**UNITED      STATES SECURITITES AND EXCHANGE COMMISSION**

**Washington,      D.C. 29549**

**FORM      10-QSB**

**(Mark      One)**

| ý | **QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURTIES EXCHANGE                ACT OF                1934** |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|  ̈ | **TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE                ACT** |
|--------|---------------------------------------------------------------------------------------------------------|

| North                Carolina                                                 | 56-2181423                                       |
|-------------------------------------------------------------------------------|--------------------------------------------------|
| (State                or other jurisdiction of incorporation or organization) | (IRS                Employer Identification No.) |

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**APPLICABLE      ONLY TO CORPORATE ISSUERS:**

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*I*

| **INDEX**                                                                                                                                                 | **Page** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                                                      |     |
| Part                I – FINANCIAL INFORMATION                                                                                                       |     |
|                                                                                                                                                      |     |
| Financial                Statements:                                                                                                                      |     |
| Consolidated                Balance Sheets                                                                                                                |     |
| March                31, 2007 and December 31, 2006                                                                                                       | 3        |
|                                                                                                                                                      |     |
| Consolidated                Statements of Operations                                                                                                      |     |
| Three                Months Ended March 31, 2007 and 2006                                                                                                 | 4        |
|                                                                                                                                                      |     |
| Consolidated                Statements of Comprehensive                Income                                                                             |     |
| Three                Months Ended March 31, 2007 and 2006                                                                                                 | 5        |
|                                                                                                                                                      |     |
| Consolidated                Statements of Changes in Shareholders’                Equity                                                            |     |
| Three                Months Ended March 31, 2007 and 2006                                                                                                 | 6        |
|                                                                                                                                                      |     |
| Consolidated                Statements of Cash Flows                                                                                                      |     |
| Three                Months Ended March 31, 2007 and 2006                                                                                                 | 7        |
|                                                                                                                                                      |     |
| Notes                to Consolidated Financial Statements                                                                                                 | 8        |
|                                                                                                                                                      |     |
| Item                2 - Management’s Discussion and                Analysis  Financial Condition and Results of                Operations | 10       |
|                                                                                                                                                      |     |
| Item                3 – Controls and Procedures                                                                                                     | 19       |
|                                                                                                                                                      |     |
| Part                II – OTHER INFORMATION                                                                                                          |     |
|                                                                                                                                                      |     |
| Exhibit                Index                                                                                                                              | 20       |
|                                                                                                                                                      |     |
| Signatures                                                                                                                                                | 21       |

----

*Index*

| **Part                I.** | **FINANCIAL                INFORMATION** |
|----------------------------|------------------------------------------|

| **ItemI.** | **Financial                Statements** |
|------------|-----------------------------------------|

