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 March 31, 2006

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 333-109462



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: 1,502,000 shares

issued and outstanding as of May 1, 2006.





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





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ALLIED BANCSHARES, INC.

Form 10-QSB



Index



|PART I  | FINANCIAL INFORMATION                                                                                               | 3 
|------- | ------------------------------------------------------------------------------------------------------------------- | --
|Item 1. | Financial Statements (Unaudited)                                                                                    | 3 
|        | Condensed Consolidated Balance Sheet as of March 31, 2006                                                           | 3 
|        | Condensed Consolidated Statements of Operations for the Three Month periods ended March 31, 2006 and March 31, 2005 | 4 
|        | Condensed Consolidated Statement of Comprehensive Income for the Three Period ended March 31, 2006                  | 5 
|        | Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2006 and March 31, 2005        | 6 
|        | Notes to Condensed Consolidated Financial Statements                                                                | 7 
|Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operation                                | 9 
|Item 3. | Controls and Procedures                                                                                             | 11
|PART II | OTHER INFORMATION                                                                                                   | 12
|Item 6. | Exhibits                                                                                                            | 12
|        | SIGNATURES                                                                                                          | 12







2



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PART I.  FINANCIAL INFORMATION



Item 1.   Financial Statements

ALLIED BANCSHARES, INC.



CONSOLIDATED BALANCE SHEET



MARCH 31, 2006



(UNAUDITED)



|                                                                                                    |   |            
|--------------------------------------------------------------------------------------------------- | - | -----------
|Assets                                                                                              |   |            
|Cash and due from banks                                                                             | $ | 2,301,628  
|Federal funds sold                                                                                  |   | 6,844,133  
|Interest-bearing deposits in banks                                                                  |   | 58,336     
|Total cash and cash equivalents                                                                     |   | 9,204,097  
|Investment securities                                                                               |   | 8,568,889  
|Other investments                                                                                   |   | 1,019,292  
|Total securities                                                                                    |   | 9,588,181  
|Loans                                                                                               |   | 116,468,249
|Less:  Allowance for loan losses                                                                    |   | (1,495,853)
|Net loans                                                                                           |   | 114,972,396
|Premises and equipment, net                                                                         |   | 3,588,335  
|Accrued interest receivable and other assets                                                        |   | 1,431,516  
|Total assets                                                                                        | $ | 138,784,525
|                                                                                                    |   |            
|                                                                                                    |   |            
|Liabilities and Stockholders Equity                                                                |   |            
|                                                                                                    |   |            
|Liabilities:                                                                                        |   |            
|Deposits:                                                                                           |   |            
|Noninterest-bearing demand                                                                          | $ | 10,053,820 
|Interest bearing demand                                                                             |   | 23,824,127 
|Savings                                                                                             |   | 4,973,961  
|Time, $100,000 or more                                                                              |   | 57,964,619 
|Other time deposits                                                                                 |   | 26,619,137 
|Total deposits                                                                                      |   | 123,435,664
|Accrued interest payable and other liabilities                                                      |   | 764,208    
|Total liabilities                                                                                   |   | 124,199,872
|                                                                                                    |   |            
|Commitments                                                                                         |   |            
|                                                                                                    |   |            
|Stockholders equity:                                                                               |   |            
|Common stock, $.10 par value, 10,000,000 shares authorized; 1,502,000 shares issued and outstanding |   | 150,200    
|Additional paid-in capital                                                                          |   | 14,991,898 
|Accumulated deficit                                                                                 |   | (456,945)  
|Accumulated other comprehensive income                                                              |   | (100,500)  
|Total stockholders equity                                                                          |   | 14,584,653 
|Total liabilities and stockholders equity                                                          | $ | 138,784,525



See accompanying notes to financial statements.



3



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ALLIED BANCSHARES, INC.



