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, 2004

[   ]     Transition report under Section 13 or 15(d) of the Exchange Act
          for the transition period from _____ to _____

                       Commission file number:   000-24137


                            GATEWAY BANCSHARES, INC.
        (Exact name of small business issuer as specified in its charter)


               Georgia                                  58-2202210
      (State of Incorporation)             (I.R.S. Employer Identification No.)


                              5102 Alabama Highway
                            Ringgold, Georgia  30736
                    (Address of principal executive offices)


                                 (706) 965-5500
                (Issuer's telephone number, including area code)



Check  whether  the  issuer  (1)  has  filed all reports required to be filed by
Section  13  or  15(d) of the Securities Exchange Act of 1934 during the 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  the  latest  practicable  date:

               Class
               -----

     Common Stock, $5.00 par value             652,638    as of  August 7, 2004


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


<PAGE>
<TABLE>
<CAPTION>
                            GATEWAY BANCSHARES, INC.

                            June 30, 2004 Form 10-QSB

                                  TABLE OF CONTENTS



                                                                                  Page No.
                                                                                  --------
<S>                                                                               <C>
PART I.  FINANCIAL INFORMATION

  Item 1.  Financial Statements (unaudited)

           Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . .         3

           Consolidated Statements of Income . . . . . . . . . . . . . . . . . . .         4

           Consolidated Statement of Changes in Stockholders' Equity . . . . . . .         5

           Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . .         6

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

  Item 2.  Management's Discussion and Analysis of Financial Condition and
               Results of Operations . . . . . . . . . . . . . . . . . . . . . . .        10

  Item 3.  Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . .        16

PART II.   OTHER INFORMATION

  Item 1.  Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .        16

  Item 2.  Changes in Securities and Use of Proceeds . . . . . . . . . . . . . . .        16

  Item 3.  Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . .        16

  Item 4.  Submission of Matters to a Vote of Security Holders . . . . . . . . . .        17

  Item 5.  Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . .        17

  Item 6.  Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . .        17

  Signatures. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .        19
</TABLE>


                                   * * * * *


                                      -2-
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                     GATEWAY BANCSHARES, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS


                                                          June 30, 2004    December 31,
                                                           (unaudited)        2003
                                                         ---------------  --------------
<S>                                                      <C>              <C>
ASSETS
  Cash and due from banks                                $    5,527,788   $   8,989,083
  Federal funds sold                                                  -       4,340,000
  Securities available-for-sale                              25,330,759      33,692,972
  Federal Home Loan Bank stock, at cost                         454,800         298,200
  Loans                                                     130,285,468     118,557,379
  Allowance for loan losses                                  (1,821,203)     (1,664,578)
                                                         ---------------  --------------
  Net loans                                                 128,464,265     116,892,801

  Premises and equipment, net                                 3,071,592       2,956,709
  Accrued interest receivable                                   843,251         772,900
  Other assets                                                1,857,481       1,375,060
                                                         ---------------  --------------

      Total assets                                       $  165,549,936   $ 169,317,725
                                                         ===============  ==============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
  Deposits:
    Noninterest-bearing                                  $   14,447,971   $  12,308,701
    Interest-bearing                                        126,017,954     135,772,401
                                                         ---------------  --------------

      Total deposits                                        140,465,925     148,081,102

  Long-term borrowings:
    Federal Home Loan Bank advances                           2,500,000       2,500,000
    Long-term obligations                                     3,609,000       3,609,000
  Federal funds purchased and securities sold under
    agreements to repurchase                                  6,506,228       3,206,203
  Accrued interest payable                                      181,898         261,288
  Other liabilities                                             509,982         500,767
                                                         ---------------  --------------

      Total liabilities                                     153,773,033     158,158,360
                                                         ---------------  --------------

STOCKHOLDERS' EQUITY
  Common stock ($5 par value: 10,000,000 shares
    authorized, 652,638 shares issued and outstanding)        3,263,190       3,263,190
  Additional paid-in capital                                  3,376,231       3,296,440
  Retained earnings                                           5,450,570       4,638,896
  Accumulated other comprehensive income:
    Unrealized gains (losses) on investment securities
      available-for-sale, net of tax                           (313,088)        (39,161)
                                                         ---------------  --------------

      Total stockholders' equity                             11,776,903      11,159,365
                                                         ---------------  --------------

      Total liabilities and stockholders' equity         $  165,549,936   $ 169,317,725
                                                         ===============  ==============
<FN>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>


                                      -3-
<PAGE>
<TABLE>
<CAPTION>
                                   GATEWAY  BANCSHARES,  INC.  AND  SUBSIDIARY
                                      CONSOLIDATED  STATEMENTS  OF  INCOME
                                                   (unaudited)



                                                                   Three Months Ended        Six Months Ended
                                                                 ----------------------  -----------------------
                                                                  June 30,    June 30,    June 30,     June 30,
                                                                    2004        2003        2004         2003
                                                                 ----------  ----------  -----------  ----------
<S>                                                              <C>         <C>         <C>          <C>
INTEREST INCOME
  Loans                                                          $2,158,355  $1,827,774  $4,221,538   $3,536,114
  Interest on securities:
    Taxable interest                                                173,011     182,094     381,096      382,066
    Nontaxable interest                                              39,131      33,580      78,314       62,939
  Interest on federal funds sold                                      4,340      16,028       8,764       31,286
                                                                 ----------  ----------  -----------  ----------

      Total interest income                                       2,374,837   2,059,476   4,689,712    4,012,405
                                                                 ----------  ----------  -----------  ----------

