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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





(MARK ONE)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Quarterly Period ended March 31, 2010

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the Transition Period from  to

Commission File No. 333-127242





Atlantic Bancshares, Inc.

(Exact name of registrant as specified in its charter)







|                                               |  |                                     
|---------------------------------------------- |  | ------------------------------------
|South Carolina                                 |  | 20-3047433                          
|(State or other jurisdiction
of incorporation) |  | (I.R.S. Employer
Identification No.)

One Sheridan Park Circle, PO Box 3077

Bluffton, South Carolina 29910

(Address of principal executive offices)

(843) 815-7111

(Registrants telephone number, including area code)

1 Sheridan Drive, Suite J Bluffton, South Carolina 29910

(Address of former principal executive offices)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).     ̈  Yes     ̈  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act).





|                        |  |                                                |  |                           |  |  
|----------------------- |  | ---------------------------------------------- |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                              |  | Accelerated filer         |  |  ̈
|                        |  |                                                | 
|Non-accelerated         |  |  ̈  (do not check if smaller reporting company) |  | Smaller reporting company |  | x

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

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:

1,403,147 shares of common stock, no par value per share, were issued and outstanding as of May 14, 2010.









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INDEX



|                               |  |                                                                                                     |  |         
|------------------------------ |  | --------------------------------------------------------------------------------------------------- |  | --------
|                               |  |                                                                                                     |  | Page No.
|PART I - FINANCIAL INFORMATION |  |                                                                                                    
|                               |  |                                                                                                    
|Item 1.                        |  | Financial Statements (Unaudited)                                                                    |  |         
|                               |  |                                                                                                    
|                               |  | Condensed Balance Sheets - March 31, 2010 and December 31, 2009                                     |  | 1       
|                               |  |                                                                                                    
|                               |  | Condensed Statements of Operations - Three months ended March 31, 2010 and 2009                     |  | 2       
|                               |  |                                                                                                    
|                               |  | Condensed Statements of Shareholders Equity (Deficit) - Three months ended March 31, 2010 and 2009 |  | 3       
|                               |  |                                                                                                    
|                               |  | Condensed Statements of Cash Flows - Three months ended March 31, 2010 and 2009                     |  | 4       
|                               |  |                                                                                                    
|                               |  | Notes to Condensed Financial Statements                                                             |  | 5       
|                               |  |                                                                                                    
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations               |  | 9       
|                               |  |                                                                                                    
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                          |  | 19      
|                               |  |                                                                                                    
|Item 4T.                       |  | Controls and Procedures                                                                             |  | 19      
|                               | 
|PART II - OTHER INFORMATION    |  |                                                                                                    
|                               |  |                                                                                                    
|Item 1.                        |  | Legal Proceedings                                                                                   |  | 20      
|                               |  |                                                                                                    
|Item 1A.                       |  | Risk Factors                                                                                        |  | 20      
|                               |  |                                                                                                    
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                         |  | 20      
|                               |  |                                                                                                    
|Item 3.                        |  | Defaults Upon Senior Securities                                                                     |  | 20      
|                               |  |                                                                                                    
|Item 4.                        |  | Removed and Reserved                                                                                |  | 20      
|                               |  |                                                                                                    
|Item 5.                        |  | Other Information                                                                                   |  | 20      
|                               |  |                                                                                                    
|Item 6.                        |  | Exhibits                                                                                            |  | 20      



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##### Table of Contents

ATLANTIC BANCSHARES, INC.

Consolidated Balance Sheets

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements.



|                                                                |  |               |            |   |                  |   |            |  
|--------------------------------------------------------------- |  | ------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                                |  | March 31,2010 |            |   | December 31,2009 |  
|                                                                |  | (Unaudited)   |            |   | (Audited)        |  
|Assets:                                                         |  |               |            |   |                  |   |            |  
|Cash and cash equivalents:                                      |  |               |            |   |                  |   |            |  
|Cash and due from banks                                         |  | $             | 3,147,450  |   |                  | $ | 4,402,201  |  
|                                                                |  |               |            |   |                  |   |            |  
|Total cash and cash equivalents                                 |  |               | 3,147,450  |   |                  |   | 4,402,201  |  
|                                                                |  |               |            |   |                  |   |            |  
|Securities available for sale                                   |  |               | 10,052,608 |   |                  |   | 12,775,503 |  
|Nonmarketable equity securities                                 |  |               | 1,003,600  |   |                  |   | 1,003,600  |  
|                                                                |  |              
|Loans receivable                                                |  |               | 71,727,667 |   |                  |   | 73,228,508 |  
|Less allowance for loan losses                                  |  |               | (841,929   | ) |                  |   | (864,417   | )
|                                                                |  |               |            |   |                  |   |            |  
|Loans, net                                                      |  |               | 70,885,738 |   |                  |   | 72,364,091 |  
|                                                                |  |              
|Accrued interest receivable                                     |  |               | 307,697    |   |                  |   | 317,257    |  
|Premises, furniture and equipment, net                          |  |               | 949,921    |   |                  |   | 985,960    |  
|Other assets                                                    |  |               | 832,946    |   |                  |   | 897,377    |  
|                                                                |  |               |            |   |                  |   |            |  
|Total assets                                                    |  | $             | 87,179,960 |   |                  | $ | 92,745,989 |  
|                                                                |  |               |            |   |                  |   |            |  
|Liabilities:                                                    |  |               |            |   |                  |   |            |  
|Deposits:                                                       |  |               |            |   |                  |   |            |  
|Noninterest bearing transaction accounts                        |  | $             | 7,780,388  |   |                  | $ | 9,708,565  |  
|Interest-bearing transaction accounts                           |  |               | 2,047,553  |   |                  |   | 2,767,108  |  
|Savings and money market                                        |  |               | 16,621,378 |   |                  |   | 15,781,257 |  
|Time deposits $100,000 and over                                 |  |               | 21,605,572 |   |                  |   | 19,962,912 |  
|Other time deposits                                             |  |               | 15,079,097 |   |                  |   | 14,508,623 |  
|                                                                |  |               |            |   |                  |   |            |  
|Total deposits                                                  |  |               | 63,133,988 |   |                  |   | 62,728,465 |  
|                                                                |  |               |            |   |                  |   |            |  
|Advances from Federal Home Loan Bank                            |  |               | 13,500,000 |   |                  |   | 17,500,000 |  
|Advances from Federal Reserve Bank                              |  |               |           |   |                  |   | 2,000,000  |  
|Accrued interest payable                                        |  |               | 197,181    |   |                  |   | 212,107    |  
|Other liabilities                                               |  |               | 309,055    |   |                  |   | 300,191    |  
|                                                                |  |               |            |   |                  |   |            |  
|Total liabilities                                               |  |               | 77,140,224 |   |                  |   | 82,740,763 |  
|                                                                |  |               |            |   |                  |   |            |  
|Shareholders equity:                                           |  |               |            |   |                  |   |            |  
|Preferred stock, no par value, 10,000,000 shares authorized;    |  |               |            |   |                  |   |            |  
|Series A, 2,000 shares issued and outstanding                   |  |               | 1,883,335  |   |                  |   | 1,878,008  |  
|Series B, $1,000 stated value; 98 shares issued and outstanding |  |               | 106,609    |   |                  |   | 106,992    |  
|Common stock, no par value, 10,000,000 shares authorized;       |  |               |            |   |                  |   |            |  
|1,403,147 shares issued and outstanding                         |  |               | 12,861,731 |   |                  |   | 12,861,731 |  
|Capital surplus                                                 |  |               | 413,449    |   |                  |   | 385,432    |  
|Accumulated other comprehensive income                          |  |               | 362,567    |   |                  |   | 380,532    |  
|Deficit                                                         |  |               | (5,587,955 | ) |                  |   | (5,607,469 | )
|                                                                |  |               |            |   |                  |   |            |  
|Total shareholders equity                                      |  |               | 10,039,736 |   |                  |   | 10,005,226 |  
|                                                                |  |               |            |   |                  |   |            |  
|Total liabilities and shareholders equity                      |  | $             | 87,179,960 |   |                  | $ | 92,745,989 |  
|                                                                |  |               |            |   |                  |   |            |  

See notes to consolidated financial statements.



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ATLANTIC BANCSHARES, INC.

