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

# FORM 10-QSB

(Mark One)

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

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

| | TRANSITION REPORT 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
November 9, 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 - September 30, 2006 and December 31, 2005                 | 
|                                                                                    | 
|Condensed Statement of Operations - Nine months ended September 30, 2006            | 
|and for the period from October 1, 2004 (inception)
to September 30, 2005           | 
|                                                                                    | 
|Condensed Statement of Operations - Three months ended September 30, 2006           | 
|and 2005                                                                            | 
|                                                                                    | 
|Condensed Statement of Shareholders' Equity (Deficit)-                              | 
|Nine months ended September 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
Sheet

|                                                      |  | December 31, 2005
|----------------------------------------------------- |  | -----------------
|
|
|
|Assets                                                |  |                  
|Cash and cash equivalents:                            |  |                  
|Cash and due from banks                               |  |                  
|Federal funds sold                                    |  |                  
|                                                      |  |                  
|Total cash and cash equivalents                       |  |                  
|                                                      |  |                  
|Investments available for sale                        |  |                  
|                                                      |  |                  
|Loans held for sale                                   |  |                  
|                                                      |  |                  
|Loans receivable                                      |  |                  
|Less allowance for loan losses                        |  |                  
|                                                      |  |                  
|Loans, net                                            |  |                  
|                                                      |  |                  
|Premises, furniture and equipment, net                |  |                  
|Accrued interest receivable                           |  |                  
|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                                        |  |                  
|                                                      |  |                  
|Accrued interest payable                              |  |                  
|Notes payable                                         |  |                  
|Stock subscription deposits                           |  |                  
|Other liabilities                                     |  |                  
|                                                      |  |                  
|Total liabilities                                     |  |                  
|                                                      |  |                  
|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 September 30, 2006 and      |  |                  
|December 31, 2005, respectively                       |  |                  
|Additional paid-in-capital                            |  |                  
|Retained deficit                                      |  |                  
|Accumulated other comprehensive income, net of tax    |  |                  
|                                                      |  |                  
|Total shareholders equity                            |  |                  
|                                                      |  |                  
|Total liabilities and shareholders' equity            |  |                  
|                                                      |  |                  

See notes to condensed consolidated financial statements.

-3-

---

# ATLANTIC BANCSHARES, INC.

# Condensed Statements of
OperationsFor the nine months ended September 30, 2006 and for the period from October 1, 2004
(inception) to September 30, 2005(Unaudited)

|                                                    |  | For the period
|--------------------------------------------------- |  | --------------
|
|
|
|
|
|Interest income:                                    |  |               
|Loans, including fees                               |  |               
|Investments                                         |  |               
|Federal funds sold                                  |  |               
|Interest bearing deposits with other banks          |  |               
|                                                    |  |               
|Total                                               |  |               
|                                                    |  |               
|Interest expense:                                   |  |               
|Time deposits $100,000 and over                     |  |               
|Other deposits                                      |  |               
|Other interest expense                              |  |               
|                                                    |  |               
|Total                                               |  |               
|                                                    |  |               
|Net interest income:                                |  |               
|Provision for loan losses                           |  |               
|                                                    |  |               
|Net interest income after provision for loan losses |  |               
|                                                    |  |               
|Noninterest income:                                 |  |               
|Service charges on deposit accounts                 |  |               
|Gain on sale of mortgage loans                      |  |               
|Other service charges, commissions and fees         |  |               
|                                                    |  |               
|Total                                               |  |               
|                                                    |  |               
|Noninterest expense:                                |  |               
|Salaries and employee benefits                      |  |               
|Occupancy expense                                   |  |               
|Furniture and equipment expense                     |  |               
|Other operating expenses                            |  |               
|                                                    |  |               
|Total                                               |  |               
|                                                    |  |               
|Loss before income taxes                            |  |               
|Income tax benefit                                  |  |               
|                                                    |  |               
|Net loss                                            |  |               
|                                                    |  |               
|Loss per share                                      |  |               
|Basic loss per share                                |  |               
|                                                    |  |               

See notes to condensed consolidated financial statements.

