UNITED STATES SECURITITES AND EXCHANGE COMMISSION
                             Washington, D.C. 29549

                                   FORM 10-QSB
                                   (Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURTIES EXCHANGE
     ACT OF 1934

For the quarterly period ended June 30, 2004

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _____________________ to_______________________

                        Commission File Number: 000-30515

                     Weststar Financial Services Corporation
             (Exact name of registrant as specified in its charter)

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

                      79 Woodfin Place, Asheville NC 28801
                    (Address of principal executive offices)

                                  828.252.1735
              (Registrant's telephone number, including area code)
______________________________________________________________________________
   (Former name, former address and former fiscal year, if changed since last
                                     report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.  Yes     X     No
                                           ---       ---

                     APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

Common stock,  $1.00 par value - 1,166,208  shares  outstanding as of August 10,
2004.


                                                                             1


<PAGE>


INDEX                                                              Page

Part I - FINANCIAL INFORMATION

Financial Statements:
      Consolidated Balance Sheets
        June 30, 2004 and December 31, 2003                        3

      Consolidated Statements of Operations
        Three and Six Months Ended June 30, 2004 and 2003          4

      Consolidated Statements of Comprehensive Income
        Three and Six Months Ended June 30, 2004 and 2003          5

      Consolidated Statement of Changes in Shareholders' Equity
        Six Months Ended June 30, 2004 and 2003                    6

      Consolidated Statements of Cash Flows
        Six Months Ended June 30, 2004 and 2003                    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


                                                                             2

<PAGE>


PART I.     FINANCIAL INFORMATION

Item I. Financial Statements


<TABLE>
<CAPTION>
Weststar Financial Services Corporation & Subsidiaries
Consolidated Balance Sheets                                              (unaudited)

                                                                           June 30,            December 31,
                                                                            2004                  2003*
                                                                        -------------        -------------
  <S>                                                                   <C>                  <C>
  ASSETS:
  Cash and cash equivalents:
    Cash and due from banks                                             $   5,125,884        $   3,657,060
    Interest-bearing deposits                                                 328,802               39,617
    Federal funds sold                                                     11,019,000            8,294,000
                                                                        -------------        -------------
        Total cash and cash equivalents                                    16,473,686           11,990,677
  Investment securities -
    Available for sale, at fair value (amortized cost of
    $23,568,562 and $18,643,453, respectively)                             23,124,924           18,512,297
                                                                        -------------        -------------
  Loans                                                                    76,954,439           74,753,066
  Allowance for loan losses                                                (1,424,804)          (1,174,003)
                                                                        -------------        -------------
  Net loans                                                                75,529,635           73,579,063
  Premises and equipment, net                                               2,546,236            2,333,869
  Accrued interest receivable                                                 449,784              457,814
  Federal Home Loan Bank stock, at cost                                       272,000              175,400
  Deferred income taxes                                                       441,222              220,460
  Foreclosed properties                                                     1,210,221            1,266,969
  Other assets                                                                403,113              525,739
                                                                        -------------        -------------
  TOTAL                                                                 $ 120,450,821        $ 109,062,288
                                                                        =============        =============

  LIABILITIES AND SHAREHOLDERS' EQUITY:
  Deposits:
    Demand                                                              $  16,918,771        $  17,707,429
    NOW accounts                                                           22,901,423           22,923,031
    Money market accounts                                                  28,304,304           25,469,714
    Savings                                                                 2,147,336            1,973,225
    Time deposits of $100,000 or more                                       5,860,662            4,966,351
    Other time deposits                                                    27,086,815           20,361,788
                                                                        -------------        -------------
          Total deposits                                                  103,219,311           93,401,538
  Borrowings                                                                2,000,000           2,000,0000
  Accrued interest payable                                                    154,267             120,8533
  Other liabilities                                                         1,785,544              348,949
  Trust preferred securities                                                4,000,000            4,000,000
                                                                        -------------        -------------
        Total liabilities                                                 111,159,122           99,871,340
                                                                        -------------        -------------


  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 - 1,166,208 and 1,166,208,
    respectively                                                            1,166,208            1,166,208
  Additional paid-in capital                                                7,030,589            7,030,589
  Retained earnings                                                         1,367,518            1,074,747
  Accumulated other comprehensive loss                                       (272,616)             (80,596)
                                                                        -------------        -------------
        Total shareholders' equity                                          9,291,699            9,190,948
                                                                        -------------        -------------
  TOTAL                                                                 $ 120,450,821        $ 109,062,288
                                                                        =============        =============

</TABLE>

*Derived from audited consolidated financial statements.
 See notes to consolidated financial statements.

                                                                             3


<PAGE>

<TABLE>
<CAPTION>
Weststar Financial Services Corporation & Subsidiaries
Consolidated Statements Of Operations (unaudited)   Three Months                         Six Months
                                                    Ended June 30,                      Ended June 30,
                                                2004              2003              2004              2003
                                             -----------       -----------       -----------       -----------
<S>                                          <C>               <C>               <C>               <C>
INTEREST INCOME:
Interest and fees on loans                   $ 1,271,482       $ 1,208,369       $ 2,585,818       $ 2,388,093
Federal funds sold                                27,318            23,452            35,427            49,403
Interest-bearing deposits                          2,114               182             2,729               304
Investments:
  Taxable interest income                        124,543            84,416           253,515           170,513
  Nontaxable interest income                      13,054            14,329            27,607            24,096
  Corporate dividends                              1,554             2,550             3,101             5,446
                                             -----------       -----------       -----------       -----------
     Total interest income                     1,440,065         1,333,298         2,908,197         2,637,855
                                             -----------       -----------       -----------       -----------
INTEREST EXPENSE:
Time deposits of $100,000 or more                 28,559            58,167            55,411           115,768
Other time and savings deposits                  280,334           323,935           527,176           643,806
Federal funds purchased                               --                --             1,358                --
Other interest expense                            51,566             2,637           102,969             4,913
                                             -----------       -----------       -----------       -----------
     Total interest expense                      360,459           384,739           686,914           764,487
                                             -----------       -----------       -----------       -----------
NET INTEREST INCOME                            1,079,606           948,559         2,221,283         1,873,368
PROVISION FOR LOAN LOSSES                        290,000           288,380           612,800           643,380
                                             -----------       -----------       -----------       -----------
NET INTEREST INCOME AFTER PROVISION
 FOR LOAN LOSSES                                 789,606           660,179         1,608,483         1,229,988
                                             -----------       -----------       -----------       -----------
OTHER INCOME:
Service charges on deposit accounts              321,613           291,444           622,272           536,034
Other service fees and commissions                84,034           149,201           167,379           238,585
Securities gains                                      --            45,482            31,613            45,482
Other                                              8,563             6,392            18,643            10,555
                                             -----------       -----------       -----------       -----------
     Total other income                          414,210           492,519           839,907           830,656
                                             -----------       -----------       -----------       -----------
OTHER EXPENSES:
Salaries and wages                               350,784           331,921           756,522           667,019
Employee benefits                                 67,847            57,883           146,101           114,822
Occupancy expense, net                            79,995            52,178           157,729           101,991
Equipment rentals, depreciation and
  Maintenance                                     81,594            62,732           161,724           120,648
Supplies                                          62,980            58,581           124,646           105,316
Professional fees                                185,110           163,545           372,820           329,038
Marketing                                         51,503            40,307            86,951            55,908
Other                                             96,048           128,290           179,743           196,735
                                             -----------       -----------       -----------       -----------
     Total other expenses                        975,861           895,437         1,986,236         1,691,477
                                             -----------       -----------       -----------       -----------
INCOME BEFORE INCOME TAXES                       227,955           257,261           462,154           369,167
INCOME TAX PROVISION                              87,295           102,100           169,305           142,100
                                             -----------       -----------       -----------       -----------
NET INCOME                                   $   140,660       $   155,161       $   292,849       $   227,067
                                             ===========       ===========       ===========       ===========

