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 March 31, 2007





 ̈
            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 May 1, 2007Common
                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 MARCH 31, 2007**





**INDEX**





PAGENUMBER**PART
                I  -**
            **FINANCIAL
                INFORMATION****Item
                1 -**
            **Financial
                Statements**Condensed
                Consolidated Statements of Financial Condition as
                ofMarch 31, 2007 (Unaudited) and December 31, 2006
            3Condensed
                Consolidated Statements of Income and Comprehensive
                Income for the Three Months Ended March 31, 2007 and 2006
                (Unaudited)
            4Condensed
                Consolidated Statements of Cash Flows for the Three
                Months Ended March 31, 2007 and 2006 (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**
            20**PART
                II  -**
            **OTHER
                INFORMATION**
            21**SIGNATURES**
            
            22





*Index*





**ATLANTIC
                BANCGROUP, INC. AND SUBSIDIARY****CONDENSED
                CONSOLIDATED STATEMENTS OF FINANCIAL
                CONDITION****(Dollars
                inThousandsExcept Per Share Data)**March
                31,2007
            
            
            December
                31,(Unaudited)
            
            
            2006**ASSETS**Cash
                and due from banks
            
            $
            7,519
            
            
            $
            6,566Federal
                funds sold
            
            
            15,952
            
            
            
            11,133Total
                cash and cash equivalents
            
            
            23,471
            
            
            
            17,699Investment
                securities, available-for-sale
            
            
            28,247
            
            
            
            29,805Investment
                securities, held-to-maturity (market value of $10,073 in 2007
                and$10,138
                in 2006)
            
            
            10,030
            
            
            
            10,032Restricted
                stock, at cost
            
            
            746
            
            
            
            735Loans,
                net
            
            
            180,508
            
            
            
            176,109Bank
                premises and equipment
            
            
            3,952
            
            
            
            3,960Accrued
                interest receivable
            
            
            1,253
            
            
            
            1,223Deferred
                income taxes
            
            
            845
            
            
            
            860Investment
                in unconsolidated subsidiary
            
            
            93
            
            
            
            93Cash
                surrender value of bank-owned life insurance
            
            
            2,567
            
            
            
            2,543Other
                assets
            
            
            299
            
            
            
            438TOTAL
            
            $
            252,011
            
            
            $
            243,497**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Deposits:Noninterest-bearing
            
            $
            30,198
            
            
            $
            32,006Interest-bearing
            
            
            176,148
            
            
            
            160,698Total
                deposits
            
            
            206,346
            
            
            
            192,704Short-term
                borrowings
            
            
            20,996
            
            
            
            26,921Long-term
                borrowings
            
            
            5,393
            
            
            
            5,393Accrued
                interest payable
            
            
            317
            
            
            
            279Other
                liabilities
            
            
            1,201
            
            
            
            949Total
                liabilities
            
            
            234,253
            
            
            
            226,246Commitments
                and contingencies
            
            
            -
            
            
            
            -Stockholders'
                equity:Common
                stock
            
            
            12
            
            
            
            12Additional
                paid-in capital
            
            
            11,788
            
            
            
            11,788Retained
                earnings
            
            
            6,194
            
            
            
            5,734Accumulated
                other comprehensive income:Net
                unrealized holding losses on securities
            
            
            (236
            )
            
            
            (283
            )Total
                stockholders' equity
            
            
            17,758
            
            
            
            17,251TOTAL
            
            $
            252,011
            
            
            $
            243,497Book
                value per common share
            
            $
            14.23
            
            
            $
            13.83Common
                shares outstanding
            
            
            1,247,516
            
            
            
            1,247,516




The
      accompanying notes are an integral part of theses 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 EndedMarch
                  31,2007
              
              
              2006Interest
                  and fees on loans
              
              $
              3,761
              
              
              $
              3,115Investment
                  income on investment securities andinterest-bearing
                  deposits in banks
              
              
              332
              
              
              
              320Tax-exempt
                  interest income on investment securities
              
              
              110
              
              
              
              69Interest
                  on federal funds sold
              
              
              39
              
              
              
              38Total
                  interest income
              
              
              4,242
              
              
              
              3,542Interest
                  on deposits
              
              
              1,963
              
              
              
              1,337Short-term
                  borrowings
              
              
              200
              
              
              
              209Long-term
                  borrowings
              
              
              72
              
              
              
              72Total
                  interest expense
              
              
              2,235
              
              
              
              1,618Net
                  interest income before provision for loan losses
              
              
              2,007
              
              
              
