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

# FORM 10-Q

(Mark One)

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

| | For the Quarterly Period ended September 30, 2008
| | -------------------------------------------------

| | 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 number
333-127242

Atlantic Bancshares, Inc.(Exact name of registrant as specified in its charter)

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

One Sheridan Park CircleP. O. Box 3077Bluffton, South Carolina 29910
(Address of principal executive offices)

(843) 815-7111(Registrants telephone number, including area code)

______________________________

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         
No

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

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

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

Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of the latest
practicable date: 1,251,577 shares of common stock, no par value per share, were issued
and outstanding as of November 11, 2008.

---

# ATLANTIC BANCSHARES,
INC.

# INDEX

|                                                                                       | 
|-------------------------------------------------------------------------------------- | 
|PART I - FINANCIAL INFORMATION                                                         | 
|                                                                                       | 
|Item 1.    Financial Statements (Unaudited)                                            | 
|                                                                                       | 
|Condensed Balance Sheets - September 30, 2008 and December 31, 2007                    | 
|                                                                                       | 
|Condensed Statement of Operations - Nine months ended September 30, 2008, and 2007 and | 
|Three months ended September 30, 2008 and 2007                                         | 
|                                                                                       | 
|Condensed Statement of Shareholders' Equity (Deficit)-                                 | 
|Nine months ended September 30, 2008 and 2007                                          | 
|                                                                                       | 
|Condensed Statement of Cash Flows - Nine months ended September 30, 2008 and 2007      | 
|                                                                                       | 
|Notes to Condensed Financial Statements                                                | 
|                                                                                       | 
|Item 2.    Management's Discussion and Analysis or Plan of Operation                   | 
|                                                                                       | 
|Item 3.    Quantitative and Qualitative Disclosures About Market Risk                  | 
|                                                                                       | 
|Item 4.    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

# PART I  FINANCIAL
INFORMATIONItem 1  Financial Statements.

|                                                             | September 30, | December 31,
|------------------------------------------------------------ | ------------- | ------------
|
|
|Assets:                                                      |               |             
|Cash and cash equivalents:                                   |               |             
|Cash and due from banks                                      |               |             
|                                                             |               |             
|Total cash and cash equivalents                              |               |             
|                                                             |               |             
|Securities available for sale                                |               |             
|Nonmarketable equity securities                              |               |             
|                                                             |               |             
|Loans receivable                                             |               |             
|Less allowance for loan losses                               |               |             
|                                                             |               |             
|Loans, net                                                   |               |             
|                                                             |               |             
|Accrued interest receivable                                  |               |             
|Premises, furniture and equipment, net                       |               |             
|Deferred tax asset                                           |               |             
|Other assets                                                 |               |             
|                                                             |               |             
|Total assets                                                 |               |             
|                                                             |               |             
|Liabilities:                                                 |               |             
|Deposits:                                                    |               |             
|Noninterest bearing transaction accounts                     |               |             
|Interest-bearing transaction accounts                        |               |             
|Savings and money market                                     |               |             
|Time deposits $100,000 and over                              |               |             
|Other time deposits                                          |               |             
|                                                             |               |             
|Total deposits                                               |               |             
|                                                             |               |             
|Advances from Federal Home Loan Bank                         |               |             
|Federal funds purchased                                      |               |             
|Accrued interest payable                                     |               |             
|Other liabilities                                            |               |             
|                                                             |               |             
|Total liabilities                                            |               |             
|                                                             |               |             
|Commitments and contingencies                                |               |             
|                                                             |               |             
|Shareholders equity:                                        |               |             
|Preferred stock, no par value; 10,000,000 shares authorized; |               |             
|No shares issued and outstanding                             |               |             
|Common stock, no par value; 10,000,000 shares authorized;    |               |             
|1,251,577 shares issued and outstanding                      |               |             
|Capital surplus                                              |               |             
|Accumulated other comprehensive income (loss)                |               |             
|Deficit                                                      |               |             
|                                                             |               |             
|Total shareholders' equity                                   |               |             
|                                                             |               |             
|Total liabilities and shareholders' equity                   |               |             
|                                                             |               |             

See notes to condensed consolidated financial statements.