EARNINGS PER SHARE:
Basic                                        $      0.12       $      0.14       $       .25       $       .20
                                             ===========       ===========       ===========       ===========
Diluted                                      $      0.11       $      0.13       $       .24       $       .19
                                             ===========       ===========       ===========       ===========

</TABLE>

See notes to consolidated financial statements
                                                                             4


<PAGE>

<TABLE>
<CAPTION>
Weststar Financial Services Corporation & Subsidiaries
Consolidated Statements of Comprehensive income (Loss) (unaudited)
                                                             Three Months                      Six Months
                                                             Ended June 30,                   Ended June 30,
                                                        2004              2003            2004            2003
                                                    -----------       -----------     -----------     -----------
<S>                                                  <C>              <C>              <C>             <C>

NET INCOME                                           $  140,660       $ 155,161        $  292,849      $ 227,067
OTHER COMPREHENSIVE INCOME
  Unrealized holding gains (losses) on securities
    available for sale                                 (451,555)         70,389          (280,878)       111,746
  Tax effect                                            174,074         (27,184)          108,278        (43,156)
                                                     ----------       ---------        ----------      ---------

  Unrealized holding gains (losses) on securities
    available for sale, net of tax                     (277,481)         43,205          (172,600)        68,590
  Reclassification adjustment for realized gains             --         (45,482)          (31,613)       (45,482)
    Tax effect                                               --          17,565            12,193         17,565
                                                     ----------       ---------        ----------      ---------
Reclassification adjustment for realized gains,
     net of tax                                              --         (27,917)          (19,420)       (27,917)
OTHER COMPREHENSIVE INCOME (LOSS),
   NET  OF TAX                                         (277,481)         15,288          (192,020)        40,673
                                                     ----------       ---------        ----------      ---------
COMPRHENSIVE INCOME (LOSS)                           $ (136,821)      $ 170,449        $  100,829      $ 267,740
                                                     ==========       =========        ==========      =========
</TABLE>

See notes to consolidated financial statements.
                                                                             5


<PAGE>

<TABLE>
<CAPTION>
Weststar Financial Services Corporation & Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
For the Six Months Ended June 30, 2004 and 2003


                                                                                               Accumulated
                                                                  Additional                      Other         Total
                                           Common Stock            Paid-in        Retained    Comprehensive  Shareholders'
                                        Shares       Amount        Capital        Earnings     Income/(Loss)    Equity
                                       ----------------------------------------------------------------------------------
<S>                                    <C>         <C>           <C>            <C>           <C>            <C>
Balance December 31, 2002                957,539   $   957,539   $ 7,120,187    $   561,003    $    30,425    $ 8,669,154
  Net change in unrealized
     gain on securities held for sale                                                               40,673         40,673
Stock dividend                           191,507       191,507      (191,507)
  Net income                                                                        227,067                       227,067
                                       ----------------------------------------------------------------------------------
Balance June 30, 2003                  1,149,046   $ 1,149,046   $ 6,928,680    $   788,070    $    71,098    $ 8,946,894
                                       ==================================================================================


Balance December 31, 2003              1,166,208   $ 1,166,208   $ 7,030,589    $ 1,074,747      ($ 80,596)   $ 9,190,948
  Net change in unrealized
     loss on securities held for sale                                                             (192,020)      (192,020)
  Cash in lieu of fractional shares                                                     (78)                          (78)
  Net income                                                                        292,849                       292,849
                                       -----------------------------------------------------------------------------------
Balance June 30, 2004                  1,166,208   $ 1,166,208   $ 7,030,589    $ 1,367,518    $  (272,616)   $ 9,291,699
                                       ===================================================================================

</TABLE>

See notes to consolidated financial statements.

                                                                             6

<PAGE>

<TABLE>
<CAPTION>
Weststar Financial Services Corporation & Subsidiaries
Consolidated Statements Of Cash Flows
For the Six Months Ended June 30,                                                              2004           2003
                                                                                          ------------   ------------
<S>                                                                                       <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                                $    292,849   $    227,067
Adjustments to reconcile net income to net cash provided by operating activities:
  Depreciation                                                                                 194,706        139,807
  Provision for loan losses                                                                    612,800        643,380
  Premium amortization and discount accretion, net                                              59,019         15,290
  Deferred income tax benefit                                                                 (100,300)       (16,599)
  Loss on disposals of foreclosed properties                                                    51,405         31,689
  Loss on sale of premises and equipment                                                           166             --
  Gain on sales of securities                                                                  (31,613)       (45,482)
  Decrease in accrued interest receivable                                                        8,030         31,404
 (Increase) decrease in other assets                                                           122,626        (60,093)
  Increase (decrease) in accrued interest payable                                               33,414         (4,278)
  Increase (decrease) in other liabilities                                                      86,595         (1,466)
  Provision for losses on foreclosed property                                                   14,160         59,000
  Loss on uninsured deposits                                                                        --         10,410
                                                                                          ------------   ------------
    Net cash provided by operating activities                                                1,343,857      1,030,129
                                                                                          ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale                                                  (6,523,895)   (11,647,929)
Maturities of securities available for sale                                                  2,367,780      5,722,017
Net increase in loans                                                                       (2,803,040)    (2,898,926)
Proceeds from sales of foreclosed properties                                                   230,851        158,574
Proceeds from sales of securities                                                              553,600      2,038,750
Net expenditures on foreclosed properties                                                           --         90,059
Proceeds from sales of premises and equipment                                                      100             --
FHLB stock purchase                                                                            (96,600)            --
Redemption of Federal Home Loan Bank stock                                                          --         54,400
Additions to premises and equipment                                                           (407,339)      (300,165)
                                                                                          ------------   ------------
    Net cash used in investing activities                                                   (6,678,543)    (6,783,220)
                                                                                          ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts, MMDA and savings accounts                     2,198,435      5,353,185
Net increase (decrease) in time deposits                                                     7,619,338       (263,504)
Cash paid for fractional shares                                                                    (78)            --
Proceeds from issuance of trust preferred securities                                                --      2,000,000
                                                                                          ------------   ------------
    Net cash provided by financing activities                                                9,817,695      7,089,681
                                                                                          ------------   ------------


NET INCREASE IN CASH AND CASH EQUIVALENTS                                                    4,483,009      1,336,590

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                            11,990,677     14,115,822
                                                                                          ------------   ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                $ 16,473,686   $ 15,452,412
                                                                                          ============   ============
</TABLE>

See notes to consolidated financial statements.

