UNITED STATES SECURITIES AND EXCHANGE COMMISSION



Washington, DC 20549



FORM 10-QSB



[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the Quarterly Period Ended June 30, 2005

OR



[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the Transition Period from __________ to ___________

Commission File Number 000-51269



ALLIED BANCSHARES, INC.

(Exact name of registrant as specified in its charter)



|Georgia                  | 92-0184877                          
|------------------------ | ------------------------------------
|(State of Incorporation) | (I.R.S. Employer Identification No.)





|1700 Market Place Boulevard, Cumming, GA | 30041     
|---------------------------------------- | ----------
|(Address of principal executive offices) | (Zip Code)



770-888-0063

(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 preceding 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.



YESX  NO__





State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable

date:



Common stock, $.10 par value per share: 1,500,000 shares

issued and outstanding as of August 4, 2005.





Transitional Small Business Disclosure Format (check one):  Yes   _     No x





1



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ALLIED BANCSHARES, INC.

Form 10-QSB



Index



|        |                                                                                                                   | Page
|------- | ----------------------------------------------------------------------------------------------------------------- | ----
|PART I  | FINANCIAL INFORMATION                                                                                             |     
|Item 1. | Financial Statements (Unaudited)                                                                                  |     
|        | Condensed Consolidated Balance Sheet as of June 30, 2005                                                          | 3   
|        | Condensed Consolidated Statements of Operations for the Three Month and the Six Month Periods ended June 30, 2005 | 4   
|        | Condensed Consolidated Statement of Comprehensive Income for the Three and Six Month Periods ended June 30, 2005  | 5   
|        | Condensed Consolidated Statements of Cash Flows for the Six Month Period ended June 30, 2005                      | 6   
|        | Notes to Condensed Consolidated Financial Statements                                                              | 7   
|Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operation                              | 8   
|Item 3. | Controls and Procedures                                                                                           | 11  
|PART II | OTHER INFORMATION                                                                                                 | 11  
|Item 4. | Submission of Matters to a Vote of Security Holders                                                               | 11  
|Item 6. | Exhibits                                                                                                          | 13  
|        | SIGNATURES                                                                                                        | 13  





2



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PART I.  FINANCIAL INFORMATION



Item 1.   Financial Statements



ALLIED BANCSHARES, INC.



CONSOLIDATED BALANCE SHEET

(UNAUDITED)



JUNE 30, 2005





|                                                                                                    |   |            
|--------------------------------------------------------------------------------------------------- | - | -----------
|Assets                                                                                              |   |            
|Cash and due from banks                                                                             | $ | 3,476,281  
|Federal funds sold                                                                                  |   | 4,066,000  
|Interest-bearing deposits in banks                                                                  |   | 12,105,985 
|Total cash and cash equivalents                                                                     |   | 19,648,266 
|                                                                                                    |   |            
|Investment securities                                                                               |   | 2,080,224  
|Other investment                                                                                    |   | 896,292    
|Loans, net                                                                                          |   | 74,778,017 
|Premises and equipment, net of depreciation                                                         |   | 3,690,212  
|Other assets                                                                                        |   | 418,526    
|Total assets                                                                                        | $ | 101,511,537
|                                                                                                    |   |            
|                                                                                                    |   |            
|Liabilities and Stockholders Equity                                                                |   |            
|                                                                                                    |   |            
|Liabilities:                                                                                        |   |            
|Deposits:                                                                                           |   |            
|Noninterest-bearing demand                                                                          | $ | 5,402,257  
|Interest bearing demand                                                                             |   | 23,227,249 
|Savings                                                                                             |   | 2,902,803  
|Time                                                                                                |   | 56,282,253 
|Total deposits                                                                                      |   | 87,814,562 
|Accrued interest payable and other liabilities                                                      |   | 390,771    
|Total liabilities                                                                                   |   | 88,205,333 
|                                                                                                    |   |            
|Commitments                                                                                         |   |            
|                                                                                                    |   |            
|Stockholders equity:                                                                               |   |            
|Common stock, $.10 par value, 10,000,000 shares authorized; 1,500,000 shares issued and outstanding |   | 150,000    
|Additional paid-in capital                                                                          |   | 14,766,668 
|Accumulated deficit                                                                                 |   | (1,603,379)
|Accumulated other comprehensive income                                                              |   | (7,085)    
|Total stockholders equity                                                                          |   | 13,306,204 
|Total liabilities and stockholders equity                                                          | $ | 101,511,537



See accompanying notes to financial statements.



