##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549



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FORM 10-QSB



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|x | QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------



For the quarterly period ended September 30, 2005



| ̈ | TRANSITION REPORT UNDER 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------



For the transition period from  to



Commission File Number: 000-25227



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CAPITOL CITY BANCSHARES, INC.

(Exact name of small business issuer as specified in its charter)



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|                                |  |                       
|------------------------------- |  | ----------------------
|Georgia                         |  | 58 - 2452995          
|(State or other jurisdiction of |  | (I.R.S. Employer      
|incorporation or organization)  |  | Identification Number)



562 Lee Street,
S.W., Atlanta, Georgia 30311

(Address of principal executive office)



(404) 752-6067

(Issuers telephone number)



N/A

(Former name, former address and former fiscal year, if changed since last report)



---



Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ̈.



Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange
Act).    Yes ̈No  x.



State the number of shares outstanding of each of the issuers classes of common stock,
as of November 1, 2005: 2,128,352; $1.50 par value



Transitional Small Business Disclosure Format    Yes ̈No  x



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##### Table of Contents

INDEX



|                              |  |                                                                                                                            |  |        
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | -------
|                              |  |                                                                                                                            |  | Page   
|Part I.
Financial Information |  |                                                                                                                           
|                              |  |                                                                                                                           
|                              |  | Item 1.
Financial Statements (unaudited)                                                                                   |  |        
|                              |  |                                                                                                                           
|                              |  | Consolidated Balance Sheet as of September 30, 2005                                                                        |  | 2      
|                              |  |                                                                                                                           
|                              |  | Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2005 and 2004 |  | 3      
|                              |  |                                                                                                                           
|                              |  | Consolidated Statements of Cash Flows For The Nine Months Ended September 30, 2005 and 2004                                |  | 4      
|                              |  |                                                                                                                           
|                              |  | Notes to Consolidated Financial Statements                                                                                 |  | 5 - 7  
|                              |  |                                                                                                                           
|                              |  | Item 2.
Managements Discussion and Analysis and Results of Operations                                                     |  | 8 - 13 
|                              |  |                                                                                                                           
|                              |  | Item 3.
Controls and Procedures                                                                                            |  | 13     
|                              | 
|Part II.
Other Information    |  |                                                                                                                           
|                              |  |                                                                                                                           
|                              |  | Item 6.
Exhibits                                                                                                           |  | 14     
|                              |  |                                                                                                                           
|                              |  | Signatures                                                                                                                 |  | 15     
|                              |  |                                                                                                                           
|                              |  | Certifications                                                                                                             |  | 16 - 19



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##### Table of Contents

PART I - FINANCIAL INFORMATION



ITEM I. FINANCIAL STATEMENTS



CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEET

September 30, 2005

(Unaudited)



|                                                                                                     |  |   |             |  
|---------------------------------------------------------------------------------------------------- |  | - | ----------- | -
|Assets                                                                                               |  |   |             |  
|Cash and due from banks                                                                              |  | $ | 5,456,291   |  
|Interest-bearing deposits at other financial institutions                                            |  |   | 106,840     |  
|Federal funds sold                                                                                   |  |   | 1,976,000   |  
|Securities available for sale, at fair value                                                         |  |   | 50,485,123  |  
|Restricted equity securities, at cost                                                                |  |   | 378,400     |  
|                                                                                                     | 
|Loans, net of unearned income                                                                        |  |   | 160,139,562 |  
|Less allowance for loan losses                                                                       |  |   | 2,210,008   |  
|                                                                                                     |  |   |             |  
|Loans, net                                                                                           |  |   | 157,929,554 |  
|                                                                                                     |  |   |             |  
|Premises and equipment, net                                                                          |  |   | 6,590,063   |  
|Other real estate                                                                                    |  |   | 3,009,552   |  
|Other assets                                                                                         |  |   | 2,651,717   |  
|                                                                                                     |  |   |             |  
|Total assets                                                                                         |  | $ | 228,583,540 |  
|                                                                                                     |  |   |             |  
|Liabilities and Stockholders Equity                                                                 |  |   |             |  
|Liabilities:                                                                                         |  |   |             |  
|Deposits:                                                                                            |  |   |             |  
|Noninterest-bearing                                                                                  |  | $ | 29,384,071  |  
|Interest-bearing                                                                                     |  |   | 176,465,460 |  
|                                                                                                     |  |   |             |  
|Total deposits                                                                                       |  |   | 205,849,531 |  
|Note payable                                                                                         |  |   | 707,000     |  
|Securities sold under repurchase agreements                                                          |  |   | 4,000,000   |  
|Other liabilities                                                                                    |  |   | 1,361,955   |  
|Company guaranteed trust preferred securities                                                        |  |   | 3,403,000   |  
|                                                                                                     |  |   |             |  
|Total liabilities                                                                                    |  |   | 215,321,486 |  
|                                                                                                     |  |   |             |  
|Stockholders equity                                                                                 |  |   |             |  
|Common stock, par value $1.50; 20,000,000 shares authorized; 2,128,352 shares issued and outstanding |  |   | 3,192,528   |  
|Surplus                                                                                              |  |   | 2,128,352   |  
|Retained earnings                                                                                    |  |   | 8,094,146   |  
|Accumulated other comprehensive loss                                                                 |  |   | (152,972    | )
|                                                                                                     |  |   |             |  
|Total stockholders equity                                                                           |  |   | 13,262,054  |  
|                                                                                                     |  |   |             |  
|Total liabilities and stockholders equity                                                           |  | $ | 228,583,540 |  
|                                                                                                     |  |   |             |  