              1,924Provision
                  for loan losses
              
              
              62
              
              
              
              12Net
                  interest income after provision for loan losses
              
              
              1,945
              
              
              
              1,912Fees
                  and service charges on deposit accounts
              
              
              147
              
              
              
              151Other
                  fee income for banking services
              
              
              53
              
              
              
              33Mortgage
                  banking fees
              
              
              12
              
              
              
              36Income
                  from bank-owned life insurance
              
              
              27
              
              
              
              26Dividends
                  on restricted stock
              
              
              8
              
              
              
              6Dividends
                  on trust-preferred securities
              
              
              1
              
              
              
              1Other
                  income
              
              
              12
              
              
              
              5Total
                  noninterest income
              
              
              260
              
              
              
              258Other
                  expenses:Salaries
                  and employee benefits
              
              
              776
              
              
              
              732Expenses
                  of bank premises and fixed assets
              
              
              276
              
              
              
              296Other
                  operating expenses
              
              
              490
              
              
              
              480Total
                  noninterest expenses
              
              
              1,542
              
              
              
              1,508Income
                  before provision for income taxes
              
              
              663
              
              
              
              662Provision
                  for income taxes
              
              
              203
              
              
              
              217Net
                  income
              
              
              460
              
              
              
              445Other
                  comprehensive income, net of income taxes:Unrealized
                  holding gains (losses) arising during period
              
              
              47
              
              
              
              (169
              )Comprehensive
                  income
              
              $
              507
              
              
              $
              276Earnings
                  per common shareBasic
              
              $
              0.37
              
              
              $
              0.36Dilutive
              
              $
              0.37
              
              
              $
              0.36




The
        accompanying notes are an integral part of theses 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 EndedMarch
                  31,2007
              
              
              2006Net
                  cash provided by operating activities:Net
                  income
              
              $
              460
              
              
              $
              445Provision
                  for loan losses
              
              
              62
              
              
              
              12Depreciation
                  and amortization
              
              
              78
              
              
              
              89Net
                  premium amortization and discount accretion
              
              
              8
              
              
              
              18Net
                  change in other assets and liabilities
              
              
              410
              
              
              
              (77
              )Net
                  cash provided by operating activities
              
              
              1,018
              
              
              
              487Cash
                  flows from investing activities:Net
                  (increase) decrease in:Investment
                  securities
              
              
              1,568
              
              
              
              1,817Loans
              
              
              (4,461
              )
              
              
              (15,266
              )Purchases
                  of bank premises and equipment, net
              
              
              (70
              )
              
              
              (44
              )Net
                  cash used by investing activities
              
              
              (2,963
              )
              
              
              (13,493
              )Cash
                  flows from financing activities:Net
                  increase in deposits
              
              
              13,642
              
              
              
              16,642Net
                  increase (decrease) in other borrowings
              
              
              (5,925
              )
              
              
              5,565Net
                  cash provided by financing activities
              
              
              7,717
              
              
              
              22,207Net
                  increase in cash and cash equivalents
              
              
              5,772
              
              
              
              9,201Cash
                  and cash equivalents at beginning of period
              
              
              17,699
              
              
              
              14,987Cash
                  and cash equivalents at end of period
              
              $
              23,471
              
              
              $
              24,188




The
        accompanying notes are an integral part of theses 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,
                  December 31, 2006
              
              
              1,247,516
              
              
              $
              12
              
              
              $
              11,788
              
              
              $
              5,734
              
              
              $
              (283
              )
              
              $
              17,251Comprehensive
                  income:Net
                  income for the quarter
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              460
              
              
              
              -Net
                  change in unrealizedholding
                  gains on securities
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              47Total
                  comprehensive income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              507Balance,
                  March 31, 2007
              
              
              1,247,516
              
              
              $
              12
              
              
              $
              11,788
              
              
              $
              6,194
              
              
              $
              (236
              )
              
              $
              17,758








The
        accompanying notes are an integral part of theses condensed consolidated
        financial statements.
  
 -
              6
              -
 *Index*
 **ATLANTIC
                BANCGROUP, INC. AND SUBSIDIARY**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 **MARCH
                31, 2007**
 
 **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 months ended March
        31,
        2007 and 2006, 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, 2006, 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 foreclosed
        assets.
 
