# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

# FORM 10-QSB

(Mark One)

|X | QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------

| | For the Quarterly Period Ended June 30, 2006
| | --------------------------------------------

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

| | For the Transition Period from ___________ to _____________
| | -----------------------------------------------------------

Commission file number
333-127242

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

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

1 Sherington Drive, Suite J (Sheridan Park)Bluffton, South Carolina 29910
(Address of principal executive offices)

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

______________________________

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

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

State
the number of shares outstanding of each of the issuers classes of common equity, as
of the latest practicable date: 1,251,577 shares of common stock, no par value, outstanding as of May 10, 2006.

Transitional Small Business Disclosure Format (check one)
  Yes          No

---

# ATLANTIC BANCSHARES,
INC.

# INDEX

|                                                                                    | 
|----------------------------------------------------------------------------------- | 
|PART I - FINANCIAL INFORMATION                                                      | 
|Item 1. Financial Statements (Unaudited)                                            | 
|Condensed Balance Sheets - June 30, 2006 and December 31, 2005                      | 
|Condensed Statement of Operations - Six months and three months ended June 30, 2006 | 
|Condensed Statement of Shareholders' Equity (Deficit)-                              | 
|Six months ended June 30, 2006                                                      | 
|Condensed Statement of Cash Flows - Six months and three months ended June 30, 2006 | 
|Notes to Condensed Financial Statements                                             | 
|Item 2. Management's Discussion and Analysis or Plan of Operation                   | 
|Item 3. Controls and Procedures                                                     | 
|PART II - OTHER INFORMATION                                                         | 
|Item 1. Legal Proceedings                                                           | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                 | 
|Item 3. Defaults Upon Senior Securities                                             | 
|Item 4. Submission of Matters to a Vote of Security Holders                         | 
|Item 5. Other Information                                                           | 
|Item 6. Exhibits                                                                    | 

2

---

# ATLANTIC BANCSHARES, INC.

# Consolidated Balance
Sheets

|                                                      |  | December 31, 2005
|----------------------------------------------------- |  | -----------------
|
|
|
|Assets                                                |  |                  
|Cash and cash equivalents:                            | 
|Cash and due from banks                               |  | $      390,072   
|Federal funds sold                                    |  | 19,810,000       
|                                                      |  |                  
|Total cash and cash equivalents                       |  | 20,200,072       
|                                                      |  |                  
|Investments available for sale                        |  | 685,020          
|Loans receivable                                      |  | 17,071,217       
|Less allowance for loan losses                        |  | (167,975         
|                                                      |  |                  
|Loans, net                                            |  | 16,903,242       
|                                                      |  |                  
|Premises, furniture and equipment, net                |  | 436,860          
|Accrued interest receivable                           |  | 62,597           
|Deferred tax asset                                    |  | 580,644          
|Other assets                                          |  | 125,443          
|                                                      |  |                  
|Total assets                                          |  | $ 38,993,878     
|                                                      |  |                  
|Liabilities                                           | 
|Deposits                                              | 
|Noninterest-bearing transaction accounts              |  | $   3,135,360    
|Interest-bearing transaction accounts                 |  | 965,774          
|Savings and money market                              |  | 15,065,754       
|Time deposits $100,000 and over                       |  | 5,097,380        
|Other time deposits                                   |  | 3,758,725        
|Total deposits                                        |  | 28,022,993       
|                                                      |  |                  
|Accrued interest payable                              |  | 29,533           
|Notes payable                                         |  | -                
|Stock subscription deposits                           |  | -                
|Other liabilities                                     |  | 85,603           
|                                                      |  |                  
|Total liabilities                                     |  | 28,138,129       
|                                                      |  |                  
|Shareholders' equity                                  | 
|Preferred stock, no par per share                     | 
|10,000,000 shares authorized, no shares issued        |  | -                
|Common stock, no par per share                        | 
|10,000,000 shares authorized; 1,251,577 and 10 shares | 
|issued and outstanding at June 30, 2006 and           | 
|December 31, 2005, respectively                       |  | -                
|Additional paid-in-capital                            |  | 11,996,086       
|Retained deficit                                      |  | (1,132,229       
|Accumulated other comprehensive loss, net of tax      |  | (8,108           
|                                                      |  |                  
|Total shareholders' equity                            |  | 10,855,749       
|                                                      |  |                  
|Total liabilities and shareholders' equity            |  | $ 38,993,878     
|                                                      |  |                  

See notes to condensed consolidated financial statements.

