SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                        ANNUAL REPORT UNDER SECTION 13 OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                     FOR FISCAL YEAR ENDED DECEMBER 31, 2003

                        Commission File Number: 000-30515

                     WESTSTAR FINANCIAL SERVICES CORPORATION
             (Exact Name of Registrant as specified in its charter)

                                 NORTH CAROLINA
                            (State of Incorporation)

                                   56-2181423
                      (I.R.S. Employer Identification No.)

                                79 Woodfin Place
                         Asheville, North Carolina 28801
                          (Address of Principal Office)

                                 (828) 252-1735
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(g) of the Act:

                          COMMON STOCK, $1.00 PAR VALUE

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

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

The Registrant's revenues for the year ended December 31, 2003 were $7,019,482.

The aggregate market value of the voting stock held by non-affiliates of the
Registrant at December 31, 2003 was approximately $12,828,288.

The number of shares of the Registrant's Common Stock outstanding on December
31, 2003 was 1,166,208.

                      Documents Incorporated by Reference:

PART III: Definitive Proxy Statement dated March 11, 2004 as filed pursuant to
Section 14 of the Securities Exchange Act of 1934 for the 2004 Annual Meeting of
Shareholders.

Transitional Small Business Disclosure Format   Yes |_| No |X|


                                                                               1
<PAGE>

                        FORM 10-KSB CROSS-REFERENCE INDEX

<TABLE>
<CAPTION>
                                                                                                2004
                                                                                2003            Proxy
                                                                                Form 10-KSB     Statement
                                                                                Page            Page
<S>                                                                             <C>             <C>
PART I
Item 1  -  Business                                                             3               n/a
Item 2  -  Properties                                                           6               n/a
Item 3  -  Legal Proceedings                                                    6               n/a
Item 4  -  Submission of Matters to a Vote of Security Holders                  6               n/a

PART II
Item 5  -  Market  for Common Equity and Related Shareholder Matters            6               n/a
Item 6  -  Management's Discussion and Analysis                                 8               n/a
Item 7  -  Financial Statements                                                 20              n/a
Item 8  -  Changes in and Disagreements with Accountants on Accounting and
               Financial Disclosure                                             45
Item 8a -  Controls and Procedures                                              45              n/a

PART III
Item 9  -  Directors, Executive Officers, Promoters and Control Persons         45              4 - 5, 9
Item 10 -  Executive Compensation                                               45              9 - 11
Item 11 -  Security Ownership of Certain Beneficial Owners and Management       45              3-4
Item 12 -  Certain Relationships and Related Transactions                       45              6, 11 - 12
Item 13 -  Exhibits and Reports on Form 8-K*                                    46              n/a
Item 14 -  Principal Accountant Fees and Services                               46              7 - 9, 12
</TABLE>

* Exhibits, Financial Statement Schedules and Reports on Forms 8-K, included in
or incorporated by reference into this filing were filed with the Securities and
Exchange Commission. Weststar Financial Services Corporation provides these
documents by mail upon request.


                                                                               2
<PAGE>

                                    PART I

ITEM 1: BUSINESS

General

Weststar Financial Services Corporation (the "Registrant" or the "Company") is a
bank holding company formed in April 2000 to own all of the common stock of The
Bank of Asheville (the "Bank"), a North Carolina-chartered bank that opened for
business as a community bank in Asheville, Buncombe County, North Carolina in
December 1997. On October 8, 2003, the Company formed Weststar Financial
Services Corporation I (the "Trust"), a Delaware statutory trust. The Trust has
no operations subsequent to its formation in 2003 other than the issuance of
trust preferred securities. At this time, the Company does not engage in any
business activities on its own. It only owns the Bank, which engages in the
commercial banking business, and the Trust, which was the legal entity formed
for its issuance of $4.0 million in trust preferred securities in 2003.

Primary Market Area

The Registrant's market area consists of Asheville, Buncombe County, North
Carolina and surrounding areas. Buncombe County is part of the Asheville Ranally
Metropolitan area. Asheville is the county seat and the industrial center of
Buncombe County with a population of approximately 69,700. In addition,
Asheville is the commercial hub for several other prosperous towns in Buncombe
County, including Arden, Biltmore Forest, Black Mountain, Montreat, Skyland,
Weaverville and Woodfin. The total population of Buncombe County is 208,600.
Statistics are the latest issued by the NC Office of Budget and Management.

Competition

Commercial banking in North Carolina is extremely competitive in large part due
to statewide branching. Registrant competes in its market areas with some of the
largest banking organizations in the state and the country and other financial
institutions, such as federally and state-chartered savings and loan
institutions and credit unions, as well as consumer finance companies, mortgage
companies and other lenders engaged in the business of extending credit. Many of
Registrant's competitors have broader geographic markets and higher lending
limits than Registrant and are also able to provide more services and make
greater use of media advertising. In Buncombe County as of June 30, 2003 (the
latest date for which statistics are available) there were 71 offices of 14
different commercial and savings banks (including the largest banks in North
Carolina), as well as offices of credit unions and various other entities
engaged in the extension of credit. As of June 30, 2003, Registrant accounted
for 3.28% of total deposits held by commercial banks and savings banks in
Buncombe County.

The enactment of legislation authorizing interstate banking has caused great
increases in the size and financial resources of some of Registrant's
competitors. In addition, as a result of interstate banking, out-of-state
commercial banks have acquired North Carolina banks, which has heightened the
competition among banks in North Carolina.

Despite the competition in its market area, Registrant believes that it has
certain competitive advantages that distinguish it from its competition.
Registrant believes that its primary competitive advantages are its strong local
identity and affiliation with the community and its emphasis on providing
specialized services to small and medium-sized business enterprises, as well as
professional and upper-income individuals. Registrant is locally owned and
managed, making credit and other decisions that have a direct bearing on service
faster and more efficient to obtain. Registrant offers customers modern,
high-tech banking without forsaking community values such as prompt, personal
service and friendliness. Registrant offers many personalized services and
attracts customers by being responsive and sensitive to their individualized
needs. Registrant also relies on goodwill and referrals from shareholders and
satisfied customers, as well as traditional newspaper and radio media to attract
new customers. To enhance a positive image in the community, Registrant supports
and participates in local events and its officers and directors serve on boards
of local civic and charitable organizations.

Employees

The Bank currently employs 35 full-time equivalent employees. Registrant does
not have any officers or employees who are not also officers or employees of the
Bank. None of the Registrant's employees are covered by a collective bargaining
agreement. The Registrant believes its relations with its employees to be good.

Regulation

Registrant is extensively regulated under both federal and state law. Generally,
these laws and regulations are intended to protect depositors and borrowers, not
shareholders. To the extent that the following information describes statutory
and regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable law or
regulation may have a material effect on the business of the Registrant.


                                                                               3
<PAGE>

                          The Bank Holding Company Act

The Registrant is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"), and is
required to register as such with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board" or "FRB"). A bank holding company is
required to file with the FRB annual reports and other information regarding its
business operations and those of its subsidiaries. It is also subject to
examination by the Federal Reserve Board and is required to obtain Federal
Reserve Board approval prior to acquiring, directly or indirectly, more than 5%
of the voting stock of any bank, unless it already owns a majority of the voting
stock of such bank. Furthermore, a bank holding company must engage, with
limited exceptions, in the business of banking or managing or controlling banks
or furnishing services to or performing services for its subsidiary banks. One
of the exceptions to this prohibition is the ownership of shares of a company
the activities of which the FRB has determined to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.

STATE LAW. The Bank is subject to extensive supervision and regulation by the
North Carolina Commissioner of Banks (the "Commissioner"). The Commissioner
oversees state laws that set specific requirements for bank capital and regulate
deposits in, and loans and investments by, banks, including the amounts, types,
and in some cases, rates. The Commissioner supervises and performs periodic
examinations of North Carolina-chartered banks to assure compliance with state
banking statutes and regulations, and the Bank is required to make regular
reports to the Commissioner describing in detail its resources, assets,
liabilities and financial condition. Among other things, the Commissioner
regulates mergers and acquisitions of state-chartered banks, the payment of
dividends, loans to officers and directors, record keeping, types and amounts of
loans and investments, and the establishment of branches.

DEPOSIT INSURANCE. As a member institution of the FDIC, the Bank's deposits are
insured up to a maximum of $100,000 per depositor through the Bank Insurance
Fund ("BIF"), administered by the FDIC, and each member institution is required
to pay semi-annual deposit insurance premium assessments to the FDIC. The BIF
assessment rates have a range of 0 cents to 27 cents for every $100 in
assessable deposits. Banks with no premium are subject to an annual statutory
minimum assessment.

CAPITAL REQUIREMENTS. The federal banking regulators have adopted certain
risk-based capital guidelines to assist in the assessment of the capital
adequacy of a banking organization's operations for both transactions reported
on the balance sheet as assets and transactions, such as letters of credit, and
recourse arrangements, which are recorded as off balance sheet items. Under
these guidelines, nominal dollar amounts of assets and credit equivalent amounts
of off balance sheet items are multiplied by one of several risk adjustment
percentages which range from 0% for assets with low credit risk, such as certain
U.S. Treasury securities, to 100% for assets with relatively high credit risk,
such as business loans.

A banking organization's risk-based capital ratios are obtained by dividing its
qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which include off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. "Tier 1," or core capital, includes common equity,
qualifying noncumulative perpetual preferred stock and minority interests in
equity accounts of consolidated subsidiaries, less goodwill and other
intangibles, subject to certain exceptions. "Tier 2," or supplementary capital,
includes among other things, limited-life preferred stock, hybrid capital
instruments, mandatory convertible securities, qualifying subordinated debt, and
the allowance for loan and lease losses, subject to certain limitations and less
required deductions. The inclusion of elements of Tier 2 capital is subject to
certain other requirements and limitations of the federal banking agencies.
Banks and bank holding companies subject to the risk-based capital guidelines
are required to maintain a ratio of Tier 1 capital to risk-weighted assets of at
least 4% and a ratio of total capital to risk-weighted assets of at least 8%.
The appropriate regulatory authority may set higher capital requirements when
particular circumstances warrant. As of December 31, 2003, the Bank was
classified as "well-capitalized" with Tier 1 and Total Risk - Based Capital of
15.43% and 17.82% respectively.

The federal banking agencies have adopted regulations specifying that they will
include, in their evaluations of a bank's capital adequacy, an assessment of the
bank's interest rate risk ("IRR") exposure. The standards for measuring the
adequacy and effectiveness of a banking organization's IRR management include a
measurement of board of director and senior management oversight, and a
determination of whether a banking organization's procedures for comprehensive
risk management are appropriate for the circumstances of the specific banking
organization.

Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority of
a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as the
measures described under the "Federal Deposit Insurance Corporation Improvement
Act of 1991" below, as applicable to undercapitalized institutions. In addition,
future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy. Such a change could affect
the ability of Registrant to grow and could restrict the amount of profits, if
any, available for the payment of dividends to the shareholders.


                                                                               4
<PAGE>

FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. In December,
1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), which substantially revised the bank regulatory and funding
provisions of the FDIA and made significant revisions to several other federal
banking statutes. FDICIA provides for, among other things:

      o     publicly available annual financial condition and management reports
            for certain financial institutions, including audits by independent
            accountants,

      o     the establishment of uniform accounting standards by federal banking
            agencies,

      o     the establishment of a "prompt corrective action" system of
            regulatory supervision and intervention, based on capitalization
            levels, with greater scrutiny and restrictions placed on depository
            institutions with lower levels of capital,

      o     additional grounds for the appointment of a conservator or receiver,
            and

      o     restrictions or prohibitions on accepting brokered deposits, except
            for institutions which significantly exceed minimum capital
            requirements.

FDICIA also provides for increased funding of the FDIC insurance funds and the
implementation of risk-based premiums.

A central feature of FDICIA is the requirement that the federal banking agencies
take "prompt corrective action" with respect to depository institutions that do
not meet minimum capital requirements. Pursuant to FDICIA, the federal bank
regulatory authorities have adopted regulations setting forth a five-tiered
system for measuring the capital adequacy of the depository institutions that
they supervise. Under these regulations, a depository institution is classified
in one of the following capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." An institution may be deemed by the regulators to
be in a capitalization category that is lower than is indicated by its actual
capital position if, among other things, it receives an unsatisfactory
examination rating with respect to asset quality, management, earnings or
liquidity.

FDICIA provides the federal banking agencies with significantly expanded powers
to take enforcement action against institutions which fail to comply with
capital or other standards. Such action may include the termination of deposit
insurance by the FDIC or the appointment of a receiver or conservator for the
institution. FDICIA also limits the circumstances under which the FDIC is
permitted to provide financial assistance to an insured institution before
appointment of a conservator or receiver.

MISCELLANEOUS. The dividends that may be paid by Registrant are subject to legal
limitations. In accordance with North Carolina banking law, dividends may not be
paid unless the Bank's capital surplus is at least 50% of its paid-in capital.
The Bank is the only source of dividends that may be paid by the Registrant.

The earnings of Registrant will be affected significantly by the policies of the
Federal Reserve Board, which is responsible for regulating the United States
money supply in order to mitigate recessionary and inflationary pressures. Among
the techniques used to implement these objectives are open market transactions
in United States government securities, changes in the rate paid by banks on
bank borrowings, and changes in reserve requirements against bank deposits.
These techniques are used in varying combinations to influence overall growth
and distribution of bank loans, investments, and deposits, and their use may
also affect interest rates charged on loans or paid for deposits.

The monetary policies of the Federal Reserve Board have had a significant effect
on the operating results of commercial banks in the past and are expected to
continue to do so in the future. In view of changing conditions in the national
economy and money markets, as well as the effect of actions by monetary and
fiscal authorities, no prediction can be made as to possible future changes in
interest rates, deposit levels, loan demand or the business and earnings of
Registrant.

Effective March 11, 2000, the Gramm-Leach-Bliley Act of 1999 allows a bank
holding company to qualify as a "financial holding company" and, as a result, be
permitted to engage in a broader range of activities that are "financial in
nature" and in activities that are determined to be incidental or complementary
to activities that are financial in nature. The Gramm-Leach-Bliley Act amends
the BHC Act to include a list of activities that are financial in nature, and
the list includes activities such as underwriting, dealing in and making a
market in securities, insurance underwriting and agency activities and merchant
banking. The Federal Reserve Board is authorized to determine other activities
that are financial in nature or incidental or complementary to such activities.
The Gramm-Leach-Bliley Act also authorizes banks to engage through financial
subsidiaries in certain of the activities permitted for financial holding
companies.


                                                                               5
<PAGE>

Registrant cannot predict what legislation might be enacted or what regulations
might be adopted, or if enacted or adopted, the effect thereof on Registrant's
operations.

Recent Legislative Developments

International Money Laundering Abatement and Financial Anti-Terrorism Act of
2001. On October 26, 2001, the USA Patriot Act of 2001 was enacted. This act
contains the International Money Laundering Abatement and Financial
Anti-Terrorism Act of 2001, which sets forth anti-money laundering measures
affecting insured depository institutions, broker-dealers and other financial
institutions. The Act requires U. S. financial institutions to adopt new
policies and procedures to combat money laundering and grant the Secretary of
the Treasury broad authority to establish regulations and to impose requirements
and restrictions on the operation of financial institutions. We have not as yet
determined the impact that this act will have on our operations although the
impact is not expected to be material.