-3-

---

# ATLANTIC BANCSHARES, INC.

# Condensed Statements
of Operations (Unaudited)

|                                                    | For the nine months ended | For the three months ended
|--------------------------------------------------- | ------------------------- | --------------------------
|
|
|
|Interest income:                                    |                           |                           
|Loans, including fees                               |                           |                           
|Securities, available for sale, taxable             |                           |                           
|Nonmarketable equity securities                     |                           |                           
|Federal funds sold                                  |                           |                           
|Interest bearing deposits with other banks          |                           |                           
|                                                    |                           |                           
|Total                                               |                           |                           
|                                                    |                           |                           
|Interest expense:                                   |                           |                           
|Time deposits $100,000 and over                     |                           |                           
|Other deposits                                      |                           |                           
|Other borrowings                                    |                           |                           
|                                                    |                           |                           
|Total                                               |                           |                           
|                                                    |                           |                           
|Net interest income                                 |                           |                           
|                                                    |                           |                           
|Provision for loan losses                           |                           |                           
|                                                    |                           |                           
|Net interest income after provision for loan losses |                           |                           
|                                                    |                           |                           
|Other operating income:                             |                           |                           
|Service fees on deposit accounts                    |                           |                           
|Residential mortgage origination fees               |                           |                           
|Other income                                        |                           |                           
|                                                    |                           |                           
|Total                                               |                           |                           
|                                                    |                           |                           
|Noninterest expense:                                |                           |                           
|Salaries and employee benefits                      |                           |                           
|Net occupancy                                       |                           |                           
|Professional fees                                   |                           |                           
|Marketing                                           |                           |                           
|Furniture and equipment                             |                           |                           
|Data processing and related costs                   |                           |                           
|Other operating                                     |                           |                           
|                                                    |                           |                           
|Total                                               |                           |                           
|                                                    |                           |                           
|Loss before income tax benefit                      |                           |                           
|                                                    |                           |                           
|Income tax benefit                                  |                           |                           
|                                                    |                           |                           
|Net loss                                            |                           |                           
|                                                    |                           |                           
|Losses per share                                    |                           |                           
|Basic loss per share                                |                           |                           
|                                                    |                           |                           

See notes to condensed consolidated financial statements.

-4-

---

# ATLANTIC BANCSHARES, INC.

# Consolidated
Statements of Changes in Shareholders Equity and Comprehensive Income For the nine months
ended September 30, 2008 and 2007(Unaudited)

|                         |  |  |  | Accumulated |  |  
|------------------------ |  |  |  | ----------- |  | -
|
|
|
|
|December 31, 2006        |  |  |  | 1,251,577   |  | $
|                         |  |  |  |             |  |  
|Net loss                 |  |  |  | -           |  |  
|                         |  |  |  |             |  |  
|Other comprehensive      |  |  |  |             |  |  
|income, net of tax       |  |  |  | -           |  |  
|                         |  |  |  |             |  |  
|Total comprehensive loss |  |  |  | -           |  |  
|                         |  |  |  |             |  |  
|Stock based compensation |  |  |  | -           |  |  
|                         |  |  |  |             |  |  
|September 30, 2007       |  |  |  | 1,251,577   |  | $
|                         |  |  |  |             |  |  
|December 31, 2007        |  |  |  | 1,251,577   |  | $
|                         |  |  |  |             |  |  
|Net loss                 |  |  |  | -           |  |  
|                         |  |  |  |             |  |  
|Other comprehensive      |  |  |  |             |  |  
|income, net of tax       |  |  |  | -           |  |  
|                         |  |  |  |             |  |  
|Total comprehensive loss |  |  |  | -           |  |  
|                         |  |  |  |             |  |  
|Stock based compensation |  |  |  | -           |  |  
|                         |  |  |  |             |  |  
|September 30, 2008       |  |  |  | 1,251,577   |  | $
|                         |  |  |  |             |  |  

See notes to condensed consolidated financial statements.

-5-

---

# ATLANTIC BANCSHARES,
INC.

# Condensed Statements
of Cash Flows (Unaudited)

|                                                                  | Nine months ended
|----------------------------------------------------------------- | -----------------
|
|Cash flows from operating activities:                             |                  
|Net loss                                                          |                  
|Adjustments to reconcile net loss to net cash provided            |                  
|(used) by operating activities:                                   |                  
|Provision for loan losses                                         |                  
|Provision for OREO                                                |                  
|Depreciation and amortization expense                             |                  
|Loss on sale of fixed assets                                      |                  
|Accretion on securities available for sale                        |                  
|Stock-based compensation expense                                  |                  
|Deferred income tax benefit                                       |                  
|Decrease (increase)  in interest receivable                       |                  
|Increase in interest payable                                      |                  
|Increase in other assets                                          |                  
|Increase  in other liabilities                                    |                  
|                                                                  |                  
|Net cash provided (used) by operating activities                  |                  
|                                                                  |                  
|Cash flows from investing activities:                             |                  
|Investing activities                                              |                  
|Net increase in loans receivable, net                             |                  
|Purchase of premises, furniture and equipment                     |                  
|Proceeds from sales of fixed assets                               |                  
|Purchase of securities available for sale                         |                  
|Purchase of nonmarketable equity securities                       |                  
|Repayments, maturities and calls of securities available for sale |                  
|Repayments of nonmarketable equity securities                     |                  
|                                                                  |                  
|Net cash used by investing activities                             |                  
|                                                                  |                  
|Cash flows from financing activities:                             |                  
|Investing activities Financing activities                         |                  
|Net (decrease) increase in demand deposits, interest-bearing      |                  
|transaction accounts and savings accounts                         |                  
|Net increase in certificate of deposit and other time deposits    |                  
|Net increase (decrease) in federal funds purchased                |                  
|Net increase in FHLB advances                                     |                  
|                                                                  |                  
|Net cash provided by financing activities                         |                  
|                                                                  |                  
|Net increase (decrease) in cash and cash equivaleknts             |                  
|                                                                  |                  
|Cash and cash equivalents, beginning of  the period               |                  
|                                                                  |                  
|Cash and cash equivalents, end of the 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  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 nine month period ended September 30, 2008 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, 2007.

