**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** |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

| o | **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.) |

**APPLICABLE      ONLY TO CORPORATE ISSUERS:**

----

| **INDEX**                                                                        | **Page**                                                                                       |
|----------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------|
|                                                                             |                                                                                           |   |
| Part                I - FINANCIAL INFORMATION                                    |                                                                                           |
|                                                                             |                                                                                           |   |
| Financial                Statements:                                             |                                                                                           |
|                                                                             | Consolidated                Balance Sheets                                                     |   |
|                                                                             | March                31, 2006 and December 31,                2005                             | 3 |
|                                                                             |                                                                                           |   |
|                                                                             | Consolidated                Statements of Operations                                           |   |
|                                                                             | Three                Months Ended March 31, 2006 and 2005                                      | 4 |
|                                                                             |                                                                                           |   |
| Consolidated                Statements of Comprehensive Income                   |                                                                                           |
|                                                                             | Three                Months Ended March 31, 2006 and 2005                                      | 5 |
|                                                                             |                                                                                           |   |
|                                                                             | Consolidated                Statements of Changes in Shareholders’                Equity |   |
|                                                                             | Three                Months Ended March 31, 2006 and                2005                       | 6 |
|                                                                             |                                                                                           |   |
| Consolidated                Statements of Cash                Flows              |                                                                                           |
|                                                                             | Three                Months Ended March 31, 2006 and                2005                       | 7 |
|                                                                             |                                                                                           |   |
|                                                                             | Notes                to Consolidated Financial                Statements                       | 8 |
|                                                                             |                                                                                           |   |
| Item                2 -Management’s                Discussion and Analysis |                                                                                           |
|                                                                             | Financial                Condition and Results of                Operations                    | 11 |
|                                                                             |                                                                                           |   |
| Item                3 - Controls and Procedures                                  | 19                                                                                             |
|                                                                             |                                                                                           |   |
| Part                II - OTHER INFORMATION                                       |                                                                                           |
|                                                                             |                                                                                           |   |
| Exhibit                Index                                                     | 20                                                                                             |
|                                                                             |                                                                                           |   |
| Signatures                                                                       | 21                                                                                             |

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**Part      I.    FINANCIAL      INFORMATION**

