# 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 March 31, 2007
| | ---------------------------------------------

| | 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) filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes       No

State the number of shares
outstanding of each of the issuers classes of common equity, as of the latest
practicable date: 1,251,577 shares of common stock, no par value, outstanding as of May
10, 2007.

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 - March 31, 2007 and December 31, 2006                | 
|                                                                               | 
|Condensed Statement of Operations - Three months ended March 31, 2007 and 2006 | 
|                                                                               | 
|Condensed Statement of Shareholders Equity -                                  | 
|Three months ended March 31, 2007 and 2006                                     | 
|                                                                               | 
|Condensed Statement of Cash Flows - Three months ended March 31, 2007 and 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.

# PART I  FINANCIAL INFORMATIONItem 1.   Financial Statements

# CONSOLIDATED BALANCE
SHEETS

|                                                             | March 31, | December 31,
|------------------------------------------------------------ | --------- | ------------
|
|
|Assets:                                                      |           |             
|Cash and cash equivalents:                                   |           |             
|Cash and due from banks                                      |           |             
|Federal funds sold                                           |           |             
|                                                             |           |             
|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                                               |           |             
|                                                             |           |             
|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                       |           |             
|Retained 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)

|                                                    | 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 interest expense                              |                   
|                                                    |                   
|Total                                               |                   
|                                                    |                   
|                                                    |                   
|Net interest income                                 |                   
|                                                    |                   
|Provision for loan losses                           |                   
|                                                    |                   
|Net interest income after provision for loan losses |                   
|                                                    |                   
|Other operating income:                             |                   
|Service charges on deposit accounts                 |                   
|Gain on sale of mortgage loans                      |                   
|Other service charges, commissions and fees         |                   
|                                                    |                   
|Total                                               |                   
|                                                    |                   
|Other operating expenses:                           |                   
|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 For the three months
ended March 31, 2007 and 2006(Unaudited)

|                          | Common stock |  | Accumulated |           | 
|------------------------- | ------------ |  | ----------- | --------- | 
|
|
|
|Balance,                  |              |  |             |           | 
|December 31, 2005         |              |  |             | 10        | 
|                          |              |  |             |           | 
|Proceeds from issuance of |              |  |             |           | 
|common stock, net         |              |  |             |           | 
|of offering costs of      |              |  |             |           | 
|$533,648                  |              |  |             | 1,251,567 | 
|                          |              |  |             |           | 
|Net loss                  |              |  |             | -         | 
|                          |              |  |             |           | 
|Total comprehensive loss  |              |  |             |           | 
|                          |              |  |             |           | 
|March 31, 2006            |              |  |             | 1,251,577 | 
|                          |              |  |             |           | 
|December 31, 2006         |              |  |             | 1,251,577 | 
|                          |              |  |             |           | 
|Net loss                  |              |  |             | -         | 
|                          |              |  |             |           | 
|Other comprehensive       |              |  |             |           | 
|gain, net of tax          |              |  |             | -         | 
|                          |              |  |             |           | 
|                          |              |  |             |           | 
|Total comprehensive loss  |              |  |             | -         | 
|                          |              |  |             |           | 
|Stock based compensation  |              |  |             | 11        | 
|                          |              |  |             |           | 
|March 31, 2007            |              |  |             | 1,251,577 | 
|                          |              |  |             |           | 