# 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 December 2007, the FASB issued
SFAS No. 141(R), Business Combinations, (SFAS 141(R)) which
replaces SFAS 141. SFAS 141(R) establishes principles and requirements for how an acquirer
in a business combination recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any controlling interest;
recognizes and measures goodwill acquired in the business combination or a gain from a
bargain purchase; and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the business
combination. FAS 141(R) is effective for acquisitions by the Company taking place on or
after January 1, 2009. Early adoption is prohibited. Accordingly, a calendar year-end
company is required to record and disclose business combinations following existing
accounting guidance until January 1, 2009. The Company will assess the impact of SFAS
141(R) if and when a future acquisition occurs.

In December 2007, the FASB issued
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements 
an amendment of ARB No. 51 (SFAS 160). SFAS 160 establishes new
accounting and reporting standards for the noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. Before this statement, limited guidance existed for
reporting noncontrolling interests (minority interest). As a result, diversity in practice
exists. In some cases minority interest is reported as a liability and in others it is
reported in the mezzanine section between liabilities and equity. Specifically, SFAS 160
requires the recognition of a noncontrolling interest (minority interest) as equity in the
consolidated financials statements and separate from the parents equity. The amount
of net income attributable to the noncontrolling interest will be included in consolidated
net income on the face of the income statement. SFAS 160 clarifies that changes in a
parents ownership interest in a subsidiary that do not result in deconsolidation are
equity transactions if the parent retains its controlling financial interest. In addition,
this statement requires that a parent recognize gain or loss in net income when a
subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of
the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes
expanded disclosure requirements regarding the interests of the parent and its
noncontrolling interests. SFAS 160 is effective for the Company on January 1, 2009.
Earlier adoption is prohibited. The Company is currently evaluating the impact, if any,
the adoption of SFAS 160 will have on its financial position, results of operations and
cash flows.

In March 2008, the FASB issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities
(SFAS 161). SFAS 161 requires enhanced disclosures about an entitys
derivative and hedging activities and thereby improving the transparency of financial
reporting. It is intended to enhance the current disclosure framework in SFAS 133 by
requiring that objectives for using derivative instruments be disclosed in terms of
underlying risk and accounting designation. This disclosure better conveys the purpose of
derivative use in terms of the risks that the entity is intending to manage. SFAS 161 is
effective for the Company on January 1, 2009. This pronouncement does not impact
accounting measurements but will result in additional disclosures if the Company is
involved in material derivative and hedging activities at that time.

In February 2008, the FASB issued
FASB Staff Position No. 140-3, Accounting for Transfers of Financial Assets and
Repurchase Financing Transactions (FSP 140-3).  This FSP provides
guidance on accounting for a transfer of a financial asset and the transferors
repurchase financing of the asset.  This FSP presumes that an initial transfer of a
financial asset and a repurchase financing are considered part of the same arrangement
(linked transaction) under SFAS No. 140. However, if

-7-

---

ATLANTIC BANCSHARES,
INC.

# Notes to Condensed
Financial Statements(Unaudited)

certain criteria are met, the initial
transfer and repurchase financing are not evaluated as a linked transaction and are
evaluated separately under Statement 140.  FSP 140-3 will be effective for financial
statements issued for fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years and earlier application is not permitted. Accordingly, this FSP
is effective for the Company on January 1, 2009.  The Company is currently evaluating
the impact, if any, the adoption of FSP 140-3 will have on its financial position, results
of operations and cash flows.

In April 2008, the FASB issued FASB
Staff Position No. 142-3, Determination of the Useful Life of Intangible
Assets (FSP 142-3). This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS No. 142, Goodwill and Other
Intangible Assets. The intent of this FSP is to improve the consistency between the
useful life of a recognized intangible asset under SFAS No. 142 and the period of expected
cash flows used to measure the fair value of the asset under SFAS No. 141(R),
Business Combinations, and other U.S. generally accepted accounting
principles. This FSP is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal years and early
adoption is prohibited. Accordingly, this FSP is effective for the Company on January 1,
2009. The Company does not believe the adoption of FSP 142-3 will have a material impact
on its financial position, results of operations or cash flows.

Effective January 1, 2008, the
Company adopted SFAS No. 157, Fair Value Measurements (SFAS 157)
which provides a framework for measuring and disclosing fair value under generally
accepted accounting principles. SFAS 157 requires disclosures about the fair value of
assets and liabilities recognized in the balance sheet in periods subsequent to initial
recognition, 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).

SFAS 157 defines 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. SFAS 157 also
establishes 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 | 
|        | 
|        | 
|        | 
|Level 2 | 
|        | 
|        | 
|        | 
|        | 
|        | 
|        | 
|        | 
|        | 
|        | 
|Level 3 | 
|        | 
|        | 
|        | 
|        | 
|        | 
|        | 
|        | 

Assets and liabilities measured at
fair value on a recurring basis at September 30, 2008 are as follows:

-8-

---

ATLANTIC BANCSHARES,
INC.

# Notes to Condensed
Financial Statements (Unaudited)

|                              |  | Significant |  
|----------------------------- |  | ----------- | -
|
|
|
|
|Available for Sale Securities |  |             | $
|                              |  |             |  
|Total                         |  |             | $
|                              |  |             |  

The Company has no liabilities
carried at fair value or measured at fair value on a nonrecurring basis.

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 at September 30, 2008 was $1,645,717.