**Item      I.**    **Financial      Statements**

| **Weststar                Financial Services Corporation &                Subsidiary**** ****Consolidated                  Balance Sheets**  |   | (unaudited)               |        |                              |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|-------------|-----------------------------------|--------|
|                                                                                                                                                       |   | **March                  31,** |        | **December                  31,** |   |
|                                                                                                                                                       |   | **2006**                       |        | **2005***                         |   |
|                                                                                                                                                       |   |                           |        |                              |   |
| **ASSETS:**                                                                                                                                                |   |                           |        |                              |   |
| Cash                  and cash equivalents:                                                                                                                |   |                           |        |                              |   |   |   |
| Cash                  and due from banks                                                                                                                   |   | $                              | 6,679,762   |                              | $      | 6,243,192 |   |
| Interest-bearing                  deposits                                                                                                                 |   |                           | 454,902     |                              |   | 350,770 |   |
| Federal                  funds sold                                                                                                                        |   |                           | 1,560,000   |                              |   | 267,000 |   |
| Total                  cash and cash equivalents                                                                                                           |   |                           | 8,694,664   |                              |   | 6,860,962 |   |
| Investment                  securities -                                                                                                                   |   |                           |        |                              |   |   |   |
| Available                  for sale, at fair value (amortized cost of                                                                                      |   |                           |             |                              |   |  |   |
|  $27,197,458                  and $28,506,899, respectively)                                                                                          |   |                           | 26,512,936  |                              |   | 27,824,748 |   |
| Loans                                                                                                                                                      |   |                           | 105,453,650 |                              |   | 100,493,602 |   |
| Allowance                  for loan losses                                                                                                                 |   |                           | (1,844,887  | )                                 |   | (1,760,377 | ) |
| Net                  loans                                                                                                                                 |   |                           | 103,608,763 |                              |   | 98,733,225 |   |
| Premises                  and equipment, net                                                                                                               |   |                           | 2,527,137   |                              |   | 2,584,841 |   |
| Accrued                  interest receivable                                                                                                               |   |                           | 800,775     |                              |   | 707,771 |   |
| Federal                  Home Loan Bank stock, at cost                                                                                                     |   |                           | 497,500     |                              |   | 531,500 |   |
| Deferred                  income taxes                                                                                                                     |   |                           | 747,428     |                              |   | 715,310 |   |
| Foreclosed                  properties                                                                                                                     |   |                           | 139,750     |                              |   | 127,000 |   |
| Other                  assets                                                                                                                              |   |                           | 761,049     |                              |   | 668,178 |   |
| TOTAL                                                                                                                                                      |   | $                              | 144,290,002 |                              | $      | 138,753,535 |   |
|                                                                                                                                                       |   |                           |        |                              |   |   |   |
| **LIABILITIES                  AND SHAREHOLDERS' EQUITY:**                                                                                                 |   |                           |        |                              |   |   |   |
| Deposits:                                                                                                                                                  |   |                           |        |                              |   |   |   |
| Demand                                                                                                                                                     |   | $                              | 25,937,204  |                              | $      | 25,164,465 |   |
| NOW                  accounts                                                                                                                              |   |                           | 16,686,623  |                              |   | 18,102,736 |   |
| Money                  market accounts                                                                                                                     |   |                           | 30,311,220  |                              |   | 29,901,364 |   |
| Savings                                                                                                                                                    |   |                           | 2,262,442   |                              |   | 2,382,672 |   |
| Time                  deposits of $100,000 or more                                                                                                         |   |                           | 16,072,598  |                              |   | 13,240,038 |   |
| Other                  time deposits                                                                                                                       |   |                           | 32,817,113  |                              |   | 30,321,624 |   |
| Total                  deposits                                                                                                                            |   |                           | 124,087,200 |                              |   | 119,112,899 |   |
| Accrued                  interest payable                                                                                                                  |   |                           | 284,412     |                              |   | 266,835 |   |
| Other                  liabilities                                                                                                                         |   |                           | 816,120     |                              |   | 653,258 |   |
| Long-term                  debt                                                                                                                            |   |                           | 8,124,000   |                              |   | 8,124,000 |   |
| Total                  liabilities                                                                                                                         |   |                           | 133,311,732 |                              |   | 128,156,992 |   |
|                                                                                                                                                       |   |                           |        |                              |   |   |   |
| **SHAREHOLDERS'                  EQUITY:**                                                                                                                 |   |                           |        |                              |   |   |   |
| Preferred                  stock; authorized $1,000,000; issued and outstanding -                  none                                                    |   |                           | -           |                              |   | - |   |
| Common                  stock, $1 par value, authorized - 9,000,000                                                                                        |   |                           |        |
| shares;                  issued and outstanding - 1,401,266                                                                                                |   |                           | 1,401,266   |                              |   | 1,401,266 |   |
| Additional                  paid-in capital                                                                                                                |   |                           | 6,805,331   |                              |   | 6,805,331 |   |
| Retained                  earnings                                                                                                                         |   |                           | 3,192,311   |                              |   | 2,809,122 |   |
| Accumulated                  other comprehensive loss                                                                                                      |   |                           | (420,638    | )                                 |   | (419,176 | ) |
| Total                  shareholders' equity                                                                                                                |   |                           | 10,978,270  |                              |   | 10,596,543 |   |
| TOTAL                                                                                                                                                      |   | $                              | 144,290,002 |                              | $      | 138,753,535 |   |
|  *Derived                  from audited consolidated financial statements.See                  notes to consolidated financial statements.            |   |                           |        |                              |   |   |   |

