##### 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 June 30, 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 of incorporation or organization) |  | (I.R.S. Employer Identification Number)

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

(Address of principal executive office)

(404) 752-6067

(Issuers telephone number)

N/A

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





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 has
submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).    Yes   ̈    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   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  | x

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 August 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 June 30, 2009 and December 31,
 2008                                                           |  | 2                                                                                    
|                              |  |                                                                                                                                           
|                              |  | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months
 Ended June 30, 2009 and 2008 |  | 3                                                                                    
|                              |  |                                                                                                                                           
|                              |  | Condensed Consolidated Statements of Cash Flows For The Six Months Ended June 30, 2009 and 2008                                            |  | 4                                                                                    
|                              |  |                                                                                                                                           
|                              |  | Notes to Condensed Consolidated Financial Statements                                                                                       |  | 5 - 19                                                                               
|                              |  |                                                                                                                                            | 
|                              |  | Item 2.                                                                                                                                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 20 - 27
|                              |  |                                                                                                                                            | 
|                              |  | Item 3.                                                                                                                                    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 27     
|                              |  |                                                                                                                                            | 
|                              |  | Item 4.                                                                                                                                    |  | Controls and Procedures                                                               |  | 27     
|                              | 
|Part II. Other Information    |  |                                                                                                                                           
|                              |  |                                                                                                                                            | 
|                              |  | Item 1.                                                                                                                                    |  | Legal Proceedings                                                                     |  | 28     
|                              |  |                                                                                                                                            | 
|                              |  | Item 2.                                                                                                                                    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 28     
|                              |  |                                                                                                                                            | 
|                              |  | Item 3.                                                                                                                                    |  | Defaults Upon Senior Securities                                                       |  | 28     
|                              |  |                                                                                                                                            | 
|                              |  | Item 4.                                                                                                                                    |  | Submission of Matters to a Vote of Security Holders                                   |  | 28     
|                              |  |                                                                                                                                            | 
|                              |  | Item 5.                                                                                                                                    |  | Other Information                                                                     |  | 29     
|                              |  |                                                                                                                                            | 
|                              |  | Item 6.                                                                                                                                    |  | Exhibits                                                                              |  | 29     
|                              |  |                                                                                                                                           
|                              |  | Signatures                                                                                                                                 |  | 30                                                                                   
|                              |  |                                                                                                                                           
|                              |  | 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

June 30, 2009 (unaudited) and December 31, 2008



|                                                                                                                                 |  |                          |             |   |                  |   |            
|-------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----------- | - | ---------------- | - | -----------
|                                                                                                                                 |  | June 30, 2009(unaudited) |             |   | December 31,2008
|Assets                                                                                                                           |  |                          |             |   |                  |   |            
|                                                                                                                                 |  |                         
|Cash and due from banks                                                                                                          |  | $                        | 5,713,965   |   |                  | $ | 4,150,450  
|Interest-bearing deposits at other financial institutions                                                                        |  |                          | 6,099       |   |                  |   | 144,263    
|Securities available for sale, at fair value                                                                                     |  |                          | 58,225,604  |   |                  |   | 48,225,611 
|Restricted equity securities, at cost                                                                                            |  |                          | 830,000     |   |                  |   | 647,700    
|                                                                                                                                 |  |                         
|Loans, net of unearned income                                                                                                    |  |                          | 235,728,864 |   |                  |   | 233,400,468
|Less allowance for loan losses                                                                                                   |  |                          | 3,876,087   |   |                  |   | 4,368,690  
|                                                                                                                                 |  |                          |             |   |                  |   |            
|Loans, net                                                                                                                       |  |                          | 231,852,777 |   |                  |   | 229,031,778
|                                                                                                                                 |  |                          |             |   |                  |   |            
|                                                                                                                                 |  |                         
|Premises and equipment, net                                                                                                      |  |                          | 10,252,084  |   |                  |   | 10,412,721 
|Foreclosed real estate                                                                                                           |  |                          | 7,513,048   |   |                  |   | 2,220,082  
|Other assets                                                                                                                     |  |                          | 4,796,485   |   |                  |   | 5,836,667  
|                                                                                                                                 |  |                          |             |   |                  |   |            
|                                                                                                                                 |  |                         
|Total assets                                                                                                                     |  | $                        | 319,190,062 |   |                  | $ | 300,669,272
|                                                                                                                                 |  |                          |             |   |                  |   |            
|                                                                                                                                 |  |                         
|Liabilities and Stockholders Equity                                                                                             |  |                          |             |   |                  |   |            
|                                                                                                                                 |  |                         
|Liabilities:                                                                                                                     |  |                          |             |   |                  |   |            
|Deposits:                                                                                                                        |  |                          |             |   |                  |   |            
|Noninterest-bearing                                                                                                              |  | $                        | 29,005,303  |   |                  | $ | 31,998,612 
|Interest-bearing                                                                                                                 |  |                          | 257,221,665 |   |                  |   | 237,926,429
|                                                                                                                                 |  |                          |             |   |                  |   |            
|Total deposits                                                                                                                   |  |                          | 286,226,968 |   |                  |   | 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                                                                                      |  |                          | 2,900,000   |   |                  |   | 2,500,000  
|Company guaranteed trust preferred securities                                                                                    |  |                          | 3,403,000   |   |                  |   | 3,403,000  
|Other liabilities                                                                                                                |  |                          | 2,517,599   |   |                  |   | 2,062,903  
|                                                                                                                                 |  |                          |             |   |                  |   |            
|Total liabilities                                                                                                                |  |                          | 301,414,567 |   |                  |   | 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,
respectively |  |                          | 3,464,330   |   |                  |   | 3,461,780  
|Surplus                                                                                                                          |  |                          | 3,181,141   |   |                  |   | 3,166,691  
|Retained earnings                                                                                                                |  |                          | 10,447,270  |   |                  |   | 10,869,656 
|Accumulated other comprehensive income (loss)                                                                                    |  |                          | (317,246    | ) |                  |   | 138,201    
|                                                                                                                                 |  |                          |             |   |                  |   |            
|Total stockholders equity                                                                                                       |  |                          | 17,775,495  |   |                  |   | 18,636,328 
|                                                                                                                                 |  |                          |             |   |                  |   |            
|                                                                                                                                 |  |                         
|Total liabilities and stockholders equity                                                                                       |  | $                        | 319,190,062 |   |                  | $ | 300,669,272
|                                                                                                                                 |  |                          |             |   |                  |   |            

