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       June 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 July 7, 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 - June 30, 2006...........................3

          Consolidated Statement of Income Three and Six Months
                   Ended June 30, 2006 and 2005................................4

          Consolidated Statement of Comprehensive Income Three and Six Months
                   Ended June 30, 2006 and 2005................................5

          Consolidated Statements of Cash Flows - Six Months
                   Ended June 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.......................22

          Signatures..........................................................23

          Certifications......................................................24

<PAGE>
                         PART I - FINANCIAL INFORMATION
ITEM I.                      FINANCIAL STATEMENTS

                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                  June 30, 2006

                    Assets
                    ------

Cash and due from banks                                           $   3,878,316
Interest-bearing deposits in banks                                    1,965,268
Federal funds sold                                                    5,085,000
Securities available-for-sale, at fair value                         23,157,219
Restricted equity securities, at cost                                   937,100

Loans                                                               222,821,821
Less allowance for loan losses                                        4,634,287
                                                                  -------------
          Loans, net                                                218,187,534
                                                                  -------------

Premises and equipment, net                                           7,505,336
Other assets                                                          4,762,982
                                                                  -------------

          Total assets                                            $ 265,478,755
                                                                  =============

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

Deposits
    Noninterest-bearing                                           $  27,128,327
    Interest-bearing                                                201,064,257
                                                                  -------------
          Total deposits                                            228,192,584
Other borrowings                                                      9,500,000
Other liabilities                                                     1,364,427
                                                                  -------------
          Total liabilities                                         239,057,011
                                                                  -------------

Commitments and contingencies

Stockholders' equity
    Common stock, no par value; 20,000,000 shares
      authorized; 3,447,381 shares issued and outstanding            24,814,341
    Retained earnings                                                 2,208,813
    Dividends Paid                                                     (206,777)
    Accumulated other comprehensive loss                               (394,633)
                                                                  -------------
          Total stockholders' equity                                 26,421,744
                                                                  -------------

          Total liabilities and stockholders' equity              $ 265,478,755
                                                                  =============

See Notes to Consolidated Financial Statements.

                                       3
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                Three and Six Months Ended June 30, 2006 and 2005

<TABLE>
<CAPTION>
                                                            Three Months Ended,          Six Months Ended,
                                                                  June 30,                    June 30,
                                                         -----------   -----------    -----------   -----------
                                                             2006          2005           2006          2005
                                                         -----------   -----------    -----------   -----------
<S>                                                      <C>           <C>            <C>           <C>
Interest income
    Loans                                                $ 4,758,002   $ 3,471,854    $ 9,021,776   $ 6,728,289
    Taxable Securities                                       218,257       243,862        449,393       474,736
    Nontaxable Securities                                     13,051        14,247         26,101        30,711
    Federal funds sold                                       121,411       173,171        275,823       315,580
    Interest-bearing deposits in banks                        47,318        41,720         96,524        79,078
                                                         -----------    ----------    -----------    -----------
              Total interest income                        5,158,039     3,944,854      9,869,617     7,628,394
                                                         -----------    ----------    -----------    -----------

Interest expense
    Deposits                                               1,869,883     1,289,977      3,536,736     2,445,044
    Other borrowings                                          68,667       134,742        139,154       257,608
                                                         -----------    ----------    -----------    -----------
              Total interest expense                       1,938,550     1,424,719      3,675,890     2,702,652
                                                         -----------    ----------    -----------    -----------

              Net interest income                          3,219,489     2,520,135      6,193,727     4,925,742
Provision for loan losses                                    505,372        49,675        591,217        97,243
                                                         -----------    ----------    -----------    -----------
              Net interest income after
                provision for loan losses                  2,714,117     2,470,460      5,602,510     4,828,499
                                                         -----------    ----------    -----------    -----------

Other income
      Service charges and fees                               197,734       242,468        400,848       474,865
      Losses on sales of securities available for sale             -       (21,488)             -       (51,712)
      Other operating income                                  51,457        86,034         91,222       173,322
                                                         -----------    ----------    -----------    -----------
              Total other income                             249,191       307,014        492,070       596,475
                                                         -----------    ----------    -----------    -----------