Back          to Index

----

**Weststar      Financial Services Corporation &Subsidiary**

**Consolidated      Statements of Operations and ComprehensiveIncome**

|                                                                         |   | **Three                    Months**    |      |
|------------------------------------------------------------------------------|--------|----------------------------------------|-----------|
|                                                                         |   | **Ended                    March 31,** |      |
|                                                                         |   | **2006**                               |      | **2005** |   |
| **INTEREST                    INCOME:**                                      |   |                                   |      |   |   |   |   |
| Interest                    and fees on loans                                |   | $                                      | 2,085,117 |   | $ | 1,436,064 |   |
| Federal                    funds sold                                        |   |                                   | 16,992    |   |   | 44,116 |   |
| Interest-bearing                    deposits                                 |   |                                   | 12,627    |   |   | 6,899 |   |
| Investments:                                                                 |   |                                   |           |   |   |  |   |
| Taxable                    interest income                                   |   |                                   | 202,296   |   |   | 174,253 |   |
| Nontaxable                    interest income                                |   |                                   | 67,637    |   |   | 13,429 |   |
| Corporate                    dividends                                       |   |                                   | 6,163     |   |   | 2,619 |   |
| Total                    interest income                                     |   |                                   | 2,390,832 |   |   | 1,677,380 |   |
| **INTEREST                    EXPENSE:**                                     |   |                                   |           |   |   |  |   |
| Time                    deposits of $100,000 or more                         |   |                                   | 144,926   |   |   | 56,126 |   |
| Other                    time and savings deposits                           |   |                                   | 573,338   |   |   | 353,666 |   |
| Short-term                    borrowings                                     |   |                                   | 22,437    |   |   | 8,138 |   |
| Long-term                    debt                                            |   |                                   | 128,956   |   |   | 64,369 |   |
| Total                    interest expense                                    |   |                                   | 869,657   |   |   | 482,299 |   |
| **NET                    INTEREST INCOME**                                   |   |                                   | 1,521,175 |   |   | 1,195,081 |   |
| **PROVISION                    FOR LOAN LOSSES**                             |   |                                   | 90,850    |   |   | 240,505 |   |
| **NET                    INTEREST INCOME AFTER PROVISION**                   |   |                                   |           |   |   |  |   |
| **FOR                    LOAN LOSSES**                                       |   |                                   | 1,430,325 |   |   | 954,576 |   |
| **OTHER                    INCOME:**                                         |   |                                   |           |   |   |  |   |
| Service                    charges on deposit accounts                       |   |                                   | 289,173   |   |   | 269,701 |   |
| Other                    service fees and commissions                        |   |                                   | 71,598    |   |   | 85,834 |   |
| Securities                    losses                                         |   |                                   | (84,440   | ) |   | - |   |
| Equity                    in loss of Bank of Asheville Mortgage Company, LLC |   |                                   | (11,250   | ) |   | (27,172 | ) |
| Other                                                                        |   |                                   | 8,933     |   |   | 8,112 |   |
| Total                    other income                                        |   |                                   | 274,014   |   |   | 336,475 |   |
| **OTHER                    EXPENSES:**                                       |   |                                   |           |   |   |  |   |
| Salaries                    and wages                                        |   |                                   | 483,983   |   |   | 436,411 |   |
| Employee                    benefits                                         |   |                                   | 83,868    |   |   | 83,047 |   |
| Occupancy                    expense, net                                    |   |                                   | 86,246    |   |   | 85,538 |   |
| Equipment                    rentals, depreciation and                       |   |                                   |      |   |   |   |   |
| maintenance                                                                  |   |                                   | 92,864    |   |   | 87,639 |   |
| Supplies                                                                     |   |                                   | 60,938    |   |   | 62,684 |   |
| Professional                    fees                                         |   |                                   | 62,603    |   |   | 81,878 |   |
| Data                    processing fees                                      |   |                                   | 139,386   |   |   | 119,032 |   |
| Marketing                                                                    |   |                                   | 47,116    |   |   | 47,103 |   |
| Net                    expenses from foreclosed properties                   |   |                                   | 1,093     |   |   | 75,513 |   |
| Other                                                                        |   |                                   | 56,403    |   |   | 58,616 |   |
| Total                    other expenses                                      |   |                                   | 1,114,500 |   |   | 1,137,461 |   |
| **INCOME                    BEFORE INCOME TAXES**                            |   |                                   | 589,839   |   |   | 153,590 |   |
| **INCOME                    TAX PROVISION**                                  |   |                                   | 206,650   |   |   | 56,065 |   |
| **NET                    INCOME**                                            |   | $                                      | 383,189   |   | $ | 97,525 |   |
|                                                                         |   |                                   |           |   |   |  |   |
| **EARNINGS                    PER SHARE:**                                   |   |                                   |           |   |   |  |   |
| Basic                                                                        |   | $                                      | 0.23      |   | $ | 0.06 |   |
| Diluted                                                                      |   | $                                      | 0.21      |   | $ | 0.05 |   |

Back          to Index

----

**Weststar        Financial Services Corporation &Subsidiary**

**Consolidated        Statements of Operations and ComprehensiveIncome**

|                                                            |   | **Three****Months**                |    |
|-----------------------------------------------------------------|--------|------------------------------------|---------|
|                                                            |   | **Ended                March 31,** |    |
|                                                            |   | **2006**                           |    | **2005** |   |
|                                                            |   |                               |    |   |   |
| **NET                INCOME**                                   |   | $                                  | 383,189 |   | $ | 97,525 |   |
| **OTHER                COMPREHENSIVE LOSS**                     |   |                               |    |   |   |   |   |
| Unrealized                holding losses on securities          |   |                               |    |   |   |   |   |
| available                for sale                               |   |                               | (86,820 | ) |   | (312,141 | ) |
| Tax                effect                                       |   |                               | 33,488  |   |   | 120,331 |   |
| Unrealized                holding losses on securities          |   |                               |    |   |   |   |   |
| available                for sale, net of tax                   |   |                               | (53,332 | ) |   | (191,810 | ) |
| 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                                       |   |                               | (1,462  | ) |   | (191,810 | ) |
|                                                            |   |                               |    |   |   |   |   |
| COMPREHENSIVE                INCOME (LOSS)                      |   | $                                  | 381,727 |   | $ | (94,285 | ) |
|                                                            |   |                               |    |   |   |   |   |

