# UNITED STATESSECURITIES AND EXCHANGE
COMMISSION Washington, D.C. 20549

# Form 10-KSB

(Mark One)   ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended:  December 31, 2005

TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ________

Commission file number 333-127242

Atlantic Bancshares, Inc.
(Name of small business issuer in its charter)

|South Carolina                           |  | 20-3047433                          
|---------------------------------------- |  | ------------------------------------
|(State of Incorporation)                 |  | (I.R.S. Employer Identification No.)
|                                         |  |                                     
|1 Sherington Drive, Suite J              |  |                                     
|Bluffton, South Carolina                 |  | 29910                               
|(Address of principal executive offices) |  | (Zip Code)                          

Issuers telephone
number:  (843) 815-7111

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:  None

Check whether the issuer is not
required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

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      No

Check if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B in this form, and no
disclosure will be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).                         
              
Yes      No

State issuer's revenues for its most recent fiscal year. $29,310

The estimated aggregate market value
of the Common Stock held by non-affiliates (shareholders holding less than 5% of an
outstanding class of stock, excluding directors and executive officers) of the Company on
March 1, 2006 was $11,314,780 (must be a specified date within the past 60 days of filing
this form). This calculation is based upon an estimate of the fair market value of
the Common Stock of $10 per share, which was the price of the last trade of which
management is aware prior to this date.

State the number of shares
outstanding of each of the issuers classes of common equity, as of the latest
practicable date.As of March 24, 2006, the Company had 1,251,577 shares of common
stock outstanding.

# DOCUMENTS INCORPORATED
BY REFERENCE

None.

Transitional Small Business Disclosure Format.   (Check one):   Yes      No

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# Part I Item 1.   Description of Business

This
Report contains statements which constitute forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and the Securities Exchange Act of 1934.
These statements are based on many assumptions and estimates and are not guarantees of
future performance. Our actual results may differ materially from those projected in any
forward-looking statements, as they will depend on many factors about which we are unsure,
including many factors which are beyond our control. The words may,
would, could, will, expect,
anticipate, believe, intend, plan, and
estimate, as well as similar expressions, are meant to identify such
forward-looking statements. Potential risks and uncertainties include, but are not limited
to, those described below under Risk Factors.

# General

Atlantic
Bancshares, Inc. was incorporated in South Carolina in June 2005 for purposes of operating
as a bank holding company. Our wholly-owned subsidiary, Atlantic Community Bank, commenced
business on January 26, 2006, and is primarily engaged in the business of accepting
savings, demand, and time deposits and providing mortgage, consumer and commercial loans
to the general public.

# Risk Factors

# We are a new bank that
has incurred losses to date, and there is a risk we may never become profitable.

Our
bank is a de novo bank that began operations in January 2006. As is typical with most new
banks, we incurred substantial start-up expenses and are still operating with an
accumulated deficit. In order for us to become profitable, we will need to attract a
larger number of customers to deposit and borrow money. Our future profitability is also
dependent on numerous other factors including the continued success of the economy of the
community and favorable government regulation. While the economy in this area has been
strong in recent years, an economic downturn in the area would hurt our business. We are
also a highly regulated institution. Our ability to grow and achieve profitability may be
adversely affected by state and federal regulations that limit a banks right to make
loans and purchase securities. Although we expect to become profitable in our third year
of operation, there is a risk that a deterioration of the local economy or adverse
government regulation could affect our plans. If this happens, we may never become
profitable and you will lose part or all of your investment.

# Our decisions regarding
credit risk and reserves for loan losses may materially and adversely affect our business.

Making
loans and other extensions of credit is an essential element of our business. Although we
seek to mitigate risks inherent in lending by adhering to specific underwriting practices,
our loans and other extensions of credit may not be repaid. The risk of nonpayment is
affected by a number of factors, including:

| |  | the duration of the credit;
| | - | ---------------------------

| |  | credit risks of a particular customer;
| | - | --------------------------------------

| |  | changes in economic and industry conditions; and
| | - | ------------------------------------------------

| |  | in the case of a collateralized loan, risks resulting from uncertainties about the future
value of the collateral.
| | - | ------------------------------------------------------------------------------------------------------------------

We
attempt to maintain an appropriate allowance for loan losses to provide for potential
losses in our loan portfolio. We periodically determine the amount of the allowance based
on consideration of several factors, including:

| |  | an ongoing review of the quality, mix, and size of our overall loan portfolio;
| | - | ------------------------------------------------------------------------------

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| |  | our historical loan loss experience;
| | - | ------------------------------------

| |  | evaluation of economic conditions;
| | - | ----------------------------------

| |  | regular reviews of loan delinquencies and loan portfolio quality; and
| | - | ---------------------------------------------------------------------

| |  | the amount and quality of collateral, including guarantees, securing the loans.
| | - | -------------------------------------------------------------------------------

There
is no precise method of predicting credit losses; therefore, we face the risk that
charge-offs in future periods will exceed our allowance for loan losses and that
additional increases in the allowance for loan losses will be required. Additions to the
allowance for loan losses would result in a decrease of our net income, and possibly our
capital.

# We are dependent on
Robert Trask and our business would suffer if something were to happen to him or if he
were to leave.

Our
growth and development will largely be the result of the contributions of our president,
Robert Trask. The performance of community banks, like Atlantic Community Bank, is often
dependent upon the ability of executive officers to promote the bank in the local market
area. Mr. Trask has extensive and long-standing ties within our primary service areas and
will provide us with an important medium through which to market our products and
services. If we lose the services of Mr. Trask, he would be difficult to replace and our
business and development could be materially and adversely affected. We have an employment
agreement with Mr. Trask and have $1,000,000 of insurance on his life payable to the bank.

Lack of seasoning of our
loan portfolio may increase the risk of credit defaults in the future.

Due
to our short operating history, the loans in our loan portfolio and our lending
relationships are of relatively recent origin. In general, loans do not begin to show
signs of credit deterioration or default until they have been outstanding for some period
of time, a process we refer to as seasoning. As a result, a portfolio of older
loans will usually behave more predictably than a newer portfolio. Because our loan
portfolio is new, the current level of delinquencies and defaults may not be
representative of the level that will prevail when the portfolio becomes more seasoned,
which may be higher than current levels. If delinquencies and defaults increase, we may be
required to increase our provision for loan losses, which would adversely affect our
results of operations and financial condition.

We
face strong competition for customers, which could prevent us from obtaining customers
and may cause us to payhigher interest rates to attract customers.

The
banking business is highly competitive, and we experience competition in our market from
many other financial institutions. We compete with commercial banks, credit unions,
savings and loan associations, mortgage banking firms, consumer finance companies,
securities brokerage firms, insurance companies, money market funds, and other mutual
funds, as well as other super-regional, national, and international financial institutions
that operate offices in our primary market areas and elsewhere. We compete with these
institutions both in attracting deposits and in making loans. In addition, we have to
attract our client base from other existing financial institutions and from new residents.
Many of our competitors are well-established, larger financial institutions. These
institutions offer some services, such as extensive and established branch networks, that
we do not currently provide. There is a risk that we will not be able to compete
successfully with other financial institutions in our market, and that we may have to pay
higher interest rates to attract deposits, resulting in reduced profitability. In
addition, competitors that are not depository institutions are generally not subject to
the extensive regulations that apply to us.

We are subject to
extensive regulation that could limit or restrict our activities. This regulation is for protection
of the banks depositors and not for the investors.

We
operate in a highly regulated industry and are subject to examination, supervision, and
comprehensive regulation by various regulatory agencies. Our compliance with these
regulations is costly and

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restricts certain of our activities,
including payment of dividends, mergers and acquisitions, investments, loans and interest
rates charged, interest rates paid on deposits, and locations of offices. We are also
subject to capitalization guidelines established by our regulators, which require us to
maintain adequate capital to support our growth.

The
laws and regulations applicable to the banking industry could change at any time, and we
cannot predict the effects of these changes on our business and profitability. Because
government regulation greatly affects the business and financial results of all commercial
banks and bank holding companies, our cost of compliance could adversely affect our
ability to operate profitably.

Although
we are subject to extensive and comprehensive regulation by various banking regulatory
agencies such as the FDIC and the South Carolina Board of Financial Institution, the
purpose of these banking regulatory agencies is to protect and insure the interests and
deposits of our banks depositors. These agencies do not consider preserving or
maximizing the investment made by the companys investors when regulating the
banks activities.

We will face risks with
respect to future expansion and acquisitions or mergers.

Although
we do not have any current plans to do so, we may seek to acquire other financial
institutions or parts of those institutions. We may also expand into new markets or lines
of business or offer new products or services. These activities would involve a number of
risks, including:

| |  | taking additional time and creating expense associated with identifying and evaluating
potential acquisitions and merger partners;
| | - | ----------------------------------------------------------------------------------------------------------------------------------

| |  | using inaccurate estimates and judgments to evaluate credit, operations, management, and
market risks with respect to the target institution or assets;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | diluting our existing shareholders in an acquisition;
| | - | -----------------------------------------------------

| |  | taking additional time and creating expense associated with evaluating new markets for
expansion, hiring experienced local management, and opening new offices, as there may be a
substantial time lag between these activities before we generate sufficient assets and
deposits to support the costs of the expansion;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | taking a significant amount of time negotiating a transaction or working on expansion
plans, resulting in managements attention being diverted from the operation of our
existing business;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | taking time and creating expense integrating the operations and personnel of the combined
businesses;
| | - | -----------------------------------------------------------------------------------------------------

| |  | creating an adverse short-term effect on our results of operations; and
| | - | -----------------------------------------------------------------------

| |  | losing key employees and customers as a result of an acquisition that is poorly received.
| | - | -----------------------------------------------------------------------------------------

We
have never acquired another institution before, so we lack experience in handling any of
these risks. There is also a risk that any expansion effort will not be successful.

The costs of being an SEC
registered company are proportionately higher for small companies such as AtlanticBancshares
because of the requirements imposed by the Sarbanes-Oxley Act.

The
Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated by the
Securities and Exchange Commission have increased the scope, complexity, and cost of
corporate governance, reporting, and disclosure practices. These regulations are
applicable to our company. We expect to experience increasing compliance costs, including
costs related to internal controls, as a result of the Sarbanes-Oxley Act. These necessary
costs are proportionately higher for a company of our size and will affect our
profitability more than that of some of our larger competitors.

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An economic downturn,
especially one affecting Bluffton and the surrounding communities, could reduce ourcustomer
base, our level of deposits, and demand for financial products such as loans.

Our
success will significantly depend upon the growth in population, income levels, deposits,
and housing starts in our market Bluffton and the surrounding communities. If the
community in which we operate does not grow or if prevailing economic conditions locally
or nationally are unfavorable, our business may not succeed. An economic downturn would
likely contribute to the deterioration of the quality of our loan portfolio and reduce our
level of deposits, which in turn would hurt our business. If an economic downturn occurs
in the economy as a whole, or in our primary market, borrowers may be less likely to repay
their loans as scheduled. Moreover, the value of real estate or other collateral that may
secure our loans could be adversely affected. Unlike many larger institutions, we are not
able to spread the risks of unfavorable local economic conditions across a large number of
diversified economies. An economic downturn could, therefore, result in losses that
materially and adversely affect our business.

Changes in prevailing
interest rates may reduce our profitability.

Our
results of operations depend in large part upon the level of our net interest income,
which is the difference between interest income from interest-earning assets, such as
loans and mortgage-backed securities, and interest expense on interest-bearing
liabilities, such as deposits and other borrowings. Depending on the terms and maturities
of our assets and liabilities, a significant change in interest rates could have a
material adverse effect on our profitability. Many factors cause changes in interest
rates, including governmental monetary policies and domestic and international economic
and political conditions. While we intend to manage the effects of changes in interest
rates by adjusting the terms, maturities, and pricing of our assets and liabilities, our
efforts may not be effective and our financial condition and results of operations could
suffer.

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# Marketing Focus

Most
of the banks in Beaufort County are now local branches of large regional banks. Although
size gives the larger banks certain advantages in competing for business from large
corporations, including higher lending limits and the ability to offer services in other
areas of South Carolina and in Beaufort County, we believe we have a niche in the
community banking market in our market area. As a result, we generally do not attempt to
compete for the banking relationships of large corporations, but concentrate our efforts
on small- to medium-sized businesses and professional concerns. The bank advertises to
emphasize the companys local ownership, community bank nature, and ability to
provide more personalized service than its competition.

# Location and Service Area

We
are located at 1 Sherington Drive, Suite J (Sheridan Park) Bluffton, South Carolina 29910.
The location was formerly subleased through Regional Bankshares, Inc. until January 24,
2006 when we entered into a new lease with Carolina Partners, LLC. The facility is 2,190
square feet and is leased for a period of three years with two three-year options to
renew. We also lease a facility for our operations department at 70 Pennington Drive,
Suite 21 Bluffton, SC 29910. This facility is approximately one mile south of the Sheridan
Park branch location and is in a Bluffton Park commercial subdivision, which is directly
adjacent to the Sheridan Park commercial subdivision. This operations department facility
has approximately 2,000 square feet of office space and will house between three and five
employees. We anticipate leasing this temporary location through 2007 to allow for
construction of the new main office location. Our operations department will be moved to
the main office location which is projected to open in the second year of operation. See
also Item 2. Description of Property below.

Our
current plans anticipate that we will open two additional offices in the next five years.
We plan to open a new office in the first quarter of our second year of operation in
Bluffton which will serve as our main headquarters. We have reviewed several build-to-suit
projects with lease options. Currently, we anticipate entering into a written lease in the
near future with a suitable project partner. The organizers of the company, along with
other non-organizers, have formed a separate corporate entity which anticipates purchasing
a one and a half acre parcel in Bluffton and constructing a 5,000 to 10,000 square foot
office building that we will lease. The lease terms will be established to be at a fair
market rental value by gathering competitive bids from other lessors. On January 1, 2005,
we opened a loan production office on the south end of Hilton Head Island. We leased a
facility at 1 Corpus Christie Place, Suite 108, Hilton Head Island, SC 29928 that has a
total of 1,837 square feet for a period of one year with a one year option to renew. The
organizers of the company, along with other non-organizers, have formed a separate
corporate entity which anticipates purchasing this location that we will lease.