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



2



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##### Table of Contents

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008

(Unaudited)



|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|--------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | --------- | - | ------------------------ | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                                                                                      |  | Three MonthsEnded June 30, |           |   | Six MonthsEnded June 30, |  
|                                                                                                                      |  | 2009                       |           |   | 2008                     |   |           | 2009 |  |   | 2008      |  
|Interest income:                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|Loans, including fees                                                                                                 |  | $                          | 4,074,294 |   |                          | $ | 4,011,205 |      |  | $ | 7,649,277 |   |  | $ | 8,388,968 |  
|Deposits in banks                                                                                                     |  |                            |          |   |                          |   | 3,489     |      |  |   | 44        |   |  |   | 3,489     |  
|Securities:                                                                                                           |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|Taxable                                                                                                               |  |                            | 365,045   |   |                          |   | 502,659   |      |  |   | 839,905   |   |  |   | 1,018,019 |  
|Nontaxable                                                                                                            |  |                            | 17,832    |   |                          |   | 78,811    |      |  |   | 58,712    |   |  |   | 144,769   |  
|Federal funds sold                                                                                                    |  |                            |          |   |                          |   | 2,530     |      |  |   | 9         |   |  |   | 23,038    |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|Total interest income                                                                                                 |  |                            | 4,457,171 |   |                          |   | 4,598,694 |      |  |   | 8,547,947 |   |  |   | 9,578,283 |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                      |  |                            |           |  
|Interest expense:                                                                                                     |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|Deposits                                                                                                              |  |                            | 2,667,411 |   |                          |   | 2,548,440 |      |  |   | 5,284,020 |   |  |   | 5,143,436 |  
|Other borrowings                                                                                                      |  |                            | 60,049    |   |                          |   | 72,044    |      |  |   | 106,653   |   |  |   | 153,069   |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|Total interest expense                                                                                                |  |                            | 2,727,460 |   |                          |   | 2,620,484 |      |  |   | 5,390,673 |   |  |   | 5,296,505 |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                      |  |                            |           |  
|Net interest income                                                                                                   |  |                            | 1,729,711 |   |                          |   | 1,978,210 |      |  |   | 3,157,274 |   |  |   | 4,281,778 |  
|Provision for loan losses                                                                                             |  |                            | 280,000   |   |                          |   | 450,000   |      |  |   | 430,000   |   |  |   | 710,000   |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|Net interest income after provision for loan losses                                                                   |  |                            | 1,449,711 |   |                          |   | 1,528,210 |      |  |   | 2,727,274 |   |  |   | 3,571,778 |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                      |  |                            |           |  
|Other income:                                                                                                         |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|Service charges on deposit accounts                                                                                   |  |                            | 384,402   |   |                          |   | 504,750   |      |  |   | 775,561   |   |  |   | 936,458   |  
|Other fees and commissions                                                                                            |  |                            | 14,406    |   |                          |   | 13,431    |      |  |   | 31,935    |   |  |   | 32,196    |  
|Gain on sales of available for sale securities, net                                                                   |  |                            | 182,643   |   |                          |   | 18,069    |      |  |   | 780,892   |   |  |   | 56,369    |  
|Gain on sales of foreclosed real estate                                                                               |  |                            |          |   |                          |   | 418,557   |      |  |   |          |   |  |   | 418,557   |  
|Other operating income                                                                                                |  |                            | 62,349    |   |                          |   | 28,692    |      |  |   | 166,562   |   |  |   | 61,281    |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|Total other income                                                                                                    |  |                            | 643,800   |   |                          |   | 983,499   |      |  |   | 1,754,950 |   |  |   | 1,504,861 |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                      |  |                            |           |  
|Other expenses:                                                                                                       |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|Salaries and employee benefits                                                                                        |  |                            | 1,025,385 |   |                          |   | 1,116,053 |      |  |   | 2,062,636 |   |  |   | 2,171,250 |  
|Occupancy and equipment expenses, net                                                                                 |  |                            | 309,602   |   |                          |   | 293,748   |      |  |   | 632,058   |   |  |   | 576,162   |  
|Other operating expenses                                                                                              |  |                            | 1,413,510 |   |                          |   | 1,106,528 |      |  |   | 2,400,020 |   |  |   | 2,097,794 |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|Total other expenses                                                                                                  |  |                            | 2,748,497 |   |                          |   | 2,516,329 |      |  |   | 5,094,714 |   |  |   | 4,845,206 |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                      |  |                            |           |  
|Income (loss) before income taxes                                                                                     |  |                            | (654,986  | ) |                          |   | (4,620    | )    |  |   | (612,490  | ) |  |   | 231,433   |  
|                                                                                                                      |  |                            |           |  
|Income tax expense (benefit)                                                                                          |  |                            | (256,156  | ) |                          |   | (42,635   | )    |  |   | (240,104  | ) |  |   | 35,630    |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                      |  |                            |           |  
|Net income (loss)                                                                                                     |  |                            | (398,830  | ) |                          |   | 38,015    |      |  |   | (372,386  | ) |  |   | 195,803   |  
|                                                                                                                      |  |                            |           |  
|Preferred stock dividends                                                                                             |  |                            |          |   |                          |   |          |      |  |   | 50,000    |   |  |   |          |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                      |  |                            |           |  
|Net income (loss) available to common shareholders                                                                    |  | $                          | (398,830  | ) |                          | $ | 38,015    |      |  | $ | (422,386  | ) |  | $ | 195,803   |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                      |  |                            |           |  
|Other comprehensive income (loss)                                                                                     |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|Unrealized gains (losses) on securities available for sale arising during period, net of tax                          |  |                            | (359,307  | ) |                          |   | (439,266  | )    |  |   | 59,942    |   |  |   | (61,010   | )
|                                                                                                                      |  |                            |           |  
|Reclassification adjustment for realized gains on securities available for sale arising during the period, net of tax |  |                            | (120,545  | ) |                          |   | (37,204   | )    |  |   | (515,389  | ) |  |   | (37,204   | )
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                      |  |                            |           |  
|Comprehensive income (loss)                                                                                           |  | $                          | (878,682  | ) |                          | $ | (438,455  | )    |  | $ | (877,833  | ) |  | $ | 97,589    |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                      |  |                            |           |  
|Basic earnings (losses) per common share                                                                              |  | $                          | (0.17     | ) |                          | $ | 0.02      |      |  | $ | (0.18     | ) |  | $ | 0.09      |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                      |  |                            |           |  
|Diluted earnings (losses) per common share                                                                            |  | $                          | (0.17     | ) |                          | $ | 0.02      |      |  | $ | (0.18     | ) |  | $ | 0.08      |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                      |  |                            |           |  
|Cash dividends declared per share of common stock                                                                     |  | $                          |          |   |                          | $ |          |      |  | $ |          |   |  | $ |          |  
|                                                                                                                      |  |                            |           |   |                          |   |           |      |  |   |           |   |  |   |           |  

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



3



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##### Table of Contents

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2009 AND 2008

(Unaudited)



