UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-QSB





þ  QUARTERLY
      REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the
      Quarterly Period Ended September 30, 2006





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





For
      the
      transition period from ____________ to
      ______________ .





Commission
      File Number 001-15061










ATLANTIC
      BANCGROUP, INC.


(Exact
      Name of small business issuer as specified in its charter)





Florida
            59-3543956(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                No.)





1315
      S.
      Third Street


Jacksonville
      Beach, Florida 32250


(Address
      of Principal Executive Offices)








(904)
      247-9494


(Issuer’s
      telephone number)








Check
      whether the issuer (1) filed all reports required by Section 13 or 15 (d) of
      the
      Exchange Act during the past 12 months (or for such shorter period that the
      issuer was required to file such reports), and (2) has been subject to such
      filing requirements for the past 90 days. YES
      [X]
      NO [  ]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). YES
      [
 ] NO [X]





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date:





Class
            Outstanding
                as of November 3, 2006Common
                Stock
            Common
                Stock - 1,247,516Par
                Value $0.01 per share





Transitional
      Small Business Format (check one): YES
      [
 ] NO [X]








**ATLANTIC
      BANCGROUP, INC. AND SUBSIDIARY**




**FORM
      10-QSB - FOR THE QUARTER ENDED SEPTEMBER 30, 2006**





**INDEX**





PAGENUMBER**PART
                      I - FINANCIAL INFORMATION****Item
                      1 - Financial Statements**Condensed
                      Consolidated Statements of Financial Condition as
                      of September 30, 2006 (Unaudited) and December 31,
                      2005
                  3Condensed
                      Consolidated Statements of Income and Comprehensive
                      Income for the Three and Nine Months Ended September 30, 2006
                      and 2005
                      (Unaudited)
                  4Condensed
                      Consolidated Statements of Cash Flows for the
                      Three and Nine Months Ended September 30, 2006 and 2005
                      (Unaudited)
                  5Condensed
                      Consolidated Statements of Stockholders' Equity
                      (Unaudited)
                  6Notes
                      to Consolidated Financial Statements
                      (Unaudited)
                  7**Item
                      2 - Management’s Discussion and Analysis of Financial
                      Condition and Results of Operations**
                  13**Item
                      3 - Controls and Procedures**
                  23**PART
                      II - OTHER INFORMATION**
                  24**SIGNATURES**
                  25
 
 
 *Index*
 
 **ATLANTIC
                      BANCGROUP, INC. AND
                      SUBSIDIARY****CONDENSED
                      CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION****(Dollars
                      in Thousands Except Per Share Data)**September
                      30,2006
                  
                  December
                      31,(Unaudited)
                  
                  2005**ASSETS**Cash
                      and due from banks
                  
                  $
                  8,745
                  
                  $
                  11,746Federal
                      funds sold
                  
                  
                  3,608
                  
                  
                  3,241Total
                      cash and cash equivalents
                  
                  
                  12,353
                  
                  
                  14,987Investment
                      securities, available-for-sale (including securities
                      pledgedfor
                      customer repurchase agreements of $21,798 in 2006 and $23,954
                      in
                      2005)
                  
                  
                  31,286
                  
                  
                  32,440Investment
                      securities, held-to-maturity (market value of $8,282 in 2006
                      and$5,983
                      in 2005)
                  
                  
                  8,093
                  
                  
                  5,850Restricted
                      stock, at cost
                  
                  
                  735
                  
                  
                  676Loans,
                      net
                  
                  
                  172,746
                  
                  
                  151,251Bank
                      premises and equipment
                  
                  
                  3,998
                  
                  
                  4,154Accrued
                      interest receivable
                  
                  
                  1,165
                  
                  
                  841Deferred
                      income taxes
                  
                  
                  995
                  
                  
                  851Investment
                      in unconsolidated subsidiary
                  
                  
                  93
                  
                  
                  93Cash
                      surrender value of bank-owned life insurance
                  
                  
                  2,521
                  
                  
                  2,453Other
                      assets
                  
                  
                  349
                  
                  
                  284TOTAL
                  
                  $
                  234,334
                  
                  $
                  213,880**LIABILITIES
                      AND STOCKHOLDERS' EQUITY**Deposits:Noninterest-bearing
                      demand deposits
                  
                  $
                  32,015
                  
                  $
                  33,682Interest-bearing
                      (NOW) demand deposits
                  
                  
                  4,775
                  
                  
                  6,264Money
                      market deposits
                  
                  
                  39,612
                  
                  
                  38,358Savings
                      deposits
                  
                  
                  5,043
                  
                  
                  6,059Time
                      deposits, $100,000 and over
                  
                  
                  36,011
                  
                  
                  27,234Other
                      time deposits
                  
                  
                  71,617
                  
                  
                  56,883Total
                      deposits
                  
                  
                  189,073
                  
                  
                  168,480Other
                      borrowings
                  
                  
                  27,167
                  
                  
                  29,138Accrued
                      interest payable on deposits
                  
                  
                  245
                  
                  
                  160Other
                      liabilities
                  
                  
                  1,192
                  
                  
                  870Total
                      liabilities
                  
                  
                  217,677
                  
                  
                  198,648Commitments
                      and contingencies
                  
                  
                  -
                  
                  
                  -Stockholders'
                      equity:Common
                      stock
                  
                  
                  12
                  
                  
                  12Additional
                      paid-in capital
                  
                  
                  11,788
                  
                  
                  11,788Retained
                      earnings
                  
                  
                  5,224
                  
                  
                  3,816Accumulated
                      other comprehensive income:Net
                      unrealized holding losses on securities
                  
                  
                  (367
                  )
                  
                  (384
                  )Total
                      stockholders' equity
                  
                  
                  16,657
                  
                  
                  15,232TOTAL
                  
                  $
                  234,334
                  
                  $
                  213,880Book
                      value per common share
                  
                  $
                  13.35
                  
                  $
                  12.21Common
                      shares outstanding
                  
                  
                  1,247,516
                  
                  
                  1,247,516
  The
          accompanying notes are an integral part of these condensed consolidated
          financial statements.
 
 -3-
 *Index*
 
 
 **ATLANTIC
                    BANCGROUP, INC. AND SUBSIDIARY****CONDENSED
                    CONSOLIDATED STATEMENTS OF
                    INCOME****AND
                    COMPREHENSIVE INCOME (UNAUDITED)****(Dollars
                    in Thousands Except Per Share Data)**For
                    the Three Months Ended
                
                For
                    the Nine Months EndedSeptember
                    30,
                
                September
                    30,2006
                
                2005
                
                2006
                
                2005Interest
                    and fees on loans
                
                $
                3,558
                
                $
                2,691
                
                $
                9,944
                
                $
                7,114Investment
                    income on investment securities andinterest-bearing
                    deposits in banks
                
                
                408
                
                
                342
                
                
                1,186
                
                
                930Federal
                    funds sold
                
                
                85
                
                
                28
                
                
                216
                
                
                76Total
                    interest income
                
                
                4,051
                
                
                3,061
                
                
                11,346
                
                
                8,120Interest
                    on deposits
                
                
                1,708
                
                
                1,021
                
                
                4,585
                
                
                2,537Other
                    borrowings and federal funds purchased
                
                
                291
                
                
                213
                
                
                851
                
                
                497Total
                    interest expense
                
                
                1,999
                
                
                1,234
                
                
                5,436
                
                
                3,034Net
                    interest income before provision for loan losses
                
                
                2,052
                
                
                1,827
                
                
                5,910
                
                
                5,086Provision
                    for loan losses
                
                
                48
                
                
                139
                
                
                144
                
                
                312Net
                    interest income after provision for loan losses
                
                
                2,004
                
                
                1,688
                
                
                5,766
                
                
                4,774Noninterest
                    income:Service
                    charges on deposit accounts
                
                
                166
                
                
                138
                
                
                461
                
                
                386Mortgage
                    banking fees
                
                
                23
                
                
                29
                
                
                84
                
                
                89Gain
                    on redemption of held-to-maturity securities
                
                
                -
                
                
                -
                
                
                8
                
                
                -Other
                    income
                
                
                94
                
                
                56
                
                
                234
                
                
                169Total
                    noninterest income
                
                
                283
                
                
                223
                
                
                787
                
                
                644Noninterest
                    expenses:Salaries
                    and employee benefits
                
                
                756
                
                
                644
                
                
                2,223
                
                
                1,937Expenses
                    of bank premises and fixed assets
                
                
                301
                
                
                287
                
                
                910
                
                
                764Other
                    operating expenses
                
                
                439
                
                
                391
                
                
                1,335
                
                
                1,242Total
                    noninterest expenses
                
                
                1,496
                
                
                1,322
                
                
                4,468
                
                
                3,943Income
                    before provision for income taxes
                
                
                791
                
                
                589
                
                
                2,085
                
                
                1,475Provision
                    for income taxes
                
                
                255
                
                
                181
                
                
                677
                
                
                439Net
                    income
                
                
                536
                
                
                408
                
                
                1,408
                
                
                1,036Other
                    comprehensive income, net of income taxes:Unrealized
                    holding gains (losses) arising during period
                
                
                377
                
                
                (159
                )
                
                17
                
                
                (198
                )Comprehensive
                    income
                
                $
                913
                
                $
                249
                
                $
                1,425
                
                $
                838Earnings
                    per common shareBasic
                
                $
                0.43
                
                $
                0.33
                
                $
                1.13
                
                $
                0.83Dilutive
                
                $
                0.43
                
                $
                0.33
                
                $
                1.13
                
                $
                0.83
  The
          accompanying notes are an integral part of
          these condensed consolidated financial statements.
   -4-
 *Index*
 
  **ATLANTIC
                    BANCGROUP, INC. AND SUBSIDIARY****CONDENSED
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                    (UNAUDITED)****(Dollars
                    in Thousands)**For
                    the Three Months Ended
                