See notes to condensed consolidated financial statements

-5-

---

# ATLANTIC BANCSHARES,
INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)

|                                                                    | Three months ended
|------------------------------------------------------------------- | ------------------
|
|Cash flows from operating activities:                               |                   
|Net loss                                                            |                   
|Adjustments to reconcile net loss to net cash                       |                   
|used by operating activities:                                       |                   
|Provision for loan losses                                           |                   
|Depreciation and amortization expense                               |                   
|Discount accretion                                                  |                   
|Stock-based compensation expense                                    |                   
|Deferred income tax benefit                                         |                   
|Increase in interest receivable                                     |                   
|Increase in interest payable                                        |                   
|Decrease in other assets                                            |                   
|(Decrease) increase in other liabilities                            |                   
|                                                                    |                   
|Net cash used by operating activities                               |                   
|                                                                    |                   
|Cash flows from investing activities:                               |                   
|Investing activities                                                |                   
|Net decrease in loans receivable, net                               |                   
|Purchase of premises, furniture and equipment                       |                   
|Purchase of securities available for sale                           |                   
|Purchase of nonmarketable equity securities                         |                   
|Repayments of securities available for sale                         |                   
|                                                                    |                   
|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 decrease in stock subscription deposits                         |                   
|Net decrease in borrowed funds                                      |                   
|Proceeds from issuance of common stock, net of stock issuance costs |                   
|                                                                    |                   
|Net cash provided by financing activities                           |                   
|                                                                    |                   
|Net (decrease) increase in cash and cash equivalents                |                   
|                                                                    |                   
|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 the instructions for Form 10-QSB
and, therefore, do not include all disclosures necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity with generally
accepted accounting principles. All adjustments, consisting only of normal recurring
accruals, which are, in the opinion of management, necessary for fair presentation of the
interim consolidated financial statements have been included. The results of operations
for the three month period ended March 31, 2007 are not necessarily indicative of the
results that may be expected for the entire year. It should also be understood that
Atlantic Community Bank (the Bank), the Companys wholly-owned
subsidiary, opened for business on January 26, 2006. 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, 2006.

# 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 Statement of Financial Accounting
(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. FAS 155 permits fair value
re-measurement for any hybrid financial instrument that contains an embedded derivative
that otherwise would require bifurcation, clarifies which interest only-strips and
principal-only strips are not subject to the requirements of Statement 133, establishes a
requirement to evaluate interests in securitized financial assets to identify interests
that are freestanding derivatives or that are hybrid financial instruments that contain an
embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in
the form of subordination are not embedded derivatives, and amends Statement 140 to
eliminate the prohibition on a qualifying special purpose entity from holding a derivative
financial instrument that pertains to a beneficial interest other than another derivative
financial instrument. SFAS No. 155 is effective for all financial instruments acquired or
issued after January 1, 2007. The Company does not believe that the adoption of SFAS No.
155 will have a material impact on its financial position, results of operations or 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. The required adoption
date for SFAS No. 156 is January 1, 2007. The Company does not believe the adoption of
SFAS No. 156 will have a material impact on its financial position, results of operations
or cash flows.

-7-

---

# 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
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 does not believe that FIN 48 will have a material impact on its
financial position, results of operations or cash flows.

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. This standard does not
require any new fair value measurements, but rather eliminates inconsistencies found in
various prior pronouncements. SFAS 157 is effective for the Company on January 1, 2008 and
will not impact the Companys accounting measurements but it is expected to result in
some additional disclosures.

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 does not have a defined benefit
pension plan. Therefore, SFAS 158 will not impact the Companys financial condition
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 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, 2007. 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.

In September 2006, the FASB ratified
the consensus reached related to EITF 06-5,Accounting for Purchases of Life
InsuranceDetermining the Amount That Could Be Realized in Accordance with FASB
Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance.  EITF
06-5 states that a policyholder should consider any additional amounts included in the
contractual terms of the insurance policy other than the cash surrender value in
determining the amount that could be realized under the insurance contract.  EITF
06-5 also states that a policyholder should determine the amount that could be realized
under the life insurance contract assuming the surrender of an individual-life by
individual-life policy (or certificate by certificate in a group policy). EITF 06-5 is
effective for fiscal years beginning after December 15, 2007.