-4-

---

# ATLANTIC BANCSHARES, INC.

# Condensed Statements
of Operations For the three months ended September 30, 2006 and 2005 (Unaudited)

|                                                    | For the three months ended
|--------------------------------------------------- | --------------------------
|
|
|Interest income:                                    |                           
|Loans, including fees                               |                           
|Investments                                         |                           
|Federal funds sold                                  |                           
|Interest bearing deposits with other banks          |                           
|Total                                               |                           
|                                                    |                           
|Interest expense:                                   |                           
|Time deposits $100,000 and over                     |                           
|Other deposits                                      |                           
|Other interest expense                              |                           
|                                                    |                           
|Total                                               |                           
|                                                    |                           
|Net interest income:                                |                           
|Provision for loan losses                           |                           
|                                                    |                           
|Net interest income after provision for loan losses |                           
|                                                    |                           
|Noninterest income:                                 |                           
|Service charges on deposit accounts                 |                           
|Gain on sale of mortgage loans                      |                           
|Other service charges, commissions and fees         |                           
|                                                    |                           
|Total                                               |                           
|                                                    |                           
|Noninterest expense:                                |                           
|Salaries and employee benefits                      |                           
|Occupancy expense                                   |                           
|Furniture and equipment expense                     |                           
|Other operating expenses                            |                           
|                                                    |                           
|Total                                               |                           
|                                                    |                           
|Loss before income taxes                            |                           
|Income tax benefit                                  |                           
|                                                    |                           
|Net loss                                            |                           
|                                                    |                           
|Loss per share                                      |                           
|Basic loss per share                                |                           
|                                                    |                           

See notes to condensed consolidated financial statements.

-5-

---

# ATLANTIC BANCSHARES, INC.

# Condensed Statement of
Shareholders Equity and Comprehensive Income For the nine months
ended September 30, 2006 and 2005 (Unaudited)

|                                 |  |  |   | Accumulated | 
|-------------------------------- |  |  | - | ----------- | 
|
|
|
|Proceeds from issuance of        |  |  |   |             | 
|common stock                     |  |  | $ | -           | 
|                                 |  |  |   |             | 
|Net loss for the period          |  |  |   |             | 
|October 1, 2004 (inception)      |  |  |   |             | 
|to September 30, 2005            |  |  |   | -           | 
|                                 |  |  |   |             | 
|Balance, September 30, 2005      |  |  | $ | -           | 
|                                 |  |  |   |             | 
|Balance, December 31, 2005       |  |  | $ | -           | 
|                                 |  |  |   |             | 
|Net loss                         |  |  |   | -           | 
|                                 |  |  |   |             | 
|Other comprehensive income,      |  |  |   |             | 
|net of tax expense               |  |  |   | -           | 
|                                 |  |  |   |             | 
|Stock-based compensation expense |  |  |   | -           | 
|                                 |  |  |   |             | 
|Proceeds from stock issuance     |  |  |   | -           | 
|                                 |  |  |   |             | 
|Stock issuance costs             |  |  |   | -           | 
|                                 |  |  |   |             | 
|Balance,                         |  |  |   |             | 
|September 30, 2005               |  |  | $ | -           | 
|                                 |  |  |   |             | 

See notes to condensed consolidated financial statements.

-6-

---

# ATLANTIC BANCSHARES,
INC. Condensed Statements of Cash Flows (Unaudited)

|                                                                |  | For the period
|--------------------------------------------------------------- |  | --------------
|
|
|
|
|
|Cash flows from operating activities:                           |  |               
|Net loss                                                        |  |               
|Adjustments to reconcile net loss to net cash                   |  |               
|used by operating activities                                    |  |               
|Provision for loan losses                                       |  |               
|Deferred stock issuance costs                                   |  |               
|Depreciation and amortization expense                           |  |               
|Deferred income tax benefit                                     |  |               
|Increase in accounts payable                                    |  |               
|Increase in interest receivable                                 |  |               
|Increase in accounts receivable                                 |  |               
|Increase in interest payable                                    |  |               
|Stock-based compensation expense                                |  |               
|Decrease (increase) in other assets                             |  |               
|Increase in other liabilities                                   |  |               
|                                                                |  |               
|Net cash used by operating activities                           |  |               
|                                                                |  |               
|Cash flows from investing activities:                           |  |               
|Net increase in loans receivable                                |  |               
|Net increase in loans held for sale                             |  |               
|Purchase of investments available for sale                      |  |               
|Payments for leasehold improvements                             |  |               
|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) increase in borrowed funds                       |  |               
|Proceeds from issuance of common stock,                         |  |               
|net of stock issuance costs                                     |  |               
|                                                                |  |               
|Net cash provided by financing activities                       |  |               
|                                                                |  |               
|Net increase 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.