3

---

# ATLANTIC BANCSHARES, INC.

# Condensed Statements of
Operations (Unaudited)

|                                                    | For the six | For the three
|--------------------------------------------------- | ----------- | -------------
|
|
|Interest income:                                    |             |              
|Loans, including fees                               |             | $    237,862 
|Investments                                         |             | 7,970        
|Federal funds sold                                  |             | 403,614      
|Interest bearing deposits with other banks          |             | 17,492       
|Total                                               |             | 666,938      
|                                                    |             |              
|Interest expense:                                   |            
|Time deposits $100,000 and over                     |             | 29,345       
|Other deposits                                      |             | 277,019      
|Other interest expense                              |             | 779          
|                                                    |             |              
|Total                                               |             | 307,143      
|                                                    |             |              
|Net interest income:                                |             | 359,795      
|Provision for loan losses                           |             | 167,975      
|                                                    |             |              
|Net interest income after provision for loan losses |             | 191,820      
|                                                    |             |              
|Noninterest income:                                 |            
|Service charges on deposit accounts                 |             | 3,591        
|Gain on sale of mortgage loans                      |             | 51,026       
|Other service charges, commissions and fees         |             | 9,099        
|                                                    |             |              
|Total                                               |             | 63,716       
|                                                    |             |              
|Noninterest expense:                                |            
|Salaries and employee benefits                      |             | 934,270      
|Occupancy expense                                   |             | 166,383      
|Furniture and equipment expense                     |             | 60,185       
|Other operating expenses                            |             | 790,190      
|                                                    |             |              
|Total                                               |             | 1,951,028    
|                                                    |             |              
|Loss before income taxes                            |             | (1,695,492   
|Income tax benefit                                  |             | 576,467      
|                                                    |             |              
|Net loss                                            |             | $(1,119,025  
|                                                    |             |              
|Losses per share                                    |            
|Basic loss per share                                |             | $       (1.02
|                                                    |             |              

See notes to condensed consolidated financial statements.

4

---

# ATLANTIC BANCSHARES, INC.

# Condensed Statement of
Shareholders Equity For the six months ended June 30, 2006

# (Unaudited)

|                                 | Common | Additional | Retained | Accumulated Other | 
|-------------------------------- | ------ | ---------- | -------- | ----------------- | 
|
|Balance at  December 31, 2005    |        |            | $        | -                 | 
|Net loss                         |        |            |          | -                 | 
|Other comprehensive loss,        |        |           
|net of tax benefit               |        |            |          | -                 | 
|Stock-based compensation expense |        |            |          | -                 | 
|Proceeds from stock issuance     |        |            |          | -                 | 
|Stock issuance costs             |        |            |          | -                 | 
|                                 |        |            |          |                   | 
|Balance at  June 30, 2006        |        |            | $        | -                 | 
|                                 |        |            |          |                   | 

See notes to condensed consolidated financial statements.

5

---

# ATLANTIC BANCSHARES,
INC.

# Condensed Statements
of Cash Flows (Unaudited)

|                                                                | Six months | Three months
|--------------------------------------------------------------- | ---------- | ------------
|
|
|Cash flows from operating activities:                           |            |             
|Net loss                                                        |            |             
|Adjustments to reconcile net loss to net cash                   |            |             
|used by operating activities                                    |            |             
|Provision for loan losses                                       |            |             
|Depreciation and amortization expense                           |            |             
|Deferred income tax benefit                                     |            |             
|Increase in interest receivable                                 |            |             
|Increase in interest payable                                    |            |             
|Stock-based compensation expense                                |            |             
|Decrease in other assets                                        |            |             
|Decrease in other liabilities                                   |            |             
|                                                                |            |             
|Net cash used by operating activities                           |            |             
|                                                                |            |             
|Cash flows from investing activities:                           |            |             
|Net increase in loans receivable                                |            |             
|Purchase of investments available for sale                      |            |             
|Purchases of premises, furniture, and equipment                 |            |             
|                                                                |            |             
|Net cash used by investing activities                           |            |             
|                                                                |            |             
|Cash flows from financing activities:                           |            |             
|Net increase in demand deposits, interest-bearing               |            |             
|transaction accounts and savings accounts                       |            |             
|Net increase in certificates of deposit and other time deposits |            |             
|Net decrease in stock subscription deposits                     |            |             
|Net decrease in borrowed funds                                  |            |             
|Proceeds from issuance of common stock,                         |            |             
|net of stock issuance costs                                     |            |             
|                                                                |            |             
|Net cash provided by financing activities                       |            |             
|                                                                |            |             
|Net increase (decrease) in cash and cash equivalents            |            |             
|Cash and cash equivalents, beginning of period                  |            |             
|                                                                |            |             
|Cash and cash equivalents, end of period                        |            |             
|                                                                |            |             
|Cash paid for:                                                  |            |             
|Interest                                                        |            |             
|                                                                |            |             
|Income taxes                                                    |            |             
|                                                                |            |             

See notes to condensed consolidated financial statements.