                For
                    the Nine Months EndedSeptember
                    30,
                
                September
                    30,2006
                
                2005
                
                2006
                
                2005Net
                    cash provided by operating activities:Net
                    income
                
                $
                536
                
                $
                408
                
                $
                1,408
                
                $
                1,036Provision
                    for loan losses
                
                
                48
                
                
                139
                
                
                144
                
                
                312Depreciation
                    and amortization
                
                
                89
                
                
                84
                
                
                266
                
                
                267Net
                    premium amortization and discount accretion
                
                
                8
                
                
                32
                
                
                34
                
                
                105Net
                    change in other assets and liabilities
                
                
                955
                
                
                (324
                )
                
                (264
                )
                
                (460
                )Net
                    cash provided by operating activities
                
                
                1,636
                
                
                339
                
                
                1,588
                
                
                1,260Cash
                    flows from investing activities:Net
                    (increase) decrease in:Investment
                    securities
                
                
                (3,470
                )
                
                (830
                )
                
                (1,095
                )
                
                (7,049
                )Loans
                
                
                (6,145
                )
                
                (9,699
                )
                
                (21,639
                )
                
                (22,793
                )Purchases
                    of bank premises and equipment, net
                
                
                (24
                )
                
                (168
                )
                
                (110
                )
                
                (283
                )Net
                    cash used by investing activities
                
                
                (9,639
                )
                
                (10,697
                )
                
                (22,844
                )
                
                (30,125
                )Cash
                    flows from financing activities:Net
                    increase (decrease) in deposits
                
                
                5,572
                
                
                4,787
                
                
                20,593
                
                
                16,708Proceeds
                    from junior subordinated debentures, net
                
                
                -
                
                
                3,000
                
                
                -
                
                
                3,000Proceeds
                    from other borrowings, net of repayments
                
                
                (2,353
                )
                
                590
                
                
                (1,971
                )
                
                6,077Net
                    cash provided by financing activities
                
                
                3,219
                
                
                8,377
                
                
                18,622
                
                
                25,785Net
                    decrease in cash and cash equivalents
                
                
                (4,784
                )
                
                (1,981
                )
                
                (2,634
                )
                
                (3,080
                )Cash
                    and cash equivalents at beginning of period
                
                
                17,137
                
                
                17,074
                
                
                14,987
                
                
                18,173Cash
                    and cash equivalents at end of period
                
                $
                12,353
                
                $
                15,093
                
                $
                12,353
                
                $
                15,093
  The
            accompanying notes are an integral
            part of these condensed consolidated financial statements.   
 -5-
 *Index*
  **ATLANTIC
                  BANCGROUP, INC. AND SUBSIDIARY****CONDENSED
                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  (UNAUDITED)**(Dollars
                  In Thousands)**Net****Unrealized****Additional**
              
              
              
              **Holding
                  Gains**
              
              **Total****Common
                  Stock**
              
              **Paid-in**
              
              **Retained**
              
              **(Losses)
                  on**
              
              **Stockholders'****Shares**
              
              **Amount**
              
              **Capital**
              
              **Earnings**
              
              **Securities**
              
              **Equity**Balance,
                  June 30, 2006
              
              
              1,247,516
              
              $
              12
              
              $
              11,788
              
              $
              4,688
              
              $
              (744
              )
              $
              15,744Comprehensive
                  income:Net
                  income for the quarter
              
              
              -
              
              
              -
              
              
              -
              
              
              536
              
              
              -Net
                  change in unrealizedholding
                  gains on securities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              377Total
                  comprehensive income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              913Balance,
                  September 30, 2006
              
              
              1,247,516
              
              $
              12
              
              $
              11,788
              
              $
              5,224
              
              $
              (367
              )
              $
              16,657Balance,
                  December 31, 2005
              
              
              1,247,516
              
              $
              12
              
              $
              11,788
              
              $
              3,816
              
              $
              (384
              )
              $
              15,232Comprehensive
                  income:Net
                  income for the nine months
              
              
              -
              
              
              -
              
              
              -
              
              
              1,408
              
              
              -Net
                  change in unrealizedholding
                  gains on securities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              17Total
                  comprehensive income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,425Balance,
                  September 30, 2006
              
              
              1,247,516
              
              $
              12
              
              $
              11,788
              
              $
              5,224
              
              $
              (367
              )
              $
              16,657


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





-6-
 *Index*


**ATLANTIC
        BANCGROUP, INC. AND SUBSIDIARY**
 **NOTESTO
        CONSOLIDATED FINANCIAL STATEMENTS
        (UNAUDITED)**
 **SEPTEMBER
        30, 2006**
   
 **NOTE
        1 -** **SUMMARY
        OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES**
 
 Atlantic
        BancGroup, Inc. (the “Holding Company”) is a bank holding company registered
        with the Federal Reserve and owns 100% of the outstanding stock of Oceanside
        Bank (“Oceanside”). Oceanside is a state-chartered commercial bank, which opened
        July 21, 1997. Oceanside’s deposits are insured by the Federal Deposit Insurance
        Corporation. The Holding Company’s primary business activity is the operation of
        Oceanside, and it operates in only one reportable industry segment, banking.
        Collectively, the entities are referred to as “Atlantic.” References to Atlantic
        and Oceanside throughout these condensed consolidated financial statements
        are
        made using the first-person notations of “we,” “our,” and “us.”
 
 The
        accompanying condensed consolidated financial statements include the accounts
        of
        the Holding Company and its wholly-owned subsidiary, Oceanside. All significant
        intercompany accounts and transactions have been eliminated in consolidation.
        The accounting and reporting policies of Atlantic conform with accounting
        principles generally accepted in the United States of America and to general
        practices within the banking industry.
 
 Our
        condensed consolidated financial statements for the three and nine months
        ended
        September 30, 2006 and 2005, have not been audited and do not include
        information or footnotes necessary for a complete presentation of consolidated
        financial condition, results of operations, and cash flows in conformity
        with
        accounting principles generally accepted in the United States of America.
        In
        management’s opinion, the accompanying condensed consolidated financial
        statements contain all adjustments, which are of a normal recurring nature,
        necessary for a fair presentation. Our results of operations for the interim
        periods are not necessarily indicative of the results that may be expected
        for
        an entire year. The accounting policies followed by us are set forth in the
        consolidated financial statements for the year ended December 31, 2005, and
        are
        incorporated herein by reference.
 
 Oceanside
        provides a wide range of banking services to individual and corporate customers
        primarily in Duval County and St. Johns County, Florida. We are subject to
        regulations of certain federal and state regulatory agencies and, accordingly,
        we are examined by those agencies. As a consequence of the extensive regulation
        of commercial banking activities, our business is particularly susceptible
        to
        being affected by federal and state legislation and regulations.
 
 ***Use
        of Estimates*** ***-*** The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenue and expenses during the reporting period.
        Actual
        results could differ from those estimates. Material estimates that are
        particularly susceptible to significant change in the near term relate to
        the
        determination of the allowance for loan losses and valuation of other real
        estate owned (“OREO”).
 
 The
        determination of the adequacy of the allowance for loan losses is based on
        estimates that may be affected by significant changes in the economic
        environment and market conditions. In connection with the determination of
        the
        estimated losses on loans, management obtains independent appraisals for
        significant collateral.
 
 Our
        loans
        are generally secured by specific items of collateral including real property,
        consumer assets, and business assets. Although we have a diversified loan
        portfolio, a substantial portion of our debtors’ ability to honor their
        contracts is dependent on local, state, and national economic conditions
        that
        may affect the value of the underlying collateral or the income of the
        debtor.
 
 While
        management uses available information to recognize losses on loans, further
        reductions in the carrying amounts of loans may be necessary based on changes
        in
        economic conditions. In addition, regulatory agencies, as an integral part
        of
        their examination process, periodically review the estimated losses on loans.
        Such agencies may require us to recognize additional losses based on their
        judgments about information available to them at the time of their
        examination.
 
  
 -7-
 *Index*
  **ATLANTIC
          BANCGROUP, INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **SEPTEMBER
          30, 2006**
  **NOTE
          1 -** **SUMMARY
          OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
          (Continued)**
 ***Fair
        Value of Financial Instruments-***Financial instruments consist of cash, due from banks, federal funds sold,
        investment securities, loans receivable, accrued interest receivable, deposits,
        other borrowings, accrued interest payable, and off-balance sheet commitments
        such as commitments to extend credit and standby letters of credit. On an
        interimbasis, we consider the cost of providing estimated fair values by
        each class of financial instrument to exceed the benefits derived.
 
 ***Reclassifications*** ***-*** Certain
        amounts in the prior periods have been reclassified to conform to the
        presentation for the current period.
 
 ***Recent
        Accounting Pronouncements***  ***-***  In
        March
        2006, the FASB issued Statement
        of Financial Accounting Standards No. 156, *Accounting
        for* ** *Servicing*** *Financial*** *Assets**,
        an
        amendment of SFAS No. 140*(“SFAS
        156”). This statement amends SFAS 140 to require that all separately recognized
        servicing assets and liabilities be initially measured at fair value, if
        practical. The effective date of this statement is as of the beginning of
        its
        first fiscal year that begins after September 15, 2006; however, early adoption
        is permitted as of the beginning of any fiscal year, provided the entity
        has not
        issued financial statements for the interim period. The initial recognition
        and
        measurement of servicing assets and servicing liabilities are required to
        be
        applied prospectively to transactions occurring after the effective
        date.The
        adoption of SFAS 156 is not expected to materially impact our financial
        position, results of operations, or liquidity.
 
