U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 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   September 30, 2006
                                                   ------------------

[_]  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: 000-30273



                           Chestatee Bancshares, Inc.
    ------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


Georgia                                                              58-2535333
-------------------------------------                     ----------------------
(State or other jurisdiction of                                   (IRS Employer
incorporation or organization)                              Identification No.)


                   6639 Highway 53 East, Dawsonville, Georgia
                   ------------------------------------------
                    (Address of principal executive offices)


                                 (706) 216-2265
                            -------------------------
                           (Issuer's telephone number)


                                       N/A
                ------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 [_]

State the number of shares outstanding of each of the issuer's classes of common
equity, as of October 31, 2006: 3,447,381; no par value.

Transitional Small Business Disclosure Format         Yes [_]  No  [X]


<PAGE>



                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES


--------------------------------------------------------------------------------

                                      INDEX
                                      -----

                                                                            Page
                                                                            ----

PART I.   FINANCIAL INFORMATION

          ITEM 1.  Financial Statements

          Consolidated Balance Sheet - September 30, 2006......................3

          Consolidated Statement of Income Three and Nine Months
                 Ended September 30, 2006 and 2005.............................4

          Consolidated Statement of Comprehensive Income Three and Nine Months
                 Ended September 30, 2006 and 2005.............................5

          Consolidated Statements of Cash Flows - Nine Months
                 Ended September 30, 2006 and 2005.............................6

          Notes to Consolidated Financial Statements...........................7

          ITEM 2.  Management's Discussion and Analysis of
                   Financial Condition and Results of Operations..............12

          ITEM 3.  Controls and Procedures....................................20


PART II.  OTHER INFORMATION

          ITEM 1.  Legal Proceedings..........................................21

          ITEM 6.  Exhibits and Reports on Form 8-K...........................21

          Signatures..........................................................22




<PAGE>

PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS



                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                               September 30, 2006

                       Assets
                       ------

Cash and due from banks                                           $   4,008,366
Interest-bearing deposits in banks                                    5,000,938
Federal funds sold                                                   13,730,000
Securities available-for-sale, at fair value                         21,315,594
Restricted equity securities, at cost                                   937,100
Loans                                                               225,842,190
Less allowance for loan losses                                        3,808,955
                                                                  -------------
          Loans, net                                                222,033,235
                                                                  -------------

Premises and equipment, net                                           7,392,751
Other assets                                                          4,508,974
                                                                  -------------

          Total assets                                            $ 278,926,958
                                                                  =============


                      Liabilities and Stockholders' Equity
                      ------------------------------------

Deposits
    Noninterest-bearing                                           $  27,538,561
    Interest-bearing                                                217,612,775
                                                                  -------------
          Total deposits                                            245,151,336
Other borrowings                                                      4,500,000
Other liabilities                                                     1,895,092
                                                                  -------------
          Total liabilities                                         251,546,428
                                                                  -------------

Commitments and contingencies

Stockholders' equity
    Common stock, no par value; 20,000,000 shares
      authorized; 3,447,381 shares issued and outstanding            24,837,936
    Retained earnings                                                 3,010,952
    Dividends Paid                                                     (206,777)
    Accumulated other comprehensive loss                               (261,581)
                                                                  -------------
          Total stockholders' equity                                 27,380,530
                                                                  -------------

          Total liabilities and stockholders' equity              $ 278,926,958
                                                                  =============



See Notes to Consolidated Financial Statements.


                                       3


<PAGE>
<TABLE>
<CAPTION>

                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
             Three and Nine Months Ended September 30, 2006 and 2005





                                                             Three Months Ended,            Nine Months Ended,
                                                                September 30,                 September 30,
                                                         ---------------------------   ---------------------------
                                                             2006           2005            2006          2005
                                                         ------------   ------------   ------------   ------------
<S>                                                      <C>            <C>            <C>            <C>
Interest income
    Loans                                                $  5,018,324   $  3,846,881   $ 14,040,100   $ 10,575,170
    Taxable Securities                                        213,645        245,647        663,038        720,383
    Nontaxable Securities                                      13,050         13,050         39,151         43,761
    Federal funds sold                                        188,533         90,274        464,356        405,854
    Interest-bearing deposits in banks                         57,714         56,496        154,238        135,574
                                                         ------------   ------------   ------------   ------------
              Total interest income                         5,491,266      4,252,348     15,360,883     11,880,742
                                                         ------------   ------------   ------------   ------------

Interest expense
    Deposits                                                2,248,311      1,392,416      5,785,047      3,837,460
    Other borrowings                                           60,984        112,523        200,138        370,131
                                                         ------------   ------------   ------------   ------------
              Total interest expense                        2,309,295      1,504,939      5,985,185      4,207,591
                                                         ------------   ------------   ------------   ------------