6

---

# ATLANTIC BANCSHARES,
INC.

# Notes to Condensed Financial
Statements (Unaudited)

# Note 1  Nature of
Business and Basis of Presentation

Atlantic Bancshares,
Inc. (the Company) is a South Carolina corporation organized to
operate as a bank holding company pursuant to the Federal Bank Holding Company Act of 1956
and the South Carolina Bank Holding Company Act, and to own and control all of the capital
stock of Atlantic Community Bank (the Bank). The Bank is a South Carolina
state bank organized to conduct general banking business in Bluffton, South Carolina and
the surrounding communities. From the Companys inception in June 2005 until the Bank
opened for business in January 2006, the Company engaged in organizational and pre-opening
activities necessary to obtain regulatory approvals and to prepare the Bank to commence
business as a financial institution.

# Basis of Presentation

The accompanying unaudited
consolidated condensed financial statements for the Company were prepared in accordance
with instructions for Form 10-QSB 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.
Operating results for the three month and six month periods ended June 30, 2006 are not
necessarily indicative of the results that may be expected for the year ending December
31, 2006. For further information, refer to the financial statements and footnotes thereto
included in our Annual Report on Form 10-KSB for 2005 as filed with the Securities and
Exchange Commission.

Until the Bank opened for business in
January 2006, the Company was accounted for as a development stage enterprise as defined
by Statement of Financial Accounting Standards No. 7, Accounting and Reporting by
Development Stage Enterprises, as the Company devoted substantially all of its
efforts to establishing a new business.

# 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 February 2006, the FASB issued
SFAS No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment
of FASB Statements No. 133 and 140. This Statement amends SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, and SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This Statement resolves issues addressed in SFAS No. 133
Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in
Securitized Financial Assets. SFAS No. 155 is effective for all financial
instruments acquired or issued after the beginning of an entitys first fiscal year
that begins after September 15, 2006. The Company does not believe that the adoption of
SFAS No. 155 will have a material impact on its financial position, results of operations
and cash flows.

In March 2006, the FASB issued SFAS
No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB
Statement No. 140. This Statement amends FASB No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with
respect to the accounting for separately recognized servicing assets and servicing
liabilities. SFAS No. 156 requires an entity to recognize a servicing asset or servicing
liability each time it undertakes an obligation to service a financial asset by entering
into a servicing contract; requires all separately recognized servicing assets and
servicing liabilities to be initially measured at fair value, if practicable; permits an
entity to choose its subsequent measurement methods for each class of separately
recognized servicing assets and servicing liabilities; at its initial adoption, permits a
one-time reclassification of available-for-sale securities to trading securities by
entities with recognized servicing rights, without calling into question the treatment of
other available-for-sale securities under Statement 115, provided that the
available-for-sale securities are identified in some manner as offsetting the
entitys exposure to changes in fair value of servicing assets or servicing
liabilities that a servicer elects to subsequently measure at fair value; and requires
separate presentation of servicing assets and servicing liabilities subsequently measured
at fair value in the statement of financial position and additional disclosures for all
separately recognized servicing assets and servicing liabilities. An entity should adopt
SFAS No. 156 as of the beginning of its first fiscal year that begins after September 15,
2006. The Company does not believe the adoption of SFAS No. 156 will have a material
impact on its financial position, results of operations and cash flows.

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 and
cash flows.

7

---

# ATLANTIC BANCSHARES,
INC.

# Notes to Condensed Financial
Statements (Unaudited)

# Note 3  Stock
Based Compensation

On January 1, 2006, the Company
adopted the fair value recognition provisions of Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards (SFAS) No.
123(R), Accounting for Stock-Based Compensation, to account for compensation costs
for stock warrants issued to directors. See description of plan in Note 5.

In adopting SFAS No. 123, the Company
elected to use the modified prospective method to account for the transition from the
intrinsic value method to the fair value recognition method. Under the modified
prospective method, compensation cost is recognized from the adoption date forward for all
new stock options granted and for any outstanding unvested awards as if the fair value
method had been applied to those awards as of the date of grant. The following table
illustrates the effect on net income and earnings per share as if the fair value based
method had been applied to all outstanding and unvested awards in each period (in
thousands, except per share amounts).

|                                                            | Six months | Three months
|----------------------------------------------------------- | ---------- | ------------
|
|
|
|Net loss as reported                                        |            |             
|Add: Stock-based employee compensation expense              |            |             
|included in reported net income, net of related tax effects |            |             
|Deduct: Total stock-based employee compensation expense     |            |             
|determined under fair value based method for all awards,    |            |             
|net of related tax effects                                  |            |             
|                                                            |            |             
|Pro forma net loss including stock-based compensation cost  |            |             
|based on fair-value method                                  |            |             
|                                                            |            |             
|Loss per share:                                             |            |             
|Basic - as reported                                         |            |             
|                                                            |            |             
|Basic - pro forma                                           |            |             
|                                                            |            |             
|Diluted - as reported                                       |            |             
|                                                            |            |             
|Diluted - pro forma                                         |            |             
|                                                            |            |             

# Note 4 
Organizational Expenses

The Company transferred certain
organizational expenses to the Bank on January 26, 2006.