 In
        June
        2006, the FASB issued FASB Interpretation No. 48, *Accounting
        for Uncertainty in Income Taxes* (“FIN
        48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
        in an enterprise’s financial statements in accordance with SFAS 109, *Accounting
        for Income Taxes* .
        FIN 48
        prescribes a recognition threshold and measurement attributable for the
        financial statement recognition and measurement of a tax position taken or
        expected to be taken in a tax return. FIN 48 also provides guidance on
        derecognition, classification, interest and penalties, accounting in interim
        periods, disclosures, and transitions. FIN 48 is effective for fiscal years
        beginning after December 15, 2006. We will adopt FIN 48 for the year beginning
        January 1, 2007. The
        adoption of FIN 48 is not expected to materially impact our financial position,
        results of operations, or liquidity.
 
 In
        September, 2006, the FASB issued Statement of Financial Accounting Standards
        No.
        157, *Fair
        Value Measurements* (“SFAS
        157”). This statement defines fair value, establishes a framework for measuring
        fair value in generally accepted accounting principles (GAAP), and expands
        disclosures about fair value measurements. This Statement applies under other
        accounting pronouncements that require or permit fair value measurements,
        the
        FASB having previously concluded in those accounting pronouncements that
        fair
        value is the relevant measurement attribute. Accordingly, this statement
        does
        not require any new fair value measurements. However, for some entities,
        the
        application of this statement will change current practice. In developing
        this
        statement, the FASB considered the need for increased consistency and
        comparability in fair value measurements and for expanded disclosures about
        fair
        value measurements. This statement is effective for financial statements
        issued
        for fiscal years beginning after November 15, 2007, and interim periods within
        those fiscal years. The adoption of SFAS 157 is not expected to materially
        impact our financial position, results of operations, or liquidity.
 
 In
        September 2006, the FASB reached a consensus on EITF No. 06-4, *Accounting
        for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
        Split-Dollar Life Insurance Arrangements* .
        The
        Task Force addressed the issue of how an employer should account for the
        deferred compensation or postretirement or postemployment benefit aspects
        of a
        split-dollar life insurance arrangement that is, in substance, an endorsement
        type of policy. The Task Force believes that an employer should recognize
        a
        liability for future benefits in accordance with SFAS 106 (if, in substance,
        a
        postretirement benefit plan exists) or APB Opinion 12 (if the arrangement
        is, in
        substance, an individual deferred compensation contract) based on the
        substantive agreement with the employee. For example, if the employer has
        effectively agreed to maintain a life insurance policy during the employee's
        retirement, the cost of the insurance policy during postretirement periods
        should be accrued in accordance with either SFAS 106 or APB Opinion 12.
        Similarly, if the employer has effectively agreed to provide the employee
        with a
        death benefit, the employer should accrue, over the service period, a liability
        for the actuarial present value of the future death benefit as of the employee's
        expected retirement date, in accordance with either SFAS 106 or APB Opinion
        12.
        This consensus is to be to be applied to fiscal years beginning after
 
 -8-
 *Index*
 
 **ATLANTIC
            BANCGROUP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **SEPTEMBER
            30, 2006**
  **NOTE
            1 -** **SUMMARY
            OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
            (Continued)**
  December
        15, 2007, with earlier application permitted. We have not completed our
        evaluation of this EITF; however, our initial assessment is that adoption
        will
        not materially impact our financial position, results of operations, or
        liquidity.
  **NOTE
        2 - COMPUTATION OF PER SHARE EARNINGS**
 
 Basic
        earnings per share (“EPS”) amounts are computed by dividing net earnings by the
        weighted average number of common shares outstanding for the three and nine
        months ended September 30, 2006 and 2005. Diluted EPS are computed
        by dividing net earnings by the weighted average number of shares and all
        dilutive potential shares outstanding during the period. For purposes of
        computing diluted EPS, the treasury stock method is used. We have no dilutive
        potential shares outstanding for 2006 or 2005. The following information
        was
        used in the computation of EPS on both a basic and diluted basis for the
        three
        and nine months ended September 30, 2006 and 2005:
  **Three
                  Months Ended September 30,****2006**
              
              **2005**Basic
                  and diluted EPS computation:Numerator
                  - Net income
              
              $
              536,000
              
              $
              408,000Denominator
                  - Weighted average shares outstanding
              
              
              1,247,516
              
              
              1,247,516Basic
                  and diluted EPS
              
              $
              0.43
              
              $
              0.33
 
 **Nine
                  Months Ended September 30,****2006**
              
              **2005**Basic
                  and diluted EPS computation:Numerator
                  - Net income
              
              $
              1,408,000
              
              $
              1,036,000Denominator
                  - Weighted average shares outstanding
              
              
              1,247,516
              
              
              1,247,516Basic
                  and diluted EPS
              
              $
              1.13
              
              $
              0.83
 
 **NOTE
        3 - INVESTMENT SECURITIES**
 
 The
        amortized cost and estimated fair value of instruments in debt and equity
        securities are as follows (dollars in thousands):
 **September
                  30, 2006**
              
              **December
                  31, 2005****Amortized**
              
              **Gross
                  Unrealized**
              
              **Fair**
              
              **Amortized**
              
              **Gross
                  Unrealized**
              
              **Fair****Cost**
              
              **Gains**
              
              **Losses**
              
              **Value**
              
              **Cost**
              
              **Gains**
              
              **Losses**
              
              **Value**Available-for-saleGovernment
                  agencies,CMOs,
                  and mortgage-backed
                  securities
              
              $
              31,823
              
              $
              32
              
              $
              569
              
              $
              31,286
              
              $
              33,056
              
              $
              29
              
              $
              645
              
              $
              32,440Held-to-maturityState,
                  county, andmunicipal
                  bonds
              
              
              8,093
              
              
              191
              
              
              2
              
              
              8,282
              
              
              5,850
              
              
              193
              
              
              60
              
              
              5,983Total
                  investment securities
              
              $
              39,916
              
              $
              223
              
              $
              571
              
              $
              39,568
              
              $
              38,906
              
              $
              222
              
              $
              705
              
              $
              38,423
 
 
 
 -9-
 *Index*
 
 **ATLANTIC
            BANCGROUP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **SEPTEMBER
            30, 2006**
  **NOTE
          3 - INVESTMENT SECURITIES** (Continued)
 
 Management
          evaluates securities for other-than-temporary impairment at least on a
          quarterly
          basis, and more frequently when economic or market concerns warrant such
          evaluation. Consideration is given to (i) the length of time and the extent
          to
          which the fair value has been less than cost, (ii) the financial condition
          and
          near-term prospects of the issuer,
 
 The
        unrealized losses on investment securities available-for-sale were caused
        by
        interest rate changes. It is expected that the securities would not be settled
        at a price less than the par value of the investments. Because the decline
        in
        fair value is attributable to changes in interest rates and not credit quality,
        and because we have the ability and intent to hold these investments until
        a
        market price recovery or maturity, these investments are not considered
        other-than-temporarily impaired. Temporary decreases
        in fair value of securities available-for-sale at September 30, 2006, of
        $537,000 (less deferred income taxes of $170,000) are regarded as an adjustment
        to stockholders' equity totaling $367,000. The estimated fair value of
        securities is determined on the basis of market quotations.
 
 At
        September 30, 2006, securities with an amortized cost of $873,000 and fair
        value
        of $929,000 were pledged to secure deposits of public funds from the State
        of
        Florida and treasury tax and loan deposits with the Federal
        Reserve.
 
 At
        September 30, 2006, securities were sold under an agreement to repurchase
        with a
        fair value of $21.8 million, which effectively collateralizes overnight customer
        repurchase agreements totaling $21.8 million.
 
 There
        were no securities of a single issuer, which are non-governmental or
        non-government sponsored, that exceeded 10% of stockholders’ equity at September
        30, 2006.
 
 
 **NOTE
        4 - LOANS**
 
 Loans
                  consisted of (dollars in thousands):**September
                  30,**
              
              **December
                  31,****2006**
              
              **2005**Real
                  estate loans:Nonfarm
                  nonresidential
              
              $
              68,926
              
              $
              62,612Construction,
                  land development, and other land
              
              
              47,894
              
              
              37,905Residential
              
              
              41,202
              
              
              35,048158,022
              
              
              135,565Commercial
                  and industrial loans
              
              
              10,641
              
              
              11,901Consumer
                  and other loans
              
              
              5,763
              
              
              5,400Total
                  loan portfolio
              
              
              174,426
              
              
              152,866Less,
                  deferred fees
              
              
              (115
              )
              
              (63
              )Less,
                  allowance for loan losses
              
              
              (1,565
              )
              
              (1,552
              )Loans,
                  net
              
              $
              172,746
              
              $
              151,251
 
 
 -10-
 *Index*
 
 **ATLANTIC
          BANCGROUP, INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **SEPTEMBER
          30, 2006**
  **NOTE
        5 - ALLOWANCE FOR LOAN LOSSES**
 
 Our
        Board
        of Directors monitors the loan portfolio quarterly in order to enable it
        to
        evaluate the adequacy of the allowance for loan losses. We maintain the
        allowance for loan losses at a level that we believe to be sufficient to
        absorb
        all estimated losses inherent in the loan portfolio. Activity in the allowance
        for loan losses follows (dollars in thousands):
  **For
                  the Nine**
              
              **For
                  the Twelve****Months
                  Ended**
              
              **Months
                  Ended****September
                  30, 2006**
              
              **December
                  31, 2005**Balance,
                  beginning of period
              
              $
              1,552
              
              $
              1,296Provisions
                  charged to operating expenses
              
              
              144
              
              
              334Loans,
                  charged-off
              
              
              (158
              )
              
              (86
              )Recoveries
              
              
              27
              
              
              8Balance,
                  end of period
              
              $
              1,565
              
              $
              1,552
 
 We
        had
        one loan totaling $83,000 categorized as nonaccrual at September 30, 2006,
        and
        one loan totaling $202,000 as nonaccrual at December 31, 2005.
 