3



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ALLIED BANCSHARES, INC.



CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



FOR THE THREE MONTHS AND SIX MONTHS ENDING JUNE 30, 2005





| |  | Three Months
Ending June 30 | Six months
Ending June 30
| |  | --------------------------- | -------------------------



|                                                              |   | 2005      | 2004      | 2005      | 2004     
|------------------------------------------------------------- | - | --------- | --------- | --------- | ---------
|Interest income                                               |   |           |           |           |          
|Interest and fees on loans                                    | $ | 1,282,872 | 242,791   | 2,272,388 | 242,791  
|Deposits in banks                                             |   | 58,031    | 41,735    | 81,670    | 41,735   
|Federal funds sold                                            |   | 47,513    | 16,337    | 76,784    | 16,337   
|Investment securities                                         |   | 23,986    | 13,393    | 50,316    | 13,393   
|Total interest income                                         |   | 1,412,402 | 314,256   | 2,481,158 | 314,256  
|                                                              |   |           |           |           |          
|Interest expense                                              |   |           |           |           |          
|Interest bearing deposits                                     |   | 138,693   | 27,894    | 234,159   | 27,894   
|Time deposits                                                 |   | 422,998   | 43,746    | 706,389   | 43,746   
|Total interest expense                                        |   | 561,693   | 71,640    | 940,548   | 71,640   
|                                                              |   |           |           |           |          
|Net interest income                                           |   | 850,709   | 242,616   | 1,540,610 | 242,616  
|                                                              |   |           |           |           |          
|Provision for loan losses                                     |   | 138,434   | 261,647   | 291,259   | 261,647  
|                                                              |   |           |           |           |          
|Net interest income (expense) after provision for loan losses |   | 712,275   | (19,031)  | 1,249,351 | (19,031) 
|                                                              |   |           |           |           |          
|Other income, service charges and other fees                  |   | 50,450    | 5,240     | 142,512   | 5,240    
|                                                              |   |           |           |           |          
|Other expense                                                 |   |           |           |           |          
|Salaries and benefits                                         |   | 464,689   | 338,159   | 872,867   | 506,759  
|Net occupancy and equipment expense                           |   | 103,428   | 59,767    | 188,257   | 91,581   
|Other operating expenses                                      |   | 152,791   | 74,721    | 330,013   | 139,779  
|Total other expense                                           |   | 720,908   | 472,647   | 1,391,137 | 738,119  
|                                                              |   |           |           |           |          
|Net earnings (loss)                                           | $ | 41,817    | (486,438) | 727       | (751,910)
|                                                              |   |           |           |           |          
|Basic and diluted earnings (loss) per share                   | $ | .03       | (.32)     | .00       | (.50)    
|                                                              |   |           |           |           |          
|Weighted average number of shares                             |   | 1,500,000 | 1,500,000 | 1,500,000 | 1,500,000





See accompanying notes to financial statements.



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ALLIED BANCSHARES, INC AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)



FOR THE THREE MONTHS AND SIX MONTHS ENDING JUNE 30, 2005





| |                                                               | Three Months
Ending June 30 | Six months
Ending June 30
| | ------------------------------------------------------------- | --------------------------- | -------------------------
| |                                                               |                             | 2005                     
| | Net earnings (loss)                                           | $                           | 41,817                   
| | Other comprehensive income (loss):                            |                             |                          
| | Unrealized losses on investment securities
available-for-sale |                             | 22,929                   
| | Associated tax benefit                                        |                             | 8,713                    
| | Other comprehensive income (loss)                             |                             | 14,216                   
| | Comprehensive income (loss)                                   | $                           | 56,033                   





5



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ALLIED BANCSHARES, INC. AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