                                                                             7

 <PAGE>

WESTSTAR FINANCIAL SERVICES CORPORTION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.   Weststar Financial  Services  Corporation (the "Company") is a bank holding
     company with two  subsidiaries,  The Bank of Asheville  (the  "Bank"),  and
     Weststar  Financial  Services  Corporation I (the  "Trust").  The Bank is a
     state chartered commercial bank which was incorporated in North Carolina on
     October  29,  2997.  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 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.

     In the  opinion of  management,  the  accompanying  financial  consolidated
     statements  contain  all  adjustments   necessary  to  present  fairly  the
     consolidated  financial  position  of the  Company as of June 30,  2004 and
     December 31, 2003, and the consolidated results of their operations for the
     three-month  and  six-month  periods ended June 30, 2004 and 2003 and their
     cash  flows  for the six-  month  periods  ended  June 30,  2004 and  2003.
     Operating  results for the three-month and six-month periods ended June 30,
     2004 are not necessarily  indicative of the results expected for the period
     ending December 31, 2004.

     The accounting policies followed are set forth in Note 1 to the 2003 Annual
     Report  to  Shareholders  (Form  10-KSB)  on file with the  Securities  and
     Exchange Commission.

2.   Loans at June 30,  2004 and  December  31, 2003  classified  by type are as
     follows:
  <TABLE>
  <CAPTION>

                                             June 30,        December 31,
                                               2004             2003
                                           ------------    ------------
 <S>                                       <C>             <C>
 Real Estate:
   Construction                            $ 10,317,320    $  8,372,934
   Mortgage                                  46,134,606      46,014,314
 Commercial, financial and agricultural      18,885,445      18,603,317
 Consumer                                     1,771,839       1,909,709
                                           ------------    ------------
 Subtotal                                    77,109,210      74,900,274
 Net deferred loan origination fees            (154,771)       (147,208)
                                           ------------    ------------
 Total                                     $ 76,954,439    $ 74,753,066
                                           ============    ============
 </TABLE>

3.   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  $18,545,818  and  $20,435,251  at June 30, 2004 and
     December 31, 2003, respectively.

4.   Basic  earnings per share have been  computed  using the  weighted  average
     number of shares of common stock outstanding of 1,166,208 and 1,149,047 for
     the quarters ended June 30, 2004 and 2003,  respectively  and 1,166,208 and
     1,149,047  for  the  six-month  periods  ended  June  30,  2004  and  2003,
     respectively.  Diluted  earnings per share have been computed  using common
     stock and common stock  equivalents  of  1,226,138  and  1,205,326  for the
     quarters  ended June 30, 2004 and 2003,  respectively,  and  1,226,465  and
     1,198,201  for  the  six-month  periods  ended  June  30,  2004  and  2003,
     respectively.  Shares have been  adjusted  to reflect a 6-for5  stock split
     paid in the form of a 20% stock dividend paid during September 2003.

                                                                             8

 <PAGE>

5.   Statement of Financial  Accounting  Standards ("SFAS") No. 123,  Accounting
     for Stock-  Based  Compensation,  encourages  all  entities to adopt a fair
     value based method of accounting  for employee  stock  compensation  plans,
     whereby  compensation cost is measured at the grant date based on the value
     of the award and is recognized  over the service  period,  which is usually
     the  vesting  period.  However,  it also  allows an entity to  continue  to
     measure  compensation  cost for those plans using the intrinsic value based
     method of accounting  prescribed by Accounting Principles Board Opinion No.
     25, Accounting for Stock Issued to Employees,  whereby compensation cost is
     the excess,  if any, of the quoted  market  price of the stock at the grant
     date (or other  measurement  date) over the amount an employee  must pay to
     acquire the stock.  The Company has elected to continue with the accounting
     methodology in Opinion No. 25 and, as a result,  has provided the below pro
     forma   disclosures  of  net  income  and  earnings  per  share  and  other
     disclosures  as if the fair  value  based  method  of  accounting  had been
     applied.

     At June 30, 2004, the Company had two stock-based  compensation  plans. The
     Company  accounts for  compensation  costs related to the  Company's  stock
     option plans using the intrinsic value method.  Therefore,  no compensation
     costs has been  recognized  for stock option awards because the options are
     granted at exercise prices based on the market value of the Company's stock
     on the date of grant. Had compensation costs for the Company's stock option
     plans been determined using the fair value method,  the Company's pro forma
     net income would have been as follows:




 <TABLE>
 <CAPTION>
                                         Three Months Ended            Six Months Ended
                                         6/30/2004   6/30/2004         6/30/2004  6/30/2004
                                         ---------   ---------         ---------  ---------
  <S>                                    <C>         <C>               <C>        <C>
  Net income as reported                 $ 140,660   $ 155,161         $ 292,849  $ 227,067
  Less: Total stock based employee
  compensation expense determined
  under fair value method for all
  awards, net of related tax effects        25,414      52,173            50,773    107,397
                                         ---------   ---------         ---------  ---------
  Pro forma net income                   $ 115,246   $ 102,988         $ 242,076  $ 119,670
  Net income per share:                  =========   =========         =========  =========
  As reported:

  Basic                                  $    0.12   $    0.14         $    0.25  $    0.20
  Diluted                                $    0.11   $    0.13         $    0.24  $    0.19

  Pro forma:

  Basic                                  $    0.10   $    0.09         $    0.21  $    0.10
  Diluted                                $    0.09   $    0.08         $    0.20  $    0.10

</TABLE>

                                                                             9





<PAGE>

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

Weststar Financial Services Corporation & Subsidiaries
Management's Discussion And Analysis

EXECUTIVE OVERVIEW

During 2004,  the Company  focused  significant  attention  on  improving  asset
quality, asset growth and expansion.  Management emphasized prudent underwriting
standards, increased periodic reviews of loans of $100,000 or more, and expanded
its loan quality monitoring  systems.  During the period asset quality continued
to  demonstrate  signs of  improvement.  Non-performing  assets  decreased  from
$3,412,741 at December 31, 2003 to $2,070,024 at June 30, 2004. Net  charge-offs
for the six month period  totaled  $361,999  compared to $604,687 for the period
ended June 30, 2003.  Loans  outstanding grew by 3% to $76,954,439 from December
31, 2003,  which reflected  improved  economic  conditions and increased  market
share.