A summary of expenses that were transferred
included:

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

8

---

# ATLANTIC BANCSHARES,
INC.

# Notes to Condensed Financial
Statements (Unaudited)

# Note 5  Stock
Compensation Plan

In 2006, upon shareholder approval,
the Company adopted the 2006 Stock Incentive Plan (the Stock Plan). The Stock
Plan authorizes the grant to our employees and directors of stock options for up to
250,315 shares of common stock from time to time during the term of the plan, subject to
adjustment upon changes in capitalization so that the number of shares authorized shall at
all times equal 20% of the outstanding shares of common stock. Under the plan the Company
may grant either incentive stock options or qualified stock options. No options have been
granted under the Stock Plan as of June 30, 2006.

In addition to the Stock Plan, during
2006 the Company issued, for no additional consideration, warrants to organizers in
recognition of the financial risk and efforts undertaken in organizing the Bank. Each
warrant allows for the purchase of one share of common stock at a purchase price of $10.00
per share for every one share purchased in the initial offering, up to a maximum of 10,000
shares per organizer. The warrants are vested over a five year period with none vesting at
the time of the grant. All unexercised organizer warrants expire on the tenth anniversary
of the opening date of the Bank, subject to earlier termination in certain circumstances
pursuant to individual stock warrant agreements.

There were 80,000 warrants granted
during the six months ended June 30, 2006. Fair values were estimated using the
Black-Scholes option-pricing model with the following assumptions used for the 2006
grants: dividend yield of 0.00%; estimated volatility of 10.00%; risk-free interest rate
of 4.73%; expected lives of options of 7.50 years. For purposes of this calculation,
compensation expense is recognized on a straight-line basis over the vesting period.

A summary of the Companys stock
warrants for the six months ended June 30, 2006 are as follows:

|                               | Six months ended | 
|------------------------------ | ---------------- | 
|
|
|
|
|
|Outstanding at January 1, 2006 |                  | 
|Granted                        |                  | 
|Exercised                      |                  | 
|Forfeited                      |                  | 
|Outstanding at June 30, 2006   |                  | 
|                               |                  | 

The following table summarizes
information about stock warrants outstanding for the six months ended June 30, 2006:

|                                | Outstanding | Exercisable
|------------------------------- | ----------- | -----------
|Number of warrants              |             |            
|Weighted average remaining life |             |            
|Weighted average exercise price |             |            
|High exercise price             |             |            
|Low exercise price              |             |            

9

---

# ATLANTIC BANCSHARES,
INC.

# Notes to Condensed Financial
Statements (Unaudited)

# Note 6  Loss Per
Share

Basic loss per share is computed by
dividing net loss by the weighted-average number of common shares outstanding. Diluted
loss per share is computed by dividing net loss by the weighted-average number of common
shares outstanding and dilutive common share equivalents using the treasury stock method.
There were no dilutive common share equivalents outstanding during the first six months of
2006 due to the net loss. As a result, basic and dilutive loss per share and diluted
earnings per share were the same.

# Net loss per share-basic
computation:

|                                          | Six months | Three months
|----------------------------------------- | ---------- | ------------
|
|
|
|Net loss to common shareholders           |            |             
|Average common shares outstanding - basic |            |             
|Basic loss per share                      |            |             

10

---

# Item 2 
Managements Discussion and Analysis or Plan of Operation

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, 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
forward-looking statements relating to, without limitation, future economic
performance, plans and objectives of management for future operations, and projections of
revenues and other financial items that are based on the beliefs of management, as well as
assumptions made by and information currently available to management. The words
may, will, anticipate, should,
would, believe, contemplate, expect,
estimate, continue, may, and intend, as
well as other similar words and expressions of the future, are intended to identify
forward-looking statements. Our actual results may differ materially from the results
discussed in the forward-looking statements, and our operating performance each quarter is
subject to various risks and uncertainties that are discussed in detail in our filings
with the Securities and Exchange Commission, including, without limitation:

| |  | 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,
becoming less favorable than expected resulting in, among other things, a deterioration in credit quality;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| |  | the rate of delinquencies and amounts of charge-offs;
| | - | -----------------------------------------------------

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

| |  | adverse changes in asset quality and resulting credit
risk-related losses and expenses;
| | - | ---------------------------------------------------------------------------------------

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

| |  | loss of
consumer confidence and economic disruptions resulting from terrorist activities;
| | - | -----------------------------------------------------------------------------------------

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

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

# Overview

The following discussion describes
our results of operations for the six months and three months ended June 30, 2006 and also
analyzes our financial condition as of June 30, 2006. Because our Bank opened for business
in January 2006, a comparison of the six and three months ended June 30, 2006 to the
comparable period in 2005 is not included in this discussion. Until January 26, 2006, our
principal activities related to our organization, the conducting of our initial public
offering and the pursuit of regulatory approvals.