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



2



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##### Table of Contents

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2005 AND 2004

(Unaudited)



|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|-------------------------------------------------------------------------------------------- |  | ------------------ | --------- | ----------------- | ---- | - | --------- |  | - | ---------- | - |  | - | --------- | -
|                                                                                             |  | Three Months Ended |           | Nine Months Ended |     
|                                                                                             |  | September 30,      |           | September 30,     |     
|                                                                                             |  | 2005               |           |                   | 2004 |   | 2005      |  |   | 2004       |  
|Interest income:                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Loans, including fees                                                                        |  | $                  | 3,773,058 |                   |      | $ | 2,496,153 |  | $ | 9,918,624  |   |  | $ | 6,521,032 |  
|Securities:                                                                                  |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Taxable                                                                                      |  |                    | 328,273   |                   |      |   | 161,401   |  |   | 897,998    |   |  |   | 480,948   |  
|Nontaxable                                                                                   |  |                    | 112,817   |                   |      |   | 124,454   |  |   | 342,846    |   |  |   | 396,930   |  
|Federal funds sold                                                                           |  |                    | 32,032    |                   |      |   | 7,495     |  |   | 85,054     |   |  |   | 17,106    |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Total interest income                                                                        |  |                    | 4,246,180 |                   |      |   | 2,789,503 |  |   | 11,244,522 |   |  |   | 7,416,016 |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Interest expense:                                                                            |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Deposits                                                                                     |  |                    | 1,613,754 |                   |      |   | 813,707   |  |   | 4,362,127  |   |  |   | 2,130,424 |  
|Other borrowings                                                                             |  |                    | 73,669    |                   |      |   | 60,479    |  |   | 203,779    |   |  |   | 153,718   |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Total interest expense                                                                       |  |                    | 1,687,423 |                   |      |   | 874,186   |  |   | 4,565,906  |   |  |   | 2,284,142 |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Net interest income                                                                          |  |                    | 2,558,757 |                   |      |   | 1,915,317 |  |   | 6,678,616  |   |  |   | 5,131,874 |  
|Provision for loan losses                                                                    |  |                    | 124,000   |                   |      |   | 126,000   |  |   | 222,000    |   |  |   | 126,000   |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Net interest income after provision for loan losses                                          |  |                    | 2,434,757 |                   |      |   | 1,789,317 |  |   | 6,456,616  |   |  |   | 5,005,874 |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Other income:                                                                                |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Service charges on deposit accounts                                                          |  |                    | 587,910   |                   |      |   | 569,074   |  |   | 1,567,616  |   |  |   | 1,649,520 |  
|Other fees and commissions                                                                   |  |                    | 17,142    |                   |      |   | 6,935     |  |   | 43,176     |   |  |   | 18,521    |  
|Mortgage origination income                                                                  |  |                    | 62,153    |                   |      |   | 18,822    |  |   | 153,848    |   |  |   | 56,819    |  
|Other operating income                                                                       |  |                    | 44,190    |                   |      |   | 56,661    |  |   | 226,765    |   |  |   | 162,636   |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Total other income                                                                           |  |                    | 711,395   |                   |      |   | 651,492   |  |   | 1,991,405  |   |  |   | 1,887,496 |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Other expenses:                                                                              |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Salaries and employee benefits                                                               |  |                    | 840,317   |                   |      |   | 686,903   |  |   | 2,429,020  |   |  |   | 2,043,671 |  
|Occupancy and equipment expenses, net                                                        |  |                    | 256,551   |                   |      |   | 191,359   |  |   | 714,015    |   |  |   | 579,239   |  
|Other operating expenses                                                                     |  |                    | 686,015   |                   |      |   | 628,894   |  |   | 2,571,688  |   |  |   | 1,964,718 |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Total other expenses                                                                         |  |                    | 1,782,883 |                   |      |   | 1,507,156 |  |   | 5,714,723  |   |  |   | 4,587,628 |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Income before income taxes                                                                   |  |                    | 1,363,269 |                   |      |   | 933,653   |  |   | 2,733,298  |   |  |   | 2,305,742 |  
|                                                                                             |  |                    |           |                  
|Income tax expense                                                                           |  |                    | 449,423   |                   |      |   | 293,681   |  |   | 859,279    |   |  |   | 690,282   |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Net income                                                                                   |  | $                  | 913,846   |                   |      | $ | 639,972   |  | $ | 1,874,019  |   |  | $ | 1,615,460 |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Other comprehensive income (loss)                                                            |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Unrealized gains (losses) on securities available for sale arising during period, net of tax |  |                    | (111,354  | )                 |      |   | 279,090   |  |   | (336,283   | ) |  |   | (129,582  | )
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Comprehensive income                                                                         |  | $                  | 802,492   |                   |      | $ | 919,062   |  | $ | 1,537,736  |   |  | $ | 1,485,878 |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Basic earnings per common share                                                              |  | $                  | 0.43      |                   |      | $ | 0.30      |  | $ | 0.88       |   |  | $ | 0.76      |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Diluted earnings per common share                                                            |  | $                  | 0.40      |                   |      | $ | 0.28      |  | $ | 0.82       |   |  | $ | 0.71      |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  
|Cash dividends declared per share of common stock                                            |  | $                  |          |                   |      | $ |          |  | $ | 0.06       |   |  | $ | 0.05      |  
|                                                                                             |  |                    |           |                   |      |   |           |  |   |            |   |  |   |           |  