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| **Weststar                Financial Services Corporation &                Subsidiary**     |   |
|------------------------------------------------------------------------------------------------|--------|
| **Consolidated                Statements of Changes in Shareholders’ Equity**(unaudited) |   |   |   |   |   |
| **For                the Three Months Ended March 31, 2006 and 2005**                          |   |   |   |   |   |   |   |

|                                                                                             |   |                              |      |         |         |           |                    |                    |      | **Accumulated** |         |       |   |
|--------------------------------------------------------------------------------------------------|--------|-----------------------------------|-----------|--------------|--------------|----------------|-------------------------|-------------------------|-----------|-----------------|--------------|------------|--------|
|                                                                                             |   |                              |      |         |         | **Additional** |                    |                    |      | **Other**       |         | **Total**  |   |
|                                                                                             |   | **Common                  Stock** |      | **Paid-In**  |         | **Retained**   |  **Comprehensive** | **Shareholders’** |      |
|                                                                                             |   | **Shares**                        |      | **Amount**   |         | **Capital**    |                    | **Earnings**            |      | **Loss**        |         | **Equity** |   |
| Balance                  December 31, 2004                                                       |   |                              | 1,166,208 |         | $            | 1,166,208      |                    | $                       | 7,030,589 |            | $            | 1,732,872  |   |   | ($119,482 | ) | $ | 9,810,187 |   |
| Stock                  split                                                                     |   |                              | 233,058   |         |         | 233,058        |                    |                    | (233,058  | )               |         |       |   |   |   |   |   |   |   |
| Net                  change in unrealized loss                  on securities available for sale |   |                              |      |         |         |           |                    |                    |      |            |         |       |   |   | (191,810 | ) |   | (191,810 | ) |
| Issuance                  of common stock                                                        |   |                              | 1,000     |         |         | 1,000          |                    |                    | 3,900     |            |         |       |   |   |  |   |   | 4,900 |   |
| Cash                  dividend paid in lieu of fractional shares                                 |   |                              |      |         |         |           |                    |                    |      |            |         | (2,387     | )      |   |   |   |   | (2,387 | ) |
| Net                  income                                                                      |   |                         |      |    |    |           |               |               |      |       |    | 97,525     |   |   |   |   |   | 97,525 |   |
| Balance                  March 31, 2005                                                          |   |                              | 1,400,266 |         | $            | 1,400,266      |                    | $                       | 6,801,431 |            | $            | 1,828,010  |   |   | ($311,292 | ) | $ | 9,718,415 |   |
|                                                                                             |   |                              |      |         |         |           |                    |                    |      |            |         |       |   |   |   |   |   |   |   |
| Balance                  December 31, 2005                                                       |   |                              | 1,401,266 |         | $            | 1,401,266      |                    | $                       | 6,805,331 |            | $            | 2,809,122  |   |   | ($419,176 | ) | $ | 10,596,543 |   |
| Net                  change in unrealized                                                        |   |                              |      |         |         |           |                    |                    |      |            |         |       |   |   |   |   |   |   |   |
| loss                  on securities available for sale                                           |   |                              |      |         |         |           |                    |                    |      |            |         |       |   |   | (1,462 | ) |   | (1,462 | ) |
| 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 |   |
|                                                                                             |   |                              |      |         |         |           |                    |                    |      |            |         |       |   |   |   |   |   |   |   |
|                                                                                             |   |                              |      |         |         |           |                    |                    |      |            |         |       |   |   |   |   |   |   |   |