INTEREST EXPENSE
  Interest on deposits                                              591,055     681,862   1,233,551    1,366,564
  Interest on notes payable                                          35,850         694      70,750        9,194
  Interest on Federal Home Loan Bank advances                        27,449      30,316      54,924       60,300
  Interest on federal funds purchased and securities sold under
    agreement to repurchase                                           5,478       3,422      17,012        8,245
                                                                 ----------  ----------  -----------  ----------

      Total interest expense                                        659,832     716,294   1,376,237    1,444,303
                                                                 ----------  ----------  -----------  ----------

NET INTEREST INCOME                                               1,715,005   1,343,182   3,313,475    2,568,102
  Provision for loan losses                                         185,000     150,000     270,000      260,000
                                                                 ----------  ----------  -----------  ----------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES               1,530,005   1,193,182   3,043,475    2,308,102
                                                                 ----------  ----------  -----------  ----------

NONINTEREST INCOME
  Service charges on deposits                                       402,239     233,839     675,794      458,319
  Mortgage loan fees                                                 83,073     153,596     153,797      279,174
  Insurance commissions                                               2,079       2,866       4,190        7,537
  Gains (losses) on sale of securities                                    -           -      (4,086)     183,804
  Other income                                                       38,631      33,689     111,619       63,454
                                                                 ----------  ----------  -----------  ----------

      Total noninterest income                                      526,022     423,990     941,314      992,288
                                                                 ----------  ----------  -----------  ----------

NONINTEREST EXPENSE
  Salaries and employee benefits                                    731,875     640,898   1,438,683    1,275,089
  Occupancy expense                                                  78,908      47,343     134,045       96,859
  Furniture and equipment expense                                    48,654      47,881      98,278       91,928
  Other operating expenses                                          392,731     332,129     835,108      690,253
                                                                 ----------  ----------  -----------  ----------

      Total noninterest expense                                   1,252,168   1,068,251   2,506,114    2,154,129
                                                                 ----------  ----------  -----------  ----------

Income before income taxes                                          803,859     548,921   1,478,675    1,146,261
Income taxes                                                        284,726     204,097     516,894      410,256
                                                                 ----------  ----------  -----------  ----------

      Net income                                                 $  519,133  $  344,824  $  961,781   $  736,005
                                                                 ==========  ==========  ===========  ==========


EARNINGS PER COMMON SHARE, PRIMARY AND FULLY DILUTED

  Net income per common share                                    $     0.80  $     0.51  $     1.47   $     1.08

  Basic weighted average shares outstanding                         652,638     681,461     652,638      681,608

  Diluted earnings per common share                              $     0.72  $     0.49  $     1.33   $     1.02

  Diluted weighted average shares outstanding                       725,175     707,258     725,175      720,789

<FN>
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>


                                      -4-
<PAGE>
<TABLE>
<CAPTION>
                                            GATEWAY BANCSHARES, INC.  AND  SUBSIDIARY
                                    CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                                           (unaudited)



                                                                                                                   Accumulated
                                                                Total                    Additional                   Other
                                            Comprehensive    Stockholders'     Common      Paid-in     Retained   Comprehensive
                                               Income           Equity         Stock       Capital     Earnings       Income
                                           ---------------  ---------------  ----------  -----------  ----------  --------------
<S>                                        <C>              <C>              <C>         <C>          <C>         <C>
BALANCE, December 31, 2003                                  $   11,159,365   $3,263,190  $ 3,296,440  $4,638,896  $     (39,161)

  Stock options compensation                                        79,791            -       79,791           -              -

  Cash dividends                                                  (150,107)           -            -    (150,107)             -

  Comprehensive income:
    Net income                             $      961,781          961,781            -            -     961,781              -

    Other comprehensive income,
     net of tax:
      Unrealized holding gains
       (losses) on securities available
        for sale, net of reclassification
         adjustment                              (273,927)        (273,927)           -           -           -        (273,927)
                                           ---------------  ---------------  ----------  -----------  ----------  --------------

    Total comprehensive income             $      687,854
                                           ===============

BALANCE, June 30, 2004                                      $   11,776,903   $3,263,190  $ 3,376,231  $5,450,570  $    (313,088)
                                                            ===============  ==========  ===========  ==========  ==============

<FN>
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>


                                      -5-
<PAGE>
<TABLE>
<CAPTION>
                           GATEWAY  BANCSHARES,  INC.  AND  SUBSIDIARY
                            CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS
                                           (unaudited)

                                                                          Six Months Ended
                                                                     ----------------------------
                                                                       June 30,       June 30,
                                                                         2004           2003
                                                                     -------------  -------------
<S>                                                                  <C>            <C>
CASH FLOW FROM OPERATING ACTIVITIES
  Net income                                                         $    961,781   $    736,005
  Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:
      Provision for loan losses                                           270,000        260,000
      Depreciation and amortization                                       101,058         81,601
      Stock options compensation                                           79,791         59,792
      Net amortization on securities                                      155,957        235,036
      (Gain) loss on sale of securities                                     4,086       (183,804)
      Deferred income taxes                                               (72,412)       (79,716)
      Changes in other operating assets and liabilities:
        Accrued interest receivable                                       (70,351)        (5,808)
        Accrued interest payable                                          (79,390)       (17,246)
        Other assets and liabilities                                     (243,405)      (269,896)
                                                                     -------------  -------------

          Net cash provided by operating activities                     1,107,115        815,964
                                                                     -------------  -------------

CASH FLOW FROM INVESTING ACTIVITIES
  Net increase in loans                                               (11,841,464)    (7,432,707)
  Proceeds from maturities, calls, and principal pay-downs
    of securities                                                       8,839,858     11,265,729
  Proceeds from sales of available-for-sale securities                  1,259,997      7,595,101
  Purchase of available-for-sale securities                            (2,339,501)   (22,051,502)
  Purchase of Federal Home Loan Bank stock                               (156,600)       (38,200)
  Purchase of premises and equipment                                     (205,441)       (84,544)
                                                                     -------------  -------------