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



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##### Table of Contents

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

(Unaudited)



|                                                                                  |  |      |             |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                  |  | 2005 |             |   | 2004 |  
|OPERATING ACTIVITIES                                                              |  |      |             |   |      |   |             |  
|Net income                                                                        |  | $    | 1,874,019   |   |      | $ | 1,615,460   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |             |   |      |   |             |  
|Depreciation and amortization                                                     |  |      | 380,971     |   |      |   | 317,911     |  
|Provision for loan losses                                                         |  |      | 222,000     |   |      |   | 126,000     |  
|Loss on sale of other real estate                                                 |  |      | 48,848      |   |      |   |            |  
|Net other operating activities                                                    |  |      | (120,563    | ) |      |   | (78,303     | )
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash provided by operating activities                                         |  |      | 2,405,275   |   |      |   | 1,981,068   |  
|                                                                                  |  |      |             |   |      |   |             |  
|INVESTING ACTIVITIES                                                              |  |      |             |   |      |   |             |  
|Purchases of securities available for sale                                        |  |      | (20,345,045 | ) |      |   | (4,227,500  | )
|Proceeds from maturities of securities available for sale                         |  |      | 4,055,395   |   |      |   | 6,506,080   |  
|Net increase in interest-bearing deposits                                         |  |      | (9,915      | ) |      |   | (13,460     | )
|Net (increase) decrease in federal funds sold                                     |  |      | 2,080,000   |   |      |   | (160,000    | )
|(Purchase) redemption of restricted equity securities                             |  |      | (103,900    | ) |      |   | 10,000      |  
|Net increase in loans                                                             |  |      | (23,338,021 | ) |      |   | (32,066,851 | )
|Proceeds from sale of other real estate                                           |  |      | 191,982     |   |      |   | 345,776     |  
|Purchase of premises and equipment                                                |  |      | (459,909    | ) |      |   | (1,150,001  | )
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash used in investing activities                                             |  |      | (37,929,413 | ) |      |   | (30,755,956 | )
|                                                                                  |  |      |             |   |      |   |             |  
|FINANCING ACTIVITIES                                                              |  |      |             |   |      |   |             |  
|Net increase in deposits                                                          |  |      | 32,237,387  |   |      |   | 32,774,831  |  
|Net increase (decrease) in securities sold under repurchase agreements            |  |      | 4,000,000   |   |      |   | (3,209,000  | )
|Proceeds from note payable                                                        |  |      | 50,000      |   |      |   | 286,500     |  
|Payment of dividends                                                              |  |      | (127,701    | ) |      |   | (106,418    | )
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash provided by financing activities                                         |  |      | 36,159,686  |   |      |   | 29,745,913  |  
|                                                                                  |  |      |             |   |      |   |             |  
|Net increase in cash and due from banks                                           |  |      | 635,548     |   |      |   | 971,025     |  
|                                                                                  |  |     
|Cash and due from banks, beginning of period                                      |  |      | 4,820,743   |   |      |   | 3,556,349   |  
|                                                                                  |  |      |             |   |      |   |             |  
|Cash and due from banks, end of period                                            |  | $    | 5,456,291   |   |      | $ | 4,527,374   |  
|                                                                                  |  |      |             |   |      |   |             |  



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



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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 1. | BASIS OF PRESENTATION
|------- | ---------------------



The consolidated financial information included for Capitol City Bancshares, Inc. (the Company), Capitol City Bank &
Trust Company (the Bank) and Capitol City Home Loans (the Mortgage Company) herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair statement of results for the interim periods. These statements should be read in conjunction with the consolidated financial statements and related notes included in the Companys Annual Report on Form 10-KSB
for the year ended December 31, 2004.