Back          to Index

----

| **Weststar                  Financial Services Corporation &                  Subsidiary**Consolidated Statements of Cash Flows                (unaudited) |   |      |       |     |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|------------|----------|--------|
| **For                the Three Months Ended March 31,**                                                                                                        |   |  **2006** |       | **2005** |   |
|                                                                                                                                                           |   |      |       |     |   |
|                                                                                                                                                           |   |      |       |     |   |
| **CASH                FLOWS FROM OPERATING                ACTIVITIES:**                                                                                        |   |           |       |     |   |   |   |
| Net                income                                                                                                                                      |   | $              | 383,189    |     | $      | 97,525 |   |
| Adjustments                to reconcile net income to net cash used by operating                activities:                                                    |   |           |       |     |   |   |   |
| Depreciation                                                                                                                                                   |   |           | 86,355     |     |   | 93,541 |   |
| Provision                for loan losses                                                                                                                       |   |           | 90,850     |     |   | 240,505 |   |
| Premium                amortization and discount accretion, net                                                                                                |   |           | 13,920     |     |   | 20,915 |   |
| Deferred                income tax provision                                                                                                                   |   |           | (31,200    | )        |   | (33,915 | ) |
| Net                expenses from foreclosed properties                                                                                                         |   |           | -          |     |   | 69,428 |   |
| Losses                on sales of securities                                                                                                                   |   |           | 84,440     |     |   | - |   |
| Increase                in accrued interest receivable                                                                                                         |   |           | (93,004    | )        |   | (31,403 | ) |
| Increase                in other assets                                                                                                                        |   |           | (92,871    | )        |   | (3,715 | ) |
| Increase                in accrued interest payable                                                                                                            |   |           | 17,577     |     |   | 31,534 |   |
| Increase                in other liabilities                                                                                                                   |   |           | 162,862    |     |   | 84,231 |   |
| Net                cash provided by operating activities                                                                                                       |   |           | 622,118    |     |   | 568,646 |   |
|                                                                                                                                                           |   |           |       |     |   |   |   |
| **CASH                FLOWS FROM INVESTING ACTIVITIES:**                                                                                                       |   |           |       |     |   |   |   |
| Purchases                of securities available for sale                                                                                                      |   |           | (2,727,668 | )        |   | (500,000 | ) |
| Maturities                of securities available for sale                                                                                                     |   |           | 523,180    |     |   | 881,256 |   |
| Net                increase in loans                                                                                                                           |   |           | (4,979,138 | )        |   | (2,658,645 | ) |
| Proceeds                from sales of foreclosed properties                                                                                                    |   |           | -          |     |   | 153,378 |   |
| Proceeds                from sales of securities                                                                                                               |   |           | 3,415,560  |     |   | - |   |
| Proceeds                from sales of premises and equipment                                                                                                   |   |           | -          |     |   | 1,947 |   |
| FHLB                stock purchase                                                                                                                             |   |           | (114,500   | )        |   | (223,600 | ) |
| FHLB                stock redemption                                                                                                                           |   |           | 148,500    |     |   | - |   |
| Additions                to premises and equipment                                                                                                             |   |           | (28,651    | )        |   | (71,718 | ) |
| Net                cash used in investing activities                                                                                                           |   |           | (3,762,717 | )        |   | (2,417,382 | ) |
|                                                                                                                                                           |   |           |       |     |   |   |   |
| **CASH                FLOWS FROM FINANCING ACTIVITIES:**                                                                                                       |   |           |       |     |   |   |   |
| Net                decrease in demand deposits, NOW accounts, MMDA and savings                accounts                                                         |   |           | (353,748   | )        |   | (11,420,601 | ) |
| Net                increase in time deposits                                                                                                                   |   |           | 5,328,049  |     |   | 5,252,310 |   |
| Cash                paid for fractional shares                                                                                                                 |   |           | -          |     |   | (2,387 | ) |
| Issuance                of common stock                                                                                                                        |   |           | -          |     |   | 4,900 |   |
| Repayment                of FHLB                                                                                                                               |   |           | (5,500,000 | )        |   | - |   |
| Proceeds                from FHLB advances                                                                                                                     |   |           | 5,500,000  |     |   | 4,000,000 |   |
| Net                cash (used in) provided by financing activities                                                                                             |   |           | 4,974,301  |     |   | (2,165,778 | ) |
|                                                                                                                                                           |   |           |       |     |   |   |   |
| **NET                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS**                                                                                        |   |           | 1,833,702  |     |   | (4,014,514 | ) |
| **CASH                AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**                                                                                            |   |           | 6,860,962  |     |   | 19,621,267 |   |
| **CASH                AND CASH EQUIVALENTS AT END OF PERIOD**                                                                                                  |   | $              | 8,694,664  |     | $      | 15,606,753 |   |
|                                                                                                                                                           |   |           |       |     |   |   |   |
|                                                                                                                                                           |   |           |       |     |   |   |   |
|                                                                                                                                                           |   |           |       |     |   |   |   |

Back          to 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 $29,237,357 and $25,580,877 at March 31, 2006 and December                  31,                  2005, 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. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| For                  the Period Ended March 31,       |   |  2006   |      |  2005   |   |
|-------------------------------------------------------|--------|--------------|-----------|--------------|--------|
|                                                  |   |    |      |    |   |
| Weighted                  average number of common    |   |         |      |         |   |   |   |
| shares                  used in computing basic       |   |         |      |         |   |   |   |
| net                  income per share                 |   |         | 1,681,290 |         |   | 1,679,601 |   |
| Effect                  of dilutive stock options     |   |         | 110,584   |         |   | 94,916 |   |
| Weighted                  average number of common    |   |         |      |         |   |   |   |
| shares                  and dilutive potential common |   |         |      |         |   |   |   |
| shares                  used in computing diluted net |   |         |      |         |   |   |   |
| income                  per common share              |   |         | 1,791,874 |         |   | 1,774,517 |   |