CONSOLIDATED STATEMENTS OF OPERATIONS



FOR THE THREE MONTHS ENDING MARCH 31, 2006 AND 2005



(UNAUDITED)







|                                                    |   | 2006      |  | 2005     
|--------------------------------------------------- | - | --------- |  | ---------
|Interest income                                     |   |           |  |          
|Interest and fees on loans                          | $ | 2,254,863 |  | 989,516  
|Deposits in banks                                   |   | 395       |  | 23,639   
|Federal funds sold                                  |   | 182,274   |  | 29,271   
|Investment securities                               |   | 86,400    |  | 26,330   
|Total interest income                               |   | 2,523,932 |  | 1,068,756
|                                                    |   |           |  |          
|Interest expense                                    |   |           |  |          
|Interest bearing deposits                           |   | 121,128   |  | 95,465   
|Time deposits                                       |   | 923,987   |  | 283,390  
|Other interest expense                              |   | 51        |  | -        
|Total interest expense                              |   | 1,045,166 |  | 378,855  
|                                                    |   |           |  |          
|Net interest income                                 |   | 1,478,766 |  | 689,901  
|                                                    |   |           |  |          
|Provision for loan losses                           |   | 120,939   |  | 152,825  
|                                                    |   |           |  |          
|Net interest income after provision for loan losses |   | 1,357,827 |  | 537,076  
|                                                    |   |           |  |          
|Other income, service charges and other fees        |   | 91,196    |  | 92,062   
|                                                    |   |           |  |          
|Other expense                                       |   |           |  |          
|Salaries and benefits                               |   | 549,860   |  | 408,178  
|Net occupancy and equipment expense                 |   | 114,919   |  | 84,829   
|Other operating expenses                            |   | 203,983   |  | 177,222  
|Total other expense                                 |   | 868,762   |  | 670,229  
|                                                    |   |           |  |          
|Earnings (loss) before taxes                        |   | 580,261   |  | (41,091) 
|                                                    |   |           |  |          
|Income taxes                                        |   | 231,355   |  | -        
|                                                    |   |           |  |          
|Net earnings (loss)                                 | $ | 348,906   |  | (41,091) 
|                                                    |   |           |  |          
|Basic earnings  (loss) per share                    | $ | .23       |  | (.03)    
|                                                    |   |           |  |          
|Diluted earnings (loss) per share                   | $ | .21       |  | (.03)    
|                                                    |   |           |  |          
|Weighted average number of shares                   |   | 1,502,000 |  | 1,500,000





See accompanying notes to financial statements.



4



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ALLIED BANCSHARES, INC AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)



FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005



(UNAUDITED)









|                                                                                                    |   | 2006      |  | 2005    
|--------------------------------------------------------------------------------------------------- | - | --------- |  | --------
|Net earnings (loss)                                                                                 | $ | 348,906   |  | (41,091)
|Other comprehensive loss net of tax:
Unrealized losses on investment securities available for sale: |   |           |  |         
|Unrealized losses arising during the period                                                         |   | (162,096) |  | (30,145)
|Income tax benefit related to unrealized losses                                                     |   | 61,596    |  | 11,455  
|Other comprehensive loss                                                                            |   | (100,500) |  | (18,690)
|Comprehensive income (loss)                                                                         | $ | 248,406   |  | (59,781)



5



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ALLIED BANCSHARES, INC. AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF CASH FLOWS



FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005



(UNAUDITED)