-7-

---

# 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 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 September 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 accounting principles generally accepted in the United States
of America. 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 nine
month periods ended September 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 Financial
Accounting Standards Board (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.

-8-

---

# ATLANTIC BANCSHARES,
INC.

# Notes to Condensed Financial
Statements (Unaudited)

Note 2  Recently
Issued Accounting Pronouncements  continued

In July 2006, the FASB issued FASB
Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in
an enterprises financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and
measurement attributable for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods,
disclosures and transitions. FIN 48 is effective for fiscal years beginning after December
15, 2006. The Company is currently analyzing the effects of FIN 48.

In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS 157 is effective
for the Company on January 1, 2008 and is not expected to have a significant impact on the
Companys financial statements.

In September 2006, the FASB issued
SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans(SFAS 158), which amends SFAS 87 and SFAS
106 to require recognition of the overfunded or underfunded status of pension and other
postretirement benefit plans on the balance sheet. Under SFAS 158, gains and losses, prior
service costs and credits, and any remaining transition amounts under SFAS 87 and SFAS 106
that have not yet been recognized through net periodic benefit cost will be recognized in
accumulated other comprehensive income, net of tax effects, until they are amortized as a
component of net periodic cost. The measurement date  the date at which the benefit
obligation and plan assets are measured  is required to be the companys fiscal
year end. SFAS 158 is effective for publicly-held companies for fiscal years ending after
December 15, 2006, except for the measurement date provisions, which are effective for
fiscal years ending after December 15, 2008. The Company is currently analyzing the
effects of SFAS 158 but does not expect its implementation will have a significant impact
on the Companys financial conditions or results of operations.

In September, 2006, The FASB ratified
the consensuses reached by the FASBs Emerging Issues Task Force (EITF) relating to
EITF 06-4 Accounting for the Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split-Dollar Life Insurance Arrangements. EITF 06-4 addresses
employer accounting for endorsement split-dollar life insurance arrangements that provide
a benefit to an employee that extends to postretirement periods should recognize a
liability for future benefits in accordance with FASB Statement of Financial Accounting
Standards (SFAS) No. 106, Employers Accounting for Postretirement Benefits
Other Than Pensions,or Accounting Principles Board (APB) Opinion No. 12,
Omnibus Opinion1967".EITF 06-4 is effective for fiscal years
beginning after December 15, 2006. Entities should recognize the effects of applying this
Issue through either (a) a change in accounting principle through a cumulative-effect
adjustment to retained earnings or to other components of equity or net assets in the
statement of financial position as of the beginning of the year of adoption or (b) a
change in accounting principle through retrospective application to all prior periods. The
Company does not believe the adoption of EITF 06-4 will have a material impact on its
financial position, results of operations and cash flows.

On September 13, 2006, the SEC issued
Staff Accounting Bulleting No. 108 (SAB 108). SAB 108 provides interpretive
guidance on how the effects of the carryover or reversal of prior year misstatements
should be considered in quantifying a potential current year misstatement. Prior to SAB
108, Companies might evaluate the materiality of financial statement misstatements using
either the income statement or balance sheet approach, with the income statement approach
focusing on new misstatements added in the current year, and the balance sheet approach
focusing on the cumulative amount of misstatement present in a companys balance
sheet. Misstatements that would be material under one approach could be viewed as
immaterial under another approach, and not be corrected. SAB 108 now requires that
companies view financial statement misstatements as material if they are material
according to either the income statement or balance sheet approach. The Company has
analyzed SAB 108 and determined that upon adoption it will have no impact on the reported
results of operations or financial conditions.

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.

-9-

---

# 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).

|                                                            | Nine 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                                         |             |             
|                                                            |             |             

There were no options or warrants
issued in 2005.

# 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                    | 
|                         | 
|                         | 
|                         | 

-10-

---

# 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 nonqualified stock options.

There were 70,563 options granted
during the nine months ended September 30, 2006. Fair values were estimated on the date of
grant 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 5.12%; expected lives of the options of 7.50 years. For purposes of the
calculation, compensation expense is recognized on a straight-line basis over the vesting
period.

