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

# FORM 10-Q

(Mark One)

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

| | For the Quarterly Period ended March 31, 2009
| | ---------------------------------------------

| | OR
| | --

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

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

Commission file number
333-127242

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

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

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

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

______________________________

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

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

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

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

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

Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of the latest
practicable date: 1,251,577 shares of common stock, no par value per share, were issued
and outstanding as of May 15, 2009.

---

# ATLANTIC BANCSHARES,
INC.

# INDEX

|                                                                               | 
|------------------------------------------------------------------------------ | 
|PART I - FINANCIAL INFORMATION                                                 | 
|                                                                               | 
|Item 1.    Financial Statements (Unaudited)                                    | 
|                                                                               | 
|Condensed Balance Sheets - March 31, 2009 and December 31, 2008                | 
|                                                                               | 
|Condensed Statement of Operations - Three months ended March 31, 2009 and 2008 | 
|                                                                               | 
|Condensed Statement of Shareholders' Equity (Deficit)-                         | 
|Three months ended March 31, 2009 and 2008                                     | 
|                                                                               | 
|Condensed Statement of Cash Flows - Three months ended March 31, 2009 and 2008 | 
|                                                                               | 
|Notes to Condensed Financial Statements                                        | 
|                                                                               | 
|Item 2.    Managements Discussion and Analysis or Plan of Operation           | 
|                                                                               | 
|Item 3.    Quantitative and Qualitative Disclosures About Market Risk          | 
|                                                                               | 
|Item 4.    Controls and Procedures                                             | 
|                                                                               | 
|PART II - OTHER INFORMATION                                                    | 
|                                                                               | 
|Item 1.    Legal Proceedings                                                   | 
|                                                                               | 
|Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds         | 
|                                                                               | 
|Item 3.    Defaults Upon Senior Securities                                     | 
|                                                                               | 
|Item 4.    Submission of Matters to a Vote of Security Holders                 | 
|                                                                               | 
|Item 5.    Other Information                                                   | 
|                                                                               | 
|Item 6.    Exhibits                                                            | 

---

# ATLANTIC BANCSHARES,
INC.

# Consolidated Balance
Sheets

# PART I  FINANCIAL
INFORMATIONItem 1  Financial Statements.

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

See notes to consolidated financial statements.

-3-

---

# ATLANTIC BANCSHARES,
INC.

# Consolidated
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 borrowings                                    |                   
|                                                    |                   
|Total                                               |                   
|                                                    |                   
|Net interest income                                 |                   
|                                                    |                   
|Provision for loan losses                           |                   
|                                                    |                   
|Net interest income after provision for loan losses |                   
|                                                    |                   
|Noninterest income:                                 |                   
|Service fees on deposit accounts                    |                   
|Residential mortgage origination fees               |                   
|Other income                                        |                   
|                                                    |                   
|Total noninterest income                            |                   
|                                                    |                   
|Noninterest expenses:                               |                   
|Salaries and employee benefits                      |                   
|Net occupancy                                       |                   
|Professional fees                                   |                   
|Marketing                                           |                   
|Furniture and equipment                             |                   
|Data processing and related costs                   |                   
|Other operating                                     |                   
|                                                    |                   
|Total noninterest expenses                          |                   
|                                                    |                   
|Loss before income tax benefit                      |                   
|                                                    |                   
|Income tax benefit                                  |                   
|                                                    |                   
|Net loss                                            |                   
|                                                    |                   
|Basic loss per common share                         |                   
|                                                    |                   
|Diluted loss per common share                       |                   
|                                                    |                   
|Average common shares outstanding                   |                   
|                                                    |                   

See notes to consolidated financial statements.

-4-

---

# ATLANTIC BANCSHARES,
INC.

# Consolidated
Statements of Changes in Shareholders Equity and Comprehensive Income For the three months
ended March 31, 2009 and 2008 (Unaudited)

|                         | Common stock |  | Accumulated |           | Total
|------------------------ | ------------ |  | ----------- | --------- | -----
|
|
|
|                         |              |  |             |           |      
|December 31, 2007        |              |  |             | 1,251,577 |      
|                         |              |  |             |           |      
|Net loss                 |              |  |             | -         |      
|                         |              |  |             |           |      
|Other comprehensive      |              |  |             |           |      
|income, net of tax       |              |  |             |           |      
|of $67,288               |              |  |             | -         |      
|                         |              |  |             |           |      
|Total comprehensive loss |              |  |             | -         |      
|                         |              |  |             |           |      
|Stock based compensation |              |  |             | -         |      
|                         |              |  |             |           |      
|March 31, 2008           |              |  |             | 1,251,577 |      
|                         |              |  |             |           |      
|December 31, 2008        |              |  |             | 1,251,577 |      
|                         |              |  |             |           |      
|Net loss                 |              |  |             | -         |      
|                         |              |  |             |           |      
|Other comprehensive      |              |  |             |           |      
|income, net of tax       |              |  |             |           |      
|of $29,836               |              |  |             | -         |      
|                         |              |  |             |           |      
|                         |              |  |             |           |      
|Total comprehensive loss |              |  |             | -         |      
|                         |              |  |             |           |      
|Stock based compensation |              |  |             | -         |      
|                         |              |  |             |           |      
|March 31, 2009           |              |  |             | 1,251,577 |      