 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)**
 **MARCH
                31,
                2007**
 
 **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 interim basis, 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
        Atlantic’s 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.  Atlantic will adopt FIN 48 for the year beginning January 1,
        2007.  The adoption of FIN 48 is not expected to materially impact
        Atlantic’s 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 Atlantic’s 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
 
 -
              8
              -
 *Index*
 **ATLANTIC
                BANCGROUP, INC. AND
                SUBSIDIARY**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
                (UNAUDITED)**
 **MARCH
                31,
                2007**
  **NOTE
        1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES**
        (Continued)
  with
        either SFAS 106 or APB Opinion 12.  This consensus is to be to be
        applied to fiscal years beginning after December 15, 2007, with earlier
        application permitted.  Atlantic has not completed its evaluation of
        this EITF; however, the initial assessment is that adoption will not materially
        impact its financial position, results of operations, or liquidity.
 
 In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        No.
        159, *The Fair Value Option for Financial Assets and Financial Liabilities
        -
        including an amendment of FASB Statement No. 115* (“SFAS
        159”).  This statement permits entities to choose to measure many
        financial instruments and certain other items at fair value. The objective
        is to
        improve financial reporting by providing entities with the opportunity to
        mitigate volatility in reported earnings caused by measuring related assets
        and
        liabilities differently without having to apply complex hedge accounting
        provisions.  SFAS 159 is expected to expand the use of fair value
        measurement, which is consistent with the Board’s long-term measurement
        objectives for accounting for financial instruments.  SFAS 159 is
        effective as of the beginning of an entity’s first fiscal year that begins after
        November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
        year that begins on or before November 15, 2007, provided the entity also
        elects
        to apply the provisions of SFAS 157.  Atlantic has not completed its
        evaluation of this statement; however, the initial assessment is that adoption
        will not materially impact its 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 months
        ended
        March 31, 2007 and 2006.  Diluted EPS are computed by dividing net
        earnings by the weighted average number of shares and all dilutive potential
        shares outstanding during the period.  We have no dilutive potential
        shares outstanding for 2007 or 2006.  The following information was
        used in the computation of EPS on both a basic and diluted basis for the
        three
        months ended March 31, 2007 and 2006 (dollars and number of shares in
        thousands):
 
 **Three
                  Months Ended March 31,****2007**
              
              
              **2006**Basic
                  and diluted EPS computation:Numerator
                  - Net income
              
              $
              460
              
              
              $
              445Denominator
                  - Weighted average shares outstanding (rounded)
              
              
              1,248
              
              
              
              1,248Basic
                  and diluted EPS
              
              $
              0.37
              
              
              $
              0.36
 
 **NOTE
        3 - INVESTMENT SECURITIES**
 
 The
        amortized cost and estimated fair value of instruments in debt and equity
        securities are as follows (dollars in thousands):
 **March
                    31, 2007**
                
                
                **December
                    31, 2006****Gross**
                
                
                **Gross**
                
                
                
                
                
                
                
                
                **Gross**
                
                
                **Gross****Amortized**
                
                
                **Unrealized**
                
                
                **Unrealized**
                
                
                **Fair**
                
                
                **Amortized**
                
                
                **Unrealized**
                
                
                **Unrealized**
                
                
                **Fair****Cost**
                
                
                **Gains**
                
                
                **Losses**
                
                
                **Value**
                
                
                **Cost**
                
                
                **Gains**
                
                
                **Losses**
                
                
                **Value**Available-for-saleU.S.
                    Government-sponsored
                    agency
                
                $
                1,000
                
                
                $
                8
                
                
                $
                -
                
                
                $
                1,008
                
                
                $
                1,000
                
                
                $
                7
                
                
                $
                -
                
                
                $
                1,007Mortgage-backed
                    securities
                
                
                27,626
                
                
                
                20
                
                
                
                (407
                )
                
                
                27,239
                
                
                
                29,259
                
                
                
                24
                
                
                
                (485
                )
                
                
                28,79828,626
                
                
                
                28
                
                
                
                (407
                )
                
                
                28,247
                
                
                
                30,259
                
                
                
                31
                
                
                
                (485
                )
                
                
                29,805Held-to-maturityState,
                    county andmunicipal
                    bonds
                
                
                10,030
                
                
                
                133
                
                
                
                (90
                )
                
                
                10,073
                
                
                
                10,032
                
                
                
                144
                
                
                
                (38
                )
                
                
                10,138Total
                    investment securities
                
                $
                38,656
                
                
                $
                161
                
                
                $
                (497
                )
                
                $
                38,320
                
                
                $
                40,291
                
                
                $
                175
                
                
                $
                (523
                )
                
                $
                39,943
 
 -
              9
              -
 *Index*
 **ATLANTIC
                BANCGROUP, INC. AND
                SUBSIDIARY**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
                (UNAUDITED)**
 **MARCH
                31,
                2007**
 
 **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, and (iii) the intent and ability of Atlantic
        to retain its investment in the issuer for a period of time sufficient to
        allow
        for any anticipated recovery in fair value.
 
