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, 2004
                                             ------------------------

[ ]   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 November 1, 2004: 3,106,000; 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, 2004.......................3

         Consolidated Statements of Operations and Comprehensive Income
                 Three and Nine Months Ended September 30, 2004 and 2003.......4

         Consolidated Statements of Cash Flows -
                 Nine Months Ended September 30, 2004 and 2003.................5

         Notes to Consolidated Financial Statements............................6

         ITEM 2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations................9

         ITEM 3.  Controls and Procedures.....................................17


PART II. OTHER INFORMATION

         ITEM 1.  Legal Proceedings...........................................18

         ITEM 6.  Exhibits and Reports on Form 8-K............................19

         Signatures...........................................................20

         Certifications.......................................................21

                                       2
<PAGE>
                  CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                         PART I - FINANCIAL INFORMATION

  ITEM 1.     FINANCIAL STATEMENTS

                           CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 2004
                                   (Unaudited)

                                  Assets

Cash and due from banks                                           $   3,590,139
Interest-bearing deposits in banks                                    4,350,061
Federal funds sold                                                   12,174,000
Securities available-for-sale, at fair value                         31,325,984
Restricted equity securities                                          1,310,000

Loans                                                               183,349,976
Less allowance for loan losses                                        3,198,169
                                                                  -------------
          Loans, net                                                180,151,807
                                                                  -------------

Premises and equipment                                                8,021,001
Other assets                                                          3,751,144
                                                                  -------------

          Total assets                                            $ 244,674,136
                                                                  =============

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

Deposits
    Noninterest-bearing                                           $  23,303,442
    Interest-bearing                                                171,793,755
                                                                  -------------
          Total deposits                                            195,097,197
Other borrowings                                                     26,200,000
Other liabilities                                                     1,036,172
                                                                  -------------
          Total liabilities                                         222,333,369
                                                                  -------------

Commitments and contingencies

Stockholders' equity
    Common stock, no par value; 20,000,000 shares
      authorized; 3,106,000 shares issued and outstanding            21,367,813
    Retained earnings                                                 1,158,331
    Accumulated other comprehensive income                             (185,377)
                                                                  -------------
          Total stockholders' equity                                 22,340,767
                                                                  -------------

          Total liabilities and stockholders' equity              $ 244,674,136
                                                                  =============

See Notes to Consolidated Financial Statements

                                       3
<PAGE>
                  CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
         THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                      Three Months                 Nine Months
                                                                          Ended                       Ended
                                                                      September 30                 September 30
                                                                -------------------------    -------------------------
                                                                    2004          2003           2004          2003
                                                                -------------------------    -------------------------
<S>                                                             <C>           <C>            <C>           <C>
Interest income
    Loans                                                       $ 2,874,461   $ 2,852,331    $ 8,428,953   $ 8,204,726
    Securities                                                      253,020       179,160        793,605       418,137
    Federal funds sold                                               38,945        23,962         82,298       107,783
    Interest-bearing deposits in banks                               12,308         7,429         27,524        24,477
                                                                -----------   -----------    -----------   -----------
              Total interest income                               3,178,734     3,062,882      9,332,380     8,755,123
                                                                -----------   -----------    -----------   -----------

Interest expense
    Deposits                                                        826,552       992,311      2,416,951     2,869,842
    Other borrowings                                                152,933        64,203        444,214       194,770
                                                                -----------   -----------    -----------   -----------
              Total interest expense                                979,485     1,056,514      2,861,165     3,064,612
                                                                -----------   -----------    -----------   -----------

              Net interest income                                 2,199,249     2,006,368      6,471,215     5,690,511
Provision for loan losses                                            17,379       346,370        333,961     2,519,414
                                                                -----------   -----------    -----------   -----------
              Net interest income after
                provision for loan losses                         2,181,870     1,659,998      6,137,254     3,171,097
                                                                -----------   -----------    -----------   -----------

Other income
      Service charges and fees                                      178,424       218,570        581,971       625,803
      Other operating income                                         68,005       111,313        252,821       462,791
                                                                -----------   -----------    -----------   -----------
              Total other income                                    246,429       329,883        834,792     1,088,594
                                                                -----------   -----------    -----------   -----------

Other expenses
    Salaries and employee benefits                                  882,733       877,319      2,671,972     2,389,409
    Occupancy and equipment expenses                                255,369       240,641        757,351       756,026
    Other operating expenses                                        544,414       450,367      1,684,062     1,487,569
                                                                -----------   -----------    -----------   -----------
              Total other expenses                                1,682,516     1,568,327      5,113,385     4,633,004
                                                                -----------   -----------    -----------   -----------