Consolidated Statements of Operations

(Unaudited)



|                                                     |  |                    |           |   |               |   |           |  
|---------------------------------------------------- |  | ------------------ | --------- | - | ------------- | - | --------- | -
|                                                     |  | Three months ended |          
|                                                     |  | March 31,2010      |           |   | March 31,2009 |  
|Interest income:                                     |  |                    |           |   |               |   |           |  
|Loans, including fees                                |  | $                  | 1,097,632 |   |               | $ | 1,122,672 |  
|Securities, available for sale, taxable              |  |                    | 138,283   |   |               |   | 195,765   |  
|Nonmarketable equity securities                      |  |                    | 683       |   |               |   |          |  
|Federal funds sold                                   |  |                    |          |   |               |   | 118       |  
|Interest bearing deposits with other banks           |  |                    | 100       |   |               |   | 18        |  
|                                                     |  |                    |           |   |               |   |           |  
|Total                                                |  |                    | 1,236,698 |   |               |   | 1,318,573 |  
|                                                     |  |                    |           |   |               |   |           |  
|Interest expense:                                    |  |                    |           |   |               |   |           |  
|Time deposits $100,000 and over                      |  |                    | 99,524    |   |               |   | 185,614   |  
|Other deposits                                       |  |                    | 145,244   |   |               |   | 232,463   |  
|Other borrowings                                     |  |                    | 127,580   |   |               |   | 140,954   |  
|                                                     |  |                    |           |   |               |   |           |  
|Total                                                |  |                    | 372,348   |   |               |   | 559,031   |  
|                                                     |  |                    |           |   |               |   |           |  
|Net interest income                                  |  |                    | 864,350   |   |               |   | 759,542   |  
|                                                     |  |                   
|Provision for loan losses                            |  |                    | 183,000   |   |               |   | 225,000   |  
|                                                     |  |                    |           |   |               |   |           |  
|Net interest income after provision for loan losses  |  |                    | 681,350   |   |               |   | 534,542   |  
|                                                     |  |                   
|Noninterest income:                                  |  |                    |           |   |               |   |           |  
|Service fees on deposit accounts                     |  |                    | 34,717    |   |               |   | 31,941    |  
|Residential mortgage origination fees                |  |                    |          |   |               |   | 8,219     |  
|Gain on sale of investments                          |  |                    | 108,695   |   |               |   |          |  
|Other income                                         |  |                    | 33,220    |   |               |   | 19,870    |  
|                                                     |  |                    |           |   |               |   |           |  
|Total noninterest income                             |  |                    | 176,632   |   |               |   | 60,030    |  
|                                                     |  |                    |           |   |               |   |           |  
|Noninterest expenses:                                |  |                    |           |   |               |   |           |  
|Salaries and employee benefits                       |  |                    | 385,866   |   |               |   | 406,669   |  
|Net occupancy                                        |  |                    | 110,976   |   |               |   | 95,676    |  
|Professional fees                                    |  |                    | 85,806    |   |               |   | 40,098    |  
|Marketing                                            |  |                    | 18,107    |   |               |   | 34,482    |  
|Furniture and equipment                              |  |                    | 25,777    |   |               |   | 47,695    |  
|Data processing and related costs                    |  |                    | 75,277    |   |               |   | 77,014    |  
|FDIC assessments                                     |  |                    | 30,857    |   |               |   | 24,852    |  
|Other operating                                      |  |                    | 105,503   |   |               |   | 72,194    |  
|                                                     |  |                    |           |   |               |   |           |  
|Total noninterest expenses                           |  |                    | 838,169   |   |               |   | 798,680   |  
|                                                     |  |                    |           |   |               |   |           |  
|Income (loss) before income tax expense (benefit)    |  |                    | 19,813    |   |               |   | (204,108  | )
|                                                     |  |                    |           |   |               |   |           |  
|Income tax benefit                                   |  |                    | (18,550   | ) |               |   | (69,399   | )
|                                                     |  |                    |           |   |               |   |           |  
|Net income (loss)                                    |  | $                  | 38,363    |   |               | $ | (134,709  | )
|                                                     |  |                    |           |   |               |   |           |  
|Net accretion of preferred stock to redemption value |  |                    | 4,944     |   |               |   |          |  
|Preferred stock dividends accrued                    |  |                    | 27,205    |   |               |   |          |  
|                                                     |  |                    |           |   |               |   |           |  
|Net income (loss) available to common shareholders   |  | $                  | 6,214     |   |               | $ | (134,709  | )
|                                                     |  |                    |           |   |               |   |           |  
|Basic income (loss) per common share                 |  | $                  | .00       |   |               | $ | (.11      | )
|                                                     |  |                    |           |   |               |   |           |  
|Diluted income (loss) per common share               |  | $                  | .00       |   |               | $ | (.11      | )
|                                                     |  |                    |           |   |               |   |           |  
|Average common shares outstanding                    |  |                    | 1,403,147 |   |               |   | 1,251,577 |  
|                                                     |  |                    |           |   |               |   |           |  

See notes to consolidated financial statements.



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ATLANTIC BANCSHARES, INC.

Consolidated Statements of Changes in Shareholders Equity and Comprehensive Income

For the three months ended March 31, 2010 and 2009

(Unaudited)



|                                                               |  |              |  |                 |            |                          |       |         |   |           |                                     |   |         |                                    |   |            |   |  |   |         |   |  |   |            |  
|-------------------------------------------------------------- |  | ------------ |  | --------------- | ---------- | ------------------------ | ----- | ------- | - | --------- | ----------------------------------- | - | ------- | ---------------------------------- | - | ---------- | - |  | - | ------- | - |  | - | ---------- | -
|                                                               |  | Common Stock |  | Preferred Stock |            | AdditionalPaid-inCapital |       | Deficit |   |           | Accumulatedothercomprehensiveincome |   |         | TotalShareholdersEquity (deficit) |  
|                                                               |  | Shares       |  | Amount          |            | Shares                   |       | Amount  |   |           |                                     |  
|Balance, December 31, 2008                                     |  | 1,251,577    |  | $               | 11,982,122 |                          |      |         | $ |          |                                     | $ | 271,806 |                                    | $ | (2,668,989 | ) |  | $ | 385,065 |   |  | $ | 9,970,004  |  
|Net loss                                                       |  |             |  |                 |           |                          |      |         |   |          |                                     |   |        |                                    |   | (134,709   | ) |  |   |        |   |  |   | (134,709   | )
|Other comprehensive loss, net of taxes of $29,836              |  |             |  |                 |           |                          |      |         |   |          |                                     |   |        |                                    |   |           |   |  |   | 57,914  |   |  |   | 57,914     |  
|                                                               |  |              |  |                 |            |                          |       |         |   |           |                                     |   |         |                                    |   |            |   |  |   |         |   |  |   |            |  
|Total comprehensive loss                                       |  |              |  |                 |            |                          |       |         |   |           |                                     |   |         |                                    |   |            |   |  |   |         |   |  |   | (76,795    | )
|Stock based compensation                                       |  |             |  |                 |           |                          |      |         |   |          |                                     |   | 28,018  |                                    |   |           |   |  |   |        |   |  |   | 28,018     |  
|                                                               |  |              |  |                 |            |                          |       |         |   |           |                                     |   |         |                                    |   |            |   |  |   |         |   |  |   |            |  
|Balance, March 31, 2009                                        |  | 1,251,577    |  | $               | 11,982,122 |                          |      |         | $ |          |                                     | $ | 299,824 |                                    | $ | (2,803,698 | ) |  | $ | 442,979 |   |  | $ | 9,921,227  |  
|                                                               |  |              |  |                 |            |                          |       |         |   |           |                                     |   |         |                                    |   |            |   |  |   |         |   |  |   |            |  
|                                                               |  |              |  |                 |            |                          |       |        
|Balance, December 31, 2009                                     |  | 1,403,147    |  | $               | 12,861,731 |                          | 2,098 |         | $ | 1,985,000 |                                     | $ | 385,432 |                                    | $ | (5,607,469 | ) |  | $ | 380,532 |   |  | $ | 10,005,226 |  
|Net income                                                     |  |             |  |                 |           |                          |      |         |   |          |                                     |   |        |                                    |   | 38,363     |   |  |   |        |   |  |   | 38,363     |  
|Other comprehensive loss, net of taxes of $9,255               |  |             |  |                 |           |                          |      |         |   |          |                                     |   |        |                                    |   |           |   |  |   | (17,965 | ) |  |   | (17,965    | )
|                                                               |  |              |  |                 |            |                          |       |         |   |           |                                     |   |         |                                    |   |            |   |  |   |         |   |  |   |            |  
|Total comprehensive income                                     |  |              |  |                 |            |                          |       |         |   |           |                                     |   |         |                                    |   |            |   |  |   |         |   |  |   | 20,398     |  
|Net accretion/amortization of preferred stock discount premium |  |             |  |                 |           |                          |      |         |   | 4,944     |                                     |   |        |                                    |   | (4,944     | ) |  |   |        |   |  |   |           |  
|Preferred stock dividends                                      |  |             |  |                 |           |                          |      |         |   |          |                                     |   |        |                                    |   | (13,905    | ) |  |   |        |   |  |   | (13,905    | )
|Stock based compensation                                       |  |             |  |                 |           |                          |      |         |   |          |                                     |   | 28,017  |                                    |   |           |   |  |   |        |   |  |   | 28,017     |  
|                                                               |  |              |  |                 |            |                          |       |         |   |           |                                     |   |         |                                    |   |            |   |  |   |         |   |  |   |            |  
|Balance, March 31, 2010                                        |  | 1,403,147    |  | $               | 12,861,731 |                          | 2,098 |         | $ | 1,989,944 |                                     | $ | 413,449 |                                    | $ | (5,587,955 | ) |  | $ | 362,567 |   |  | $ | 10,039,736 |  
|                                                               |  |              |  |                 |            |                          |       |         |   |           |                                     |   |         |                                    |   |            |   |  |   |         |   |  |   |            |  

See notes to consolidated financial statements.



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##### Table of Contents

ATLANTIC BANCSHARES, INC.