          Net cash used in investing activities                        (4,443,151)   (10,746,123)
                                                                     -------------  -------------

CASH FLOW FROM FINANCING ACTIVITIES
  Net increase (decrease) in deposits                                  (7,615,177)     4,463,415
  Net increase (decrease) in federal funds purchased and securities
    sold under agreements to repurchase                                 3,300,025       (886,372)
  Proceeds from notes payable                                                   -        300,000
  Payments on Federal Home Loan Bank advances                                   -     (1,000,000)
  Cash dividends                                                         (150,107)
  Repurchases of common stock                                                   -       (606,910)
  Exercise of stock options                                                     -        122,060
                                                                     -------------  -------------

          Net cash provided by (used in) financing activities          (4,465,259)     2,392,193
                                                                     -------------  -------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                              (7,801,295)    (7,537,966)

CASH AND CASH EQUIVALENTS, beginning of period                         13,329,083     14,499,445
                                                                     -------------  -------------

CASH AND CASH EQUIVALENTS, end of period                             $  5,527,788   $  6,961,479
                                                                     =============  =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Cash paid during the period for:
    Interest                                                         $  1,455,627   $  1,461,549
    Income taxes                                                          612,989        538,232
                                                                     =============  =============
<FN>

The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>


                                      -6-
<PAGE>
                   GATEWAY  BANCSHARES,  INC.  AND  SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)
                                  June 30, 2004

NOTE 1 - BASIS OF PRESENTATION
------------------------------

The  consolidated  financial  statements  include  the  accounts  of  Gateway
Bancshares,  Inc.,  and  its  wholly-owned subsidiary, Gateway Bank & Trust. All
significant  intercompany  accounts  and  transactions  have  been eliminated in
consolidation.

The  accompanying unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting  principles  for  interim
financial  information  and  with the instructions to Form 10-QSB and Regulation
S-B.  Accordingly,  they  do  not  include  all of the information and footnotes
required by U.S. generally accepted accounting principles for complete financial
statements.  In  management's  opinion,  all  adjustments  (consisting of normal
recurring  accruals)  considered  necessary  for  a  fair presentation have been
included.  Operating  results  for  the six-month period ended June 30, 2004 are
not  necessarily  indicative  of  the  results that may be expected for the year
ending  December  31,  2004.  For  further  information,  refer to the financial
statements  and  footnotes thereto included in the Company's annual report filed
under  cover  of  Form  10-KSB  for  the  year  ended  December  31,  2003.

NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------

Organization
------------

Gateway  Bancshares,  Inc.  (the  Company)  is  a one-bank holding company which
engages  in  providing  a  full range of banking services through its subsidiary
bank,  Gateway  Bank & Trust (the Bank), in Ringgold, Georgia. The Bank received
preliminary  charter  approval  in  1995.  In  April 1997 the Bank was granted a
charter  by  the  Georgia  Department  of  Banking  and  Finance  and began full
operations.  Further discussion of the Company's financial condition and results
of  operations  is  included  in the Company's consolidated financial statements
presented  in  the  Company's  annual  report  on Form 10-KSB for the year ended
December  31,  2003.

Net Income Per Common Share
---------------------------

Net  income  per  common share is based on the weighted-average number of shares
outstanding  for  the  periods  presented.

NOTE 3 - INVESTMENT SECURITIES
------------------------------

The  Company  has applied the accounting and reporting requirements of Statement
of Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities (SFAS No. 115).  This pronouncement requires that all
investments  in  debt  securities  be  classified  as  either  held-to-maturity
securities,  which are reported at amortized cost; trading securities, which are
reported  at  fair value, with unrealized gains and losses included in earnings;
or  available-for-sale  securities,  which  are  reported  at  fair  value, with
unrealized  gains  and  losses excluded from earnings and reported in a separate
component  of  stockholders'  equity  (net  of  deferred  taxes).

At  June  30,  2004,  the  Company  had  net  unrealized  losses  of $504,981 on
available-for-sale  securities.  As  a  result,  the  decrease  in stockholders'
equity,  net  of deferred taxes, was $313,088.  There were no trading securities
at  June  30, 2004.  The net decrease in stockholders' equity as a result of the
SFAS  No. 115 adjustment from December 31, 2003, to June 30, 2004, was $273,927.


                                      -7-
<PAGE>
NOTE 4 - BORROWED FUNDS
-----------------------

In  September  2000,  the  Bank obtained a $1 million loan from the Federal Home
Loan Bank.  The note requires quarterly interest payments at an interest rate of
6.09  percent,  and  matures  on September 15, 2010.  This note is subject to an
early  conversion  option effective September 15, 2003, which allows the Federal
Home  Loan  Bank  to  covert  this note into a floating rate advance tied to the
three-month LIBOR.  The Bank has not exercised this option.  The note is secured
by  a  blanket  lien  on  single-family  first  mortgage  loans.

In August 2002, the Bank obtained four additional advances of $500,000 each from
the  Federal  Home Loan Bank.  One advance with an interest rate of 2.24 percent
was  paid  at  maturity  on  August 27, 2003.  The three remaining notes require
monthly  interest  payments  at  rates  of  2.73 percent, 3.33 percent, and 3.84
percent.  These  notes  have staggered maturities of August 27, 2004, August 29,
2005,  and August 28, 2006, respectively.  All advances are secured by a blanket
lien on single-family first mortgage loans and securities pledged to the Federal
Home  Loan  Bank.

