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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 June 30, 2004



| ̈ | 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 incorporation or organization) |  | (I.R.S. Employer 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)



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State the number of shares outstanding of each of the issuers classes of common stock, as of August 1, 2004: 532,088; $6 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 June 30, 2004                                                                       |  | 2   
|                              |  |  |  |                                                                  
|                              |  |  |  |                                                                   |  | Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2004 and 2003 |  | 3   
|                              |  |  |  |                                                                  
|                              |  |  |  |                                                                   |  | Consolidated Statements of Cash Flows For The Six Months Ended June 30, 2004 and 2003                                |  | 4   
|                              |  |  |  |                                                                  
|                              |  |  |  |                                                                   |  | Notes to Consolidated Financial Statements                                                                           |  | 5   
|                              |  |  | 
|                              |  |  |  | Item 2.
Managements Discussion and Analysis or Plan of Operation |  | 8-13                                                                                                                
|                              |  |  | 
|                              |  |  |  | Item 3.
Controls and Procedures                                   |  | 13                                                                                                                  
|                              | 
|Part II. Other Information    |  | 
|                              |  |  | 
|                              |  |  |  | Item 4.
Submission of Matters to a Vote of Security Holders       |  | 14                                                                                                                  
|                              |  |  | 
|                              |  |  |  | Item 6.
Exhibits and Reports on Form 8-K                          |  | 14                                                                                                                  
|                              |  |  | 
|                              |  |  |  | Signatures                                                        |  | 16                                                                                                                  
|                              |  |  | 
|                              |  |  |  | Certifications                                                    |  |                                                                                                                     



1



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##### Table of Contents

PART I - FINANCIAL INFORMATION



ITEM I. FINANCIAL STATEMENTS



CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEET

June 30, 2004

(Unaudited)



|                                                                                               |  |   |            
|---------------------------------------------------------------------------------------------- |  | - | -----------
|Assets                                                                                         |  |   |            
|Cash and due from banks                                                                        |  | $ | 4,499,029  
|Interest-bearing deposits at other financial institutions                                      |  |   | 95,322     
|Federal funds sold                                                                             |  |   | 4,076,000  
|Securities available for sale                                                                  |  |   | 30,675,690 
|Restricted equity securities, at cost                                                          |  |   | 107,800    
|                                                                                               | 
|Loans, net of unearned income                                                                  |  |   | 111,761,816
|Less allowance for loan losses                                                                 |  |   | 1,654,377  
|                                                                                               |  |   |            
|Loans, net                                                                                     |  |   | 110,107,439
|                                                                                               |  |   |            
|Premises and equipment, net                                                                    |  |   | 6,044,404  
|Other real estate                                                                              |  |   | 2,139,768  
|Other assets                                                                                   |  |   | 1,836,521  
|                                                                                               |  |   |            
|Total assets                                                                                   |  | $ | 159,581,973
|                                                                                               |  |   |            
|Liabilities and Stockholders Equity                                                           |  |   |            
|Liabilities:                                                                                   |  |   |            
|Deposits:                                                                                      |  |   |            
|Noninterest-bearing                                                                            |  | $ | 25,440,851 
|Interest-bearing                                                                               |  |   | 113,996,791
|                                                                                               |  |   |            
|Total deposits                                                                                 |  |   | 139,437,642
|Note payable                                                                                   |  |   | 607,000    
|Subordinated debentures                                                                        |  |   | 3,403,000  
|Securities sold under repurchase agreements                                                    |  |   | 4,000,000  
|Other liabilities                                                                              |  |   | 1,165,222  
|                                                                                               |  |   |            
|Total liabilities                                                                              |  |   | 148,612,864
|                                                                                               |  |   |            
|Stockholders equity                                                                           |  |   |            
|Common stock, par value $6; 5,000,000 shares authorized; 532,088 shares issued and outstanding |  |   | 3,192,528  
|Surplus                                                                                        |  |   | 2,128,352  
|Retained earnings                                                                              |  |   | 5,570,359  
|Accumulated other comprehensive income                                                         |  |   | 77,870     
|                                                                                               |  |   |            
|Total stockholders equity                                                                     |  |   | 10,969,109 
|                                                                                               |  |   |            
|Total liabilities and stockholders equity                                                     |  | $ | 159,581,973
|                                                                                               |  |   |            