|                                                                                                                    |   | 2006         |  | 2005        
|------------------------------------------------------------------------------------------------------------------- | - | ------------ |  | ------------
|Cash flows from operating activities:                                                                               |   |              |  |             
|Net earnings (loss)                                                                                                 | $ | 348,906      |  | (41,091)    
|Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:                |   |              |  |             
|Depreciation and amortization                                                                                       |   | 75,424       |  | 49,070      
|Stock based compensation                                                                                            |   | 14,001       |  |             
|Provision for loan loss                                                                                             |   | 120,939      |  | 152,825     
|Increase in interest receivable and other assets                                                                    |   | (62,664)     |  | (27,448)    
|Increase in interest payable and other liabilities                                                                  |   | 205,731      |  | 93,937      
|Other operating activities, net                                                                                     |   | -            |  | (39,261)    
|Net cash provided by operating activities                                                                           |   | 702,337      |  | 188,032     
|                                                                                                                    |   |              |  |             
|Cash flows from investing activities:                                                                               |   |              |  |             
|Proceeds from investment securities called or redeemed                                                              |   | 222,078      |  | 2,000,000   
|Purchases of investment securities                                                                                  |   | (5,002,923)  |  | (2,097,740) 
|Purchases of other investments                                                                                      |   | (123,000)    |  | (36,000)    
|Net increase in loans                                                                                               |   | (9,675,107)  |  | (12,226,087)
|Purchase of premises and equipment                                                                                  |   | (5,190)      |  | (54,276)    
|Net cash used by investing activities                                                                               |   | (14,584,141) |  | (12,414,103)
|                                                                                                                    |   |              |  |             
|Cash flows from financing activities:                                                                               |   |              |  |             
|Net increase in deposits                                                                                            |   | 10,414,511   |  | 19,719,279  
|Net cash provided by financing activities                                                                           |   | 10,414,511   |  | 19,719,279  
|                                                                                                                    |   |              |  |             
|Net change in cash and cash equivalents                                                                             |   | (3,467,293)  |  | 7,493,208   
|                                                                                                                    |   |              |  |             
|Cash and cash equivalents at beginning of the period                                                                |   | 12,671,390   |  | 6,669,141   
|                                                                                                                    |   |              |  |             
|Cash and cash equivalents at end of period                                                                          | $ | 9,204,097    |  | 14,162,349  
|                                                                                                                    |   |              |  |             
|Non-cash investing and financing activities:
Change in unrealized loss on securities
available for sale, net of tax | $ | (79,199)     |  | (18,690)    
|                                                                                                                    |   |              |  |             
|Supplemental information:
Interest paid                                                                             | $ | 1,045,165    |  | 378,855     



See accompanying notes to financial statements.



6



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ALLIED BANCSHARES, INC.



Notes to Financial Statements





(1)

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.



(2)     Net Earnings Per Share



Net earnings per common share is based on the weighted average number of common shares outstanding during the period while the effects of potential common shares outstanding during the period are included in diluted earnings per share. The average market price during the year is used to compute equivalent shares.



The reconciliation of the amounts used in the computation of both basic earnings per share and diluted earnings per share for the three months ended March 31, 2006 is as follows.  A net loss of $41,091 occurred as of March 31, 2005.



|                              | Net        | Common    | Per Share   
|----------------------------- | ---------- | --------- | ------------
|                              | Earnings   | Shares    | Amount      
|Basic earnings                | $  348,906 | 1,502,000 | $       0.23
|Effect of dilutive securities |            | 132,024   | (.02)       
|Diluted earnings per share    | 348,906    | 1,634,024 | $       0.21





(3)

Stock Based Compensation



In connection with the Companys formation and initial offering, the company issued 287,143 warrants to purchase its common stock at $10 per share.  During 2005, the Board of Directors approved the acceleration of all warrants.



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 in 2004 become vested and exercisable in annual increments of 20% of the total shares beginning December 31, 2004 through December 31, 2009. Options granted after 2004 become vested and exercisable in annual increments of 20% of the total shares on the anniversary date of the grant.   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. No options were granted or exercised in the first quarter of 2006.  Options granted under the 2004 Stock Option Plan total 132,000 shares at March 31, 2006 and represents all of the stock options issued and outstanding currently.  The company did not grant any options during the three months ended March 31, 2006.  No options vested during the three months ended March 31, 2006 and 2005.





7



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The Company adopted Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment (SFAS No. 123(R)), on January 1, 2006 using the modified prospective method. Under this method, awards that are granted, modified, or settled after December 31, 2005, are measured and accounted for in accordance with SFAS No. 123(R). Also under this method, expense is recognized for unvested awards that were granted prior to January 1, 2006, based upon the fair value determined at the grant date under SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). The Company recognized compensation expense for employee stock options of $14,000 for the three months ended March 31, 2006. The Company did not recognize any tax benefit on compensation expense from employee stock options in the first quarter of 2006. As of March 31, 2006, there was $172,277 of total unrecognized compensation cost related to nonvested employee stock options, which is expected to be recognized over a period of 4 years.    The Company did not recognize any compensation expense for employee stock options for the three months ended March 31, 2005.