| 4. | Effective                  January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),                  *Share-Based                  Payments*,                  (“SFAS No. 123R”) which was issued by the FASB in December 2004. SFAS No.                  123R revises SFAS No. 123 *Accounting                  for Stock Based Compensation*,                  and supersedes APB No. 25, *Accounting                  for Stock Issued to Employees*,                  (APB No. 25) and its related interpretations. SFAS No. 123R requires                  recognition of the cost of employee services received in exchange                  for an                  award of equity instruments in the financial statements over the                  period                  the employee is required to perform the services in exchange for                  the award                  (presumptively the vesting period). SFAS No. 123R also requires                  measurement of the cost of employee services received in exchange                  for an                  award based on the grant-date fair value of the award. SFAS No.                  123R also                  amends SFAS No. 95 *Statement                  of Cash Flows*,                  to require that excess tax benefits be reported as financing cash                  in                  flows, rather than as a reduction of taxes paid, which is included                  within                  operating cash flows. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                        |   |                        |   | Outstanding                  Options |   | Weighted |   |
|---------------------------------------------|--------|-----------------------------|--------|--------------------------------------|--------|----------|--------|
|                                        |   | Shares                      |   |                                 |   | Weighted |   | Average |   |
|                                        |   | Available                   |   |                                 |   | Average  |   | Remaining |   |
|                                        |   | For                  Future |   | Number                               |   | Exercise |   | Contractual |   |
|                                        |   | Grants                      |   | Outstanding                          |   | Price    |   | Term |   |
| At                  December 31, 2005       |   |                        | 3,145  |                                 |   | 225,223  |   | $ | 4.08 |   |   | 5.20 |   |
| Exercised                                   |   |                        | -      |                                 |   | -        |   |   | - |   |   | - |   |
| Authorized                                  |   |                        | -      |                                 |   | -        |   |   | - |   |   | - |   |
| Forfeited                                   |   |                        | -      |                                 |   | -        |   |   | - |   |   | - |   |
| Granted                                     |   |                        | -      |                                 |   | -        |   |   | - |   |   | - |   |
| Outstanding                  March 31, 2006 |   |                        | 3,145  |                                 |   | 225,223  |   | $ | 4.08 |   |   | 5.20 |   |
| Exercisable                  March 31, 2006 |   |                        | -      |                                 |   | 225,223  |   | $ | 4.08 |   |   | 5.20 |   |

| For                  the Period Ended March 31,              |   | 2005  |   |
|--------------------------------------------------------------|--------|------------|--------|
|                                                         |   |       |   |
| Net                  income as reported                      |   | $          | 97,525 |   |
| Less:                  Total stock-based employee            |   |       |   |   |
| compensation                  expense determined             |   |       |   |   |
| under                  fair value method for all awards, net |   |       |   |   |
| of                  related tax effects                      |   |       | 25,147 |   |
| Pro                  forma net income                        |   | $          | 72,378 |   |
|                                                         |   |       |   |   |
| Net                  income per share:                       |   |       |   |   |
| As                  reported:                                |   |       |   |   |
|                                                         |   |       |   |   |
| Basic                                                        |   | $          | 0.06   |   |
| Diluted                                                      |   | $          | 0.05   |   |
|                                                         |   |       |   |   |
| Pro                  forma:                                  |   |       |   |   |
|                                                         |   |       |   |   |
| Basic                                                        |   | $          | 0.04   |   |
|  Diluted                                                |   | $          | 0.04   |   |

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**Item      2.**
 
**Management’s      Discussion and Analysis **
**Financial      Condition and Results of Operations**

**Weststar      Financial Services Corporation & Subsidiary**

**Management’s      Discussion and Analysis**

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**ASSET/LIABILITY      MANAGEMENT**

**Interest      Rate Gap Analysis. **

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|                                              |   | TERMS                TO REPRICING AT MARCH 31, 2005 |       |
|---------------------------------------------------|--------|-----------------------------------------------------|------------|
|                                              |   | 1-90                Days                            |       | 91-180                Days |   | 181-365                Days |   | Total                One Year |   | Non-Sensitive |   | Total |   |
| Interest-earning                assets:           |   |                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                bearing deposits          |   | $                                                   | 454,902    |   |   | - |   |   | - |   | $ | 454,902 |   |   | - |   | $ | 454,902 |   |
| Federal                funds sold                 |   |                                                | 1,560,000  |   |   | - |   |   | - |   |   | 1,560,000 |   |   | - |   |   | 1,560,000 |   |
| Investment                securities              |   |                                                | 4,009,047  |   | $ | 5,057,284 |   | $ | 1,108,290 |   |   | 10,174,621 |   | $ | 17,022,837 |   |   | 27,197,458 |   |
| Federal                Home Loan Bank stock       |   |                                                | -          |   |   | - |   |   | - |   |   | - |   |   | 497,500 |   |   | 497,500 |   |
| Loans                (1)                          |   |                                                | 81,721,460 |   |   | 1,475,083 |   |   | 4,724,576 |   |   | 87,921,119 |   |   | 15,678,382 |   |   | 103,599,501 |   |
| Total                interest-earning assets      |   |                                                | 87,745,409 |   |   | 6,532,367 |   |   | 5,832,866 |   |   | 100,110,642 |   |   | 33,198,719 |   |   | 133,309,361 |   |
|                                              |   |                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                liabilities:      |   |                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Time                deposits                      |   |                                                | 19,069,824 |   |   | 12,980,222 |   |   | 16,105,638 |   |   | 48,155,684 |   |   | 734,027 |   |   | 48,889,711 |   |
| All                other deposits                 |   |                                                | 49,260,285 |   |   | - |   |   | - |   |   | 49,260,285 |   |   | - |   |   | 49,260,285 |   |
| Long-term                debt                     |   |                                                | 4,124,000  |   |   | - |   |   | - |   |   | 4,124,000 |   |   | 4,000,000 |   |   | 8,124,000 |   |
| Total                interest-bearing liabilities |   |                                                | 72,454,109 |   |   | 12,980,222 |   |   | 16,105,638 |   |   | 101,539,969 |   |   | 4,734,027 |   |   | 106,273,996 |   |
|                                              |   |                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                sensitivity gap           |   | $                                                   | 15,291,300 |   | $ | (6,447,855 | ) | $ | (10,272,772 | ) | $ | (1,429,327 | ) | $ | 28,464,692 |   |   |   |   |
| Cumulative                interest sensitivity    |   |                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gap                                               |   | $                                                   | 15,291,300 |   | $ | 8,843,445 |   | $ | (1,429,327 | ) |   |   |   |   |   |   |   |   |   |
| Cumulative                ratio of interest -     |   |                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| earning                assets as a percent        |   |                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| of                interest sensitive liabilities  |   |                                                | 121.1      | % |   | 50.3 | % |   | 36.2 | % |   | 98.6 | % |   |   |   |   |   |   |