 
 **NOTE
        6 - OTHER BORROWINGS**
 
 A
                  summary follows (dollars in thousands):**September
                  30,**
              
              **December
                  31,****2006**
              
              **2005**Customer
                  repurchase agreements
              
              $
              21,774
              
              $
              23,745FHLB
                  of Atlanta advances
              
              
              2,300
              
              
              2,300Junior
                  subordinated debentures
              
              
              3,093
              
              
              3,093Total
                  other borrowings
              
              $
              27,167
              
              $
              29,138
 
  **NOTE
        7 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK**
 
 We
        are a
        party to credit-related financial instruments with off-balance sheet risk
        in the
        normal course of business to meet the financing needs of our customers. These
        financial instruments include commitments to extend credit, standby letters
        of
        credit, and commercial letters of credit. Those instruments involve, to varying
        degrees, elements of credit and interest rate risk in excess of the amounts
        recognized in the statements of financial condition. Our exposure to credit
        loss
        is represented by the contractual amount of these commitments. We follow
        the
        same credit policies in making commitments as we do for on-balance sheet
        instruments. Financial instruments at September 30, 2006, consisted of
        commitments to extend credit approximating $28.7 million and standby letters
        of
        credit of $1.4 million.
 
 Commitments
        to extend credit are agreements to lend to a customer as long as there is
        no
        violation of any condition established in the contract. Commitments generally
        have fixed expiration dates or other termination clauses and may require
        payment
        of a fee. The commitments for equity lines of credit may expire without being
        drawn upon. Therefore, the total commitment amounts do not necessarily represent
        future cash requirements. The amount of collateral obtained, if it is deemed
        necessary by us, is based on our credit evaluation of the customer.
 
 
 -11-
 *Index*
 
  **ATLANTIC
            BANCGROUP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **SEPTEMBER
            30, 2006**
  NOTE
        8 - REGULATORY
        CAPITAL
  Oceanside
        is required to maintain certain minimum regulatory capital requirements.
        The
        following is a summary at September 30 ,
        2006,
        of the regulatory capital requirements and actual capital on a percentage
        basis
        for Oceanside:
 **Regulatory****Actual**
              
              **Requirement**Total
                  capital ratio to risk-weighted assets
              
              
              11.22
              %
              
              8.00
              %Tier
                  1 capital ratio to risk-weighted assets
              
              
              10.40
              %
              
              4.00
              %Tier
                  1 capital to average assets
              
              
              8.78
              %
              
              4.00
              %
 Effective
        March 30, 2006, the Federal Reserve raised the threshold for reporting
        risk-based capital ratios for a Small Bank Holding Company from $150 million
        to
        $500 million. Accordingly, we do not calculate or report risk-based capital
        ratios for the Holding Company.
 
 
 
 -12-
 *Index*
 
 
 
 **ITEM
                  2.**
              **MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS**
 
 **Overview**
 
 *Commercial
        Banking Operations.* Atlantic,
        through its wholly-owned subsidiary, Oceanside, conducts commercial banking
        business consisting of attracting deposits and applying those funds to the
        origination of commercial, consumer, and real estate loans (including commercial
        loans collateralized by real estate) and purchases of investments. Our
        profitability depends primarily on net interest income, which is the difference
        between interest income generated from interest-earning assets (principally
        loans, investments, and federal funds sold), less the interest expense incurred
        on interest-bearing liabilities (customer deposits and borrowed funds). Net
        interest income is affected by the relative amounts of interest-earning assets
        and interest-bearing liabilities, and the interest rate earned and paid on
        these
        balances. Net interest income is dependent upon Oceanside’s interest-rate
        spread, which is the difference between the average yield earned on its
        interest-earning assets and the average rate paid on its interest-bearing
        liabilities. When interest-earning assets approximate or exceed interest-bearing
        liabilities, any positive interest rate spread will generate net interest
        income. The interest rate spread is impacted by interest rates, deposit flows,
        and loan demand. Additionally, and to a lesser extent, our profitability
        is
        affected by such factors as the level of noninterest income and expenses,
        the
        provision for loan losses, and the effective income tax rate. Noninterest
        income
        consists primarily of service fees on deposit accounts and mortgage banking
        fees. Noninterest expense consists of compensation and employee benefits,
        occupancy and equipment expenses, deposit insurance premiums paid to the
        FDIC,
        and other operating expenses.
 
 Our
        corporate offices are located at 1315 South Third Street, Jacksonville Beach,
        Florida. This location is also our main banking office for Oceanside, which
        opened July 21, 1997, as a state-chartered banking organization. We also
        operate
        branch offices located at 560 Atlantic Boulevard, Neptune Beach, Florida,
        13799
        Beach Boulevard, and 1790 Kernan Boulevard South, Jacksonville,
        Florida.
 
 **Forward-looking
        Statements**
 
 When
        used
        in this Form 10-QSB, the words or phrases “will likely result,” “are expected
        to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar
        expressions are intended to identify “forward-looking statements” within the
        meaning of the Private Securities Litigation Reform Act of 1995. Such statements
        are subject to certain risks and uncertainties including changes in economic
        conditions in our market area, changes in policies by regulatory agencies,
        fluctuations in interest rates, demand for loans in our market area and
        competition, that could cause actual results to differ materially from
        historical earnings and those presently anticipated or projected. We caution
        readers not to place undue reliance on any such forward-looking statements,
        which speak only as to the date made. We advise readers that the factors
        listed
        above, as well as others, could affect our financial performance and could
        cause
        our actual results for future periods to differ materially from any opinions
        or
        statements expressed with respect to future periods in any current statements.
        We do not undertake, and specifically disclaim any obligation, to publicly
        release the result of any revisions, which may be made to any forward-looking
        statements to reflect events or circumstances after the date of such statements,
        or to reflect the occurrence of anticipated or unanticipated
        events.
 
 **Future
        Accounting Requirements**
 
 There
        are
        currently no pronouncements issued or that are scheduled for implementation
        during 2006 that are expected to have any significant impact on our accounting
        policies.
 
 **Impact
        of Inflation**
 
 The
        consolidated financial statements and related data presented herein have
        been
        prepared in accordance with generally accepted accounting principles, which
        require the measurements of financial position and operating results in terms
        of
        historical dollars, without considering changes in the relative purchasing
        power
        of money over time due to inflation. Unlike most industrial companies,
        substantially all of our assets and liabilities are monetary in nature. As
        a
        result, interest rates have a more significant impact on our performance
        than
        the effects of general levels of inflation. Interest rates do not necessarily
        move in the same direction or in the same magnitude as the prices of goods
        and
        services, since such prices are affected by inflation to a larger extent
        than
        interest rates. As discussed previously, we seek to manage the relationships
        between interest-sensitive assets and liabilities in order to protect against
        wide interest rate fluctuations, including those resulting from
        inflation.
 
 
  
 -13-
 *Index*
 
 Critical
        Accounting
        Policies
 
 Our
        accounting and reporting policies are in accordance with U.S. generally accepted
        accounting principles (GAAP), and they conform to general practices within
        the
        banking industry. We use a significant amount of judgment and estimates based
        on
        assumptions for which the actual results are uncertain when we make the
        estimations. We have identified our policy covering the allowance for loan
        losses as being particularly sensitive in terms of judgments and the extent
        to
        which significant estimates are used. For more information on this critical
        accounting policy, please refer to our 2005 Annual Report on Form
        10-KSB.
 
 
 **Results
        of Operations**
 
 Our
        net
        income for the three and nine months ended September 30, 2006, was $536,000
        and
        $1,408,000, respectively, as compared with $408,000 and $1,036,000, reported
        in
        the same periods of 2005. Earning assets increased 19.6% in the first nine
        months of 2006 over the 2005 levels for the same period. An overview of the
        more
        significant matters affecting our results of operations follows:
 
 ·
              Average
                  loans grew at a pace of 16.0% and 20.3%, respectively, for the
                  three and
                  nine months ended September 30, 2006, over the same periods of
                  2005. With
                  the growth in certificates of deposit and other borrowings, we
                  were able
                  to fund the increased loan demand.
 ·
              With
                  the double-digit growth in average earning assets and the favorable
                  mix of
                  earning assets and deposits, we grew our net interest income (before
                  provision for loan losses) $225,000 and $824,000, or 12.3% and
                  16.2%,
                  respectively, during the three and nine months ended September
                  30, 2006,
                  over the comparable periods of
                  2005.
 ·
              While
                  our operating expenses increased in 2006 over 2005, the growth
                  in
                  noninterest expenses lagged growth in earning assets, with increases
                  of
                  $174,000 and $525,000, or 13.2% and 13.3%, respectively, for the
                  three and
                  nine months ended September 30, 2006, over the comparable periods
                  of
                  2005.
 ·
              We
                  continue to improve our return on stockholders’ equity, which for the
                  three and nine months ended September 30, 2006, was 13.2% and 11.96%,
                  respectively, as compared with 10.99% and 9.58%, respectively,
                  for the
                  same periods in 2005.
 