              Net interest income                           3,181,971      2,747,409      9,375,698      7,673,151
Provision for loan losses                                     225,536         80,680        816,753        177,923
                                                         ------------   ------------   ------------   ------------
              Net interest income after
                provision for loan losses                   2,956,435      2,666,729      8,558,945      7,495,228
                                                         ------------   ------------   ------------   ------------

Other income
      Service charges and fees                                194,398        216,727        595,246        691,592
      Losses on sales of securities available for sale             --             --             --        (51,712)
      Other operating income                                   48,011         51,886        139,233        225,208
                                                         ------------   ------------   ------------   ------------
              Total other income                              242,409        268,613        734,479        865,088
                                                         ------------   ------------   ------------   ------------

Other expenses
    Salaries and employee benefits                          1,062,156        980,678      3,399,248      2,980,867
    Occupancy and equipment expenses                          221,065        261,804        723,928        761,694
    Other operating expenses                                  652,873        598,610      1,803,798      1,750,194
                                                         ------------   ------------   ------------   ------------
              Total other expenses                          1,936,094      1,841,092      5,926,974      5,492,755
                                                         ------------   ------------   ------------   ------------

              Net income before income taxes                1,262,750      1,094,250      3,366,450      2,867,561

Income tax expense                                            460,611        391,167      1,227,903      1,014,731
                                                         ------------   ------------   ------------   ------------

              Net income                                      802,139        703,083      2,138,547      1,852,830
                                                         ------------   ------------   ------------   ------------

Basic earnings per share                                 $       0.23   $       0.20   $       0.62   $       0.54
                                                         ============   ============   ============   ============

Diluted earnings per share                               $       0.22   $       0.20   $       0.60   $       0.53
                                                         ============   ============   ============   ============

Cash dividends per share                                         0.06             --   $       0.06   $         --
                                                         ============   ============   ============   ============
</TABLE>


See Notes to Consolidated Financial Statements.




                                       4

<PAGE>
<TABLE>
<CAPTION>


                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
            Three and Nine Months Ended September 30, 2006 and 2005

                                                          Three Months Ended         Nine Months Ended,
                                                            September 30,               September 30,
                                                     -------------------------   -------------------------
                                                         2006           2005         2006           2005
                                                     -----------   -----------   -----------   -----------
<S>                                                  <C>           <C>           <C>           <C>
Net income                                           $   802,139   $   703,083   $ 2,138,547   $ 1,852,830

Other comprehensive income (loss):
   Unrealized holding gains (losses) on securities
     available-for-sale arising during the three
     month and nine month period, net of tax             133,052        13,534       102,098       (74,976)

   Reclassification adjustment for losses realized
   in net income, net of tax benefits                         --            --            --        33,613
                                                     -----------   -----------   -----------   -----------

Other comprehensive income (loss)                        133,052        13,534       102,098       (41,363)
                                                     -----------   -----------   -----------   -----------

Comprehensive income                                 $   935,191   $   716,617   $ 2,240,645   $ 1,811,467
                                                     ===========   ===========   ===========   ===========
</TABLE>


See Notes to Consolidated Financial Statements.



                                       5

<PAGE>

<TABLE>
<CAPTION>

                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Nine Months Ended September 30, 2006 and 2005


                                                                          Nine Months Ended,
                                                                        2006             2005
                                                                    ------------    ------------
<S>                                                                 <C>             <C>
OPERATING ACTIVITIES
    Net income                                                      $  2,138,547    $  1,852,830
    Adjustments to reconcile net income to net cash
        provided by operating activities:
        Depreciation                                                     657,267         403,368
        Provision for loan losses                                        816,753         177,923
        Amortization and accretion of securities                         135,210         139,809
        Loss on sales of securities                                           --          51,712
        Stock-based compensation expense                                  70,785              --
        (Increase) decrease in interest receivable                       (73,717)        121,311
        Increase in interest payable                                     228,468          80,148
        Net other operating activities                                   171,554         118,437
                                                                    ------------    ------------

              Net cash provided by operating activities                4,144,867       2,945,538
                                                                    ------------    ------------

INVESTING ACTIVITIES
    Net (increase) decrease in interest-bearing deposits in banks     (1,056,933)      1,455,741
    Net increase in federal funds sold                                (3,642,000)     (1,702,000)
    Purchases of securities available-for-sale                                --      (6,866,516)
    Proceeds from maturities of securities available-for-sale          5,174,328       4,578,954
    Proceeds from sales of securities available-for-sale                      --       3,950,357
    Proceeds from sale of restricted equity securities                   115,400              --
    Net increase in loans                                            (26,296,146)     (7,277,305)
    Proceeds from sales of premises and equipment                         10,218           3,161
    Purchase of premises and equipment                                  (474,608)       (177,585)
                                                                    ------------    ------------