FASB Staff Position No. FAS 157-2
delays the implementation of SFAS 157 until the first quarter of 2009 with respect to
goodwill, other intangible assets, real estate and other assets acquired through
foreclosure and other non-financial assets measured at fair value on a nonrecurring basis.

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

FSP SFAS 133-1 and FIN 45-4, Disclosures
about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133
and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement
No. 161, (FSP SFAS 133-1 and FIN 45-4) was issued September 2008,
effective for reporting periods (annual or interim) ending after November 15, 2008. FSP
SFAS 133-1 and FIN 45-4 amends SFAS 133 to require the seller of credit derivatives to
disclose the nature of the credit derivative, the maximum potential amount of future
payments, fair value of the derivative, and the nature of any recourse provisions.
Disclosures must be made for entire hybrid instruments that have embedded credit
derivatives.

The staff position also amends FIN 45
to require disclosure of the current status of the payment/performance risk of the credit
derivative guarantee. If an entity utilizes internal groupings as a basis for the risk,
how the groupings are determined must be disclosed as well as how the risk is managed.

The staff position encourages that
the amendments be applied in periods earlier than the effective date to facilitate
comparisons at initial adoption. After initial adoption, comparative disclosures are
required only for subsequent periods.

FSP SFAS 133-1 and FIN 45-4 clarifies
the effective date of SFAS 161 such that required disclosures should be provided for any
reporting period (annual or quarterly interim) beginning after November 15, 2008. The
adoption of this Staff Position will have no material effect on the Companys
financial position, results of operations or cash flows.

The SECs Office of the Chief
Accountant and the staff of the FASB issued press release 2008-234 on September 30, 2008
(Press Release) to provide clarifications on fair value accounting. The press
release includes guidance on the use of managements internal assumptions and the use
of market quotes. It also reiterates the factors in SEC Staff Accounting
Bulletin (SAB) Topic 5M which should be considered when determining
other-than-temporary impairment: the length of time and extent to which the market value
has been less than cost; financial condition and near-term prospects of the issuer; and
the intent and ability of the holder to retain its investment for a period of time
sufficient to allow for any anticipated recovery in market value.

On October 10, 2008, the FASB issued
FSP SFAS 157-3, Determining the Fair Value of a Financial Asset When the Market for
That Asset Is Not Active (FSP SFAS 157-3). This FSP clarifies the
application of SFAS No. 157, Fair Value Measurements (see Note 2) in a market
that is not active and provides an example to illustrate key considerations in determining
the fair value of a financial asset when the market for that asset is not active. The FSP
is effective upon issuance, including prior periods for which financial statements have
not been issued. For the Company, this FSP is effective for the quarter ended September
30, 2008.

-9-

---

ATLANTIC BANCSHARES,
INC.

# Notes to Condensed
Financial Statements (Unaudited)

The Company considered the guidance
in the Press Release and in FSP SFAS 157-3 when conducting its review for
other-than-temporary impairment as of September 30, 2008 and determined that it did not
result in a change to its impairment estimation techniques.

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  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 nine months
of 2008 and 2007 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:

|                                          | Nine months ended
|----------------------------------------- | -----------------
|
|Net loss per share-basic computation:     |                  
|                                          |                  
|Net loss to common shareholders           |                  
|                                          |                  
|Average common shares outstanding - basic |                  
|                                          |                  
|Basic loss per share                      |                  
|                                          |                  

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

-10-

---

# 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, 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 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 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 anticipated 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, continuing to be weak 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;
| | - | ---------------------------------------------------------------------------------------

| |  | the amount of our real estate-based loans, and the weakness in the
commercial real estate market;
| | - | -------------------------------------------------------------------------------------------------

| |  | 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.
| | - | --------------------------------------------------------------------------------------------------------------------

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
2008, the capital and credit markets have experienced extended volatility and disruption.
In the last 90 days, the volatility and disruption have reached unprecedented levels.
There can be no assurance that these unprecedented recent developments will not materially
and adversely affect our business, financial condition and results of operations.

Real estate markets continue to show
signs of weakening and property values have been impacted negatively by the current
economic operating environment. Our primary service area, southern Beaufort County and a
portion of Jasper County, are not immune to these pressures. If prevailing economic
conditions locally and nationally continue to decline, our business may be affected
adversely. A sustained economic downturn would likely contribute to reduced deposits, the
deterioration of the quality of the loan portfolio and increased nonperforming loans which
could result in a net loss of earnings, an increase in the provision for loan losses and
an increase in loan charge offs, all of which could have a material adverse effect on our
financial condition and results of operations.

All forward-looking statements in
this report are based on information available to us as of the date of this report. 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.

# Overview

The following discussion describes
our results of operations for the quarter ended September 30, 2008 as compared to the
quarter ended September 30, 2007, as well as results for the nine months ended September
30, 2008 and 2007, along with our financial condition as of September 30, 2008 as compared
to December 31, 2007. Like most community banks, we

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# ATLANTIC BANCSHARES,
INC.

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.