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 INCOME AND COMPREHENSIVE INCOME

THREE AND SIX MONTHS ENDED JUNE 30,
2004 AND 2003

(Unaudited)



|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|-------------------------------------------------------------------------------------------- |  | --------------------------- | --------- | ------------------------- | ---- | - | --------- |  | - | --------- | - |  | - | ---------
|                                                                                             |  | Three Months Ended June 30, |           | Six Months Ended June 30,
|                                                                                             |  | 2004                        |           |                           | 2003 |   | 2004      |  |   | 2003     
|Interest income:                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Loans, including fees                                                                        |  | $                           | 2,113,663 |                           |      | $ | 1,565,712 |  | $ | 4,024,879 |   |  | $ | 2,994,399
|Securities:                                                                                  |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Taxable                                                                                      |  |                             | 157,082   |                           |      |   | 153,785   |  |   | 319,547   |   |  |   | 344,612  
|Nontaxable                                                                                   |  |                             | 138,199   |                           |      |   | 131,804   |  |   | 272,476   |   |  |   | 265,785  
|Federal funds sold                                                                           |  |                             | 5,282     |                           |      |   | 7,398     |  |   | 9,611     |   |  |   | 16,082   
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Total interest income                                                                        |  |                             | 2,414,226 |                           |      |   | 1,858,699 |  |   | 4,626,513 |   |  |   | 3,620,878
|                                                                                             |  |                             |           |                          
|Interest expense:                                                                            |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Deposits                                                                                     |  |                             | 691,784   |                           |      |   | 560,215   |  |   | 1,316,717 |   |  |   | 1,121,431
|Other borrowings                                                                             |  |                             | 43,401    |                           |      |   | 59,006    |  |   | 93,239    |   |  |   | 64,682   
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Total interest expense                                                                       |  |                             | 735,185   |                           |      |   | 619,221   |  |   | 1,409,956 |   |  |   | 1,186,113
|                                                                                             |  |                             |           |                          
|Net interest income                                                                          |  |                             | 1,679,041 |                           |      |   | 1,239,478 |  |   | 3,216,557 |   |  |   | 2,434,765
|Provision for loan losses                                                                    |  |                             |          |                           |      |   | 56,000    |  |   |          |   |  |   | 211,000  
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Net interest income after provision for loan losses                                          |  |                             | 1,679,041 |                           |      |   | 1,183,478 |  |   | 3,216,557 |   |  |   | 2,223,765
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Other income:                                                                                |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Service charges on deposit accounts                                                          |  |                             | 563,555   |                           |      |   | 522,867   |  |   | 1,080,446 |   |  |   | 993,212  
|Other fees and commissions                                                                   |  |                             | 10,878    |                           |      |   | 4,061     |  |   | 11,586    |   |  |   | 15,136   
|Mortgage origination income                                                                  |  |                             | 22,473    |                           |      |   | 10,366    |  |   | 37,997    |   |  |   | 25,598   
|Other operating income                                                                       |  |                             | 54,668    |                           |      |   | 60,328    |  |   | 105,975   |   |  |   | 107,500  
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Total other income                                                                           |  |                             | 651,574   |                           |      |   | 597,622   |  |   | 1,236,004 |   |  |   | 1,141,446
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Other expenses:                                                                              |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Salaries and employee benefits                                                               |  |                             | 686,256   |                           |      |   | 591,514   |  |   | 1,356,768 |   |  |   | 1,181,746
|Occupancy and equipment expenses, net                                                        |  |                             | 181,698   |                           |      |   | 158,573   |  |   | 387,880   |   |  |   | 332,553  
|Other operating expenses                                                                     |  |                             | 683,139   |                           |      |   | 541,783   |  |   | 1,335,824 |   |  |   | 1,021,894
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Total other expenses                                                                         |  |                             | 1,551,093 |                           |      |   | 1,291,870 |  |   | 3,080,472 |   |  |   | 2,536,193
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Income before income taxes                                                                   |  |                             | 779,522   |                           |      |   | 489,230   |  |   | 1,372,089 |   |  |   | 829,018  
|                                                                                             |  |                             |           |                          
|Income tax expense                                                                           |  |                             | 235,699   |                           |      |   | 96,722    |  |   | 396,601   |   |  |   | 205,902  
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Net income                                                                                   |  | $                           | 543,823   |                           |      | $ | 392,508   |  | $ | 975,488   |   |  | $ | 623,116  
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Other comprehensive income (loss)                                                            |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Unrealized gains (losses) on securities available for sale arising during period, net of tax |  |                             | (584,821  | )                         |      |   | 132,299   |  |   | (408,672  | ) |  |   | 105,303  
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Comprehensive income (loss)                                                                  |  |                             | (40,998   | )                         |      |   | 524,807   |  |   | 566,816   |   |  |   | 728,419  
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Basic earnings per common share                                                              |  | $                           | 1.02      |                           |      | $ | 0.74      |  | $ | 1.83      |   |  | $ | 1.17     
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Diluted earnings per common share                                                            |  | $                           | 0.96      |                           |      | $ | 0.70      |  | $ | 1.72      |   |  | $ | 1.11     
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          
|Cash dividends declared per share of common stock                                            |  | $                           |          |                           |      | $ |          |  | $ | 0.20      |   |  | $ | 0.15     
|                                                                                             |  |                             |           |                           |      |   |           |  |   |           |   |  |   |          