ITEM 2: PROPERTIES

The following table sets forth the location of the Registrant's offices as of
December 31, 2003.

                                                     APPROX.
                                          YEAR       SQUARE
OFFICE LOCATION                           OPENED     FOOTAGE     OWN/LEASE
---------------                           ------     -------     ---------

Main Office
79 Woodfin Place                          1997       10,000      Own
Asheville, NC

Candler Office
6 Dogwood Road                            1999        1,900      Own building,
Candler, NC                                                      lease land

Leicester Highway Office                  2000          800      Lease
557 New Leicester Highway
Asheville, NC

Arden Office                              2003        1,300      Lease
2349 Hendersonville Highway
Arden, NC 28704

ITEM 3: LEGAL PROCEEDINGS

There were no known current or pending proceedings as of December 31, 2003.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Summary

Weststar Financial Services Corporation stock is traded on the Over-The-Counter
Bulletin Board under the symbol "WFSC." There were 1,166,208 shares outstanding
at December 31, 2003 owned by approximately 800 shareholders.

During 2003, 147,700 shares of the Company's common stock were traded. The
closing price of the stock was $11.00.

The following table represents stock prices during the trading periods.


                                                                               6
<PAGE>

2003                            1st           2nd           3rd           4th
                                Qtr.          Qtr.          Qtr.          Qtr.
High                            $ 8.92        $10.25        $13.00        $11.25
Low                             $ 7.83        $ 8.75        $ 9.67        $ 9.50
Close                           $ 8.73        $10.00        $12.50        $11.00

2002                            1st           2nd           3rd           4th
                                Qtr.          Qtr.          Qtr.          Qtr.
High                            $ 7.58        $ 7.73        $ 8.04        $ 9.58
Low                             $ 5.68        $ 6.13        $ 7.23        $ 7.21
Close                           $ 6.48        $ 7.46        $ 7.50        $ 9.16

No cash dividends were paid in 2003 or 2002. A 20% stock dividend in the form of
a 6-for-5 stock split, and a 10% stock dividend in the form of an 11-for-10
stock split were paid to shareholders in September 2003 and December 2002,
respectively. Stock prices have been adjusted to reflect the stock dividends.

Stock Transfer Agent and Registrar

Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
908.497.2312 or 800.368.5948

Shareholder Information

For information, contact Randall C. Hall, Executive Vice President and
Secretary, Weststar Financial Services Corporation, 79 Woodfin Place, Asheville,
North Carolina, 28801 or rhall@bankofasheville.com.

Annual Shareholders Meeting

The Annual Meeting of the shareholders of Registrant will be held at 3:00 p.m.,
Tuesday, April 20, 2004, at the Renaissance Asheville Hotel, One Thomas Wolfe
Plaza, Asheville, North Carolina.

Independent Auditors

Dixon Hughes PLLC, 6525 Morrison Boulevard, Suite 516, Charlotte, NC 28211-3563


                                                                               7
<PAGE>

ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's Discussion and Analysis is provided to assist in understanding and
evaluating the Company's results of operations and financial condition. The
following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein. Weststar
Financial Services Corporation (the "Company") is a holding company with two
subsidiaries, The Bank of Asheville (the "Bank"), a state chartered commercial
bank incorporated in North Carolina on October 29, 1997, and Weststar Financial
Services Corporation I (the "Trust"), a Delaware statutory trust incorporated on
October 8, 2003. The Bank provides consumer and commercial banking services in
Buncombe County and surrounding areas. Common shares of the Bank were exchanged
for common shares of Weststar Financial Services Corporation on April 29, 2000.
Because Weststar Financial Services Corporation has no material operations and
conducts no business on its own other than owning its subsidiaries, the Bank and
the Trust, and because the Trust has no operations subsequent to its formation
in 2003 other than the issuance of trust preferred securities, the discussion
contained in Management's Discussion and Analysis concerns primarily the
business of the Bank. However, for ease of reading and because the financial
statements are presented on a consolidated basis, Weststar Financial Services
Corporation and the Bank are collectively referred to herein as the Company.

                               EXECUTIVE OVERVIEW

During 2003, the Company focused significant attention on improving asset
quality, raising additional capital and further expansion within its markets.
Management emphasized prudent underwriting standards, increased periodic reviews
of loans of $100,000 or more, and expanded its loan quality monitoring systems.
As a result of several years of anemic economic conditions, the Company incurred
net charge-offs of $1,251,995 and $836,189 during 2003 and 2002, respectively.
Non-performing assets totaled $3,412,741 and $1,871,940 at December 31, 2003 and
2002, respectively. Despite the increase in charge-offs and non-performing
assets, loans delinquent less than 90 days improved significantly. A significant
amount of loans on non-accrual were well secured and demonstrated improvement
subsequent to year-end.

Additional regulatory capital in the amount of $4,000,000 was raised during the
fourth quarter of 2003 through the use of trust preferred securities. This
regulatory capital will be used to fund the Bank's asset growth and to provide
needed capital for future branching. Shortly after raising the capital, the Bank
opened its fourth banking location in Buncombe County. Additional banking
locations are currently under analysis by management.

The Company increased its deposit market share in Buncombe County from 2.92% at
June 30, 2002 to 3.93% at June 30, 2003, according to the latest Federal Deposit
Insurance Corporation statistics. From December 31, 2002 to December 31, 2003
the Company's deposits grew to $93,401,538 - an increase of 5.6%, while loans
grew to $74,753,066 - an increase of 10%. Management balanced loan growth though
liquidity as reflected in the 47% increase in the Company's investment portfolio
of $18,512,297.

The Company increased its average interest rate spread from 3.8% during 2002 to
4.1% in 2003 which, combined with net earning asset growth, resulted in a 4.4%
increase in net interest income during 2003. As a result of charge-offs, loan
growth and increased nonperforming loans, the Company added $1,405,800 to its
loan loss reserve compared to $877,920 in 2002. Non-interest income and
non-interest expenses remained relatively flat when compared to 2002. Net
service charges earned on overdraft fees, the Company's single largest source of
non-interest income, totaled $939,350 in 2003 compared to $1,034,563 in 2002.
Overdraft fees are based on customer activity. Other service charge income
demonstrated slight improvement over 2002. Non-interest expenses totaled
$3,420,460 and $3,484,699 in 2003 and 2002, respectively. Management monitors
expenses closely and reviews each expense relative to the benefit provided.

                              RESULTS OF OPERATIONS

The following discussion relates to operations for the year ended December 31,
2003 compared to the year ended December 31, 2002.

                              2003 COMPARED TO 2002

Net income for 2003 totaled $515,461 compared to $691,353 in 2002 or $.43 per
diluted share and $.59 per diluted share for 2003 and 2002, respectively. The
return on average assets and equity, respectively, was .51% and 5.78% for 2003
compared to .78% and 8.28% in 2002. The decrease in net income was primarily
attributable to increased provisions to the Bank's loan loss reserve.

Interest income, the primary source of revenue for the Company, was derived from
interest-earning assets such as loans, investments and federal funds sold. The
rate earned on interest-earning assets and dollar volume of the interest-earning
assets drive interest income. Interest income totaled $5,351,372 for the year
ended December 31, 2003 compared to $5,561,535 in 2002. Growth in the average
balance of interest-earning assets increased from $81,832,128 to $93,902,836 or
15%; however, the


                                                                               8
<PAGE>

decrease in earnings rates over 2003 resulted in lower interest income. Interest
expense, derived from interest-bearing liabilities such as deposits and borrowed
funds, totaled $1,397,761 in 2003 compared to $1,773,924 in 2002. The decrease
in interest expense was primarily attributable to lower interest rates during
2003. The average balance of interest-bearing liabilities grew from $64,671,656
in 2002 to $75,376,066 in 2003 or 17%.

Loan growth and higher levels of charge-offs and nonperforming loans resulted in
the Company's provision of $1,405,800 for loan losses in 2003 compared with
$877,920 in 2002. Charge-offs, net of recoveries totaled $1,251,995 for 2003
compared with $836,189 for 2002. Nonperforming loans totaled $2,145,772 at the
end of 2003 compared with $1,079,750 at the end of 2002.

Other income totaled $1,668,110 in 2003 compared to $1,677,246 in 2002. Service
charge fees on deposit accounts and other fees and commissions earned account
for the majority of non-interest income. During 2003, the Company earned
$1,144,669 from service charges on deposit accounts compared to $1,214,454 in
2002, a decrease of 6%. The decrease resulted from less service charge income
earned from overdraft charges, which produced income of $1,034,563 in 2002
compared to $939,350 in 2003. Other service fees and commissions, including fees
from the origination of mortgage loans, totaled $446,234 in 2003 compared to
$404,923 in 2002.

Mortgage loan fees accounted for $290,431 or 65% of other service fees and
commissions during 2003 compared to $268,983 or 66% of other fees and
commissions during 2002. Mortgage origination activity has a tendency to
increase during periods of declining interest rates as was the case during 2002.
During the latter part of 2003, mortgage loan income slowed down as rates began
to rise.

During 2003, the Company sold an investment security, which resulted in a
realized gain of $45,482 compared to $30,889 in 2002. The sale resulted from a
need to improve liquidity during the period.

Other income, primarily the fees from the sales of checks and deposit slips and
recoveries other than loans, provided additional income of $31,725 in 2003
compared to $26,980 in 2002.

Other expenses totaled $3,420,460 in 2003 compared to $3,484,699 in 2002.
Expenses increased as a result of increased personnel expense, increased
supplies expense to process the Bank's growth in loans and deposits, and
expenses associated with opening a fourth full-service banking location during
the forth quarter of 2003. Salaries and benefits accounted for $1,538,165 in
2003 or 45% of other expenses compared to $1,506,719 or 43% in 2002. Equipment
expenses totaled $264,871 in 2003 compared to $247,477 in 2002. Other
non-interest expenses of $1,617,424 in 2003 compared to $1,556,753 in 2002
included sundry items such as marketing, accounting, occupancy, insurance, and
data processing. Additionally, the Company incurred an expense of $173,750 due
to the settlement of a lawsuit during 2002. The Company evaluates the cost of
each expense based upon the value generated.

                               NET INTEREST INCOME

Net interest income (the difference between interest earned on interest-earning
assets and interest paid on interest-bearing liabilities, primarily deposits)
represents the most significant portion of the Company's earnings. It is
management's on-going policy to maximize net interest income, while maintaining
an acceptable level of risk. Net interest income totaled $3,953,611 and
$3,787,611 for 2003 and 2002, respectively, representing increases of 4.4% for
2003 over 2002. Interest rate spreads have been at least 3.8% over the last two
years. The Company continues efforts to maximize this spread by management of
both loan and deposit rates in order to support the overall earnings growth. The
following table presents the daily average balances, interest income/expense and
average rates earned and paid on interest-earning assets and interest-bearing
liabilities of the Company for the last two years.


                                                                               9
<PAGE>

                  AVERAGE BALANCES AND INTEREST INCOME ANALYSIS
                        For the Years Ended December 31,

<TABLE>
<CAPTION>
                                                         2003                                             2002
                                                       Average                                          Average
                                         Average        Yield/         Income/            Average        Yield/         Income/
                                         Balance         Cost          Expense            Balance         Cost          Expense
<S>                                   <C>                <C>        <C>                <C>                <C>        <C>
ASSETS:
Loans (1)                             $ 68,943,841       6.9%       $  4,785,672       $ 66,303,175       7.7%       $  5,130,248
Taxable securities (2)                  14,292,579       2.9%            416,277          6,618,314       4.2%            278,097
Non-taxable securities (3)               1,617,975       5.1%             54,801            461,801       5.3%             16,109
Federal funds sold                       8,996,430       1.1%             94,067          7,779,200       1.6%            122,859
Interest-bearing deposits                   52,011       1.1%                555            669,638       2.1%             14,222
                                      ------------                  ------------       ------------                  ------------
  Total interest-earning assets         93,902,836       5.7%          5,351,372         81,832,128       6.8%          5,561,535
                                      ------------                  ------------       ------------                  ------------
All other assets                         6,862,514                                        6,278,582
                                      ------------                                     ------------
  Total assets                        $100,765,350                                     $ 88,110,710
                                      ============                                     ============

Liabilities and Shareholders'
Equity:
Interest-bearing deposits             $ 73,341,774       1.8%          1,332,474       $ 63,885,388       2.7%          1,753,262
Borrowings                               2,034,292       3.2%             65,287            786,268       2.6%             20,662
                                      ------------                  ------------       ------------                  ------------
  Total interest-bearing                75,376,066       1.9%          1,397,761         64,671,656       2.7%          1,773,924
liabilities
Other liabilities                       16,469,730                                       15,091,600
Shareholders' equity                     8,919,554                                        8,347,454
                                      ------------                                     ------------
Total liabilities and
shareholders' equity                  $100,765,350                                     $ 88,110,710
                                      ============                                     ============

Net yield on earning-assets and
net interest income (4)                                  4.2%       $  3,953,611                          4.6%       $  3,787,611
                                                                    ============                                     ============
Interest rate spread (5)                                 3.8%                                             4.1%
</TABLE>

(1)   Nonaccrual loans have been included.

(2)   Includes investment in Federal Home Loan Bank.

(3)   Yields on tax-exempt investments have been adjusted to tax equivalent
      basis using 34%.

(4)   Net yield on earning assets is computed by dividing net interest earned by
      average earning assets.

(5)   The interest rate spread is the interest earning assets rate less the
      interest earning liabilities rate.

Changes in interest income and interest expense can result from changes in both
volume and rates. The following table sets forth the dollar amount of increase
(decrease) in interest income and interest expense resulting from changes in the
volume of interest earning assets and interest bearing liabilities and from
changes in yields and rates.

                        Interest and Rate/Volume Variance
                        For the Years Ended December 31,

<TABLE>
<CAPTION>
                                                     2003 Compared to 2002                       2002 Compared to 2001
                                            Volume (1)      Rate (1)        Total        Volume (1)     Rate (1)        Total
<S>                                        <C>            <C>            <C>            <C>           <C>            <C>
Interest-bearing deposits in other banks   $    (9,854)   $    (3,813)   $   (13,667)   $    23,761   $   (15,304)   $     8,457
Investment securities                          312,736       (135,864)       176,872        117,573       (66,575)        50,998
Federal funds sold                              15,975        (44,767)       (28,792)        99,707      (128,307)       (28,600)
Loans                                          193,811       (538,387)      (344,576)       250,629      (855,157)      (604,528)
                                           -----------    -----------    -----------    -----------   -----------    -----------
Increase in interest income                $   512,668    $  (722,831)   $  (210,163)   $   491,670   $(1,065,343)   $  (573,673)
                                           ===========    ===========    ===========    ===========   ===========    ===========

Interest-bearing deposits                  $   215,662    $  (636,450)   $  (420,788)   $    33,952   $(1,019,499)   $  (985,547)
Borrowings                                      36,425          8,200         44,625         28,601       (11,807)        16,794
                                           -----------    -----------    -----------    -----------   -----------    -----------
Increase in interest expense               $   252,087    $  (628,250)   $  (376,163)   $    62,553   $(1,031,306)   $  (968,753)
                                           ===========    ===========    ===========    ===========   ===========    ===========
</TABLE>

      (1)   The rate/volume variance for each category has been allocated
            equally on a consistent basis between rate and volume variance.