| **Weststar                Financial Services Corporation &                Subsidiary**                                                                 |   |                         |        |   |                            |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|-------------|--------|---------------------------------|--------|
| **Consolidated                Balance Sheets**                                                                                                             |   | (unaudited)                  |        |   |                            |   |
|                                                                                                                                                       |   | **March                31,** |        |   | **December                31,** |   |
|                                                                                                                                                       |   | **2007**                     |        |   | ** ****2006***             |   |
| **ASSETS:**                                                                                                                                                |   |                         |        |   |                            |   |   |
| Cash                and cash equivalents:                                                                                                                  |   |                         |        |   |                            |   |   |
| Cash                and due from banks                                                                                                                     |   | $                            | 5,786,215   |   |                            | $      | 4,816,290 |   |
| Interest-bearing                deposits                                                                                                                   |   |                         | 127,306     |   |                            |   | 210,337 |   |
| Federal                funds sold                                                                                                                          |   |                         | 4,434,000   |   |                            |   | - |   |
| Total                cash and cash equivalents                                                                                                             |   |                         | 10,347,521  |   |                            |   | 5,026,627 |   |
| Investment                securities – available for sale, at fair value                                                                             |   |                         |        |   |                            |   |   |   |
| (amortized                cost of $27,281,782 and $26,415,000, at                                                                                          |   |                         |        |   |                            |   |   |   |
| March                31, 2007 and December 31, 2006, respectively)                                                                                         |   |                         | 27,095,590  |   |                            |   | 26,241,010 |   |
| Loans                                                                                                                                                      |   |                         | 125,721,582 |   |                            |   | 122,463,720 |   |
| Allowance                for loan losses                                                                                                                   |   |                         | (1,888,059  | )      |                            |   | (1,884,080 | ) |
| Net                loans                                                                                                                                   |   |                         | 123,833,523 |   |                            |   | 120,579,640 |   |
| Premises                and equipment, net                                                                                                                 |   |                         | 2,928,559   |   |                            |   | 3,004,590 |   |
| Accrued                interest receivable                                                                                                                 |   |                         | 916,797     |   |                            |   | 920,280 |   |
| Federal                Home Loan Bank stock, at cost                                                                                                       |   |                         | 499,300     |   |                            |   | 457,000 |   |
| Deferred                income taxes                                                                                                                       |   |                         | 508,085     |   |                            |   | 519,456 |   |
| Foreclosed                properties                                                                                                                       |   |                         | 103,000     |   |                            |   | 106,000 |   |
| Other                assets                                                                                                                                |   |                         | 853,129     |   |                            |   | 789,859 |   |
|                                                                                                                                                       |   |                         |        |   |                            |   |   |   |
| TOTAL                                                                                                                                                      |   | $                            | 167,085,504 |   |                            | $      | 157,644,462 |   |
|                                                                                                                                                       |   |                         |        |   |                            |   |   |   |
| **LIABILITIES                AND SHAREHOLDERS' EQUITY:**                                                                                                   |   |                         |        |   |                            |   |   |   |
| Liabilities:                                                                                                                                               |   |                         |        |   |                            |   |   |   |
| Deposits:                                                                                                                                                  |   |                         |        |   |                            |   |   |   |
| Demand                                                                                                                                                     |   | $                            | 27,834,068  |   |                            | $      | 27,463,717 |   |
| NOW                accounts                                                                                                                                |   |                         | 15,325,841  |   |                            |   | 14,198,547 |   |
| Money                market accounts                                                                                                                       |   |                         | 33,518,902  |   |                            |   | 32,367,876 |   |
| Savings                                                                                                                                                    |   |                         | 2,104,192   |   |                            |   | 1,956,577 |   |
| Time                deposits of $100,000 or more                                                                                                           |   |                         | 23,927,916  |   |                            |   | 18,747,373 |   |
| Other                time deposits                                                                                                                         |   |                         | 41,277,777  |   |                            |   | 40,136,991 |   |
| Total                deposits                                                                                                                              |   |                         | 143,988,696 |   |                            |   | 134,871,081 |   |
| Short-term                borrowings                                                                                                                       |   |                         | -           |   |                            |   | 306,000 |   |
| Accrued                interest payable                                                                                                                    |   |                         | 474,261     |   |                            |   | 498,390 |   |
| Other                liabilities                                                                                                                           |   |                         | 1,021,192   |   |                            |   | 872,138 |   |
| Long-term                debt                                                                                                                              |   |                         | 8,124,000   |   |                            |   | 8,124,000 |   |
| Total                liabilities                                                                                                                           |   |                         | 153,608,149 |   |                            |   | 144,671,609 |   |
| COMMITMENTS                AND CONTIGENCIES (Note 14)                                                                                                      |   |                         |        |   |                            |   |   |   |
| **SHAREHOLDERS'                EQUITY:**                                                                                                                   |   |                         |        |   |                            |   |   |   |
| Preferred                stock; authorized $1,000,000 shares;                                                                                              |   |                         |        |   |                            |   |   |   |
| no                shares issued and                outstanding     -          - |   |                         |        |   |                            |   |   |   |
| Common                stock, $1 par value, authorized – 9,000,000 shares;                                                                            |   |                         |        |   |                            |   |   |   |
| outstanding                shares– 1,687,992 and 1,682,290 at March 31, 2007                                                                         |   |                         |        |   |                            |   |   |   |
| and                December 31, 2006, respectively                                                                                                         |   |                         | 1,687,992   |   |                            |   | 1,682,290 |   |
| Additional                paid-in capital                                                                                                                  |   |                         | 6,534,655   |   |                            |   | 6,528,387 |   |
| Retained                earnings                                                                                                                           |   |                         | 5,369,123   |   |                            |   | 4,869,092 |   |
| Accumulated                other comprehensive loss                                                                                                        |   |                         | (114,415    | )      |                            |   | (106,916 | ) |
| Total                shareholders' equity                                                                                                                  |   |                         | 13,477,355  |   |                            |   | 12,972,853 |   |
|                                                                                                                                                       |   |                         |        |   |                            |   |   |   |
| TOTAL                                                                                                                                                      |   | $                            | 167,085,504 |   |                            | $      | 157,644,462 |   |
|                                                                                                                                                       |   |                         |        |   |                            |   |   |   |

