##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549





FORM 10-Q







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

For the quarterly period ended March 31, 2009



| ̈ | 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





CAPITOL CITY BANCSHARES, INC.

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







|                                                              |  |                                       
|------------------------------------------------------------- |  | --------------------------------------
|Georgia                                                       |  | 58 - 2452995                          
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification 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 large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):



|                                              |  |   |  |                           |  |  
|--------------------------------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer                       |  |  ̈ |  | Accelerated filer         |  |  ̈
|Non-accelerated filer                         |  |  ̈ |  | Smaller reporting company |  | x
|(Do not check if a smaller reporting company) |  |   |  |                          

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 May 14, 2009; 2,309,553; $1.50 par value









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##### Table of Contents

INDEX



|                                                                                                                         |  |        
|------------------------------------------------------------------------------------------------------------------------ |  | -------
|                                                                                                                         |  | Page   
|                                                                                                                         | 
|Part I. Financial Information                                                                                            |  |        
|                                                                                                                         | 
|Item 1. Financial Statements (unaudited)                                                                                 |  |        
|                                                                                                                         | 
|Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008                                         |  | 2      
|                                                                                                                         | 
|Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 
31, 2009 and 2008 |  | 3      
|                                                                                                                         | 
|Condensed Consolidated Statements of Cash Flows For The Three Months Ended March 31, 2009 and
2008                       |  | 4      
|                                                                                                                         | 
|Notes to Condensed Consolidated Financial Statements                                                                     |  | 5 - 13 
|                                                                                                                         | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                            |  | 14 - 21
|                                                                                                                         | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                       |  | 21     
|                                                                                                                         | 
|Item 4. Controls and Procedures                                                                                          |  | 21     
|                                                                                                                         | 
|Part II. Other Information                                                                                               |  |        
|                                                                                                                         | 
|Item 1. Legal Proceedings                                                                                                |  | 22     
|                                                                                                                         | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                      |  | 22     
|                                                                                                                         | 
|Item 3. Defaults Upon Senior Securities                                                                                  |  | 22     
|                                                                                                                         | 
|Item 4. Submission of Matters to a Vote of Security Holders                                                              |  | 22     
|                                                                                                                         | 
|Item 5. Other Information                                                                                                |  | 22     
|                                                                                                                         | 
|Item 6. Exhibits                                                                                                         |  | 22 - 23
|                                                                                                                         | 
|Signatures                                                                                                               |  | 24     
|                                                                                                                         | 
|Certifications                                                                                                           |  |        



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##### Table of Contents

PART I - FINANCIAL INFORMATION



|ITEM I. | FINANCIAL STATEMENTS
|------- | --------------------

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2009 (unaudited) and December 31, 2008



|                                                                                                                   |  |                           |             |                  |   |            
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------- | ----------- | ---------------- | - | -----------
|                                                                                                                   |  | March 31, 2009(unaudited) |             | December 31,2008
|Assets                                                                                                             |  |                           |             |                  |   |            
|Cash and due from banks                                                                                            |  | $                         | 10,859,119  |                  | $ | 4,150,450  
|Interest-bearing deposits at other financial institutions                                                          |  |                           |            |                  |   | 144,263    
|Securities available for sale                                                                                      |  |                           | 49,546,219  |                  |   | 48,225,611 
|Restricted equity securities, at cost                                                                              |  |                           | 830,000     |                  |   | 647,700    
|                                                                                                                   |  |                          
|Loans, net of unearned income                                                                                      |  |                           | 233,047,304 |                  |   | 233,400,468
|Less allowance for loan losses                                                                                     |  |                           | 4,362,447   |                  |   | 4,368,690  
|                                                                                                                   |  |                           |             |                  |   |            
|Loans, net                                                                                                         |  |                           | 228,684,857 |                  |   | 229,031,778
|                                                                                                                   |  |                           |             |                  |   |            
|                                                                                                                   |  |                          
|Premises and equipment, net                                                                                        |  |                           | 10,287,452  |                  |   | 10,412,721 
|Foreclosed real estate                                                                                             |  |                           | 4,750,892   |                  |   | 2,220,082  
|Other assets                                                                                                       |  |                           | 6,275,109   |                  |   | 5,836,667  
|                                                                                                                   |  |                           |             |                  |   |            
|                                                                                                                   |  |                          
|Total assets                                                                                                       |  | $                         | 311,233,648 |                  | $ | 300,669,272
|                                                                                                                   |  |                           |             |                  |   |            
|                                                                                                                   |  |                          
|Liabilities and Stockholders Equity                                                                               |  |                           |             |                  |   |            
|                                                                                                                   |  |                          
|Liabilities:                                                                                                       |  |                           |             |                  |   |            
|Deposits:                                                                                                          |  |                           |             |                  |   |            
|Noninterest-bearing                                                                                                |  | $                         | 28,957,961  |                  | $ | 31,998,612 
|Interest-bearing                                                                                                   |  |                           | 251,456,077 |                  |   | 237,926,429
|                                                                                                                   |  |                           |             |                  |   |            
|Total deposits                                                                                                     |  |                           | 280,414,038 |                  |   | 269,925,041
|Federal funds purchased                                                                                            |  |                           |            |                  |   | 1,775,000  
|Note payable                                                                                                       |  |                           | 367,000     |                  |   | 367,000    
|Federal Home Loan Bank advances                                                                                    |  |                           | 6,000,000   |                  |   | 2,000,000  
|Securities sold under repurchase agreements                                                                        |  |                           |            |                  |   | 2,500,000  
|Company guaranteed trust preferred securities                                                                      |  |                           | 3,403,000   |                  |   | 3,403,000  
|Other liabilities                                                                                                  |  |                           | 2,395,434   |                  |   | 2,062,903  
|                                                                                                                   |  |                           |             |                  |   |            
|Total liabilities                                                                                                  |  |                           | 292,579,472 |                  |   | 282,032,944
|                                                                                                                   |  |                           |             |                  |   |            
|                                                                                                                   |  |                          
|Stockholders equity:                                                                                              |  |                           |             |                  |   |            
|Series A cumulative, non voting preferred stock, par value $100, 10,000 shares authorized, issued and outstanding  |  |                           | 1,000,000   |                  |   | 1,000,000  
|Common stock, par value $1.50; 20,000,000 shares authorized; 2,309,553 and 2,307,853 shares issued and outstanding |  |                           | 3,464,330   |                  |   | 3,461,780  
|Surplus                                                                                                            |  |                           | 3,181,141   |                  |   | 3,166,691  
|Retained earnings                                                                                                  |  |                           | 10,846,100  |                  |   | 10,869,656 
|Accumulated other comprehensive income                                                                             |  |                           | 162,605     |                  |   | 138,201    
|                                                                                                                   |  |                           |             |                  |   |            
|Total stockholders equity                                                                                         |  |                           | 18,654,176  |                  |   | 18,636,328 
|                                                                                                                   |  |                           |             |                  |   |            
|                                                                                                                   |  |                          
|Total liabilities and stockholders equity                                                                         |  | $                         | 311,233,648 |                  | $ | 300,669,272
|                                                                                                                   |  |                           |             |                  |   |            