|                                                                                         |  |      |             |   |      |   |             |  
|---------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                         |  | 2009 |             |   | 2008 |  
|OPERATING ACTIVITIES                                                                     |  |      |             |   |      |   |             |  
|Net income (loss)                                                                        |  | $    | (372,386    | ) |      | $ | 195,803     |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |      |             |   |      |   |             |  
|Depreciation                                                                             |  |      | 306,983     |   |      |   | 276,520     |  
|Provision for loan losses                                                                |  |      | 430,000     |   |      |   | 710,000     |  
|Net gain on sale of securities available for sale                                        |  |      | (780,892    | ) |      |   | (56,369     | )
|(Gain) loss on sale of foreclosed real estate                                            |  |      | 3,500       |   |      |   | (418,557    | )
|Gain on sale of premises and equipment                                                   |  |      | (13,925     | ) |      |   |            |  
|Net other operating activities                                                           |  |      | 1,418,850   |   |      |   | 558,590     |  
|                                                                                         |  |      |             |   |      |   |             |  
|Net cash provided by operating activities                                                |  |      | 992,130     |   |      |   | 1,265,987   |  
|                                                                                         |  |      |             |   |      |   |             |  
|                                                                                         |  |     
|INVESTING ACTIVITIES                                                                     |  |      |             |   |      |   |             |  
|Purchases of securities available for sale                                               |  |      | (58,893,111 | ) |      |   | (22,951,246 | )
|Proceeds from sales of securities available for sale                                     |  |      | 44,626,795  |   |      |   | 14,083,416  |  
|Proceeds from maturities of securities available for sale                                |  |      | 4,357,144   |   |      |   | 13,209,859  |  
|Purchases of restricted equity securities                                                |  |      | (182,300    | ) |      |   | (220,800    | )
|Net (increase) decrease in interest-bearing deposits                                     |  |      | 138,164     |   |      |   | (35,178     | )
|Net decrease in federal funds sold                                                       |  |      |            |   |      |   | 1,953,000   |  
|Net increase in loans                                                                    |  |      | (8,541,318  | ) |      |   | (26,060,467 | )
|Capital improvements of foreclosed real estate                                           |  |      | (14,434     | ) |      |   |            |  
|Proceeds from sale of foreclosed real estate                                             |  |      | 318,939     |   |      |   | 225,200     |  
|Purchase of premises and equipment                                                       |  |      | (149,471    | ) |      |   | (244,663    | )
|Proceeds from sale of premises and equipment                                             |  |      | 17,050      |   |      |   |            |  
|                                                                                         |  |      |             |   |      |   |             |  
|Net cash used in investing activities                                                    |  |      | (18,322,542 | ) |      |   | (20,040,879 | )
|                                                                                         |  |      |             |   |      |   |             |  
|                                                                                         |  |     
|FINANCING ACTIVITIES                                                                     |  |      |             |   |      |   |             |  
|Net increase in deposits                                                                 |  |      | 16,301,927  |   |      |   | 11,311,601  |  
|Net increase (decrease) in securities sold under repurchase agreements                   |  |      | 400,000     |   |      |   | (1,000,000  | )
|Net increase in Federal Home Loan Bank advances                                          |  |      | 4,000,000   |   |      |   | 4,500,000   |  
|Net decrease in federal funds purchased                                                  |  |      | (1,775,000  | ) |      |   |            |  
|Proceeds from issuance of common stock under ESOP plan                                   |  |      |            |   |      |   | 5,500       |  
|Proceeds from issuance of common stock from secondary stock offering                     |  |      | 17,000      |   |      |   | 221,400     |  
|Dividends paid on preferred stock                                                        |  |      | (50,000     | ) |      |   |            |  
|                                                                                         |  |      |             |   |      |   |             |  
|Net cash provided by financing activities                                                |  |      | 18,893,927  |   |      |   | 15,038,501  |  
|                                                                                         |  |      |             |   |      |   |             |  
|                                                                                         |  |     
|Net increase (decrease) in cash and due from banks                                       |  |      | 1,563,515   |   |      |   | (3,736,391  | )
|                                                                                         |  |     
|Cash and due from banks, beginning of period                                             |  |      | 4,150,450   |   |      |   | 5,557,711   |  
|                                                                                         |  |      |             |   |      |   |             |  
|                                                                                         |  |     
|Cash and due from banks, end of period                                                   |  | $    | 5,713,965   |   |      | $ | 1,821,320   |  
|                                                                                         |  |      |             |   |      |   |             |  
|                                                                                         |  |     
|SUPPLEMENTAL DISCLOSURES                                                                 |  |      |             |   |      |   |             |  
|Cash paid for:                                                                           |  |      |             |   |      |   |             |  
|Interest                                                                                 |  | $    | 5,246,722   |   |      | $ | 5,295,262   |  
|Income taxes                                                                             |  | $    |            |   |      | $ | 225,374     |  
|                                                                                         |  |     
|NONCASH TRANSACTIONS                                                                     |  |      |             |   |      |   |             |  
|Principal balances of loans transferred to foreclosed real estate                        |  | $    | 6,084,269   |   |      | $ | 2,689,178   |  
|Financed sales of foreclosed real estate                                                 |  | $    | 483,298     |   |      | $ | 248,131     |  
|Change in unrealized losses on securities available for sale, net of tax                 |  | $    | (455,447    | ) |      | $ | (98,214     | )

The accompanying notes are an integral part of these 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 consolidated financial
information included for Capitol City Bancshares, Inc. (the Company), Capitol City Bank & Trust Company (the Bank) and Capitol City Home Loans (the Mortgage Company) herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods. These statements should be read in conjunction with
the consolidated financial statements and related notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2008.

The results of operations for the three and six month periods ended June 30, 2009 are not necessarily indicative of the results to be expected for the full year.

Management has evaluated all significant events and transactions that occurred after June 30, 2009, but prior to August 14, 2009, the date these
consolidated financial statements were issued, for potential recognition or disclosure in these consolidated financial statements.



|NOTE 2. | SECURITIES
|------- | ----------

The amortized cost and fair value of
securities are summarized as follows:



|                                   |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|---------------------------------- |  | ------------- | ---------- | -------------------- | - | --------------------- |  | - | --------- | - |  | - | ----------
|                                   |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairValue
|June 30, 2009                      |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|U.S. Government sponsored agencies |  | $             | 11,101,544 |                      | $ | 5,275                 |  | $ | (107,219  | ) |  | $ | 10,999,600
|Mortgage-backed securities         |  |               | 46,801,735 |                      |   | 56,290                |  |   | (435,021  | ) |  |   | 46,423,004
|Trust preferred securities         |  |               | 753,000    |                      |   |                      |  |   |          |   |  |   | 753,000   
|                                   |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|Total debt securities              |  |               | 58,656,279 |                      |   | 61,565                |  |   | (542,240  | ) |  |   | 58,175,604
|Equity securities                  |  |               | 50,000     |                      |   |                      |  |   |          |   |  |   | 50,000    
|                                   |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|Total securities                   |  | $             | 58,706,279 |                      | $ | 61,565                |  | $ | (542,240  | ) |  | $ | 58,225,604
|                                   |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|                                   |  |               |            |                     
|December 31, 2008:                 |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|U.S. Treasury securities           |  | $             | 299,963    |                      | $ | 1,489                 |  | $ |          |   |  | $ | 301,452   
|U.S. Government sponsored agencies |  |               | 6,258,855  |                      |   | 164,932               |  |   | (22,969   | ) |  |   | 6,400,818 
|State and municipal securities     |  |               | 4,341,732  |                      |   | 27,669                |  |   | (40,723   | ) |  |   | 4,328,678 
|Mortgage-backed securities         |  |               | 36,312,666 |                      |   | 200,233               |  |   | (121,236  | ) |  |   | 36,391,663
|Trust preferred securities         |  |               | 753,000    |                      |   |                      |  |   |          |   |  |   | 753,000   
|                                   |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|Total debt securities              |  |               | 47,966,216 |                      |   | 394,323               |  |   | (184,928  | ) |  |   | 48,175,611
|Equity securities                  |  |               | 50,000     |                      |   |                      |  |   |          |   |  |   | 50,000    
|                                   |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|Total securities                   |  | $             | 48,016,216 |                      | $ | 394,323               |  | $ | (184,928  | ) |  | $ | 48,225,611
|                                   |  |               |            |                      |   |                       |  |   |           |   |  |   |           