 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 March 31, 2007, of $379,000 (less
        deferred income taxes of $143,000) are regarded as an adjustment to
        stockholders' equity totaling $236,000.  The estimated fair value of
        securities is determined on the basis of market quotations.
 
 At
        March
        31, 2007, securities with an amortized cost of $871,000 and fair value of
        $916,000 were pledged to secure deposits of public funds from the State of
        Florida and treasury tax and loan deposits with the Federal
        Reserve.
 
 At
        March
        31, 2007, securities were sold under an agreement to repurchase with a fair
        value of $21.0 million, which effectively collateralizes overnight customer
        repurchase agreements totaling $21.0 million.
 
 There
        were no securities of a single issuer, which are non-governmental or
        non-government sponsored, that exceeded 10% of stockholders’ equity at March 31,
        2007.
 
 
 **NOTE
        4 - LOANS**
 
 Loans
        consisted of (dollars in thousands):
 **March
                  31,**
              
              
              **December
                  31,****2007**
              
              
              **2006**Real
                  estate loans:Construction,
                  land development, and other land
              
              $
              54,075
              
              
              $
              51,5981-4
                  family residential
              
              
              38,346
              
              
              
              38,018Multifamily
                  residential
              
              
              2,472
              
              
              
              2,489Commercial
              
              
              72,218
              
              
              
              68,588167,111
              
              
              
              160,693Commercial
                  loans
              
              
              9,953
              
              
              
              11,214Consumer
                  and other loans
              
              
              5,131
              
              
              
              5,828Total
                  loan portfolio
              
              
              182,195
              
              
              
              177,735Less,
                  deferred fees
              
              
              (43
              )
              
              
              (27
              )Less,
                  allowance for loan losses
              
              
              (1,644
              )
              
              
              (1,599
              )Loans,
                  net
              
              $
              180,508
              
              
              $
              176,109
 
 -
              10
              -
 *Index*
 **ATLANTIC
                BANCGROUP, INC. AND
                SUBSIDIARY**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
                (UNAUDITED)**
 **MARCH
                31,
                2007**
 
 **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 Three**
              
              
              **For
                  the Twelve****Months
                  Ended**
              
              
              **Months
                  Ended****March
                  31, 2007**
              
              
              **December
                  31, 2006**Balance,
                  beginning of period
              
              $
              1,599
              
              
              $
              1,552Provisions
                  charged to operating expenses
              
              
              62
              
              
              
              194Loans,
                  charged-off
              
              
              (21
              )
              
              
              (181
              )Recoveries
              
              
              4
              
              
              
              34Balance,
                  end of period
              
              $
              1,644
              
              
              $
              1,599
 
 We
        had
        one loan totaling $53,000 categorized as nonaccrual at March 31, 2007, and
        December 31, 2006.
 
 
 **NOTE
        6 - OTHER BORROWINGS**
 
 A
        summary
        follows (dollars in thousands):
 **March
                  31,**
              
              
              **December
                  31,****2007**
              
              
              **2006**FHLB
                  of Atlanta advances
              
              $
              2,300
              
              
              $
              2,300Junior
                  subordinated debentures
              
              
              3,093
              
              
              
              3,093Total
                  other borrowings
              
              $
              5,393
              
              
              $
              5,393
 
 **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 March 31, 2007, consisted of
        commitments to extend credit approximating $29.0 million and standby letters
        of
        credit of $1.7 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)**
 **MARCH
                31,
                2007**
 
 **NOTE
        8 - REGULATORY CAPITAL**
 
 Oceanside
        is required to maintain certain minimum regulatory capital
        requirements.  The following is a summary at March 31, 2007, of the
        regulatory capital requirements and actual capital on a percentage basis
        for
        Oceanside:
 **Regulatory****Actual**
              
              
              **Requirement**Total
                  capital ratio to risk-weighted assets
              
              
              10.92
              %
              
              
              8.00
              %Tier
                  1 capital ratio to risk-weighted assets
              
              
              10.13
              %
              
              
              4.00
              %Tier
                  1 capital to average assets
              
              
              8.88
              %
              
              
              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*
 
 **ITEM2.**
              **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 2007 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 2006
        Annual
        Report on Form 10-KSB.
 