FOR THE SIX MONTHS ENDED JUNE 30, 2005 and 2004









|                                                                                                                    |   | 2005         | 2004        
|------------------------------------------------------------------------------------------------------------------- | - | ------------ | ------------
|Cash flows from operating activities:                                                                               |   |              |             
|Net loss                                                                                                            | $ | 727          | (751,910)   
|                                                                                                                    |   |              |             
|Adjustments to reconcile net loss to net cash used in operating activities:                                         |   |              |             
|Depreciation and amortization                                                                                       |   | 117,143      | 20,337      
|Provision for loan loss                                                                                             |   | 291,259      | 261,647     
|Increase in interest receivable                                                                                     |   | (84,304)     | (100,203)   
|Increase in interest payable and other liabilities                                                                  |   | 242,336      | 53,801      
|Other operating activities, net                                                                                     |   | (25,962)     | (75,736)    
|Net cash used by operating activities                                                                               |   | 541,199      | (592,064)   
|                                                                                                                    |   |              |             
|Cash flows from investing activities:                                                                               |   |              |             
|Proceeds from investment securities called or matured                                                               |   | 3,000,000    | -           
|Purchases of investment securities                                                                                  |   | (2,097,740)  | (3,057,231) 
|Purchases of other investments                                                                                      |   | (36,000)     | (764,892)   
|Net increase in loans                                                                                               |   | (23,300,754) | (20,031,776)
|Purchase of land and fixed assets                                                                                   |   | (217,509)    | (1,434,661) 
|Net cash used by investing activities                                                                               |   | (22,652,003) | (25,288,560)
|                                                                                                                    |   |              |             
|Cash flows from financing activities:                                                                               |   |              |             
|Net increase in deposits                                                                                            |   | 35,089,930   | 20,292,779  
|Issuance of stock                                                                                                   |   |              | 14,999,990  
|Change in line of credit                                                                                            |   |              | (488,196)   
|Deferred offering expenses                                                                                          |   |              | (8,223)     
|Net cash provided by financing activities                                                                           |   | 35,089,930   | 34,796,350  
|                                                                                                                    |   |              |             
|Net change in cash and cash equivalents                                                                             |   | 12,979,126   | 8,915,726   
|                                                                                                                    |   |              |             
|Cash and cash equivalents at beginning of the period                                                                |   | 6,669,140    | 1,507       
|                                                                                                                    |   |              |             
|Cash and cash equivalents at end of period                                                                          | $ | 19,648,266   | 8,917,233   
|                                                                                                                    |   |              |             
|                                                                                                                    |   |              |             
|Non-cash investing and financing activities:
Change in unrealized loss on securities
available for sale, net of tax | $ | (4,475)      | (11,652)    
|                                                                                                                    |   |              |             
|Supplemental information:
Interest paid                                                                             | $ | 940,547      | 77,685      



See accompanying notes to financial statements.



6



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ALLIED BANCSHARES, INC.



Notes to Financial Statements



(1)

Organization

Allied Bancshares, Inc. (the Company), a bank holding company, owns  100% of the outstanding common stock of First National Bank of Forsyth County (the Bank), a bank operating in Forsyth and Hall counties in Georgia.  During the first and second quarters of 2004, the Company raised $14,916,668, net of offering expenses of $83,332, through the sale of 1,500,000 shares of its $.10 par value common stock at $10.00 per share.  The Company used $10,000,000 of the net proceeds from this public offering to purchase 100% of the outstanding common stock of the Bank.  The organizers of the Bank filed an application to organize the Bank with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation and upon receiving final approval of the application from both of these regulatory agencies, the Bank opened for business on April 5, 2004.



Operations through April 4, 2004 relate primarily to expenditures by the organizers for incorporating and organizing the Company and the Bank. The Company was previously reported on as a development stage corporation.  All expenditures by the organizers are considered expenditures of the Company.



In connection with the Companys formation and initial offering, the Company issued 287,142 warrants to purchase its common stock to the organizers.  The warrants allow each holder to purchase one additional share of common stock at $10 per share. The warrants are exercisable on each of the three succeeding anniversaries of the date of the close of the initial offering and expire ten years after the date of grant.  During the period the Board of Directors approved the 2004 Stock Option Plan for eligible employees.  Under the Plan 200,000 shares have been reserved for stock option grants to officers and other key employees.



In the opinion of management, all adjustments which are necessary for a fair statement of operations for the periods presented have been included.



(2)     Basis of Presentation

The accounting principles followed by the Company and the methods of applying these principles conform with accounting principles generally accepted in the United States of America (GAAP) and with general practices within the banking industry.  In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts in the financial statements.  Actual results could differ significantly from those estimates.  Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determinations of the allowance for loan losses, the valuation of real estate acquired in connection with or in lieu of foreclosure on loans, and valuation allowance associated with deferred tax assets, the recognition of which are based on future taxable income.