Our
primary service area consists of southern Beaufort County and a portion of Jasper County.
Our office is located in Bluffton.Our geographical market area includes southern
Beaufort County and a portion of Jasper County. The area is generally defined by the Broad
River and Interstate 95 to the North, the State of Georgia to the South, the Atlantic
Ocean and Broad River to the East, and Interstate 95 to the West. Additional communities
falling within our market area include Hilton Head Island, Palmetto Bluff, Pritchardville,
Sun City, Okatie, Hardeeville and Ridgeland.

Our
primary service areas economic strength comes from the industries of tourism, real
estate development, education, government and services. The commercial sector of the
economy is orientated towards real estate development. According to Claritas, Inc., a
marketing research firm, 2004s average household income in our primary service area
was $86,062 compared to $63,301 for the United States as a whole. Within the primary
service area, the average household income is projected to increase by 12.4% over the
coming five years. We believe that the community will continue to experience rapid growth
in the commercial sectors offering services to residents and visitors. We anticipate that
growth in residential and commercial activity in the primary service area and surrounding
areas will increase the demand for depository and lending services within our market and
believe that the conditions are favorable for the formation and entry of a new financial
institution.

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We
believe our primary service area will sustain continued growth. According to Claritas,
Inc., the population growth for our primary service area from 2000 to 2004 was
approximately 13.4%. They are projecting a growth of 14.5% over the coming five years
compared to the projected national average of 4.8%. The number of households in our
primary service area is projected to increase by 15.1% over the coming five years compared
to the projected national average of 5%. As a result, we anticipate the areas
expanding population and expected growth in total households will enlarge Atlantic
Community Banks potential customer base.

# Lending Activities

General.
          We intend to emphasize a range of lending services, including real estate,
          commercial, and equity-line and consumer loans to individuals, small- to
          medium-sized businesses, and professional concerns that are located in or
          conduct a substantial portion of their business in the banks market area.
          We will compete for these loans with competitors who are well established in our
          service area and have greater resources and lending limits. As a result, we may
          have to charge lower interest rates to attract borrowers.

The
well established banks in our service area will make proportionately more loans to
medium-to-large-sized businesses than we will. Many of the banks anticipated
commercial loans will likely be made to small-to-medium-sized businesses which may be less
able to withstand competitive, economic, and financial conditions than larger borrowers.

Loan
Approval and Review. The banks loan approval policies will provide for various
levels of officer lending authority. When the amount of aggregate loans to a single
borrower exceeds that individual officers lending authority, the loan request will
be considered and approved by an officer with a higher lending limit or the board of
directors loan committee. The bank will not make any loans to any director of the
bank unless the loan is approved by the board of directors of the bank and is made on
terms not more favorable to the person than would be available to a person not affiliated
with the bank. The bank currently intends to adhere to Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation guidelines in its mortgage loan
review process, but may choose to alter this policy in the future. The bank expects to
sell residential mortgage loans that it originates on the secondary market.

Loan
Distribution.    We estimate that our initial percentage distribution of our loans for
the first year will be as follows:

| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 

These are estimates only. Our actual
deposit and loan distribution will depend on our customers requirements and will
vary initially and over time.

Allowance
for Loan Losses. We will maintain an allowance for loan losses, which we will
establish through a provision for loan losses charged against income. We will charge loans
against this allowance when we believe that the collectibility of the principal is
unlikely. The allowance will be an estimated amount that we believe will be adequate to
absorb losses inherent in the loan portfolio based on evaluations of its collectibility.
We anticipate that initially our allowance for loan losses will equal approximately 0.7%
of the average outstanding balance of our loans. Over time, we will periodically determine
the amount of the allowance based on our consideration of several factors, including:

| |  | an ongoing review of the quality, mix, and size of our overall loan portfolio;
| | - | ------------------------------------------------------------------------------

| |  | our historical loan loss experience;
| | - | ------------------------------------

| |  | evaluation of economic conditions;
| | - | ----------------------------------

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| |  | specific problem loans and commitments that may affect the borrowers ability to pay;
| | - | -------------------------------------------------------------------------------------

| |  | regular reviews of loan delinquencies and loan portfolio quality by our internal
auditors and our bank regulators; and
| | - | ----------------------------------------------------------------------------------------------------------------------

| |  | the amount and quality of collateral, including guarantees, securing the loans.
| | - | -------------------------------------------------------------------------------

Lending
Limits. The banks lending activities will be subject to a variety of lending
limits imposed by federal law. In general, the bank will be subject to a legal limit on
loans to a single borrower equal to 15% of the banks capital and unimpaired surplus.
Different limits may apply based on the type of loan or the nature of the borrower,
including the borrowers relationship to the bank. These limits will increase or
decrease as the banks capital increases or decreases. Unless the bank is able to
sell participations in its loans to other financial institutions, the bank will not be
able to meet all of the lending needs of loan customers requiring aggregate extensions of
credit above these limits.

Credit
Risk. The principal credit risk associated with each category of loans is the
creditworthiness of the borrower. Borrower creditworthiness is affected by general
economic conditions and the strength of the manufacturing, services, and retail market
segments. General economic factors affecting a borrowers ability to repay include
interest, inflation, employment rates, and the strength of local and national economy, as
well as other factors affecting a borrowers customers, suppliers, and employees.

Real
Estate Loans. We expect that loans secured by first or second mortgages on real estate
will make up approximately 65% of the banks loan portfolio. These loans will
generally fall into one of two categories: commercial real estate loans or construction
and development loans. We also expect to make residential real estate loans secured by
first or second mortgages on real estate. Each of these categories is discussed in more
detail below, including their specific risks. Interest rates for all categories may be
fixed or adjustable, and will more likely be fixed for shorter-term loans. The bank will
generally charge an origination fee for each loan.

Real
estate loans are subject to the same general risks as other loans. Real estate loans are
also sensitive to fluctuations in the value of the real estate securing the loan. On first
and second mortgage loans we would not advance more than regulatory limits. We will
require a valid mortgage lien on all real property loans along with a title lien policy
which insures the validity and priority of the lien. We will also require borrowers to
obtain hazard insurance policies and flood insurance if applicable. Additionally, certain
types of real estate loans have specific risk characteristics that vary according to the
collateral type securing the loan and the terms and repayment sources for the loan.

We
will have the ability to originate some real estate loans for sale into the secondary
market. We can limit our interest rate and credit risk on these loans by locking the
interest rate for each loan with the secondary investor and receiving the investors
underwriting approval prior to originating the loan.

| |  | Commercial Real Estate Loans. Commercial real estate loans will generally have
terms of five years or less, although payments may be structured on a longer amortization
basis. Inherent in commercial real estate loans credit risk is the risk that the
primary source of repayment, the operating commercial real estate company, will be
insufficient to service the debt. If a real estate loan is in default, we also run the
risk that the value of a commercial real estate loans secured real estate will
decrease, and thereby be insufficient to satisfy the loan. To mitigate these risks, we
will evaluate each borrower on an individual basis and attempt to determine its business
risks and credit profile. We will attempt to reduce credit risk in the commercial real
estate portfolio by emphasizing loans on owner-occupied office and retail buildings where
the loan-to-value ratio is established by independent appraisals. We will typically review
the personal financial statements of the principal owners and require their personal
guarantees. These reviews often reveal secondary sources of payment and liquidity to
support a loan request.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Construction and Development Real Estate Loans.We will offer adjustable and fixed
rate residential and commercial construction loans to builders and developers and to
consumers who wish to build
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | their own home. The term of construction and development loans will generally be limited to 18
months, although payments may be structured on a longer amortization basis. Most loans
will mature and require payment in full upon the sale of the property. Construction and
development loans generally carry a higher degree of risk than long term financing of
existing properties. Repayment usually depends on the ultimate completion of the project
within cost estimates and on the sale of the property. Specific risks include:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | cost overruns;
| | - | --------------

| |  | mismanaged construction;
| | - | ------------------------

| |  | inferior or improper construction techniques;
| | - | ---------------------------------------------

| |  | economic changes or downturns during construction;
| | - | --------------------------------------------------

| |  | a downturn in the real estate market;
| | - | -------------------------------------

| |  | rising interest rates which may prevent sale of the property; and
| | - | -----------------------------------------------------------------

| |  | failure to sell completed projects in a timely manner.
| | - | ------------------------------------------------------

| | We will attempt to reduce risk by obtaining personal guarantees where possible, and by
keeping the loan-to-value ratio of the completed project below specified percentages. We
may also reduce risk by selling participations in larger loans to other institutions when
possible.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Residential Real Estate Loans. These loans will generally have longer terms, up to
30 years. We will offer fixed and adjustable rate mortgages, and we intend to sell most or
all of the residential real estate loans that we generate in the secondary market soon
after we originate them. We do not intend to retain servicing rights for these loans.
Inherent in residential real estate loans credit risk is the risk that the primary
source of repayment, the residential borrower, will be insufficient to service the debt.
If a real estate loan is in default, we also run the risk that the value of a residential
real estate loans secured real estate will decrease, and thereby be insufficient to
satisfy the loan. To mitigate these risks, we will evaluate each borrower on an individual
basis and attempt to determine its credit profile. By selling these loans in the secondary
market, we can significantly reduce our exposure to credit risk because the loans will be
underwritten through a third party agent without any recourse against the bank.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Commercial
Loans. The bank will make loans for commercial purposes in various lines of
businesses. We will focus our efforts on commercial loans of $1,000,000 or less. Equipment
loans will typically be made for a term of five years or less at fixed or variable rates,
with the loan fully amortized over the term and secured by the financed equipment. Working
capital loans will typically have terms not exceeding one year and will usually be secured
by accounts receivable, inventory, or personal guarantees of the principals of the
business. For loans secured by accounts receivable or inventory, principal will typically
be repaid as the assets securing the loan are converted into cash, and in other cases
principal will typically be due at maturity. Trade letters of credit, standby letters of
credit, and foreign exchange will be handled through a correspondent bank as agent for the
bank. Commercial loans primarily have risk that the primary source of repayment, the
borrowing business, will be insufficient to service the debt. Often this occurs as the
result of changes in local economic conditions or in the industry in which the borrower
operates which impact cash flow or collateral value.

We
expect to also offer small business loans utilizing government enhancements such as the
Small Business Administrations 7(a) program and SBAs 504 and
LowDoc programs. These loans will typically be partially guaranteed by the
government which may help to reduce the banks risk. Government guarantees of SBA
loans will not exceed 80% of the loan value, and will generally be less.

# Banking Services

We intend to offer a full range of
deposit services that are typically available in most banks and savings and loan
associations, including checking accounts, NOW accounts, commercial accounts, savings
accounts, and other time deposits of various types, ranging from daily money market
accounts to longer-term certificates of deposit. The

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transaction accounts and time
certificates will be tailored to our principal market area at rates competitive to those
offered in the Bluffton area. In addition, we intend to offer certain retirement account
services, including IRAs. We intend to solicit these accounts from individuals,
businesses, and other organizations.

# Other Banking Services

We
will offer cashiers checks, banking by mail, direct deposit of payroll and social
security checks, United States Savings Bonds, and travelers checks. We plan for the bank
to become associated with the Honor and Cirrus ATM networks that may be used by the
banks customers throughout the country. We believe that by being associated with a
shared network of ATMs, we will be better able to serve our customers and will be able to
attract customers who are accustomed to the convenience of using ATMs. We intend to begin
offering these services shortly after opening the bank. We also plan to offer a debit card
and credit card services through a correspondent bank as an agent for the bank. Once we
are operating, we anticipate that the bank may offer other bank services including, lines
of credit, 24-hour telephone banking, and on-line banking. We do not expect the bank to
exercise trust powers during its initial years of operation.

We
will offer products and services via the traditional means of brick and mortar, phone
banking, ATM network and Internet banking. We do not anticipate any other variation in our
market area or distribution channels within the first three years of operation.

# Competition

The
banking business is highly competitive. We will compete as a financial intermediary with
other commercial banks, savings banks, credit unions, finance companies, and money market
mutual funds operating in the Bluffton area and surrounding communities. Some of
these competitors have been in business for a long time and have already established their
customer base and name recognition. Most are larger than we will be and have greater
financial and personnel resources than we will have. Some are large super-regional and
regional banks, like Wachovia Bank, Bank of America, and SunTrust Bank, and others are
more established community banks, like Liberty Savings Bank FSB, First Federal S&L of
Charleston, Beach First National Bank, and Lowcountry National Bank. Some of these
institutions offer services, including extensive and established branch networks and trust
services, that we either do not expect to provide or will not provide for some time. Due
to this competition, we may have to pay higher rates of interest to attract deposits. In
addition, competitors that are not depository institutions are generally not subject to
the extensive regulations that will apply to our bank. Most of these institutions have
substantially greater resources and lending limits than we will have, and many of these
competitors offer services, including extensive and established branch networks and trust
services, that we either do not expect to provide or will not provide initially.
Nevertheless, we believe that our management team, our focus on relationship banking, and
the economic and demographic dynamics of our service area will allow us to gain a
meaningful share of the areas deposits.

# Employees

As
of March 1, 2006, we had 13 full-time employees and 3 part-time employees.

10

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# SUPERVISION AND
REGULATION

Both
the company and the bank are subject to extensive state and federal banking laws and
regulations that impose specific requirements or restrictions on and provide for general
regulatory oversight of virtually all aspects of our operations. These laws and
regulations are generally intended to protect depositors, not shareholders. The following
summary is qualified by reference to the statutory and regulatory provisions discussed.
Changes in applicable laws or regulations may have a material effect on our business and
prospects. Beginning with the enactment of the Financial Institutions Reform Recovery and
Enforcement Act in 1989 and followed by the FDIC Improvement Act in 1991 and the
Gramm-Leach-Bliley Act in 1999, numerous additional regulatory requirements have been
placed on the banking industry in the past several years, and additional changes have been
proposed. Our operations may be affected by legislative changes and the policies of
various regulatory authorities. We cannot predict the effect that fiscal or monetary
policies, economic control, or new federal or state legislation may have on our business
and earnings in the future.

The
following discussion is not intended to be a complete list of all the activities regulated
by the banking laws or of the impact of such laws and regulations on our operations. It is
intended only to briefly summarize some material provisions.

# USA PATRIOT Act of 2002

In
October 2002, the USA PATRIOT Act of 2002 was enacted in response to the terrorist attacks
in New York, Pennsylvania, and Washington D.C. that occurred on September 11, 2001. The
PATRIOT Act is intended to strengthen U.S. law enforcements and the intelligence
communities abilities to work cohesively to combat terrorism on a variety of fronts.
The potential impact of the PATRIOT Act on financial institutions is significant and wide
ranging. The PATRIOT Act contains sweeping anti-money laundering and financial
transparency laws and imposes various regulations, including standards for verifying
customer identification at account opening, and rules to promote cooperation among
financial institutions, regulators, and law enforcement entities in identifying parties
who may be involved in terrorism or money laundering.