Other expenses
    Salaries and employee benefits                         1,157,842       986,734      2,337,092     2,000,189
    Occupancy and equipment expenses                         251,962       269,079        502,863       499,890
    Other operating expenses                                 580,937       573,034      1,150,925     1,151,584
                                                         -----------    ----------    -----------    -----------
              Total other expenses                         1,990,741     1,828,847      3,990,880     3,651,663
                                                         -----------    ----------    -----------    -----------

              Net income before income taxes                 972,567       948,627      2,103,700     1,773,311

Income tax expense                                           355,272       334,800        767,292       623,564
                                                         -----------    ----------   -----------    ------------

              Net income                                     617,295       613,827      1,336,408     1,149,747
                                                         -----------    ----------    -----------    -----------

Basic earnings per share                                 $      0.18    $      0.18   $      0.39    $     0.33
                                                         ===========    ===========   ===========    ===========

Diluted earnings per share                               $      0.18    $      0.18   $      0.38    $     0.33
                                                         ===========    ===========   ===========    ===========

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

See Notes to Consolidated Financial Statements.

                                       4
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                Three and Six Months Ended June 30, 2006 and 2005

<TABLE>
<CAPTION>
                                                                             Three Months Ended          Six Months Ended,
                                                                                  June 30,                    June 30,
                                                                        -----------     ----------   -----------    -----------
                                                                             2006           2005         2006            2005
                                                                        -----------     ----------   -----------    -----------
<S>                                                                     <C>            <C>           <C>            <C>
Net income                                                              $   617,295    $   613,827   $ 1,336,408    $ 1,149,747

Other comprehensive income (loss):
        Unrealized holding gains (losses) on securities
           available-for-sale arising during the three month and
           six month period, net of tax                                     (34,216)        51,226       (30,954)       (88,510)

       Reclassification adjustment for losses realized in net income,
           net of tax benefits                                                   -          13,967            -          33,613
                                                                        -----------    -----------   -----------    -----------

Other comprehensive income (loss)                                           (34,216)        65,193       (30,954)       (54,897)
                                                                        -----------    -----------   -----------    -----------

Comprehensive income                                                    $   583,079    $   679,020   $ 1,305,454    $ 1,094,850
                                                                        ===========    ===========   ===========    ===========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       5
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                Three and Six Months Ended June 30, 2006 and 2005

<TABLE>
<CAPTION>
                                                                        Six Months Ended,
                                                                       2006            2005
                                                                   ------------    ------------
<S>                                                                <C>             <C>
OPERATING ACTIVITIES
    Net income                                                     $  1,336,408    $  1,149,747
    Adjustments to reconcile net income to net cash
        provided by operating activities:
        Depreciation                                                    534,462         266,747
        Provision for loan losses                                       591,217          97,243
        Amortization and accretion of securities                         90,441               -
        Loss on sales of securities                                           -          51,712
        Stock-based compensation expense                                 47,190               -
        Decrease in interest receivable                                (146,397)         97,532
        Increase in interest payable                                     95,421          75,614
        Net other operating activities                                 (326,705)       (120,318)
                                                                   ------------    ------------

              Net cash provided by operating activities               2,222,037       1,618,277
                                                                   ------------    ------------
INVESTING ACTIVITIES
    Net decrease in interest-bearing deposits in banks                1,978,737         109,557
    Net (increase) decrease in federal funds sold                     5,003,000      (8,403,000)
    Purchases of securities available-for-sale                                -      (6,990,216)
    Proceeds from maturities of securities available-for-sale         3,163,733       2,848,538
    Proceeds from sales of securities available-for-sale                      -       3,950,357
    Sale of restricted equity securities                                115,400               -
    Net increase decrease in loans                                  (22,224,909)     (1,046,001)
    Proceeds from sales of premises and equipment                        10,218           3,161
    Purchase of premises and equipment                                 (464,388)       (104,386)
                                                                   ------------    ------------

              Net cash used in investing activities                 (12,418,209)     (9,631,990)
                                                                   ------------    ------------