Deposits  increased 11% to  $103,219,311  during the six month period ended June
30, 2004. Deposit growth reflected continued market penetration and the addition
of a fourth  banking  location,  which opened during the latter part of October,
2003. Interest rate sensitive customers shifted funds from lower interest paying
NOW  and  money  market  demand  accounts  into  longer  time-sensitive  deposit
accounts, which have begun to pay higher rates.

During the period,  construction  continued on a permanent  location for the New
Leicester  Highway  office.  Management  anticipates the facility to open during
August,  2004. Funds from the issue of trust preferred securities are being used
to fund this expansion.

Net income for the quarters  ended June 30, 2004 and 2003  totaled  $140,660 and
$155,161, respectively. The decrease in net income was primarily attributable to
lower fees from the origination of mortgage loans as a result of higher mortgage
loan rates,  $45,428 in gains from the sale of investment  securities during the
second  quarter of 2003  compared to none during the same  quarter of 2004,  and
increased   operating  expenses  associated  with  operating  a  fourth  banking
location,  which  opened  during  October  2003 as well  as  increased  expenses
associated  with the supporting  loan and deposit  growth.  Management  monitors
expenses closely and reviews each expense relative to the benefit provided.

Net income  for the  six-month  periods  ended  June 30,  2004 and 2003  totaled
$292,849 and  $227,067,  respectively.  The increase in net income was primarily
attributable to increase net interest  income,  which was attributable to growth
in net earning  assets.  Other  income  remained  relatively  flat,  while other
expenses  increased  17%. The increase in expense is primarily  attributable  to
costs  associated  with  supporting loan and deposit growth as well as increased
expenses opening a fourth banking location.

CHANGES IN FINANCIAL CONDITION
JUNE 30, 2004 COMPARED TO DECEMBER 31, 2003

During the period from  December  31, 2003 to June 30,  2004,  assets  increased
$11,388,533  or 10%.  This  increase,  reflected  primarily in the federal funds
sold, investment securities and loans, was funded primarily by deposit growth.

                                                                            10


<PAGE>


Securities,   federal  funds  sold  and  interest-bearing  balances  with  other
financial  institutions  at  June  30,  2004  totaled  $34,472,726  compared  to
$26,845,914 at December 31, 2003. Through an investment in the Federal Home Loan
Bank,  the Company  gained  access to the Federal  Home Loan Bank  system.  This
access  grants  the  Company   sources  of  funds  for  lending  and  liquidity.
Investments in Federal Home Loan Bank stock to date total $272,000.

At June 30, 2004,  the loan  portfolio  constituted  64% of the Company's  total
assets.  Loans  increased  $2,201,373  from  December 31, 2003 to June 30, 2004.
Improved  economic  conditions  resulted  in the 3%  increase  in  loan  growth.
Management  places a strong  emphasis on loan quality.  At June 30, 2004,  there
were no loans that (i)  represented  or resulted  from  trends or  uncertainties
which  management  reasonably  expects to  materially  impact  future  operating
results,  liquidity,  or capital resources, or (ii) represented material credits
about which management was aware of any information  which caused  management to
have serious  doubts as to the ability of such borrowers to comply with the loan
repayment terms.

The  recorded  investment  in  loans  that  are  considered  to be  impaired  in
accordance  with  criteria  set  forth  in  Statement  of  Financial  Accounting
Standards No. 114 of the Financial  Accounting  Standards  Board was $1,466,890,
$1,825,868,  and  $1,838,798  at June 30, 2004 and 2003,  and December 31, 2003,
respectively.  The average  recorded  balance of impaired  loans during 2004 and
2003 was not significantly  different from the balance at June 30, 2004 and 2003
and December 31,  2003.  The related  allowance  for loan losses  determined  in
accordance  with SFAS No. 114 for  impaired  loans was $175,513 and $396,418 and
$182,013 at June 30, 2004 and 2003, and December 31, 2003 respectively.  For the
six-month  periods ended June 30, 2004 and 2003,  Weststar  recognized  interest
income from  impaired  loans of  approximately  $25,219 and $37,334.  See "Asset
Quality" for discussion for an analysis of loan loss reserves.

Deposits increased $9,817,773 during the six months ended June 30, 2004. The 11%
growth was found  primarily in money market and time  deposit  accounts.  Growth
stemmed from continued market penetration and competitive interest rate pricing.
Transactions accounts such as demand deposits, NOW accounts, money market demand
and savings  accounts  reflected an increase of  $2,198,435,  while time deposit
accounts reflected an increase of $7,619,338.

Borrowings  consisted of only one advance from the FHLB  totaling  $2,000,000 on
June 30, 2004.  The interest  rate on this advance is 1.65% with a maturity date
of June 27,  2005.  The advance is secured by a blanket  lien on 1-4 family real
estate loans and certain commercial real estate loans.

Other liabilities increased $1,436,595 over 2003. Of this amount, $1,350,000 was
attributable to investment securities purchased, but not yet settled.

During 2004, the Trust  maintained  trust preferred  securities in the amount of
$4,000,000 at a floating rate of LIBOR plus 315 basis points with dividends paid
quarterly. The trust preferred securities,  which mature on October 7, 2033, and
are  redeemable  on or after  October  7, 2008 at par  value.  Approximately  $3
million was eligible for  inclusion as Tier I capital.  The Company plans to use
the capital to support growth and branch expansion.

The Company's  capital at June 30, 2004 to risk weighted  assets totaled 17.26%.
Current  regulations  require a minimum  ratio of total capital to risk weighted
assets of 8%,  with at least 4% being in the form of Tier 1 capital,  as defined
in the  regulation.  As of June 30, 2004,  the  Company's  capital  exceeded the
current regulatory capital requirements.

                                                                            11


<PAGE>

RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2004 AND 2003

Net interest  income,  the principal  source of the Company's  earnings,  is the
amount of income  generated by earning  assets  (primarily  loans and investment
securities)  less the total  interest  cost of the funds  obtained to carry them
(primarily  deposits  and other  borrowings).  The volume,  rate and mix of both
earning assets and related funding sources determine net interest income.

COMPARATIVE THREE MONTHS

Net  interest  income for the  quarter  ended June 30, 2004  totaled  $1,079,606
compared to $948,559 in 2003. This increase was primarily attributable to growth
in net earning assets.  The Company's net interest margin was approximately 3.7%
and 4.0% for the quarters ended June 30, 2004 and 2003, respectively.

Weststar  recorded a provision  for loan losses of $290,000 and $288,380 for the
quarters  ended June 30, 2004 and 2003,  respectively.  The  provision  for loan
losses is  charged  to  operations  to bring  the  allowance  to a level  deemed
appropriate by management based on the factors  discussed under "Asset Quality."
Despite  improved  performance  in  credits,  the  provision  for credit  losses
remained relatively high due to charge-off experience during the past two years.