              Net income before income taxes                        745,783       421,554      1,858,661      (373,313)

Income tax expense                                                  261,286       154,325        663,512      (130,795)
                                                                -----------   -----------    -----------   -----------

              Net income (loss)                                     484,497       267,229      1,195,149      (242,518)
                                                                -----------   -----------    -----------   -----------

Other comprehensive income (loss):
     Unrealized gains (losses) on securities
         available-for-sale arising during period, net of tax       464,507      (167,894)        93,109      (300,798)
                                                                -----------   -----------    -----------   -----------

Comprehensive income (loss)                                     $   949,004   $    99,335    $ 1,288,258   $  (543,316)
                                                                ===========   ===========    ===========   ===========

Basic earnings per share                                        $      0.16   $      0.09    $      0.38   $     (0.08)
                                                                ===========   ===========    ===========   ===========

Diluted earnings per share                                      $      0.15   $      0.08    $      0.38   $     (0.08)
                                                                ===========   ===========    ===========   ===========

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

See Notes to Consolidated Financial Statements

                                       4
<PAGE>
                  CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                        2004            2003
                                                                   ------------    ------------
<S>                                                                <C>             <C>
OPERATING ACTIVITIES
    Net income                                                     $  1,195,149    $    199,875
    Adjustments to reconcile net income to net cash
        provided by operating activities:
        Depreciation                                                    398,778         172,319
        Provision for loan losses                                       333,961         177,314
        Decrease in interest receivable                                  62,274         128,581
        Increase (decrease) in interest payable                          48,641         (11,350)
        Other operating activities                                    1,946,651        (392,277)
                                                                   ------------    ------------

              Net cash provided by operating activities               3,985,454         274,462
                                                                   ------------    ------------

INVESTING ACTIVITIES
    Net increase in interest-bearing deposits in banks               (2,456,458)        (50,864)
    Net increase in federal funds sold                               (6,236,000)    (14,768,000)
    Purchases of securities available-for-sale                       (6,085,578)     (5,192,880)
    Proceeds from maturities of securities available-for-sale         9,444,474      10,470,299
    Proceeds from maturities of securities held-to-maturity                --           399,940
    Net increase in loans                                           (15,714,510)     (7,505,898)
    Proceeds from sales of premises and equipment                        37,711            --
    Purchase of premises and equipment                                 (132,741)       (490,527)
                                                                   ------------    ------------

              Net cash used in investing activities                 (21,143,102)    (17,137,930)
                                                                   ------------    ------------

FINANCING ACTIVITIES
    Net increase in deposits                                         11,558,981      11,212,319
    Net proceeds from other borrowings                                5,500,000       4,600,000
    Proceeds from sale of common stock                                     --         1,743,100
                                                                   ------------    ------------

              Net cash provided by financing activities              17,058,981      17,555,419
                                                                   ------------    ------------

Net increase (decrease) in cash and due from banks                      (98,667)        691,951

Cash and due from banks, beginning of period                          3,688,806       3,516,119
                                                                   ------------    ------------

Cash and due from banks, end of period                             $  3,590,139    $  4,208,070
                                                                   ============    ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
    Cash paid for:
          Interest                                                 $  2,812,524    $  3,075,962

          Income taxes                                             $    270,000    $    479,426

    Principal balances of loans transferred to other real estate   $    473,059    $        --

    Financed sales of other real estate owned                      $     70,029    $        --
</TABLE>

See Notes to Consolidated Financial Statements

                                       5
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                   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, 2004 are
         not necessarily indicative of the results to be expected for the full
         year.


NOTE 2.  STOCK COMPENSATION PLANS

         At September 30, 2004, the Company has two stock-based employee
         compensation plans. The Company accounts for those plans under the
         recognition and measurement principles of APB Opinion No. 25,
         Accounting for Stock Issued to Employees, and related Interpretations.
         No stock-based employee compensation cost is reflected in net income
         (loss), as all options granted under those plans had an exercise price
         equal to the market value of the underlying stock on the date of grant.
         The Company also has remaining options outstanding that were granted to
         certain executive officers under employee agreements. The following
         table illustrates the effect on net income (loss) and earnings (losses)
         per share if the Company had applied the fair value recognition
         provisions of SFAS Statement No. 123, Accounting for Stock-Based
         Compensation, to stock-based employee compensation.