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 2. | SECURITIES (Continued)
|------- | ----------------------



The amortized cost and fair value of debt securities as of June 30, 2009 by contractual maturity
are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.



|                           |  |               |            |           |   |           
|-------------------------- |  | ------------- | ---------- | --------- | - | ----------
|                           |  | AmortizedCost |            | FairValue
|                           |  |              
|Due in one year or less    |  | $             | 518,017    |           | $ | 517,182   
|Due from one to five years |  |               | 9,737,555  |           |   | 9,658,995 
|Due from five to ten years |  |               | 1,495,972  |           |   | 1,473,423 
|Due after ten years        |  |               | 103,000    |           |   | 103,000   
|Mortgage-backed securities |  |               | 46,801,735 |           |   | 46,423,004
|                           |  |               |            |           |   |           
|                           |  | $             | 58,656,279 |           | $ | 58,175,604
|                           |  |               |            |           |   |           

The following table shows the gross unrealized losses and fair value of securities, aggregated by
category and length of time that securities have been in a continuous unrealized loss position at June 30, 2009 and December 31, 2008.



|                                   |  |                         |            |                       |   |            |  |                  |           |  |   |       
|---------------------------------- |  | ----------------------- | ---------- | --------------------- | - | ---------- |  | ---------------- | --------- |  | - | ------
|                                   |  | Less Than Twelve Months |            | Twelve Months or More
|                                   |  | Fair Value              |            | UnrealizedLosses      |   | Fair Value |  | UnrealizedLosses
|June 30, 2009:                     |  |                         |            |                       |   |            |  |                  |           |  |   |       
|U.S. Government sponsored agencies |  | $                       | 9,588,850  |                       | $ | 84,670     |  | $                | 823,423   |  | $ | 22,549
|Mortgage-backed securities         |  |                         | 39,096,190 |                       |   | 434,378    |  |                  | 195,251   |  |   | 643   
|                                   |  |                         |            |                       |   |            |  |                  |           |  |   |       
|                                   |  | $                       | 48,685,040 |                       | $ | 519,048    |  | $                | 1,018,674 |  | $ | 23,192
|                                   |  |                         |            |                       |   |            |  |                  |           |  |   |       
|                                   |  |                         |            |                      
|December 31, 2008:                 |  |                         |            |                       |   |            |  |                  |           |  |   |       
|U.S. Government sponsored agencies |  | $                       | 938,294    |                       | $ | 22,969     |  | $                |          |  | $ |      
|State and municipal securities     |  |                         | 625,396    |                       |   | 40,723     |  |                  |          |  |   |      
|Mortgage-backed securities         |  |                         | 13,868,172 |                       |   | 85,119     |  |                  | 3,999,594 |  |   | 36,117
|                                   |  |                         |            |                       |   |            |  |                  |           |  |   |       
|                                   |  | $                       | 15,431,862 |                       | $ | 148,811    |  | $                | 3,999,594 |  | $ | 36,117
|                                   |  |                         |            |                       |   |            |  |                  |           |  |   |       

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis,
and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 2. | SECURITIES (Continued)
|------- | ----------------------



At June 30, 2009, five U.S. Government sponsored agencies and sixteen mortgage-backed securities
have unrealized losses for less than 12 months. One U.S. Government sponsored agency and one mortgage-backed security have been in an unrealized loss position for over 12 months.

At June 30, 2009, total debt securities with unrealized losses represent an aggregate depreciation of 1.08% from the Companys amortized cost
basis. These unrealized losses relate principally to current interest rates for similar types of securities and are determined to be temporary. In analyzing an issuers financial condition, management considers whether the securities are issued
by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts reports. As management has the ability to hold debt securities until maturity, or for the foreseeable future if
classified as available for sale, no declines are deemed to be other than temporary.

Restricted equity securities on the Consolidated
Balance Sheets consist solely of restricted equity securities of the Federal Home Loan Bank (FHLB) of Atlanta. These securities are carried at cost since they do not have readily determinable fair values due to their restricted nature
and the Company does not exercise significant influence.



|NOTE 3. | EARNINGS PER COMMON SHARE
|------- | -------------------------

Presented below is a summary of
the components used to calculate basic and diluted earnings per common share for the three and six months ended June 30, 2009 and 2008.



|                                                                                                                                     |  |                            |           |                          |      |   |           |  |   |           |   |  |   |          
|------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------- | --------- | ------------------------ | ---- | - | --------- |  | - | --------- | - |  | - | ---------
|                                                                                                                                     |  | Three Months EndedJune 30, |           | Six Months EndedJune 30,
|                                                                                                                                     |  | 2009                       |           |                          | 2008 |   | 2009      |  |   | 2008     
|                                                                                                                                     |  |                            |           |                         
|Net income (loss) available to common shareholders                                                                                   |  | $                          | (398,830  | )                        |      | $ | 38,015    |  | $ | (422,386  | ) |  | $ | 195,803  
|                                                                                                                                     |  |                            |           |                          |      |   |           |  |   |           |   |  |   |          
|                                                                                                                                     |  |                            |           |                         
|Weighted average common shares outstanding                                                                                           |  |                            | 2,309,553 |                          |      |   | 2,192,097 |  |   | 2,309,203 |   |  |   | 2,192,097
|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   |  |   | 215,684   |   |  |   | 215,684  
|                                                                                                                                     |  |                            |           |                          |      |   |           |  |   |           |   |  |   |          
|                                                                                                                                     |  |                            |           |                         
|Total weighted average common shares and common stock equivalents outstanding                                                        |  |                            | 2,525,237 |                          |      |   | 2,407,781 |  |   | 2,524,886 |   |  |   | 2,407,781
|                                                                                                                                     |  |                            |           |                          |      |   |           |  |   |           |   |  |   |          



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 4. | 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 and six month periods ended
June 30, 2009 and 2008. Therefore, there was no compensation cost related to share-based payments for the three and six months ended June 30, 2009 and 2008.

The following table represents stock option activity for the three and six months ended June 30, 2009:



|                                        |  |                                 |  |                               |      |                 |         |                              |   |                                      |  |        
|--------------------------------------- |  | ------------------------------- |  | ----------------------------- | ---- | --------------- | ------- | ---------------------------- | - | ------------------------------------ |  | -------
|                                        |  | Three Months EndedJune 30, 2009 |  | Six Months EndedJune 30, 2009
|                                        |  | Numberof Shares                 |  | WeightedAverageExercisePrice  |      | Numberof Shares |         | WeightedAverageExercisePrice |   | WeightedAverageRemainingContractLife
|                                        |  |                                 |  |                               |     
|Options outstanding beginning of period |  | 398,000                         |  | $                             | 2.68 |                 | 398,000 |                              | $ | 2.68                                 |  |        
|Options granted                         |  |                                |  |                               |     |                 |        |                              |   |                                     |  |        
|Options exercised                       |  |                                |  |                               |     |                 |        |                              |   |                                     |  |        
|                                        |  |                                 |  |                               |      |                 |         |                              |   |                                      |  |        
|Options outstanding end of period       |  | 398,000                         |  |                               | 2.68 |                 | 398,000 |                              |   | 2.68                                 |  | 0.5 Yrs
|                                        |  |                                 |  |                               |      |                 |         |                              |   |                                      |  |        
|Outstanding exercisable end of period   |  | 398,000                         |  |                               | 2.68 |                 | 398,000 |                              |   | 2.68                                 |  | 0.5 Yrs
|                                        |  |                                 |  |                               |      |                 |         |                              |   |                                      |  |        