----

*Index*

| **Weststar                Financial Services Corporation &                Subsidiary**                                           |   |                               |      |   |     |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|-----------|--------|----------|--------|
| **Consolidated                Statements                of Operations and Comprehensive                Income**** **(unaudited) |   |                               |      |   |     |   |
|                                                                                                                                 |   | **Three                Months**    |      |
|                                                                                                                                 |   | **Ended                March 31,** |      |
|                                                                                                                                 |   | **2007**                           |      |   | **2006** |   |
|                                                                                                                                 |   |                               |      |   |     |   |
| **INTEREST                INCOME:**                                                                                                  |   |                               |      |   |     |   |
| Interest                and fees on loans                                                                                            |   | $                                  | 2,775,740 |   |     | $      | 2,085,117 |   |
| Federal                funds sold                                                                                                    |   |                               | 24,923    |   |     |   | 16,992 |   |
| Interest-bearing                deposits                                                                                             |   |                               | 2,021     |   |     |   | 1,438 |   |
| Investments:                                                                                                                         |   |                               |      |   |     |   |   |   |
| Taxable                interest income                                                                                               |   |                               | 209,048   |   |     |   | 202,296 |   |
| Non-taxable                interest income                                                                                           |   |                               | 74,496    |   |     |   | 67,637 |   |
| Corporate                dividends                                                                                                   |   |                               | 7,571     |   |     |   | 6,163 |   |
| Total                interest income                                                                                                 |   |                               | 3,093,799 |   |     |   | 2,379,643 |   |
| **INTEREST                EXPENSE:**                                                                                                 |   |                               |      |   |     |   |   |   |
| Time                deposits of $100,000 or more                                                                                     |   |                               | 282,801   |   |     |   | 144,926 |   |
| Other                time and savings deposits                                                                                       |   |                               | 837,353   |   |     |   | 573,338 |   |
| Short-term                borrowings                                                                                                 |   |                               | 4,427     |   |     |   | 22,437 |   |
| Long-term                debt                                                                                                        |   |                               | 137,163   |   |     |   | 128,956 |   |
| Total                interest expense                                                                                                |   |                               | 1,261,744 |   |     |   | 869,657 |   |
|                                                                                                                                 |   |                               |      |   |     |   |   |   |
| **NET                INTEREST INCOME**                                                                                               |   |                               | 1,832,055 |   |     |   | 1,509,986 |   |
| **PROVISION                FOR LOAN LOSSES**                                                                                         |   |                               | 17,855    |   |     |   | 90,850 |   |
| **NET                INTEREST INCOME AFTER PROVISION**                                                                               |   |                               |      |   |     |   |   |   |
| **FOR                LOAN LOSSES**                                                                                                   |   |                               | 1,814,200 |   |     |   | 1,419,136 |   |
|                                                                                                                                 |   |                               |      |   |     |   |   |   |
| **OTHER                INCOME:**                                                                                                     |   |                               |      |   |     |   |   |   |
| Service                charges on deposit accounts                                                                                   |   |                               | 275,822   |   |     |   | 289,173 |   |
| Other                service fees and commissions                                                                                    |   |                               | 75,990    |   |     |   | 71,598 |   |
| Securities                losses                                                                                                     |   |                               | -         |   |     |   | (84,440 | ) |
| Equity                in loss of Bank of Asheville Mortgage Company, LLC                                                             |   |                               | (22,854   | )      |     |   | (11,250 | ) |
| Other                                                                                                                                |   |                               | 21,411    |   |     |   | 20,122 |   |
| Total                other income                                                                                                    |   |                               | 350,369   |   |     |   | 285,203 |   |
|                                                                                                                                 |   |                               |      |   |     |   |   |   |
| **OTHER                EXPENSES:**                                                                                                   |   |                               |      |   |     |   |   |   |
| Salaries                and wages                                                                                                    |   |                               | 571,317   |   |     |   | 483,983 |   |
| Employee                benefits                                                                                                     |   |                               | 99,381    |   |     |   | 83,868 |   |
| Occupancy                expense, net                                                                                                |   |                               | 119,622   |   |     |   | 86,246 |   |
| Equipment                rentals, depreciation and maintenance                                                                       |   |                               | 105,808   |   |     |   | 92,864 |   |
| Supplies                                                                                                                             |   |                               | 61,156    |   |     |   | 60,938 |   |
| Professional                fees                                                                                                     |   |                               | 107,257   |   |     |   | 62,603 |   |
| Data                processing fees                                                                                                  |   |                               | 157,216   |   |     |   | 139,386 |   |
| Marketing                                                                                                                            |   |                               | 58,907    |   |     |   | 47,116 |   |
| Net                expenses from foreclosed properties                                                                               |   |                               | 4,629     |   |     |   | 1,093 |   |
| Other                                                                                                                                |   |                               | 89,977    |   |     |   | 56,403 |   |
| Total                other expenses                                                                                                  |   |                               | 1,375,270 |   |     |   | 1,114,500 |   |
| **INCOME                BEFORE INCOME TAXES**                                                                                        |   |                               | 789,299   |   |     |   | 589,839 |   |
| **INCOME                TAX PROVISION**                                                                                              |   |                               | 289,268   |   |     |   | 206,650 |   |
| **NET                INCOME**                                                                                                        |   | $                                  | 500,031   |   |     | $      | 383,189 |   |
| **EARNINGS                PER SHARE:**                                                                                               |   |                               |      |   |     |   |   |   |
| Basic                                                                                                                                |   | $                                  | 0.30      |   |     | $      | 0.23 |   |
| Diluted                                                                                                                              |   | $                                  | 0.27      |   |     | $      | 0.21 |   |
|                                                                                                                                 |   |                               |      |   |     |   |   |   |

----

*Index*

| **Weststar                Financial Services Corporation &                Subsidiary**   |   |                               |    |   |     |   |
|----------------------------------------------------------------------------------------------|--------|------------------------------------|---------|--------|----------|--------|
| **Consolidated                Statements of Operations and Comprehensive Income**(unaudited) |   |
|                                                                                         |   | **Three                Months**    |    |
|                                                                                         |   | **Ended                March 31,** |    |
|                                                                                         |   | **2007**                           |    |   | **2006** |   |
|                                                                                         |   |                               |    |   |     |   |
| **NET                INCOME**                                                                |   | $                                  | 500,031 |   |     | $      | 383,189 |   |
| **OTHER                COMPREHENSIVE INCOME**                                                |   |                               |    |   |     |   |   |   |
| Unrealized                holding losses on securities                                       |   |                               |    |   |     |   |   |   |
| available                for sale                                                            |   |                               | (12,203 | )      |     |   | (86,820 | ) |
| Tax                effect                                                                    |   |                               | 4,704   |   |     |   | 33,488 |   |
| Unrealized                holding losses on securities                                       |   |                               |    |   |     |   |   |   |
| available                for sale, net of tax                                                |   |                               | (7,499  | )      |     |   | (53,332 | ) |
|                                                                                         |   |                               |    |   |     |   |   |   |
| Reclassification                adjustment for realized losses                               |   |                               | -       |   |     |   | 84,440 |   |
| Tax                effect                                                                    |   |                               | -       |   |     |   | (32,570 | ) |
| Reclassification                adjustment for realized losses,                              |   |                               |    |   |     |   |   |   |
| Net                of tax                                                                    |   |                               | -       |   |     |   | 51,870 |   |
|                                                                                         |   |                               |    |   |     |   |   |   |
| OTHER                COMPREHENSIVE LOSS,                                                     |   |                               |    |   |     |   |   |   |
| NET                OF TAX                                                                    |   |                               | (7,499  | )      |     |   | (1,462 | ) |
| COMPREHENSIVE                INCOME                                                          |   | $                                  | 492,532 |   |     | $      | 381,727 |   |