                                                             Three Months Ended
                                                               September 30,
                                                           ---------------------
                                                               2004        2003
                                                           ---------   ---------

     Net income, as reported                               $ 484,497   $ 267,229
     Deduct: Total stock-based employee compensation
           expense determined under fair value based
           method for all awards                               6,930      10,398
                                                           ---------   ---------
     Pro forma net income                                  $ 477,567   $ 256,831
                                                           =========   =========
     Earnings per share:
        Basic - as reported                                $     .16   $     .09
                                                           =========   =========
        Basic - pro forma                                  $     .15   $     .08
                                                           =========   =========
        Diluted - as reported                              $     .15   $     .08
                                                           =========   =========
        Diluted - pro forma                                $     .15   $     .08
                                                           =========   =========

                                       6
<PAGE>
                  CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                    Nine Months Ended
                                                                       September 30,
                                                               ---------------------------
                                                                   2004           2003
                                                               ------------    -----------
<S>                                                            <C>             <C>
     Net income (loss), as reported                            $ 1,195,149     $ (242,518)
     Deduct: Total stock-based employee compensation
           expense determined under fair value based
           Method for all awards, net of related tax effects        21,352         33,268
                                                               ------------    -----------
     Pro forma net income (loss)                               $ 1,173,797     $ (275,786)
                                                               ============    ===========
     Earnings (losses) per share:
        Basic - as reported                                    $       .38     $     (.08)
                                                               ============    ===========
        Basic - pro forma                                      $       .38     $     (.09)
                                                               ============    ===========
        Diluted - as reported                                  $       .38     $     (.08)
                                                               ============    ===========
        Diluted - pro forma                                    $       .37     $     (.09)
                                                               ============    ===========
</TABLE>

NOTE 3.  EARNINGS (LOSSES) PER SHARE

         Presented below is a summary of the components used to calculate basic
         and diluted earnings (losses) per common share.

                                                          Three Months Ended
                                                             September 30,
                                                       -----------   -----------
                                                           2004          2003
                                                       -----------   -----------

    Basic Earnings Per Share:
       Weighted average common shares outstanding        3,106,000     3,102,609
                                                       ===========   ===========

       Net income                                      $   484,497   $   267,229
                                                       ===========   ===========

       Basic earnings per share                        $       .16   $       .09
                                                       ===========   ===========

    Diluted Earnings Per Share:


                                       7
<PAGE>
                  CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                           Nine Months Ended September 30,
                                                       -------------------------------------
                                                           2004                    2003
                                                       ------------             ------------

 <S>                                                      <C>                      <C>
   Basic Earnings (Losses) Per Share:
      Weighted average common shares outstanding          3,106,000                3,047,245
                                                       ============             ============

       Net income (loss)                               $  1,195,149             $   (242,518)
                                                       ============             ============

       Basic earnings (losses)  per share              $        .38             $       (.08)
                                                       ============             ============

    Diluted Earnings (Losses) Per Share:
       Weighted average common shares outstanding         3,106,000                3,047,245
       Net effect of the assumed exercise of stock
          options based on the treasury stock method
          using average market prices for the year           49,576                      -
                                                       ------------             ------------
       Total weighted average common shares and
          common stock equivalents outstanding            3,155,576                3,047,245
                                                       ============             ============

       Net income (loss)                               $  1,195,149             $   (242,518)
                                                       ============             ============

       Diluted earnings  (losses) per share            $        .38             $       (.08)
                                                       ============             ============
</TABLE>


NOTE 4.  STOCK OFFERINGS

         As of March 24, 2003, the Company completed an offering of its common
         stock, selling 250,000 shares (75,690 shares in 2002 and 174,310 shares
         in 2003) at a price of $10.00 per share.


NOTE 5.  CURRENT ACCOUNTING DEVELOPMENTS

         There are no recent accounting pronouncements that have had, or are
         expected to have, a material effect on the Company's financial
         statements.

                                       8
<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 nonbank 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, 2003
as filed on our annual report on Form 10-KSB.

                                       9
<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, 2004, our liquidity, as determined under guidelines established by
regulatory authorities and internal policy, was satisfactory.