See notes to 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 provided by                |                   
|operating activities:                                                    |                   
|Provision for loan losses                                                |                   
|Gain on sale of OREO                                                     |                   
|Depreciation and amortization expense                                    |                   
|Accretion on securities available for sale                               |                   
|Stock-based compensation expense                                         |                   
|Deferred income tax benefit                                              |                   
|(Increase) decrease in interest receivable                               |                   
|(Decrease) increase in interest payable                                  |                   
|Decrease (increase) in other assets                                      |                   
|Decrease in other liabilities                                            |                   
|                                                                         |                   
|Net cash provided by operating activities                                |                   
|                                                                         |                   
|Cash flows from investing activities:                                    |                   
|Net increase in loans receivable                                         |                   
|Purchase of premises, furniture and equipment                            |                   
|Proceeds from sale of OREO                                               |                   
|Purchase of securities available for sale                                |                   
|Repayments of securities available for sale                              |                   
|Purchase of nonmarketable equity securities                              |                   
|                                                                         |                   
|Net cash used by investing activities                                    |                   
|                                                                         |                   
|Cash flows from financing activities:                                    |                   
|Investing activities Financing activities                                |                   
|Net (decrease) increase in demand deposits, interest-bearing transaction |                   
|accounts and savings accounts                                            |                   
|Net increase in certificate of deposit and other time deposits           |                   
|Net increase (decrease) in federal funds purchased                       |                   
|Net increase in FHLB advances                                            |                   
|                                                                         |                   
|Net cash (used) provided by financing activities                         |                   
|                                                                         |                   
|Net decrease 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                                                             |                   
|                                                                         |                   
|Supplemental disclosures of noncash activities:                          |                   
|Other assets acquired in settlement of loans                             |                   
|                                                                         |                   

See notes to consolidated financial statements.

-6-

---

# ATLANTIC BANCSHARES,
INC.

# Notes to Consolidated
Financial Statements(Unaudited)

# Note 1  Basis of
Presentation

The accompanying unaudited
consolidated condensed financial statements for Atlantic Bancshares, Inc.
(Company) were prepared in accordance with instructions for Form 10-Q and,
therefore, do not include all disclosures necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity with generally
accepted accounting principles. All adjustments, consisting only of normal recurring
accruals, which are, in the opinion of management, necessary for fair presentation of the
interim consolidated financial statements have been included. The results of operations
for the three month period ended March 31, 2009 are not necessarily indicative of the
results that may be expected for the entire year. These consolidated financial statements
do not include all disclosures required by generally accepted accounting principles and
should be read in conjunction with the Companys audited consolidated financial
statements and related notes for the year ended December 31, 2008.

# 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.

FSP EITF 99-20-1, Amendments to
the Impairment Guidance of EITF Issue No. 99-20, (FSP EITF 99-20-1) was
issued in January 2009. Prior to the FSP, other-than-temporary impairment was determined
by using either Emerging Issues Task Force (EITF) Issue No. 99-20,
Recognition of Interest Income and Impairment on Purchased Beneficial Interests and
Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial
Assets, (EITF 99-20) or SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, (SFAS 115) depending on the
type of security. EITF 99-20 required the use of market participant assumptions regarding
future cash flows regarding the probability of collecting all cash flows previously
projected. SFAS 115 determined impairment to be other than temporary if it was probable
that the holder would be unable to collect all amounts due according to the contractual
terms. To achieve a more consistent determination of other-than-temporary impairment, the
FSP amends EITF 99-20 to determine any other-than-temporary impairment based on the
guidance in SFAS 115, allowing management to use more judgment in determining any
other-than-temporary impairment. The FSP was effective for reporting periods ending after
December 15, 2008. Management has reviewed the Companys security portfolio and
evaluated the portfolio for any other-than-temporary impairments.

On April 9, 2009, the FASB issued
three staff positions related to fair value which are discussed below.

FSP SFAS 115-2 and SFAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments, (FSP
SFAS 115-2 and SFAS 124-2) categorizes losses on debt securities available-for-sale
or held-to-maturity determined by management to be other-than-temporarily impaired into
losses due to credit issues and losses related to all other factors. Other-than-temporary
impairment (OTTI) exists when it is more likely than not that the security will mature or
be sold before its amortized cost basis can be recovered. An OTTI related to credit losses
should be recognized through earnings. An OTTI related to other factors should be
recognized in other comprehensive income. The FSP does not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity securities.
Annual disclosures required in SFAS 115 and FSP SFAS 115-1 and SFAS 124-1 are also
required for interim periods (including the aging of securities with unrealized losses).

FSP SFAS 157-4, Determining
Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That are Not Orderly recognizes
that quoted prices may not be determinative of fair value when the volume and level of
trading activity has significantly decreased. The evaluation of certain factors may
necessitate that fair value be determined using a different valuation technique. Fair
value should be the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction, not a forced liquidation or distressed sale. If a
transaction is considered to not be orderly, little, if any, weight should be placed on
the transaction price. If there is not sufficient information to conclude as to whether or
not the transaction is orderly, the transaction price should be considered when estimating
fair value. An entitys intention to hold an asset or liability is not relevant in
determining fair value. Quoted prices provided by pricing services may still be used when
estimating fair value in accordance with SFAS 157; however, the entity should evaluate
whether the quoted prices are based on current information and orderly transactions.
Inputs and valuation techniques are required to be disclosed in addition to any changes in
valuation techniques.