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                            |  |                    |            |   |                |   |            |  
|------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | - | -------------- | - | ---------- | -
|                                                                                            |  | Three months ended |           
|                                                                                            |  | March 31, 2010     |            |   | March 31, 2009 |  
|Cash flows from operating activities:                                                       |  |                    |            |   |                |   |            |  
|Net income (loss)                                                                           |  | $                  | 38,363     |   |                | $ | (134,709   | )
|Adjustments to reconcile net loss to net cash provided by operating activities:             |  |                    |            |   |                |   |            |  
|Provision for loan losses                                                                   |  |                    | 183,000    |   |                |   | 225,000    |  
|Loss (gain) on sale of repossessed assets                                                   |  |                    | 8,843      |   |                |   | (600       | )
|Depreciation and amortization expense                                                       |  |                    | 39,216     |   |                |   | 57,275     |  
|Accretion on securities available for sale                                                  |  |                    | (49,778    | ) |                |   | (11,867    | )
|Gain on sale of investments                                                                 |  |                    | (108,695   | ) |                |   |           |  
|Stock-based compensation expense                                                            |  |                    | 28,017     |   |                |   | 28,018     |  
|Deferred income tax expense (benefit)                                                       |  |                    | 16,262     |   |                |   | (69,399    | )
|Deferred tax valuation allowance                                                            |  |                    | (34,812    | ) |                |   |           |  
|Decrease (increase) in interest receivable                                                  |  |                    | 9,560      |   |                |   | (6,668     | )
|Decrease in accrued interest payable                                                        |  |                    | (14,926    | ) |                |   | (13,507    | )
|Decrease in other assets                                                                    |  |                    | 54,966     |   |                |   | 25,831     |  
|Increase (decrease) in other liabilities                                                    |  |                    | 18,119     |   |                |   | (52,229    | )
|                                                                                            |  |                    |            |   |                |   |            |  
|Net cash provided by operating activities                                                   |  |                    | 188,135    |   |                |   | 47,145     |  
|                                                                                            |  |                    |            |   |                |   |            |  
|Cash flows from investing activities:                                                       |  |                    |            |   |                |   |            |  
|Net decrease (increase) in loans receivable                                                 |  |                    | 1,221,868  |   |                |   | (736,844   | )
|Purchase of premises, furniture and equipment                                               |  |                    | (3,177     | ) |                |   |           |  
|Proceeds from sale of repossessed assets                                                    |  |                    | 92,657     |   |                |   | 4,700      |  
|Proceeds from sale of securities available for sale                                         |  |                    | 1,950,955  |   |                |   |           |  
|Repayments of securities available for sale                                                 |  |                    | 903,193    |   |                |   | 788,177    |  
|Purchase of nonmarketable equity securities                                                 |  |                    |           |   |                |   | (112,400   | )
|                                                                                            |  |                    |            |   |                |   |            |  
|Net cash provided (used) by investing activities                                            |  |                    | 4,165,496  |   |                |   | (56,367    | )
|                                                                                            |  |                    |            |   |                |   |            |  
|Cash flows from financing activities:                                                       |  |                    |            |   |                |   |            |  
|Net decrease in demand deposits, interest-bearing transaction accounts and savings accounts |  |                    | (1,807,611 | ) |                |   | (4,360,918 | )
|Net increase in certificate of deposit and other time deposits                              |  |                    | 2,213,134  |   |                |   | 52,415     |  
|Net increase in federal funds purchased                                                     |  |                    |           |   |                |   | 2,302,100  |  
|Net decrease in advances from the Federal Reserve Bank                                      |  |                    | (2,000,000 | ) |                |   |           |  
|Net (decrease) increase in Federal Home Loan Bank advances                                  |  |                    | (4,000,000 | ) |                |   | 2,000,000  |  
|Payment of dividends on preferred stock and warrants                                        |  |                    | (13,905    | ) |                |   |           |  
|                                                                                            |  |                    |            |   |                |   |            |  
|Net cash used by financing activities                                                       |  |                    | (5,608,382 | ) |                |   | (6,403     | )
|                                                                                            |  |                    |            |   |                |   |            |  
|Net decrease in cash and cash equivalents                                                   |  |                    | (1,254,751 | ) |                |   | (15,625    | )
|                                                                                            |  |                    |            |   |                |   |            |  
|Cash and cash equivalents, beginning of the period                                          |  |                    | 4,402,201  |   |                |   | 577,915    |  
|                                                                                            |  |                    |            |   |                |   |            |  
|Cash and cash equivalents, end of the period                                                |  | $                  | 3,147,450  |   |                | $ | 562,290    |  
|                                                                                            |  |                    |            |   |                |   |            |  
|Cash paid for:                                                                              |  |                    |            |   |                |   |            |  
|Interest                                                                                    |  | $                  | 387,274    |   |                | $ | 572,538    |  
|                                                                                            |  |                    |            |   |                |   |            |  
|Income taxes                                                                                |  | $                  |           |   |                | $ |           |  
|                                                                                            |  |                    |            |   |                |   |            |  
|Supplemental disclosures of noncash activities:                                             |  |                    |            |   |                |   |            |  
|Other assets acquired in settlement of loans                                                |  | $                  | 73,485     |   |                | $ | 4,100      |  
|                                                                                            |  |                    |            |   |                |   |            |  

See notes to consolidated financial statements.



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##### Table of Contents

ATLANTIC BANCSHARES, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 - Basis of Presentation

The accompanying unaudited consolidated condensed financial statements for Atlantic Bancshares, Inc. (Company) were prepared
in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting
principles. All adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary for fair presentation of the interim consolidated financial statements have been included. The results of operations for
the three month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the entire year. These consolidated financial statements do not include all disclosures required by generally accepted accounting
principles and should be read in conjunction with the Companys audited consolidated financial statements and related notes for the year ended December 31, 2009.

Note 2 - Recently Issued Accounting Pronouncements

The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting, and / or disclosure of
financial information by the Company.

In January 2010, fair value guidance was amended to require disclosures for significant
amounts transferred in and out of Levels 1 and 2 and the reasons for such transfers and to require that gross amounts of purchases, sales, issuances and settlements be provided in the Level 3 reconciliation. The new disclosures are effective for the
Company for the current quarter and have been reflected in Note 3.

Guidance related to subsequent events was amended in
February 2010 to remove the requirement for an SEC filer to disclose the date through which subsequent events were evaluated. The amendments were effective upon issuance and had no significant impact on the Companys financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected
to have a material impact on the Companys financial position, results of operations or cash flows.

Note 3 - Fair
Value Measurements

The fair value of a financial instrument is the amount at which the asset or obligation could be
exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments.
Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial
instruments, and other factors.

The following methods and assumptions were used to estimate the fair value of significant
financial instruments:

Cash and Due from Banks - The carrying amount is a reasonable estimate of fair value.

Securities Available for Sale - Investment securities available for sale are recorded at fair value on a recurring
basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash
flows, adjusted for the securitys credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury
securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government entities, municipal bonds and corporate debt securities.
Securities classified as Level 3 include asset-backed securities in less liquid markets.

Nonmarketable Equity
Securities - The carrying value of nonmarketable equity securities approximates the fair value since no ready market exists for the stocks.



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ATLANTIC BANCSHARES, INC.

Notes to Consolidated Financial Statements

(Unaudited)



Loans Receivable - Loans receivable are not recorded at fair value on a recurring basis. However,
form time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement
are considered impaired. Once a loan is identified as individually impaired, management will measure impairment. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt,
enterprise value, its liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments of collateral exceed the recorded investment in such loans. At
March 31, 2010, substantially all of the total impaired loans were evaluated based on the fair value of collateral. Impaired loans where an allowance is established based on the fair value of the collateral require classification in the fair
value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, management records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management
determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, management records the impaired loan as nonrecurring Level 3.

Foreclosed Assets - Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently,
foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon individual market prices, appraised values of the collateral or managements estimation of the value of the collateral. When the fair value of
the collateral is based on an observable market price or a current appraised value, management records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral
is further impaired below the appraised value and there is no observable market price, management records the foreclosed asset as nonrecurring Level 3.

Deposits - The fair value of demand deposits, savings, and money market accounts is the amount payable on demand at the reporting
date. The fair values of certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to a schedule of aggregated expected maturities.

Advances from Federal Home Loan Bank - The fair value of fixed rate borrowings are estimated using a discounted cash flow
calculation that applies the Companys current borrowing rate from the Federal Home Loan Bank. The carrying amounts of variable rate borrowings are reasonable estimates of fair value because they can be repriced frequently.

Advances from the Federal Reserve Bank - Effective March 18, 2010, the maximum maturity for Federal Reserve Bank Advances is
shortened to overnight. Previously, Federal Reserve Bank advances were for a term of up to 28 days. In either case, the carrying amount approximates the fair value.

Accrued Interest Receivable and Payable - The carrying value of these instruments is a reasonable estimate of fair value.

Off-Balance-Sheet Financial Instruments - The carrying amount for loan commitments and standby letters of credit which
are off-balance-sheet financial instruments approximates the fair value since the obligations are typically based on current market rates.

The Company has used managements best estimate of fair value based on the above assumptions. Thus, the fair values presented may
not be the amounts that could be realized in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses, which would be incurred in an actual sale or settlement, are not taken into consideration in the fair
value presented.

The estimated fair values of the Companys financial instruments at March 31, 2010 and December 31, 2009 are
as follows:



|                                |  |                |            |                   |   |                |  |           |            |  |   |           
|------------------------------- |  | -------------- | ---------- | ----------------- | - | -------------- |  | --------- | ---------- |  | - | ----------
|                                |  | March 31, 2010 |            | December 31, 2009
|                                |  | CarryingAmount |            | FairValue         |   | CarryingAmount |  | FairValue
|Financial Assets:               |  |                |            |                   |   |                |  |           |            |  |   |           
|Cash and due from banks         |  | $              | 3,147,450  |                   | $ | 3,147,450      |  | $         | 4,402,201  |  | $ | 4,402,201 
|Securities available for sale   |  |                | 10,052,608 |                   |   | 10,052,608     |  |           | 12,775,503 |  |   | 12,775,503
|Nonmarketable equity securities |  |                | 1,003,600  |                   |   | 1,003,600      |  |           | 1,003,600  |  |   | 1,003,600 
|Loans receivable                |  |                | 71,727,667 |                   |   | 72,444,000     |  |           | 73,228,508 |  |   | 73,651,000
|Accrued interest receivable     |  |                | 307,697    |                   |   | 307,697        |  |           | 317,257    |  |   | 317,257   



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ATLANTIC BANCSHARES, INC.