              Net cash used in investing activities                  (26,169,741)     (6,035,193)
                                                                    ------------    ------------

FINANCING ACTIVITIES
    Net increase in deposits                                          29,168,710      15,469,742
    Payments on other borrowings                                      (7,750,000)     (8,850,000)
    Cash dividends paid on common stock                                 (206,777)             --
    Net proceeds from common stock issued                                 10,000          80,000
                                                                    ------------    ------------
              Net cash provided by financing activities               21,221,933       6,699,742
                                                                    ------------    ------------

Net increase (decrease) in cash and due from banks                      (802,941)      3,610,087

Cash and due from banks, beginning of period                           4,811,307       3,419,928
                                                                    ------------    ------------

Cash and due from banks, end of period                              $  4,008,366    $  7,030,015
                                                                    ============    ============


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
    Cash paid for:
          Interest                                                  $  5,756,717    $  4,127,443

          Income taxes                                              $  1,122,104    $  1,163,452

    Principal balances of loans transferred to other real estate    $         --    $         --

    Financed sales of other real estate owned                       $         --    $         --


</TABLE>



See Notes to Consolidated Financial Statements.


                                       6


<PAGE>



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 1.   BASIS OF PRESENTATION

          The consolidated financial information included 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
          period.

          The results of operations for the period ended September 30, 2006 are
          not necessarily indicative of the results to be expected for the full
          year.


NOTE 2.   STOCK COMPENSATION PLANS

          At September 30, 2006, the Company has two stock-based compensation
          plans which include certain employees and directors. Prior to January
          1, 2006, the Company accounted for these plans under the recognition
          and measurement provisions of APB Opinion No. 25, Accounting for Stock
          Issued to Employees, and related interpretations, as permitted by FASB
          Statement No. 123, Accounting for Stock-Based Compensation. No
          stock-based employee compensation cost was recognized in the Statement
          of Operations for the nine months ended September 30, 2005, as all
          options granted under the plan had an exercise price equal to the
          market value of the underlying common stock on the date of grant.
          Effective January 1, 2006, the Company adopted the fair value
          recognition provisions of FASB Statement No. 123(R), Share-Based
          Payment, using the modified-prospective-transition method. Under that
          transition method, compensation cost recognized includes: (a)
          compensation cost for all share-based payments granted prior to, but
          not yet vested as of January 1, 2006, based on the grant date fair
          value estimated in accordance with the original provisions of
          Statement 123, and (b) compensation cost for all share-based payments
          granted subsequent to January 1, 2006, based on the grant-date fair
          value estimated in accordance with the provisions of Statement 123(R).
          Results for prior periods have not been restated.

          As a result of adopting Statement 123(R) on January 1, 2006, the
          Company's income before income taxes and net income for the nine
          months ended September 30, 2006, are $70,785 lower than if it had
          continued to account for the share-based compensation under Opinion
          25. Basic and diluted earnings per share for the nine months ended
          September 30, 2006, would have been $.64 and $.62, respectively, if
          the Company had not adopted Statement 123(R), compared to the reported
          basic and diluted earnings per share of $.62 and $.60, respectively.




                                       7
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 2.   STOCK COMPENSATION PLANS (Continued)

          At September 30, 2006, there was approximately $286,701 of
          unrecognized compensation cost related to stock-based payments, which
          is expected to be recognized over a weighted-average period of 3.0
          years.

          Pro forma information regarding the impact of total stock-based
          compensation on net income and income per share for prior periods as
          if the Company had accounted for its employee stock options under the
          fair value method during the first nine months of 2005 is illustrated
          in the following table:


                                                               For the Three
                                                               Months Ended
                                                               September 30,
                                                                   2005
                                                               ------------
          Net income, as reported                              $    703,083
          Deduct: Total stock-based employee compensation
                expense determined under fair value based
                method for all awards                                89,317
                                                               ------------
          Pro forma net income                                 $    613,766
                                                               ============
          Earnings per share:
             Basic - as reported                               $        .20
                                                               ============
             Basic - pro forma                                 $        .19
                                                               ============
             Diluted - as reported                             $        .20
                                                               ============
             Diluted - pro forma                               $        .18
                                                               ============


                                                               For the Nine
                                                               Months Ended
                                                               September 30,
                                                                    2005
                                                               ------------
          Net income, as reported                              $  1,852,830
          Deduct: Total stock-based employee compensation
                expense determined under fair value based
                method for all awards                               120,062
                                                               ------------
          Pro forma net income                                 $  1,732,768
                                                               ============
          Earnings per share:
             Basic - as reported                               $        .54
                                                               ============
             Basic - pro forma                                 $        .51
                                                               ============
             Diluted - as reported                             $        .53
                                                               ============
             Diluted - pro forma                               $        .50
                                                               ============



                                       8
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 2.   STOCK COMPENSATION PLANS (Continued)

          The Company has reserved a total of 440,000 options for grant to the
          Company's officers and directors under these two plans. Options are
          granted at the fair value of the Company's common stock at the date of
          grant and expire ten years from the date of grant.