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.

11

---

# Item 2 
Managements Discussion And Analysis or Plan of Operation continued

# Results of Operations

# Net Interest Income

For the six months ended June 30,
2006, net interest income, the major component of our net income, was $359,795. The
average rate paid on interest-bearing liabilities for the six months ended June 30, 2006
was 4.51%, while the average rate realized on interest-earning assets was 5.38% for the
same period. The net interest spread was 0.87% for the six month period ended June
30, 2006.

For the three months ended June 30,
2006, net interest income was $232,830. The average rate paid on interest-bearing
liabilities for the three months ended June 30, 2006 was 4.48%, while the average rate
realized on interest-earning assets was 5.29% for the same period. The net interest spread
was 0.81% for the three month period ended June 30, 2006.

# Provision and Allowance
for Loan Losses

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 $167,975, or 0.98% of total
loans, as of June 30, 2006. For the six months ended June 30, 2006 the provision was also
$167,975. There were no nonperforming loans at June 30, 2006 and no loans have been
criticized or classified as of June 30, 2006. 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. 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 based on evaluations of the collectibility 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, 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. Due to our limited operating
history, to date the provision for loan losses has been made primarily as a result of our
assessment of general loan loss risk compared to banks of similar size and maturity. Due
to our short operating history, the loans in our loan portfolio and our lending
relationships are of very recent origin. In general, loans do not begin to show signs of
credit deterioration or default until they have been outstanding for some period of time,
a process known as seasoning. As a result, a portfolio of older loans will usually behave
more predictably than a newer portfolio. Because our loan portfolio is new, the current
level of delinquencies and defaults may not be representative of the level that will
prevail when the portfolio becomes more seasoned, which may be higher than current levels.
If delinquencies and defaults increase, we may be required to increase our provision for
loan losses, which would adversely affect our results of operations and financial
condition. Periodically, we will adjust the amount of the allowance based on changing
circumstances. We will charge recognized losses to the allowance and add subsequent
recoveries back to the allowance for loan losses. There can be no assurance that
charge-offs of loans in future periods will not exceed the allowance for loan losses as
estimated at any point in time or that provisions for loan losses will not be significant
to a particular accounting period.

# Noninterest Income

Total noninterest income for the six
months ended June 30, 2006 was $63,716. The largest component of noninterest income was
mortgage origination fees, which totaled $51,026. Service charges on deposit accounts
totaled $3,591 for the six month period ended June 30, 2006.

Total noninterest income for the
three months ended June 30, 2006 was $41,396. The largest component of noninterest income
was mortgage origination fees, which totaled $29,698. Service charges on deposit accounts
totaled $3,021 for the quarter ended June 30, 2006.

12

---

# Item 2 
Managements Discussion And Analysis or Plan of Operation  continued

# Noninterest Expense

Total noninterest expense for the six
months ended June 30, 2006 was $1,951,028. The primary component of noninterest expense is
salaries and benefits, which were $934,270 for the six months ended June 30, 2006. Other
operating expenses were $790,190 for the six months ended June 30, 2006. Pre-opening
expenses in the amount of $740,680 were transferred to the Bank during the first quarter.
See Note 4 for details of the various expenses transferred.

Total noninterest expense for the
three months ended June 30, 2006 was $728,208. The primary component of noninterest
expense is salaries and benefits, which were $330,206 for the three months ended June 30,
2006. Other operating expenses were $345,693 for the three months ended June 30, 2006.

# Net Loss

The combination of the above factors
resulted in a net loss for the six months ended June 30, 2006 of $1,119,025, or $1.02 per
share, after the recognition of an income tax benefit of $576,467 for the period. As
discussed above, the net loss includes pre-opening expenses of $740,680 from prior periods
transferred to the Bank. The income tax benefit is based on the cumulative net loss.

Net loss for the three months ended
June 30, 2006 was $379,910, or $0.30 per share, after recognition of an income tax benefit
of $185,547 for the quarter.

# Assets and Liabilities

During the first six months of 2006,
total assets increased $30,605,326, or 365%, to $38,993,878 when compared to December 31,
2005. Excess funds from the initial stock offering, after funding loans, have been
invested in overnight federal funds. Loans receivable were $17,071,217 and
investment in federal funds totaled $19,810,000, each as of June 30, 2006. Funding for the
loan growth also came from deposit growth of $28,022,993 for the first six months of 2006.
The significant deposit and loan growth was a result of our successful effort to establish
our presence in our market and the benefit of a strong advertising campaign implemented in
the first and second quarters of 2006.

