
     Accrued interest payable ..........................            209,496            209,496            253,696            253,696
</TABLE>

<TABLE>
<CAPTION>
                                                                  Notional          Estimated           Notional         Estimated
                                                                   Amount           Fair Value           Amount          Fair Value
                                                                   ------           ----------           ------          ----------
Off-Balance Sheet Financial Instruments:
<S>                                                              <C>                <C>                <C>                <C>
     Commitments to extend credit ......................         $4,247,166         $4,247,166         $4,084,418         $4,084,418
     Letters of credit .................................            100,000            100,000            100,000            100,000
</TABLE>





                                       47
<PAGE>


                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 19 - REGIONAL BANKSHARES, INC. (PARENT COMPANY ONLY)

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

                            Condensed Balance Sheets

<TABLE>
<CAPTION>
                                                                                                            December 31,
                                                                                                            ------------
                                                                                                 2002                        2001
                                                                                                 ----                        ----
Assets
<S>                                                                                           <C>                         <C>
     Cash ..................................................................                  $    3,691                  $    3,750
     Investment in banking subsidiary ......................................                   4,569,910                   4,438,256
     Other assets ..........................................................                      10,233                      10,233
                                                                                              ----------                  ----------
         Total assets ......................................................                  $4,583,834                  $4,452,239
                                                                                              ==========                  ==========

Shareholders' equity .......................................................                  $4,583,834                  $4,452,239
                                                                                              ==========                  ==========
</TABLE>



                         Condensed Statements of Income

<TABLE>
<CAPTION>
                                                                                                       Year ended December 31,
                                                                                                       -----------------------
                                                                                                       2002                2001
                                                                                                       ----                ----
<S>                                                                                            <C>                    <C>
Income .................................................................................       $            -         $           -

Expenses
     Other expenses ....................................................................                   59                30,250
                                                                                                    ---------             ---------

Loss before income taxes and equity in
  undistributed earnings of banking subsidiary .........................................                  (59)              (30,250)

Income tax benefit .....................................................................                    -               (10,233)
Equity in undistributed earnings (losses) of banking subsidiary ........................              126,027              (134,813)
                                                                                                    ---------             ---------

Net income (loss) ......................................................................            $ 125,968             $(154,830)
                                                                                                    =========             =========
</TABLE>



                                       48
<PAGE>

                            REGIONAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

NOTE 19 - REGIONAL BANKSHARES, INC. (PARENT COMPANY ONLY) (continued)

                       Condensed Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                                                         Year ended December 31,
                                                                                                         -----------------------
                                                                                                       2002                  2001
                                                                                                       ----                  ----
Cash flows from operating activities:
<S>                                                                                                   <C>                 <C>
     Net income (loss) .....................................................................          $ 125,968           $(154,830)
     Adjustments to reconcile net income (loss) to net cash
       used by operating activities:
         Equity in undistributed (earnings) losses of banking subsidiary ...................           (126,027)            134,813
         Increase in other assets ..........................................................                  -             (10,233)
                                                                                                      ---------           ---------
         Net cash used by operating activities .............................................                (59)            (30,250)
                                                                                                      ---------           ---------

Cash flows from financing activities:
     Proceeds from borrowings ..............................................................                  -              35,000
     Repayment of borrowings ...............................................................                  -             (35,000)
     Exercise of stock warrants ............................................................                  -              34,000
                                                                                                      ---------           ---------
         Net cash provided by financing activities .........................................                  -              34,000
                                                                                                      ---------           ---------

Increase (decrease) in cash ................................................................                (59)              3,750

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

Cash and cash equivalents, end of year .....................................................          $   3,691           $   3,750
                                                                                                      =========           =========

Cash paid during the year for:
     Interest ..............................................................................     $            -           $   3,553
                                                                                                      =========           =========
</TABLE>



                                       49
<PAGE>

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

(a)(1)(i)-(iv)(A) - Tourville,  Simpson and Caskey,  LLP (TSC),  which served as
     the principal  independent  accountant for the  Registrant  since May 1999,
     resigned from such position  effective January 2, 2003. TSC's report on the
     financial  statements  of the Company for each of the years ended  December
     31, 2000 and  December  31,  2001 did not  contain an adverse  opinion or a
     disclaimer of opinion and was not qualified or modified as to  uncertainty,
     audit scope or accounting principles.

     During the Company's three most recent fiscal years ended December 31, 2002
     and the subsequent  interim period through  January 2, 2003,  there were no
     disagreements  between  the  Company  and TSC on any  matter of  accounting
     principles or practices,  financial statement  disclosure or auditing scope
     or procedure,  which disagreements,  if not resolved to the satisfaction of
     TSC,  would have caused it to make  reference to the subject  matter of the
     disagreements  in connection with its report. A letter from TSC is attached
     as Exhibit 16.1 to this Report.