          The Company also has outstanding options related to previous employee
          agreements with certain of its executive officers whereby stock
          options are earned based upon the performance of the Company. Options
          earned under these agreements are priced at the Company's book value
          as of year-end and expire ten years from the date the options are
          earned.

          Other pertinent information related to the options follows:
<TABLE>
<CAPTION>


                                           ----------------------     -----------------------
                                             September 30, 2006          September 30, 2005
                                           ----------------------     -----------------------
                                                        Weighted-                   Weighted-
                                                         Average                     Average
                                                        Exercise                    Exercise
                                            Shares        Price         Shares        Price
                                           --------    ----------     ----------    ---------

<S>                                         <C>        <C>               <C>             <C>
Under option, beginning of period           428,800    $     8.05        437,800    $    8.03
   Granted                                       --            --             --           --
   Exercised                                 (1,100)         9.09             --           --
   Cancelled                                     --                           --           --
                                           ---------                  ----------
Under option, end of period                 427,700    $     8.05        437,800         8.03
                                           =========                  ==========

Exercisable, end of period                  360,237          7.86        324,000         7.65
                                           =========                  ==========
Weighted-average fair value of
  options granted during the period        $     --                   $       --

  Total intrinsic value of
     options exercised
     during the period                                 $     2,101
                                                       -----------
  Weighted average remaining
     contractual term of
     exercisable options at
     and of the period                                  5.86 years
                                                       -----------
  Aggregate intrinsic value of
     exercisable options at
     end of period                                     $ 1,491,381
                                                       -----------
</TABLE>



                                       9
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 2.   STOCK COMPENSATION PLANS (Continued)


Information pertaining to options outstanding at September 30, 2006 is as
follows:
<TABLE>
<CAPTION>


                                    Options Outstanding                  Options Exercisable
                      -------------------------------------------     ---------------------------
                                     Weighted-
                                      Average       Weighted-                        Weighted-
                                     Remaining       Average                          Average
        Range of         Number     Contractual   Exercise Price         Number      Exercise
    Exercise Prices   Outstanding       Life                          Exercisable      Price
    ---------------   -----------   -----------   --------------      -----------    ------------
<S> <C>     <C>         <C>          <C>           <C>                     <C>       <C>
    $4.32 - $4.57       17,600       3.50 years    $     4.45              17,600    $   4.45
    $7.27 - $10.00     410,100       6.61 years          8.21             342,637        8.03
                      --------                                        -----------
                       427,700       6.48 years          8.05             360,237        7.86
                      ========                                        ===========
</TABLE>

The fair value of each option grant during 2005 was estimated on the date of
grant using the Black-Scholes option-pricing model with the assumptions listed
in the table below. Expected volatilities are based on historical volatility of
the Company's stock. Expected dividends are based on dividend trends and the
market price of the Company's stock price at grant. Historical data is used to
estimate option exercises and employee terminations within the valuation model.
The risk-free rate for periods within the contractual life of the option is
based on the U.S. Treasury yield curve in effect at the time of grant.



                                                        Year ended
                                                    December 31, 2005
                                                    -----------------

          Risk-free interest rate                         4.35%
          Expected life of the options                   10 years
          Expected dividends (as a
             percentage of the fair value of
             the stock)                                     0%
          Expected volatility                             16.98%


                                       10

<PAGE>



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 3.   EARNINGS PER SHARE

          Presented below is a summary of the components used to calculate basic
          and diluted earnings per common share.
<TABLE>
<CAPTION>

                                                        Three Months Ended September 30,
                                                        ------------------------------
                                                             2006              2005
                                                        -------------    -------------
<S>                                                         <C>              <C>
Basic Earnings Per Share:
   Weighted average common shares outstanding               3,447,381        3,444,009
                                                        =============    =============

   Net income                                           $     802,139    $     703,083
                                                        =============    =============

   Basic earnings per share                             $         .23    $         .20
                                                        =============    =============

Diluted Earnings Per Share:

   Weighted average common shares outstanding               3,447,381        3,444,009

   Net effect of the assumed exercise of stock
      options based on the treasury stock method
      using average market prices for the year                124,594           66,516
                                                        -------------    -------------
   Total weighted average common shares and
      common stock equivalents outstanding                  3,571,975        3,510,525
                                                        =============    =============

   Net income                                           $     802,139    $     703,083
                                                        =============    =============

   Diluted earnings per share                           $         .22    $         .20
                                                        =============    =============