The results of operations for the three and nine month periods ended September 30, 2005 are not necessarily indicative of the results to be expected for the full year.



|NOTE 2. | EARNINGS PER COMMON SHARE
|------- | -------------------------



Presented below is a summary of the components used to calculate basic and diluted earnings per common share for the three and nine months
ended September 30, 2005 and 2004.



|                                                                                                                                  |  |                                 |           |                                 |   |           |  |      |           |  |   |          
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | --------- | ------------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                                                                                                                  |  | Three Months EndedSeptember 30, |           | Nine Months Ended September 30,
|                                                                                                                                  |  | 2005                            |           | 2004                            |   | 2005      |  | 2004
|Net income                                                                                                                        |  | $                               | 913,846   |                                 | $ | 639,972   |  | $    | 1,874,019 |  | $ | 1,615,460
|                                                                                                                                  |  |                                 |           |                                 |   |           |  |      |           |  |   |          
|Weighted average common shares outstanding                                                                                        |  |                                 | 2,128,352 |                                 |   | 2,128,352 |  |      | 2,128,352 |  |   | 2,128,352
|                                                                                                                                  |  |                                 |           |                                
|Net effect of the assumed exercise of stock options based on the treasury stock method using average market prices for the
period |  |                                 | 165,265   |                                 |   | 143,180   |  |      | 161,729   |  |   | 136,468  
|                                                                                                                                  |  |                                 |           |                                 |   |           |  |      |           |  |   |          
|Total weighted average common shares and common stock equivalents outstanding                                                     |  |                                 | 2,293,617 |                                 |   | 2,271,532 |  |      | 2,290,081 |  |   | 2,264,820
|                                                                                                                                  |  |                                 |           |                                 |   |           |  |      |           |  |   |          
|Diluted earnings per common share                                                                                                 |  | $                               | .40       |                                 | $ | .28       |  | $    | .82       |  | $ | .71      
|                                                                                                                                  |  |                                 |           |                                 |   |           |  |      |           |  |   |          



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|NOTE 3. | STOCK COMPENSATION PLAN
|------- | -----------------------



At September 30, 2005, the Company has a stock-based compensation plan. The Company accounts for this plan under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based compensation cost is reflected in net income, as all options granted under this plan had an exercise
price equal to the market value of the underlying stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS Statement
No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.



|                                                                                                                                            |  |                                  |           |      |   |          
|------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | --------- | ---- | - | ---------
|                                                                                                                                            |  | Three Months Ended September 30,
|                                                                                                                                            |  | 2005                             |           | 2004
|Net income, as reported                                                                                                                     |  | $                                | 913,846   |      | $ | 639,972  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                  |          |      |   |         
|                                                                                                                                            |  |                                  |           |      |   |          
|Pro forma net income                                                                                                                        |  | $                                | 913,846   |      | $ | 639,972  
|                                                                                                                                            |  |                                  |           |      |   |          
|Earnings per share:                                                                                                                         |  |                                  |           |      |   |          
|Basic - as reported                                                                                                                         |  | $                                | .43       |      | $ | .30      
|                                                                                                                                            |  |                                  |           |      |   |          
|Basic - pro forma                                                                                                                           |  | $                                | .43       |      | $ | .30      
|                                                                                                                                            |  |                                  |           |      |   |          
|Diluted - as reported                                                                                                                       |  | $                                | .40       |      | $ | .28      
|                                                                                                                                            |  |                                  |           |      |   |          
|Diluted - pro forma                                                                                                                         |  | $                                | .40       |      | $ | .28      
|                                                                                                                                            |  |                                  |           |      |   |          
|                                                                                                                                            | 
|                                                                                                                                            |  | Nine Months Ended September 30, 
|                                                                                                                                            |  | 2005                             |           | 2004
|Net income, as reported                                                                                                                     |  | $                                | 1,874,019 |      | $ | 1,615,460
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                  |          |      |   |         
|                                                                                                                                            |  |                                  |           |      |   |          
|Pro forma net income                                                                                                                        |  | $                                | 1,874,019 |      | $ | 1,615,460
|                                                                                                                                            |  |                                  |           |      |   |          
|Earnings per share:                                                                                                                         |  |                                  |           |      |   |          
|Basic - as reported                                                                                                                         |  | $                                | .88       |      | $ | .76      
|                                                                                                                                            |  |                                  |           |      |   |          
|Basic - pro forma                                                                                                                           |  | $                                | .88       |      | $ | .76      
|                                                                                                                                            |  |                                  |           |      |   |          
|Diluted - as reported                                                                                                                       |  | $                                | .82       |      | $ | .71      
|                                                                                                                                            |  |                                  |           |      |   |          
|Diluted - pro forma                                                                                                                         |  | $                                | .82       |      | $ | .71      
|                                                                                                                                            |  |                                  |           |      |   |          