In  December,  2003,  the  Company  formed  a wholly owned Connecticut statutory
trust,  Gateway  Bancshares  Statutory Trust I, (the "Trust"), which issued $3.5
million  aggregate  principal  amount  of trust preferred securities.  The trust
preferred  securities represent guaranteed preferred beneficial interests in the
Company's  junior  subordinated  deferrable  interest debentures that qualify as
Tier  I  capital  subject  to  the  limitations  under  Federal  Reserve  Board
guidelines.  The  Company owns all of the $109,000 aggregate principal amount of
the  common  securities  of  the  Trust.  The  proceeds from the issuance of the
common  securities  and the trust preferred securities were used by the Trust to
purchase  $3.6  million  of junior subordinated debentures of the Company, which
pay  interest at a floating rate equal to the three-month LIBOR plus 2.85%.  The
debentures  represent  the  sole  asset  of  the  Trust.

The  trust  preferred securities accrue and pay quarterly distributions based on
the liquidation value of $1,000 per capital security at a floating rate equal to
the  three-month  LIBOR  plus  2.85%.  The  Company has entered into contractual
agreements  which,  taken  collectively,  constitute  a  full  and unconditional
guarantee on a subordinated basis by the Company of the obligations of the Trust
under  the  trust  preferred securities.  The Company's guarantee, however, does
not  apply  if  the  Company  does not make payments on the debentures and, as a
result,  the  Trust  does not have sufficient funds to make payments.  The trust
preferred  securities are mandatorily redeemable upon maturity of the debentures
on  December  17, 2033, or upon earlier redemption of the debentures as provided
in  the indenture.  The Company has the right to redeem the debentures purchased
by  the  Trust in whole or in part, on or after December 17, 2008.  As specified
in  the  indenture, if the debentures are redeemed on or after December 17, 2008
and prior to maturity, the redemption price will be the principal amount and any
accrued  but unpaid interest.  Additionally, the Company may redeem, at any time
(and  possibly  before  December  17,  2008),  within  120  days  following  the
occurrence  of  a  change  in  banking, tax, investment company or other laws or
regulations  that  results  in  specified  changes in the treatment of the trust
preferred  securities  for  tax  or  regulatory  capital  purposes  or under the
Investment  Company  Act  of  1940.  If  the  debentures  are  redeemed prior to
December  17,  2008, the redemption price will be in the range of 100% to 104.6%
of  the  principal  amount  plus  any  accrued  and  unpaid  interest.


                                      -8-
<PAGE>
NOTE 5 - STOCK OPTION PLAN
--------------------------

The  Company  has  a  stock  option  plan that provides for both incentive stock
options  and  nonqualified stock options.  The maximum number of shares that can
be  issued  or  optioned  under  the  plan  is  200,000  shares.  In the case of
incentive  stock  options, the exercise price shall not be less than 100 percent
(110  percent  for  persons  owning  more  than  10  percent  of  the  Company's
outstanding  common  stock)  of the fair market value of the common stock on the
date  of  grant.  In  the case of nonqualified stock options, the purchase price
may  be  equal  to,  less than, or more than the fair market value of the common
stock  on  the  date of grant.  All options have been granted at the fair market
value  of  the  shares at the date of grant.  If not exercised, the options will
expire  from  2009  to  2011.

The  Company accounts for its stock option plan under the fair value recognition
provisions  of  Statement of Financial Accounting Standards No. 123, "Accounting
for  Stock-Based  Compensation,"  (SFAS  No.  123)  for  stock-based  employee
compensation.  A  summary of activity in the Company's stock option plan for the
period  ended  June  30,  2004,  is  as  follows:

<TABLE>
<CAPTION>
                                                                      Weighted
                                                                      Average
                                                            Number    Exercise
                                                           of Shares    Price
                                                           ---------  ---------
<S>                                                        <C>        <C>

       Unexercised options outstanding, December 31, 2003    147,750  $   12.07

          Stock options exercised                                  -          -

          Stock options forfeited                                  -          -
                                                           ---------  ---------

       Unexercised options outstanding, June 30, 2004        147,750  $   12.07
                                                           =========  =========
</TABLE>

Each  of  the  outstanding  options to purchase common shares vest beginning one
year  from  the  grant  date on an equal incremental basis over a period of five
years.  At  June  30,  2004,  the number of options exercisable is 143,550.  The
range  of  exercise  prices  and  weighted-average remaining contractual life of
outstanding  options  under the stock option plan were $12.00 to $13.00 and 4.91
years,  respectively.

Under  SFAS  No.  123,  the  fair value of stock options at the date of grant is
charged  to  compensation  costs  over  the  vesting period.  Compensation costs
recognized  in  the  accompanying  statements of income for the six-month period
ended  June  30,  2004  and  2003  were  $79,791  and  $59,792,  respectively.

NOTE 6 -RECENTLY ISSUED ACCOUNTING STANDARDS
--------------------------------------------

On  March  31,  2004,  the  FASB issued an exposure draft of a proposed standard
that,  if  adopted,  will significantly change the accounting for employee stock
options,  commonly  referred to as equity-based compensation.  If adopted in its
current  form, the exposure draft will require all companies to expense employee
stock  options using a fair value method.  Comments are expected on the exposure
draft,  which  may  impact  the form of the final standard.  Because the Company
voluntarily  elected  to begin expensing stock options in 2002, adoption of this
standard is not expected to have a significant impact on the Company's financial
position  and  results  of  operations.


                                      -9-
<PAGE>
PART I - FINANCIAL INFORMATION

ITEM  2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS

This  discussion  is  intended  to  assist  in an understanding of the Company's
financial  condition and results of operations.  This analysis should be read in
conjunction  with the financial statements and related notes appearing in Item 1
of  the  June  30, 2004, Form 10-QSB and Management's Discussion and Analysis of
Financial  Condition  and  Results of Operations appearing in the Company's Form
10-KSB  for  the  year  ended  December  31,  2003.