Notes to Consolidated Financial Statements

(Unaudited)



|                                                                   |  |                |            |           |   |                |  |           |            |  |   |           
|------------------------------------------------------------------ |  | -------------- | ---------- | --------- | - | -------------- |  | --------- | ---------- |  | - | ----------
|Financial Liabilities:                                             |  |                |            |           |   |                |  |           |            |  |   |           
|Demand deposits, interest-bearing transaction and savings accounts |  |                | 26,449,319 |           |   | 26,449,319     |  |           | 28,256,930 |  |   | 28,256,930
|Time deposits                                                      |  |                | 36,684,669 |           |   | 37,118,000     |  |           | 34,471,535 |  |   | 34,874,000
|Advances from the Federal Reserve Bank                             |  |                |           |           |   |               |  |           | 2,000,000  |  |   | 2,000,000 
|Advances from Federal Home Loan Bank                               |  |                | 13,500,000 |           |   | 13,833,000     |  |           | 17,500,000 |  |   | 17,880,000
|Accrued interest payable                                           |  |                | 197,181    |           |   | 197,181        |  |           | 212,107    |  |   | 212,107   
|                                                                   |  |                |            |          
|                                                                   |  | NotionalAmount |            | FairValue |   | NotionalAmount |  | FairValue
|Commitments to extend credit                                       |  | $              | 9,546,232  |           | $ |               |  | $         | 9,794,393  |  | $ |          
|Standby letters of credit                                          |  |                | 596,073    |           |   |               |  |           | 212,073    |  |   |          

Generally accepted accounting principles provide a framework for measuring and disclosing fair value. Required disclosures include the
fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition and whether the measurements are made on a recurring basis (for example, available-for-sale investment securities) or on a nonrecurring
basis (for example, impaired loans).

Generally accepted accounting principles define fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. They also establish
a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:



|Level 1 | Quoted prices in active markets for identical assets or liabilities.
|------- | --------------------------------------------------------------------



|Level 2 | Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data.
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------

Assets and liabilities measured at fair value on a recurring basis at March 31, 2010 and December 31,
2009 are as follows:



|                              |  |                                             |   |                                           |   |                                         |  |   |  
|----------------------------- |  | ------------------------------------------- | - | ----------------------------------------- | - | --------------------------------------- |  | - | -
|                              |  | March 31, 2010                             
|                              |  | QuotedMarket Pricein
activemarkets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |   | SignificantUnobservableInputs(Level
 3)
|Available for Sale Securities |  | $                                           |  |                                           | $ | 10,052,608                              |  | $ | 
|                              |  |                                             |   |                                           |   |                                         |  |   |  
|Total                         |  | $                                           |  |                                           | $ | 10,052,608                              |  | $ | 
|                              |  |                                             |   |                                           |   |                                         |  |   |  
|                              | 
|                              |  | December 31, 2009                          
|                              |  | QuotedMarket Pricein
activemarkets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |   | SignificantUnobservableInputs(Level
 3)
|Available for Sale Securities |  | $                                           |  |                                           | $ | 12,775,503                              |  | $ | 
|                              |  |                                             |   |                                           |   |                                         |  |   |  
|Total                         |  | $                                           |  |                                           | $ | 12,775,503                              |  | $ | 
|                              |  |                                             |   |                                           |   |                                         |  |   |  

Foreclosed assets acquired in the settlement of loans
are carried at the lower of cost of carrying value or fair value on a nonrecurring basis. The fair value is dependent primarily upon independent appraisals, which the Company considers level 2 inputs. The aggregate carrying amount of repossessed
assets acquired in the settlement of loans was $184,385 and $212,400 at March 31, 2010 and December 31, 2009, respectively.



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ATLANTIC BANCSHARES, INC.

Notes to Consolidated Financial Statements

(Unaudited)



The Company is predominantly a cash flow lender with real estate serving as collateral
on a substantial majority of loans. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair values of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the
Company considers to be level 2 inputs. The aggregate carrying amount of impaired loans was $2,544,513 and $2,922,462 at March 31, 2010 and December 31, 2009, respectively.

The Company has no assets or liabilities whose fair values are measured using level 3 inputs.

Note 4 - Earnings (Loss) Per Share

Net income (loss) available to common shareholders represents net income adjusted for preferred dividends including dividends declared,
accretions of discounts and amortization of premiums on preferred stock issuances and cumulative dividends related to the current dividend period that have not been declared as of period end.

The following is a summary of the earnings (loss) per share calculations for the three months ended March 31, 2010 and 2009.



|                                                                                                         |  |                              |           |      |   |           |  
|-------------------------------------------------------------------------------------------------------- |  | ---------------------------- | --------- | ---- | - | --------- | -
|                                                                                                         |  | Three months ended March 31, |          
|                                                                                                         |  | 2010                         |           | 2009 |  
|Earnings (loss) available to common shareholders:                                                        |  |                              |           |      |   |           |  
|Net income (loss)                                                                                        |  | $                            | 38,363    |      | $ | (134,709  | )
|Preferred stock dividends                                                                                |  |                              | 27,205    |      |   |          |  
|Deemed dividends on preferred stock resulting from net Accretion of discount and amortization of premium |  |                              | 4,944     |      |   |          |  
|                                                                                                         |  |                              |           |      |   |           |  
|Net income (loss) available to common shareholders                                                       |  | $                            | 6,214     |      | $ | (134,709  | )
|                                                                                                         |  |                              |           |      |   |           |  
|                                                                                                         |  |                             
|Basic income (loss) per share                                                                            |  |                              |           |      |   |           |  
|Net income (loss) available to common shareholders                                                       |  | $                            | 6,214     |      | $ | (134,709  | )
|                                                                                                         |  |                              |           |      |   |           |  
|Average common shares outstanding - basic                                                                |  |                              | 1,403,147 |      |   | 1,251,577 |  
|                                                                                                         |  |                              |           |      |   |           |  
|Basic earnings (loss) per share                                                                          |  | $                            | .00       |      | $ | (.11      | )
|                                                                                                         |  |                              |           |      |   |           |  

Note 5 - Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued.
Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.
Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through the date the financial statements were
issued and no subsequent events have occurred requiring accrual or disclosure.



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##### Table of Contents

ATLANTIC BANCSHARES, INC.



Item 2 - Managements Discussion and Analysis
of Financial Condition and Results of Operations

The following is our discussion and analysis of certain significant
factors that have affected our financial position and operating results and those of our subsidiary, Atlantic Community Bank (the Bank), during the periods included in the accompanying financial statements. This commentary should be read
in conjunction with the financial statements and the related notes and the other statistical information included in this report.

This report contains statements which constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements relate to the financial condition, results of operations, plans, objectives, future performance, and business of our Company.
Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many
factors about which we are unsure, including many factors which are beyond our control. The words may, would, could, should, will, expect, anticipate,
predict, project, potential, continue, assume, believe, intend, plan, forecast, goal, and estimate, as well as
similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, without
limitation, those described under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2009 as filed with the Securities and Exchange Commission (the SEC) and the following:



| |  |  | our rapid growth to date and short operating history;
| | - |  | -----------------------------------------------------



| |  |  | reduced earnings due to higher credit losses generally and specifically because losses in the sectors of our loan portfolio secured by real estate
are greater than expected due to economic factors, including declining real estate values, increasing interest rates, increasing unemployment, or changes in payment behavior or other factors;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reduced earnings due to higher credit losses because our loans are concentrated by loan type, industry segment, borrower type, or location of the
borrower or collateral;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the amount of our real estate-based loan portfolio collateralized by real estate, and the weakness in the commercial real estate market;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our reliance on available secondary funding sources such as Federal Home Loan Bank advances, Federal Reserve Bank discount window borrowings, sales
of securities and loans, federal funds lines of credit from correspondent banks, and out-of-market time deposits, including brokered deposits, to meet our liquidity needs;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | significant increases in competitive pressure in the banking and financial services industries;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | changes in the interest rate environment which could reduce anticipated or actual margins;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | changes in political conditions or the legislative or regulatory environment;
| | - |  | -----------------------------------------------------------------------------



| |  |  | general economic conditions, either nationally or regionally and especially in our primary service area, continuing to be weak resulting in, among
other things, a deterioration in credit quality;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes occurring in business conditions and inflation;
| | - |  | -------------------------------------------------------



| |  |  | changes in technology;
| | - |  | ----------------------



| |  |  | changes in deposit flows;
| | - |  | -------------------------



| |  |  | the adequacy of the level of our allowance for loan loss;
| | - |  | ---------------------------------------------------------



| |  |  | the rate of delinquencies and amounts of loans charged-off;
| | - |  | -----------------------------------------------------------



| |  |  | the rates of loan growth;
| | - |  | -------------------------



| |  |  | increased funding costs due to market illiquidity, increased competition for funding, and/or regulatory requirements;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to retain our existing customers, including our deposit relationships;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | changes in monetary and tax policies;
| | - |  | -------------------------------------



| |  |  | loss of consumer confidence and economic disruptions resulting from terrorist activities or other military actions;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the securities markets; and
| | - |  | --------------------------------------



| |  |  | other risks and uncertainties detailed from time to time in our filings with the SEC.
| | - |  | -------------------------------------------------------------------------------------

We have based our forward-looking statements on our current expectations about future events. Although we believe that the expectations
reflected in our forward-looking statements are reasonable, we cannot guarantee you that these expectations will be achieved. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of
new information, future events, or otherwise.

These risks are exacerbated by the recent developments in national and
international financial markets, and we are unable to predict what effect these uncertain market conditions will have on our Company. During 2009 and through the first quarter of 2010, the capital and credit markets have experienced extended
volatility and disruption. There can be no assurance that these unprecedented recent developments will not continue to materially and adversely affect our business, financial condition, and results of operations, as well as our ability to raise
capital or other funding for liquidity and business purposes.