FINANCING ACTIVITIES
    Net increase in deposits                                         12,209,958      14,671,261
    Cash dividends paid on common stock                                (206,777)              -
    Net proceeds from common stock issued                                10,000               -
    Payments on other borrowings                                     (2,750,000)     (5,850,000)
                                                                   ------------    ------------
              Net cash provided by financing activities               9,263,181       8,821,261
                                                                   ------------    ------------

Net increase (decrease) in cash and due from banks                     (932,991)        807,548

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

Cash and due from banks, end of period                             $  3,878,316    $  4,227,476
                                                                   ============    ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
    Cash paid for:
          Interest                                                 $  3,580,469    $  2,627,038

          Income taxes                                             $  1,112,104    $    815,452

    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 June 30, 2006 are not
         necessarily indicative of the results to be expected for the full year.

         Stock Dividend and Per Share Amounts

         Earnings per share for the periods ended June 30, 2005 have been
         restated to reflect the 10% stock dividend declared in 2005.

NOTE 2.  STOCK COMPENSATION PLANS

         At June 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 six months ended June 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 six months
         ended June 30, 2006, are $47,190 lower than if it had continued to
         account for the share-based compensation under Opinion 25. Basic and
         diluted earnings per share for the six months ended June 30, 2006,
         would have been $.40 and $.39, respectively, if the Company had not
         adopted Statement 123(R), compared to the reported basic and diluted
         earnings per share of $.39 and $.38, respectively.

                                       7
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 2.  STOCK COMPENSATION PLANS (Continued)

         At June 30, 2006, there was approximately $310,296 of unrecognized
         compensation cost related to stock-based payments, which is expected to
         be recognized over a weighted-average period of 3.25 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 six months of 2005 is illustrated in the
         following table:

                                                            For the Three Months
                                                                Ended June 30,
                                                                     2005
                                                              ------------------
         Net income, as reported                              $        613,827
         Deduct: Total stock-based employee compensation
               expense determined under fair value based
               method for all awards                                  (22,329)
                                                              ------------------
         Pro forma net income                                 $        591,498
                                                              ==================
         Earnings per share:
            Basic - as reported                               $            .18
                                                              ==================
            Basic - pro forma                                 $            .17
                                                              ==================
            Diluted - as reported                             $            .18
                                                              ==================
            Diluted - pro forma                               $            .17
                                                              ==================


                                                              For the Six Months
                                                                Ended June 30,
                                                                     2005
                                                              ------------------
         Net income, as reported                              $      1,149,747
         Deduct: Total stock-based employee compensation
               expense determined under fair value based
               method for all awards                                  (49,283)
                                                              ------------------
         Pro forma net income                                 $      1,100,464
                                                              ==================
         Earnings per share:
            Basic - as reported                               $            .33
                                                              ==================
            Basic - pro forma                                 $            .32
                                                              ==================
            Diluted - as reported                             $            .33
                                                              ==================
            Diluted - pro forma                               $            .32
                                                              ==================

                                       8
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 2.  STOCK COMPENSATION PLANS (Continued)

         The Company's reserved a total of 400,000 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:

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

Under option, beginning of period    428,800    $ 8.05        426,800    $ 8.00
   Granted                               - -       - -            - -       - -
   Exercised                           1,100      9.09            - -       - -
   Cancelled                             - -                      - -       - -
                                    ---------                ---------
Under option, end of period          427,700    $ 8.05        426,800      8.00
                                    =========                =========

Exercisable, end of period           336,037      7.77        285,634      7.46
                                    =========                =========
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                    5.70 years
                                           -----------
    Aggregate intrinsic value of
       exercisable options at
       end of period                       $ 1,085,400
                                           -----------

                                       9
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 2.  STOCK COMPENSATION PLANS (Continued)


Information pertaining to options outstanding at June 30, 2006 is as follows:


                             Options Outstanding           Options Exercisable
                  -------------------------------------  -----------------------
                                  Weighted-
                                   Average    Weighted-               Weighted-
                                  Remaining    Average                 Average
   Range of           Number     Contractual  Exercise     Number     Exercise
Exercise Prices    Outstanding      Life       Price     Exercisable    Price
---------------  --------------  -----------  ---------  -----------  ---------

 $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       318,437       7.95
                   ----------                            ----------
                     427,700     6.48 years     8.05       336,037       7.77
                   ==========                            ==========

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.