              LIQUIDITY, INTEREST RATE SENSITIVITY AND MARKET RISKS
     (INCLUDING QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS)

The objectives of the Company's liquidity management policy include providing
adequate funds to meet the cash needs of depositors and borrowers, as well as
providing funds to meet the basic needs for on-going operations of the Company
and regulatory requirements. Depositor cash needs, particularly those of
commercial depositors, can fluctuate significantly depending on both business
and economic cycles, while both retail and commercial deposits can fluctuate
significantly based on the yields


                                                                              10
<PAGE>

and returns available from alternative investment opportunities. Borrower cash
needs are also often dependent upon business and economic cycles. In addition,
the Company's liquidity is affected by off-balance sheet commitments to lend in
the forms of unfunded commitments to extend credit and standby letters of
credit. As of December 31, 2003, such unfunded commitments to extend credit were
$19,203,809, while commitments in the form of letters of credit totaled
$1,231,442.

Neither the Company nor its subsidiaries have historically incurred off-balance
sheet obligations through the use of or investment in off-balance sheet
derivative financial instruments or structured finance or special purpose
entities organized as corporations, partnerships or limited liability companies
or trusts. However, the Bank had contractual off-balance sheet obligations in
the form of noncancelable operating leases with unrelated vendors. As of
December 31, 2003, payments due under such operating lease arrangements were
$63,933 in 2004 and $49,500 in 2005.

Liquidity requirements of the Company are met primarily through two categories
of funds. The first is core deposits, which includes demand deposits, savings
accounts and certificates of deposit. The Company considers these to be a stable
portion of the Company's liability mix and results of on-going stable commercial
and consumer banking relationships. At December 31, 2003 and 2002, core deposits
totaled $88,435,187 or 95% and $80,442,807 or 91%, respectively, of the
Company's total deposits.

The other principal methods of funding utilized by the Company are through large
denomination certificates of deposit, federal funds purchased and other
short-term and long-term borrowings. Upstream correspondent banks, including the
Federal Home Loan Bank of Atlanta, have made available to the Company lines of
credit of approximately $15 million. Funding can also be borrowed from the
Federal Reserve Bank's discount window. Funds borrowed from the Federal Reserve
Bank are based upon a percentage of the underlying collateral. The Company has
incurred limited need to borrow from the Federal Reserve Bank; as a result no
securities have been allocated to secure borrowings. The Company's policy is to
emphasize core deposit growth rather than through purchased or brokered
liabilities as the cost of these funds is greater.

In the normal course of business, there are various outstanding contractual
obligations that will require future cash outflows. In addition there are
commitments and contingent liabilities, such as commitments to extend credit,
which may or may not require future cash outflows. It has been the experience of
the Company that deposit withdrawals are generally replaced with new deposits,
thus not requiring any cash outflow. Based on that assumption, management
believes that it can meet its contractual cash obligations from normal
operations. See Note 14 to the consolidated financial statements for more
information on commitments and contingent liabilities.

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.

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 net
interest 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.

The majority of the Company's deposits are rate-sensitive instruments with rates
which tend to fluctuate with market rates. These deposits, coupled with the
Company's short-term time deposits, have increased the opportunities for deposit
repricing. The Company places great significance on monitoring and managing the
Company's asset/liability position. The Company's policy of managing its
interest margin (or net yield on interest-earning assets) is to maximize net
interest income while maintaining a stable deposit base. The Company's deposit
base is not generally subject to volatility experienced in national financial
markets in recent years; however, the Company does realize the importance of
minimizing such volatility while at the same time maintaining and improving
earnings. A common method used to manage interest rate sensitivity is to
measure, over various time periods, the difference or gap between the volume of
interest-earning assets and interest-bearing liabilities repricing over a
specific time


                                                                              11
<PAGE>

period. However, this method addresses only the magnitude of funding mismatches
and does not address the magnitude or relative timing of rate changes.
Therefore, management prepares on a regular basis earnings projections based on
a range of interest rate scenarios of rising, flat and declining rates in order
to more accurately measure interest rate risk.

Interest-bearing liabilities and the loan portfolio are generally repriced to
current market rates. The Company's balance sheet is asset-sensitive, meaning
that in a given period there will be more assets than liabilities subject to
immediate repricing as the market rates change. Because most of the Company's
loans are at variable rates, they reprice more rapidly than rate sensitive
interest-bearing deposits. During periods of rising rates, this results in
increased net interest income. The opposite occurs during periods of declining
rates.

The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2003, 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. In
addition, the table reflects scheduled principal payments which will be received
throughout the lives of the loans. 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.

                    INTEREST RATE SENSITIVITY (GAP ANALYSIS)
                                DECEMBER 31, 2003

<TABLE>
<CAPTION>
                                       1 - 90          91 - 180        181 - 365        Total            Non-
                                       Days            Days            Days             One Year         Sensitive      Total
<S>                                    <C>             <C>             <C>              <C>              <C>            <C>
Interest-earning assets:
Interest bearing deposits              $     39,617                                     $     39,617                    $     39,617
Federal funds sold                        8,294,000                                        8,294,000                       8,294,000
Investment securities                     1,491,424    $  3,491,424    $  2,983,472        7,966,320     $ 10,677,133     18,643,453
Federal Home Loan
  Bank stock                                                                                                  175,400        175,400
Loans (1)                                53,749,200       1,204,693       3,273,203       58,227,096       14,380,198     72,607,294
                                       ------------    ------------    ------------     ------------     ------------   ------------
  Total interest-earning assets          63,574,241       4,696,117       6,256,675       74,527,033       25,232,731     99,759,764

Interest-bearing liabilities:
Time deposits                             8,145,598       4,461,344       9,549,653       22,156,595        3,171,544     25,328,139
All other deposits                       50,365,970                                       50,365,970                      50,365,970
Borrowings                                                                                                  2,000,000      2,000,000
Other                                                                                                         127,614        127,614
Trust preferred securities                4,000,000                                        4,000,000                       4,000,000
                                       ------------    ------------    ------------     ------------     ------------   ------------
  Total interest-bearing liabilities     62,511,568       4,461,344       9,549,653       76,522,565        5,299,158     81,821,723

Interest sensitivity gap               $  1,062,673    $    234,773    $ (3,292,978)    $ (1,995,532)    $ 19,933,573
                                       ============    ============    ============     ============     ============
Cumulative interest
  sensitivity gap                      $  1,062,673    $  1,297,446    $ (1,995,532)
                                       ============    ============    ============
Interest-earning assets
  as a percent of interest
  sensitive liabilities                       101.7%          105.3%           65.5%            97.4%
</TABLE>

(1)   Nonaccrual loans have been excluded.

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


                                                                              12
<PAGE>

The following table presents the maturity distribution of the Company's loans by
type, including fixed rate loans.

   MATURITIES AND SENSITIVITIES OF CERTAIN LOANS TO CHANGES IN INTEREST RATES
                             AS OF DECEMBER 31, 2003

                                            Within        One to         Five
                                              One          Five        Years or
                                             Year          Years         More

Commercial, financial and agricultural   $15,397,553   $ 3,123,503   $    82,261
Real estate - mortgage                    34,137,757    18,004,102     2,245,389

Predetermined rate, maturity
  greater than one year                           --    21,127,605     2,327,650
Variable rate or maturing within
  one year                                49,535,310            --            --

The Company paid an average rate of 1.8% on interest-bearing deposits during
2003 compared to 2.7% during 2002. Significant growth in deposits came from
interest-bearing accounts. Interest-bearing transaction and savings accounts
grew by $13,465,104 during the period. Anticipating future interest rate
increases, customers shifted funds from time deposits to interest-bearing and
savings accounts. Increased customer awareness of interest rates increases the
importance of rate management by the Company. The Company's management
continuously monitors market pricing, competitor rates, and profitability.
Deposits continue to be the principal source of funds for continued growth, so
the Company attempts to structure its rates so as to promote deposit and asset
growth while at the same time increasing overall profit management. The daily
average amounts of deposits of the Company are summarized below.

Average Deposits
For the Year Ended December 31, 2003

Non-interest bearing deposits                                        $15,904,282
Interest-bearing                                                      73,341,774
                                                                     -----------
Total                                                                $89,246,056
                                                                     ===========

The above table includes deposits of $100,000 and over which at December 31,
2003 totaled $4,966,351. The table below presents the maturities of deposits of
$100,000 or more.

Maturities of Deposits of $100,000 or More
December 31, 2003

<TABLE>
<CAPTION>
                                                                                    Greater
                                    Within          Within          Within          Than
                                    Three           Six             Twelve          One
                                    Months          Months          Months          Year
<S>                                 <C>             <C>             <C>             <C>
Time deposits of $100,000 or more   $2,018,220      $340,758        $2,091,617      $515,756
</TABLE>

CAPITAL RESOURCES

As of December 31, 2003 and 2002, the Company's ratio of total capital to
risk-adjusted assets was 17.82%, and 13.65%, respectively. Average capital to
average assets totaled 8.85% and 9.47% at December 31, 2003 and 2002,
respectively. The Company remains well capitalized and fully expects to be able
to meet future capital needs caused by growth and expansion as well as
regulatory requirements. The Company is not aware of any current recommendation
by regulatory authorities which if implemented would materially affect the
Company's liquidity, capital resources or operations.

On October 8, 2003, the Company formed a special purpose entity organized as a
business trust under the laws of the State of Delaware. This business trust,
called Weststar Financial Services Corporation I, was formed in order to allow
the Company to issue trust preferred securities. As part of the issuance of
trust preferred securities, the Company entered into a trust agreement with
Wells Fargo Bank, National Association ("Wells Fargo") as property trustee and
an indenture with Wells Fargo as indenture trustee. The Company issued a junior
subordinated debenture to the Trust under the indenture. A guarantee agreement
was executed by the Company with Wells Fargo as guarantee trustee, for the
benefit of the eventual holders of the trust preferred securities.


                                                                              13
<PAGE>

On October 10, 2003, 4,000 shares of the trust preferred securities having an
aggregate value of $4,000,000 were issued. The trust preferred securities bear a
rate of LIBOR plus 315 basis points and pay dividends quarterly. The rate is
subject to quarterly resets. The Company's source of funds for the required
interest payments is derived from dividends paid by the Bank. The trust
preferred securities mature 30 years from the original date of issuance, and are
callable in 5 years. At this time, there are no plans to call the 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. Shortly after the issuance of the
securities, the Bank opened its fourth full-service banking office in Buncombe
County.

LOANS

The Company makes loans within its market area, defined as Asheville and
Buncombe County, North Carolina. It makes both commercial and consumer loans.
Total loans outstanding at December 31, 2003 and 2002 were $74,753,066 and
$67,977,979, respectively. The Company places emphasis on consumer loans and
commercial loans to small businesses and professionals. The Company has a
diversified loan portfolio with no concentration to any one borrower or
industry. The amounts and types of loans outstanding for the past five years
ended December 31 are shown on the following table.

                                      LOANS
                                  December 31,

<TABLE>
<CAPTION>
                                      2003                     2002                      2001
                                                      % of                      % of                       %of
                                                      Total                     Total                      Total
                                      Amount          Loans    Amount           Loans    Amount            Loans
<S>                                   <C>             <C>      <C>              <C>      <C>               <C>
LOANS
Real estate -
  Construction                        $  8,372,934     11%     $ 12,334,543      18%     $ 11,139,588       17%
  Mortgage                              46,014,314     61%       37,214,677      55%       35,189,010       54%
Commercial, financial and
  agricultural                          18,603,317     25%       16,367,306      24%       16,512,498       25%
Consumer                                 1,909,709      3%        2,188,840       3%        2,553,710        4%
                                      ------------    ---      ------------     ---      ------------      ---
Total loans                             74,900,274    100%       68,105,366     100%       65,394,806      100%
                                                      ===                       ===                        ===
Deferred originations fees, net           (147,208)                (127,387)                 (163,824)
                                      ------------             ------------              ------------
Total loans, net of deferred fees     $ 74,753,066             $ 67,977,979              $ 65,230,982
                                      ============             ============              ============

<CAPTION>
                                      2000                     1999
                                                      % of                      % of
                                                      Total                     Total
                                      Amount          Loans    Amount           Loans
<S>                                   <C>             <C>      <C>              <C>
LOANS
Real estate -
  Construction                        $  8,894,309     15%     $  7,152,238      21%
  Mortgage                              32,332,304     53%       16,963,594      49%
Commercial, financial and
  agricultural                          17,939,971     30%        9,926,255      29%
Consumer                                 1,338,067      2%          562,765       1%
                                      ------------    ---      ------------     ---
Total loans                             60,504,651    100%       34,604,852     100%
                                                      ===                       ===
Deferred originations fees, net           (212,020)                (144,128)
                                      ------------             ------------
Total loans, net of deferred fees     $ 60,292,631             $ 34,460,724
                                      ============             ============
</TABLE>

                              NONPERFORMING ASSETS
                                  December 31,

<TABLE>
<CAPTION>
                          2003         2002         2001         2000         1999
<S>                       <C>          <C>          <C>          <C>          <C>
NONPERFORMING ASSETS
Nonaccrual loans          $2,145,772   $1,079,750   $1,050,813   $  522,137   $  247,559
Other real estate owned    1,145,186      724,986      733,941           --           --
Repossessions                121,783       67,204       18,598           --           --
                          ----------   ----------   ----------   ----------   ----------
Total                     $3,412,741   $1,871,940   $1,803,352   $  522,137   $  247,559
                          ==========   ==========   ==========   ==========   ==========
</TABLE>


                                                                              14
<PAGE>

The increase in non-accrual loans was primarily attributable to a small number
of larger balance loans, which experienced deterioration in performance.

Real estate loans comprised 72.6% of the portfolio in 2003 compared to 72.8% in
2002. Commercial loans comprised 24.8% of the portfolio in 2003 compared to
24.0% in 2002, while consumer loans comprised 2.6% in 2003 compared to 3.2% in
2002. Commercial loans of $18,603,317, consumer loans of $1,909,709 and real
estate mortgage loans of $46,014,314 are loans for which the principal source of
repayment is derived from the ongoing cash flow of the business. Real estate
construction loans of $8,372,934 are loans for which the principal source of
repayment comes from the sale of real estate or from obtaining permanent
financing.

The Company has various financial instruments (outstanding commitments) with
off-balance sheet risk that are issued in the normal course of business to meet
the financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. Commitments to
extend credit are legally binding agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally are issued at then current market rates and have fixed expiration
dates of 1 year or other termination clauses. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts
outstanding do not necessarily represent future cash requirements. Standby
letters of credit represent conditional commitments issued by the Company to
assure the performance of a customer to a third party. The unused portion of
commitments to extend credit was $20,435,251 and $15,056,513 at December 31,
2003 and 2002, respectively.