# Loans

We experienced significant loan
growth during the first six months of 2006 since commencing operations on January 26,
2006. Loans increased to $17,071,217 during the period. As shown below, the largest
category of loans was real estate mortgage loans, which totaled $9,905,531 at June 30,
2006. Balances within the major loans receivable categories as of June 30, 2006 are as
follows:

|                           | June 30,
|-------------------------- | --------
|
|Real estate - construction |         
|Real estate - mortgage     |         
|Commercial and industrial  |         
|Consumer and other         |         
|                           |         
|Total gross loans          |         
|                           |         

13

---

# Item 2 
Managements Discussion And Analysis or Plan of Operation continued

# 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 June
30, 2006 we did not have any criticized or classified loans. Additionally, we did not have
any loans in nonaccrual status or loans past due for more than 90 days.

The following table depicts the
activity in the allowance for loan losses for the period ended June 30, 2006:

|                                                    | June 30,
|--------------------------------------------------- | --------
|
|Balance, January 1, 2006                            |         
|Provision for loan losses for the period            |         
|Net loans (charged-off) recovered during the period |         
|Balance, June 30, 2006                              |         
|                                                    |         
|Gross loans outstanding, June 30, 2006              |         
|                                                    |         
|Allowance for loan losses to loans outstanding      |         

# Deposits

Total deposits were $28,022,993 at
June 30, 2006. The largest category of deposits was savings and money market deposits,
which totaled $15,065,754 at June 30, 2006.

Balances within the major deposit
categories as of June 30, 2006 and are as follows:

|                                          | June 30,
|----------------------------------------- | --------
|
|                                          |         
|Non-interest bearing transaction accounts |         
|Interest-bearing transaction accounts     |         
|Savings and money market                  |         
|Time deposits $100,000 and over           |         
|Other time deposits                       |         
|                                          |         
|Total deposits                            |         
|                                          |         

# 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, and federal funds sold 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 June 30, 2006, our primary source of liquidity included federal funds
sold totaling $19,810,000. We also have lines of credit available with correspondent banks
to purchase federal funds totaling $2,400,000 at June 30, 2006.

14

---

# Item 2 
Managements Discussion And Analysis or Plan of Operation continued

# Capital Resources

Total shareholders equity
increased $10,868,853 during the first six months of 2006 to $10,855,749. This increase is
primarily attributable to $11,982,022, net of stock issuance costs, raised in capital,
offset by a net loss for the period of $1,119,025. Equity was also negatively affected by
the $8,108 decrease relating to the change in fair market value on securities available
for sale.

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 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 classifications are also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.

The Federal Reserve guidelines
contain an exemption from the capital requirements for small bank holding
companies. On March 31, 2006, the Federal Reserve changed the definition of a small
bank holding company to bank holding companies with less than $500 million in total assets
(an increase from $150 million under the prior rule). However, bank holding companies will
not qualify under the new definition if they (i) are engaged in significant nonbanking
activities either directly or indirectly through a subsidiary, (ii) conduct significant
off-balance sheet activities, including securitizations or managing or administering
assets for third parties, or (iii) have a material amount of debt or equity securities
(including trust preferred securities) outstanding that are registered with the SEC.
Although we have less than $500 million in assets, it is unclear at this point whether we
otherwise meet the requirements for qualifying as a small bank holding
company. According to the Federal Reserve Board, the revision of the criterion to
exclude any bank holding company that has outstanding a material amount of SEC-registered
debt or equity securities reflects the fact that SEC registrants typically exhibit a
degree of complexity of operations and access to multiple funding sources that warrants
excluding them from the new policy statement and subjecting them to the capital
guidelines. In the adopting release for the new rule, the Federal Reserve Board stated
that what constitutes a material amount of SEC-registered debt or equity for a
particular bank holding company depends on the size, activities and condition of the
relevant bank holding company. In lieu of using fixed measurable parameters of materiality
across all institutions, the rule provides the Federal Reserve with supervisory
flexibility in determining, on a case-by-case basis, the significance or materiality of
activities or securities outstanding such that a bank holding company should be excluded
from the policy statement and subject to the capital guidelines. Prior to adoption of this
new rule, our holding company was not subject to these capital guidelines, as it had less
than $150 million in assets. Until the Federal Reserve provides further guidance on the
new rules, it will be unclear whether our holding company will be subject to the exemption
from the capital requirements for small bank holding companies. Regardless, our bank falls
under these minimum capital requirements as set per bank regulatory agencies.