-8-

---

# ATLANTIC BANCSHARES,
INC.

# NOTES TO CONDENSED
FINANCIAL STATEMENTS(Unaudited)

Note 2  Recently
Issued Accounting Pronouncements  continued

In December 2006, the FASB issued a
Staff Position (FSP) on EITF 00-19-2, Accounting for Registration
Payment Arrangements (FSP EITF 00-19-2). This FSP specifies that the
contingent obligation to make future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate agreement or included as a
provision of a financial instrument or other agreement, should be separately recognized
and measured in accordance with SFAS No. 5, Accounting for Contingencies. If
the transfer of consideration under a registration payment arrangement is probable and can
be reasonably estimated at inception, the contingent liability under the registration
payment arrangement is included in the allocation of proceeds from the related financing
transaction (or recorded subsequent to the inception of a prior financing transaction)
using the measurement guidance in SFAS No. 5. This FSP is effective immediately for
registration payment arrangements and the financial instruments subject to those
arrangements that are entered into or modified subsequent to the issuance of the FSP. For
prior arrangements, the FSP is effective for financial statements issued for fiscal years
beginning after December 15, 2006 and interim periods within those years. The Company does
not believe the adoption of this FSP will have a material impact on its financial
position, results of operations and cash flows.

In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities
 Including an amendment of FASB Statement No. 115. This statement permits, but
does not require, entities to measure many financial instruments at fair value. The
objective is to provide entities with an opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without having to
apply complex hedge accounting provisions. Entities electing this option will apply it
when the entity first recognizes an eligible instrument and will report unrealized gains
and losses on such instruments in current earnings. This statement 1) applies to all
entities, 2) specifies certain election dates, 3) can be applied on an
instrument-by-instrument basis with some exceptions, 4) is irrevocable and 5) applies only
to entire instruments. One exception is demand deposit liabilities which are explicitly
excluded as qualifying for fair value. With respect to SFAS 115, available-for-sale and
held-to-maturity securities at the effective date are eligible for the fair value option
at that date. If the fair value option is elected for those securities at the effective
date, cumulative unrealized gains and losses at that date shall be included in the
cumulative-effect adjustment and thereafter, such securities will be accounted for as
trading securities. SFAS 159 is effective for the Company on January 1, 2008. The Company
is currently analyzing the fair value option that is permitted, but not required, under
SFAS 159.

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.

# 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 three months
of 2007 or 2006 due to the net losses, therefore, basic and dilutive loss per share and
diluted earnings per share were the same.

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

-9-

---

# 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, which we refer to
as the Bank, during the periods included in the accompanying financial statements. This
commentary should be read in conjunction with the financial statements and the related
notes and the other statistical information included in this report.

This report contains
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:

| |  | our short operating history;
| | - | ----------------------------

| |  | 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 deposit flows;
| | - | -------------------------

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

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

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

| |  | the lack of seasoning in our loan portfolio;
| | - | --------------------------------------------

| |  | 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 three months ended March 31, 2007 and also analyzes our
financial condition as of March 31, 2007 as compared to December 31, 2006. The Bank opened
for business on January 26, 2006, and the Companys inception was October 1, 2004.
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.

-10-

---

# ATLANTIC BANCSHARES, INC.

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

# Results of Operations

# Net Interest Income

For the three months ended March 31,
2007, net interest income, the major component of our net income, was $524,488 as compared
to $126,965 for the same period in 2006. The average rate paid on interest-bearing
liabilities for the three months ended March 31, 2007 and 2006 was 4.87% and 4.52%,
respectively, while the average rate realized on interest-earning assets was 7.83% and
5.58%, respectively for the same period. The net interest spread was 2.96% and 1.06% for
the three month period ended March 31, 2007 and 2006, 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 expense was $465,500 and $389,340,
or 1.00% and 1.00% of total loans as of March 31, 2007 and 2006, respectively. For the
three months ended March 31, 2007 and 2006 the provision was $79,928 and $56,500,
respectively. There were no nonperforming loans at March 31, 2007 and no loans have been
classified. Loans totaling $788,380 were criticized as of March 31, 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
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
three months ended March 31, 2007 and 2006 was $85,419 and $22,320, respectively. The
largest component of noninterest income was mortgage origination fees, which totaled
$59,294 and $21,328, for the three months ended March 31, 2007 and 2006, respectively. The
increase in our mortgage origination fees reflects increased loan sale volume over the
prior period ending March 31, 2006 compared to the current period ending March 31, 2007.
Service charges on deposit accounts totaled $12,578 for the quarter ended March 31, 2007
as compared to $570 for the three months ended March 31, 2006. This increase is due to our
growing customer deposit base.