Any loans classified by regulatory examiners as loss, doubtful, substandard or
special mention that have not been disclosed hereunder, or under "loans" or
"Asset Quality" narrative discussions do not (i) represent or result from trends
or uncertainties that management expects will materially impact future operating
results, liquidity or capital resources, or (ii) represent material credits
about which management is aware of any information that causes 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 $1,838,798 and
$2,160,936 at December 31, 2003 and 2002, respectively. The increase in impaired
loans reflects a small number of larger balance loans which experienced
deterioration in asset quality. The related allowance for loan losses determined
in accordance with SFAS No. 114 for impaired loans was $182,013 and $115,865 at
December 31, 2003 and 2002, respectively. For the years ended December 31, 2003
and 2002, the Company recognized interest income from impaired loans of $89,004
and $45,000, respectively.

PROVISION AND ALLOWANCE FOR LOAN LOSSES

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.

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


                                                                              15
<PAGE>

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 December 31, 2003 and 2002 was $1,174,003 and
$1,020,198 or 1.57% and 1.50%, respectively, of gross loans outstanding. The
ratio of net charge-offs to average loans outstanding was 1.82% and 1.26% during
2003 and 2002, respectively. Primarily because of a recessionary economy,
charge-offs in 2003, 2002, and 2001 exceeded that of prior historical
experiences.

                    CHANGES IN THE ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                               2003            2002            2001          2000          1999
<S>                                            <C>             <C>             <C>           <C>           <C>
Balance at beginning of year                   $ 1,020,198     $   978,467     $ 871,706     $ 528,808     $ 218,719
Loans charged-off:
  Commercial, financial and agricultural        (1,075,792)       (568,710)     (373,087)     (112,062)      (16,453)
  Real estate:
    Construction                                        --        (127,810)           --            --            --
    Mortgage                                      (157,142)        (33,574)      (90,275)           --            --
  Consumer                                        (124,680)       (159,471)      (27,238)       (2,114)       (2,114)
                                               -----------     -----------     ---------     ---------     ---------
Total charge-offs                               (1,357,614)       (889,565)     (490,600)     (112,062)      (18,567)
                                               -----------     -----------     ---------     ---------     ---------
Recoveries of loans previously charged -off:
  Commercial, financial and agricultural            71,942          19,753        45,270            --        11,971
  Real estate:
    Construction                                        --           1,531            --            --            --
    Mortgage                                            --          13,322            --            --            --
  Consumer                                          33,677          18,770         1,671            --            --
                                               -----------     -----------     ---------     ---------     ---------
Total recoveries                                   105,619          53,376        46,941            --        11,971
                                               -----------     -----------     ---------     ---------     ---------
Net charge-offs                                 (1,251,995)       (836,189)     (443,659)     (112,062)       (6,596)
                                               -----------     -----------     ---------     ---------     ---------
Provision for loan losses                        1,405,800         877,920       550,420       454,960       316,685
                                               -----------     -----------     ---------     ---------     ---------
Balance at end of year                         $ 1,174,003     $ 1,020,198     $ 978,467     $ 871,706     $ 528,808
                                               ===========     ===========     =========     =========     =========

Ratio of net charge-offs during the year to
  average loans outstanding during the year           1.82%           1.26%          .70%          .23%          .03%
</TABLE>

Charge-offs and non-performing loans during 2003 exceeded that of prior years
yet the loan loss reserve as a percentage of loans outstanding and as a
percentage of loans outstanding has remained relatively level. Management has
reviewed each non-performing loan, supporting collateral, financial stability of
each borrower and the relevant loan loss reserve allowance. Based upon our
analysis, the management believes the allowance is adequate to support current
loans outstanding. Management has further increased its underwriting analysis,
training and loan monitoring.

The Company does not have any significant loan concentrations. During the
period, loan terms remained relatively unchanged, and loan quality reflected
slight deterioration throughout most of the year. During the latter part of the
fourth quarter, the Company began experiencing improvements in overall loan
quality. Growth in the allowance has been based upon our formula allowance. Due
to the overall consistency of the loan portfolio, there has been no reallocation
of the allowance among different parts of the portfolio.

During 2003, there were no changes in the 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 effects of economic and business conditions on borrowers affect
the assessment of the allowance.

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.


                                                                              16
<PAGE>

                   ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                                                       December 31,
                         2003                  2002                  2001                2000                1999
                                       % of                  %of                 %of                 %of                 %of
                                       Total                 Total               Total               Total               Total
                         Amount        Loans   Amount        Loans   Amount      Loans   Amount      Loans   Amount      Loans
<S>                      <C>           <C>     <C>           <C>     <C>         <C>     <C>         <C>     <C>         <C>
Real estate              $  863,606     72%    $  690,842     73%    $645,743     71%    $553,337     68%    $367,917     70%
Commercial, financial
  and agricultural          267,584     25%       287,860     24%     280,653     25%     278,879     30%     150,445     29%
Consumer                     23,722      3%        19,184      3%      19,381      4%      15,822      2%       8,650      1%
Unallocated                  19,091     --         22,312     --       32,690     --       23,668     --        1,796     --
                         ----------    ---     ----------    ---     --------    ---     --------    ---     --------    ---
Total allowance          $1,174,003    100%    $1,020,198    100%    $978,467    100%    $871,706    100%    $528,808    100%
                         ==========    ===     ==========    ===     ========    ===     ========    ===     ========    ===
</TABLE>

INVESTMENT SECURITIES

At December 31, 2003 and 2002, securities carried at market value totaled
$18,512,297 and $12,557,103, respectively, with amortized costs of $18,643,453
and $12,507,535, respectively. All investment securities are available for sale.
Securities available for sale are securities which will be held for an
indefinite period of time, including securities that management intends to use
as part of its asset/liability management strategy, or that may be sold in
response to changes in interest rates, changes in prepayment risk or the need to
increase regulatory capital or other similar factors.

MATURITIES AND YIELDS OF DEBT SECURITIES

December 31, 2003
Available for sale: (1)

                                                     Amortized
TYPE                                                 Cost              Yield (2)

U.S. Government agencies - within 1 year             $   500,624       4.4%
                                                     -----------

U.S. Government agencies - within 1 to 5 years         5,500,000       2.7%
Mortgage-backed securities - within 1 to 5 years       2,767,375       3.3%
N.C. Municipal bonds - within 1 to 5 years               257,162       5.3%
                                                     -----------       ---
  Total - within 1 to 5 years                          8,524,537       3.0%

Mortgage-backed securities - within 5 to 10 years      7,463,939       3.9%
N.C. Municipal bonds - within 5 to 10 years            1,451,675       5.0%
                                                     -----------       ---
  Total - within 5 to 10 years                         8,915,614       4.1%

Mortgage-backed securities - greater than 10 years       588,247       4.1%
N.C. Municipal bonds - greater than 10 years             114,413       4.7%
                                                     -----------       ---
  Total - greater than 10 years                          702,660       4.2%

    Total                                            $18,643,453       3.6%
                                                     ===========       ===

December 31, 2002
Available for sale: (1)

                                                     Amortized
TYPE                                                 Cost              Yield (2)

U.S. Government agencies - within 1 to 5 years       $10,002,843       3.1%
N.C. Municipal bonds - within 1 to 5 years               259,113       5.3%
                                                     -----------       ---
  Total - within 1 to 5 years                         10,261,956       3.1%

U.S. Government agencies - within 5 to 10 years        1,521,499       4.2%
N.C. Municipal bonds - within 5 to 10 years              724,080       5.3%
                                                     -----------       ---
  Total - within 5 to 10 years                         2,245,579       4.6%

    Total                                            $12,507,535       3.4%
                                                     ===========       ===

(1)   Securities available for sale are stated at amortized cost.

(2)   Yields on tax-exempt securities reflect tax equivalent yields using 34%
      tax rate


                                                                              17
<PAGE>

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments regarding uncertainties that affect the
reported amounts of assets, liabilities, revenues and expenses. On an ongoing
basis, the Company evaluates its estimates which are based upon historical
experience and on other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions.

The Company's significant accounting policies are described in Note 1 to the
consolidated financial statements. The Company considers the following
accounting policies to be most critical in their potential effect on its
financial position or results of operations:

ALLOWANCE FOR LOAN LOSSES

The most critical estimate concerns the Company's allowance for loan losses. The
Company records provisions for loan losses based upon known problem loans and
estimated deficiencies in the existing loan portfolio. The Company's methodology
for assessing the appropriations of the allowance for loan losses consists of
two key components, which are a specific allowance for identified problem or
impaired loans and a formula allowance for the remainder of the portfolio.

Identified problem and impaired loans are measured for impairment based on the
present value of expected future cash flows discounted at the loan's effective
interest rate, the loan's observable market price or the fair value of the
collateral, if the loan is collateral dependent. This evaluation is inherently
subjective, as it requires material estimates that may be susceptible to
significant change. The adequacy of the allowance is also reviewed by management
based upon its evaluation of then-existing economic and business conditions
affecting the key lending areas of the Company and other conditions, such as new
loan products, collateral values, loan concentrations, changes in the mix and
volume of the loan portfolio; trends in portfolio credit quality, including
delinquency and charge-off rates; and current economic conditions that may
affect a borrower's ability to repay. Although management believes it has
established and maintained the allowance for loan losses at appropriate levels,
future adjustments may be necessary if economic, real estate and other
conditions differ substantially from the current operating environment.

INTEREST INCOME RECOGNITION

Interest on loans is included in income as earned based upon interest rates
applied to unpaid principal. Interest is not accrued on commercial and mortgage
loans 90 days or more past due. Interest is not accrued on other loans when
management believes collection is doubtful. Interest accrued during the current
calendar year but not collected for loans that are charged-off is reversed
against interest income. Accrued but uncollected interest from prior periods is
charged-off against the allowance for loan losses. Interest on nonaccrual loans
is accounted for on the cash-basis or cost-recovery method until qualifying for
return to accrual. Loans are returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payments
are reasonably assured.

INFLATION

Since the assets and liabilities of a bank are primarily monetary in nature
(payable in fixed, determinable amounts), the performance of a bank is affected
more by changes in interest rates than inflation. Interest rates generally
increase as the rate of inflation increase, but the magnitude of the change in
rates may not be the same.

While the effect of inflation is normally not as significant as it is on those
businesses that have large investments in plant and inventories, it does have an
effect. There are normally corresponding increases in the money supply, and
banks will normally experience above average growth in assets, loans and
deposits. Also, general increases in the prices of goods and services will
result in increased operating expense.


                                                                              18
<PAGE>

SELECTED FINANCIAL INFORMATION AND OTHER DATA

SELECTED AVERAGE BALANCES:

<TABLE>
<CAPTION>
                                                     2003    Yield           2002     Yield
<S>                                           <C>             <C>     <C>              <C>
      Non-interest bearing demand deposits    $15,904,282             $14,601,488
      Interest-bearing demand deposits         39,442,377     1.3%     27,931,931      1.9%
      Savings deposits                          2,030,104      .4%      1,706,362       .8%
      Time deposits                            31,869,293     2.5%     34,247,095      3.5%
                                              -----------             -----------
      Total deposits                          $89,246,056             $78,486,876
                                              ===========             ===========

SELECTED PERFORMANCE RATIOS:

      Return on average assets                        .51%                    .78%
      Return on average equity                       5.78%                   8.28%
      Dividend payout ratio                             0%                      0%
      Equity to assets ratio                         8.85%                   9.47%
</TABLE>

FORWARD LOOKING STATEMENTS

The discussions presented in this annual report contain statements that could be
deemed forward looking statements within the meaning of the Securities Exchange
Act of 1934 and the Private Securities Litigation Reform Act of 1995, which
statements are inherently subject to risks and uncertainties. Forward looking
statements are statements 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 words (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.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has various financial instruments (outstanding commitments) with
off-balance sheet risk that are issued in the normal course of business to the
meet the financing needs of its customers. See Note 14 to the consolidated
financial statements for more information regarding these commitments and
contingent liabilities.


                                                                              19
<PAGE>

ITEM 7: FINANCIAL STATEMENTS

             WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
                 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

                                                                        Page No.
                                                                        --------

Independent Auditors' Report .........................................     21

Consolidated Balance Sheets as of December 31, 2003 and 2002 .........     22

Consolidated Statements of Operations and Comprehensive Income
    for the years ended December 31, 2003 and 2002 ...................     23

Consolidated Statements of Changes in Shareholders' Equity
    for the years ended December 31, 2003 and 2002 ...................     25

Consolidated Statements of Cash Flows
    for the years ended December 31, 2003 and 2002 ...................     26

Notes to Consolidated Financial Statements ...........................     27


                                                                              20
<PAGE>

                                     [LOGO]
                             DIXON HUGHES PLLC (TM)
                  Certified Public Accountants and Consultants

                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders of
Weststar Financial Services Corporation:

We have audited the accompanying consolidated balance sheets of Weststar
Financial Services Corporation and Subsidiaries (the "Company") as of December
31, 2003 and 2002 and the related consolidated statements of operations and
comprehensive income, changes in shareholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Weststar
Financial Services Corporation and Subsidiaries as of December 31, 2003 and 2002
and the results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.


/s/ Dixon Hughes PLLC

Charlotte, North Carolina
January 23, 2004


                                                                              21
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002
================================================================================

<TABLE>
<CAPTION>
ASSETS                                                                   2003               2002
                                                                     -------------      ------------
<S>                                                                  <C>                <C>
Cash and cash equivalents:
   Cash and due from banks                                           $   3,657,060      $  3,796,804
   Interest-bearing deposits                                                39,617            40,018
   Federal funds sold                                                    8,294,000        10,279,000
                                                                     -------------      ------------
     Total cash and cash equivalents                                    11,990,677        14,115,822
                                                                     -------------      ------------
Investment securities - available for sale, at fair value
   (amortized cost of $18,643,453 and $12,507,535 at
   December 31, 2003 and 2002, respectively)                            18,512,297        12,557,103
Loans                                                                   74,753,066        67,977,979
Allowance for loan losses                                               (1,174,003)       (1,020,198)
                                                                     -------------      ------------
   Net loans                                                            73,579,063        66,957,781
Premises and equipment, net                                              2,333,869         2,004,769
Accrued interest receivable                                                457,814           487,949
Federal Home Loan Bank stock, at cost                                      175,400           229,800
Deferred income taxes                                                      220,460           189,486
Foreclosed properties                                                    1,266,969           792,190
Other assets                                                               525,739           355,214
                                                                     -------------      ------------
TOTAL                                                                $ 109,062,288      $ 97,690,114
                                                                     =============      ============

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES:
   Deposits:
     Demand                                                          $  17,707,429      $ 16,806,011
     NOW accounts                                                       22,923,031         9,064,594
     Money market accounts                                              25,469,714        25,949,134
     Savings                                                             1,973,225         1,887,138
     Time deposits of $100,000 or more                                   4,966,351         8,036,462
     Other time deposits                                                20,361,788        26,735,930
                                                                     -------------      ------------
        Total deposits                                                  93,401,538        88,479,269
Borrowings                                                               2,000,000                --
Accrued interest payable                                                   120,853           157,460
Other liabilities                                                          348,949           384,231
Trust preferred securities                                               4,000,000                --
                                                                     -------------      ------------
          Total liabilities                                             99,871,340        89,020,960
                                                                     -------------      ------------

COMMITMENTS AND CONTINGENCIES (Note 14)

SHAREHOLDERS' EQUITY:
   Preferred stock, no par value, authorized - 1,000,000 shares;
     no shares issued and outstanding                                           --                --
   Common stock, $1 par value, authorized - 9,000,000 shares;
     outstanding shares - 1,166,208 and 957,539 at
     December 31, 2003 and 2002, respectively                            1,166,208           957,539
   Additional paid-in capital                                            7,030,589         7,120,187
   Retained earnings                                                     1,074,747           561,003
   Accumulated other comprehensive income (loss)                           (80,596)           30,425
                                                                     -------------      ------------
          Total shareholders' equity                                     9,190,948         8,669,154
                                                                     -------------      ------------
TOTAL                                                                $ 109,062,288      $ 97,690,114
                                                                     =============      ============
</TABLE>

See Notes to Consolidated Financial Statements.