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



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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2009 AND 2008

(Unaudited)



|                                                                                                                  |  |                              |           |   |      |   |          
|----------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | --------- | - | ---- | - | ---------
|                                                                                                                  |  | Three Months Ended March 31,
|                                                                                                                  |  | 2009                         |           |   | 2008
|Interest income:                                                                                                  |  |                              |           |   |      |   |          
|Loans, including fees                                                                                             |  | $                            | 3,574,983 |   |      | $ | 4,377,763
|Deposits in banks                                                                                                 |  |                              | 44        |   |      |   |         
|Securities:                                                                                                       |  |                              |           |   |      |   |          
|Taxable                                                                                                           |  |                              | 474,860   |   |      |   | 515,360  
|Nontaxable                                                                                                        |  |                              | 40,880    |   |      |   | 65,958   
|Federal funds sold                                                                                                |  |                              | 9         |   |      |   | 20,508   
|                                                                                                                  |  |                              |           |   |      |   |          
|Total interest income                                                                                             |  |                              | 4,090,776 |   |      |   | 4,979,589
|                                                                                                                  |  |                              |           |   |      |   |          
|                                                                                                                  |  |                             
|Interest expense:                                                                                                 |  |                              |           |   |      |   |          
|Deposits                                                                                                          |  |                              | 2,616,609 |   |      |   | 2,594,996
|Other borrowings                                                                                                  |  |                              | 46,604    |   |      |   | 81,025   
|                                                                                                                  |  |                              |           |   |      |   |          
|Total interest expense                                                                                            |  |                              | 2,663,213 |   |      |   | 2,676,021
|                                                                                                                  |  |                              |           |   |      |   |          
|                                                                                                                  |  |                             
|Net interest income                                                                                               |  |                              | 1,427,563 |   |      |   | 2,303,568
|Provision for loan losses                                                                                         |  |                              | 150,000   |   |      |   | 260,000  
|                                                                                                                  |  |                              |           |   |      |   |          
|Net interest income after provision for loan losses                                                               |  |                              | 1,277,563 |   |      |   | 2,043,568
|                                                                                                                  |  |                              |           |   |      |   |          
|                                                                                                                  |  |                             
|Other income:                                                                                                     |  |                              |           |   |      |   |          
|Service charges on deposit accounts                                                                               |  |                              | 391,159   |   |      |   | 431,708  
|Other fees and commissions                                                                                        |  |                              | 17,529    |   |      |   | 18,765   
|Gains on sales of available for sale securities, net                                                              |  |                              | 598,249   |   |      |   | 38,301   
|Other operating income                                                                                            |  |                              | 104,213   |   |      |   | 32,588   
|                                                                                                                  |  |                              |           |   |      |   |          
|Total other income                                                                                                |  |                              | 1,111,150 |   |      |   | 521,362  
|                                                                                                                  |  |                              |           |   |      |   |          
|                                                                                                                  |  |                             
|Other expenses:                                                                                                   |  |                              |           |   |      |   |          
|Salaries and employee benefits                                                                                    |  |                              | 1,037,251 |   |      |   | 1,055,197
|Occupancy and equipment expenses, net                                                                             |  |                              | 322,456   |   |      |   | 282,414  
|Other operating expenses                                                                                          |  |                              | 986,510   |   |      |   | 991,266  
|                                                                                                                  |  |                              |           |   |      |   |          
|Total other expenses                                                                                              |  |                              | 2,346,217 |   |      |   | 2,328,877
|                                                                                                                  |  |                              |           |   |      |   |          
|                                                                                                                  |  |                             
|Income before income taxes                                                                                        |  |                              | 42,496    |   |      |   | 236,053  
|                                                                                                                  |  |                             
|Income tax expense                                                                                                |  |                              | 16,052    |   |      |   | 78,265   
|                                                                                                                  |  |                              |           |   |      |   |          
|                                                                                                                  |  |                             
|Net income                                                                                                        |  |                              | 26,444    |   |      |   | 157,788  
|                                                                                                                  |  |                             
|Preferred stock dividends                                                                                         |  |                              | 50,000    |   |      |   |         
|                                                                                                                  |  |                              |           |   |      |   |          
|                                                                                                                  |  |                             
|Net income (loss) available to common shareholders                                                                |  | $                            | (23,556   | ) |      | $ | 157,788  
|                                                                                                                  |  |                              |           |   |      |   |          
|                                                                                                                  |  |                             
|Other comprehensive income                                                                                        |  |                              |           |   |      |   |          
|Unrealized gains on securities available for sale arising during period, net of tax                               |  |                              | 419,249   |   |      |   | 378,256  
|                                                                                                                  |  |                             
|Reclassification adjustment for realized gains on securities available for sale arising during period, net of tax |  |                              | (394,844  | ) |      |   |         
|                                                                                                                  |  |                              |           |   |      |   |          
|                                                                                                                  |  |                             
|Comprehensive income                                                                                              |  | $                            | 849       |   |      | $ | 536,044  
|                                                                                                                  |  |                              |           |   |      |   |          
|                                                                                                                  |  |                             
|Basic earnings per common share                                                                                   |  | $                            | (0.01     | ) |      | $ | 0.07     
|                                                                                                                  |  |                              |           |   |      |   |          
|                                                                                                                  |  |                             
|Diluted earnings per common share                                                                                 |  | $                            | (0.01     | ) |      | $ | 0.07     
|                                                                                                                  |  |                              |           |   |      |   |          
|                                                                                                                  |  |                             
|Cash dividends declared per share of common stock                                                                 |  | $                            |          |   |      | $ |         
|                                                                                                                  |  |                              |           |   |      |   |          

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



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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2009 AND 2008