-11-

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# ATLANTIC BANCSHARES, INC.

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

# Noninterest Expense

Total noninterest expense for the
three months ended March 31, 2007 and 2006 was $755,918 and $1,222,820, respectively. The
primary component of noninterest expense was salaries and benefits, which were $399,416
and $590,614 for the three months ended March 31, 2007 and 2006, respectively. The quarter
ended March 31, 2006 contained $389,374 of salaries and benefit expense related to the
organizational period. Total pre-opening expenses in the amount of $740,680 were
transferred to the Bank during the first quarter of 2006. Management has accrued $10,350
during the quarter ended March 31, 2007 as a pro-rata estimate of anticipated audit
expenses related to compliance with Section 404 of the Sarbanes-Oxley regulations.

# Net Loss

The combination of the above factors
resulted in a net loss for the three months ended March 31, 2007 of $170,337, or $0.14 per
share, after the recognition of an income tax benefit of $55,602 for the same period. As
discussed, the net loss of $739,115 for the three months ended March 31, 2006 included
certain organizational expenses related to the organization and opening of the Bank. The
net loss was after the recognition of an income tax benefit of $390,920.

# Assets and Liabilities

During the first three months of
2007, total assets increased $3,819,349, or 7.4%, to $55,741,394 when compared to December
31, 2006. The primary growth in assets was an increase in loans receivable of $7,598,384.
Loans receivable were $46,418,019 as of March 31, 2007. Investment in overnight federal
funds decreased $4,326,000 to $2,285,000 as of March 31, 2007. Funding for the loan growth
also came from deposit growth of $3,924,552.

# Loans

We experienced significant loan
growth during the first three months of 2007. Net loans increased to $45,952,519 during
the period. As shown below, the largest category of loans was real estate mortgage loans
which increased $7,472,395 to $42,545,877 from December 31, 2006 to March 31, 2007.
Balances within the major loans receivable categories as of March 31, 2007 and December
31, 2006 are as follows:

|                                        | March 31, 2007 | December 31, 2006
|--------------------------------------- | -------------- | -----------------
|Real estate:                            |                |                  
|Mortgage                                |                |                  
|Construction, land and land development |                |                  
|                                        |                |                  
|Total real estate loans                 |                |                  
|                                        |                |                  
|Commercial and industrial               |                |                  
|Consumer and other                      |                |                  
|Deferred origination fees, net          |                |                  
|                                        |                |                  
|Gross loans                             |                |                  
|Less allowance for loan losses          |                |                  
|                                        |                |                  
|Loans, net                              |                |                  
|                                        |                |                  

-12-

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# 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 March
31, 2007, there were no non-performing loans. No loans were classified and $788,380 was
criticized as of March 31, 2007. Additionally, we did not have any loans in nonaccrual
status or loans past due for more than 90 days.

The following table depicts the
activity in the allowance for loan losses for the period ended March 31, 2007 and 2006:

|                                               | March 31,
|---------------------------------------------- | ---------
|
|Balance, January 1, 2006                       |          
|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 $45,135,696 at
March 31, 2007 as compared to $41,211,144 at December 31, 2006. The largest category of
deposits was savings and money market accounts which totaled $15,519,464 at March 31,
2007. Other time deposit accounts increased $6,782,477 to $14,177,312 at March 31, 2007
mainly attributable to $6,072,000 in brokered certificates of deposit acquired during the
period.

Balances within the major deposit
categories as of March 31, 2007 and December 31, 2006 are as follows:

|                                          | March 31, 2007 | December 31, 2006
|----------------------------------------- | -------------- | -----------------
|Non-interest bearing transaction accounts |                |                  
|Interest-bearing transaction accounts     |                |                  
|Savings and money market                  |                |                  
|Time deposit $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.

-13-

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# ATLANTIC BANCSHARES, INC.

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

Liquidity  continued

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 March 31, 2007, our primary source of liquidity included federal funds
sold totaling $2,285,000. We also have unused lines of credit available with correspondent
banks to purchase federal funds totaling $7,400,000 at March 31, 2007, of which,
$2,800,000 is secured by investment securities.