-7-

---

# ATLANTIC BANCSHARES,
INC.

# Notes to Consolidated
Financial Statements(Unaudited)

FSP SFAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments requires
disclosures about the fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements and also requires
those disclosures in summarized financial information at interim reporting periods

A
publicly traded company includes any company whose securities trade in a public market on
either a stock exchange or in the over-the-counter market, or any company that is a
conduit bond obligor. Additionally, when a company makes a filing with a regulatory agency
in preparation for sale of its securities in a public market it is considered a publicly
traded company for this purpose.

The three staff positions are
effective for periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009, in which case all three must be adopted. The Company
will adopt the staff positions for its second quarter 10-Q but does not expect the staff
positions to have a material impact on the consolidated financial statements.

Also on April 1, 2009, the FASB
issued FSP SFAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in
a Business Combination That Arise from Contingencies. The FSP requires that assets
acquired and liabilities assumed in a business combination that arise from a contingency
be recognized at fair value. If fair value cannot be determined during the measurement
period as determined in SFAS 141 (R), the asset or liability can still be recognized if it
can be determined that it is probable that the asset existed or the liability had been
incurred as of the measurement date and if the amount of the asset or liability can be
reasonably estimated. If it is not determined to be probable that the asset/liability
existed/was incurred or no reasonable amount can be determined, no asset or liability is
recognized. The entity should determine a rational basis for subsequently measuring the
acquired assets and assumed liabilities. Contingent consideration agreements should be
recognized initially at fair value and subsequently reevaluated in accordance with
guidance found in paragraph 65 of SFAS 141 (R). The FSP is effective for business
combinations with an acquisition date on or after the beginning of the Companys
first annual reporting period beginning on or after December 15, 2008. The Company will
assess the impact of the FSP if and when a future acquisition occurs.

The Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 111 on
April 9, 2009 to amend Topic 5.M., Other Than Temporary Impairment of Certain
Investments in Debt and Equity Securities and to supplement FSP SFAS 115-2 and SFAS
124-2. SAB 111 maintains the staffs previous views related to equity securities;
however debt securities are excluded from its scope. The SAB provides that
other-than-temporary impairment is not necessarily the same as
permanent impairment and unless evidence exists to support a value equal to or
greater than the carrying value of the equity security investment, a write-down to fair
value should be recorded and accounted for as a realized loss. The SAB was effective upon
issuance and had no impact on the Companys financial position.

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

-8-

---

# ATLANTIC BANCSHARES,
INC.

# Notes to Consolidated
Financial Statements(Unaudited)

# Note 3  Fair Value
Measurements

Effective January 1, 2008, the
Company adopted SFAS No. 157, Fair Value Measurements (SFAS 157)
which provides a framework for measuring and disclosing fair value under generally
accepted accounting principles. SFAS 157 requires disclosures about the fair value of
assets and liabilities recognized in the balance sheet in periods subsequent to initial
recognition, whether the measurements are made on a recurring basis (for example,
available-for-sale investment securities) or on a nonrecurring basis (for example,
impaired loans).

SFAS 157 defines fair value as the
exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. SFAS 157 also
establishes a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair value:

|        | 
|------- | 
|Level 1 | 
|        | 
|        | 
|        | 
|Level 2 | 
|        | 
|        | 
|        | 
|        | 
|        | 
|        | 
|        | 
|        | 
|        | 
|Level 3 | 
|        | 
|        | 
|        | 
|        | 
|        | 
|        | 
|        | 

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

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

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

The Company is predominantly a cash
flow lender with real estate serving as collateral on a substantial majority of loans.
Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the
fair values of the underlying real estate collateral. Such fair values are obtained using
independent appraisals, which the Company considers to be level 2 inputs. The aggregate
carrying amount of impaired loans at March 31, 2009 was $2,294,367.

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

-9-

---

# ATLANTIC BANCSHARES,
INC.

# Notes to Consolidated
Financial Statements(Unaudited)

# Note 4  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 2009 and 2008 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:

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

-10-

---

# ATLANTIC BANCSHARES, INC.

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

The following is our discussion and
analysis of certain significant factors that have affected our financial position and
operating results and those of our subsidiary, Atlantic Community Bank (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 within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements relating to, without limitation, future economic performance, plans and
objectives of management for future operations, and projections of revenues and other
financial items that are based on the beliefs of management, as well as assumptions made
by and information currently available to management. The words may,
will, anticipate, should, would,
believe, contemplate, expect, estimate,
continue, may, and intend, as well as other similar
words and expressions of the future, are intended to identify forward-looking statements.
Our actual results may differ materially from the anticipated results discussed in the
forward-looking statements, and our operating performance each quarter is subject to
various risks and uncertainties that are discussed in detail in our filings with the
Securities and Exchange Commission, including, without limitation:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

All forward-looking statements in
this report are based on information available to us as of the date of this report. We
undertake no obligation to publicly update or otherwise revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.

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

# Overview

The following discussion describes
our results of operations for the quarter ended March 31, 2009 as compared to the quarter
ended March 31, 2008, and also analyzes our financial condition as of March 31, 2009 as
compared to December 31, 2008.

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

-11-

---

# ATLANTIC BANCSHARES,
INC.

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.