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##### Table of Contents

ATLANTIC BANCSHARES, INC.



Overview

The following discussion describes our results of operations for the quarter ended March 31, 2010 as compared to the quarter ended
March 31, 2009, and also analyzes our financial condition as of March 31, 2010 as compared to December 31, 2009.

Like most community banks, we derive most of our income from interest we receive on our loans and investments. Our primary source of
funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets,
such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing
liabilities.

There are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on
existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for loan losses against our operating earnings. In the following section we have included a detailed discussion of this process. In
addition to earning interest on our loans and investments, we earn income through fees and other expenses we charge to our customers. We describe the various components of this non-interest income, as well as our non-interest expense, in the
following discussion.

Critical Accounting Policies

We have adopted various accounting policies which govern the application of accounting principles generally accepted in the United States
in the preparation of our financial statements. Our significant accounting policies are described in the notes to the financial statements at December 31, 2009, as filed on our annual report on Form 10-K. Certain accounting policies involve
significant judgments and assumptions by us which have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgments and assumptions we use are
based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates which could
have a material impact on our carrying values of assets and liabilities and our results of operations.

We believe the
allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of our financial statements. Refer to the portions of the discussion in this report on Form 10-Q and in our
Form 10-K that address our allowance for loan losses for a description of our processes and methodology for determining our allowance for loan losses.

Results of Operations

Net Interest Income

For the three months ended March 31, 2010, net interest income, the major component of our net income, increased $104,808, or 13.8%,
to $864,350 as compared to $759,542 for the same period in 2009. Interest income of $1,236,698 for the three months ended March 31, 2010 mainly included $1,097,632 received on loans. For the three months ended March 31, 2010, interest
income decreased $81,875, or 6.2%, from $1,318,573 for the three months ended March 31, 2009. Total interest expense of $372,348 for the three months ended March 31, 2010 decreased $186,683, or 33.4%, from $559,031 for the three months
ended March 31, 2009.

The average rate paid on interest-bearing liabilities for the three months ended March 31,
2010 and 2009 was 2.12% and 2.86%, respectively, while the average rate realized on interest-earning assets was 5.90% and 5.82%, respectively for the same period. The net interest margin and net interest spread were 4.13% and 3.78% for the three
months ended March 31, 2010 compared to 3.35% and 2.96% for the three months ended March 31, 2009. For the three months ended March 31, 2010, we continued to receive benefits from the repricing of our rate sensitive liabilities. The
result was an increase in net interest margin of 78 basis points and net interest spread of 82 basis points during the three-month period ended March 31, 2010, as compared to the three-month period ended March 31, 2009.

Provision and Allowance for Loan Losses

General. We have established an allowance for loan losses through a provision for loan losses charged to expense on
our consolidated statement of operations. The allowance for loan losses was $841,929 and $849,234, or 1.17% and 1.12% of total loans, as of March 31, 2010 and 2009, respectively. For the years ended March 31, 2010 and 2009, the provision
expense was $183,000 and $225,000, respectively. As of March 31, 2010, 20 loans to 18 borrowers totaling $2,544,513 were



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ATLANTIC BANCSHARES, INC.



impaired and loans totaling $8,894,110 were considered criticized loans. Included in the impaired loans at March 31, 2010 were nonaccrual loans totaling $1,071,659.

The allowance for loan losses represents an amount which we believe will be adequate to absorb probable losses on existing loans that may
become uncollectible. Assessing the adequacy of the allowance for loan losses is a process that requires considerable judgment. Our judgment as to the adequacy of the allowance for loan losses is based on a number of assumptions about future events,
which we believe to be reasonable, but which may or may not prove to be accurate. Our determination of the allowance for loan losses is established on evaluations of the collectability of loans, including consideration of factors such as the balance
of impaired loans, the quality, mix, and size of our overall loan portfolio, economic conditions that may affect the borrowers ability to repay, the amount and quality of collateral securing the loans, our historical loan loss experience, the
historical loss experience of our peers and a review of specific problem loans. We also consider subjective issues such as changes in the lending policies and procedures, changes in the local/national economy, changes in volume or type of credits,
changes in volume/severity of problem loans, quality of loan review and board of director oversight, concentrations of credit, and peer group comparisons. We strive to follow a comprehensive, well-documented, and consistently applied analysis of our
loan portfolio in determining an appropriate level for the loan loss allowance. We adjust the amount of the loan allowance periodically based on changing circumstances through an expense recorded to the provision for loan losses. We charge
recognized losses to the allowance and add subsequent recoveries back to the allowance for loan losses.

We calculate the
allowance for loan losses for specific types of loans and evaluate the adequacy on an overall portfolio basis utilizing our credit grading system which we apply to each loan. We combine our estimates of the reserves needed for each component of the
portfolio, including loans analyzed on a pool basis and loans analyzed individually. The allowance is divided into two portions: (1) an amount for specific allocations on significant individual credits and (2) a general reserve amount.

Specific Reserve.We analyze individual impaired loans within the portfolio and make allocations to the
allowance based on each loans specific factors and other circumstances that affect the collectability of the credit. Significant individual credits classified as doubtful or substandard/special mention within our credit grading system that are
determined to be impaired require both individual analysis and specific allocation. Management has determined that impaired loans totaled $2,544,513 and $2,294,367 at March 31, 2010 and 2009, respectively. Specific valuation allowances related
to these impaired loans totaled $111,305 and $206,323 at March 31, 2010 and 2009, respectively.

Loans in the
substandard/special mention category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action such as declining or negative earnings trends and declining or inadequate liquidity.
Loans in the doubtful category exhibit the same weaknesses found in the substandard/special mention loan; however, the weaknesses are more pronounced. These loans, however, are not regularly rated as impaired because certain events may occur which
could salvage the debt such as injection of capital, alternative financing, or liquidation of assets.

The loans with specific
reserves are typically identified though our process of reviewing and assessing the ratings on loans, which is performed by personnel, in our credit administration area, which includes a special assets manager. Loans on our watch list (criticized
assets) are considered potentially impaired loans. These loans are evaluated in determining whether all outstanding principal and interest are expected to be collected. Loans are not considered impaired if a minimal payment delay occurs and all
amounts due, including accrued interest at the contractual interest rate for the period of delay, are expected to be collected. All loans on nonaccrual or that meet the definition of a troubled debt restructured loan are identified as impaired.

In situations where a loan is determined to be impaired (primarily because it is probable that all principal and interest due
according to the terms of the loan agreement will not be collected as scheduled), the loan is excluded from the general reserve calculations described below and is assigned a specific reserve. These reserves are based on a thorough analysis of the
most probable source of repayment which is usually the liquidation of the underlying collateral, but may also include discounted future cash flows or, in rare cases, the market value of the loan itself. The credit administration area periodically
reviews the fair value assigned to each impaired loan and adjusts the specific reserve accordingly.

For collateral dependent
loans (repayment of the loan is expected to be provided solely by the underlying collateral), current market appraisals are ordered to estimate the current fair value of the collateral. However, in situations where a current market appraisal is not
available, management uses the best available information (including recent appraisals for similar properties, communications with qualified real estate professionals, information contained in reputable trade publications and other observable market
data) to estimate the current fair value. The estimated costs to sell the subject property are then



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ATLANTIC BANCSHARES, INC.



deducted from the estimated fair value to arrive at the net realizable value of the loan and to determine the specific reserve on each impaired loan reviewed. In general, any portion
of the recorded investment in a collateral dependent loan in excess of the fair value of the collateral that can be identified as uncollectible, and is therefore deemed a confirmed loss, is promptly charged off against the loan loss allowance.

The accuracy of the loan ratings is validated by a third party review which is performed semi-annually and covers a
substantial sample of the loan portfolio. In addition, the FDIC and the South Carolina Board of Financial Institutions (SCBFI) review our allowance for loan losses through their periodic examinations, and they may require us to record
additions to the allowance for loan losses based on their judgment about information made available to them at the time of their examination. Our losses will undoubtedly vary from our estimates, and there is a possibility that charge-offs in future
periods will exceed the allowance for loan losses estimated at any point in time.

General Reserve.Our general
reserve was $730,624 as of March 31, 2010, as compared to $642,911 as of March 31, 2009. We calculate our general reserve based on a percentage allocation for each of the effective categories of unclassified loan types. Due to our short
operating history, our historical loss rate may not represent realistic loss factors for pools of loans. Therefore, FDIC statistics for our peer group are used to estimate a historical loss percentage. In addition, qualitative and environmental
factors, as discussed below, are considered. The general estimate is then added to the specific reserves made to determine the amount of the total allowance for loan losses.

We maintain the general reserve in accordance with December 2006 regulatory interagency guidance in our assessment of the loan loss
allowance. The general reserve considers qualitative or environmental factors that are likely to cause estimated credit losses including, but not limited to: changes in delinquent loan trends, trends in risk grades and net charge-offs,
concentrations of credit, trends in the nature and volume of the loan portfolio, general and local economic trends, collateral valuations, the experience and depth of lending management and staff, lending policies and procedures, the quality of loan
review systems, and other external factors.

The recent downturn in the real estate market has resulted in an increase in loan
delinquencies, defaults and foreclosures, and we believe these trends are likely to continue. In some cases, this downturn has resulted in a significant impairment to the value of our collateral and our ability to sell the collateral upon
foreclosure, and there is a risk that this trend will continue. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is
extended. If real estate values continue to decline, it is also more likely that we would be required to increase our allowance for loan losses. Based on present information and an ongoing evaluation, management considers the allowance for loan
losses to be adequate to meet presently known and inherent losses in the loan portfolio. Managements judgment about the adequacy of the allowance is based upon a number of assumptions about future events which it believes to be reasonable but
which may or may not be accurate. 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 allowance for loan losses will not be required, especially
considering the overall weakness in the commercial real estate market in our market areas. Management believes estimates of the level of allowance for loan losses required have been appropriate and expectation is that the primary factors considered
in the provision calculation will continue to be consistent with prior trends. No assurances can be given in this regard, however, especially considering the overall weakness in the real estate market.