----

*Index*

**Weststar      Financial Services Corporation &Subsidiary**

**Consolidated      Statements of Changes in Shareholders’ Equity (unaudited)**

**For      the Three Months Ended      March 31, 2007 and 2006**

|                                                  |   |                                              |      |   |        |   |      |           |   |   |              |   |   | **Accumulated**         |      |   |       |   |
|-------------------------------------------------------|--------|---------------------------------------------------|-----------|--------|-------------|--------|-----------|----------------|--------|--------|-------------------|--------|--------|-------------------------|-----------|--------|------------|--------|
|                                                  |   |                                              |      |   |        |   |      | **Additional** |   |   |              |   |   | **Other**               |      |   | **Total**  |   |
|                                                  |   | **Common                Stock**    |      |   | **Paid-In** |   |      | **Retained**   |   |   | **Comprehensive** |   |   | **Shareholders’** |      |
|                                                  |   | **Shares**                                        |      |   | **Amount**  |   |      | **Capital**    |   |   | **Earnings**      |   |   | **Loss**                |      |   | **Equity** |   |
|                                                  |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    |      |   |       |   |
| BALANCE                DECEMBER 31,2005               |   |                                              | 1,401,266 |   |        | $      | 1,401,266 |           |   | $      | 6,805,331         |   |   | $                       | 2,809,122 |   |       | $      | (419,176 | ) |   | $ | 10,596,543 |   |
|                                                  |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    |      |   |       |   |   |   |   |   |   |   |
| Net                unrealized gains                   |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    |      |   |       |   |   |   |   |   |   |   |
| securities                available for sale          |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    |      |   |       |   | (1,462 | ) |   |   | (1,462 | ) |
| Cash                paid in lieu of fractional shares |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    |      |   |       |   |   |   |   |   |   |   |
| Net                income                             |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    | 383,189   |   |       |   |   |   |   |   | 383,189 |   |
|                                                  |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    |      |   |       |   |   |   |   |   |   |   |
| Balance                March 31, 2006                 |   |                                              | 1,401,266 |   |        | $      | 1,401,266 |           |   | $      | 6,805,331         |   |   | $                       | 3,192,311 |   |       | $      | (420,638 | ) |   | $ | 10,978,270 |   |
|                                                  |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    |      |   |       |   |   |   |   |   |   |   |
| BALANCE,                DECEMBER 31, 2006             |   |                                              | 1,682,290 |   |        | $      | 1,682,290 |           |   | $      | 6,528,387         |   |   | $                       | 4,869,092 |   |       | $      | (106,916 | ) |   | $ | 12,972,853 |   |
|                                                  |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    |      |   |       |   |   |   |   |   |   |   |
| Net                unrealized losses                  |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    |      |   |       |   |   |   |   |   |   |   |
| securities                available for sale          |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    |      |   |       |   | (7,499 | ) |   |   | (7,499 | ) |
| Issuance                of common stock pursuant      |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    |      |   |       |   |   |   |   |   |   |   |
| to                the exercise of stock options       |   |                                              | 5,702     |   |        |   | 5,702     |           |   |   | 6,268             |   |   |                    |      |   |       |   |   |   |   |   | 11,970 |   |
| Net                income                             |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    | 500,031   |   |       |   |   |   |   |   | 500,031 |   |
|                                                  |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    |      |   |       |   |   |   |   |   |   |   |
| Balance                March 31, 2007                 |   |                                              | 1,687,992 |   |        | $      | 1,687,992 |           |   | $      | 6,534,655         |   |   | $                       | 5,369,123 |   |       | $      | (114,415 | ) |   | $ | 13,477,355 |   |
|                                                  |   |                                              |      |   |        |   |      |           |   |   |              |   |   |                    |      |   |       |   |   |   |   |   |   |   |