# Check 21

On
October 28, 2003, President Bush signed into law the Check Clearing for the 21st Century
Act, also known as Check 21. Check 21 gives substitute checks, such as a
digital image of a check and copies made from that image, the same legal standing as the
original paper check. Some of the major provisions of Check 21 include:

| |  | allowing check truncation without making it mandatory;
| | - | ------------------------------------------------------

| |  | demanding that every financial institution communicate to accountholders in writing a
description of its substitute check processing program and their rights under the law;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | legalizing substitutions for and replacements of paper checks without agreement from
consumers;
| | - | -----------------------------------------------------------------------------------------------

| |  | retaining in place the previously mandated electronic collection and return
of checks between financial institutions only when individual agreements are in place;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | requiring that when accountholders request verification, financial institutions produce
the original check (or a copy that accurately represents the original) and demonstrate
that the account debit was accurate and valid; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | requiring recrediting of funds to an individuals account on the next business day
after a consumer proves that the financial institution has erred.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------

This
legislation affects our capital spending as we must regularly assess whether technological
or operational changes are necessary to stay competitive and take advantage of the new
opportunities presented by Check 21.

11

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# Atlantic Bancshares

We
own 100% of the outstanding capital stock of the bank, and therefore are considered to be
a bank holding company under the federal Bank Holding Company Act of 1956 and the South
Carolina Banking and Branching Efficiency Act.

The
Bank Holding Company Act. Under the Bank Holding Company Act, we are subject to
periodic examination by the Federal Reserve and are required to file periodic reports of
our operations and any additional information that the Federal Reserve may require. Our
activities at the bank and holding company levels will be limited to:

| |  | banking and managing or controlling banks;
| | - | ------------------------------------------

| |  | furnishing services to or performing services for our subsidiaries; and
| | - | -----------------------------------------------------------------------

| |  | engaging in other activities that the Federal Reserve determines to be so closely related
to banking and managing or controlling banks as to be a proper incident thereto.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investments,
Control, and Activities. With certain limited exceptions, the Bank Holding Company Act
requires every bank holding company to obtain the prior approval of the Federal Reserve
before:

| |  | acquiring substantially all the assets of any bank;
| | - | ---------------------------------------------------

| |  | direct or indirect ownership or control of any voting shares of any bank if after the
acquisition it would own or control more than 5% of the voting shares of such bank (unless
it already owns or controls the majority of such shares); or
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | merging or consolidating with another bank holding company.
| | - | -----------------------------------------------------------

In
addition, and subject to certain exceptions, the Bank Holding Company Act and the Change
in Bank Control Act, together with regulations promulgated thereunder, require Federal
Reserve approval prior to any person or company acquiring control of a bank
holding company. Control is conclusively presumed to exist if an individual or company
acquires 25% or more of any class of voting securities of a bank holding company. Control
is rebuttably presumed to exist if a person acquires 10% or more, but less than 25%, of
any class of voting securities and either the company has registered securities under
Section 12 of the Securities Exchange Act of 1934 or no other person owns a greater
percentage of that class of voting securities immediately after the transaction. We do not
currently have a class of equity securities registered under Section 12 of the Securities
Exchange Act. If we have more than 500 shareholders on December 31, 2006 or at the end of
any fiscal year thereafter, we will be required to register our securities under Section
12 of the Securities Exchange Act. Because as of March 1, 2006 we have only 432
shareholders of record, we do not anticipate that we will register our class of common
stock under Section 12 of the Securities Exchange Act prior to April 30, 2007. The
regulations provide a procedure for rebutting control when ownership of any class of
voting securities is below 25%.

Under
the Bank Holding Company Act, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of more than 5% of the voting shares of any
company engaged in, nonbanking activities unless the Federal Reserve Board, by order or
regulation, has found those activities to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of the activities that the
Federal Reserve Board has determined by regulation to be proper incidents to the business
of a bank holding company include:

| |  | making or servicing loans and certain types of leases;
| | - | ------------------------------------------------------

| |  | engaging in certain insurance and discount brokerage activities;
| | - | ----------------------------------------------------------------

| |  | performing certain data processing services;
| | - | --------------------------------------------

| |  | acting in certain circumstances as a fiduciary or investment or financial adviser;
| | - | ----------------------------------------------------------------------------------

| |  | owning savings associations; and
| | - | --------------------------------

| |  | making investments in certain corporations or projects designed primarily to promote
community welfare.
| | - | -------------------------------------------------------------------------------------------------------

12

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The
Federal Reserve Board imposes certain capital requirements on the company under the Bank
Holding Company Act, including a minimum leverage ratio and a minimum ratio of
qualifying capital to risk-weighted assets. These requirements are described
below under -Atlantic Community Bank  Capital Regulations. Subject to
our capital requirements and certain other restrictions, we are able to borrow money to
make a capital contribution to the bank, and these loans may be repaid from dividends paid
from the bank to the company. Our ability to pay dividends will be subject to regulatory
restrictions as described below in -Atlantic Community Bank  Dividends.
We will also be able to raise capital for contribution to the bank by issuing securities
without having to receive regulatory approval, subject to compliance with federal and
state securities laws.

Source
of Strength; Cross-Guarantee. In accordance with Federal Reserve Board policy, we are
expected to act as a source of financial strength to the bank and to commit resources to
support the bank in circumstances in which we might not otherwise do so. Under the Bank
Holding Company Act, the Federal Reserve Board may require a bank holding company to
terminate any activity or relinquish control of a nonbank subsidiary, other than a nonbank
subsidiary of a bank, upon the Federal Reserve Boards determination that such
activity or control constitutes a serious risk to the financial soundness or stability of
any depository institution subsidiary of the bank holding company. Further, federal bank
regulatory authorities have additional discretion to require a bank holding company to
divest itself of any bank or nonbank subsidiaries if the agency determines that
divestiture may aid the depository institutions financial condition.

The
Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act was signed into law on November 12,
1999. Among other things, the Act repealed the restrictions on banks affiliating with
securities firms contained in sections 20 and 32 of the Glass-Steagall Act. The Act also
permits bank holding companies that become financial holding companies to engage in a
statutorily provided list of financial activities, including insurance and securities
underwriting and agency activities, merchant banking, and insurance company portfolio
investment activities. The Act also authorizes activities that are
complementary to financial activities. We have not elected to become a
financial holding company.

The
Act is intended, in part, to grant to community banks certain powers as a matter of right
that larger institutions have accumulated on an ad hoc basis. Nevertheless, the Act may
have the result of increasing the amount of competition that we face from larger
institutions and other types of companies. In fact, it is not possible to predict the full
effect that the Act will have on us.

South
Carolina State Regulation. As a South Carolina bank holding company under the South
Carolina Banking and Branching Efficiency Act, we are subject to limitations on sale or
merger and to regulation by the South Carolina Board of Financial Institutions. We are not
required to obtain the approval of the Board prior to acquiring the capital stock of a
national bank, but we must notify them at least 15 days prior to doing so. We must receive
the Boards approval prior to engaging in the acquisition of a South Carolina state
chartered bank or another South Carolina bank holding company.

# Atlantic Community Bank

The
bank is a state bank incorporated under the laws of the State of South Carolina and is
subject to examination by the South Carolina Board of Financial Institutions. Deposits in
the bank are insured by the FDIC up to a maximum amount, which is generally $100,000 per
depositor subject to aggregation rules.

The
South Carolina Board of Financial Institutions and the FDIC regulate or monitor virtually
all areas of the banks operations, including:

| |  | security devices and procedures;
| | - | --------------------------------

| |  | adequacy of capitalization and loss reserves;
| | - | ---------------------------------------------

13

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| |  | loans;
| | - | ------

| |  | investments;
| | - | ------------

| |  | borrowings;
| | - | -----------

| |  | deposits;
| | - | ---------

| |  | mergers;
| | - | --------

| |  | issuances of securities;
| | - | ------------------------

| |  | payment of dividends;
| | - | ---------------------

| |  | interest rates payable on deposits;
| | - | -----------------------------------

| |  | interest rates or fees chargeable on loans;
| | - | -------------------------------------------

| |  | establishment of branches;
| | - | --------------------------

| |  | corporate reorganizations;
| | - | --------------------------

| |  | maintenance of books and records; and
| | - | -------------------------------------

| |  | adequacy of staff training to carry on safe lending and deposit gathering practices.
| | - | ------------------------------------------------------------------------------------

The
South Carolina Board of Financial Institutions requires the bank to maintain specified
capital ratios and imposes limitations on the banks aggregate investment in real
estate, bank premises, and furniture and fixtures. The South Carolina Board of Financial
Institutions also requires the bank to prepare quarterly reports on the banks
financial condition in compliance with its minimum standards and procedures.

Under
the FDIC Improvement Act, all insured institutions must undergo regular on site
examinations by their appropriate banking agency. The cost of examinations of insured
depository institutions and any affiliates may be assessed by the appropriate agency
against each institution or affiliate as it deems necessary or appropriate. Insured
institutions are required to submit annual reports to the FDIC, their federal regulatory
agency, and their state supervisor when applicable. The FDIC Improvement Act directs the
FDIC to develop a method for insured depository institutions to provide supplemental
disclosure of the estimated fair market value of assets and liabilities, to the extent
feasible and practicable, in any balance sheet, financial statement, report of condition
or any other report of any insured depository institution. The FDIC Improvement Act also
requires the federal banking regulatory agencies to prescribe, by regulation, standards
for all insured depository institutions and depository institution holding companies
relating, among other things, to the following:

| |  | internal controls;
| | - | ------------------

| |  | information systems and audit systems;
| | - | --------------------------------------

| |  | loan documentation;
| | - | -------------------

| |  | credit underwriting;
| | - | --------------------

| |  | interest rate risk exposure; and
| | - | --------------------------------

| |  | asset quality.
| | - | --------------

Holding
companies which have been registered or have undergone a change in control within the past
two years or which have been deemed by the Federal Reserve Board to be troubled
institutions must give the Federal Reserve Board 30 days prior notice of the
appointment of any senior executive officer or director. Within the 30 day period, the
Federal Reserve Board, as the case may be, may approve or disapprove any such appointment.

Deposit
Insurance. The FDIC has adopted a risk-based assessment system for determining an
insured depository institutions insurance assessment rate. The system takes into
account the risks attributable to different categories and concentrations of assets and
liabilities. An institution is placed into one of three capital categories: (1) well
capitalized; (2) adequately capitalized; or (3) undercapitalized. The FDIC also assigns an
institution to one of three supervisory subgroups, based on the FDICs determination
of the institutions financial condition and the risk posed to the deposit insurance
funds. Assessments range from 0 to 27 cents per $100 of deposits, depending on the
institutions capital group and supervisory subgroup. In addition, the FDIC imposes
assessments to help pay off the $780 million in annual interest payments on the $8 billion
Financing Corporation (FICO) bonds issued in the late 1980s as part of the government
rescue of the thrift industry. New changes have

14

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been proposed recently regarding
these assessments, including an increase in the amount of the FDIC insurance, but at this
time it is not possible to predict whether the changes will be implemented or what their
effect would be. Generally, we expect that increases in deposit insurance premiums or
changes in risk classification will increase the banks cost of funds, and we may not
be able to pass these costs on to our customers. Although we will pay a quarterly FICO
assessment, the FDIC assessment rate on our bank deposits will initially be zero, but may
change in the future. The FDIC may increase or decrease the assessment rate schedule on a
semiannual basis. An increase in the BIF assessment rate could have a material adverse
effect on our earnings, depending on the amount of the increase.

The
FDIC may terminate its insurance of deposits if it finds that the institution has engaged
in unsafe and unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order, or condition
imposed by the FDIC.

Transactions
With Affiliates and Insiders.The bank is subject to the provisions of Section 23A of
the Federal Reserve Act, which places limits on the amount of loans or extensions of
credit to, or investments in, or certain other transactions with, affiliates and on the
amount of advances to third parties collateralized by the securities or obligations of
affiliates. The aggregate of all covered transactions is limited in amount, as to any one
affiliate, to 10% of the banks capital and surplus and, as to all affiliates
combined, to 20% of the banks capital and surplus. Furthermore, within the foregoing
limitations as to amount, each covered transaction must meet specified collateral
requirements. Compliance is also required with certain provisions designed to avoid the
taking of low quality assets.

The
bank is subject to the provisions of Section 23B of the Federal Reserve Act which, among
other things, prohibits an institution from engaging in certain transactions with certain
affiliates unless the transactions are on terms substantially the same, or at least as
favorable to such institution or its subsidiaries, as those prevailing at the time for
comparable transactions with nonaffiliated companies. The bank is subject to certain
restrictions on extensions of credit to executive officers, directors, certain principal
shareholders, and their related interests. Such extensions of credit (i) must be made on
substantially the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with third parties and (ii) must not involve more
than the normal risk of repayment or present other unfavorable features.

The
Federal Reserve Board has recently issued Regulation W, which codifies prior regulations
under Sections 23A and 23B of the Federal Reserve Act and interpretative guidance with
respect to affiliate transactions. Regulation W incorporates the exemption from the
affiliate transaction rules but expands the exemption to cover the purchase of any type of
loan or extension of credit from an affiliate. In addition, under Regulation W:

| |  | a bank and its subsidiaries may not purchase a low-quality asset from an affiliate;
| | - | -----------------------------------------------------------------------------------

| |  | covered transactions and other specified transactions between a bank or its subsidiaries and an
affiliate must be on terms and conditions that are consistent with safe and sound banking practices;
and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | with some exceptions, each loan or extension of credit by a bank to an affiliate must be
secured by collateral with a market value ranging from 100% to 130%, depending on the type
of collateral, of the amount of the loan or extension of credit.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Regulation
W generally excludes all nonbank and nonsavings association subsidiaries of banks from
treatment as affiliates, except to the extent that the Federal Reserve Board decides to
treat these subsidiaries as affiliates. Concurrently with the adoption of Regulation W,
the Federal Reserve Board has proposed a regulation which would further limit the amount
of loans that could be purchased by a bank from an affiliate to not more than 100% of the
banks capital and surplus. This regulation has not yet been adopted.