 
 **Results
        of Operations**
 
 Our
        net
        income for the three months ended March 31, 2007, was $460,000 as compared
        with
        $445,000, reported in the same period of 2006.  Average earning assets
        increased 10.8% in the first quarter of 2007 over the first quarter 2006
        levels.  An overview of the more significant matters affecting our
        results of operations follows:
 
 ·
              Average
                  loans grew at a pace of 12.7% for the three months ended March
                  31, 2007,
                  over the same period of 2006.  With the growth in average
                  deposits of 13.1%, 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) $83,000, or 4.3%, during the three months
                  ended
                  March 31, 2007, over the comparable period of
                  2006.
 ·
              While
                  our operating expenses increased in 2007 over 2006, the growth
                  in
                  noninterest expenses lagged growth in earning assets, with increases
                  of
                  $34,000, or 2.3%, for the three months ended March 31, 2007, over
                  the
                  comparable period of 2006.
 ·
              Our
                  return on stockholders’ equity for the three months ended March 31, 2007,
                  was 10.7%.
 
 **Financial
        Condition**
 
 The
        following table shows selected ratios for the periods ended or at the dates
        indicated (annualized for the three months ended March 31, 2007):
 **Three
                  Months**
              
              **Year
                  Ended****Ended**
              
              **December
                  31,****March
                  31, 2007**
              
              **2006**Return
                  on average assets
              
              
              0.79
              %
              
              
              0.85
              %Return
                  on average equity
              
              
              10.69
              %
              
              
              11.96
              %Interest-rate
                  spread
              
              
              3.03
              %
              
              
              3.10
              %Net
                  interest margin
              
              
              3.77
              %
              
              
              3.84
              %Noninterest
                  expenses to average assets
              
              
              2.63
              %
              
              
              2.65
              %
 
 **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 $23.5 million at March
                  31,
                  2007;
 ·
              The
                  repayment of loans, which include loans with a remaining maturity
                  of one
                  year or less (excluding those in nonaccrual status) totaling $100.8
                  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 $16.0 million at March 31,
        2007,
        as compared to $11.1 million at December 31, 2006.  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
        $151.6 million at March 31, 2007, and $146.6 million at December 31, 2006,
        an
        increase of 3.4%.  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 March 31, 2007, we had
        commitments to originate loans totaling $29.0 million, and had issued, but
        unused, standby letters of credit of $1.7 million for the same
        period.  In addition, scheduled maturities of certificates of deposit
        during the 12 months following March 31, 2007, total $86.9
        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
        March 31, 2007, 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 March 31, 2007, 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 March 31, 2007, 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
              
              $
              22,715
              
              
              
              10.92
              %
              
              $
              16,641
              
              
              
              8.00
              %
              
              $
              20,802
              
              
              
              10.00
              %Tier
                  1 capital to risk-weighted assets
              
              $
              21,071
              
              
              
              10.13
              %
              
              $
              8,321
              
              
              
              4.00
              %
              
              $
              12,481
              
              
              
              6.00
              %Tier
                  1 capital to average assets
              
              $
              21,071
              
              
              
              8.88
              %
              
              $
              9,492
              
              
              
              4.00
              %
              
              $
              11,865
              
              
              
              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 March 31, 2007, 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
          March
          31, 2007, we had eleven loan relationships totaling approximately $4.9
          million
          classified as substandard.  The one doubtful loan has been written
          down to the portion guaranteed by the SBA, which totals
          $53,000.  Management anticipates that the $53,000, plus legal fees,
          will be fully recovered from the SBA.  We had no loans classified as
          loss at March 31, 2007.  Included in substandard loans is one loan
          relationship totaling $3.6 million that management believes is
          well-secured.
 
 *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 Three**
              
              
              **For
                  the Twelve****Months
                  Ended**
              
              
              **Months
                  Ended****March
                  31, 2007**
              
              
              **December
                  31, 2006**End
                  of period loans (net of deferred fees)
              
              $
              182,152
              
              
              $
              177,708End
                  of period allowance for loan losses
              
              $
              1,644
              
              
              $
              1,599%
                  of allowance for loan losses to total loans
              
              
              0.90
              %
              
              
              0.90
              %Average
                  loans for the period
              
              $
              180,974
              
              
              $
              167,883Net
                  charge-offs as a percentage of average loansfor
                  the period (annualized for 2007)
              
              
              0.04
              %
              
              
              0.09
              %Nonperforming
                  assets:Nonaccrual
                  loans
              