# Effect of Economic Trends

Following an economic decline and
historically low interest rates that ended in the first six months of 2004, the Federal
Reserve began increasing short-term rates as the economy showed signs of strengthening.
Between July 2004 and July 2006, the Federal Reserve increased rates at 17 of their
meetings for a total of 425 basis points. Between July 2006 and September 18, 2007, the
Federal Reserve allowed short-term rates to remain unchanged. Beginning in July 2004 and
continuing until September 18, 2007, our rates on both short-term or variable rate
interest-earning assets and interest-bearing liabilities increased. The momentum of the 17
rate increases resulted in higher rates on interest-earning assets and higher
interest-bearing liabilities during the first nine months of 2007; subsequently, as fixed
rate loans, deposits, and borrowings have matured they have repriced at higher interest
rates. In late September 2007, the Federal Reserve reversed their position and has since
lowered the short-term rates by 500 basis points through December 2008, causing the rates
on our short-term or variable rate assets and liabilities to decline. The majority of
economic analysts predict little to no change in short-term rates throughout the remainder
of 2009. The following discussion includes our analysis of the effect that we anticipate
changes in interest rates will have on our financial condition. However, we can give no
assurances as to the future actions of the Federal Reserve or to the anticipated results
that will actually occur.

# Recent Legislative and
Regulatory Initiatives to Address Financial and Economic Crises

Markets in the United States and
elsewhere have experienced extreme volatility and disruption for more than 12 months.
These circumstances have exerted significant downward pressure on prices of equity
securities and virtually all other asset classes, and have resulted in substantially
increased market volatility, severely constrained credit and capital markets, particularly
for financial institutions, and an overall loss of investor confidence. Loan portfolio
performances have deteriorated at many institutions resulting from, among other factors, a
weak economy and a decline in the value of the collateral supporting their loans. Dramatic
slowdowns in the housing industry, due in part to falling home prices and increasing
foreclosures and unemployment, have created strains on financial institutions. Many
borrowers are now unable to repay their loans, and the collateral securing these loans
has, in some cases, declined below the loan balance. In response to the challenges facing
the financial services sector, several regulatory and governmental actions have recently
been announced including:

| |  | The Emergency Economic Stabilization Act, approved by Congress and signed by President
Bush on October 3, 2008, which, among other provisions, allowed the U.S. Treasury to
purchase troubled assets from banks, authorized the Securities and Exchange Commission to
suspend the application of marked-to-market accounting, and temporarily raised the basic
limit of Federal Deposit Insurance Corporation (the FDIC) deposit insurance
from $100,000 to $250,000; the legislation contemplated a return to the $100,000 limit on
December 31, 2009;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | On October 7, 2008, the FDIC approved a plan to increase the rates banks pay for deposit insurance;
| | - | ---------------------------------------------------------------------------------------------------

| |  | On October 14, 2008, the U.S. Treasury announced the creation of a new program, the
Capital Purchase Program, that encourages and allows financial institutions to build
capital through the sale of senior preferred shares to the U.S. Treasury on terms that are
non-negotiable;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | On October 14, 2008, the FDIC announced the creation of the Temporary Liquidity Guarantee
Program (TLGP), which seeks to strengthen confidence and encourage liquidity
in the banking system. The TLGP has two primary components that are available on a
voluntary basis to financial institutions:
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Guarantee of newly-issued senior unsecured debt; the guarantee would apply to new debt
issued on or before June 30, 2009 and would provide protection until June 30, 2012;
issuers electing to participate would pay a 75 basis point fee for the guarantee;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# ATLANTIC BANCSHARES,
INC.

| |  | Unlimited deposit insurance for non-interest bearing deposit transaction accounts;
financial institutions electing to participate will pay a 10 basis point premium in
addition to the insurance premiums paid for standard deposit insurance.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | On February 17, 2009, the American Recovery and Reinvestment Act (the Recovery
Act) was signed into law in an effort to, among other things, create jobs and
stimulate growth in the United States economy. The Recovery Act specifies appropriations
of approximately $787 billion for a wide range of Federal programs and will increase or
extend certain benefits payable under the Medicaid, unemployment compensation, and
nutrition assistance programs. The Recovery Act also reduces individual and corporate
income tax collections and makes a variety of other changes to tax laws. The Recovery Act
also imposes certain limitations on compensation paid by participants in the U.S.
Treasurys Troubled Asset Relief Program (TARP).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | On March 23, 2009, the U.S. Treasury, in conjunction with the FDIC and the Federal
Reserve, announced the Public-Private Partnership Investment Program for Legacy Assets
which consists of two separate plans, addressing two distinct asset groups:
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Legacy Loan Program, which the primary purpose will be to facilitate the sale of
troubled mortgage loans by eligible institutions, which include FDIC-insured federal or
state banks and savings associations. Eligible assets may not be strictly limited to
loans; however, what constitutes an eligible asset will be determined by participating
banks, their primary regulators, the FDIC and the U.S. Treasury. Additionally, the Loan
Programs requirements and structure will be subject to notice and comment
rulemaking, which may take some time to complete.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Securities Program, which will be administered by the U.S. Treasury, involves the
creation of public-private investment funds to target investments in eligible residential
mortgage-backed securities and commercial mortgage-backed securities issued before 2009
that originally were rated AAA or the equivalent by two or more nationally recognized
statistical rating organizations, without regard to rating enhancements (collectively,
Legacy Securities). Legacy Securities must be directly secured by actual
mortgage loans, leases or other assets, and may be purchased only from financial
institutions that meet TARP eligibility requirements.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We will participate in both
components of the TLGP; however, we do not expect to issue unsecured debt before the
termination of that component of the TLGP. As a result of the enhancements to deposit
insurance protection and the expectation that there will be demands on the FDICs
deposit insurance fund, our deposit insurance costs have increased and will continue to
increase significantly throughout 2009. The following discussion and analysis describes
our performance in this challenging economic environment.