Dividends.
          A South Carolina state bank may not pay dividends from its capital. All
          dividends must be paid out of undivided profits then on hand, after deducting
          expenses, including reserves for losses and bad debts. The bank is authorized to
          pay cash dividends up to 100% of net income in any calendar year without
          obtaining the

15

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prior approval of the South Carolina
Board of Financial Institutions, provided that the bank received a composite rating of one
or two at the last federal or state regulatory examination. The bank must obtain approval
from the South Carolina Board of Financial Institutions prior to the payment of any other
cash dividends. In addition, under the FDICIA, the bank may not pay a dividend if, after
paying the dividend, the bank would be undercapitalized.

Branching.
          Under current South Carolina law, we may open branch offices throughout South
          Carolina with the prior approval of the South Carolina Board of Financial
          Institutions. In addition, with prior regulatory approval, the bank will be able
          to acquire existing banking operations in South Carolina. Furthermore, federal
          legislation has been passed that permits interstate branching by banks if
          allowed by state law, and interstate merging by banks. South Carolina law, with
          limited exceptions, currently permits branching across state lines through
          interstate mergers, but not de-novo branching.

Community
Reinvestment Act. The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their respective jurisdictions, a financial
institutions primary regulator, which is the FDIC for the bank, shall evaluate the
record of each financial institution in meeting the credit needs of its local community,
including low and moderate income neighborhoods. These factors are also considered in
evaluating mergers, acquisitions, and applications to open a branch or facility. Failure
to adequately meet these criteria could impose additional requirements and limitations on
our bank.

The
Gramm-Leach-Bliley Act. Under the Gramm-Leach-Bliley Act, subject to certain
conditions imposed by their respective banking regulators, national and state-chartered
banks are permitted to form financial subsidiaries that may conduct financial
or incidental activities, thereby permitting bank subsidiaries to engage in certain
activities that previously were impermissible. The Gramm-Leach-Bliley Act imposes several
safeguards and restrictions on financial subsidiaries, including that the parent
banks equity investment in the financial subsidiary be deducted from the banks
assets and tangible equity for purposes of calculating the banks capital adequacy.
In addition, the Gramm-Leach-Bliley Act imposes new restrictions on transactions between a
bank and its financial subsidiaries similar to restrictions applicable to transactions
between banks and nonbank affiliates.

The
Gramm-Leach-Bliley Act also contains provisions regarding consumer privacy. These
provisions require financial institutions to disclose their policy for collecting and
protecting confidential information. Customers generally may prevent financial
institutions from sharing personal financial information with nonaffiliated third parties
except for third parties that market an institutions own products and services.
Additionally, financial institutions generally may not disclose consumer account numbers
to any nonaffiliated third party for use in telemarketing, direct mail marketing, or other
marketing to the consumer.

Other
Regulations. Interest and other charges collected or contracted for by the bank are
subject to state usury laws and federal laws concerning interest rates. The banks
loan operations are also subject to federal laws applicable to credit transactions, such
as:

| |  | the federal Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers;
| | - | ----------------------------------------------------------------------------------------------

| |  | the Home Mortgage Disclosure Act of 1975, requiring financial institutions to
provide information to enable the public and public officials to determine whether a financial institution is fulfilling
its obligation to help meet the housing needs of the community it serves;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other
prohibited factors in extending credit;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| |  | the Fair Credit Reporting Act of 1978, governing the use and provision of information to credit
reporting agencies;
| | - | -------------------------------------------------------------------------------------------------------------------

| |  | the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by
collection agencies; and
| | - | -----------------------------------------------------------------------------------------------------------------------

| |  | the rules and regulations of the various federal agencies charged with the responsibility
of implementing such federal laws.
| | - | ----------------------------------------------------------------------------------------------------------------------------

16

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In
addition, the deposit operations of the bank are subject to:

| |  | the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with administrative
subpoenas of financial records; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to
implement that Act, which govern automatic deposits to and withdrawals from deposit
accounts and customers rights and liabilities arising from the use of automated
teller machines and other electronic banking services.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Capital
Regulations. The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make regulatory
capital requirements more sensitive to differences in risk profiles among banks and bank
holding companies and account for off-balance sheet items. The guidelines are minimums,
and the federal regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their capital ratios
and should maintain ratios in excess of the minimums. The current guidelines require all
bank holding companies and federally-regulated banks to maintain a minimum risk-based
total capital ratio equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1
capital includes common shareholders equity, qualifying perpetual preferred stock,
and minority interests in equity accounts of consolidated subsidiaries, but excludes
goodwill and most other intangibles and excludes the allowance for loan and lease losses.
Tier 2 capital includes the excess of any preferred stock not included in Tier 1 capital,
mandatory convertible securities, hybrid capital instruments, subordinated debt and
intermediate term-preferred stock, and general reserves for loan and lease losses up to
1.25% of risk-weighted assets.

The
Federal Reserve guidelines also contain an exemption from the capital requirements for
small bank holding companies. Currently, this exception applies to any bank holding
company with less than $150 million in consolidated assets, which includes Atlantic
Bancshares, Inc. On February 27, 2006, the Federal Reserve approved a new rule expanding
the definition of a small bank holding company. The new definition will
include bank holding companies with less than $500 million in total assets. However, bank
holding companies will not qualify under the new definition if they (i) are engaged in
significant nonbanking activities either directly or indirectly through a subsidiary, (ii)
conduct significant off-balance sheet activities, including securitizations or managing or
administering assets for third parties, or (iii) have a material amount of debt or equity
securities (including trust preferred securities) outstanding that are registered with the
SEC. The new rule will be effective on March 30, 2006. Although we have less than $500
million in assets, it is unclear at this point whether we otherwise meet the requirements
for qualifying as a small bank holding company. According to the Federal
Reserve Board, the revision of the criterion to exclude any bank holding company that has
outstanding a material amount of SEC-registered debt or equity securities reflects the
fact that SEC registrants typically exhibit a degree of complexity of operations and
access to multiple funding sources that warrants excluding them from the new policy
statement and subjecting them to the capital guidelines. In the adopting release for the
new rule, the Federal Reserve Board stated that what constitutes a material
amount of SEC-registered debt or equity for a particular bank holding company depends on
the size, activities and condition of the relevant bank holding company. In lieu of using
fixed measurable parameters of materiality across all institutions, the rule provides the
Federal Reserve with supervisory flexibility in determining, on a case-by-case basis, the
significance or materiality of activities or securities outstanding such that a bank
holding company should be excluded from the policy statement and subject to the capital
guidelines. Until the Federal Reserve provides further guidance on the new rules, it will
be unclear whether our holding company will become subject to the exemption from the
capital requirements for small bank holding companies. Regardless, our bank falls under
these minimum capital requirements as set per bank regulatory agencies, and both our bank
and our holding company would be considered well capitalized under these
guidelines.

Under
these guidelines, banks and bank holding companies assets are given
risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance sheet items are
given credit conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight applies. These computations result in the total risk-

17

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weighted assets. Most loans are
assigned to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction loans,
both of which carry a 50% rating. Most investment securities are assigned to the 20%
category, except for municipal or state revenue bonds, which have a 50% rating, and direct
obligations of or obligations guaranteed by the United States Treasury or United States
Government agencies, which have a 0% rating.

The
federal bank regulatory authorities have also implemented a leverage ratio, which is equal
to Tier 1 capital as a percentage of average total assets less intangibles, to be used as
a supplement to the risk-based guidelines. The principal objective of the leverage ratio
is to place a constraint on the maximum degree to which a bank holding company may
leverage its equity capital base. The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an additional cushion
of at least 100 to 200 basis points.

The
FDIC Improvement Act established a new capital-based regulatory scheme designed to promote
early intervention for troubled banks which requires the FDIC to choose the least
expensive resolution of bank failures. The new capital-based regulatory framework contains
five categories of compliance with regulatory capital requirements, including well
capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
To qualify as a well capitalized institution, a bank must have a leverage
ratio of no less than 5%, a Tier 1 risk-based ratio of no less than 6%, and a total
risk-based capital ratio of no less than 10%, and the bank must not be under any order or
directive from the appropriate regulatory agency to meet and maintain a specific capital
level. We currently qualify as well capitalized.

Under
the FDIC Improvement Act regulations, the applicable agency can treat an institution as if
it were in the next lower category if the agency determines (after notice and an
opportunity for hearing) that the institution is in an unsafe or unsound condition or is
engaging in an unsafe or unsound practice. The degree of regulatory scrutiny of a
financial institution increases, and the permissible activities of the institution
decrease, as it moves downward through the capital categories. Institutions that fall into
one of the three undercapitalized categories may be required to do some or all of the
following:

| |  | submit a capital restoration plan;
| | - | ----------------------------------

| |  | raise additional capital;
| | - | -------------------------

| |  | restrict their growth, deposit interest rates, and other activities;
| | - | --------------------------------------------------------------------

| |  | improve their management;
| | - | -------------------------

| |  | eliminate management fees; or
| | - | -----------------------------

| |  | divest themselves of all or a part of their operations.
| | - | -------------------------------------------------------

A
bank that is not well capitalized is also subject to certain limitations
relating to so-called brokered deposits. Bank holding companies controlling
financial institutions can be called upon to boost the institutions capital and to
partially guarantee the institutions performance under their capital restoration
plans.

These
capital guidelines can affect us in several ways. If we grow at a rapid pace, our capital
may be depleted too quickly, and a capital infusion from the holding company may be
necessary which could impact our ability to pay dividends. Our capital levels will
initially be more than adequate; however, rapid growth, poor loan portfolio performance,
poor earnings performance, or a combination of these factors could change our capital
position in a relatively short period of time.

Failure
to meet these capital requirements would mean that a bank would be required to develop and
file a plan with its primary federal banking regulator describing the means and a schedule
for achieving the minimum capital requirements. In addition, such a bank would generally
not receive regulatory approval of any application that requires the consideration of
capital adequacy, such as a branch or merger application, unless the bank could
demonstrate a reasonable plan to meet the capital requirement within a reasonable period
of time.

18

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Enforcement
Powers. The Financial Institutions Reform Recovery and Enforcement Act expanded and
increased civil and criminal penalties available for use by the federal regulatory
agencies against depository institutions and certain institution-affiliated
parties. Institution-affiliated parties primarily include management, employees, and
agents of a financial institution, as well as independent contractors and consultants such
as attorneys and accountants and others who participate in the conduct of the financial
institutions affairs. These practices can include the failure of an institution to
timely file required reports or the filing of false or misleading information or the
submission of inaccurate reports. Civil penalties may be as high as $1.0 million a day for
such violations. Criminal penalties for some financial institution crimes have been
increased to 20 years. In addition, regulators are provided with greater flexibility to
commence enforcement actions against institutions and institution-affiliated parties.
Possible enforcement actions include the termination of deposit insurance. Furthermore,
banking agencies power to issue cease-and-desist orders were expanded. Such orders
may, among other things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnification or guarantees
against loss. A financial institution may also be ordered to restrict its growth, dispose
of certain assets, rescind agreements or contracts, or take other actions as determined by
the ordering agency to be appropriate.

Effect
of Governmental Monetary Policies. Our earnings will be affected by domestic economic
conditions and the monetary and fiscal policies of the United States government and its
agencies. The Federal Reserve Boards monetary policies have had, and are likely to
continue to have, an important impact on the operating results of commercial banks through
its power to implement national monetary policy in order, among other things, to curb
inflation or combat a recession. The monetary policies of the Federal Reserve Board have
major effects upon the levels of bank loans, investments and deposits through its open
market operations in United States government securities and through its regulation of the
discount rate on borrowings of member banks and the reserve requirements against member
bank deposits. It is not possible to predict the nature or impact of future changes in
monetary and fiscal policies.

Proposed
Legislation and Regulatory Action. New regulations and statutes are regularly proposed
that contain wide-ranging proposals for altering the structures, regulations, and
competitive relationships of the nations financial institutions. We cannot predict
whether or in what form any proposed regulation or statute will be adopted or the extent
to which our business may be affected by any new regulation or statute.

# Item 2.   Description of
Property.

We
are located at 1 Sherington Drive, Suite J (Sheridan Park) Bluffton, South Carolina 29910.
The location was formerly subleased through Regional Bankshares, Inc. until January 24,
2006 when we entered into a new lease with Carolina Partners, LLC. The facility is 2,190
square feet and is leased for a period of three years with two three-year options to
renew. Rent over the first three years is $4,562.50 per month plus the spaces
pro-rated share of property taxes, common area maintenance and applicable sales tax, which
in the initial term is expected to be $5,063. Sheridan Park is an established commercial
subdivision fronting Highway 278 and includes the South Carolina Division of Motor
Vehicles, restaurants, retail stores, wholesalers, and professional office space. The
commercial building that contains our leased space also borders on and provides signage on
Highway 278. Signage is also provided directly over the main public entrance.

We
also lease a facility for our operations department at 70 Pennington Drive, Suite 21
Bluffton, SC 29910. This facility is approximately one mile south of the Sheridan Park
branch location and is in a Bluffton Park commercial subdivision, which is directly
adjacent to the Sheridan Park commercial subdivision. This operations department facility
has approximately 2,000 square feet of office space and will house between three and five
employees. We anticipate leasing this temporary location through 2007 to allow for
construction of the new main office location. Our operations department will be moved to
the main office location which is projected to open in the second year of operation.

On
January 1, 2006 we opened a loan production office on the south end of Hilton Head Island.
We leased a facility at 1 Corpus Christie Place, Suite 108, Hilton Head Island, SC 29928
that has a total of 1,837

19

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square feet for a period of one year
with a one year option to renew. The organizers of the company, along with other
non-organizers, have formed a separate corporate entity which anticipates purchasing this
location that we will lease.

# Item 3.   Legal
Proceedings.

We
are not a party to, nor are any of our properties subject to, any material legal
proceedings, other than routine litigation incidental to our business.

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

No
matter was submitted to a vote of security holders during the fourth quarter of the fiscal
year covered by this report.

# Part II.

# Item 5.   Market for
Common Equity and Related Stockholder Matters.

There
is no established market for our common stock. We do not expect to qualify for listing on
Nasdaq or any other exchange for at least several years. We are currently considering
whether to seek a sponsoring broker-dealer to match buy and sell orders for our common
stock in order to be quoted on the OTC Bulletin Board. Even if we become quoted, the
trading markets on the OTC Bulletin Board lack the depth, liquidity, and orderliness
necessary to maintain a liquid market. The decision of whether to seek a sponsoring
broker-dealer has not yet been made and remains wholly within our discretion.