The range of option prices for options outstanding and exercisable at June 30, 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 June 30,
2009. At June 30, 2009, the aggregate intrinsic value of options outstanding and exercisable was $2.9 million.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 5. | 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 6. | FAIR VALUE
|------- | ----------

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 6. | FAIR VALUE (Continued)
|------- | ----------------------



The table below presents the Companys assets and liabilities measured at fair value on a
recurring basis as of June 30, 2009 and December 31, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall.



|                                         |  |                                                             |   |                                             |   |                                        |  |       |   |  |   |           
|---------------------------------------- |  | ----------------------------------------------------------- | - | ------------------------------------------- | - | -------------------------------------- |  | ----- | - |  | - | ----------
|                                         |  | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   | Significant OtherObservable Inputs(Level 2) |   | SignificantUnobservableInputs(Level 3) |  | Total
|                                         |  |                                                             |   |                                            
|Assets as of June 30, 2009               |  |                                                             |   |                                             |   |                                        |  |       |   |  |   |           
|Investment securities available for sale |  | $                                                           |  |                                             | $ | 58,225,604                             |  | $     |  |  | $ | 58,225,604
|                                         |  |                                                             |   |                                             |   |                                        |  |       |   |  |   |           
|                                         |  |                                                             |   |                                            
|Total assets at fair value               |  | $                                                           |  |                                             | $ | 58,225,604                             |  | $     |  |  | $ | 58,225,604
|                                         |  |                                                             |   |                                             |   |                                        |  |       |   |  |   |           
|                                         |  |                                                             |   |                                            
|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 June 30, 2009 (dollars in thousands).



|                       |  |                                                               |   |                                           |   |                                      |  |       |            |  |   |           
|---------------------- |  | ------------------------------------------------------------- | - | ----------------------------------------- | - | ------------------------------------ |  | ----- | ---------- |  | - | ----------
|                       |  | Quoted Prices inActive Markets forIdentical SecuritiesLevel 1 |   | Significant OtherObservable InputsLevel 2 |   | SignificantUnobservableInputsLevel 3 |  | Total
|As of June 30, 2009    |  |                                                               |   |                                           |   |                                      |  |       |            |  |   |           
|Impaired loans         |  | $                                                             |  |                                           | $ |                                     |  | $     | 21,128,675 |  | $ | 21,128,675
|Foreclosed real estate |  |                                                               |  |                                           |   |                                     |  |       | 7,513,048  |  |   | 7,513,048 
|                       |  |                                                               |   |                                           |   |                                      |  |       |            |  |   |           
|                       |  |                                                               |   |                                          
|                       |  | $                                                             |  |                                           | $ |                                     |  | $     | 28,641,723 |  | $ | 28,641,723
|                       |  |                                                               |   |                                           |   |                                      |  |       |            |  |   |           



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 6. | FAIR VALUE (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 
|                        |  |                                                               |   |                                           |   |                                      |  |       |            |  |   |           
|                        |  |                                                               |   |                                          
|                        |  | $                                                             |  |                                           | $ |                                     |  | $     | 16,229,184 |  | $ | 16,229,184
|                        |  |                                                               |   |                                           |   |                                      |  |       |            |  |   |           

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. | FAIR VALUE (Continued)
|------- | ----------------------



Fair Value of Financial Instruments

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair
value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Companys various financial instruments. In cases where quoted market prices are not available, fair value is based
on discounted cash flows or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in
an immediate settlement of the instrument. SFAS No. 107, Disclosures about Fair Value of Financial Instruments, excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following methods and
assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash, Due From Banks and
Interest-bearing Deposits at Other Financial Institutions:The carrying amount of cash, due from banks and interest-bearing deposits at other financial institutions approximates fair value.

Securities:Fair value of securities is based on available quoted market prices. The carrying amount of equity securities with no readily
determinable fair value approximates fair value.

Loans:The carrying amount of variable-rate loans that reprice frequently and have
no significant change in credit risk approximates fair value. The fair value of fixed-rate loans is estimated based on discounted contractual cash flows, using interest rates currently being offered for loans with similar terms to borrowers with
similar credit quality. The fair value of impaired loans is estimated based on discounted contractual cash flows or underlying collateral values, where applicable.

Deposits:The carrying amount of demand deposits, savings deposits, and variable-rate certificates of deposit approximates fair value. The fair value of fixed-rate certificates of deposit is estimated based on
discounted contractual cash flows using interest rates currently being offered for certificates of similar maturities.

Federal Funds
Purchased: The carrying amount of federal funds purchased approximates fair value.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 6. | FAIR VALUE (Continued)
|------- | ----------------------



Fair Value of Financial Instruments (Continued)



Federal Home Loan Bank Advances and Note Payable:The carrying amount of variable rate Federal
Home Loan Bank advances and notes payable approximate fair value.

Securities Sold Under Repurchase Agreements:The carrying amount
of securities sold under repurchase agreements approximates their fair value.

Trust Preferred Securities: The fair value of the
Companys variable rate trust preferred securities approximates the carrying value.

Accrued Interest:The carrying amount of
accrued interest approximates their fair value.

Off-Balance Sheet Instruments:The carrying amount of commitments to extend credit
and standby letters of credit approximates fair value. The carrying amount of the off-balance sheet financial instruments is based on fees charged to enter into such agreements.

The carrying amount and fair value of the Companys financial instruments were as follows:



|                                                                   |  |                |             |           |   |            
|------------------------------------------------------------------ |  | -------------- | ----------- | --------- | - | -----------
|                                                                   |  | June 30, 2009 
|                                                                   |  | CarryingAmount |             | FairValue
|Financial assets:                                                  |  |                |             |           |   |            
|Cash, due from banks, and deposits at other financial institutions |  | $              | 5,720,064   |           | $ | 5,720,064  
|Securities                                                         |  |                | 59,055,604  |           |   | 59,055,604 
|Loans, net                                                         |  |                | 231,852,777 |           |   | 230,772,000
|Accrued interest receivable                                        |  |                | 2,261,596   |           |   | 2,261,596  
|                                                                   |  |               
|Financial liabilities:                                             |  |                |             |           |   |            
|Deposits                                                           |  |                | 286,226,968 |           |   | 290,856,000
|Note payable                                                       |  |                | 367,000     |           |   | 367,000    
|Federal Home Loan Bank advances                                    |  |                | 6,000,000   |           |   | 6,000,000  
|Securities sold under repurchase agreements                        |  |                | 2,900,000   |           |   | 2,900,000  
|Company guaranteed trust preferred securities                      |  |                | 3,403,000   |           |   | 3,403,000  
|Accrued interest payable                                           |  |                | 2,104,557   |           |   | 2,104,557  



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 7. | 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 adoption of FSP FAS 157-4 did not have a material impact on the Companys consolidated financial statements.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 7. | 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 adoption of FSP FAS 107-1 and APB 28-1 did not have a material impact on the Companys 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 adoption of FSP FAS 115-1 and FAS 124-2 did not have a material impact on the Companys 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. SAS 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 7. | RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
|------- | --------------------------------------------



On June 29, 2009, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principlesa replacement of FASB Statement No. 162 (SFAS 168). SFAS No. 168 establishes the FASB
Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with US GAAP. SFAS 168 will be
effective for financial statements issued for interim and annual periods ending after September 15, 2009, for most entities. On the effective date, all non-SEC accounting and reporting standards will be superseded. The Company will adopt SFAS
168 for the quarterly period ended September 30, 2009, as required, and adoption is not expected to have a material impact on its financial statements taken as a whole.