                                                                              22
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Years Ended December 31, 2003 and 2002
================================================================================

                                                          2003           2002
                                                       ----------     ----------
INTEREST AND DIVIDEND INCOME:
   Interest and fees on loans                          $4,785,672     $5,130,248
   Federal funds sold                                      94,067        122,859
   Interest-bearing deposits                                  555         14,222
   Investments:
      Taxable interest income                             407,293        265,170
      Non-taxable interest income                          54,801         16,109
      Dividends                                             8,984         12,927
                                                       ----------     ----------
         Total interest and dividend income             5,351,372      5,561,535
                                                       ----------     ----------

INTEREST EXPENSE:
   Time deposits of $100,000 or more                      178,405        266,777
   Other time and interest bearing-deposits             1,154,069      1,486,485
   Federal funds purchased                                     10         14,888
   Borrowings                                              26,099          5,774
   Trust preferred securities                              39,178             --
                                                       ----------     ----------
         Total interest expense                         1,397,761      1,773,924
                                                       ----------     ----------

NET INTEREST INCOME                                     3,953,611      3,787,611

PROVISION FOR LOAN LOSSES                               1,405,800        877,920
                                                       ----------     ----------

NET INTEREST INCOME AFTER PROVISION FOR
   LOAN LOSSES                                          2,547,811      2,909,691
                                                       ----------     ----------

OTHER INCOME:
   Service charges on deposit accounts                  1,144,669      1,214,454
   Other service fees and commissions                     446,234        404,923
   Securities gains                                        45,482         30,889
   Other                                                   31,725         26,980
                                                       ----------     ----------
      Total other income                                1,668,110      1,677,246
                                                       ----------     ----------

OTHER EXPENSES:
   Salaries and wages                                   1,344,343      1,290,450
   Employee benefits                                      193,822        216,269
   Occupancy expense, net                                 238,277        184,251
   Equipment rentals, depreciation and maintenance        264,871        247,477
   Supplies                                               225,770        207,230
   Professional fees                                      713,783        783,814
   Marketing                                              115,799        118,903
   Legal settlement                                            --        173,750
   Other                                                  323,795        262,555
                                                       ----------     ----------
      Total other expenses                              3,420,460      3,484,699
                                                       ----------     ----------

INCOME BEFORE INCOME TAX PROVISION                        795,461      1,102,238

INCOME TAX PROVISION                                      280,000        410,885
                                                       ----------     ----------

NET INCOME                                             $  515,461     $  691,353
                                                       ----------     ----------

See Notes to Consolidated Financial Statements.


                                                                              23
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Continued)
Years Ended December 31, 2003 and 2002
================================================================================

                                                           2003          2002
                                                        ---------     ---------

OTHER COMPREHENSIVE LOSS BEFORE TAX:
   Unrealized holding gains (losses) on securities
      available for sale                                $(135,242)    $  14,118
         Tax effect                                        52,161        (5,452)
                                                        ---------     ---------
   Unrealized holding gains (losses) on securities
      available for sale, net of tax                      (83,081)        8,666

   Reclassification adjustment for realized gains         (45,482)      (30,889)
      Tax effect                                           17,542        11,929
                                                        ---------     ---------
   Reclassification adjustment for realized gains,
      net of tax                                          (27,940)      (18,960)

OTHER COMPREHENSIVE LOSS, NET OF TAX                     (111,021)      (10,294)
                                                        ---------     ---------

COMPREHENSIVE INCOME                                    $ 404,440     $ 681,059
                                                        =========     =========

BASIC INCOME PER SHARE                                  $     .45     $     .60
                                                        =========     =========

DILUTED INCOME PER SHARE                                $     .43     $     .59
                                                        =========     =========

See Notes to Consolidated Financial Statements.


                                                                              24
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 2003 and 2002
================================================================================

<TABLE>
<CAPTION>
                                                                                                        Accumulated
                                                                                          Retained         Other
                                                    Common Stock          Additional      Earnings         Compre-         Total
                                             -------------------------      Paid-In     (Accumulated       hensive     Shareholders'
                                               Shares         Amount        Capital       Deficit)      Income (Loss)      Equity
                                             ---------      ----------    -----------   ------------    -------------  -------------
<S>                                          <C>            <C>           <C>           <C>               <C>           <C>
BALANCE, DECEMBER 31, 2001                     869,721      $  869,721    $ 7,114,771   $   (43,014)      $  40,719     $ 7,982,197
    Net unrealized losses
      securities available for sale                 --              --             --            --         (10,294)        (10,294)
    Issuance of common stock                       800             800          5,416            --              --           6,216
    Stock dividend                              87,018          87,018             --       (87,018)             --              --
    Cash paid in lieu of fractional shares          --              --             --          (318)             --            (318)
    Net income                                      --              --             --       691,353              --         691,353
                                             ---------      ----------    -----------   -----------       ---------     -----------

BALANCE, DECEMBER 31, 2002                     957,539         957,539      7,120,187       561,003          30,425       8,669,154
    Net unrealized losses
      securities available for sale                 --              --             --            --        (111,021)       (111,021)
    Issuance of common stock                    15,436          15,436        103,635            --              --         119,071
    Stock split                                193,233         193,233       (193,233)           --              --              --
    Cash paid in lieu of fractional shares          --              --             --        (1,717)             --          (1,717)
    Net income                                      --              --             --       515,461              --         515,461
                                             ---------      ----------    -----------   -----------       ---------     -----------

BALANCE, DECEMBER 31, 2003                   1,166,208      $1,166,208    $ 7,030,589   $ 1,074,747       $ (80,596)    $ 9,190,948
                                             =========      ==========    ===========   ===========       =========     ===========
</TABLE>

See Notes to Consolidated Financial Statements.


                                                                              25
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003 and 2002
================================================================================

<TABLE>
<CAPTION>
                                                                  2003               2002
                                                              ------------       ------------
<S>                                                           <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                 $    515,461       $    691,353
   Adjustments to reconcile net income to net
     cash provided by operating activities:
      Depreciation                                                 328,364            276,075
      Provision for loan loss                                    1,405,800            877,920
      Premium amortization and discount accretion, net              84,003              7,453
      Deferred income tax provision                                 38,730             63,502
      Loss on sales of foreclosed properties                        32,092             27,510
      Loss on sales of premises and equipment                           15              4,190
      Gains on sale of securities                                  (45,482)           (30,889)
      (Increase) decrease in accrued interest receivable            30,135            (17,357)
      Increase in other assets                                    (185,901)           (62,244)
      Decrease in accrued interest payable                         (36,607)           (39,760)
      Increase (decrease) in other liabilities                     (35,282)            43,834
      Provision for losses on foreclosed properties                 59,000              8,675
      Loss on uninsured deposits                                    67,811             67,000
                                                              ------------       ------------
         Net cash provided by operating activities               2,258,139          1,917,262
                                                              ------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of securities available for sale                  (20,316,885)       (15,875,486)
   Maturities of securities available for sale                  12,103,695          8,725,000
   Net increase in loans                                        (8,643,965)        (3,926,334)
   Proceeds from the sales of foreclosed properties                269,109            275,987
   Proceeds from sales of securities                             2,038,750          1,309,715
   Net expenditures on foreclosed properties                      (218,097)                --
   Proceeds from sales of premises and equipment                     1,625                 --
   Additions to premises and equipment                            (659,104)           (89,843)
   Redemption of Federal Home Loan Bank stock                       54,400                 --
                                                              ------------       ------------
      Net cash used in investing activities                    (15,370,472)        (9,580,961)
                                                              ------------       ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net increase in demand deposits, NOW accounts
      and savings accounts                                      14,366,522         13,573,087
   Net increase (decrease) in certificates of deposits          (9,444,253)         2,773,831
   Cash paid for fractional shares                                  (1,717)              (318)
   Issuance of common stock                                         66,636              6,216
   Proceeds from borrowings                                      2,000,000                 --
   Proceeds from issuance of trust preferred securities          4,000,000                 --
                                                              ------------       ------------
      Net cash provided by financing activities                 10,987,188         16,352,816
                                                              ------------       ------------

NET INCREASE (DECREASE) IN
    CASH AND CASH EQUIVALENTS                                   (2,125,145)         8,689,117

CASH AND CASH EQUIVALENTS:
   Beginning of year                                            14,115,822          5,426,705
                                                              ------------       ------------

   End of year                                                $ 11,990,677       $ 14,115,822
                                                              ============       ============

SUPPLEMENTAL DISCLOSURE:
   Cash paid for interest                                     $  1,434,368       $  1,813,684
                                                              ============       ============
   Cash paid for income taxes                                 $    210,608       $    343,148
                                                              ============       ============

NONCASH TRANSACTIONS:
   Loans transferred to foreclosed properties                 $    830,510       $    343,148
                                                              ============       ============
   Investments transferred to other assets                    $         --       $     83,000
                                                              ============       ============
</TABLE>

See Notes to Consolidated Financial Statements.


                                                                              26
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Organization - Weststar Financial Services Corporation is a 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, 1997. The Bank provides consumer and commercial banking
      services in Buncombe County and surrounding areas. 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.

      Basis of Presentation - The consolidated financial statements include the
      accounts of Weststar Financial Services Corporation and its wholly owned
      subsidiaries, The Bank of Asheville and Weststar Financial Services
      Corporation I (herein referred to collectively as the "Company"). All
      significant intercompany accounts and transactions have been eliminated.

      Cash and Cash Equivalents - Cash and cash equivalents include cash on
      hand, amounts due from banks, and federal funds sold. Generally, federal
      funds are purchased and sold for one-day periods.

      Investment Securities - Debt securities that the Company has the positive
      intent and ability to hold to maturity are classified as "held-to-maturity
      securities" and reported at amortized cost. Debt and equity securities
      that are bought and held principally for the purpose of selling in the
      near term are classified as "trading securities" and reported at fair
      value, with unrealized gains and losses included in earnings. Debt
      securities not classified as either held-to-maturity securities or trading
      securities and equity securities not classified as trading securities are
      classified as "available-for-sale securities" and reported at fair value,
      with unrealized gains and losses reported as a component of other
      comprehensive income. Gains and losses on held for investment securities
      are recognized at the time of sale based upon the specific identification
      method. Declines in the fair value of individual held-to-maturity and
      available-for-sale securities below their cost that are other than
      temporary, result in writedowns of the individual securities to their fair
      value. The related writedowns are included in earnings as realized losses.
      Premiums and discounts are recognized in interest expense or interest
      income, respectively, using the interest method over the period to
      maturity. Transfers of securities between classifications are accounted
      for at fair value. The Company has not classified any securities as
      trading or held-to-maturity securities.

      Loans - Loans that management has the intent and ability to hold for the
      foreseeable future or until maturity or pay-off generally are reported at
      their outstanding unpaid principal balances adjusted for charge-offs and
      any deferred fees or costs on originated loans.

      Allowance for Loan Losses - 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.

      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.


                                                                              27
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      Allowance for Loan Losses (Continued)

      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.

      Stock Compensation Plans - 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 ("APB") 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.


                                                                              28
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      Stock Compensation Plans (Continued)

      At December 31, 2003, 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>
                                                                    2003        2002
                                                                  --------    --------
<S>                                                               <C>         <C>
      Net income as reported                                      $515,461    $691,353
      Less: Total stock-based employee compensation expense
        determined under fair value method for all awards, net
        of related tax effects                                     159,001     241,749
                                                                  --------    --------
      Pro forma net income                                        $356,460    $449,604
                                                                  ========    ========

      Net income per share:
        As reported:
          Basic                                                   $    .45    $   0.60
                                                                  ========    ========
          Diluted                                                 $    .43    $   0.59
                                                                  ========    ========
        Pro forma:
          Basic                                                   $    .31    $   0.39
                                                                  ========    ========
          Diluted                                                 $    .29    $   0.38
                                                                  ========    ========
</TABLE>

      Stock in Federal Home Loan Bank - As a requirement for membership, the
      Bank invested in stock of the Federal Home Loan Bank of Atlanta. This
      investment is carried at cost.

      Premises and Equipment and Other Long-Lived Assets - Premises and
      equipment are stated at cost less accumulated depreciation and
      amortization. Depreciation and amortization, computed by the straight-line
      method, are charged to operations over the properties' estimated useful
      lives, which range from 25 to 50 years for buildings, 5 to 15 years for
      furniture and equipment or, in the case of leasehold improvements, the
      term of the lease, if shorter. Maintenance and repairs are charged to
      operations in the year incurred. Gains and losses on dispositions are
      included in current operations.

      The Company reviews long-lived assets and certain identifiable intangibles
      for impairment whenever events or changes in circumstances indicate that
      the carrying amount of an asset may not be recoverable. If the sum of the
      expected cash flows related to the asset is less than the stated amount of
      the asset, an impairment loss is recognized.

      Foreclosed Properties - Assets acquired through, or in lieu of, loan
      foreclosure are held for sale and are initially recorded at fair value at
      the date of foreclosure, establishing a new cost basis. Subsequent to
      foreclosure, valuations are periodically performed by management and the
      assets are carried at the lower of carrying amount or fair value less cost
      to sell. Revenue and expenses from operations and changes in the valuation
      allowance are included in net expenses from foreclosed assets.

      Income Taxes - Deferred income taxes are computed using the asset and
      liability approach. The tax effects of differences between the tax and
      financial accounting bases of assets and liabilities are reflected in the
      balance sheet at the tax rates expected to be in effect when the
      differences reverse. A valuation allowance is provided against deferred
      tax assets when realization is deemed not to be likely. As changes in tax
      laws or rates are enacted, deferred tax assets and liabilities are
      adjusted through the provision for income taxes.

      Interest Income and Expense - The Company utilizes the accrual method of
      accounting. Substantially all loans earn interest on the level yield
      method based on the daily outstanding balance. The accrual of interest is
      discontinued when, in management's judgment, the interest may not be
      collected.


                                                                              29
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      Interest Income and Expense (Continued)

      The accrual of interest on mortgage, commercial and consumer loans is
      discontinued at the time the loan is 90 days delinquent. Other personal
      loans are typically charged off no later than 180 days past due. In all
      cases, loans are placed on nonaccrual or charged-off at an earlier date if
      collection of principal or interest is considered doubtful.