As
of March 1, 2006, there were 1,251,577 shares of common stock outstanding held by
approximately 432 shareholders of record. All of our currently issued and outstanding
common stock was issued in our initial public offering which was completed on March 1,
2006. The price per share in our initial public offering was $10.00. We are not aware of
any trades of our common stock.

We
have not declared or paid any cash dividends on our common stock since our inception. For
the foreseeable future we do not intend to declare cash dividends. We intend to retain
earnings to grow our business and strengthen our capital base. Our ability to pay
dividends depends on the ability of our subsidiary, Atlantic Community Bank, to pay
dividends to us. As a South Carolina state bank, our bank may only pay dividends out of
its net profits, after deducting expenses, including losses and bad debts. In addition,
our bank is prohibited from declaring a dividend on its shares of common stock until its
surplus equals its stated capital. At December 31, 2005, our bank was prohibited from
declaring a dividend because it was in organization and did not receive final regulating
approvals until January 2006.

As
of December 31, 2005, we had not adopted any stock incentive plans or issued any
equity-based compensation or awards. However, on March 28, 2006, we adopted a stock
incentive plan through which we anticipate issuing options to our employees. No options
have been issued under this plan. On March 23, 2006, we issued warrants to our organizers
with a $10.00 exercise price and a ten year exercise period. These warrants were issued to
our organizers in exchange for their contributions during our organizational period. Each
warrant has a vesting period of five years.

20

---

# Equity Compensation
Plan Information

|                          | Number of Securities |  | Number of Securities
|------------------------- | -------------------- |  | --------------------
|
|
|
|
|
|Equity compensation plans |                      |  |                     
|approved by security      |                      |  |                     
|holders as of December    |                      |  |                     
|31, 2005                  |                      |  |                     
|                          |                      |  |                     
|Equity compensation plans |                      |  |                     
|not approved by security  |                      |  |                     
|holders as of December    |                      |  |                     
|31, 2005                  |                      |  |                     

Our
registration statement on Form SB-2 (file no. 333-127242), which registered the issuance
of the shares to be sold in our initial public offering, was declared effective on October
11, 2005. The offering commenced on October 11, 2005 and terminated on March 1, 2006. We
registered the issuance of a total of 1,340,000 shares in the offering and 80,000 warrants
for an aggregate offering price of $13,400,000. We sold 1,251,577 shares of common stock
at an offering price of $10.00 per share for aggregate proceeds of $12,515,770. The
warrants will be issued to the organizers of the bank.

We
incurred $533,648in expenses in connection with the issuance and distribution of
the common stock in the offering. All of these expenses were paid directly or indirectly
to persons or entities other than directors, officers, persons owning 10% or more of the
companys securities, or affiliates of the company.

We
used $10,257,890 of the proceeds to capitalize the bank, $186,279 to pay the offering
expenses, and $347,369 to pay the sales agent fee. The remaining proceeds were placed in
the holding companys bank account.

21

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# Item 6.   
Managements Discussion and Analysis or Plan of Operation

# General

Atlantic Bancshares,
Inc., a bank holding company, was formed to organize and own all of the
capital stock of Atlantic Community Bank. On June 15, 2005, organizers filed applications
with the South Carolina Board of Financial Institutions to charter the Bank as a South
Carolina state bank and with the Federal Deposit Insurance Corporation to receive federal
deposit insurance. In December 2005, the Company filed an application with the Federal
Reserve Board to become a bank holding company. As of January 16, 2006, the Company had
met all of the requirements to close the stock offering and this allowed for release of
funds from escrow. The Company used $8,800,000 to capitalize the Bank and this amount was
released from escrow on January 18, 2006. On January 26, 2006, with final regulatory
approvals, the Bank opened for business.

The Company closed its initial public
offering on March 1, 2006 having sold a total of 1,251,577 shares of common stock at $10
per share. The offering raised $11,982,122, net of offering expenses. The directors and
officers of the Company purchased 120,099 shares at $10 per share for a total of
$1,200,990.

# Managements
Discussion and Analysis

This discussion is intended to assist
in understanding the financial condition and results of operations of the Company. The
following is a discussion of our financial condition as of December 31, 2005, and the
results of operations for the period October 1, 2004 (date of inception) through December
31, 2005. These comments should be read in conjunction with the financial statements and
related notes contained elsewhere in this report.

Our principal activities through
December 31, 2005 related to our organization, the conducting of our initial public
offering, the pursuit of approvals from the South Carolina State Board of Financial
Institutions for our application to charter the Bank, our pursuit of approvals from the
FDIC for our application for deposit insurance, and our pursuit of approvals from the
Federal Reserve Board to form a holding company.

# Critical Accounting
Policies

The Company has adopted various
accounting policies, which govern the application of accounting principles generally
accepted in the United States of America in the preparation of the Companys
financial statements. The significant accounting policies of the Company are described in
the notes to the financial statements.

Certain accounting policies involve
significant judgments and assumptions by management, which have a material impact on the
carrying value of certain assets and liabilities. Management considers such accounting
policies to be critical accounting policies. The judgments and assumptions used by
management are based on historical experience and other factors which are believed to be
reasonable under the circumstances. Because of the nature of the judgments and assumptions
made by management, actual results could differ from these judgments and estimates, which
could have a material impact on the carrying values of assets and liabilities and the
results of operations of the Company.

The Company believes the allowance
for loan losses will be a critical accounting policy that will require the most
significant judgments and estimates used in preparation of its financial statements upon
organization of the Bank. Refer to section Allowance for Loan Losses for a
more detailed description of the methodology related to the allowance for loan losses.

Management uses assumptions and
estimates in determining income taxes payable or refundable for the current year, deferred
income tax liabilities and assets for events recognized differently in its financial
statements and income tax returns, and income tax expense. Determining these amounts
requires analysis of certain transactions and interpretation of tax laws and regulations.
Management exercises judgment in evaluating the amount and timing of recognition of
resulting tax liabilities and assets. These judgments and estimates are reevaluated on a

22

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continual basis as regulatory and
business factors change. No assurance can be given that either the tax returns submitted
by management or the income tax reported on the financial statements will not be adjusted
by either adverse rulings by the United States Tax Court, changes in the tax code, or
assessments made by the Internal Revenue Service. The Company is subject to potential
adverse adjustments, including, but not limited to, an increase in the statutory federal
or state income tax rates, the permanent nondeductibility of amounts currently considered
deductible either now or in future periods, and the dependency on the generation of future
taxable income, including capital gains, in order to ultimately realize deferred income
tax assets.

# Forward Looking
Statements

This report contains
forward-looking statements relating to, without limitation, future economic
performance, plans and objectives of management for future operations, and projections of
revenues and other financial items that are based on the beliefs of management, as well as
assumptions made by and information currently available to management. The words
may, will, anticipate, should,
would, believe, contemplate, expect,
estimate, continue, may, and intend, as
well as other similar words and expressions of the future, are intended to identify
forward-looking statements. Potential risks and uncertainties include, but are not limited
to those described under the heading Risk Factors in our Form 10-KSB for the
year ended December 31, 2005.

# Financial Results

At December 31, 2005, we had total
assets of $8,388,552, consisting of cash and cash equivalents of $11,118, deferred stock
issuance costs of $216,330, restricted cash of $7,191,459, and amount due from bank of
$969,645.

Our liabilities at December 31, 2005
were $8,401,656, consisting of notes payable of $1,046,988, subscriptions held in escrow
pending closing of the offering totaling $7,162,150, and other liabilities of $192,518. We
had shareholders deficit of $13,104 at December 31, 2005.

We had a net loss of $13,204 for the
period October 1, 2004 (date of inception) to December 31, 2005. These losses resulted
from expenses incurred in connection with activities related to our organization and that
of the Bank. These activities included the preparation and filing of an application with
the State Board to charter the Bank, the preparation and filing of an application with the
FDIC to obtain insurance of the deposits of the Bank, the preparation and filing of an
application the Federal Reserve Board to form a holding company, responding to questions
and providing additional information to the State Board, the FDIC, and the Federal Reserve
in connection with the application process, the selling of our common stock in the
offering, meetings and discussions among various organizers regarding application
information, target markets, and capitalization issues, and planning and organizing for
the opening of the Bank. Because we are in the organization stage, we have had no
operations from which to generate revenues. Operations have been funded through
withdrawals from our line of credit guaranteed by our organizers.

Initially, we anticipate deriving
income principally from interest charged on loans and, to a lesser extent, from interest
earned on investments, from fees received in connection with the origination of loans, and
from other services. Our principal expenses are anticipated to be interest expense on
deposits and operating expenses.

# Expenses

As of December 31, 2005, we incurred
approximately $7,907 in application fees, $16,777 in professional fees, $17,464 in
interest expense and approximately $366 in other expense. As mentioned, our bank will
reimburse us for many of the expenses associated with the formation of our bank. The
amount due from our bank totaled $969,645 at December 31, 2005. Prior to our completion of
the offering, these expenses were funded by a line of credit in the amount of up to $1
million at a rate of prime minus 0.25% which was guaranteed by our organizers. We intend
to use the proceeds of the offering to repay the amounts due under our lines of credit. We
anticipate

23

---

that the proceeds of the offering
will be sufficient to satisfy the Companys financial needs for at least the next two
years.

In December 2004, the FASB issued
Statement of Financial Accounting Standard (SFAS) No. 123 (revised 2004),
Share-Based Payment (SFAS No. 123(R)).  On March 28, 2006,
we adopted a stock incentive plan through which we anticipate issuing options to our
employees and directors. Each option will likely have a vesting period of five years. On
March 23, 2006, we issued warrants to our organizers in exchange for their contributions
during our organizational period. Each warrant has a vesting period of five years. Because
of SFAS No. 123(R), we will incur compensation expense each year until these options and
warrants fully vest. We can not yet determine the amount of this compensation expense.

# Liquidity and Interest
Rate Sensitivity

Atlantic Community Bank, like most
banks, will depend on its net interest income for its primary source of earnings. Net
interest income is roughly the difference between the interest we charge on our loans and
receive from our investments, our assets, and the interest we pay on deposits, our
liabilities. Movements in interest rates will cause our earnings to fluctuate. To lessen
the impact of these margin swings, we intend to structure our balance sheet so that we can
reprice the rates applicable to our assets and liabilities in roughly equal amounts at
approximately the same time. We will manage the banks asset mix by regularly
evaluating the yield, credit quality, funding sources, and liquidity of its assets. We
will manage the banks liability mix by expanding our deposit base and converting
assets to cash as necessary. If there is an imbalance in our ability to reprice assets and
liabilities at any point in time, our earnings may increase or decrease with changes in
the interest rates, creating interest rate sensitivity. Interest rates have historically
varied widely, and we cannot control or predict them. Despite the measures we plan to take
to lessen the impact of interest rate fluctuations, large moves in interest rates may
decrease or eliminate our profitability.

Prior to the completion of the
offering, we used two lines of credit in the amount of up to $1.175 million at a rate of
prime minus 0.50% to pay pre-opening expenses and pay for leasehold improvements. $1.0
million of the lines of credit was guaranteed by our organizers and $175,000 was secured
by the leasehold improvements. We believe that the net proceeds of approximately $12.5
million from the offering will satisfy the cash requirements for at least the first two
years for both the company and the bank. We will manage our liquidity by actively
monitoring the banks sources and uses of funds to meet cash flow requirements and
maximize profits.

# Impact of Inflation

The financial statements presented
herein have been prepared in accordance with accounting principles generally accepted in
the United States of America which require the measurement of financial position and
operating results in terms of historical dollars, without considering changes in relative
purchasing power over time due to inflation. Unlike most industrial companies, virtually
all of the assets and liabilities of a financial institution are monetary in nature. As a
result, interest rates generally have a more significant impact on a financial
institutions performance than does the effect of inflation.

While the effect of inflation on a
bank is normally not as significant as its influence on those businesses that have large
investments in plant and inventories, it does have an effect. Interest rates generally
increase as the rate of inflation increases, but the magnitude of the change in rates may
not be the same. While interest rates have traditionally moved with inflation, the effect
on income is diminished because both interest earned on assets and interest paid on
liabilities vary directly with each other. Also, increases in the price of goods and
services will generally result in increased operating expenses.

# Capital Adequacy

Bank holding companies, such as us,
and their banking subsidiaries are required by banking regulators to meet certain minimum
levels of capital adequacy, which are expressed in the form of certain ratios. Capital is

24

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separated into Tier 1 capital
(essentially common shareholders equity less intangible assets) and Tier 2 capital
(essentially the allowance for loan losses limited to 1.25% of risk-weighted assets). The
first two ratios, which are based on the degree of credit risk in our assets, provide the
weighting of assets based on assigned risk factors and include off-balance sheet items
such as loan commitments and stand-by letters of credit. The ratio of Tier 1 capital to
risk-weighted assets must be at least 4.0% and the ratio of total capital (Tier 1 capital
plus Tier 2 capital) to risk-weighted assets must be at least 8.0%. The capital leverage
ratio supplements the risk-based capital guidelines.

The Federal Reserve guidelines also
contain an exemption from the capital requirements for bank holding companies with less
than $150 million in consolidated assets. Because Atlantic Bancshares, Inc. has less than
$150 million in assets, we are not yet required to maintain these minimum capital
requirements at the holding company level. However, Atlantic Community Bank falls under
these rules as set by bank regulatory agencies.

As noted above under
Supervision and Regulation section  Capital Regulations, the Federal
Reserve is changing the rules relating to when a company would become subject to these
minimum capital regulations. The new rules go into effect March 30, 2006 and exempt from
these requirements certain bank holding companies which have less than $500 million in
total assets. It is unclear at this point whether our company will qualify under this
exemption.

Banks and bank holding companies are
required to maintain a minimum ratio of Tier 1 capital to adjusted quarterly average total
assets of 3.0%. The bank was well capitalized when it opened on January 26, 2006.