On June 12, 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets (SFAS 166), and SFAS
No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167), which change the way entities account for securitizations and special-purpose entities.

SFAS 166 is a revision to FASB SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
and will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. SFAS 166 also eliminates the concept of
a qualifying special-purpose entity, changes the requirements for derecognizing financial assets and requires additional disclosures.

SFAS 167 is a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or
similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entitys purpose and design and a companys ability to direct the activities of the
entity that most significantly impact the entitys economic performance.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 7. | RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
|------- | --------------------------------------------



Both SFAS 166 and SFAS 167 will be effective as of the beginning of each reporting entitys
first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The recognition and
measurement provisions of SFAS 166 shall be applied to transfers that occur on or after the effective date. The Company will adopt both SFAS 166 and SFAS 167 on January 1, 2010, as required. Management has not determined the impact adoption may
have on the Companys consolidated financial statements.

On May 28, 2009, the FASB issued SFAS No. 165, Subsequent
Events (SFAS 165). Under SFAS 165, companies are required to evaluate events and transactions that occur after the balance sheet date but before the date the financial statements are issued, or available to be issued in the case of
non-public entities. SFAS 165 requires entities to recognize in the financial statements the effect of all events or transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent
in the financial preparation process. Entities shall not recognize the impact of events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. SFAS 165 also requires entities to
disclose the date through which subsequent events have been evaluated. SFAS 165 was effective for interim and annual reporting periods ending after June 15, 2009. The Company adopted the provisions of SFAS 165 for the quarter ended
June 30, 2009, as required, and adoption did not have a material impact on its financial statements taken as a whole.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 7. | 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.

On May 22, 2009, the FDIC Board of Directors (Board) adopted the final rule on special assessments. The special assessment will be calculated at 5
basis points times each insured depositor institutions assets minus Tier 1 capital as reported in the report of condition of June 30, 2009. The amount of the special assessment for any institution will not exceed 10 basis points times the
institutions assessment base for the second quarter 2009 risk-based assessment. The special assessment will be collected on September 30, 2009, at the same time the regular quarterly risk-based assessment for the second quarter 2009 are
collected. The Board may, by vote, impose an additional special assessment in 2009 of up to 5 basis points on assets minus Tier 1 capital on all insured depository institutions if the Board believes that the reserve ratio of the DIF is estimated to
fall to a level that would adversely affect public confidence or to a level which shall be close to or below zero. Any such additional special assessment will not exceed 10 basis points times the institutions assessment base for the
corresponding quarter. The latest possible date for imposing an additional special assessment under the final rule would be December 1, 2009, with collection on March 30, 2010. 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 8. | 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 May 8, 2011 or when all 1,500,000 shares of common stock are sold,
whichever occurs first. The Company has sold 96,534 shares through the secondary stock offering.

On May 27, 2009, the Company filed
Prospectus Supplement No. 1 to the prospectus dated May 8, 2008 discussed above. This filing is necessary as part of the ongoing offering.



|NOTE 9. | FEDERAL HOME LOAN BANK ADVANCES
|------- | -------------------------------

During 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 March 2010.



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##### Table of Contents

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

The following is managements discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying consolidated
financial statements.

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 June 30, 2009, deferred income taxes of $1,474,000 are included in other assets. Changes in the estimate about future taxable income could significantly affect the determination
of the necessity for a valuation allowance for deferred tax assets.



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FINANCIAL CONDITION

Total assets increased during the first six months of 2009 by $18.5 million from $300.7 million to $319.2 million, or 6.16%. The growth was funded by increases in total deposits, which increased by $16.3 million, or 6.04%, and increases in
Federal Home Loan Bank advances of $4.0 million. The increase in total assets for the six months ended June 30, 2009 consisted primarily of net increases in cash of $1.6 million, available for sale securities of $10.0 million, and foreclosed
real estate of $5.3 million. The loan to deposit ratio at June 30, 2009 was 82% compared to 86% at December 31, 2008.

Stockholders equity
decreased by $861,000 for the six months ended June 30, 2009. This net decrease consisted of net loss of $373,000, dividends paid of $50,000, and net decreases in accumulated other comprehensive income of $455,000 offset by proceeds from
issuance of common stock of $17,000.

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 $16,453,000 at June 30, 2009, representing an increase of $3,759,000 (29.61%) from December 31, 2008. This increase is primarily attributable to an increase
of $5,293,000 in foreclosed real estate, offset by a decrease of $1.5 million in past dues over 90 days. Total nonperforming assets were 6.98% of total loans at June 30, 2009, compared to 5.44% at December 31, 2008. Nonperforming assets
represented 5.17% of total assets at June 30, 2009, compared to 4.22% of total assets at December 31, 2008. Nonaccrual loans represented 3.78% of total loans outstanding at June 30, 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 June 30, 2009.

At June 30, 2009, the
Company had loan concentrations in real estate totaling $219,703,000 or 93.2% of total loans. Commercial and industrial loans of $11,512,000 made up 4.9% of total loans. The remaining $4,825,000 or 1.9%, 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
June 30, 2009, the Banks liquidity ratio of 18.84% was considered satisfactory in relation to regulatory guidelines and internal targets. At June 30, 2009, the Company had the ability to borrow an additional $25.0 million in Federal
Home Loan Bank advances. In addition, the Company can borrow up to $5,000,000 on a thirty day repurchase agreement with SunTrust. The Company had borrowed $2,900,000 of this amount as of June 30, 2009.



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REGULATORY CAPITAL REQUIREMENTS

Banking regulations require us to maintain minimum capital levels in relation to assets. At June 30, 2009, the Banks total risk-based capital ratio was considered adequately capitalized based on regulatory
minimum capital requirements. The Banks other capital ratios were considered well capitalized based on regulatory minimum capital requirements as of June 30, 2009. The minimum capital requirements and the actual capital ratios for the
Company and Bank at June 30, 2009 are as follows:



|                          |  |         |   |  |      |   |  |                              |  
|------------------------- |  | ------- | - |  | ---- | - |  | ---------------------------- | -
|                          |  | Company |   |  | Bank |   |  | RegulatoryMinimumRequirement |  
|                          |  |         |  
|Leverage Capital Ratio    |  | 6.81    | % |  | 6.80 | % |  | 4.00                         | %
|Risk-Based Capital Ratios |  |         |   |  |      |   |  |                              |  
|Core Capital              |  | 8.76    | % |  | 8.72 | % |  | 4.00                         | %
|Total Capital             |  | 10.01   | % |  | 9.97 | % |  | 8.00                         | %