At September 30, 2004, 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       9.43 %             9.26 %            4.00 %
     Risk-based capital ratios:
        Core capital              11.06              10.86              4.00
        Total capital             12.32              12.12              8.00


These ratios may decline as asset growth continues, but are expected to exceed
the minimum regulatory requirements. Future earnings and proceeds from our stock
offerings 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:

                                       10
<PAGE>
                                                 September 30, 2004
                                              ----------------------
                                              (Dollars in thousands)
                                              ----------------------

    Commitments to extend credit              $              32,063
    Letters of credit                                         1,372
                                              ----------------------
                                              $              33,435
                                              ======================

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.



                                       11
<PAGE>
Financial Condition

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

                                              September 30,    December 31,
                                                 2004             2003
                                           ---------------   --------------
                                                (Dollars in Thousands)
                                           --------------------------------

Cash and due from banks                    $        3,590    $       3,689
Interest-bearing deposits in banks                  4,350            1,894
Federal funds sold                                 12,174            5,938
Securities                                         32,636           35,845
Loans, net                                        180,152          165,314
Premises and equipment                              8,021            8,325
Other assets                                        3,751            4,967
                                           ---------------   --------------
                                           $      244,674    $     225,972
                                           ===============   ==============

Deposits                                   $      195,097    $     183,538
Other borrowings                                   26,200           20,700
Other liabilities                                   1,036              681
Stockholders' equity                               22,341           21,053
                                           ---------------   --------------
                                           $      244,674    $     225,972
                                           ===============   ==============

Our total assets grew by 8% for the nine months ended September 30, 2004.
Deposit growth of $11.6 million and proceeds from Federal Home Loan Bank debt of
$5.5 million was primarily invested in loans, securities and fed funds. Our
ratio of gross loans to deposits and other borrowings was 82.7% at September 30,
2004 and 82.3% at December 31, 2003. Our total equity increased by $1.3 million,
consisting of year-to-date net income of $1,195,000 and a decrease in unrealized
losses on securities available-for-sale, net of tax of $93,000.



                                       12
<PAGE>
Results of Operations For The Three and Nine months Ended September 30, 2004 and
2003

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

                                           Three Months Ended
                                              September 30,
                               ---------------------------------------------
                                        2004                    2003
                               --------------------    ---------------------
                                          (Dollars in Thousands)
                               ---------------------------------------------

Interest income                $              3,178    $              3,063

Interest expense                                979                   1,057
                               ---------------------   ---------------------

Net interest income                           2,199                   2,006

Provision for loan losses                        17                     346

Other income                                    246                     330

Other expense                                 1,682                   1,568
                               ---------------------   ---------------------

Pretax income                                   746                     422

Income taxes                                    261                     155
                               ---------------------   ---------------------

Net income                     $                485    $                267
                               =====================   =====================


                                            Nine Months Ended
                                              September 30,
                               ---------------------------------------------
                                        2004                    2003
                               --------------------    ---------------------
                                         (Dollars in Thousands)
                               ---------------------------------------------

Interest income                $              9,332    $             8,755

Interest expense                              2,861                  3,065
                               ---------------------   ---------------------

Net interest income                           6,471                  5,690

Provision for loan losses                       334                  2,519

Other income                                    835                  1,089

Other expense                                 5,113                  4,633
                               ---------------------   ---------------------

Pretax income (loss)                          1,859                   (373)

Income taxes (benefit)                          664                   (130)
                               ---------------------   ---------------------

Net income (loss)              $              1,195    $              (243)
                               =====================   =====================

                                       13
<PAGE>
Our net interest income has increased by $193,000 and $781,000 for the three
months and nine months ended September 30, 2004, respectively, as compared to
the same periods in 2003. Our net interest margin was 3.88% during the nine
months ended September 30, 2004 as compared to 4.09% for the nine months ended
September 30, 2003 and to 3.74 % for the entire year of 2003. The increase in
net interest income is due primarily to the increased volume of average loans
and investment securities outstanding. The decrease in net interest margin is
largely due to fixed rate loans that have matured and repriced to a lower rate
over the past twelve months and increased competition in our local market.
Yields earned on loans have decreased to 6.42 % in the first nine months of 2004
as compared to 7.12% in the first nine months of 2003. The cost of funds has
decreased as well, as deposits have been able to be repriced as they have
matured. Our cost of funds decreased to 1.79 % in the first nine months of 2004
as compared to 2.60% in the first nine months of 2003.

The provision for loan losses was $17,000 and $334,000 for the three months and
nine months ended September 30, 2004, respectively. These provisions are a
decrease from the comparable periods in 2003 by $329,000 and $2,185,000,
respectively. The amounts provided in 2003 were elevated due to loans to four
commercial borrowers which were deemed to present increased risk due to the
impact of adverse economic conditions and increased competition in their
markets.