(3)

Earnings (Loss) Per Share

Basic earnings per share are based on the number of shares issued by the Company in its initial public offering of 1,500,000 shares, while the effects of potential shares outstanding during the period are included in diluted earnings per share.



(4)

Stock Option Plan



On August 18, 2004, the Board of Directors of the Company approved the 2004 Stock Option Plan, which allows for common stock options to be granted to eligible officers and employees.  Stock options granted under this plan are qualified incentive stock options and will not exceed 200,000.  Options become exercisable as determined by the Board of Directors at the time of grant.  The options granted become vested and exercisable in annual increments of 20% of the total shares beginning December 31, 2004 through December 31, 2009.  Options granted under the plan expire after ten years.  The exercise price of the options granted will be no less than 100 percent of the market price on the day the option is granted, as determined by the Board of Directors. A total of 10,000 options were granted in the second quarter of 2005 at an exercise price of $12.00 per share.  Options granted under the 2004 Stock Option Plan total 120,500 shares at June 30, 2005.



(5)       Stock Compensation Plan



At June 30, 2005, the Company had a stock-based employee compensation plan.  The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations.  No stock-based employee compensation cost is reflected in net income, as all options granted under this plan had an exercise price equal to the market value of the underlying stock on the date of grant.  The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS Statement No. 123, Accounting for Stock-Based Compensation in 2004, to stockbased employee compensation.



The calculated fair value of the 10,000 options granted during the second quarter of 2005 is $4.02 and is based a risk free interest rate of 4%, dividend yield of 0% and was computed based on the minimum value method.



|                                                                                                                | Six Months Ended
June 30, 2005
|--------------------------------------------------------------------------------------------------------------- | ------------------------------
|Net income, as reported                                                                                         | $             727             
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards | (37,259)                      
|Proforma net income                                                                                             | (36,532)                      
|                                                                                                                |                               
|Earnings per share:                                                                                             |                               
|Basic  as reported based on 1,500,000 shares                                                                   | $          (.02)              
|Basic  proforma based on 1,567,940 shares                                                                      | (.02)                         





Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations



The following is managements discussion and analysis of significant factors which have affected the financial condition and operating results of Allied Bancshares, Inc. and its bank subsidiary, First National Bank of Forsyth County, during the periods included in the accompanying consolidated financial statements.  The purpose of this discussion is to expand upon the financial information provided in the unaudited consolidated financial statements for the six months ended June 30, 2005.  Reference should be made to those statements for a complete understanding of the following discussion and analysis.  Because the Company was in the organization stage until the Bank began its operations on April 5, 2004, 2005  2004 period-to-period comparisons of the Companys financial results are not meaningful and are not presented in this report.





OVERVIEW



The results for the first six months of 2005 were highlighted by continued strong growth in earning assets funded by a similar growth in deposits.  The Company has seen a steady expansion of loans, deposits, and customer base in its Forsyth County and Hall County market areas during its almost fifteen months of operation due to successful business development efforts and strong economic growth in the markets served.



FINANCIAL CONDITION



As of June 30, 2005, the Company had total assets of $101.5 million, an increase of $15.6 million or 18%, from March 31, 2005 and $35.3 million or 53% from December 31, 2004.  Deposits totaled $87.8 million at June 30, 2005.  Deposits increased $15.4 million or 21% during the quarter ending June 30, 2005 and $35.1 million for the first six months of 2005.  Deposit growth was primarily invested in the earning asset categories of loans and interest bearing deposits in other banks.  Cash and cash equivalents consisting of cash on hand, due from other banks, federal funds and interest-bearing deposits in other banks totaled $19.6 million at June 30, 2005.   Total equity remained essentially unchanged at $13.3 million at June 30, 2005. The Bank achieved month-to-month profitability for the first time in the second quarter, slightly exceeding the losses incurred in the first quarter by $727.



The Banks loan portfolio was $75.7 million at June 30, 2005, an increase of $11.1 million from March 31, 2004 balance of $64.6 million and $21.3 million from the December 31, 2004 balance of $54.4 million. The loan to deposit ratio was 86% as of June 30, 2005 compared to 89% at March 31, 2005.   At June 30, 2005, approximately $65.4 million or 86% of the loan portfolio was collateralized by real estate located in our primary market areas.  This concentration in real estate is highly diversified by the number of borrowers, property type, location, and use of loan proceeds. The Company strives to mitigate interest rate risk by emphasizing variable rate loans in its lending activities.  At June 30, 2005, approximately 77% of the loan portfolio was prime-based, variable rate loans.