Other  income  for the June 30,  2004 and 2003  quarters  totaled  $414,210  and
$492,519,  respectively.  The  decrease  in other  income  primarily  reflects a
decrease of mortgage loan  origination fee income of $64,102,  partially  offset
with a $30,169 increase in deposit service fees.  Another factor in the decrease
was $45,482 in gains from the sale of  investment  securities  during the second
quarter of 2003 and none during the comparable quarter of 2004.

Other expense totaled  $975,861  compared to $895,437 in 2003. This increase was
primarily  attributable  to  overall  company  growth  and  additional  overhead
associated with the opening of a fourth banking  location.  Income before income
tax provision totaled $227,955 and $257,261 for the quarters ended June 30, 2004
and 2003,  respectively.  Income tax provision  totaled $87,295 and $102,100 for
the quarters  ended June 30, 2004 and 2003,  respectively,  which  equated to an
effective  tax rate of 38.29%  and  39.69%.  Net  income  totaled  $140,660  and
$155,161 for the quarters ended June 30, 2004 and 2003, respectively.

Other  comprehensive  income (loss)  totaled  $(277,481) and $15,288 in 2004 and
2003,  respectively.  Comprehensive  income  (loss),  which  is  the  change  in
shareholders'   equity  excluding   transactions  with   shareholders,   totaled
$(136,821)  and  $170,449  for the  quarters  ended  June  30,  2004  and  2003,
respectively.

COMPARATIVE SIX MONTHS

Net  interest  income  for the  six-month  period  ended June 30,  2004  totaled
$2,221,283   compared  to  $1,873,368  in  2003.   This  increase  is  primarily
attributable to growth in net earning assets.  The Company's net interest margin
was approximately 4.0% for the six months ended June 30, 2004 and 2003.

Weststar  recorded a provision  for loan losses of $612,800 and $643,380 for the
six months ended June 30, 2004 and 2003,  respectively.  The  provision for loan
losses is  charged  to  operations  to bring  the  allowance  to a level  deemed
appropriate by management based on the factors discussed under "Asset Quality."

                                                                            12


<PAGE>

Other  non-interest  income  for the June 30,  2004  and  2003  periods  totaled
$839,907  and  $830,656,  respectively.  The increase in service  charge  income
primarily  reflects an  increase  in  overdraft  charge  income of $73,044.  The
increase in overdraft  charges was based on higher  activity  during the period.
Other service fees and commissions  reflected a net decrease of $71,206 of which
$102,990 was  attributable  to decreased  fees from the  origination of mortgage
loans  resulting  for  lower  refinancing.  Gains  on the  sales  of  investment
securities  also  decreased  $13,869  during the six month period ended June 30,
2004 compared to June 30, 2003.

Other expense totaled  $1,986,236  compared to $1,691,477 in 2003. This increase
was primarily  attributable  to overall  company growth and additional  overhead
associated with the opening of a fourth banking  location.  Income before income
tax provision  totaled $462,154 and $369,167 for the periods ended June 30, 2004
and 2003,  respectively.  Income tax provision totaled $169,305 and $142,100 for
the periods  ended June 30,  2004 and 2003,  respectively,  which  equated to an
effective  tax rate of 36.63%  and  38.49%.  Net  income  totaled  $292,849  and
$227,067 for the six months ended June 30, 2004 and 2003, respectively.

Other  comprehensive  income (loss)  totaled  $(192,020) and $40,673 in 2004 and
2003,  respectively.  Comprehensive income, which is the change in shareholders'
equity excluding  transactions with shareholders,  totaled $100,829 and $267,740
for the six months ended June 30, 2004 and 2003, respectively.

                          ASSET/LIABILITY MANAGEMENT

The Company's  asset/liability  management,  or interest  rate risk  management,
program is focused  primarily on evaluating and managing the  composition of its
assets and  liabilities  in view of various  interest  rate  scenarios.  Factors
beyond the Company's control, such as market interest rates and competition, may
also have an impact on the Company's interest income and interest expense.

In the  absence  of other  factors,  the  yield or  return  associated  with the
Company's  earning  assets  generally  will increase  from existing  levels when
interest rates rise over an extended  period of time and,  conversely,  interest
income will decrease when interest rates decline.  In general,  interest expense
will  increase  when  interest  rates rise over an extended  period of time and,
conversely, interest expense will decrease when interest rates decline.

Interest  Rate Gap  Analysis.  As a part of its  interest  rate risk  management
policy,  the Company  calculates  an interest  rate "gap."  Interest  rate "gap"
analysis is a common,  though  imperfect,  measure of interest rate risk,  which
measures the relative  dollar amounts of  interest-earning  assets and interest-
bearing liabilities which reprice within a specific time period,  either through
maturity or rate adjustment.  The "gap" is the difference between the amounts of
such assets and liabilities that are subject to repricing.  A "positive" gap for
a given  period  means that the amount of  interest-earning  assets  maturing or
otherwise  repricing  within that period exceeds the amount of  interest-bearing
liabilities maturing or otherwise repricing within the same period. Accordingly,
in a declining  interest rate  environment,  an institution  with a positive gap
would generally be expected,  absent the effects of other factors, to experience
a decrease in the yield on its assets  greater  than the decrease in the cost of
its liabilities and its income should be negatively  affected.  Conversely,  the
cost of funds for an institution with a positive gap would generally be expected
to increase  more slowly than the yield on its assets in a rising  interest rate
environment,  and such  institution's  net interest  income  generally  would be
expected to be positively affected by rising interest rates. Changes in interest
rates  generally  have the opposite  effect on an  institution  with a "negative
gap."

                                                                            13


<PAGE>

The  following  table sets  forth the  amounts  of  interest-earning  assets and
interest-bearing  liabilities  outstanding at June 30, 2004, which are projected
to reprice or mature in each of the future time periods shown.  Except as stated
below,  the  amounts of assets and  liabilities  shown  which  reprice or mature
within a particular  period were  determined in accordance  with the contractual
terms of the assets or  liabilities.  Loans with  adjustable  rates are shown as
being due at the end of the next upcoming  adjustment  period. The interest rate
sensitivity of the Company's assets and liabilities illustrated in the following
table would vary  substantially if different  assumptions were used or if actual
experience differs from that indicated by such assumptions.