      Interest accrued during the current calendar year but not collected for
      loans that are charged-off is reversed against interest income. Accrued
      but uncollected interest from prior periods is charged-off against the
      allowance for loan losses. Interest on nonaccrual loans is accounted for
      on the cash-basis or cost-recovery method until qualifying for return to
      accrual. Loans are returned to accrual status when all the principal and
      interest amounts contractually due are brought current and future payments
      are reasonably assured.

      Use of Estimates - The preparation of financial statements in conformity
      with accounting principles generally accepted in the United States of
      America requires management to make estimates and assumptions that affect
      the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements
      and the reported amounts of revenues and expenses during the reporting
      period. Actual results could differ from those estimates. Material
      estimates that are particularly susceptible to significant change in the
      near term relate to the determination of the allowance for loan losses.

      Net Income Per Share - During 2002, the Company effected an eleven-for-ten
      stock split in the form of a 10% stock dividend. During 2003, the Company
      declared a six-for-five stock split. Basic and diluted net income per
      common share have been computed by dividing net income for each period by
      the weighted average number of shares of common stock outstanding during
      each period after retroactively adjusting for the stock dividend and the
      stock split.

      Basic earnings per common share represents income available to common
      stockholders divided by the weighted-average number of common shares
      outstanding during the period. Diluted earnings per common share reflect
      additional common shares that would have been outstanding if dilutive
      potential common shares had been issued, as well as any adjustment to
      income that would result from the assumed issuance. Potential common
      shares that may be issued by the Company relate solely to outstanding
      stock options and are determined using the treasury stock method. During
      2003 and 2002, there were no shares excluded due to antidilution.

      Basic and diluted net income per share have been computed based upon net
      income as presented in the accompanying statements of operations divided
      by the weighted average number of common shares outstanding or assumed to
      be outstanding as summarized below:

<TABLE>
<CAPTION>
                                                                            2003         2002
                                                                         ---------    ---------
<S>                                                                      <C>          <C>
      Weighted average number of common shares used in
        in computing basic net income per share                          1,153,912    1,148,680

      Effect of dilutive stock options                                      55,940       27,340
                                                                         ---------    ---------

      Weighted average number of common shares and dilutive potential
        common shares used in computing diluted net income per share     1,209,852    1,176,020
                                                                         =========    =========
</TABLE>

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


                                                                              30
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      New Accounting Standards - In April 2003, the Financial Accounting
      Standard Board ("FASB") issued SFAS No. 149, Amendment of Statement No.
      133 on Derivative Instruments and Hedging Activities. SFAS No. 149
      improves financial reporting by requiring that contracts with comparable
      characteristics be accounted for similarly. In particular, SFAS No. 149
      clarifies under what circumstances a contract with an initial net
      investment meets the characteristic of a derivative, clarifies when a
      derivative contains a financing component, amends the definition of an
      "underlying" to conform it to language used in FIN 45 and amends certain
      other existing pronouncements. SFAS No. 149 is effective for contracts
      entered into or modified after June 30, 2003 and for hedging relationships
      designated after June 30, 2003. In addition, with some exceptions, all
      provisions of SFAS No. 149 should be applied prospectively. The adoption
      of SFAS No. 149 did not have a material impact on the Company's
      consolidated financial statements.

      In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
      Financial Instruments with Characteristics of both Liabilities and Equity.
      SFAS No. 150 establishes standards for how an issuer classifies and
      measures certain financial instruments with characteristics of both
      liabilities and equity. It requires that an issuer classify a financial
      instrument that is within its scope as a liability (or an asset in some
      circumstances). SFAS No. 150 is effective for financial instruments
      entered into or modified by the Company after May 31, 2003, and is
      effective at the beginning of the first interim period beginning after
      June 15, 2003. However, the FASB has deferred indefinitely the
      classification and measurement provisions as they related to certain
      mandatorily redeemable noncontrolling interests. The Company adoption of
      SFAS No. 150 did not have a material impact on the Company's consolidated
      financial statements.

      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. FIN 46R is effective
      for public entities that have interests in structures that are commonly
      referred to as special-purpose entities for periods ending after December
      15, 2003. Application by public entities, other than small business
      issuers, for all other types of variable interest entities is required in
      financial statements for periods ending after March 15, 2004. Application
      by small business issuers to variable interest entities other than
      special-purpose entities is required for periods ending after December 15,
      2004. The Company does not expect the requirements of FIN 46 and FIN 46R
      to have a material impact on its consolidated financial statements.

      In November 2003, the Emerging Issues Task Force (EITF) reached a partial
      consensus on Issue 03-1, The Meaning of Other-Than-Temporary Impairment
      and Its Application to Certain Investments. Issue 03-1 requires certain
      quantitative and qualitative disclosures for investments subject to SFAS
      No. 115, Accounting for Certain Investments in Debt and Equity Securities,
      that are impaired at the balance sheet date but for which an
      other-than-temporary impairment has not been recognized. The Company
      adopted the partial consensus on Issue 03-1 during 2003 and has provided
      the new disclosures in Note 2. The EITF is expected to continue
      deliberating other aspects of Issue 03-1, including when to recognize
      other-than-temporary impairment.

      Reclassifications - Certain amounts in the prior year's financial
      statements have been reclassified to conform to the 2003 presentation. The
      reclassifications had no effect on net income or shareholders' equity as
      previously recorded.


                                                                              31
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

2.    INVESTMENT SECURITIES

      The amortized cost, gross unrealized gains and losses and fair values of
      investment securities at December 31, 2003 and 2002 are as follows:

      Available-for-sale securities consist of the following at December 31,
      2003:

<TABLE>
<CAPTION>
                                                              Gross       Gross
                                               Amortized    unrealized  unrealized       Fair
                                                  cost        gains       losses         value
                                              -----------   ----------  -----------   -----------
<S>                                           <C>            <C>        <C>           <C>
      Type and Maturity Group

      U.S. Government agencies due -
        Within 1 year                         $   500,627    $ 9,975    $      --     $   510,602
                                              -----------    -------    ---------     -----------

      U. S. Government agencies due -
        Within 1 to 5 years                     5,500,000      5,937      (33,750)      5,472,187
      Mortgage-backed securities due -
        Within 1 to 5 years                     2,767,375         --      (37,950)      2,729,425
      N.C. Municipal bonds due -
        Within 1 to 5 years                       257,177     12,600           --         269,777
                                              -----------    -------    ---------     -----------
            Total due with in 1 to 5 years      8,524,552     18,537      (71,700)      8,471,389
                                              -----------    -------    ---------     -----------

      Mortgage-backed securities due -
        Within 5 to 10 years                    7,463,939        586     (107,094)      7,357,431
      N.C. Municipal bonds due -
        Within 5 to 10 years                    1,451,675     22,460         (954)      1,473,181
                                              -----------    -------    ---------     -----------
            Total due within 5 to 10 years      8,915,614     23,046     (108,048)      8,830,612
                                              -----------    -------    ---------     -----------

      Mortgage-backed securities due -
        after 10 years                            588,247      3,025           --         591,272
      N.C. Municipal bonds                        114,413         --       (5,991)        108,422
                                              -----------    -------    ---------     -----------
            Total due within 5 to 10 years        702,660      3,025       (5,991)        699,694
                                              -----------    -------    ---------     -----------

                Total at December 31, 2003    $18,643,453    $54,583    $(185,739)    $18,512,297
                                              ===========    =======    =========     ===========
</TABLE>

      Available-for-sale securities consist of the following at December 31,
      2002:

<TABLE>
<CAPTION>
                                                              Gross       Gross
                                               Amortized    unrealized  unrealized       Fair
                                                  cost        gains       losses         value
                                              -----------   ----------  -----------   -----------
<S>                                           <C>            <C>        <C>           <C>
      Type and Maturity Group

      U.S. Government agencies due -
        Within 1 to 5 years                   $10,002,843    $43,074    $      --     $10,045,917
      N.C. Municipal bond due -
        Within 1 to 5 years                       259,113     10,842           --         269,955
                                              -----------    -------    ---------     -----------
            Total due with in 1 to 5 years     10,261,956     53,916           --      10,315,872
                                              -----------    -------    ---------     -----------

      U.S. Government agencies due -
        Within 5 to 10 years                    1,521,499         --           --       1,521,499
      N.C. Municipal bonds due -
        Within 5 to 10 years                      724,080      4,924       (9,272)        719,732
                                              -----------    -------    ---------     -----------
            Total due within 5 to 10 years      2,245,579      4,924       (9,272)      2,241,231
                                              -----------    -------    ---------     -----------

                Total at December 31, 2002    $12,507,535    $58,840    $  (9,272)    $12,557,103
                                              ===========    =======    =========     ===========
</TABLE>


                                                                              32
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

2.    INVESTMENT SECURITIES (Continued)

      For the year ended December 31, 2003 and 2002, proceeds from the sales of
      investment securities available for sale totaled $2,038,750 and
      $1,309,715, respectively. Gross realized gains from the sales in 2003 and
      2002 amounted to $45,482 and $30,889, respectively.

      Securities with carrying values of $1,425,000 and $1,325,000 at December
      31, 2003 and 2002, respectively, were pledged to secure public monies on
      deposit as required by law.

      The following table shows investments' gross unrealized losses and fair
      value, aggregated by investment category and length of time that
      individual securities have been in a continuous unrealized loss position,
      at December 31, 2003. These unrealized losses on investment securities are
      a result of volatility in the market during 2003 and relate to one U.S.
      Government Agency bond, two N.C. Municipal bonds, and twelve
      mortgage-backed securities. All unrealized losses on investment securities
      are considered by management to be temporary given the credit ratings on
      these investment securities and the short duration of the unrealized loss.

<TABLE>
<CAPTION>
                                             Less Than 12 Months          12 Months or More                Total
                                         ---------------------------     --------------------    ---------------------------
                                            Fair          Unrealized      Fair     Unrealized       Fair          Unrealized
                                            value           losses        value      losses         value           losses
                                         -----------     -----------     -------   ----------    -----------     -----------
<S>                                      <C>             <C>             <C>         <C>         <C>             <C>
      Securities available for sale:
       U.S. government agencies          $ 1,466,250     $    33,750     $    --     $    --     $ 1,466,250     $    33,750
       N.C. municipal bonds                  482,238           6,945                                 482,238           6,945
       Mortgage-backed securities          9,043,474         145,044          --          --       9,043,474         145,044
                                         -----------     -----------     -------     -------     -----------     -----------

       Total temporarily impaired
           securities                    $10,991,962     $   185,739     $    --     $    --     $10,991,962     $   185,739
                                         ===========     ===========     =======     =======     ===========     ===========
</TABLE>

3.    LOANS

      Loans at December 31, 2003 and 2002 classified by type are as follows:

                                                     2003             2002
                                                 ------------     ------------
      Real estate:
       Construction                              $  8,372,934     $ 12,334,543
       Mortgage                                    46,014,314       37,214,677
       Commercial, financial and agricultural      18,603,317       16,367,306
       Consumer                                     1,909,709        2,188,840
                                                 ------------     ------------
            Subtotal                               74,900,274       68,105,366
       Net deferred loan origination fees            (147,208)        (127,387)
                                                 ------------     ------------

      Total                                      $ 74,753,066     $ 67,977,979
                                                 ============     ============

      Nonperforming assets at December 31, 2003 and 2002:

                                                     2003             2002
                                                 ------------     ------------

      Nonaccrual loans                           $  2,145,772     $  1,079,750
      Other real estate owned                       1,145,186          724,986
      Repossessions                                   121,783           67,204
                                                 ------------     ------------

      Total                                      $  3,412,741     $  1,871,940
                                                 ============     ============


                                                                              33
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

3.    LOANS (Continued)

      No loans have been restructured during 2003 or 2002. Loans totaling
      $1,838,798 and $2,160,936 were considered impaired as of December 31, 2003
      and 2002, respectively. Impaired loans of $1,838,936 and $2,160,936 had
      related allowances for loan losses of $182,013 and $115,865 at December
      31, 2003 and 2002, respectively. The average recorded investment in
      impaired loans during the years ended December 31, 2003 and 2002 was
      $1,981,764 and $1,085,215, respectively. For the years ended December 31,
      2003 and 2002, the Company recognized interest income from impaired loans
      of approximately $89,004 and $45,000, respectively.

      Directors and officers of the Company and companies with which they are
      affiliated are customers of and borrowers from the Company in the ordinary
      course of business. At December 31, 2002, directors' direct and indirect
      indebtedness to the Company aggregated $440,552. During 2003, $3,807,704
      in new loans were made and repayments of $1,299,005 were collected,
      resulting in a balance of $2,949,251 at December 31, 2003. These loans
      were made on substantially the same terms, including interest rates and
      collateral, as those prevailing at the time for comparable transaction
      with other non-related borrowers. Management does not believe these loans
      involve more than the normal risk of collectibility or present other
      unfavorable features.

4.    ALLOWANCE FOR LOAN LOSSES

      Changes in the allowance for loan losses for the years ended December 31,
      2003 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                            2003            2002
                                                        -----------     -----------
<S>                                                     <C>             <C>
      Balance at beginning of year                      $ 1,020,198     $   978,467
      Provision for loan losses                           1,405,800         877,920
      Charge-offs                                        (1,357,614)       (889,565)
      Recoveries                                            105,619          53,376
                                                        -----------     -----------

      Balance at end of year                            $ 1,174,003     $ 1,020,198
                                                        ===========     ===========
</TABLE>

5.    PREMISES AND EQUIPMENT

      Premises and equipment at December 31, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                            2003            2002
                                                        -----------     -----------
<S>                                                     <C>             <C>
      Land                                              $   113,900     $   113,900
      Land improvements                                     121,873         121,873
      Building and improvements                           1,530,875       1,510,334
      Furniture and equipment                             1,463,839         952,885
      Leasehold improvements                                459,238         377,061
      Construction in progress                               29,580          15,529
                                                        -----------     -----------
            Total                                         3,719,305       3,091,582
      Less accumulated depreciation and amortization     (1,385,436)     (1,086,813)
                                                        -----------     -----------

      Total                                             $ 2,333,869     $ 2,004,769
                                                        ===========     ===========
</TABLE>

      Depreciation expense for the years ended December 31, 2003 and 2002
      amounted to $328,364 and $276,075, respectively


                                                                              34
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

6.    DEPOSIT ACCOUNTS

      At December 31, 2003, the scheduled maturities of time deposits are as
      follows:

      2004                                                     $22,156,595
      2005                                                       2,655,758
      2006                                                         314,127
      2007                                                         201,659
                                                               -----------

      Total                                                    $25,328,139
                                                               ===========

7.    INCOME TAXES

      The significant components of the income tax provision for the years ended
      December 31, 2003 and 2002 follow:

                                                      2003          2002
                                                   ---------     ---------

      Current tax provision                        $ 241,270     $ 347,383
      Deferred tax provision                          38,730        63,502
                                                   ---------     ---------

      Net provision for income taxes               $ 280,000     $ 410,885
                                                   =========     =========

      The difference between the provision for income taxes and the amounts
      applied by applying the statutory federal income tax rate of 34% to income
      before income taxes is summarized below:

                                                      2003          2002
                                                   ---------     ---------

      Benefit computed at statutory rate of 34%    $ 270,457     $ 374,761

      Effect of state income taxes                    36,193        50,152
      Other                                          (26,650)      (14,028)
                                                   ---------     ---------

                                                   $ 280,000     $ 410,885
                                                   =========     =========

      Significant components of deferred taxes at December 31, 2003 and 2002 are
      as follows:

<TABLE>
<CAPTION>
                                                                     2003          2002
                                                                  ---------     ---------
<S>                                                               <C>           <C>
      Deferred tax assets:
        Allowance for loans losses                                $ 195,412     $ 247,621
        Net unrealized losses on available for sale securities       50,561            --
        Loss on investment                                           33,854            --
        Premises and equipment                                           --         3,884
        Deferred compensation                                        49,195        35,087
                                                                  ---------     ---------

           Total deferred tax assets                                329,022       286,592
                                                                  ---------     ---------

      Deferred tax liabilities:
        Premises and equipment                                      (16,030)           --
        Net unrealized gains on available for sale securities            --       (19,143)
        Prepaid expenses                                            (39,140)      (24,571)
        Other                                                       (53,392)      (53,392)
                                                                  ---------     ---------

           Total deferred tax liabilities                          (108,562)      (97,106)
                                                                  ---------     ---------

      Net recorded deferred tax asset                             $ 220,460     $ 189,486
                                                                  =========     =========
</TABLE>


                                                                              35
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

8.    LEASES

      The Company leases certain banking facility premises and equipment under
      operating lease agreements. Future minimum rental payments are as follows:

                  2004                                                $ 63,933
                  2005                                                  49,500
                                                                      --------

                  Total                                               $113,433
                                                                      ========

      The land for a branch office is leased from a partnership that includes a
      director of the Company. The annual rental is $33,750. Rental expense
      charged to operations under all operating lease agreements was $51,251 and
      $43,724 for the years ended December 31, 2003 and 2002, respectively.