                                                        Nine Months Ended September 30,
                                                        ------------------------------
                                                              2006            2005
                                                        --------------   -------------
Basic Earnings Per Share:
   Weighted average common shares outstanding               3,446,603        3,438,222
                                                        =============    =============

   Net income                                           $   2,138,547    $   1,852,830
                                                        =============    =============

   Basic earnings per share                             $         .62    $         .54
                                                        =============    =============

Diluted Earnings Per Share:

   Weighted average common shares outstanding               3,446,603        3,438,222

   Net effect of the assumed exercise of stock
      options based on the treasury stock method
      using average market prices for the year                106,867           68,090
                                                        -------------    -------------
   Total weighted average common shares and
      common stock equivalents outstanding                  3,553,470        3,506,313
                                                        =============    =============

   Net income                                           $   2,138,547    $   1,852,830
                                                        =============    =============

   Diluted earnings per share                           $         .60    $         .53
                                                        =============    =============

</TABLE>


                                       11
<PAGE>



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 the financial position and operating results of
Chestatee Bancshares, Inc. and its bank subsidiary, Chestatee State Bank, and
its non-bank subsidiaries, Chestatee Financial Services, Inc. and Chestatee
Residential Mortgage, Inc., during the period included in the accompanying
consolidated financial statements.

Forward Looking Statements
--------------------------

Certain of the statements made herein under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" ("MD&A") are
forward-looking statements for purposes of the Securities Act of 1933, as
amended (the "Securities Act") and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements. Such forward looking statements include statements using the words
such as "may," "will," "anticipate," "should," "would," "believe,"
"contemplate," "expect," "estimate," "continue," "may," "intend," or other
similar words and expressions of the future. Our actual results may differ
significantly from the results we discuss in these forward-looking statements.

These forward-looking statements involve risks and uncertainties and may not be
realized due to a variety of factors, including, without limitation: the effects
of future economic conditions; governmental monetary and fiscal policies, as
well as legislative and regulatory changes; the risks of changes in interest
rates on the level and composition of deposits, loan demand, and the values of
loan collateral, securities, and other interest-sensitive assets and
liabilities; interest rate risks; the effects of competition from other
commercial banks, thrifts, mortgage banking firms, consumer finance companies,
credit unions, securities brokerage firms, insurance companies, money market and
other mutual funds and other financial institutions operating in our market area
and elsewhere, including institutions operating regionally, nationally, and
internationally, together with such competitors offering banking products and
services by mail, telephone, computer, and the Internet.

Critical Accounting Policies
----------------------------

We have adopted various accounting policies which govern the application of
accounting principles generally accepted in the United States in the preparation
of our financial statements. Our significant accounting policies are described
in the footnotes to the consolidated financial statements at December 31, 2005
as filed on our annual report on Form 10-KSB.



                                       12
<PAGE>



Certain accounting policies involve significant judgments and assumptions by us
which have a material impact on the carrying value of certain assets and
liabilities. We consider these accounting policies to be critical accounting
policies. The judgments and assumptions we use are based on historical
experience and other factors, which we believe to be reasonable under the
circumstances. Because of the nature of the judgments and assumptions we make,
actual results could differ from these judgments and estimates which could have
a material impact on our carrying values of assets and liabilities and our
results of operations.

We believe the allowance for loan losses is a critical accounting policy that
requires the most significant judgments and estimates used in preparation of our
consolidated financial statements. Refer to the portion of this discussion that
addresses our allowance for loan losses for a description of our processes and
methodology for determining our allowance for loan losses.

Liquidity and Capital Resources
-------------------------------

We monitor our liquidity resources on an ongoing basis. Our liquidity is also
monitored on a periodic basis by State and Federal regulatory authorities. As of
September 30, 2006, our liquidity, as determined under guidelines established by
regulatory authorities and internal policy, was satisfactory.

At September 30, 2006, our capital ratios were adequate based on regulatory
minimum capital requirements. The minimum capital requirements and the actual
capital ratios on a consolidated and bank-only basis are as follows:

                                                Actual
                                       ------------------------
                                                                      Minimum
                                                                    Regulatory
                                       Consolidated      Bank       Requirement
                                       ------------    --------     -----------

     Leverage capital ratios              10.15 %        9.78 %        4.00 %
     Risk-based capital ratios:
        Core capital                      10.83         10.57          4.00
        Total capital                     12.09         11.83          8.00

These ratios may decline as asset growth continues, but are expected to exceed
the minimum regulatory requirements. Future earnings will assist in keeping
these ratios at satisfactory levels.

Off-Balance Sheet Risk
----------------------

We are a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of our customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Such commitments involve, to varying degrees, elements of credit risk
and interest rate risk in excess of the amount recognized in the balance sheets.