At June 30, 2005, cash and cash equivalents totaled $19.6 million, an increase of $5.4 million from March 31, 2005.  Investment securities totaled $2.0 million, consisting of securities classified as available for sale.  Cash, cash equivalents and investment securities represent the Banks main sources of short term liquidity for funding loans and as well as a source of earnings enhancement. In the current rising interest rate environment, management has elected to minimize investment in fixed rate investment securities which will decline in value if interest rates rise as widely expected.  Management has opted to place funds in short-term instruments such as federal funds and interest bearing deposits in banks which provide daily liquidity.  The liquidity is viewed as sufficient to support the current operating needs and growth opportunities of the bank. In addition, the Bank can access national markets for deposits to supplement deposit generation in local markets.



Total deposits at June 30, 2005 were $87.8 million, an increase of $15.4 million or 21% from $72.4 million at March 31, 2005.  The deposit mix at June 30, 2005 was as follows: $5.4 million (6% of total deposits) in noninterest bearing demand deposits; $23.2 million (26% of total deposits) in interest checking accounts; $2.9 million (3% of total deposits) in savings accounts; and $56.3 million (65% of total deposits) in time deposits.  The deposit mix remains weighted towards higher cost time deposits. Management expects this reliance upon certificates of deposits to continue since customers prefer this type of deposit instrument.



RESULTS OF OPERATIONS



The Company generated earnings of $727 for the six month period ending June 30, 2005, compared to a net loss of $751,910 for the same period in 2004.  During the quarter the Company achieved monthly profitability for the first time.  At June 30, 2005, the accumulated deficit was $1,603,379.   As stated above, results in the first half of 2005 are from the operation of the Bank, while results in the first half of 2004 partially reflect expenses incurred in organizing the Company and the Bank.  As a result, period-to-period comparisons of 2005 versus 2004 are not meaningful and are not provided herein.



NET INTEREST INCOME



For the six months ended June 30, 2005, interest and fee income from earning assets was $2,481,157, which represented a yield of 6.29% on average earning assets during the period of $78,933,807.  Interest expense totaled $940,547 for the six months ended June 30, 2005 and represented a cost of 2.91% on average interest-bearing liabilities of $64,630,845 during the same period.  Net interest income was $1,540,610 for the six months ended June 30, 2005.  The net interest spread was 3.38% for the same period.  The net interest margin, which takes into the account the benefit from non-interest bearing liabilities, was 3.90% for the first half of 2005.  The net interest spread for the quarter ending March 31, 2005 was 3.38% and the net interest margin was 3.94%.  The Companys net interest income has benefited from a high percentage of variable rate loans and short term investments that have repriced faster than deposits, as interest rates have increased due to Federal Reserve policy.



PROVISION AND ALLOWANCE FOR LOAN LOSSES



The Company has established an allowance for loan losses through a provision for loan losses charged to expense on its statement of operations.  The allowance represents an amount which the Company believes will be adequate to absorb potential losses on existing loans that may become uncollectible.  The provision for loan losses increased by $291,259 during the first half of 2005 to $946,557, which represents 1.25% of total loans outstanding.  The amount provided is due entirely to loan growth and managements assessment of inherent risk in the loan portfolio.  The Company has developed policies and procedures for evaluating the overall quality of its credit portfolio and a timely identification of potential credit problems.  The evaluation of the collectability take into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions that may affect the borrowers ability to pay, overall portfolio quality, and the review of specific problem loans.  Due to the limited operating history of the Bank, the provision for loan losses has been primarily as a result of managements assessment of general loan loss risk as compared to banks of similar size and maturity.  Management does not allocate the allowance for loan losses to specific categories of loans, but evaluates the adequacy on an overall portfolio basis using a loan grading system that rates loans in different categories.  Certain grades representing criticized or classified loans are assigned allocations of loss based on an estimate of the potential loss that is generally based on loan loss reserve policy.  Other loans are graded by type and allocated loss ranges based on managements perceived inherent loss for the loan type.  A combination of these results is compared monthly to the recorded allowance for loan losses, and material losses are adjusted by increasing or decreasing the provision for loan losses.  An independent third-party loan review is used to challenge and validate the loan grading system and to provide additional analysis in determining the adequacy of the loan loss provisions.   As of June 30, 2005, the Company had no loans classified for regulatory purposes as loss, doubtful, substandard or potential problem loans.  No loans were 30 days or more past due and the Company has not charged off any loans since opening.