9.    TRUST PREFERRED SECURITIES

      The Company has cumulative Trust Preferred securities ("the Preferred
      Securities") outstanding through its wholly owned subsidiary, Weststar
      Financial Services Corporation I, a statutory trust (the "Trust"). The
      Trust issuer has invested the total proceeds from the sale of the
      Preferred Securities in Junior Subordinated Deferrable Interest Debentures
      (the "Junior Subordinated Debentures") issued by the Company.

      On October 10, 2003, the Trust issued $4 million of trust preferred
      securities. The preferred securities issued by the Trust pay cumulative
      cash distributions quarterly at a rate equal to the three-month LIBOR plus
      315 basis points. The dividends paid to holders of the trust preferred
      securities, which are recorded as interest expense, are tax deductible for
      income tax purposes. The preferred securities are redeemable on October 7,
      2008. Redemption is mandatory at October 7, 2033.

      The Company fully and unconditionally guarantees the preferred securities
      through the operation of the debentures and other related documents. The
      Company's obligation under the guarantee is unsecured and subordinate to
      senior and subordinated indentures of the Company. The preferred
      securities quality as Tier I capital for regulatory capital purposes.

      A description of the Trust Preferred securities outstanding is as follows:

<TABLE>
<CAPTION>
                                                                                      Principal Amount
                                  Date of      Shares     Interest     Maturity   -----------------------
          Issuing Entity          Issuance     Issued       Rate         Date        2003         2002
      -----------------------    ----------    ------     --------    ----------  ----------   ----------
<S>                              <C>           <C>        <C>         <C>         <C>          <C>
      Weststar Financial Ser-
         vices Corporation I     10/10/2003    4,000      Floating    10/07/2033  $4,000,000   $       --
</TABLE>

10.   STOCK OPTIONS

      In 2001, the Company's shareholders approved the Weststar Financial
      Services Corporation 2001 Nonstatutory Stock Option Plan ("Nonstatutory
      Plan") and the Weststar Financial Services Corporation 2001 Incentive
      Stock Option Plan ("Incentive Plan"). Under these plans, non-employee
      directors and employees were granted stock options on June 20, 2001. The
      maximum number of shares available for grant under the Nonstatutory Plan
      and Incentive Plan is 91,471 and 92,491, respectively. Of the maximum
      number of shares available for grant, 68,821 were outstanding under the
      Nonstatutory Plan and 90,200 were outstanding under the Incentive Plan at
      December 31, 2003. Option prices for both plans are established at market
      value, which was $5.88, on the dates granted by the Board of Directors.


                                                                              36
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

10.   STOCK OPTIONS (Continued)

      Options granted become exercisable in accordance with the vesting schedule
      specified by the Board of Directors in the Plan agreements. Nonstatutory
      stock options vest over a three-year period with 46% vested at the date of
      grant and 27% per year beginning one year from the date of grant.
      Incentive stock options vest over a five-year period with 20% vested at
      the date of grant and 20% per year beginning one year from the date of
      grant. No vested option may be exercised more than ten years after the
      date of grant.

      Stock option information related to the plans for the years ended December
      31, 2003 and 2002 follows:

                                                                   Exercise
                                                                     Price
                                                       Shares      Per Share
                                                      -------      ---------
      Nonstatutory Plan
      Outstanding, December 31, 2001                   91,471        $5.88
                                                      -------

      Outstanding December 31, 2002                    91,471         5.88
        Exercised                                     (22,650)        5.88
                                                      -------
      Outstanding, December 31, 2003                   68,821         5.88
                                                      =======

      Incentive Plan
      Outstanding, December 31, 2001                   92,186        $5.88
        Exercised                                      (1,056)        5.88
        Cancelled                                        (640)        5.88
                                                      -------

      Outstanding, December 31, 2002                   90,490         5.88
        Cancelled                                        (290)        5.88
                                                      -------
      Outstanding, December 31, 2003                   90,200         5.88
                                                      =======

<TABLE>
<CAPTION>
                                                      At December 31, 2003
                                -----------------------------------------------------------------
                                        Outstanding Options                  Exercisable Options
                                ------------------------------------       ----------------------
                                              Remaining     Weighted                     Weighted
                                                Life        Average                      Average
      Exercise Price            Shares         (Years)       Price         Shares         Price
                                ------        ---------     --------       ------        --------
<S>                             <C>              <C>         <C>           <C>            <C>
      Nonstatutory Plan
            $5.88               68,821           7.5         $5.88         68,821         $5.88

      Incentive Plan
            $5.88               90,200           7.5         $5.88         53,695         $5.88
</TABLE>

11.   EMPLOYEE BENEFIT PLANS

      The Company sponsors a defined contribution 401(k) plan which allows those
      employees who have attained the age of 21 years and worked 1,000 hours to
      elect to contribute a portion of their salary to the plan in accordance
      with the provisions and limits set forth in the plan document. The plan
      was established in March 1999. The Company makes discretionary matching
      contributions in an amount determined each plan year to each participant
      who makes 401(k) savings contributions during the year. The Company may
      also make a discretionary profit-sharing contribution for a plan year to
      those participants employed during the year. The Company's contribution to
      the plan was $34,038 and $29,862 for the years ended December 31, 2003 and
      2002, respectively.


                                                                              37
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

      During 2001, a key employee entered into a salary continuation agreement
      with the Company providing for periodic payments at the retirement or
      death of the employee. The present value of the estimated liability is
      being accrued over the vesting period defined in the agreement. The
      related expense was $36,600 for each of the years ended December 31, 2003
      and 2002. The Company is the owner and beneficiary of a life insurance
      policy on this key employee which will be used to fund the Company's
      liability under the salary continuation agreement. The total net cash
      surrender value of this policy at December 31, 2003 was $101,531.

12.   BORROWINGS

      The Company has $5,000,000 available in overnight federal fund lines of
      credit and an approximately $10,000,000 open line of credit with the
      Federal Home Loan Bank (FHLB). There was one advance from the FHLB during
      2003 in the amount of $2,000,000 at a fixed rate of 1.65%. The advance is
      due in full on June 27, 2005; interest is payable monthly. The Company
      intends to retain the remaining line of credit for cash needs in the
      future. There were no federal funds purchased at December 31, 2003.
      Pursuant to a collateral agreement with the FHLB, advances are
      collateralized by qualifying first mortgage loans. The balance of
      qualifying first mortgage loans as of December 31, 2003 was approximately
      $7,752,000. Federal funds purchased generally represent overnight
      borrowing by the Company for temporary funding requirements. The average
      daily balance outstanding and the average annual interest rate paid during
      the year were $493 and 1.94%, respectively. There were no federal funds
      outstanding at any month-end during the year.

13.   REGULATION AND REGULATORY RESTRICTIONS

      The Company is regulated by the Board of Governors of the Federal Reserve
      System ("FRB") and is subject to securities registration and public
      reporting regulations of the Securities and Exchange Commission. The Bank
      is regulated by the Federal Deposit Insurance Corporation ("FDIC") and the
      North Carolina State Banking Commission.

      The Company is not presently subject to any regulatory restrictions on
      dividends. The Company's ability to pay dividends depends to a large
      extent on the amount of dividends paid by the Bank and any other
      subsidiaries. The Bank, as a North Carolina banking corporation, may pay
      dividends only out of undivided profits as determined pursuant to North
      Carolina General Statutes Section 53-87. As of December 31, 2003, the Bank
      had undivided profits of $1,109,656. Additionally, current federal
      regulations require that the Bank maintain a ratio of total capital to
      assets, as defined by regulatory authorities, in excess of 6%. As of
      December 31, 2003, the ratio was 11.72% for the Bank, leaving all
      $1,109,656 of the Bank's undivided profits available for the payment of
      dividends.

      The Company is subject to various regulatory capital requirements
      administered by federal banking agencies. Failure to meet minimum capital
      requirements can initiate certain mandatory - and possibly additional
      discretionary - actions by regulators that, if undertaken, could have a
      direct material effect on the Company's financial statements. Under
      capital adequacy guidelines and the regulatory framework for prompt
      corrective action, the Company must meet specific capital guidelines that
      involve quantitative measures of the Company's assets, liabilities and
      certain off-balance-sheet items as calculated under regulatory accounting
      practices. The Company's capital amounts and classification also are
      subject to qualitative judgments by the regulators about components, risk
      weightings and other factors.

      Quantitative measures established by regulation to ensure capital adequacy
      require the Company to maintain minimum amounts and ratios (set forth in
      the table below) of total and Tier I capital (as defined in the
      regulations) to risk-weighted assets (as defined), and of Tier I capital
      (as defined) to average assets (as defined). As of December 31, 2003, the
      most recent regulatory notifications categorized the Company as well
      capitalized under the regulatory framework for prompt corrective action.
      Management believes, as of December 31, 2003 and 2002, that the Company
      meets all capital adequacy requirements to which it is subject. To be
      categorized as adequately capitalized under the regulatory framework for
      prompt corrective action, the Company must monitor the minimum capital
      ratios as set forth in the table below.


                                                                              38
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

13.   REGULATION AND REGULATORY RESTRICTIONS (Continued)

      The Company's actual capital amounts and ratios are also presented in the
      table (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                                                                     Minimum To Be Well
                                                                   Minimum           Capitalized Under
                                                                 For Capital         Prompt Corrective
                                          Actual                 Requirement         Action Provisions
                                    ------------------       ------------------      ------------------
                                     Amount      Ratio       Amount       Ratio      Amount      Ratio
                                    -------      -----       ------       -----      ------      -----
<S>                                 <C>          <C>         <C>          <C>        <C>         <C>
      As of December 31, 2003:
       Total Capital (to Risk
        Weighted Assets)
        Consolidated                $14,274      17.82%      $6,408       8.00%      $8,010      10.00%
        Bank                         13,855      17.32%       6,397       8.00%       7,997      10.00%
       Tier I Capital (to Risk
        Weighted Assets)
        Consolidated                 12,361      15.43%       3,204       4.00%       4,806       6.00%
        Bank                         12,853      16.07%       3,199       4.00%       4,798       6.00%
       Tier I Capital (to
        Average Assets)
        Consolidated                 12,361      11.48%       4,306       4.00%       5,382       5.00%
        Bank                         12,853      11.95%       4,301       4.00%       5,376       5.00%

      As of December 31, 2002:
       Total Capital (to Risk
        Weighted Assets)
        Consolidated                $ 9,510      13.65%      $5,572       8.00%      $6,965      10.00%
        Bank                          9,421      13.53%       5,571       8.00%       6,964      10.00%
       Tier I Capital (to Risk
        Weighted Assets)
        Consolidated                  8,638      12.40%       2,786       4.00%       4,179       6.00%
        Bank                          8,549      12.28%       2,786       4.00%       4,178       6.00%
       Tier I Capital (to
        Average Assets)
        Consolidated                  8,638       9.17%       3,767       4.00%       4,709       5.00%
        Bank                          8,549       9.07%       3,767       4.00%       4,708       5.00%
</TABLE>

14.   COMMITMENTS AND CONTINGENCIES

      The Company has various financial instruments (outstanding commitments)
      with off-balance sheet risk that are issued in the normal course of
      business to meet the financing needs of its customers. These financial
      instruments include commitments to extend credit and standby letters of
      credit. Commitments to extend credit are legally binding agreements to
      lend to a customer as long as there is no violation of any condition
      established in the contract. Commitments generally have fixed expiration
      dates or other termination clauses. Since many of the commitments are
      expected to expire without being drawn upon, the total commitment amounts
      outstanding do not necessarily represent future cash requirements. Standby
      letters of credit represent conditional commitments issued by the Company
      to assure the performance of a customer to a third party. The unused
      portion of commitments to extend credit at December 31, 2003 and 2002 was
      $20,435,251 and $15,056,513, respectively.


                                                                              39
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

14.   COMMITMENTS AND CONTINGENCIES (Continued)

      The Company's exposure to credit loss for commitments to extend credit and
      standby letters of credit is the contractual amount of those financial
      instruments. The Company uses the same credit policies for making
      commitments and issuing standby letters of credit as it does for
      on-balance sheet financial instruments. Each customer's creditworthiness
      is evaluated on an individual case-by-case basis. The amount and type of
      collateral, if deemed necessary by management, is based upon this
      evaluation of creditworthiness. Collateral held varies, but may include
      marketable securities, deposits, property, plant and equipment, investment
      assets, inventories and accounts receivable. Management does not
      anticipate any significant losses as a result of these financial
      instruments.

      In the normal course of its operations, the Company from time to time is
      party to various legal proceedings. Based upon information currently
      available, and after consultation with its legal counsel, management
      believes that such legal proceedings, in the aggregate, will not have a
      material adverse effect on the Company's business, financial position or
      results of operations.

15.   FAIR VALUE OF FINANCIAL INSTRUMENTS

      The fair value estimates presented herein are based on pertinent
      information available to management as of December 31, 2003. Although
      management is not aware of any factors that would significantly affect the
      estimated fair value amounts, such amounts have not been comprehensively
      revalued for purposes of these financial statements since that date and,
      therefore, current estimates of fair value may differ significantly from
      the amounts presented herein.