<TABLE>
<CAPTION>
                                                            TERMS TO REPRICING AT JUNE 30, 2004
                                     1-90 Days      91-180 Days    181-365 Days          Total One           Non-          Total
                                                                                            Year          Sensitive
                                   -------------------------------------------------------------------------------------------------
<S>                                <C>              <C>            <C>                 <C>              <C>           <C>
Interest-earning assets:
Interest bearing deposits          $    328,802              --                --      $    328,802               --    $    328,802
Federal funds sold                   11,019,000              --                --        11,019,000               --      11,019,000
Investment securities                 6,887,254     $ 4,387,136       $ 3,124,272        14,398,662      $ 9,169,900      23,568,562
Federal Home Loan Bank
stock                                        --              --                --                --          272,000         272,000
Loans (1)                            57,684,940       1,493,392         2,214,758        61,393,090       14,701,546      76,094,636
Total interest-earning assets        75,919,996       5,880,528         5,339,030        87,139,554       24,143,446     111,283,000

Interest-bearing liabilities:
Time deposits                        10,286,436       4,220,447        16,209,997        30,716,880        2,230,597      32,947,477
All other deposits                   53,353,063              --                --        53,353,063               --      53,353,063
Borrowings                                   --              --                --                --        2,000,000       2,000,000
Trust preferred securities            4,000,000              --                --         4,000,000               --       4,000,000
Total interest-bearing liabilities   67,639,499       4,220,447        16,209,997        88,069,943        4,230,597      92,300,540

Interest sensitivity gap           $  8,280,497     $ 1,660,081      ($10,870,967)    ($    930,389)     $19,912,849    $ 18,982,460
Cumulative interest sensitivity
Gap                                $  8,280,497     $ 9,940,578      ($   930,389)
Cumulative ratio of interest -
earning assets as a percent
of interest sensitive liabilities         112.2%          139.3%             32.9%             98.9%

</TABLE>

(1) Non-accrual loans have been excluded.

Weststar  has  established  an  acceptable  range of 80% to 120%  for  interest-
earning assets as a percent of interest sensitive liabilities.

                              ASSET QUALITY

Management  considers  Weststar's asset quality to be of primary importance.  We
maintain an allowance for loan losses to absorb  probable losses inherent in the
loan portfolio.  The loan portfolio is analyzed monthly in an effort to identify
potential  problems before they actually occur. The allowance for loan losses is
established  as losses are  estimated to have  occurred  through a provision for
loan losses  charged to earnings.  The  provision  for loan losses is based upon
management's  best  estimate of the amount  needed to maintain the allowance for
loan losses at an adequate level.  Loan losses are charged against the allowance
when management  believes the  uncollectibility  of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.

                                                                            14


<PAGE>

The allowance for loan losses is evaluated on a regular basis by management  and
is based upon management's periodic review of the collectibility of the loans in
light of the current status of the portfolio,  historical experience, the nature
and  volume  of the loan  portfolio,  adverse  situations  that may  affect  the
borrower's ability to repay, estimated value of any underlying  collateral,  and
prevailing economic  conditions.  Management segments the loan portfolio by loan
type in considering each of the aforementioned factors and their impact upon the
level of the allowance for loan losses.

This  evaluation is inherently  subjective,  as it requires  estimates  that are
susceptible  to  significant  revision as more  information  becomes  available.
Therefore,  while  management  uses  the  best  information  available  to  make
evaluations,  future adjustments to the allowance may be necessary if conditions
differ  substantially  from the assumptions used in making the  evaluations.  In
addition,  regulatory  examiners may require the Company to recognize changes to
the  allowance  for  loan  losses  based on their  judgments  about  information
available to them at the time of their examination.

A loan is considered  impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payments of
principal or interest  when due according to the  contractual  terms of the loan
agreement.  Factors  considered by management in determining  impairment include
payment status,  collateral  value, and the probability of collecting  scheduled
principal and interest  payments when due. Loans that  experience  insignificant
payment delays and payment shortfalls  generally are not classified as impaired.
Management  determines the significance of payment delays and payment shortfalls
on a case-by-case  basis,  taking into  consideration  all of the  circumstances
surrounding  the loan and the borrower,  including the length of the delay,  the
reasons for the delay,  the borrower's  prior payment record,  and the amount of
the  shortfall in relation to the  principal  and interest  owed.  Impairment is
measured on a loan by loan basis for commercial and construction loans by either
the  present  value of  expected  future  cash  flows  discounted  at the loan's
effective  interest rate, the loan's  obtainable market price, or the fair value
of the collateral if the loan is collateral  dependent.  Large groups of smaller
balance   homogeneous   loans  are   collectively   evaluated  for   impairment.
Accordingly,  the Company does not separately  identify  individual consumer and
residential loans for impairment disclosures.

The provision for loan losses  represents a charge  against  income in an amount
necessary  to  maintain  the  allowance  at an  appropriate  level.  The monthly
provision for loan losses may fluctuate  based on the results of this  analysis.
The allowance  for loan losses at June 30, 2004,  2003 and December 31, 2003 and
2002 was  $1,424,804,  $1,058,891,  $1,174,003 and  $1,020,198 or 1.85%,  1.51%,
1.57% and 1.50%,  respectively,  of gross  loans  outstanding.  The ratio of net
charge-offs to average loans  outstanding  was .47%,  .89%,  1.82% and 1.26%, at
June 30, 2004 and 2003,  and  December  2003 and 2002,  respectively.  Primarily
because of a recessionary economy, charge-offs for the years ended 2003 and 2002
totaled  $1,357,614 and $889,565.  Despite recent  improvements in asset quality
and  charge-offs,  the loan loss reserve was increased  due to historical  asset
quality and charge-offs.  Sustained  improvements in economic conditions,  asset
quality and charge-offs may justify a lower loan loss reserve in the future.

The  following  table  contains an analysis for the  allowance  for loan losses,
including the amount of  charge-offs  and  recoveries by loan type,  for the six
months ended June 30, 2004 and 2003,  and for the years ended  December 31, 2003
and 2002.

                                                                             15

<PAGE>


Summary of Allowance for Loan Losses

<TABLE>
<CAPTION>

                                                For the six months           For the years ended
                                                  ended June 30,                December 31,
                                              2004            2003          2003           2002
                                              ----            ----          ----           ----
<S>                                        <C>            <C>            <C>           <C>
Balance, beginning of period               $1,174,003     $1,020,198    $ 1,020,198    $  978,467
  Charge-offs:
  Commercial, financial and agricultural     (354,414)      (508,853)    (1,075,792)     (568,710)
  Real estate:
    Construction                                   --             --             --      (127,810)
    Mortgage                                       --        (57,253)      (157,142)      (33,574)
  Consumer                                    (30,958)       (59,000)      (124,680)     (159,471)
                                           ----------     ----------    -----------    ----------
Total charge-offs                            (385,372)      (622,106)    (1,357,614)     (889,565)
Recoveries
  Commercial, financial and agricultural        8,475          2,000         71,942        19,753
  Real estate:
    Construction                                   --             --             --         1,531
    Mortgage                                       --             --             --        13,322
  Consumer                                     14,898         15,419         33,677        18,770
                                           ----------     ----------    -----------    ----------
Total recoveries                               23,373         17,419        105,619        53,376
                                           ----------     ----------    -----------    ----------
Net (charge-offs) recoveries                 (361,999)       604,687)    (1,251,995)     (836,189)
                                           ----------     ----------    -----------    ----------
Provision charged to operations               612,800        643,380      1,405,800       877,920
                                           ----------     ----------    -----------    ----------
Balance, end of period                     $1,424,804     $1,058,891    $ 1,174,003    $1,020,198
                                           ==========     ==========    ===========    ==========

Percentage of net charge-offs to
  average loans                                  .47%           .89%          1.82%         1.26%
Percentage of allowance to
  period-end loans                              1.85%          1.51%          1.57%         1.50%

</TABLE>

The following  table allocates the allowance for loan losses by loan category at
the dates  indicated.  The  allocation  of the allowance to each category is not
necessarily  indicative  of future  losses and does not  restrict the use of the
allowance to absorb losses in any category.