# Results of Operations

# Net Interest Income

For the three months ended March 31,
2009, net interest income, the major component of our net income, was $759,542 as compared
to $702,989 for the same period in 2008. The average rate paid on interest-bearing
liabilities for the three months ended March 31, 2009 and 2008 was 2.86% and 4.40%,
respectively, while the average rate realized on interest-earning assets was 5.82% and
7.05%, respectively for the same period. The net interest spread was 2.96% and 2.65% for
the three month period ended March 31, 2009 and 2008, respectively. Decreases in the
Federal Reserve short-term rates and the resulting decrease in the yields we generated on
our earning assets (from variable rate loan repricing and new loans at lower rates), has
been offset by benefits we received from the repricing of our rate sensitive liabilities
for the three-month period ended March 31, 2009. The net result was an increase in net
interest spread of 31 basis points during the three-month period ended March 31, 2009, as
compared to the three-month period ended March 31, 2008.

-13-

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# ATLANTIC BANCSHARES,
INC.

# 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 $849,234 and $862,727, or 1.12%
and 1.26% of total loans, as of March 31, 2009 and 2008, respectively. The allowance for
loan and lease losses as a percentage of total loans has decreased mainly attributable to
$449,341 charged off as loss against the allowance for loan and lease losses on two
collateral dependent loans during the quarter ended March 31, 2009. As of December 31,
2008, $341,023 of this charge off was included as specific reserves in the Banks
allowance for loan and lease losses. For the three months ended March 31, 2009 and 2008,
the provision was $225,000 and $225,550, respectively. Nonperforming loans totaled
$1,495,152 at March 31, 2009. In addition, 13 loans totaling $2,294,367 were impaired as
of March 31, 2009 and loans totaling $2,844,963 were considered criticized loans. The
impaired loans include a $690,864 loan secured by real estate for which management has not
set aside a specific reserve due to our belief that a full recovery is likely pursuant to
the legal actions which we are pursuing. The impaired loans also include a collateral
dependent participation loan we hold on a commercial real estate development on the South
Carolina coast. The amount of the impairment on this loan is not easily determinable.
Based upon calculations of the present value of the collateral supporting this loan, we
believe our loan on this development is impaired by approximately $331,609, and we have
charged this amount as loss against our reserves during the quarter ended March 31, 2009.
However, the actual impairment on this loan may be greater than this amount and additional
charge-offs may occur. Principal payments on this loan totaling $5,000 have been received
during the quarter ended March 31, 2009 resulting in a net principal balance totaling
$500,750. There were five loans totaling $1,524,402 that were impaired and loans totaling
$2,437,010 that were criticized at March 31, 2008.

The allowance for loan losses
represents an amount which we believe will be adequate to absorb probable losses on
existing loans that may become uncollectible. Our judgment as to the adequacy of the
allowance for loan losses is based on a number of assumptions about future events, which
we believe to be reasonable, but which may or may not prove to be accurate. Our
determination of the allowance for loan losses is based on evaluations of the
collectability of loans, including consideration of factors such as the balance of
impaired loans, the quality, mix, and size of our overall loan portfolio, economic
conditions that may affect the borrowers ability to repay, the amount and quality of
collateral securing the loans, our historical loan loss experience, and a review of
specific problem loans. We also consider subjective issues such as changes in the lending
policies and procedures, changes in the local/national economy, changes in volume or type
of credits, changes in volume/severity of problem loans, quality of loan review and board
of director oversight, concentrations of credit, and peer group comparisons. Due to our
limited operating history, to date the provision for loan losses has been made primarily
as a result of our assessment of general loan loss risk compared to banks of similar size
and maturity. Due to our short operating history, the loans in our loan portfolio and our
lending relationships are of very recent origin. In general, loans do not begin to show
signs of credit deterioration or default until they have been outstanding for some period
of time, a process known as seasoning. As a result, a portfolio of older loans will
usually behave more predictably than a newer portfolio. Because our loan portfolio is new,
the current level of delinquencies and defaults may not be representative of the level
that will prevail when the portfolio becomes more seasoned, which may be higher than
current levels. In addition, the recent downturn in the real estate market has resulted in
an increase in loan delinquencies, defaults and foreclosures, and we believe these trends
are likely to continue. In some cases, this downturn has resulted in a significant
impairment to the value of our collateral and our ability to sell the collateral upon
foreclosure, and there is a risk that this trend will continue. The real estate collateral
in each case provides an alternate source of repayment in the event of default by the
borrower and may deteriorate in value during the time the credit is extended. If real
estate values continue to decline, delinquencies and defaults will likely increase, and it
is more likely that we would be required to increase our allowance for loan losses.
Periodically, we will adjust the amount of the allowance based on changing circumstances.
We will charge recognized losses to the allowance and add subsequent recoveries back to
the allowance for loan losses. There can be no assurance that charge-offs of loans in
future periods will not exceed the allowance for loan losses as estimated at any point in
time or that provisions for loan losses will not be significant to a particular accounting
period.