<TABLE>
<CAPTION>
                                                          2003                           2002
                                                -----------------------       ------------------------
                                                Carrying      Estimated       Carrying      Estimated
                                                 amount      fair value        amount       fair value
                                                --------     ----------       --------      ----------
                                                                   (In thousands)
<S>                                             <C>            <C>            <C>            <C>
      Assets:
        Cash and cash equivalents               $11,991        $11,991        $14,116        $14,116
        Investment securities                    18,512         18,512         12,557         12,557
        Federal Home Loan Bank stock                175            175            230            230
        Loans                                    74,753         76,250         67,978         69,637
        Interest receivable                         458            458            488            488

      Liabilities:
        Demand deposits, NOW accounts,
          money market accounts, savings         68,073         68,073         53,707         53,707
        Time deposits                            25,328         25,389         34,772         34,895
        Borrowings                                2,000          2,000             --             --
        Interest payable                            121            121            157            157
        Trust preferred securities                4,000          4,000             --             --

      Off-balance-sheet - commitments to
        extend credit                                --         20,435             --         15,057
</TABLE>

      Fair Value of Financial Instruments - SFAS No. 107, Disclosures About Fair
      Value of Financial Instruments, requires that the Company disclose
      estimated fair values for its financial instruments. Fair value methods
      and assumptions are set forth below for the Company's consolidated
      financial instruments.

      Cash and Cash Equivalents, Accrued Interest Receivable, and Accrued
      Interest Payable - The carrying amounts approximate their fair value
      because of the short maturity of these financial instruments.

      Investment Securities - The fair value of securities, excluding the
      Federal Home Loan Bank stock, is based on quoted market prices. The
      carrying value of Federal Home Loan Bank stock approximates fair value
      based on the redemption provisions of the Federal Home Loan Bank.


                                                                              40
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

15.   FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

      Loans - Fair values are estimated for portfolios of loans with similar
      financial characteristics. Loans are segregated by type such as
      commercial, financial and agricultural, real estate construction, real
      estate mortgages and installment loans to individuals. Each loan category
      is further segmented into fixed and variable interest rate terms. The fair
      value for loans is estimated by discounting the future cash flows using
      the current rates at which similar loans would be made to borrowers with
      similar credit ratings and for similar remaining maturities.

      Deposits - The fair value of deposits with no stated maturity, such as
      non-interest-bearing demand deposits, savings, NOW, and money market
      accounts, is equal to the amount payable on demand as of the valuation
      date. The fair value of certificates of deposit is based on the discounted
      value of contractual cash flows. The discount rate is estimated using the
      rates currently offered for deposits of similar remaining maturities.

      Borrowings and Trust Preferred Securities - The fair values are based on
      discounting expected cash flows at the interest rate for debt with same or
      similar remaining maturities and collateral requirements.

16.   PARENT COMPANY FINANCIAL DATA

      The following is a summary of the condensed financial statements of
      Weststar Financial Corporation as of and for the years ended December 31,
      2003 and 2002:

                            Condensed Balance Sheets
                           December 31, 2003 and 2002

<TABLE>
<CAPTION>
                                                                        2003          2002
                                                                    -----------    ----------
<S>                                                                 <C>            <C>
      Assets
         Cash and due from banks                                    $   264,360    $   81,233
         Investment in The Bank of Asheville, at equity              12,772,309     8,580,117
         Investment in Weststar Financial Services Corporation I        124,000            --
         Other assets                                                   194,971        12,587
                                                                    -----------    ----------

      Total assets                                                  $13,355,640    $8,673,937
                                                                    ===========    ==========

      Liabilities and Shareholders' Equity
         Liabilities:
           Junior subordinated debentures payable to
             Weststar Financial Services Corporation I              $ 4,124,000    $       --
           Other                                                         40,692         4,783
         Stockholders' equity                                         9,190,948     8,669,154
                                                                    -----------    ----------

      Total liabilities and shareholders' equity                    $13,355,640    $8,673,937
                                                                    ===========    ==========
</TABLE>


                                                                              41
<PAGE>

WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002
================================================================================

16.   PARENT COMPANY FINANCIAL DATA (Continued)

                       Condensed Statements of Operations
                     Years Ended December 31, 2003 and 2002

                                                           2003         2002
                                                        ---------     --------
      Interest Income:
         Interest-bearing deposits                      $      --     $     --
                                                        ---------     --------
      Interest Expense:
         Junior subordinated debentures issued to
           Weststar Financial Services Corporation I       39,178           --
                                                        ---------     --------
      Non-interest Income:
         Equity in earnings of subsidiary bank            541,211      707,801
         Other                                             56,500       29,600
                                                        ---------     --------
           Total Non-interest Income                      597,711      737,401
      Non-interest Expenses:
         Other                                             56,337       46,048
                                                        ---------     --------
      Income before income tax benefit                    502,196      691,353

      Income tax benefit                                  (13,265)          --
                                                        ---------     --------

      Net income                                        $ 515,461     $691,353
                                                        =========     ========

                       Condensed Statements of Cash Flows
                     Years Ended December 31, 2003 and 2002

<TABLE>
<CAPTION>
                                                                       2003           2002
                                                                   -----------     ---------
<S>                                                                <C>             <C>
      Cash Flows from Operating Activities:
         Net income                                                $   515,461     $ 691,353
         Noncash items included in net income:
           Equity in undistributed earnings of The
              Bank of Asheville                                       (541,211)     (707,801)
           Income tax benefit                                          (13,265)           --
           Increase in other assets                                   (116,684)      (12,587)
           Increase (decrease) in other liabilities                     35,909          (217)
                                                                   -----------     ---------
              Net cash used in operating activities                   (119,790)      (29,252)
                                                                   -----------     ---------

      Cash Flows from Investing Activities:
         Upstream dividends received from The Bank of Asheville         37,998            --
         Investment in Weststar Financial Services
           Corporation I                                              (124,000)           --
           The Bank of Asheville                                    (3,800,000)           --
                                                                   -----------     ---------
              Net cash used in investing activities                 (3,886,002)           --
                                                                   -----------     ---------

      Cash Flows from Financing Activities:
         Junior subordinated debentures issued to
           Weststar Financial Services Corporation I                 4,124,000            --
         Cash paid for fractional shares                                (1,717)         (318)
         Exercise of stock options                                      66,636         6,216
                                                                   -----------     ---------
              Net cash provided by financing activities              4,188,919         5,898
                                                                   -----------     ---------

      Net increase (decrease) in cash                                  183,127       (23,354)
         Beginning                                                      81,233       104,587
                                                                   -----------     ---------

         Ending                                                    $   264,360     $  81,233
                                                                   ===========     =========
</TABLE>


                                                                              42
<PAGE>

ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

See page 12 of Registrant's 2004 Annual Meeting Proxy Statement, as filed with
the SEC pursuant to Rule 14a-6(b).

ITEM 8a: CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer have conducted
an evaluation of the Company's disclosure controls and procedures as of December
31, 2003. Based on their evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures are effective to ensure that information required to be disclosed
by the Company in reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the applicable Securities and Exchange Commission rules and
forms. There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the most recent evaluation of these controls by the Company's Chief
Executive Officer and Chief Financial Officer, including any corrective actions
with regard to significant deficiencies and material weaknesses.

PART III

ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

See pages 4 - 5 and 9 of Registrant's 2004 Annual Meeting Proxy Statement, as
filed with the SEC pursuant to Rule 14a-6(b).

The Registrant has adopted a code of ethics that applies, among others to its
principal executive offices and principal financial officer. The Registrant's
code of ethics is available at www.bankofevansville.com.

ITEM 10: EXECUTIVE COMPENSATION

See pages 9 - 11 of Registrant's 2004 Annual Meeting Proxy Statement, as filed
with the SEC pursuant to Rule 14a-6(b).

ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

In 2001, the Company's shareholders approved the Weststar Financial Services
Corporation 2001 Nonstatutory Stock Option Plan ("Nonstatutory Plan") and the
Weststar Financial Services Corporation 2001 Incentive Stock Option Plan
("Incentive Plan"). Under these plans, non-employee directors and employees were
granted stock options on June 20, 2001. The maximum number of shares available
for grant under the Nonstatutory Plan and Incentive Plan is 91,471 and 92,491,
respectively. Of the maximum number of shares available for grant, 68,821 were
outstanding under the Nonstatutory Plan and 90,200 were outstanding under the
Incentive Plan at December 31, 2003. Option prices for both plans are
established at market value, which was $5.88, on the dates options were granted
by the Board of Directors. The following chart contains details of the grants:

<TABLE>
<CAPTION>
            Plan Category      Number of securities         Weighted-average      Number of securities
                                  to be issued upon        exercise price of       remaining available
                                        exercise of     outstanding options,       for future issuance
                               outstanding options,      warrants and rights              under equity
                                                                                    compensation plans
                                                                                 (excluding securities
                                                                               reflected in column (a))
                                                (a)                      (b)                       (c)
<S>                           <C>                                      <C>                       <C>
      Equity compensation
        plans approved by     Nonstatutory - 68,821                    $5.88                      None
         security holders        Incentive - 90,200                    $5.88                     1,236

      Equity compensation
       plans not approved
      by security holders                      None                     None                      None

                    Total                   159,021                    $5.88                     1,236
</TABLE>

See pages 3 - 4 of Registrant's 2004 Annual Meeting Proxy Statement, as filed
with the SEC pursuant to Rule 14a-6(b), for additional information regarding
Security Ownership of Certain Beneficial Owners and Management.


                                                                              43
<PAGE>

ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See pages 6 and 11-12 of Registrant's 2004 Annual Meeting Proxy Statement, as
filed with the SEC pursuant to Rule 14a-6(b).

ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1  Articles of Incorporation of the Registrant*

3.2  Bylaws of the Registrant*

10.1 Employment Agreement between the Bank and G. Gordon Greenwood dated
February 9, 2000*

10.2 Employment Agreement between the Bank and Randall C. Hall, dated March
20, 1998*

10.3 401(k) Savings Plan of the Bank*

10.4 2001 Incentive Stock Option Plan**

10.5 2001 Nonstatutory Stock Option Plan**

10.6 Amended and Restated Declaration of Trust by and between Wells Fargo
Bank, N.A., as Delaware Trustee and Institutional Trustee, Weststar Financial
Services Corporation, as Sponsor, and certain Administrative Trustees, dated
October 10, 2003***

10.7 Indenture between Weststar Financial Services Corporation and Wells
Fargo Bank, N.A., as Indenture Trustee, dated October 10, 2003***

10.8 Guarantee Agreement by and between Weststar Financial Services
Corporation and Wells Fargo Bank, N.A., as Guarantee Trustee, dated October 10,
2003***

10.9 Floating Rate Junior Subordinated Debenture of Weststar Financial
Services Corporation, dated October 10, 2003 (included as Exhibit A to Exhibit
10.7)***

21 Subsidiaries

31.1 Section 302 Certification of Principal Executive Officer

31.2 Section 302 Certification of Principal Accounting Officer

32.1 Section 906 Certification of Principal Executive Officer

32.2 Section 906 Certification of Principal Accounting Officer

99 2004 Proxy Statement****

*Incorporated by reference to the Registration Statement on Form S-4
(Registration No. 333-30200 filed February 11, 2000 with the Securities and
Exchange Commission.)

**Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 2001 filed with the Securities and Exchange
Commission on March 22, 2002.

***Incorporated by reference to the Registrant's Current report on Form 8-K,
filed with the Securities and Exchange Commission on November 5, 2003.

****As filed with the SEC pursuant to Rule 14a-6(b).

(b) Reports on Form 8-K

During the quarter ended December 31, 2003, the Registrant filed two current
Reports on Form 8-K. Both such reports were filed on November 5, 2003. One Form
8-K reported under Item 5, and the other reported under Items 5, 7, and 12.

ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

See pages 7 - 9 of Registrant's 2004 Annual Meeting Proxy Statement, as filed
with the SEC pursuant to Rule 14a-6(b).


                                                                              44
<PAGE>

SIGNATURES

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

                                    WESTSTAR FINANCIAL SERVICES CORPORATION
                                                  (Registrant)


                                    By:    /s/ Randall C. Hall
                                           -------------------
                                           Randall C. Hall
                                           Executive Vice President
                                           Chief Financial Officer and Principal
                                           Accounting Officer

                                    Date:  February 17, 2004


                                                                              45
<PAGE>

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.


/s/ W. Edward Anderson                   February 17, 2004
--------------------------
W. Edward Anderson
Director


/s/ M. David Cogburn, M.D.               February 17, 2004
--------------------------
M. David Cogburn, M.D.
Director


/s/ Steven D. Cogburn                    February 17, 2004
--------------------------
Steven D. Cogburn
Director


/s/ G. Gordon Greenwood                  February 17, 2004
--------------------------
G. Gordon Greenwood
President & Chief Executive Officer


/s/ Patricia P. Grimes                   February 17, 2004
--------------------------
Pat Grimes
Director


/s/ Darryl J. Hart                       February 17, 2004
--------------------------
Darryl J. Hart
Director


/s/ Carol L. King                        February 17, 2004
--------------------------
Carol L. King
Director


/s/ Stephen L. Pignatiello               February 17, 2004
--------------------------
Stephen L. Pignatiello
Director


/s/ Laura A. Webb                        February 17, 2004
--------------------------
Laura A. Webb
Director


/s/ David N. Wilcox                      February 17, 2004
--------------------------
David N. Wilcox
Director


                                                                              46
<PAGE>

                                  EXHIBIT INDEX

      Exhibit
      Number      Exhibit                                          Page Number
      ------      -------                                          -----------

        3.1       Articles of Incorporation                              *

        3.2       Bylaws                                                 *

       10.1       Employment Agreement of G. Gordon Greenwood            *

       10.2       Employment Agreement of Randall C. Hall                *

       10.3       401 (k) Savings Plan                                   *

       10.4       Incentive Stock Option Plan                            *

       10.5       Nonstatutory Stock Option Plan                         *

       10.6       Amended and Restated                                   *
                  Declaration of Trust by and
                  between Wells Fargo Bank,
                  N.A., as Delaware Trustee and
                  Institutional Trustee,
                  Weststar Financial Services
                  Corporation, as Sponsor, and
                  certain Administrative
                  Trustees, dated October 10,
                  2003***

       10.7       Indenture between Weststar                             *
                  Financial Services Corporation
                  and Wells Fargo Bank, N.A., as
                  Indenture Trustee, dated
                  October 10, 2003***

       10.8       Guarantee Agreement by and                             *
                  between Weststar Financial
                  Services Corporation and Wells
                  Fargo Bank, N.A., as Guarantee
                  Trustee, dated October 10,
                  2003***

       10.9       Floating Rate Junior                                   *
                  Subordinated Debenture of
                  Weststar Financial Services
                  Corporation, dated October 10,
                  2003 (included as Exhibit A to
                  Exhibit 10.7)***



       21          Subsidiaries                                  Filed herewith


       31.1       Section 302 Certification of                   Filed herewith
                  Principal Executive Officer

       31.2       Section 302 Certification of                   Filed herewith
                  Principal Accounting Officer

       32.1       Section 906 Certification of                   Filed herewith
                  Principal Executive Officer

       32.2       Section 906 Certification of                   Filed herewith
                  Principal Accounting Officer


       99         2004 Proxy Statement                                  **

*     Incorporated by reference.

**    As filed with the SEC pursuant to Rule 14a-6(b).


                                                                              47