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 and conditional obligations as we do
for on-balance sheet instruments. A summary of our commitments is as follows:




                                       13
<PAGE>

                                                September 30, 2006
                                             ---------------------
                                             (Dollars in thousands)
                                             ---------------------

    Commitments to extend credit             $              68,649
    Letters of credit                                          832
                                             ---------------------
                                             $              69,481
                                             =====================

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
amount of collateral obtained, if deemed necessary by us upon extension of
credit, is based on our credit evaluation of the customer.

Standby letters of credit are conditional commitments issued by us to guarantee
the performance of a customer to a third party. Those letters of credit are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. Collateral is required in
instances which we deem necessary.






                                       14
<PAGE>



Financial Condition
-------------------

Following is a summary of our balance sheets for the periods indicated:

                                            September 30,       December 31,
                                                 2006               2005
                                            ------------        ------------
                                                    (Dollars in Thousands)
                                            --------------------------------

Cash and due from banks                     $      4,008        $     4,811
Interest-bearing deposits in banks                 5,001              3,944
Federal funds sold                                13,730             10,088
Securities                                        22,253             27,514
Loans, net                                       222,033            196,554
Premises and equipment                             7,393              7,585
Other assets                                       4,509              4,343
                                            ------------        -----------
                                            $    278,927        $   254,839
                                            ============        ===========

Deposits                                    $    245,151        $   215,983
Other borrowings                                   4,500             12,250
Other liabilities                                  1,895              1,340
Stockholders' equity                              27,381             25,266
                                            ------------        -----------
                                            $    278,927        $   254,839
                                            ============        ===========

Our total assets grew by 9.5% for the nine months ended September 30, 2006.
Deposit growth of $29.2 million, cash flows from securities of $5.3 million, a
decrease in cash and due from banks of $0.8 and net income of $2.1 million was
used to fund $26.3 million in loans, reduce other borrowings by $7.8 million,
provide additional fed funds of $3.6 million and increase interest bearing
deposits in other banks by $1.1 million. Our ratio of gross loans to deposits
and other borrowings was 90% at September 30, 2006 and 88% at December 31, 2005.
Our total equity increased by $2.1 million due to year-to-date net income of
$2.1 million and the issuance of a $207,000 cash dividend to shareholders.





                                       15

<PAGE>



Results of Operations For The Nine Months Ended September 30, 2006 and 2005

Following is a summary of our operations for the periods indicated:

                                               Three Months Ended
                                                  September 30,
                                            -----------------------
                                                2006        2005
                                            ----------   ----------
                                            (Dollars in Thousands)
                                            -----------------------

Interest income                             $    5,491   $    4,252

Interest expense                                 2,309        1,505
                                            ----------   ----------

Net interest income                              3,182        2,747

Provision for loan losses                          225           81

Other income                                       242          269

Other expense                                    1,936        1,841
                                            ----------   ----------

Pretax income                                    1,263        1,094

Income taxes                                       461          391
                                            ----------   ----------

Net income                                  $      802   $      703
                                            ==========   ==========


                                                 Nine Months Ended
                                                    September 30,
                                            -----------------------
                                                2006         2005
                                            ----------    ---------
                                             (Dollars in Thousands)
                                            -----------------------

Interest income                             $   15,361   $   11,881

Interest expense                                 5,985        4,208
                                            ----------    ---------

Net interest income                              9,376        7,673

Provision for loan losses                          817          178

Other income                                       735          865

Other expense                                    5,927        5,492
                                            ----------    ---------

Pretax income                                    3,367        2,868

Income taxes                                     1,228        1,015
                                            ----------    ---------

Net income                                  $    2,139   $    1,853
                                            ==========   ==========




                                       16
<PAGE>
Our net interest income increased by $435,000 and $1,703,000 for the three
months and nine months ended September 30, 2006, respectively, as compared to
the same period in 2005. Our net interest margin was 4.93% during the nine
months ended September 30, 2006 as compared to 4.07% for the nine months ended
September 30, 2005 and 4.20% for the entire year of 2005. The increase in net
interest income is due primarily to the increased volume of average loans
outstanding and increases in the Prime Lending Rate. Yields earned on loans have
increased to 8.85% in the first nine months of 2006 as compared to 7.22% in the
first nine months of 2005. Our cost of funds increased to 3.76% in the first
nine months of 2006 as compared to 2.35% in the first nine months of 2005. The
increase in cost of funds also reflects the impact of interest rate increases
over the past twelve months.

The provision for loan losses was $817,000 for the nine months ended September
30, 2006. The provision for the nine months ended September 30, 2006 increased
$639,000 over the same period in 2005. The increase in provision expense is due
to loan growth and an additional reserve of approximately $286,000 that was made
based on concerns in relation to credits outstanding to one commercial
relationship.