As of
September 30, 2005 and 2004, all outstanding options were fully vested and there were no options granted during the nine month periods ended September 30, 2005 and 2004. Therefore, there was no pro forma effect on net income for the three
and nine month periods ended September 30, 2005 and 2004.



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##### Table of Contents

|NOTE 4. | CONTINGENCIES
|------- | -------------



In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability
resulting from such proceedings would not have a material affect on the Companys consolidated financial statements, except as discussed below.



As of September 30, 2005, the Company is in litigation with another financial institution group (the Plaintiff) with a
similar name. The suit alleges the Company infringed on the Plaintiffs federally registered trademarks. The Plaintiff seeks both damages and injunctive relief against the Company. The Company has asserted several defenses against the
Plaintiffs claims and has also asserted a counterclaim against the Plaintiff seeking injunctive relief and damages for the Plaintiffs trademark usage within the Companys trade area. The Company is pursuing its defenses and
counterclaims. Management is unable to reasonably estimate the amount of liability which may be incurred if an adverse decision is rendered because it is dependent upon the interpretation by the court as to which party infringed on the other
partys trademark.



As of
September 30, 2005 there is pending an action filed by the Commissioner of Insurance for the State of Georgia against multiple defendants, including Capitol City Bank & Trust Company, a subsidiary of Capitol City Bancshares, Inc., in
the Superior Court of Fulton County, Civil Action Number 2005-CV-98868. The plaintiff seeks to recover from the Bank alleged preferential or fraudulent payments of approximately $400,000 made to the Bank by co-defendant Providers Direct Health Plan
of Georgia, Inc. (PDHP) prior to PDHP going into receivership. The plaintiff also seeks to recover funds offset by the Bank of debts of PDHP from accounts held by it with the Bank totaling approximately $400,000. The plaintiff further
alleges the Bank made fraudulent or negligent misrepresentations to the Department of Insurance regarding the capitalization of PDHP, and seeks to recover additional damages resulting from PDHPs insolvency, alleged to be in excess of
$5,000,000. In addition, some of the other defendants have asserted cross claims against the Bank, alleging that they relied on advice negligently furnished to them by the Bank and seeking to recover from the Bank any damages which the plaintiff may
recover against them. The Bank disputes these allegations altogether; however, the lawsuit could result in a large expenditure in attorney fees, costs of litigation, and the potential liability for damages as described above.



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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following is managements discussion and analysis of certain significant factors which have affected our financial position and operating results during the
periods included in the accompanying consolidated financial statements. This discussion should be read in conjunction with the accompanying consolidated financial statements and the notes thereto and the consolidated financial statements, related
notes, and managements discussion and analysis of the financial condition and results of operations for the year ended December 31, 2004 included in the Companys 2004 Annual Report on Form 10-KSB.



FORWARD-LOOKING STATEMENTS



This quarterly report contains certain forward-looking statements which are based on certain
assumptions and describe future plans, strategies, and our expectations. These forward-looking statements are generally identified by use of the words believe, expect, intend, anticipate,
estimate, project, or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations
include, but are not limited to, changes in interest rates, general economic conditions, legislation and regulation, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the
quality or composition of our loan and investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in our market area, and accounting principles and guidelines. You should consider these risks and
uncertainties in evaluating forward-looking statements and should not place undue reliance on such statements. We will not publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.



CRITICAL ACCOUNTING POLICIES



We have established policies to govern the application of accounting principles in the preparation of our financial statements. Certain accounting policies involve
assumptions and decisions by management which may have a material impact on the carrying value of certain assets and liabilities, and the results of our operations. We consider these accounting policies to be our critical accounting policies. The
assumptions and decisions used by management are based on historical data and other factors which are believed to be reasonable considering the circumstances.



Allowance for loan losses.We believe the allowance for loan losses is a critical accounting policy that requires the most significant decisions and estimates
used in the preparation of our consolidated financial statements. The allowance for loan losses represents managements estimate of probable loan losses inherent in the loan portfolio.



The allowance is an amount that management believes will be adequate to absorb estimated
losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectibility of existing loans and prior loss experience. This evaluation also takes
into consideration such factors as changes in



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the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, concentrations, and current economic conditions
that may affect the borrowers ability to pay. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions.