----

*Index*

| **Weststar                Financial Services Corporation & Subsidiary**                                 |   |     |       |   |     |   |
|-------------------------------------------------------------------------------------------------------------|--------|----------|------------|--------|----------|--------|
| **Consolidated                Statements of Cash Flows (unaudited)**                                        |   |     |       |   |     |   |
| **For                the Three Months Ended March 31,**                                                     |   |     |       |   |     |   |
|                                                                                                        |   | **2007** |       |   | **2006** |   |
| **CASH                FLOWS FROM OPERATING ACTIVITIES:**                                                    |   |     |       |   |     |   |
| Net                income                                                                                   |   | $        | 500,031    |   |     | $      | 383,189 |   |
| Adjustments                to reconcile net income to net cash used by operating                activities: |   |     |       |   |     |   |   |   |
| Depreciation                                                                                                |   |     | 97,283     |   |     |   | 86,355 |   |
| Provision                for loan losses                                                                    |   |     | 17,855     |   |     |   | 90,850 |   |
| Premium                amortization and discount accretion, net                                             |   |     | (2,612     | )      |     |   | 13,920 |   |
| Deferred                income tax provision                                                                |   |     | 16,075     |   |     |   | (31,200 | ) |
| Net                expenses from foreclosed properties                                                      |   |     | 3,000      |   |     |   | - |   |
| Gain                on sale of premises and equipment                                                       |   |     | (50        | )      |     |   | - |   |
| Losses                on sales of securities                                                                |   |     | -          |   |     |   | 84,440 |   |
| (Increase)                decrease in accrued interest receivable                                           |   |     | 6,083      |   |     |   | (93,004 | ) |
| Increase                in other assets                                                                     |   |     | (65,870    | )      |     |   | (92,871 | ) |
| Increase                (decrease) in accrued interest payable                                              |   |     | (24,129    | )      |     |   | 17,577 |   |
| Increase                in other liabilities                                                                |   |     | 160,998    |   |     |   | 162,862 |   |
| Net                cash provided by operating activities                                                    |   |     | 708,664    |   |     |   | 622,118 |   |
|                                                                                                        |   |     |       |   |     |   |   |   |
| **CASH                FLOWS FROM INVESTING ACTIVITIES:**                                                    |   |     |       |   |     |   |   |   |
| Purchases                of securities available for sale                                                   |   |     | (1,455,623 | )      |     |   | (2,727,668 | ) |
| Maturities                of securities available for sale                                                  |   |     | 591,452    |   |     |   | 523,180 |   |
| Net                increase in loans                                                                        |   |     | (3,271,738 | )      |     |   | (4,979,138 | ) |
| Proceeds                from sales of securities                                                            |   |     | -          |   |     |   | 3,415,560 |   |
| Proceeds                from sales of premises and equipment                                                |   |     | 50         |   |     |   | - |   |
| FHLB                stock purchase                                                                          |   |     | (42,300    | )      |     |   | (114,500 | ) |
| FHLB                stock redemption                                                                        |   |     | -          |   |     |   | 148,500 |   |
| Additions                to premises and equipment                                                          |   |     | (21,252    | )      |     |   | (28,651 | ) |
| Net                cash used in investing activities                                                        |   |     | (4,199,411 | )      |     |   | (3,762,717 | ) |
|                                                                                                        |   |     |       |   |     |   |   |   |
| **CASH                FLOWS FROM FINANCING ACTIVITIES:**                                                    |   |     |       |   |     |   |   |   |
| Net                decrease in demand deposits, NOW accounts, MMDA and savings                accounts      |   |     | 2,796,286  |   |     |   | (353,748 | ) |
| Net                increase in time deposits                                                                |   |     | 6,321,329  |   |     |   | 5,328,049 |   |
| Issuance                of common stock                                                                     |   |     | 26         |   |     |   | - |   |
| Repayment                of FHLB                                                                            |   |     | (800,000   | )      |     |   | (5,500,000 | ) |
| Net                decrease in overnight borrowings                                                         |   |     | (306,000   | )      |     |   | - |   |
| Proceeds                from FHLB advances                                                                  |   |     | 800,000    |   |     |   | 5,500,000 |   |
| Net                cash (used in) provided by financing activities                                          |   |     | 8,811,641  |   |     |   | 4,974,301 |   |
|                                                                                                        |   |     |       |   |     |   |   |   |
| **NET                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS**                                     |   |     | 5,320,894  |   |     |   | 1,833,702 |   |
| **CASH                AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**                                         |   |     | 5,026,627  |   |     |   | 6,860,962 |   |
| **CASH                AND CASH EQUIVALENTS AT END OF PERIOD**                                               |   | $        | 10,347,521 |   |     | $      | 8,694,664 |   |
|                                                                                                        |   |     |       |   |     |   |   |   |

----

*Index*

**WESTSTAR      FINANCIAL SERVICES CORPORTION &SUBSIDIARY**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

|   | 1. | Weststar                Financial Services Corporation (the “Company”) is a holding company with                one subsidiary, The Bank of Asheville (the “Bank”).  The Bank is                a state chartered commercial bank, which was incorporated in North                Carolina on October 29, 1997.  The Bank provides consumer and                commercial banking services in Buncombe County and surrounding                area.  Common shares of The Bank of Asheville were exchanged for                common shares of Weststar Financial Services Corporation on April                29,                2000.  Weststar Financial Services Corporation formed Weststar                Financial Services Corporation I (the “Trust”) during October 2003 in                order to facilitate the issuance of trust preferred                securities.  The Trust is a statutory business trust formed                under the laws of the state of Delaware, of which all common securities                are owned by Weststar Financial Services Corporation.  Bank of                Asheville Mortgage Company, LLC (the “Mortgage Company”) is a state                chartered mortgage bank which was incorporated in North Carolina                on                October 19, 2004 of which Weststar Financial Services Corporation                is a 50%                owner.  The Mortgage Company originates conventional mortgage                loans. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | In                the normal course of business there are various commitments and contingent                liabilities such as commitments to extend credit, which are not reflected                on the financial statements.  The unused portions of commitments                to extend credit were $33,630,872 and $30,044,210 at March 31, 2007                and                December 31, 2006, respectively. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Basic                and diluted net income per shave have been computed by dividing net                income                for each period by the weighted average number of shares of common                stock                outstanding during each period. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Index*

| For                the Period Ended March 31,       |   | 2007   |      |   | 2006   |   |
|-----------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                |   |   |      |   |   |   |
| Weighted                average number of common    |   |   |      |   |   |   |
| shares                used in computing basic       |   |   |      |   |   |   |
| net                income per share                 |   |   | 1,684,120 |   |   |   | 1,681,290 |   |
| Effect                of dilutive stock options     |   |   | 146,194   |   |   |   | 110,584 |   |
| Weighted                average number of common    |   |   |      |   |   |   |   |   |
| shares                and dilutive potential common |   |   |      |   |   |   |   |   |
| shares                used in computing diluted net |   |   |      |   |   |   |   |   |
| income                per common share              |   |   | 1,830,314 |   |   |   | 1,791,874 |   |

|   | 4. | New                accounting Standards.  We adopted Financial Accounting Standards                Board’s Interpretation No. 48, “Accounting for Uncertainty in Income                Taxes, an interpretation of FASB No. 109” (“FIN 48”), effective January 1,                2007.  FIN 48 clarifies the accounting for uncertainty in income                taxes recognized in financial statements and requires the impact                of a tax                position to be recognized in the financial statements if that position                is                more likely than not of being sustained by the taxing                authority.  The adoption of FIN 48 did not have a material                effect on our consolidated financial position or results of                operations. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Index*

| **Item                2.** | **Management’s                Discussion and AnalysisFinancial Condition and                Results of Operations** |
|----------------------------|---------------------------------------------------------------------------------------------------------------------------|