# Allowance for Loan Losses

The allowance will be maintained at a
level that we believe to be sufficient to cover losses in the loan portfolio at a specific
point in time. Assessing the adequacy of the allowance will require considerable judgment.
The adequacy of the allowance will be analyzed using an internal analysis model. For
purposes of this analysis, adequacy will be defined as a level sufficient to absorb
probable losses in the portfolio. The methodology will rely upon our judgment. Our
judgments will be based on our assessment of various issues, including, but not limited
to, the pace of loan growth, emerging portfolio concentrations, the risk management system
relating to lending activities, entry into new markets, new product offerings, loan
portfolio quality trends, and uncertainty in current economic and business conditions. An
allowance model will be used that takes into account factors including the composition of
the loan portfolio such as risk grade classifications, historical asset quality trends
including, but not limited to, previous loss experience ratios, our assessment of current
economic conditions, and reviews of specific high risk sectors of the portfolio. Loans
will be graded at inception and will be reviewed on a periodic basis to ensure that
assigned risk grades are proper based on the definition of such classification. The value
of underlying collateral will also be considered during such analysis. The resulting
monthly model and the related conclusions will be reviewed and approved by Senior
Management. Our analysis of allowance adequacy will include consideration for loan
impairment. While we will use the best information available at the time to make
evaluations, future adjustments to the allowance may be necessary if results differ
substantially from the assumptions used in making the evaluations.

The methodology for assessing the
adequacy of the allowance will establish both an allocated and unallocated component of
the contra asset balance. The allocated component will be based principally on current
loan grades and historical loss rates. The unallocated component will be the result of the
portion of the assessment that estimates probable losses in the portfolio that are not
fully captured in the allocated allowance. This analysis will include, but will not
necessarily be limited to, industry concentrations, future market expansions, model
imprecision, and the estimated impact of then current economic conditions on historical
loss rates. We will monitor trends within the portfolio, both quantitative and
qualitative, and assess the reasonableness of the unallocated component.

25

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The allowance will also be subject to
examination and adequacy testing by regulatory agencies. In addition, such regulatory
agencies could require allowance adjustments based on information available to them at the
time of their examination.

# Income Taxes

Income taxes are provided for the tax
effects of transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between the financial
reporting and income tax bases of assets and liabilities. At December 31, 2005, no taxable
income had been generated and therefore, no tax provision has been included in these
financial statements.

# Recently Issued
Accounting Standards

The following is a summary of recent
authoritative pronouncements that affect accounting, reporting, and disclosure of
financial information by the Company:

In December 2004, the FASB issued
Statement of Financial Accounting Standard (SFAS) No. 123 (revised 2004),
Share-Based Payment (SFAS No. 123(R)). SFAS No. 123(R) will
require companies to measure all employee stock-based compensation awards using a fair
value method and record such expense in its financial statements. In addition, the
adoption of SFAS No. 123(R) requires additional accounting and disclosure related to the
income tax and cash flow effects resulting from share-based payment arrangements. SFAS No.
123(R) is effective beginning as of the first interim or annual reporting period beginning
after December 15, 2005.We are currently evaluating the impact that the adoption
of SFAS No. 123(R) will have on our financial position, results of operations and cash
flows.

In April 2005, the Securities and
Exchange Commissions Office of the Chief Accountant and its Division of Corporation
Finance has released Staff Accounting Bulletin (SAB) No.107 to provide guidance regarding
the application of FASB Statement No.123 (revised 2004), Share-Based Payment.
Statement No.123(R) covers a wide range of share-based compensation arrangements including
share options, restricted share plans, performance-based awards, share appreciation
rights, and employee share purchase plans. SAB 107 provides interpretive guidance related
to the interaction between Statement No.123R and certain SEC rules and regulations, as
well as the staffs views regarding the valuation of share-based payment arrangements
for public companies. SAB 107 also reminds public companies of the importance of including
disclosures within filings made with the SEC relating to the accounting for share-based
payment transactions, particularly during the transition to Statement No.123R.

Other accounting standards that have
been issued or proposed by the FASB or other standards-setting bodies that do not require
adoption until a future date are not expected to have a material impact on the
consolidated financial statements upon adoption.

26

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# Item 7.   Financial
Statements

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

The Board of DirectorsAtlantic
Bancshares, Inc.Bluffton, South Carolina

We have audited the accompanying
balance sheet of Atlantic Bancshares, Inc. (a Company in the Development Stage) as of
December 31, 2005, and related statements of operations and shareholders equity
(deficit), and cash flows for the period October 1, 2004 (inception) to December 31, 2005.
These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial
position of Atlantic Bancshares, Inc. (a Company in the Development Stage) as of December
31, 2005, and the results of its operations and its cash flows for the period October 1,
2004 (inception) to December 31, 2005 in conformity with accounting principles generally
accepted in the United States of America.

/s/ Elliott Davis, LLCElliott Davis, LLC
Columbia,  South Carolina

March 6, 2006

27

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ATLANTIC BANCSHARES,
INC. (A Company in the Development Stage) BALANCE SHEETDECEMBER 31, 2005

|                                                     | 
|---------------------------------------------------- | 
|Assets                                               | 
|Cash                                                 | 
|Restricted cash                                      | 
|Due from Bank                                        | 
|Deferred stock issuance costs                        | 
|                                                     | 
|Total assets                                         | 
|                                                     | 
|Liabilities and Shareholder's Equity (Deficit)       | 
|                                                     | 
|Liabilities                                          | 
|Accounts payable                                     | 
|Accrued interest payable                             | 
|Notes payable                                        | 
|Stock subscription deposits                          | 
|                                                     | 
|Total liabilities                                    | 
|                                                     | 
|Commitments and Contingencies - Note 5               | 
|                                                     | 
|Shareholders Equity (Deficit)                       | 
|Preferred stock, no par value; 10,000,000 shares     | 
|authorized; no shares issued and outstanding         | 
|Common stock, no par value; 10,000,000 shares        | 
|authorized; 10 shares issued and outstanding         | 
|Deficit accumulated in the development stage         | 
|                                                     | 
|Total shareholder's equity (deficit)                 | 
|                                                     | 
|Total liabilities and shareholder's equity (deficit) | 
|                                                     | 

The accompanying notes are an integral part of these financial statements.

28

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ATLANTIC BANCSHARES, INC.
(A Company in the Development Stage)Statement of OperationsFor the Period October 1, 2004 (Inception) to December 31, 2005

|                  | 
|----------------- | 
|Interest income   | 
|                  | 
|Expenses          | 
|Professional fees | 
|Application fees  | 
|Interest          | 
|Other             | 
|                  | 
|Total expenses    | 
|                  | 
|Net loss          | 
|                  | 

The accompanying notes are an integral part of these financial statements.

29

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ATLANTIC BANCSHARES, INC.(A Company in the Development Stage) Statement of
Shareholders Equity (Deficit)For the Period October 1, 2004 (Inception) to
December 31, 2005

|                                     |  |  | Deficit |   
|------------------------------------ |  |  | ------- | --
|
|
|
|
|
|Issuance of common stock             |  |  |         | 10
|Net loss for the period              |  |  |         |   
|October 1, 2004 to December 31, 2005 |  |  |         |   
|                                     |  |  |         |   
|Balance, December 31, 2005           |  |  |         | 10
|                                     |  |  |         |   

The accompanying notes are an integral part of these financial statements.

30

---

ATLANTIC BANCSHARES,
INC.(A Company in the Development Stage)Statement of Cash FlowsFor
the Period October 1, 2004 (Inception) to December 31, 2005

|                                              | 
|--------------------------------------------- | 
|Cash flows from pre-operating activities      | 
|Net loss and accumulated deficit              | 
|Accounts payable                              | 
|Accrued interest payable                      | 
|Due from Bank                                 | 
|Deferred stock issuance costs                 | 
|                                              | 
|Cash used by pre-operating activities         | 
|                                              | 
|Cash flows from financing activities          | 
|Borrowings from notes payable                 | 
|Proceeds from issuance of stock subscriptions | 
|                                              | 
|Cash provided by financing activities         | 
|                                              | 
|Cash balance at end of period                 | 
|                                              | 

The accompanying notes are an integral part of these financial statements.

31

---

ATLANTIC BANCSHARES,
INC.(A Company in the Development Stage)Notes to Financial Statements

# NOTE 1 
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization 
Atlantic Bancshares, Inc. (the Company) was formed as a corporation to
organize and own all of the capital stock of Atlantic Community Bank (the
Bank), a state chartered bank to be located in Bluffton, South Carolina, by a
group of eight individuals (the Organizers). The Bank will engage in general
commercial banking. The Organizers have received approval from the South Carolina Board of
Financial Institutions to obtain a state bank charter and from the Federal Deposit
Insurance Corporation (FDIC) for deposit insurance. The Company has also received approval
from the Federal Reserve Board to be a bank holding company. The Bank opened for business
on January 26, 2006.

The Company plans to raise a minimum
of $9,600,000 by offering for sale 960,000 shares of its common stock. The Company plans
to use $8,800,000 of the proceeds to capitalize the bank. The organizers, directors,
executive officers, and members of their immediate families expect to purchase a total of
110,000 shares at an aggregate purchase price of approximately $1,100,000. The stock
offering is expected to close by March 1, 2006. As of December 31, 2005, the Company has
received stock subscriptions deposits in the amount of $7,162,150. In addition, the
Company broke escrow on January 18, 2006 having received the minimum stock subscription
deposits of $9.6 million.

The Company is a development stage
enterprise as defined by Statement of Financial Accounting Standards No. 7,
Accounting and Reporting by Development Stage Enterprises, as it devotes
substantially all its efforts to establishing a new business. As of December 31, 2005, the
Companys planned principal operations have not commenced and revenue has not been
recognized from the planned principal operations.

Organizational and Pre-Opening
Costs Activities since inception have consisted of organizational
activities necessary to obtain regulatory approvals and preparation activities to commence
business as a commercial bank. Organizational costs are primarily legal fees related to
the incorporation and organization of the Bank. Pre-opening costs are primarily
employees salaries and benefits, and other operational expenses related to the
preparation for the Banks opening. The organizational and pre-opening costs are
charged against the Companys and the Banks initial period operating results.

As discussed in Note 2, a significant
portion of the Companys initial expenses relate solely to the formation of the Bank.
These expenses have been recorded as Due from Bank on the Companys balance sheet at
December 31, 2005.

Offering Expenses
 Offering expenses, consisting principally of direct incremental costs of the
stock offering, will be deducted from the proceeds of the offering. Such offering expenses
are classified as deferred stock issuance costs until the close of the stock offering.

At the completion of the sale of
common stock and the opening of the Bank, incurred organizational and pre-opening costs,
estimated to be $750,000, will be charged against the Banks initial period operating
results. Offering expenses, estimated to be approximately $390,000, will be deducted from
the proceeds of the offering. At December 31, 2005, the Company has incurred $216,330 in
offering related costs.

Income Taxes
 Income taxes are the sum of amounts currently payable to taxing authorities and the
net changes in income taxes payable or refundable in future years. Income taxes deferred
to future years are determined utilizing a liability approach. This method gives
consideration to the future tax consequences associated with differences between financial
accounting and tax bases of certain assets and liabilities which are principally net
operating loss carryforwards.

32

---

# NOTE 2  CASH

Cash consists of amounts in the
Companys operating account as well as amounts held in an escrow account with a third
party. The amount in the escrow account was $7,191,459 at December 31, 2005. On January
26, 2006, $8,800,000 was transferred to the Bank.

# NOTE 3  DUE FROM
BANK

The Company plans to transfer certain
organizational expenses and fixed assets to the Bank once the Bank is open for business.
As of December 31, 2005, expenses totaling $615,729 are expected to be transferred to the
Bank. Also, certain assets including prepaid expenses of $42,344, furniture, fixtures and
equipment totaling $190,884, and leasehold improvements totaling $120,688 will be
transferred to the Bank. On January 26, 2006, all of these items were transferred to the
Bank.

A summary of expenses that were
transferred included:

|                         | 
|------------------------ | 
|Salaries and benefits    | 
|Professional fees        | 
|Advertising              | 
|Depreciation             | 
|Insurance                | 
|Office supplies          | 
|Rent                     | 
|Telephone                | 
|Travel and entertainment | 
|Utilities                | 
|Other                    | 
|                         | 
|                         | 
|                         | 

# NOTE 4  STOCK
SUBSCRIPTION DEPOSITS

Stock subscription deposits consist
of amounts received from investors totaling $7,162,150 at December 31, 2005. Once the
Company receives the minimum initial capital of $9,600,000, certificates will be issued
for the shares.

# NOTE 5 
COMMITMENTS AND CONTINGENCIES

The Company has entered into a lease
agreement for a minimum term of thirty-six months which ends on October 31, 2007. Monthly
rental expense for the initial term is $5,063. The lease agreement provides for two
three-year renewal terms with monthly rental amounts of $5,428 and $5,792 for the two
terms, respectively. This space will serve as a branch location for Atlantic Community
Bank. This lease was renegotiated on January 24, 2006 and has an initial lease term of
three years ending on October 31, 2007. The monthly rental amount under the new terms is
$4,563. The lease has two additional three years options.

The Company entered into a lease
agreement beginning September 1, 2005 for a minimum term of one year, ending on August 31,
2006. Monthly rental expense for the initial term is $1,666. The lease agreement provides
for one six month renewal term. This space will serve as the Operations Department for
Atlantic Community Bank.

On January 1, 2006, the Company
opened a loan production office on Hilton Head Island, South Carolina. The facility is
being leased for one year. The monthly rental expense is $3,100.

The Company has assumed liability for
a lease agreement for an automobile. The lease terms call for monthly payments of $400.
The lease expires October 20, 2007.

Rental expense for the period October
1, 2004 (inception) to December 31, 2005 totaled $74,157.

33

---

NOTE 5 
COMMITMENTS AND CONTINGENCIES  continued

Under these assumptions, minimum
future rental payments under non-cancelable operating leases having remaining terms in
excess of one year (including the lease entered into on January 1, 2006), for each of the
next five years in the aggregate are:

| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 
| |  | 

# NOTE 6  INCOME
TAXES

As of December 31, 2005, Atlantic
Bancshares, Inc. had a net operating loss carry forward of $13,204. There was no benefit
for income taxes for the period from October 1, 2004 (inception) to December 31, 2005,
since a 100% valuation reserve is being maintained for the net operating loss carry
forward.

# NOTE 7  LINE OF
CREDIT

The Company has established a
$1,000,000 line of credit with a bank to fund operating expenses during the development
stage. The line is uncollateralized and has a limited guaranty by the eight organizers.
The line bears a variable rate of interest at the prime rate minus 0.5 percent (6.75
percent at December 31, 2005) and matures on June 5, 2006. Interest is due on a monthly
basis and the unpaid principal balance is due at maturity. As of December 31, 2005,
$909,936 is outstanding on this line of credit. This line was paid in full on January 18,
2006 when the Company broke escrow.