# Capital Resources

Total shareholders equity
decreased $144,040 during the first three months of 2007 to $10,298,932. The decrease is
primarily related to the net loss for the period of $170,337, partially offset by
increases to equity of $24,584 for stock based compensation expense and $1,713 related to
unrealized gains on securities.

Our Bank and Company are 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. Although our class of
common stock is registered with the SEC, 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. Regardless, our
Bank is subject to 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.

-14-

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# ATLANTIC BANCSHARES, INC.

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

# Capital Resources 
continued

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 March 31, 2007, as
well as the ratios to be considered well capitalized.

The following table summarizes the
Banks risk-based capital at March 31, 2007:

|                                                          | 
|--------------------------------------------------------- | 
|Shareholders' equity                                      | 
|Less-unrealized net gain 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 March 31,
2007, we had issued commitments to extend credit of $9,082,856 through various types of
lending arrangements. We had $216,562 of unused credit under pre-arranged overdraft plans
and overdraft protection plans offered on deposit accounts. There were also $121,236
outstanding commercial letters of credit at March 31, 2007.

-15-

---

# ATLANTIC BANCSHARES, INC.

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

Off-Balance Sheet Risk 
continued

The following table sets forth the
length of time until maturity for unused commitments to extend credit and standby letters
of credit at March 31, 2007.

|                                     | Within | After Three | One | Greater | 
|------------------------------------ | ------ | ----------- | --- | ------- | 
|
|
|Unused commitments to extend credit  |        |             | $   | 878,160 | 
|Standby commercial letters of credit |        |             |     | 78,236  | 
|                                     |        |            
|Totals                               |        |             | $   | 956,396 | 
|                                     |        |            

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, 2006, 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 March 31, 2007. There have been no significant changes in our internal
controls over financial reporting during the fiscal quarter ended March 31, 2007 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.

-16-

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# ATLANTIC BANCSHARES,
INC.

# PART II  OTHER
INFORMATION

Item 1.   Legal Proceedings
On or about July 05, 2006, we were
served with a complaint filed by our former chief financial officer, Timothy C. King,
against our company and our bank in the Court of Common Pleas for Beaufort County, South
Carolina. The complaint was originally filed on June 16, 2006 and was amended and refiled
on June 29, 2006. The complaint alleges that the company and the bank breached the
employment agreement we had entered into with Mr. King by not appointing him to the board
of directors. The complaint alleges that, rather than voluntarily resigning, Mr. King was
constructively discharged from employment with the company and the bank. The complaint
seeks an unspecified amount of damages relating, among other things, to Mr. Kings
alleged loss of compensation, loss on the sale of his home in New Hampshire, loss of
professional prestige, opportunities, and financial benefits associated with being a
director of our bank, loss on funds Mr. King invested in our common stock, costs and
expenses relating to continuing health care coverage and Mr. Kings job search,
punitive damages, pre-judgment interest, and attorneys fees. We have retained the
law firm of Gignilliat, Savitz & Bettis, L.L.P. of Columbia, South Carolina, to
represent us in this matter. We filed a Motion to Dismiss the complaint on August 01,
2006. We intend to vigorously defend this action.

Except as described above, we are not
a party to, nor are any of our properties subject to, any material legal proceedings,
other than legal proceedings that we believe are routine litigation incidental to our
business.

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

32           
Section 1350 Certifications.

-17-

---

# ATLANTIC BANCSHARES,
INC.

# SIGNATURES

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

|Date:  May 14, 2007 |  | By:   /s/  Robert P. Trask           
|------------------- |  | -------------------------------------
|                    |  | Robert P. Trask                      
|                    |  | President and Chief Executive Officer

|Date:  May 14, 2007 |  | By:   /s/  Michelle Monts  
|------------------- |  | ---------------------------
|                    |  | Michelle Monts             
|                    |  | Principal Financial Officer

-18-

---

# ATLANTIC BANCSHARES,
INC.

# EXHIBIT INDEX

ExhibitNumber
                 
Description

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

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

32           
Section 1350 Certifications.

-19-