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

OFF BALANCE SHEET ARRANGEMENTS

Our financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of business. These off-balance sheet financial
instruments include commitments to extend credit and standby letters of credit. Such financial instruments are included in the financial statements when funds are distributed or the instruments become payable. Our exposure to credit loss in the
event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. We use the same credit policies in making
commitments as we do for on-balance sheet instruments. Although these amounts do not necessarily represent future cash requirements, a summary of our commitments as of June 30, 2009 are as follows:



|                                    |  |              |           
|----------------------------------- |  | ------------ | ----------
|                                    |  | June 30,2009
|                                    | 
|Commitments to extend credit        |  | $            | 16,171,000
|Financial standby letters of credit |  |              | 2,168,000 
|Other standby letters of credit     |  |              | 550,000   
|                                    |  |              |           
|                                    |  | $            | 18,889,000
|                                    |  |              |           



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RESULTS OF OPERATIONS

Three and Six Months Ended June 30, 2009 and 2008

Net Interest Income. Net interest income decreased by $248,000 and $1,125,000
for the three and six month periods ended June 30, 2009, respectively, compared to the same periods 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 2.30% at June 30, 2009 as compared to 3.34% at June 30, 2008 and 2.94% for the entire year ended December 31, 2008.

The yield on interest-earning assets decreased from 7.48% to 6.22%, or 126 basis points, from June 30, 2008 to June 30, 2009. The rate paid on interest-bearing liabilities decreased from 4.64% to 4.15%, or
49 basis points, for the same period. The decrease in the rate paid on interest-bearing liabilities is due primarily to the 175 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 Six Months EndedJune 30, 2009 |         |                | For the Six Months EndedJune 30, 2008 |                
|                                        |  | AverageBalance                        |         | Income/Expense |                                       | Yields/Rates(2) |  |      | AverageBalance |  | Income/Expense |         | Yields/Rates(2) |  
|                                        |  | (Dollars in thousands)                |        
|Earning assets:                         |  |                                       |         |                |                                       |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|Loans, net of unearned income           |  | $                                     | 225,007 |                | $                                     | 7,649           |  | 6.86 | %              |  | $              | 207,101 |                 | $ | 8,389 |  | 8.17 | %
|Taxable securities                      |  |                                       | 48,818  |                |                                       | 840             |  | 3.47 |                |  |                | 41,614  |                 |   | 1,018 |  | 4.93 |  
|Nontaxable securities                   |  |                                       | 3,279   |                |                                       | 59              |  | 3.61 |                |  |                | 7,701   |                 |   | 145   |  | 3.79 |  
|Interest-bearing deposits               |  |                                       | 29      |                |                                       |                |  | 0.30 |                |  |                | 123     |                 |   | 3     |  | 5.71 |  
|Federal funds sold                      |  |                                       | 23      |                |                                       |                |  | 0.08 |                |  |                | 1,600   |                 |   | 23    |  | 2.90 |  
|                                        |  |                                       |         |                |                                       |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|Total interest-earning assets(1)        |  | $                                     | 277,156 |                | $                                     | 8,548           |  | 6.22 |                |  | $              | 258,139 |                 | $ | 9,578 |  | 7.48 |  
|                                        |  |                                       |         |                |                                       |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|                                        |  |                                       |         |                |                                       |                
|Interest-bearing liabilities:           |  |                                       |         |                |                                       |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|Demand and savings deposits             |  | $                                     | 33,444  |                | $                                     | 359             |  | 2.16 |                |  | $              | 22,553  |                 | $ | 389   |  | 3.48 |  
|Time deposits                           |  |                                       | 217,109 |                |                                       | 4,925           |  | 4.57 |                |  |                | 202,128 |                 |   | 4,754 |  | 4.74 |  
|                                        |  |                                       |         |                |                                       |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|Total deposits                          |  |                                       | 250,553 |                |                                       | 5,284           |  | 4.25 |                |  |                | 224,681 |                 |   | 5,143 |  | 4.62 |  
|                                        |  |                                       |         |                |                                       |                
|Other short-term borrowings             |  |                                       | 7,773   |                |                                       | 31              |  | 0.79 |                |  |                | 2,128   |                 |   | 36    |  | 3.44 |  
|Long-term debt                          |  |                                       | 3,403   |                |                                       | 76              |  | 4.51 |                |  |                | 3,403   |                 |   | 117   |  | 6.92 |  
|                                        |  |                                       |         |                |                                       |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|Total interest-bearing liabilities      |  | $                                     | 261,729 |                |                                       | 5,391           |  | 4.15 |                |  | $              | 230,212 |                 |   | 5,296 |  | 4.64 |  
|                                        |  |                                       |         |                |                                       |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|                                        |  |                                       |         |                |                                       |                
|Net interest income/net interest spread |  |                                       |         |                | $                                     | 3,157           |  | 2.07 | %              |  |                |         |                 | $ | 4,282 |  | 2.84 | %
|                                        |  |                                       |         |                |                                       |                 |  |      |                |  |                |         |                 |   |       |  |      |  
|                                        |  |                                       |         |                |                                       |                
|Net yield on earning assets             |  |                                       |         |                |                                       |                 |  | 2.30 | %              |  |                |         |                 |   |       |  | 3.34 | %
|                                        |  |                                       |         |                |                                       |                 |  |      |                |  |                |         |                 |   |       |  |      |  



|(1) | Average securities exclude average unrealized gains of $283,000 and $475,000 for the six months ended June 30, 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 $430,000 was made during the six month period ending June 30, 2009 as compared to a provision of $710,000 made during the six month period ending June 30, 2008. The allowance for loan loss as a
percentage of total loans was 1.64%, 1.87%, and 1.60% at June 30, 2009, December 31, 2008 and June 30, 2008, respectively. Total nonaccrual loans increased by $1,484,000, net charge-offs increased by $422,000, and loans past due
ninety days or more and still accruing increased by $29,000 for the six months ended June 30, 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 June 30, 2009 is adequate to absorb any foreseeable losses in the loan portfolio.

At June 30, 2009 and 2008, nonaccrual, past due and restructured loans were as follows:



|                                                                                                         |  |                        |       |      |   |      
|-------------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ---- | - | -----
|                                                                                                         |  | June 30,              
|                                                                                                         |  | 2009                   |       | 2008
|                                                                                                         |  | (Dollars in thousands)
|                                                                                                         |  |                       
|Total nonaccruing loans                                                                                  |  | $                      | 7,594 |      | $ | 6,110
|Loans contractually past due ninety days or more as to interest or principal payments and still accruing |  |                        | 38    |      |   | 9    
|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.