OTHER INCOME



Other income consists of non-interest income, primarily service charges on deposit accounts, customer service fees related to processing a variety of banking transactions and mortgage loan origination fees.  For the six months ended June 30, 2005, other operating income totaled $142,512. Mortgage origination fees of $58,654 and service charge income of $31,890 were the primary contributors to non-interest income earned during the first half of 2005.



OTHER EXPENSES



Other expenses consist of non-interest expenses related to the operation of the business.  For the six months ended June 30, 2005, other operating expenses totaled $1,391,137.  Personnel expenses of $872,257 related to the Banks 24 employees at June 30, 2005 represented 63% of total non-interest expenses.  Occupancy and equipment expenses of $188,257 represented 14% of other expenses. Other expenses of $330,013 consisted primarily of fees for outside services (such as data processing, legal, accounting and audit services) of $134,444 and regulatory fees of $25,928.



The Company has not recorded a provision for income taxes because of the cumulative net operating losses incurred to date.



OFF-BALANCE SHEET RISKS



Through the operations of the Bank, the Company has made contractual commitments to extend credit in the ordinary course of its business activities to meet the financing needs of its customers.  These commitments are legally binding agreements to extend credit to the Banks customers at predetermined interest rates for a specified period of time.  At June 30, 2005, the Bank had issued commitments to extend credit of $10,047,749 and has issued letters of credit of $508,050 through various types of commercial lending arrangements at variable rates.  Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheet.  The same credit policies used in on-balance sheet instruments are used in making commitments and conditional obligations.  The Company evaluates each customers credit-worthiness on a case-by-case basis.



CAPITAL



The Company raised $14,917,000 net of offering expenses of $83,000 in 2004.  The Company used these funds to initially purchase 100% of the shares of the Bank for $10,000,000 and for working capital.  During the quarter ended June 30, 2005, the Company injected another $3,400,000 into the Bank.  This was done to support the increased assets of the Bank and to provide capital for continued growth within regulatory capital guidelines.  At June 30, 2005, total shareholders equity was $13,306,000 consisting of $14,916,000 in capital offset by an accumulated deficit of $1,603,000 and unrealized loss on available for sale securities, net of tax, of $7,000.



The additional capital contributed to the Bank in May 2005 are reflected in improved capital ratios at June 30, 2005, notwithstanding the growth in earning assets during the period.   The following tables present the Banks regulatory capital position at June 30, 2005:



|Risk Based Capital Ratios                          |       
|-------------------------------------------------- | ------
|Tier 1 Capital, Actual                             | 14.78%
|Tier 1 Capital Minimum Requirement                 | 8.00% 
|Excess                                             | 6.78% 
|                                                   |       
|Total Risk Based Capital, Actual                   | 15.90%
|Total Risk Based Capital, Minimum Requirement      | 8.00% 
|Excess                                             | 7.90% 
|                                                   |       
|Leverage Ratio                                     |       
|Tier 1  Capital to Adjusted Total Assets,  Actual | 13.40%
|Minimum Leverage Requirement                       | 4.00% 
|Excess                                             | 9.40% 



These ratios are expected to decline as asset growth continues, but will exceed regulatory minimum requirements.  Anticipated future earnings without dividend payments will contribute to keeping the Banks capital ratios at satisfactory levels.  Based on the Banks Tier 1 capital of $12,462,000 at June 30, 2005 and average total assets of $93,031,000 for the quarter ending June 30, 2005, approximately $63 million of additional earning assets with a 100% risk weighting could be supported at the 8% minimum capital ratio for Tier 1 capital.



Item 3.  Controls and Procedures



At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operations of the Companys disclosure controls and procedures pursuant to the Exchange Act Rule 13A-14.  Based upon that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded the Companys disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiary) that is required to be included in the Companys periodic filings with the Securities and Exchange Commission.  There have been no significant changes in the Companys internal control over financial reporting during the three months ended June 30, 2005 that have materially effected, or likely to materially effect, the Companys internal control over financial reporting.