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

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

                                    PART III

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

     The  information  set forth under the captions  "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement
to be used in connection  with the Company's  2003 Annual  Stockholders  Meeting
(the "Proxy Statement"), is incorporated herein by reference.

Item 10.  Executive Compensation

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

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

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

Equity Compensation Plan Information

The following  table sets forth  aggregated  information as of December 31, 2002
about all of the Company's compensation plans (including individual compensation
arrangements)  under which equity  securities of the Company are  authorized for
issuance:

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

Equity compensation             51,600                       $10.00                          -0-
plans not approved
by security holders

Total
</TABLE>

                                       50
<PAGE>

Director Warrants

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

Item 12.   Certain Relationships and Related Transactions

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



                                       51
<PAGE>

                                     PART IV

Item 13.  Exhibits and Reports on Form 8-K

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

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

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

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

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

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

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

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

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

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

21             Subsidiaries of the Registrant

(b)  Reports on Form 8-K.  The  Company  filed an amended  Report on Form 8-K on
     February  5,  2003  pursuant  to Item 4 thereof  relating  to change of the
     Company's accountants. See Part II, Item 8 above.

Item 14.  Controls and Procedures.

(a) Based on his evaluation of the issuer's  disclosure  controls and procedures
(as defined in 17 C.F.R. Sections  240.13a-14(c) and 240.15d-14(c)) as of a date
within 90 days prior to the filing of this annual  report,  the  issuer's  chief
executive  officer and chief financial  officer concluded that the effectiveness
of such controls and procedures was adequate.

(b) There were no significant  changes in the issuer's  internal  controls or in
other factors that could  significantly  affect these controls subsequent to the
date of their  evaluation,  including  any  corrective  actions  with  regard to
significant deficiencies and material weaknesses.


                                       52
<PAGE>

                                   SIGNATURES

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


                                 REGIONAL BANKSHARES, INC.

March 26, 2003                   By: s/Curtis A. Tyner, Sr.
                                    --------------------------------------------
                                     Curtis A. Tyner, Sr.
                                     President, Chief Executive Officer and
                                        Chief Financial Officer

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

<TABLE>
<CAPTION>

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

<S>                                            <C>                                                 <C>


----------------------------                         Chairman of the Board of Directors            March __, 2003
Gosnold G. Segars, Jr.

s/Curtis A. Tyner, Sr.
----------------------------                      President, Chief Executive Officer, Chief        March 26, 2003
Curtis A. Tyner, Sr.                              Financial Officer and Director (Principal
                                                 Executive Officer and Principal Accounting
                                                                  Officer)

s/Francine P. Bachman
----------------------------                                      Director                         March 27, 2003
Francine P. Bachman


----------------------------                                      Director                         March __, 2003
T. James Bell, Jr.

s/Peter C. Coggeshall, Jr.
----------------------------                                      Director                         March 27, 2003
Peter C. Coggeshall, Jr.


----------------------------                                      Director                         March __, 2003
Franklin Hines


----------------------------                                      Director                         March __, 2003
J. Richard Jones

s/Woodward H. Morgan, III
----------------------------                                      Director                         March 26, 2003
Woodward H. Morgan, III

s/Randolph G. Rogers
----------------------------                                      Director                         March 28, 2003
Randolph G. Rogers

s/Howard W. Tucker, Jr.
----------------------------                                      Director                         March 27, 2003
Howard W. Tucker, Jr.


----------------------------                                      Director                         March __, 2003
Patricia M. West
</TABLE>



                                       53
<PAGE>

                                 CERTIFICATIONS

I, Curtis A. Tyner, certify that:

1.   I have reviewed  this annual report on Form 10-KSB of Regional  Bankshares,
     Inc.;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.



Date: March 26,2003                     s/Curtis A. Tyner
                                        ----------------------------------------
                                        Curtis A. Tyner,
                                        President, Chief Executive Officer
                                        and Chief Financial Officer


* Pursuant to the instructions to the  Certifications,  this certification is in
the exact form  specified  by Form  10-KSB.  For  purposes  of items 4, 5 and 6,
however,  please note that there are no "other certifying  officers" because Mr.
Tyner is both Chief Financial Officer and Chief Executive Officer of registrant.


                                       54
<PAGE>

                                  EXHIBIT INDEX

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

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

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

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

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

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

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

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

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

21             Subsidiaries of the Registrant


                                       55