25



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##### Table of Contents

Information regarding certain loans and allowance for loan loss data for the six months ended June 30, 2009 and 2008
is as follows:



|                                                                              |  |                          |         |   |      |   |         |  
|----------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                              |  | Six Months EndedJune 30, |        
|                                                                              |  | 2009                     |         |   | 2008 |  
|                                                                              |  | (Dollars in thousands)   |        
|                                                                              |  |                         
|Average amount of loans outstanding                                           |  | $                        | 225,007 |   |      | $ | 207,101 |  
|                                                                              |  |                          |         |   |      |   |         |  
|                                                                              |  |                         
|Balance of allowance for loan losses at beginning of period                   |  | $                        | 4,369   |   |      | $ | 3,349   |  
|                                                                              |  |                          |         |   |      |   |         |  
|Loans charged off                                                             |  |                          |         |   |      |   |         |  
|Commercial                                                                    |  |                          | (700    | ) |      |   | (780    | )
|Real estate                                                                   |  |                          |        |   |      |   |        |  
|Installment                                                                   |  |                          | (283    | ) |      |   | (152    | )
|                                                                              |  |                          |         |   |      |   |         |  
|                                                                              |  |                          | (983    | ) |      |   | (932    | )
|                                                                              |  |                          |         |   |      |   |         |  
|                                                                              |  |                         
|Loans recovered                                                               |  |                          |         |   |      |   |         |  
|Commercial                                                                    |  |                          | 4       |   |      |   | 411     |  
|Real estate                                                                   |  |                          |        |   |      |   |        |  
|Installment                                                                   |  |                          | 56      |   |      |   | 20      |  
|                                                                              |  |                          |         |   |      |   |         |  
|                                                                              |  |                          | 60      |   |      |   | 431     |  
|                                                                              |  |                          |         |   |      |   |         |  
|                                                                              |  |                         
|Net charge-offs                                                               |  |                          | (923    | ) |      |   | (501    | )
|                                                                              |  |                          |         |   |      |   |         |  
|                                                                              |  |                         
|Additions to allowance charged to operating expense during period             |  |                          | 430     |   |      |   | 710     |  
|                                                                              |  |                          |         |   |      |   |         |  
|                                                                              |  |                         
|Balance of allowance for loan losses at end of period                         |  | $                        | 3,876   |   |      | $ | 3,558   |  
|                                                                              |  |                          |         |   |      |   |         |  
|                                                                              |  |                         
|Ratio of net loans charged-off during the period to average loans outstanding |  |                          | 0.41    | % |      |   | 0.24    | %
|                                                                              |  |                          |         |   |      |   |         |  

Other Income. Other income decreased by $340,000 and increased by $250,000 for the three and six months
ended June 30, 2009, respectively, compared to the same periods in 2008. The most significant component of other income is service charges on deposit accounts which accounts for 44% and 62% of total other income for June 30, 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 six month period ended June 30, 2009, as compared to the six months ended June 30, 2008, is largely due to the recording of gains on sales of available for sale
securities of $781,000, offset by a decrease in gains on sale of foreclosed real estate of $419,000. The decrease in other income for the three months ended June 20, 2009, as compared to the three months ended June 30, 2008, was a result
of a decrease in gains on sale of foreclosed real estate of $419,000 and an increase of $165,000 in gains on sales of available for sale securities.

Other Expenses. Other expenses increased by $232,000 and $249,000 for the three and six months ended June 30, 2009, respectively, compared to the same period in 2008. The increases consist of increases of $16,000 and $56,000 in
occupancy and equipment expenses and $307,000 and $302,000 in other operating expenses, offset by decreases in salaries and employee benefits of $91,000 and $109,000 for the three and six month periods, respectively.



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##### Table of Contents

At June 30, 2009, the number of full-time equivalent employees was 89 compared to 92 at June 30, 2008.

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 and second quarter 2009 consist of operating expenses and taxes only. The net loss for the three and six months ended June 30, 2009 was $2,000 and $3,000,
respectively, as compared to a loss of $2,000 and $6,000 for the three and six months ended June 30, 2008, respectively.

Income Taxes. Income
tax expense decreased by $214,000 and $276,000 for the three and six months ended June 30, 2009, respectively, as compared to the same periods in 2008. The effective tax rate for the six month periods in 2009 and 2008 was 39% and 15%,
respectively. The effective tax rate for 2008 is less than the statutory tax rate due to nontaxable interest income on securities.

Net Income. Net
income decreased by $437,000 and $568,000 for the three and six months ended June 30, 2009, respectively, as compared to the same periods in 2008. This decrease is largely the result of the decrease in net interest income since 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
|------- | -----------------------

Management has developed and implemented a
policy and procedures for reviewing disclosure controls and procedures and internal controls over financial reporting on a quarterly basis. Management, including the Chief Executive Officer and the Principal Financial and Accounting Officer, has
evaluated the effectiveness of the design and operation of disclosure controls and procedures as of June 30, 2009 and, based on such evaluation, has concluded that these controls and procedures are effective. Disclosure controls and procedures
are the Companys controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 (the Exchange
Act) is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to management including the Chief Executive Officer and Principal Financial and Accounting Officer, as
appropriate to allow timely decisions regarding required disclosure.

There were no changes in the Companys internal control over financial reporting
during the Companys last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation.



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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
|------- | ---------------------------------------------------

The annual meeting of the stockholders of Capitol City Bancshares, Inc. was held on June 22, 2009. A total of 1,661,590 of the shares issued and outstanding registered for the meeting either in person or by proxy. The results of the
meeting were as follows:

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



|                          |  |           |  |         |  |        
|------------------------- |  | --------- |  | ------- |  | -------
|Directors                 |  | For       |  | Against |  | Abstain
|                          |  |           | 
|George D. Andrews         |  | 1,655,504 |  | 0       |  | 1,336  
|Dr. Gloria Campbell DHue |  | 1,655,504 |  | 0       |  | 1,336  
|Leon Goodrum              |  | 1,655,504 |  | 0       |  | 1,336  
|Charles W. Harrison       |  | 1,655,504 |  | 0       |  | 1,336  
|Robert A. Holmes          |  | 1,655,504 |  | 0       |  | 1,336  
|Dr. Moses M. Jones        |  | 1,655,504 |  | 0       |  | 1,586  
|Marian S. Jordan          |  | 1,655,504 |  | 0       |  | 1,336  
|Roy W. Sweat              |  | 1,655,504 |  | 0       |  | 1,336  
|William Thomas            |  | 1,655,504 |  | 0       |  | 1,536  
|Cordy T. Vivian           |  | 1,655,504 |  | 0       |  | 1,336  
|E.R. Mitchell, Jr.        |  | 1,655,504 |  | 0       |  | 1,336  
|Shelby R. Wilkes          |  | 1,655,504 |  | 0       |  | 1,336  
|Tarlee W. Brown           |  | 1,655,504 |  | 0       |  | 5,636  
|John T. Harper            |  | 1,655,504 |  | 0       |  | 1,336  
|Pratap Singh              |  | 1,655,504 |  | 0       |  | 1,336  



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##### Table of Contents

|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).                                                                                                                                                                                                                                                 
|       | 
|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                                                                                                                                                                                                                                                                                                                                                                                                     



29



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SIGNATURES

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



|                      |  |                                                                 
|--------------------- |  | ----------------------------------------------------------------
|                      |  | CAPITOL CITY BANCSHARES, INC.                                   
|                      | 
|Date: August 14, 2009 |  | /s/ George G. Andrews                                           
|                      |  | George G. Andrews                                               
|                      |  | CEO, President and Director                                     
|                      | 
|Date: August 14, 2009 |  | /s/ Tatina Brooks                                               
|                      |  | Tatina Brooks                                                   
|                      |  | Senior Vice President of Accounting and                         
|                      |  | Financial Reporting (Principal Financial and Accounting Officer)



30