Noninterest Income

Total noninterest income for the three months ended March 31, 2010 and 2009 was $176,632 and $60,030, respectively. We realized a
gain on the sale of an investment, a mortgage backed security, totaling $108,695 in February 2010. There were no investment sales in 2009. Other noninterest income increased $13,350 to $33,220 for the three months ending March 31, 2010 as
compared to $19,870 for the three months ended March 31, 2009 mainly driven by increased bankcard fees. Bankcard fees increased $6,891 to $19,826 for the three months ended March 31, 2010 compared to $12,935 for the three months ended
March 31, 2009 as a result of increased bankcard transaction volume. No mortgage origination fee income was produced during the first three months of 2010 due to continued depressed mortgage loan sale volume. Mortgage origination fee income
totaled $8,219 for the three months ended March 31, 2009.



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ATLANTIC BANCSHARES, INC.



Noninterest Expense

Total noninterest expense for the three months ended March 31, 2010 and 2009 was $838,169 and $798,680, respectively. The primary
component of noninterest expense was salaries and benefits which decreased $20,803 to $385,866 for the three months ended March 31, 2010 as compared to $406,669 for the three months ended March 31, 2009. Effective October 9, 2009, the
Company suspended its matching contribution for a defined contribution plan established during fiscal year 2007 which produced savings totaling $12,312 for the three months ended March 31, 2010 as compared to the three months ended
March 31, 2009. Net occupancy expense increased $15,300 to $110,976 for the three months ended March 31, 2010, as compared to $95,676 for the three months ended March 31, 2009, largely due to common area maintenance charges.
Professional fees increased $45,708 to $85,806 for the quarter ended March 31, 2010 as compared to $40,098 for the three months ended March 31, 2009 as a result of legal fees expensed related to our prospective deregistration initiative
and legal fees related to increased foreclosure activity. Other operating expenses increased $33,309 to $105,503 for the three months ended March 31, 2010 as compared to $72,194 for the three months ended March 31, 2009 mostly generated by
increased FDIC deposit insurance assessments and losses associated with foreclosed assets.

For the three months ended
March 31, 2010, these preceding unfavorable noninterest expense variances were somewhat offset by favorable variances in marketing and furniture and fixtures charges as compared to the three months ended March 31, 2009. Marketing expense
decreased $16,375 to $18,107 for the three months ended March 31, 2010 as compared to $34,482 for the three months ended March 31, 2009. Managements efforts to refine and review marketing initiatives continue to produce reduced
marketing costs. Furniture and fixture expenses decreased $21,918 to $25,777 for the three months ended March 31, 2010 as compared to $47,695 for the three months ended March 31, 2009 mainly attributable to reduced computer equipment
depreciation expense.

Net Income (Loss)

The combination of the above factors resulted in a net income for the three months ended March 31, 2010 of $6,214, after the
recognition of an income tax benefit of $18,550 for the period, net accretion of preferred stock to redemption value of $4,944 and accrued preferred stock dividends of $27,205 for the period. For the period ended March 31, 2009, the net loss
was $134,709, after the recognition of an income tax benefit of $69,399 for the period.

Assets and Liabilities

During the first three months of 2010, total assets decreased $5,566,029, or 6%, to $87,179,960 at March 31, 2010 when
compared to December 31, 2009. Loans receivable decreased $1,500,841 to $71,727,667 as of March 31, 2010 when compared to December 31, 2009. Securities available for sale decreased $2,722,895 to $10,052,608 when compared to
December 31, 2009 mainly due to the sale of a mortgage backed security totaling $1,842,260 in February 2010 and to principal repayments on the remaining mortgage backed securities in the investment portfolio during the first quarter 2010.
Managements decision to sell a mortgage backed security generated a gain on the sale of an investment totaling $108,695 recorded in February 2010. The proceeds from the investment sale transaction were used to partially repay a Federal Home
Loan Bank fixed rate advance which matured in March 2010.

Investment Securities available for sale

The Company uses the investment securities portfolio for several purposes. It serves as a vehicle to manage interest rate and
prepayment risk, to generate interest and dividend income from investment of funds, to provide liquidity to meet funding requirements, and to provide collateral for pledges on public funds and as collateral for lines of credit and advances with
correspondent banks. Investments are classified into three categories (1) Held to Maturity (2) Trading and (3) Available for Sale. Management believes that maintaining its securities in the Available for Sale category provides greater
flexibility in the management of the overall investment portfolio. The average yield on available for sale investments at March 31, 2010 was 5.18% compared to 5.14% at March 31, 2009. The carrying values of the investments
available for sale at March 31, 2010 and 2009 and percentage of each category to total investments are as follows:

INVESTMENT PORTFOLIO



|                           |  |           |            |      |   |           
|-------------------------- |  | --------- | ---------- | ---- | - | ----------
|                           |  | March 31,
|                           |  | 2010      |            | 2009
|Mortgage-backed securities |  | $         | 10,052,608 |      | $ | 15,700,187
|                           |  |           |            |      |   |           
|                           |  | $         | 10,052,608 |      | $ | 15,700,187
|                           |  |           |            |      |   |           



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ATLANTIC BANCSHARES, INC.



The Company accounts for its investment securities in accordance with generally accepted
accounting principles. All securities were classified as Available for Sale (debt and equity securities that may be sold under certain conditions), at March 31, 2010 and March 31, 2009. The securities were reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate component of shareholders equity, net of income taxes. Unrealized losses on securities due to fluctuations in fair value are recognized when it is determined
that an other than temporary decline in value has occurred. Gains or losses on the sale of securities are recognized on a specific identification, trade date basis.

The amortized cost and fair value of investment securities available for sale are summarized as follows:



|                            |  |                   |            |                  |   |         |  |       |   |  |   |           
|--------------------------- |  | ----------------- | ---------- | ---------------- | - | ------- |  | ----- | - |  | - | ----------
|                            |  | March 31, 2010   
|                            |  | Amortized         |            | Gross Unrealized |   | Fair   
|                            |  | Cost              |            | Gains            |   | Losses  |  | Value
|Mortgage-backed securities  |  | $                 | 9,503,264  |                  | $ | 549,344 |  | $     |  |  | $ | 10,052,608
|                            |  |                   |            |                  |   |         |  |       |   |  |   |           
|Total investment securities |  | $                 | 9,503,264  |                  | $ | 549,344 |  | $     |  |  | $ | 10,052,608
|                            |  |                   |            |                  |   |         |  |       |   |  |   |           
|                            | 
|                            |  | December 31, 2009
|                            |  | Amortized         |            | Gross Unrealized |   | Fair   
|                            |  | Cost              |            | Gains            |   | Losses  |  | Value
|Mortgage-backed securities  |  | $                 | 12.198,939 |                  | $ | 576,564 |  | $     |  |  | $ | 12,775,503
|                            |  |                   |            |                  |   |         |  |       |   |  |   |           
|Total investment securities |  | $                 | 12,198,939 |                  | $ | 576,564 |  | $     |  |  | $ | 12,775,503
|                            |  |                   |            |                  |   |         |  |       |   |  |   |           

The amortized cost and fair value of investment
securities available for sale at March 31, 2010, by contractual maturity, are as follows:



|                               |  |               |           |                     |   |           
|------------------------------ |  | ------------- | --------- | ------------------- | - | ----------
|                               |  | AmortizedCost |           | EstimatedFair Value
|Due in one year or less        |  | $             |          |                     | $ |          
|Due in one year to five years  |  |               |          |                     |   |          
|Due in five years to ten years |  |               | 1,559,042 |                     |   | 1,660,441 
|Due in ten years and over      |  |               | 7,944,222 |                     |   | 8,392,167 
|                               |  |               |           |                     |   |           
|Total                          |  | $             | 9,503,264 |                     | $ | 10,052,608
|                               |  |               |           |                     |   |           

The Company had no unrealized losses as of
March 31, 2010 or December 31, 2009. The Company sold one investment security for the three months ended March 31, 2010. There were no sales of investment securities for the year ended December 31, 2009.

Loans

Continued depressed loan demand from qualified applicants and repayments of existing loans produced a loan balance decline during the
first three months of 2010. Net loans decreased by $1,478,353, or 2.1%, to $70,885,738 during the period. As shown below, the largest category of loans was real estate mortgage loans which increased slightly $205,045 to $50,310,667 from
December 31, 2009 to March 31, 2010. Construction, land and land development loans decreased $825,438 to $17,211,447 from $18,036,885 as of March 31, 2010 and December 31, 2009, respectively. Balances within the major loans
receivable categories as of March 31, 2010 and December 31, 2009 are as follows:



|                                        |  |                |            |   |                   |   |            |  
|--------------------------------------- |  | -------------- | ---------- | - | ----------------- | - | ---------- | -
|                                        |  | March 31, 2010 |            |   | December 31, 2009 |  
|Real estate:                            |  |                |            |   |                   |   |            |  
|Mortgage                                |  | $              | 50,310,666 |   |                   | $ | 50,105,621 |  
|Construction, land and land development |  |                | 17,211,447 |   |                   |   | 18,036,885 |  
|                                        |  |                |            |   |                   |   |            |  
|Total real estate loans                 |  |                | 67,522,113 |   |                   |   | 68,142,506 |  
|                                        |  |                |            |   |                   |   |            |  
|Commercial and industrial               |  |                | 3,538,097  |   |                   |   | 4,158,554  |  
|Consumer and other                      |  |                | 688,714    |   |                   |   | 779,170    |  
|Agriculture and other farm              |  |                |           |   |                   |   | 174,104    |  
|Deferred origination fees, net          |  |                | (21,257    | ) |                   |   | (25,826    | )
|                                        |  |                |            |   |                   |   |            |  
|Gross loans                             |  |                | 71,727,667 |   |                   |   | 73,228,508 |  
|Less allowance for loan losses          |  |                | (841,929   | ) |                   |   | (864,417   | )
|                                        |  |                |            |   |                   |   |            |  
|Loans, net                              |  | $              | 70,885,738 |   |                   | $ | 72,364,091 |  
|                                        |  |                |            |   |                   |   |            |  



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ATLANTIC BANCSHARES, INC.