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 of the bank consists of common
shareholders equity, excluding the unrealized gain or loss on securities
available-for-sale, minus certain intangible assets. The banks 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 capital and 8% for
total risk-based capital.

The bank is also required to maintain
capital at a minimum level based on quarterly 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. The bank exceeded its minimum regulatory capital ratios as of June 30, 2006, as
well as the ratios to be considered well capitalized.

15

---

# Item 2 
Managements Discussion And Analysis or Plan of Operation continued

# Capital Resources 
continued

The following table summarizes the
banks risk-based capital at June 30, 2006:

|                                                        | 
|------------------------------------------------------- | 
|Shareholders' equity                                    | 
|Plus - unrealized loss on available-for-sale securities | 
|                                                        | 
|Tier 1 capital                                          | 
|Plus - allowance for loan losses(1)                     | 
|                                                        | 
|Total capital                                           | 
|                                                        | 
|Risk-weighted assets                                    | 
|Risk-based capital ratios:                              | 
|Tier 1 capital (to risk-weighted assets)                | 
|Total capital (to risk-weighted assets)                 | 
|Tier 1 capital (to total average assets)                | 

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

# 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 June 30,
2006, we had issued commitments to extend credit of $4,412,593 through various types of
lending arrangements. We also had $101,635 of unused credit under pre-arranged overdraft
plans and overdraft protection plans offered on deposit accounts.

The following table sets forth the
length of time until maturity for unused commitments to extend credit and standby letters
of credit at June 30, 2006.

|                                    |  | After One | After Three |         | 
|----------------------------------- |  | --------- | ----------- | ------- | 
|
|
|
|Unused commitments to extend credit |  |           | $           | 101,761 | 
|Standby letters of credit           |  |           |             | -       | 
|                                    |  |           |             |         | 
|Totals                              |  |           | $           | 101,761 | 
|                                    |  |           |             |         | 

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.

16

---

# Item 2 
Managements Discussion And Analysis or Plan of Operation continued

# 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, 2005, as
filed on our annual report on Form 10-KSB. 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-QSB and in our Form 10-KSB that address our allowance
for loan losses for a description of our processes and methodology for determining our
allowance for loan losses.

# Item 3  Controls
and Procedures

As of the end of the period covered
by this report, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures as defined in
Exchange Act Rule 15d-15(e). Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our current disclosure controls and procedures
are effective as of June 30, 2006. There have been no significant changes in our internal
controls over financial reporting during the fiscal quarter ended June 30, 2006 that have
materially affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.

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

17

---

# PART II  OTHER
INFORMATION

# Item 1. Legal Proceedings

On July 11, 2006, we were served with
a complaint filed by our former chief financial officer, Timothy C. King, against our
company and our bank in the Court of Common Pleas for Beaufort County, South Carolina. The
complaint was originally filed on June 16, 2006 and was amended and refiled on June 29,
2006. The complaint alleges that the company and the bank breached the employment
agreement we had entered into with Mr. King by not appointing him to the board of
directors. The complaint alleges that, rather than voluntarily resigning, Mr. King was
constructively discharged from employment with the company and the bank. The complaint
seeks an unspecified amount of damages relating, among other things, to Mr. Kings
alleged loss of compensation, loss on the sale of his home in New Hampshire, loss of
professional prestige, opportunities, and financial benefits associated with being a
director of our bank, loss on funds Mr. King invested in our common stock, costs and
expenses relating to continuing health care coverage and Mr. Kings job search,
punitive damages, pre-judgment interest, and attorneys fees. We have retained the
law firm of Gignilliat, Savitz & Bettis, L.L.P. of Columbia, South Carolina to
represent us in this matter. We filed a Motion to Dismiss the complaint on July 31, 2006.
We intend to vigorously defend this action. There are no other pending legal proceedings
to which we are a party or of which any of our property is the subject.

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

Not applicable

# Item 3. Default Upon Senior
Securities

Not applicable

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

There were two matters submitted to a
vote of security holders during the quarter ended June 30, 2006 at our annual meeting of
shareholders held on May 25, 2006. The matters were the election of the board of directors
for a one year term and the approval of our 2006 Stock Incentive Plan. The following
describes the matters voted upon at the annual meeting and sets forth the number of votes
cast for, against or withheld and the number of abstentions as to each such matter (except
as provided below, there were no broker non-votes).