In response to financial conditions
affecting the banking system and financial markets and the potential threats to the
solvency of investment banks and other financial institutions, the United States
government has taken unprecedented actions. On October 3, 2008, President Bush signed into
law the Emergency Economic Stabilization Act of 2008 (the EESA). Pursuant to
the EESA, the U.S. Treasury will have the authority to, among other things, purchase
mortgages, mortgage-backed securities, and other financial instruments from financial
institutions for the purpose of stabilizing and providing liquidity to the U.S. financial
markets. On October 14, 2008, the U.S. Department of Treasury announced the Capital
Purchase Program under the EESA, pursuant to which the Treasury intends to make senior
preferred stock investments in participating financial institutions. We are evaluating
whether to participate in the Capital Purchase Program.Regardless of our
participation, governmental intervention and new regulations under these programs could
materially and adversely affect our business, financial condition and results of
operations.

# Results of Operations

# Net Interest Income

For the nine months ended September
30, 2008, net interest income, the major component of our net income, was $2,219,498 as
compared to $1,706,435 for the same period in 2007. The increase in net interest income
for the first nine months of 2008 was primarily due to the growth in our loan portfolio,
which typically provides higher interest yields than other types of interest earning
assets, and increases our net interest spread. The average rate paid on interest-bearing
liabilities for the nine months ended September 30, 2008 and 2007 was 3.86% and 4.89%,
respectively, while the average rate realized on interest-earning assets was 6.64% and
7.72%, respectively for the same period. The net interest spread was 2.79% and 2.83%,
respectively, for the nine month period ended September 30, 2008 and 2007. Recent
decreases in the Federal Reserve short-term rates and the resulting decrease in the yields
we generated on our earning assets (from variable rate loan repricing and new loans at
lower rates), has been almost offset by benefits we received from the repricing of our
rate sensitive liabilities for the nine month period ended September 30, 2008. The net
result was a decrease in net interest spread of 4 basis points during the nine-month
period ended September 30, 2008, as compared to the nine-month period ended September 30,
2007.

For the three months ended September
30, 2008, net interest income was $777,646 as compared to $612,634 for the same period in
2007. The average rate paid on interest-bearing liabilities for the three months ended
September 30, 2008 and 2007 was 3.49% and 4.89%, respectively, while the average rate
realized on interest-earning assets was 6.41% and 7.60% for the same periods. The net
interest spread was 2.92% and 2.71% for the three month period ended September 30, 2008
and 2007, respectively.

# 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 $983,216 and $596,500, or 1.36%
and 1.00% of total loans, as of September 30, 2008 and 2007, respectively. For the nine
months ended September 30, 2008 and 2007, the provision was $523,500 and $212,001,
respectively. Nonperforming loans at September 30, 2008 totaled $1,050,662. In addition,
ten loans to seven borrowers totaling $1,645,717 were impaired as of September 30, 2008
and loans totaling $2,654,825 were considered criticized loans. Four of these impaired
loans to two borrowers were performing troubled debt restructured loans totaling $454,050
for which no specific reserve has been set aside. The impaired loans also include a
$837,359 participation we hold on a commercial real estate development on the South
Carolina coast. The amount of the impairment on this loan is not easily determinable.
Based upon calculations of the present value of the collateral supporting this loan, we
believe our loan on this development is impaired by approximately $223,291, and we have
increased our reserves to reflect this impairment. However, the actual impairment on this
loan may be greater or less than this amount. Principal payments on

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# ATLANTIC BANCSHARES,
INC.

this loan totaling $29,707 have been
received during the quarter ended September 30, 2008. In contrast, there were two
classified nonperforming loans totaling $382,857 and $1,725,212 criticized loans at
September 30, 2007.

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
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, 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. In addition, 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, delinquencies and defaults will likely increase, and it
is more likely that we would be required to increase our allowance for loan losses.
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 nine
months ended September 30, 2008 and 2007 was $180,860 and $254,104, respectively.
Decreased mortgage loan sale volume caused mortgage origination fee income to decrease
$123,356 to $27,725 for the nine months ended September 30, 2008 as compared to $151,081
for the nine months ended September 30, 2007. This decrease was partially offset by
increased deposit account service charges which totaled $71,543 for the nine months ended
September 30, 2008 as compared to $50,187 for the nine months ended September 30, 2007.
NSF/overdraft fees on deposit accounts increased $17,590 to $60,095 for the nine months
ended September 30, 2008 as compared to $42,505 for the nine months ended September 30,
2007. This increase was attributable to increased number of accounts and to deteriorating
economic conditions. Other income increased $28,756 to $81,592 for the nine months ended
September 30, 2008 as compared to $52,836 for the nine months ended September 30, 2007.
Other real estate owned (OREO) rental income totaling $8,235 was received during the nine
months ending September 30, 2008. Rental income on this asset will not recur due to its
disposition by sale in September 2008. Fees produced by bankcard transactions increased
$18,275 to $38,401 for the nine months ended September 30, 2008 as compared to $20,126 for
the nine months ended 2007 which was the result of increased volume.

Total noninterest income for the
three months ended September 30, 2008 and 2007 was $62,350 and $70,533, respectively.
Decreased mortgage loan sale volume caused mortgage origination fee income to decrease
$27,697 to $2,201 for the three months ended September 30, 2008 as compared to $29,898 for
the three months ended September 30, 2007. Service charges on deposit accounts totaled
$28,425 for the three months ended September 30, 2008 as compared to $22,618 for the three
months ended September 30, 2007. Other income increased $13,707 to $31,724 for the nine
months ended September 30, 2008 as compared to $18,017 for the nine months ended September
30, 2007 mainly due to rental income received on a commercial OREO property and increased
fees produced by bankcard transactions.