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

SIX MONTHS ENDED JUNE 30, 2004 AND 2003

(Unaudited)



|                                                                                  |  |      |             |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                  |  | 2004 |             |   | 2003 |  
|OPERATING ACTIVITIES                                                              |  |      |             |   |      |   |             |  
|Net income                                                                        |  | $    | 975,488     |   |      | $ | 623,116     |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |             |   |      |   |             |  
|Depreciation                                                                      |  |      | 210,427     |   |      |   | 156,819     |  
|Provision for loan losses                                                         |  |      |            |   |      |   | 211,000     |  
|Loss on sale of equipment                                                         |  |      |            |   |      |   | 3,081       |  
|Net other operating activities                                                    |  |      | 2,318       |   |      |   | (134,987    | )
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash provided by operating activities                                         |  |      | 1,188,233   |   |      |   | 859,029     |  
|                                                                                  |  |      |             |   |      |   |             |  
|INVESTING ACTIVITIES                                                              |  |      |             |   |      |   |             |  
|Purchases of securities available for sale                                        |  |      | (3,477,266  | ) |      |   | (4,537,363  | )
|Proceeds from maturities of securities available for sale                         |  |      | 4,741,891   |   |      |   | 7,877,629   |  
|Net increase in interest-bearing deposits                                         |  |      | (12,329     | ) |      |   | (2,627      | )
|Net increase in federal funds sold                                                |  |      | (2,214,000  | ) |      |   | (444,000    | )
|(Purchase) redemption of restricted equity securities                             |  |      | 10,000      |   |      |   | (300        | )
|Net increase in loans                                                             |  |      | (20,563,166 | ) |      |   | (13,407,488 | )
|Proceeds from sale of other real estate                                           |  |      | 107,008     |   |      |   |            |  
|Purchase of premises and equipment                                                |  |      | (581,624    | ) |      |   | (902,008    | )
|Proceeds from sale of equipment                                                   |  |      |            |   |      |   | 10,000      |  
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash used in investing activities                                             |  |      | (21,989,486 | ) |      |   | (11,406,157 | )
|                                                                                  |  |      |             |   |      |   |             |  
|FINANCING ACTIVITIES                                                              |  |      |             |   |      |   |             |  
|Net increase in deposits                                                          |  |      | 20,822,851  |   |      |   | 9,695,286   |  
|Net increase (decrease) in securities sold under repurchase agreements            |  |      | 791,000     |   |      |   | (388,000    | )
|Proceeds from issuance of subordinated debentures                                 |  |      |            |   |      |   | 3,300,000   |  
|Proceeds from note payable                                                        |  |      | 236,500     |   |      |   | 120,000     |  
|Payment of dividends                                                              |  |      | (106,418    | ) |      |   | (79,813     | )
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash provided by financing activities                                         |  |      | 21,743,933  |   |      |   | 12,647,473  |  
|                                                                                  |  |      |             |   |      |   |             |  
|Net increase in cash and due from banks                                           |  |      | 942,680     |   |      |   | 2,100,345   |  
|                                                                                  |  |     
|Cash and due from banks, beginning of period                                      |  |      | 3,556,349   |   |      |   | 3,195,237   |  
|                                                                                  |  |      |             |   |      |   |             |  
|Cash and due from banks, end of period                                            |  | $    | 4,499,029   |   |      | $ | 5,295,582   |  
|                                                                                  |  |      |             |   |      |   |             |  