              $
              53
              
              
              $
              53Loans
                  past due 90 days or more and still accruing
              
              
              -
              
              
              
              -Foreclosed
                  real estate
              
              
              -
              
              
              
              -Other
                  repossessed assets
              
              
              -
              
              
              
              -$
              53
              
              
              $
              53Nonperforming
                  assets to period end loans
              
              
              0.03
              %
              
              
              0.03
              %Nonperforming
                  assets to period end total assets
              
              
              0.02
              %
              
              
              0.02
              %
 
 
 **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, 2006.
 
 
 -
              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 March 31,****2007**
              
              
              **2006****Interest**
              
              
              **Average**
              
              
              
              
              
              **Interest**
              
              
              **Average****Average**
              
              
              **and**
              
              
              **Yield/**
              
              
              **Average**
              
              
              **and**
              
              
              **Yield/****Balance**
              
              
              **Dividends**
              
              
              **Rate**
              
              
              **Balance**
              
              
              **Dividends**
              
              
              **Rate**Interest-earning
                  assets:Loans
              
              $
              180,974
              
              
              $
              3,761
              
              
              
              8.43
              %
              
              $
              160,510
              
              
              $
              3,115
              
              
              
              7.87
              %Investment
                  securities andinterest-bearing
                  deposits (1)
              
              
              39,109
              
              
              
              442
              
              
              
              5.27
              %
              
              
              37,385
              
              
              
              389
              
              
              
              4.68
              %Other
                  interest-earning assets
              
              
              2,826
              
              
              
              39
              
              
              
              5.60
              %
              
              
              3,308
              
              
              
              38
              
              
              
              4.66
              %Total
                  interest-earning assets (1)
              
              
              222,909
              
              
              
              4,242
              
              
              
              7.84
              %
              
              
              201,203
              
              
              
              3,542
              
              
              
              7.22
              %Noninterest-earning
                  assets
              
              
              14,578
              
              
              
              
              
              
              
              
              
              
              
              14,665Total
                  assets
              
              $
              237,487
              
              
              
              
              
              
              
              
              
              
              $
              215,868Interest-bearing
                  liabilities:Demand,
                  money marketand
                  NOW deposits
              
              $
              45,791
              
              
              
              459
              
              
              
              4.07
              %
              
              $
              40,248
              
              
              
              278
              
              
              
              2.80
              %Savings
              
              
              4,791
              
              
              
              18
              
              
              
              1.52
              %
              
              
              5,541
              
              
              
              13
              
              
              
              0.95
              %Certificates
                  of deposit
              
              
              116,045
              
              
              
              1,486
              
              
              
              5.19
              %
              
              
              95,470
              
              
              
              1,046
              
              
              
              4.44
              %Other
                  borrowings
              
              
              21,653
              
              
              
              272
              
              
              
              5.09
              %
              
              
              25,157
              
              
              
              281
              
              
              
              4.53
              %Total
                  interest-bearing liabilities
              
              
              188,280
              
              
              
              2,235
              
              
              
              4.81
              %
              
              
              166,416
              
              
              
              1,618
              
              
              
              3.94
              %Noninterest-bearing
                  liabilities
              
              
              31,761
              
              
              
              
              
              
              
              
              
              
              
              34,137Stockholders’
                  equity
              
              
              17,446
              
              
              
              
              
              
              
              
              
              
              
              15,315Total
                  liabilities andstockholders’
                  equity
              
              $
              237,487
              
              
              
              
              
              
              
              
              
              
              $
              215,868Net
                  interest income beforeprovision
                  for loan losses
              
              
              
              
              
              $
              2,007
              
              
              
              
              
              
              
              
              
              
              $
              1,924Interest-rate
                  spread
              
              
              
              
              
              
              
              
              
              
              3.03
              %
              
              
              
              
              
              
              
              
              
              
              3.28
              %Net
                  interest margin (1)
              
              
              
              
              
              
              
              
              
              
              3.77
              %
              
              
              
              
              
              
              
              
              
              
              3.96
              %Ratio
                  of average interest-earning assetsto
                  average interest-bearing liabilities
              
              
              118.39
              %
              
              
              
              
              
              
              
              
              
              
              120.90
              %
 
 
 (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*
 
 **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 months period ended March 31, 2007, compared to the same period in
        2006
        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 March 31,2007
                  vs. 2006Increase
                  (Decrease) Due toRate/Rate
              