(Unaudited)



|                                                                                            |  |                              |             |   |      |   |             |  
|------------------------------------------------------------------------------------------- |  | ---------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                            |  | Three Months Ended March 31, |            
|                                                                                            |  | 2009                         |             |   | 2008 |  
|OPERATING ACTIVITIES                                                                        |  |                              |             |   |      |   |             |  
|Net income                                                                                  |  | $                            | 26,444      |   |      | $ | 157,788     |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                              |             |   |      |   |             |  
|Depreciation                                                                                |  |                              | 154,511     |   |      |   | 136,879     |  
|Provision for loan losses                                                                   |  |                              | 150,000     |   |      |   | 260,000     |  
|Net gain on sale of securities available for sale                                           |  |                              | (598,249    | ) |      |   | (38,301     | )
|Gain on sale of premises and equipment                                                      |  |                              | (13,925     | ) |      |   |            |  
|Net other operating activities                                                              |  |                              | (429,135    | ) |      |   | 6,794       |  
|                                                                                            |  |                              |             |   |      |   |             |  
|                                                                                            |  |                             
|Net cash provided by (used in) operating activities                                         |  |                              | (710,354    | ) |      |   | 523,160     |  
|                                                                                            |  |                              |             |   |      |   |             |  
|                                                                                            |  |                             
|INVESTING ACTIVITIES                                                                        |  |                              |             |   |      |   |             |  
|Purchases of securities available for sale                                                  |  |                              | (31,820,476 | ) |      |   | (17,968,634 | )
|Proceeds from sales of securities available for sale                                        |  |                              | 29,098,403  |   |      |   | 10,150,449  |  
|Proceeds from maturities of securities available for sale                                   |  |                              | 2,036,690   |   |      |   | 9,428,348   |  
|Purchases of restricted equity securities                                                   |  |                              | (182,300    | ) |      |   | (40,800     | )
|Net decrease in interest-bearing deposits                                                   |  |                              | 144,263     |   |      |   | 34,294      |  
|Net increase in federal funds sold                                                          |  |                              |            |   |      |   | (224,000    | )
|Net decrease in loans                                                                       |  |                              | (2,023,237  | ) |      |   | (14,990,894 | )
|Purchase of premises and equipment                                                          |  |                              | (32,367     | ) |      |   | (118,604    | )
|Proceeds from sale of premises and equipment                                                |  |                              | 17,050      |   |      |   |            |  
|                                                                                            |  |                              |             |   |      |   |             |  
|                                                                                            |  |                             
|Net cash used in investing activities                                                       |  |                              | (2,761,974  | ) |      |   | (13,729,841 | )
|                                                                                            |  |                              |             |   |      |   |             |  
|                                                                                            |  |                             
|FINANCING ACTIVITIES                                                                        |  |                              |             |   |      |   |             |  
|Net increase in deposits                                                                    |  |                              | 10,488,997  |   |      |   | 14,767,474  |  
|Net decrease in securities sold under repurchase agreements                                 |  |                              | (2,500,000  | ) |      |   | (1,000,000  | )
|Net increase in Federal Home Loan Bank advances                                             |  |                              | 4,000,000   |   |      |   |            |  
|Net decrease in federal funds purchased                                                     |  |                              | (1,775,000  | ) |      |   |            |  
|Dividends paid on preferred stock                                                           |  |                              | (50,000     | ) |      |   |            |  
|Proceeds from issuance of common stock                                                      |  |                              | 17,000      |   |      |   | 3,530       |  
|                                                                                            |  |                              |             |   |      |   |             |  
|                                                                                            |  |                             
|Net cash provided by financing activities                                                   |  |                              | 10,180,997  |   |      |   | 13,771,004  |  
|                                                                                            |  |                              |             |   |      |   |             |  
|                                                                                            |  |                             
|Net increase in cash and due from banks                                                     |  |                              | 6,708,669   |   |      |   | 564,323     |  
|                                                                                            |  |                             
|Cash and due from banks, beginning of period                                                |  |                              | 4,150,450   |   |      |   | 5,557,711   |  
|                                                                                            |  |                              |             |   |      |   |             |  
|                                                                                            |  |                             
|Cash and due from banks, end of period                                                      |  | $                            | 10,859,119  |   |      | $ | 6,122,034   |  
|                                                                                            |  |                              |             |   |      |   |             |  
|                                                                                            |  |                             
|SUPPLEMENTAL DISCLOSURES                                                                    |  |                              |             |   |      |   |             |  
|Cash paid for:                                                                              |  |                              |             |   |      |   |             |  
|Interest                                                                                    |  | $                            | 2,660,079   |   |      | $ | 2,712,654   |  
|Income taxes                                                                                |  | $                            |            |   |      | $ |            |  
|                                                                                            |  |                             
|NONCASH TRANSACTIONS                                                                        |  |                              |             |   |      |   |             |  
|Principal balances of loans transferred to foreclosed real estate                           |  | $                            | 3,014,108   |   |      | $ | 1,582,183   |  
|Financed sales of foreclosed real estate                                                    |  | $                            | 483,298     |   |      | $ |            |  
|Change in unrealized gains on securities available for sale, net of tax                     |  | $                            | 24,404      |   |      | $ | 378,256     |  

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



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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



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

The condensed 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 presented. 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-K for the year ended December 31, 2008.

The results of operations for the three month period ended March 31, 2009 are not necessarily indicative of the results to be expected for the full
year.

Certain amounts reported for the periods ended December 31, 2008 and March 31, 2009 have been reclassified to conform with
the presentation as of March 31, 2009. These reclassification had no effect on previously reported net income or stockholders equity.



|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 months ended March 31, 2009 and 2008.



|                                                                                                                                     |  |                             |           |      |   |          
|------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | --------- | ---- | - | ---------
|                                                                                                                                     |  | Three Months EndedMarch 31,
|                                                                                                                                     |  | 2009                        |           | 2008
|Net income                                                                                                                           |  | $                           | 26,444    |      | $ | 157,788  
|                                                                                                                                     |  |                             |           |      |   |          
|                                                                                                                                     |  |                            
|Weighted average common shares outstanding                                                                                           |  |                             | 2,308,849 |      |   | 2,191,875
|Net effect of the assumed exercise of stock options based on the treasury stock method using the average market price for the
period |  |                             | 215,684   |      |   | 215,684  
|                                                                                                                                     |  |                             |           |      |   |          
|                                                                                                                                     |  |                            
|Total weighted average common shares and common stock equivalents outstanding                                                        |  |                             | 2,524,532 |      |   | 2,407,559
|                                                                                                                                     |  |                             |           |      |   |          



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 3. | STOCK BASED COMPENSATION
|------- | ------------------------

The Company has a stock option
plan in which the Company can grant to directors, emeritus directors, and employees options for an aggregate of 638,400 shares of the Companys stock. For incentive stock options, the option price shall be not less than the fair market value of
such shares on the date the option is granted. If the optionee owns shares of the Company representing more than 10% of the total combined voting power, then the price shall not be less than 110% of the fair market value of such shares on the date
the option is granted. With respect to nonqualified stock options, the option price shall be set at the Boards sole and absolute discretion. The option period for all grants will not exceed ten years from the date of grant.