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.



The results of operations for the three and six month periods ended June 30, 2004 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 six months ended June 30, 2004 and 2003.



|                                                                                                                                 |  |                            |         |                           |   |         |  |      |         |  |   |        
|-------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | ------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                                                                                                                                 |  | Three Months EndedJune 30, |         | Six Months Ended June 30,
|                                                                                                                                 |  | 2004                       |         | 2003                      |   | 2004    |  | 2003
|Net income                                                                                                                       |  | $                          | 543,823 |                           | $ | 392,508 |  | $    | 975,488 |  | $ | 623,116
|                                                                                                                                 |  |                            |         |                           |   |         |  |      |         |  |   |        
|Weighted average common shares outstanding                                                                                       |  |                            | 532,088 |                           |   | 532,088 |  |      | 532,088 |  |   | 532,088
|Net effect of the assumed exercise of stock options based on the treasury stock method using average market price for the
period |  |                            | 35,867  |                           |   | 31,342  |  |      | 35,914  |  |   | 31,344 
|                                                                                                                                 |  |                            |         |                           |   |         |  |      |         |  |   |        
|Total weighted average common shares and common stock equivalents outstanding                                                    |  |                            | 567,955 |                           |   | 563,430 |  |      | 568,002 |  |   | 563,432
|                                                                                                                                 |  |                            |         |                           |   |         |  |      |         |  |   |        
|Diluted earnings per common share                                                                                                |  | $                          | 0.96    |                           | $ | 0.70    |  | $    | 1.72    |  | $ | 1.11   
|                                                                                                                                 |  |                            |         |                           |   |         |  |      |         |  |   |        



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



NOTE 3. STOCK COMPENSATION PLAN



At June 30, 2004, 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 EndedJune 30,
|                                                                                                                                            |  | 2004                       |         | 2003
|Net income, as reported                                                                                                                     |  | $                          | 543,823 |      | $ | 392,508
|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                                                                                                                        |  | $                          | 543,823 |      | $ | 392,508
|                                                                                                                                            |  |                            |         |      |   |        
|Earnings per share:                                                                                                                         |  |                            |         |      |   |        
|Basic - as reported                                                                                                                         |  | $                          | 1.02    |      | $ | .74    
|                                                                                                                                            |  |                            |         |      |   |        
|Basic - pro forma                                                                                                                           |  | $                          | 1.02    |      | $ | .74    
|                                                                                                                                            |  |                            |         |      |   |        
|Diluted - as reported                                                                                                                       |  | $                          | .96     |      | $ | .70    
|                                                                                                                                            |  |                            |         |      |   |        
|Diluted - pro forma                                                                                                                         |  | $                          | .96     |      | $ | .70    
|                                                                                                                                            |  |                            |         |      |   |        