The following is a summary of the
activity under the incentive stock options plans for the three and nine months ending
September 30, 2006:

|                                  | Three and
|--------------------------------- | ---------
|
|
|
|
|
|
|
|Outstanding at January 1, 2006    |          
|Granted                           |          
|Exercised                         |          
|Forfeited                         |          
|                                  |          
|Outstanding at September 30, 2006 |          
|                                  |          

All options were issued during the
three months ended September 30, 2006.

The following table summarizes
information about the stock options outstanding for the nine months ended September 30,
2006:

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

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.

-11-

---

# ATLANTIC BANCSHARES,
INC.

# Notes to Condensed Financial
Statements (Unaudited)

Note 5  Stock
Compensation Plan  continued

There were 80,000 warrants granted
during the nine months ended September 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 nine months ended September 30, 2006 are as follows:

|                                  | Nine months ended
|--------------------------------- | -----------------
|
|
|
|
|
|
|Outstanding at January 1, 2006    |                  
|Granted                           |                  
|Exercised                         |                  
|Forfeited                         |                  
|                                  |                  
|Outstanding at September 30, 2006 |                  
|                                  |                  

There were no warrants issued during
the three months ended September 30, 2006.

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

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

# 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 nine 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:

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

Since only 10 shares of stock were
issued in 2005, earnings per share information is not meaningful.

-12-

---

# ATLANTIC BANCSHARES,
INC.

# 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 nine months and three months ended September 30, 2006
and also analyzes our financial condition as of September 30, 2006. 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.

-13-

---

# ATLANTIC BANCSHARES, INC.

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



# Results of Operations

# Net Interest Income

For the nine months ended September 30,
2006, net interest income, the major component of our net income, was $730,893. The
average rate paid on interest-bearing liabilities for the nine months ended September 30,
2006 was 4.69%, while the average rate realized on interest-earning assets was 6.14% for
the same period. The net interest spread was 1.45% for the nine month period ended
September 30, 2006. There were no sources of interest income in 2005.

For the three months ended September
30, 2006, net interest income was $371,098. The average rate paid on interest-bearing
liabilities for the three months ended September 30, 2006 was 4.70%, while the average
rate realized on interest-earning assets was 6.89% for the same period. The net interest
spread was 2.19% for the three month period ended September 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 $300,000, or 1% of total loans,
as of September 30, 2006. For the nine months ended September 30, 2006 the provision was
$300,136. There were no nonperforming loans at September 30, 2006. Loans totaling $676,764
were criticized and no loans have been classified as of September 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 nine
months ended September 30, 2006 was $123,812. The largest component of noninterest income
was mortgage origination fees, which totaled $90,463. Service charges on deposit accounts
totaled $12,624 for the nine month period ended September 30, 2006. There were no sources
of noninterest income in 2005.

Total noninterest income for the
three months ended September 30, 2006 was $60,096. The largest component of noninterest
income was mortgage origination fees, which totaled $39,437. Service charges on deposit
accounts totaled $9,033 for the quarter ended September 30, 2006.

-14-

---

# ATLANTIC BANCSHARES, INC.

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

# Noninterest Expense

Total noninterest expense for the
nine months ended September 30, 2006 was $2,688,972. The primary component of noninterest
expense is salaries and benefits, which were $1,335,563 for the nine months ended
September 30, 2006. Other operating expenses were $1,039,450 for the nine months ended
September 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.
For the period from October 1, 2004 to September 30, 2005, total noninterest expenses were
$387,427. This primarily consists of salaries and benefits of $161,297 and other operating
expenses totaling $173,479.

Total noninterest expense for the
three months ended September 30, 2006 was $737,944. The primary component of noninterest
expense is salaries and benefits, which were $401,293 for the three months ended September
30, 2006. Other operating expenses were $249,260 for the three months ended September 30,
2006. Total noninterest expense was $207,800 for the three months ended September 30,
2005. This primarily consists of salaries and benefits expense of $90,678 and other
operating expense totaling $103,318.