At December 31, 2008, all outstanding options were fully vested and there were no options granted during the three months ended March 31, 2009
and 2008. Therefore, there was no compensation cost related to share-based payments for the three months ended March 31, 2009 and 2008.

The following table represents stock option activity for the three months ended March 31, 2009:



|                                        |  |                                  |  |                              |      |                                      |          
|--------------------------------------- |  | -------------------------------- |  | ---------------------------- | ---- | ------------------------------------ | ---------
|                                        |  | Three Months EndedMarch 31, 2009
|                                        |  | Numberof Shares                  |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractLife
|Options outstanding beginning of period |  | 398,000                          |  | $                            | 2.68 |                                      |          
|Options granted                         |  |                                 |  |                              |     |                                      |          
|Options exercised                       |  |                                 |  |                              |     |                                      |          
|                                        |  |                                  |  |                              |      |                                      |          
|Options outstanding end of period       |  | 398,000                          |  |                              | 2.68 |                                      | 0.8 years
|                                        |  |                                  |  |                              |      |                                      |          
|Outstanding exercisable end of period   |  | 398,000                          |  |                              | 2.68 |                                      | 0.8 years
|                                        |  |                                  |  |                              |      |                                      |          

The range of option prices for options outstanding and exercisable at March 31, 2009 was
$2.50 to $3.75.

Shares available for future stock options grants to employees and directors under existing plans were 158,400 at
March 31, 2009. At March 31, 2009, the aggregate intrinsic value of options outstanding and exercisable was $3.1 million.



6



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|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 effect on the Companys consolidated financial statements.



|NOTE 5. | FAIR VALUE MEASUREMENTS
|------- | -----------------------

On January 1, 2008, the
Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS NO. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value
measurements. SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported
balances.

SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair
value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS No. 157 establishes
a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the
reporting entitys own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices),
such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entitys own assumptions, as
there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire
fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety
requires judgment, and considers factors specific to the asset or liability.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 5. | FAIR VALUE MEASUREMENTS (Continued)
|------- | -----------------------------------



The table below presents the Companys assets and liabilities measured at fair value on a
recurring basis as of March 31, 2009 and December 31, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall.



|                                         |  |                                                             |   |                                             |   |                                         |  |       |   |  |   |           
|---------------------------------------- |  | ----------------------------------------------------------- | - | ------------------------------------------- | - | --------------------------------------- |  | ----- | - |  | - | ----------
|                                         |  | Quoted Prices in ActiveMarkets for IdenticalAssets(Level 1) |   | Significant OtherObservable Inputs(Level 2) |   | SignificantUnobservable Inputs(Level 3) |  | Total
|Assets as of March 31, 2009              |  |                                                             |   |                                             |   |                                         |  |       |   |  |   |           
|Investment securities available for sale |  | $                                                           |  |                                             | $ | 49,546,219                              |  | $     |  |  | $ | 49,546,219
|                                         |  |                                                             |   |                                             |   |                                         |  |       |   |  |   |           
|                                         |  |                                                             |   |                                            
|Total assets at fair value               |  | $                                                           |  |                                             | $ | 49,546,219                              |  | $     |  |  | $ | 49,546,219
|                                         |  |                                                             |   |                                             |   |                                         |  |       |   |  |   |           
|                                         |  |                                                             |   |                                            
|Assets as of December 31, 2008           |  |                                                             |   |                                             |   |                                         |  |       |   |  |   |           
|Investment securities available for sale |  | $                                                           |  |                                             | $ | 48,225,611                              |  | $     |  |  | $ | 48,225,611
|                                         |  |                                                             |   |                                             |   |                                         |  |       |   |  |   |           
|                                         |  |                                                             |   |                                            
|Total assets at fair value               |  | $                                                           |  |                                             | $ | 48,225,611                              |  | $     |  |  | $ | 48,225,611
|                                         |  |                                                             |   |                                             |   |                                         |  |       |   |  |   |           

Securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs.
For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve,
live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bonds terms and conditions, among other things. The investments in the Companys portfolio are generally not quoted on an exchange
but are actively traded in the secondary institutional markets.

The following table presents the assets that are measured at fair value on a
non-recurring basis by level within the fair value hierarchy as reported on the consolidated statements of financial position at March 31, 2009 and December 31, 2008 (dollars in thousands).



|                       |  |                                                               |   |                                           |   |                                      |  |       |            |  |   |           
|---------------------- |  | ------------------------------------------------------------- | - | ----------------------------------------- | - | ------------------------------------ |  | ----- | ---------- |  | - | ----------
|                       |  | Quoted Prices inActive Markets forIdentical SecuritiesLevel 1 |   | Significant OtherObservable InputsLevel 2 |   | SignificantUnobservableInputsLevel 3 |  | Total
|As of March 31, 2009   |  |                                                               |   |                                           |   |                                      |  |       |            |  |   |           
|Impaired loans         |  | $                                                             |  |                                           | $ |                                     |  | $     | 15,463,745 |  | $ | 15,463,745
|Foreclosed real estate |  |                                                               |  |                                           |   |                                     |  |       | 4,750,892  |  |   | 4,750,892 



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 5. | FAIR VALUE MEASUREMENTS (Continued)
|------- | -----------------------------------



|                        |  |                                                               |   |                                           |   |                                      |  |       |            |  |   |           
|----------------------- |  | ------------------------------------------------------------- | - | ----------------------------------------- | - | ------------------------------------ |  | ----- | ---------- |  | - | ----------
|                        |  | Quoted Prices inActive Markets forIdentical SecuritiesLevel 1 |   | Significant OtherObservable InputsLevel 2 |   | SignificantUnobservableInputsLevel 3 |  | Total
|As of December 31, 2008 |  |                                                               |   |                                           |   |                                      |  |       |            |  |   |           
|Impaired loans          |  | $                                                             |  |                                           | $ |                                     |  | $     | 14,009,102 |  | $ | 14,009,102
|Foreclosed real estate  |  |                                                               |  |                                           |   |                                     |  |       | 2,220,082  |  |   | 2,220,082 

Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the
lower of cost or fair value. Fair value is measured based on the value of the collateral securing these loans and is classified at a Level 3 in the fair value hierarchy. Collateral may include real estate, or business assets including equipment,
inventory and accounts receivable. The value of real estate collateral is determined based on an appraisal by qualified licensed appraisers hired by the Company. The value of business equipment is based on an appraisal by qualified licensed
appraisers hired by the Company if significant, or the equipments net book value on the business financial statements. Inventory and accounts receivable collateral are valued based on independent field examiner review or aging reports.
Appraised and reported values may be discounted based on managements historical knowledge, changes in market conditions from the time of the valuation, and managements expertise and knowledge of the client and clients business.
Impaired loans are evaluated on at least a quarterly basis for additional impairment and adjusted accordingly.