Prior to the adoption of SFAS No. 123(R), the Company accounted for stock compensation under Accounting Principles Board Opinion No. 25 and related interpretations. Accordingly, the Company previously recognized no compensation cost for employee stock options. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 as of March 31, 2005.



|                                                   |   | Three Months Ended
March 31,
|-------------------------------------------------- | - | ----------------------------
|                                                   |   |                             
|                                                   |   | 2006                        
|                                                   |   |                             
|Net Income, as reported                            | $ | 348,906                     
|Deduct:  Total stock based employee compensation   |   |                             
|expense determined under fair value method for all |   |                             
|awards                                             |   | 0                           
|Pro forma net income                               | $ | 348,906                     
|                                                   |   |                             
|Basic earnings per share:                          |   |                             
|As reported                                        | $ | 0.23                        
|Pro forma                                          | $ | 0.23                        
|Diluted earnings per share:                        |   |                             
|As reported                                        | $ | 0.21                        
|Pro forma                                          | $ | 0.21                        







































8



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



The following is managements discussion and analysis of 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 three months ended March 31, 2006.  Reference should be made to those statements for a complete understanding of the following discussion and analysis.



Cautionary Notice Regarding Forward-Looking Statements



This discussion contains forward-looking statements under the private Securities Litigation Reform Act of 1995 that involve risk and uncertainties. Although the Company believes that the assumptions underlying the forward-looking statements contained in the discussion are reasonable, any of the assumptions could be inaccurate. Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limited to: economic conditions (both generally and in the markets where the Company operates); competition from other providers of financial services offered by the Company; government regulations and legislation; changes in interest rates; and material unforeseen changes in the financial stability and liquidity of the Companys credit customers. All these factors are difficult to predict and may be beyond the control of the Company. The Company undertakes no obligation to revise forward-looking statements to reflect events or changes after the date of this discussion or to reflect the occurrence of unanticipated events.



Critical Accounting Policies



Critical accounting policies are dependent on estimates that are particularly susceptible to significant change. Determinations of the Banks allowance for loan loss and income taxes have been identified as critical accounting policies.



The allowance for loan loss is maintained at a level believed to be appropriate by management to provide for probable loan losses inherent in the portfolio as of each quarter-end. Managements judgment as to the amount of the allowance, including the allocated and unallocated elements, is a result of ongoing review of lending relationships, the overall risk characteristics of the portfolio segments, changes in the character or size of the portfolio segments, the level of impaired or nonperforming loans, historical net charge-off experience, prevailing economic conditions and other relevant factors. Loans are charged off to the extent they are deemed to be uncollectible.



The allowance for loan loss level is highly dependent upon managements estimates of variables affecting valuation, appraisals of collateral, evaluations of performance and status, and the timing of collecting nonperforming loans. Such estimates may be subject to frequent adjustments by management and reflected in the provision for loan losses in the periods in which they become known.



Income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets or liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of the change. The determination of current and deferred taxes is based on complex analyses of many factors including interpretation of Federal and state income tax laws, the difference between tax and financial reporting basis assets and liabilities (temporary differences), estimates of amounts due or owed such as the reversals of temporary differences, and current financial accounting standards. Actual results could differ significantly from the estimates and interpretations used in determining current and deferred taxes.



Financial Condition



As of March 31, 2006, the Company had total assets of $138.8 million, an increase of $10.9 million or 9%, from December 31, 2005.  Deposits increased $10.4 million during the quarter and were invested primarily in the interest



9



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earning asset categories of loans and federal funds sold.  Total equity increased $300,000 during the quarter  to $14.6 million.



The Banks loan portfolio increased by $9.7 million to $116.5 million at March 31, 2006.  The loan to deposit ratio was 94% as of March 31, 2006 and was unchanged from December 31, 2005.   At March 31, 2006, approximately 90% 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 March 31, 2006, approximately 67% of the loan portfolio was prime-based variable rate loans.