# Noninterest Income

Total noninterest income for the
three months ended March 31, 2009 and 2008 was $60,030 and $66,227, respectively.
Decreased mortgage loan sale volume caused mortgage origination fee income to decrease
$13,920 to $8,219 for the three months ended March 31, 2009 as compared to $22,139 for the
three months ended March 31, 2008. This decrease was partially offset by increased deposit
account service charges which totaled $31,941 for the three months ended March 31, 2009 as
compared to $21,087 for the three months ended March 31, 2008. Non-sufficient
funds/overdraft fees on deposit accounts increased $10,342 to $27,930 for the three months
ended March 31, 2009 as compared to $17,588 for the three months ended March 31, 2008.
This increase was attributable to an increased number of accounts and weak economic
conditions.

-14-

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# ATLANTIC BANCSHARES,
INC.

# Noninterest Expense

Total noninterest expense for the
three months ended March 31, 2009 and 2008 was $798,680 and $774,992, respectively. The
primary component of noninterest expense was salaries and benefits, which were $406,669
and $418,698 for the three months ended March 31, 2009 and 2008, respectively. Salary
expense decreased $15,195 to $304,664 for the three months ending March 31, 2009 as
compared to $319,859 for the three months ended March 31, 2008 mainly driven by headcount
reductions. Net occupancy expense increased $36,553 to $95,676 for the three months ended
March 31, 2009, as compared to $59,123 for the three months ended March 31, 2008.
Increased leasehold depreciation expense for the three months ending March 31, 2009, as
compared to the three months ended March 31, 2008, have resulted from the consolidation
and relocation of our original main branch and the original operations center to the
renovated new main branch facility in the same commercial subdivision in July 2008.
Leasehold depreciation expense totaled $27,301 and $7,251 for the three months ending
March 31, 2009 and 2008, respectively. There were no significant changes in the other
categories of other operating expenses.

# Net Loss

The combination of the above factors
resulted in a net loss for the three months ended March 31, 2009 of $134,709, or $.11 loss
per share, after the recognition of an income tax benefit of $69,399 for the period. For
the period ended March 31, 2008, the net loss was $152,675, or $0.12 loss per share, after
the recognition of an income tax benefit of $78,651 for the period.

# Assets and Liabilities

During the first three months of
2009, total assets decreased $120,916, or .01%, to $95,023,915 at March 31, 2009 when
compared to December 31, 2008. Loans receivable increased $281,202 to $75,644,423 as of
March 31, 2009 when compared to December 31, 2008. Securities available for sale decreased
$688,560 to $15,700,187 when compared to December 31, 2008 mainly due to principal
repayments on mortgage backed securities.

# Loans

We experienced minimal loan growth
during the first three months of 2009 due to soft loan demand from qualified applicants.
Net loans increased by $281,202 to $75,644,423 during the period. As shown below, the
largest category of loans was real estate mortgage loans which increased $1,830,693 to
$52,537,591 from December 31, 2008 to March 31, 2009. Balances within the major loans
receivable categories as of March 31, 2009 and December 31, 2008 are as follows:

|                                        | March 31, 2009 | December 31, 2008
|--------------------------------------- | -------------- | -----------------
|Real estate:                            |                |                  
|Mortgage                                |                |                  
|Construction, land and land development |                |                  
|                                        |                |                  
|Total real estate loans                 |                |                  
|                                        |                |                  
|Commercial and industrial               |                |                  
|Consumer and other                      |                |                  
|Agriculture and other farm              |                |                  
|Deferred origination fees, net          |                |                  
|                                        |                |                  
|Gross loans                             |                |                  
|Less allowance for loan losses          |                |                  
|                                        |                |                  
|Loans, net                              |                |                  
|                                        |                |                  

-15-

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# ATLANTIC BANCSHARES,
INC.

# Risk Elements in the
Loan Portfolio

Criticized loans are loans that have
potential weaknesses that deserve close attention and which could, if uncorrected, result
in deterioration of the prospects for repayment or our credit position at a future date.
Classified loans are loans that are inadequately protected by the sound worth and paying
capacity of the borrower or any collateral and as to which there is a distinct possibility
or probability that we will sustain a loss if the deficiencies are not corrected. At March
31, 2009, we had 13 loans totaling $2,294,367 that were impaired. Eight of these loans
totaling $1,782,731 are secured by real estate, two loans totaling $38,840 are secured by
automobiles, one loan totaling $435,000 is secured by business assets including accounts
receivable, inventory, furniture, fixtures and equipment and two loans totaling $37,796
are unsecured. Included in the allowance for loan losses at March 31, 2009 was $206,323
related to impaired loans.

Nonaccrual loans totaled $1,495,152
and $1,513,476 at Match 31, 2009 and 2008, respectively. Additionally, as of March 31,
2009, the Bank had one loan totaling $31,863 which was 90 days or more past due and still
accruing interest. As of March 31, 2008, the Bank had no loans 90 days or more past due
and still accruing interest.