              
              Volume
              
              
              Volume
              
              
              TotalInterest-earning
                  assets:Loans
              
              $
              222
              
              
              $
              397
              
              
              $
              27
              
              
              $
              646Investment
                  securities and interest-bearing deposits
              
              
              54
              
              
              
              20
              
              
              
              (22
              )
              
              
              52Other
                  interest-earning assets
              
              
              8
              
              
              
              (6
              )
              
              
              (1
              )
              
              
              1Total
                  interest-earning assets
              
              
              284
              
              
              
              411
              
              
              
              4
              
              
              
              699Interest-bearing
                  liabilities:Demand,
                  money market and NOW deposits
              
              
              126
              
              
              
              38
              
              
              
              17
              
              
              
              181Savings
              
              
              8
              
              
              
              (2
              )
              
              
              (1
              )
              
              
              5Certificates
                  of deposit
              
              
              177
              
              
              
              225
              
              
              
              38
              
              
              
              440Other
                  borrowings
              
              
              35
              
              
              
              (39
              )
              
              
              (5
              )
              
              
              (9
              )Total
                  interest-bearing liabilities
              
              
              346
              
              
              
              222
              
              
              
              49
              
              
              
              617Net
                  interest income
              
              $
              (62
              )
              
              $
              189
              
              
              $
              (45
              )
              
              $
              82
 
 
 **Comparison
        of Three Months Ended March 31, 2007 and 2006**
 
 **Interest
        Income and Expense**
 
 *Interest
        Income*.  Interest income was $4,242,000 and $3,542,000 for the
        three months ended March 31, 2007 and 2006, respectively.  An increase
        in yields on average interest-earning assets of 62 basis points, or 8.6%,
        and
        the favorable growth in average interest-earning assets of $21.7 million,
        or
        10.8%, contributed to an overall growth rate of 19.8% 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 81.2% in the first quarter of 2007
        as
        compared with 79.8% in 2006.  We saw a shift in the percentage of
        average investment securities and interest-bearing deposits to 17.5% in 2007
        from 18.6% in 2006, while the percentage of average other interest-earning
        assets to total average interest-earning assets shifted from 1.6% in 2006
        to
        1.3% in 2007.
 
 *Interest
        Expense.*  Interest expense was $2,235,000 and $1,618,000 for the
        three months ended March 31, 2007 and 2006, respectively.  As a result
        of the increasing interest rate environment and our growth in average
        interest-bearing liabilities of $21.9 million, or 13.1%, during this period,
        interest expense increased $617,000, or 38.1%.  Our average cost of
        funds (interest-bearing liabilities) rose to 4.81% in 2007 compared with
        3.94%
        over the same period in 2006.  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
        5.19% in 2007 and 4.44% in 2006, represented approximately 61.6% of our total
        interest-bearing liabilities in 2007 as compared with 57.4% in
        2006.  We also experienced declines (or only moderate growth) in other
        lower costing deposits and borrowed funds.  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 $2,007,000 and $1,924,000 for
        the
        three months ended March 31, 2007 and 2006, respectively.  The net
        interest margin for the first quarter of 2007 was 3.77% as compared with
        the net
        interest margin in 2006 of 3.96%, a decrease of 19 basis
        points.  Given our composition of interest-bearing liabilities, we
        experienced a more rapid increase in our cost of funds of 87 basis points,
        while
        the rates we earned on our earning assets increased by 62 basis points in
        the
        first quarter of 2007 over the same period of 2006.
 
 -
              19
              -
 *Index*
 
 **Provision
        for Loan Losses**
 
 We
        recorded provisions for loan losses totaling $62,000 and $12,000 for the
        three
        months ended March 31, 2007 and 2006, respectively, which management considered
        appropriate after its assessment of the overall quality of the loan
        portfolio.
 
 **Noninterest
        Income and Expenses**
 
 *Noninterest
        Income.*  Total noninterest income increased to $260,000 for the
        three months ended March 31, 2007, compared with $258,000 for the same period
        in
        March 31, 2006.  Fees and service charges on deposit accounts declined
        slightly by $4,000, or 2.6%, in 2007 versus the same period in
        2006.  Mortgage banking fees declined $24,000, or 66.7%, during this
        period reflecting trends in the residential lending market.  Other fee
        income for banking services increased $20,000, or 60.6%, principally due
        to
        increases in usage and per item charges assessed by us for other banking
        services.
 