Nonaccrual loans of $2,068,000 at September 30, 2006 consist primarily of
$1,832,000 of commercial loans. A single credit in the amount of approximately
$1.4 million has made all regularly scheduled payments in full and in a timely
manner. This credit was classified as a nonaccrual loan due to an abundance of
caution (see discussion below). The remaining $236,000 of nonaccrual loans are
real estate loans. Loans past due ninety days or more and still accruing
interest of $290,000 at September 30, 2006 consists of $184,000 in real estate
loans, $69,000 in commercial loans, $24,000 of loans to individuals and $13,000
of credit card loans. These loans were identified through our loan evaluation
process and have been properly considered in the determination of the allowance
for loan losses. Management believes that the $3,809,000 in the allowance for
loan losses at September 30, 2006, or 1.69% of total net outstanding loans, is
adequate to absorb known risks in the portfolio. Approximately $600,000 of the
$3.8 million allowance for loan losses at September 30, 2006 is set aside as a
specific reserve for the $1.4 million credit referenced above. The credit, which
is participated among several banks, is in the process of being restructured.
The restructuring will result in write-downs for all banks involved in the
credit. It is estimated that Chestatee State Bank will use approximately
$400,000 of the $600,000 specific reserve for the write down of the company's
portion of this credit. The loan balance of $1.4 million is included in the
balance of nonaccrual loans. Management does not anticipate additional provision
expense in order to cover this write down. However, no assurance can be given
that increased loan volume, and adverse economic conditions or other
circumstances will not result in increased losses in our loan portfolio.





                                       17
<PAGE>




Information with respect to nonaccrual, past due, restructured, and potential
problem loans at September 30, 2006 and 2005 is as follows:
<TABLE>
<CAPTION>

                                                                     September 30,
                                                                ------------------------
                                                                   2006          2005
                                                                ------------------------
                                                                 (Dollars in Thousands)
                                                                ------------------------

<S>                                                             <C>            <C>
Nonaccrual loans*                                               $    2,068     $     654
Loans contractually past due ninety days or more
   as to interest or principal payments and still accruing             290            47
Restructured loans
Potential problem loans                                                 --         1,423
Interest income that would have been recorded on nonaccrual
   and restructured loans under original terms                         108            48
Interest income that was recorded on nonaccrual and                     --            --
   restructured loans
</TABLE>


*    Approximately $1.4 million of the 2006 balance of $2.1 million was
     designated as nonaccrual as a precaution. The creditor has made all
     required payments in full and in a timely manner. (See discussion above.)

Potential problem loans are defined as loans about which we have serious doubts
as to the ability of the borrower to comply with the present loan repayment
terms and which may cause the loan to be placed on nonaccrual status, to become
past due more than ninety days, or to be restructured.

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 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.

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.
Management is not aware of any information that causes it to have serious doubts
as to the ability of borrowers to comply with the loan repayment terms.





                                       18

<PAGE>



Information regarding certain loans and allowance for loan loss data through
September 30, 2006 and 2005 is as follows:
<TABLE>
<CAPTION>

                                                                           Nine Months Ended
                                                                             September 30,
                                                                        ---------------------
                                                                          2006         2005
                                                                        --------    ---------
                                                                       (Dollars in Thousands)
                                                                        --------------------

<S>                                                                     <C>         <C>
Average amount of loans outstanding                                     $212,200    $200,929
                                                                        ========    ========

Balance of allowance for loan losses at beginning of period                4,111       3,620
                                                                        --------    --------

Loans charged off
   Commercial and financial                                                1,020          56
   Real estate mortgage                                                       13          38
   Installment                                                               100         112
                                                                        --------    --------
                                                                           1,133         206
                                                                        --------    --------
Loans recovered
   Commercial and financial                                                   --          --
   Real estate mortgage                                                       --           7
   Installment                                                                14          33
                                                                        --------    --------
                                                                              14          40
                                                                        --------    --------

Net charge-offs                                                            1,119         166
                                                                        --------    --------

Additions to allowance charged to operating expense
    during the period                                                        817         178
                                                                        --------    --------

Balance of allowance for loan losses at end of period                   $  3,809    $  3,632
                                                                        ========    ========

Ratio of net loans charged off during the period to
   average loans outstanding                                                 .53%        .08%
                                                                        ========    ========