Foreclosed real estate is
adjusted to fair value upon transfer of the loans to foreclosed real estate. Subsequently, foreclosed real estate is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices or appraised values of the
collateral. The fair value of the collateral is based on an observable market price or a current appraised value, and therefore the foreclosed asset is recorded as nonrecurring Level 2. When an appraised value is not available or management
determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed real estate as nonrecurring Level 3.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 6. | RECENT ACCOUNTING PRONOUNCEMENTS
|------- | --------------------------------

In October 2008, the
FASB issued FSP FAS 157-3, Determining the Fair Value Asset When the Market for That Asset is Not Active. This FASB Staff Position clarifies the application of SFAS No. 157, Fair Value Measurements, in a market that is not active and provides
an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS 157-3 provides guidance on (1) how an entitys own assumption should be
considered when measuring fair value when relevant observable inputs do not exist, (2) how available observable inputs in a market that is not active should be considered when measuring fair value, and (3) how the use of market quotes
should be considered when assessing the relevance of observable and unobservable inputs available to measure fair value. This FASB Staff Position is effective immediately. The implementation of this new accounting principle did not have a material
effect on the Companys financial position or results of operations.

In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. FSP FAS 141(R)-1 amends and clarifies SFAS 141(R) to address application issues on initial recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The FSP is effective for assets and liabilities arising from contingencies in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect the adoption of FSP FAS 141(R)-1 to have a material impact on its consolidated financial statements.

In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly. FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly
decreased. The FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, and shall be applied prospectively. Earlier
adoption is permitted for periods ending after March 15, 2009. The Company does not expect the adoption of FSP FAS 157-4 to have a material impact on its consolidated financial statements.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 6. | RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
|------- | --------------------------------------------



In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of
Financial Instruments. FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. In addition, the FSP amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. The FSP is
effective for interim periods ending after June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. The Company does not expect the adoption of FSP FAS 107-1 and APB 28-1 to have a material impact on its
consolidated financial statements.

In April 2009, the FASB issued FSP FAS 115-1 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. FSP FAS 115-1 and FAS 124-2 amends other-than-temporary impairment guidance for debt securities to make guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on
debt and equity securities. The FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-1 and FAS 124-2 is effective for interim and annual periods ending after
June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. The Company does not expect the adoption of FSP FAS 115-1 and FAS 124-2 to have a material impact on its consolidated financial statements.

In April 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 111 (SAB 111). SAB 111 amends and replaces SAB Topic
5.M. in the SAB Series entitled Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities. SAB 111 maintains the SEC Staffs previous views related to equity securities and amends Topic 5.M. to exclude debt securities
from its scope. The Company does not expect the implementation of SAB 111 to have a material impact on its consolidated financial statements.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 6. | RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
|------- | --------------------------------------------



On February 27, 2009, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC)
voted to amend the restoration plan for the Deposit Insurance Fund (DIF). The Board also took action to ensure the continued strength of the insurance fund by imposing a special assessment on insured institutions of 20 basis points, implementing
changes to the risk-based assessment system, and setting rates beginning the second quarter of 2009. Under the restoration plan approved last October, the Board set a rate schedule to raise the DIF reserve ratio to 1.15 percent within five years.
The February 27, 2009 action extends the restoration plan horizon to seven years in recognition of the current significant strains on banks and the financial system and the likelihood of a severe recession. The amended restoration plan was
accompanied by a final rule that sets assessment rates and makes adjustments that improve how the assessment system differentiates for risk. Currently, most banks are in the best risk category and pay anywhere from 12 cents per $100 of deposits to
14 cents per $100 for insurance. Under the final rule, banks in this category will pay initial base rates ranging from 12 cents per $100 to 16 cents per $100 on an annual basis, beginning on April 1, 2009. The Board adopted an interim rule
imposing a 20 basis point emergency special assessment on the industry on June 30, 2009. The assessment is to be collected on September 30, 2009. The interim rule would also permit the Board to impose an emergency special assessment after
June 30, 2009, of up to 10 basis points if necessary to maintain public confidence in federal deposit insurance. Comments on the interim rule on special assessments are due no later than 30 days after publication in the Federal Register.
Changes to the assessment system include higher rates for institutions that rely significantly on secured liabilities, which may increase the FDICs loss in the event of failure without providing additional assessment revenue. Under the final
rule, assessments will be higher for institutions that rely on brokered deposits but, for well-managed and well-capitalized institutions, only when accompanied by rapid asset growth. Brokered deposits combined with rapid asset growth have played a
role in a number of costly failures, including some recent ones. The final rule also would provide incentives in the form of a reduction in assessment rates for institutions to hold long-term unsecured debt and, for smaller institutions, high levels
of Tier 1 capital. The Company is currently evaluating the effects of these insurance increases to its financial position and results of operation.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 7. | SECONDARY STOCK OFFERING
|------- | ------------------------

On May 8, 2008, the Company
filed an S-1 registration statement for a stock offering of up to 1,500,000 shares of the Companys common stock at a price of $10 per share. The offering will terminate on November 8, 2008 or when all 1,500,000 shares of common stock are
sold, whichever occurs first. The Company extended offering for up to 90 days to February 8, 2009. The Company sold 96,534 shares through the secondary stock offering.



|NOTE 8. | FEDERAL HOME LOAN BANK ADVANCES
|------- | -------------------------------

During the first quarter
of 2009, the Company received proceeds from Federal Home Loan Bank advances of $8,360,000 and repaid advances of $4,360,000. These advances are variable rate and mature in April 2009 and March 2010.



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|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 condensed
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.

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. Management believes that the allowance for loan losses and the accounting for deferred income taxes are the most critical accounting policies upon which the Companys financial condition depends. The
allowance for loan losses and the recognition of deferred taxes involve the most complex and subjective decisions and assessments that management must make.