FINANCIAL CONDITION



Total assets increased $37.9 million from $190.7 million to $228.6 million, or 20% for the nine months ended September 30, 2005. The
growth was funded primarily by an increase in total deposits which increased by $32.2 million, or 19% and an increase in securities sold under repurchase agreements of $4.0 million. The increase in total assets for the nine months ended
September 30, 2005 consisted primarily of an increase in total loans of $20.0 million, an increase in securities available for sale of $15.8 million, offset by a decrease in federal funds sold of $2.1 million. The loan to deposit ratio at
September 30, 2005 was 78% compared to 81% at December 31, 2004.



Stockholders equity increased by $1.4 million for the nine months ended September 30, 2005. This net increase consisted of net income of $1.9 million, dividends declared of $127,000, and a net decrease in accumulated other
comprehensive loss of $336,000.



LIQUIDITY



Liquidity management involves the matching of the cash flow requirements of customer
withdrawals of funds and the funding of loan originations, and the ability of our subsidiary bank to meet those requirements. Management monitors and maintains appropriate levels of liquidity so that maturities of assets, deposit growth, and
proceeds from other borrowings are such that adequate funds are provided to meet estimated customer withdrawals and loan requests.



At September 30, 2005, the Banks liquidity ratio of 23.55% was considered satisfactory in relation to regulatory guidelines and internal target ratios.



REGULATORY CAPITAL REQUIREMENTS



Banking regulations require us to maintain minimum capital levels in relation to assets. At
September 30, 2005, the Banks capital ratios were considered well capitalized based on regulatory minimum capital requirements. The minimum capital requirements and the actual capital ratios on a consolidated basis and for the Bank at
September 30, 2005 are as follows:



|                          |  |         |   |  |       |   |  |             |  
|------------------------- |  | ------- | - |  | ----- | - |  | ----------- | -
|                          |  |         |   |  |       |   |  | Regulatory  |  
|                          |  |         |   |  |       |   |  | Minimum     |  
|                          |  | Company |   |  | Bank  |   |  | Requirement |  
|Leverage Capital Ratio    |  | 7.64    | % |  | 7.78  | % |  | 4.00        | %
|Risk-Based Capital Ratios |  |         |   |  |       |   |  |             |  
|Core Capital              |  | 9.34    | % |  | 9.52  | % |  | 4.00        | %
|Total Capital             |  | 10.57   | % |  | 10.75 | % |  | 8.00        | %



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We are not aware of any other recommendations by the regulatory authorities, events or trends, which, if they were to be
implemented, would have a material effect on our liquidity, capital resources, or operations.



OFF BALANCE SHEET ARRANGEMENTS



Our
financial statements do not reflect various commitments and all contingent liabilities that arise in the normal course of business. These off-balance sheet financial instruments include commitments to extend credit and standby letters of credit.
Such financial instruments are included in the financial statements when funds are distributed or the instruments become payable. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments. Although these amounts do not
necessarily represent future cash requirements, a summary of our commitments as of September 30, 2005 and December 31, 2004 are as follows:



|                                    |  |               |            |              |   |           
|----------------------------------- |  | ------------- | ---------- | ------------ | - | ----------
|                                    |  | September 30, |            | December 31,
|                                    |  | 2005          |            | 2004        
|Commitments to extend credit        |  | $             | 17,243,000 |              | $ | 15,004,000
|Financial standby letters of credit |  |               | 1,763,000  |              |   | 1,982,000 
|Other standby letters of credit     |  |               | 546,000    |              |   |          
|                                    |  |               |            |              |   |           
|                                    |  | $             | 19,552,000 |              | $ | 16,986,000
|                                    |  |               |            |              |   |           



RESULTS OF OPERATIONS



Three and Nine months Ended September 30, 2005 and 2004



Net Interest Income.Net interest income increased by $643,000 and
$1.5 million for the three and nine month periods ended September 30, 2005, respectively, compared to the same periods in 2004. The increase in net interest income for both periods ended September 30, 2005 is attributable to an increase in
earning assets of $56.5 million as compared to September 30, 2004. Loans increased during this period by $35.2 million, which provide greater yields to the Company. During this same period, total deposits increased by $54.5 million, which
included an increase of $51.5 million in interest-bearing deposits and an increase of $3.0 million in non-interest bearing deposits.



The net interest margin decreased to 4.57% at September 30, 2005 as compared to 5.11% at September 30, 2004. The yield on interest-earning assets increased to
7.70%, or 31 basis points, from September 30, 2004 to September 30, 2005. The rate paid on interest-bearing liabilities increased to 3.61%, or 95 basis points, for the same period. The increase in yield on interest-earning assets and rates
paid on interest-bearing liabilities is impacted by the 200 basis point increase in Prime Rate since September 30, 2004. The increase in the rate paid on interest-bearing liabilities is due to the increase of $34.4 million in brokered
certificates of deposit as compared to September 30, 2004. Brokered deposits typically demand higher rates which has directly impacted our net interest margin. Brokered deposits are a secondary source of funding loan demand.