FORWARD-LOOKING STATEMENTS

This  Quarterly Report on Form 10-QSB contains forward-looking statements within
the  meaning  of  the  Private Securities Litigation Reform Act (the "Act").  In
addition,  certain  statements  in  future  filings  by  the  Company  with  the
Securities  and  Exchange Commission, in press releases, and in oral and written
statements  made  by  or  with  the  approval  of  the  Company  may  contain
forward-looking  statements  within  the  meaning  of  the  Act.  Examples  of
forward-looking  statements  include  but are not limited to: (1) projections of
revenues, income or loss, earnings or loss per share, the payment or non-payment
of  dividends,  capital  structure  and other financial items; (2) statements of
plans  and  objectives  of  the Company or its management or Board of Directors,
including  those  relating  to  products  or  services; (3) statements of future
economic  performance  and  (4)  statements  of  assumptions  underlying  such
statements.  Words  such  as  "believes,"  "anticipates,"  "expects," "intends,"
"targeted,"  and  similar  expressions  are intended to identify forward-looking
statements  but  are  not  the  exclusive  means of identifying such statements.

Forward-looking  statements  involve  risks  and  uncertainties, which may cause
actual  results  to  differ  materially  from  those  in  the  forward-looking
statements.  Facts  that  could  cause  actual  results  to  differ  from  those
discussed in the forward-looking statements include, but are not limited to: (1)
the  strength  of  the  U.S.  economy  in  general and the strength of the local
economies  in  which operations are conducted; (2) the effects of and changes in
trade monetary and fiscal policies and laws, including interest rate policies of
the  Board  of  Governors of the Federal Reserve System; (3) inflation, interest
rate,  market  and  monetary  fluctuations;  (4)  the  timely development of and
acceptance  of  new  products  and services and perceived overall value of these
products and services by users; (5) changes in consumer spending, borrowing, and
saving  habits;  (6) technological changes; (7) consumer spending, borrowing and
saving  habits;  (8)  acquisitions; (9) the ability to increase market share and
control  expenses; (10) the effect of changes in laws and regulations (including
laws  and  regulations concerning taxes, banking, securities and insurance) with
which  the Company and its subsidiary must comply; (11) the effect of changes in
accounting policies and practices, as may be adopted by the regulatory agencies,
as  well  as  the  Financial  Accounting  Standards  Board;  (12) changes in the
Company's  organization,  compensation,  and  benefit  plans; (13) the costs and
effects  of litigation and of unexpected or adverse outcomes in such litigation;
and  (14)  the  success  of  the  Company  at managing the risks involved in the
foregoing.

Such  forward-looking  statements  speak  only  as  of  the  date  on  which the
statements  are  made,  and  the  Company undertakes no obligation to update any
forward-looking  statement  to reflect events or circumstances after the date on
which  the  statement is made to reflect the occurrence of unanticipated events.


                                      -10-
<PAGE>
CRITICAL ACCOUNTING POLICIES


Management  has  determined  that  the accounting for the allowance for loan and
lease  losses  is a critical accounting policy with respect to the determination
of  financial  condition  and  reporting  of  results  of  operations.

Management  determines the required allowances by classifying loans according to
credit  quality and collateral security and applying historical loss percentages
to  each  category.  Additionally,  as necessary, management determines specific
allowances  related  to  impaired  loans  based on the present value of expected
future  cash flows discounted at the loan's effective interest rate, or the fair
value  of the collateral if the loan is collateral dependent. A key component in
the  accounting  policy  is  management's  ability to timely identify changes in
credit  quality,  which  may  impact  the  Company's  financial  results.

Management  recognizes  that  in making loans, credit losses will be experienced
and  that  the risk of loss will vary with, among other things, the type of loan
being  made, the creditworthiness of the borrower over the term of the loan and,
in  the  case  of  a  secured  loan,  the  quality of the security for the loan.
Management's  policy  is to maintain an appropriate allowance for estimated loan
and  lease  losses  on  the  portfolio  as  a whole. The allowances are based on
estimates  of  the  historical  loan  loss  experience,  evaluation  of economic
conditions  and  regular  periodic  reviews of the Bank's loan portfolio by both
internal  personnel  and  a  third  party review firm. The Bank's loan portfolio
consists  mostly  of  commercial  and  real estate loans to companies in various
industries,  whose  financial  performance  may  be  impacted differently by the
local,  regional  or  national  economies  and  stage  of  the  economic  cycle.
Management  believes  that  the  effects of any reasonably likely changes in the
economy  would  be  limited  somewhat  due  to  the  diversification of the loan
portfolio  and  the Bank's normal collateral requirements for such loans.  While
management  uses  available information to recognize losses on loans and leases,
future  adjustments  in  the  allowance  may  be  necessary  based on changes in
economic  conditions,  which  could have a significant detrimental impact to the
Company's  financial  condition  and results of operation. Additionally, various
regulatory  agencies,  as  an  integral  part  of  their  examination  process,
periodically  review  the  Company's  allowance for loans and lease losses. Such
agencies  may  require  the  Company to recognize additions to the allowance for
loan  and  lease  losses  based on their judgment about information available to
them  at  the  time  of  their  examination.

RESULTS OF OPERATIONS

EARNINGS SUMMARY

The  Company's  net  income  for the six months ended June 30, 2004 and 2003 was
$961,781  and  $736,005,  respectively.  The  increase  in  net  income resulted
primarily  from  net  loan  growth  and  an  increased  net  interest  margin.