|                                                                                                                                            |  |                           |         |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------- | ---- | - | -------
|                                                                                                                                            |  | Six Months Ended June 30,
|                                                                                                                                            |  | 2004                      |         | 2003
|Net income, as reported                                                                                                                     |  | $                         | 975,488 |      | $ | 623,116
|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                                                                                                                        |  | $                         | 975,488 |      | $ | 623,116
|                                                                                                                                            |  |                           |         |      |   |        
|Earnings per share:                                                                                                                         |  |                           |         |      |   |        
|Basic - as reported                                                                                                                         |  | $                         | 1.83    |      | $ | 1.17   
|                                                                                                                                            |  |                           |         |      |   |        
|Basic - pro forma                                                                                                                           |  | $                         | 1.83    |      | $ | 1.17   
|                                                                                                                                            |  |                           |         |      |   |        
|Diluted - as reported                                                                                                                       |  | $                         | 1.72    |      | $ | 1.11   
|                                                                                                                                            |  |                           |         |      |   |        
|Diluted - pro forma                                                                                                                         |  | $                         | 1.72    |      | $ | 1.11   
|                                                                                                                                            |  |                           |         |      |   |        



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As of June 30, 2004 and 2003, all outstanding options were fully vested and there were no options granted
during the six month periods ended June 30, 2004 and 2003. Therefore, there was no pro forma effect on net income for the six months ended June 30, 2004 and 2003.



NOTE 4. RECENT DEVELOPMENTS



During the first quarter of 2004, the Company adopted FASB Interpretation No. 46R (Revised December 2003),
Consolidation of Variable Interest Entities. This interpretation addresses consolidation by business entities of variable interest entities and when such entities are subject to consolidation under the provisions of this Interpretation.
The Company has determined that the revised provisions required deconsolidation of the subsidiary trust which issued the trust preferred securities. The Interpretation did not have a material effect on the Companys financial condition or
results of operations.



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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



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.



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 or 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.



FINANCIAL CONDITION



Total assets increased $22.5 million from $137.0 million to $159.5 million, or 16.44% for the six months ended June 30, 2004. The growth was funded primarily by an increase in total deposits which increased by $20.8
million, or 17.56%. The increase in total assets for the six months ended June 30, 2004 consisted primarily of an increase of $18.3 million in total loans, an increase of $943,000 in cash and due from banks, an increase in federal funds sold of $2.2
million, offset by a decrease in securities available for sale of $1.9 million. The loan to deposit ratio at June 30, 2004 was 80% compared to 79% at December 31, 2003. During the second quarter of 2004, the Company acquired other real estate owned
totaling $2.1 million through foreclosure. These assets were subsequently sold, recognizing an insignificant gain on the sale.



Stockholders equity increased by $460,000 for the six months ended June 30, 2004. This net increase consists of net income of $975,000 less dividends declared and
paid of $106,000 offset by a decrease in unrealized gains on securities available for sale of $409,000.



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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 and deposit growth are such that adequate funds are provided to meet estimated customer withdrawals and loan
requests.