<TABLE>
<CAPTION>

                                     June 30, 2004            December 31, 2003
                                Amount of    Percent of    Amount of     Percent of
                                Allowance    Total Loans   Allowance     Total Loans

<S>                            <C>             <C>        <C>              <C>
TYPE OF LOAN:
Real estate                    $   988,447      74%       $   863,606       72%
Commercial and industrial
  loans                            351,231      25%           267,584       25%
Consumer                            63,072       3%            23,722        3%
Unallocated                         22,054      --             19,091       --
                               -----------     ---        -----------      ---
Total allowance                $ 1,424,804     100%       $ 1,174,003      100%
                               ===========     ===        ===========      ===
</TABLE>

The  Company  does not have any  significant  loan  concentrations.  During  the
period, loan quality demonstrated improvement over March 31, 2004, June 30, 2003
and December 31, 2003.

During 2004,  there were no changes in estimation  methods or  assumptions  that
affected our  methodology for assessing the  appropriateness  of the formula and
specific  allowance  for credit  losses.  Changes in estimates  and  assumptions
regarding the effect of economic and business conditions on borrowers affect the
assessment of the allowance.

                                                                            16

<PAGE>

                               CAPITAL RESOURCES

Banks and bank holding companies, as regulated institutions,  must meet required
levels of capital.  The Federal Deposit Insurance  Corporation  ("FDIC") and the
Federal Reserve,  the primary  regulators of The Bank of Asheville and Weststar,
respectively,  have adopted  minimum  capital  regulations  or  guidelines  that
categorize  components  and the level of risk  associated  with various types of
assets.  Financial  institutions  are  expected  to  maintain a level of capital
commensurate  with the risk profile  assigned to its assets in  accordance  with
these  guidelines.  As shown in the  following  table,  Weststar and The Bank of
Asheville both maintained  capital levels exceeding the minimum levels for "well
capitalized" banks and bank holding companies.

During  October  2003,  the  Company  raised   $4,000,000  in  trust   preferred
securities. The Company used funds from the trust preferred securities to inject
approximately  $3.8 million of capital into the Bank.  Additional capital allows
the bank to support  growth  within its  existing  offices and  through  opening
additional offices within its market.

                              REGULATORY CAPITAL

<TABLE>
<CAPTION>

                                                                                             To Be Well
                                                                                          Capitalized Under
                                                                         For Capital      Prompt Corrective
                                                     Actual                Adequacy       Action Provisions
                                                                           Purposes
                                               Amount      Ratio      Amount      Ratio   Amount     Ratio
                                               ------      -----      ------      -----   ------     -----
                                                                     (Dollars In Thousands)
 <S>                                            <C>        <C>        <C>        <C>      <C>        <C>
As of June 30, 2004
Total Capital (to Risk Weighted Assets)
  Consolidated                                 $ 14,629    17.26%     $ 6,780    8.00%    $ 8,475    10.00%
  Bank                                         $ 14,145    17.72%     $ 6,769    8.00%    $ 8,462    10.00%

Tier 1 Capital (to Risk Weighted Assets)
  Consolidated                                 $ 12,753    15.05%     $ 3,390    4.00%    $ 5,085     6.00%
  Bank                                         $ 13,083    15.46%     $ 3,384    4.00%    $ 5,077     6.00%

Tier 1 Capital (to Average Assets)
  Consolidated                                 $ 12,753    10.94%     $ 4,664    4.00%    $ 5,830     5.00%
  Bank                                         $ 13,083    11.23%     $ 4,659    4.00%    $ 5,823     5.00%
</TABLE>


                                   LIQUIDITY

Maintaining  adequate liquidity while managing interest rate risk is the primary
goal of Weststar's  asset and liability  management  strategy.  Liquidity is the
ability  to fund the  needs  of the  Company's  borrowers  and  depositors,  pay
operating expenses, and meet regulatory liquidity requirements. Loan repayments,
deposit  growth,  federal funds  purchased and borrowings  from the Federal Home
Loan  Bank are  presently  the main  sources  of the  Company's  liquidity.  The
Company's primary uses of liquidity are to fund loans and to make investments.

                                                                            17

 <PAGE>

As of June 30, 2004 liquid  assets (cash due from banks,  interest-earning  bank
deposits  and  federal  funds  sold) were  approximately  $16.5  million,  which
represents 13.7% of total assets and 16.0% of total deposits. Supplementing this
liquidity,  Weststar has available lines of credit from  correspondent  banks of
approximately $15.6 million. At June 30, 2004, outstanding commitments to extend
credit and available  lines of credit were $18.5  million.  Management  believes
that the combined  aggregate  liquidity position of the Company is sufficient to
meet  the  funding  requirements  of loan  demand  and  deposit  maturities  and
withdrawals in the near term.

Certificates  of deposit  represented  approximately  31.9% of Weststar's  total
deposits at June 30, 2004. The Company's  growth  strategy will include  efforts
focused on increasing the relative volume of transaction  deposit  accounts,  as
the branch  network  is  expanded,  making it more  convenient  for our  banking
customers.  Certificates of deposit of $100,000 or more  represented 5.7% of the
Company's  total  deposits  at June  30,  2004.  These  deposits  are  generally
considered   rate   sensitive,   but  management   believes  most  of  them  are
relationship-oriented.  While the Company will need to pay competitive  rates to
retain these deposits at maturity,  there are other subjective factors that will
determine the Company's continued retention of these deposits.

                          INVESTMENT ACTIVITIES

At June 30, 2004,  Weststar's  investments  consisted of U.S.  Government agency
securities, and North Carolina municipal bonds. The investments,  with aggregate
amortized  cost of $23.6  million,  are classified as available for sale and are
presented in the  consolidated  financial  statements  at their market values of
$23.1 million at June 30, 2004. These  securities have tax equivalent  yields of
3.3% and 4.9% respectively, with an aggregate remaining term of approximately 65
months.  The Company's  investment in stock of the Federal Home Loan Bank, which
is  required of every  member and is  redeemable  only by the Federal  Home Loan
Bank, was $272,000 with a yield of 3.5% at June 30, 2004. Because the investment
is redeemable only by the Federal Home Loan Bank, it is listed separately rather
than a component of the Company's investment portfolio.