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Provision for Loan LossesThe provision for loan losses is based on managements evaluation of the economic
environment, the history of charged off loans and recoveries, size and composition of the loan portfolio, nonperforming and past due loans, and other aspects of the loan portfolio. We review the allowance for loan loss on a quarterly basis and make
provisions as necessary. A provision of $222,000 and $124,000 was made during the nine and three month periods ending September 30, 2005, respectively. The allowance for loan loss as a percentage of total loans was 1.38% and 1.56% at
September 30, 2005 and December 31, 2004, respectively. Total nonaccrual loans as of September 30, 2005 increased by $111,000 and net charge-offs increased by $116,000, while loans past due ninety days or more and still accruing
decreased by $145,000 as compared to the same period in 2004. At December 31, 2004, nonaccrual loans and past due loans ninety days or more and still accruing were $5.0 million and $5,000, respectively, and net charge-offs for the year ended
December 31, 2004 were $119,000. Any anticipated significant losses related to the non-performing loans were identified at December 31, 2004 and there have been no significant changes in our evaluation at September 30, 2005. In
addition to nonaccrual loans, the Company also has other real estate, which is considered a nonperforming asset. At September 30, 2005, the balance in other real estate was $3.0 million compared to $131,000 at December 31, 2004. This
increase consists of two pieces of property which are being carried at fair value. Management does not anticipate any significant losses related to other real estate. Management believes the allowance for loan loss at September 30, 2005 is
adequate to absorb any foreseeable losses in the loan portfolio; however, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional provisions of the allowance will not be required.



At September 30, 2005 and 2004, nonaccrual, past due, and restructured
loans were as follows:



|                                                                                                         |  |                        |       |               |   |      
|-------------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ------------- | - | -----
|                                                                                                         |  | September 30,          |       | September 30,
|                                                                                                         |  | 2005                   |       | 2004         
|                                                                                                         |  | (Dollars in thousands)
|Total nonaccruing loans                                                                                  |  | $                      | 3,173 |               | $ | 3,062
|Loans contractually past due ninety days or more as to interest or principal payments and still accruing |  |                        | 351   |               |   | 496  
|Restructured loans                                                                                       |  |                        |      |               |   |     



It is our policy to discontinue the
accrual of interest income when, in the opinion of management, collection of such interest becomes doubtful. This status is accorded such interest when (1) there is a significant deterioration in the financial condition of the borrower and full
repayment of principal and interest is not expected and (2) the principal or interest is more than ninety days past due, unless the loan is both well-secured and in the process of collection. Accrual of interest on such loans is resumed when,
in managements judgment, the collection of interest and principal becomes probable.



Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been included in the table above do not represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity, or capital resources. These classified loans do not represent material credits about which management is aware of any information which causes management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment terms.



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Information regarding certain loans and allowance for loan loss data for the nine months ended September 30, 2005
and 2004 is as follows:



|                                                                              |  |                                 |         |   |      |   |         |  
|----------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                              |  | Nine months Ended September 30, |        
|                                                                              |  | 2005                            |         |   | 2004 |  
|                                                                              |  | (Dollars in thousands)          |        
|Average amount of loans outstanding                                           |  | $                               | 148,261 |   |      | $ | 104,454 |  
|                                                                              |  |                                 |         |   |      |   |         |  
|Balance of allowance for loan losses at beginning of period                   |  | $                               | 2,186   |   |      | $ | 1,701   |  
|                                                                              |  |                                 |         |   |      |   |         |  
|Loans charged off                                                             |  |                                 |         |   |      |   |         |  
|Commercial                                                                    |  |                                 | (56     | ) |      |   |        |  
|Real estate                                                                   |  |                                 | (160    | ) |      |   | (20     | )
|Installment                                                                   |  |                                 | (162    | ) |      |   | (123    | )
|                                                                              |  |                                 |         |   |      |   |         |  
|                                                                              |  |                                 | (378    | ) |      |   | (143    | )
|                                                                              |  |                                 |         |   |      |   |         |  
|Loans recovered                                                               |  |                                 |         |   |      |   |         |  
|Commercial                                                                    |  |                                 | 77      |   |      |   | 5       |  
|Real estate                                                                   |  |                                 | 54      |   |      |   | 15      |  
|Installment                                                                   |  |                                 | 49      |   |      |   | 41      |  
|                                                                              |  |                                 |         |   |      |   |         |  
|                                                                              |  |                                 | 180     |   |      |   | 61      |  
|                                                                              |  |                                 |         |   |      |   |         |  
|Net charge-offs                                                               |  |                                 | (198    | ) |      |   | (82     | )
|                                                                              |  |                                 |         |   |      |   |         |  
|Additions to allowance charged to operating expense during period             |  |                                 | 222     |   |      |   | 126     |  
|                                                                              |  |                                 |         |   |      |   |         |  
|Balance of allowance for loan losses at end of period                         |  | $                               | 2,210   |   |      | $ | 1,745   |  
|                                                                              |  |                                 |         |   |      |   |         |  
|Ratio of net loans charged-off during the period to average loans outstanding |  |                                 | .13     | % |      |   | .08     | %
|                                                                              |  |                                 |         |   |      |   |         |  