At March 31, 2006, cash and cash equivalents totaled $9.2 million, a decrease of $3.5 million from December 31, 2005.  Investment securities totaled $8.6 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.  The liquidity is viewed as sufficient to support the current operating needs and growth opportunities of the bank.



Total deposits at March 31, 2006 were $123.4 million, an increase of $10.4 million or 9.2% from $113.0 million at December 31, 2005.  The deposit mix at March 31, 2006 was as follows: $10.0 million (8% of total deposits) in noninterest bearing demand deposits; $23.8 million (19% of total deposits) in interest checking accounts; $5.0 million (4% of total deposits) in savings accounts; and $84.6 million (69% 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.  In a rising rate environment, such as that which has prevailed in recent quarters, the cost of funds will increase in future periods, as will the yield on earning assets.



Results of Operations



The Company earned $349,000 or $.23 per share for the three months ended March 31, 2006, compared to a net loss of $41,091 or $.03  per share for the same period in 2005.  At March 31, 2006, the accumulated deficit was $457,000.



Net Interest Income



For the three months ended March 31, 2006, interest and fee income from earning assets was $2,523,931, which represented a yield on earning assets of 7.73%.  Interest expense totaled $1,045,165 for the three months ended March 31, 2006 and represented a cost of interest-bearing liabilities of 3.44%.  Net interest income was $1,478,766 for the three months ended March 31, 2006.  The net interest spread was 4.29% for the same period.  The net interest margin, which takes into the account the benefit from non-interest bearing liabilities, was 4.53% for the first quarter of 2006.



Provision 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 $120,939 during the first quarter of 2006 to $1,495,856, which represents 1.28% 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 historical losses and/or collateral deficiencies.  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



10



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challenge and validate the loan grading system and to provide additional analysis in determining the adequacy of the loan loss provisions.   As of March 31, 2006, the Company did not have any loans 30 days or more past due or any charge-offs to date.



Other Income



For the three months ended March 31, 2006, other operating income totaled $91,196, consisting of service charges and other fees, primarily mortgage loan fees.



Other Expenses



For the three months ended March 31, 2006, other operating expenses totaled $868,762.  These expenses consisted primarily of salaries and benefits, occupancy and equipment expenses, data processing fees, and fees for other outside services.



Income Tax Expense



Income tax expense increased $231,355 for the three-month period ended March 31, 2006, compared to the same period in 2005 when the Company recorded no income tax expense because of the cumulative net operating losses incurred to March 31, 2005.



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.  These commitments are legally binding agreements to lend money to the Banks customers at predetermined interest rates for a specified period of time.  At March 31, 2006, the Bank had issued commitments to extend credit of $23,018,000 and letters of credit of $1,036,000 through various types of commercial lending arrangements at variable rates.  The Company evaluates each customers credit-worthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by management upon extension of credit, is based on the Companys evaluation of the borrower.  Collateral varies but may include property, plant and equipment, commercial and residential real estate, and other assets.



Capital



At March 31, 2006, total shareholders equity was $14,585,000 consisting of $15,143,000 in capital offset by an accumulated deficit of $457,000 and unrealized loss on available for sale securities, net of tax, of $100,000.



The following table presents the Banks regulatory capital position at March 31, 2006:



|Tier 1 Capital to Average Assets            | 9.84% 
|------------------------------------------- | ------
|Tier 1 Tangible Capital Minimum Requirement | 4.00% 
|                                            |       
|Tier 1 Capital to Risk Weighted Assets      | 11.84%
|Total Capital, Minimum Requirement          | 4.00% 
|                                            |       
|Total Capital to Risk Weighted Assets       | 13.09%
|Minimum Leverage Requirement                | 8.00% 



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



11



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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 March 31, 2006 that have materially effected, or likely to materially effect, the Companys internal control over financial reporting.



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                                                                                            | 13             
|32             | Section 1350 Certifications                                                                                                        | 15             

_______________________________

* 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:  May 11, 2006



Date:  May 11, 2006 | 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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