**Weststar        Financial Services Corporation & Subsidiary**

**Management’s        Discussion and Analysis**

----

*Index*

----

*Index*

----

*Index*

**ASSET/LIABILITY      MANAGEMENT**

**Interest      Rate Gap Analysis. **

----

*Index*

----

*Index*

|                                                                                                |   |                                                |        |   |                       |   |        |                        |   |   |                         |   |   |          |        |    |   |   |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|-------------|--------|----------------------------|--------|-------------|-----------------------------|--------|--------|------------------------------|--------|--------|---------------|-------------|---------|--------|--------|
|                                                                                                |   | TERMS                TO REPRICING AT MARCH 31, 2007 |        |
|                                                                                                |   | 1-90                Days                            |        |   | 91-180                Days |   |        | 181-365                Days |   |   | TotalOne                Year |   |   | Non-sensitive |        |    | Total  |   |
| Interest-earning                assets:                                                             |   |                                                |        |   |                       |   |        |                        |   |   |                         |   |   |          |        |    |   |   |
| Interest                bearing deposits                                                            |   | $                                                   | 127,306     |   |                       |   | -           |                        |   |   | -                            |   |   | $             | 127,306     |    |   |   | - |   |   | $ | 127,306 |   |
| Federal                funds sold                                                                   |   |                                                | 4,434,000   |   |                       |   | -           |                        |   |   | -                            |   |   |          | 4,434,000   |    |   |   | - |   |   |   | 4,434,000 |   |
| Investment                securities                                                                |   |                                                | 1,409,432   |   |                       | $      | 1,107,488   |                        |   | $      | 1,806,900                    |   |   |          | 4,323,820   |    |   | $      | 22,957,962 |   |   |   | 27,281,782 |   |
| Federal   Home   Loan   Bank                           |   |                                                |        |   |                       |   |        |                        |   |   |                         |   |   |          |        |    |   |   |   |   |   |   |   |   |
| Stock                                                                                               |   |                                                | 499,300     |   |                       |   | -           |                        |   |   | -                            |   |   |          | 499,300     |    |   |   | - |   |   |   | 499,300 |   |
| Loans                (1)                                                                            |   |                                                | 97,836,287  |   |                       |   | 3,007,085   |                        |   |   | 2,523,955                    |   |   |          | 103,367,327 |    |   |   | 21,573,772 |   |   |   | 124,941,099 |   |
| Total                interest-earning assets                                                        |   |                                                | 104,306,325 |   |                       |   | 4,114,573   |                        |   |   | 4,330,855                    |   |   |          | 112,751,753 |    |   |   | 44,531,734 |   |   |   | 157,283,487 |   |
|                                                                                                |   |                                                |        |   |                       |   |        |                        |   |   |                         |   |   |          |        |    |   |   |   |   |   |   |   |   |
| Interest-bearing                liabilities:                                                        |   |                                                |        |   |                       |   |        |                        |   |   |                         |   |   |          |        |    |   |   |   |   |   |   |   |   |
| Time                deposits                                                                        |   |                                                | 23,872,987  |   |                       |   | 20,037,243  |                        |   |   | 14,743,010                   |   |   |          | 58,653,240  |    |   |   | 6,552,453 |   |   |   | 65,205,693 |   |
| All                other deposits                                                                   |   |                                                | 50,948,935  |   |                       |   | -           |                        |   |   | -                            |   |   |          | 50,948,935  |    |   |   | - |   |   |   | 50,948,935 |   |
| Long-term                debt                                                                       |   |                                                | 4,124,000   |   |                       |   | -           |                        |   |   | -                            |   |   |          | 4,124,000   |    |   |   | 4,000,000 |   |   |   | 8,124,000 |   |
| Total                interest-bearing liabilities                                                   |   |                                                | 78,945,922  |   |                       |   | 20,037,243  |                        |   |   | 14,743,010                   |   |   |          | 113,726,175 |    |   |   | 10,552,453 |   |   |   | 124,278,628 |   |
|                                                                                                |   |                                                |        |   |                       |   |        |                        |   |   |                         |   |   |          |        |    |   |   |   |   |   |   |   |   |
| Interest                sensitivity gap                                                             |   | $                                                   | 25,360,403  |   |                       | $      | (15,922,670 | )                           |   | $      | (10,412,155                  | )      |   | $             | (947,422    | )       |   | $      | 33,979,281 |   |   |   |   |   |
| Cumulative                interest sensitivity                                                      |   |                                                |        |   |                       |   |        |                        |   |   |                         |   |   |          |        |    |   |   |   |   |   |   |   |   |
| Gap                                                                                                 |   | $                                                   | 25,360,403  |   |                       | $      | 9,437,733   |                        |   | $      | (947,422                     | )      |   |          |        |    |   |   |   |   |   |   |   |   |
| Cumulative                ratio of interest –                                                 |   |                                                |        |   |                       |   |        |                        |   |   |                         |   |   |          |        |    |   |   |   |   |   |   |   |   |
| earning                assets as a percent                                                          |   |                                                |        |   |                       |   |        |                        |   |   |                         |   |   |          |        |    |   |   |   |   |   |   |   |   |
| of                interest sensitive                liabilities       |   |                                                | 130.1       | %      |                       |   | 20.5        | %                           |   |   | 29.4                         | %      |   |          | 99.1        | %  |   |   |   |   |   |   |   |   |
|                                                                                                |   |                                                |        |   |                       |   |        |                        |   |   |                         |   |   |          |        |    |   |   |   |   |   |   |   |   |