Other Income. Other income
increased by $60,000 and $104,000 for the three and nine months ended September 30, 2005, respectively, compared to the same periods in 2004. Service charges on deposit accounts include monthly service charges and non-sufficient funds
(NSF) charges which account for 71% and 73% of the service charges on deposit accounts for the three and nine months ended September 30, 2005, respectively. The amount of service charges fluctuates with the volume of transaction
accounts and the volume of NSF activity. Other operating income decreased by $12,000 for the three months ended September 30, 2005 and increased by $64,000 for the nine months ended September 30, 2005 as compared to the same period in
2004. The increase for the nine month period was primarily attributable to net recoveries of miscellaneous losses from prior years of $65,000.



Other Expenses. Other expenses increased by $276,000 and $1.1 million for the three and nine months ended September 30, 2005, respectively, as compared to the
same periods in 2004. The increase consists of increases of $153,000 and $385,000 in salaries and employee benefits, $65,000 and $135,000 in occupancy and equipment expenses, and $57,000 and $607,000 in other operating expenses for the three and
nine month periods, respectively. The increase in salaries and employee benefits includes normal increases in salaries and benefits



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and an increase in the number of full-time equivalent employees from 65 at September 30, 2004 to 76 at September 30, 2005. The increase in
occupancy and equipment expenses is not directly attributable to any one item, but represents growth in the Companys branch infrastructure. The increase in other operating expenses for the nine months ended September 30, 2005 included
increases in legal fees of $147,000; business licenses and fees of $32,000; computer expenses of $63,000; other losses of $190,000; losses on sales of other real estate of $49,000; and holding company general expenses of $65,000. The remaining
increase in other operating expenses reflects normal increases in operating expenses along with the increased expenses associated with operating multiple branches throughout the State of Georgia.



The mortgage company was formed in 2002 and currently originates loans which are table funded
through independent investors. The net income for the three months ended September 30, 2005 was $1,000 and the net loss for the nine months ended September 30, 2005 was $9,000, as compared to a net loss of $23,000 and $56,000 for the three
and nine months ended September 30, 2004, respectively.



Income
Taxes. Income tax expense increased by $156,000 and $169,000 for the three and nine months ended September 30, 2005 as compared to 2004. The effective tax rate for the nine month periods in 2005 and 2004 was 31% and 30%, respectively. The
effective tax rate is less than the statutory tax rate due to nontaxable interest income on securities.



Net Income. Net income increased by $274,000 and $259,000 for the three and nine months ended September 30, 2005, respectively, as compared to the same period in 2004. The increase is primarily due to the
increases in net interest income as discussed earlier.



ITEM 3. CONTROLS AND PROCEDURES



Within
ninety days prior to the date of filing of this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and the Principal Financial and Accounting Officer, of the design and operation of
our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures are effective.



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PART II - Other Information



Item 6. Exhibits.



|    |  |           |  |                                                                        
|--- |  | --------- |  | -----------------------------------------------------------------------
|(a) |  | Exhibits. |  |                                                                        
|    |  |          
|    |  | 31.1      |  | Section 302 Certification of Principal Executive Officer               
|    |  |          
|    |  | 31.2      |  | Section 302 Certification of Principal Financial and Accounting Officer
|    |  |          
|    |  | 32.1      |  | Section 906 Certification of Principal Executive Officer               
|    |  |          
|    |  | 32.2      |  | Section 906 Certification of Principal Financial and Accounting Officer



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SIGNATURES



In accordance with the requirements of
the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                        |  |                                           
|----------------------- |  | ------------------------------------------
|                        |  | CAPITOL CITY BANCSHARES, INC.             
|                        | 
|Date: November 14, 2005 |  | /s/ George G. Andrews                     
|                        |  | George G. Andrews                         
|                        |  | President and Director                    
|                        |  | (Principal Executive Officer)             
|                        | 
|Date: November 14, 2005 |  | /s/ Kevin M. Sharpe                       
|                        |  | Kevin M. Sharpe                           
|                        |  | Vice President and Principal Financial and
|                        |  | Accounting Officer                        



15