Nonaccrual loans of $692,000 at September 30, 2004 consist of $503,000 of
commercial loans, $177,000 of real estate loans and $12,000 of other consumer
loans. Loans past due ninety days or more and still accruing interest of $98,000
at September 30, 2004 consists of commercial loans of $87,000 and other consumer
loans of $11,000. 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 $3,198,000 in the allowance for
loan losses at September 30, 2004, or 1.74% of total net outstanding loans, is
adequate to absorb known risks in the portfolio. No assurance can be given,
however, that increased loan volume, and adverse economic conditions or other
circumstances will not result in increased losses in our loan portfolio.



                                       14
<PAGE>
Information with respect to nonaccrual, past due, restructured, and potential
problem loans at September 30, 2004 and 2003 is as follows:

<TABLE>
<CAPTION>
                                                                                  September 30,
                                                                             ----------------------
                                                                              2004          2003
                                                                             ----------------------
                                                                             (Dollars in Thousands)
                                                                             ----------------------
<S>                                                                       <C>           <C>
Nonaccrual loans                                                          $   692       $ 2,894
Loans contractually past due ninety days or more as to interest
   Or principal payments and still accruing                                    98           189
Restructured loans                                                                          -
Potential problem loans                                                       934         2,735
Interest income that would have been recorded on nonaccrual
   and restructured loans under original terms                                 31            85
Interest income that was recorded on nonaccrual and                             -             -
   restructured loans
</TABLE>

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.


                                       15
<PAGE>
Information regarding certain loans and allowance for loan loss data through
September 30, 2004 and 2003 is as follows:

<TABLE>
<CAPTION>
                                                                      Nine Months Ended
                                                                       September 30,
                                                                    --------------------
                                                                      2004        2003
                                                                    --------    --------
                                                                    (Dollars in Thousands)
                                                                    ---------------------
<S>                                                                 <C>         <C>
Average amount of loans outstanding                                 $175,472    $153,662
                                                                    ========    ========

Balance of allowance for loan losses at beginning of period            3,163       2,126
                                                                    --------    --------

Loans charged off
   Commercial and financial                                               30        --
   Real estate mortgage                                                  148          28
   Installment                                                           158          85
                                                                    --------    --------
                                                                         336         113
                                                                    --------    --------
Loans recovered
   Commercial and financial                                                1        --
   Real estate mortgage                                                   17        --
   Installment                                                            19          11
                                                                    --------    --------
                                                                          37          11
                                                                    --------    --------

Net charge-offs                                                          299         102
                                                                    --------    --------

Additions to allowance charged to operating expense during period        334       2,519
                                                                    --------    --------

Balance of allowance for loan losses at end of period               $  3,198    $  4,543
                                                                    ========    ========

Ratio of net loans charged off during the period to
   average loans outstanding                                             .17%        .07%
                                                                    ========    ========
</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.

                                       16
<PAGE>
Other income has decreased by $84,000 and $254,000 for the three months and nine
months ended September 30, 2004, respectively, as compared to the same period in
2003. These decreases are due primarily to decreased mortgage origination fees
of $162,000 and a decrease in gain on sale of loans of $137,000 coupled with an
increase of rental income of $65,000.

Other expenses increased by $114,000 and $480,000 for the three months and nine
months ended September 30, 2004, respectively, as compared to the same period in
2003. Salaries and employee benefits increased by $283,000, equipment and
occupancy expenses decreased by $1,000, and other operating expenses increased
by $197,000. Salaries and employee benefits have increased due to increased
benefits expenses and annual salary increases. The increase of $197,000 in other
operating expenses was not due to an increase in a particular area but rather a
general increase in most other operating expense categories.

We have recorded income tax expense of $261,000 and $664,000 for the three
months and nine months ended September 30, 2004, respectively. The rate of tax
as a percentage of pretax income was 36%.

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.

                                       17
<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 or Chestatee 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.

             None.



                                       18
<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: October 12, 2004         BY: /s/ J. Philip Hester, Sr.
      ----------------             -------------------------
                                   J. Philip Hester, Sr., President and C.E.O.
                                   (Principal Executive Officer)


DATE: October 12, 2004         BY: /s/ Deborah F. McLeod
      ----------------             -------------------------
                                   Deborah F. McLeod, C.F.O. and Treasurer
                                   (Principal Financial and Accounting Officer)




                                       19