# Net Loss

The combination of the above factors
resulted in a net loss for the nine months ended September 30, 2006 of $1,407,920, or
$1.23 per share, after the recognition of an income tax benefit of $726,483 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 period from October 1, 2004 to September 30, 2005 was $392,594.
The net loss consists entirely of expenses incurred prior to the opening of the bank.

Net loss for the three months ended
September 30, 2006 was $288,895, or $.23 per share, after recognition of an income tax
benefit of $150,016 for the quarter. Net loss for the three months ended September 30,
2005 was $212,967. The net loss consists entirely of expenses incurred prior to the
opening of the bank.

# Assets and Liabilities

During the first nine months of 2006,
total assets increased $38,224,421, or 456%, to $46,612,973 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 $29,911,436 and investment in
federal funds totaled $9,763,000, each as of September 30, 2006. Funding for the loan
growth also came from deposit growth of $35,660,855 for the first nine months of 2006. The
significant deposit and loan growth was a result of our successful on-going effort to
establish our presence in our market and the benefit of a strong advertising and branding
campaign implemented during the first nine months of 2006.

# Loans

We experienced significant loan
growth during the first nine months of 2006 since commencing operations on January 26,
2006. Loans increased to $29,911,436 during the period. As shown below, the largest
category of loans was real estate mortgage loans, which totaled $17,013,712 at September
30, 2006. Balances within the major loans receivable categories as of September 30, 2006
are as follows:

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

-15-

---

# ATLANTIC BANCSHARES, INC.

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
September 30, 2006, loans totaling $676,764 were criticized and we had no 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 nine months ended September 30, 2006:

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

# Deposits

Total deposits were $35,660,855 at
September 30, 2006. The largest category of deposits was savings and money market
deposits, which totaled $18,055,127 at September 30, 2006.

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

|                                          | September 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 September 30, 2006, our primary source of liquidity included federal
funds sold totaling $9,763,000. We also have lines of credit available with correspondent
banks to purchase federal funds totaling $2,400,000 at September 30, 2006.

-16-

---

# ATLANTIC BANCSHARES, INC.

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

# Capital Resources

Total shareholders equity
increased $10,623,303 during the first nine months of 2006 to $10,610,199. 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 $1,407,920. Equity was also positively affected by
the $9,690 increase relating to the change in fair market value on securities available
for sale, net of taxes.

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 September 30, 2006,
as well as the ratios to be considered well capitalized.

-17-

---

# ATLANTIC BANCSHARES, INC.

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 September 30, 2006:

|                                                        | 
|------------------------------------------------------- | 
|Shareholders equity                                    | 
|Plus - unrealized gain 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 September 30,
2006, we had issued commitments to extend credit of $6,321,980 through various types of
lending arrangements. This includes $148,383 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 September 30, 2006.

|                                    |  | After One | After Three |         | 
|----------------------------------- |  | --------- | ----------- | ------- | 
|
|
|
|
|Unused commitments to extend credit |  |           | $           | 148,383 | 
|Standby letters of credit           |  |           |             | -       | 
|                                    |  |           |             |         | 
|Totals                              |  |           | $           | 148,383 | 
|                                    |  |           |             |         | 

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.

-18-

---

# ATLANTIC BANCSHARES, INC.

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 September 30, 2006. There have been no significant changes in our
internal controls over financial reporting during the fiscal quarter ended September 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.

-19-

---

# ATLANTIC BANCSHARES, INC.

# 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 September 16, 2006 and was amended and refiled on
September 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

Not applicable

# Item 5.   Other Information

Not applicable.

# Item 6.   Exhibits

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

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

32    
           Section 1350 Certifications.

-20-

---

# ATLANTIC BANCSHARES, INC.

# 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:  November 13, 2006 |  | By:   /s/  Robert P. Trask                                      
|------------------------ |  | ----------------------------------------------------------------
|                         |  | Robert P. Trask                                                 
|                         |  | President, Chief Executive Officer
(Principal Executive Officer)

|Date:  November 13, 2006 |  | By:   /s/  Michelle Monts                                           
|------------------------ |  | --------------------------------------------------------------------
|                         |  | Michelle Monts                                                      
|                         |  | Chief Financial Officer (Principal Financial and Accounting Officer)

-21-

---

# ATLANTIC BANCSHARES, INC.

# EXHIBIT INDEX

Exhibit Number              Description

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

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

32    
           Section 1350 Certifications.

-22-