Allowance for loan losses. Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. The Companys allowance for loan losses provides for probable losses based upon evaluations of
known and inherent risks in the loan portfolio. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Loans are charged against the allowance for loan losses when management believes the
collection of the principal is unlikely. The Companys allowance for loan and lease losses is the amount considered adequate to absorb probable losses within the portfolio based on managements evaluation of the size and current risk
characteristics of the loan portfolio. Such evaluation considers prior loss experience, the risk rating distribution of the portfolios, the impact of current internal and external influences on credit loss and the levels of nonperforming loans.
Specific allowances for loan and lease losses are established



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for large impaired loans and leases on an individual basis. The specific allowance established for these loans and leases is based on a thorough analysis of
the most probable source of repayment, including the present value of the loans expected future cash flows, the loans estimated market value, or the estimated fair value of the underlying collateral. General allowances are established
for loans that are classified as either special mention, substandard, or doubtful. These loans are assigned a risk rating, and the allocated allowance for loan losses is determined based upon the loss percentage factors that correspond to each risk
rating. Loss percentage factors are based on the probable loss including qualitative factors. The qualitative factors consider credit concentrations, recent levels and trends in delinquencies and nonaccrual, and growth in the loan portfolio. The
occurrence of certain events could result in changes to the loss factors. Accordingly, these loss factors are reviewed periodically and modified as necessary.

General allowances are established for loans and leases that can be grouped into pools based on similar characteristics. In this process, general allowance factors are based on an analysis of historical charge-off experience and expected
losses given default derived from the Companys internal risk rating process. These factors are developed and applied to the portfolio in terms of line of business and loan type. Adjustments are also made to the allowance for the pools after an
assessment of internal and external influences on credit quality that have not yet been reflected in the historical loss or risk rating data. Unallocated allowances relate to inherent losses that are not otherwise evaluated in the first two
elements. The qualitative factors associated with unallocated allowances are subjective and require a high degree of management judgment. These factors include the inherent imprecisions in mathematical models and credit quality statistics, recent
economic uncertainty, losses incurred from recent events, and lagging or incomplete data.

The process of reviewing the adequacy of the allowance for loan
losses requires management to make numerous judgments and assumptions about current events and subjective judgments, including the likelihood of loan repayment, risk evaluation, extrapolation of historical losses of similar banks, and similar
judgments and assumptions. If these assumptions prove to be incorrect, charge-offs in future periods could exceed the allowance for loan losses.

Management considers the allowance for loan losses to be adequate and sufficient to absorb possible future losses; however, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that
additional provisions to the allowance will not be required.

Deferred income taxes.Deferred income tax assets and liabilities are determined using
the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the differences between the book and tax bases of the various balance sheet assets and liabilities and
gives current recognition to changes in tax rates and laws.

A valuation allowance for deferred tax assets is required when it is more likely than not that
some portion or all of the deferred tax asset will not be realized. In assessing the realization of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income (in the near-term
based on current projections), and tax planning strategies. As of March 31, 2009, deferred income taxes of $1,474,000 are included in other assets. Changes in the estimate about future taxable income could



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##### Table of Contents

significantly affect the determination of the necessity for a valuation allowance for deferred tax assets.

FINANCIAL CONDITION

Total assets increased during the first three
months of 2009 by $10.6 million from $300.7 million to $311.2 million, or 3.53%. The growth was funded by increases in total deposits, which increased by $10.5 million, or 3.89%, and increases in Federal Home Loan Bank advances of $4.0 million. The
increase in total assets for the three months ended March 31, 2009 consisted primarily of net increases in cash of $6.7 million, available for sale securities of $1.3 million, and foreclosed real estate of $2.5 million. The loan to deposit
ratio at March 31, 2009 was 83% compared to 86% at December 31, 2008.

Stockholders equity increased by $18,000 for the three months ended
March 31, 2009. This net increase consisted of net income of $26,000, proceeds from issuance of common stock of $17,000, and net increases in accumulated other comprehensive income of $25,000, offset by dividends paid of $50,000.

The total amount of nonperforming assets, which includes nonaccruing loans, other real estate owned, repossessed collateral, and loans for which payments are more than
90 days past due was $14,712,000 at March 31, 2009, representing an increase of $2,017,000 (15.89%) from December 31, 2008. This increase is primarily attributable to an increase of $2,531,000 in foreclosed real estate, offset by a
decrease of $514,000 in past dues over 90 days. Total nonperforming assets were 6.31% of total loans at March 31, 2009, compared to 5.44% at December 31, 2008. Nonperforming assets represented 4.73% of total assets at March 31, 2009,
compared to 4.22% of total assets at December 31, 2008. Nonaccrual loans represented 3.83% of total loans outstanding at March 31, 2009, compared to 3.97% of total loans outstanding at December 31, 2008. There were no related party
loans which were considered to be nonperforming at March 31, 2009.

At March 31, 2009, the Company had loan concentrations in real estate
totaling $212,980,000, or 91.4% of total loans. Commercial and industrial loans of $18,037,000 made up 7.7% of total loans. The remaining $2,030,000, or 0.9%, of total loans consisted of consumer and other loans.

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 March 31, 2009, the
Banks liquidity ratio of 21.09% was considered satisfactory in relation to regulatory guidelines and internal targets. At March 31, 2009, the Company had the ability to borrow an additional $16.4 million in Federal Home Loan Bank
advances. In addition, the Company can borrow up to $7.3 million in federal funds from Silverton Bridge Bank, N.A (successor to Silverton Bank, N.A).



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REGULATORY CAPITAL REQUIREMENTS

Banking regulations require us to maintain minimum capital levels in relation to assets. At March 31, 2009, 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 Company and Bank at March 31, 2009 are as follows:



|                          |  |         |   |  |       |   |  |                              |  
|------------------------- |  | ------- | - |  | ----- | - |  | ---------------------------- | -
|                          |  | Company |   |  | Bank  |   |  | RegulatoryMinimumRequirement |  
|Leverage Capital Ratio    |  | 7.11    | % |  | 7.04  | % |  | 4.00                         | %
|Risk-Based Capital Ratios |  |         |   |  |       |   |  |                              |  
|Core Capital              |  | 8.87    | % |  | 8.79  | % |  | 4.00                         | %
|Total Capital             |  | 10.12   | % |  | 10.04 | % |  | 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 March 31, 2009 are as follows:



|                                    |  |               |           
|----------------------------------- |  | ------------- | ----------
|                                    |  | March 31,2009
|Commitments to extend credit        |  | $             | 10,713,000
|Financial standby letters of credit |  |               | 2,270,000 
|Other standby letters of credit     |  |               | 645,000   
|                                    |  |               |           
|                                    |  | $             | 13,628,000
|                                    |  |               |           



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RESULTS OF OPERATIONS

Three Months Ended March 31, 2009 and 2008

Net Interest Income. Net interest income decreased by $876,000 for the quarter ended
March 31, 2009, compared to the same period in 2008. The decrease in net interest income is primarily attributable to the decrease in our net yield on average interest-earning assets. The net yield on interest-earning assets decreased to 2.09%
at March 31, 2009 as compared to 3.62% at March 31, 2008 and 2.94% for the entire year ended December 31, 2008.