Risk Elements in the Loan Portfolio

Criticized loans are loans that have potential weaknesses that deserve close attention and which could, if uncorrected, result in
deterioration of the prospects for repayment or our credit position at a future date. Classified loans are loans that are inadequately protected by the sound worth and paying capacity of the borrower or any collateral and as to which there is a
distinct possibility or probability that we will sustain a loss if the deficiencies are not corrected. At March 31, 2010, we had 20 loans totaling $2,544,513 that were impaired. Fourteen of these loans totaling $2,372,112 are secured by real
estate, two loans totaling $30,881 are secured by automobiles, one loan totaling $54,843 is secured by business assets including accounts receivable, inventory, furniture, fixtures and equipment and three loans totaling $86,677 are unsecured.
Included in the allowance for loan losses at March 31, 2010 was $111,305 related to impaired loans.

Nonaccrual loans
totaled $1,071,659 and $1,495,152 at March 31, 2010 and 2009, respectively. As of March 31, 2010, the Bank had no loans 90 days or more past due and still accruing interest. The Bank had one loan totaling $31,863 which was 90 days or more
past due and still accruing interest as of March 31, 2009.

During the quarter ended March 31, 2010, $190,305 was
charged off as loss against allowance for loan and lease losses. The allowance for loan losses to loans outstanding remained steady at 1.17% as of March 31, 2010 and 2009, respectively. The following table depicts the activity in the allowance
for loan losses for the periods ended March 31, 2010 and 2009:



|                                                               |  |           |            |   |      |   |            |  
|-------------------------------------------------------------- |  | --------- | ---------- | - | ---- | - | ---------- | -
|                                                               |  | March 31, |           
|                                                               |  | 2010      |            |   | 2009 |  
|Balance, January 1,                                            |  | $         | 864,417    |   |      | $ | 1,075,776  |  
|Provision for loan losses for the period                       |  |           | 183,000    |   |      |   | 225,000    |  
|Net loans (charged-off) recovered during the period the period |  |           | (205,488   | ) |      |   | (451,542   | )
|                                                               |  |           |            |   |      |   |            |  
|Balance, end of period                                         |  | $         | (841,929   | ) |      | $ | (849,234   | )
|                                                               |  |           |            |   |      |   |            |  
|Gross loans outstanding, end of period                         |  | $         | 71,727,667 |   |      | $ | 75,644,423 |  
|                                                               |  |           |            |   |      |   |            |  
|Allowance for loan losses to loans outstanding                 |  |           | 1.17       | % |      |   | 1.12       | %
|                                                               |  |           |            |   |      |   |            |  

Deposits

Total deposits were $63,133,988 at March 31, 2010, as compared to $62,728,465 at December 31, 2009. The largest category of
deposits was time deposits $100,000 and over which increased $1,641,660 to $21,605,572 at March 31, 2010, as compared to $19,963,912 at December 31, 2009. In January 2010, the Bank obtained $1,000,000 in six month certificates of deposit
from the SC State Treasurer quarterly auction. Securities from the investment portfolio are pledged as collateral for these deposits. Savings and money market accounts increased to $16,621,378 at March 31, 2010, as compared to $15,781,257 at
December 31, 2009. Other time deposits increased to $15,079,097 at March 31, 2010, as compared to $14,508,623 at December 31, 2009. Noninterest-bearing transaction accounts decreased $1,928,177 to $7,780,388 at March 31, 2010, as
compared to $9,708,565 at December 31, 2009, largely influenced by seasonal balance fluctuations in a key customers commercial deposit account.

Balances within the major deposit categories as of March 31, 2010 and December 31, 2009 are as follows:



|                                         |  |                |            |                   |   |           
|---------------------------------------- |  | -------------- | ---------- | ----------------- | - | ----------
|                                         |  | March 31, 2010 |            | December 31, 2009
|Noninterest bearing transaction accounts |  | $              | 7,780,388  |                   | $ | 9,708,565 
|Interest-bearing transaction accounts    |  |                | 2,047,553  |                   |   | 2,767,108 
|Savings and money market                 |  |                | 16,621,378 |                   |   | 15,781,257
|Time deposit $100,000 and over           |  |                | 21,605,572 |                   |   | 19,963,912
|Other time deposits                      |  |                | 15,079,097 |                   |   | 14,508,623
|                                         |  |                |            |                   |   |           
|Total deposits                           |  | $              | 63,133,988 |                   | $ | 62,728,465
|                                         |  |                |            |                   |   |           



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ATLANTIC BANCSHARES, INC.



Other Borrowings

Other borrowings are comprised of Federal Home Loan Bank of Atlanta advances and advances from the Federal Reserve Bank. Federal Home Loan
Bank advances are collateralized by pledged Federal Home Loan Bank stock, certain commercial and residential loans, including home equity lines of credit and by a portion of our investment portfolio. Federal Home Loan Bank advances decreased
$4,000,000 to $13,500,000 at March 31, 2010, as compared to December 31, 2009. During the quarter ended March 31, 2010, two Federal Home Loan Bank advances totaling $7,000,000 matured and were replaced by a number of fixed rate
advances totaling $3,000,000 with laddered maturities ranging from eighteen months to four years. Existing liquidity along with funds received from the sale of an investment in February were used to repay the residual first quarter 2010 advance
maturities.

Federal Home Loan Bank advances as of March 31, 2010 and December 31, 2009 are as follows:



|                                           |  |        |   |            |                       |           |                          |  |          
|------------------------------------------ |  | ------ | - | ---------- | --------------------- | --------- | ------------------------ |  | ---------
|Maturity                                   |  | Rate   |   |            | March 31, 2010Balance |           | December 31, 2009Balance
|01/25/2010                                 |  | 1.1400 | % |            |                       |          |                          |  | 2,000,000
|03/12/2010                                 |  | 2.6400 | % |            |                       |          |                          |  | 5,000,000
|05/28/2010                                 |  | 3.5800 | % |            |                       | 1,000,000 |                          |  | 1,000,000
|05/31/2011                                 |  | 3.9300 | % |            |                       | 1,000,000 |                          |  | 1,000,000
|07/11/2011                                 |  | 3.6675 | % |            |                       | 1,000,000 |                          |  | 1,000,000
|09/12/2011                                 |  | .8300  | % |            |                       | 250,000   |                          |  |         
|03/12/2012                                 |  | 1.1400 | % |            |                       | 500,000   |                          |  |         
|07/10/2012                                 |  | 3.8990 | % |            |                       | 1,000,000 |                          |  | 1,000,000
|09/12/2012                                 |  | 3.7000 | % |            |                       | 750,000   |                          |  | 750,000  
|01/25/2013                                 |  | 1.8300 | % |            |                       | 500,000   |                          |  |         
|03/12/2013                                 |  | 1.7900 | % |            |                       | 500,000   |                          |  |         
|09/12/2013                                 |  | 3.8500 | % |            |                       | 750,000   |                          |  | 750,000  
|01/27/2014                                 |  | 2.4000 | % |            |                       | 500,000   |                          |  |         
|03/12/2014                                 |  | 2.3700 | % |            |                       | 750,000   |                          |  |         
|11/29/2017                                 |  | 3.4840 | % |            |                       | 5,000,000 |                          |  | 5,000,000
|                                           |  |        |   |            |                       |           |                          |  |          
|Total advances from Federal Home Loan Bank |  |        | $ | 13,500,000 |                       | $         | 17,500,000              
|                                           |  |        |   |            |                       |           |                          |  |          

There were no Federal Reserve Bank advances
outstanding as of March 31, 2010. As of December 31, 2009, the Bank had two short term, maturities of 28 days or less, advances from the Federal Reserve Bank in the amount of $2,000,000. Certain lot loans and a portion of the investment
portfolio comprise the lendable collateral available for Federal Reserve Bank advances.

Federal Reserve Bank advances as of
December 31:



|                                         |  |      |   |   |                       |   |                          |  |          
|---------------------------------------- |  | ---- | - | - | --------------------- | - | ------------------------ |  | ---------
|Maturity                                 |  | Rate |   |   | March 31, 2010Balance |   | December 31, 2009Balance
|01/27/2010                               |  | .50  | % |   |                       |  |                          |  | 1,000,000
|01/28/2010                               |  | .50  | % |   |                       |  |                          |  | 1,000,000
|                                         |  |      |   |   |                       |   |                          |  |          
|Total advances from Federal Reserve Bank |  |      | $ |  |                       | $ | 2,000,000               
|                                         |  |      |   |   |                       |   |                          |  |          



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ATLANTIC BANCSHARES, INC.



Liquidity

Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss, and the ability to
raise additional funds by increasing liabilities. Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated
because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly 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.