 **Financial
        Condition**
 
 The
        following table shows selected ratios for the periods ended or at the dates
        indicated (annualized for the three and nine months ended September 30,
        2006):
 **Three
                  Months**
              **Nine
                  Months**
              **Year
                  Ended****Ended**
              **Ended**
              **December
                  31,****September
                  30, 2006**
              **September
                  30, 2006**
              **2005**Return
                  on average assets
              0.93%
              0.85%
              0.76%Return
                  on average equity
              13.12%
              11.96%
              10.13%Interest-rate
                  spread
              3.09%
              3.12%
              3.40%Net
                  interest margin
              3.89%
              3.88%
              3.95%Noninterest
                  expenses to average assets
              2.60%
              2.69%
              2.75%
  **Liquidity
        and Capital Resources**
 
 *Liquidity
        Management* .
        Liquidity management involves monitoring the sources and uses of funds in
        order
        to meet our day-to-day cash flow requirements while maximizing profits.
        Liquidity represents the ability of a company to convert assets into cash
        or
        cash equivalents without significant loss and to raise additional funds by
        increasing liabilities. Liquidity management is made more complicated because
        different statement of financial condition components are subject to varying
        degrees of management control. For example, the timing of maturities of the
        investment portfolio is very predictable and subject to a high degree of
        control
        at the time investment decisions are made. However, net deposit inflows and
        outflows are far less predictable and are not subject to the same degree
        of
        control. Asset liquidity is provided by cash and assets that are readily
        marketable, which can be pledged, or which will mature in the near future.
        Liability liquidity is provided by access to core funding sources, principally
        the ability to generate customer deposits in our market area. In addition,
        liability liquidity is provided through the ability to borrow against approved
        lines of credit (federal funds purchased) from correspondent banks and to
        borrow
        on a secured basis through securities sold under agreements to
        repurchase.
 
 
  
 -14-
 *Index*
  We
        expect to meet our liquidity needs with:
 
 ·
              Available
                  cash and federal funds sold, including both interest and
                  noninterest-bearing balances, which totaled $12.4 million at September
                  30,
                  2006;
 ·
              The
                  repayment of loans, which include loans with a remaining maturity
                  of one
                  year or less (excluding those in nonaccrual status) totaling $88.9
                  million;
 ·
              Proceeds
                  of unpledged securities available-for-sale and principal repayments
                  from
                  mortgage-backed securities;
 ·
              Growth
                  in deposits; and,
 ·
              If
                  necessary, borrowing against approved lines of credit and other
                  alternative funding strategies.
 
 *Short-Term
        Investments.* Short-term investments, which consist of federal funds sold and interest-bearing
        deposits, were $3.6 million at September 30, 2006, as compared to $3.2 million
        at December 31, 2005. These funds are a primary source of our liquidity and
        are
        generally invested in an earning capacity on an overnight basis. We regularly
        review our liquidity position and have implemented internal policies that
        establish guidelines for sources of asset-based liquidity and limit the total
        amount of purchased funds used to support the statement of financial condition
        and funding from non-core sources.
 
 *Deposits
        and Other Sources of Funds* .
        In
        addition to deposits, the sources of funds available for lending and other
        business purposes include loan repayments, loan sales, securities sold under
        agreements to repurchase, and advances under approved borrowings from the
        Federal Home Loan Bank of Atlanta. Loan repayments are a relatively stable
        source of funds, while deposit inflows and outflows are influenced significantly
        by general interest rates and money market conditions. Borrowings may be
        used on
        a short-term basis to compensate for reductions in other sources, such as
        deposits at less than projected levels.
 
 *Core
        Deposits* .
        Core
        deposits, which exclude certificates of deposit of $100,000 or more, provide
        a
        relatively stable funding source for our loan portfolio and other earning
        assets. We had core deposits totaling $153.1 million at September 30, 2006,
        and
        $141.2 million at December 31, 2005, an increase of 8.4%. We anticipate that
        a
        stable base of deposits will be our primary source of funding to meet both
        short-term and long-term liquidity needs in the future.
 
 Customers
        with large certificates of deposit tend to be extremely sensitive to interest
        rate levels, making these deposits less reliable sources of funding for
        liquidity planning purposes than core deposits. Some financial institutions
        acquire funds in part through large certificates of deposit obtained through
        brokers. These brokered deposits are generally expensive and are unreliable
        as
        long-term funding sources. While we have elected not to accept brokered
        deposits, we have the ability to supplement our liquidity if we decided to
        pursue brokered deposits as have other community banks.
 
 We
        use
        our resources principally to fund existing and continuing loan commitments
        and
        to purchase investment securities. At September 30, 2006, we had commitments
        to
        originate loans totaling $28.7 million, and had issued, but unused, standby
        letters of credit of $1.4 million for the same period. In addition, scheduled
        maturities of certificates of deposit during the 12 months following September
        30, 2006, total $44.7 million. We believe that adequate resources exist to
        fund
        all our anticipated commitments, and, if so desired, that we can adjust the
        rates and terms on certificates of deposit and other deposit accounts to
        retain
        deposits in a changing interest rate environment.
 
 *Capital* .
        We are
        subject to various regulatory capital requirements administered by the federal
        and state banking agencies. Failure to meet minimum capital requirements
        can
        initiate certain mandatory and possibly additional discretionary actions
        by
        regulators that, if undertaken, could have a direct material effect on our
        financial statements. Under capital adequacy guidelines and the regulatory
        framework for prompt corrective actions, we must meet specific capital
        guidelines that involve quantitative measures of our assets, liabilities,
        and
        certain off-balance sheet items as calculated under regulatory accounting
        practices. The capital amounts and classification are also subject to
        qualitative judgments by the regulators about components, risk weightings,
        and
        other factors. FDIC’s Prompt Corrective Action regulations are not applicable to
        bank holding companies.
 
 Quantitative
        measures established by regulation to ensure capital adequacy require us
        to
        maintain minimum amounts and ratios (set forth in the following table) of
        total
        and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average
        assets (as defined in the regulations). Management believes, as of September
        30,
        2006, that we met all minimum capital adequacy requirements to which we are
        subject.
 
  
 -15-
 *Index*
 
 As
        of the
        most recent reporting period for the quarter ended September 30, 2006,
        Oceanside’s ratios exceeded the minimum levels for the well-capitalized
        category. An institution must maintain minimum total risk-based, Tier 1
        risk-based, and Tier 1 leverage ratios as set forth in the following tables.
        At
        September 30, 2006, Oceanside’s actual capital amounts and percentages are
        presented in the following table (dollars in thousands):
 
 **Actual**
              
              **Minimum****(1)**
              
              **Well-Capitalized****(2)**Amount
              
              %
              
              Amount
              
              %
              
              Amount
              
              %Total
                  capital to risk-weighted assets
              
              $
              21,573
              
              
              11.22
              %
              $
              15,387
              
              
              8.00
              %
              $
              19,234
              
              
              10.00
              %Tier
                  1 capital to risk-weighted assets
              
              $
              20,008
              
              
              10.40
              %
              $
              7,694
              
              
              4.00
              %
              $
              11,540
              
              
              6.00
              %Tier
                  1 capital to average assets
              
              $
              20,008
              
              
              8.78
              %
              $
              9,119
              
              
              4.00
              %
              $
              11,399
              
              
              5.00
              %
 
 (1)  The
        minimum required for adequately capitalized purposes.
 (2)  To
        be
        "well-capitalized" under the FDIC's Prompt Corrective Action regulations
        for
        banks.
 
 There
        are
        no conditions or events since September 30, 2006, that management believes
        have
        changed Oceanside’s category.
 
 Effective
        March 30, 2006, the Federal Reserve raised the threshold for reporting
        risk-based capital ratios for a Small Bank Holding Company from $150 million
        to
        $500 million. Accordingly, we do not calculate or report risk-based capital
        ratios for the Holding Company.
 
 **Asset
        Quality**
 
 We
        have
        developed policies and procedures for evaluating the overall quality of our
        credit portfolio and the timely identification of potential problem loans.
        Our
        judgment as to the adequacy of the allowance is based upon a number of
        assumptions about future events that we believe to be reasonable, but which
        may
        or may not be valid. Thus, there can be no assurance that charge-offs in
        future
        periods will not exceed the allowance for loan losses or that additional
        increases in the loan loss allowance will not be required.
 
 *Asset
        Classification.* Commercial
        banks are required to review and, when appropriate, classify their assets
        on a
        regular basis. The State of Florida and the FDIC have the authority to identify
        problem assets and, if appropriate, require them to be classified. There
        are
        three classifications for problem assets: substandard, doubtful, and loss.
        Substandard assets have one or more defined weaknesses and are characterized
        by
        the distinct possibility that the insured institution will sustain some loss
        if
        the deficiencies are not corrected. Doubtful assets have the weaknesses of
        substandard assets with the additional characteristic that the weaknesses
        make
        collection or liquidation in full on the basis of currently existing facts,
        conditions, and values questionable, and there is a high possibility of loss.
        An
        asset classified as loss is considered uncollectible and of such little value
        that continuance as an asset of the institution is not warranted. If an asset
        or
        portion thereof is classified as loss, the insured institution establishes
        a
        specific reserve for the full amount of the portion of the asset classified
        as
        loss. All or a portion of general loss allowances established to cover possible
        losses related to assets classified as substandard or doubtful may be included
        in determining an institution's regulatory capital, while specific valuation
        allowances for loan losses generally do not qualify as regulatory capital.
        Assets that do not warrant classification in the aforementioned categories,
        but
        possess weaknesses, are classified by us as special mention and
        monitored.
 
 At
        September 30, 2006, we had eight loan relationships totaling approximately
        $875,000 classified as substandard. One loan totaling approximately $83,000
        was
        classified as doubtful with 85% guaranteed by the SBA, leaving a maximum
        exposure of approximately $13,000, all of which has been fully reserved.
        We had
        no loans classified as loss at September 30, 2006.
 
 *Allowance
        for Loan Losses* .
        The
        allowance for loan losses is established through a provision for loan losses
        charged against income. Loans are charged against the allowance when we believe
        that the collectibility of principal is unlikely. The provision is an estimated
        amount that we believe will be adequate to absorb losses inherent in the
        loan
        portfolio based on evaluations of its collectibility. The evaluations take
        into
        consideration such factors as changes in the nature and volume of the portfolio,
        overall portfolio quality, specific problem loans and commitments, and current
        anticipated economic conditions that may affect the borrower's ability to
        pay.
        While we use the best information available to recognize losses on loans,
        future
        additions to the provision may be necessary based on changes in economic
        conditions.
 