The yield on
interest-earning assets decreased from 7.83% to 6.00%, or 183 basis points, from March 31, 2008 to March 31, 2009. The rate paid on interest-bearing liabilities decreased from 4.79% to 4.21%, or 58 basis points, for the same period. The
decrease in the rate paid on interest-bearing liabilities is due primarily to the 200 basis point decrease in the prime rate over the last year.

Interest Income and Interest Expense

The following table sets forth the amount of our interest income or interest expense for each category
of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net yield on average interest-earning assets.



|                                        |  |                                          |         |                |                                          |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|--------------------------------------- |  | ---------------------------------------- | ------- | -------------- | ---------------------------------------- | --------------- |  | ---- | -------------- |  | -------------- | ------- | --------------- | - | ----- |  | ---- | -
|                                        |  | For the Three Months EndedMarch 31, 2009 |         |                | For the Three Months EndedMarch 31, 2008 |                
|                                        |  | AverageBalance                           |         | Income/Expense |                                          | Yields/Rates(2) |  |      | AverageBalance |  | Income/Expense |         | Yields/Rates(4) |  
|                                        |  | (Dollars in thousands)                   |        
|Earning assets:                         |  |                                          |         |                |                                          |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|Loans, net of unearned income           |  | $                                        | 224,999 |                | $                                        | 3,575           |  | 6.44 | %              |  | $              | 206,402 |                 | $ | 4,378 |  | 8.60 | %
|Taxable securities                      |  |                                          | 43,831  |                |                                          | 475             |  | 4.39 |                |  |                | 41,599  |                 |   | 515   |  | 5.02 |  
|Nontaxable securities                   |  |                                          | 4,505   |                |                                          | 41              |  | 3.68 |                |  |                | 6,922   |                 |   | 66    |  | 3.86 |  
|Interest-bearing deposits               |  |                                          | 55      |                |                                          |                |  | 0.32 |                |  |                | 79      |                 |   |      |  |     |  
|Federal funds sold                      |  |                                          | 3,245   |                |                                          |                |  | 0.01 |                |  |                | 3,066   |                 |   | 21    |  | 2.71 |  
|                                        |  |                                          |         |                |                                          |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|Total interest-earning assets(1)        |  | $                                        | 276,635 |                | $                                        | 4,091           |  | 6.00 |                |  | $              | 258,070 |                 | $ | 4,980 |  | 7.83 |  
|                                        |  |                                          |         |                |                                          |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|                                        |  |                                          |         |                |                                          |                
|Interest-bearing liabilities:           |  |                                          |         |                |                                          |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|Demand and savings deposits             |  | $                                        | 22,357  |                | $                                        | 176             |  | 3.20 |                |  | $              | 31,500  |                 | $ | 198   |  | 2.55 |  
|Time deposits                           |  |                                          | 221,966 |                |                                          | 2,440           |  | 4.46 |                |  |                | 190,177 |                 |   | 2,397 |  | 5.11 |  
|                                        |  |                                          |         |                |                                          |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|Total deposits                          |  |                                          | 244,323 |                |                                          | 2,616           |  | 4.34 |                |  |                | 221,677 |                 |   | 2,595 |  | 4.75 |  
|                                        |  |                                          |         |                |                                          |                
|Other short-term borrowings             |  |                                          | 9,090   |                |                                          | 9               |  | 0.40 |                |  |                | 1,276   |                 |   | 16    |  | 5.08 |  
|Long-term debt                          |  |                                          | 3,403   |                |                                          | 38              |  | 4.52 |                |  |                | 3,403   |                 |   | 65    |  | 7.75 |  
|                                        |  |                                          |         |                |                                          |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|Total interest-bearing liabilities      |  | $                                        | 256,816 |                |                                          | 2,663           |  | 4.21 |                |  | $              | 226,356 |                 |   | 2,676 |  | 4.79 |  
|                                        |  |                                          |         |                |                                          |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|                                        |  |                                          |         |                |                                          |                
|Net interest income/net interest spread |  |                                          |         |                | $                                        | 1,428           |  | 1.79 | %              |  |                |         |                 | $ | 2,304 |  | 3.03 | %
|                                        |  |                                          |         |                |                                          |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|                                        |  |                                          |         |                |                                          |                
|Net yield on earning assets             |  |                                          |         |                |                                          |                 |  | 2.09 | %              |  |                |         |                 |   |       |  | 3.62 | %
|                                        |  |                                          |         |                |                                          |                 |  |      |                |  |                |         |                 |   |       |  |      |  



|(1) | Average securities exclude average unrealized gains of $562,000 and unrealized losses of $495,000 for the three months ended March 31, 2009 and 2008, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Annualized.
|--- | -----------



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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 $150,000 was made during the three month period ending March 31, 2009 as compared to a provision of $260,000 made during the three month period ending March 31, 2008. The allowance for loan loss as a
percentage of total loans was 1.87%, 1.87%, and 1.67% at March 31, 2009, December 31, 2008 and March 31, 2008, respectively. Total nonaccrual loans increased by $4,525,000, net charge-offs increased by $111,000, and loans past
due ninety days or more and still accruing increased by $842,000 for the three months ended March 31, 2009 as compared to the same period in 2008. Due to collateral values of the underlying collateral, we do not anticipate significant
additional losses related to identified impaired loans. Management believes the allowance for loan loss at March 31, 2009 is adequate to absorb any foreseeable losses in the loan portfolio.