Our primary sources of liquidity are deposits, scheduled repayments on our loans, and interest on and maturities of our investments. We
plan to meet our future cash needs through the liquidation of temporary investments and the generation of deposits. Occasionally, we might sell investment securities in connection with the management of our interest sensitivity gap or to manage cash
availability. We may also utilize our cash and due from banks, security repurchase agreements, federal funds sold, and other borrowings to meet liquidity requirements as needed. In addition, we have the ability, on a short-term basis, to purchase
federal funds from other financial institutions. As of March 31, 2010, we had unsecured lines of credit to purchase federal funds from unrelated banks totaling $3,770,000. As of March 31, 2010, there was no balance outstanding on any line
of credit. The lenders have reserved the right to withdraw the unsecured lines at their option. These lines of credit are available on various structures for general corporate purposes.

At March 31, 2010, the Bank had remaining available credit from the Federal Home Loan Bank totaling $554,483 based upon existing
pledged investment and loan collateral. At March 31, 2010, an additional $9,660,000 of credit was also available to the Bank upon the receipt of additional collateral pledged to the Federal Home Loan Bank.

As of March 31, 2010, the Bank had $8,194,719 of total lendable collateral available for overnight advances at the Discount Window.
Lot loans totaling $9,158,559 were pledged to Federal Reserve Bank of Richmond which produced lendable collateral value totaling $3,022,325 and $5,069,078 of securities was in safekeeping at the Federal Reserve Bank of Richmond which produced
lendable collateral value totaling $5,172,394. The rate on the advances from the Discount Window is the Federal Reserve Discount Window rate. Advances from the Federal Reserve Discount Window are not subject to prepayment penalties. As of
March 31, 2010, there were no advances outstanding from the Federal Reserve Bank of Richmond.

Capital Resources

Total shareholders equity increased $34,510 during the first three months of 2010 to $10,039,736 from
$10,005,226 as of December 31, 2009. The increase is attributable to the net income for the period of $38,363 and by $28,017 for stock-based compensation expense offset by $17,965 related to unrealized gains on securities and $13,905 dividends
paid on the companys preferred stock and warrants.

The Bank is subject to various regulatory capital requirements
administered by the federal 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 adverse material effect
on the Banks financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings,
and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain
minimum ratios of Tier 1 and total capital as a percentage of assets and off-balance-sheet exposures, adjusted for risk weights ranging from 0% to 100%. Tier 1 capital consists of common shareholders equity, excluding the unrealized gain or
loss on securities available-for-sale, minus certain intangible assets. Tier 2 capital consists of the allowance for loan losses subject to certain limitations. Total capital for purposes of computing the capital ratios consists of the sum of Tier 1
and Tier 2 capital. The regulatory minimum requirements are 4% for Tier 1 and 8% for total risk-based capital.

The Bank is
also required to maintain capital at a minimum level based on total average assets, which is known as the leverage ratio. Only the strongest banks are allowed to maintain capital at the minimum requirement of 3%. All others are subject to
maintaining ratios 1% to 2% above the minimum.



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ATLANTIC BANCSHARES, INC.



As of March 31, 2010, the Bank exceeded its minimum regulatory capital ratios, as
well as the ratios to be considered well-capitalized.

The following table summarizes the Banks risk-based capital at
March 31, 2010:



|                                                          |  |   |            |  
|--------------------------------------------------------- |  | - | ---------- | -
|Shareholders equity                                      |  | $ | 8,534,902  |  
|Less-unrealized net gain on available-for-sale securities |  |   | (362,567   | )
|                                                          |  |   |            |  
|Tier 1 capital                                            |  | $ | 8,172,335  |  
|                                                          | 
|Plus - allowance for loan
losses(1)                       |  |   | 795,200    |  
|                                                          |  |   |            |  
|Total capital                                             |  | $ | 8,967,535  |  
|                                                          |  |   |            |  
|Risk-weighted assets                                      |  | $ | 63,616,000 |  
|                                                          | 
|Risk-based capital ratios:                                |  |   |            |  
|                                                          | 
|Tier 1 capital (to risk-weighted assets)                  |  |   | 12.85      | %
|Total capital (to risk-weighted assets)                   |  |   | 14.10      | %
|Tier 1 capital (to total average assets)                  |  |   | 9.04       | %



| | (1) | Limited to
1.25% of risk-weighted assets
| | --- | ----------------------------------------

On December 29, 2009, the Company issued and sold to the U.S. Department
of the Treasury as part of the Capital Purchase Program (CPP) 2,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share, along with a warrant (the Warrant)
to purchase 98.00098 shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series B, having a liquidation preference of $1,000 per share (collectively with the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, the
Preferred Shares), at an initial exercise price of $0.01, for an aggregate purchase price of $2,000,000 in cash. The U.S. Treasury exercised the Warrant immediately upon issuance. The U.S. Treasurys investment in the Company is
part of the governments program to provide capital to the healthy financial institutions that are the core of the nations economy in order to increase the flow of credit to consumers and businesses and provide additional assistance to
distressed homeowners facing foreclosure. The Preferred Shares have an annual 5% cumulative preferred dividend rate for five years and 9% thereafter, with dividends payable quarterly.

The Board declared and the Company has paid all quarterly dividend payments to the U.S. Treasury through the Form 10-Q filing date.
Generally, the Preferred Shares are non-voting. However, should the Company fail to pay six quarterly dividends, the holder may elect two directors to the Companys Board of Directors until such dividends are paid. At March 31, 2010 the
Preferred Shares qualify as Tier 1 capital and are presented in permanent equity on the Consolidated Statement of Condition in the amounts of $1,883,335 and $106,609, respectively, for the Series A and Series B Preferred Shares.

Proceeds from the sale of the preferred stock will be used for general corporate purposes, primarily to support the operations and
lending activity of the Bank. As of March 31, 2010 a total of $775,000 of the proceeds from the sale of the preferred stock has been used as a capital contribution to the Bank.

Off-Balance Sheet Risk

Through the operations of our Bank, we make contractual commitments to extend credit in the ordinary course of our business activities.
These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. At March 31, 2010, we had issued commitments to extend credit of $9,417,438 through various types of
lending arrangements. We had $128,794 of unused credit under pre-arranged overdraft plans. There were also $596,073 outstanding commercial letters of credit at March 31, 2010.



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ATLANTIC BANCSHARES, INC.



The following table sets forth the length of time until maturity for unused commitments to extend credit
and standby letters of credit at March 31, 2010.



|                                     |  |                   |           |                                 |   |                      |  |                       |         |       |   |           |  |   |           
|------------------------------------ |  | ----------------- | --------- | ------------------------------- | - | -------------------- |  | --------------------- | ------- | ----- | - | --------- |  | - | ----------
|                                     |  | WithinThreeMonths |           | After
ThreeThroughTwelve Months |   | OneThroughFive Years |  | GreaterThanFive Years |         | Total
|Unused commitments to extend credit  |  | $                 | 2,790,429 |                                 | $ | 2,796,031            |  | $                     | 788,433 |       | $ | 3,171,339 |  | $ | 9,546,232 
|Standby commercial letters of credit |  |                   | 171,073   |                                 |   | 425,000              |  |                       |        |       |   |          |  |   | 596,073   
|                                     |  |                   |           |                                 |   |                      |  |                       |         |       |   |           |  |   |           
|Totals                               |  | $                 | 2,961,502 |                                 | $ | 3,221,031            |  | $                     | 788,433 |       | $ | 3,171,339 |  | $ | 10,142,305
|                                     |  |                   |           |                                 |   |                      |  |                       |         |       |   |           |  |   |           

Based on historical experience, many of the
commitments and letters of credit will expire unfunded. Accordingly, the amounts shown in the table above do not necessarily reflect our need for funds in the periods shown.

We evaluate each customers credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us
upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate.

Other Events

As previously disclosed, due primarily to the disproportionately higher compliance costs associated with being a public reporting company,
we are currently considering deregistering our common stock under the Securities Exchange Act.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4T. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) (collectively, the Disclosure Controls). Based upon
that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current Disclosure Controls are effective at a reasonable assurance level as of March 31, 2010. There have been no significant changes in our
internal controls over financial reporting during the fiscal quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. Our
management does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty,
and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions.



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ATLANTIC BANCSHARES, INC.



PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending legal proceedings to which we are a party or of which any of our property is the subject.

Item 1A. Risk Factors

You should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the
year ended December 31, 2009, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

Item 3. Default Upon Senior Securities

Not applicable

Item 4. Removed and Reserved

Item 5. Other Information

Not applicable

Item 6. Exhibits



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



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



|32.1 | Section 1350 Certifications.
|---- | ----------------------------



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ATLANTIC BANCSHARES, INC.



SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.



|                   |  |  |  |     |  |                                      
|------------------ |  |  |  | --- |  | -------------------------------------
|Date: May 14, 2010 |  |  |  | By: |  | /s/ Robert P. Trask                  
|                   |  |  |  |     |  | Robert P. Trask                      
|                   |  |  |  |     |  | President and Chief Executive Officer
|                   |  |  | 
|Date: May 14, 2010 |  |  |  | By: |  | /s/ Michelle M. Pennell              
|                   |  |  |  |     |  | Michelle M. Pennell                  
|                   |  |  |  |     |  | Principal Financial Officer          



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ATLANTIC BANCSHARES, INC.



EXHIBIT INDEX



|              |  |                                                                 
|------------- |  | ----------------------------------------------------------------
|ExhibitNumber |  | Description                                                     
|              | 
|31.1          |  | Rule 15d-14(a) Certification of the Principal Executive Officer.
|              | 
|31.2          |  | Rule 15d-14(a) Certification of the Principal Financial Officer.
|              | 
|32.1          |  | Section 1350 Certifications.                                    



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