**ASSET      QUALITY**

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**Summary      of Allowance for Loan Losses**

|                                                          |   | For                the three months |      | For                the year ended |   |
|---------------------------------------------------------------|--------|-------------------------------------|-----------|-----------------------------------|--------|
|                                                          |   | ended                March 31,      |      | December                31,       |   |
|                                                          |   | 2006                                |      | 2005                              |   | 2005 |   |
| Balance,                beginning of period                   |   | $                                   | 1,760,377 |                              | $      | 1,608,366 |   | $ | 1,608,366 |   |
| Charge-offs:                                                  |   |                                |      |                              |   |   |   |   |   |   |
| Commercial,                financial and agricultural         |   |                                | -         |                              |   | (148,471 | ) |   | (207,106 | ) |
| Real                estate:                                   |   |                                |      |                              |   |   |   |   |   |   |
| Construction                                                  |   |                                | -         |                              |   | - |   |   | - |   |
| Mortgage                                                      |   |                                | (14,161   | )                                 |   | 48,000 |   |   | (129,401 | ) |
| Consumer                                                      |   |                                | (10,293   | )                                 |   | (6,622 | ) |   | (33,339 | ) |
| Total                charge-off                               |   |                                | (24,454   | )                                 |   | (203,093 | ) |   | (369,846 | ) |
|                                                          |   |                                |      |                              |   |   |   |   |   |   |
| Recoveries                                                    |   |                                |      |                              |   |   |   |   |   |   |
| Commercial,                financial and agricultural         |   |                                | 5,053     |                              |   | 1,740 |   |   | 28,488 |   |
| Real                estate:                                   |   |                                |      |                              |   |   |   |   |   |   |
| Construction                                                  |   |                                | -         |                              |   | - |   |   | - |   |
| Mortgage                                                      |   |                                | -         |                              |   | - |   |   | - |   |
| Consumer                                                      |   |                                | 13,061    |                              |   | 7,642 |   |   | 27,099 |   |
| Total                recoveries                               |   |                                | 18,114    |                              |   | 9,382 |   |   | 55,587 |   |
| Net                (charge-offs) recoveries                   |   |                                | (6,340    | )                                 |   | (193,711 | ) |   | (314,259 | ) |
| Provision                charged to operations                |   |                                | 90,850    |                              |   | 240,505 |   |   | 466,270 |   |
| Balance,                end of period                         |   | $                                   | 1,844,887 |                              | $      | 1,655,160 |   | $ | 1,760,377 |   |
| Percentage                of net charge-offs to average loans |   |                                | .03       | %                                 |   | .90 | % |   | .35 | % |
| Percentage                of allowance to period-end loans    |   |                                | 1.75      | %                                 |   |  1.90 | %  |   | 1.75 | % |

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|                                     |   | March                31, 2006 |      | December                31, 2005 |   |
|------------------------------------------|--------|-------------------------------|-----------|----------------------------------|--------|
|                                     |   | Amount                of      |      | Percent                of        |   | Amount                of |   | Percent                of |   |
|                                     |   | Allowance                     |      | Total                Loans       |   | Allowance |   | Total                Loans |   |
|                                     |   |                          |      |                             |   |   |   |   |   |
| TYPE                OF LOAN:             |   |                          |      |                             |   |   |   |   |   |   |   |   |   |
| Real                estate               |   | $                             | 1,456,811 |                             |   | 78 | % | $ | 1,350,460 |   |   | 78 | % |
| Commercial                and industrial |   |                          |      |                             |   |   |   |   |   |   |   |   |   |
| loans                                    |   |                          | 326,766   |                             |   | 20 | % |   | 341,925 |   |   | 19 | % |
| Consumer                                 |   |                          | 61,310    |                             |   | 2 | % |   | 67,992 |   |   | 3 | % |
| Total                allowance           |   | $                             | 1,844,887 |                             |   | 100 | % | $ | 1,760,377 |   |   | 100 | % |