During the quarter ended March 31,
2009, $449,341 was charged off as loss against allowance for loan and lease losses on two
collateral dependent loans. As a result, the allowance for loan losses to loans
outstanding decreased to 1.12% from 1.26% as of March 31, 2009 and 2008, respectively. As
of December 31, 2008, $341,023 of this charge off was included as specific reserves in the
Banks allowance for loan and lease losses. The following table depicts the activity
in the allowance for loan losses for the periods ended March 31, 2009 and2008:

|                                                    | March 31,
|--------------------------------------------------- | ---------
|
|Balance, January 1,                                 |          
|Provision for loan losses for the period            |          
|Net loans (charged-off) recovered during the period |          
|                                                    |          
|Balance, end of period                              |          
|                                                    |          
|Gross loans outstanding, end of period              |          
|                                                    |          
|Allowance for loan losses to loans outstanding      |          
|                                                    |          

# Deposits

Total deposits were $63,658,731 at
March 31, 2009, as compared to $67,967,234 at December 31, 2008. The largest category of
deposits was time deposits $100,000 and over which increased $3,313,281 to $23,508,318 at
March 31, 2009, as compared to $20,195,037 at December 31, 2008. In January 2009, the Bank
obtained $2,500,000 in six month certificates of deposit from the SC State Treasurer
quarterly auction. Securities from the investment portfolio are pledged as collateral for
these deposits. Savings and money market accounts totaled $17,402,370 at March 31, 2009,
as compared to $20,285,985 at December 31, 2008. Brokered money market accounts represent
$100,740 and $2,503,376 of these savings and money market accounts at March 31, 2009 and
December 31, 2008, respectively. Other time deposits decreased $3,260,866 to $15,479,904
at March 31, 2009, as compared to $18,740,770 at December 31, 2008. Brokered certificates
of deposits represent $7,327,000 and $10,426,000 of these other time deposits accounts at
March 31, 2009 and December 31, 2008, respectively. Interest-bearing transaction accounts
decreased $1,415,334 to $1,607,682 at March 31, 2009, as compared to $3,023,016 at
December 31, 2008 mainly due IOLTA accounts.

Balances within the major deposit
categories as of March 31, 2009 and December 31, 2008 are as follows:

|                                          | March 31, 2009 | December 31, 2008
|----------------------------------------- | -------------- | -----------------
|Non-interest bearing transaction accounts |                |                  
|Interest-bearing transaction accounts     |                |                  
|Savings and money market                  |                |                  
|Time deposit $100,000 and over            |                |                  
|Other time deposits                       |                |                  
|                                          |                |                  
|Total deposits                            |                |                  
|                                          |                |                  

-16-

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# ATLANTIC BANCSHARES,
INC.

# Other Borrowings

Other borrowings are comprised of
Federal Home Loan Bank of Atlanta (FHLBA) advances and federal funds
purchased. FHLBA advances are collateralized by pledged FHLBA stock, certain commercial
and residential loans, including home equity lines of credit, and by a portion of our
investment portfolio. FHLBA advances increased $2,000,000 to $18,500,000 at March 31,
2009, as compared to December 31, 2008. During the quarter ended March 31, 2009, we
replaced a portion of maturing brokered certificates of deposit totaling $3,000,000 with a
$2,000,000 FHLBA advance.

FHLBA advances as of March 31, 2009
and December 31, 2008 are as follows:

| |                           | March 31, 2009 | March 31, 2008
| | ------------------------- | -------------- | --------------
|
| | 11/30/2009                |                |               
| | 01/28/2010                |                |               
| | 03/12/2010                |                |               
| | 05/28/2010                |                |               
| | 05/31/2011                |                |               
| | 07/11/2011                |                |               
| | 07/10/2012                |                |               
| | 09/12/2012                |                |               
| | 09/12/2013                |                |               
| | 11/29/2017                |                |               
| |                           |                |               
| | Total advances from FHLBA |                |               
| |                           |                |               

Federal funds purchased totaled
$2,538,600 and $236,500 as of March 31, 2009 and December 31, 2008, respectively.

# Liquidity

Liquidity represents the ability of a
company to convert assets into cash or cash equivalents without significant loss, and the
ability to raise additional funds by increasing liabilities. Liquidity management involves
monitoring our sources and uses of funds in order to meet our day-to-day cash flow
requirements while maximizing profits. Liquidity management is made more complicated
because different balance sheet components are subject to varying degrees of management
control. For example, the timing of maturities of our investment portfolio is fairly
predictable and subject to a high degree of control at the time investment decisions are
made. However, net deposit inflows and outflows are far less predictable and are not
subject to the same degree of control.

Our primary sources of liquidity are
deposits, scheduled repayments on our loans, and interest on and maturities of our
investments. We plan to meet our future cash needs through the liquidation of temporary
investments and the generation of deposits. Occasionally, we might sell investment
securities in connection with the management of our interest sensitivity gap or to manage
cash availability. We may also utilize our cash and due from banks, security repurchase
agreements, federal funds sold, and other borrowings to meet liquidity requirements as
needed. In addition, we have the ability, on a short-term basis, to purchase federal funds
from other financial institutions. As of March 31, 2009, we had lines of credit to
purchase federal funds from unrelated banks totaling $8,500,000, consisting of a
$2,800,000 line secured by investment securities and $5,700,000 of unsecured lines. As of
March 31, 2009, $138,600 was outstanding on the secured line of credit, $2,400,000 was
outstanding on an unsecured line of credit and $5,961,400 remained unused on lines of
credit. Of that total availability, $2.3 million represents an unsecured line of credit
with Silverton Bank, N.A., which was closed by the OCC and the FDIC named Receiver on May
1, 2009. This line of credit will no longer be available after July 29, 2009 and we may
seek to obtain a new federal funds line of credit from another correspondent lender. The
lenders have reserved the right to withdraw the unsecured lines at their option. These
lines of credit are available on various structures for general corporate purposes.