                                                     Three Months Ended June 30,
                                                    ----------------------------
                                                        2006             2005
                                                    -----------      -----------
Basic Earnings Per Share:
   Weighted average common shares outstanding         3,446,922        3,435,281
                                                    ===========       ==========

   Net income                                       $   617,295       $  613,827
                                                    ===========       ==========

   Basic earnings per share                         $       .18       $      .18
                                                    ===========       ==========

Diluted Earnings Per Share:

   Weighted average common shares outstanding         3,446,863        3,435,281
   Net effect of the assumed exercise of stock
      options based on the treasury stock method
      using average market prices for the year           97,119           54,534
                                                    -----------       ----------
   Total weighted average common shares and
      common stock equivalents outstanding            3,544,041        3,489,815
                                                    ===========       ==========

   Net income                                       $   617,295       $  613,827
                                                    ===========       ==========

   Diluted earnings per share                       $       .18       $      .18
                                                    ===========       ==========

                                                      Six Months Ended June 30,
                                                    ----------------------------
                                                        2006             2005
                                                    -----------       ----------
Basic Earnings Per Share:
   Weighted average common shares outstanding         3,446,603        3,435,281
                                                    ===========       ==========

   Net income                                       $ 1,336,408       $1,149,747
                                                    ===========       ==========

   Basic earnings per share                         $       .39       $      .33
                                                    ===========       ==========

Diluted Earnings Per Share:

   Weighted average common shares outstanding         3,446,603        3,435,281
   Net effect of the assumed exercise of stock
      options based on the treasury stock method
      using average market prices for the year           97,174           54,534
                                                    -----------       ----------
   Total weighted average common shares and
      common stock equivalents outstanding            3,543,777        3,489,815
                                                    ===========       ==========

   Net income                                       $ 1,336,408       $1,149,757
                                                    ===========       ==========

   Diluted earnings per share                       $       .38       $      .33
                                                    ===========       ==========

                                       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
June 30, 2006, our liquidity, as determined under guidelines established by
regulatory authorities and internal policy, was satisfactory.

At June 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            10.37 %     9.92 %        4.00 %
     Risk-based capital ratios:
        Core capital                    10.81      10.48          4.00
        Total capital                   12.07      11.74          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.

                                       13
<PAGE>
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:

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

    Commitments to extend credit                   $               71,121
    Letters of credit                                               1,054
                                                   ----------------------
                                                   $               72,175
                                                   ======================

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:

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

Cash and due from banks                        $        3,878    $       4,811
Interest-bearing deposits in banks                      1,965            3,944
Federal funds sold                                      5,085           10,088
Securities                                             24,094           27,514
Loans, net                                            218,188          196,554
Premises and equipment                                  7,506            7,585
Other assets                                            4,763            4,343
                                               ---------------   --------------
                                               $      265,479    $     254,839
                                               ===============   ==============

Deposits                                       $      228,193    $     215,983
Other borrowings                                        9,500           12,250
Other liabilities                                       1,364            1,340
Stockholders' equity                                   26,422           25,266
                                               ---------------   --------------
                                               $      265,479    $     254,839
                                               ===============   ==============

Our total assets grew by 4.2% for the six months ended June 30, 2006. Deposit
growth of $12.2 million, cash flows from securities of $3.4 million, a reduction
in fed funds of $5 million and a $2 million reduction in interest bearing
deposits in other banks was used to fund $22 million in loans and reduce other
borrowings by $2.8 million. Our ratio of gross loans to deposits and other
borrowings was 93% at June 30, 2006 and 88% at December 31, 2005. Our total
equity increased by $1.1 million due to year-to-date net income of $1.3 million
and the issuance of a $207,000 cash dividend to shareholders.