 -16-
 *Index*
 
 A
        summary
        of balances in the allowance for loan losses and key ratios follows (dollars
        in
        thousands):
 
 **For
                  the Nine**
              
              **For
                  the Twelve****Months
                  Ended**
              
              **Months
                  Ended****September
                  30, 2006**
              
              **December
                  31, 2005**End
                  of period loans (net of deferred fees)
              
              $
              174,311
              
              $
              152,803End
                  of period allowance for loan losses
              
              $
              1,565
              
              $
              1,552%
                  of allowance for loan losses to total loans
              
              
              0.90
              %
              
              1.02
              %Average
                  loans for the period
              
              $
              165,482
              
              $
              141,587Net
                  charge-offs as a percentage of average loansfor
                  the period (annualized for 2006)
              
              
              0.11
              %
              
              0.06
              %Nonperforming
                  assets:Nonaccrual
                  loans
              
              $
              83
              
              $
              202Loans
                  past due 90 days or more and still accruing
              
              
              -
              
              
              -Other
                  real estate owned
              
              
              -
              
              
              -Other
                  repossessed assets
              
              
              -
              
              
              -$
              83
              
              $
              202Nonperforming
                  assets to period end loans
              
              
              0.05
              %
              
              0.13
              %Nonperforming
                  assets to period end total assets
              
              
              0.04
              %
              
              0.09
              %
 
 
 **Interest
        Rate Risk**
 
 Our
        asset
        base is exposed to risk including the risk resulting from changes in interest
        rates and changes in the timing of cash flows. We monitor the effect of such
        risks by considering the mismatch of the maturities of our assets and
        liabilities in the current interest rate environment and the sensitivity
        of
        assets and liabilities to changes in interest rates. We have considered the
        effect of significant increases and decreases in interest rates and believe
        such
        changes, if they occurred, would be manageable, and would not affect our
        ability
        to hold our assets as planned. However, we would be exposed to significant
        market risk in the event of significant and prolonged interest rate
        changes.
 
 **Quantitative
        and Qualitative Disclosures about Market Risk**
 
 Market
        risk is the risk of loss from adverse changes in market prices and rates.
        Our
        market risk arises primarily from interest rate risk inherent in our lending
        and
        deposit-taking activities. We have little or no risk related to trading
        accounts, commodities or foreign exchange.
 
 We
        do not
        engage in trading or hedging activities and do not invest in interest-rate
        derivatives or enter into interest- rate swaps. We actively monitor and manage
        interest-rate risk exposure. The primary objective in managing interest-rate
        risk is to limit, within established guidelines, the adverse impact of changes
        in interest rates on our net interest income and capital, while adjusting
        our
        asset-liability structure to obtain the maximum yield-cost spread on that
        structure. We rely primarily on the asset-liability structure to control
        interest-rate risk. However, a sudden and substantial change in interest
        rates
        could adversely impact our earnings, to the extent that the interest rates
        borne
        by assets and liabilities do not change at the same speed, to the same extent,
        or on the same basis. There have been no significant changes in our market
        risk
        exposure since December 31, 2005.
 
 
 
 
 -17-
 *Index*
 
 **Average
        Balances, Income and Expenses, and Rates**
 
 The
        following table depicts, for the periods indicated, certain information related
        to our average statements of financial condition and our average yields on
        assets and average costs of liabilities. Such yields are derived by dividing
        income or expense by the average balance of the corresponding assets or
        liabilities. Average balances have generally been derived from daily averages
        (dollars in thousands):
 
 **For
                  the Three Months Ended September 30,**********
              
              **2006**
              
              **2005****Average**
              
              **Interest**
              
              
              
              **Interest**
              
              **Average****Average**
              
              **and**
              
              **Yield/**
              
              **Average**
              
              **and**
              
              **Yield/****Balance**
              
              **Dividends**
              
              **Rate**
              
              **Balance**
              
              **Dividends**
              
              **Rate**Interest-earning
                  assets:Loans
              
              $
              170,753
              
              $
              3,558
              
              
              8.27
              %
              $
              147,145
              
              $
              2,691
              
              
              7.26
              %Investment
                  securities andinterest-bearing
                  deposits(1)
              
              
              37,862
              
              
              408
              
              
              4.84
              %
              
              35,715
              
              
              342
              
              
              4.27
              %Other
                  interest-earning assets
              
              
              6,175
              
              
              85
              
              
              5.46
              %
              
              3,484
              
              
              28
              
              
              3.19
              %Total
                  interest-earning assets(1)
              
              
              214,790
              
              
              4,051
              
              
              7.58
              %
              
              186,344
              
              
              3,061
              
              
              6.61
              %Noninterest-earning
                  assets
              
              
              13,463
              
              
              
              
              
              
              
              
              13,299Total
                  assets
              
              $
              228,253
              
              
              
              
              
              
              
              $
              199,643Interest-bearing
                  liabilities:Demand,
                  money marketand
                  NOW deposits
              
              $
              42,515
              
              
              408
              
              
              3.81
              %
              $
              42,763
              
              
              244
              
              
              2.26
              %Savings
              
              
              5,161
              
              
              19
              
              
              1.46
              %
              
              6,229
              
              
              12
              
              
              0.76
              %Certificates
                  of deposit
              
              
              105,012
              
              
              1,281
              
              
              4.84
              %
              
              79,922
              
              
              765
              
              
              3.80
              %Other
                  borrowings
              
              
              23,903
              
              
              291
              
              
              4.83
              %
              
              23,740
              
              
              213
              
              
              3.56
              %Total
                  interest-bearing liabilities
              
              
              176,591
              
              
              1,999
              
              
              4.49
              %
              
              152,654
              
              
              1,234
              
              
              3.21
              %Noninterest-bearing
                  liabilities
              
              
              35,458
              
              
              
              
              
              
              
              
              32,261Stockholders’
                  equity
              
              
              16,204
              
              
              
              
              
              
              
              
              14,728Total
                  liabilities andstockholders’
                  equity
              
              $
              228,253
              
              
              
              
              
              
              
              $
              199,643Net
                  interest income beforeprovision
                  for loan losses
              
              
              
              
              $
              2,052
              
              
              
              
              
              
              
              $
              1,827Interest-rate
                  spread
              
              
              
              
              
              
              
              
              3.09
              %
              
              
              
              
              
              
              
              3.40
              %Net
                  interest margin(1)
              
              
              
              
              
              
              
              
              3.89
              %
              
              
              
              
              
              
              
              3.98
              %Ratio
                  of average interest-earning assetsto
                  average interest-bearing liabilities
              
              
              121.63
              %
              
              
              
              
              
              
              
              122.07
              %
  (1)
              Tax-exempt
                  income has been adjusted to a tax-equivalent basis using an incremental
                  rate of 37.6% for purposes of computing the average
                  yield/rate.
 
 -18-
 *Index*
 
 
 **For
                  the Nine Months Ended September 30,****2006**
              
              **2005****Interest**
              
              **Average**
              
              
              
              **Interest**
              
              **Average****Average**
              
              **and**
              
              **Yield/**
              
              **Average**
              
              **and**
              
              **Yield/****Balance**
              
              **Dividends**
              
              **Rate**
              
              **Balance**
              
              **Dividends**
              
              **Rate**Interest-earning
                  assets:Loans
              
              $
              165,482
              
              $
              9,944
              
              
              8.03
              %
              $
              137,544
              
              $
              7,114
              
              
              6.92
              %Investment
                  securities andinterest-bearing
                  deposits(1)
              
              
              37,370
              
              
              1,186
              
              
              4.74
              %
              
              33,288
              
              
              930
              
              
              4.24
              %Other
                  interest-earning assets
              
              
              5,679
              
              
              216
              
              
              5.09
              %
              
              3,470
              
              
              76
              
              
              2.93
              %Total
                  interest-earning assets(1)
              
              
              208,531
              
              
              11,346
              
              
              7.36
              %
              
              174,302
              
              
              8,120
              
              
              6.32
              %Noninterest-earning
                  assets
              
              
              13,849
              
              
              
              
              
              
              
              
              14,368Total
                  assets
              
              $
              222,380
              
              
              
              
              
              
              
              $
              188,670Interest-bearing
                  liabilities:Demand,
                  money marketand
                  NOW deposits
              
              $
              40,646
              
              
              1,000
              
              
              3.29
              %
              $
              42,029
              
              
              619
              
              
              1.97
              %Savings
              
              
              5,266
              
              
              48
              
              
              1.22
              %
              
              6,272
              
              
              35
              
              
              0.75
              %Certificates
                  of deposit
              
              
              101,273
              
              
              3,537
              
              
              4.67
              %
              
              72,949
              
              
              1,883
              
              
              3.45
              %Other
                  borrowings
              
              
              24,370
              
              
              851
              
              
              4.67
              %
              
              21,087
              
              
              497
              
              
              3.15
              %Total
                  interest-bearing liabilities
              
              
              171,555
              
              
              5,436
              
              
              4.24
              %
              
              142,337
              
              
              3,034
              
              
              2.85
              %Noninterest-bearing
                  liabilities
              
              
              35,089
              
              
              
              
              
              
              
              
              31,882Stockholders’
                  equity
              
              
              15,736
              
              
              
              
              
              
              
              
              14,451Total
                  liabilities andstockholders’
                  equity
              
              $
              222,380
              
              
              
              
              
              
              
              $
              188,670Net
                  interest income beforeprovision
                  for loan losses
              
              
              
              
              $
              5,910
              
              
              
              
              
              
              
              $
              5,086Interest-rate
                  spread
              
              
              
              
              
              
              
              
              3.12
              %
              
              
              
              
              
              
              
              3.47
              %Net
                  interest margin(1)
              
              
              
              
              
              
              
              
              3.88
              %
              
              
              
              
              
              
              
              4.00
              %Ratio
                  of average interest-earning assetto
                  average interest-bearing liabilities
              
              
              121.55
              %
              
              
              
              
              
              
              
              122.46
              %
 
 
 (1)
              Tax-exempt
                  income has been adjusted to a tax-equivalent basis using an incremental
                  rate of 37.6% for purposes of computing the average
                  yield/rate.
 