Proposal #1 
Election of the Board of Directors to serve for a one-year term

Our directors are elected for
one-year terms at each annual meeting. The current directors are listed below. Each
director was nominated for election and was reelected at the annual meeting on May 25,
2006 for a one-year term. Votes for the election of the directors were as follows:

|Name                          | Votes For | Votes Against or Withheld | Abstentions
|----------------------------- | --------- | ------------------------- | -----------
|Gary C. Davis                 |           |                           |            
|Frederick Anthony Nimmer, III |           |                           |            
|Robyn Josselson Shirley       |           |                           |            
|Mark S. Simpson               |           |                           |            
|Brian J. Smith                |           |                           |            
|Robert P. Trask               |           |                           |            
|Allen B. Ward                 |           |                           |            
|Edgar L. Woods                |           |                           |            

Proposal #2 
Approval of our 2006 Stock Incentive Plan

The board of directors previously
approved the Atlantic Bancshares, Inc. 2006 Stock Incentive Plan. The plan authorizes the
grant to our employees and directors of stock options for up to 250,315 shares of common
stock from time to time during the term of the plan, subject to adjustment upon changes in
capitalization. Our shareholders approved the plan at the annual meeting. The vote of the
shareholders to approve the plan was 655,956 shares voted in favor, 183,000 shares voted
against or withheld, and 14,000 shares abstained.

18

---

# Item 5. Other
Information

On August 9, 2006, Atlantic Bancshares, Inc. entered into a Commercial Lease Agreement with MB Partners,
LLC for $24,000 per year guaranteed for the first two years split into $2,000/month each of the first two
years.  The total term of the agreement is 10 years and may be extended for two full terms of 10 years
each.  Under the terms of the lease, the Company also must pay for utilities, real properties taxes,
regime fees, and insurance for the office space.  The lease for 1600 square feet of office space is
located at The Executive Center Horizontal Property Regime, Unit 108, Hilton Head Island, South Carolina
29926.  A copy of the lease agreement is attached to this Form 10-QSB as Exhibit 10.1.  Mark S. Simpson,
one of our directors, is also the manager of MB Partners, LLC.  All of our directors, Gary C. Davis, F.
Anthony Nimmer, III, Robyn J. Shirley, Mark S. Simpson, Brian J. Smith, Robert P. Trask, Allen B. Ward,
and Edgar L. Woods, and one of our non-director officers, Anthony G. Schob, are also members of MB
Partners, LLC.

On August 7, 2006, Atlantic Bancshares, Inc. and Atlantic Community Bank entered into an employment
agreement with Michelle M. Monts to serve as the Chief Financial Officer and an Executive Vice President.
The agreement is for an initial term of three years at a salary of $100,000.  She is also entitled to
10,000 options to purchase shares of our common stock and an automobile allowance of $350.00 per month.
Ms. Monts, 39, has substantial experience in many levels of accounting and finance across the
hotel/restaurant, retail, non-profit and banking sectors.  Prior to joining us as our assistant controller
in January 2006, she served as the Vice President and Treasurer of Atlantic Savings Bank, FSB, on Hilton
Head Island, South Carolina from 1991 to 1998.  From 1998 to 2005, Ms. Monts remained active in the
Bluffton and Hilton Head Island communities as a volunteer for numerous organizations while raising three
young children.  A copy of Ms. Monts employment agreement is attached to this Form 10-QSB as Exhibit 10.2.

On August 7, 2006, Atlantic Bancshares, Inc. and Atlantic Community Bank entered into an employment
agreement with Karen B. Sprague to serve as Executive Vice President and Chief Operating Officer of the
Bank and of the Company.  The agreement is for an initial term of three years at a salary of $90,000.  She
is also entitled to options for 12,516 shares of our common stock and an automobile allowance of $350.00
per month.  Ms. Sprague, 36, has many years of banking experience, all in the Bluffton/Hilton Head
market.  Prior to joining us as an Executive Vice President, she served as branch manager of First Federal
Bank from October 2001until September 2005.  From 1993 until 2001, Ms. Sprague was with Liberty Savings
Bank, rising to the position of assistant vice president.  She is a past president of the Zonta Club of
Hilton Head Island and a graduate of Leadership Hilton Head/Bluffton.   A copy of Ms. Spragues employment
agreement is attached to this Form 10-QSB as Exhibit 10.3.

# Item 6. Exhibits

| |   
| | --
| | 10
| | 10
| | 10
| | 31
| | 31
| | 32

19

---

# SIGNATURES

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

|Date:  August 10, 2006 |  | By:   /s/  Robert P. Trask                                               
|---------------------- |  | -------------------------------------------------------------------------
|                       |  | Robert P. Trask                                                          
|                       |  | President, Chief Executive Officer
         (Principal Financial Officer)

|Date:  August 10, 2006 |  | By:   /s/  Michelle Monts                                                    
|---------------------- |  | -----------------------------------------------------------------------------
|                       |  | Michelle Monts                                                               
|                       |  | Chief Financial Officer
         (Principal Financial and Accounting Officer)

20

---

# EXHIBIT INDEX

|ExhibitNumber | Description
|------------- | -----------
|              | 10         
|              | 10         
|              | 10         
|              | 31         
|              | 31         
|              | 32         

21