At June 30, 2004, the Banks liquidity ratio of 29.28% 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 June 30, 2004, the Banks capital ratios were considered well capitalized based on regulatory minimum capital requirements. The minimum capital
requirements and the actual capital ratios for the Bank at June 30, 2004 are as follows:



|                          |  |       |   |  |                              |  
|------------------------- |  | ----- | - |  | ---------------------------- | -
|Company                   |  | Bank  |   |  | RegulatoryMinimumRequirement |  
|Leverage Capital Ratio    |  | 9.56  | % |  | 4.00                         | %
|Risk-Based Capital Ratios |  |       |   |  |                              |  
|Core Capital              |  | 9.74  | % |  | 4.00                         | %
|Total Capital             |  | 10.85 | % |  | 8.00                         | %



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 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 June 30, 2004 and December 31, 2003 are as follows;



|                                    |  |               |            |                  |   |           
|----------------------------------- |  | ------------- | ---------- | ---------------- | - | ----------
|                                    |  | June 30, 2004 |            | December 31,2003
|Commitments to extend credit        |  | $             | 13,512,000 |                  | $ | 10,915,000
|Financial standby letters of credit |  |               | 3,236,000  |                  |   | 162,000   
|                                    |  |               |            |                  |   |           
|                                    |  | $             | 16,748,000 |                  | $ | 11,077,000
|                                    |  |               |            |                  |   |           



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RESULTS OF OPERATIONS



Three and Six Months Ended June 30, 2004 and 2003



Net Interest Income. Net interest income increased by $440,000 and $782,000 for the three and six month periods ended June 30, 2004, respectively, compared to the
same period in 2003. The increase in net interest income for both periods ended June 30, 2004 is attributable to an increase in earning assets of $34.2 million as compared to June 30, 2003 combined with the spread maintained between rates earned on
interest earning assets and rates paid on interest bearing liabilities. Loans increased during this period by $33.0 million, which provide greater yields to the Company. During this same period, total deposits increased by $32.1 million, which
included an increase of $30.6 million in interest-bearing deposits and an increase of $1.5 million in non-interest bearing deposits.



The net interest margin increased to 4.93% at June 30, 2004 as compared to 4.59% at June 30, 2003. The yield on interest-earning assets increased to 7.08% or 25 basis
points from June 30, 2003 to June 30, 2004. The rate paid on interest-bearing liabilities decreased to 2.59% or 24 basis points for the same period. The decrease in the rate paid on interest-bearing liabilities reflects the continued adjustment of
rates paid on time deposits over the past year.



Provision for Loan
Losses. The 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 $211,000 was made during the six month period ending June 30, 2003. No provision was made during the six month
period ending June 30, 2004 based on managements evaluation. The allowance for loan loss as a percentage of total loans was 1.48% and 1.82% at June 30, 2004 and December 31, 2003, respectively. The total of nonaccrual loans as of June 30, 2004
increased by $1.5 million; however, net charge-offs decreased by $264,000 and loans past due ninety days or more and still accruing decreased by $1.0 million as compared to the same period in 2003. At December 31, 2003, nonaccrual loans and past due
loans ninety days or more and still accruing were $2,890,000 and $419,000, respectively. Any anticipated losses related to the majority of these problem loans were identified at December 31, 2003 and there were no significant changes in our
evaluation at June 30, 2004. In addition, total past due loans greater than thirty days have decreased by approximately $5.2 million since December 31, 2003. Management believes the allowance for loan loss at June 30, 2004 is adequate to meet any
future losses in the loan portfolio.



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At June 30, 2004 and 2003, nonaccrual, past due, and restructured loans were as follows:



|                                                                                                         |  |                        |       |              |   |      
|-------------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ------------ | - | -----
|                                                                                                         |  | June 30,2004           |       | June 30,2003
|                                                                                                         |  | (Dollars in thousands)
|Total nonaccruing loans                                                                                  |  | $                      | 2,398 |              | $ | 937  
|Loans contractually past due ninety days or more as to interest or principal payments and still accruing |  |                        | 6     |              |   | 1,016
|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 six months ended June 30, 2004 and 2003 is
as follows:



|                                                                              |  |                          |        |   |      |   |        |  
|----------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                                              |  | Six Months EndedJune 30, |       
|                                                                              |  | 2004                     |        |   | 2003 |  
|                                                                              |  | (Dollars in thousands)   |       
|Average amount of loans outstanding                                           |  | $                        | 97,832 |   |      | $ | 71,294 |  
|                                                                              |  |                          |        |   |      |   |        |  
|Balance of allowance for loan losses at beginning of period                   |  | $                        | 1,701  |   |      | $ | 1,059  |  
|                                                                              |  |                          |        |   |      |   |        |  
|Loans charged off                                                             |  |                          |        |   |      |   |        |  
|Commercial                                                                    |  |                          |       |   |      |   | (164   | )
|Real estate                                                                   |  |                          | (12    | ) |      |   | (104   | )
|Installment                                                                   |  |                          | (74    | ) |      |   | (120   | )
|                                                                              |  |                          |        |   |      |   |        |  
|                                                                              |  |                          | (86    | ) |      |   | (388   | )
|                                                                              |  |                          |        |   |      |   |        |  
|Loans recovered                                                               |  |                          |        |   |      |   |        |  
|Commercial                                                                    |  |                          | 2      |   |      |   | 3      |  
|Real estate                                                                   |  |                          | 15     |   |      |   | 39     |  
|Installment                                                                   |  |                          | 22     |   |      |   | 35     |  
|                                                                              |  |                          |        |   |      |   |        |  
|                                                                              |  |                          | 39     |   |      |   | 77     |  
|                                                                              |  |                          |        |   |      |   |        |  
|Net charge-offs                                                               |  |                          | (47    | ) |      |   | (311   | )
|                                                                              |  |                          |        |   |      |   |        |  
|Additions to allowance charged to operating expense during period             |  |                          |       |   |      |   | 211    |  
|                                                                              |  |                          |        |   |      |   |        |  
|Balance of allowance for loan losses at end of period                         |  |                          | 1,654  |   |      |   | 959    |  
|                                                                              |  |                          |        |   |      |   |        |  
|Ratio of net loans charged-off during the period to average loans outstanding |  |                          | .05    | % |      |   | .44    | %
|                                                                              |  |                          |        |   |      |   |        |  



Other Income. Other income
increased by $54,000 and $95,000 for the three and six months ended June 30, 2004, respectively, compared to the same periods in 2003. The most significant difference which affected both periods was increases of $41,000 and $87,000 in service
charges on deposit accounts for the three and six months period ended June 30, 2004, respectively, compared to the same periods in 2003. Service charges on deposit accounts include monthly service charges and non-sufficient funds (NSF)
charges which account for the majority of the service charges on deposit accounts. The amount of service charges fluctuate with the volume of transaction accounts and the volume of NSF activity.



Other Expenses. Other expenses increased by $259,000 and $544,000 for the three and
six months ended June 30, 2004, respectively, as compared to the same periods in 2003. The increases in 2004 consist of increases of $95,000 and $175,000 in salaries and employee benefits, $23,000 and $55,000 in occupancy and equipment expenses, and
$141,000 and $314,000 in operating expenses for the three and six months ended June 30, 2004, respectively, as compared to the same periods in 2003. The increase in salaries and employee benefits for both the three and six month periods represent
normal increases in



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salaries and an increase in the number of employees. At June 30, 2004, the number of full-time equivalent employees was
64 compared to 60 at June 30, 2003. The increase in occupancy and equipment expenses reflect the cost of maintaining and updating the banks computer system, maintenance of premises and equipment and increased depreciation expense associated
with the banks new branches in Albany and Savannah, Georgia. The increase in other operating expenses is not directly attributable to any one item, but represents increases in general expenses related to the continued growth of the Bank.



The mortgage company was formed in 2002 and currently originates loans which
are table funded through independent investors. The net loss for the three and six months ended June 30, 2004 was $33,000 and $15,000, respectively, as compared to a loss of $40,000 and $25,000 for the three and six months ended June 30, 2003,
respectively.