At March 31, 2009 and 2008, nonaccrual, past due and restructured loans were as follows:



|                                                                                                         |  |                        |       |      |   |      
|-------------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ---- | - | -----
|                                                                                                         |  | March 31,             
|                                                                                                         |  | 2009                   |       | 2008
|                                                                                                         |  | (Dollars in thousands)
|Total nonaccruing loans                                                                                  |  | $                      | 8,923 |      | $ | 4,398
|Loans contractually past due ninety days or more as to interest or principal payments and still accruing |  |                        | 1,038 |      |   | 196  
|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 three months ended March 31, 2009 and
2008 is as follows:



|                                                                              |  |                             |         |   |      |   |         |  
|----------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                              |  | Three Months EndedMarch 31, |        
|                                                                              |  | 2009                        |         |   | 2008 |  
|                                                                              |  | (Dollars in thousands)      |        
|Average amount of loans outstanding                                           |  | $                           | 224,999 |   |      | $ | 206,402 |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Balance of allowance for loan losses at beginning of period                   |  | $                           | 4,369   |   |      | $ | 3,349   |  
|                                                                              |  |                             |         |   |      |   |         |  
|Loans charged off                                                             |  |                             |         |   |      |   |         |  
|Commercial                                                                    |  |                             | (47     | ) |      |   | (325    | )
|Real estate                                                                   |  |                             |        |   |      |   |        |  
|Installment                                                                   |  |                             | (135    | ) |      |   | (146    | )
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                             | (182    | ) |      |   | (471    | )
|                                                                              |  |                             |         |   |      |   |         |  
|Loans recovered                                                               |  |                             |         |   |      |   |         |  
|Commercial                                                                    |  |                             | 1       |   |      |   | 411     |  
|Real estate                                                                   |  |                             |        |   |      |   |        |  
|Installment                                                                   |  |                             | 24      |   |      |   | 14      |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                             | 25      |   |      |   | 425     |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Net charge-offs                                                               |  |                             | (157    | ) |      |   | (46     | )
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Additions to allowance charged to operating expense during period             |  |                             | 150     |   |      |   | 260     |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Balance of allowance for loan losses at end of period                         |  | $                           | 4,362   |   |      | $ | 3,563   |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Ratio of net loans charged-off during the period to average loans outstanding |  |                             | 0.07    | % |      |   | 0.02    | %
|                                                                              |  |                             |         |   |      |   |         |  

Other Income. Other income increased by $410,000 for the three months ended March 31, 2009, compared
to the same period in 2008. One of the most significant components of other income is service charges on deposit accounts which accounts for 35% and 83% of total other income for March 31, 2009 and 2008, respectively. Service charges on deposit
accounts include monthly service charges, non-sufficient funds (NSF) charges, and other miscellaneous maintenance fees. The amount of service charges fluctuates with the volume of transaction accounts and the volume of NSF activity. The
increase in other income for the quarter ended March 31, 2009 is largely due to the recording of and gains on sales of available for sale securities of $598,000.

Other Expenses. Other expenses increased by $17,000 for the three months ended March 31, 2009, as compared to the same period in 2008. The increase consists of an increase of $40,000 in occupancy and
equipment expenses, offset by decreases in salaries and employee benefits of $18,000 and in other operating expenses of $5,000. At March 31, 2009, the number of full-time equivalent employees was 89 compared to 95 at March 31, 2008.



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The mortgage company previously originated loans which were table funded through independent investors. During third
quarter 2008, the mortgage company became dormant due to declines in the real estate market. Operations for first quarter 2009 consist of operating expenses and taxes only. The net loss for the three months ended March 31, 2009 was $2,000, as
compared to a loss of $4,000 for the three months ended March 31, 2008.

Income Taxes. Income tax expense decreased by $62,000 for the three
months ended March 31, 2009, as compared to 2008. The effective tax rate for 2009 and 2008 was 38% and 33%, respectively. The effective tax rate is less than the statutory tax rate due to nontaxable interest income on securities.

Net Income. Net income decreased by $131,000 for the three months ended March 31, 2009, as compared to the same period in 2008. This decrease is largely the
result of the decreased net interest income as compared to the prior year.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Not
applicable as the registrant is a smaller reporting company.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

As of the end of the period covered by
this report, the Company 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 the Companys disclosure
controls and procedures. Based upon this evaluation, our Chief Executive Officer and the Principal Financial and Accounting Officer concluded that the Companys disclosure controls and procedures are effective.

There have been no changes in the Companys internal control over financial reporting in the period covered by this report that have materially affected, or are
reasonably likely to materially affect, the Companys internal controls over financial reporting.



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##### Table of Contents

PART II - Other Information



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

There have been no material
developments in the legal proceedings previously reported in the Companys Annual Report on Form 10-K (filed with the Commission on April 14, 2009) nor have any new reportable legal proceedings involving the Company been instituted.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

None.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.



|ITEM 6. | EXHIBITS
|------- | --------



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1    |  | Plan of Reorganization and Agreement of Merger, dated April 14, 1998, by and between Capitol City Bancshares, Inc., Capitol City Bank and Trust, and Capitol City Interim, Inc., which
Agreement is included as Appendix A to the Proxy Statement included in this Registration Statement filed by Registrant on Form S-4 on September 30, 1998, Registration No. 333-64789 (incorporated by reference as Exhibit 2.1 to the
Registrants 10-KSB filed on March 31, 1999).
|       | 
|3.1    |  | Articles of Incorporation of Registrant (incorporated by reference as Exhibit 3.1 to the Registrants 10-KSB filed on March 31, 1999).                                                                                                                                                                                                                                                                                                                                    
|       | 
|3.1(A) |  | Amendment to the Articles of Incorporation of Registrant (incorporated by reference as Exhibit 3.1(A) to the Registrants Annual Report on Form 10-KSB filed on March 31,
2005).                                                                                                                                                                                                                                                                                          
|       | 
|3.1(B) |  | Articles of Amendment to the Articles of Incorporation of the Registrant filed February 9, 2007 (incorporation by referenced as Exhibit 3.1(B) to the Registrants Current Report on Form
8-K filed on February 15, 2007).                                                                                                                                                                                                                                                
|       | 
|3.1(C) |  | Articles of Amendment to the Articles of Incorporation of the Registrant filed February 12, 2007 (incorporation by referenced as Exhibit 3.1(C) to the Registrants Current Report on Form
8-K filed on February 15, 2007).                                                                                                                                                                                                                                               



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|       |  |                                                                                                                                                                                                                            
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(D) |  | Articles of Amendment to the Articles of Incorporation of the Registrant filed February 15, 2007 (incorporation by referenced as Exhibit 3.1(D) to the Registrants Current Report on
Form 8-K filed on February 15, 2007).
|       | 
|3.2    |  | Bylaws of Registrant (incorporated by reference as Exhibit 3.2 to the Registrants 10-KSB filed on March 31, 1999).                                                                                                        
|       | 
|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: May 15, 2009 |  |  |  | /s/ George G. Andrews                                                                                   
|                   |  |  |  | George G. Andrews                                                                                       
|                   |  |  |  | CEO, President and Director                                                                             
|                   |  | 
|Date: May 15, 2009 |  |  |  | /s/ Tatina Brooks                                                                                       
|                   |  |  |  | Tatina Brooks                                                                                           
|                   |  |  |  | Senior Vice President of Accounting and Financial Reporting (Principal Financial and Accounting Officer)



24