                                       15
<PAGE>
Results of Operations For The Six Months Ended June 30, 2006 and 2005

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

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

Interest income                          $       5,158    $        3,945

Interest expense                                 1,939             1,425
                                         --------------   ---------------

Net interest income                              3,219             2,520

Provision for loan losses                          505                50

Other income                                       249               307

Other expense                                    1,990             1,828
                                         --------------   ---------------

Pretax income                                      973               949

Income taxes                                       356               335
                                         --------------   ---------------

Net income                               $         617    $          614
                                         ==============   ===============

                                                 Six Months Ended
                                                     June 30,
                                         --------------------------------
                                               2006            2005
                                         --------------   --------------
                                            (Dollars in Thousands)
                                         -------------------------------

Interest income                          $       9,870    $       7,628

Interest expense                                 3,676            2,702
                                         --------------   --------------

Net interest income                              6,194            4,926

Provision for loan losses                          591               97

Other income                                       492              596

Other expense                                    3,991            3,652
                                         --------------   --------------

Pretax income                                    2,104            1,773

Income taxes                                       767              623
                                         --------------   --------------

Net income                               $       1,337    $       1,150
                                         ==============   ==============

                                       16
<PAGE>
Our net interest income increased by $699,000 and $1,268,000 for the three
months and six months ended June 30, 2006, respectively, as compared to the same
period in 2005. Our net interest margin was 5.01% during the six months ended
June 30, 2006 as compared to 3.91% for the six months ended June 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 8.79% in the
first six months of 2005 as compared to 7.02% in the first six months of 2005.
Our cost of funds increased to 3.17% in the first six months of 2006 as compared
to 2.25% in the first six 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 $591,000 for the six months ended June 30,
2006. The provision for the six months ended June 30, 2006 increased $494,000
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 $2,217,000 at June 30, 2006 consist of $1,835,000 of
commercial loans, $335,000 of real estate loans, and $47,000 of consumer loans.
Loans past due ninety days or more and still accruing interest of $5,000 at June
30, 2006 consists of $5,000 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
$4,634,000 in the allowance for loan losses at June 30, 2006, or 1.95% of total
net outstanding loans, is adequate to absorb known risks in the portfolio.
Approximately $600,000 of the $4.6 million allowance for loan losses at June 30,
2006 is set aside as a specific reserve for a $1.4 million credit that is in the
process of being restructured. The credit is participated among several banks.
The restructuring will result in write-downs for all banks involved in the
credit. It is estimated that Chestatee State Bank will take approximately
$400,000 in write downs. 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.

Information with respect to nonaccrual, past due, restructured, and potential
problem loans at June 30, 2006 and 2005 is as follows:

<TABLE>
<CAPTION>
                                                                             June 30,
                                                                     ----------------------
                                                                       2006           2005
                                                                     ----------------------
                                                                     (Dollars in Thousands)
                                                                     ----------------------
<S>                                                                  <C>             <C>
Nonaccrual loans                                                     $ 2,217         $ 641
Loans contractually past due ninety days or more as to interest
   or principal payments and still accruing                                5            92
Restructured loans                                                         -             -
Potential problem loans                                                    -             -

Interest income that would have been recorded on nonaccrual
   and restructured loans under original terms                            99            36
Interest income that was recorded on nonaccrual and                        -             -
   restructured loans
</TABLE>

                                       17
<PAGE>
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
June 30, 2006 and 2005 is as follows:

<TABLE>
<CAPTION>
                                                                    Six Months Ended
                                                                       June 30,
                                                                 ---------------------
                                                                   2006        2005
                                                                 --------    ---------
                                                                (Dollars in Thousands)
                                                                 ---------------------
<S>                                                              <C>         <C>
Average amount of loans outstanding                              $212,553    $193,402
                                                                 ========    ========

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

Loans charged off
   Commercial and financial                                            20           -
   Real estate mortgage                                                13          35
   Installment                                                         46          73
                                                                 --------    --------
                                                                       79         108
                                                                 --------    --------
Loans recovered
   Commercial and financial                                             -           -
   Real estate mortgage                                                 -           3
   Installment                                                         11          35
                                                                 --------    --------
                                                                       11          38
                                                                 --------    --------