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# ATLANTIC BANCSHARES,
INC.

# Noninterest Expense

Total noninterest expense for the
nine months ended September 30, 2008 and 2007 was $2,511,076 and $2,397,047, respectively.
The primary component of noninterest expense was salaries and benefits, which were
$1,276,212 and $1,278,209 for the nine months ended September 30, 2008 and 2007,
respectively. Net occupancy expense increased $98,298 to $237,136 for the nine months
ended September 30, 2008, as compared to $138,838 for the nine months ended September 30,
2007. Additional rent expense totaling $62,947 was incurred for the new main branch since
March 2008 when leasehold improvements commenced. Increased leasehold depreciation expense
and non-recurring relocation expenses for the nine months ending September 30, 2008, as
compared to the nine months ended September 30, 2007, have also resulted from the
consolidation and relocation of our original main branch and the original operations
center to the renovated new main branch facility in the same commercial subdivision in
July 2008. Marketing expense decreased $91,382 to $122,871 for the nine months ended
September 30, 2008, as compared to $214,253 for the nine months ended September 30, 2007.
Management has restructured the marketing department and is continually reviewing
marketing initiatives. As a result of the restructuring and reviewing of existing
initiatives, we have significantly reduced marketing expenses compared to the prior year.
Other operating expenses for the nine months ended September 30, 2008 and 2007 was
$346,728 and $283,572, respectively. The increase is mainly attributable to OREO related
activity for the nine months ended September 30, 2008 compared to no OREO activity for the
nine months ended September 30, 2007. Total OREO expense totaled $38,971 for the nine
months ended September 30, 2008. Gain/loss on sale of OREO totaled $28,927 for the nine
months ended September 30, 2008.

Total noninterest expense for the
three months ended September 30, 2008 and 2007 was $927,432 and $841,310, respectively.
The primary component of noninterest expense was salaries and benefits, which were
$438,108 and $465,750 for the three months ended September 30, 2008 and 2007,
respectively. Net occupancy expenses increased $54,142 to $100,917 for the three months
ended September 30, 2008 compared to $46,775 for the three months ended September 30, 2007
attributable to increased rent expense, increased leasehold depreciation expense and other
non-recurring relocation related expenditures. Other operating expenses increased $47,750
to $138,061 for the three months ended September 30, 2008 compared to $90,311 for the
three months ended September 30, 2007. This increase is mainly related to OREO activity.

# Net Loss

The combination of the above factors
resulted in a net loss for the nine months ended September 30, 2008 of $418,600, or $.33
per share, after the recognition of an income tax benefit of $215,618 for the period. For
the period ended September 30, 2007, the net loss was $449,157, or $0.36 per share, after
the recognition of an income tax benefit of $199,352 for the period.

Net loss for the three months ended
September 30, 2008 was $120,788, or $.10 per share, after recognition of an income tax
benefit of $62,198 for the quarter. Net loss for the three months ended September 30, 2007
was $141,575, or $.11 per share, after recognition of an income tax benefit of $73,040 for
the quarter.

# Assets and Liabilities

During the first nine months of 2008,
total assets increased $11,453,501, or 13.86%, to $94,086,241 at September 30, 2008 when
compared to December 31, 2007. Loans receivable increased $6,468,894 to $72,233,353 as of
September 30, 2008 when compared to December 31, 2007. Securities available for sale
increased $3,173,002 to $16,772,118 when compared to December 31, 2007. In March 2008, we
entered into an arbitrage agreement where a $5,000,000 Federal Home Loan Bank advance was
obtained to purchase the same amount of securities available for sale. Loan growth was
funded from deposit growth of $1,245,325 and additional borrowings.

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# ATLANTIC BANCSHARES,
INC.

# Loans

We experienced moderate loan growth
during the first nine months of 2008. Net loans increased by $6,163,528 to $71,250,137
during the period. As shown below, the largest category of loans was real estate mortgage
loans which increased $5,538,120 to $48,228,362 from December 31, 2007 to September 30,
2008. Balances within the major loans receivable categories as of September 30, 2008 and
December 31, 2007 are as follows:

|                                        | September 30, 2008 | December 31, 2007
|--------------------------------------- | ------------------ | -----------------
|Real estate:                            |                    |                  
|Mortgage                                |                    |                  
|Construction, land and land development |                    |                  
|                                        |                    |                  
|Total real estate loans                 |                    |                  
|                                        |                    |                  
|Commercial and industrial               |                    |                  
|Consumer and other                      |                    |                  
|Agriculture and other farm              |                    |                  
|Deferred origination fees, net          |                    |                  
|                                        |                    |                  
|Gross loans                             |                    |                  
|Less allowance for loan losses          |                    |                  
|                                        |                    |                  
|Loans, net                              |                    |                  
|                                        |                    |                  

# 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
September 30, 2008, we had ten loans to seven borrowers that were impaired totaling
$1,645,717. Six of these loans totaling $1,419,086 are secured by real estate, two loans
totaling $18,991 are secured by automobiles, one loan totaling $172,640 is secured by
business assets including accounts receivable, inventory, furniture, fixtures and
equipment and one loan totaling $35,000 is unsecured. Included in the allowance for loan
losses at September 30, 2008 was $406,406 related to impaired loans. Four of these
impaired loans to two borrowers were performing troubled debt restructured loans totaling
$454,050 for which no specific reserve has been set aside.