 
 -19-
 *Index*
 
 **Analysis
        of Changes in Net Interest Income**
 
 The
        following table sets forth, on a taxable equivalent basis, the effect which
        varying levels of interest-earning assets and interest-bearing liabilities
        and
        the applicable interest rates had on changes in net interest income for the
        three and nine months periods ended September 30, 2006, compared to the same
        periods in 2005, respectively. For purposes of these tables, changes which
        are
        not solely attributable to volume or rate are allocated to volume and rate
        on a
        pro rata basis (dollars in thousands):
  Three
                  Months Ended September 30,2006
                  vs. 2005Increase
                  (Decrease) Due toRate/Rate
              
              Volume
              
              Volume
              
              TotalInterest-earning
                  assets:Loans
              
              $
              375
              
              $
              432
              
              $
              60
              
              $
              867Investment
                  securities and interest-bearing deposits
              
              
              52
              
              
              23
              
              
              (9
              )
              
              66Other
                  interest-earning assets
              
              
              20
              
              
              22
              
              
              15
              
              
              57Total
                  interest-earning assets
              
              
              447
              
              
              477
              
              
              66
              
              
              990Interest-bearing
                  liabilities:Demand,
                  money market and NOW deposits
              
              
              167
              
              
              (1
              )
              
              (2
              )
              
              164Savings
              
              
              11
              
              
              (2
              )
              
              (2
              )
              
              7Certificates
                  of deposit
              
              
              210
              
              
              240
              
              
              66
              
              
              516Other
                  borrowings
              
              
              76
              
              
              1
              
              
              1
              
              
              78Total
                  interest-bearing liabilities
              
              
              464
              
              
              238
              
              
              63
              
              
              765Net
                  interest income
              
              $
              (17
              )
              $
              239
              
              $
              3
              
              $
              225
 
 
 Nine
                  Months Ended September 30,2006
                  vs. 2005Increase
                  (Decrease) Due toRate/Rate
              
              Volume
              
              Volume
              
              TotalInterest-earning
                  assets:Loans
              
              $
              1,142
              
              $
              1,446
              
              $
              242
              
              $
              2,830Investment
                  securities and interest-bearing deposits
              
              
              125
              
              
              129
              
              
              2
              
              
              256Other
                  interest-earning assets
              
              
              56
              
              
              49
              
              
              35
              
              
              140Total
                  interest-earning assets
              
              
              1,323
              
              
              1,624
              
              
              279
              
              
              3,226Interest-bearing
                  liabilities:Demand,
                  money market and NOW deposits
              
              
              415
              
              
              (20
              )
              
              (14
              )
              
              381Savings
              
              
              22
              
              
              (6
              )
              
              (3
              )
              
              13Certificates
                  of deposit
              
              
              666
              
              
              731
              
              
              257
              
              
              1,654Other
                  borrowings
              
              
              240
              
              
              77
              
              
              37
              
              
              354Total
                  interest-bearing liabilities
              
              
              1,343
              
              
              782
              
              
              277
              
              
              2,402Net
                  interest income
              
              $
              (20
              )
              $
              842
              
              $
              2
              
              $
              824
 
 **Comparison
        of Three Months Ended September 30, 2006 and 2005**
 
 **Interest
        Income and Expense**
 
 *Interest
        Income* .
        Interest income was $4,051,000 and $3,061,000 for the three months ended
        September 30, 2006 and 2005, respectively. An increase in yields on average
        interest-earning assets of 97 basis points, or 14.7%, and the favorable growth
        in average interest-earning assets of $28.4 million, or 15.3%, contributed
        to an
        overall growth rate of 32.3% for interest income. The increase in yields
        was the
        result of increases in the interest rate environment and improvements in
        the mix
        in average interest-earning assets. Average loans, as a percentage of average
        interest-earning assets, increased to 79.5% in the third quarter of 2006
        as
        compared with 79.0% in 2005. We saw a shift in the percentage of average
        investment securities and interest-bearing deposits to 17.6% in 2006 from
        19.2%
        in 2005,
 
 -20-
 *Index*
 
 while
        the
        percentage of average other interest-earning assets to total average
        interest-earning assets shifted from 1.9% in 2005 to 2.9% in 2006. With the
        recent increases in short-term interest rates, our yield on other
        interest-earning assets was 5.46% as compared with 4.84% for investment
        securities and interest-bearing deposits in 2006. This compares with 3.19%
        and
        4.27%, respectively, in 2005. This shift in rates between other interest-earning
        assets and investment securities, along with increases in volume, also
        contributed to the overall increase in interest income.
 
 *Interest
        Expense.* Interest
        expense was $1,999,000 and $1,234,000 for the three months ended September
        30,
        2006, and 2005, respectively. As a result of the increasing interest rate
        environment and our growth in average interest-bearing liabilities of $23.9
        million, or 15.7%, during this period, interest expense increased $765,000,
        or
        62.0%. Our average cost of funds (interest-bearing liabilities) rose to 4.49%
        compared with 3.21% in 2006 over the same period in 2005. A shift in the
        mix of
        our interest-bearing deposits, along with increases in the overall interest
        rates in our market area, contributed to the rise in our cost of funds.
        Certificates of deposit, with an average cost of funds of 4.84% in 2006 and
        3.80% in 2005, represented approximately 59.5% of our total interest-bearing
        liabilities in 2006 as compared with 52.4% in 2005. We experienced a decline
        in
        our mix of demand and savings deposits during 2006 to 24.1% and 2.9%,
        respectively, as compared with 2005 levels of 28.0% and 4.1%, respectively.
        The
        shift from lower costing deposits to higher costing deposits can be attributed,
        in part, to the current interest rate environment.
 
 *Net
        Interest Income before Provision for Loan Losses* .
        Net
        interest income before provision for loan losses was $2,052,000 and $1,827,000
        for the three months ended September 30, 2006 and 2005, respectively. The
        net
        interest margin for the third quarter of 2006 was 3.89% as compared with
        the net
        interest margin in 2005 of 3.98%, a decrease of 9 basis points. Given our
        composition of interest-bearing liabilities, we experienced a more rapid
        increase in our cost of funds of 1.28%, while the rates we earned on our
        earning
        assets increased by 0.97% in the third quarter of 2006 over the same period
        of
        2005.
 
 **Provision
        for Loan Losses**
 
 We
        recorded provisions for loan losses totaling $48,000 and $139,000 for the
        three
        months ended September 30, 2006 and 2005, respectively, which management
        considered appropriate after its assessment of the overall quality of the
        loan
        portfolio and the decline in nonperforming loans and other assets from December
        31, 2005.
 
 **Noninterest
        Income and Expenses**
 
 *Noninterest
        Income.* Total
        noninterest income increased to $283,000 for the three months ended September
        30, 2006, compared with $223,000 for the same period in September 30, 2005.
        Fees
        and service charges on deposit accounts increased $28,000, or 20.3%, in 2006
        versus the same period in 2005. Higher fees assessed on returned (or NSF)
        checks
        accounted for substantially all of this increase. Mortgage banking fees declined
        $6,000, or 20.7%, during this period reflecting trends in the residential
        lending market. The remaining other fees and income increased $38,000, or
        67.9%,
        principally due to increases in usage and per item charges assessed by us
        for
        other banking services.
 
 *Noninterest
        Expenses.* Increases in noninterest expenses of 13.2% associated with our continued
        growth,
        including higher personnel costs, occupancy expenses, and corporate governance
        costs partially offset our net income for the quarter ended September 30,
        2006.
 
 **Provision
        for Income Taxes**
 
 The
        income tax provision was $255,000 for the three months ended September 30,
        2006,
        an effective rate of 32.2%. This compares with an effective rate of 30.7%
        for
        the same period in 2005. The effective tax rates in 2006 and 2005 differ
        from
        the federal and state statutory rates principally due to nontaxable investment
        income. Tax-exempt income was $89,000 for the third quarter of 2006 as compared
        with $69,000 in 2005. This increase of 29.0% has not kept pace with the growth
        in taxable income and, accordingly, our effective rate has increased in
        2006.
 
 **Comparison
        of Nine Months Ended September 30, 2006 and 2005**
 
 **Interest
        Income and Expense**
 
 *Interest
        Income* .
        Interest income was $11,346,000 and $8,120,000 for the nine months ended
        September 30, 2006 and 2005, respectively. An increase in yields on average
        interest-earning assets of 104 basis points, or 16.5%, and the favorable
        growth
        in average interest-earning assets of $34.2 million, or 19.6%, contributed
        to an
        overall growth rate of 39.7% for interest income. The increase in yields
        was the
        result of increases in the interest rate environment
 
 -21-
 *Index*
 
 and
        improvements in the mix in average interest-earning assets. Average loans,
        as a
        percentage of average interest-earning assets, increased to 79.4% in 2006
        as
        compared with 78.9% in 2005. We saw a shift in the percentage of average
        investment securities and interest-bearing deposits to 17.9% in 2006 from
        19.1%
        in 2005, while the percentage of average other interest-earning assets to
        total
        average interest-earning assets shifted from 2.0% in 2005 to 2.7% in 2006.
        With
        the recent increases in short-term interest rates, our yield on other
        interest-earning assets was 5.09% as compared with 4.74% for investment
        securities and interest-bearing deposits in 2006. This compares with 2.94%
        and
        4.24%, respectively, in 2005. This shift in rates between other interest-earning
        assets and investment securities, along with increases in volume, also
        contributed to the overall increase in interest income.
 