Net charge-offs                                                        68          70
                                                                 --------    --------

Additions to allowance charged to operating expense during the
period                                                                591          97
                                                                 --------    --------

Balance of allowance for loan losses at end of period            $  4,634    $  3,647
                                                                 ========    ========

Ratio of net loans charged off during the period to
   average loans outstanding                                          .03%        .04%
                                                                 ========    ========
</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
review by the responsible lending officers and by 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>
Other income decreased by $104,000 for the six months ended June 30, 2006,
respectively, as compared to the same period in 2005. Decreases in other income
were related to decreased mortgage origination fees and service charges.

Other expenses increased by $339,000 for the six months ended June 30, 2006, as
compared to the same period in 2005. Salaries and employee benefits increased by
$337,000 and equipment and occupancy expenses increased by $2,000. 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. There was no change in other operating
expenses.

We have recorded income tax expense of $767,000 for the six months ended June
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
affect 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 4.  Submission Of Matters To A Vote Of Security Holders

         (a)      The annual meeting of the stockholders of the Company was held
                  on May 9, 2006. There were no shares represented at the
                  meeting in person and 1,947,442 represented by proxy, for a
                  total of 1,947,442 shares, representing 56.51% of the total
                  issued and outstanding shares of the Company. Based upon the
                  Report of the Inspector, and pursuant to Section 2.5 of the
                  Company's Bylaws, a quorum was deemed present at the meeting.

         (b)      The following directors were elected to serve until the next
                  annual meeting of the Company in the 2007 calendar year as
                  follows:

                  ---------------------------- ---------------- ----------------
                  Director                           For            Against
                  ---------------------------- ---------------- ----------------

                  R. Millard Bowen                 1,947,112          330
                  Marcus C. Byrd, Jr.              1,947,112          330
                  Glennon C. Grogan                1,947,442            -
                  James H. Grogan                  1,947,442            -
                  Andrew M. Head                   1,947,442            -
                  J. Philip Hester, Sr.            1,947,442            -
                  Bruce T. Howard                  1,947,332          110
                  David E. Johnson                 1,947,442            -
                  W. Alan McRae                    1,947,442            -
                  Kim Mills                        1,947,442            -
                  Russell M. Wallace               1,947,112          330


                  No shares abstained. The number of shares voting in favor of
                  the nominees represented at least 99.98% of the total number
                  of shares represented at the meeting and entitled to vote upon
                  the proposal. Consequently, the nominees were approved by the
                  shareholders of the Company.


                                       21
<PAGE>
         (c)      In addition to the election of directors, the Company also
                  considered approval of Mauldin & Jenkins, LLC as the Company's
                  independent public accountants for the year ended December 31,
                  2006. Of the 1,947,442 represented at the meeting, 1,947,442
                  shares were voted in favor of the ratification of Mauldin &
                  Jenkins, LLC as the independent public accountants for fiscal
                  year 2006, no shares were voted against the ratification of
                  Mauldin & Jenkins, LLC as the independent public accountants
                  for fiscal year 2006; and 110 shares abstained. The number of
                  shares voting in favor of the ratification of Mauldin &
                  Jenkins, LLC as the independent public accountants for fiscal
                  year 2006 represented 99.99% of the total number of shares
                  represented at the Meeting and entitled to vote upon the
                  proposal. Mauldin & Jenkins, LLC was therefore ratified as the
                  independent public accountants for fiscal year 2006.


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.

                  None.



                                       22
<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:  May 11, 2006             BY: /s/ J. Philip Hester, Sr.
       -------------                --------------------------------------------
                                    J. Philip Hester, Sr., President and C.E.O.
                                    (Principal Executive Officer)


DATE: May 11, 2006              BY: /s/ Deborah F. McLeod
      -------------                 --------------------------------------------
                                    Deborah F. McLeod, C.F.O. and Treasurer
                                    (Principal Financial and Accounting Officer)




                                       23