**ASSET      QUALITY**

----

*Index*

**Summary      of Allowance for Loan Losses**

|                                                  |   | For                the three months |      |   | For                the year ended |   |
|-------------------------------------------------------|--------|-------------------------------------|-----------|--------|-----------------------------------|--------|
|                                                  |   | ended                March 31,      |      |   | December                31,       |   |
|                                                  |   | 2007                                |      |   | 2006                              |   |   | 2006 |   |
|                                                  |   |                                |      |   |                              |   |   |   |   |
| Balance,                beginning of period           |   | $                                   | 1,884,080 |   |                              | $      | 1,760,377 |   |   | $ | 1,760,377 |   |
| Charge-offs:                                          |   |                                |      |   |                              |   |   |   |   |   |   |   |
| Commercial,                financial and agricultural |   |                                | (9,490    | )      |                              |   |   |   |   |   | (161,191 | ) |
| Real                estate:                           |   |                                |      |   |                              |   |   |   |   |   |   |   |
| Construction                                          |   |                                | -         |   |                              |   | - |   |   |   | - |   |
| Mortgage                                              |   |                                | -         |   |                              |   | (14,160 | ) |   |   | (14,160 | ) |
| Consumer                                              |   |                                | (10,681   | )      |                              |   | (10,294 | ) |   |   | (41,104 | ) |
| Total                charge-offs                      |   |                                | (20,171   | )      |                              |   | (24,454 | ) |   |   | (218,455 | ) |
|                                                  |   |                                |      |   |                              |   |   |   |   |   |   |   |
| Recoveries                                            |   |                                |      |   |                              |   |   |   |   |   |   |   |
| Commercial,                financial and agricultural |   |                                | 2,533     |   |                              |   | 5,053 |   |   |   | 22,538 |   |
| Real                estate:                           |   |                                |      |   |                              |   |   |   |   |   |   |   |
| Construction                                          |   |                                | -         |   |                              |   | - |   |   |   | - |   |
| Mortgage                -                             |   |                                | -         |   |                              |   | - |   |   |   | - |   |
| Consumer                                              |   |                                | 3,762     |   |                              |   | 13,061 |   |   |   | 34,975 |   |
| Total                recoveries                       |   |                                | 6,295     |   |                              |   | 18,114 |   |   |   | 57,513 |   |
| Net                (charge-offs) recoveries           |   |                                | (13,876   | )      |                              |   | (6,340 | ) |   |   | (160,942 | ) |
| Provision                charged to operations        |   |                                | 17,855    |   |                              |   | 90,850 |   |   |   | 284,645 |   |
| Balance,                end of period                 |   | $                                   | 1,888,059 |   |                              | $      | 1,844,887 |   |   | $ | 1,884,080 |   |
|                                                  |   |                                |      |   |                              |   |   |   |   |   |   |   |
|                                                  |   |                                |      |   |                              |   |   |   |   |   |   |   |
|                                                  |   |                                |      |   |                              |   |   |   |   |   |   |   |
| Percentage                of net charge-offs to       |   |                                |      |   |                              |   |   |   |   |   |   |   |
| average                loans                          |   |                                | .05       | %      |                              |   | .03 | % |   |   | .14 | % |
| Percentage                of allowance to             |   |                                |      |   |                              |   |   |   |   |   |   |   |
| period-end                loans                       |   |                                | 1.50      | %      |                              |   | 1.75 | % |   |   | 1.54 | % |

----

*Index*

|                                     |   | March                31, 2007 |      |   | December                31, 2006 |   |
|------------------------------------------|--------|-------------------------------|-----------|--------|----------------------------------|--------|
|                                     |   | Amount                of      |      |   | Percent                of        |   |   | Amount                of |   |   | Percent                of |   |
|                                     |   | Allowance                     |      |   | Total                Loans       |   |   | Allowance |   |   | Total                Loans |   |
|                                     |   |                          |      |   |                             |   |   |   |   |   |   |   |
| TYPE                OF LOAN:             |   |                          |      |   |                             |   |   |   |   |   |   |   |
| Real                Estate               |   | $                             | 1,460,083 |   |                             |   | 80 | % |   | $ | 1,443,604 |   |   |   | 80 | % |
| Commercial                and industrial |   |                          |      |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| loans                                    |   |                          | 392,748   |   |                             |   | 18 | % |   |   | 401,777 |   |   |   | 19 | % |
| Consumer                                 |   |                          | 35,228    |   |                             |   | 2 | % |   |   | 38,699 |   |   |   | 1 | % |
| Total                Allowance           |   | $                             | 1,888,059 |   |                             |   | 100 | % |   | $ | 1,884,080 |   |   |   | 100 | % |