</TABLE>


The allowance for loan losses is maintained at a level that is deemed
appropriate by management to adequately cover all known and inherent risks in
the loan portfolio. Management's evaluation of the loan portfolio includes a
loan classification program. Under the program, as each loan is made, we assign
a loan grade. Each loan grade is assigned an allowance percentage determined
based on our experience specifically and the historical experience of the
banking industry generally. Loan classifications are then subject to periodic
reviews by the responsible lending officers, internal loan review which is
performed by a third party, regulators, external auditors, and senior management
based upon their judgment, our loan loss experience, current economic conditions
that may affect the borrower's ability to repay, lender requirements, the
underlying collateral value of the loans and other appropriate information.
Management relies predominantly on this ongoing review of the loan portfolio to
assess the risk characteristics of the portfolio in the aggregate and to
determine adjustments, if any, to our allowance for loan losses. Based upon this
ongoing review, we may identify loans that could be impaired. A loan is
considered impaired when it is probable that we will be unable to collect all
principal and interest due in accordance with the contractual terms of the loan
agreement. When we identify a loan as impaired, the allowance for loan losses is
increased if we determine that the amount of impairment is in excess of the
allowance determined under our loan classification program. We maintain an
allowance for loan losses of no less than 1.0% of outstanding loans at all
times.




                                       19
<PAGE>
Loans charged off in 2006 include the charge off of a $1 million commercial and
financial loan. The Company recognized provision expense which was accrued to
the allowance for loan losses in prior years in anticipation of the settlement
of this credit. With the recognition of this charge-off, the Company's ratio of
allowance for loan losses to loans has become more in line with industry
standards.

Other income decreased by $130,000 for the nine months ended September 30, 2006,
respectively, as compared to the same period in 2005. Decreases in other income
were largely due to decreased service charges which reflect the impact of the
introduction of a free checking product for customers.

Other expenses increased by $435,000 for the nine months ended September 30,
2006, as compared to the same period in 2005. Salaries and employee benefits
increased by $418,000 and equipment and occupancy expenses decreased by $38,000.
Salaries and employee benefits have increased due to increased benefits
expenses, the expense associated with the stock option plans discussed in Note 2
to the financial statements and annual salary increases. Increased professional
fees were the primary cause of other operating expenses increasing by $54,000.

We have recorded income tax expense of $1,228,000 for the nine months ended
September 30, 2006. The rate of tax as a percentage of pretax income was 36.4%.

We are not aware of any known trends, events or uncertainties, other than the
effect of events as described above, that will have or that are reasonably
likely to have a material effect on its liquidity, capital resources or
operations. We are also not aware of any current recommendations by the
regulatory authorities which, if they were implemented, would have such an
effect.

ITEM 3.  Controls and Procedures
         -----------------------

As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our Chief
Executive Officer and the Chief Financial Officer, of the design and operation
of our disclosure controls and procedures. Based on this evaluation, our Chief
Executive and Chief Financial Officer concluded that our disclosure controls and
procedures are effective for gathering, analyzing and disclosing the information
that we are required to disclose in the reports we file under the Securities
Exchange Act of 1934, within the time periods specified in the SEC's rules and
forms. Our Chief Executive Officer and Chief Financial Officer also concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information relating to our Company required to be included in
our periodic SEC filings. In connection with the new rules, we are in the
process of further reviewing and documenting our disclosure controls and
procedures, including our internal controls and procedures for financial
reporting, and may from time to time make changes designed to enhance their
effectiveness and to ensure that our systems evolve with our business.

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


                                       20

<PAGE>



                           PART II - OTHER INFORMATION

ITEM 1.   Legal Proceedings
          -----------------

Management is not aware of any material pending legal proceedings to which the
Company, the Bank, Chestatee Financial Services or Chestatee Residential
Mortgage are a party or to which any of their property is subject, other than
ordinary routine legal proceedings incidental to our business.

ITEM 6.   Exhibits And Reports On Form 8-K
          --------------------------------

          (a)  Exhibits.

              Number            Description

               31.1  Rules 13a-14(a) and 15d-14(a) Certifications for CEO
               31.2  Rules 13a-14(a) and 15d-14(a) Certifications for CFO
               32    Certifications of CEO and CFO Pursuant to 18 U.S.C. Section
                     1350, as Adopted Pursuant to Section 906 of the
                     Sarbanes-Oxley Act of 2002

          (b)  Reports on Form 8-K.

               The Company filed a Form 8-K on October 2, 2006 pursuant to Item
               5.02, reporting that it had accepted the resignation of Russell
               M. Wallace from his position as a director effective September
               30, 2006. The filing is incorporated by reference.










                                       21
<PAGE>



                                   SIGNATURES



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

                           CHESTATEE BANCSHARES, INC.
                                  (Registrant)



DATE:   November 14, 2006       BY:  /s/ J. Philip Hester, Sr.
        ------------------           ------------------------------------------
                                     J. Philip Hester, Sr., President and C.E.O.
                                    (Principal Executive Officer)


DATE:  November 14, 2006        BY:  /s/ Deborah F. McLeod
       ------------------            -------------------------------------------
                                     Deborah F. McLeod, C.F.O. and Treasurer
                                    (Principal Financial and Accounting Officer)












                                       22
<PAGE>