Nonaccrual loans totaled $1,050,662
at September 30, 2008. There were two loans in nonaccrual status totaling $382,857 at
September 30, 2007. As of September 30, 2008 and 2007, we had no loans 90 days or more
past due and still accruing interest.

The following table depicts the
activity in the allowance for loan losses for the periods ended September 30, 2008 and
2007:

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

# Deposits

Total deposits were $65,722,969 at
September 30, 2008, as compared to $63,469,102 at December 31, 2007. The largest category
of deposits was other time deposits which totaled $21,785,059 at September 30, 2008, as
compared to $27,311,987

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# ATLANTIC BANCSHARES,
INC.

at December 31, 2007. Brokered
certificates of deposits represent $13,426,000 and $18,396,000 of these other time
deposits accounts at September 30, 2008 and December 31, 2007, respectively. Savings and
money market accounts totaled $16,521,854 at September 30, 2008, as compared to
$17,712,595 at December 31, 2007. Brokered money market accounts represent $1,660,267 and
$0 of these savings and money market accounts at September 30, 2008 and December 31, 2007,
respectively. Time deposits $100,000 and over accounts increased $7,784,354 to $17,740,736
at September 30, 2008. In July 2008, the bank obtained $2,500,000 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. Intense rate
competition from existing competition and new entrants to our market continue to create
increased competition for local core deposits which has slowed our total deposit growth
rate.

Balances within the major deposit
categories as of September 30, 2008 and December 31, 2007 are as follows:

|                                          | September 30, 2008 | December 31, 2007
|----------------------------------------- | ------------------ | -----------------
|Non-interest bearing transaction accounts |                    |                  
|Interest-bearing transaction accounts     |                    |                  
|Savings and money market                  |                    |                  
|Time deposit $100,000 and over            |                    |                  
|Other time deposits                       |                    |                  
|                                          |                    |                  
|Total deposits                            |                    |                  
|                                          |                    |                  

Another aspect of EESA (in addition
to the Capital Purchase Plan described above) which became effective on October 3, 2008 is
a temporary increase of the basic limit on federal deposit insurance coverage from
$100,000 to $250,000 per depositor. The basic deposit insurance limit will return to
$100,000 after December 31, 2009.

In addition, we anticipate
participating in the FDICs Temporary Liquidity Guarantee Program which was announced
October 14, 2008 as part of EESA. This guarantee applies to the following transactions:

| |  | All newly issued senior unsecured debt (up to $1.5 trillion) issued on or before June 30,
2009, including promissory notes, commercial paper, inter-bank funding, and any unsecured
portion of secured debt. For eligible debt issued on or before June 30, 2009, coverage
would only be provided for three years beyond that date, even if the liability has not
matured; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Funds in non-interest-bearing transaction deposit accounts (up to $500 billion) held by
FDIC-insured banks until December 31, 2009.
| | - | -----------------------------------------------------------------------------------------------------------------------------------

All FDIC institutions are covered
until December 5, 2008 at no cost. After this initial period expires, the institution must
opt out if it no longer wishes to participate in the program; otherwise, it will be
assessed for future participation. There will be a 75-basis point fee to protect new debt
issues and an additional 10-basis point fee to fully cover non-interest bearing deposit
transaction accounts.

# Other Borrowings

Other borrowings are primarily
comprised of Federal Home Loan Bank of Atlanta (FHLBA) advances. FHLBA
advances are collateralized by pledged FHLBA stock, certain commercial and residential
loans and by a portion of our investment portfolio. FHLBA advances increased $11,500,000
to $16,500,000 at September 30, 2008, as compared to December 31, 2007. During the quarter
ended March 31, 2008, we entered into an arbitrage agreement where a $5,000,000 FHLBA
advance was obtained to purchase the same amount of securities available for sale. During
the quarter ended June 30, 2008, we replaced a maturing $3,000,000 brokered certificate of
deposit with $3,000,000 in FHLBA advances. During the quarter ended September 30, 2008, we
replaced a portion of maturing brokered certificates of deposit totaling $6,000,000 with
$1,500,000 in FHLBA advances.

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# ATLANTIC BANCSHARES,
INC.

FHLB advances as of September 30,
2008 and December 31, 2007 are as follows:

| |                           | September 30, 2008 | December 31, 2007
| | ------------------------- | ------------------ | -----------------
|
| | 11/30/2009                |                    |                  
| | 03/12/2010                |                    |                  
| | 05/28/2010                |                    |                  
| | 05/31/2011                |                    |                  
| | 07/11/2011                |                    |                  
| | 07/10/2012                |                    |                  
| | 09/12/2012                |                    |                  
| | 09/12/2013                |                    |                  
| | 11/29/2017                |                    |                  
| |                           |                    |                  
| | Total advances from FHLBA |                    |                  
| |                           |                    |                  

# 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 September 30, 2008, we had lines of credit to
purchase federal funds from unrelated banks totaling $8,500,000, consisting of a
$2,800,000 line secured by investment securities, and $5,700,000 of unsecured lines. As of
September 30, 2008, $1,824,900 was outstanding on the secured line of credit and
$6,675,100 remained unused on lines 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.