**CAPITAL      RESOURCES**

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**REGULATORY      CAPITAL**

|                                                    |   |                                  |   |                                 |   |                                 |   |                                 |   | **To                Be Well**        |   |
|---------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|
|                                                    |   |                                  |   |                                 |   |                                 |   |                                 |   | **Capitalized                Under** |   |
|                                                    |   |                                  |   |                                 |   | **For                Capital**       |   | **Prompt                Corrective** |   |
|                                                    |   | **Actual**                            |   | **Adequacy                Purposes** |   | **Action                Provisions** |   |
|                                                    |   | **Amount**                            |   | **Ratio**                            |   | **Amount**                           |   | **Ratio**                            |   | **Amount**                           |   | **Ratio** |   |
|                                                    |   | (Dollars                in Thousands) |   |
| As                of March 31, 2006                     |   |                                  |   |                                 |   |                                 |   |                                 |   |                                 |   |   |   |   |   |   |   |   |   |
| Total                Capital (to Risk Weighted Assets)  |   |                                  |   |                                 |   |                                 |   |                                 |   |                                 |   |   |   |   |   |   |   |   |   |
| Consolidated                                            |   | $                                     | 16,805 |                                 |   | 15.00                                | %      | $                                    | 8,964  |                                 |   | 8.00 | % | $ | 11,205 |   |   | 10.00 | % |
| Bank                                                    |   | $                                     | 16,115 |                                 |   | 14.42                                | %      | $                                    | 8,939  |                                 |   | 8.00 | % | $ | 11,173 |   |   | 10.00 | % |
|                                                    |   |                                  |   |                                 |   |                                 |   |                                 |   |                                 |   |   |   |   |   |   |   |   |   |
| Tier                1 Capital (to Risk Weighted Assets) |   |                                  |   |                                 |   |                                 |   |                                 |   |                                 |   |   |   |   |   |   |   |   |   |
| Consolidated                                            |   | $                                     | 15,199 |                                 |   | 13.57                                | %      | $                                    | 4,482  |                                 |   | 4.00 | % | $ | 6,723 |   |   | 6.00 | % |
| Bank                                                    |   | $                                     | 14,713 |                                 |   | 13.17                                | %      | $                                    | 4,469  |                                 |   | 4.00 | % | $ | 6,704 |   |   | 6.00 | % |
|                                                    |   |                                  |   |                                 |   |                                 |   |                                 |   |                                 |   |   |   |   |   |   |   |   |   |
| Tier                1 Capital (to Average Assets)       |   |                                  |   |                                 |   |                                 |   |                                 |   |                                 |   |   |   |   |   |   |   |   |   |
| Consolidated                                            |   | $                                     | 15,199 |                                 |   | 10.91                                | %      | $                                    | 5,574  |                                 |   | 4.00 | % | $ | 6,967 |   |   | 5.00 | % |
| Bank                                                    |   | $                                     | 14,713 |                                 |   | 10.58                                | %      | $                                    | 5,563  |                                 |   | 4.00 | % | $ | 6,953 |   |   | 5.00 | % |

**LIQUIDITY**

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**IMPACT      OF INFLATION AND CHANGING PRICES**

**Item      3.** **Controls      and Procedures**

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**Part      II.** **OTHER      INFORMATION**

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

**Item      6.   **
**Exhibits**

31.1

31.2

32.1

32.2

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----

**SIGNATURES**

|                              |   |                                                        |   |
|-----------------------------------|--------|-------------------------------------------------------------|--------|
|                              |   | **WESTSTAR                FINANCIAL SERVICES CORPORATION**  |   |
|                              |   |                                                        |   |
|                              |   |                                                        |   |
| Date:                May 12, 2006 | By:    | /s/G.                Gordon Greenwood                       |   |
|                              |   |                                                        |   |
|                              |   | G.                Gordon Greenwood                          |   |
|                              |   | President                and Chief Executive Officer        |   |
|                              |   |                                                        |   |
|                              |   |                                                        |   |
|                              |   |                                                        |   |
| Date:                May 12, 2006 | By:    | /s/Randall                C. Hall                           |   |
|                              |   |                                                        |   |
|                              |   | Randall                C. Hall                              |   |
|                              |   | Executive                Vice President and Chief Financial |   |
|                              |   | and                Principal Accounting Officer             |   |

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