Part II



OTHER INFORMATION



Item 4.

Submission of Matters to a Vote of Security Holders



On April 20, 2005, the Company held its Annual Meeting of Shareholders for the purpose of (a) electing as director those persons listed in the Companys March 20, 2005 proxy statement, and (b) approval of the Allied Bancshares, Inc. 2004 Stock Option Plan, (c) approval of the Allied Bancshares, Inc. Stock Warrant Plan, and (d) ratifying the appointment of Porter Keadle Moore, LLP.



Peter L. Gatti, Jim P. Meadows, and John S. (Trip) Martin, III, the nominees of the Board of Directors, were elected directors to serve another term.  Andrew K. Walker, Carl E. Hansson, Jackson P. Turner, Brent H. Baker, and Charles Y. Allgood are the other directors of the Company and their terms of office continued after the meeting.



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|Nominees                   | Votes Cast For | Votes Withheld
|-------------------------- | -------------- | --------------
|Peter L. Gatti             | 907,891        | 4,750         
|Jim P. Meadows             | 907,891        | 4,750         
|John S. (Trip) Martin, III | 907,891        | 4,750         



The Allied Bancshares, Inc. 2004 Stock Option Plan received the requisite number of affirmative votes required for approval.  Of the 885,623 shares of the Company voted at the meeting, the vote was as follows:  ­­­­­­­­­­­­­846,748 shares voted for, 29,625 voted against, and 9,250 abstained.



The Allied Bancshares, Inc. Stock Warrant Plan received the requisite number of affirmative votes required for approval.  Of the 885,623 shares of the Company voted at the meeting, the vote was as follows:  838,948 shares voted for, 35,375 voted against, and 11,300 abstained.



The appointment of independent auditors also received the requisite number of affirmative votes required for approval pursuant to the bylaws of the Company.  Of the 1,500,000 outstanding shares of the Company, the vote was as follows: 906,791 shares voted for, 1,750 voted against, and 4,100 abstained.





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PART II.  OTHER INFORMATION

Item 6.

Exhibits



|Exhibit
Number | Sequential
Exhibit
Page                                                                                                            | Sequential
Page
|-------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ---------------
|3.1            | Articles of Incorporation as Amended and Restated(1)
--                                                                            | --             
|3.2            | Bylaws(1)
--                                                                                                                       | --             
|4.1            | See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation
and Bylaws defining rights of holders of the Common Stock | --             
|10.1           | Real Estate Agreement (main office property) dated September 18,2003 (1)                                                           | --             
|10.2           | Lease of branch bank office(3)                                                                                                     | --             
|10.3*          | Employment Agreement of Andrew K. Walker (1)                                                                                       | --             
|10.4*          | Form of Warrant Agreement(1)                                                                                                       | --             
|10.5*          | Employment Agreement of Sam R. Story, III(2)                                                                                       | --             
|10.6*          | Employment Agreement of Richard E. Bell(1)                                                                                         | --             
|10.7*          | Stock Warrant Plan(2)                                                                                                              | --             
|10.8*          | 2004 Stock Option Plan(4)                                                                                                          | --             
|10.9*          | Form of Stock Option Agreement(4)                                                                                                  | --             
|31             | Rule 13a-14(a)/15d-14(a) Certifications                                                                                            | 14             
|32             | Section 1350 Certifications                                                                                                        | 16             

_______________________________



* Indicates a compensatory plan or contract.



(1)  Previously filed as an exhibit to the registrants Registration Statement on Form SB-2 (Registration No. 333-109462), as filed with the SEC on October 3, 2003.



(2)  Previously filed as an exhibit to the registrants Amendment No. 1 to Registration  Statement on Form SB-2 (Registration No. 333-109462), as filed with the SEC on December 4, 2003.



(3)  Previously filed as an exhibit to the registrants annual report on Form 10-KSB for the year ended December 31, 2004 (SEC File No. 333-109462).



(4)  Previously filed as an exhibit to the registrant's quarterly report on Form 10-QSB for the quarter ended June 30, 2004 (SEC File No. 333-109462).



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.



|Date:  August 15, 2005



Date:  August 15, 2005 | ALLIED BANCSHARES, INC.

By:  s/Andrew K. Walker
Andrew K. Walker, President and C.E.O.


By:  s/Richard E. Bell
Richard E. Bell, C.A.O. and C.F.O.
|------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------





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