INTEREST INCOME

Interest income on loans and securities is the principal source of the Company's
earnings  stream.  Fluctuations  in  interest  rates  as  well as volume and mix
changes in earning assets materially affect interest income. Interest income was
$4,689,712  and  $4,012,405  for  the  six  months ended June 30, 2004 and 2003,
respectively.  The  increase  in  interest  income  is  a result of overall loan
growth  during  the  past  year.


                                      -11-
<PAGE>
INTEREST EXPENSE

Interest  expense on deposits and other borrowings for the six months ended June
30,  2004 and 2003 was $1,376,237 and $1,444,303, respectively.  The decrease in
interest expense is a result of a continued decline in interest rates during the
past  year.  The Bank has successfully lowered all deposit rates during the past
year  without  sacrificing  growth  in  deposits.

PROVISION FOR LOAN LOSSES

The  provision  for  loan  losses represents the charge against current earnings
necessary  to maintain the allowance for loan losses at a level which management
considers  adequate  to provide for probable losses in the loan portfolio.  This
level  is  determined  based  upon  management's  assessment of current economic
conditions,  the composition of the loan portfolio and the levels of nonaccruing
and  past  due  loans.  The  provision  for loan losses was $270,000 for the six
months  ended  June  30,  2004.  The  allowance  for loan losses as a percent of
outstanding  loans  was  1.40  percent  at  June 30, 2004 and December 31, 2003.

NONINTEREST INCOME

Noninterest  income for the six months ended June 30, 2004 and 2003 was $941,314
and  $992,288,  respectively.  Noninterest income consisted primarily of service
charges  on  customer  deposits  ($675,794  for the first six months of 2004 and
$458,319  for  the  same  period  in 2003), mortgage loan fees ($153,797 for the
first  six  months  of  2004  and  $279,174  for  the  same  period  in  2003),
gains(losses)  on sales of securities ($(4,086) for the first six months of 2004
and  $183,804 for the same period in 2003), ATM and credit card fees, and rental
of  safe deposit boxes.  The decrease primarily resulted from significantly less
gains  on  sales  of  securities.

NONINTEREST EXPENSE

Noninterest  expense  totaled $2,506,114 and $2,154,129 for the six months ended
June  30,  2004  and  2003, respectively.  The largest components of noninterest
expense  consist of salaries and employee benefits and other operating expenses.
Other  operating  expenses  consist  primarily  of data processing, advertising,
professional  fees,  supplies,  printing  and  postage  and  other miscellaneous
expenses.  For  the  six  months  ended  June  30,  2004,  salaries and employee
benefits  were $163,594 more than the same time period in 2003 due to the hiring
of  additional  staff and increased insurance premiums.  At June 30, 2004, other
operating  expenses were  $144,855 more than June 30, 2003 due to increased data
processing  fees  and  printing  and  supplies  expenses directly related to the
growth  in customer accounts and increased consulting fees related to the Bank's
pricing  model.

INCOME TAXES

Income  tax  expense was $516,894 and $410,256 for the six months ended June 30,
2004  and 2003, respectively.  The increase is a direct result of an increase in
taxable  income  in  2004  as  compared  to  2003.


                                      -12-
<PAGE>
FINANCIAL CONDITION

EARNING ASSETS

The  Company's  earning assets include loans, securities and federal funds sold.
The  mix  of  earning  assets reflects management's attempt to maximize interest
income  while  maintaining  acceptable  levels  of  risk.

SECURITIES AND FEDERAL FUNDS SOLD

The  composition  of  the  Company's securities portfolio reflects the Company's
investment strategy of maximizing portfolio yields subject to risk and liquidity
considerations.  The primary objectives of the Company's investment strategy are
to  maintain  an  appropriate level of liquidity and provide a tool to assist in
controlling  the  Company's  interest  rate  position  while  at  the  same time
producing  adequate  levels  of  interest  income.  For securities classified as
available-for-sale,  management  intends  to  hold  such  securities  for  the
foreseeable  future  except to fund increases in loan demand.  Management of the
maturity  of  the  portfolio  is  necessary  to provide liquidity and to control
interest  rate  risks.

Securities  and  federal  funds  sold decreased $12,702,213 or 33.4 percent from
December  31,  2003, to June 30, 2004.  The securities portfolio may be analyzed
in  order  to  purchase  or sell various term investments.  Term investments may
provide  a  source  of  liquidity  and may serve as collateral to secure certain
government  deposits.  Securities  at  June  30, 2004 and December 31, 2003 were
$25,330,759  and $33,692,972, respectively, reflecting a decrease of $8,362,213.
Federal funds sold decreased $4,340,000 from December 31, 2003 to June 30, 2004.
This  decline  is related to the increase in loans and a decrease in public fund
deposits  during  the  same  period.

LOANS

Loans  represent  the single largest category of the Company's earning assets at
June 30, 2004.  At June 30, 2004, the Company had outstanding loans amounting to
$128,464,265  net  of  its  allowance  for loan losses, or 77.6 percent of total
assets,  compared to net loans of $116,892,801, or 69 percent of total assets at
December  31,  2003.  The Company will continue to search for loan opportunities
in  its  market  area  while  assuming  acceptable  levels  of  risk.

ASSET QUALITY

Asset  quality  is  measured  by  three  key  ratios: (1) the ratio of loan loss
allowance to total nonperforming assets (defined as nonaccrual loans, loans past
due  90  days  or greater, restructured loans, nonaccruing securities, and other
real  estate),  (2)  nonperforming assets to total assets, and (3) nonperforming
assets  to  total loans.  At June 30, 2004, the Company had nonperforming assets
of  $992,317,  which  was 54.5 percent of the loan loss allowance of $1,821,203.
Nonperforming  assets  were  .76  percent  of all loans and .60 percent of total
assets.  At December 31, 2003, the Company had nonperforming assets of $444,000,
which  was 26.7 percent of the loan loss allowance of $1,664,578.  Nonperforming
assets  at  December  31,  2003 were .37 percent of all loans and .26 percent of
total  assets.