 *Interest
        Expense.* Interest
        expense was $5,436,000 and $3,034,000 for the nine months ended September
        30,
        2006, and 2005, respectively. As a result of the increasing interest rate
        environment and our growth in average interest-bearing liabilities of $29.2
        million, or 20.5%, during this period, interest expense increased $2,402,000,
        or
        79.2%. Our average cost of funds (interest-bearing liabilities) rose to 4.24%
        in
        2006 compared with 2.85% in the same period in 2005. A shift in the mix of
        our
        interest-bearing deposits, along with increases in the overall interest rates
        in
        our market area, contributed to the rise in our cost of funds. Certificates
        of
        deposit, with an average cost of funds of 4.67% in 2006 and 3.45% in 2005,
        represented approximately 59.0% of our total interest-bearing liabilities
        in
        2006 as compared with 51.3% in 2005. We experienced a decline in our mix
        of
        demand and savings deposits during 2006 to 23.7% and 3.1%, respectively,
        as
        compared with 2005 levels of 29.5% and 4.4%, respectively. The shift from
        lower
        costing deposits to higher costing deposits can be attributed, in part, to
        the
        current interest rate environment.
 
 *Net
        Interest Income before Provision for Loan Losses* .
        Net
        interest income before provision for loan losses was $5,910,000 and $5,086,000
        for the nine months ended September 30, 2006 and 2005, respectively. The
        net
        interest margin for 2006 was 3.88% as compared with the net interest margin
        in
        2005 of 4.00%, a decrease of 12 basis points. Given our composition of
        interest-bearing liabilities, we experienced a more rapid increase in our
        cost
        of funds of 1.39%, while the rates we earned on our earning assets increased
        by
        1.04% in 2006 over 2005.
 
 **Provision
        for Loan Losses**
 
 We
        recorded provisions for loan losses totaling $144,000 and $312,000 for the
        nine
        months ended September 30, 2006 and 2005, respectively, which management
        considered appropriate after its assessment of the overall quality of the
        loan
        portfolio and the decline in nonperforming loans and other assets from December
        31, 2005.
 
 **Noninterest
        Income and Expenses**
 
 *Noninterest
        Income.* Total
        noninterest income increased to $787,000 for the nine months ended September
        30,
        2006, compared with $644,000 for the same period in September 30, 2005. Fees
        and
        service charges on deposit accounts increased $75,000, or 19.4%, in 2006
        versus
        the same period in 2005. Higher fees assessed on returned (or NSF) checks
        accounted for substantially all of this increase. Mortgage banking fees of
        $84,000 in 2006 and $89,000 in 2005 were 5.6% lower. The remaining other
        fees
        and income increased $65,000, or 38.5%, principally due to increases in usage
        and per item charges assessed by us for other banking services.
 
 *Noninterest
        Expenses.* Increases in noninterest expenses of 13.3% associated with our continued
        growth,
        including higher personnel costs, occupancy expenses, and corporate governance
        costs partially offset our net income for the nine months ended September
        30,
        2006.
 
 **Provision
        for Income Taxes**
 
 The
        income tax provision was $677,000 for the nine months ended September 30,
        2006,
        an effective rate of 32.5%. This compares with an effective rate of 29.8%
        for
        the same period in 2005. The effective tax rates in 2006 and 2005 differ
        from
        the federal and state statutory rates principally due to nontaxable investment
        income. Tax-exempt income was $232,000 for 2006 as compared with $207,000
        in
        2005. This increase of 12.1% has not kept pace with the growth in taxable
        income
        and, accordingly, our effective rate has increased in 2006.
 
 -22-
 *Index*
 
 **ITEM
        3. CONTROLS AND PROCEDURES**
 
 *Background
        of Internal Controls and Internal Audits.* Oceanside is the sole financial subsidiary of Atlantic. Oceanside has extensive
        policies and operating procedures in place for loans, operations, accounting
        and
        compliance. All audits, whether internal or external are reported directly
        to
        the joint Audit Committee of Oceanside and Atlantic and subsequently to the
        Boards of Directors of Oceanside and Atlantic.
 
 The
        joint
        Audit Committee of Oceanside and Atlantic maintains an audit calendar prepared
        by the internal auditor for planning purposes. This audit calendar is submitted
        to the Boards of Oceanside and Atlantic for approval. Atlantic engages an
        external certified public accounting firm registered with the Public Company
        Accounting Oversight Board (“PCAOB”) to annually perform an independent audit,
        conducted in accordance with generally accepted auditing standards adopted
        by
        the PCAOB.
 
 Periodically,
        Oceanside and Atlantic undergo regulatory examinations that include tests
        of the
        policies and operating procedures for loans, operations, accounting and
        compliance. The results of these examinations are presented by the regulators
        to
        the Boards of Oceanside and Atlantic.
 
 *Evaluation
        of Disclosure Controls and Procedures.* Atlantic's Chief Executive Officer and Chief Financial Officer have evaluated
        the effectiveness of Atlantic's disclosure controls and procedures (as such
        term
        is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange
        Act of
        1934, as amended (the “Exchange Act”)) as of a date within 90 days prior to the
        filing date of this quarterly report (the “Evaluation Date”). Based on that
        evaluation, such officers have concluded that, as of the Evaluation Date,
        Atlantic's disclosure controls and procedures are effective in bringing to
        their
        attention, on a timely basis, material information relating to Atlantic
        (including its consolidated subsidiary) required to be included in Atlantic's
        periodic filings under the Exchange Act.
 
 *Changes
        in Internal Controls.* Since
        the Evaluation Date, there have not been any significant changes in Atlantic's
        internal controls or in other factors that could significantly affect those
        controls.
 
  
 -23-
 *Index*




PART
                  II:
              OTHER
                  INFORMATION
 
 Item
                  1.
              Legal
                  Proceedings.
  Periodically,
        we are parties to or otherwise involved in legal proceedings arising in the
        normal course of business, such as claims to enforce liens, claims involving
        the
        making and servicing of real property loans, and other issues incident to
        our
        operations. We do not believe that there are any pending or threatened
        proceedings against us, which, if determined adversely, would have a material
        effect on our consolidated financial position.
 
 Item
                  5.
              Other
                  Information
 
 We
        filed
        a Current Report on Form 8-K, for an event dated September 29, 2006, announcing
        the resignation of Stevens, Powell & Company, P.A., as our independent
        registered public accounting firm and the appointment of Mauldin & Jenkins,
        LLC, as our independent registered public accounting firm, effective September
        29, 2006.
 
 Item
                  6.
              Exhibits.
 
 The
        following exhibits are filed or incorporated by reference into this report.
        The
        exhibits marked with an (*) were previously filed as part of Atlantic’s Form
        10-KSB for year ended December 31, 1999;
 Exhibit
                    No.
                Description3.1
                Articles
                    of Incorporation of Atlantic BancGroup, Inc. included in the
                    Registration
                    Statement on Form 8-A filed with the Securities and Exchange
                    Commission on
                    May 17, 1999 (*)3.2
                Bylaws
                    of Atlantic BancGroup, Inc. (*)4.1
                Specimen
                    Stock Certificate of Atlantic BancGroup, Inc. included in the
                    Registration
                    Statement on Form 8-A filed with the Securities and Exchange
                    Commission on
                    May 17, 1999 (*)10.1
                Software
                    License Agreement dated as of October 6, 1997, between Oceanside
                    and File
                    Solutions, Inc. (*)10.2
                File
                    Solutions Software Maintenance Agreement dated as of July 15,
                    1997,
                    between Oceanside and SPARAK Financial Systems, Inc.
                    (*)10.3
                Remote
                    Data Processing Agreement dated as of March 3, 1997, between
                    Oceanside and
                    Bankers Data Services, Inc. (*)10.4
                Lease
                    dated September 27, 2000, between MANT EQUITIES, LLC and Oceanside
                    (Incorporated by reference to Exhibit 10.4 to Atlantic’s Form 10-KSB for
                    year ended December 31, 2000)10.5
                Lease
                    dated August 22, 2002, between PROPERTY MANAGEMENT SUPPORT, INC.,
                    and
                    Oceanside (Incorporated by reference to Exhibit 10.5 to Atlantic’s Form
                    10-KSB for year ended December 31, 2002)10.6
                Change
                    in Control Agreement for Barry W. Chandler10.7
                Change
                    in Control Agreement for David L. Young10.8
                Change
                    in Control Agreement for Grady R. Kearsey14
                Code
                    of Ethics for Senior Officers Policy (Incorporated by reference
                    to Exhibit
                    14 to Atlantic’s Form 10-KSB for year ended December 31,
                    2003)31.1
                Certification
                    of Principal Executive Officer pursuant to Section 302 of the
                    Sarbanes-Oxley Act of 200231.2
                Certification
                    of Principal Financial Officer pursuant to Section 302 of the
                    Sarbanes-Oxley Act of 200232.1
                Certification
                    of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350,
                    as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Act of
                    200232.2
                Certification
                    of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350,
                    as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002






-24-
 *Index*




**SIGNATURES**
 
 
 
 In
        accordance with the requirements of the Securities Exchange Act of 1934,
        the
        issuer has caused this report to be signed on its behalf by the undersigned,
        thereunto duly authorized.
 
 
 
 Atlantic
                  BancGroup, Inc.Date:November
                  3, 2006
              /s/
                  Barry W. ChandlerBarry
                  W. ChandlerPresident
                  and Chief Executive OfficerDate:November
                  3, 2006
              /s/
                  David L. YoungDavid
                  L. YoungExecutive
                  Vice President,Chief
                  Financial Officer, andCorporate
                  Secretary
 
 
 -25-