The Company has established an
additional $175,000 line of credit with a bank to fund capital expenditures for leasehold
improvements. The line is collateralized by those improvements and bears a variable rate
of interest at the prime rate minus 0.5 percent (6.75 percent at December 31, 2005) and
matures on October 3, 2006. Interest is due on a monthly basis and the unpaid principal
balance is due at maturity. As of December 31, 2005, $137,052 is outstanding on this line
of credit. This line was paid in full on January 18, 2006 when the Company broke escrow.

# NOTE 8 
SHAREHOLDERS EQUITY

Atlantic Bancshares, Inc. has the
authority to issue up to 10,000,000 shares of voting common stock with no par value and to
issue up to 10,000,000 shares of preferred stock with no par value. As of December 31,
2005, 10 shares have been issued. As of January 26, 2006, the date of the Banks
opening, 960,000 shares were issued.

34

---

# Item 8.   Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure

None.

# Item 8A.   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 management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as defined in Exchange Act Rule 15d-15(e). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our current
disclosure controls and procedures are effective as of December 31, 2005. There have been
no significant changes in our internal controls over financial reporting during the fourth
fiscal quarter ended December 31, 2005 that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.

The
design of any system of controls and procedures is based in part upon certain assumptions
about the likelihood of future events. There can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions, regardless of
how remote.

# Item 8B.   Other
Information

None.

# Part III.Item 9.   Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act

The
following sets forth information regarding our executive officers and directors. Our
directors are elected to one year terms. Our executive officers serve at the discretion of
our board of directors.

|                              |  | Year First |  |   
|----------------------------- |  | ---------- |  | --
|
|
|
|Gary C. Davis                 |  |            |  | 41
|Timothy C. King               |  |            |  | 43
|Frederick Anthony Nimmer, III |  |            |  | 45
|Robyn Josselson Shirley       |  |            |  | 39
|Mark S. Simpson               |  |            |  | 44
|Brian J. Smith                |  |            |  | 34
|Robert P. Trask               |  |            |  | 43
|Allen B. Ward                 |  |            |  | 37
|Edgar L. Woods                |  |            |  | 45

Gary
C. Davis, director, is a real estate sales consultant with the Hampton Lake
residential community in Bluffton. Prior to that Mr. Davis was broker-in-charge of Hampton
Hall Realty, the real estate sales arm of the Hampton Hall planned unit residential
development located in Bluffton, South Carolina, since 2003. Prior to his current
position, he worked for ten years with the health care manufacturer Johnson & Johnson,
the last three as a district sales manager for the southeastern United States. Mr. Davis
holds a South Carolina real estate brokers license. He is a native of Ridgeland in Jasper
County, South Carolina and has been living in Bluffton since 1999. Mr. Davis received his
bachelors degree in business administration from Presbyterian College.

Timothy
C. King is our chief financial officer. Prior to joining our company in September
2005, he previously served as executive vice president and chief financial officer of NBRS
Financial, an independent community bank located in Rising Sun, Maryland, from 2002 until
June 2005. He has over 19 years of

35

---

commercial bank experience. Mr. King
also worked as a senior securities trader for Fidelity Investments from 1999 until 2002
and holds a general securities license. He also served as chief financial officer of
Patapsco Bancorp, Inc. and Capital Savings Bank. Mr. King earned a bachelors degree in
accounting and finance from Mount Saint Marys College.

Frederick
Anthony Nimmer, III, director, is president of both Nimmer Turf + Tree Farm and Nimmer
Equipment Rental Company, a position he has held since 1987. He also serves as
vice-president of Turfmasters, Inc., which specializes in the installation of sod. All of
these businesses are based in Ridgeland in Jasper County, South Carolina. Mr. Nimmer
earned a bachelors degree in finance from Clemson University. Mr. Nimmer formerly served
on South Carolina Bank & Trusts Jasper County Advisory Board from January 1999
to October 2004. Mr. Nimmer is a native of Jasper County and has lived in Bluffton since
2001. He is also past president of the Jasper County Rotary Club.

Robyn
Josselson Shirley, director, has been practice manager for the Southeastern Oral and
Maxillofacial Surgery Center, Inc., Bluffton, South Carolina since 1999. She earned a
bachelors degree in sociology from Furman University. She also holds bachelors and masters
degrees in occupational therapy from the Medical University of South Carolina. Mrs.
Shirley holds a South Carolina license in occupational therapy. A native of Yemassee,
South Carolina, she has lived in Bluffton since 2001 and formerly served on the board of
directors of Heroes on Horseback.

Mark
S. Simpson,director, is an attorney and member of the South Carolina Bar. He has been
in private practice with Jones, Patterson, Simpson & Newton, PA practicing in the
fields of real estate and corporate law since 1987. Mr. Simpson earned undergraduate and
law degrees from the University of South Carolina. Mr. Simpson has lived on Hilton Head
Island since 1987. He is a member of the audit committee for the Beaufort County School
District. In addition, he has served as chairman of the United Way of Beaufort County.

Brian
J. Smithcurrently served as chair of the organizing board and is the current chair of
our board of directors. He holds a South Carolina dental license. He has run his practice,
Palmetto Dental Arts, PA in Bluffton, South Carolina, since 1999. Dr. Smith earned
undergraduate and postgraduate degrees from Clemson University and the Medical University
of South Carolina Collegeof Dental Medicine,respectively. He also
completed a General Practice post-doctorate residency program at Palmetto
Richland Health Alliance in Columbia, South Carolina. Dr. Smith has lived in Bluffton
since 1999. He is a member of the Rotary Club of Bluffton and a trustee of Cross Episcopal
School in Bluffton.

Robert
P. Traskis our president and chief executive officer. He isa native of
Beaufort and has lived in southern Beaufort County since 1989. His 17 years of commercial
bank experience are concentrated in the coastal communities of Charleston, Beaufort,
Hilton Head Island and Bluffton, South Carolina and Savannah, Georgia. Most recently, Mr.
Trask served from 2001 until 2004 as senior vice president and retail area executive of
Beaufort County for First Citizens Bank & Trust Company of South Carolina. Prior to
that position, he served from 1997 until 2001 as a vice president of First National Bank
in Bluffton, South Carolina. Prior to that position, Mr. Trask served from 1988 until 1997
for Wachovia Bank, beginning as a credit analyst and later serving as a loan officer and
as a vice president. He earned a bachelors degree in financial management from Clemson
University and a masters degree in business administration from the University of South
Carolina. Mr. Trask is past president of the Rotary Club of Bluffton, founding chair of
the board of trustees of Cross Episcopal School, and is trustee of the Community
Foundation of the Lowcountry, Inc.

Allen
B. Ward, director, has been president of the Bluffton-based engineering firm of Ward
Edwards Inc., which specializes in land surveying and multi-faceted engineering services,
since 2000. Ward Edwards, Inc. also has offices in Savannah and Beaufort. He holds
professional engineer licenses from multiple states, including South Carolina. Mr. Ward
earned both his bachelors degree in civil engineering and masters degree in
engineering-environmental systems from Clemson University. Originally from Kingstree,
South Carolina, he has lived in Bluffton since 1998 and Beaufort County since 1992. Mr.
Ward currently serves as South Carolina Governor Mark Sanfords Ambassador for
Economic Development for Beaufort County and is a member of the Rotary Club of Bluffton.

36

---

Edgar
L. Woods,director, has been president and owner of Palmetto Grain Brokerage LLC,
which specializes in cash grain brokerage, futures/options trading and farm management,
since 1985. He is also president of Performance Ag, LLC, a licensed South Carolina grain
dealer/merchant, and is also a partner in the Agricultural Products Exchange, a feed
ingredients trading company with offices in New York, Iowa, and South Carolina. He holds a
Futures, Series 3 license from the National Futures Association. Mr. Woods earned his
bachelors degree in agricultural mechanization and business from Clemson University. He is
a native of Jasper County and has lived in Bluffton since 1990. Mr. Woods serves on the
executive committee of the Palmetto Agribusiness Council and is past president of both the
South Carolina Grain Dealers association and Southeastern Feed and Grain, a group of feed
and grain dealers from four southeastern states.

# Audit Committee

Our
audit committee has five members, Directors Gary C. Davis, Frederick Anthony Nimmer, III,
and Mark S. Simpson, Brian J. Smith, Edgar L. Woods (chair). None of the current members
of the audit committee nor any other member of our board qualifies as an audit
committee financial expert as defined under the rules of the Securities and Exchange
Commission. As a relatively small public company, it is difficult to identify potential
qualified candidates that are willing to serve on our board and otherwise meet our
requirements for service. At the present, we do not know if or when we will appoint a new
board member that qualifies as an audit committee financial expert. Although none of audit
committee members qualify as financial experts as defined in the SEC rules,
each of our members has made valuable contributions to the company and its shareholders as
members of the audit committee. The board has determined that each member is fully
qualified to monitor the performance of management, the public disclosures by the company
of its financial condition and performance, our internal accounting operations, and our
independent auditors.

Our
board of directors has implemented a process for shareholders of the company to send
communications to the board. Any shareholder desiring to communicate with the board, or
with specific individual directors, may so do by writing to the secretary of the company,
at Atlantic Bancshares, Inc., 1 Sherington Drive, Suite J, Bluffton, South Carolina 29910.
The secretary has been instructed by the board to promptly forward all such communications
to the addressees indicated thereon.

We
do not have a class of securities registered under Section 12 of the Securities Exchange
Act of 1934. Therefore, our directors, executive officers, promoters and control persons
are not required to comply with Section 16(a) of the Exchange Act.

# Code of Ethics

We
have adopted a Code of Ethics that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller, and persons performing
similar functions. The Code of Ethics is available without charge to shareholders upon
request. Shareholders should contact Robert P. Trask, President & CEO, at our main
office to obtain a copy.

37

---

# Item 10.   Executive
Compensation

The
following table shows the cash compensation we paid to our chief executive officer for the
year ended December 31, 2005, including total annual compensation, including salary and
bonus. None of our other executives earned total annual compensation, including salary and
bonus, in excess of $100,000 in 2005.

# Summary Compensation
Table

|                        |  |  |  |      | Long-Term |  
|----------------------- |  |  |  | ---- | --------- | -
|
|
|
|
|
|
|
|
|Robert P. Trask         |  |  |  | 2005 |           | $
|Chief Executive Officer |  |  |  |      |           |  

|(1) | Insurance premiums we paid during 2005 with respect to term life insurance for
the benefit of Mr. Trask.
|--- | --------------------------------------------------------------------------------------------------------

|(2) | This amount includes salary and benefits we paid
Mr. Trask from June 1, 2005 through December 31, 2005.
|--- | -------------------------------------------------------------------------------------------------------

| | This amount does not include $82,033.35 that we paid Regional Bankshares, Inc. for
reimbursement of Mr. Trasks salary and benefits paid by Regional during the period
of October 1, 2004 through May 31, 2005. This payment was made as part of the agreement
related to the Regionals withdrawal from a cooperative effort initiated on or around
October 1, 2004 to form, raise capital for, and operate Atlantic Community Bank.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Employment Agreements

Robert P. Trask. In June 2005,
we entered into an employment agreement with Mr. Trask, under which he agreed to serve as
president and chief executive officer of Atlantic Bancshares and Atlantic Community Bank
for a term of three years. Mr. Trasks employment with the company will automatically
extend for additional terms of one year each unless the company delivers a notice of
termination at least six months prior to the end of the term. During this term, Mr. Trask
is entitled to:

| |  | Initial annual base salary of $117,000, which was increased to $135,000.00 on January 18,
2006 when the Company broke escrow on its initial offering for the formation of the bank.
This salary may be increased annually by the board of directors;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Options to purchase 25,032 shares of common stock for $10 per share. The award agreement
for the stock option shall provide that one-fifth of the shares subject to the option will
vest on each of the first five anniversaries of the opening date of the bank (January 26,
2006), but only if the executive remains employed by the company or one of its
subsidiaries on such date, and shall contain other customary terms and conditions;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Term life insurance policy providing for death benefits totaling $500,000 payable to Mr. Trask's spouse
and heirs and $1,000,000 payable to the bank;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Reasonable car allowance not to exceed $450 per month, plus insurance, taxes, and other related
automobile expenses;
| | - | --------------------------------------------------------------------------------------------------------------------

| |  | Participate in our retirement, medical, welfare, and other benefit programs;
| | - | ----------------------------------------------------------------------------

| |  | Payment of initiation fees and reimbursement for club dues; and
| | - | ---------------------------------------------------------------

| |  | Reimbursement for travel and business expenses.
| | - | -----------------------------------------------

Pursuant
to the terms of his employment agreement, Mr. Trask is prohibited from disclosing our
trade secrets or confidential information. If we terminate Mr. Trasks employment
without cause, he will be entitled to severance equal to 24 months of his then base
salary. In addition, following a change in control, if Mr. Trask

38

---

terminates his employment for a good
reason within a 90-day period beginning on the 30th day following a change in
control or within a 90-day period beginning on the one year anniversary of the change in
control, he will be entitled to severance equal to 36 months of his then base salary.
Finally, during his employment and for a period of 12 months thereafter, Mr. Trask may
not, subject to limited exceptions, (a) compete with us by forming, serving as an
organizer, director, or officer of, or acquiring or maintaining an ownership interest in,
a depository financial institution or holding company of a depository financial
institution, if the depository institution or holding company has one or more offices or
branches within our territory, (b) solicit our customers for a competing business, or (c)
solicit our employees for a competing business.

# Director Compensation

Our
bylaws permit our directors to receive reasonable compensation as determined by a
resolution of the board of directors. We did not pay any directors fees during the
fiscal year ended December 31, 2005. However, we may, pursuant to our bylaws, begin to
compensate our directors at some time in the future.