**CAPITAL      RESOURCES**

----

*Index*

**REGULATORY      CAPITAL**

|                                              |   |                                  |   |   |         |   |   |                                 |   |   |                                 |   |   |                          |   |   |      |   |
|---------------------------------------------------|--------|---------------------------------------|--------|--------|--------------|--------|--------|--------------------------------------|--------|--------|--------------------------------------|--------|--------|-------------------------------|--------|--------|-----------|--------|
|                                              |   |                                  |   |   |         |   |   |                                 |   |   |                                 |   |   |                          |   |   |      |   |
|                                              |   |                                  |   |   |         |   |   |                                 |   |   |                                 |   |   | **To                Be Well** |   |
|                                              |   |                                  |   |   |         |   |   | **For                Capital**       |   |   | **Capitalized                Under** |   |
|                                              |   | **Actual**                            |   |   | **Adequacy** |   |   | **Prompt                Corrective** |   |
|                                              |   |                                  |   |   |         |   |   | **Purposes**                         |   |   | **Action                Provisions** |   |
|                                              |   | **Amount**                            |   |   | **Ratio**    |   |   | **Amount**                           |   |   | **Ratio**                            |   |   | **Amount**                    |   |   | **Ratio** |   |
|                                              |   | (Dollars                in Thousands) |   |
| As                of March 31, 2007               |   |                                  |   |   |         |   |   |                                 |   |   |                                 |   |   |                          |   |   |      |   |
| Total                Capital (to Risk Weighted    |   |                                  |   |   |         |   |   |                                 |   |   |                                 |   |   |                          |   |   |      |   |
| Assets)                                           |   |                                  |   |   |         |   |   |                                 |   |   |                                 |   |   |                          |   |   |      |   |
| Consolidated                                      |   | $                                     | 19,244 |   |         |   | 14.55  | %                                    |   | $      | 10,580                               |   |   |                          | 8.00   | %      |      | $      | 13,226 |   |   |   | 10.00 | % |
| Bank                                              |   | $                                     | 18,264 |   |         |   | 13.84  | %                                    |   | $      | 10,558                               |   |   |                          | 8.00   | %      |      | $      | 13,197 |   |   |   | 10.00 | % |
|                                              |   |                                  |   |   |         |   |   |                                 |   |   |                                 |   |   |                          |   |   |      |   |   |   |   |   |   |   |
| Tier                1 Capital (to Risk Weighted   |   |                                  |   |   |         |   |   |                                 |   |   |                                 |   |   |                          |   |   |      |   |   |   |   |   |   |   |
| Assets)                                           |   |                                  |   |   |         |   |   |                                 |   |   |                                 |   |   |                          |   |   |      |   |   |   |   |   |   |   |
| Consolidated                                      |   | $                                     | 17,588 |   |         |   | 13.30  | %                                    |   | $      | 5,290                                |   |   |                          | 4.00   | %      |      | $      | 7,935 |   |   |   | 6.00 | % |
| Bank                                              |   | $                                     | 16,611 |   |         |   | 12.59  | %                                    |   | $      | 5,279                                |   |   |                          | 4.00   | %      |      | $      | 7,918 |   |   |   | 6.00 | % |
|                                              |   |                                  |   |   |         |   |   |                                 |   |   |                                 |   |   |                          |   |   |      |   |   |   |   |   |   |   |
| Tier                1 Capital (to Average Assets) |   |                                  |   |   |         |   |   |                                 |   |   |                                 |   |   |                          |   |   |      |   |   |   |   |   |   |   |
| Consolidated                                      |   | $                                     | 17,588 |   |         |   | 10.93  | %                                    |   | $      | 6,434                                |   |   |                          | 4.00   | %      |      | $      | 8,042 |   |   |   | 5.00 | % |
| Bank                                              |   | $                                     | 16,611 |   |         |   | 10.34  | %                                    |   | $      | 6,423                                |   |   |                          | 4.00   | %      |      | $      | 8,029 |   |   |   | 5.00 | % |

**LIQUIDITY**

**IMPACT      OF INFLATION AND CHANGING PRICES**

----

*Index*

**Item      3.           Controls and      Procedures**

----

*Index*

**Part      II. OTHER INFORMATION**

| **Item                4.** | **Submission                of Matters to a Vote of Security                Holders** |
|----------------------------|---------------------------------------------------------------------------------------|

| **Item                5.** | **Other                Information** |
|----------------------------|--------------------------------------|

|   | (a) | None. |
|--------|-----|-------|

|   | (b) | None. |
|--------|-----|-------|

| **Item                6.** | **Exhibits** |
|----------------------------|--------------|

|   | (a) | Exhibits. |
|--------|-----|-----------|

|   | 31.1– | Certification                of the Chief Executive Officer pursuant to                Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted                pursuant to Section 302 of the Sarbanes-Oxley Act of                2002 |
|--------|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 31.2– | Certification                of the Chief Financial Officer pursuant to                Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted                pursuant to Section 302 of the Sarbanes-Oxley Act of                2002 |
|--------|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.1– | Certification                by the Chief Executive Officer pursuant to                18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley                Act of 2002 |
|--------|-------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.2– | Certification                by the Chief Financial Officer pursuant to                18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley                Act of 2002 |
|--------|-------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Index*

**SIGNATURES**

|                              |      | **WESTSTAR                FINANCIAL SERVICES CORPORATION**          |
|-----------------------------------|-----------|---------------------------------------------------------------------|
|                              |      |                                                                |
|                              |      |                                                                |
| Date:                May 11, 2007 |  By: | /s/     G.                Gordon Greenwood |
|                              |      |                                                                |
|                              |      | G.                Gordon Greenwood                                  |
|                              |      | President                and Chief Executive Officer                |
|                              |      |                                                                |
|                              |      |                                                                |
|                              |      |                                                                |
| Date:                May 11, 2007 | By:       | /s/     Randall                C. Hall     |
|                              |      |                                                                |
|                              |      | Randall                C. Hall                                      |
|                              |      | Executive                Vice President and Chief Financial         |
|                              |      | and                Principal Accounting Officer                     |
|                              |      |                                                                |