                                      -13-
<PAGE>
NONEARNING ASSETS

Nonearning assets include premises and equipment of $3,071,592 and $2,956,709 at
June  30, 2004 and December 31, 2003, respectively.  The increase of $114,883 in
premises  and  equipment from December 31, 2003 is primarily due to additions of
$205,441  outpacing  the  depreciation expense.  The additions include leasehold
improvements,  furniture,  and  equipment for the Bank's operations center which
opened  in  May  2004.

The  Bank  leases  the site for its main office at the rate of $2,165 per month.
The  lease  term is for a maximum of fifty years, including extensions after the
initial  twenty-year period, and subject to certain conditions after the initial
forty-year  period.

Accrued  interest  receivable  was  $843,251  at  June  30, 2004, an increase of
$70,351  from December 31, 2003.  The increase is primarily due to the growth in
the  loan  portfolio.

Other  assets  consist primarily of prepaid expenses, deferred income taxes, and
other  real  estate.   Deferred  income taxes consists primarily of tax benefits
related  to  timing  differences in the tax and financial reporting treatment of
the  allowance  of  loan  losses,  as  well  as  other  factors.

DEPOSITS

At  June 30, 2004, the Company had outstanding deposits of $140,465,925 compared
to  $148,081,102  at  December  31,  2003.  The  decrease  in deposits is due to
approximately  $14  million Catoosa County property tax deposits being withdrawn
in  early  2004 which were held at December 31, 2003. Deposits are the Company's
primary  source  of  funds  to  support  its earning assets. Noninterest-bearing
deposits increased from $12,308,701 at December 31, 2003, to $14,447,971 at June
30,  2004.  Time  deposits  of  $100,000  or  more  increased  by  $1,464,722.

OTHER LIABILITIES

Other  liabilities  consist  primarily  of accrued interest payable and accounts
payable.  Accrued  interest payable decreased $79,390 from December 31, 2003, to
June 30, 2004.  The decrease is due to slightly lower interest rates in 2004 and
lower  balances  in  savings  and  certificates  of  deposit.

STOCKHOLDERS' EQUITY

Stockholders'  equity  increased  $617,538  from  December 31, 2003, to June 30,
2004,  due  in  part to net income of $961,781 for the six months ended June 30,
2004.  The  equity  adjustment  for  unrealized  gains  on  securities
available-for-sale  decreased $273,927 during the six months ended June 30, 2004
resulting in an unrealized loss of $313,088. This decrease is due to the decline
in  market  values  on  securities during the same period. The Company also paid
dividends  of  $150,107  in  2004.

RELATED PARTY TRANSACTIONS

In  the  normal course of business, the Bank makes loans to directors, executive
officers  and  principal shareholders on substantially the same terms, including
interest  rates  and  collateral, as those prevailing at the time for comparable
transactions with other borrowers.  Extensions of credit to directors, executive
officers,  and  principal  shareholders  totaled  $4,492,000  at  June 30, 2004.


                                      -14-
<PAGE>
OFF-BALANCE SHEET ARRANGEMENTS

The  Bank is a party to financial instruments with off-balance-sheet risk in the
normal  course  of business to meet the financing needs of its customers.  These
financial  instruments include standby letters of credit and various commitments
to extend credit.  At June 30, 2004, commitments under standby letters of credit
and  undisbursed  loan  commitments  aggregated  $22,251,000.  The Bank's credit
exposure  for  these  financial  instruments is represented by their contractual
amounts.  The  Bank  does  not anticipate any material losses as a result of the
commitments  under  standby  letters of credit and undisbursed loan commitments.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY MANAGEMENT

Liquidity  is defined as the ability of a company to convert assets into cash or
cash  equivalents  without  significant  loss.  Liquidity  management  involves
maintaining  the Bank's ability to meet the day-to-day cash flow requirements of
its  customers,  whether  they  are  depositors  wishing  to  withdraw  funds or
borrowers  requiring funds to meet their credit needs.  Without proper liquidity
management,  the  Bank  would  not  be able to perform the primary function of a
financial  intermediary  and  therefore would not be able to meet the production
and  growth  needs  of  the  communities  it  serves.

The  primary  function  of  asset and liability management is not only to assure
adequate liquidity in order for the Bank to meet the needs of its customer base,
but  also  to  maintain an appropriate balance between interest-sensitive assets
and interest-sensitive liabilities so that the Bank can also meet the investment
requirements  of  its stockholders.  Daily monitoring of the sources and uses of
funds  is  necessary  to  maintain  an  acceptable cash position that meets both
requirements.  In  the  banking  environment,  both  assets  and liabilities are
considered  sources of liquidity funding and both are, therefore, monitored on a
daily  basis.

The asset portion of the balance sheet provides liquidity primarily through loan
principal  repayments  or sales of securities.  Outstanding loans that mature in
one  year  or  less totaled approximately $67.6 million at June 30, 2004.  There
are  no  securities  maturing  in  one  year  or  less.

The  liability  portion  of the balance sheet provides liquidity through various
customers'  interest-bearing  and noninterest-bearing deposit accounts.  At June
30,  2004,  funds were also available through the purchase of federal funds from
correspondent  commercial  banks.  Purchases can be made from available lines of
up  to  an  aggregate  of  approximately  $8.4  million.  At June 30, 2004, $3.9
million  federal  funds  had  been purchased.  Liquidity management involves the
daily monitoring of the sources and uses of funds to maintain an acceptable cash
position.