At March 31, 2009, we had remaining
available credit from FHLBA totaling $501,421 based upon existing pledged investment and
loan collateral. At March 31, 2009, an additional $4,748,579 of credit was also available
to the Bank upon the receipt of additional collateral pledged to FHLBA.

As of March 31, 2009, we had
$10,957,126 of lot loans pledged to Federal Reserve Bank of Richmond which produced
lendable collateral value totaling $6,574,276 available for short-term advances at the
Discount Window. For advances with

-17-

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# ATLANTIC BANCSHARES,
INC.

maturities of 28 days or less, the
total lendable collateral value was available to the Bank. Seventy-five percent of the
Banks lendable collateral value was available for advances with maturities from 29
to 90 days. The rate on the advances from the Discount Window is the Federal Reserve
Discount Window rate. Advances from the Federal Reserve Discount Window are not subject to
prepayment penalties. No advances from the Federal Reserve Bank were outstanding as of
March 31, 2009.

# Capital Resources

Total shareholders equity
decreased $48,777 during the first three months of 2009 to $9,921,227. The decrease is
attributable to the net loss for the period of $134,709 offset by $57,914 related to
unrealized gains on securities and by $28,018 for stock-based compensation expense.

The Federal Reserve and bank
regulatory agencies require bank holding companies and financial institutions to maintain
capital at adequate levels based on a percentage of assets and off-balance sheet
exposures, adjusted for risk weights ranging from 0% to 100%. The Federal Reserve
guidelines contain an exemption from the capital requirements for small bank holding
companies, which in 2006 were amended to cover most bank holding companies with less
than $500 million in total assets that do not have a material amount of debt or equity
securities outstanding registered with the SEC. Although our class of common stock is
registered under Section 12 of the Securities Exchange Act, we believe that because our
stock is not listed on any exchange or otherwise actively traded, the Federal Reserve
Board will interpret its new guidelines to mean that we qualify as a small bank holding
company. Nevertheless, our Bank remains subject to these capital requirements. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct material
effect on the Banks financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Banks assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting practices. The
Banks capital amounts and classifications are also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors. Regardless, our
Bank is well capitalized under these minimum capital requirements as set per
bank regulatory agencies.

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

The Bank is also required to maintain
capital at a minimum level based on quarterly average assets, which is known as the
leverage ratio. Only the strongest banks are allowed to maintain capital at the minimum
requirement of 3%. All others are subject to maintaining ratios 1% to 2% above the
minimum. The Bank exceeded its minimum regulatory capital ratios as of March 31, 2009, as
well as the ratios to be considered well capitalized.

-18-

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# ATLANTIC BANCSHARES,
INC.

The following table summarizes the
Banks risk-based capital at March 31, 2009:

|                                                          | 
|--------------------------------------------------------- | 
|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,
2009, we had issued commitments to extend credit of $10,213,494 through various types of
lending arrangements. We had $258,226 of unused credit under pre-arranged overdraft plans
and overdraft protection plans offered on deposit accounts. There were also $212,073
outstanding commercial letters of credit at March 31, 2009.

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, 2009.

|                                     | Within | After Three | One | Greater   | 
|------------------------------------ | ------ | ----------- | --- | --------- | 
|
|
|Unused commitments to extend credit  |        |             | $   | 4,080,198 | 
|Standby commercial letters of credit |        |             |     | 171,073   | 
|                                     |        |            
|Totals                               |        |             | $   | 4,251,271 | 
|                                     |        |            

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, 2008, as
filed on our annual report on Form 10-K. Certain accounting policies involve significant
judgments and assumptions by us which have a material impact on the carrying value of
certain assets and liabilities. We consider these accounting policies to be critical
accounting policies. The judgments and assumptions we use

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# ATLANTIC BANCSHARES,
INC.

are based on historical experience
and other factors, which we believe to be reasonable under the circumstances. Because of
the nature of the judgments and assumptions we make, actual results could differ from
these judgments and estimates which could have a material impact on our carrying values of
assets and liabilities and our results of operations.

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

# Item 3.   Quantitative and
Qualitative Disclosures About Market Risk.

Not applicable.

# Item 4.   Controls and
Procedures

As of the end of the period covered
by this report, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures as defined in
Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our current disclosure controls and procedures
are effective as of March 31, 2009. There have been no significant changes in our internal
controls over financial reporting during the fiscal quarter ended March 31, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.

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

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# ATLANTIC BANCSHARES,
INC.

# PART II  OTHER
INFORMATION

# Item 1.   Legal Proceedings

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

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

Not applicable

# Item 3.   Default Upon Senior
Securities

Not applicable

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

Not applicable

# Item 5.   Other Information

Not applicable

# Item 6.   Exhibits

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

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

32           Section 1350
Certifications.

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# ATLANTIC BANCSHARES,
INC.

# SIGNATURES

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

|Date:  May 15, 2009 |  | By:   /s/  Robert P. Trask           
|------------------- |  | -------------------------------------
|                    |  | Robert P. Trask                      
|                    |  | President and Chief Executive Officer

|Date:  May 15, 2009 |  | By:   /s/  Michelle M. Pennell
|------------------- |  | ------------------------------
|                    |  | Michelle M. Pennell           
|                    |  | Principal Financial Officer   

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ATLANTIC BANCSHARES,
INC.

# EXHIBIT INDEX

ExhibitNumber
              Description

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

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

32           Section 1350
Certifications.

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