Income Taxes. Income tax expense increased by $139,000
and $191,000 for the three and six months ended June 30, 2004 as compared to 2003. The effective tax rate for 2004 and 2003 was 29% and 25%, 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 $151,000 and
$352,000 for the three and six months ended June 30, 2004, respectively, as compared to the same period in 2003. The primary reason for the increase in net income for the three and six months ended June 30, 2004 as compared to the same period in
2003 is attributable to the increase in net interest income and reduced provisions for loan losses.



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 Chief Financial 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 for gathering, analyzing and disclosing the information that we are required to
disclose in the reports we file under the Securities Exchange Act of 1934, within the time periods specified in the SECs rules and forms. Our Chief Executive Officer and the Chief Financial Officer also concluded that our disclosure controls
and procedures are effective in timely alerting them to material information relating to our company required to be included in our periodic SEC filings. In connection with the new rules, we are in the process of further reviewing and documenting
our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes designed to enhance their effectiveness and to ensure that our systems evolve with our business.



There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date of this evaluation.



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##### Table of Contents

PART II - Other Information



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



The annual meeting of the stockholders of Capitol City Bancshares, Inc. was held on June 22, 2004. A total of 314,491 of the shares issued and outstanding registered for the meeting either in person or by proxy. The
results of the meeting were as follows:



Proposal 1: To elect
the sixteen nominees to serve as directors for the following year.



|                          |  |         |  |         |  |        
|------------------------- |  | ------- |  | ------- |  | -------
|Directors                 |  | For     |  | Against |  | Abstain
|George D. Andrews         |  | 314,491 |  | 50      |  | 0      
|Dr. Gloria Campbell DHue |  | 314,491 |  | 50      |  | 0      
|J. Al Cochran             |  | 314,491 |  | 50      |  | 0      
|Leon Goodrum              |  | 314,491 |  | 50      |  | 0      
|Agnes H. Harper           |  | 314,491 |  | 50      |  | 0      
|Charles W. Harrison       |  | 314,491 |  | 50      |  | 0      
|Robert A. Holmes          |  | 314,491 |  | 50      |  | 0      
|Moses M. Jones            |  | 314,491 |  | 50      |  | 0      
|Marian S. Jordan          |  | 314,491 |  | 50      |  | 0      
|Kaneta R. Lott            |  | 314,491 |  | 50      |  | 0      
|Donald F. Marshall        |  | 314,491 |  | 50      |  | 0      
|George C. Miller, Jr.     |  | 314,491 |  | 50      |  | 0      
|Elvin Mitchell, Sr.       |  | 314,491 |  | 50      |  | 0      
|Roy W. Sweat              |  | 314,491 |  | 50      |  | 0      
|William Thomas            |  | 314,491 |  | 50      |  | 0      
|Cordy T. Vivian           |  | 314,491 |  | 50      |  | 0      



Item 6. Exhibits and Reports on Form 8-K.



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



|     |  |                                                         
|---- |  | --------------------------------------------------------
|31.1 |  | Section 302 Certification of Principal Executive Officer
|     | 
|31.2 |  | Section 302 Certification of Principal Financial Officer
|     | 
|32.1 |  | Section 906 Certification of Principal Executive Officer
|     | 
|32.2 |  | Section 906 Certification of Principal Financial Officer



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| | (b) | Reports on Form 8-K.
| | --- | --------------------



Current Report on Form 8-K dated May 25, 2004, reporting under Item 4 announcement of Capitol City Bancshares, Inc.s change in Certifying
Accountant.



Current Report on Form 8-K/A dated June 9, 2004,
reporting under Item 4 announcement of Capitol City Bancshares, Inc.s change in Certifying Accountant.



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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: August 16, 2004 |  | /s/ George G. Andrews                 
|                      |  | George G. Andrews                     
|                      |  | President and Director                
|                      | 
|Date: August 16, 2004 |  | /s/ Kevin M. Sharpe                   
|                      |  | Kevin M. Sharpe                       
|                      |  | Vice President and Principal Financial
|                      |  | and Accounting Officer                



16