 *Noninterest
          Expenses.*  Salaries and employee benefits increased $44,000 in
          the first quarter of 2007 over 2006.  Compensation costs, including
          bonuses rose $25,000, or 4.3%, with the largest increases in group insurance
          of
          $6,000 and other employee benefits of $10,000.  Lower depreciation
          costs contributed to a 6.8% decline in expenses of bank premises and fixed
          assets.  Other operating expenses increased only 2.1% with higher
          pension costs of $6,000 contributing to more than half the overall increase
          of
          $10,000.  Increases in total noninterest expenses of 2.3% reflected
          stabilization of our growth in our branching network.
 **Provision
        for Income Taxes**
 
 The
        income tax provision was $203,000 for the three months ended March 31, 2007,
        an
        effective rate of 30.6%. This compares with an effective rate of 32.8% for
        the
        same period in 2006.  The effective tax rates in 2007 and 2006 differ
        from the federal and state statutory rates principally due to nontaxable
        investment income.  Tax-exempt income was $110,000 for the first
        quarter of 2007 as compared with $69,000 in 2006.  This increase of
        59.4% has outpaced our growth in taxable income and, accordingly, our effective
        rate has decreased in 2007.
 
 
 **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.


-
              20
              -
 *Index*
 **ATLANTIC
                BANCGROUP, INC. AND
                SUBSIDIARY**
  PARTII:
                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
                    6.
                Exhibits.
 
 **Legend**
 
 (a)
                Incorporated
                    by reference on Atlantic’s Form 10-KSB for year ended December 31,
                    1999
 (b)
                Incorporated
                    by reference on Atlantic’s Form 10-KSB for year ended December 31,
                    2000
 (c)
                Incorporated
                    by reference on Atlantic’s Form 10-KSB for year ended December 31,
                    2002
 (d)
                Incorporated
                    by reference on Atlantic’s Form 10-KSB for year ended December 31,
                    2003
 (e)
                Incorporated
                    by reference on Atlantic’s Form 10-QSB for quarter ended September 30,
                    2006
 
 ****
 
 **Exhibit
                  No.**
                **Description
                  of Exhibit**  3.1
                Articles
                    of Incorporation (a)
 3.2
                Bylaws
                    (a)
 4.1
                Specimen
                    Stock Certificate (a)
 10.1
                Software
                    License Agreement dated as of October 6, 1997, between Oceanside
                    and File
                    Solutions, Inc. (a)
 10.2
                File
                    Solutions Software Maintenance Agreement dated as of July 15,
                    1997,
                    between Oceanside and SPARAK Financial Systems, Inc.
                    (a)
 10.3
                Remote
                    Data Processing Agreement dated as of March 3, 1997, between
                    Oceanside and
                    Bankers Data Services, Inc. (a)
 10.4
                Lease
                    dated September 27, 2000, between MANT EQUITIES, LLC and Oceanside.
                    (b)
 10.5
                Lease
                    dated August 22, 2002, between PROPERTY MANAGEMENT SUPPORT, INC.,
                    and
                    Oceanside. (c)
 10.6
                Change
                    in Control Agreement for Barry W. Chandler.
                    (e)
 10.7
                Change
                    in Control Agreement for David L. Young.
                    (e)
 10.8
                Change
                    in Control Agreement for Grady R. Kearsey.
                    (e)
 14
                Code
                    of Ethics for Senior Officers Policy.
                    (d)
 16
                Letter
                    on Change of Certifying Accountant (incorporated by reference
                    on Form 8-K
                    filed October 2, 2006).
 31.1
                Certifications
                    of Principal Executive Officer required by Rule 13a-14(a)/15d-14(a)
                    under
                    the Exchange Act
 31.2
                Certifications
                    of Principal Financial Officer required by Rule 13a-14(a)/15d-14(a)
                    under
                    the Exchange Act
 32.1
                Certifications
                    of Principal Executive Officer pursuant to 18 U.S.C. Section
                    1350, as
                    adopted pursuant to Section 906 of Sarbanes-Oxley Act of
                    2002
 32.2
                Certifications
                    of Principal Financial Officer pursuant to 18 U.S.C. Section
                    1350, as
                    adopted pursuant to Section 906 of Sarbanes-Oxley Act of
                    2002
  -
              21
              -
 *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:  May
                    11, 2007
                /s/
                    Barry W. ChandlerBarry
                    W. ChandlerPresident
                    and Chief Executive OfficerDate:  May
                    11, 2007
                /s/
                    David L. YoungDavid
                    L. YoungExecutive
                    Vice President,Chief
                    Financial Officer, andCorporate
                    Secretary
 
 
 
 -
          22
          -