CAPITAL RESOURCES

A  strong  capital position is vital to the profitability of the Company because
it  promotes  depositor  and investor confidence and provides a solid foundation
for future growth of the organization.  The Company has provided for its capital
requirements  with  proceeds from its initial stock offering in 1996 and through
the  retention  of  earnings.


                                      -15-
<PAGE>
FEDERAL HOME LOAN BANK ADVANCES

In  an  effort  to  maintain  and  improve  the  liquidity position of the Bank,
management  approved  the  Bank's  membership with the Federal Home Loan Bank of
Atlanta  (FHLB).  As  a  member  of  the  FHLB, the Bank improved its ability to
manage  liquidity  and  reduce  interest rate risk by having a funding source to
match  longer  term  loans.  The  terms  of  the  Bank's loans from the FHLB are
summarized  in Note 4 to the Consolidated Financial Statements appearing in this
report.

REGULATORY CAPITAL REQUIREMENTS

Regulatory  capital guidelines administered by the federal banking agencies take
into  consideration  risk  factors associated with various categories of assets,
both  on and off the balance sheet.  Under the guidelines, the Company's capital
strength  is  measured  in  two  tiers  which  are  used  in  conjunction  with
risk-adjusted  assets  to  determine  the  risk-based  capital  ratios.  Tier  I
capital,  which  consists  of  common  equity  less  unrealized  gains  on
available-for-sale  securities  plus  qualifying  trust  preferred  securities,
amounted  to $15.5 million at June 30, 2004.  Tier II capital components include
supplemental capital components such as qualifying allowance for loan losses and
qualifying  subordinated  debt.  Tier  I  capital  plus  the  Tier  II  capital
components  is  referred to as total risk-based capital and was $17.3 million at
June  30,  2004.  The percentage ratios as calculated under FDIC guidelines were
11.3  percent  and  12.5  percent  for  Tier  I  and  total  risk-based capital,
respectively,  to  risk-weighted  assets at June 30, 2004.  Both levels exceeded
the  minimum  ratios  of  4 percent and 8 percent, respectively.  Management has
reviewed  and  will continue to monitor asset mix, product pricing, and the loan
loss  allowance,  which  are  the  areas  it believes are most affected by these
requirements.

ITEM 3. CONTROLS AND PROCEDURES

At June 30, 2004, an evaluation was performed under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures.  Based on that evaluation, the
Company's  management, including the Chief Executive Officer and Chief Financial
Officer,  concluded  that  the Company's disclosure controls and procedures were
effective  at  timely  alerting  them  to  material  information relating to the
Company  (including its consolidated subsidiary) that is required to be included
in  the  Company's periodic filings with the Securities and Exchange Commission.
There  have  been  no  changes  in the Company's internal control over financial
reporting  during the quarter ended June 30, 2004 that have materially affected,
or  are  reasonably  likely to materially affect, the Company's internal control
over  financial  reporting.

PART II - OTHER INFORMATION

ITEM 1- LEGAL PROCEEDINGS

Neither  the  Company  nor  the Bank is a party to any pending legal proceedings
which  management  believes  would  have  a  material  adverse  effect  upon the
operations  or  financial  condition  of  the  Bank.

ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS - NONE

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - NONE


                                      -16-
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On  April 15, 2004, the Company held its annual meeting of shareholders at which
the  following  director  nominees  were elected to a one-year term by the votes
indicated:

Directors                Votes For  Votes Withheld
-----------------------  ---------  --------------

William H. H. Clark        442,781               -
Jeanette W. Dupree         441,781           1,000
James Arthell Gray, Sr.    442,781               -
Harle B. Green             442,781               -
Danny Ray Jackson          442,781               -
Ernest Kresch              442,781               -
Robert G. Peck             442,781               -

ITEM 5 - OTHER INFORMATION

Stockholder  proposals submitted for consideration at the next annual meeting of
stockholders must be received by the Company no later than November 29, 2004, to
be  included in the 2005 proxy materials.  A stockholder must notify the Company
before  February  9,  2005,  of a proposal for the 2005 annual meeting which the
stockholder  intends  to  present other than by inclusion in the Company's proxy
material.  If  the  Company  does  not  receive such notice prior to February 9,
2005,  proxies  solicited  by  the  management  of  the  Company  will  confer
discretionary authority upon the management of the Company to vote upon any such
matter.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

Exhibit Number  Description of Exhibit
--------------  ----------------------

      11        Computation of Net Income Per Share

     31.1       Certification of Chief Executive Officer Pursuant to
                Rule 13a-14(a) under the Securities Exchange Act
                of 1924 as Adopted Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002

     31.2       Certification of Chief Financial Officer Pursuant to
                Rule 13a-14(a) under the Securities Exchange Act
                of 1924 as Adopted Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002


                                      -17-
<PAGE>
      32        Certification Pursuant to 18 U.S.C. Section 1350 as
                Adopted Pursuant to Section 906 of the Sarbanes-
                Oxley Act of 2002


(b)  Reports on Form 8-K

The  Company  did not file any reports on Form 8-K during the quarter ended June
30,  2004.


                                      -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.


GATEWAY BANCSHARES, INC.




               /s/ Robert G. Peck                        August 7, 2004
               ----------------------                    --------------
               Robert G. Peck,                           Date
               President and CEO
               (Principal Executive Officer)



               /s/  Harle B. Green                        August 7, 2004
               ----------------------                     --------------
               Harle B. Green,                            Date
               Chairman and Chief Financial Officer
               (Principal Financial Officer)


                                      -19-
<PAGE>