39

---

# Item 11.   Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The
following table shows how much common stock in our company is owned by the directors,
certain executive officers, and owners of more than 5% of the outstanding common stock, as
of March 1, 2006. Unless otherwise indicated, the address of each beneficial owner is c/o
Atlantic Bancshares, Inc., 1 Sherington Drive, Suite J, Bluffton, South Carolina 29910.

|                                    | Number of Shares |  | % of Beneficial
|----------------------------------- | ---------------- |  | ---------------
|
|Gary C. Davis                       |                  |  |                
|Timothy C. King                     |                  |  |                
|Frederick Anthony Nimmer, III       |                  |  |                
|Robyn Josselson Shirley             |                  |  |                
|Mark S. Simpson                     |                  |  |                
|Brian J. Smith                      |                  |  |                
|Robert P. Trask                     |                  |  |                
|Allen B. Ward                       |                  |  |                
|Edgar L. Woods                      |                  |  |                
|All executive officers as directors |                  |  |                
|(9 persons)                         |                  |  |                

__________*Indicates less than 1% ownership.

|(1) | Includes shares for which the named person has sole voting and investment power,
          has shared voting and investment power, or holds in an IRA or other retirement
          plan program, unless otherwise indicated in these footnotes.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes shares that may be acquired within the next 60 days of March 1, 2006 by
          exercising vested stock options or warrants but does not include any unvested
          stock options or warrants.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | For each individual, this percentage is determined by assuming the named person
          exercises all options and warrants which he or she has the right to acquire
          within 60 days, but that no other persons exercise any options or warrants. For
          the directors and executive officers as a group, this percentage is determined
          by assuming that each director and executive officer exercises all options or
          warrants which he or she has the right to acquire within 60 days, but that no
          other persons exercise any options. The calculations are based on 1,251,577
          shares of common stock outstanding on March 1, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Item 12.   Certain
Relationships and Related Transactions

We
enter into banking and other transactions in the ordinary course of business with our
directors and officers and their affiliates. It is our policy that these transactions be
on substantially the same terms (including price, or interest rates and collateral) as
those prevailing at the time for comparable transactions with unrelated parties. We do not
expect these transactions to involve more than the normal risk of collectibility nor
present other unfavorable features to us. Loans to individual directors and officers must
also comply with our banks lending policies and statutory lending limits, and
directors with a personal interest in any loan application are excluded from the
consideration of the loan application. We intend for all of our transactions with our
affiliates to be on terms no less favorable to us than could be obtained from an
unaffiliated third party and to be approved by a majority of disinterested directors.

Our
current plans anticipate that we will open a new main headquarters located in Bluffton in
the first quarter of our second year of operation. We have reviewed several build-to-suit
projects with lease options. Currently, we anticipate entering into a written lease in the
near future with a suitable project partner. The organizers of the company, along with
other non-organizers, have formed a separate corporate entity which anticipates purchasing
a one and a half acre parcel in Bluffton and constructing a 5,000 to 10,000 square foot

40

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office building that we will lease.
The lease terms will be established to be at a fair market rental value by gathering
competitive bids from other lessors.

On
January 1, 2006 we opened a loan production office on the south end of Hilton Head Island.
We leased a facility at 1 Corpus Christie Place, Suite 108, Hilton Head Island, SC 29928
that has a total of 1,837 square feet for a period of one year with a one year option to
renew. The organizers of the company, along with other non-organizers, have formed a
separate corporate entity which anticipates purchasing this location that we lease. The
lease terms will be established to be at a fair market rental value by gathering
competitive bids from other lessors.

41

---

# Item 13.   Exhibits.

|3.1. | Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the
          Companys Form SB-2, File No. 333-127242).
|---- | -------------------------------------------------------------------------------------------------------------------------------

|3.2. | Bylaws (incorporated by reference to Exhibit 3.2 of the Companys Form
          SB-2, File No. 333-127242).
|---- | ------------------------------------------------------------------------------------------------------------

|4.1. | See Exhibits 3.1 and 3.2 for provisions in Atlantic Bancshares, Inc.s
          Articles of Incorporation and Bylaws defining the rights of holders of the
          common stock (incorporated by reference to Exhibit 4.1 of the Companys
          Form SB-2, File No. 333-127242).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2. | Form of certificate of common stock (incorporated by reference to Exhibit 4.2 of
          the Companys Form SB-2, File No. 333-127242).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------

|10.1 | Employment Agreement between Atlantic Bancshares, Inc. and Robert P. Trask dated June 1, 2005
(incorporated by reference to Exhibit 10.1 of the Company's Form SB-2, File No. 333-127242).*
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 | Employment Agreement between Atlantic Bancshares, Inc. and Timothy C. King dated August 4, 2005
         (incorporated by reference to Exhibit 10.2 of the Company's Form SB-2, File No. 333-127242).*
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | Revised Form of Stock Warrant Agreement.*
|---- | -----------------------------------------

|10.4 | Sales Agency Agreement between SAMCO Capital Markets and Atlantic Bancshares, Inc., dated August 4, 2005
         (incorporated by reference to Exhibit 10.5 of the Company's Form SB-2, File No. 333-127242).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 | Settlement Agreement between Regional Bankshares, Inc. and Atlantic Bancshares, Inc. dated June 1, 2005
         (incorporated by reference to Exhibit 10.6 of the Company's Form SB-2, File No. 333-127242).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 | Sublease Agreement between Regional Bankshares, Inc. and Atlantic Bancshares, Inc. dated June 1, 2005
         (incorporated by reference to Exhibit 10.7 of the Company's Form SB-2 as, File No. 333-127242).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 | Promissory Note from Atlantic Bancshares, Inc. to Nexity Bank in the amount of $1,000,000, dated May 31,
         2005 (incorporated by reference to Exhibit 10.8 of the Company's Form SB-2, File No. 333-127242).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 | Commercial Loan Agreement between Atlantic Bancshares, Inc. and Nexity Bank, dated May 31, 2005
         (incorporated by reference to Exhibit 10.9 of the Company's Form SB-2, File No. 333-127242).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 | Atlantic Bancshares, Inc. 2006 Stock Incentive Plan and Form of Option Agreement.*
|---- | ----------------------------------------------------------------------------------

|10.10 | Lease Agreement between Carolina Partners, LLC and Atlantic Bancshares, Inc. dated January 24, 2006.
|----- | ----------------------------------------------------------------------------------------------------

|10.11 | Lease Agreement between Anthony G. Schob and Atlantic Bancshares, Inc. dated January 1, 2006.
|----- | ---------------------------------------------------------------------------------------------

|10.12 | Employment Agreement between Atlantic Bancshares, Inc. and Todd D. Hoke dated September 7, 2005.*
|----- | -------------------------------------------------------------------------------------------------

|10.13 | Employment Agreement between Atlantic Bancshares, Inc. and Anthony G. Schob dated December 27, 2005.*
|----- | -----------------------------------------------------------------------------------------------------

|21.1 | Subsidiaries of the Company.
|---- | ----------------------------

42

---

|24.1 | Power of Attorney (filed as part of the signature page herewith).
|---- | -----------------------------------------------------------------

|31.1 | Rule 15d-14(a) Certification of the Chief Executive Officer.
|---- | ------------------------------------------------------------

|31.2 | Rule 15d-14(a) Certification of the Chief Financial Officer.
|---- | ------------------------------------------------------------

|32 | Section 1350 Certifications.
|-- | ----------------------------

|__________ | 
|---------- | 

|* | Management contract of compensatory plan or arrangement required to be filed as an Exhibit
to this Annual Report on Form 10-KSB.
|- | --------------------------------------------------------------------------------------------------------------------------------

# Item 14. Principal
Accountant Fees and Services

Elliott
Davis LLC was our auditor during the fiscal year ended December 31, 2005. The following
table shows the fees that we paid for services performed in the fiscal year ended December
31, 2005:

| |  | Year Ended
| |  | ----------
|
|
| |  |           
| |  |           
| |  |           
| |  |           
| |  |           
| |  |           
| |  |           

Audit
Fees. This category includes the aggregate fees billed for professional services
rendered by the independent auditors during the companys 2005 fiscal year for the
audit of the registrants annual financial statements and review of financial
statements included in the registrants Form 10-QSB or services that are normally
provided by the accountant in connection with statutory and regulatory filings or
engagements.

Audit-Related
Fees. This category includes the aggregate fees billed for non-audit services,
exclusive of the fees disclosed relating to audit fees, during the fiscal year ended
December 31, 2005. These services principally related to the audit of the development
stage financial statements and procedures related to SEC filing of Form SB-2 in connection
with the Companys registration statement.

Tax
Fees. This category includes the aggregate fees billed for professional services
rendered by the principal accountant for tax compliance, tax advice, and tax planning.

All Other Fees. None.

Oversight
of Accountants; Approval of Accounting Fees.Under the provisions of its charter, the
audit committee is responsible for the retention, compensation, and oversight of the work
of the independent auditors. The charter provides that the audit committee must
pre-approve the fees paid for the audit. The policy specifically prohibits certain
non-audit services that are prohibited by securities laws from being provided by an
independent auditor. All of the accounting services and fees reflected in the table above
were reviewed and approved by the audit committee, and none of the services were performed
by individuals who were not employees of the independent auditor.

43

---

# SIGNATURES

In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.

|                      |  | ATLANTIC BANCSHARES, INC.            
|--------------------- |  | -------------------------------------
|Date:  March 29, 2006 |  | By:   /s/  Robert P. Trask           
|                      |  | Robert P. Trask                      
|                      |  | President and Chief Executive Officer

KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Robert P. Trask, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments to this Annual Report on Form 10-KSB, and
to file the same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that attorney-in-fact and agent,
or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In
accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant in the capacities and on the dates indicated.

|Signature | Title | Date
|--------- | ----- | ----

| |  | 
| |  | 

|/s/ C. Gary DavisC. Gary Davis | Director | March 30, 2006
|------------------------------ | -------- | --------------

|/s/ Timothy C. KingTimothy C. King | Chief Financial Officer and Principal Accounting Officer | March 30, 2006
|---------------------------------- | -------------------------------------------------------- | --------------

|/s/ Frederick Anthony Nimmer, IIIFrederick Anthony Nimmer, III | Director | March 30, 2006
|-------------------------------------------------------------- | -------- | --------------

|/s/ Robyn Josselson ShirleyRobyn Josselon Shirley | Director | March 31, 2006
|------------------------------------------------- | -------- | --------------

|/s/ Mark S. SimpsonMark S. Simpson | Director | March 29, 2006
|---------------------------------- | -------- | --------------

|/s/ Brian J. SmithBrian J. Smith | Director | March 31, 2006
|-------------------------------- | -------- | --------------

|/s/ Robert P. TraskRobert P. Trask | Chief Executive Officer, Director | March 29, 2006
|---------------------------------- | --------------------------------- | --------------

|/s/ Allen B. WardAllen B. Ward | Director | March 29, 2006
|------------------------------ | -------- | --------------

44

---

|/s/ Edgar L. WoodsEdgar L. Woods | Vice Chairman, Director | March 31, 2006
|-------------------------------- | ----------------------- | --------------

45

---

# Exhibit Index

|3.1. | Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the
          Companys Form SB-2, File No. 333-127242).
|---- | -------------------------------------------------------------------------------------------------------------------------------

|3.2. | Bylaws (incorporated by reference to Exhibit 3.2 of the Companys Form
          SB-2, File No. 333-127242).
|---- | ------------------------------------------------------------------------------------------------------------

|4.1. | See Exhibits 3.1 and 3.2 for provisions in Atlantic Bancshares, Inc.s
          Articles of Incorporation and Bylaws defining the rights of holders of the
          common stock (incorporated by reference to Exhibit 4.1 of the Companys
          Form SB-2, File No. 333-127242).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2. | Form of certificate of common stock (incorporated by reference to Exhibit 4.2 of
          the Companys Form SB-2, File No. 333-127242).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------

|10.1 | Employment Agreement between Atlantic Bancshares, Inc. and Robert P. Trask dated June 1, 2005
(incorporated by reference to Exhibit 10.1 of the Company's Form SB-2, File No. 333-127242).*
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 | Employment Agreement between Atlantic Bancshares, Inc. and Timothy C. King dated August 4, 2005
         (incorporated by reference to Exhibit 10.2 of the Company's Form SB-2, File No. 333-127242).*
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | Revised Form of Stock Warrant Agreement.*
|---- | -----------------------------------------

|10.4 | Sales Agency Agreement between SAMCO Capital Markets and Atlantic Bancshares, Inc., dated August 4, 2005
         (incorporated by reference to Exhibit 10.5 of the Company's Form SB-2, File No. 333-127242).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 | Settlement Agreement between Regional Bankshares, Inc. and Atlantic Bancshares, Inc. dated June 1, 2005
         (incorporated by reference to Exhibit 10.6 of the Company's Form SB-2, File No. 333-127242).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 | Sublease Agreement between Regional Bankshares, Inc. and Atlantic Bancshares, Inc. dated June 1, 2005
         (incorporated by reference to Exhibit 10.7 of the Company's Form SB-2 as, File No. 333-127242).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 | Promissory Note from Atlantic Bancshares, Inc. to Nexity Bank in the amount of $1,000,000, dated May 31,
         2005 (incorporated by reference to Exhibit 10.8 of the Company's Form SB-2, File No. 333-127242).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 | Commercial Loan Agreement between Atlantic Bancshares, Inc. and Nexity Bank, dated May 31, 2005
         (incorporated by reference to Exhibit 10.9 of the Company's Form SB-2, File No. 333-127242).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 | Atlantic Bancshares, Inc. 2006 Stock Incentive Plan and Form of Option Agreement.*
|---- | ----------------------------------------------------------------------------------

|10.10 | Lease Agreement between Carolina Partners, LLC and Atlantic Bancshares, Inc. dated January 24, 2006.
|----- | ----------------------------------------------------------------------------------------------------

|10.11 | Lease Agreement between Anthony G. Schob and Atlantic Bancshares, Inc. dated January 1, 2006.
|----- | ---------------------------------------------------------------------------------------------

|10.12 | Employment Agreement between Atlantic Bancshares, Inc. and Todd D. Hoke dated September 7, 2005.*
|----- | -------------------------------------------------------------------------------------------------

|10.13 | Employment Agreement between Atlantic Bancshares, Inc. and Anthony G. Schob dated December 27, 2005.*
|----- | -----------------------------------------------------------------------------------------------------

|21.1 | Subsidiaries of the Company.
|---- | ----------------------------

46

---

|24.1 | Power of Attorney (filed as part of the signature page herewith).
|---- | -----------------------------------------------------------------

|31.1 | Rule 15d-14(a) Certification of the Chief Executive Officer.
|---- | ------------------------------------------------------------

|31.2 | Rule 15d-14(a) Certification of the Chief Financial Officer.
|---- | ------------------------------------------------------------

|32 | Section 1350 Certifications.
|-- | ----------------------------

47