As of September 30, 2008, we had
remaining available credit from FHLBA totaling $1,161,885 based upon existing pledged
investment and loan collateral. As of September 30, 2008, an additional $768,115 of credit
was also available to the bank upon the receipt of additional collateral pledged to
FHLBA.We had advances totaling $16,500,000 from FHLBA outstanding as of September
30, 2008.

As of September 30, 2008, we had land
loans pledged to Federal Reserve Bank of Richmond as collateral available for short-term
advances at the Discount Window. No advances were outstanding as of September 30, 2008.

# Capital Resources

Total shareholders equity
decreased $408,948 during the first nine months of 2008 to $9,573,310. The decrease is
primarily attributable to the net loss for the period of $418,600, in addition to $74,681
related to unrealized losses on securities offset by $84,333 for stock-based compensation
expense.

The Federal Reserve and bank
regulatory agencies require bank holding companies and financial institutions to maintain
capital at adequate levels based on a percentage of assets and off-balance sheet
exposures, adjusted for risk weights ranging from 0% to 100%. The Federal Reserve
guidelines contain an exemption from the capital requirements for small bank holding
companies, which in 2006 were amended to cover most bank holding companies with less
than $500 million in total assets that do not have a material amount of debt or equity
securities outstanding registered with the SEC. Although our

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# ATLANTIC BANCSHARES,
INC.

class of common stock is registered
under Section 12 of the Securities Exchange Act, we believe that because our stock is not
listed on any exchange or otherwise actively traded, the Federal Reserve Board will
interpret its new guidelines to mean that we qualify as a small bank holding company.
Nevertheless, our bank remains subject to these capital requirements. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct material
effect on 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. Regardless, our
bank is well capitalized under these minimum capital requirements as set per
bank regulatory agencies.

Under the capital adequacy
guidelines, regulatory capital is classified into two tiers. These guidelines require an
institution to maintain a certain level of Tier 1 and Tier 2 capital to risk-weighted
assets. Tier 1 capital consists of common shareholders equity, excluding the
unrealized gain or loss on securities available for sale, minus certain intangible assets.
In determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100% based on
the risks believed to be inherent in the type of asset. Tier 2 capital consists of Tier 1
capital plus the general reserve for loan losses, subject to certain limitations. We are
also required to maintain capital at a minimum level based on total average assets, which
is known as the Tier 1 leverage ratio. To be considered adequately capitalized
under these capital guidelines, we must maintain a minimum total risk-based capital of 8%,
with at least 4% being Tier 1 capital. In addition, we must maintain a minimum Tier 1
leverage ratio of at least 4%. To be considered well-capitalized, we must
maintain total risk-based capital of at least 10%, Tier 1 capital of at least 6%, and a
leverage ratio of at least 5%.

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 September 30, 2008,
as well as the ratios to be considered well capitalized.

The following table summarizes the
banks risk-based capital at September 30, 2008:

|                                                         | 
|-------------------------------------------------------- | 
|Shareholders equity                                     | 
|Add-unrealized net loss on available-for-sale securities | 
|Less-disallowed deferred tax assets                      | 
|                                                         | 
|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 September 30,
2008, we had issued commitments to extend credit of $10,845,213 through various types of
lending arrangements. We had $263,807 of unused credit under pre-arranged overdraft plans
and overdraft protection plans offered on deposit accounts. There were also $360,073
outstanding commercial letters of credit at September 30, 2008.

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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 September 30, 2008.

|                                     | Within | After Three | One | Greater   | 
|------------------------------------ | ------ | ----------- | --- | --------- | 
|
|
|Unused commitments to extend credit  |        |             | $   | 992,506   | 
|Standby commercial letters of credit |        |             |     | 25,000    | 
|                                     |        |            
|Totals                               |        |             | $   | 1,017,506 | 
|                                     |        |            

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.

# 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, 2007, 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-Q 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.   Quantitative and
Qualitative Disclosures About Market Risk.

Not applicable.

# Item 4.   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). 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 September 30, 2008. There have been no significant changes in our
internal controls over financial reporting during the fiscal quarter ended September 30,
2008 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.

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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 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

Not applicable

# Item 5.   Other Information

Not applicable

# Item 6.   Exhibits

10.1        Amendment No. 1 to the Atlantic Bancshares, Inc. 2006 Stock Incentive Plan adopted October 16, 2008.

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           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:  November 13, 2008 |  | By:   /s/  Robert P. Trask           
|------------------------ |  | -------------------------------------
|                         |  | Robert P. Trask                      
|                         |  | President and Chief Executive Officer

|Date:  November 13, 2008 |  | By:   /s/  Michelle M. Pennell
|------------------------ |  | ------------------------------
|                         |  | Michelle M. Pennell           
|                         |  | Principal Financial Officer   

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ATLANTIC BANCSHARES,
INC.

# EXHIBIT INDEX

ExhibitNumber
              Description

10.1        Amendment No. 1 to the Atlantic Bancshares, Inc. 2006 Stock Incentive Plan adopted October 16, 2008.

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           Section 1350
Certifications.

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