                    IMPACT OF INFLATION AND CHANGING PRICES

A financial institution has assets and liabilities that are distinctly different
from those of a company  with  substantial  investments  in plant and  inventory
because the major  portion of its assets is monetary in nature.  As a result,  a
bank's performance may be significantly influenced by changes in interest rates.
Although the banking industry is more affected by changes in interest rates than
by inflation in the prices of goods and services,  inflation is a factor,  which
may influence interest rates.  However,  the frequency and magnitude of interest
rate  fluctuations  do not  necessarily  coincide  with  changes in the  general
inflation  rate.  Inflation  does affect  operating  expenses in that  personnel
expenses,  cost of supplies and outside  services  tend to increase  more during
periods of high inflation.

                       RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued FASB Interpretation No. (FIN) 46, Consolidation
of Variable Interest Entities.  This interpretation  addresses the consolidation
by  business  enterprises  of  variable  interest  entities  as  defined  in the
interpretation. In December 2003, the FASB issued a revision to FIN 46 (FIN 46R)
to clarify some of the provisions of FIN 46 and to exempt certain  entities from
its requirements.  Public entities, other than small business issues, must apply
FIN 46R no later than the first  reporting  period  ending after March 15, 2004.
(Small  business  issuers  must apply FIN 46R no later than the end of the first
reporting period ending after December 15, 2004.) FIN 46 is effective for public
entities  that have  interest in  structures  that are  commonly  referred to as
special-purpose entities for periods ending after December 15, 2004.

                                                                            18

<PAGE>

Adoption  of FIN 46R will  result  in  deconsolidation  of the  Company's  trust
preferred   subsidiary,   Weststar  Financial   Services   Corporation  I.  Upon
deconsolidation, the junior subordinated debentures issued by the Company to the
trust  will be  included  in  long-term  debt  (instead  of the trust  preferred
securities)  and the Company's  equity interest in the trust will be included in
other assets. If this trust was  deconsolidated as of June 30, 2004 and December
31, 2003, the effect on the Company's  balance sheets for both dates would be an
increase in other assets of $124,000 with a corresponding  increase in long-term
debt. The deconsolidation of the trust will not materially impact net income.

The trust preferred  securities  presently qualify as Tier 1 regulatory  capital
and are reported in Federal Reserve regulatory reports as a minority interest in
a consolidated subsidiary.  The junior subordinated debentures do not qualify as
Tier 1  regulatory  capital.  On July 2,  2003,  the Board of  Governors  of the
Federal Reserve issued a letter, SR 03-13,  stating that notwithstanding FIN 46,
trust preferred  securities will continue to be included in Tier 1 capital until
notice is given to the  contrary.  There can be no  assurance  that the  Federal
Reserve  will  continue  to  allow   institutions  to  include  trust  preferred
securities in Tier I capital for regulatory capital purposes.  In the event of a
disallowance,  there would be a reduction in the Company's  consolidated capital
ratios.  However,  the Company  believes that its  subsidiary  bank would remain
"well  capitalized"  under Federal Reserve Board guidelines and that the Company
would  still  exceed the  regulatory  required  minimums  for  capital  adequacy
purposes.


                          Forward Looking Statements

The discussions  presented in this quarterly report contain statement that could
be deemed  forward  looking  statements  within the  meaning  of the  Securities
Exchange Act of 1934 and Private Securities Litigation Reform Act of 1995, which
statements are inherently  subject to risks and  uncertainties.  Forward looking
statements are statement that include projections,  predictions, expectations or
beliefs  about  future  events or results or  otherwise  are not  statements  of
historical  fact.  Such  statements  are  often  characterized  by  the  use  of
qualifying  works  (and their  derivatives)  such as  "expects,"  "anticipates,"
"believes,"  "estimates,"  "plans,"  "projects," or other statements  concerning
opinions or judgments  of the Company and its  management  about future  events.
Factors that could  influence  the accuracy of such forward  looking  statements
include, but are not limited to, the financial success or changing strategies of
the Company's customers or vendors, actions of government regulators,  the level
of market interest rates, and general economic conditions.

Item 3. Controls And Procedures

The Company  carried out an  evaluation  as of the end of the period  covered by
this report under the  supervision and with the  participation  of the company's
management,  including the Company's Chief Executive Officer and Chief Financial
Officer,  of the  effectiveness  of the design and  operation  of the  Company's
disclosure  controls and procedures pursuant to Securities and Exchange Act Rule
13a-14.  Based  upon that  evaluation,  the Chief  Executive  Officer  and Chief
Financial  Officer  concluded  that  the  Company's   disclosure   controls  and
procedures  are  effective  in  timely  alerting  them to  material  information
relating to the Company  required to be included in the  Company's  periodic SEC
Filings. There were no significant changes in the Company's internal controls or
in other factors that could  significantly  affect the controls  during the most
recent quarter.



                                                                            19

 <PAGE>

PART II. OTHER INFORMATION


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

The Annual  Meeting of  Stockholders  was held on April 20,  2004.  Of 1,166,208
shares  entitled to vote at the meeting,  970,932 or 83.3% voted.  The following
matters were voted on at the meeting:

Proposal 1: To  elect ten board members to staggered terms.  Votes and terms
            for each nominee were as follows:

<TABLE>
<CAPTION>
   3-year terms       Votes For   Votes Withheld
-------------------   ---------   --------------
<S>                   <C>         <C>
W. Edward Anderson    965,247     5,685
G. Gordon Greenwood   960,859     10,073
Darryl J. Hart        965,247     5,685

</TABLE>

<TABLE>
<CAPTION>

    2-year term       Votes For   Votes Withheld
-------------------   ---------   --------------
<S>                   <C>         <C>
Steven D. Cogburn     964,769     6,163

</TABLE>

Proposal 2: To  ratify  the  appointment  of Dixon  Hughes  PLLC as  independent
            accountants  for the year ending  December 31,  2003.  Votes were as
            follows:

<TABLE>
<CAPTION>
None.      Votes For           Votes Against      Votes Withheld
       -------------------   -----------------    --------------
       <S>                   <C>                  <C>
            970,389                145                  398
</TABLE>



Item 6. Exhibits and Reports on Form 8-k

        (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

        (b) Reports on Form 8-K.

            On April 21, 2004, the Registrant issued a press release announcing
            earnings for the first quarter of 2004.

                                                                            20

<PAGE>

SIGNATURES


Under the  requirements  of the Securities  Exchange Act of 1934, the registrant
has duly  caused  this  report  to be signed  on its  behalf by the  undersigned
thereunto duly authorized.



                                    WESTSTAR FINANCIAL SERVICES
CORPORATION


Date: August 10, 2004            By: /s/G. Gordon Greenwood
                                     -----------------------------------------

                                     G. Gordon Greenwood
                                     President and Chief Executive Officer



Date: August 10, 2004            By: /s/ Randall C. Hall
                                     -----------------------------------------

                                     Randall C. Hall
                                     Executive Vice President and Chief
                                     Financial and Principal Accounting Officer




                                                                            21